Antitrust Law Daily Wrap Up, RICO—6th Cir.: Homeowner gets second shot at attorney fees after illegitimate foreclosure, (Sep 30, 2014)

By Greg Hammond, J.D.

A homeowner should have been afforded the opportunity to add a Racketeer Influenced and Corrupt Organizations Act (RICO) claim against a law firm that filed an illegitimate foreclosure action against him, the U.S. Court of Appeals in Cincinnati has decided. His case was therefore partially reversed and remanded to the lower court with instructions to permit the homeowner to amend his complaint (Slorp v. Lerner, Sampson & Rothfuss, September 29, 2014, Gibbons, J.).

Background. The law firm of Lerner, Sampson & Rothfuss filed a foreclosure action against homeowner Rick Slorp, on behalf of Bank of America, N.A. (BoA). After the district court awarded judgment to BoA, Slorp retained counsel, who questioned the assignment that purportedly transferred the interest in Slorp’s mortgage to BoA. The bank subsequently dismissed the foreclosure action, and the district court vacated its judgment. However, Slorp filed suit against the law firm and BoA to recover attorney’s fees, arguing that they engaged in unfair, deceptive, and fraudulent debt-collection practices. The defendants moved to dismiss the complaint, and Slorp sought leave to amend his complaint to add a civil RICO claim. The district court granted the motion to dismiss, and denied Slorp’s motion for leave to amend, finding that his RICO claim would not be viable. Slorp appealed.

On appeal, the defendants argued that amending the complaint would be futile for three reasons: (1) Slorp cannot recover RICO damages because his injuries are attributable to his own default, rather than the improper foreclosure action; (2) Slorp failed to allege a plausible scheme or artifice to defraud, and therefore fails to identify a pattern of racketeering activity; and (3) Slorp failed to allege sufficient facts to support the existence of an enterprise.

Injury. The court focused its injury inquiry on Slorp’s attorney’s fees, as they were the only real and quantifiable damages identified in his complaint. Consequently, the issue was whether those fees were injuries to Slorp’s business or property, incurred by reason of the defendants’ alleged RICO violation. The court first determined that the attorney’s fees were pecuniary losses that flowed from a property injury caused by the improper foreclosure, and were therefore recoverable under the RICO. Second, it was determined that BoA’s wrongful initiation of the foreclosure proceedings proximately caused Slorp’s attorney’s fees, not his alleged default. Consequently, the court concluded that Slorp is entitled to recover those damages, unless he fails to satisfy his evidentiary burden at trial or during summary judgment proceedings.

Pattern of racketeering activity. BoA also argued that Slorp failed to demonstrate the defendants engaged in a pattern of racketeering activity, because: (1) he failed to demonstrate his reliance on the alleged misrepresentations, and (2) a material misrepresentation of fact was made to Slorp that was calculated or intended to deceive him. The court rejected the first argument, noting that there is no requirement that a plaintiff asserting a RICO claim predicated on mail fraud must demonstrate that he relied on the defendants’ alleged misrepresentations. Second, the court found that the alleged misrepresentations regarding the fraudulent assignment of Slorp’s mortgage, and the use of that false assignment in a foreclosure action, were sufficient to demonstrate a material misrepresentation calculated to deceive Slorp and the district court.

RICO enterprise. Lastly, the defendants argued that Slorp failed to allege sufficient facts to support the existence of a RICO enterprise. However, the court determined that Slorp alleged an association-in-fact enterprise that had a purpose and sufficient longevity, and that its members had lasting relationships with one another. Specifically, Slorp sufficiently alleged: (1) the defendants conspired to draft and execute a false assignment and to use the assignment in foreclosure proceedings to seize Slorp’s property; (2) the defendants used the mails and wires numerous times in furtherance of this scheme; and (3) the defendants engaged in similar malfeasance in other foreclosure proceedings, all with the aim of obtaining title to several properties that are not rightfully theirs.

Consequently, the appellate court reversed and remanded the lower court’s decision denying Slorp’s motion for leave to amend the complaint. However, the court affirmed the lower court’s decision to dismiss the other unfair and deceptive practices claims.

The case number is 13-3402.

Attorneys: Troy John Doucet (Doucet & Associates) for Rick A. Slorp. Rick D. DeBlasis (Lerner, Sampson & Rothfuss) for Lerner, Sampson & Rothfuss. James W. Sandy (McGlinchey Stafford) for Bank of America, NA.

Companies: Lerner, Sampson & Rothfuss; Bank of America, NA

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