[*1]
Russell v Demandville Mtge. Corp.
2006 NY Slip Op 50231(U) [11 Misc 3d 1056(A)]
Decided on February 23, 2006
Supreme Court, Kings County
Schack, 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This opinion is uncorrected and will not be published in the printed Official Reports.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 February 23, 2006
Supreme Court, Kings County


ALICIA RUSSELL, Plaintiff,

against

DEMANDVILLE MORTGAGE CORP., ON LINE HOME IMPROVEMENT, INC., FIRST MAGNUS FINANCIAL CORP., STEPHEN J. CAPUTO, P.C., STEPHEN J. CAPUTO, SALVATORE GIARRIZO, OPTION ONE MORTGAGE CORP. and THE CITY REGISTER OF THE COUNTY OF KINGS, Defendants.




37200/04



Appearances:

Plaintiff

Howard L. Sherman Esq Ossining NY

Defendant Caputo

Rivkin Radler LLP

Uniondale NY

Defendant First Magnus

Greenberg Taurig LLP

NY NY

Defendant Option One

Fein Such Kahn & Shepard PC

Chestnut Ridge NY

Arthur M. Schack, J.

The instant action arose from an agreement between plaintiff and defendant On Line

Home Improvement, Inc. (On Line), according to plaintiff's amended complaint, in which On Line was to perform major repairs at plaintiff's Brooklyn home. Plaintiff alleges that she went to defendant Demandville Mortgage Corp. (Demandville), a mortgage brokerage operated by defendant Salvatore Giarrizo, to determine if she could take a mortgage for the money necessary to make improvements to her three-family house. Plaintiff alleges that defendant Giarrizo referred her to On Line, and failed to disclose to her that he had a financial interest in On Line. Demandville, through Mr. Giarrizo, arranged for plaintiff to borrow $185,000, with a mortgage on her premises to secure the loan, from defendant First Magnus Financial Corporation (First Magnus). Defendant Stephen J. Caputo acted as First Magnus' closing attorney. The mortgage closing took place on May 12, 2004. The Caputo defendants (Mr. Caputo's professional corporation and Mr. Caputo individually) disbursed the net loan proceeds of $158,149.88, after settlement charges of $26,850.12 were deducted, to defendant On Line and not to plaintiff. Plaintiff alleges that On Line failed to perform the agreed upon home improvements. First Magnus subsequently assigned the mortgage and note to Option One Mortgage Corp. (Option One).

Plaintiff commenced the instant action against: the Caputo defendants for breach of an

escrow agreement and malpractice in their fiduciary duty as an escrow agent; defendant First Magnus for failure to disburse any of the loan proceeds to plaintiff; defendant On Line for breach of contract and unjust enrichment; defendant Demandville for fraud and conversion; defendant Giarrizo for fraud and misrepresentation; defendant Option One for cancellation of the mortgage due to lack of consideration for which the loan was executed; and, defendant City Register for cancellation and discharge of the recorded mortgage.

The Caputo defendants filed three motions, all pursuant to CPLR §§ 3211 (a) (1) and (7), to dismiss the amended complaint against the Caputo defendants and the cross-claims of Option One and First Magnus against them. The notice of motion to dismiss plaintiff's amended complaint states "that documentary evidence conclusively establishes defenses to the claims in the amended complaint and because plaintiff fails to state a cause of action for breach of contract, legal malpractice and breach of fiduciary responsibility." The notice of motion to dismiss Option One's cross-claims is "on the grounds that documentary evidence conclusively establishes defenses to defendant, Option One's cross-claims and because defendant Option One fails to state a claim for contribution and indemnification as against the Caputo Defendants." The notice of motion to dismiss First Magnus's cross-claim is "on the grounds that documentary evidence conclusively establishes defenses to defendant, First Magnus' cross-claim and because defendant, First Magnus fails to state a claim for common-law indemnification as against the Caputo Defendants."

The issues before the court are whether plaintiff's complaint and the Option One and First Magnus cross-claims should be dismissed because and whether the Caputo defendants acted as an escrow agent liable to plaintiff. This Court, pursuant to CPLR § 3211(c), will consider the instant motions to dismiss as summary judgment motions. For the reasons to follow, all three Caputo motions must all be denied. Ttriable issues of fact exist in the instant action.

