Jackson v. Wells Fargo Bank, NA

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

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In re Chapter 13

JUSTO REYES, Case No. 16-22556 (SHL) (Reyes)

In re

Case No. 16-23514 (SHL) (Jackson)

KAREN JACKSON,

Debtors.

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JUSTO REYES and KAREN JACKSON,

individually and on behalf of all others

similarly situated,

Adv. No. 19-08248 (SHL) (Reyes)

Plaintiffs,

v. Adv. No. 19-08249 (SHL) (Jackson)

WELLS FARGO BANK, N.A.,

Defendant.

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MEMORANDUM OF DECISION GRANTING DEFENDANT’S MOTION TO DISMISS

A P P E A R A N C E S:

THE DANN LAW FIRM CO. LPA.

Counsel for the Plaintiffs Justo Reyes & Karen Jackson

372 Kinderkamack Road, Suite 5

Westwood, NJ 07675

By: Javier L. Marino

Marc E. Dann

Brian D. Flick

TIRELLI LAW GROUP, LLC.

Counsel for the Plaintiffs Justo Reyes & Karen Jackson

50 Main Street, Suite 1265

White Plains, NY 10606

By: Linda M. Tirelli

ZIMMERMAN LAW OFFICES, P.C.

Counsel for the Plaintiffs Justo Reyes & Karen Jackson

77 West Washington Street, Suite 1220

Chicago, IL 60602

By: Thomas A. Zimmerman, Jr.

Mathew C. De Re

LOCKE LORD LLP

Counsel for the Defendant Wells Fargo Bank, N.A.

Brookfield Place

200 Vesey Street, 20th Floor

New York, NY 10281

By: Casey B. Howard

Aileen McTierman

SEAN H. LANE

UNITED STATES BANKRUPTCY JUDGE

Before the Court in the above-captioned cases are the motions to dismiss of Wells Fargo

Bank, N.A. (“Wells Fargo” or the “Defendant”) under Federal Rule of Civil Procedure 12(b)(6),

which is made applicable to these adversary proceedings by Federal Rule of Bankruptcy

Procedure 7012(b).1 See Notice of Motion [ECF No. 19]; Memorandum of Law in Support of

Wells Fargo Bank, N.A.’s Motion to Dismiss Plaintiffs’ First Amended Complaint [ECF No. 19-

1] (the “Motion”). Plaintiffs Justo Reyes and Karen Jackson (collectively, the “Plaintiffs”)

oppose this motion. See Plaintiffs’ Opposition to Motion to Dismiss (the “Opposition”) [ECF

No. 21]. As the Court finds that each of the Plaintiffs’ claims are barred by the applicable statute

of limitations, the Court grants the Defendant’s motion.

BACKGROUND

As is the case on a motion to dismiss, the facts of the complaint are taken as true. Bell

Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). When reviewing a motion to dismiss, the

1 The amended complaints in this case are essentially identical class action lawsuits docketed in the two

separate adversary proceedings captioned above: Adv. No. 19-08248 (Reyes) and Adv. No. 19-08249 (Jackson). As

the corresponding motions to dismiss and responsive filings are also essentially identical, the Court will refer simply

to the pleadings on the Case Management/Electronic Case Filing (“ECF”) docket in Case No. 19-08248.

Court may consider documents that are directly referenced in the complaint, attached as exhibits

to the complaint, or relied upon by the plaintiff in bringing the suit. Chambers v. Time Warner,

Inc., 282 F.3d 147, 152–53 (2d Cir. 2002); DiFolco v. MSNBC Cable LLC, 622 F.3d 104, 111

(2d Cir. 2010).

A. The Loan Modification Process

In 2008, the Federal Government created several programs to provide eligible

homeowners with an opportunity to modify the terms of their mortgage to make their mortgages

more affordable. Amended Complaint ¶ 14 [ECF No. 16]. Under the applicable guidelines for

these programs, mortgage servicers like Wells Fargo evaluate the eligibility of borrowers for

loan modifications. Id. ¶ 15. Before any final modification, a borrower may first be placed in a

Trial Period Plan (“TPP”). Id. ¶ 16. If a borrower makes all required trial payments under a TPP

and experiences no change relative to the other eligibility requirements, then the borrower should

be approved for a permanent loan modification. Id. ¶ 17.

