What duty does the original holder of an invalid mortgage have towards a second assignee, when that assignee was, or should have been, aware of its invalidity, due to the second assignee's involvement with the original assignee?

Defendant, Capital One (Capital) moves to dismiss the complaint for failure to state a cause of action. Upon a motion to dismiss, the allegations in the complaint are to be accepted as true. The motion should only be granted where, even viewing the allegations as true, the plaintiff still cannot establish a cause of action. The courts should "accept the facts as alleged in the complaint as true, accord the plaintiffs the benefit of every possible inference and determine whether the facts as alleged fit within any cognizable legal theory." However, bare legal conclusions and factual claims which are flatly contradicted by the evidence are not presumed to be true on a motion to dismiss for failure to state a cause of action. Parsippany Const. Co. Inc. v. Clark Patterson Associates, P.C., 41 AD3d 805 [2nd Dep't 2007] (internal citations omitted). In the instant matter, the plaintiff has failed to state a cause of action for the reasons set forth herein.

The underlying note and mortgage have a long and tortured history of assignments and [*2]litigation.^[FN1] Upon review of the record it is clear that Crisci and DPA were connected in some meaningful way. In 2006, DPA brought an action to foreclose on the mortgage which was ultimately held null and void by this Court's order dated February 25, 2008. DPA now brings the instant action alleging negligence on the part of Greenpoint for issuing the mortgage and failure to ascertain that the defendant Crisci was not authorized to encumber the property, failure to obtain requisite court approval and entering into the stipulation of settlement. Greenpoint moves to dismiss the complaint asserting, among other things, that no duty was owed to DPA.

Religious Corporations Law § 12 provides in pertinent part "a religious corporation shall not sell mortgage or lease. . .any of its property without applying for and obtaining leave of the court. . ." The purpose of this section is to protect religious purposes of corporation and to prevent dissipation of corporate assets. Bernstein v. Friedlander, 296 N.Y.S2d 409 [1968]. The procedure to obtain court approval is by petition filed by the religious corporation, not the lender. See generally NY Not-for-Profit Corp. Law § 511(a)(7). Obviously a lender's failure to insure that court approval has been obtained will have a seriously deleterious effect on its security taken on the loan.

It is clear that Greenpoint was negligent in failing to determine that court approval was not obtained and therefore taking an invalid mortgage on church property. However, the Religious Corporations Law is not meant to protect the pastor of the church or a lending institution. It should be noted that the pastor was a signatory on the original loan documents, a task usually undertaken by an official of the board of the Religious Corporation, not the pastor. He was engaged in at worst a fraud, and at best multiple contracts which improperly encumbered church property, seemingly to his personal benefit.The issue then is whether Greenpoint owed a duty to a future assignee. In this case, DPA, a second assignee which the record reflects, was involved in the contracts surrounding the assignments. Fundamentally, the duty of reasonable care owed by the tortfeasor to an injured [*3]party must be present in a tort action. Finding the existence and scope of duty is a legal issue for the court to resolve. Palka v. Servicemaster Management Serv. Corp., 83 NY2d 579 [1994]. The existence of a duty requires the "scrutiny not only of the wrongdoing of the tortfeasor but the examination of the injured parties reasonable expectation of the care owed and the basis for the expectation and legal imposition of a duty." Id. It is a policy laden decision, one which "coalesces from vectored forces including logic, science, weighty competing socioeconomic policies and sometimes contractual assumptions of responsibility." Id.

Plaintiff asserts that a lack of privity between the parties is not a bar to a determination of duty as parties outside of a contract may sue for a tort arising out of negligently performed or omitted contractual duties. Palka, 83 NY2d 579 [1994]. While it certainly is the case that a party outside of the contract may be owed a duty by a contracting party the boundaries of duty are not "forever expanded by the notion of forseeability." Id. A non-contracting party must show that the "performance of contractual obligation [between others] has induced detrimental reliance [by them] on continued performance and inaction would result not merely in withholding a benefit, but positively or actively in working an injury." Id. (internal citations omitted). Further, "the nexus for a tort relationship between the defendant's contractual obligation and the injured non-contracting plaintiff's reliance and injury must be direct and demonstrable, not incidental or merely collateral. Id. (emphasis added). The complaint fails to allege these required factors.

Any duty that the lender might have had to a future assignee, a question which this Court does not decide herein, has been eviscerated by several factors. One, the pastor's involvement in the origination of the note and mortgage. Two, the first assignment to the pastor as part of the settlement of the original foreclosure action. These factors are pertinent because they establish that the pastor was aware that the mortgage lacked the required court approval and was not mislead by Greenpoint as to its validity. Three, the plaintiff's own duty to himself as a reasonable and prudent person to inquire as to the bona fides of the instruments he was acquiring.

Accordingly, the motion is granted.

This constitutes the decision and order of the court.

J.S.C.