CONCLUSION
For the reasons stated herein, defendants’ motions to dismiss Counts I through XI are
granted. All other pending motions, including plaintiffs’ motions for temporary restraining
orders (Docket Nos. 34 and 44) and their motion for appointment of a special prosecutor (Docket

No. 56) are denied as moot.

ENTER: March 24, 2004

ah oh

Robert W. Gettleman
United States District Judge



a
other members of the putative class,” The amended complaint alleges that most tenants at

cont
Sutherland Apartments are “paying a considerable amount of rent that far exceeds the market-
'
value of their apartments,” and that many apartments do not comply with the Chicago building

a

i
code. According to plaintiffs, to receive a lower rent, “one must either be a friend of Howard,
sa

Clark, Dart and Johnson, and/or be sexually involved with or working for ‘free’ for Howard.”

t

yt
The amended complaint further alleges that the Sutherland Tenant Council has not
io
received its public telephone and vending machine commission checks and that defendants have
if
refused to account for those sums. According to plaintiffs, Clark directed a member of the

Noa

maintenance staff to rétnove the security chain from the vending machines, and then demanded
2

removal of the machines and prevented thém from being refilled. Plaintiffs allege that another
tenant has been permitted to operate her vending machines, notwithstanding the fact that she has
no agreement with the Sutherland Tenants Council.

According to the amended complaint, Holsten Manageriient has also failed to account for
$42,185 that was allegedly allocated for a visitor entry system which has not yet been installed.
Plaintiffs further allege that numerous tenants have been charged an “illegal” fifty-dollar air
conditioning fee and were never informed of their right to dispute the charge.

Plaintiffs characterize the foregoing acts as a pattern of racketeering activity with the
meaning of 18 U.S.C. § 1961(5) and allege that they have suffered injuries in their business and
property as a result, including ovér-payment of rent, eviction or thieatened eviction, as well as

loss of employment due to stress. Plaintiffs further allege that defendants’ activities violate the

FDCPA.



alleged scheme and does not attribute any alleged “misrepresentations” to any particular
defendant. Accordingly, plaintiffs’ allegations of fraud lack the detail required Rule 9(b).

This leaves plaintiffs’ claims regarding “excessive” rents and extortion. Although

r

plaintiffs allege that their rent was “excessive,” the amended complaint does not assert that the

rental rates were somehow fraudulent, or criminal in any other respect that would bring them

within § 1961's purview. Although plaintiffs attach a chart to their response brief entitled

B

“Annual Gross Household Income Limits for 2002/2003 and Recommended Rent Portions to be
’

Paid by Subsidized Tenants,” to bolster their assertion that their rents were “too high,” this
a>

exhibit does not save plaintiffs’ RICO claim. The exhibit includes two charts, one of which
calculates a recommended rental portion based on gross income, and another that calculates a
recommended rental portion based on unit size.

As defendants point out, the chart details “recommended” rates, confirming that the rental
rates are not required by the City Trust Fund Subsidy Program, much less any criminal statute
that is included within RICO’s definition of predicate acts. Moreover, nothing in the plaintiffs’
response brief or amended complaint suggests that the defendants deviated from these figures in
calculating rents. An allegation that some tenants may have paid less than others is not
meaningful in the absence of allegations regarding the tenarits’ earnings or the size of their units.

Further, even if the rates were beyond those set forth in the exhibit, plaintiffs’ complaint,
drawing all reasonable inferences in their favor, could be construed to allege only that defendants

engaged in the “collection of unlawful debt” as prohibited by 18 U.S.C. § 1962(a)-(c). As noted

'
by defendants, however, for the purposes of RICO, “collection of unlawful debt” is limited to



collection of an unlawful debt in an enterprise , 18 U.S.C. § 1962(a), (2) to acquire or maintain
an interest in or control of an enterprise through a pattern of racketeering activity or through
collection of an unlawful debt, 18 U.S.C. § 1962(b), or (3) for any person employed by or
associated with any enterprise to conduct the enterprise’s affairs through a pattern of racketeering
activity or collection of an unlawful debt, 18 U.S.C. § 1962(c). 18 US.C. § 1964(c) authorizes a
private suit by “[a]ny person injured in his business or property by reason of a violation of

Section 1962.”

A “pattern of racketeering activity” is defined in 18 U.S.C. § 1961(5) as the commission
of at least two of the predicate acts enumerated in 18 U.S.C. § 1961(1) within a ten-year period.’
At page 10 of their response brief, plaintiffs acknowledge that the predicate acts forming the

basis for their RICO claim in Count I are fraud and extortion.

