Case 1:15-cv-00293-LTS-RWL Document 86 Filed 12/18/15 Page 1 of 16

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
-------------------------------- x
S & A CAPITAL PARTNERS, INC., : ORAL ARGUMENT REQUESTED
MORTGAGE RESOLUTION SERVICING, :
LLC, and 1ST FIDELITY LOAN :
SERVICING, LLC, : No. 15-cv-00293-LTS-JCF
Plaintiffs, :
:
- v. - :
:
JPMORGAN CHASE BANK, N.A., :
JPMORGAN CHASE & CO., and CHASE :
HOME FINANCE LLC, :
:
Defendants. :
-------------------------------- x

DEFENDANTS’ REPLY MEMORANDUM OF LAW

IN SUPPORT OF THEIR MOTION TO DISMISS
COUNTS FOUR THROUGH NINE OF
PLAINTIFFS’ THIRD AMENDED COMPLAINT

Robert D. Wick
Christian J. Pistilli
Michael M. Maya
Philip J. Levitz
COVINGTON & BURLING LLP
One CityCenter, 850 Tenth Street, NW
Washington, DC 20001-4956
(202) 662-6000

Michael C. Nicholson
COVINGTON & BURLING LLP
The New York Times Building
620 Eighth Avenue
New York, New York 10018-1405
(212) 841-1000

Attorneys for Defendants

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TABLE OF CONTENTS

Page

I. PLAINTIFFS’ RICO CLAIM SHOULD BE DISMISSED. .............................................. 1

A. Plaintiffs Fail To Allege The Existence Of A Valid RICO Enterprise. .................. 1

B. Plaintiffs Do Not Satisfy RICO’s Continuity Requirement.................................... 4

II. PLAINTIFFS’ TORTIOUS INTERFERENCE CLAIM SHOULD BE

DISMISSED. ...................................................................................................................... 5

III. PLAINTIFFS’ SLANDER OF TITLE CLAIM SHOULD BE DISMISSED. ................... 6

IV. PLAINTIFFS’ CONVERSION CLAIM SHOULD BE DISMISSED. .............................. 7

V. THE MISREPRESENTATION CLAIMS SHOULD BE DISMISSED. ........................... 9

i
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TABLE OF AUTHORITIES

Cases Page(s)

AD Rendon Commc’ns, Inc. v. Lumina Ams., Inc.,

2007 WL 2962591 (S.D.N.Y. Oct. 10, 2007) ............................................................................8

Boyle v. United States,

556 U.S. 938 (2009) ...............................................................................................................1, 2

BWP Media USA Inc. v. Hollywood Fan Sites, LLC,

69 F. Supp. 3d 342 (S.D.N.Y. 2014)......................................................................................1, 2

Cedar Swamp Holdings, Inc. v. Zaman,

487 F. Supp. 2d 444 (S.D.N.Y. 2007)........................................................................................2

City of New York v. Chavez,

944 F. Supp. 2d 260 (S.D.N.Y. 2013)........................................................................................3

Colliton v. Cravath, Swaine & Moore LLP,

2008 WL 4386764 (S.D.N.Y. Sept. 24, 2008)...........................................................................6

Cont’l Petroleum Corp. v. Corp. Funding Partners, LLC,

2012 WL 1231775 (S.D.N.Y. Apr. 12, 2012)........................................................................1, 2

Conte v. Newsday, Inc.,

703 F. Supp. 2d 126 (E.D.N.Y. 2010) ...................................................................................1, 2

Crabhouse of Douglaston Inc. v. Newsday Inc.,

801 F. Supp. 2d 64 (E.D.N.Y. 2011) .........................................................................................3

Cruz v. FXDirectDealer, LLC,

720 F.3d 115 (2d Cir. 2013).......................................................................................................2

D. Penguin Bros. v. City Nat’l Bank,

587 F. App’x 663 (2d Cir. 2014) ...........................................................................................1, 4

