LUM v. NEW CENTURY MORTGAGE CORPORATION

Citation Codes

Equivalent Citations

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Docket Number

2004-03219.

Attorney(S)

Irwin Popkin and M. Scott Barrett, Shirley, N.Y., and Leland L. Greene, Garden City, N.Y., for appellant (one brief filed). Reed Smith, LLP, New York, N.Y. (Andrew B. Messite of counsel), for respondent.

Judges

William F. Mastro

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Smart Summary

Factual and Procedural Background

The plaintiff, Elaine Lum, retained a nonparty mortgage broker, American Capital Mortgage Bankers ("American"), to procure a $208,575 mortgage loan to purchase a single-family residence in Mastic Beach. The plaintiff agreed to pay American a 2.875% origination fee. American secured loan approval from the defendant mortgage lender, New Century Mortgage Corporation, for a loan of $208,575 at 7.9% interest with a 3% origination fee payable by the plaintiff. The plaintiff closed on the property on October 27, 2003, with the loan funded at a 6.9% interest rate. The plaintiff paid American the agreed 2.875% origination fee, and the defendant paid American a yield spread premium ("YSP") of 0.5% of the loan amount ($1,042.88).

A few weeks after closing, the plaintiff initiated this lawsuit seeking damages for fraud, tortious interference with contract, inducement of breach of fiduciary duty, violation of General Business Law § 349, unjust enrichment, and money had and received, alleging the defendant paid the YSP as a bribe to induce the broker to secure a mortgage loan with an above-market interest rate. The Supreme Court, Suffolk County, granted the defendant's motion to dismiss the complaint for failure to state a cause of action, and the plaintiff appeals from that order.

Legal Issues Presented

Whether the plaintiff stated a valid cause of action for fraud based on the defendant's payment of a yield spread premium to the mortgage broker.
Whether the plaintiff stated a valid cause of action for tortious interference with contract based on the defendant's conduct.
Whether the plaintiff stated a valid cause of action for inducement of breach of fiduciary duty against the defendant.
Whether the plaintiff stated a valid claim under General Business Law § 349 for deceptive business practices.
Whether the plaintiff stated valid quasi-contract claims for unjust enrichment and money had and received.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Wint v. ABN Amro Mgte. Group, Inc., 19 AD3d 588	Rejecting the contention that payment of a yield spread premium constitutes a bribe or fraudulent inducement.	Used to reject plaintiff's claim that the YSP was an illegal bribe inducing an above-market interest rate.
Foster v. Churchill, 87 NY2d 744	Standards for tortious interference with contract requiring wrongful or malicious conduct.	Applied to dismiss tortious interference claim for lack of allegation of malice or illegality.
WMW Mach. Co. v. Koerber AG., 240 AD2d 400	Clarification of elements required for tortious interference claims.	Supported dismissal of tortious interference claim.
Masada Universal Corp. v. Goodman Sys. Co., 121 AD2d 518	Requirement of existence of fiduciary duty to support claims for inducement of breach of fiduciary duty.	Applied to dismiss inducement of breach of fiduciary duty claim for failure to show fiduciary relationship.
Langer v. Haber Mtges., Ltd., NYLJ, Aug. 2, 1995, at 26, col 4	Consideration of fiduciary duty in mortgage broker context.	Referenced in support of dismissal of fiduciary duty claim.
Stutman v. Chemical Bank, 95 NY2d 24	Requirements for a claim under General Business Law § 349: consumer-oriented conduct, materially misleading statement, and damages.	Applied to dismiss § 349 claim due to absence of materially misleading conduct.
Sands v. Ticketmaster-New York, 207 AD2d 687	Interpretation of consumer protection claims under GBL § 349.	Supported dismissal of plaintiff's § 349 claim.
Negrin v. Norwest Mtge., Inc., 263 AD2d 39	Analysis of consumer protection claims in mortgage context.	Referenced as comparative authority in § 349 claim dismissal.
Apfel v. Prudential-Bache Sec., 81 NY2d 470	Quasi-contract claims are not viable where an express contract governs the parties' relationship.	Applied to dismiss unjust enrichment and money had and received claims.
Clark-Fitzpatrick, Inc. v. Long Is. R.R. Co., 70 NY2d 382	Principles governing quasi-contract claims and express contracts.	Supported dismissal of quasi-contract claims.
Neos v. Lacey, 2 AD3d 812	Application of quasi-contract principles where express agreements exist.	Used to affirm dismissal of unjust enrichment and money had and received claims.

Court's Reasoning and Analysis

The court analyzed each of the plaintiff's claims in turn. It found that the plaintiff's allegation that the defendant paid the yield spread premium as a bribe to induce acceptance of a higher interest rate was without merit, relying on precedent rejecting such characterization of YSP payments. The tortious interference claim was dismissed because the plaintiff failed to allege malice or any wrongful conduct beyond the defendant’s economic motivation, which is insufficient to sustain the claim. The inducement of breach of fiduciary duty claim was dismissed because the plaintiff did not establish a fiduciary relationship between herself and the mortgage broker.

