Commercial Litigation and Arbitration

RICO Post-Bridge: Someone Must Rely on Mail Fraud to Cause Plaintiff to Suffer RICO Injury

From Biggs v. Eaglewood Mortgage LLC, 2009 U.S. Dist. LEXIS 62275 (D. Md. Jan. 5, 2009):

In their Amended Complaint, the Biggs asserted that in 2004, Countrywide, through its agents and/or co-conspirators, made false statements to induce them to execute loan documents converting their 5.25% fixed-rate home mortgage with Chase Manhattan Mortgage Corporation into a payment option adjustable rate mortgage ("ARM") with Countrywide, and that in 2006 Countrywide induced them to refinance through yet another payment option ARM. The Biggs claimed that these payment option ARMs contained various high risk features which were inappropriate for them, an elderly retired couple. They further alleged that, by offering loans with these features, Defendants intended the Biggs' loan principal to increase substantially over time, at which time they would either be in default and subject to foreclosure or, if they could afford the inflated payment, their modest monthly income would be depleted.


The Biggs allege that the Court improperly granted Countrywide's Motion for Summary Judgment as to Count I based on its mistaken view that the Biggs were required to prove reliance as an element of their claim. They argue that under the Supreme Court's decision in Bridge v. Phoenix Bond & Indem. Co.., 128 S. Ct. 2131, 170 L. Ed. 2d 1012 (2008), reliance is no longer a required element in a RICO claim predicated on mail fraud. ***

Countrywide, in response, argues that Bridge did not eliminate the reliance element in a RICO case predicated on mail fraud; it simply eliminated first-party reliance requirement in cases where a third party was affected by the fraud. Consequently, Countrywide argues that Bridge does not contradict the Court's finding that Countrywide was entitled to summary judgment as to Count I because the Biggs, as a matter of law, failed to prove the necessary element of reliance. ***

The Court agrees with Countrywide that Bridge did not eliminate reliance as an element of a RICO claim predicated on mail fraud. The Supreme Court was presented with a situation where the plaintiffs themselves had not received or relied upon misrepresentations made by defendants, but had relied on misrepresentations defendants made to others. See Bridge, 128 S.Ct. at 2139. What the Court held was that, even though plaintiffs had not themselves relied on the misrepresentations made by defendants, they properly asserted a claim because first-party reliance is not a required element of a RICO claim predicated on mail fraud. See Id. at 2145. The Court was careful to note, however, that "none of this is to say that a RICO plaintiff who alleges injury by reason of a pattern of mail fraud can prevail without showing that someone relied on the defendant's misrepresentations." Id. at 2144 (internal quotations omitted). The Court stressed that a misrepresentation cannot cause harm unless it is relied upon. Id. at 2143, fn 6 ("Of course, a misrepresentation can cause harm only if a recipient of the misrepresentation relies on it.").

The present case is therefore clearly distinguishable from Bridge, because here the Biggs claim that Countrywide directly misled them and that they, in fact, relied on those misrepresentations....

Other courts examining this issue since Bridge are in accord, holding that where plaintiffs allege their own first-party reliance in a RICO case predicated on mail fraud, reliance must still be proven as an element of the claim. See e.g. Dungan v. Academy at Ivy Ridge, No. 06-CV-0908, 2008 U.S. Dist. LEXIS 56757, 2008 WL 2827713 at *3 (N.D.N.Y. July 21, 2008) ("While this Court acknowledges the rule enunciated in Bridge, the problem for Plaintiffs is that they do allege that they relied on Defendant's claimed misrepresentations and that it was this first-person reliance that caused them to sustain damages... [a]ccordingly, reliance continues to be a predominant issue..."); G&G TIC, LLC v. Alabama Controls, Inc., No. 4:07-CV-162, 2008 U.S. Dist. LEXIS 75269, 2008 WL 4457876 at *4 (M.D. Ga. Sept. 29, 2008) (in granting motion to dismiss RICO counts based on mail and wire fraud, the court stated that while Bridge eliminated the first party reliance requirement, the plaintiff must still show that "it was injured as a direct result of the fraud" and that "someone relied upon a misrepresentation made by the defendants and that the reliance directly caused harm to the plaintiff.").

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