Antitrust Law Daily Wrap Up, RICO—D. Colo.: Goldman Sachs not liable for alleged racketeering enterprise, (Oct 29, 2014)

By Jody Coultas, J.D.

Mortgage holders failed to state claims against Goldman Sachs & Company for allegedly directing its subsidiary to provide the mortgage holders with false information about their loan modification application, the federal district court in Denver has held (Dawson v. Goldman Sachs & Co., October 27, 2014, Arguello, C.).

Litton Loan Servicing, LP, a former subsidiary of Goldman Sachs, foreclosed on the mortgage holders’ property after they were unable to make the required payments. After claims against Litton were dismissed, the mortgage holders filed against Goldman Sachs alleging the company used its position as the majority shareholder for Litton to create a “massive at-will foreclosure mill.” Goldman Sachs allegedly “directed” Litton to implement so-called “denial sweeps,” in which applications for home loan modifications were denied without proper consideration.

The mortgage holders failed to plausibly allege that representatives of Goldman Sachs and Litton were part of an “enterprise” separate from the corporate entity for which they worked, according to the court. To prove a Racketeer Influenced Corrupt Organizations Act (RICO) violation, plaintiffs must show: (i) conduct; (ii) of an enterprise; (iii) through a pattern of two or more instances; (iv) of racketeering activity. For Goldman Sachs to be liable, the mortgage holder needed to show an association with an enterprise possessing “an existence and purpose distinct” from itself. Employees of an organization cannot, in the ordinary course of their duties, constitute an association in fact separate from the organization itself. The mortgage holders failed to specify which Goldman Sachs representatives or executives were “directing” Litton employees as part of this enterprise, nor how this “direction” made it easier to commit the alleged fraud. There was also no evidence of an “enterprise” with a decision-making framework or mechanism beyond that of the inherently hierarchical relationship between Goldman Sachs and Litton.

The RICO claims were also dismissed for failure to meet the heightened pleadings standard of Federal Rule of Civil Procedure 9(b). The complaint alleged that Goldman Sachs caused Litton to deposit “thousands” of letters in the U.S. Mails containing false information about loan modifications and loan modification applications and to make telephone calls to provide the same false information. However, the mortgage holders did not provide details as to the identity of the party making the false communications, or the times, places, and content of the false representation.

Because Litton was not liable for tortious interference with contract, tortious interference with prospective business relations, or violations of the Colorado Consumer Protection Act, the court found there was no basis to hold Goldman Sachs liable on a derivative basis under these counts.

The case is No. 13-cv-02030-CMA-KMT.

Attorneys: Blair Kenneth Drazic for Clinton J. Dawson. Bruce A. Featherstone (Featherstone DeSisto, LLC) for Goldman Sachs & Co.

Companies: Goldman Sachs & Co.; Litton Loan Servicing, LP

Cases: RICO ColoradoNews