Biggs v. Eaglewood Mortg., LLC, Civil No. PJM 07-2768.

• Decision Date: 17 September 2008
• Docket Number: Civil No. PJM 07-2768.
• Citation: 582 F.Supp.2d 707
• Parties: Jeanne BIGGS, et al., Plaintiffs, v. EAGLEWOOD MORTGAGE LLC, et al., Defendants.
• Court: U.S. District Court — District of Maryland

582 F.Supp.2d 707

Jeanne BIGGS, et al., Plaintiffs, v. EAGLEWOOD MORTGAGE LLC, et al., Defendants.

Civil No. PJM 07-2768.

United States District Court, D. Maryland.

September 17, 2008.

COPYRIGHT MATERIAL OMITTED

Mary Elizabeth Goulet, Whitham Curtis Christofferson and Cook PC, Reston, VA, for Plaintiff.

Richard L. Miller, Monshower Miller and Magrogan LLP, Columbia, MD, Glenn

A. Cline, Ballard Spahr Andrews and Ingersoll LLP, Baltimore, MD, for Defendants.

OPINION

PETER J. MESSITTE, District Judge.

Plaintiffs Jeanne and Charles Biggs ("the Biggs") allege that Defendants Eaglewood Mortgage, LLC and Countrywide Bank N.A.,¹ individually and as co-conspirators, engaged in a mortgage scheme with the intent to defraud them. Countrywide has filed a Motion to Dismiss or, in the Alternative, for Summary Judgment as to all claims. In addition to opposing Countrywide's Motions, the Biggs have filed motions seeking summary judgment in their favor on their racketeering and conversion claims.² For the following reasons, Countrywide's Motion to Dismiss is GRANTED IN PART and MOOTED IN PART; its Motion for Summary Judgment is GRANTED IN PART and MOOTED IN PART; and the Biggs' Cross-Motions for Summary Judgment are DENIED.

I.

In their Amended Complaint, the Biggs assert 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")³ with Countrywide, and in 2006 induced them to refinance through yet another payment option ARM with Countrywide.⁴ The Biggs claim that these payment option ARMs contained various high risk features, including an initial "teaser" interest rate, abruptly changing interest rates, negative amortization, and prepayment penalties, all of which were inappropriate for the Biggs, an elderly retired couple, Charles Biggs being 82 years of age and Jeanne Biggs 79 years of age as of the date suit was filed. The Biggs further allege that, by offering loans with these features, Defendants intended the Biggs' loan principal to increase substantially over time until the adjustable rate would kick in and their required monthly payment would increase substantially, at which time the Biggs would either be in default and be subject to foreclosure or, if they could afford the inflated payment, their modest monthly income would be depleted. According to the Biggs, any chance of refinancing the increased principal balance and prepayment penalties into a fixed-rate mortgage at that juncture would most likely prove impossible, since the requisite 80% loan-to-value ratio for a fixed rate loan could not then be met.

Against this background, the Biggs submit that Countrywide is liable to them for compensatory and punitive damages based on one or more of the following causes of action: Count I-Violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961, et seq.; Count II—Conversion; Count III—Conspiracy; Count IV—Fraud or Fraudulent Misrepresentation; Count V— Negligent Misrepresentation; Count VI— Negligence; and Count VII—Punitive Damages.⁵

II.

A. A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of a complaint. Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir.1992). The court must consider all well-pled allegations in the complaint as true and must construe all factual allegations in the light most favorable to the plaintiff. See Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783 (4th Cir.1999). The court, however, need not accept conclusory factual allegations devoid of any reference to an actual event, United Black Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir.1979), unsupported legal allegations, Revene v. Charles County Comm'rs, 882 F.2d 870, 873 (4th Cir.1989), or legal conclusions couched as factual allegations, Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986). To survive a Rule 12(b)(6) motion, "[f]actual allegations must be enough to raise a right to relief above the speculative level" and the facts must suffice to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1965, 1974, 167 L.Ed.2d 929 (2007).

