Antitrust Law Daily Wrap Up, RICO—2d Cir: Dismissal of home owner’s RICO and deceptive business practices claims against lender affirmed, (Jul 11, 2014)

By Linda O’Brien, J.D., LL.M.

A home owner could pursue claims for fraud and violations of the Truth in Lending Act against a lender for allegedly fraudulently procuring a mortgage on her home, the U.S. Court of Appeals in New York City has ruled. However, the home owner’s claims under Racketeering Influenced and Corrupt Organizations Act and New York General Business Law were properly dismissed by the district court (Crawford v. Franklin Credit Management Corporation, July 11, 2014, Kearse, A.).

Linda Crawford bought a home and funded the purchase with mortgage loan from Community Home Mortgage Corp. In 2004, Crawford was in default of her loan and a foreclosure action was commenced by Community. Crawford was contacted by an employee of Tribeca Lending Corporation to discuss refinancing her home and signed documents to obtain a loan. The majority of the loan proceeds were used to pay off her existing mortgage and a portion was disbursed to Crawford in cash. In 2005, Crawford defaulted on the Tribeca loan and Tribeca commenced a foreclosure action. To forestall the foreclosure sale, Crawford filed a Chapter 13 bankruptcy petition; however she failed to disclose any potential claims against the lender.

Subsequently, the home was sold in foreclosure and Crawford filed suit against Franklin Credit Management Corporation and Tribeca, its subsidiary, asserting claims fraud and violations under the Racketeering Influenced and Corrupt Organizations Act (RICO), New York General Business Law (GBL), Truth in Lending Act (TILA), among other claims. Crawford alleged that Tribeca fraudulently procured a mortgage on her home. The district court granted Franklin and Tribeca’s motion for summary judgment. Crawford appealed.

RICO. The court found that Crawford failed to show sufficient evidence that the defendants engaged in a pattern of racketeering. To establish a violation of RICO, a plaintiff must show that the defendant participated in the conduct of an enterprise through a pattern of racketeering activity. Crawford alleged that the defendants engaged in wire fraud, consisting of interstate telephone calls and faxed documents to facilitate the loan, and mail fraud, consisting of the mailing of monthly mortgage statements and default notices. The court noted that the mere mailings of statements seeking payment of an established debt did not amount to a threat of continued criminal activity. Moreover, Crawford presented no evidence that the alleged fraudulent statements made in telephone conversations evinced a threat of future fraudulent mortgage business practices. Thus, the evidence presented by Crawford did not allow a rational inference of a continuity of racketeering activity.

Deceptive business practices claims. The New York GBL makes it unlawful to engage in deceptive acts or practices in the conduct of any business, trade or commerce. To state a claim under the New York GBL, a plaintiff must prove that the deceptive practice impacted consumers at large, was misleading in a material way, and the plaintiff suffered an injury as a result of the deceptive act. Crawford failed to show that the alleged acts – obtaining her signatures under false pretenses, creating a mortgage through forgery, and imposing exorbitant closing costs without informing her beforehand – were committed against consumers in general or anyone other than Crawford, according to the court. Thus, summary judgment dismissing those claims was appropriate.

TILA and fraud claims. However, issues of material fact remained as to whether Tribeca provided Crawford with the disclosures of credit terms required under the TILA, the court stated. Crawford’s testimony that she did not receive any documents to keep during the course of the transaction and the signatures on TILA disclosure statements were forgeries was sufficient to show there were factual issues to be tried. Crawford’s testimony that she relied on the defendants’ alleged misrepresentations to her detriment also presented genuine issues of fact with respect to her fraud claims. Therefore, the judgment dismissing those claims should be vacated, the court concluded.

The case is No. 13-2514.

Attorneys: Krishnan Chittur (Chittur & Associates, PC) for Linda D. Crawford. Martin Christopher Bryce, Jr. (Ballard Spahr LLP) for Tribeca Lending Corp. and Franklin Credit Management Corp.

Companies: Tribeca Lending Corp.; Franklin Credit Management Corp.; Lenders First Choice Agency, Inc.

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