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Anona Duffy, et al v. Lawyers Title

February 23, 2012

ANONA DUFFY, ET AL., PLAINTIFFS
v.
LAWYERS TITLE
INSURANCE CO., DEFENDANT



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

MEMORANDUM

This action was brought against Lawyers Title Insurance Co. for Fraud and violation of Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("UTPCPL") as the result of a "mortgage rescue scam." On October 10, 2011 defendant filed this motion to dismiss, which I will deny.

I.Background

In their Amended Complaint, plaintiffs allege they are victims of a series of foreclosure rescue scams, described as "equity skimming scams." (Amend. Compl. at ¶ 4). Plaintiffs claim that defendant, Lawyers Title Insurance Co., (hereinafter "Fidelity"),*fn1 is also the principal, insurer and underwriter of First County Abstract ("First County"),*fn2 and that these and other parties conspired to steal the equity in Plaintiffs' properties. (Amend. Compl. at ¶¶ 12-15, 17, 36). Specifically, Jeffrey Bennett and Steve Doherty functioned as title agents and as principals of Bennett & Doherty, P.C., a firm acting as an alter ego of and trading as First County.*fn3 (Amend. Compl. at ¶¶ 17, 25).

Plaintiffs include facts concerning their individual financial and foreclosure circumstances, but essentially each plaintiff was in the midst of a foreclosure action commenced by their respective lenders when the equity scams took place.*fn4 (Amend. Compl. at ¶ 12, 29-31). Plaintiffs claim that they had substantial equity in their homes and were attempting to avoid foreclosure through settlement conducted by First County. (Amend. Compl. at ¶ 31-37).

The Equity Skimming Scam

Plaintiffs allege that they were contacted by someone who told them that they could save their home from foreclosure by refinancing under a third party's name. (Amend. Compl. at ¶ 30). The third party was a "straw party" with good credit to act as the purchaser of the Plaintiffs' residences. Settlement for each transaction was scheduled with Bennett and Doherty, P.C. (Amend. Compl. at ¶ 51, 155, 165). Preceding settlement, First County, through Bennett, issued a preliminary HUD-1, settlement sheet, which set forth costs and showed a "cash-to-seller" payment illustrating the amount of equity in each home. (Amend. Compl. at ¶ 184). This prompted the release of the settlement funds to Bennett and Doherty. (Amend. Compl. at ¶ 168).

After the funds were released, First County, through Bennett, issued a phony final HUD-1, which reduced the proceeds paid to plaintiffs to zero. (Amend. Compl. at ¶¶ 37, 185, 195). Specifically, the defaulting mortgage was paid off through financing provided by J.P. Morgan Chase, who then obtained a new mortgage on the property.*fn5 (Amend. Compl. at ¶¶ 35-36). Lawyers Title Insurance, now Fidelity, issued title insurance through its agents, which insured the lien on the new mortgage. (Amend. Compl. at ¶ 38, 171). The proceeds of the new mortgage were then used to pay off the old mortgage and to satisfy other "obligations." (Amend. Compl. at ¶ 35). However, many of these obligations were phony, and the payments were diverted to third parties involved in the fraudulent scheme. (Amend. Compl. at ¶ 36).

Defendant's Failure to Detect the Fraud

Plaintiffs claim that defendant was imputed with the knowledge of these scams through their agents, First County, Bennett, and Doherty, and that defendant must have audited at least one of these transactions and failed to identify the fraud. (Amend. Compl. at ¶ 41-43). At oral argument, plaintiff's counsel argued that defendant, as the underwriter, should have overseen their agents, and had a duty to disclose the fraud. Plaintiffs also allege that defendant did not question, reject, investigate, or attempt to determine whether the HUD-1 transactions were scams. (Amend. Compl. at ¶ 39).

II.Procedural Background

The content of the current Amended Complaint is very similar to a series of complaints filed by plaintiffs in Bucks County, including four other actions that have been stayed pending federal criminal proceedings.*fn6 Plaintiffs filed the current action in the Court of Common Pleas of Bucks County, Pennsylvania naming Fidelity and Lawyers Title Insurance as separate defendants. Fidelity filed a Notice of Removal on July 14, 2011. Plaintiffs filed an Amended Complaint in response to defendant's first motion to dismiss. Defendant then filed the current motion to dismiss and the parties argued the motion at oral argument on February 8, 2012. For the reasons below, I will deny the motion to dismiss without prejudice to raise the arguments again on summary judgment.

III.Standard

A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted examines the legal sufficiency of the complaint. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). The factual allegations must be sufficient to make the claim for relief more than just speculative. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). In determining whether to grant a motion to dismiss, a federal court must construe the complaint liberally, accept all factual allegations in the complaint as true, and ...


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