B. Assuming a cognizable cause of action is stated, a party will be entitled to summary judgment if the evidence in the record "show[s] that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A genuine issue of material fact exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The court is obligated to view the facts and inferences drawn from the facts in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). "`A mere scintilla of evidence is not enough to create a fact issue.'" Barwick v. Celotex Corp., 736 F.2d 946, 958-59 (4th Cir.1984) (quoting Seago v. N.C. Theatres, Inc., 42 F.R.D. 627, 640 (E.D.N.C.1966), aff'd, 388 F.2d 987 (4th Cir.1967)). There must be "sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (citations omitted). A motion for summary judgment may be made by a defending party with or without supporting affidavits and documents, Fed.R.Civ.P. 56(b), but when the motion is properly made and supported, the plaintiff may not merely rely on allegations or denials in his or her own pleadings; he or she must respond with affidavits or other evidence. Id. at (e)(2).

III.

In Count I of the Amended Complaint, the Biggs assert a claim under the federal RICO statute, which establishes civil liability on the part of those who engage in a pattern of racketeering activities causing harm to another's business or property. See 18 U.S.C. §§ 1962, 1964. Violation of § 18 U.S.C.1962 requires (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. See Sedima, S.P.R.L. v. Imrex Co. Inc., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985). Under the statute, "a pattern of racketeering activity" requires, at a minimum, two predicate acts within a ten year period, while "racketeering activity" is defined in terms of a number of specific crimes, one of which is mail fraud. See 18 U.S.C. §§ 1961(1) and (5).

The Biggs allege that in July 2004 Countrywide formed an enterprise with Mortgage Equity Lenders and Equitable Settlement Services, LLC, which later included American Home Mortgage, Eaglewood Mortgage, LLC, and Settlement Solutions, to engage in a fraudulent mortgage scheme, and that Countrywide, through its agents or co-conspirators, used the United States Postal Service to transmit loan coupons, thank you cards, loan documents, executed agreements, and other mail in the course of and for the purpose of executing the alleged fraudulent scheme. This scheme allegedly occurred over a number of years and included placement of the Biggs into payment option ARMs in 2004 and 2006 with Countrywide. The Biggs submit that Countrywide has engaged in similar conduct in various parts of the country, fraudulently placing other homeowners into payment option ARMs with high risk features for which those homeowners were not suited.

Countrywide argues that because payment option ARMs are not inherently illegal, absent evidence of other fraudulent conduct the Biggs' mortgage transactions cannot constitute "racketeering activity" within the meaning of RICO. In any case, says Countrywide, the Biggs were hardly naive as to the various mortgage options available to them, since they have held twelve mortgages with at least ten different lenders over the years and, with respect to the 2006 transaction, as evidenced by the high number of credit inquiries on their credit report, they were in fact extraordinarily active shoppers for the best refinancing option available. Countrywide also argues that the Biggs' loan documents clearly identified the terms of the 2006 payment option ARM, including the so-called "risky" features with which the Biggs now take issue and that the documents it provided were in full compliance with the disclosure requirements of the federal Truth in Lending Act. 15 U.S.C. § 1601 et seq. In sum, says Countrywide, the mortgage transaction documents evidence no fraud and the Biggs have otherwise failed to proffer any other evidence of fraudulent representations attributable to it.

The first question in connection with Count I, taking their pleaded facts as true, is whether the Biggs have stated a RICO claim, i.e. is the count is subject to dismissal under Fed.R.Civ.P. 12(b)(6)? The issue, of course, is not whether the use of the U.S. mails can result in "racketeering activity" under RICO—certainly it can—the critical inquiry is whether the mails have been used to perpetrate a fraud.

The Biggs' theory of fraud is vague at best. Combing through the Amended Complaint and reviewing the transcript of oral argument, it appears that the Biggs are contending variously that payment option ARMS are fraudulent in general, and/or that the particular payment option ARMs in this case were fraudulent, and/or that such ARMS are fraudulent in general as to elderly persons of modest means, and/or that they were fraudulent as to the elderly Plaintiffs in this case. Whatever the precise theory, the illegality purportedly lies in the fact...