Faryniarz v. Ramirez,
2015 WL 6872439 (D. Conn. Nov. 9, 2015) .............................................................................2

First Bank of Americas v. Motor Car Funding, Inc.,

690 N.Y.S.2d 17 (App. Div. 1999) ......................................................................................9, 10

First Capital Asset Mgmt. v. Satinwood, Inc.,

385 F.3d 159 (2d Cir. 2004)...........................................................................................1, 2, 6, 7

Foster v. 2001 Real Estate,

2015 WL 7587360 (S.D.N.Y. Nov. 24, 2015) .......................................................................1, 2

ii
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Fuji Photo Film U.S.A., Inc. v. McNulty,

2009 WL 3334867 (S.D.N.Y. Oct. 14, 2009) ............................................................................3

Gundlach v. Int’l Bus. Machines Inc.,

594 F. App’x 8 (2d Cir. 2014) ...................................................................................................6

Hovey v. Rubber Tip Pencil Co.,

57 N.Y. 119 (1874) ....................................................................................................................7

Hyo Jung v. Chorus Music Studio, Inc.,

2014 WL 4493795 (S.D.N.Y. Sept. 11, 2014)...........................................................................8

J.E. Morgan Knitting Mills, Inc. v. Reeves Bros.,

663 N.Y.S.2d 211 (App. Div. 1997) ..........................................................................................9

Jana L. v. W. 129th St. Realty Corp.,

802 N.Y.S.2d 132 (App. Div. 2005) ........................................................................................10

Kregos v. Assoc. Press,

3 F.3d 656 (2d Cir. 1993) ........................................................................................................10

Kriegel v. Donelli,
2014 WL 2936000 (S.D.N.Y. June 30, 2014) .........................................................................10

MBIA Ins. Corp. v. Countrywide Home Loans, Inc.,

928 N.Y.S.2d 229 (App. Div. 2011) ........................................................................................10

Pawaroo v. Countrywide Bank,

2010 WL 1048822 (E.D.N.Y. Mar. 18, 2010) ...........................................................................7

Reed Constr. Data Inc. v. McGraw-Hill Cos.,

745 F. Supp. 2d 343 (S.D.N.Y. 2010)........................................................................................4

Riverwoods Chappaqua Corp. v. Marine Midland Bank, N.A.,

30 F.3d 339 (2d Cir. 1994).........................................................................................................2

Spinelli v. Nat’l Football League,

96 F. Supp. 3d 81 .......................................................................................................................6

Terrace Hotel Co. v. State,

19 N.Y.2d 526 (1967) ................................................................................................................7

Thyroff v. Nationwide Mutual Insurance Co.,

8 N.Y.3d 283 (2007) ..............................................................................................................8, 9

Torchlight Loan Servs., LLC v. Column Fin., Inc.,

2012 WL 3065929 (S.D.N.Y. July 25, 2012) ............................................................................9

iii
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In re Trilegiant Corp., Inc.,

11 F. Supp. 3d 82 (D. Conn. 2014) ............................................................................................3

United States v. Daidone,

471 F.3d 371 (2d Cir. 2006).......................................................................................................5

United States v. McKeon,

738 F.2d 26 (2d Cir. 1984).........................................................................................................6

Warren v. John Wiley & Sons, Inc.,

952 F. Supp. 2d 610 (S.D.N.Y. 2013)......................................................................................10

Zabas v. Kard,
599 N.Y.S.2d 832 (App. Div. 1993) ..........................................................................................8

iv
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As shown in Chase’s opening brief, Plaintiffs are attempting to transform a

straightforward breach of contract suit into a sprawling RICO and intentional tort action. Their

opposition memorandum fails to rehabilitate either their RICO claim or their tort claims.

