Opinion ID: 158728
Heading Depth: 3
Heading Rank: 2

Heading: 18 U.S.C. 1962(c) Claims

Text: 28 BOMC brought its direct and homeowner-assigned civil RICO claims pursuant to 18 U.S.C. 1964(c) (Supp. 1999), alleging violations based on 18 U.S.C. 1962(c) (1984), which provides: 29 It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt. 30 A person in a civil action who is found to have violated RICO is liable for treble damages, costs, and attorney's fees. Id. 1964(c). 31 The Title Companies moved for summary judgment on BOMC's RICO claims, arguing: (1) the Title Companies did not participate in the operation or management of the affairs of the RICO enterprise; (2) the Title Companies' actions are not predicate acts under the RICO statute; (3) the Title Companies' conduct was not the proximate cause of BOMC's injury; and (4) the McCarran-Ferguson Act precludes BOMC's RICO claims. 10 32 The district court granted summary judgment to the Title Companies, finding they had not directed in any way the activities of the alleged RICO enterprise. The district court further found that the Title Companies did not engage in a pattern of racketeering activity, as required by 18 U.S.C. 1962(c), because they had not committed any predicate acts, as defined by 18 U.S.C. 1961(1) (Supp. 1999). The district court did not address the Title Companies' remaining arguments, because it concluded the above-cited reasons alone--no direction of the activities of the alleged RICO enterprise and no pattern of racketeering activity--were sufficient to warrant summary judgment for the Title Companies. For the reasons set forth below, we agree with the district court. 33 To establish a civil RICO claim under 18 U.S.C. 1962(c), BOMC must show that the Title Companies (1) participated in the conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Resolution Trust Corp. v. Stone, 998 F.2d 1534, 1541 (10th Cir. 1993) (citing Phelps v. Wichita Eagle-Beacon, 886 F.2d 1262, 1273 (10th Cir. 1989)). 34 The Supreme Court has adopted the operation or management test to determine whether a defendant has participated in the conduct of the affairs of a RICO enterprise. Id. (citing Reves v. Ernst & Young (Reves II), 507 U.S. 170, 113 S. Ct. 1163, 1170-73, 122 L. Ed. 2d 525 (1993)). For liability to be imposed under that test, the defendants must have participated in the operation or management of the RICO enterprise. Id. 35 [O]ne must have some part in directing those affairs of the enterprise, id. at 1780-80, 113 S.Ct. at 1170, although it is not necessary for the participant to have significant control, id. at 179 n. 4, 113 S.Ct. at 1170 n. 4 (rejecting the District of Columbia Circuit's formulation of the operation and management test in Yellow Bus Lines, Inc. v. Drivers, Chauffeurs & Helpers Local Union 639, 913 F.2d 948, 954 (D.C.Cir.1990) (en banc), cert. denied, 501 U.S. 1222, 111 S.Ct. 2839, 115 L.Ed.2d 1007 (1991)). [T]he word 'participate' makes clear that RICO liability is not limited to those with primary responsibility for the enterprise's affairs, just as the phrase 'directly or indirectly' makes clear that RICO liability is not limited to those with a formal position in the enterprise, but some part in directing the enterprise's affairs is required. Reves II, 507 U.S. at 179, 113 S.Ct. at 1170 (footnote omitted). 36 Id. (footnote omitted). Outsiders, such as the Title Companies, who are associated with a RICO enterprise and participate in the operation or management of the enterprise may also be liable under 1962(c). Reves II, 507 U.S. at 185, 113 S. Ct. at 1173. 37 Applying this test to the facts before us, BOMC has failed to establish the first element of its RICO claims, i.e., that the Title Companies participated in the conduct of the alleged RICO enterprise. There is no evidence suggesting the defendants directed any part of the alleged RICO enterprise. The Title Companies did nothing more than provide their regular services, which included closing-related services such as recording documents and issuing title commitments. However, BOMC claims the defendants allowed, if not actively encouraged, LMS and PBCS to carry on with their scheme. It further argues the defendants participated, directly or indirectly, in the management of the RICO