In late 2010, Plaintiff Reyes applied to modify his mortgage loan with Wells Fargo. See

id. ¶ 61. Wells Fargo approved a TPP for Reyes in a letter dated November 10, 2011. Id. ¶ 62;

Amended Complaint, Ex. B (“Reyes TPP Letter”) [ECF No. 16]. The Reyes TPP Letter required

Reyes to make three monthly payments in the amount of $3,467.89 starting on December 1,

2011. Amended Complaint ¶ 63; Reyes TPP Letter. Despite Reyes making all three payments

as required, the Defendant subsequently denied his permanent loan modification. Amended

Complaint ¶ 66. In the denial letter sent to Reyes on July 3, 2012, the Defendant stated that

“[t]here are additional liens on your property that prevent us from completing your request for

mortgage assistance.”2 Amended Complaint, Ex. E (“Reyes Denial Letter”) [ECF No. 16]. In

2 The process of modifying the terms of the mortgage loan creates a risk that the mortgage lender with the

loan being modified will lose primacy and become subordinate to other liens on the property. Amended Complaint

fact, the Defendant had failed to convince the existing lienholders to subordinate their liens.

Amended Complaint ¶ 35. More than six years later in April 2019, the Defendant sent Reyes a

letter and a check for $300. Amended Complaint, Ex. G (“2019 Reyes Letter”) [ECF No. 16].

In this letter, the Defendant stated that “[w]e should have let you know at the time of trial

approval that the [loan] modification might be denied due to title issues even if you paid the trial

period payments.” Id.

The situation was the same for Plaintiff Jackson. In mid-2012, Jackson applied for a loan

modification with the Defendant. Amended Complaint ¶ 83. Wells Fargo approved a TPP for

Jackson by letter dated July 25, 2012. Id. ¶ 84; Amended Complaint, Ex. A (“Jackson TPP

Letter”) [ECF No. 16]. The Jackson TPP Letter required Jackson to make three monthly

payments in the amount of $1,889.81 starting on September 1, 2012. Amended Complaint ¶ 85;

Jackson TPP Letter. While Jackson made all payments as required, the Defendant denied her

loan modification. Amended Complaint ¶¶ 88–89. In the denial letter sent to Jackson on

February 15, 2013, the Defendant stated that “[t]here are additional liens on your property that

prevent us from completing your request for mortgage assistance.” Amended Complaint, Ex. D

(“Jackson Denial Letter”) [ECF No. 16]. Once again, the Defendant was unable to convince the

existing lienholders to subordinate their liens. Amended Complaint ¶ 35. Some six years later in

March 2019, the Defendant sent Plaintiff Jackson a letter and a check for $300. Amended

Complaint, Ex. J (“2019 Jackson Letter”) [ECF No. 16]. In this letter, the Defendant stated that

¶ 19 (noting that this creates a title issue that lowers the economic value of that mortgage); see also In re Morales,

506 B.R. 213, 219 (Bankr. S.D.N.Y. 2014) (“Another condition is that the lender must maintain first lien position

and the underlying note and mortgage must remain fully enforceable.”) (citing U.S. Dep't of the Treasury, Making

Home Affordable Program Handbook for Servicers of Non-GSE Mortgages at 128 (ver. 4.3 2013)). To mitigate this

risk, mortgage lenders attempt to negotiate with existing lienholders to ensure that the mortgage lender with the loan

being modified maintains the same priority after modification. Amended Complaint ¶ 20.

“[w]e should have let you know at the time of trial approval that the [loan] modification might be

denied due to title issues even if you paid the trial period payments.” Id.

B. The Adversary Proceeding

On April 12, 2019, the Plaintiffs filed these adversary proceedings as a putative class

action against the Defendant on behalf of similarly situated individuals (collectively, the “Class

Members”). See Original Complaint ¶¶ 86–91 [ECF No. 1]; see also Amended Complaint ¶¶

105–10. The proposed Class includes:

[a]ll loan borrowers in the United States Bankruptcy Court for the Southern District

of New York who (1) filed for Chapter 13 Bankruptcy in the Southern District of

New York; (2) owed amounts to Wells Fargo, as servicer and/or holder, on debt

secured by real property; (3) entered into a TPP with Wells Fargo; (4) whose TPP

did not contain an express provision stating that they could be refused a permanent

Loan Modification in the event that a subordinate lienholder refused to subordinate

its existing lien to their modified mortgage; (5) made all required payments

pursuant to the terms of that TPP; and (6) were denied a permanent Loan

Modification because a subordinate lienholder refused to subordinate its existing

lien to his or her modified mortgage.

