Rescission: Equitable Estoppel Validated in 2006 Case

a special relationship may exist between defendants, who possess specialized knowledge and experience in the field of mortgage refinance, and plaintiff, a homeowner without any training or education in mortgage refinance. Based upon the parties’ vast difference in knowledge, there are issues of fact whether plaintiff’s reliance on defendants’ misrepresentations was justified. (See Fresh Direct, LLC v. Blue Martine Software, Inc., 7 AD3d 487 [2nd Dept. 2004].)

Smith v Ameriquest Mtge. Co.
2006 NY Slip Op 52707(U) [25 Misc 3d 1230(A)]
Decided on September 18, 2006
Supreme Court, Queens County
Agate, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on September 18, 2006

Supreme Court, Queens County

Maudline Smith, Plaintiff,

against

Ameriquest Mortgage Company, Nationscredit Financial Services Corporation, Jason Simms, Daniel Chan, Mark Lindenmann and Neville Golding, Defendants.

32879/02

Augustus C. Agate, J.

Plaintiff commenced this action for rescission of mortgage loans between plaintiff and defendants Ameriquest Mortgage Company (hereinafter referred to as “Ameriquest”) and Nationscredit Financial Services Corporation as successor-by-merger to EquiCredit of NY (hereinafter referred to as “EquiCredit”), and for compensatory and punitive damages against all defendants.

Plaintiff was the owner of residential property located at 105-20 Farmers Boulevard, Hollis, Queens, which was secured by a mortgage held by Household Finance Realty Corporation of New York (hereinafter referred to as “HFRC”) from September 25, 1996 through March 11, 1998. In 1998, plaintiff spoke with defendant Jason Simms, an employee of HFRC, who discussed refinancing her mortgage. Although plaintiff declined at that time, she later agreed to refinance her mortgage through Simms’ new employer Ameriquest. Plaintiff entered into an agreement with Ameriquest, who paid her mortgage with HFRC and established a new mortgage in the amount of $137,250 at 10.5% interest, and a $20,000 mortgage with defendant EquiCredit at 9.8% interest. This new mortgage also transferred a 1% interest in plaintiff’s property to defendant Neville Golding. The closing for these mortgages took place on March 11, 1998, with defendant Daniel Chan, who represented Ameriquest.

On March 14, 1998, plaintiff signed a notice of right to cancel the mortgage, but later reinstated the mortgage on March 16, 1998. However, plaintiff became unable to make the payments [*2]on the mortgage and on December 20, 2002, commenced this action for rescission of the mortgage and to recover damages. On July 15, 2004, Ameriquest commenced a foreclosure action against plaintiff.

Defendants Ameriquest, Simms and Mark Lindemann move for summary judgment and dismissal of plaintiff’s Complaint, arguing that plaintiff cannot as a matter of law proceed on her claims. Defendants argue that all of plaintiff’s claims are based upon oral statements she alleges occurred with defendants. However, the Statute of Frauds precludes oral modification of the written mortgage agreement between the parties. Further, plaintiff’s claims are belied by defendants’ evidence, including documents plaintiff received prior to closing detailing the terms of the mortgage. Therefore, plaintiff had an opportunity to address her concerns prior to closing, but failed to do so and accepted the terms of the mortgage by signing defendants’ papers.

Plaintiff’s claim of fraud should be dismissed because there were no material misrepresentations upon which plaintiff relied to her detriment. Rather, plaintiff was familiar with the process of refinancing a mortgage, as she had done numerous times in the past. She had a duty to read the loan documents and signed the written disclosures demonstrating her knowledge and acceptance of the mortgage terms. Further, any oral misrepresentations cannot be asserted to invalidate the contract under the Statute of Frauds. Plaintiff’s claim of negligent misrepresentation should be dismissed because there was no special relationship between plaintiff and defendants upon which plaintiff can present a valid cause of action. Plaintiff’s claim of promissory estoppel should be dismissed because there was no unconscionable injury that would permit recovery under this theory. Plaintiff’s claim of punitive damages should be dismissed because there was no evidence of egregious conduct by defendants aimed at the public. There is also no evidence to impute liability on Ameriquest or its employee Lindemann for the alleged tortious actions of Simms. Plaintiff cannot rescind the mortgage under the Truth in Lending Act (hereinafter referred to as “TILA”) because the statute of repose has expired. Further, plaintiff is unable to repay the principal amount to permit rescission of the mortgage. Plaintiff’s claim of civil conspiracy must be dismissed based upon prior court decisions in this matter where the Court held that there is no independent cause of action for civil conspiracy.

Plaintiff opposes defendants’ motion and cross moves for partial summary judgment. Plaintiff argues that defendants’ motion should be dismissed because there is no affidavit of merit from defendant Simms as to the facts in this case. There are also issues of fact that preclude summary judgment, particularly since discovery is outstanding. Further, defendants failed to properly authenticate their exhibits, as none of the affiants had sufficient knowledge of the business practices necessary to authenticate the documents.

