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George v. Urban Settlement Services

United States Court of Appeals, Tenth Circuit

August 15, 2016

RICHARD GEORGE; STEVEN LEAVITT; SANDRA LEAVITT; DARRELL DALTON, and all others similarly situated, Plaintiffs-Appellants,
v.
URBAN SETTLEMENT SERVICES, d/b/a Urban Lending Solutions; BANK OF AMERICA, N.A., Defendants-Appellees.

         Appeal from the United States District Court for the District of Colorado (D.C. No. 1:13-CV-01819-PAB-KLM)

          Kevin K. Green (Steve W. Berman, on the briefs), Hagens Berman Sobol Shapiro, LLP, Seattle, Washington, for Darrell Dalton, Richard George, and Sandra Leavitt, and Steven Leavitt, Plaintiffs-Appellants.

          Keith Levenberg, Goodwin Procter LLP, Washington, D.C. (James W. McGarry, Goodwin Procter LLP, Boston, Massachusetts, Peter Korneffel, Bryan Cave, LLP, Denver, Colorado, with him on the brief), for Bank of America, N.A., Defendant-Appellee.

          Martin C. Bryce, Ballard Spahr, LLP, Philidelphia, Pennsylvania (Sarah B. Wallace, Ballard Spahr, LLP, Denver, Colorado, with him on the brief), for Urban Settlement Services, Defendant-Appellee.

          Before BRISCOE, HOLMES, and MORITZ, Circuit Judges.

          MORITZ, Circuit Judge.

         Richard George, Steven Leavitt, Sandra Leavitt, and Darrell Dalton appeal the district court's dismissal of their putative class action against Urban Settlement Services, d/b/a Urban Lending Solutions (Urban) and Bank of America, N.A. (BOA). The plaintiffs asserted a claim under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968, against BOA and Urban. They also brought a promissory estoppel claim against BOA. Both claims arose from the defendants' allegedly fraudulent administration of the Home Affordable Modification Program (HAMP). The district court granted the defendants' Fed.R.Civ.P. 12(b)(6) motions to dismiss both claims, denied the plaintiffs' request for leave to amend their first amended complaint, and dismissed the case.

         Because we conclude that the plaintiffs' first amended complaint states a facially plausible RICO claim against BOA and Urban and a facially plausible promissory estoppel claim against BOA, we reverse and remand for further proceedings. Our reversal moots the plaintiffs' challenge to the district court's denial of their request to further amend the complaint.

         Background

         When Congress enacted the Emergency Economic Stabilization Act of 2008, it authorized the Secretary of the U.S. Department of the Treasury to establish the Troubled Asset Relief Program (TARP) and to purchase troubled assets, including certain residential mortgages, from financial institutions. See generally 12 U.S.C. §§ 5201, 5202, 5211. Consistent with this authority, the Secretary established HAMP in 2009 to encourage mortgage servicers to modify loan terms for delinquent borrowers at risk of foreclosure.

         As a condition of receiving TARP funds, BOA was required to participate in HAMP and to comply with the program guidelines. These guidelines required BOA to collect financial information from at-risk borrowers; evaluate borrowers' eligibility for HAMP loan modifications; place eligible borrowers on Trial Period Plans (TPPs) so they could demonstrate their ability to make lower monthly payments; and permanently modify loans for qualified borrowers who complied with their individual TPPs.

         BOA contracted with various third parties, including Urban, to implement and administer HAMP. Urban is a "mortgage solutions provider" that "provides numerous clients a variety of services, including mortgage fulfillment services, home retention solutions, appraisals and valuation services, title and settlement services, and call center services." App. 170.

         The four plaintiffs in this action each had a home mortgage through BOA, each applied for a HAMP loan modification, and each interacted with BOA and Urban representatives during the application process. In July 2013, the plaintiffs filed a putative class action against BOA and Urban, asserting a RICO claim against both and a promissory estoppel claim against BOA. In accordance with local rules, the plaintiffs conferred with the defendants about the claims and about the defendants' anticipated motions to dismiss. The plaintiffs amended their complaint in August 2013 to correct deficiencies the defendants identified.

         To support their RICO claim, the plaintiffs alleged the defendants and various other entities formed a RICO enterprise with the common goal of wrongfully denying HAMP loan modifications to qualified homeowners. According to the plaintiffs, BOA and Urban developed a scheme to obstruct and delay borrowers' HAMP loan modification requests. The defendants furthered that scheme by denying they had received application documents they had in fact received and by misleading borrowers about the status of their applications. The plaintiffs alleged damages including longer loan payoff times, increased principal and interest on their loans, damage to credit reports, and inappropriately charged processing and late fees associated with delinquency and default.