Amended Complaint ¶ 105.

The Plaintiffs allege that the Defendant—under the guise of participating in the

government-sponsored Home Affordable Modification Program (“HAMP”)—misled the

Plaintiffs into making additional loan payments by the promise of a permanent loan modification

as offered in the TPP Letters. Id. ¶¶ 28, 45; Jackson TPP Letter; Reyes TPP Letter. The

Plaintiffs contend that the Defendant improperly implied in the Denial Letters that the rejection

of Plaintiffs’ request for permanent loan modifications resulted solely from the Plaintiffs’ own

actions. Amended Complaint ¶¶ 38–39; Jackson Denial Letter; Reyes Denial Letter. The

Plaintiffs argue that they were only alerted to Defendant’s fraud relating to the denials when the

Defendant sent each Plaintiff the 2019 Letters. Amended Complaint ¶¶ 49, 51; 2019 Jackson

Letter; 2019 Reyes Letter.

The Plaintiffs allege the following causes of action against the Defendant: (1) fraudulent

misrepresentation (“Count I”); (2) unjust enrichment (“Count II”); (3) declaratory judgment

(“Count III”); and (4) violation of New York General Business Law Section 349 (“Count IV”).

See Amended Complaint. In Count I of the Amended Complaint, the Plaintiffs assert that Wells

Fargo fraudulently misrepresented that they would be offered permanent loan modifications if

the Plaintiffs successfully made all required TPP Payments. See id. ¶¶ 112–21. The Plaintiffs

note that the Defendant never explicitly stated that a permanent loan modification was contingent

upon the Defendant obtaining agreement from third parties to subordinate any existing liens on

their properties. Id. ¶¶ 113–15. The Plaintiffs assert that not only did the Defendant fail to

obtain an agreement to subordinate the existing liens, but also that the Defendant implied in the

Denial Letters that it was the Plaintiffs’ responsibility to ensure that the modified mortgage

retained its priority over the existing liens. Id. ¶ 37.

The Plaintiffs further allege that the Defendant’s actions were part of a scheme to extract

additional payments from its customers. Id. ¶ 119. These payments, the Plaintiffs contend,

would never have been made if the Plaintiffs were aware of the requirement that existing liens be

subordinated, and that the loan modification would be denied if an agreement to subordinate

existing liens could not be accomplished. Id. ¶¶ 118, 120. The Plaintiffs also contend that the

Defendant knew that no one seeking to preserve their home would agree to a TPP when

forewarned that there was a possibility that the existing lienholders might not agree to

subordinate their liens to Wells Fargo’s security interest, thus scuttling the permanent loan

modification. Id. ¶ 114. The Plaintiffs argue that knowledge of this potential outcome was a

material fact that was not disclosed and would have led Plaintiffs to not engage in the TPP

process. Id. ¶¶ 115–16.

In Count II of the Amended Complaint alleging unjust enrichment, the Plaintiffs assert

that the Defendant’s behavior created an inequitable situation where Wells Fargo unjustly

obtained additional payments from its customers that otherwise would not have been submitted.

See id. ¶¶ 123–29. The Plaintiffs contend that Wells Fargo’s customers would not have entered

into a TPP if the permanent modifications were not guaranteed. Id. ¶ 114. In Count III of the

Amended Complaint, the Plaintiffs seek a declaratory judgment under 28 U.S.C. §§ 2201 et. seq.

See id. ¶¶ 131–44. As a result of making the TPP Payments, the collectability of the Plaintiffs’

mortgage debt is reset to the date of their last TPP Payment. Id. ¶ 140. The Plaintiffs seek to

have the Court declare that the collectability of their debt is reset to accrue as if the Plaintiffs did

not make TPP Payments. Id. ¶ 141. In Count IV of the Amended Complaint, the Plaintiffs allege

that the Defendant’s actions violated N.Y. Gen. Bus. Law § 349, which makes it unlawful for a

business to deceptively market and sell consumer goods in New York State including—Plaintiffs

contend—loan modifications. See id. ¶¶ 146–63.