Plaintiff argues that punitive damages are warranted against Ameriquest, who recently settled a class action suit for predatory lending practices. Plaintiff’s affidavit of merit described the events between the parties and how they form the basis of plaintiff’s Complaint. Plaintiff states that she only refinanced her mortgage in order to receive a lower monthly payment, consolidate her bills and receive $10,000. While she intended for defendant Golding to co-sign her mortgage, she did not agree to transfer 1% ownership interest in her property to him. She also did not agree to a mortgage with EquiCredit, nor was she aware that EquiCredit was part of the mortgage with Ameriquest. At [*3]the closing, there were no lawyers but merely an unidentified man and defendant Chan. Plaintiff was uncomfortable with the closing and purposely failed to date her signature, expecting that to invalidate the mortgage. When it did not, she signed a notice of cancellation of mortgage. However, she spoke with Simms, who assured her that the $10,000 check was being sent to her and that she could not receive it unless she reinstated her loan. She then reinstated the loan but quickly discovered that her monthly payments were higher than her original mortgage. She was unable to pay the higher mortgage payments and also never received any check for $10,000 or even $2,233.04, as claimed by defendants.

Plaintiff also argues that her claim of fraud is valid, as defendants misrepresented the balloon payment she must make to EquiCredit, they failed to pay plaintiff $10,000 as promised, and failed to inform her that her monthly mortgage payments would be higher than they had been under the mortgage with HFRC. Based upon the facts are presented, defendants’ motion for summary judgment should be denied and plaintiff’s cross-motion for rescission of the mortgage should be granted.

Defendant EquiCredit cross-moves dismissing plaintiff’s fourth cause of action for civil conspiracy[FN1]. Equicredit argues that plaintiff is not an unsophisticated homeowner, but had a long history of borrowing or mortgaging her property. Further, the court has already determined that there is no independent cause of action for civil conspiracy in the decisions dated September 9, 2003 by Justice Golar and by this court on June 9, 2006.

The proponent of a motion for summary judgment carries the initial burden of presenting sufficient evidence to demonstrate as a matter of law the absence of a material issue of fact. (Alvarez v. Prospect Hospital, 68 NY2d 320 [1986].) Once the proponent has met its burden, the opponent must now produce competent evidence in admissible form to establish the existence of a triable issue of fact. (See Zuckerman v. City of New York, 49 NY2d 557 [1980].) It is well settled that on a motion for summary judgment, the court’s function is issue finding, not issue determination. (Sillman v. Twentieth Century-Fox Film Corp., 3 NY2d 395 [1957]; Pizzi by Pizzi v. Bradlee’s Div. of Stop & Shop, Inc., 172 AD2d 504, 505 [2nd Dept. 1991].) However, the alleged factual issues must be genuine and not feigned. (Gervasio v. DiNapoli, 134 AD2d 235 [2nd Dept. 1987].)

Defendants Ameriquest, Simms and Lindemann’s motion for summary judgment is granted in part and denied in part. Defendants’ motion for summary judgment is granted as to defendant Lindemann, as there has been no evidence presented that he engaged in any tortious activity. Rather, it is undisputed that any involvement by Lindemann took place subsequent to the mortgage and is insufficient to impute liability on him. As plaintiff failed to oppose this branch of defendants’ motion or present any evidence that Lindemann engaged in tortious conduct that damaged her, summary judgment is warranted as to Lindemann.

Ameriquest and Simms’ motion and EquiCredit’s cross-motion for summary judgment as to [*4]civil conspiracy is granted. This Court has already determined that no independent cause of action for civil conspiracy exists. (See Monsanto v. Electronic Data Systems Corp., 141 AD2d 514 [2nd Dept. 1988].) Plaintiff’s arguments to support this cause of action are without merit, as the law of the case requires dismissal of this claim.

Defendants’ motion for summary judgment as to fraud is denied, as there are issues of fact in dispute. Defendants failed to present a prima facie case of entitlement to summary judgment by failing to submit an affidavit from defendant Simms, the defendant who clearly possessed the most information with regard to the communications between plaintiff and defendants. (See Hirsch v. Hirsch, 134 AD2d 485 [2nd Dept. 1987].) The affidavits of merit submitted do not address the factual questions with regard to solicitation of plaintiff to refinance and the circumstances of the closing. While defendants argue that the written documentation precludes any recovery for fraud by plaintiff, there are significant issues of fact with regard to the circumstances of the closing, who appeared on behalf of defendants, and the understanding between the parties, that precludes summary judgment. (See Joy v. Brower, 107 AD2d 1028 [4th Dept. 1985];Bankers Trust Co. of California v. Payne, 188 Misc 2d 726 [Sup. Kings 2001].)

