Antitrust Law Daily Wrap Up, RICO—M.D. Fla.: RICO claim against mortgage lenders pled with sufficient particularity, (Aug 14, 2013)

By Edward L. Puzzo, J.D.

A claim brought against lenders, alleging that their efforts to collect on a mortgage loan despite lacking the original promissory note was a civil RICO violation, could not be dismissed due to alleged lack of particularity in pleading, the federal district court in Fort Myers, Florida has ruled (Brian T. Smith v. Bank of America Home Loans, August 13, 2013, Steele, J.).

Condominium co-purchaser Brian Smith obtained a mortgage loan for the purchase initially from MLD Mortgage. The promissory note was allegedly immediately sold to Countrywide Home Loans, and Smith made monthly payments to Countrywide until such time as he allegedly received his original note marked "Void." Subsequently, the mortgage was allegedly assigned from MLD Mortgage to defendant Mortgage Electronic Registration System (MERS), and then from MERS to Bank of America. Smith's position was that Bank of America was not entitled to monthly payments on the loan because it could not possess the original note that was allegedly in Smith's possession. Smith made payments to Bank of America under protest, and then filed this action to stop Bank of America from seeking payment, placing the funds in escrow pending resolution.

Civil RICO. Among other allegations in his complaint, Smith alleged that MERS and Bank of America were liable under the federal civil RICO statute for engaging in a pattern of racketeering activity including mail and wire fraud. The defendants alleged that the essential elements of a RICO claim had not been pled with particularity as required.

The statute defined “enterprise as “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” The court found that an enterprise had been adequately pled when Smith's pleading alleged that Bank of America was a member of MERS, which acted at the direction of its members. In addition, Smith alleged that both Bank of America and MERS were corporations and the illegal acts threatened by Bank of America against the plaintiffs could not have been complete without the participation of both parties.

The court further found that a scheme to defraud had been plead with the requisite specificity, when plaintiff alleged a scheme to collect payments based on a promissory note that MERS and Bank of America knew the bank did not hold. Mail fraud was sufficiently pled by citing monthly billing statements and wire fraud was sufficiently pled by citing phone numbers of Bank of America representatives and their allegedly fraudulent statements. Therefore, the Court denied MERS’ and Bank of America’s motion to dismiss the RICO counts.

The case is Civil Action No. 2:11-cv-676-FtM-29DNF.

Attorneys: Sara F. Holladay-Tobias (McGuire Woods, LLP) for Bank of America Home Loans.

Companies: Bank of America Home Loans

Cases: RICO FloridaNews