I. PLAINTIFFS’ RICO CLAIM SHOULD BE DISMISSED.

A. Plaintiffs Fail To Allege The Existence Of A Valid RICO Enterprise.

As Plaintiffs acknowledge in their opposition (Opp. 10), a plaintiff attempting to assert an

association-in-fact enterprise must allege “three structural features: a purpose, relationships

among those associated with the enterprise, and [sufficient] longevity.” Boyle v. United States,

556 U.S. 938, 946 (2009). Here, the complaint fails to allege either a common purpose or the

requisite relationship among the members of the purported enterprise (Mem. 8-10), and

Plaintiffs’ opposition does nothing to overcome these deficiencies.

First, Plaintiffs fail to allege the necessary relationship among the purported enterprise

members because they fail to plead facts showing that the enterprise constitutes “an ongoing

organization, … let alone a coherent entity separate and apart from the alleged fraudulent

scheme.” D. Penguin Bros. v. City Nat’l Bank, 587 F. App’x 663, 668 (2d Cir. 2014) (internal

quotation marks omitted); see Mem. 8-9. For example, Plaintiffs provide no “concrete

information on the group’s organization” or the “roles each [member] played and the actions

they took.” BWP Media USA Inc. v. Hollywood Fan Sites, LLC, 69 F. Supp. 3d 342, 360

(S.D.N.Y. 2014). Nor do they make any “concrete factual assertions as to the mechanics of the

interactions among” the members of the purported enterprise. Cont’l Petroleum Corp. v. Corp.

Funding Partners, LLC, 2012 WL 1231775, at *6 (S.D.N.Y. Apr. 12, 2012). To the contrary,

the complaint is “entirely silent as to the internal workings … of the enterprise.” Foster v. 2001

Real Estate, 2015 WL 7587360, at *4 (S.D.N.Y. Nov. 24, 2015). Indeed, Plaintiffs fail to allege

that the purported enterprise has “any structure or organization whatsoever.” Conte v. Newsday,

1
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Inc., 703 F. Supp. 2d 126, 133-34 (E.D.N.Y. 2010). Under these circumstances, courts in this

Circuit consistently dismiss RICO claims for failure to allege the existence of a RICO enterprise.

See, e.g., Foster, 2015 WL 7587360, at *4; Faryniarz v. Ramirez, 2015 WL 6872439, at *6 (D.

Conn. Nov. 9, 2015); BWP Media USA Inc., 69 F. Supp. 3d at 360; Cont’l Petroleum Corp.,

2012 WL 1231775, at *5; Conte, 703 F. Supp. 2d at 133-34; Cedar Swamp Holdings, Inc. v.

Zaman, 487 F. Supp. 2d 444, 451 (S.D.N.Y. 2007).1

Plaintiffs counter that, under the Supreme Court’s decision in Boyle, they need not allege

a “hierarchy, a chain of command, fixed roles, regular meetings, or rules and regulations” in

order to plead the existence of a RICO enterprise. Opp. 10. However, “Boyle does not change

the settled understanding … that the concept of association requires both interpersonal

relationships” and that the group “function as a continuing unit.” Cont’l Petroleum Corp., 2012

WL 1231775, at *5. Thus, while “a RICO enterprise need not have a formal hierarchy” under

Boyle, a plaintiff “must still allege some structural features” in order to survive a motion to

dismiss. Foster, 2015 WL 7587360, at *4. Because Plaintiffs have not alleged any facts

regarding the organization of the purported enterprise or the relationships among its members,

