Court Opinion

ID: 4150374
Source: CourtListenerOpinion
Date Created: 2017-03-06 17:01:08.370142+00
Date Added: 2024-06-11T14:49:51.711018
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                             File Name: 17a0143n.06

                                       Case No. 16-1988

                            UNITED STATES COURT OF APPEALS
                                 FOR THE SIXTH CIRCUIT                                FILED
                                                                                Mar 06, 2017
                                                                            DEBORAH S. HUNT, Clerk
MARIAH WALL, CHRISTOPHER                           )
BOSTON, and CRAIG MULHINICH,                       )
                                                   )
          Plaintiffs-Appellants,                   )       ON APPEAL FROM THE UNITED
                                                   )       STATES DISTRICT COURT FOR
v.                                                 )       THE EASTERN DISTRICT OF
                                                   )       MICHIGAN
MICHIGAN RENTAL, ZAKI JAMIL                        )
ALAWI, and ZA HOLDING COMPANY,                     )
LLC,                                               )
                                                   )
          Defendants-Appellees.

          BEFORE: DAUGHTREY, SUTTON, and DONALD, Circuit Judges.

          SUTTON, Circuit Judge. What started out as a landlord-tenant dispute has become a

lawsuit under the Racketeer Influenced and Corrupt Organizations Act (RICO). Mariah Wall,

Christopher Boston, and Craig Mulhinich allege that Zaki Jamil Alawi and his companies

committed federal wire, mail, and bank fraud by mishandling the security deposits the plaintiffs

provided for their rental units. Because the plaintiffs did not allege a cognizable injury and

because the complaint does not contain the “particularity” needed to allege fraud, Fed. R. Civ. P.

9(b), the district court dismissed the federal claims with prejudice. It opted not to exercise its

discretionary jurisdiction over the state law claims and dismissed them without prejudice. We

affirm.

          Between 2012 and 2014, Wall, Boston, and Mulhinich rented rooms from Alawi and his

companies: ZA Holding Company and Michigan Rental. Alawi and his companies (together,
Case No. 16-1988, Wall v. Michigan Rental

Alawi), collected roughly $2550 in security deposits from the three plaintiffs when they agreed

to lease rooms in his buildings. The plaintiffs lived in Alawi’s properties while attending the

University of Michigan. When they moved out, they received their security deposits back, minus

small deductions—uncontested by the plaintiffs—that Alawi withheld to cover minor damages to

the properties.

       What seemed to be an unexceptional, indeed pedestrian, landlord-tenant relationship had

a potential wart, say the plaintiffs. Michigan law requires landlords to handle security deposits

in certain ways, including by depositing them in a properly regulated financial institution and by

providing the address of that institution to the tenant. The plaintiffs came to believe that Alawi

did not comply with these requirements.

       The plaintiffs sued Alawi on behalf of a putative class of six years’ worth of tenants,

alleging violations of RICO and Michigan state law to the tune of $6.6 million. The crux of the

complaint is that Alawi violated two requirements of Michigan landlord-tenant law: He failed to

place the security deposits in a properly regulated bank, and he failed to include the address of

the Michigan Commerce Bank on the lease. The complaint pleads a RICO violation on the

grounds that Alawi was not entitled to hold security deposits at all (given these alleged breaches

of Michigan law), and that knowingly taking security deposits anyway constituted a pattern of

federal wire, mail, and bank fraud. The state-law claims alleged violations of Michigan’s

Landlord and Tenant Relationships Act, statutory conversion, common law conversion,

violations of Michigan’s Consumer Protection Act, and unjust enrichment.

       Alawi moved to dismiss. Before ruling on the motion, the district court (generously)

gave the plaintiffs an opportunity to file a supplemental “RICO Case Statement”—a fill-in-the-

blank outline of each element of a RICO claim.

