Empire Title Servs., Inc. v. Fifth Third Mortg. Co.

EMPIRE TITLE SERVICES, INC., Plaintiff,

v.FIFTH THIRD MORTGAGE COMPANY, et al., Defendants.

CASE NO. 1:10cv2208

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION

March 29, 2013

PEARSON, J.

JUDGE BENITA Y. PEARSON

MEMORANDUM OF OPINION AND

ORDER [Regarding ECF No. 13]

TABLE OF CONTENTS

I. Background............................................................................................................................3

A. The Parties............................................................................................................... 3

B. The Alleged Scheme................................................................................................4

C. The Claims............................................................................................................... 5

II. Legal Standard......................................................................................................................5

III. Discussion...........................................................................................................................6

A. RESPA Violations...................................................................................................7

B. Association-in-Fact Enterprise ...............................................................................12

C. Proximate Cause .....................................................................................................15

1. Applying the Principles in Holmes...............................................................15

a. The Amount of Damages Attributable to the Injury........................16

i. Whether Empire Sufficiently Alleges Injury........................17

ii. Whether Empire's Injury is Direct......................................20

iii. Whether the Causal Chain is Broken .................................21

b. The Difficulty of Apportioning Damages .......................................23

c. The Deterrence of Injurious Conduct..............................................25

2. Whether the RICO Violation Directly Caused the Injury ...........................26

a. Counts I and II: 18 U.S.C. § 1962(a)...............................................26

b. Counts III and IV: 18 U.S.C. § 1962(c)..........................................28

i. Mail and Wire Fraud .............................................................29

ii. Interstate Transport of Money .............................................31

c. Counts V and VI: 18 U.S.C. § 1962(d)...........................................31

D. Particularity Requirement.......................................................................................32

IV. Conclusion .........................................................................................................................37

This matter is before the Court upon the Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) filed by Defendants Fifth Third Mortgage Company, Fifth Third Financial Corporation, Fifth Third Bank, and Vista Settlement Services, LLC (collectively "Fifth Third"). ECF No. 13. The Court has been advised, having reviewed the record, the parties' briefs and the applicable law. For the reasons that follow, the Court grants Fifth Third's motion to dismiss.

I. Background

A. The Parties

Plaintiff Empire Title Services, Inc. ("Empire") conducts closings of mortgage loans and issues title insurance in those mortgage loan transactions. ECF No. 1 at 15, ¶49. Empire closed mortgages transactions funded by Defendant Fifth Third Bank ("FTB"). ECF No. 1 at 6, ¶6.

Defendant Fifth Third Mortgage ("FTM") is a lender that provides home and other loans to borrowers in various states, including Ohio. ECF No. 13 at 11. FTB is FTM's sister company and employs mortgage-loan officers who work for FTM. ECF No. 13 at 11. Defendant Fifth Third Financial ("FTF") is the parent company of FTM and FTB. ECF No. 13 at 11.

The settlement services necessary to close a mortgage loan generally include tasks such as escrowing funds; preparing loan documents; performing title searches; issuing title-insurance commitments, policies, and endorsements; and closing loans. ECF No. 13 at 11. In many states, third-party settlement agents who are also licensed title agents offer to provide all of the services necessary to close a mortgage loan, including issuing title policies, title commitments, and policy endorsements. ECF No. 13 at 11.

In 2006, FTF created Vista Settlement Services, LLC ("Vista") to perform settlement services for lenders, including FTM. ECF No. 13 at 11. Vista is licensed to act as a title-insurance agent and to perform other mortgage-loan settlement services in Ohio and other states. ECF No. 13 at 11. As a licensed title-insurance agent, Vista can issue title commitments, title policies, and policy endorsements on behalf of several title-insurance carriers. ECF No. 13 at 11. Empire, a licensed title agent, and is a competitor of Vista. ECF No. 13 at 11.

