A. Plaintiffs have adequately alleged mail and wire fraud.
Plaintiffs Glass, Old, and Smith have alleged in sufficient detail the commission by defendants of indictable mail fraud as defined by 18 U.S.C. § 1341 and indictable wire fraud as
defined by 18 U.S.C. § 1343. Their complaint describes the specifics of six fraudulent loans, including two made by defendant Aggressive Mortgage Company, Inc., which closed on the following six dates: March 27, 1990 [See Am. Complaint ¶32], April 12, 1990 [See Am.
Complaint ¶56], Jan. 25, 1989 [See Am. Complaint ¶81], May 24, 1989 [See Am. Complaint
¶106], August 3, 1989 (See Am. Complaint ¶124), and October 26, 1989 [See Am. Complaint
¶148.] In addition, the defendants were engaged in a nearly identical fraudulent loan scheme involving Samuel and Shirley Jones, who are the plaintiffs in another lawsuit C.A. No. 93-53226 pending in the state Superior Court for Suffolk county. A copy of the complaint in that matter is attached as Appendix I. Defendant Aggressive Mortgage Co., Inc. made a fraudulent loan on September 15, 1989 to the Joneses. A further loan was made to the Joneses as part of a common fraudulent scheme on December 12, 1989. [See Appendix I.]
The plaintiffs in the instant case have further alleged in their amended complaint that Defendants, in connection with each of these loans, regularly used the United States mails and interstate telephone system in furtherance of a pattern of racketeering activity. Such use included, but was not limited to, obtaining credit information, sending and receiving contracts and payments by mail, mailing collection letters, mailing checks to distribute the proceeds of the transactions, mailing credit applications, making calls soliciting business and refinancing, and making calls to obtain credit information and to arrange appointments to close loans. [See Am.
Complaint ¶¶219-223.] The amended complaint contains substantial detail, under the
circumstances, as to the time, place and content of the defendants' acts of mail and wire fraud.
If this court should determine that the allegations of mail and wire fraud made by
plaintiffs Glass, Old, and Smith are insufficiently specific, Plaintiffs request that they be granted an opportunity for discovery, in accordance with the First Circuit Court of Appeals' holding in Feinstein v. Resolution Trust Corp., 942 F.2d 34 (1st Cir. 1991) that under "certain
circumstances in the RICO context where ... the specific allegations of the plaintiffs make it likely that the defendant used interstate mail or telecommunications, and that the specific information as to use is likely in the exclusive control of the defendant, the court should make a
1918 U.S.C. § 1961(5) states that a "pattern" of racketeering activity requires "at least two acts of racketeering activity" within a ten-year period.
determination as to whether an opportunity for discovery should be allowed." Feinstein, 942 F.2d at 43, citing New England Data Services, Inc. v. Becher, 829 F.2d 286, 290 (1st Cir. 1987).
In this case, the defendants clearly have exclusive control over information pertaining to the exact dates, locations, and content of each of the acts of mail and wire fraud alleged by the plaintiffs, and, accordingly, an opportunity for discovery should be granted.
B. Plaintiffs Have Sufficiently Pled a RICO "Pattern"
As a Matter of Law.
Plaintiffs have adequately alleged that the actions of the various defendants, including defendant Aggressive Mortgage Co., Inc., constitute a "pattern of racketeering activity" as defined by 18 U.S.C. § 1961(5) and 18 U.S.C. § 1962 and clarified by the Supreme Court in H.J.
Inc. v. Northwestern Bell Telephone, 492 U.S. 229, 109 S.Ct 2893, 106 L.Ed.2d 195, on remand 734 F.Supp. 879 (Minn. 1989).
Plaintiffs have met the Supreme Court's test for alleging a RICO "pattern of racketeering activity" as set forth in H.J. Inc. v. Northwestern Bell Telephone Co., and adopted by the First Circuit Court of Appeals. Fleet Credit Corp. v. Sion, 893 F.2d 441 (1st Cir. 1990). The Supreme Court held in H.J. Inc. that a pattern of racketeering activity is not established merely by proving two predicate acts, but also by showing that the predicate acts of racketeering activity are related and that they amount to or pose a threat of continued criminal activity.
Plaintiffs Glass, Old, and Smith have shown that defendant Aggressive Mortgage Company, Inc. participated in the commission of many more than two acts of mail and wire fraud, which are statutorily defined predicate acts of racketeering activity. 18 U.S.C.§§ 1961(1) and (5).19 [See Am. Complaint at ¶¶220-225.] In addition, as required by the Supreme Court, they have demonstrated that the predicate acts "are related, and that they amount to or pose a threat of continued criminal activity." H.J. Inc., 492 U.S. 239 (emphasis in original).
