Case 4:22-cv-00430-Y Document 115 Filed 09/13/23 Page 5of12 PagelD 3828

defendants”), Secure Property Solutions, LLC (“SPS”), National Mortgage Consultants Group, LLC
(“NMCG”), and Custom Asset Solutions, LLC (“CAS”). On February 8, 2010, plaintiffs filed their
first amended complaint, adding two additional defendants: Michael Malone (“Malone”) and
Christopher Frisch (“Frisch”).

On February 26, 2010, the Gembala defendants moved to dismiss pursuant to Federal Rules
of Civil Procedure 12(b)(1) and 12(b)(6). On April 13, 2010, plaintiffs moved to certify a class, to
which the Gembala defendants timely responded. As of this date, no other defendant had yet filed
responsive pleadings or otherwise appeared.

On July 2, 2010, the court directed plaintiff to file proof of service as to all defendants who
had not yet filed responsive pleadings. Plaintiffs thereafter filed proof of service as to CAS, Malone,
and Frisch. Default was entered as to these defendants on July 28, 2010. On August 9, 2010,
Malone moved for leave to file answer, submitting proposed answer together with said motion. On
September 14, 2010, the court granted the motion and set aside entry of default as to Malone.

On September 30, 2010, the court issued an order addressing several matters. First, the court
dismissed SPS and NMCG from the action for plaintiffs’ failure to achieve service. The court then
denied plaintiffs’ motion to certify a class. Finally, the court granted the Gembala defendants’
motion to dismiss pursuant to Rule 12(b)(6), dismissing plaintiffs’ claims without prejudice. With
the exception of Malone, therefore, all other defendants had either been dismissed or the subject of
entry of default.

On October 20, 2010, plaintiffs filed motion for leave to file their second amended
complaint, which names as defendants the Gembala defendants, Malone, Frisch, and CAS. On the

same day, plaintiffs also filed amended motion to certify class. In order dated February 2, 2011, the

APP 2


Case 4:22-cv-00430-Y Document 115 Filed 09/13/23 Page 10of12 PagelD 3833

or frivolous on its face, nor does the court readily discern any. The proposed amendment does not
clearly fail to state a claim to relief that is plausible on its face, therefore, in light of the liberal
standard embraced by Rule 15(a), which requires that leave to amend be “freely given,” plaintiffs
shall be permitted to amend their complaint.’

B. Amended Motion to Certify

The court now has reason to revisit its previous decision to hold in abeyance plaintiffs’
amended motion to certify class (DE # 53). Federal Rule of Civil Procedure 23(c)(1) directs the
court to determine “at an early practicable time” whether to certify an action as a class action. At
the same time, however, judicial economy is often best served by ruling on preliminary dispositive
motions prior to considering class certification issues. See Wiesmueller v. Kosobucki, 513 F.3d 784,
787 (7th Cir. 2008).

Here, with the filing of the second amended complaint, the wheels of this litigation have
begun to turn anew, and immediate consideration of issues bearing on certification would divert the
attention of the parties and the court from preliminary issues more appropriately addressed in
advance of decision on any motion to certify. The lay of the land has shifted since the amended
motion to certify was filed. In light of the unique procedural posture of the case, the court of its own
initiative now DENIES said motion as premature, without prejudice, and turns its attention to the
mechanics of positioning the case back on course against these defendants so that pleadings promptly

may be framed and/or any preliminary motions filed.

* The grant of the motion, of course, does not prejudice a later motion to dismiss for failure to state a claim
pursuant to Rule 12(b)(6). Rather, the court now determines only that the amendment should be permitted where it is
not facially obvious that the proposed second amended complaint could not survive a motion to dismiss, and where
defendants offer no argument as to specific deficiencies that render the amendment futile.

7

APP7


Case 4:22-cv-00430-Y Document 115 Filed 09/13/23 Page 7o0f12 PagelD 3830

Deceptive Trade Practices Act, N.C. Gen. Stat. § 75-1.1, et seg, New Jersey racketeering laws, N.J.S.
2C:41-1, et seg, North Carolina racketeering laws, N.C. Gen. Stat. § 75D-1, ef seg, and common law
fraud. Plaintiffs invoke federal question jurisdiction pursuant to 28 U.S.C. § 1331 based on the
federal RICO claim, relying on supplemental jurisdiction pursuant to 28 U.S.C. § 1367(a) for the
related state law claims. The Gembala defendants oppose plaintiffs’ motion to amend, arguing that
permitting plaintiffs to amend their complaint to resurrect their federal RICO claims would be futile.

