Opinion
Civil Action No. 00-2688, Section "N".
December 5, 2000.
ORDER AND REASONS
Before the Court is defendant Equicredit Corporation of America's Rule 12(B)(6) Motion to Dismiss. For the following reasons, defendant's motion is GRANTED IN PART and DENIED IN PART.
BACKGROUND
On August 11, 1998, plaintiff Joseph Ladd ("Ladd") mortgaged his home to defendant Equicredit Corporation of America ("Equicredit") for $55,920. On July 15, 2000, Ladd's mortgage statement included a "Corporate Advance Balance" of $2,150.81, but the statement did not specify what this charge was for. On August 28, 2000, Ladd's attorney, Harold M. Wheelahan, wrote a letter to Equicredit claiming the "Corporate Advance" charge was fraudulent. Equicredit responded that "[t]he outstanding Corporate Advances are charges incurred with respect to ordering property inspections. Given the serious and continuing default of your client and the failure to provide insurance we are entitled to incur expense related to determining the condition of the property. Again read the mortgage." Dodd Letter.
Paragraph 7 of Ladd's mortgage provides that Equicredit "may make or cause to be made reasonable entries upon and inspections of the Property, provided that [Equicredic] shall give [Ladd] notice prior to any such inspection specifying reasonable cause therefor related to [Equicredit's] interest in the Property." Ladd states in an affidavit that Equicredit did not perform an inspection of his property.
Paragraph 7 makes no mention of charging Ladd for property inspections, and the Court has not found any provision authorizing such charges. However, Ladd only submitted the first two pages of his four page mortgage to the Court.
Ladd has filed the instant lawsuit as a putative class action, alleging that, by charging himself and others for property inspections that were never performed, Equicredit committed mail fraud in violation of §§ 1962(a) and 1962(c) of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et seq.
Equicredit now moves to dismiss these charges on the grounds that Ladd has tailed to state a cause of action under the RICO statute.
STANDARD OF REVIEW
In a motion to dismiss for failure to state a claim upon which relief may be granted, the Court must accept all well-pleaded facts as true and view the facts in the light most favorable to the plaintiffs. See Campbell v. City of San Antonio, 43 F.3d 973, 975 (5th Cir. 1995). Dismissal is warranted if "it appears certain-that the plaintiff[s] cannot prove any set of facts in support of [their] claim that would entitle [them] to relief."Piotrowski v. City of Houston, 51 F.3d 512, 514 (5th Cir. 1995) (quoting Leffall v. Dallas Indep. Sch. Dist., 28 F.3d 521, 524 (5th Cir. 1994)).
LAW AND ANALYSIS
Defendant Equicredit moves to dismiss Ladd's claims on the grounds that he fails to allege predicate acts and "investment injury" as required by RICO.
A. Predicate Acts
To state a claim for a RICO violation, Ladd must plead the conduct of an enterprise through a pattern of racketeering activity. See Sedima v. Imrex, 473 U.S. 479, 496 (1985). A "pattern of racketeering activity" requires at least two predicate acts. See 18 U.S.C. § 1961(5) Ladd alleges that Equicredit's predicate acts are mail fraud, in violation of 18 U.S.C. § 1341. See Rico Case Statement, ¶ 5(a). Specifically, Ladd claims that Equicredit sent three mortgage statements that included fraudulent charges.
Equicredit submits that the mail fraud allegations are deficient because the mailings in question counteracted the purposes of the purported scheme and made it more likely that the alleged scheme would be uncovered. Equicredit cites several cases in which courts have held that mailings did not violate the mail fraud statute because they were not in furtherance of a scheme to defraud. In United States v. Bonanzinga, 773 F.2d 166 (7th Cir. 1985), for example, a city official was convicted under the mail fraud Statute for buying auto supplies for himself with public funds. The Seventh Circuit held that invoices for these purchases mailed from the supplier to the city could not support a mail fraud conviction because the mailings identified the illegal purchases and could have prompted an investigation that would reveal the defendant's scheme. Id. at 172. Similarly, inGarrick-Aug Assocs. Store Leasing, Inc. v. Hirschfeld, 652 F. Supp. 905 (S.D.N.Y. 1986), the defendant was charged with fraudulently deducting money from the plaintiff's trust account. The court held that monthly statements showing the deductions did not constitute mail fraud because they put plaintiff on notice of the alleged scheme. Id. at 906-07.
However, the cases cited by Equicredit are distinguishable from the case at bar. In both Bonansinga and Garrick-Aug, the defendants had completed their scheme before the mailings occurred. Because the defendants already possessed the fraudulently obtained money or property before the mailings occurred, the Bonansinga and Garrick-Aug courts found the mailings in question were not "for the purpose of executing such a scheme or artifice . . ." 18 U.S.C. § 1342; see, also, United States v. Maze, 414 U.S. 395, 405 (1974); Pereira v. United States, 347 U.S. 1, 8 (1954). In the case at bar, Ladd alleges that Equicredit sent a statement that billed him for work that was never performed. At the time of these mailings, Equicredit's alleged scheme had not been carried out. Instead of putting Ladd on notice of the fraudulent scheme, the "Corporate Advance" charge allegedly seeks to trick Ladd into paying for a service Equicredit never performed. See, e.g., United States v. Elkin, 731 F.2d 1005 (2d Cir. 1984) (holding that a verification letter violated the mail fraud statute because it was designed to lull the victims into believing that certain payments had been properly made). Accordingly, the Court finds that Ladd properly pleads mail fraud, and Equicredit's motion to dismiss Ladd's RICO claims for failing to allege the predicate acts is DENIED.
B. Investment Injury
Alternatively, Equicredit argues that Ladd has failed to allege an "investment injury" necessary to establish a cause of action under 18 U.S.C. § 1962(a). To state a claim under § 1962(a). "a plaintiff must . . . show that its injuries resulted from the investment or use of racketeering proceeds." St. Paul Mercury Ins. Co. v. Williamson, 224 F.3d 425, 443 (5th Cir. 2000). This means that `the injury must flow from the investment of a racketeering income into the enterprise.' Crowe v. Henry, 43 F.3d 198, 205 (5th Cir. 1995). Ladd argues that Equicredit invested the alleged racketeering proceeds back into its business to "facilitat[e] the fraud on the plaintiff and the other putative class members." Mem. Opp. at 15. However, Ladd has not alleged any damages separate from the fraudulent corporate advance charges, and § 1962(a) "does not permit a plaintiff to recover damages suffered as a result of the racketeering activity itself." Webster v. N.Y. Life Ins. Co., 1998 WL 28261 at *4 (E.D.La. Jan. 16, 1998). Accordingly, the Court finds that Ladd tails to state a cause of action under 18 U.S.C. § 1962(a), and Equicredit's motion to dismiss Ladd's § 1962(a) claim is GRANTED.
An "investment injury" is not required under § 1962(c).
CONCLUSION
IT IS ORDERED that defendant Equicredit Corporation's motion to dismiss Ladd's claim under 18 U.S.C. § 1962(a) is GRANTED. IT IS FURTHER ORDERED that Equicredit's motion to dismiss Ladd's claim under § 1962(c) is DENIED.