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Case No. 16-1988, Wall v. Michigan Rental

       But their response did not quell the district court’s concerns about the complaint. The

court held that the plaintiffs lacked Article III standing to file the complaint because they failed

to articulate any concrete injury. It held that the absence of any “injury to business or property”

precluded the plaintiffs from stating a civil RICO claim. R. 26 at 10. And it held that the

allegations in the complaint were too vague to meet the particularity requirement of fraud

allegations under Civil Rule 9(b). The court dismissed the RICO claim with prejudice and

declined to exercise supplemental jurisdiction over the state law claims. It also rejected the

defendants’ motion for sanctions as well as the plaintiffs’ request for attorney’s fees due to the

burden of having to defend the motion for sanctions.

       Plaintiffs appeal two rulings: the dismissal of their RICO claim and the denial of their

request for attorney’s fees.

       The district court was correct on each front.

       The district court had ample grounds for rejecting the RICO claim as a matter of law.

First of all, the plaintiffs lack standing to bring the claim. To cross the gateway to an Article III

court, a plaintiff must allege: (1) “an injury in fact”; (2) “a causal connection” between the

alleged injury and the defendants’ conduct—that “the injury . . . [is] fairly traceable to the

challenged action . . . and not the result of the independent action of some third party not before

the court”; and (3) redressability—that the injury will “likely . . . be redressed by a favorable

decision.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1992) (quotations omitted).

Bare-bone allegations by themselves will not suffice. See In re Wingerter, 594 F.3d 931, 945

(6th Cir. 2010). “[A] complaint must state a plausible claim that the plaintiff has suffered an

injury in fact” and that the other elements of standing are satisfied. Williams v. Lew, 819 F.3d
466, 472 (D.C. Cir. 2016).

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Case No. 16-1988, Wall v. Michigan Rental

       Measured by these requirements, the plaintiffs come up short—in particular because they

cannot satisfy the injury-in-fact requirement. They gave Alawi a security deposit before moving

in and received the security deposit back upon moving out, minus some unchallenged deductions

for damages. That sequence of events does not establish an injury in fact. The plaintiffs got just

what Alawi promised in terms of dollars and cents. Nor may one establish an injury in fact

merely by identifying a violation of state landlord-tenant law in the absence of actual damage.

See Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1549 (2016). The claimant must connect the

violation to a concrete injury in fact. Notably, the Michigan law does not even purport to

identify any injury flowing from the alleged violations.

       Plaintiffs’ theories of injury, now offered on appeal, confirm this conclusion.         One

theory: If Alawi was not entitled to take a security deposit, as the complaint alleges, each

plaintiff is entitled to a full refund without any deductions for damage. The other theory: The

plaintiffs lost the time value of the security deposits, as they could have spent or invested the

$800+ that each of them gave to Alawi during the tenancy. But they ignore the reality that they

still received back just what they gave, consistent with the rental agreement. The idea that a

tenant—least of all a college student—could move into a rental apartment without paying a

security deposit is quite implausible. And plaintiffs point to no case law suggesting that they

could have lived in these apartments without paying a security deposit. All of this takes us back

to where we and Judge Cohn started: Plaintiffs have not identified any injury in fact that arose

from these allegations.

       Second, for comparable reasons, there is no RICO injury either. In order to bring a RICO

claim, plaintiffs must show that illegal racketeering activities “injured [them] in [their] business

or property.” 18 U.S.C. § 1964(c); see id. § 1962; Jackson v. Sedgwick Claims Mgmt. Servs.,

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Case No. 16-1988, Wall v. Michigan Rental

Inc., 731 F.3d 556, 558–59 (6th Cir. 2013) (en banc). In the absence of an injury of any kind, the

plaintiffs cannot show an injury within the meaning of the statute. The district court correctly

dismissed the claim for this reason too.

       Third, the complaint does not satisfy the pleading requirements of Civil Rule 9(b). The

plaintiffs point to wire, mail, and bank fraud as Alawi’s predicate acts of “racketeering activity”

under RICO.      18 U.S.C. § 1961(1).      To file a fraud claim, a plaintiff must state with

“particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b).         To meet this

requirement, the plaintiff must allege (1) “the time, place, and content of the alleged

misrepresentation,” (2) “the fraudulent scheme,” (3) the defendant’s fraudulent intent, and (4) the

resulting injury. United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493, 504 (6th

Cir. 2007); see United States ex rel. Hirt v. Walgreen Co., 846 F.3d 879, 880–81 (6th Cir. 2017).