In its Motion, the Defendant argues that all the Plaintiffs’ claims are untimely. See

Motion at 6. The Defendant notes that the relevant statute of limitations is a maximum of six

years for any of the Plaintiffs’ four counts. Id. The Defendant argues that the Plaintiffs’ claims

accrued on July 3, 2012 for Reyes and February 15, 2013 for Jackson—the dates of the

respective Denial Letters—triggering the statute of limitations. Id. As this adversary proceeding

was not filed until April 12, 2019, the Defendant argues that the statute of limitations on all of

Plaintiffs’ claims has elapsed. Id. In the alternative, the Defendant argues that dismissal is

appropriate because each of the claims fails to state a claim that is cognizable under applicable

law. See id. at 1–2.

In response to the Motion, the Plaintiffs argue that the statute of limitations should be

tolled under New York’s discovery rule or, in the alternative, that the Defendant should be

equitably estopped from asserting a statute of limitations defense because of its purported

concealment of its fraudulent activities. See Opposition at 9. The Plaintiffs contend that the

Defendant’s fraud was not discoverable until the Defendant sent each Plaintiff the 2019 Letter.

Id. The Plaintiffs also contend that all their claims are viable as alleged. Id. at 3.

DISCUSSION

Federal Rule of Civil Procedure 12(b) “provides that a plaintiff’s complaint must be

dismissed if the complaint fails to state a claim upon which relief can be granted.” Homes v.

Ocwen Loan Serv., LLC., 2020 Bankr. LEXIS 1962, at *7–8 (Bankr. S.D.N.Y. July 24, 2020). A

defendant may raise the affirmative defense of statute of limitations in a motion to dismiss.

Ghartey v. St. John's Queens Hosp., 869 F.2d 160, 162 (2d Cir. 1989). A complaint filed after

the statute of limitations has expired may be dismissed under Rule 12(b)(6). Staehr v. Hartford

Fin. Servs. Grp., Inc., 547 F.3d 406, 426 (2d Cir. 2008).

In analyzing a motion to dismiss under Rule 12(b)(6), a court must determine whether the

plaintiff has pled “enough facts to state a claim to relief that is plausible on its face.” Bell Atl.

Corp. v. Twombly, 550 U.S. 544, 570 (2007). In making this determination, the Court reviews

the complaint assuming that all the factual allegations are true. Id. Taken as true, these facts

must establish “more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v.

Iqbal, 556 U.S. 662, 677 (2007). In reviewing the Defendant’s motion, the Court must draw all

reasonable inferences in favor of the Plaintiffs. Ganino v. Citizens Utils. Co., 228 F.3d 154, 161

(2d Cir. 2000).

A. Count I for Fraudulent Misrepresentation

For claims sounding in fraud, federal courts look to state law for the relevant statute of

limitations. See Dowe v. Leeds Brown Law, P.C., 419 F. Supp. 3d 748, 761–62 (S.D.N.Y. 2019).

In New York State, the statute of limitations for a claim of fraudulent misrepresentation is found

in N.Y. C.P.L.R. Section 213(8). Gutkin v. Siegal, 926 N.Y.S.2d 485, 486 (N.Y. App. Div.

2011). This section provides that an action based upon fraud generally must be commenced

within “six years from the date the cause of action accrued . . . .” See N.Y. C.P.L.R. § 213(8),

Saphir Int’l., S.A. v. UBS PaineWebber Inc., 807 N.Y.S.2d 58, 59 (N.Y. App. Div. 2006).

To begin the six-year statute of limitations analysis, the Court must first determine the

date this claim arose. In this case, the Defendant allegedly promised in the TPP Letters that

Plaintiffs would receive loan modifications if they made their trial payments—and nothing else

changed in the Plaintiffs’ situations—but the Defendant instead denied the requested loan

modifications despite the Plaintiffs’ TPP Payments. See Amended Complaint ¶¶ 28, 33, 35, 46,

73, 96; Opposition at 9. As it is undisputed that the Denial Letters were sent in July 2012 and

February 2013 and these actions were filed in April 2019, it appears that the fraud claims are

barred under the six-year statute of limitations.

