Graham v. HSBC Mortgage Corporation

Background

Iris Graham and Victor Graham, proceeding without a lawyer, sued HSBC Mortgage Corporation, Ocwen Loan Servicing, LLC, and Stewart Title Agency. They alleged fraud, misrepresentation, and a violation of New York General Business Law § 349 based on the classification and handling of their property, foreclosure efforts, and fees associated with property inspections and title searches. Liberally construing the amended complaint, the court also considered whether the Grahams were attempting to assert slander of title or defamation.

The Grahams alleged that they obtained a $492,000 mortgage from Fremont Investment on June 19, 2006, secured by property in Mount Vernon, New York. They alleged that the property had been converted from a two-family dwelling into a four-unit dwelling before they occupied it, and that Fremont, HSBC, and Stewart Title failed to disclose the property’s two-family classification in the land records. The Mount Vernon Department of Buildings issued a notice of violation on December 9, 2010. The Grahams also alleged that HSBC and others pursued multiple foreclosure actions and that Ocwen’s alleged sister company, Alti-Source Solutions, charged various fees.

The defendants moved to dismiss the amended complaint under Federal Rule of Civil Procedure 12(b)(6), arguing that the claims were time-barred, inadequately pleaded, and released by a prior settlement. The court had previously dismissed the original complaint without prejudice and allowed the Grahams to amend it.

Fraud and Misrepresentation

The court held that the fraud and negligent-misrepresentation claims were barred by the applicable statutes of limitations. Under New York law, the fraud limitations period is the longer of six years from accrual or two years from when the plaintiff discovered, or reasonably could have discovered, the fraud. The court applied a six-year period to negligent misrepresentation claims sounding in fraud.

The court determined that the claims accrued no later than June 19, 2006, when the Grahams were induced to purchase the property, making the six-year period expire on June 19, 2012. Alternatively, the court found that the Grahams had enough information to discover the alleged wrongdoing when they received the December 9, 2010 notice of violation, making the two-year discovery period expire on December 9, 2012. Because the Grahams filed their original complaint on May 9, 2018, the court found the claims untimely under either calculation.

The court rejected the Grahams’ argument that their own investigation and later consultation with knowledgeable third parties delayed the limitations period. The amended complaint did not explain what their investigation involved, what it discovered, or why they could not have investigated earlier. The court also rejected equitable tolling, which can extend a filing deadline in extraordinary circumstances, because the Grahams did not allege that the defendants prevented them from discovering their claims. Their status as people without lawyers was not enough by itself to justify equitable tolling.

Because the claims were time-barred, the court did not address the defendants’ alternative arguments that the claims were inadequately pleaded or released by a prior settlement.

New York General Business Law § 349

The court treated the Grahams’ reference to “New York Code § 349” as a claim under New York General Business Law § 349. The court found that the claim based on the property’s classification was barred by the three-year statute of limitations.

The court also held that the allegations concerning continued foreclosure efforts did not state a § 349 claim. A § 349 claim requires allegations of a materially deceptive or misleading act and injury caused by that act. The Grahams alleged that the foreclosure efforts were abusive and improper, but they did not identify a deceptive act or omission connected to those efforts.

The court further rejected the allegations seeking to hold Ocwen responsible for Alti-Source’s conduct by disregarding the companies’ separate corporate identities. The Grahams alleged overlapping ownership, officers, directors, and personnel, as well as dealings that were not at arm’s length. The court found these allegations conclusory and insufficient to plausibly show both complete domination and use of that domination to cause the alleged injury. The court therefore dismissed the § 349 claim.

Possible Slander-of-Title or Defamation Claim

The amended complaint alleged reputational harm from foreclosure proceedings allegedly attributed to the Grahams and reported to credit-reporting agencies. The court said these allegations appeared to concern slander of title or defamation. Because the defendants’ motion papers did not address this potential claim, the court did not decide it. The court stated that the Grahams could assert such a claim in a second amended complaint, and the defendants could challenge it in a later motion.

Disposition

Judge Karas granted the defendants’ motion to dismiss. The court allowed the Grahams a possible final opportunity to file a second amended complaint within 30 days. The new complaint had to replace, rather than supplement, the earlier filings and include all claims, factual allegations, and exhibits they wanted the court to consider. The order stated that failure to meet the deadline could result in dismissal of their claims with prejudice.