Antitrust Law Daily Wrap Up, RICO—D. Kan.: No reconsideration of order dismissing borrower’s RICO claims against mortgage lender, (Jul 31, 2013)

By Tobias J. Gillett, J.D., LL.M.

The federal district court in Kansas City, Kansas denied reconsideration of its order dismissing with prejudice a borrower’s RICO claims against a mortgage lender over the lender’s alleged fraudulent statements made during the negotiation, modification, and performance of two loans (Olathe/Santa Fe Partnership v. Doull, July 29, 2013, Murguia, C.).

In 2004 and 2006, Olathe/Santa Fe Partnership executed real property mortgage loan agreements with Cornerstone Bank. In 2010, Cornerstone filed a petition in state court to foreclose on the 2006 loan, and in 2012 it filed a petition to foreclose on the 2004 loan. Olathe/Santa Fe filed counterclaims for fraud and breach of contract, but the state court entered judgment in favor of Cornerstone on all claims and counterclaims.

In 2012, Olathe/Santa Fe filed the present lawsuit in federal court, alleging violations of the RICO Act, as well as a variety of state law claims. On April 22, 2013, the court granted the defendants’ motion to dismiss the RICO claim with prejudice, finding that Olathe/Santa Fe had “failed to (1) allege two predicate acts of mail fraud or wire fraud with particularity, (2) allege Hobbs Act extortion, and (3) allege a continuing pattern.” Olathe/Santa Fe sought reconsideration of the decision.

The court explained that “[t]he Tenth Circuit has recognized three grounds warranting reconsideration under Rule 59(e): (1) an intervening change in law, (2) new evidence previously unavailable, and (3) the need to correct clear error or prevent manifest injustice.”

Motion to dismiss. The court observed that Olathe/Santa Fe’s argument that the complaint did sufficiently allege the predicate acts of mail and wire fraud did not “identify intervening law or new evidence,” nor did Olathe/Santa Fe’s “dissatisfaction” with the court’s order “constitute clear error or manifest injustice.”

The court also declined to grant reconsideration based on Olathe/Santa Fe’s contention that the court had improperly applied a heightened pleading standard to Olathe/Santa Fe’s Hobbs Act extortion allegations. The court noted that it did not state in its previous opinion that it was applying a heightened standard to the extortion allegations, and clarified that it had applied “the general pleading requirements” to them.

Nor did Olathe/Santa Fe’s new allegations regarding the extortion claim warrant reconsideration, in the court’s view. Since nothing suggested the allegations could not have been raised in Olathe/Santa Fe’s original briefing, the new allegations were untimely. Moreover, the new allegations would not have permitted the RICO claim to proceed because they would not “cure the deficiencies.” As an example, the court observed that the allegations would still not indicate that the defendants “wrongfully used actual or threatened force, violence, or fear to obtain property.”

Finally, the court found that Olathe/Santa Fe “only challenge[d] the court’s final determination” as to continuity. As Olathe/Santa Fe did not “cite overlooked controlling law, new evidence, or any clear error or manifest injustice,” the court denied reconsideration.

Leave to amend. The court also declined to reconsider its decision refusing Olathe/Santa Fe leave to amend its pleadings. Olathe/Santa Fe contended that the court improperly denied its general request for leave to amend on the ground of Olathe/Santa Fe’s failure to “provide adequate notice of the basis for the proposed amendment.” The court observed that Olathe/Santa Fe still had not provided a proposed amended complaint, and that “courts generally cannot apply Rule 15” without such notice.

Moreover, even if an amended complaint included all of the information Olathe/Santa Fe provided in its motion for reconsideration, the complaint would still fail to state a RICO claim, since Olathe/Santa Fe did not make new allegations as to mail or wire fraud, or as to continuity, and since its new allegations as to extortion would not “cure the deficiency,” the court noted.

The case is No. 12-2374-CM.

Attorneys: David Lewis Ballew (Duggan, Shadwick Doerr & Kurlbaum, PC) for Olathe-Santa Fe Partnership. Austin B. Hayden (Cohen McNeile & Pappas PC) for John K. Doull.

Companies: Olathe-Santa Fe Partnership

Cases: RICO KansasNews