The May 12, 2004 mortgage closing
Mr. James Diamond, an independent contractor, handled the mortgage closing for the
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Caputo defendants. Mr. Diamond's affidavit, attached to the Caputo motions, claims that the closing took place at the offices of Demandville, which is in the Rosedale section of Queens, New York. However, the HUD-1 settlement statement, required by the Real Estate Settlement Procedures Act of 1974 (RESPA), 12 USC § 2601 et seq., states that the place of settlement is the Caputo law office, in Stony Brook, New York. Mr. Diamond claims that after all the loan documents were executed he gave a copy of the HUD-1 settlement statement to Mr. Giarizzo, who then objected to the payment of the $158,149.88 net proceeds to plaintiff. Mr. Giarizzo claimed that On Line had a mechanic's lien in its favor entitling it to all of the net proceeds. Mr. Diamond claims that he then spoke to the title closer and to Mr. Caputo, by telephone, who instructed him not to change the payout from the Ms. Russell to On Line unless plaintiff agreed and executed an amended HUD-1 settlement statement, indicating that the net proceeds were to be paid to On Line. Further, Mr. Diamond claims to have then prepared four copies of an amended HUD-1 settlement statement, giving them to Mr. Giarrizo, who then spoke to plaintiff and her adult son. Mr. Giarizzo, after meeting with plaintiff and her son, gave Mr. Diamond two amended HUD-1 settlement statements executed by plaintiff, indicating that all net proceeds were to be disbursed to On Line. The copies of the amended HUD-1 settlement statement presented with the Caputo motions are not signed and dated by the settlement agent. The word "amended" is handwritten in the upper-left corner of the document. Mr. Diamond then claims that at the conclusion of the closing he gave plaintiff two copies of a notice of a right to cancel and plaintiff signed an acknowledgment of receipt of that, along with other closing documents.

After the rescission period ended on May 17, 2004, First Magnus wired funds to an account at J. P. Morgan Chase Bank, entitled "Stephen J. Caputo P.C. Attorney At Law Escrow Account," and on the same day that account was debited $158,149.88 for a domestic wire transfer to On Line [exhibits A and B of Caputo defendants' reply affirmation].

Plaintiff Russell, in her affidavit, attached to her attorney's affirmation in opposition, claims that the HUD-1 settlement statement that she received at the closing had no entries in the section entitled "Disbursements to Others." Her attorney attached her alleged HUD-1 settlement statement, unsigned, with many handwritten computations and notes. It shows that she was to receive net proceeds of $158,402.28. Ms. Russell denies meeting with Mr. Giarrizo and authorizing the amended HUD-1 settlement statement which indicates the disbursement of the net proceeds to On Line. She states, after examining the amended HUD-1 settlement statement, "categorically that the signature is not mine and is a forgery," and further alleges that the mechanic's lien did not appear in the title report and is dated the same date as the closing.

Summary judgment standard

The proponent of summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case. See Alvarez v Prospect Hospital, 68 NY2d 320, 324 (1986); Zuckerman v City of New York, 49 NY2d 557, 562 (1980); Sillman v Twentieth Century-Fox Film Corp., 3 NY2d 395, 404 (1957). Failure to make such a showing requires denial of the motion, regardless of the sufficiency of the opposing papers. Matter of Redemption Church of Christ v Williams, 84 AD2d 648, 649 (3d Dept 1981); Greenburg v Manlon Realty, 43 AD2d 968, 969 (2d Dept 1974); Winegrad v New York University Medical Center, 64 NY2d 851 (1985). [*3]

CPLR § 3212 (b) requires that for a court to grant summary judgment the court must determine if the movant's papers justify holding as a matter of law, "that the cause of action or defense has no merit." The evidence submitted in support of the movant must be viewed in the light most favorable to the non-movant. Marine Midland Bank, N.A. v Dino & Artie's Automatic Transmission Co., 168 AD2d 610 (2d Dept 1990). Summary judgment shall be granted only where there are no issues of material fact and the evidence requires the court to direct judgment in favor of the movant as a matter of law. Friends of Animals, Inc., v Associated Fur Mfrs., 46 NY2d 1065 (1979).

Discussion


Defendants' motions for dismissal and summary judgment fail to make a prima facie showing of entitlement to judgment as a matter of law and tender sufficient evidence to eliminate material issues of fact. The documentary evidence submitted, pursuant to CPLR § 3211 (a) (1), is insufficient to grant any of the Caputo motions for summary judgment. The Caputo defendants claim that the amended HUD-1 settlement statement contradicts plaintiff's legal conclusions. Plaintiff, in her affidavit, goes beyond conclusory allegations, claiming that she had no knowledge of the amended HUD-1 settlement statement and that her signature is a forgery. First Magnus, in its affirmation in opposition, claims that it had no knowledge of the amended HUD-1 settlement statement until after litigation commenced, even though the closing instructions provided to Mr. Caputo required the closing agent to notify First Magnus in the event of last minute changes to closing documents. Further, both Option One and First Magnus, in their opposition papers, point out that further discovery is needed to sort out the disputed circumstances of what happened at the May 12, 2004 closing. Therefore they claim that dismissal of their cross-claims for contribution and/or indemnification is premature.