An amendment is futile where it would fail to withstand a motion to dismiss for failure to
state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Perkins v. United States, 55 F.3d
910, 917 (4th Cir. 1995). A motion to dismiss under Rule 12(b)(6) determines only whether a claim
is stated; “it does not resolve contests surrounding the facts, the merits of a claim, or the applicability
of defenses.” Republican Party v. Martin, 980 F.2d 943, 952 (4th Cir. 1992). A claim is stated if
the complaint contains “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)). In evaluating whether a claim is stated, “[the] court accepts
all well-pled facts as true and construes these facts in the light most favorable to the plaintiff,” but
does not consider “legal conclusions, elements of a cause of action, and bare assertions devoid of

further factual enhancement.” Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250,

255 (4th Cir. 2009).
The Gembala defendants make a relatively general objection to the proposed amendment,
asserting only that plaintiffs “have not pled each element of a valid RICO claim with the

combination of brevity required by Rule 8 and particularity required by Rule 9,” while offering no

' The Gembala defendants make no argument as to the futility of plaintiffs’ state law claims.

4

APP 4


Case 4:22-cv-00430-Y Document 115 Filed 09/13/23 Page 6of12 PagelD 3829

court observed that several of the potentially revived defendants had not received notice of the
electronic filing, and ordered plaintiff to serve the motion to amend on all defendants named in the
proposed second amended complaint. The court also held in abeyance plaintiffs’ motion to certify
pending resolution of the motion to amend. The Gembala defendants filed response in opposition
to plaintiffs’ motion to amend on February 24, 2011, to which plaintiffs timely replied.
DISCUSSION

A. Motion for Leave to File Second Amended Complaint

A plaintiff may amend his complaint one time as a matter of course within twenty-one (21)
days after service of a responsive pleading or twenty-one (21) days after service of a motion under
Rule 12(b), whichever is earlier. Fed. R. Civ. P. 15(a). Otherwise, however, a plaintiff may amend
his complaint only by leave of the court or by written consent of the defendant, although leave to
amend “shall be freely given when justice so requires.” Id. This liberal rule gives effect to the
federal policy in favor of resolving cases on their merits, rather than disposing of them on
technicalities. See Ostrzenski v. Seigel, 177 F.3d 245, 252-53 (4th Cir. 1999). Leave to amend
should be freely given in the absence of “undue delay, bad faith or dilatory motive on the part of the
movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice
to the opposing party by virtue of allowance of the amendment, or futility of the amendment.”
Foman v. Davis, 371 U.S. 178, 182 (1962).

The second amended complaint asserts a federal claim pursuant to the Racketeer Influenced
and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seg, as well as various state law
claims based on the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 et seq, Pennsylvania Unfair

Trade Practices and Consumer Protection Law, 73 P.S. § 201-1, et seg, North Carolina Unfair and

APP 3


Case 4:22-cv-00430-Y Document 115 Filed 09/13/23 Page 9of12 PagelD 3832

v. Cohen, 888 F.2d 1006, 1009 (4th Cir. 1989). “‘Enterprise’ includes any individual, partnership,
corporation, association, or other legal entity, and any union or group of individuals associated in
fact although not a legal entity.” 18 U.S.C. § 1961(4). “Racketeering activity” includes, inter alia,
“any act which is indictable” under specifically enumerated criminal provisions, including those
relating to mail and wire fraud set forth in 18 U.S.C. §§ 1341, 1343. 18 U.S.C. § 1961(1). Finally,
a “‘pattern of racketeering activity’ requires at least two acts of racketeering activity, one of which
occurred after the effective date of this chapter and the last of which occurred within ten years .. .
after the commission of a prior act of racketeering activity.” 18 U.S.C. § 1961(5).

Briefly, the second amended complaint alleges that the defendants conducted a fraudulent
mortgage modification scheme by agreement whereby defendants would solicit and accept advance
payments from struggling homeowners in exchange fora promise to negotiate with mortgage lenders
for reduced mortgage payments or lower interest rates. Plaintiffs allege that defendants, in fact,
knew they did not have the ability to achieve mortgage modifications, but intentionally
misrepresented themselves as having the ability to do so. In furtherance of the scheme, plaintiffs
allege that defendants committed several criminal acts, including mail fraud and wire fraud in
violation of 18 U.S.C. §§ 1341 and 1343. Plaintiffs allege that the money received was used in part
to further the scheme by paying for operating expenses, salaries, and advertising.

The Gembala defendants contend that plaintiffs have not sufficiently pleaded each element
of their RICO claim, and that therefore, amendment is futile. “Leave to amend, however, should
only be denied on the ground of futility when the proposed amendment is clearly insufficient or
frivolous on its face.” Johnson v. Oroweat Foods, 785 F.2d 503, 510 (4th Cir. 1986). The Gembala

defendants offer, however, no specific reason why the proposed amendment is clearly insufficient

APP 6


Case 4:22-cv-00430-Y Document 115 Filed 09/13/23 Page 1of12 PagelD 3824

EUGENIO VARGAS,
Plaintiff/Counterclaim Defendant,

ASSOCIATION OF PROFESSIONAL
FLIGHT ATTENDANTS, et al.
Defendants/Counterclaim Plaintiff.

