Willamette Sav. & Loan v. Blake & Neal Finance Co.

• Decision Date: 06 January 1984
• Docket Number: Civ. No. 82-1507-PA.
• Citation: 577 F. Supp. 1415
• Parties: WILLAMETTE SAVINGS & LOAN, A DIVISION OF AMERICAN SAVINGS & LOAN, a Utah corporation, Plaintiff, v. BLAKE & NEAL FINANCE CO., an Oregon corporation, Norman Glenn, an individual and John Does 1 through 3, inclusive, Defendants.
• Court: U.S. District Court — District of Oregon

577 F. Supp. 1415

WILLAMETTE SAVINGS & LOAN, A DIVISION OF AMERICAN SAVINGS & LOAN, a Utah corporation, Plaintiff, v. BLAKE & NEAL FINANCE CO., an Oregon corporation, Norman Glenn, an individual and John Does 1 through 3, inclusive, Defendants.

Civ. No. 82-1507-PA.

United States District Court, D. Oregon.

January 6, 1984.

Frank V. Langfitt, III, Janice R. Wilson, Lindsay, Hart, Neil & Weigler, Portland, Or., for plaintiff.

Donald McEwen, Janice M. Stewart, McEwen, Hanna, Gisvold, Rankin & VanKoten, Portland, Or., for defendant Blake & Neal Finance Co.

Norman Sepenuk, James L. Collins, Portland, Or., for defendant Norman Glenn.

OPINION

PANNER, District Judge.

Plaintiff Willamette Savings & Loan ("Willamette") brings this action against Blake & Neal Finance Co. ("Blake & Neal"), its president, Norman Glenn ("Glenn"), and three John Does. Plaintiff alleges defendants violated the Securities Act of 1933, 15 U.S.C. § 77a et seq., the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., in a series of transactions involving the financing of retail purchases of mobile homes ("federal claims"). Plaintiff seeks a declaratory judgment as well as damages and attorney's fees. Additionally, plaintiff asserts claims for violation of Oregon securities law and the "State RICO," breaches of contract and of fiduciary duty, common law fraud, piercing the corporate veil, and accounting ("state claims").

On May 10, 1983, I granted defendants' motion to dismiss for failure to allege fraud with the specificity required by Fed. R.Civ.P. 9(b). Plaintiff then filed an amended complaint. Subsequently, defendants renewed their motions to dismiss. Later, I provided the parties with citations to many recent RICO cases and requested supplemental briefs. I now GRANT the motions to dismiss the federal claims and DISMISS the state claims for lack of diversity.

STANDARD

An action should be dismissed for failure to state a claim under Fed.R.Civ.P. 12(b)(6) only if it appears beyond doubt that the plaintiff can prove no set of facts in support of its claim which would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45, 78 S.Ct. 99, 101, 2 L.Ed.2d 80 (1957). I therefore construe the complaint in the light most favorable to plaintiff. See Russell v. Landrieu, 621 F.2d 1037, 1039 (9th Cir.1980).

BACKGROUND

Plaintiff is a division of American Savings & Loan Association, a Utah corporation, which is authorized to transact savings and loan business in Oregon. Plaintiff is the successor in interest to Fred Meyer Savings & Loan Association and all references to "plaintiff" or "Willamette" include that association where appropriate.

Defendant is an Oregon corporation involved, among other things, in the financing of retail purchases of mobile homes ("units") in Oregon and Washington. Since 1980, Glenn has been president of Blake & Neal.

On July 1, 1977, plaintiff and Blake & Neal entered into a purchase agreement ("Agreement") in which plaintiff agreed to purchase certain retail installment contracts ("contracts") each month. These contracts were between an individual consumer ("borrower") and a mobile home dealer ("dealer") and assigned to Blake & Neal. (Appendix B to the amended complaint is an example.) On September 1, 1978, the Agreement was amended to identify plaintiff's underwriting requirements for purchase of contracts. During a five-year period, plaintiff purchased contracts from Blake & Neal for over $3 million.

Under the Agreement, plaintiff agreed to purchase from Blake & Neal "such retail installment contracts as shall be tendered" by Blake & Neal. (Agreement, ¶ 1, amended complaint, exhibit A.) The Agreement was effective for one year with automatic renewal for an additional year. (Id., ¶ 2.) Plaintiff agreed that each month it would purchase contracts for an aggregate price of not less than $50,000 nor more than $1,000,000. (Id., ¶ 3.) Plaintiff retained a right to refuse any contracts which it considered as not meeting its underwriting requirements. (Id., ¶ 3a.) Plaintiff would initially pay Blake & Neal ten percent less than the contracts' face values but this rate would vary with the interest rate plaintiff paid to its depositors. (Id., ¶ 4.)

