Antitrust Law Daily Wrap Up, RICO—WDTex: Borrowers Failed to State RICO Claim Against Banking Entities, (Apr 22, 2013)

By Peter Reap, J.D., LL.M.

Two borrowers who brought an action against several banking entities in connection with a scheduled foreclosure sale of their property failed to state a civil RICO claim and their claim under the Truth in Lending Act (TILA) was time-barred, the federal district court in San Antonio has decided (Holliday v. Bank of America, N.A., April 19, 2013, Rodriguez, X.). In addition, the banking entities were entitled to summary judgment on the borrowers’ claim under the Real Estate Settlement Procedures Act (RESPA) and the borrowers did not assert independent causes of action for common law theft, mail fraud, and conspiracy.

The complaining borrowers filed suit against Wells Fargo Bank, N.A., Wells Fargo Home Mortgage, America‘s Servicing Company, and Bank of America, N.A. in connection with a scheduled foreclosure sale of their property. The borrowers assert causes of action under RICO, the TILA, and the RESPA.

In September of 2003, the borrowers purchased land at 6629 Kings Crown East, San Antonio, Texas for $24,000. Construction of a home on the property began in October of 2003 and was finished in March of 2005.

The borrowers allege that they signed "a Promissory Note and Deed of Trust for a loan with Wells Fargo Home Mortgage Division of Wells Fargo Bank, N.A. but never received any benefit, funds, credit, or money from this loan." They allege that "[u]pon information and belief, the funds were deposited into a bank account that was not owned by the Plaintiffs." The borrowers also claim that payments were made on the loan for two years and then ceased.

Defendants Wells Fargo Bank, N.A., Wells Fargo Home Mortgage, and America‘s Servicing Company filed one motion for summary judgment on the borrowers’ claims and Bank of America, N.A., filed a separate motion for summary judgment.

RICO claim. The defendants were entitled to summary judgment on the borrowers’ civil RICO claim for several reasons, the court held. First, the borrowers failed to adequately plead their civil RICO claim.

The borrowers did not indicate a particular section of RICO under which they were bringing this action, did not identify a particular defendant against which they are asserting their RICO claim, and did not plead the elements of any predicate offense. Furthermore, the borrowers failed to point to any evidence in the record demonstrating that two or more predicate acts occurred, much less that the acts were related or posed a threat of continued criminal activity.

In addition, the borrowers did not point to any evidence in the record demonstrating that any defendant was somehow connected to an enterprise. Accordingly, both motions for summary judgment are granted with respect to the borrowers’ civil RICO claim.

TILA and Regulation Z claim. In the "Claims for Relief" section of the complaint, the borrowers assert a "rescission claim" against Bank of America and "Wells Fargo" under the TILA and Regulation Z. In connection with their claim, they allege that "Wells Fargo‘s failure to credit this account and invalidate the security instrument while imposing finance charges and fees is wrongful, improper, and a serious breach of fiduciary duty associated with their [sic] obligations."

The TILA, codified at 15 U.S.C. §§ 1601-1667f, and Regulation Z, 12 C.F.R. § 226, impose certain disclosure requirements on creditors and 15 U.S.C. § 1640 provides for a private right of action against a creditor who fails to comply, the court noted. An action for damages under section 1640 is subject to a one-year limitations period. When a party requests relief under the TILA in the form of rescission, the applicable limitations period is three years.

The defendants produced copies of a note and deed of trust that were executed by both borrowers in May of 2005. The borrowers filed their complaint on December 30, 2011. Thus, to the extent that their TILA and Regulation Z claim was predicated on this mortgage loan, the claim was time barred by the TILA‘s one- and three-year limitations periods, according to the court. There was no evidence of any other mortgage loan that could form the basis of this lawsuit. Accordingly, the defendants were entitled to summary judgment on Plaintiffs‘ TILA and Regulation Z claim.

RESPA claim. The borrowers asserted a RESPA claim against "Wells Fargo," which the court liberally construed as asserting a RESPA claim against both defendant Wells Fargo Bank, N.A. and Defendant Wells Fargo Home Mortgage.

RESPA, codified at 12 U.S.C. §§ 2601-2617, confers a duty on a loan servicer to respond to a "qualified written request" from a borrower by certain deadlines. For a defendant to be liable under § 2605(e), the plain language of the statute requires that the defendant be a loan "servicer," and that the defendant have received a qualified written request, the court observed.

Wells Fargo Bank, N.A. and Wells Fargo Home Mortgage were entitled to summary judgment on the borrowers’ RESPA claim for several reasons, the court held. There was no evidence in the record that either Wells Fargo Bank, N.A. or Wells Fargo Home Mortgage was ever the loan servicer of the borrowers’ loan.

Further, there was no evidence in the record that the borrowers sent a qualified written request to Wells Fargo Bank, N.A., to Wells Fargo Home Mortgage, or to any other entity. Finally, there was no evidence of any actual damages that the borrowers suffered as a result of the alleged RESPA violation.

Common law theft, mail fraud, and conspiracy. In their complaint, the borrowers only referred to common law theft, mail fraud, and conspiracy in connection with their civil RICO claim. Some statements made it unclear as to whether the borrowers were attempting to assert independent causes of action for common law theft, mail fraud, and conspiracy in addition to their cause of action under RICO.

However, several factors established that the borrowers were not attempting to assert independent causes of action for theft, mail fraud, and conspiracy. Most tellingly, the borrowers did not include any of these causes of action in the "Claims for Relief" section of the complaint. Furthermore, express language in the body of the complaint showed that the allegations of theft, mail fraud, and conspiracy were offered solely as predicates for a cause of action under RICO.

America’s Servicing Company. The complaint, even liberally construed, did not assert a cause of action against defendant America‘s Servicing Company, according to the court.

The case is Civil Action No. SA-11-CV-1133-XR.

Attorneys: D. Stewart Clancy (Akerman Senterfitt, LLP) for Bank of America, N.A.

Companies: Wells Fargo Bank, N.A.; America‘s Servicing Company; Bank of America, N.A.

Cases: RICO TexasNews