Antitrust Law Daily Wrap Up, RICO—EDPa: Title Insurance Company Failed to Plead RICO Enterprise, Pattern Against Mortgagees, Closing Agent, (Nov 27, 2012)

By Tobias J. Gillett, J.D., LLM.

Fidelity National Title Insurance Company failed to properly allege a federal RICO claim against a closing agent and several mortgagees because it did not adequately allege that the defendants formed an enterprise for RICO purposes or that the defendants engaged in a pattern of racketeering activity, the federal district court in Philadelphia has ruled (Fidelity National Title Insurance Company v. Craven, November 20, 2012, Buckwalter, R.).

In 2005, Valerie, Aimee, and Vincent Craven executed a series of mortgages on three pieces of property they owned in Pennsylvania in favor of Washington Mutual Bank. Whitford Land Transfer, an authorized title agent of Fidelity, through its closing agent, Tammi Torbik, issued loan policies insuring Washington Mutual that it had first position mortgage liens on the properties. However, Valerie Craven allegedly transferred the deeds on two of the properties to her father, Vincent Craven, without recording the transfer, while Torbik did not record Vincent’s mortgages on those two properties. This permitted the Cravens to transfer the properties to another buyer without the mortgages attaching to the properties.

Since neither the transfer from Valerie to Vincent nor the mortgages had been recorded, the liens on the properties were not perfected. When Vincent defaulted on the mortgages, Fidelity was left to pay JPMorgan Chase Bank, the successor to Washington Mutual, under the loan policies.

The third property had a more complicated history. According to Fidelity’s complaint, Vincent Craven executed two mortgages on the property, one in favor of Wachovia Bank and one in favor of Washington Mutual. Torbik processed the title insurance loan policy, but did not disclose to Fidelity that Wachovia’s mortgage had been recorded ahead of Washington Mutual’s, even though the policy insured that Washington Mutual had first position. On October 11, 2005, Vincent transferred the property to his wife, Aimee, and she executed a purchase money mortgage in favor of Washington Mutual. Torbik processed this transaction as well and issued a check payable to Washington Mutual sufficient to pay the balance remaining on the March mortgage, but delivered the check to Vincent rather than Washington Mutual.

According to Fidelity, Vincent then fraudulently negotiated the check and deposited it into an account held by his company, Monument Mortgage. Torbik also issued another title insurance loan policy insuring Washington Mutual had first position, but recorded the mortgage behind Wachovia’s mortgage and Washington Mutual’s March mortgage. When Aimee and Vincent defaulted on all three mortgages, Wachovia foreclosed. To avoid divestiture of Washington Mutual’s mortgages, Fidelity paid the Wachovia loan, and is paying the 2005 loan to JPMorgan Chase under the October loan policy.

RICO Enterprise

Fidelity filed a civil RICO claim against Torbik and the Cravens, based on their allegedly fraudulent activities. However, the court found that Fidelity’s claim failed to plead sufficient facts to show that the relationship between Torbik and the Cravens amounted to a RICO enterprise. The court noted that the statute referred to two types of enterprises—one for legal entities such as corporations and the other for “any union or group of individuals associated in fact although not a legal entity.” The court observed that the arrangement between the defendants was not a legal entity and concluded that Fidelity had not pled facts indicating that the Cravens and Torbik had an “associational structure” or were a “continuing unit.” Moreover, Fidelity did not plead facts suggesting that any such entity existed separate from the alleged racketeering activity.

Pattern of Racketeering Activity

In addition to failing to demonstrate a RICO enterprise, Fidelity’s complaint failed to allege sufficient facts to demonstrate a pattern of racketeering activity. For RICO purposes, a pattern of racketeering activity must be continuous “over a substantial, closed period of time” or pose “a threat of continuing criminal action.” The court cited Third Circuit precedent indicating that “twelve months is not a substantial period of time.” The court determined that Fidelity had neither alleged that the defendants’ fraudulent activities occurred over a substantial period of time nor alleged facts to indicate that the activities posed a continuing threat.

The court dismissed Fidelity’s RICO claim, but without prejudice, giving Fidelity leave to amend its complaint. Since the court had previously dismissed the fraud claims on which Fidelity based the RICO claim, the title insurance company would have to either replead those claims or allege some other pattern of racketeering activity.

The court also dismissed without prejudice Fidelity’s civil conspiracy claim. The court dismissed with prejudice claims for negligence against Torbik, an unjust enrichment claim against the Cravens, and a conversion claim. The court denied a motion to dismiss a claim against Torbik for breach of fiduciary duty and denied a motion to dismiss a claim against the Cravens for breach of contract.

The case is No. 12-4306.

Scott M. Rothman (Halberstadt Curley LLC) for Fidelity National Title Insurance. Stuart A. Eisenberg (McCullough Eisenberg LLC) for Vincent E. Craven.

Cases: RICO PennsylvaniaNews