the RICO claim fails as a matter of law. E.g., Conte, 703 F. Supp. 2d at 134.2

1
Plaintiffs’ opposition asserts that, in addition to Chase and unnamed debt collectors and vendors, the alleged
enterprise includes various Chase employees. Opp. 10. It is well established, however, that a RICO enterprise may
not consist “merely of a corporate defendant associated with its own employees or agents carrying on the regular
affairs of the defendant.” Riverwoods Chappaqua Corp. v. Marine Midland Bank, N.A., 30 F.3d 339, 344 (2d Cir.
1994); accord Cruz v. FXDirectDealer, LLC, 720 F.3d 115, 121 (2d Cir. 2013); see also Mem. 7-8. Accordingly,
Plaintiffs’ allegations regarding these employees do nothing to establish the existence of a valid RICO enterprise.
2
Plaintiffs also assert that Boyle abrogated the Second Circuit’s decision in First Capital Asset Mgmt. v. Satinwood,
Inc., 385 F.3d 159, 174-75 (2d Cir. 2004). Opp. 10. Numerous post-Boyle decisions from within this Circuit,
however, continue to rely on Satinwood to hold that courts must look to the “hierarchy, organization, and activities”
of an alleged association in order to determine the sufficiency of a plaintiff’s enterprise allegations. See, e.g.,
Foster, 2015 WL 7587360, at *4; Faryniarz, 2015 WL 6872439, at *6; BWP Media USA Inc., 69 F. Supp. 3d at
360; Cont’l Petroleum Corp., 2012 WL 1231775, at *5; Conte, 703 F. Supp. 2d at 133-34.

2
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This conclusion is reinforced by post-Boyle decisions holding that “a classic ‘hub-and-

spoke’ formation” – “in which the spokes are separate, distinct and unassociated and whose

actions are uncoordinated” – “does not possess the requisite structure to constitute a RICO

enterprise … because there is no concerted effort or organized cooperation between the spokes.”

In re Trilegiant Corp., Inc., 11 F. Supp. 3d 82, 98-99 (D. Conn. 2014); see Mem. 9. Here,

Plaintiffs make no attempt to allege any cooperation or coordination among the unidentified debt

collectors and vendors that form the “spokes” of the purported enterprise. Rather, the complaint

at most alleges a series of separate “bilateral relationships between one central actor,” Chase,

“and several independent actors one level removed from [Chase].” See City of New York v.

Chavez, 944 F. Supp. 2d 260, 271 (S.D.N.Y. 2013), rev’d on other grounds, City of New York v.

Bello, 579 F. App’x 15 (2d Cir. 2014). Numerous decisions hold that such “hub-and-spoke”

formations do not constitute valid RICO enterprises. Id. at 273 (collecting cases); see In re

Trilegiant Corp., Inc., 11 F. Supp. 3d at 98-99.3

Second, Plaintiffs’ enterprise allegations fail to allege a common purpose shared by the

members of the purported enterprise. Under settled law, “the purpose … of the enterprise must

be common to all its members.” Crabhouse of Douglaston Inc. v. Newsday Inc., 801 F. Supp. 2d

64, 77 (E.D.N.Y. 2011). As Chase explained in its opening brief, the complaint does not

3
Plaintiffs rely (Opp. 11) on Fuji Photo Film U.S.A., Inc. v. McNulty, in which a company alleged that its outside
vendors conspired with its employee to provide services to the company at inflated prices in exchange for kickbacks
to the employee. See 640 F. Supp. 2d 300, 306-08, 314 (S.D.N.Y. 2009). While Judge Scheindlin denied a motion
to dismiss the company’s RICO claim, the case is distinguishable because the court found that the enterprise’s
success “was attributable to the extensive cooperation among the vendor[s].’” Fuji Photo Film U.S.A., Inc. v.
McNulty, 2009 WL 3334867, at *3 (S.D.N.Y. Oct. 14, 2009). Here, by contrast, the complaint does not allege any
cooperation among the debt collectors and vendors that purportedly participated in the enterprise. Moreover, as
Judge Forrest observed, McNulty is contrary to the weight of authority addressing the issue. See Chavez, 944 F.
Supp. 2d at 275 (collecting cases). In any event, McNulty does not establish that a company and vendors that
provide arm’s-length administrative services to the company might constitute a valid RICO enterprise, as Plaintiffs
suggest. In McNulty, the company was the victim of the vendors’ alleged scheme, not a participant in the enterprise.

