Vandenbroeck v. Commonpoint Mortg. Co.

• Decision Date: 13 October 1998
• Docket Number: No. 1:97-CV-826.,1:97-CV-826.
• Citation: 22 F.Supp.2d 677
• Parties: Sandra VANDENBROECK, an individual, Eugene and Carol Nichoson, husband and wife, Abel and Denise Soto, husband and wife, Plaintiffs and Class Representatives, v. COMMONPOINT MORTGAGE COMPANY, d/b/a Commonpoint Mortgage, f/k/a AAA Mortgage and Finance, f/k/a Allstate Mortgage and Financial Corp., f/k/a Anderson Realty, Inc., a Michigan corporation, and Michael Anderson, an individual, Defendants.
• Court: U.S. District Court — Western District of Michigan

22 F.Supp.2d 677

Sandra VANDENBROECK, an individual, Eugene and Carol Nichoson, husband and wife, Abel and Denise Soto, husband and wife, Plaintiffs and Class Representatives, v. COMMONPOINT MORTGAGE COMPANY, d/b/a Commonpoint Mortgage, f/k/a AAA Mortgage and Finance, f/k/a Allstate Mortgage and Financial Corp., f/k/a Anderson Realty, Inc., a Michigan corporation, and Michael Anderson, an individual, Defendants.

No. 1:97-CV-826.

United States District Court, W.D. Michigan, Southern Division.

October 13, 1998.

COPYRIGHT MATERIAL OMITTED

John E. Anding, Drew, Cooper & Anding, Grand Rapids, MI, for Plaintiffs.

Jacqueline D. Scott, Deborah I. Ondersma, Varnum, Riddering, Schmidt & Howlett, Grand Rapids, MI, John C. Englander, James W. McGarry, David L. Permut, Thomas M. Hefferon, Goodwin, Procter & Hoar, LLP, Boston, MA, John E. Jacobs, Mason, Steinheardt & Jacobs, Southfield, MI, for Defendants.

OPINION

QUIST, District Judge.

This action is brought by several individuals who obtained residential mortgage loans from Defendant CommonPoint Mortgage Company ("CommonPoint").¹ Plaintiffs allege that in making the loans, CommonPoint reaped excessive profits through a scheme in which it charged "excessive fees ... that [were] undisclosed, unearned or not bona fide." (2d Am.Compl. ¶ Introduction.) Plaintiffs filed this action on behalf of themselves and others similarly situated against CommonPoint and its sole shareholder and director, Michael Anderson. Plaintiffs' second amended complaint alleges a claim in Count II under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 to 1968, a claim in Count IV under the Truth In Lending Act ("TILA"), 15 U.S.C. §§ 1601 to 1667f,² and seeks to invoke the Court's supplemental jurisdiction under 28 U.S.C. § 1367 over its state law claims for violation of the Michigan Consumer Protection Act ("MCPA"), M.C.L. §§ 445.901 to .922 in Count I, breach of fiduciary duty in Count V, and unjust enrichment in Count VI. Now before the Court are Defendants' motions to dismiss Counts I, II, IV, and VI of the second amended complaint, and Plaintiffs' motion for leave to file third amended complaint.³

Facts

CommonPoint is a mortgage company that is primarily engaged in making mortgage loans to borrowers who, for reasons such as a poor credit history or lack of sufficient or verifiable income, have difficulty obtaining financing. Plaintiffs, Sandra VanDenBroeck, Eugene and Carol Nichoson, and Abel and Denise Soto, sought and obtained mortgage loans from CommonPoint as a means of obtaining additional cash or reducing the interest rate and/or monthly payment under their existing mortgages. As part of the loan process, CommonPoint had Plaintiffs sign a CommonPoint form agreement called a "Financial Services Agreement" (the "FSA") at or shortly after the initial meeting. The FSA provided, in part:

1. CLIENT retains [CommonPoint] as CLIENT'S agent for 180 days from the date hereof to use its best efforts to obtain a loan ("Loan") on substantially the following terms ....

* * * * * *

3. IF a commitment for a Loan is issued to CLIENT by a third party, CLIENT shall pay to [CommonPoint] a fee equal to the greater of [%] % of the original principal amount of the Loan or $[$] ....

* * * * * *

5. NOTWITHSTANDING anything contained in this Agreement to the contrary, if [CommonPoint] issues a commitment to CLIENT to make the loan, [CommonPoint] shall no longer be acting on behalf of CLIENT and [CommonPoint] shall not be deemed to be the agent of CLIENT....

(FSA ¶¶ 1, 3, 5, attached to 2d Am. Compl. as Ex. D.) Instead of seeking out loans from third parties, CommonPoint made the loans itself.