enterprise by engaging in numerous, various activities. See Appellant's br. at 45-46. These activities include: failing to correct the false HUD-1 forms; requiring that LMS show the Title Companies as Settlement Agent on the HUD-1 forms; agreeing with LMS, as a condition of doing business, that LMS could falsely show the Title Companies as Settlement Agent on the HUD-1 forms; deciding to continue to mislead homeowners when they called to ask why their prior mortgages had not been paid off; deciding not to tell homeowners the truth about what title insurance did and did not cover; deciding not to tell homeowners or BOMC the truth about LMS's shaky financial condition; deciding to issue a title commitment to help the closing process along on the 347 loans; deciding to issue final title policies on all except the 31 loans; deciding to use a materially misleading closing affidavit printed on the Title Company's own form; deciding to sign false HUD-1 forms in BOMC purchase loans; and agreeing with LMS that LMS could falsely show their Title Company as Settlement Agent on the HUD-1 forms in refinance loans. Id. 38 There is simply no support in the record for these claims. In support of its claim that the Title Companies were involved in managing the RICO enterprise, BOMC relies repeatedly upon a memorandum prepared by Iadevito and Janson, which contains broad conclusory statements about the Title Companies generally, but absolutely no specifics as to persons, dates, transactions or amounts. See A 5389-92. Not only does this memorandum lack the necessary particularity to establish fraud, it is completely lacking in rudimentary foundational elements for admissibility. For purposes of summary judgment, facts must be established by evidence which would be admissible at trial. Thomas v. International Bus. Machs., 48 F.3d 478, 485 (10th Cir. 1995). Similarly, BOMC uses the affidavit of Theresa Janson to support its claim that the Title Companies actively directed, participated in or acquiesced in LMS's and PBCS's conduct in preparing documents, forging title company signatures and misrepresenting the title company's role in refinance transactions. See A 6470-71. This affidavit suffers from the same lack of specificity that afflicts the Iadevito/Janson memorandum. It contains sweeping, conclusory statements regarding the Title Companies as a group, but does not mention any single transaction, date or person. While an affidavit is certainly an appropriate vehicle to establish a fact for summary judgment purposes, the affidavit must set forth facts, not conclusory statements. Murray v. City of Sapulpa, 45 F.3d 1417, 1422 (10th Cir. 1995). For purposes of establishing fraud, again, this affidavit falls well short of the degree of specificity necessary to be admissible. Thomas, 48 F.3d at 485. The court has carefully reviewed the entire record in this case, which consists of forty-one unsealed volumes and eight sealed volumes of documents and transcripts and finds nothing which provides the kind of support necessary to establish that the Title Companies managed LMS's RICO enterprise. 39 Further, the Title Companies provided their services only to LMS, which is not sufficient to establish liability under RICO. See University of Maryland at Baltimore v. Peat, Marwick, Main & Co., 996 F.2d 1534, 1539 (3d Cir. 1993) (Simply because one provides goods or services that ultimately benefit the enterprise does not mean that one becomes liable under RICO as a result.). 40 BOMC also lists numerous activities by the Title Companies that it claims are evidence of their participation, directly or indirectly, in the operation of the RICO enterprise, including: providing figures for LMS to use on HUD-1 forms in LMS refinance loans; recording documents; providing their own printed form closing affidavits for LMS's use; keeping silent when homeowners called to complain about their prior mortgages not being paid off; changing the way they did business with LMS in refinance transactions; failing to correct the material misrepresentations on the HUD-1 forms; failing to tell homeowners the truth about what title insurance did and did not cover; requiring that their Title Company be falsely shown as Settlement Agent on HUD-1 forms; keeping silent