3
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plausibly allege that the nameless vendors and debt collectors vaguely referenced in the

complaint shared Chase’s purported purpose of evading Chase’s obligations under settlement

agreements with the government. Mem. 9-10. Plaintiffs’ enterprise allegations therefore fail as

a matter of law. Reed Constr. Data Inc. v. McGraw-Hill Cos., 745 F. Supp. 2d 343, 351

(S.D.N.Y. 2010) (rejecting enterprise consisting of defendant and “an innocent instrument” used

by the defendant to perpetuate its fraudulent scheme); see D. Penguin Bros., 587 F. App’x at 668

(“Plaintiffs’ failure to allege a plausible common purpose among the RICO defendants is fatal to

their assertion that these defendants formed an association-in-fact RICO enterprise.”).

Plaintiffs respond that the purpose of a RICO enterprise “may be to carry out a legitimate

goal” (Opp. 11), but that is a non sequitur. Nowhere in their complaint or opposition do

Plaintiffs articulate any common purpose – legitimate or illegitimate – shared by all of the

members of the enterprise. For this additional reason, the RICO claim should be dismissed.

B. Plaintiffs Do Not Satisfy RICO’s Continuity Requirement.

Plaintiffs’ RICO claim also should be dismissed because they have not adequately

alleged that the purported enterprise possessed either open-ended or closed-ended continuity.

Plaintiffs fail to allege open-ended continuity because Chase’s purported scheme to evade

obligations under settlement agreements with the government necessarily ends at the conclusion

of Chase’s settlement obligations. Mem. 11-12. Plaintiffs’ only response is that Chase also

allegedly released liens to avoid purported anti-blight obligations and that “[t]his allegation does

not include a specific [end] date.” Opp. 12-13. This allegation, however, has nothing to do with

the alleged purpose of the purported enterprise. Compl. ¶ 206. Under settled law, acts that are

unrelated to the enterprise cannot be used to establish the “pattern” of racketeering activity

4
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required under RICO. See, e.g., United States v. Daidone, 471 F.3d 371, 376 (2d Cir. 2006)

(“[P]redicate acts must be related to each other and to the enterprise.”).4

Plaintiffs also fail to allege closed-ended continuity. In its opening brief, Chase

established that (1) the relevant predicate acts alleged in the complaint all occurred over a 15-

month period beginning in mid-2012 and ending in late 2013, and (2) this duration is insufficient

to establish continuity under settled law. Mem. 12-13. Plaintiffs do not dispute that a 15-month

scheme would be insufficient and concede that the final predicate act alleged in the complaint

occurred in December 2013, but argue that a separate set of predicate acts that allegedly occurred

in 2008-09 provides the necessary longevity. Opp. 12-13. Plaintiffs, however, fail to explain

how predicate acts that pre-date Chase’s settlements with the government by more than two

years could possibly have been committed with the intent to evade Chase’s obligations under the

not-yet existent settlements. The lack of any relationship between the 2008-09 alleged predicate

acts and the asserted purpose of the enterprise is fatal to Plaintiffs’ argument. See Mem. 13.

II. PLAINTIFFS’ TORTIOUS INTERFERENCE CLAIM SHOULD BE DISMISSED.

Plaintiffs’ opposition makes no attempt to defend the tortious interference theories that

they strained to allege in the complaint. The opposition abandons any attempt to argue Chase

tortiously interfered with their prospective economic advantage, and likewise fails to defend their

stray allegation that Chase Bank tortiously interfered with contracts between Plaintiffs and the

bank’s former subsidiary, Chase Home Finance. See Mem. 16-17. Instead, Plaintiffs switch to

the brand new theory that Chase tortiously interfered with payment plan agreements between two

sets of borrowers and Plaintiff 1st Fidelity Loan Servicing. Opp. 23. The Court should not

4
While Plaintiffs assert that predicate acts are “related” so long as there is no “conflict between the goals of … the
alleged predicate acts” (Opp. 14), this counterintuitive assertion is made without any support in the case law.

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consider this claim for tortious interference with contract because “[c]laims that are raised for the

first time in an opposition brief are not properly before the court.” Spinelli v. Nat’l Football

League, 96 F. Supp. 3d 81, 102 n.8 (S.D.N.Y. 2015).

