Commercial Litigation and Arbitration

RICO — Continuity: If Enterprise Is Legit Business, Evidence Must Permit Inference Predicate Acts = Regular Way of Doing Business or Imply Threat of Continued Criminal Activity — Multiple Acts of Mail Fraud in Furtherance of Single Fraud ≠ Pattern

Crawford v. Franklin Credit Mgmt. Corp., 2014 U.S. App. LEXIS 13179 (2d Cir. July 11, 2014):

Plaintiff Linda D. Crawford appeals from a judgment of the United States District Court for the Southern District of New York, John F. Keenan, Judge, dismissing her amended complaint ("Complaint") which alleged that defendants fraudulently procured a mortgage on her home, and thereafter sought to foreclose on that mortgage, in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 et seq., the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. §§ 1691 et seq., the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601 et seq., the New York General Business Law, N.Y. Gen. n. Bus. Law § 349, and common law. ***



A. Events in November and December 2004

In 2000, Crawford, a registered nurse and longtime flight attendant, bought a home at 40 Paradise Avenue in Piermont, New York ("40 Paradise"). The purchase was funded with a mortgage loan from Community Home Mortgage Corporation ("Community"); Crawford later took out a line of credit from Chase Bank, secured by a second mortgage on 40 Paradise. In 2003, Crawford enrolled as a full-time student in medical school in the Dominican Republic. Although she also continued to work to some extent as a flight attendant and a nurse, by November 2004 she was in default on her debts to Community and Chase Bank. The total balance on those two loans was approximately $400,000, and a foreclosure action on 40 Paradise was commenced by Community.

At the times relevant to this action, Tribeca was a lending company and a wholly owned subsidiary of Franklin. Franklin maintains that it merely serviced loans originated and retained by Tribeca but did not itself make loans. Crawford attributes the allegedly fraudulent mortgage transaction to both Tribeca and Franklin, based in  [*5] part on documents produced by Defendants.

In November 2004, Tribeca employee Robert Koller telephoned Crawford to discuss the possibility of her obtaining a loan from Tribeca. The two never met, but they had several such telephone conversations, the contents of which are in dispute.

Crawford's version is that Koller said Franklin and Tribeca were "foreclosure rescuers" and offered to refinance her home. ... Crawford told Koller that, because of her full-time-student status and reduced work with the airline, she could not afford to make any monthly payments on a mortgage for at least a year; Koller said he would "tailor" for Crawford a one-year "bridge loan" of $35,000, and that Tribeca would take care of her monthly payments to her mortgagees and stave off foreclosure for a year; thereafter that loan would be converted to a 30-year fixed-rate mortgage loan. ... Koller urged Crawford to act on Tribeca's  [*6] offer promptly, telling her that since Crawford was an African-American, Community would foreclose very quickly....

According to Crawford, Koller thereafter told her that papers she had submitted were insufficient to show her signature and that he would arrange for someone to meet her at JFK airport, when she was available between flights, so that she could provide "specimen signatures." ...

In opposition to Crawford's motion, Franklin and Tribeca submitted, inter alia, a declaration from Koller stating that "[s]everal of the statements" in Crawford's Rule 56.1 Statement were "not true." ...

It is undisputed that on December 11, 2004, Crawford met someone at the airport for the purpose of providing her signature. Here too, however, there are divergent versions as to substance. ...

Franklin and Tribeca submitted a declaration from Anthony Decarolis, an attorney, who stated that he met with Crawford at the airport on December 11, 2004.... [H]e said he had been retained to handle the closing of Crawford's mortgage from Tribeca. ... That closing took place at JFK airport in Decarolis's car; no one other than Decarolis and Crawford  [*9] was present. Decarolis stated that he described the closing documents to Crawford, and she reviewed them before signing them. He said his customary practice, like that of most lenders, was to request that the borrower sign multiple copies of documents, and to give the borrower copies at the closing. Decarolis said he had no reason to believe he deviated from these practices during the closing of Crawford's loan. (See id. ¶¶ 7-9.)

Of the proceeds from the $504,000 Tribeca Mortgage, a total of $459,102.62 was used to pay off Crawford's two existing mortgages; $1,400 was used to pay Crawford's outstanding property taxes; $35,050.86 was used to pay settlement charges on the loan; and $7,196.52 was disbursed to Crawford in cash. Crawford promptly complained to Koller that she had expected to receive $35,000. She asserts--and Koller denies--that he told her the "fees" were higher than expected. (Crawford's Rule 56.1 Statement ¶ 30 (internal quotation marks omitted); Koller Decl. ¶ 15.)


1. The RICO Claims

Crawford asserted substantive RICO claims under 18 U.S.C. § 1962(c), along with claims that Defendants conspired to violate that section in violation of 18 U.S.C. § 1962(d). Subsection (c) makes it "unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity." 18 U.S.C. § 1962(c).

To establish a violation of § 1962(c), a plaintiff must show that the defendant conducted, or participated in the conduct, of a RICO enterprise's affairs through a pattern of racketeering activity. See, e.g., Cruz v. FXDirectDealer, LLC (FXDD), 720 F.3d 115, 120 (2d Cir. 2013). To establish a violation of § 1962(d), a plaintiff must show that the defendant agreed with at least one other entity to commit a substantive RICO offense. See, e.g., Baisch v. Gallina, 346 F.3d 366, 376-77 (2d Cir. 2003). Defendants  [*33] contend that Crawford failed to adduce evidence sufficient to establish a number of the elements of these RICO claims. We agree that Crawford failed to point to evidence sufficient to establish either a pattern of racketeering activity or an agreement to engage in a pattern of such activity, and we thus need not reach Defendants' other RICO arguments.

