morning your honor marc picco from baron about on behalf of plaintiffs appellants their silver issues in this case obviously but i want to spend we have limited time and i want to spend it focusing on the rico issues and if there's a little bit more time talking about the catalyst be and i'd like to reserve a minute or so for rebuttal ok i understand that the court system is wary of the overbroad application of rico claims but the facts here are not ordinary business contacts conduct and this is not route these are not routine con contracts in march of two thousand and fourteen the united states office of inspector general issued a scathing report talking about these property inspection companies the abuses were rampant the conduct was outrageous they found that allegations you have in this case that the inspection companies were doing anything outrageous well that report is part of the record in doc and i didn't understand you to be making an argument i mean inspection companies went out and inspected when they were asked to and they charge pretty low fee for it and there was no see that's the thing i want to make clear is that the way in which these were done the reports didn't generate any meaningful information and the inspection companies knew it there was no management as a result of the flawed  procedures within the service or was there was no management of these companies and they were not doing their job they were happy to take tens of billions of dollars a year from the loan servicing companies to do what was obviously necessary let me let me walk through some of our before before you walk through that because of think we will understand it unless you want to walk through it it seems to me that there's no common purpose here except some contractor relationship well that's what i want to make clear that's why i'm pointing out this reports that where the office of inspector general found all this bad conduct well so this particular case reading it  best i can for you i'm having to trouble and why there is any common purpose beyond the contractual relationship well because so what happened with these mortgage servicers is they got too big for their britches they don't have time that that could be beyond they can direct short but i don't want that i want some facts well i'm the only thing they were doing is following the contract but they weren't they weren't they were performing inspections but they which they knew to be unnecessary which they knew didn't generate any useful information they went to the wrong houses of people they locked the doors of their own people let me explain something about mike about one of mr ellis she lives in a little bungalow in los angeles in a canyon her house is covered with a tall two foot two story high bushes and trees the way you get into the house of their cars through some back alley during a drive by inspection of her house yields you know meaningful information what does it tell you well who decides what's meaningful information and how do we know that they're not just looking to see whether there's a car parked there so that we know whether it's occupied or something like that i mean how do you know it a duty under the contract so they were told by the investors including fannie mae that you weren't supposed to charge for repeated fees like this unless you made a determine the termination of circumstances warranted it so your to answer your  question the loan servicer was supposed to have a procedure in place to gather that information and they were on the phone with these people when it's your primary residence and you're in default you're still you care about your house all of our clients are were deeply concerned about you know yes they had an ability to pay but they wanted to stay in their house their house was important to them they were taking care of it and chase had to chase you know they were taking care of it they talked to them on the phone there was there was record spending chase had the ability to go and look to make sure i mean how do you know when you talk to someone on the phone that they're taking care of their house well because they're there telling you and what better how is this these how are these property inspections that don't generate any meaningful information that just say the same thing you can't even see inside the house why is that more probative then what a borrower tells you when i'm staying in the house and i want to work it out the more necessary to they didn't achieve that purpose they didn't even look at do these inspections if you're not looking at the information and making it was the inspector have had any way to know whether chase was looking at the reports or not well the inspector knew they weren't looking at it and yes as we allege i believe it's  inspector wrote the report how are they not looking at that there's individual sub contract out like i can hire you to go do an inspection but i'm the inspection company the inspection company wasn't looking at the reports you sent it into me and they never look at it and we knew that from deposition testimony and then all they did was upload some basic information back to chase and no one to chase looked at it either so and paragraph one fourteen we allege how they design these policies and procedures  with the vendor so everybody knew what information was being shared back and forth beyond the contractual relationship i'm still i'm trouble finding the common purpose to engage in record hearing and so i read your first amended complaint and it seems to me the best you say is they