By itself, the use of the disputed amended HUD-1 settlement statement by the Caputo defendants does not resolve the instant action. In Topel v Reliastar Life Ins. Co. of New York, 6 AD3d 608 (2d Dept 2004), the Court instructed that:

[p]ursuant to CPLR 3211 (a) (1), dismissal of a complaint is warranted

where the documentary evidence resolves all factual issues as a matter

of law and definitively disposes of the asserted claims (see Randazzo v

Gerber Life Ins. Co., 3 AD3d 485 [2004]; Bank v Lake, 284 AD2d 355

[2001]; European Am. Bank v Miller, 265 AD2d 374 [1999]).

In Chrysler First Financial Services Corp. of New York v De Premis, 225 AD2d 1003 (3d Dept 2006), a foreclosure action, defendant was approached at her home by replacement window salesmen. Defendant claimed that she entered into what she thought was a retail installment contract for windows, paid a down payment and was provided with a copy of only one document, a retail installment contract. She claimed surprise when she found out that she had unknowingly executed a mortgage on her home, which was recorded and then assigned to plaintiff. Defendant stopped making payments and plaintiff then commenced a foreclosure action. Supreme Court, Albany County denied plaintiff's motion for summary judgment and the Appellate Division, Third Department affirmed, holding at 1005, that on the merits of the case, "we agree with Supreme Court that De Premis' submissions [affidavits] have raised factual questions with respect to whether she knowingly executed a mortgage on her home, or was the victim of a fraud . . . so as to defeat plaintiff's motion for summary judgment (see Fulmont Mut. Ins. Co. v. Toran, [*4]158 AD2d 829, 830 [1990])."

The Court of Appeals in Guggenheimer v Ginzburg, 43 NY2d 268, 275 (1977) instructed that:

[i]nitially, the sole criterion is whether the pleading states a cause of action,

and if from its four corners factual allegations are discerned which taken

together manifest any cause of action cognizable at law a motion for dismissal

will fail . . . When evidentiary material is considered, the criterion is whether

the proponent of the pleading has a cause of action, not whether he has stated

one, and, unless it has been shown that a material fact as claimed by the

pleader to be one is not a fact at all and unless it can be said that no significant

dispute exists regarding it, again dismissal should not eventuate.

In the instant action significant issues exist as to the conduct of various parties at the May 12, 2004 closing. Dismissal of the plaintiff's complaint and the First Magnus and Option One cross-claims are improper in light of the triable issues of fact before the Court. The Court in Anyanwu v Johnson, 276 AD2d 572 (2d Dept 2000), observed, at 572-573, that:

[s]ummary judgment is a drastic remedy and should not be granted where

there is any doubt as to the existence of a material and triable issue of fact

(see, Rotuba Extruders v. Ceppos, 46 NY2d 223, 231; Phillips v Kantor &

Co., 31 NY2d 307, 311). Issue finding, rather than issue determination

constitutes the key to the procedure (see, Sillman v. Twentieth Century-Fox

Film Corp., 3 NY2d 395, 401).

The Caputo defendants argue that they did not act as an escrow agent for Mrs. Russell, but only as the closing agent for the mortgage lender, First Magnus. The Court, in National Union Fire Ins. Co. Pittsburgh, Pa. v Proskauer Rose Goetz & Mendelsohn, 168 Misc 2d 539 (Sup Ct, New York County 1994), affd 227 AD2d 106 (1st Dept 1996), defined, at 544, an escrow as "a written agreement that imports a legal obligation to deposit an instrument or property by the promisor . . . with a third party . . . to be kept by the latter in the capacity of depositary or escrowee until the performance of a condition or the happening of an event, which then is to be delivered by the escrow agent to the promisee." No precise form of language is necessary to constitute an escrow. Menkis v Whitestone Sav. & Loan Ass'n., 78 Misc 2d 329, 330 (Dist Ct, Nassau County 1974). In the absence of specific language, the intention of the parties must be examined to determine whether an instrument placed with a third-party is an escrow. Hathaway v Payne, 34 NY 92 (1865). Further, an escrow agreement, does not have to written. Recently, in Great American Ins. Co. v Canandaigua Nat. Bank and Trust Co., 23 AD2d 1025, 1027 (4th Dept 2005), the Court instructed, in finding an escrow present, that:

[t]he agreement reached by the parties, based on their words and conduct,

fulfills all the requisites of an escrow agreement, i.e., an agreement pursuant

to which funds are delivered to a third-party depositary, the grantor relinquishes [*5]

control over the funds, and the funds are to be delivered to a third party

conditioned upon the performance of some act or the occurrence of some event. [Emphasis Added]


In National Union Fire Ins. Co. Pittsburgh, Pa. v Proskauer Rose Goetz & Mendelsohn, supra at 544, the Court noted that "[t]he purpose of an escrow is to assure the carrying out of an obligation already contracted for and in furtherance of the obligation the promisor deposits money, goods, or documents to an escrow agent who agrees to part with it only on a specified condition."

