December 17, 2017

Archives for August 19, 2016

Tenth Circuit: Lower-Rung Participant in RICO Association-in-Fact Enterprise Can Play Part in Carrying Out Affairs

The Tenth Circuit Court of Appeals issued its opinion in George v. Urban Settlement Services on Monday, August 15, 2016.

Plaintiffs Richard George, Steven Leavitt, Sandra Leavitt, and Darrell Dalton asserted claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) against Bank of America (BOA) and Urban Settlement Services, along with a promissory estoppel claim against BOA, based on the defendants’ allegedly fraudulent administration of the Home Affordable Modification Program (HAMP). BOA was required to participate in HAMP and comply with the program guidelines because it received funds pursuant to the Emergency Economic Stabilization Act of 2008. BOA contracted with third parties, including Urban, to administer its HAMP program. Each of the four plaintiffs had a home mortgage through BOA and applied for home loan modifications through HAMP, interacting with BOA and Urban representatives during the application process. Despite various misleading representations from BOA and Urban, the plaintiffs were unable to obtain HAMP relief, depriving them of opportunities to sell their homes or pay off other debts.

Plaintiffs brought RICO claims against BOA and Urban, alleging defendants formed a RICO enterprise with the common goal of wrongfully denying HAMP loan modifications to qualified homeowners by developing a scheme to obstruct and delay borrowers’ HAMP loan modification requests. Plaintiffs also asserted promissory estoppel claims against BOA, alleging BOA made clear promises in Trial Period Plan (TPP) documents and on its website promising permanent loan modifications to qualified borrowers who completed TPPs. BOA and Urban filed Rule 12(b)(6) motions to dismiss. BOA argued the plaintiffs failed to sufficiently allege a RICO enterprise distinct from BOA, while Urban argued they failed to sufficiently allege Urban participated in the enterprise. Both defendants argued plaintiffs failed to sufficiently allege a pattern of racketeering activity. The district court granted both defendants’ motions and dismissed plaintiffs’ claims.

On appeal, plaintiffs argued the factual allegations in their amended complaint state facially plausible RICO claims against BOA and Urban and the district court erred in dismissing the claims. The plaintiffs argued that because they alleged an association-in-fact enterprise consisting of independently owned and operated companies, the alleged enterprise is sufficiently distinct from BOA. The Tenth Circuit agreed. The plaintiffs contend the enterprise’s common purpose was to extend as few HAMP modifications as possible while appearing to comply with program rules. The district court concluded that Urban employees were BOA’s agents, who did nothing more than follow BOA’s instructions, but the Tenth Circuit disagreed. The Tenth Circuit found that plaintiffs sufficiently showed that BOA and Urban formed an association-in-fact enterprise, and that by orchestrating and operating a scheme to deny HAMP modifications, BOA and Urban furthered the enterprise’s scheme to delay modifications.

The district court also concluded that plaintiffs failed to show Urban’s participation in the enterprise. The district court characterized Urban as an outside entity having no participation in BOA’s enterprise. The Tenth Circuit noted that this mischaracterization failed to appreciate that BOA was not the alleged enterprise. Plaintiffs alleged Urban was a lower-rung participant knowingly carrying out BOA’s orders, and the Tenth Circuit agreed, noting that even a bit part participant can play some part in carrying out the enterprise’s affairs.

Defendants alternatively argued that the Tenth Circuit could affirm the district court because plaintiffs failed to show a pattern of racketeering activity. Plaintiffs alleged several acts of mail and wire fraud, but defendants argued plaintiffs failed to show particularity. As to BOA, the Tenth Circuit disagreed, noting that plaintiffs had illustrated several conversations with various BOA employees about their HAMP modifications. As to Urban, the Tenth Circuit found it was a close call. Plaintiffs argued that they were unable to show particularity without further discovery, because Urban employees frequently held themselves out as BOA employees. The Tenth Circuit found this sufficient to survive a motion to dismiss. The Tenth Circuit reversed the district court’s dismissal of plaintiffs’ RICO claims and remanded for further proceedings.

Turning to the promissory estoppel claims against BOA, the Tenth Circuit again found the district court erred. Plaintiffs described BOA’s unambiguous promises to provide permanent HAMP modifications for borrowers who complied with their TPPs. The district court found that BOA made no promise, but the Tenth Circuit determined this to be in error. Screenshots of the BOA website and TPP documents unambiguously promised borrowers permanent modifications if they complied with their TPPs. The Tenth Circuit found this sufficient to satisfy the first step of the promissory estoppel analysis. Because the district court did not address the remaining factors, the Tenth Circuit remanded for further proceedings.

The Tenth Circuit reversed the district court’s dismissal of plaintiffs’ RICO and promissory estoppel claims, and remanded for further proceedings consistent with its opinion.

Tenth Circuit: Unpublished Opinions, 8/18/2016

On Thursday, August 18, 2016, the Tenth Circuit Court of Appeals issued no published opinion and three unpublished opinions.

Wallin v. Miller

Glaser v. Raemisch

United States v. Faure

Case summaries are not provided for unpublished opinions. However, some published opinions are summarized and provided by Legal Connection.