"'[R]acketeering activity,'" as defined in RICO, may consist of any of a number of criminal offenses, 18 U.S.C. § 1961(1), including mail fraud in violation of 18 U.S.C. § 1341, and wire fraud in violation of 18 U.S.C. § 1343. A "'pattern of racketeering activity'" consists of, inter alia, "at least two acts of racketeering activity," 18 U.S.C. § 1961(5); and in order to prove such a "pattern," a civil RICO plaintiff also "must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity," H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 239 (1989) (emphasis in original). The requisite continuity may be found in "either an 'open-ended' pattern of racketeering activity (i.e., past criminal conduct coupled with a threat of future criminal conduct) or a 'closed-ended'  [*34] pattern of racketeering activity (i.e., past criminal conduct 'extending over a substantial period of time')." GICC Capital Corp. v. Technology Finance Group, Inc., 67 F.3d 463, 466 (2d Cir. 1995), cert. denied, 518 U.S. 1017 (1996).

Crawford asserted principally that Defendants engaged in wire fraud, consisting of interstate or international telephone conversations she had with Koller and of Tribeca's solicitation from her of faxed documents in order to facilitate the allegedly promised bridge loan; she also speculated, without personal knowledge--and hence insufficiently to forestall summary judgment--that, via electronic transmissions, Defendants made monthly reports to consumer credit reporting agencies with regard to her default on her Tribeca loan. Crawford asserted that Defendants engaged in mail fraud, consisting of Franklin's mailing to her of mortgage statements in January and February 2005 and default notices in March and April 2005, and of sporadic mailings by Tribeca's counsel in 2005-2010 relating to Tribeca's state-court foreclosure action. We cannot conclude that the admissible evidence proffered by Crawford suffices to permit a rational inference of either open-ended or closed-ended continuity of racketeering activity.

The mail fraud and wire fraud statutes prohibit a person who "devised or intend[ed] to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises," from using the mails or interstate or foreign wire facilities "for the purpose of executing such scheme or artifice or attempting so to do." 18 U.S.C. § 1341 (mail fraud); id. § 1343 (wire fraud). Although the mailed or wired communication need not itself be fraudulent to violate these sections, it must, by the terms of the statutory sections, be made in furtherance of the fraudulent scheme. Where an alleged RICO "enterprise primarily conducts a legitimate business, there must be some evidence from which it may be inferred that the predicate acts"--which must be in furtherance of fraud in order to constitute mail or wire fraud--"were the regular way of operating that business, or that the nature of the predicate acts themselves implies a threat of continued criminal activity." Cofacrèdit, S.A. v. Windsor Plumbing Supply Co., 187 F.3d 229, 243 (2d Cir. 1999) ("Cofacrèdit"). Mere mailings of monthly  [*36] statements seeking payment with respect to a single established debt--or communications to the state court in connection with an action on that debt--do not, without more, amount to or suggest a threat of continued criminal activity; the mailings in this case cannot even be viewed as furthering the alleged fraud, for they disclosed to Crawford the existence of the Tribeca Mortgage of which she claims to have been unaware.

Nor did Crawford present any evidence that 1 Tribeca's allegedly fraudulent statements in Koller's telephone conversations with her with regard to a loan--or the allegedly fraudulent execution of the Tribeca mortgage to Crawford--evinced a threat of future fraudulent mortgage business practices or was characteristic of Defendants' normal practice. Although Tribeca, before discontinuing its lending operations in 2007, made some 250 loans a year, Crawford presented no evidence of any other loan that was allegedly procured through any manner of fraud.

Crawford argues that "[t]he existence of only one victim and one scheme suffices for a 'pattern' where there are repeated economic injuries" (Crawford reply brief on appeal at 25), relying principally on Uniroyal Goodrich Tire Co. v. Mutual Trading Corp., 63 F.3d 516 (7th Cir. 1995).  [*37] But that case, while involving only a single victim, involved fraudulent acts that were numerous, varied, and disparate, see id. at 519-20, in contrast to the alleged fraud here, which was to sign Crawford up for a $504,000 mortgage. Thus, while the Seventh Circuit in that case found that such numerous and varied fraudulent acts sufficed to show a pattern of racketeering activity against that lone victim, that court has reasoned that "multiple acts of mail fraud in furtherance of a single episode of fraud involving one victim and relating to one basic transaction cannot constitute the necessary pattern," Tellis v. United States Fidelity & Guaranty Co., 826 F.2d 477, 478 (7th Cir. 1986); see also Slaney v. The International Amateur Athletic Federation, 244 F.3d 580, 599 (7th Cir.), cert. denied, 534 U.S. 828 (2001). Given the routine use of mail and wire communications in business operations, we agree with that view, as well as with the view of the First Circuit that "RICO claims premised on mail or wire fraud must be particularly scrutinized because of the relative ease with which a plaintiff may mold a RICO pattern from allegations that, upon closer scrutiny, do not support it." Efron v. Embassy Suites (Puerto Rico), Inc., 223 F.3d 12, 20 (1st Cir. 2000),  [*38] cert. denied, 532 U.S. 905 (2001).

We conclude that Crawford's evidence was insufficient to show the necessary pattern and that Defendants were entitled to summary judgment dismissing her claims under § 1962(c).

In addition, we conclude that Defendants were entitled to summary judgment dismissing her § 1962(d) RICO conspiracy claims. "'A conspirator must intend to further an endeavor which, if completed, would satisfy all of the elements of a substantive criminal offense . . . .'" Cofacrèdit, 187 F.3d at 245 (quoting Salinas v. United States, 522 U.S. 52, 65 (1997)). Crawford presented no evidence of any agreement by Defendants to engage in conduct of the type that would be sufficient to constitute a pattern of racketeering activity.

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