Antitrust Law Daily Wrap Up, RICO—EDCal: RICO, California Unfair Competition Claims Fail Against Mortgage Banks, (Jun 3, 2013)
Organizations Mentioned:JPMorgan Chase Bank, N.A. | JPMorgan Chase Bank, NA | Mortgage Electronic Registration Systems, Inc. | Quality Loan Services Corp. | Wells Fargo Bank, N.A. | Wells Fargo Bank, NA
By Tobias J. Gillett, J.D., LL.M.
A mortgagor failed to state federal RICO and California Unfair Competition Law (UCL) claims against JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., and Mortgage Electronic Registration Systems, Inc. (MERS) over the foreclosure on his property, the federal district court in Fresno, California has ruled (Madlaing v. JPMorgan Chase Bank, N.A., May 31, 2013, O’Neill, L.). The mortgagor failed to adequately allege a RICO enterprise, pattern of racketeering activity, damages, or facts to satisfy the heightened pleading standards of Federal Rule of Civil Procedure 9(b), and did not allege viable violations of law to support his UCL claim or standing to bring it.
Art Madlaing had a mortgage loan on which he defaulted. All beneficial interest in the deed of trust securing the loan was later assigned to Wells Fargo. Madlaing filed suit against JPMorgan, Wells Fargo, and MERS, alleging that they “lacked legal power” to foreclose on his property, and asserting claims under the RICO Act and the UCL. The defendants filed a motion to dismiss.
RICO
The court explained that to allege a violation of the RICO Act a plaintiff must plead “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.”
Enterprise. The court first concluded that Madlaing failed to plead an enterprise, noting that an enterprise “is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit.” Here, Madlaing’s “complaint lack[ed] sufficient allegations of an ongoing organization that functions as a unit.”
Pattern of racketeering activity. Moreover, Madlaing did not sufficiently allege a pattern of racketeering activity, in the court’s view. His complaint did not allege “that defendants or others engaged in an enterprise or two or more criminal acts to support a pattern of racketeering activity.” Madlaing did not allege that his loan constituted an unlawful debt, nor did he “identify conduct to constitute or reflect mail fraud.”
Damages. Further, the court observed that the relevant RICO provisions required a plaintiff to “allege facts tending to show that he or she was injured by the use or investment of racketeering income.” Here, Madlaing did not allege any injury to his “business or property by a racketeering activity or sufficiently alleged violation identified under RICO.”
Pleading specificity. Finally, the court concluded that Madlaing’s failure to allege facts that would support the elements of his RICO claim meant that his allegations did not satisfy the heightened pleading standards of Federal Rule of Civil Procedure 9(b), which the Ninth Circuit applies “to RICO claims under section 1962.”
Unfair Competition Law
Unlawful business practice. The court explained that the UCL prohibits “unlawful, unfair or fraudulent business practice[s].” Madlaing’s complaint alleged a violation of the “unlawful” prong, based on a range of violations of federal and California law. As the court had previously concluded that Madlaing’s claims regarding those alleged violations failed, the court found that the complaint also failed to state a claim under the UCL.
Standing. The court observed that the UCL “limits standing to bring a UCL claim to specified public officials and a private person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” The court noted that Madlaing was obligated to pay his loan, and therefore his complaint did not contain facts regarding “money or property allegedly lost.” In addition, Madlaing did not show that he was entitled to restitution, because a person seeking restitution “must have given up something which he or she was entitled to keep,” and Madlaing was obligated to make his loan payments.
The case is No. CV F 12-2069 LJO SMS.
Attorneys: Megan Ann Dailey for Art Madlaing.
Companies: JPMorgan Chase Bank, N.A.; Wells Fargo Bank, N.A.; Mortgage Electronic Registration Systems, Inc.; Quality Loan Services Corp.
Cases: RICO StateUnfairTradePractices CaliforniaNews