Opposition Brief — Reyad v. Bank of New York, 127 S. Ct. 1493 (2007) (No. 06-921)

[2 ) FILED

FEB 2 - 2007

OFFICE OF THE CLERK |

UNITED STATES

SUPREME COURT

06-921

MOSTAFA REYAD,

PETITIONER

V.

BANK OF NEW YORK, TRUSTEE,

RESPONDENT

RESPONDENT’S BRIEF

IN OPPOSITION

TO PETITION FOR CERTIORARI

BY GEOFFREY MILNE

HUNT LEIBERT

50 WESTON STREET

HARTFORD, CT 06120

860-240-9140

QUESTION PRESENTED FOR REVIEW

Respondent states that the question presented for re-

view by the Petitioner regarding the constitutionality of

CGS 52-221(a) was never raised in the trial court and

cannot form the basis of the Petition.

TABLE OF CONTENTS

AND TABLE OF AUTHORITIES

QUESTION PRESENTED FOR REVIEW .................:0065 i

TABLE OF CONTENTS AND AUTHORITIES ............... il

CTTAT SORIA FE RNG EED cnccssseseerccesccoecessonesnnssusenasessenenen il

BASIS FOR JURISDICTION cncvccsenssssesesersnsenessesessessesesorsn iil

STATOR © OF TEE CARE. covescsssceessorivcnveresestssammmanenns 1

SUMMARY OF THE ARGUMENT. ..............cccccccceesessereees 2

PRUE GE, cxcrseserciecsstoresesvsnsenctenteninennsanenanaaae 2

i. BACKGROUND OF PETITIONER'S BUSINESS

AS RELATES TO CABE. .......<.ccccccoccocccsseesesecsesses 2

II. FACTUAL BACKGROUND AND

FINDINGS OF TRIAL COURT .......cccccccccceceseeseees 3

III. LEGAL BASIS FOR STATE COURT DECISION

seiinsoasceuionomeesilresed een idouiesndeeadtiouiei eee 8

COOPICTTIIIIOIG -ovtee ev eoniosessiiecsssiesnonsensedesincsncceneeaa 8

Adams v. Rubinow, 157 Conn. 150, 152-53 (1968) .......... 9

Catalina v. Nicolelli, 90 Conn. App. 219, 222-24, (2005)............. 8

Cornelius y. Department of Banking, 94 Conn. App. 547 (2006) ....2

Gentile v. Altermatt, 169 Conn. 267, 307, (1975),

appeal dismissed, 423 U.S. 1041, 96S. Ct. 763,

IS III © TID. coc sesdicnaucpsemdauppansiacemndeeoatmonteanel 9

Kellems v. Brown, 163 Conn. 478, 483, appeal dismissed,

409 U.S. 1099, 93 S. Ct. 911, 34 L. Ed. 2d 678 (1972).............. 9

Hardware Mutual Casualty Co. yv. Premo, 153 Conn. 465,

EAE aa aN NE AS REM g NP Ry 9

IndyMac v. Reyad, 2006 U.S. Dist. Conn. Lexis 55272. ....... 8

Schwartz v. Milazzo, 84 Conn. App. 175 (2004)................ 8

State v. Cuvelier, 175 Conn. 100, 111-12, (1978).............. 9

Valentin v. Community Remodeling Co., 90 Conn. App.

TTL iccis locnssenininsiinesnsediisviomubionaiensnaaian hccniainelanoaia 8

Weil v. Miller, 185 Conn. 495, 501-502 (Conn. 1981)....... 9

CITATIONS OF REPORTS

Bank of New York v. National Funding 97 Conn. App.

133 (2006) and underlying trial court opinion,

unreported.

BASIS FOR JURISDICTION

Respondent contends that there is no basis for

jurisdiction because no federal question has been raised

and there has been no compliance with Rule 10. Under

Rule 10, review of a case by petition for certiorari is a

matter of discretion for the Court and is not a matter of

right. A petitioner is required to demonstrate compelling

reasons to obtain review by petition for certiorari. The

enumerated grounds include: (1) decisions in conflict

with the federal courts of appeal; (2) a state court of last

resort has improperly decided an important federal ques-

tion; (3) a state or federal court has decided a federal

question which needs to be settled by this Court. None of

these grounds are satisfied in this case, as it involves

questions of Connecticut law. In addition, no arguments

were ever advatwed in the trial court which addressed

any federal questions.