Curiously, at page 13 of their response brief, plaintiffs assert that they “have not made a
claim for mail fraud,” implying that their RICO claim is based on state-law fraud. As defendants
point out, however, fraud is not one of the state law crimes that RICO includes as a predicate act.
See 18 U.S.C. § 1961(1)(A). Only violations of particular federal fraud statutes, specifically wire

‘

and mail fraud, constitute predicate acts. See 18 U.S.C. § 1961(1)(B). Accordingly, to the extent

that plaintiffs’ RICO claim is based on state-law fraud, it fails as a matter of law.

Plaintiffs fare no better proceeding urider mail or wire fraud. Rule 9(b), which provides

that "[i]n all averments of fraud ..., the circumistances constituting fraud ... shall bé stated with

‘As the Seventh Circuit has noted, two predicate acts alone are insufficient to establish a
“pattern” of racketeering activity. A RICO plaintiff must also satisfy the “continuity plus
relationship test”: the predicate acts must be related to one another and. pose a threat of continued
criminal activity. See Midwest Grinding Co., Inc. v. Spitz, 976 F.2d 1016, 1022 (7" Cir, 1992).

6



DISCUSSION
1, Count I: RICO

Defendants Holsten Management, Peter Holsten, Johnson, Clark, Dart and Howard (the
“Holsten defendants”) have moved to dismiss Count I for failure to allege adequately, (1)
predicate criminal acts, (2) a pattern of racketeering activity, 3) a sufficient effect on interstate
commerce, and (4) causation. Defendants Century Place, Heartland Alliance, Chicago
Connections, TIA, and Sid Mohn (the “Heartland Alliance” defendants) adopt the Holsten
defendants’ arguments, and further argue that, (1) none of the Heartland Alliance defendants was
involved in any of the predicate acts alleged in the amended complaint, (2) none of the Heartland
Alliance defendants is alleged to have control over the management or operation of the RICO
enterprise, and (3) the Heartland Alliance defendants cannot be held vicariously liable for the
alleged acts of the Holsten defendants.

For the reasons stated below, the court concludes that plaintiffs have not provided
sufficient detail regarding their fraud allegations as required by Fed. R. Civ. P. 9(b) and that
plaintiffs’ allegations regarding extortion ate insufficient to state a claim under Fed. R. Civ. P.
12(b)(6). Because the insufficiency of plaintiffs’ allegations regarding predicate acts warrant
dismissal of plaintiffs’ RICO claim, the court need not reach the merits of defendants’ other

arguments in favor of dismissal of Count I.

RICO was originally enacted "in an attempt to eradicate organized, long-term criminal
activity." Mira v. Nuclear Measurements Corp., 107 F.3d 466, 473 (7" Cir, 1997) (quoting

Midwest Grinding Co.. Inc. v, Spitz, 976 F.2d 1016, 1019 (7th Cir.1992)). RICO makes it

unlawful, (1) to invest money detived from a pattern of racketeering activity or through the



while keeping rents affordable to our tenants.” Plaintiffs allege that this statement is
“inconsistent with the agenda of the City Trust Fund program,” and to that end attach the 2001
Annual Report of the Chicago Low-Income Housing Trust Fund as an exhibit to the amended
complaint. The Annual report, however, which states that the Fund “giv[es] grants to building
owners and developers who agree to reduce rents to accommodate very low-income residents,”
does not appear to conflict with defendants’ alleged representations to plaintists. Because
plaintiffs have not articulated which aspects of defendants’ representations were false, if any,
their fraud allegations are insufficient under Rule 9(b).

As defendants point out, nothing in the 2001 Report or plaintiffs’ amended complaint
suggests that additional subsidies paid to owners and developers must reduce tenants’ rents dollar
for dollar when the increased subsidies were designed to cover increased costs. Nor have
plaintiffs alleged that the City Trust Fund prohibits an increase in rent at the same time as an
increased subsidy. Moreover, to the extent that defendants did make misrepresentations to
plaintiffs, the amended complaint is devoid of allegations that defendants acted with any intent to
defraud or with knowledge that their representations were false.

Second, the complaint does not distinguish among the acts of the various defendants, as
required by Rule 9(b). To the contrary, plaintiffs allege generally that “the perpetuated acts of the
defendants amount to malicious intentions and scheines to defraud [plaintiffs]” and that “one or
more of the defendants have directly, indirectly, assisted in, and/or have not otherwise stopped
the intentional and malicious assessment (charges and/or billings) to past and/or present tenants.”
Although certain defendants are occasionally referenced with respect to specific interactions

involving plaintiffs, the amended complaint fails to notify each defendant of his role in the


Minute Order Form (06/97)

ny

United States District Court, Northern District of Ilinois

Ni f Assigned Jud; Sitting Judge if Other
ior Magistrate Judge Robert W. Gettleman than Asigned Judge
CASE NUMBER 02 C 5154 DATE March 24, 2004
CASE Sandra Ann Chambers, et al Vv Holsten Management Corp., et al
TITLE

[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
of the motion being presented. ]

MOTION:

DOCKET ENTRY:

(1) Oo Filed motion of [ use listing in “Motion” box above.]