associated together with j p morgan for the common purpose however to routinely and repeatedly ordering good marketing in assessing borrowers accounts for unnecessary defaulted services is that the best we got well that's what's in the complaint yeah that's the best well that is the best summary of what's in the complaint and then let me tell you we started into my book that's not a common purpose to engage in record during what we started to the us versus feldman case which i know from the start or cited but i'm just having a tough time i'm trying to get you to the points that you have to make it to get to rico so help me well so rather than signing me to a case tell me why is that enough in the first amendment complaint that's all it's alleged to say a common purpose to engage in racketeering well it's not we allege that they worked on these procedures collaboratively and that there that they they knew it was unnecessary they knew these inspections were necessary where the vendors and involved in charging the powers know they were involved in that but the law doesn't require that members of the enterprise be involved in all aspects of the enterprise and that's why i want to point out that this feldman case its authority from this court and if you look at the facts they're there it was two brothers and some corporations they own and the common purpose of that enterprise was to defraud insurance companies through arson and the court just gusts all over the opinion one of the brothers alberts and the corporations did not have any knowledge or intent to defraud the insurance companies or conduct the arson and so that case is squarely on point with what we have here you can use other members of the enterprises instrumentalities to carry out your scheme and that's allege that chases used these companies as instrumentalities to carry out the rico scheme and like i said it's not ordinary business conduct when they knew these were necessary they got prosecuted by the illinois attorney general the us government went after them and this is just not ordinary business conduct these weren't yielding any information the investors in fact told the loan servicer go ahead and do these as much as you want but you can't charge borrowers for these unless you have done some sort of evaluation that it's necessary and they never did that they didn't have a system here and the proof of that is that after we filed the case moving into the catalyst issue they changed their policy and procedures well  i'm having trouble with that because it seems to me that one day after the settlement was announced if you will the polls these procedures changed and i didn't i'm really having trouble why your suit did it well that's that's actually not correct that one day after the the two was initiated one day after the settlement was in the right but they didn't change their policies until may of march of two thousand and thirteen it was like fourteen months after that happened and the truth is all that and i messed it was a tough thing for me to suggest that the one billion dollars fine from the federal government was much more of a catalyst than your suit but they didn't change it they did it they didn't change it then you know in fact and what was for my and what is my standard review in determining whether these were catalyst fees to you it's an abuse of discretion send therefore given that the district board felt like it was the billion dollar fine more than you i've got to find any abuse it's illogical that that was it well let me speak to that there's a case mcdonald versus ford is one of these seminal cases it's a district court case but it discusses all the california cases it's a very illustrative case on the catalyst the issues one of the things that it talks about is that you need testimony from the decision makers in order to determine the so no defendant's going to admit that they changed their conduct because of your lawsuit that's rare i would imagine that would happen so you need testimony from the decision makers for them to say i changed i know why we made the why we made the change i was that is just a maker and it wasn't because of this the court noted that and her order and but critically that she submitted to declarations in support of their argument here and if you look fair they were cleverly worded declarations what they said is i'm in charge of these policies and practices and if the change was made because of that i think i would know they did not say i'm the decision maker i made the change they were not these people were not part of that is just a decision they don't know why they said i don't know they also said i didn't know about the case well of course they didn't know about the case these were mid level people who were and charge of implementing things that were that their superiors made those decisions you don't have so the court made its determination based on evidence that was inconsistent with what's required under the law please the court i'm robert whipped for the chase defendants turning first to the rico claims the district court correctly held that the plaintiffs failed to plead a rico association in fact enterprise because they did not adequately allege that the property inspection vendors shared the alleged common purpose of the enterprise the common purpose that was played in the complaint and that was originally argued was a common purpose that focused in particular on charging borrowers for unnecessary property inspections there had to be ordering conducting and charging borrowers for improper property