Opinion ID: 2828218
Heading Depth: 3
Heading Rank: 2

Heading: Racketeering Activity and Fraudulent Intent

Text: USA Funds next argues that Bible has not plausibly alleged racketeering activity. “Racketeering activity” is defined 42 No. 14-1806 in 18 U.S.C. § 1961(1)(B) to include mail fraud in violation of 18 U.S.C. § 1341 and wire fraud in violation of 18 U.S.C. § 1343. “The elements of mail fraud … are: ‘(1) the defendant’s participation in a scheme to defraud; (2) defendant’s commission of the act with intent to defraud; and (3) use of the mails in furtherance of the fraudulent scheme.’” Williams v. Aztar Indiana Gaming Corp., 351 F.3d 294, 298–99 (7th Cir. 2003), quoting United States v. Walker, 9 F.3d 1245, 1249 (7th Cir. 1993). The elements of wire fraud are the same except that it requires use of interstate wires rather than mail in furtherance of the scheme. E.g., United States v. Green, 648 F.3d 569, 577–78 (7th Cir. 2011). Bible alleges both mail and wire fraud. Her allegations are subject to Federal Rule of Civil Procedure 9(b), which requires her to plead fraud with particularity. E.g., Slaney v. Int’l Amateur Athletic Federation, 244 F.3d 580, 597 (7th Cir. 2001). As a result, Bible “must, at a minimum, describe the two predicate acts of fraud with some specificity and state the time, place, and content of the alleged false representations, the method by which the misrepresentations were communicated, and the identities of the parties to those misrepresentations.” Id. Bible’s fraud allegations are based on the form default letter and rehabilitation agreement. According to the amended complaint, USA Funds, through its agent GRC, mailed the default letter telling Bible that her loan was in default. The letter said that her “current collection cost balance” and “current other charges” were zero. Like the default letter, the rehabilitation agreement, which was faxed, said that her “current collection cost balance” and “current other charges” were zero. She alleges that USA Funds uses form documents No. 14-1806 43 substantially similar to the default letter and rehabilitation agreement in its dealings with thousands of other borrowers who have defaulted on their loans. Bible’s theory of fraud is that the statements in the default letter and rehabilitation agreement that her “current collection cost balance” and “current other charges” were zero were false, misleading, or contained material omissions. They implied that collection costs would not be assessed against her if she promptly agreed to enter into a repayment program. According to the amended complaint, these statements were designed to deceive her into entering into the rehabilitation program by concealing the fact that thousands of dollars in collection costs would be imposed by the guaranty agency before she had completed the rehabilitation process. USA Funds argues that Bible has not plausibly alleged fraud because the collection costs were permitted by federal regulations and because she has failed to allege that USA Funds intended to deceive her. Neither argument can justify dismissal under Rule 12(b)(6). Whether Bible can eventually come forward with evidence of fraudulent intent is a question for the district court on remand. As discussed above, the collection costs were not permitted by federal regulations, at least as interpreted by the Secretary of Education. In addition, even if the costs had been permitted by the regulations, Bible alleges that USA Funds misled her in its correspondence leading to her agreeing to the repayment program. We recognize that the correspondence to Bible signaled that collection costs could be assessed in the future. Yet that same correspondence said that she owed no collection costs, which could reasonably be under44 No. 14-1806 stood as implying that there would be nothing to add in the future. A Rule 12(b)(6) motion to dismiss is not a suitable procedure for determining that these documents could not possibly have been misleading to Bible or other borrowers like her. The question of USA Funds’ intent also cannot be decided on the pleadings. At this stage of the litigation, Bible has plausibly alleged that USA Funds intended to deceive her. See Fed. R. Civ. P. 9(b) (fraudulent intent “may be alleged generally”). She alleges that it sent her a form saying that her collection costs were zero and that it made this representation intending to induce her to enter into a repayment program by hiding that she would be forced to pay over $4,500 in collection costs if she did. These representations could be deemed literally false. Even if they could avoid literal falsity, omission or concealment of material information can be sufficient to constitute mail or wire fraud. See United States v. Morris, 80 F.3d 1151, 1161 (7th Cir. 1996) (“We reiterated, moreover, that the statutes apply not only to false or fraudulent representations, but also to the omission or concealment of material information, even where no statute or regulation imposes a duty of disclosure.”); Emery v. American General Finance, Inc., 71 F.3d 1343, 1348 (7th Cir. 1995); United States v. Biesiadecki, 933 F.2d 539, 543 (7th Cir. 1991); United States v. Keplinger, 776 F.2d 678, 697 (7th Cir. 1985). The rehabilitation agreement warned Bible that collection costs could be capitalized at the time of rehabilitation by the new lender. See App. 139 (“Collection costs may be capitalized at the time of the Loan Rehabilitation by your new lender, along with outstanding accrued interest, to form one new principal amount.”); id. (“By signing below, I underNo. 14-1806 45 stand and agree that the lender may capitalize collection costs of 18.5% of the outstanding principal and accrued interest upon rehabilitation of my loan(s).”). One straightforward reading of this language is that it authorized the new lender—not the guaranty agency—to capitalize existing collection costs, not to impose new ones, and then only after rehabilitation is complete (i.e., after the guaranty agency has sold the loan to a private lender). At this preliminary pleading stage, we do not know USA Funds’ state of mind when it sent the default letter or rehabilitation agreement. Bible has plausibly alleged that the statements in the default letter and the rehabilitation agreement were designed to induce her to enter into the repayment agreement while concealing that she would be assessed over $4,500 in collection costs if she did so. Her allegations of racketeering activity should survive the Rule 12(b)(6) motion to dismiss.8