Antitrust Law Daily Wrap Up, ANTITRUST—EDNY: Home Owner Fails to Establish Antitrust, RICO Violations Based on Mortgage Servicing Practices, (Mar 15, 2013)

By Jeffrey May, J.D.

The federal district court in Central Islip, New York, has dismissed antitrust claims and Racketeer Influenced and Corrupt Organization (RICO) Act claims against Fairbanks Capital Corporation (FCC) and PMI Mortgage Insurance Company (PMI) brought by a New York home owner based on the servicing of his mortgage and related foreclosure proceedings (Dolan v. Fairbanks Capital Corp., March 13, 2013, Hurley, D.).

The action was brought by a home owner who had lost his property in a foreclosure. Ultimately, the judgment of foreclosure and subsequent sale were set aside after it was determined that the home owner and his wife were “thwarted in their efforts to remedy their default and reinstate the mortgage.”

In this long-running dispute, the home owner, proceeding pro se, brought a number of claims against mortgage servicer FCC and mortgage insurance company PMI. With the court's grant of summary judgment in favor of FCC and PMI on the antitrust and RICO claims, only claims against FCC under the Real Estate Settlement and Procedures Act and New York state law, including a claim of unfair and/or deceptive acts and practices in violation of General Business Law § 349, remain.

Antitrust claims. The court rejected the home owner's claims that FCC engaged in monopolization, attempted monopolization, or unlawful tying.

For purposes of the monopoly claims, the plaintiff failed to proffer any evidence that either FCC or PMI had (or had a dangerous probably of achieving) monopoly power in the sub-prime mortgage servicing market. Thus, the monopoly claims were deficient as a matter of law.

The court also rejected tying claims based on “forced-placed insurance.” The home owner contended that PMI and FCC entered into an unlawful tying arrangement whereby FCC intentionally lapsed old coverage so that PMI could issue new policies. While PMI sold private mortgage insurance to residential mortgage lenders and lenders might have chosen to pass the cost along to a borrower, the complaining home owner did not offer any evidence that PMI sold private mortgage insurance to FCC in the first instance, or that FCC then passed such a cost on to him.

Also rejected was a tying allegation against FCC based on the company’s use of “predatory loan servicing practices” to negatively impact the home owner's credit rating. The home owner contended that, because home owners with bad credit were unable to readily obtain insurance, they were required to obtain a home owner’s policy from a third party that provided kickbacks to FCC. However, FCC only serviced the plaintiff's loan, the court explained. FCC could not be liable for tying where it never sold the plaintiff any product. Moreover, the plaintiff did not identify a “force-placed” insurance policy on his account during the time that FCC serviced his loan.

RICO claims. The court also ruled that FCC and PMI were entitled to summary judgment on the plaintiff's substantive RICO claims (based upon extortion, loan sharking, and mail and wire fraud) and RICO conspiracy claims. The plaintiff’s failure to show a "pattern of racketeering activity” was fatal to his RICO claims.

The home owner did not demonstrate either an “open-ended” pattern of racketeering activity that posed a threat of continuing criminal conduct beyond the period during which the predicate acts were performed or a “closed-ended” pattern–a series of related predicate acts extending over a substantial period of time. FCC had argued that the case involved a single mortgage loan that it serviced for a limited time, and which it no longer serviced. Moreover, the scheme involved only one victim.

With respect to the RICO claims against PMI, the plaintiff could not demonstrate that PMI “benefitted” from FCC’s racketeering activity, because the plaintiff failed to raise a genuine issue of material fact as to whether FCC engaged in racketeering activity. Further, PMI’s liability under RICO could not be based on a corporate relationship between the two companies.

The case is No. 03 CV 3285 (DRH) (AKT).

Attorneys: Riyaz Gulam Bhimani (Eckert Seamans Cherin & Mellott, LLC) for Fairbanks Capital Corp. John L. Altieri, Jr. (Boutin & Altieri, PLLC) for PMI Mortgage Insurance Co.

Companies: Fairbanks Capital Corp.; PMI Mortgage Insurance Co.

Cases: Antitrust StateUnfairTradePractices RICO NewYorkNews