An escrow agent has a contractual duty to comply with the escrow agreement. Takayama v Schaefer, 240 AD2d 21, 25 (2d Dept 1998). Further, the escrow agent is the trustee of any individual or entity with a beneficial interest in the trust. Farago v Burke, 262 NY 229 ( 1933). The Farago Court, at 233, stated, that the "law makes the depositary a trustee for both parties (Stanton v Miller, 58 NY 192 [1874]) it imposes upon him a duty not to deliver the escrow to any one except upon strict compliance with the conditions imposed, and even subjects him to damages for his failure." As a fiduciary the escrow agent owes the parties to an escrow agreement "the highest amount of loyalty." See Muscara v Lamberti, 133 AD2d 362, 363 (2d Dept 1987); Director Door Corp. v Marchese & Sallah, P.C., 127 Ad2d 735, 737 (2d Dept 1987); Bardach v Chain Bakers, 265 AD 24, 27 (1st Dept 1942), affd 290 NY 813 (1943).

All the requisite elements of an escrow are present in the instant case. Despite the protestations of the Caputo defendants, it appears that they were escrow agents who did not comply with their duty owed to Ms. Russell. The actions and conduct of the parties at the closing and subsequent to the three-day rescission period demonstrates the Caputo defendants' apparent failure in their duty to plaintiff. In Grinblat v Taubenblat, 107 AD2d 735, 736 (2d Dept 1985), the Court stated that "[a]n escrow agent is charged with the duty not to deliver the escrow deposit to anyone except upon strict compliance with the conditions imposed and he is subject to damages for his failure to so act (Farago v Burke, 262 NY 229)."

In the "Addendum to Closing Instructions; Right to Cancel Requirements" [exhibit F of the Caputo motions], a document sent by First Magnus to the Caputo defendants, it states "Following execution of the loan documents and prior to funding the loan, Escrow Officer/Closing Agent shall forward the Notice to Lender . . . [sic]" Mr. Diamond, the agent of the Caputo defendants, signed the document as "Escrow Officer/Closing Agent," as well as Ms. Russell. Further, the Caputo defendants and their agent, Mr. Diamond, as stated in his affidavit, did not comply with First Magnus' "Funding Conditions" number 10 [exhibit F of the Caputo motions]:

CLOSING AGENT MUST CALL MARTIE AT 858 792 4040 IF ANY

OF THE FOLLOWING OCCURS: ANY FEES CHANGE AT CLOSING,

IF ANY CHANGES ARE MADE TO THE CLOSING DOCS, OR LOAN

DOES NOT CLOSE [sic]. [Emphasis Added]

Mr. Diamond did not make any mention of calling anyone at First Magnus before creating the amended HUD-1 settlement statement. Further, First Magnus, in their opposition papers, claims that the amended HUD-1 settlement statement was not included in the final closing package they received from the Caputo defendants. First Magnus claims it only became aware of the amended [*6]HUD-1 settlement statement after the commencement of the instant action, and further notes that the amended HUD-1 is not signed by any closing agent. There are triable issues of fact as to whether the Caputo defendants followed the instructions of First Magnus.

After Ms. Russell declined to execute a rescission of the loan, the mortgage proceeds were wired on May 17, 2004 by First Magnus to the Caputo defendants. As noted previously, the funds were wired into a J.P. Morgan Chase account denominated as "Stephen J. Caputo P.C. Attorney At Law Escrow Account." If the Caputo defendants were not escrow agents, they certainly have chosen a strange name for this account. Obviously, this account serves as a third-party depository for funds owed to others. Pursuant to the various loan documents, with the condition that plaintiff does not rescind the loan during the three-day rescission period, the Caputo defendants had the obligation to relinquish the funds. They did this by wiring the funds to On Line. Thus, there are triable issues of fact as to whether the Caputo defendants breached their escrow agreement with plaintiff, as well as their fiduciary duty to plaintiff.

Conclusion

Accordingly, it is

ORDERED, that the motion of the Caputo defendants, pursuant to CPLR § § 3211 (a) (1), to dismiss plaintiff's complaint against the Caputo defendants is denied, and it is further

ORDERED, that the motion of the Caputo defendants, pursuant to CPLR § § 3211 (a) (1), to dismiss defendant Option One Mortgage Corp.'s cross-claims for contribution and indemnification against the Caputo defendants is denied, and it is further

ORDERED, that the motion of the Caputo defendants, pursuant to CPLR § § 3211 (a) (1), to dismiss defendant First Magnus Financial Corp.'s cross-claim for common-law indemnification against the Caputo defendants is denied.

This constitutes the Decision and Order of the Court.

E N T E R

___________________________________

HON. ARTHUR M. SCHACK

J. S. C.