At closing, CommonPoint charged Plaintiffs loan discount fees ranging from $1,300 to $3,150 without providing discounts on the interest rates. Instead, Plaintiffs allege, CommonPoint inflated the interest rates on the loans above interest rates at which the loans could have been made. After closing all of the loans, CommonPoint sold them to an end lender for a fee referred to as the "upsell" or "back end fee," which was based upon the difference between CommonPoint's loan rate and the end lender's rate. CommonPoint disclosed to Plaintiffs that their loans might be transferred to another lender for servicing, but did not disclose the existence of the "upsell". The interest rates or monthly payments on the loans which Plaintiffs ultimately obtained from CommonPoint exceeded the rates or amounts which CommonPoint originally promised. Plaintiffs allege that CommonPoint engaged in improper conduct by, among other things, failing to disclose to Plaintiffs that the loans were made at interest rates which exceeded the rates at which they could have been made and charging loan discount fees on loans that were not discounted.

Standard For Dismissal

An action may be dismissed if the complaint fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). The moving party has the burden of proving that no claim exists. Although a complaint is to be liberally construed, it is still necessary that the complaint contain more than bare assertions of legal conclusions. Allard v. Weitzman (In re DeLorean Motor Co.), 991 F.2d 1236, 1240 (6th Cir.1993)(citing Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir.1988)). All factual allegations in the complaint must be presumed to be true, and reasonable inferences must be made in favor of the non-moving party. 2A James W. Moore, Moore's Federal Practice, ¶ 12.34[1][b] (3d ed.1997). The Court need not, however, accept unwarranted factual inferences. Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir.1987). Dismissal is proper "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984)(citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957)).

Discussion

I. Federal Claims

A. RICO

In Count II, Plaintiffs allege that Defendants violated RICO by committing mail and wire fraud. Plaintiffs' RICO claim is based upon 18 U.S.C. § 1962(c), which provides, in relevant part, that:

It shall be 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 ....

To establish a violation of § 1962(c), a plaintiff must prove "`(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.'" Central Distrib. of Beer, Inc. v. Conn, 5 F.3d 181, 183 (6th Cir.1993)(quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985)). Defendants contend that Plaintiffs' RICO claim must be dismissed because Plaintiffs have failed to allege facts showing the existence of a RICO enterprise or that Defendants exerted control over the alleged enterprise and because Plaintiffs have failed to adequately allege that Defendants committed the predicate acts of mail and wire fraud.

1. Enterprise

An enterprise is defined as "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). An enterprise can be either a legal entity, such as a corporation, or an association-in-fact. See Crowe v. Henry, 43 F.3d 198, 204 (5th Cir.1995) (citation omitted). In United States v. Turkette, 452 U.S. 576, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981), the Supreme Court defined an association-in-fact as "a group of persons associated together for a common purpose of engaging in a course of conduct." 452 U.S. at 583, 101 S.Ct. at 2528. In this case, Plaintiffs allege that the RICO enterprise was an association-in-fact consisting of "CommonPoint and the investors and lenders who purchase[d] the loans originated and/or sold by CommonPoint." (2d Am.Compl. ¶ 115.) The existence of an enterprise "is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit." Turkette, 452 U.S. at 583, 101 S.Ct. at 2528.

To constitute a RICO enterprise, an association-in-fact: (1) "must be an ongoing organization"; (2) "its members must function as a continuing unit"; and (3) "it must be separate from the pattern of racketeering activity in which it engages." Frank v. D'Ambrosi, 4 F.3d 1378, 1386 (6th Cir. 1993)(per curiam)(citing Turkette); see also United States v. Davidson, 122 F.3d 531, 534 (8th Cir.1997)(Turkette factors include "whether the alleged enterprise has common or shared purposes, some continuity of structure and personnel, and a structure distinct from that inherent in the alleged pattern of racketeering activity"), cert. denied, ___ U.S. ___, 118 S.Ct. 1329, 140 L.Ed.2d 490 (1998). The "ongoing organization" requirement is coextensive with the existence of organizational structure.

To satisfy [the ongoing organization] element, the [plaintiff] must show that some sort of structure exists within the group for the making of decisions, whether it be hierarchical or consensual. There must be some mechanism for controlling and directing the affairs of the group on an on-going, rather than an ad hoc, basis. This does not mean that every decision must be made by the same person, or that authority may not be delegated.

United States v. Riccobene, 709 F.2d 214, 222 (3d Cir.1983), overruled on other grounds, Griffin v. United States, 502 U.S. 46, 112 S.Ct. 466, 116 L.Ed.2d 371 (1991); see also Richmond v. Nationwide Cassel L.P., 52 F.3d 640, 645 (7th Cir.1995). Structure is "[t]he hallmark of an enterprise." United States v. Rogers, 89 F.3d 1326, 1337 (7th Cir.1996) (citation omitted), cert. denied, ___ U.S....