inspections as i understand the plaintiffs in their reply brief they now concede that the district court was correct that they are not alleging that the property inspection vendors shared any common purpose that extended as far as charging borrowers if you look at pages five and six in footnote one of the reply brief it's it was shocking to me because what it says is quote plaintiffs never alleged or at least never intended to allege close quote and then they go on to say that anyone other than chase had any intent to charge unnecessary inspections and to remove any doubt that they are conceding that the district court was correct about that they drop a footnote one which says we apologize the complaint is in artfully pled to the extent where we pled that the understand it in their reply brief they're coming up with a new and narrower common purpose they're trying to narrow the common purpose down to the point that they can try to allege that the property inspection vendors shared it and if i understand the reply brief correctly what they are now saying is the with property inspection vendors common purpose stopped once the inspections were conducted the new and narrower common purpose is ordering the inspections and conducting the inspections but not charging them once we get into the charging of the inspections were past the alleged rico enterprise and were only into chase conduct not enterprise conduct there were three reasons that new and narrower common purpose doesn't salvage their claims first it is never clearly articulated and till their reply brief in this court it's not played in their complaint it's not argued to the district court it's not even clearly stated in their opening brief it emerges for the first time at least and in a way that i could understand it in their reply brief so it's way secondly even that narrow common purpose even when they go to plead that narrow common purpose they're still inserting the word unnecessary they're saying that the common purpose of the inspection vendors was to conduct inspections that were on necessary but they haven't put any facts in the complaint that would sustain the property inspection vendors having a purpose that goes as far as actions being necessary under the facts pla complaint all we have is a contractual services agreement chase orders inspections and when the inspection vendor gets the order it carries out the order it does the inspection it reports the inspection results back to chase the end nothing in those factual allegations supports a plausible inference that the inspection vendors had any intent and purpose and you get in the notion that he was arguing that they must have known they must have known it was unnecessary because they weren't really doing anything that could be of value you think he'd have to amend i don't think he could amend that to say i don't think he has a rule eleven basis for amending to say that the property inspections knew one where the other exactly how chase was or was not using the inspections and by the way his arguments that nobody ever used these inspections and they were worthless is not substantiated at all in the record it's not substantiated in general but we're not talking about a class that was never certified here we're talking about the twenty four inspections that were charged to these name plaintiffs and there's no evidence that any of the inspections charged to these name plaintiffs twenty only twenty four inspections out of one hundred seventy seven months of delinquency there's no evidence that any of them were unnecessary if you look at the chase brief it page four we give all the record citations of exactly how the property inspections were used they were in fact reviewed by the vendors they weren't reviewed by a human being at chase but they were viewed by human beings at the vendors and if they indicated lack of occupancy or if they indicated that the properties needed maint since then steps to preserve and secure the property were take it beyond that they were reviewed electronically by chase if any of the electronic results  indicated deterioration of the property or vacancy of the property that triggered electronic orders to issue for somebody to go out and maintain the profit the property the third and final problem with the new and watered down narrow common purpose that they're now trying to to plead on reply far too way is that it creates a gap between the alleged pattern of racketeering the alleged pattern of mail and wire fraud and the enterprise under the us supreme court's decision in reeves if you have a pattern of racketeering that only conducts the defendant's own affairs and doesn't conduct the enterprises affairs you don't have a rico claim and when they narrow down shrink down that common purpose so that the enterprises purpose is limited to conducting inspections right when the enterprises affairs and once the properties inspections are conducted you now no longer have the pattern of mail and wire fraud conducting any one's have an enterprise over here and mail and wire fraud over here the enterprise has to be the vehicle for carrying out the pattern of mail and wire fraud well under this new narrow down common purpose that's not true the mail and wire for fraud exclude occurs entirely outside the enterprise it is purely chase's conduct the chase is not using the enterprises the vehicle for carrying out the mail and wire fraud because the enterprise by definition is over and done with once the property inspection is conducted the mail fraud the alleged mail fraud occurs after that the