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT
OF TEXAS FORT WORTH DIVISION

LPL LP UR LUN LN UD LL UD

Civil Action No. 4:22-CV-00430-Y

APPENDIX OF NON-PUBLISHED CASES CITED IN SUPPORT OF PLAINTIFF’S
RESPONSE IN OPPOSITION TO DEFENDANT’S MOTIONS FOR LEAVE TO FILE

AMENDED ANSWER AND COUNTERCLAIMS AND BRIEF IN SUPPORT

Management Requirements, submits this appendix of non-published cases cited in, and in

Plaintiff Robert “Bob” Ross, pursuant to Local Rules 7.1(i) and § C of this Court’s Case

support of PLAINTIFF’S RESPONSE IN OPPOSITION TO DEFENDANT’S MOTIONS FOR

LEAVE TO FILE AMENDED ANSWER AND COUNTERCLAIMS AND BRIEF IN

SUPPORT:”

TAB

NOPUBLISHED CASE CITATION

PP.

Manuel v. Gembala, 7:10-CV-4-FL (E.D.N.C. July 27, 2011)

1-9



Case 4:22-cv-00430-Y Document 115 Filed 09/13/23 Page 12of12 PagelD 3835

including all exhibits thereto;

2. Default, previously entered against CAS and Frisch, is necessarily SET ASIDE;

3. Plaintiffs shall serve all defendants with the second amended complaint and exhibits
thereto, and shall file proof of service as required;

4. Defendants, absent any extension, shall have twenty-one (21) days from date of
service within which to respond to the second amended complaint, and any
preliminary motions of the type which reasonably may be made at this juncture of the
case shall be filed on the same schedule, with memorandum in accordance with the
local rules;

5. Plaintiffs’ amended motion to certify class (DE # 53), which by previous order was
held in abeyance pending resolution of plaintiffs’ motion to amend, is DENIED
without prejudice as premature; and

6. The parties are DIRECTED at a future stage described above to meet and confer
pursuant to Rule 26(f) and submit to the court joint report and plan in furtherance of
the dispatch of the case.

SO ORDERED, this the27th day of July, 2011.

OWISE W. FLANAGAN
Chief United States District Judge

APP 9


Case 4:22-cv-00430-Y Document 115 Filed 09/13/23 Page 11of12 PagelD 3834

Cc. Case Schedule

Where plaintiffs’ motion for leave to file second amended complaint (DE # 51) is allowed,
the same shall come now into the record, and default, previously entered against CAS and Frisch,
necessarily must be set aside. Plaintiffs shall serve all defendants with the second amended
complaint and exhibits thereto, and file proof of service as required. Defendants shall have the time
permitted under the rules within which to respond to the second amended complaint. Preliminary
motions, if any, shall be filed on the same schedule. Should the case remain pending after decision
on any preliminary motion(s), the parties shall have twenty-one (21) days from date of entry of the
order to confer and propose pursuant to the rules another schedule for disposition of the case,
including with reference to discovery, dispositive motions, and anticipated motion to certify, where
the court’s denial of the same is without prejudice. Reference then shall be made to the court’s
initial order lodged at docket entry number 34 for such other and further requirements to be adhered
to in making joint report and plan to the court, which report and plan shall follow on the docket
within fourteen (14) days after the parties’ conference. If either side then determines a conference
with the court may aid in address of scheduling matters, such request shall be memorialized on the
face of the report and plan. If the parties cannot agree on a comprehensive case schedule, separate
reports, as noted, shall be made.

CONCLUSION
For the foregoing reasons:
1, Plaintiffs’ motion for leave to file second amended complaint (DE # 51) is
GRANTED, and the clerk is DIRECTED now to take separately into the record

plaintiffs’ second amended complaint, as it appears at docket entry number 55,

APP 8


Case 4:22-cv-00430-Y Document 115 Filed 09/13/23 Page 8o0f12 PagelD 3831

substantive discussion as to the elements of a RICO claim or why plaintiffs’ pleading is insufficient.

The sufficiency of a civil RICO claim is judged in accordance with the notice pleading
requirement of Rule 8(a), requiring a “short and plain statement of the claim showing that the pleader
is entitled to relief.” Fed.R.Civ.P. 8(a)(2). At the same time, however, “where RICO claims are
based on predicate acts of fraud, the heightened pleading standard set forth in Rule 9(b) of the
Federal Rules of Civil Procedure applies.” Field v. GMAC, LLC, 660 F.Supp.2d 679, 686 (D.Md.