(2) Qa Brief in support of motion due

(3) ia Answer brief to motion due___. Reply to answer briefdue__.

(4) im Hearing

(5) o Status hearing

(6) a Pretrial conference[held/continued to] [set for/re-set for]on__—setfor__—sat__.
(7) a Trial[set for/re-set for]on___sat__.

(8) oa [Bench/Jury trial] [Hearing] held/continued to at

(9) oO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OFRCP4(m) OGeneral Rule 21 OFRCP41(a)(1) © FRCP41(a)(2).

qo) [Other docket entry]

Memorandum Opinion and order entered.
Accordingly, defendant’s motionsto dismiss Counts I through XI are granted.
All other pending motions are denied as moot.

dl) @ [For further detail see order attached to the original minute order.]

No notices required, advised in open court.

No notices required.
jotices required. number of notices

X_ | Notices mailed by judge’s staff,

Notified counsel by telephone. date docketed

oad hill Un.

Docketing to mail notices.
Mail AO 450 form,

Copy to judge/magistrate judge.

date railed notice
courtroom Siiet

Gps deputy's
initials

Date/time received in
central Clerk’s Office mailing deputy initials

Wot ty


required by Rule 9(b). Plaintiffs have not alleged any misrepresentations by defendants or an
intent to defraud, nor have plaintiffs articulated the role of each defendant in the alleged
fraudulent scheme. Accordingly, the court dismisses Count I.
2. Count I: FOCPA

Defendants argue that plaintiffs’ claim under the FDCPA must be dismissed because
none of the defendants is a “debt collector” within the meaning of the Act. Plaintiffs respond
that whether or not defendants are debt collectors is a question of fact that should not be
determined on a motion to dismiss. For the reasons stated below, the court concludes that the
defendants are not “debt collectors,” as that term is defined by the FDCPA, and dismisses Count
IL.

iy

The FDCPA prohibits a "debt collector" from ising "any false, deceptive, or misleading
representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e. The
FDCPA defines a “debt collector” as “any person who uses any instrumentality of interstate
commerce or the mails in any business the principal purpose of which is the collection of any
debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or
asserted to be owed or due another.” 15 U.S.C. § 1692a(6). “Debt collector” does not include
“any person collecting or attempting to collect any debt... which was not in default at the time it
was obtained by such person,” 15 U.S.C. § 1692(a)(6)(F)(iii), unless that person is a creditor
who, in the process of collecting his own debts, uses any name other than his own to collect those

debts. See 15 U.S.C. § 1692(a)(6).

The Holsten defendants cite to Franceschi v. Mautner-Glick Corp., 22 F. Supp. 2d 250

(S.D.N.Y. 1998), in support of their contention that they are not “debt collectors” within the

11


debts from gambling activity and extremely usurious loans. See 18 U.S.C. § 1961(6); Nolen v.

Nucentrix Broadband Networks Inc., 293 F.3d 926 (5'" Cir. 2002).

Plaintiffs’ allegations regarding extortion are also insufficient. As defendants point out,
extortion is defined as “the obtaining of property from another, with his consent, induced by
wrongful use of actual or threatened force, violence, or fear.” 18 U.S.C. § 1951(b)(2). Plaintiffs
allege, among other things, that defendants have threatened tenants with eviction in response to
their failure to pay rent and electrical charges stemming from their use of air conditioners.
Plaintiffs have not alleged why this conduct is wrongful, however. In the absence of allegations
that defendants were somehow prohibited from, (1) raising rents, (2) charging the air-
conditioner-related fees, and (3) seeking eviction of those tenants who refused to pay their rents
and/or fees, plaintiffs have failed to allege extortionate conduct on the part of defendants. See
Rothman v. Vedder Park Management, 912 F.2d 315, 318 (9" Cir. 1990) (plaintiff failed to
adequately plead that landlord’s threats of increased rent amounted to extortion in absence of
allegations that landlord could not increase rent in response to a tenant’s failure to sign his lease),
Whitehead v. Gateway Chevrolet, 2004 WL 316413, *6 (N.D.IIL February 2, 2004) (plaintiff
failed to adequately plead extortion because plaintiff failed to allege why letter stating
defendant’s intention to seek legal recourse for plaintiff's default was “wrongful.”).