Even if the Court were to consider this newly-minted theory (and it should not), the claim

would fail as a matter of law. In order to state a claim for tortious interference with contract, a

plaintiff must allege that the defendant “intentionally” procured a third party’s breach. See, e.g.,

Gundlach v. Int’l Bus. Machines Inc., 594 F. App’x 8, 9-10 (2d Cir. 2014) (“district court

properly dismissed the tortious interference claim” where plaintiff “failed to plausibly show …

that the defendant intentionally procured the third party’s breach of the contract” (internal

quotation marks omitted)). Here, the complaint is wholly devoid of factual allegations plausibly

suggesting that Chase sent debt forgiveness letters to borrowers in an intentional attempt to

induce those borrowers to stop making payments to 1st Fidelity. Rather, Plaintiffs’ allegations

make clear that the letters were sent by Chase inadvertently, under the mistaken understanding

that the loans were still owned by Chase. See Compl. ¶¶ 109-10; see also ECF Doc. No. 27

(Second Amended Complaint), ¶¶ 101-02 (alleging that debt forgiveness letters were sent to

Plaintiffs’ customers because Chase’s database did not accurately identify the loans that Chase

had previously sold to Plaintiffs).5

III. PLAINTIFFS’ SLANDER OF TITLE CLAIM SHOULD BE DISMISSED.

Plaintiffs’ slander of title claim should be dismissed for at least three reasons.

First, Plaintiffs failed to plead the necessary element of special damages with the

requisite particularity. In its opening brief, Chase showed that (1) special damages are an

5
Chase may rely on Plaintiffs’ prior complaint because it “constitute[s] the admissions of a party-opponent.” See
United States v. McKeon, 738 F.2d 26, 31 (2d Cir. 1984); see also Colliton v. Cravath, Swaine & Moore LLP, 2008
WL 4386764, at *6 (S.D.N.Y. Sept. 24, 2008) (accepting as true facts described in earlier complaint).

6
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element of a cause of action for slander of title, and (2) special damages must be pleaded with

particularity. Mem. 19; see Pawaroo v. Countrywide Bank, 2010 WL 1048822, at *6 (E.D.N.Y.

Mar. 18, 2010). Nowhere in their opposition do Plaintiffs deny that they failed to satisfy this

pleading requirement. The slander of title claim should therefore be dismissed.

Second, Plaintiffs failed to allege the required element of “malice.” Contrary to

Plaintiffs’ suggestion (Opp. 24), New York law requires a plaintiff to plead and prove “spite” or

“a willful purpose of inflicting injury” in order to satisfy this element. Terrace Hotel Co. v.

State, 19 N.Y.2d 526, 530 (1967); Hovey v. Rubber Tip Pencil Co., 57 N.Y. 119, 125 (1874).

Even assuming arguendo that it is enough for plaintiffs to plead that the allegedly slanderous

statements were made “with [a] high degree of awareness of their probable falsity” (Opp. 24),

Plaintiffs have not satisfied that pleading burden. The complaint does not allege that the

individuals responsible for recording the erroneous lien releases or for sending the erroneous

debt forgiveness letters had any reason to believe that Chase no longer owned the loans at issue.

To the contrary, Plaintiffs expressly allege that the persons signing the lien releases “lack[ed]

any knowledge as to the relevant facts” and acknowledge that the debt forgiveness letters were

sent in error. Compl. ¶¶109-10, 138. The complaint therefore lacks any well-pleaded allegations

of “malice” that could support a slander of title claim.

Third, Plaintiffs’ slander of title claim should be dismissed as duplicative of their contract

claims. See Mem. 18.

IV. PLAINTIFFS’ CONVERSION CLAIM SHOULD BE DISMISSED.

Plaintiffs’ conversion claim likewise fails for three independent reasons.

