SHOVAK v. LONG ISLAND COMMERCIAL BANK

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Supreme Court, Appellate Division, Second Department, New York.

James SHOVAK, etc., respondent, v. LONG ISLAND COMMERCIAL BANK, appellant.

Decided: December 26, 2006

HOWARD MILLER, J.P., REINALDO E. RIVERA, PETER B. SKELOS, and ROBERT J. LUNN, JJ. Van Nostrand & Martin, Amityville, N.Y. (G. Ronald Hoffman, David Desmond, and Kenneth Gartner of counsel), for appellant. Leland L. Greene, Garden City, N.Y., Irwin Popkin, Shirley, N.Y., and Barrett & Associates, Chicago, Ill. (M. Scott Barrett of counsel), for respondent (one brief filed).

In a proposed class action by individual borrowers, inter alia, to recover damages for breach of fiduciary duties, the defendant appeals, as limited by its brief, (1) from so much of an order of the Supreme Court, Nassau County (Woodard, J.), entered December 1, 2005, as granted those branches of the plaintiff's motion which were to certify the case as a class action pursuant to CPLR 902 and to dismiss the tenth affirmative defense asserting ratification pursuant to CPLR 3211(b), and (2), by permission, from so much of an order of the same court dated January 31, 2006, as granted that branch of the plaintiff's oral application which was to vacate the automatic stay of discovery in effect pursuant to CPLR 3214(b).

ORDERED that the order entered December 1, 2005, is modified, on the law and in the exercise of discretion, by deleting the provision thereof granting that branch of the plaintiff's motion which was to certify the case as a class action pursuant to CPLR 902, and substituting therefor a provision denying that branch of the motion;  as so modified, the order is affirmed insofar as appealed from;  and it is further,

ORDERED that the order dated January 31, 2006, is affirmed insofar as appealed from;  and it is further,

ORDERED that one bill of costs is awarded to the defendant.

The plaintiff commenced this action against the defendant mortgage broker alleging that a yield spread premium paid to the defendant by the nonparty lender was a kickback in exchange for the defendant procuring an interest rate on the plaintiff's loan higher than the lender's market or par rate.   He asserted causes of action alleging breach of fiduciary duty, money had and received, unjust enrichment, and violations of General Business Law § 349 and Penal Law § 180.08. The plaintiff moved, inter alia, for class certification pursuant to CPLR 902 on behalf of a class of individual borrowers who retained the defendant as a mortgage broker within six years of commencement of the action for the purpose of procuring a residential mortgage loan, and where a yield spread premium was paid by the lender to the defendant.   In an order entered December 1, 2005, class certification was granted.

Thereafter, on January 26, 2006, the defendant moved pursuant to CPLR 3211(a)(1) and (7) to dismiss the complaint.   At a court appearance on January 31, 2006, the court granted the plaintiff's oral application to vacate the automatic stay of discovery which was in effect pursuant to CPLR 3214(b) as a result of the pending motion to dismiss.

The Supreme Court improvidently exercised its discretion in certifying a class action.   The plaintiff failed to establish that common questions of fact existed that predominate over individual questions (see CPLR 901[a];  902).   This court has recently concluded, under virtually indistinguishable circumstances, that the two-pronged test promulgated by the Department of Housing and Urban Development (hereinafter HUD) to determine if a yield spread premium was a kickback or bribe under the Real Estate Settlement Procedures Act was applicable to state actions asserting causes of action, inter alia, alleging breach of fiduciary duty, money had and received, and violations of General Business Law § 349 and Penal Law § 180.08 (see Wint v. ABN Amro Mtge. Group, 19 A.D.3d 588, 800 N.Y.S.2d 411;  Lum v. New Century Mtge. Corp., 19 A.D.3d 558, 800 N.Y.S.2d 408;  Fisher v. Equicredit, 19 A.D.3d 541, 800 N.Y.S.2d 407;  see also 66 Fed. Reg. 53052, 53054-53055;  64 Fed. Reg. 10080, 10081-10084).   Since a determination under HUD's two-pronged test as to whether a yield spread premium constitutes reasonable compensation is an individualized, fact-intensive analysis, class certification is precluded under the circumstances of this case (see 66 Fed. Reg. 53052, 53054-53055;   Bjustrom v. Trust One Mortg. Corp., 322 F.3d 1201, 1206-1209;  O'Sullivan v. Countrywide Home Loans, 319 F.3d 732;  Heimmermann v. First Union Mortg. Corp., 305 F.3d 1257, 1264, cert. denied 539 U.S. 970, 123 S.Ct. 2641, 156 L.Ed.2d 675;  Schuetz v. Banc One Mortg. Corp., 292 F.3d 1004, 1010-1011,cert. denied 537 U.S. 1171, 123 S.Ct. 994, 154 L.Ed.2d 913).

However, the Supreme Court providently exercised its discretion in granting the plaintiff's application to vacate the automatic stay of discovery (see CPLR 3214[b];  Reilly v. Oakwood Heights Community Church, 269 A.D.2d 582, 704 N.Y.S.2d 829).

The defendant's remaining contentions are without merit or have been rendered academic as a result of our determination in a decision and order on motion dated December 26, 2006, on the plaintiff's motion made on appeal.

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