The Connecticut Supreme Court declined to exer-

cise its discretion to review the Appellate Court’s deci-

sion, which is a clear indication that Reyad’s arguments

are without merit. The issues involved in this case are

il

purely matters of substantive and procedural Connecti-

cut law. Reyad never raised any questions of federal law

during the trial of this case, and the lengthy bench opin-

ion addresses all of the arguments which were advanced

by the Petitioner, including but not limited to standing.

STATEMENT OF THE CASE

The Connecticut Superior Court entered a judg-

ment in favor of the Respondent, Bank of New York,

Trustee [BNY], on January 21, 2005, after a hearing in

damages. Petitioner, Mostafa Reyad, d/b/a National

Funding [“Reyad”], was defaulted for his failure to com-

ply with discovery requests issued by BNY. Reyad failed

to file a timely notice of defenses within 10 days of the

entry of the default, as required under Connecticut

Practice Book Section 17- 35(b). At the hearing in dam-

ages, the Defendant-Appellant offered no evidence re-

garding damages or challenging damages, although he

had the right to do so. [Transcript of October 26, 2004,

p.79]}. ;

On August 15, 2006, the Connecticut Appellate

Court affirmed the trial court judgment, as reported in

97 Conn. App. 133 (2006). Reyad filed a Motion for Re-

consideration, En Banc, dated August 15, 2006, which

was denied by the Connecticut Appellate Court on Sep-

tember 6, 2006. A Petition for Certification was filed by

the Defendant-Appellant, Mostafa Reyad, according to

date stamp of September 14, 2006, which was denied by

the Connecticut Supreme Court. Therefore, all state law

procedural avenues were unsuccessfully explored by Re-

yad, including a motion to stay enforcement of the judg-

ment after the Connecticut Supreme Court denied the

Petition for Certification.

SUMMARY OF THE ARGUMENT

I. Background of Petitioner’s Business as Relates

to Case.

II. Factual Background and Findings of Trial Court.

III. Legal Basis for State Court Decision.

THE ARGUMENT

I. BACKGROUND OF PETITIONER’S BUSINESS AS

RELATES TO CASE.

Reyad operated a series of mortgage companies

under various trade names in Connecticut, including

National Funding. Reyad utilized third party funds to

close mortgage loan transactions, under which he earned

yield spread premiums and various comrnissions. All of

the loans closed by Reyad were immediately sold, so Re-

yad effectively held no mortgage loans and did not fund

any of the mortgage loans from which he earned com-

missions. The Connecticut District Court, in a separate

case, has made findings of fact and conclusions of law

that Reyad converted or misappropriated money under

certain warehouse lines of credit, which findings are the

basis of a federal court judgment against Reyad for a

separate violation of the Connecticut unfair trade prac-

tices act. IndyMac v. Reyad, 2006 U.S. Dist. Conn. Lexis

55272. Reyad, as a licensee under Connecticut law as a

non-depository first and second mortgage lender under

CGS 36a-488, has a non-delegable duty to comply with

Connecticut and federal law. Cornelius v. Department

of Banking, 94 Conn. App. 547 (2006).

2

Il. FACTUAL BACKGROUND AND FINDINGS

OF TRIAL COURT.

Plaintiff-Appellee, Bank of New York, Trustee

(“BNY”), commenced this action for negligence and an

unfair trade practice by Writ, Summons and Complaint

dated August 1, 2000 against the Defendants Mostafa

Reyad, National Funding, National Funding Mortgage

Banker, Mostafa Reyad & Companies, (“Reyad Defen-

dants”), for damages in connection with the origination of

two mortgage loans in the original principal amount of

$1.65 million dated August 31, 1998 to Eugene Chimblo,

ostensibly secured by certain real property known as 993

Lake Avenue, Greenwich, Connecticut (“premises”).

Counsel filed an appearance for the Reyad Defendants at

the inception of the action. On or about July 23, 2002, in

response to a request to revise filed by a defendant, BNY

filed a Revised Complaint, and an Answer was filed by

the Reyad Defendants dated August 16, 2002, which An-

swer admitted that the loan officer in these transactions

was an employee of Reyad.