       For present purposes, the complaint has two flaws.           There is no allegation of a

misrepresentation, and the alleged “fraudulent scheme” is not “plausible.” See Bell Atl. Corp. v.

Twombly, 550 U.S. 544, 570 (2007). The plaintiffs allege that, at some point after they signed

the lease agreements, Alawi moved their security deposits from the Michigan Commerce Bank.

And the plaintiffs say that Alawi represented, on the lease agreements, that the security deposits

would be deposited at the Michigan Commerce Bank. But that would be a misrepresentation

only if Alawi never put the deposits there, not if he moved the deposits around later (as Michigan

law permits). See Mich. Comp. Laws § 554.604.

       The complaint and RICO case statement omit any claim that Alawi never put the deposits

where he said he would. All that the plaintiffs say is that their security deposits “were or were

not deposited at Michigan Commerce Bank.” R. 1 at 13. But that’s not an allegation of a

misrepresentation. It’s not indeed a factual claim at all. It’s a statement of two contradictory

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Case No. 16-1988, Wall v. Michigan Rental

facts, making it a statement of nothing at all under a venerable principle of logic—the law of the

excluded middle.     Aristotle, Metaphysics bk. IV, pt. 7, available at http://classics.mit.edu

/Aristotle/metaphysics.4.iv.html (“[T]here cannot be an intermediate between contradictories.”).

In the absence of any factual assertion that Alawi did something other than what he said he

would, the plaintiffs cannot describe the “time, place, and content of the alleged

misrepresentation” as Civil Rule 9(b) requires. Bledsoe, 501 F.3d at 504.

       Making matters worse for the plaintiffs, the alleged “fraudulent scheme” is implausible

on its face. Twombly, 550 U.S. at 570. The apparent idea is that Alawi knew he had not

complied with the Michigan landlord-tenant laws, collected security deposits anyway, then

commingled the security deposits with his own funds. What’s implausible about this is that the

only concrete violation of the Michigan Landlord and Tenant Relationships Act that plaintiffs

have pointed to is Alawi’s failure to include the address of the Michigan Commerce Bank on the

lease document. Mich. Comp. Laws § 554.603 (“A landlord shall not require a security deposit

unless he notifies the tenant . . . [of] the name and address of the financial institution” where

he’ll place the deposit). Even if this omission violated the letter of Michigan law, it is beyond us

how this omission could have misled anyone, much less amounted to a fraudulent scheme. It’s

undisputed that the Michigan Commerce Bank was a properly regulated financial institution with

only one location.

       Nor can we see what Alawi could have gained from the omission. He collected security

deposits in permissible amounts, used them in permissible ways, and returned them on time and

without any contested deductions. See Mich. Comp. Laws § 554.604 (“A landlord may use the

moneys so deposited for any purposes he desires if he deposits with the secretary of state a cash

bond or surety bond . . . .”). That’s not much of a “scheme.” That Alawi intended to use this

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Case No. 16-1988, Wall v. Michigan Rental

trivial omission to defraud his tenants into paying security deposits to which he was not entitled

is not even “conceivable,” much less “plausible.” Twombly, 550 U.S. at 570.

       One last thing. The plaintiffs request attorney’s fees because they prevailed in one way

before the district court: The court (kindly) did not grant the defendants’ motion for sanctions

against the plaintiffs. Fed. R. Civ. P. 11(c)(2). That is the one difficult issue in this case. It’s

difficult not because of anything the district court did. It of course quite properly denied fees to

the plaintiffs on this ground, all way within its sound discretion. B & H Med., L.L.C. v. ABP

Admin., Inc., 526 F.3d 257, 269 (6th Cir. 2008). What’s difficult is whether we should sua

sponte impose sanctions on the plaintiffs for bringing such a frivolous appeal. We will not

impose such sanctions today. But plaintiffs’ counsel would be well advised to consider more

carefully in the future what amounts to a colorable ground for appeal and what does not.

       For these reasons, we affirm.

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