Blake & Neal warranted to plaintiff that each contract was genuine and free from all defenses; title to each mobile home was vested in the consumer/borrower; the contract arose from a bona fide sale; and no payments had been made on the contract except where Blake & Neal had been notified in writing. (Id., ¶ 5.) There were certain other warranties as well. (Id.) On breach of any warranty, Blake & Neal agreed to repurchase, upon written demand by plaintiff, any contract. (Id., ¶ 6.)

For each contract, Blake & Neal agreed to tender to plaintiff the credit application of the borrower and a credit report on the borrower; an insurance policy providing fire, theft and other insurance; an assignment of the contract from Blake & Neal to plaintiff; and evidence of an application for a certificate of title on the property showing plaintiff as first security interest holder. (Id., ¶ 7.) Under certain conditions, Blake & Neal would obtain substitute insurance. (Id., ¶ 8.)

If default in the payment of any installment of a contract purchased by the plaintiff from Blake & Neal should continue for 45 days, plaintiff could notify Blake & Neal promptly of the default and within 45 days thereafter, unless the default was cured by the borrower, Blake & Neal was required to repurchase the contract. (Id., ¶ 9.)

Plaintiff established a reserve account to secure performance of Blake & Neal's obligations (id., ¶ 11) and paid Blake & Neal each month Blake & Neal's "earned portion of the finance charge on each of the retail installment contracts so purchased ... including the portion to be allocated by Blake & Neal to the particular dealer's reserve account." (Id., ¶ 12.) The earned finance charge was to be computed by applying a contract's annual interest rate to the actual principal balances outstanding, for the time actually outstanding. (Amended complaint, appendix B, p. 1.)

For present purposes, I accept the following allegations in the amended complaint as true. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974).

From 1977 to 1980, Blake & Neal provided plaintiff false financial and credit status information on borrowers. (Amended complaint, ¶ 10A.)

From 1980 to 1983, Blake & Neal, Glenn and John Does 1 and 2:

(1) Received payments from contract obligors "borrowers" and diverted the funds to their own use, rather than pay the funds to plaintiff;

(2) Received payments from dealers who have repossessed mobile homes subject to the contracts and converted the same to their own use and failed to pass the payments onto sic plaintiff;

(3) Made payments on delinquent accounts and represented that such payments were made by the contract obligors in order to avoid defendant Blake & Neal's obligation to buy back delinquent retail installment contracts;

(4) Developed and/or approved transfers of units and assignment of obligations under the retail installment contracts to nonexistent purchasers/assignees or "straw men;"

(5) Administered and dealt with the retail installment contracts in a manner designed to divert funds due plaintiff to defendants, in particular at the direction of defendant Glenn in the fall of 1981;

(6) Provided fales and fraudulent reports to plaintiff regarding the status of accounts, contracts, and mobile homes;

(7) Permitted sales of mobile homes subject to retail installment contracts without paying funds derived therefrom to plaintiff;

(8) Participated in the repossession of mobile homes sold under the retail installment contracts and then resold said mobile homes through the use of power of attorney forms executed by original purchasers at the time of purchase rather than statutory forms of affidavits of repossession in order to mislead plaintiff as to the true status of the contracts;

(9) Failed to properly manage the retail installment contracts and thereby permitted the loss and waste of the mobile homes designated as security for such contracts; and

(10) Failed to repurchase contracts which were more than 90 days in default after demand by plaintiff.

(Id., ¶ 10B.)

Defendant Glenn has participated in the conduct described both directly and as a person in control of Blake & Neal. (Id., ¶ 10C.)

From 1980 to 1983, all defendants were involved in related transactions with Willamette and other financial institutions, including U.S. National Bank of Oregon, Far West Federal Savings & Loan Association, Queen City Savings and Loan Association, and:

(a) Represented to said financial institutions that Blake & Neal is selling chattel paper or financing chattel paper for transactions in which bona fide purchasers exist when in fact such bona fide purchasers did not exist;

(b) Misrepresented to U.S. National Bank of Oregon the collateral for said institution's loans to Blake & Neal by placing serial numbers on units which were not subject to the institution's security agreement in order to represent the unit as being subject to such security; defendant Glenn knew of such misrepresentation and participated in it;

(c) Permitted dealers to sell units and sell units out of trust without notifying the appropriate financial institutions so that said institutions would not be paid off;

(d) Misrepresented the status and number of delinquencies in chattel paper in order to avoid Blake & Neal's purchase and recourse obligations;

(e) Failed to notify financial institutions of repossessions in order that Blake & Neal would not have to repurchase chattel paper; and

(f) Kept duplicate files containing true data and false data in order to provide false information to said financial institutions and in actually providing such false information.

(Id., ¶ 20.)

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