about LMS's shaky financial condition; providing title commitments; providing final title policies; providing check-outs; allowing false HUD-1 forms, closing instructions and first lien letters to go to BOMC; and failing to just say no to participating in refinance loans and participating in them as they did. Appellant's br. at 46. These claims suffer from the same problems as BOMC's claimed management facts. The record simply does not support the claims. Additionally, most of the activities cited are activities the Title Companies would have performed in their normal course of business in dealing with all mortgage lenders, not just LMS. Because BOMC has failed to establish that the title companies directed the activities of or participated in the operations of the alleged RICO enterprise, their 1962(c) claims fail on that basis. 41 BOMC's 1962(c) claims also fail because there is no evidence that the Title Companies or any of them engaged in a pattern of racketeering activity. RICO specifically defines racketeering activity as any act that violates specified state and federal crimes, including mail fraud, wire fraud, and bank fraud. 18 U.S.C. 1961(1); Resolution Trust Corp., 998 F.2d at 1543. The various acts of racketeering activity described in the statute are often referred to as predicate acts because they form the basis for liability under RICO. Bacchus Industr., Inc., 939 F.2d at 891. However, a person does not have to be formally convicted of any predicate act before liability under 18 U.S.C. 1962(c) may attach. Condict v. Condict, 826 F.2d 923, 926 (10th Cir. 1987) (citing Sedima, S.P.R.L. v. Imprex Co., Inc., 473 U.S. 479, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985)). 42 BOMC claims the Title Companies committed the following predicate acts: mail fraud, in violation of 18 U.S.C. 1341 (Supp. 1999), wire fraud, in violation of 18 U.S.C. 1343 (Supp. 1999), and financial institution fraud, in violation of 18 U.S.C. 1344 (Supp. 1999). To establish a claim of mail fraud under 18 U.S.C. 1341, BOMC must allege: (1) the existence of a scheme or artifice to defraud or obtain money or property by false pretenses, representations or promises, and (2) use of the United States mails for the purpose of executing the scheme. Bacchus, 939 F.2d at 892 (citing United States v. Warren, 747 F.2d 1339, 1344 (10th Cir. 1984)). The elements of wire fraud are very similar, but require that the defendant use interstate wire, radio or television communications in furtherance of the scheme to defraud. Id. (citing 18 U.S.C. 1343 (1988)). The elements of financial institution fraud include: (1) that the defendant knowingly executed or attempted to execute a scheme (i) to defraud, or (ii) to obtain property by means of false or fraudulent pretenses, representations or promises; (2) that defendant did so with the intent to defraud; and (3) that the financial institution was then insured by the Federal Deposit Insurance Corporation. United States v. Rackley, 986 F.2d 1357, 1360-61 (10th Cir. 1993) (citing 18 U.S.C. 1344; United States v. Bonnett, 877 F.2d 1450 (10th Cir.1989)). 43 Clearly, the common thread among each of these crimes is the concept of fraud. Actionable fraud consists of (1) a representation; (2) that is false; (3) that is material; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) the speaker's intent it be acted on; (6) the hearer's ignorance of the falsity of the representation; (7) the hearer's reliance; (8) the hearer's right to rely on it; and (9) injury. State ex rel. Painewebber, Inc. v. Voorhees, 891 S.W.2d 126, 128 (Mo. 1995) (en banc); Emerick v. Mutual Benefit Life Ins. Co., 756 S.W.2d 513, 519 (Mo. 1988) (en banc). 44 We conclude, as did the district court, that BOMC has failed to establish that the Title Companies engaged in a pattern of racketeering activity as the Title Companies did not commit fraud of any kind. 11 Having not committed fraud, the Title Companies did not engage in any of the predicate acts defined in 18 U.S.C. 1961(1). It follows that because the Title Companies committed no predicate acts, they cannot be found to have engaged in racketeering activity. Further, this lack of racketeering activity makes it unnecessary to analyze the pattern element of the 1962(c) claims.