Plaintiffs present two main arguments on the statute of limitations. First, Plaintiffs rely

on New York’s discovery accrual rule. Opposition at 7. See also Kaufman v. Cohen, 760

N.Y.S.2d 157, 166–67 (N.Y. App. Div. 2003) (reviewing New York’s version of the discovery

accrual rule). In New York, the discovery accrual rule is “two years after the fraud was

discovered . . . or could have been discovered by reasonable diligence.” See N.Y. C.P.L.R. §

213(8). The plaintiff carries “the burden of establishing that the fraud could not have been

discovered prior to the two-year period before the commencement of the action.” Cannariato v.

Cannariato, 24 N.Y.S.3d 214, 216 (N.Y. App. Div. 2016). But a plaintiff cannot claim

ignorance to a fraud when facts call for investigation. Aozora Bank Ltd. v. Deutsche Bank Sec.

Inc., 29 N.Y.S.3d 10, 14 (N.Y. App. Div. 2016). In such a case, the plaintiff has a duty of

inquiry. Id. New York courts use an objective test to determine whether a fraud could have been

discovered through reasonable diligence by an individual with ordinary intelligence. CSAM

Capital Inc. v. Lauder, 885 N.Y.S.2d 473, 478 (N.Y. App. Div. 2009); Gutkin, 926 N.Y.S.2d at

486. Under the reasonable diligence inquiry, a plaintiff will be held to have discovered the fraud

when the plaintiff has knowledge of an injury and the source of the injury from which the fraud

could be reasonably inferred. MBI Int’l Holdings Inc. v. Barclays Bank PLC, 57 N.Y.S.3d 119,

124 (N.Y. App. Div. 2017); See Rotella v. Wood, 528 U.S. 549, 555–56 (2000); U.S. v. Kubrick,

444 U.S. 111, 122 (1979) (“The prospect is not so bleak for a plaintiff in possession of the

critical facts that he has been hurt and who has inflicted the injury . . . . There are others who can

tell him if he has been wronged, and he need only ask.”). When a plaintiff does not perform

reasonable diligence that could have discovered the fraud, courts will impute to the plaintiff

knowledge of the fraud as of the date of the injury. MBI Int’l Holdings, 57 N.Y.S.3d at 125; L.C.

Capital Partners, L.P. v. Frontier Ins. Grp., 318 F.3d 148, 154 (2d Cir. 2003).

The Plaintiffs here contend that they could only have discovered the alleged fraudulent

misrepresentation when the Defendant sent the Plaintiffs the 2019 Letters. Opposition at 9. But

the Court disagrees. The Plaintiffs’ entire case is premised on the notion that the TPP Letters

essentially guaranteed them a loan modification if the Plaintiffs honored their obligations,

including most notably making the trial payments. See Amended Complaint ¶¶ 28, 46, 73, 96.

Under Plaintiffs’ own theory, therefore, Plaintiffs would have to know something was amiss

when they received the Denial Letters despite having held up their end of the bargain. Plaintiffs

argue that the Denial Letters concealed the Defendant’s fraudulent misrepresentation.

Opposition at 11. But once again, the Court disagrees. Rather than concealing the alleged fraud,

the Denial Letters highlighted that something was amiss. See MBI Int’l Holdings, 57 N.Y.S.3d at

124 (N.Y. App. Div. 2017) (“Plaintiffs’ own allegations, which we must accept as true on a

motion to dismiss, establish that plaintiffs were apprised of facts from which fraud could have

been reasonably inferred.”); World Wrestling Entm’t Inc. v. Jakks Pac., Inc., 530 F. Supp. 2d

486, 526 (S.D.N.Y. 2007) (“From [p]laintiff’s own, detailed allegations, the Court has little

difficulty in finding that a reasonable person would have been on inquiry notice.”); see also Koch

v. Christie’s Int’l PLC, 699 F.3d 141, 155–56 (2d Cir. 2012) (“[I]t is proper under New York law

to dismiss a fraud claim on a motion to dismiss pursuant to the two-year discovery rule when the

alleged facts do establish that a duty of inquiry existed and that an inquiry was not pursued.”).