alleged mail fraud consists of chase mailing the borrower saying only this money which the plaintiffs say isn't o is that a way of saying that the common person purpose needs to be fraudulent or are you not really arguing that the common purpose i'm not saying that you know in every single rekha rico case the common purpose would have to be a fraudulent one and the district court was clear about that to the district  said common purpose doesn't have to be for fraudulent it just so happens that the proper purpose they pled was a fraudulent one what we are saying is that the enterprise has to be the vehicle for carrying out the pattern of racketeering now sometimes the enterprise could be an unwitting vehicle right you could have a pizza parlor where the owner of the pizza parlor doesn't know that anything bad is happening in unbeknownst to him all the pizza delivery guys are dealing or delivering drugs along with the pizzas in that instance the enterprise the pizza parlor would still be the vehicle for carrying out the pattern of racketeering even though the pizza owner was unwitting we're not saying they always and necessarily have to plead a common for you and purpose but here the consequence of not pleading a common fraudulent purpose is they create this gap between the pattern of racketeering on the one hand and the rico enterprise on the other rico doesn't and it doesn't matter whether there was a common fraudulent purposes just that it was a common purpose yeah they're on the horns of a dilemma here they're the ones who said fraudulent right they could prove it if they had fraudulent because they'd still have to prove the government purposes that's exactly what the district court said your honor and we believe correctly she said maybe you didn't have to plead a common for argument purpose but that's the calm that's the common purpose that you chose to plead and your factual allegations just don't sustain that conclusion of law could i ask about your preemption argument i'm wondering if we agree with you on the merits of why the claims would fail that we need to talk about preemption and i'll know if you agree with us that they that the unjust enrichment claims are barred by contract and that the fraud claims fail on the elements of fraud you wouldn't need to read reach preemption there are there is a new argument that appears for the first time in the reply brief on unjust enrichment which is that chase can't invoke the contract as a bar to the unjust enrichment claim because chase is a non party to that contract there is not a whisper of that argument in the only in their opening brief which deprived me of the opportunity to brief it but among other things the argument is wrong because section twenty of all three named plaintiffs loan agreement says that chase or chase predecessor after it originated the loan may sell the loan on to a third party while reserving to itself the contractual right and responsibility to service the loan contracts you can see that in s r e one forty as to the common law fraud claim they also make a brand new argument in their reply brief in their reply we argued that the ledge misrepresentation here that chase had the contractual authority to charge for these property inspections when in fact it allegedly lacked that contractual authority cannot be the basis for a fraud claim because it's an opinion of law and not a misrepresentation of fact the brand new answer to that argument that comes up in the reply brief is they say well the plaintiffs were entitled to rely even on chase's opinion of law because chase had superior information it should have known more about whether the inspections could take place or not number one that argument is not made anywhere in their opening brief so i didn't get a chance to brief it its way number two the ninth circuit rejected an almost identical ar arguments in miller versus yokohama there the there was an employer that a that represented to an employee you're not entitled to overtime pay because you're a salaried employee the employee said even though that's an opinion of law i can rely on it for my fraud claim because the employer should have superior information about whether or not i'm entitled overtime pay and the ninth circuit said a bald assertion that the employer had superior information was not enough to get the plaintiff out from under the general rule same thing here a bald assertion that chase has superior information doesn't get the plaintiffs from under the general rule thank you i've gone over thank you for your argument thank you your  honors i gave you over but i guess i'll give you know the thirty thank you i just like i was not given the opportunity to show him and in the district court and it was only our second chance that i would want to outside of the time and do the scheduling order time the case was really in its nascent stages at that point but it really was to the courts discretion right leave at that point yet yes but i think under the when we said this is that we didn't i mean i didn't have an automatic opportunity to do it it was under their discretion right but we made it clear that we did not intend to plead a fraudulent common purpose and i don't think that the court system should be a gotcha kind of way that things are ruled on when we said this isn't what we meant maybe our pleading isn't as an artful we should have had the opportunity to present a more clean pleading thank you are moving then two zero one six one seven zero zero five is method more moving to one six one seven zero zero eight stead versus citibank