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Bayview Loan Servicing, LLC, et al v. Law Firm of Richard M. Squire

December 13, 2010

BAYVIEW LOAN SERVICING, LLC, ET AL., PLAINTIFFS,
v.
LAW FIRM OF RICHARD M. SQUIRE &
ASSOCIATES, LLC, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Yohn, J.

MEMORANDUM

Plaintiffs, Bayview Loan Servicing, LLC ("Bayview") and its wholly-owned subsidiary IB Property Holdings, LLC ("IB"), bring this legal malpractice action against defendants, the law firm of Richard M. Squire & Associates, LLC (the "Squire Firm") and its employee M. Troy Freedman ("Freedman"). Plaintiffs claim that defendants represented them in a foreclosure action; that defendants failed to file a petition to fix the fair value of the relevant property within six months of the foreclosure sale, which is required by statute in order to pursue a deficiency judgment; and that as a result of defendants' failure plaintiffs lost any right to pursue the deficiency they were owed.

Defendants have filed a motion to dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6). Defendants request that Counts I-II (breach of fiduciary duty), III (negligent supervision) and V (punitive damages) be dismissed with prejudice, and that Count IV (breach of contract) be dismissed with leave to amend. For the reasons explained below I will deny defendants' motion.

I. Factual and Procedural Background*fn1

Bayview acquired the note and associated mortgage (collectively, the "Mortgage") at the center of this litigation from MetWest Commercial Lender, Inc. ("MetWest"). (Compl. ¶ 13.) The Mortgage represented a loan to an individual, Peter Pugliese, for an original principal amount of $262,500.00, and granted the holder of the Mortgage a lien on certain real property (the "Property") to secure payment. (Compl. ¶¶ 10-11, 13.) Bayview assigned the Mortgage to IB. (Compl. ¶13.)

Peter Pugliese defaulted on the Mortgage in July 2007. (Compl. ¶ 17.) Plaintiffs then retained the Squire Firm to commence a foreclosure action against Peter Pugliese (the "Foreclosure Action"). (Compl. ¶ 18.) Plaintiff IB obtained an in rem judgment and judgment against Peter Pugliese in the amount of $287,992.56 in the Foreclosure Action on January 24, 2008. (Compl. ¶ 18; Opinion 2.) IB purchased the Property at a sheriff's sale on September 5, 2008. (Compl. ¶ 20.) IB subsequently sold the Property to a third party. (Id.)

On December 4, 2008, plaintiffs instructed defendants to seek a deficiency from Peter Pugliese in the amount of $374,998.01. (Compl. ¶¶ 21, 23.) Defendants, on behalf of plaintiffs, filed a lawsuit against Peter Pugliese for the deficiency on March 26, 2009, in the Berks County Court of Common Pleas (the "Deficiency Action"). (Compl. 25, 28.) However, defendants had failed to file a petition to fix fair value within six months of the sheriff's sale, as required under Pennsylvania law in order to pursue a deficiency, see 42 Pa. Cons. Stat. § 8103(a)-(d); the six month period had expired on March 5, 2009. (Compl. ¶ 22.)

On April 27, 2009, Wendy Pugliese filed a petition in the Berks County Court of Common Pleas to mark the judgment against Peter Pugliese in the Foreclosure Action satisfied, released and discharged, based on plaintiffs' failure to file the required petition to fix fair value.*fn2 (Opinion 3.) In response Freedman sent a letter to President Judge Schmehl, the presiding judge in that action, advising that Bayview had no objection to marking the judgment satisfied, released and discharged. (Compl. ¶ 26; Opinion 7-8.) Plaintiffs did not authorize this letter and were not informed of its existence at the time. (Compl. 26.) President Judge Schmehl granted Wendy Pugliese's petition and issued an order marking the judgment against Peter Pugliese in the Foreclosure Action satisfied on June 5, 2009. (Compl. ¶ 27.) Plaintiffs were not informed by defendants of this order. (Id.)

Despite the initial judgment against Peter Pugliese in the Foreclosure Action having been marked satisfied, a default judgment was entered against him in the Deficiency Action for $295,726.05 on July 13, 2009. (Compl. 28.) Sheriff's levies were served against Peter Pugliese for all his property and business on July 27, 2009. (Compl. ¶ 29.) Peter Pugliese then filed a petition to strike the default judgment, arguing that the original judgment had already been marked satisfied pursuant to President Judge Schmehl's order. (Compl. ¶ 30.) On October 4, 2009, Peter Pugliese's petition was granted and the Deficiency Action was dismissed.*fn3 (Compl.¶ 32.)

On October 14, 2009, plaintiffs moved to strike or open the order of June 5, 2009 marking the judgment against Peter Pugliese satisfied. (Opinion 3.) Judge Schmehl denied plaintiffs' motion on December 3, 2009, and on April 1, 2010 recommended that plaintiffs' appeal to the Pennsylvania Superior Court be denied.*fn4 (Opinion 3-4, 8.)

Plaintiffs' filed this malpractice suit against the Squire Firm and Freedman on April 1, 2010. Defendants have now moved to dismiss for failure to state a claim.

II. Legal Standard

"To survive a motion to dismiss [pursuant to Rule 12(b)(6)], a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Factual allegations "that are 'merely consistent with' a defendant's liability," or that permit the court to infer no more than "the mere possibility of misconduct" are not enough. Id. at 1949-50 (quoting Twombly, 550 U.S. at 557). Rather, the plaintiff must plead "factual content that allows the court to draw the reasonable inference that the defendant is liable for misconduct alleged." Id. at 1949. In evaluating a motion to dismiss, the court "must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions." Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009); see also Iqbal, 129 S. Ct. at 1949("Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.").

Plaintiffs incorrectly claim that a movant under Rule 12(b)(6) must demonstrate that the plaintiff "can prove no set of facts in support of his claim which would entitle him to relief." (Pl.'s Mem. in Opp'n to Defs.' Mot. to Dismiss ("Pls.' Resp.") 6.) As the Third Circuit recognized in Fowler, the "no set of facts" standard did not survive Iqbal. Fowler, 578 F.3d at 210 ("Iqbal . . . provides the final ...


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