Antitrust Law Daily Wrap Up, RICO-W.D. Wash.: Couple’s default judgment against lender denied in absence of evidence of conspiracy, (Jun 1, 2015)

By Michael Menzhuber, J.D., LL.M.

A couple was denied a default judgment on their federal RICO law claims against a lending corporation that sold a voided note and deed of trust on the couple’s property by the federal district court in Seattle. The court also dismissed the couple’s claims against the lending corporation for allegedly violating U.S.C. §§ 1001, 1005, 1341 and 1343 because these statutes were criminal statutes that did not provide for civil causes of action (Diaz v. Green Tree Servicing, LLC, May 29, 2015, Lasnik, R.).

Background. In a prior action, Gregorio G. Diaz and Maria T. Diaz (couple) obtained a default judgment against Aames Funding Corporation (Aames) that (1) declared that the deed of trust recorded on their property, which identified Aames as the beneficiary, was void as unenforceable; and (2) precluded Aames from pursuing any interest in the property. The couple later received an IRS Form 1099-C acknowledging a cancellation of debt on the property from the loan servicer for Aames, National Mortgage, LLC (National). Relying on the entry of the default judgment, Right Angle Ridge, LLC (RAR) provided mortgage loan on the property to the couple. The sole servicing agent for RAR was Harry Beggs.

Despite the prior default judgment and the notice of cancellation of debt, Aames sold the voided note and deed of trust to Green Tree Servicing, LLC (Green Tree). Green Tree then sent the couple two separate invoices that each demanded a separate payment of the full amount on the voided note.

The couple and Beggs (plaintiffs) alleged that Aames and Green Tree (defendants) conspired together to sell the voided interest and continued to attempt to enforce the voided interest in a scheme to defraud them. They also alleged that Green Tree was attempting to fraudulently collect a double recovery on an invalid debt and that the defendants used the mail to carry out their fraudulent scheme. The plaintiffs brought: (1) claims for mail fraud under 18 U.S.C. §§ 1341, and 1343; (2) civil claims under the Racketeer Influenced and Corrupt Organization Act (RICO), 18 U.S.C. § 1962, based on predicate offenses of mail fraud; (3) claims of fraud in violation of 18 U.S.C. § 1001 and §1005; and (4) state law claims.

The plaintiffs filed a default motion against Aames requesting: (1) an order to show cause why Aames should not be held in contempt of court; (2) damages in the an amount equal to the face value of their property; (3) actual damages in an amount equal to the face value of the note held by RAR; (4) punitive damages; and (5) treble damages.

Prior to considering the default motion, the court determined that only the couple, and not Beggs, had standing. The court noted that RAR had an actual interest in the loan but Beggs was merely an agent for RAR and, therefore a third party in the matter.

Racketeer Influenced and Corrupt Organization Act (RICO). The couple based all three of their RICO claims on the predicate “racketeering activity” of mail fraud. Their two general allegations of fraud were: (1) that Aames sold the invalidated deed to Green Tree; and (2) that Aames and Green Tree mailed them two invoices for the same debt, thereby, fraudulently attempting to double-collect on a discharged debt.

The court denied the couple’s RICO claims because they failed to: (1) establish the existence of an associated-in-fact enterprise between the defendants; (2) show a pattern of racketeering activity; (3) plead the predicate fraud with particularity; and (4) demonstrate proof of damages.

The couple failed to establish the existence of an associated-in-fact enterprise between the defendants because they provided: (1) no evidence that the defendants had a continuing relationship beyond the initial sale of the interest to Green Tree; (2) no factual support that Aames requested Green Tree to continue to collect on the invalidated deed; and (3) no plausible showing that there was an ongoing organization between the defendants or that they functioned as continuing unit for a “common purpose.”

To establish a pattern of racketeering activity, based on a single criminal scheme as alleged by the couple, there must be proof that the criminal activity will continue in the future. The court determined that this “continuity requirement” was not met because: (1) the couple failed to connect the conduct by Green Tree, to collect on the allegedly invalid deed, to Aames; (2) there was no indication that Aames’ conduct continued beyond the successful sale of the deed; and (3) there were no facts that would indicate that the defendants were continuing to engage in any fraudulent conduct regarding the enforcement of the deed.

The couple’s claims for mail fraud required that those claims be stated with “particularity”, pursuant to Federal Rules of Civil Procedure 9(b). The court determined that the couple failed to state their claims with “particularity” because they failed to specify the time or content of any fraudulent statement made by Aames in conjunction with the use of the mail, as required by Rule 9(b).

The court did note that the Rule 9(b) pleaded standard may relaxed when the defendant has knowledge and the plaintiffs cannot be expected to have personal knowledge of the relevant fact. However, the court determined that, even under a relaxed standard, there was no evidence that Aames used the mail to commit an act of fraud in transferring the deed to Green Tree. The only evidence that the couple provided concerned the invoices the Green Tree sent and there was no evidence that Aames took any part in their mailing.

The couple did not provide any evidence to support their claim that they suffered compensable damages because they failed to concretely identify a tangible financial loss associated with the alleged harms. Also, they did not provide any factual support for their allegation that their property value had been diminished by the sale of the invalid deed or the subsequent attempts to enforce the invalid debt. The court determined that any harm to the couple’s interest in their property was speculative and, therefore, insufficient to confer them with RICO standing. Also, because there was no concrete financial loss, the court denied the couple’s claims for actual damages, punitive damages and treble damages.

Finally, the court determined that, even under the relaxed pro se pleading standard, the couple failed to state a cause of action upon which relief could be granted. Consequently, their request for an order of default judgment on their civil RICO claims was denied.

Mail Fraud & Wire Fraud. The couple’s claims for federal mail fraud in violation U.S.C. 18 §§ 1341 and 1343 was denied because these statutes were criminal statutes that did not provide for civil causes of action.

Violations of U.S.C. 18 §§ 1001, 1005. The couple’s individual claims for violations of U.S.C. 18 §§ 1001 and 1005 were also denied because these statutes were criminal statutes that did not provide for civil causes of action.

Common Law Claims for Fraud & Civil Conspiracy. The couple’s common law claims for fraud were denied because they failed to plead the allegations of fraud with particularity. Specifically, there was no evidence: (1) that Aames continued to be involved with the collection on the invalid deed after selling the deed to Green Tree; (2) to support a finding of fraud on the part of Aames for the fraudulent attempts to collect the debt by Green Tree; (3) that the couple suffered any concrete damages; and (4) that their property value had been negatively impacted.

The couple’s factual support for the existence of a conspiracy were allegations that Aames requested Green Tree to continue to attempt to enforce the allegedly invalid to their property. However, they did not provide any evidence of Aames’ involvement in the continued attempts by Green Tree to enforce the invalid deed. The court further concluded that, even if the couple had set forth a well-pleaded claim for civil conspiracy, the claim would fail because there was no evidence that the conspiracy caused them any damages.

The case number is No. C15-359RSL.

Attorneys: Gregorio G. Diaz, pro se.

Companies: Green Tree Servicing, LLC; Aames Funding Corporation, dba Aames Home Loan

Cases: RICO WashingtonNews