First, the conversion claim is duplicative of Plaintiffs’ contract claims. Plaintiffs do not

deny – nor could they – that their conversion claim is based on the exact same facts as their

contract claims. See Mem. 14-15. Instead, Plaintiffs assert that the conversion claim is not

7
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duplicative because it might entitle them to punitive damages. Opp. 20-21. The complaint,

however, fails to plead any facts suggesting the sort of egregious conduct required to state a

claim for punitive damages. Rather, Plaintiffs’ factual allegations make clear that Chase sent the

debt forgiveness letters and filed the lien releases inadvertently. See Mem. 4; supra 6, 7.

Accordingly, Plaintiffs’ request for punitive damages cannot save their conversion claim from

dismissal. See, e.g., AD Rendon Commc’ns, Inc. v. Lumina Ams., Inc., 2007 WL 2962591, at *8

(S.D.N.Y. Oct. 10, 2007) (dismissing claim for conversion as duplicative notwithstanding

plaintiff’s demand for punitive damages and conclusory allegations of malice); see also Zabas v.

Kard, 599 N.Y.S.2d 832, 833 (App. Div. 1993) (factual allegations that “amount to nothing more

than mere negligence” are insufficient to support a claim for punitive damages).

Second, the complaint fails to allege essential elements of a conversion claim. In its

opening brief, Chase established that a plaintiff asserting a claim for conversion must

demonstrate ownership of a “specific identifiable thing” over which the defendant exercised

unauthorized control to the “complete exclusion” of the plaintiff. Mem. 15. While Plaintiffs’

opposition acknowledges this pleading requirement (Opp. 21), it makes no effort to identify any

specific thing over which Chase exercised control to the complete exclusion of Plaintiffs’ rights.

Their conversion claim should therefore be dismissed.

Third, Plaintiffs’ conversion claim fails because they assert that Chase converted

intangible property such as loan payment streams and security interests. Mem. 15-16. Plaintiffs

suggest that the New York Court of Appeals broadly authorized claims for the conversion of

intangible property in Thyroff v. Nationwide Mutual Insurance Co., 8 N.Y.3d 283 (2007), but

they are mistaken. That case “simply eliminated the law’s arbitrary distinction between the theft

of information stored on a computer and the theft of information printed on paper.” Hyo Jung v.

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Chorus Music Studio, Inc., 2014 WL 4493795, at *8 (S.D.N.Y. Sept. 11, 2014). Because the

complaint does not allege that Chase stole Plaintiffs’ electronic records, Thyroff is inapposite.6

V. THE MISREPRESENTATION CLAIMS SHOULD BE DISMISSED.

MRS’s misrepresentation claims should be dismissed as duplicative of its contract claim,

and its claims for fraudulent omission and negligent misrepresentation should be dismissed for

the additional reason that Chase owed no “duty of disclosure” to MRS. Mem. 20-22.

The crux of MRS’s fraud claim is that Chase falsely represented that (1) it “would

provide a complete Exhibit A to the MLPA,” (2) it would provide certain “loan documentation”

to MRS, (3) “the loans sold to MRS under the MLPA consisted of first lien[s],” and (4) the loans

had been “serviced in full compliance with applicable law.” Compl. ¶ 178. Because the MLPA

contains express terms addressing each of these issues, MRS’s misrepresentation claims

duplicate its contract claim and thus fail as a matter of law. Mem. 20-21; J.E. Morgan Knitting

Mills, Inc. v. Reeves Bros., 663 N.Y.S.2d 211, 211 (App. Div. 1997) (affirming dismissal of

fraud claim where the “fraud alleged is based on the same facts as underlie the contract claim”).

Plaintiffs counter by citing a line of cases, beginning with First Bank of Americas v.