Defendants’ motion for summary judgment as to negligent misrepresentation is denied. To recover on a theory of negligent misrepresentation, plaintiff must establish that defendants had a duty to use reasonable care to impart correct information because of some special relationship between the parties, that the information was incorrect or false, and that plaintiff reasonably relied upon the information provided. (Grammar v. Turits, 271 AD2d 644 [2nd Dept. 2000].) Defendants presented a prima facie case that there was no special relationship between plaintiff and defendants to support a claim of negligent misrepresentation, as this was a mere financial transaction between the parties that plaintiff had engaged in previously. (See Burroughs Corp. v. Datacap, Inc., 124 AD2d 622 [2nd Dept. 1986].) However, plaintiff raised an issue of fact in dispute, as she stated that she was promised $10,000 from and a consolidation of her bills if she refinanced with defendants. As defendants failed to present an affidavit of merit regarding the factual representations made by Simms on behalf of Ameriquest, there are issues of fact as to whether any false statements were made by defendant that were relied upon by plaintiff. Further, a special relationship may exist between defendants, who possess specialized knowledge and experience in the field of mortgage refinance, and plaintiff, a homeowner without any training or education in mortgage refinance. Based upon the parties’ vast difference in knowledge, there are issues of fact whether plaintiff’s reliance on defendants’ misrepresentations was justified. (See Fresh Direct, LLC v. Blue Martine Software, Inc., 7 AD3d 487 [2nd Dept. 2004].)

Defendants’ motion for summary judgment as to promissory estoppel is denied. The purpose of invoking the doctrine of equitable estoppel is to prevent the infliction of unconscionable injury and loss upon a plaintiff who has relief upon a defendant’s promise. (American Bartenders School, Inc. v. 105 Madison Co., 59 NY2d 716 [1983].) In this matter, there are issues of fact with regard to the propriety of defendants’ actions in soliciting the mortgage that preclude summary judgment. Specifically, if plaintiff can demonstrate that defendants knowingly and consciously defrauded her into signing a mortgage that she could not pay, then the loss of her residential property could be [*5]considered an unconscionable injury. (See Skillgames, LLC v. Brody, 1 AD3d 247 [1st Dept. 2003].) While plaintiff bears a heavy burden to prove this cause of action, the presence of issues of fact require denial of summary judgment.

Defendants’ motion for summary judgment as to punitive damages is denied as to Ameriquest and Simms. Punitive damages may be awarded when there is evidence that defendants’ fraud was aimed at the public generally, was gross and involved a high moral culpability. (See Crispino v. Greenpoint Mortg. Corp., 2 AD3d 478 [2nd Dept. 2003]; Guardian Mortg. Acceptance Corp. v. Bankers Trust Co., 259 AD2d 358 [1st Dept. 1999].) Plaintiff’s claims against defendants involve defendants’ actions in soliciting mortgages to unsuspecting customers, as there has never been any claim that defendants acted with a personal animus against plaintiff. Should plaintiff prevail on her claims, she may be entitled to punitive damages based upon the evidence with regard to predatory lending and soliciting practices.

Defendants’ motion for summary judgment as to rescission of the mortgages is granted. Rescission is an equitable doctrine designed to return the parties to the status held prior to the agreement. As a doctrine rooted in equity, the court may condition plaintiff’s right of rescission upon her tender to defendants of the principal of the loan. (Berkeley Federal Bank & Trust, FSB v. Siegal, 247 AD2d 498 [2nd Dept. 1998].)As plaintiff admits she is unable to repay the mortgages to place the parties in their original positions, rescission is not warranted.

Plaintiff’s motion for partial summary judgment is denied, as plaintiff failed to present sufficient evidence to determine as a matter of law that there are no issues of fact in dispute. Plaintiff did not specifically state the grounds for summary judgment, nor did she present sufficient evidence to award her summary judgment on any of her causes of action.

Accordingly, Ameriquest Mortgage Company, Jason Simms and Mark Lindemann’s motion for summary judgment and dismissal is granted as to Mark Lindemann, and all causes of action relating to Lindemann are dismissed. Ameriquest and Simm’s motion for summary judgment is granted as to plaintiff’s fourth cause of action for civil conspiracy, but denied as to plaintiff’s first, second and third causes of action for fraud, negligent misrepresentation and promissory estoppel and for punitive damages. Plaintiff’s cross-motion for partial summary judgment is denied. Defendant EquiCredit’s motion for summary judgment and dismissal of plaintiff’s fourth cause of action is granted.

Dated:September 18, 2006

_________________________

Augustus C. Agate, J.S.C.

Footnotes

Footnote 1:Equicredit also cross-moved to compel depositions at the courthouse, but later submitted a letter withdrawing its request.

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