Regarding the General Business Law § 349 claim, the court held that the plaintiff failed to demonstrate any materially misleading conduct or statement, noting that the YSP was disclosed and is not inherently illegal. The quasi-contract claims for unjust enrichment and money had and received were dismissed because the parties had an express contract governing their relationship, rendering such claims inapplicable. Finally, the fraud claim was dismissed for reasons set forth in the related Wint decision. The court found no merit in the plaintiff's remaining contentions.

Holding and Implications

The court affirmed the Supreme Court's order dismissing the plaintiff's complaint in its entirety and awarded costs to the defendant. The direct effect of this decision is the dismissal of all claims brought by the plaintiff against the defendant mortgage lender. The opinion does not establish any new legal precedent but applies established principles to the facts of the case, reinforcing the standards for claims involving yield spread premiums, tortious interference, fiduciary duty, consumer protection, and quasi-contracts in the mortgage lending context.

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ELAINE LUM, Appellant, v. NEW CENTURY MORTGAGE CORPORATION, Respondent.

Ordered that the order is affirmed, with costs.

The plaintiff retained nonparty mortgage broker American Capital Mortgage Bankers (hereinafter American) to procure for her a $208,575 mortgage loan for her purchase of a single-family residence located in Mastic Beach, in exchange for which she would pay American a 2.875% origination fee. American thereafter procured a loan approval dated October 12, 2003, from the defendant for a mortgage loan in the principal amount of $208,575, with a 30-year term at 7.9% interest, and providing for, inter alia, a 3% origination fee payable by the plaintiff. The plaintiff took title to the premises on October 27, 2003, with her purchase partially funded by the defendant's mortgage loan in the principal amount of $208,575, with a 30-year term at 6.9% interest. The plaintiff paid American a 2.875% origination fee for its services. In addition, the defendant paid American a yield spread premium (hereinafter the YSP) of .5% of the loan amount ($1,042.88). A few weeks after the closing, the plaintiff commenced this action, in which she is represented by the same counsel that represented her in the subject real estate transaction. The plaintiff's contention that the defendant paid American the YSP as a bribe to induce American to obtain her agreement to a mortgage loan with an interest rate above the par or market rate is without merit ( see Wint v. ABN Amro Mgte. Group, Inc., 19 AD3d 588 [decided herewith]).

The plaintiff's complaint alleged that the defendant's motivation was economic in that it sought to obtain her agreement to a mortgage loan with an interest rate above the par or market rate, thereby increasing its profits over the life of the loan. Since the plaintiff failed to allege any other motivation for the defendant's actions, or to allege that it was motivated by malice, and since the act complained of was not fraudulent or illegal, the plaintiff's cause of action, alleging tortious interference with contract, was properly dismissed ( see Foster v. Churchill, 87 NY2d 744; WMW Mach. Co. v. Koerber AG., 240 AD2d 400).

The cause of action to recover damages for inducement of breach of fiduciary duty also was properly dismissed because the plaintiff failed to show that a fiduciary duty existed between her and American ( see Masada Universal Corp. v. Goodman Sys. Co., 121 AD2d 518; cf. Langer v. Haber Mtges., Ltd., NYLJ, Aug. 2, 1995, at 26, col 4).

To assert a viable claim under General Business Law § 349 (a), a plaintiff must plead that (1) the challenged conduct was consumer-oriented, (2) the conduct or statement was materially misleading, and (3) damages ( see Stutman v. Chemical Bank, 95 NY2d 24, 29). Here, there was no materially misleading statement, as the record indicated that the YSP, which is not per se illegal, was disclosed to the plaintiff. Accordingly, the cause of action to recover damages for violation of General Business Law § 349 was properly dismissed ( see Sands v. Ticketmaster-New York, 207 AD2d 687; cf. Negrin v. Norwest Mtge., Inc., 263 AD2d 39).

The causes of action to recover damages for unjust enrichment and money had and received are quasi-contract claims, and therefore are not viable where, as here, it is undisputed that the parties entered into an express agreement, in this case a note and mortgage. Accordingly, the issue of whether the YSP which is connected to the mortgage loan's interest rate was improper, is governed by the note and mortgage, and therefore, the plaintiff's quasi-contract claims were properly dismissed ( see Apfel v. Prudential-Bache Sec., 81 NY2d 470, 479; Clark-Fitzpatrick, Inc. v. Long Is. R.R. Co., 70 NY2d 382, 388-389; Neos v. Lacey, 2 AD3d 812, 814).

Further, for the reasons set forth in Wint v. ABN Amro Mtge. Group, Inc. (supra), the plaintiff's cause of action to recover damages for fraud was properly dismissed.

The plaintiff's remaining contentions are without merit.