Motor Car Funding, Inc., 690 N.Y.S.2d 17 (App. Div. 1999), purportedly holding that a fraud

claim may be brought based on the alleged breach of a contractual warranty because a warranty

is a statement of “present fact.” Opp. 16-17. Ample authority, however, holds that “it is not

sufficient that the alleged misrepresentations are about then-present facts; rather, they also must

be extraneous to the contract and involve a duty separate from or in addition to that imposed by

the contract.” Torchlight Loan Servs., LLC v. Column Fin., Inc., 2012 WL 3065929, at *10

6
Plaintiffs also assert that “money may be the subject of a conversion claim where the funds in question are specific
and identifiable.” Opp. 22. But that assertion is irrelevant here because the complaint does not identify any specific
funds that Chase allegedly converted.

9
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(S.D.N.Y. July 25, 2012) (internal quotation marks omitted). Thus, “First Bank and its progeny”

are “inapplicable to situations where, as here, the fraud claim is premised entirely upon the same

warranty that also underlies the contract claim.” Kriegel v. Donelli, 2014 WL 2936000, at *14

n.15 (S.D.N.Y. June 30, 2014) (collecting cases).7

MRS’s negligent misrepresentation and fraudulent omission claims also fail because

Chase did not owe a duty of disclosure to MRS. Mem. 21-22. Plaintiffs respond that (1) a duty

may arise under the “special facts” doctrine where a party possesses “superior knowledge,” and

(2) Chase had superior knowledge regarding the loans sold to MRS under the MLPA. Opp. 19-

20. However, the mere assertion that a seller “had superior knowledge of the particulars of its

own business practices is insufficient” to create a duty on the part of the seller in an arm’s-length

commercial transaction between two sophisticated parties. See MBIA Ins. Corp. v. Countrywide

Home Loans, Inc., 928 N.Y.S.2d 229, 235-36 (App. Div. 2011). The special facts doctrine,

moreover, is inapplicable where the information was discoverable by the plaintiff through the

“‘exercise of ordinary intelligence.’” Opp. 19 (quoting Jana L. v. W. 129th St. Realty Corp., 802

N.Y.S.2d 132, 135 (App. Div. 2005)). Here, MRS expressly acknowledged in the MLPA that it

“had an opportunity to conduct a due diligence review of each Mortgage Loan.” MLPA (Compl.

Ex. 3) § 4. MRS’s negligent misrepresentation and fraudulent omission claims therefore fail as a

matter of law.

7
Plaintiffs also argue that Chase “misrepresent[ed] that the details of the loans could not be provided because
[Chase was] having difficulty in transferring information from Washington Mutual[],” and that this
misrepresentation is not duplicative of MRS’s contract claim. Opp. 17. The complaint, however, alleges that Chase
had a contractual obligation to provide MRS with complete and correct servicing data for the loans. Compl. ¶¶ 43,
49. MRS, moreover, alleges only that it was harmed by Chase’s failure to provide that data, not that it was harmed
by Chase’s allegedly incorrect explanation of why it was unable to provide the data. Accordingly, this allegation
cannot save MRS’s fraud claims from dismissal. See Warren v. John Wiley & Sons, Inc., 952 F. Supp. 2d 610, 623
(S.D.N.Y. 2013) (“Under New York law, the alleged losses stemming from a fraud ‘must be the direct, immediate,
and proximate result of the misrepresentation.’” (quoting Kregos v. Assoc. Press, 3 F.3d 656, 665 (2d Cir. 1993)).

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 Case 1:15-cv-00293-LTS-RWL Document 86 Filed 12/18/15 Page 16 of 16

Dated: Washington, DC Respectfully submitted,

December 18, 2015

By: s/ Robert D. Wick

Robert D. Wick

Christian J. Pistilli
Michael M. Maya
Philip J. Levitz
COVINGTON & BURLING LLP
One CityCenter, 850 Tenth Street, NW
Washington, DC 20001-4956
Telephone: (202) 662-6000
Facsimile: (202) 662-6291
rwick@cov.com
cpistilli@cov.com
mmaya@cov.com
plevitz@cov.com

Michael C. Nicholson
COVINGTON & BURLING LLP
The New York Times Building
620 Eighth Avenue
New York, New York 10018-1405
Telephone: (212) 841-1000
mcnicholson@cov.com

Attorneys for Defendants

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