Fremont Reorganizing Corp. v. Duke

811 F.Supp.2d 1323

FREMONT REORGANIZING CORP., Plaintiff,

v.Ronnie DUKE, Ryan Zundel, Bill Wells, Willinevah Richardson, Anthony Peters, American Nationwide Mortgage Co., CBB, Inc. d/b/a Bretlin Home Mortgage, First Escrow Company, LLC, Hardcore Motor Sports, LLC, Hardcore Racing, INC. JS Realty, LLC, Lawyers Escrow Co., Libertytitle and Escrow Services, LLC, MotorCity Financial Services, Nations Title of Ohio, North American Home Funding, Inc., Owner Realty.Com, Premier Mortgage Funding, Inc., Real Estate One, Inc., Andrew Auty, Timothy Baker, Melissa Bastien, Hussein Abdul–Majid Bazzi a/k/a Sam Bazzi, Specialty Holdings, Inc., Alibaydoun, Jay Baydoun a/k/a Jalal Baydoun, Chea Bennett, Morgan Bevensee, Kevin Bos, Lisa Bos, Robert Brierley, Byron Dees, Susan Gendernalik, Hugh Bradley James, David Lara, Harold Larsen, Danny Ley, Patrick Lloyd, Jose Martinez, John Mayer, Kathy McCutcheon a/k/a Kathy Sizemore, April Miller, Collette Millitello, Joseph Millitello, Paul Morris, Adelbert Moss, Bryan Murphy, Danielle Napper, Suzanne Nicholas, Daniel Panko, Kathleen Pounds, Larry Rideout, Ricardo Rodriguez, Frank Ray Schafer, Jr., Jeff Schuck, Rachel Seman, Michael Shilakes, Bryan Sturgeon, Jamie Sweeney, Ronald Talaski, Jr., Mitchell Tomcsik, Nicole Turcheck, Linda Wahler, Donna Walbrook, Paul Whiteside, Jeremy Yalkin, Kassem Zreik, Fidelity National Title Insurance Co., Quotemearate.Com, Inc., Apex Financial Group, Incorporated, d/b/a Aapex Mortgage Corp., Darla Applebee, Robert Appelbey, Eric Broad, Patrick Deguise, Donna Galante, Joseph C. Joseph, Raymond Lara, Jr., Charron McDonald, Jacqueline Napper, Philip McDonald, Bruce Morgan, Paul Nichols, Carlo Palmeri, Ronald Wilson, Larry Yount, Desk Top Appraisal LLC, Keyappraisers.Com LLC, and JP Morgan Chase Bank, Defendants.

Case No. 10–11923.

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

Sept. 12, 2011.

Charles P. Curley, Cynthia H. Hyndman, Robinson Curley & Clayton, P.C., Chicago, IL, Michael C. O'Malley, Kallas & Henk, Bloomfield Hills, MI, for Plaintiff.

Mark E. Phillips, Thomas G. Costello, Lipson, Neilson, Amy L. Gottlieb, Ari M. Charlip, Hertz Schram P.C., David J. Council, Joseph H. Hickey, Marilyn A. Peters, Dykema Gossett PLLC, Bloomfield Hills, MI, Amy E. Schlotterer, Dora A. Wilkerson, Rutledge, Manion, Rabaut, Terry & Thomas, P.C., Dante A. Stella, Dykema Gossett, Detroit, MI, Benjamin J. Henry, Brad B. Aldrich, Aldrich Legal Services, PLLC, Richard G. Convertino, Plymouth, MI, Arthur J. Weiss, Farmington Hills, MI, Larry R. Kipke, Hogan & Kipke, Clinton Township, MI, Christopher A. Sevick, Law Office of Christopher Sevick, PLC, Guy T. Conti, Contilegal, Ann Arbor, MI, Joseph F. Regnier, Regnier & Associates, PLC, Brighton, MI, Timothy P. MacDonald, Howell, MI, Nik Lulgjuraj, Nik Lulgjuraj, PLC, Chelsea, MI, Gary M. Collins, Gary M. Collins, PLLC, Fenton, MI, David B. Forest, Shelby Township, MI, Roy C. Sgroi, Sgroi Law Firm, Livonia, MI, for Defendants.

Darla Applebee, Romulus, MI, pro se.Robert Applebee, Romulus, MI, pro se.

OPINION AND ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS BY REAL ESTATE ONE, INC., DENYING MOTION TO DISMISS BY DEFENDANTS TIMOTHY BAKER, KEYAPPRAISERS.COM LLC, AND OWNERREALTY.COM, AND GRANTING MOTION TO DISMISS BY DEFENDANT JP MORGAN CHASE BANK

DAVID M. LAWSON, District Judge.