According to the Supreme Court, relatedness is established if the predicate acts "have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events." H.J. Inc., 492 U.S.
229, 240 (1989) (quoting the Dangerous Special Offender Sentencing Act, 18 U.S.C. § 3575(e)).
Plaintiffs have satisfied the relatedness requirement, because they have shown that Defendants' many fraudulent uses of the mails and telephone system as to each of the named plaintiffs were all part of a common fraudulent scheme to exploit unwary, unsophisticated home-owners. See H.J. Inc. 109 S.Ct 2893, 2906 (1989); Fleet Credit Corp. v. Sion, 893 F.2d 441, 445 (1st Cir.
1990); Phelps v. Wichita Eagle-Beacon, 886 F.2d 1262 (10th Cir. 1989); George v. Blue
Diamond Petroleum, 718 F.Supp. 539 (W.D.La.1989). Moreover, by repeatedly and fraudulently obtaining early repayment involving unconscionable profits, the enterprise was able to
consistently obtain new victims by reinvesting in the enterprise. [Am. Complaint ¶220.]
In addition to showing relatedness, Plaintiffs have also demonstrated that the defendants' predicate acts of mail and wire fraud amounted to continued criminal activity. In the alternative, Plaintiffs have demonstrated that Defendants' predicate acts of mail and wire fraud pose a threat of continued criminal activity. H.J. Inc., 492 U.S. at 242.
The predicate acts committed by the defendants, including the commission of predicate acts by defendant Aggressive Mortgage Co., Inc., amount to continued criminal activity, defined by the Supreme Court in H.J. Inc. as "a series of related predicates extending over a substantial period of time." Id. Defendant Aggressive Mortgage Co., Inc. participated in the commission of multiple predicate acts of wire and mail fraud from at least January 1989, when Aggressive made a loan to plaintiff Old. [See Am. Complaint ¶85.] Thereafter, the defendants were involved in at least five other fraudulent loans, each entailing many related acts of wire and mail fraud, to the plaintiffs in this case, including another loan by Aggressive to plaintiff Smith in August 1989.
[Am. Complaint ¶124.] The enterprise then continued to operate at least through the loan arranged for plaintiff Glass in April 1990. [Am. Complaint ¶56.] As part of the same common scheme and pattern of racketeering activity, the defendants arranged for other fraudulent loans,
20 Fast Talking Mortgage Co. continues to advertise to this day and arranged a loan for Samuel and Shirley Doe as recently as March 1, 1991. [See Appendix I].
each involving multiple acts of mail and wire fraud, to Samuel and Shirley Jones. Aggressive made these loans on September 15, 1989 and December 12, 1989. [See Appendix I.] This long and steady series of related predicate acts of mail and wire fraud extended for over fifteen
months, and clearly constituted the type of "long-term criminal conduct" defined by the Supreme Court in H.J. Inc. as amounting to "continued criminal activity" and satisfying the H.J. court's test for a RICO pattern of racketeering activity. H.J. Inc., 492 U.S. at 242. See also Fleet Credit Corp. v. Sion, 893 F.2d 441, 446 (1st Cir. 1990).
Even if this court determines that the period over which the defendants committed the predicate acts of wire and mail fraud was too brief for those acts to amount to "continued criminal activity," Plaintiffs Glass, Old, and Smith have satisfactorily demonstrated that the defendants' predicate acts pose a threat of continuing criminal activity, since such racketeering activity "by its nature projects into the future with a threat of repetition." H.J. Inc., 492 U.S. at 241. The H.J. court stated that "the threat of continuity may be established by showing that the predicate acts or offenses are part of an ongoing entity's regular way of doing business." Id. at 242. See also Fleet Credit Corp., 893 F.2d at 447-448 (1st Cir. 1990). The commission of mail and wire fraud is a necessary part of the defendants' regular, ongoing business of arranging fraudulent consumer loan transactions, since such transactions require frequent use of the mails and interstate telephone system.20
C. Defendant Aggressive Mortgage Company, Inc.
Was Properly Included as a RICO Defendant
Defendant Aggressive Mortgage Company, Inc. was properly included as a RICO defendant, even though it did not participate in every incident giving rise to the pattern of racketeering activity. Civil RICO liability proscribing the conduct of an enterprise through a pattern of racketeering activity requires only that a named defendant participate in the
21 An entity cannot normally be a RICO "person" and a RICO "enterprise". Miranda v. Ponce Federal Bank, 948 F.2d 41, 44-45 (1st Cir. 1991). That case can arguably be read for the
proposition that the same entity cannot be the sole RICO enterprise and the sole defendant.
