Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.


July 14, 1992


The opinion of the court was delivered by: MARYANNE TRUMP BARRY



 The present action is one of a number of actions between AFN, Inc. ("AFN") and Schlott, Inc. arising out of the business relationship between those parties relating to computerized loan origination ("CLO") systems. Defendants Schlott, Inc., National Homenet, Inc., Home Mortgage Network, Inc. and Matthew Broderick have moved to dismiss AFN's complaint for failure to state a claim upon which relief can be granted, pursuant to Fed. R. Civ. P. 12(b)(6) or, in the alternative, for summary judgment pursuant to Fed. R. Civ. P. 56. AFN has opposed Schlott's motion and cross-moved for Rule 11 sanctions. The court will deny both Schlotts motion to dismiss and AFN's motion for sanctions.

 II. Factual Background

 AFN is the developer and supplier of a CLO system which provides home buyers with information concerning various home mortgage loan programs available from lenders around the country. Amended Complaint P 1. Schlott is a realtor with its headquarters in New Jersey. *fn1"

 In July, 1986, AFN and Schlott entered into a license agreement under which AFN would make its network available to Schlott and its customers. Amended Complaint PP 18-19 and Exh. A. The license agreement required Schlott to pay, in exchange for access to AFN's CLO system, an initial license fee for each location with access to the system, a monthly fee for each location, an hourly charge for use time on the system, and a "mortgage application transmittal fee" for each mortgage application sent to a lender over the system. License Agreement, Amended Complaint, Exh. A (hereinafter "License Agreement") PP 4.2-4.5.

 AFN also entered into license agreements with various residential mortgage lenders, including the lender defendants. These contracts generally required the lender to pay an initial license fee, a monthly access fee, a usage fee based upon the network time used, and a "mortgage placement fee," which was at least in some, if not all, instances based on the mortgages closed in that month which were obtained by the lender through the use of AFN's network. Amended Complaint PP 27-30, 122, 130, 135, 140, 145. Schlott employed Financial Service Representatives ("FSRs") to work with borrowers and help select certain mortgage products listed on the AFN network. Affidavit of John Pembroke, dated April 10, 1992 (hereinafter "Pembroke Aff.") P 4. The FSRs would keep in contact with both the lender and the borrower in order to expedite the loan approval process. Id. It is AFN's receipt of "mortgage placement fees" without being a licensed mortgage broker or banker which is the basis of Schlott's motion.

 III. Procedural History

 In order to fully comprehend the complexity and vitriol of this litigation, it is necessary to examine not only the instant dispute, but the concurrent litigation waged by the parties in other fora. AFN first filed suit against Schlott and two former AFN employees in state court in Texas ("Texas state action"), alleging that Schlott and others converted computer information and confidential and proprietary information from AFN and tortiously interfered with its business relationships. See Texas State Action Complaint, Affidavit of John Reichman in Opposition to Motion to Dismiss, dated May 23, 1991 (hereinafter "Reichman May 23, 1991 Aff."), Exh. A. In May, 1990, Schlott filed an action against AFN in the Superior Court of New Jersey, Law Division ("New Jersey state action"), alleging breach of the license agreement, breach of warranty, breach of lender agreements, breach of AFN and Schlott's subsequent "Representative Agreement," tortious interference with contractual relations, and violations of the New Jersey Consumer Fraud Act. See New Jersey State Action Complaint, Reichman May 23, 1991 Aff., Exh. B (hereinafter "New Jersey State Action Complaint"). In July, 1990, Schlott filed another action against AFN and its chairman, John Pembroke, this time in federal court in New Jersey. This action, entitled National Homenet, Inc. v. AFN, Inc., No. 90-2636(AMW), alleged Lanham Act violations, common law fraud, New Jersey Consumer Fraud Act violations, statutory and common law unfair competition, disparagement, tortious interference with contractual relations, and defamation. See Reichman May 23, 1991 Aff., Exh. C. In September, 1990, this case, on the court's own motion, was transferred to the Northern District of Texas. See National Homenet, Inc. v. AFN, Inc., No. 90-2636(AMW) (D.N.J. 1990). Finally, in April, 1991, AFN filed the instant action in this court.

 AFN's amended complaint alleges, in the main, that while Schlott was an AFN licensee, it was scheming to destroy AFN and take all of AFN's business for itself by developing its own CLO system based on proprietary trade secrets of AFN. Amended Complaint P 2. AFN claims, as well, that Schlott breached its license agreement with AFN by failing to report and pay fees to AFN for loan applications and loans closed by means of the AFN system. Id. Finally, AFN alleges that Schlott disparaged AFN and threatened and coerced lenders to pay money owed to AFN to Schlott and to cancel mortgage applications made through the AFN network. Id.2

 In support of its motion to dismiss AFN's amended complaint or, in the alternative, for summary judgment, Schlott argues that all of AFN's claims arise from the license agreement between AFN and Schlott, an agreement Schlott alleges is illegal and, therefore, unenforceable. It contends, more specifically, that AFN is seeking to collect fees for what amounts to the origination or placement of mortgage loans. Pointing to New Jersey's statutory definitions of "mortgage banker" and "mortgage broker", it argues that AFN was acting as either a mortgage banker or a mortgage broker *fn3" and, thus, that its services violated certain portions of the Mortgage Brokers and Bankers Act:

 No person shall act as a mortgage banker or mortgage broker without a license therefor as ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.