In contending that they were not on inquiry notice until 2019, Plaintiffs cite to Kaufman,

760 N.Y.S.2d 157 (N.Y. App. Div. 2003). Opposition at 12–13. In Kaufman, the defendant

withheld from his partners that the true reason he allowed a co-owned building to go into

foreclosure was so that he could purchase the building, outside the partnership, at a significant

discount. 760 N.Y.S.2d at 163. The trial court in Kaufman held that the co-owners were placed

on inquiry notice by a letter highlighting that the defendant’s daughter was employed by the new

purchasers as part of the management of the building. Id. But the appellate court disagreed,

finding that these facts were not sufficient to put the plaintiffs on inquiry notice. Id. at 168. The

appellate court noted that both the plaintiff and his daughter were previously involved in the day-

to-day management of the building and, therefore, “it was not unusual that [the plaintiff or

plaintiff’s daughter] would have remained involved.” Id. (noting that the situation was

consistent with reasonable expectations under the circumstances).

This case is distinguishable from Kaufman. Plaintiffs argue that the Denial Letters did

not mention that Wells Fargo required an agreement from lienholders to subordinate their liens

and, thus, that the Denial Letters “were reasonably interpreted by the Plaintiffs as being entirely

consistent with their previous understanding of the Loan Modification Process.” See Opposition

at 12–13. But this contention flies in the face of Plaintiffs’ own complaint. Plaintiffs’ central

tenant is that the TPP Letters caused the Plaintiffs to believe that permanent loan modifications

were a “mere certainty.” Id. at 5. Under such circumstances, it is impossible to conclude that

Plaintiffs could have interpreted the Denial Letters as an expected event consistent with their

understanding. Indeed, at oral argument held on September 10, 2020, Plaintiffs’ counsel rightly

conceded that the Plaintiffs were on notice that something was amiss upon receiving the Denial

Letters.

For the same reason, Plaintiffs are mistaken in relying on De Sole v. Knoedler Gallery,

LLC, 974 F. Supp. 2d 274 (S.D.N.Y. 2013). See Opposition at 13. In De Sole, the plaintiffs

purchased paintings in an art gallery that turned out to be forgeries. 974 F. Supp. 2d at 293. The

defendants argued that forensic analysis, if employed by the plaintiffs at the time of the sale,

would have revealed the forgery, and therefore the discovery accrual rule should run from the

date of sale. Id. at 296–97. The court in De Sole disagreed, concluding that the plaintiffs at the

time of the sale “had no reason to suspect the authenticity of their painting.” Id. at 297. By

contrast, the Denial Letters here told Plaintiffs that they were not going to receive a loan

modification despite purportedly being promised one in the TPP Letters. Once they received the

Denial Letters, therefore, Plaintiffs had reason to suspect that Defendant’s prior promise of a

permanent loan modification was false. The Plaintiffs cannot simultaneously argue that they

were essentially guaranteed a loan modification and then maintain they were lulled into inaction

when they were denied that same loan modification.

Plaintiffs also contend that their time to file a complaint should be tolled until they

learned of the nature of their cause of action through the 2019 Letters. Opposition at 9

(“Plaintiffs did not become aware of any potential claims against Defendant until they received

their [2019 Letters], which renders their claims timely.”). That is to say, the Plaintiffs contend

that they needed to know the basis of their claim against the Defendant—that a “subordination

process” existed that was material to the Plaintiffs’ decision making—and that this fact only

became clear with the 2019 Letters. Id. But it is well established that the standard for inquiry

notice under the discovery accrual rule is notice of the injury, not notice of the claim. Rotella,

528 U.S. at 555 (“[I]n applying a discovery accrual rule, we have been at pains to explain that

discovery of the injury, not discovery of the other elements of a claim, is what starts the clock.”);

see Zumpano v. Quinn, 849 N.E.2d 926, 929 (N.Y. 2006) (“Plaintiffs’ proposed rule would

revive any lapsed claim where the defendant inflicted some type of injury upon a knowing

plaintiff but failed to come forward with further information about his or her wrongdoing.”).

Thus, all that was necessary was for Plaintiffs to learn of their denial—despite the Defendant’s

purported earlier promise of a loan modification—and not the exact reason for the Defendant’s

apparent change of heart.