B. The Alleged Scheme

Empire alleges that Fifth Third created Vista solely to capture "the most lucrative" settlement services—issuing title insurance commitments, policies, and endorsements. ECF No. 1 at 3, ¶5. To guarantee that Vista captured this business, Empire alleges Fifth Third engaged in an illegal referral scheme in violation of the Real Estate Settlement Procedures Act of 1974, 12 U.S.C. §§ 2601 et seq. ("RESPA"), whereby FTM's loan officers referred settlement work only to certain cooperating settlement agents who agreed in advance to refer all title insurance premium generating business to Vista. ECF No. 1 at 3, 4, ¶¶6, 7. If an agent refused to refer the title business to Vista, Empire alleges that FTM "blacklisted" the agent and directed settlement work to cooperating settlement agents. ECF No. 1 at 3, 4, ¶¶6, 7. In return for referring business to cooperating agents, Empire alleges FTM's loan officers are paid 10% or more of Vista's revenue generated by the issuance of title commitments, title insurance policies and any Fifth Third required title insurance endorsements. ECF No. 1 at 4, ¶7.

Empire alleges that, because it refused to participate in the alleged scheme, it suffered substantial damages, including, but not limited to, the loss of income from transactions it wouldearned closing mortgage loans for Fifth Third Mortgage. ECF No. 1 at 5-6, ¶¶12, 14.

C. The Claims

Empire brings this putative class action alleging violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq. ("RICO"). The Complaint lists six counts.¹ Counts I and II allege Fifth Third procured and retained illegally gained funds and reinvested and used those funds in their operations in violation of 18 U.S.C. § 1962(a). ECF No. 1 at 27, ¶97; at 33, ¶121. Counts III and IV allege multiple acts of mail and wire fraud in violation of 18 U.S.C. §§ 1341, 1343, and multiple instances of interstate transport of money converted or fraudulently obtained in violation of 18 U.S.C. § 2314, in further violation of 18 U.S.C. § 1962(c). ECF No. 1 at 34, ¶¶127, 128; at 35, ¶¶133, 134. Counts V and VI allege Fifth Third conspired within the meaning of 18 U.S.C. § 1962(d) to violate § 1962(a). ECF No. 1 at 37-38, ¶¶139, 146.

II. Legal Standard

In deciding a motion to dismiss pursuant to Fed. R. Civ. Pro. 12(b)(6), the Court must take all well-pleaded allegations in the complaint as true and construe those allegations in a light most favorable to the plaintiff. Erickson v. Pardus, 551 U.S. 89, 94 (2007) (citations omitted). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "While legalconclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Id. at 679. The factual allegations in the complaint "must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555 (citing authorities).

In other words, claims set forth in a complaint must be plausible, rather than conceivable. Twombly, 550 U.S. at 570. "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged — but it has not 'show[n]' — 'that the pleader is entitled to relief.'" Iqbal, 556 U.S. at 679 (citing Fed. R. Civ. Pro. 8(a)(2)).

III. Discussion

To properly lodge a civil RICO claim, a plaintiff must establish four elements: "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Moon v. Harrison Piping Supply, 465 F.3d 719, 723 (6th Cir.2006) (quoting Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985)). A plaintiff can only recover to the extent that it has been injured in business or property proximately caused by the conduct constituting the violation. Trollinger v. Tyson Foods, Inc., 370 F.3d 602, 612 (6th Cir. 2004) (citing Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 268 (1992); Sedima, 473 U.S. at 496)).

Fifth Third argues that the allegations in the Complaint amount to no more than non-actionable RESPA violations transformed into alleged RICO violations; Empire does not allege a viable association-in-fact enterprise; Empire does not offer allegations that would show how the alleged RICO violations proximately caused Empire's alleged injury, and; the Complaint doesnot sufficiently allege the predicate offenses of mail and wire fraud as required by Fed. R. Civ. Pro. 9(b).

A. RESPA Violations

Fifth Third argues that Empire, which cannot recover under RESPA, is improperly transforming allegations of RESPA violations into actionable RICO violations, amounting to an "end-run" of RESPA's...