Nevertheless, upon completion of discovery concerning the nature and organization of the East Coast entities, plaintiffs will be able to amend to accurately describe one as the RICO defendant and the other as the enterprise.
commission of two or more sufficiently related and continuous predicate acts. 18 U.S.C. § 1961(1), 1962(c). See Fleet Credit Corp. v. Sion, 893 F.2d 441, 444 (1st Cir. 1990); Feinstein v.
Resolution Trust Corp., 942 F.2d 34, 41 (1st Cir. 1991); Miranda v. Ponce Federal Bank, 948 F.2d 41, 45 (1st Cir. 1991). A defendant can thus be included in a multi-party RICO case even if it was involved only with some of the conduct creating the pattern. One court has held that, under RICO, a defendant need not even personally commit the predicate acts, provided there is sufficient evidence to connect him to a RICO enterprise. Casperone v. Landmark Oil & Gas Corp., 819 F.2d 112 (5th Cir. 1987).
Plaintiffs Glass, Old, and Smith have clearly demonstrated the requisite causal connection between the racketeering predicates committed by defendant Aggressive Mortgage Company, Inc. and their injuries. Miranda v. Ponce Federal Bank, 948 F.2d 41, 46 (1st Cir. 1991).
Aggressive also argues that the RICO claim is deficient because Fast Talking Funding and Fast Talking Mortgage Co. cannot be both a RICO enterprise and a RICO defendant. Even if Aggressive is correct in that position, its argument is no basis to dismiss Aggressive as a RICO defendant.21 Aggressive has no standing to raise these issues on behalf of the Fast Talking entities.
D. Acts Committed by Aggressive that Do Not Injure the Plaintiffs May Be Alleged to Be Part of the RICO Pattern
Aggressive committed predicate acts of wire and mail fraud which harmed people other than Plaintiffs Glass, Old, and Smith. [See Appendix I.] Plaintiffs Glass, Old, and Smith may nevertheless plead these predicate acts as part of the pattern of racketeering activity, since a plaintiff need only have been injured by one of the predicate acts engaged in by the defendant.
22"Reading into a statute a requirement that a civil plaintiff prove injury from the entire pattern rather than from any predicate act would ... be inconsistent with the core congressional purposes behind its enactment. For example, if an organized crime group were to operate a protection racket, extorting money from each merchant in a community, then each merchant's injury would be separate, and, therefore, under the district court's reasoning, none could recover." 829 F.2d at 1268.
23 Given the difficulty of identifying low-income individuals harmed by defendant's scheme, if the court concludes that the plaintiffs have alleged insufficient predicate acts, discovery should be permitted in order to identify the full scope of the defendants' racketeering activities.
Town of Kearney v. Hudson Meadow Urban Renewal Corp., 829 F.2d 1263 (3rd Cir. 1987);22 Zee-Bar, Inc. - N.H., et al v. Kaplan, 792 F.Supp. 895 (1st Cir. 1992); Marshall v. Ilsley Trust Co. v. Pate, 819 F.2d 806 (7th Cir. 1987).
Defendant Aggressive Mortgage Company, Inc.'s commission of predicate acts of wire and mail fraud which injured Samuel and Shirley Jones are part of the pattern of related,
continuous acts of racketeering activity pled by the named plaintiffs in the instant case. Since the predicate acts related to Samuel and Shirley Jones were uncovered only after the Amended Complaint was filed, if the court deems it necessary, those predicate acts can be added here by amendment.23
E. Plaintiffs Have Properly Pled "Collection of Unlawful Debt."
18 U.S.C. 1962(c) makes actionable either a "a pattern of racketeering activity" or
"collection of unlawful debt." Separate and apart from the question of whether the plaintiffs have pled a pattern of racketeering activity is whether the defendants collected an unlawful debt. See Bandas v. Citizens State Bank of Silver Lake, 412 N.W. 2d 818 (Minn. Ct. App. 1987), remanded on other gds., 425 N.W.2d 803 (Minn. 1988), cert. denied 488 U.S. 943 (1988).
Collection of unlawful debt is defined to include a usurious debt which is unenforceable in whole or in apart as to interest or principal, and where the interest rate is at least twice the enforceable rate. 18 U.S.C. §1961(6). See Sundance Land v. Community First Fed. Savings &
Loan, 840 F.2d 653 (9th Cir. 1988).
Under Massachusetts law, the enforceable interest rate in a transaction is limited to the rate provided by the governing contract. For the transactions at issue here, that rate varies, but is
no more than 22%. The allegations of the complaint are that the defendants actually collected anywhere from 135% to 1,300% from each plaintiff, rates which are far more than twice the enforceable rate. [Am. Complaint ¶¶59, 109, 152.] Even if the court finds that a pattern of racketeering activity has not been properly pled, the RICO claim cannot be dismissed because the defendants have collected unlawful debt within the meaning of RICO.
IV. Plaintiffs' Causes Of Action Are Not Time Barred