Plaintiffs also argue that reasonable diligence would not have discovered the alleged

fraudulent misrepresentation because inquiry here was futile. Opposition at 14. Plaintiffs

speculate that Defendant would have given them false assurances about their eligibility for a loan

modification if they inquired. Id. But the key fact is that the Plaintiffs never did inquire. See

Koch, 699 F.3d at 152–53. The Court cannot speculate on what Defendant’s response might

have been to such an inquiry and whether it would have provided a basis for tolling the statute of

limitations here. Id.; see Ward v. N.Y. Univ., 2000 U.S. Dist. LEXIS 14067, at *16 (S.D.N.Y.

Sept. 25, 2000) (refusing to speculate on a motion for judgment on the pleadings where the

plaintiff made only “bald assertions and conclusory allegations” that the defendant University

failed to follow its own rules and procedures). In the face of such inaction, the law is clear that

the Plaintiffs are charged with knowledge of the fraud. L.C. Capital Partners, 318 F.3d at 154

(noting that if a party makes no inquiry into the injury, the party will have been held to have

knowledge of the fraud per the date of the injury).

The Plaintiffs’ second argument is based on equity. Opposition at 7. More specifically,

they argue that tolling of the statute of limitations under New York law is appropriate when a

defendant actively prevented the filing of a timely claim.3 Kaufman, 760 N.Y.S.2d at 167;

Dowe, 419 F. Supp. 3d at 761 (courts will apply equity to prevent a defendant from benefiting

from wrongdoing that causes a plaintiff to delay bringing the cause of action). Under this

equitable theory, a plaintiff must demonstrate: (1) the defendant utilized fraud,

misrepresentations, or deception to induce a plaintiff to refrain from filing a timely action; and

(2) the plaintiff “reasonably relied on the defendant’s misrepresentations.” MBI Int’l Holdings,

57 N.Y.S.3d at 126.

In support of this argument, the Plaintiffs cite Veltri v. Bldg. Serv. 32B-J Pension Fund,

393 F.3d 318 (2d Cir. 2004). Opposition at 8. In Veltri, a multi-employer pension fund denied

3 There are two separate but similar doctrines of equitable tolling and equitable estoppel. See In re Signature

Apparel Grp., 577 B.R. 54, 83 (Bankr. S.D.N.Y. 2017) (defining the difference while noting that some courts use

these terms interchangeably); see also Pearl v. City of Long Beach, 296 F.3d. 76, 82 (2d Cir. 2002) (noting that

generally New York courts refer to both doctrines as equitable estoppel). “Equitable tolling occurs where the

defendant conceals from the plaintiff the fact that he has a cause of action.” In re Signature Apparel Grp., 577 B.R.

at 83 (internal quotations omitted). “Under the concept of equitable estoppel, a defendant may be estopped from

pleading the Statute of Limitations where, inter alia, a plaintiff was induced by fraud, misrepresentation or deception

to refrain from timely commencing an action.” Id. (internal quotations omitted).

an applicant’s request to recalculate his pension benefits based on service that included two

distinct employment periods separated by several years. Id. at 321–22. In this denial, the fund

neither informed the applicant of his legal right to appeal the denial nor replied to the applicant’s

repeated further inquiries. Id. at 323. The court in Veltri found that it would be inequitable to

allow the fund to hide the right to appeal from the employee—despite being legally required to

inform the employee—and then assert a statute of limitations defense when the employee failed

to act timely. Id. But we have no such facts here. Rather than hide the Plaintiffs’ right to

challenge the Defendant’s decision as in Veltri, the Defendant here did the opposite. Both

Denial Letters emphasized in bold type—“If you believe the loss mitigation request has been

wrongly denied, you may file a complaint with the New York State Banking Department at 1-

877-BANK-NYS or www.banking.state.ny.us.”4 See Jackson Denial Letter; Reyes Denial

Letter. And as explained above, the Denial Letters did not lull the Plaintiffs to sleep as to their

rights; they alerted the Plaintiffs of their injury.