         The plaintiffs also asserted a promissory estoppel claim against BOA. They alleged that BOA made clear promises-both in TPP documents and on its website- to provide permanent loan modifications to qualified borrowers who successfully completed TPPs. And they alleged that BOA reneged on those promises.

         BOA and Urban filed separate Rule 12(b)(6) motions to dismiss the plaintiffs' claims. In moving to dismiss the RICO claim, BOA argued the plaintiffs failed to plausibly allege the existence of an enterprise sufficiently distinct from BOA. Urban, on the other hand, argued the plaintiffs failed to sufficiently allege Urban participated in the conduct of the enterprise. And both defendants argued the plaintiffs failed to plausibly allege a pattern of racketeering activity.

         The district court granted both motions, concluding the plaintiffs failed to plausibly allege (1) Urban's participation in the conduct of the enterprise and (2) the existence of an enterprise separate and distinct from BOA and its agents.[1] The court denied the plaintiffs' request to amend their first amended complaint and dismissed the case. The plaintiffs appeal.

         Discussion

         We review a Rule 12(b)(6) dismissal de novo. Childs v. Miller, 713 F.3d 1262, 1264 (10th Cir. 2013). We accept a plaintiff's well-pleaded factual allegations as true and determine whether the plaintiff has provided "enough facts to state a claim to relief that is plausible on its face." Hogan v. Winder, 762 F.3d 1096, 1104 (10th Cir. 2014) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In determining the plausibility of a claim, we look to the elements of the particular cause of action, keeping in mind that the Rule 12(b)(6) standard doesn't require a plaintiff to "set forth a prima facie case for each element." Khalik v. United Air Lines, 671 F.3d 1188, 1192-93 (10th Cir. 2012). See also Kan. Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1215 (10th Cir. 2011) (noting that "[t]he nature and specificity of the allegations required to state a plausible claim will vary based on context"). Rather, a claim is facially plausible if the plaintiff has pled "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Hogan, 762 F.3d at 1104 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).

         I. The district court erred in dismissing the plaintiffs' RICO claim.

         The plaintiffs argue that the factual allegations in their first amended complaint state a facially plausible RICO claim against both BOA and Urban and that the district court therefore erred in dismissing that claim.

         "RICO provides a private right of action in federal court for individuals injured in their business or property through fraudulent conduct." Robert L. Kroenlein Trust ex rel. Alden v. Kirchhefer, 764 F.3d 1268, 1274 (10th Cir. 2014). See 18 U.S.C. § 1964(c) (providing private right of action and treble damages for § 1962(c) violations). The plaintiffs assert that BOA and Urban violated § 1962(c), which makes it "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 or collection of unlawful debt." The plaintiffs identify both BOA and Urban as RICO "persons."[2]

         Thus, to avoid dismissal, the plaintiffs must plausibly allege that BOA and Urban each (1) conducted the affairs (2) of an enterprise (3) through a pattern (4) of racketeering activity. See 18 U.S.C. § 1962(c); Robbins v. Wilkie, 300 F.3d 1208, 1210 (10th Cir. 2002).

         A. The plaintiffs sufficiently allege the existence of a RICO enterprise that is distinct from BOA.

         The plaintiffs characterize the district court's conclusion that the alleged enterprise was insufficiently distinct from BOA as contrary to legal precedent and public policy. The plaintiffs argue that because they alleged an association-in-fact enterprise consisting of numerous independently owned and operated companies, the alleged enterprise is sufficiently distinct from BOA.

         BOA, on the other hand, argues the district court properly concluded that the plaintiffs failed to plead a sufficiently distinct enterprise because (1) the alleged enterprise consists solely of BOA's own employees and agents and (2) the plaintiffs don't allege that the enterprise conducted any affairs other than BOA's own.

         RICO broadly defines "enterprise" 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). The plaintiffs rely on the latter part of this definition, alleging that BOA, Urban, and others formed an association-in-fact enterprise. See Boyle v. United States, 556 U.S. 938, 946 (2009) (explaining that an association-in-fact enterprise has "a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise's purpose").

         The plaintiffs allege the enterprise's common purpose in this case was "to extend as few permanent HAMP modifications as possible while providing BOA a justification to claim that borrowers had not fulfilled their [TPPs] or were otherwise ineligible for HAMP modifications." App. 156. According to the plaintiffs, BOA and Urban maintained the key relationship among the numerous entities associated with the enterprise.[3] BOA contracted with Urban "to provide HAMP-related ministerial services, " App. 108, and delegated several tasks to Urban. And while the plaintiffs allege that BOA directed Urban's HAMP-related activities, they further assert that Urban exercised broad discretion to manage and operate its portion of the enterprise. Finally, in pleading longevity, the plaintiffs allege BOA and Urban began conducting the affairs of the enterprise in 2009 and continued to do so in 2013 when the plaintiffs filed their complaint.