BNY served discovery requests upon the Reyad in

September, 2003. Reyad failed to comply with the discov-

ery requests. BNY filed a mzotion for compliance

(#154.00) on December 3, 2002, which was granted by

the Court, and compliance was ordered. No such compli-

ance occurred, and BNY proceeded to file a Motion for

Default dated February 9, 2004, which was granted by

the Court on May 6, 2004. Notice of the default was is-

3

sued by the clerk on May 6, 2004. On or about May 13,

2004, Defendant-Reyad filed a Motion to Reopen the de-

fault, which Motion was scheduled for oral argument be-

fore the Court on July 12, 2004.

After oral argument, the trial court denied Re-

yad’s Motion to Reopen, and the case was assigned to a

hearing in damages. On or about July 20, 2004, the De-

fendant, Reyad, filed a notice of defenses. The notice of

defenses were untimely under P.B. Section 17-35 (b), in

that it was not filed within 10 days of the order from the

clerk that the default was granted, which was May 6,

2004. Accordingly, based upon the absence of a timely

disclosure of defense, Reyad was precluded from chal-

lenging any aspects of liability in this case. In addition,

Reyad failed to disclose any experts on liability or dam-

ages at any time during the pendency of the case.

At the hearing in damages on October 26, 2004,

Reyad offered no evidence to challenge damages. Reyad

offered no expert or other testimony on the value of the

collateral, nor did he offer any evidence to challenge the

amount of the claimed damages. The following exchange

occurred on the record with the Defendant-Reyad

(transcript of October 26, 2004, p. 79):

The Court: Do you wish to put on any case ?

Mr. Reyad: in evidence ?

The Court: With regard to damages.

Mr. Reyad: For the damage. No evidence for

the damage.

The Court: Okay, sir. Thank you.

4

BNY asked the Court to take judicial notice of the

mortgage foreclosure action, under which title vested on

February 1, 2002 and a deficiency judgment entered on

June 16, 2003 for $448,726.50 (Plaintiffs exhibit “4”).

The trial court took judicial notice of these findings from

the mortgage foreclosure action. BNY introduced evi-

dence that a loan officer for the Respondent permitted an

appraisal, prepared for the seller of the premises, to be

“re-certified” to the Respondent as the appraisal which

valued the collateral for the loan transaction. (Plaintiff's

exhibit 1). The appraisal report, prepared by Gary Ol-

cha, indicated a value of $2.75 million. Plaintiff, in a

separate action, obtained a judgment against that ap-

praiser, which judgment was admitted into evidence

based upon a finding of judicial notice (p. 76, transcript

of 10/26/04).

BNY offered testimony from its expert that the

loan to value ratio for the subject transaction was about

120%, not the 60% loan to value ratio as required under

the loan program at issue. The evidence showed at the

time of the loan origination that the reported 55 - 60%

loan to value ratios by the Reyad Defendants in the com-

mitment letter and the Uniform Underwriting Transmit-

tal Summary were false. (Plaintiffs exhibits 7 and 8).

The Plaintiffs expert further testified that he had ap-

praised the subject property on a number of occasions

and was familiar with the Greenwich real estate market.

Valuation testimony was offered both from the time of

the origination of the loan in 1998 and on the date title

5

vested in the foreclosure of the mortgage on February 1,

2002.

The evidence demonstrated that the value of the

property at the time of the origination of the loan was

$1.25 million, not the $2.75 million as set forth by the

Respondent in the Uniform Underwriting Transmittal

Summary (Plaintiffs exhibit “8”). The trial court further

found that the Respondent possessed information regard-

ing large disparities in the collateral value- an auction

price of $875,000 and an appraisal at $2.75 million- yet

they proceeded to process the loan documentation and

close the loan transaction with funds from a third party,

then selling the loan documents to the Plaintiff.

The trial court specifically addressed the issue of

standing in that it held that Reyad’s assertion that he

had no dealings with BNY was directly contradicted by

his very own testimony in the mortgage foreclosure ac-

tion, in which he testified that he authorized the assign-

ment of the loan documents to BNY.

The trial court entered damages against the Re-

spondent for the amount of the deficiency judgment, plus

an award under the Connecticut Unfair Trade Practices

Act for punitive damages equal to the deficiency judg-

ment, for a total award of $897,453. In short, the trial

court found that Reyad, acting through his loan officer,

engaged in deceptive conduct to earn a commission by

obtaining an inaccurate appraisal and by failing to alert

the funds provider to information within its possession

regarding the inflated valuation. This evidence formed

the basis of a finding that an unfair trade practice oc-

curred.