The Plaintiffs’ equitable argument also fails for an entirely separate reason. It is well

established that, for purposes of this equitable theory, the defendant’s actions that allegedly

induced a plaintiff to delay legal action must be subsequent to and different from the defendant’s

actions that define the claim. Zumpano, 849 N.E.2d at 929; see also Corsello v. Verizon N.Y.,

Inc., 976 N.E.2d 1177, 1184 (N.Y. 2012) (finding that the plaintiffs did not aver “an act of

deception, separate from the ones for which they sue, on which an equitable estoppel could be

based”). The Defendant’s issuance of the Denial Letters is the action that defines the Plaintiffs’

misrepresentation claim; without the denial of the loan modification, there is no claim. See

Amended Complaint ¶ 35 (describing that the Plaintiffs were informed that they had been

4 Plaintiffs do not contend that they availed themselves of the resources of the New York State Banking

Department in response to receiving the Denial Letters.

rejected for a permanent loan modification). Thus, the Plaintiffs cannot also argue that the same

Denial Letters induced them into delaying legal action. See id. ¶ 42 (noting that Defendant

“actively concealed” the fraud through the Denial Letters); see also Kaufman, 760 N.Y.S.2d at

167 (noting that to allow the same action to form the basis of the claim and tolling would

“always trigger equitable estoppel and render the discovery accrual rule for fraud actions

superfluous”).

B. The Remaining Counts

For related reasons, the Plaintiffs’ three remaining causes of action must also be

dismissed. Like the fraudulent misrepresentation count above, the Plaintiffs’ second count for

unjust enrichment is outside the applicable statute of limitations. In New York, a cause of action

for unjust enrichment has a statute of limitations period of six years. Yarbro v. Wells Fargo

Bank N.A., 33 N.Y.S.3d. 727, 728 (N.Y. App. Div. 2016) (citing N.Y. C.P.L.R. § 213(1)). For

unjust enrichment, the statute of limitations accrues from the time of the alleged wrongful act

that led to the claim. Id. The statute does not provide for a similar discovery accrual rule as an

action sounding in fraud. See N.Y. C.P.L.R. § 213(1). As the alleged wrongful act leading to the

claim was the Defendant’s retention of the Plaintiffs’ TPP payments notwithstanding the

issuance of the Denial Letters, the Plaintiffs are time-barred from pleading a claim of unjust

enrichment.

The Court also finds that the Plaintiffs’ fourth count under N.Y. Gen. Bus. Law § 349 is

outside the statute of limitations. In New York, the statute of limitations for Section 349 is

controlled by N.Y. C.P.L.R. § 214(2) and is three years. Gaidon v. Guardian Life Ins. Co. of

Am., 750 N.E.2d 1078, 1082–83 (N.Y. 2001) (differentiating the statute of limitations for N.Y.

Gen. Bus. Law § 349 from the statute of limitations for common law fraud controlled by N.Y.

C.P.L.R. § 213(8)). Claims under Section 349 accrue as of the date of the injury caused by the

deceptive practices. Id. at 1083. As established in the fraudulent misrepresentation count, the

Plaintiffs’ alleged injury occurred with the Denial Letters, which was the completion of the

alleged deception and took place over six years prior to the filing of this adversary proceeding.

This claim must be dismissed as time barred consistent with the Court’s rulings above.

Finally, the Court dismisses the Plaintiffs’ request for declaratory judgment. A

declaratory judgment is a procedural device that is used to vindicate substantive rights. Stone v.

Williams, 970 F.2d 1043, 1048 (2d Cir. 1992). As such, the statute of limitations on a request for

declaratory judgment matches that of the underlying substantive right being litigated. Lehman

Bros. v. Giddens (In re Lehman Bros.), 617 B.R. 231, 244 (Bankr. S.D.N.Y. 2020). Given the

Court’s dismissal of the Plaintiffs’ underlying substantive claims, the request for declaratory

judgment must also be dismissed as time barred.5

5 Having found that each of the Plaintiffs’ claims are barred by the applicable statute of limitations, the Court

declines to rule on the Defendant’s motion to dismiss for failure to state a claim.

CONCLUSION

For the reasons set forth above, the Court grants the Defendant’s motion to dismiss in its

entirety. The Defendant shall settle an order on three days’ notice. The proposed order must be

submitted by filing a notice of the proposed order on the Case Management/Electronic Case

Filing docket, with a copy of the proposed order attached as an exhibit to the notice. A copy of

the notice and proposed order shall also be served upon opposing counsel.

Dated: White Plains, New York

April 20, 2021

/s/ Sean H. Lane

UNITED STATES BANKRUPTCY JUDGE