Ronnie Duke, it is alleged, masterminded and executed a scheme between 2003 and 2007 to defraud banks and other mortgage lenders of money by creating phony real estate transactions and financing the sales and purchases using fraudulent loan documents. The plaintiff, Fremont Reorganizing Corporation, claims to be a victim of Duke's scheme to the tune of over $20 million. Fremont has brought the present action against companies and individuals it believes joined in and helped perpetuate Duke's scheme, alleging fraud, conversion, negligence, breaches of contract and fiduciary duties, conspiracy, and violations of the Racketeer Influenced and Corrupt Organization Act, 18 U.S.C. § 1961 et seq. (RICO). Presently before the Court are motions to dismiss by three groups of defendants who contend that Fremont has not pleaded valid causes of action against them: Real Estate One; Timothy Baker, KeyAppraisers.com LLC, and OwnerRealty.com (the Baker defendants); and JP Morgan Chase Bank. The Court heard oral argument on the motions on February 15, 2011. For the reasons discussed in detail below, the Court now finds that Real Estate One's motions should be granted in part and denied in part, the Baker defendants' motion should be denied, and Chase Bank's motion should be granted.

I.

According to the amended complaint, which is quite detailed (148 pages with 544 numbered paragraphs), plaintiff Fremont Reorganizing Corporation is a California corporation that arose from the bankruptcy of its predecessor, Fremont Investment and Loan Corporation. The company originated subprime residential mortgage loans for sale on the secondary market. Fremont summarized the manner and means of Ronnie Duke's fraudulent scheme in the amended complaint as follows:

75. In general, Duke's mortgage fraud scheme worked as follows: Duke or someone at his direction would locate residential real properties for sale and arrange for a nominal or straw buyer to purchase a property and obtain a loan from a financial institution to finance the purchase. In some instances, the mortgage loan proceeds would be used to actually purchase the property in the name of the straw buyer [ (“straw loans”) ].... In other instances, the mortgage loan proceeds were not used to purchase the property at all, but instead were stolen and used to enrich the participants in the scheme [ (“ghost loans”) ].... In the case of both straw and ghost loans, Duke and others under his direction and control would create materially false and fraudulent documents in order to obtain mortgage loans, including but not limited to: loan applications, lease agreements, verifications of deposit, purchase agreements, warranty deeds, mortgages, and mortgage notes.

First Am. Compl. ¶¶ 75–89.

Fremont alleges that the straw loans were fraudulent because various defendants inflated the straw buyer's income, asserted that the straw buyer would pay a portion of the down payment when such funds actually came from other loan proceeds, and falsely identified inflated bank accounts as belonging to the straw buyer. Id. ¶¶ 77–79. Duke and other defendants under his direction took control of the properties and rented them to third parties. Id. ¶ 80. In the case of ghost loans, no property transfer occurred and the various defendants fraudulently represented that the intended buyer would use the property as either a rental investment or a primary residence; the named seller in those cases was either a straw buyer from another purchase or the actual owner who was unaware of the purported transfer. Id. ¶¶ 82–83. The plaintiff alleges that the statements about the transfer, rental income, inflated buyer's income, and temporarily inflated bank account statements were all fraudulent. Id. ¶¶ 83, 85–86. Duke and his minions also allegedly used cashier's checks to supply the down payment and subsequently cancelled the checks without transferring funds. Id. ¶ 84. The counterfeit warranty deeds purporting to transfer the properties were never filed with the county register of deeds. Id. ¶ 87. Various defendants also forged signatures on loan documents and failed to file them with the county register of deeds to secure the lender's security interest in the property. Id. ¶ 88. This scheme involved the fraudulent use of the mail and wire systems to submit fraudulent documents to financial institutions and to transfer or cause to be transferred the plaintiff's and other lenders' funds. Id. ¶ 118. The amended complaint separately identifies each transfer by date, amount, accounts, and the defendants directly involved in wiring or mailing fraudulent documents. Ibid. None of the transactions directly involve Real Estate One, the Baker defendants, or Chase in those activities. Ibid. The amended complaint also alleges that various defendants laundered money—the proceeds obtained from the real estate transfers—through Duke's different corporate entities. Id. ¶¶ 119–20. The amended complaint specifically identifies 59 fraudulent loans (17 straw loans and 42 ghost loans) associated with an equal number of real estate transactions.

The amended complaint also identifies individuals and companies who played specific roles in the scheme that included property locator, recruiter, straw buyer, appraiser, document counterfeiter, loan processor, mortgage broker or loan officer, and closing or issuing agent. Id. ¶ 91. The plaintiff alleges that real estate agencies served as vehicles for identifying available properties for use on the mortgage loan applications (defendants OwnerRealty.com LLC, Real Estate One, Inc., and JS Realty LLC), id. ¶¶ 13–14; mortgage brokers submitted fraudulent loan applications to the lenders (defendants Apex Financial Group, American Nationwide Mortgage Company, CBB Inc., North American Home Funding, Inc., Premier Mortgage Funding, Inc., and Quotemearate.com ), id. ¶ 15; closing or issuing agents closed the real estate transactions (defendants First Escrow Company LLC, Lawyers Escrow Company, Liberty Title and Escrow Services, MotorCity Financial Services, and Nations Title of Ohio), id. ¶ 16; and various individuals worked for each of those organizations and assisted in the fraudulent scheme. See id. ¶¶ 10–66.

Ronnie Duke, the lead perpetrator of this scheme, is alleged to have owned several defendant entities, including Hardcore Racing, Inc., Hardcore Motorsports, LLC, and Specialty Holdings, Inc. Id. ¶¶ 10–12. Of those, the main instrument through which Duke worked was Specialty Holdings, Inc., a business incorporated in Michigan around December 2001 that was created ostensibly to purchase residential...