It appears to the court that plaintiffs’ RICO allegations, whether framed in terms of
subsidies, excessive rents, or threatened eviction, are part of what plaintiffs conceive of as a
fraud perpetrated by defendants to obtain increased rent from their tenants. As noted above,

however, state-law fraud is not actionable under RICO, and to the extent that plaintiffs are

seeking to allege mail or wire fraud, their allegations do not comport with the particularity

10



particularity,” applies to allegations of mail and wire fraud and by extension to RICO claims that
rest on predicate acts of mail and wire fraud. Jepson, Inc. v. Makita Corp., 34 F.3d 1321, 1327
(7" Cir. 1994). Rule 9(b) requires the plaintiff to state “the identity of the person who made the
misrepresentation, the time, place and content of the misrepresentation, and the method by which
the misrepresentation was communicated to the plaintiff.” Id. (quoting Uni*c duality, Inc. v.
Infotronx, Inc., 974 F.2d 918, 924 (7" Cir. 1992)). The complaint must also allege facts from
which it could be inferred that the defendants engaged in the scheme with fraudulent intent.
Jepson, 34. F.3d at 1328 (citing McDonald v. Schencker, 18 F.3d 491, 495 (7 Cir. 1994).
Moreover, in a multiple defendant case, Rule 9(b) requires a RICO plaintiff to plead sufficient

facts to notify each defendant of his alleged participation in the scheme. Goren v. New Vision

Intern., Inc., 156 F.3d 721, 726 (7" Cir. 1998).

As defendants point out, plaintiffs’ fraud allegations are lacking in two critical respects.
First, plaintiffs have not adequately alleged that defendants made any misrepresentations at all,
intentional or otherwise, to plaintiffs. See Emery v. American General Finance, Inc, 71 F.3d
1343, 1346 (7" Cir. 1995) (“[A]JI the [mail-fraud] statute punishes is deliberate fraud... where in
order to get money or something else of monetizable value from someone you make a statement
to him that you know to be false, or a half truth that you know to be misleading, expecting him to
act upon it to your benefit and his detriment.”) (emphasis in original). Second, plaintiffs have
failed to articulate each defendant’s role in the alleged fraud.

From the face of the amended complaint, it appears that plaintiffs are challenging Holsten
Management’s representation in a letter dated April 9, 2002, that the increase in the City Trust

subsidy was to cover increased costs so that Holsten Management could “maintain the building


Benjamin Clark is the current residential property matiager/agent for Sutherland Apartments, and
Sarah Dart is the current assistant residential property manager/agent for Sutherland Apartments.

Plaintiffs allege that, on February 17, 2002, Howard informed them that the City Trust
Fund Subsidy Program was increasing the subsidy it paid to Holsten Management by $25, to
$175. Plaintiffs believed that the increased subsidy “logically should have decreased [each of
the] Chambers’ rent $25.00.”

Between February 21, 2002, and April 9, 2002, plaintiffs exchanged correspondence with
Holsten Management in which plaintiffs inquired about “any discrepancy” - presumably, the fact
that plaintiffs’ portions of their respective rents did not decrease as a result of the increased
subsidy from City Trust Fun Subsidy Program. Holsten Management responded that the request
for a subsidy increase was made to the City Trust Fund Subsidy Program to allow Holsten
Management to “maintain the building while keeping rents affordable for our tenants.”

Plaintiffs maintain that Holsten Management’s response is inconsistent with the purpose
of the City Trust Fund Subsidy Program. According to the amended complaint, Howard and
Dart threatened plaintiffs with eviction if they did not “go along with allowing the landlords
(Holsten, Century Place, Heartland, Chicago Connection, TIA), Mohn and P. Holsten to
administer the City Trust Fund in this manner.” Plaintiffs further allege that they “[were]
threatened that if [they] kept complaining about it, [they] would lose [their] City Trust Fund.”

According to the amended complaint, “one or more of the defendants have directly,
indirectly, assisted in, and/or have not otherwise stopped the intentional and malicious
assessment (charges and/or billings) to past and/or present tenants... [and] directly and/or

indirectly assessed, attempted to collect, and/or collected excessive rents” from plaintiffs and



“FDCPA”), 15 U.S.C. §§ 1692 et seq. The remaining counts allege claims under various state
law theories, including violation of the Chicago residential Landlord and Tenant Ordinance
(Count III), breach of contract (Count IV), breach of implied warranty of habitability (Count V),
violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS §§
505/1 et seq. (Count VI), common law fraud (Count VII), negligent hiring and supervision
(Count VII), unfair enrichment (Count IX), and intentional infliction of emotional distress
(Count X), as well as an additional count seeking injunctive relief (Count XI).