         The district court concluded the plaintiffs failed to allege that BOA is sufficiently distinct from that association-in-fact enterprise. In reaching that conclusion, the court first found that BOA, its subsidiary BAC Home Loans, and BOA's employees couldn't form a RICO enterprise because they have a parent corporation-subsidiary relationship. Next, the court determined that Urban and its employees were BOA's agents, who did nothing more than follow BOA's instructions. Similarly, the court found that the other alleged members of the enterprise were merely BOA's agents and that BOA retained them to conduct BOA's affairs rather than the enterprise's.

         We disagree. We recognize that § 1962(c) requires that the "person" conducting the enterprise's affairs be distinct from the "enterprise." Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 160 (2001); see Bd. of Cty. Comm'rs of San Juan Cty. v. Liberty Grp., 965 F.2d 879, 885 & n.4 (10th Cir. 1992) (collecting cases and noting predominant view that § 1962(c) "require[s] that the 'person' and the 'enterprise' engaged in racketeering activities be different entities"). And we further recognize that a plaintiff must demonstrate that the defendant conducted the affairs of the enterprise rather than simply conducting the defendant's own affairs. Brannon v. Boatmen's First Nat. Bank of Okla., 153 F.3d 1144, 1146 (10th Cir. 1998).

         Finally, it's true that a defendant corporation, acting through its subsidiaries, agents, or employees typically can't be both the RICO "person" and the RICO "enterprise." See Brannon, 153 F.3d at 1149 (collecting cases); Bd. of Cty. Comm'rs of San Juan Cty., 965 F.2d at 886 ("[O]fficers and employees of an organization cannot, in the ordinary course of their duties, constitute an association in fact separate from the organization itself."). See also In re ClassicStar Mare Lease Litig., 727 F.3d 473, 493 (6th Cir. 2013) (noting that a parent corporation and its subsidiaries don't ordinarily satisfy the distinctness requirement); Fitzgerald v. Chrysler Corp., 116 F.3d 225, 226-28 (7th Cir. 1997) (concluding that because "an employer and its employees cannot constitute a RICO enterprise, " a "manufacturer plus its dealers and other agents (or any subset of the members of the corporate family) do not constitute" a RICO enterprise).

         Here, the district court relied on Brannon and Fitzgerald to conclude that BOA wasn't sufficiently distinct from the enterprise. But our review of those cases reveals that neither supports the district court's conclusion. In Brannon, the plaintiffs alleged in two separate counts that (1) a bank holding company was the RICO enterprise and the holding company's subsidiary was the RICO person conducting the enterprise's affairs; and conversely that (2) the holding company's subsidiary was the RICO enterprise and the holding company was the RICO person conducting the enterprise's affairs. 153 F.3d at 1145-46. Similarly, in Fitzgerald, the plaintiffs alleged that the Chrysler Corporation was a RICO person conducting the affairs of an enterprise composed of Chrysler's subsidiaries, Chrysler's independent automobile dealers, and various trusts controlled by Chrysler. 116 F.3d at 226.

         Focusing primarily on the parent-subsidiary relationship, this court in Brannon and the Seventh Circuit in Fitzgerald concluded that the plaintiffs in those cases failed to allege RICO enterprises sufficiently distinct from the RICO persons and therefore affirmed the district courts' Rule 12(b)(6) dismissals of the plaintiffs' RICO claims. See Brannon, 153 F.3d at 1145-49 (holding that "a parent-subsidiary corporate relationship standing alone" is not sufficient to "invoke RICO liability"); Fitzgerald, 116 F.3d at 226-28 (holding that a "manufacturer plus its dealers and other agents, (or any subset of the members of the corporate family), do not constitute an enterprise within the meaning of [RICO]").

         In contrast, the plaintiffs here allege an association-in-fact enterprise. They don't contend that either a parent corporation or its subsidiary corporation is the enterprise. Rather, they assert that BOA and Urban-two separate legal entities- joined together, along with several other entities, to form and conduct the affairs of the BOA-Urban association-in-fact enterprise. The plaintiffs further allege that BOA conducted the enterprise's affairs, rather than BOA's own affairs, by acting in concert with Urban and other members of the enterprise to implement and execute a scheme to fraudulently deny HAMP loan modifications to qualified borrowers.

         Moreover, BOA's act of contracting with Urban to provide HAMP-related services didn't somehow render Urban a BOA subsidiary, a BOA agent, or even part of the BOA corporate family. Instead, the plaintiffs assert that BOA and Urban remained separate legal entities in distinct lines of business. Specifically, BOA is a mortgage lender whose services extend well beyond participation in HAMP, while Urban is a limited liability corporation that provides mortgage-related services to numerous clients, including BOA. Further, the plaintiffs allege that each entity performed ...


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