Mortgage fraud perpetuated by mortgage brokers

has become a national epidemic. Alarmingly, the FBI’s

2005 Financial Institutions Report concludes that 80 per

cent of all mortgage fraud involves “industry insiders”

li.e. appraisers, mortgage brokers, closing agents]. This

Court may take judicial notice of HR 1295, currently

pending before Congress, which is designed to address

the national mortgage fraud epidemic.

Ill. LEGAL BASIS FOR STATE COURT DECISION.

The Connecticut Superior and Appellate Courts

decided this case consistent with prior Connecticut case

precedent, that the failure to file a timely notice of defenses

constitutes a waiver of any defense to liability under Con-

necticut law. Schwartz v. Milazzo, 84 Conn. App. 175

(2004).

“A default admits the material facts that consti-

tute a cause of action .. . and entry of default, when ap-

propriately made, conclusively determines the liability of

a defendant." (Internal quotation marks omitted.)

Schwartz v. Milazzo, 84 Conn. App. 175, 178, cert. de-

nied, 271 Conn. 942, (2004). The defaulted party may

challenge the allegations of a complaint only if it files a

notice of defenses within ten days of notice of the de-

fault, which the defendants here failed to do. See Gen-

eral Statutes § 52-221 (a); Practice Book §§ 17-34, 17-35;

Catalina v. Nicolelli, 90 Conn. App. 219, 222-24, (2005).

Defendant-Appellant has cited” no public policy

which is greater ‘than the protection of the public by de-

terring licensées from misbehavior in the mortgage loan

origination process. In addition, loans tainted with fraud

are properly the subject of breach of contract and other

claims against loan originators. Mario Valentin v. Com-

munity Remodeling Co., 90 Conn. App. 255 (2005). Any

possible doubt about the good faith of Reyad may be

quickly dispelled by a federal court judgment in a sepa-

rate case, which entered punitive damages against him

‘or intentional misconduct in abusing warehouse lending

monies which were to fund mortgage loans. IndyMac v.

8

Reyad, 2006 U.S. Dist. Conn. Lexis 55272. According to

well-established Connecticut law, a plaintiff who chal-

lenges the constitutionality of a statute must prove that

the statute has adversely affected a constitutionally pro-

tected right “under the facts of his particular case and

not merely under some possible or hypothetical set of

facts not proven to exist." Hardware Mutual Casualty Co.

v. Premo, 153 Conn. 465, 471, (1966); State v. Cuvelier,

175 Conn. 100, 111-12, (1978); Gentile v. Altermatt, 169

Conn. 267, 307, (1975), appeal dismissed, 423 U.S. 1041,

96 S. Ct. 763, 46 L. Ed. 2d 631 (1976); Kellems v. Brown,

163 Conn. 478, 483, appeal dismissed, 409 U.S. 1099, 93

S. Ct. 911, 34 L. Ed. 2d 678 (1972); Adams v. Rubinow,

157 Conn. 150, 152-53 (1968). Furthermore, a person

contesting a statute's constitutionality has a heavy bur-

den to establish its invalidity beyond a reasonable doubt.

Weil v. Miller, 185 Conn. 495, 501-502 (Conn. 1981) In

this case, Reyad never challenged the constitutionality of

CGS 52-221(a) prior to the instant petition, nor has he

identified how the statute has adversely affected a con-

stitutionally protected right. The simple reality 's Reyad

failed to follow Connecticut procedure, yet he was still

afforded notice of a hearing to open the default, and a

separate hearing, with appropriate notice, on the issue of

damages.

Finally, Reyad testified in the mortgage foreclo-

sure that he specifically authorized the assignment of the

subject loans to the Respondent. The trial court in the

instant case noted that his protestations and testimony

to the contrary were totally lacking in credibility. Ample of

evidence of standing exists, as more fully set forth in the

trial court opinion, which is incorporated by reference.

CONCLUSION

WHEREFORE, the Objection to the Petition for

Certioari should be sustained.

The Respondent, Bank of New York, Trustee

50 Weston Street

Hartford, CT 06120

860-240-9140

CERTIFICATION

I hereby certify that a copy of this pleading was mailed

by us mail, postage prepaid, on this 2nd day of February,

2007, to the following counsel and pro se parties of

record:

Mostafa Reyad

777 Summer Street .

Stamford, CT 06905

Gebffrey K. Mifne