Defendants have moved to dismiss Count I for failure to state a claim under Fed. R. Civ.
P. 12(b)(6), as well as for failure to plead fraud with particularity pursuant to Fed. R. Civ. P. 9(b).
Defendants also seek dismissal of Count IJ, arguing that they are not “debt collectors” within the
meaning of the FDCPA. For the reasons stated below, the court grants defendants’ motion to
dismiss Counts I and II, and declines to exercise supplemental jurisdiction over Counts III
through XI.

DISCUSSION

Plaintiffs are residents of Sutherland Apartments, an apartment complex located in
Chicago, Illinois, and managed by defendant Holsten Management. According to the amended
complaint, defendants Century Place, Heartland Alliance, Chicago Connection, and Travelers
and Immigrants Aid (“TIA”) are part-owners of Sutherland Apartments. The individual
defendants are all current or former employees of defendants Holsten Management and Century
Place: Peter Holsten is the President of Holsten Management, Sid Mohn is the President of
Century Place, Steve Johnson oversees the day-to-day operations of Sutherland Apartments,

Larry Howard is the former residential property manager/agent for Sutherland Apartments,


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
SANDRA ANN CHAMBERS, individually, in her ) . NOSKETED
official capacity as president of Sutherland Tenants )
Council (STC), and on behalf of all others similarly ) MAR 9, 5 2004

situated in the past, present, and future, ANGELA  )
CHAMBERS, individually and on behalf of all
others similarly situated in the past, present, and
future,

Plaintiffs,

No. 02C€5154
v. .
Judge Robert W. Gettleman
CENTURY PLACE DEVELOPMENT,

HEARTLAND ALLIANCE, CHICAGO

CONNECTIONS, TRAVELERS & IMMIGRANTS

AID, SID MOHN, PETER HOLSTEN, STEVE

JOHNSON, LARRY HOWARD BENJAMIN

)

)

)

)

)

)

)

)

HOLSTEN MANAGEMENT CORPORATION, _ )
)

)

)

)

)

CLARK and SARAH DART, )
)

)

Defendants.

Acting pio se, plaintiffs Sandra Ann Chathbers and Angela Chambers, on behalf of
themselves and all othets similarly situated, filed an amended putative class action complaint
against defendants Holsten Management Corporation (“Holsten Managernent”), Century Place
Development (“Century Place”), Heartland Alliance, Chicago Connections, Travelers and
Immigrants Aid, Sid Mohn, Peter Holsten, Steve Johnson, Larry Howard, Benjamin Clark, and
Sarah Daft. In Count I, plaintiffs allege that defendants violated the Racketeer Influenced and
Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961 et seq., through arent overcharging
scheme, as well as “questionable issues céncétiiing the phone and vending machine funds.” In

Count II, plaintiffs assert that defendants violated the Fair Debt Collection Practices Act (the

(y!


meaning of the FDCPA. The Franceschi court, relying on 15 U.S.C. § 1692(a)(6)(F)(iii), held
that a landlord’s management agent was not a “debt collector” under the FDCPA since it “had

not only the right but also the obligation to collect [plaintiff's] rent before as well as after such

TM»

debt was ‘in default.’” Franceschi, 22 F. Supp. 2d at 253. Among other things, the Franceschi
court relied on the rental agreements referenced in the plaintiff's complaint, which explicitly
defined the management agent as the landlord’s agent for purposes of collecting rent. Id.

In the instant case, the rental agreements attached to the amended complaint define
Holsten Management as the Lessor and Owner or Authorized Management Agent, and further
provide that “lessee shall pay to the Lessor or Lessor’s agent the monthly rent set forth above on
or before the first day of each and every month....” Accordingly, for the purposes of collecting
rent due and owing, the Holsten defendants, which includes Holsten Management and its agents
Peter Holsten, Johnson, Clark, Dart and Howard, are not “debt collectors” within the meaning of
the FDCPA. See 15 U.S.C. § 1692(a)(6)(F\(iii).

As to the Heartland Alliance defendants, the court notes that plaintiffs’ amended
complaint is devoid of allegations that any of them attempted to collect any rents or other sums
from plaintiffs. Accordingly, plaintiffs have failed to state a claim under the FDCPA against the
Heartland Alliance defendants, as well.

For these reasons, Count II is dismissed as to all defendants.

3. Counts HI-XT

Having dismissed plaintiffs’ federal causes of action, the court declines to exercise

supplemental jurisdiction over plaintiffs’ remaining state law claims under 28 U.S.C. §

1367(c)(3).

12