Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—E.D. Cal.: Claims against mortgage lenders by foreclosed homeowners dismissed for inadequate specificity, (Apr 11, 2014)

By Edward L. Puzzo, J.D.

Claims against lenders by mortgage loan borrowers who lost their home in foreclosure must be dismissed for failure to support claims of fraud, deceptive advertising and RICO violations with adequate specificity, the federal district court in Sacramento, California has ruled (Carino v. Standard Pacific Corp., April 9, 2014, Mueller, K.).

Plaintiffs, purchasers of a home now in foreclosure, brought a number of claims against defendants in connection with the issuance of mortgage loans and foreclosure proceedings, including fraud, unfair business practices and civil RICO violations.

Fraud. Plaintiffs alleged that defendant Chase, through its agents, misled plaintiffs about, among other things, the potential for refinancing their mortgage loan and second mortgage loan. These general fraud allegations fail to plead fraud with the particularity required under California law and the heightened pleading requirements of Federal Rule of Civil Procedure 9(b), stated the court. Therefore, the claim was dismissed, without prejudice.

Deceptive advertising. Plaintiffs alleged that defendant Chase violated California’s unfair competition, false advertising and deceptive practices laws. However, the court stated, they have provided no facts illustrating how defendant violated these statutes. The entirety of the allegations, stated the court, were that the manner in which Chase carried out its business practices constituted deceptive advertising and unfair business practices. The claim was not adequately pleaded, and must be dismissed, without prejudice, the court ruled.

RICO. Plaintiffs further alleged that Chase and HSBC aided and abetted a predatory lending scheme accomplished by dismissed defendants SP Home and SP Mortgage. Chase and HSBC responded that the claim should be dismissed because plaintiffs failed to plead the existence of a separate enterprise; that is, a system of authority guiding the operation of the alleged enterprise. The court noted that the case cited by defendants for this proposition, Chang v. Chen, 80 F.3d 1293 (9th Cir. 1996), was overruled on the very ground that it required this additional pleading.

However, the court continued, plaintiff’s RICO claim is not viable on a different basis: they did not adequately plead that defendants engaged in predicate acts of racketeering. Plaintiffs, the court opined, did not plead specific facts demonstrating how Chase and HBSC were involved in any predicate acts. The court therefore dismissed the claim, without prejudice.

The case is Civil Action No. 2:09-cv-02005-KJM-AC.

Attorneys: Marc L. Terbeek (Law Offices of Marc L. Terbeek) for Dena Crisotomo Carino. Mary Kate Sullivan (Severson & Werson) for Homecomings Financial Services LLC. Taline Maria Gulesserian (Alvardo Smith) for Mortgage Electronic Registration Systems, Inc., HSBC Bank USA, and Chase Home Finance, LLC.

Companies: Homecomings Financial Serv., LLC; Mortgage Electronic Registration Systems, Inc.; HSBC Bank USA; Chase Home Finance, LLC.

Cases: CaliforniaNews RICO StateUnfairTradePractices Advertising