2011) (citing Menasco, Inc. v. Wasserman, 886 F.2d 681, 684 (4th Cir. 1989)). Rule 9(b) requires

that “in alleging fraud or mistake, a party must state with particularity the circumstances constituting
fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged
generally.” Fed.R.Civ.P. 9(b). “A court should hesitate to dismiss a complaint under Rule 9(b) if
the court is satisfied (1) that the defendant has been made aware of the particular circumstances for
which she will have to prepare a defense at trial and (2) that [the] plaintiff has substantial
prediscovery evidence of those facts.” Harrison v. Westinghouse Savannah River Co., 176 F.3d 776,
784 (4th Cir. 1999).

Plaintiffs assert claims under RICO subsections (a)’, (c)’, and (d)*. 18 U.S.C. § 1962(a), (c),
(d). To state a claim for a RICO violation, the complaint must set forth facts which, if proven, would

establish “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Morley

2? The elements of a subsection (a) RICO claim are: (1) a receipt of income from a pattern of racketeering
activity; and (2) use or investment of the income in an enterprise. 18 U.S.C. § 1962(a); see also Busby v. Crown Supply,
Inc., 896 F.2d 833, 837 (4th Cir. 1990).

> The elements of a subsection (c) RICO claim are: (1) the conduct; (2) of an enterprise; (3) through a pattern
of racketeering activity. 18 U.S.C. § 1962(c); see also Salinas v. U.S., 522 U.S. 52, 63 (1997).

* Subsection (d) is aimed at conspiracies to violate subsections (a) through (c) of RICO. To allege a subsection
(d) claim, plaintiff must allege that “each defendant agreed that another co-conspirator would commit two or more acts
of racketeering.” U.S. v. Pryba, 900 F.2d 748, 760 (4th Cir. 1990).

5

APP 5


Case 4:22-cv-00430-Y Document 115 Filed 09/13/23 Page 4o0f12 PagelD 3827

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
SOUTHERN DIVISION

No. 7:10-CV-4-FL

MICHAEL AND DOROTHY MANUEL,
Plaintiffs,
Vv.

JOSEPH A. GEMBALA, III, Esq.;

)

)

)

)

)
MICHAEL MALONE; CHRISTOPHER __) ORDER

)

)

)

)

)

)

FRISCH; JOSEPH A. GEMBALA, III &
ASSOCIATES, a Pennsylvania sole
proprietorship; and CUSTOM ASSET
SOLUTIONS, LLC, a New Jersey limited
liability company,

Defendants.

This matter comes before the court on plaintiffs’ motion for leave to file second amended
complaint (DE # 51), which has been fully briefed. Also before the court is plaintiffs’ amended
motion to certify class (DE # 53), which by previous order was held in abeyance pending decision
on the motion to amend. In this posture, the issues raised are ripe for review. For the reasons that
follow, plaintiffs’ motion for leave to file second amended complaint is granted. Plaintiffs’ amended
motion to certify class is denied without prejudice as premature.

BACKGROUND

Plaintiffs filed their original complaint on January 14, 2010, asserting a federal claim
pursuant to the Racketeer Influenced and Corrupt Organizations Act (“RICO”) along with several
state law claims, all arising out of an alleged mortgage modification scam. The cast of defendants

included Joseph A. Gembala, individually, and Joseph A. Gembala III & Associates (“the Gembala

APP 1


Case 4:22-cv-00430-Y Document 115 Filed 09/13/23 Page 3o0f12 PagelD 3826

James Sanford

4803 Gaston Avenue
Dallas, TX 75249-1020
Tel: (214) 800-5111;
Fax: (214) 838-0001

Email jim@gillespiesanford.com
Email: joe@gillespiesanford.com


Case 4:22-cv-00430-Y Document 115 Filed 09/13/23 Page 2o0f12 PagelD 3825

Respectfully submitted,
K.D. PHILLIPS LAW FIRM, PLLC

By: /s/ Kerri Phillips
Kerri Phillips
Texas Bar No. 24065906
Phone: (972) 327-5800

Email: kerri@KDphillipslaw.com

6010 W. Spring Creek Parkway
Plano, Texas 75024

Fax: (940) 400-0089

For Service of Filings:

notice@K Dphillipslaw.com

ATTORNEY FOR PLAINTIFF

CERTIFICATE OF SERVICE

I certify that the true and correct copy of this document was sent to all counsel of record,
hereunder listed via ECF Filing on this the 13th day of September 2023.

/s/ Kerri Phillips
Kerri Phillips, Esq.

Jeffrey Bartos

Guerrieri, Bartos, & Roma, P.C.

1900 M Street, NW, Suite 700
Washington, DC 20036

Tel: (202) 624-7400; Fax: (202) 624-7420

Email: jbartos@geclaw.com

Charlette Matts

In-House Counsel for APFA
1004 West Euless Blvd
Euless, TX 76040

Tel: (682) 301-8454
Cmatts@apfa.or: