86 Reply Memorandum of Law
86 Reply Memorandum of Law
Robert D. Wick
Christian J. Pistilli
Michael M. Maya
Philip J. Levitz
COVINGTON & BURLING LLP
One CityCenter, 850 Tenth Street, NW
Washington, DC 20001-4956
(202) 662-6000
Michael C. Nicholson
COVINGTON & BURLING LLP
The New York Times Building
620 Eighth Avenue
New York, New York 10018-1405
(212) 841-1000
TABLE OF CONTENTS
Page
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Case 1:15-cv-00293-LTS-RWL Document 86 Filed 12/18/15 Page 3 of 16
TABLE OF AUTHORITIES
Cases Page(s)
Faryniarz v. Ramirez,
2015 WL 6872439 (D. Conn. Nov. 9, 2015) .............................................................................2
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Kriegel v. Donelli,
2014 WL 2936000 (S.D.N.Y. June 30, 2014) .........................................................................10
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Zabas v. Kard,
599 N.Y.S.2d 832 (App. Div. 1993) ..........................................................................................8
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straightforward breach of contract suit into a sprawling RICO and intentional tort action. Their
opposition memorandum fails to rehabilitate either their RICO claim or their tort claims.
among those associated with the enterprise, and [sufficient] longevity.” Boyle v. United States,
556 U.S. 938, 946 (2009). Here, the complaint fails to allege either a common purpose or the
requisite relationship among the members of the purported enterprise (Mem. 8-10), and
First, Plaintiffs fail to allege the necessary relationship among the purported enterprise
members because they fail to plead facts showing that the enterprise constitutes “an ongoing
organization, … let alone a coherent entity separate and apart from the alleged fraudulent
scheme.” D. Penguin Bros. v. City Nat’l Bank, 587 F. App’x 663, 668 (2d Cir. 2014) (internal
quotation marks omitted); see Mem. 8-9. For example, Plaintiffs provide no “concrete
information on the group’s organization” or the “roles each [member] played and the actions
they took.” BWP Media USA Inc. v. Hollywood Fan Sites, LLC, 69 F. Supp. 3d 342, 360
(S.D.N.Y. 2014). Nor do they make any “concrete factual assertions as to the mechanics of the
interactions among” the members of the purported enterprise. Cont’l Petroleum Corp. v. Corp.
Funding Partners, LLC, 2012 WL 1231775, at *6 (S.D.N.Y. Apr. 12, 2012). To the contrary,
the complaint is “entirely silent as to the internal workings … of the enterprise.” Foster v. 2001
Real Estate, 2015 WL 7587360, at *4 (S.D.N.Y. Nov. 24, 2015). Indeed, Plaintiffs fail to allege
that the purported enterprise has “any structure or organization whatsoever.” Conte v. Newsday,
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Inc., 703 F. Supp. 2d 126, 133-34 (E.D.N.Y. 2010). Under these circumstances, courts in this
Circuit consistently dismiss RICO claims for failure to allege the existence of a RICO enterprise.
See, e.g., Foster, 2015 WL 7587360, at *4; Faryniarz v. Ramirez, 2015 WL 6872439, at *6 (D.
Conn. Nov. 9, 2015); BWP Media USA Inc., 69 F. Supp. 3d at 360; Cont’l Petroleum Corp.,
2012 WL 1231775, at *5; Conte, 703 F. Supp. 2d at 133-34; Cedar Swamp Holdings, Inc. v.
Plaintiffs counter that, under the Supreme Court’s decision in Boyle, they need not allege
a “hierarchy, a chain of command, fixed roles, regular meetings, or rules and regulations” in
order to plead the existence of a RICO enterprise. Opp. 10. However, “Boyle does not change
the settled understanding … that the concept of association requires both interpersonal
relationships” and that the group “function as a continuing unit.” Cont’l Petroleum Corp., 2012
WL 1231775, at *5. Thus, while “a RICO enterprise need not have a formal hierarchy” under
Boyle, a plaintiff “must still allege some structural features” in order to survive a motion to
dismiss. Foster, 2015 WL 7587360, at *4. Because Plaintiffs have not alleged any facts
regarding the organization of the purported enterprise or the relationships among its members,
the RICO claim fails as a matter of law. E.g., Conte, 703 F. Supp. 2d at 134.2
1
Plaintiffs’ opposition asserts that, in addition to Chase and unnamed debt collectors and vendors, the alleged
enterprise includes various Chase employees. Opp. 10. It is well established, however, that a RICO enterprise may
not consist “merely of a corporate defendant associated with its own employees or agents carrying on the regular
affairs of the defendant.” Riverwoods Chappaqua Corp. v. Marine Midland Bank, N.A., 30 F.3d 339, 344 (2d Cir.
1994); accord Cruz v. FXDirectDealer, LLC, 720 F.3d 115, 121 (2d Cir. 2013); see also Mem. 7-8. Accordingly,
Plaintiffs’ allegations regarding these employees do nothing to establish the existence of a valid RICO enterprise.
2
Plaintiffs also assert that Boyle abrogated the Second Circuit’s decision in First Capital Asset Mgmt. v. Satinwood,
Inc., 385 F.3d 159, 174-75 (2d Cir. 2004). Opp. 10. Numerous post-Boyle decisions from within this Circuit,
however, continue to rely on Satinwood to hold that courts must look to the “hierarchy, organization, and activities”
of an alleged association in order to determine the sufficiency of a plaintiff’s enterprise allegations. See, e.g.,
Foster, 2015 WL 7587360, at *4; Faryniarz, 2015 WL 6872439, at *6; BWP Media USA Inc., 69 F. Supp. 3d at
360; Cont’l Petroleum Corp., 2012 WL 1231775, at *5; Conte, 703 F. Supp. 2d at 133-34.
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spoke’ formation” – “in which the spokes are separate, distinct and unassociated and whose
actions are uncoordinated” – “does not possess the requisite structure to constitute a RICO
enterprise … because there is no concerted effort or organized cooperation between the spokes.”
In re Trilegiant Corp., Inc., 11 F. Supp. 3d 82, 98-99 (D. Conn. 2014); see Mem. 9. Here,
Plaintiffs make no attempt to allege any cooperation or coordination among the unidentified debt
collectors and vendors that form the “spokes” of the purported enterprise. Rather, the complaint
at most alleges a series of separate “bilateral relationships between one central actor,” Chase,
“and several independent actors one level removed from [Chase].” See City of New York v.
Chavez, 944 F. Supp. 2d 260, 271 (S.D.N.Y. 2013), rev’d on other grounds, City of New York v.
Bello, 579 F. App’x 15 (2d Cir. 2014). Numerous decisions hold that such “hub-and-spoke”
formations do not constitute valid RICO enterprises. Id. at 273 (collecting cases); see In re
Second, Plaintiffs’ enterprise allegations fail to allege a common purpose shared by the
members of the purported enterprise. Under settled law, “the purpose … of the enterprise must
be common to all its members.” Crabhouse of Douglaston Inc. v. Newsday Inc., 801 F. Supp. 2d
64, 77 (E.D.N.Y. 2011). As Chase explained in its opening brief, the complaint does not
3
Plaintiffs rely (Opp. 11) on Fuji Photo Film U.S.A., Inc. v. McNulty, in which a company alleged that its outside
vendors conspired with its employee to provide services to the company at inflated prices in exchange for kickbacks
to the employee. See 640 F. Supp. 2d 300, 306-08, 314 (S.D.N.Y. 2009). While Judge Scheindlin denied a motion
to dismiss the company’s RICO claim, the case is distinguishable because the court found that the enterprise’s
success “was attributable to the extensive cooperation among the vendor[s].’” Fuji Photo Film U.S.A., Inc. v.
McNulty, 2009 WL 3334867, at *3 (S.D.N.Y. Oct. 14, 2009). Here, by contrast, the complaint does not allege any
cooperation among the debt collectors and vendors that purportedly participated in the enterprise. Moreover, as
Judge Forrest observed, McNulty is contrary to the weight of authority addressing the issue. See Chavez, 944 F.
Supp. 2d at 275 (collecting cases). In any event, McNulty does not establish that a company and vendors that
provide arm’s-length administrative services to the company might constitute a valid RICO enterprise, as Plaintiffs
suggest. In McNulty, the company was the victim of the vendors’ alleged scheme, not a participant in the enterprise.
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plausibly allege that the nameless vendors and debt collectors vaguely referenced in the
complaint shared Chase’s purported purpose of evading Chase’s obligations under settlement
agreements with the government. Mem. 9-10. Plaintiffs’ enterprise allegations therefore fail as
a matter of law. Reed Constr. Data Inc. v. McGraw-Hill Cos., 745 F. Supp. 2d 343, 351
(S.D.N.Y. 2010) (rejecting enterprise consisting of defendant and “an innocent instrument” used
by the defendant to perpetuate its fraudulent scheme); see D. Penguin Bros., 587 F. App’x at 668
(“Plaintiffs’ failure to allege a plausible common purpose among the RICO defendants is fatal to
Plaintiffs respond that the purpose of a RICO enterprise “may be to carry out a legitimate
goal” (Opp. 11), but that is a non sequitur. Nowhere in their complaint or opposition do
Plaintiffs articulate any common purpose – legitimate or illegitimate – shared by all of the
members of the enterprise. For this additional reason, the RICO claim should be dismissed.
Plaintiffs’ RICO claim also should be dismissed because they have not adequately
alleged that the purported enterprise possessed either open-ended or closed-ended continuity.
Plaintiffs fail to allege open-ended continuity because Chase’s purported scheme to evade
obligations under settlement agreements with the government necessarily ends at the conclusion
of Chase’s settlement obligations. Mem. 11-12. Plaintiffs’ only response is that Chase also
allegedly released liens to avoid purported anti-blight obligations and that “[t]his allegation does
not include a specific [end] date.” Opp. 12-13. This allegation, however, has nothing to do with
the alleged purpose of the purported enterprise. Compl. ¶ 206. Under settled law, acts that are
unrelated to the enterprise cannot be used to establish the “pattern” of racketeering activity
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required under RICO. See, e.g., United States v. Daidone, 471 F.3d 371, 376 (2d Cir. 2006)
Plaintiffs also fail to allege closed-ended continuity. In its opening brief, Chase
established that (1) the relevant predicate acts alleged in the complaint all occurred over a 15-
month period beginning in mid-2012 and ending in late 2013, and (2) this duration is insufficient
to establish continuity under settled law. Mem. 12-13. Plaintiffs do not dispute that a 15-month
scheme would be insufficient and concede that the final predicate act alleged in the complaint
occurred in December 2013, but argue that a separate set of predicate acts that allegedly occurred
in 2008-09 provides the necessary longevity. Opp. 12-13. Plaintiffs, however, fail to explain
how predicate acts that pre-date Chase’s settlements with the government by more than two
years could possibly have been committed with the intent to evade Chase’s obligations under the
not-yet existent settlements. The lack of any relationship between the 2008-09 alleged predicate
acts and the asserted purpose of the enterprise is fatal to Plaintiffs’ argument. See Mem. 13.
Plaintiffs’ opposition makes no attempt to defend the tortious interference theories that
they strained to allege in the complaint. The opposition abandons any attempt to argue Chase
tortiously interfered with their prospective economic advantage, and likewise fails to defend their
stray allegation that Chase Bank tortiously interfered with contracts between Plaintiffs and the
bank’s former subsidiary, Chase Home Finance. See Mem. 16-17. Instead, Plaintiffs switch to
the brand new theory that Chase tortiously interfered with payment plan agreements between two
sets of borrowers and Plaintiff 1st Fidelity Loan Servicing. Opp. 23. The Court should not
4
While Plaintiffs assert that predicate acts are “related” so long as there is no “conflict between the goals of … the
alleged predicate acts” (Opp. 14), this counterintuitive assertion is made without any support in the case law.
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consider this claim for tortious interference with contract because “[c]laims that are raised for the
first time in an opposition brief are not properly before the court.” Spinelli v. Nat’l Football
Even if the Court were to consider this newly-minted theory (and it should not), the claim
would fail as a matter of law. In order to state a claim for tortious interference with contract, a
plaintiff must allege that the defendant “intentionally” procured a third party’s breach. See, e.g.,
Gundlach v. Int’l Bus. Machines Inc., 594 F. App’x 8, 9-10 (2d Cir. 2014) (“district court
properly dismissed the tortious interference claim” where plaintiff “failed to plausibly show …
that the defendant intentionally procured the third party’s breach of the contract” (internal
quotation marks omitted)). Here, the complaint is wholly devoid of factual allegations plausibly
suggesting that Chase sent debt forgiveness letters to borrowers in an intentional attempt to
induce those borrowers to stop making payments to 1st Fidelity. Rather, Plaintiffs’ allegations
make clear that the letters were sent by Chase inadvertently, under the mistaken understanding
that the loans were still owned by Chase. See Compl. ¶¶ 109-10; see also ECF Doc. No. 27
(Second Amended Complaint), ¶¶ 101-02 (alleging that debt forgiveness letters were sent to
Plaintiffs’ customers because Chase’s database did not accurately identify the loans that Chase
Plaintiffs’ slander of title claim should be dismissed for at least three reasons.
First, Plaintiffs failed to plead the necessary element of special damages with the
requisite particularity. In its opening brief, Chase showed that (1) special damages are an
5
Chase may rely on Plaintiffs’ prior complaint because it “constitute[s] the admissions of a party-opponent.” See
United States v. McKeon, 738 F.2d 26, 31 (2d Cir. 1984); see also Colliton v. Cravath, Swaine & Moore LLP, 2008
WL 4386764, at *6 (S.D.N.Y. Sept. 24, 2008) (accepting as true facts described in earlier complaint).
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element of a cause of action for slander of title, and (2) special damages must be pleaded with
particularity. Mem. 19; see Pawaroo v. Countrywide Bank, 2010 WL 1048822, at *6 (E.D.N.Y.
Mar. 18, 2010). Nowhere in their opposition do Plaintiffs deny that they failed to satisfy this
Plaintiffs’ suggestion (Opp. 24), New York law requires a plaintiff to plead and prove “spite” or
“a willful purpose of inflicting injury” in order to satisfy this element. Terrace Hotel Co. v.
State, 19 N.Y.2d 526, 530 (1967); Hovey v. Rubber Tip Pencil Co., 57 N.Y. 119, 125 (1874).
Even assuming arguendo that it is enough for plaintiffs to plead that the allegedly slanderous
statements were made “with [a] high degree of awareness of their probable falsity” (Opp. 24),
Plaintiffs have not satisfied that pleading burden. The complaint does not allege that the
individuals responsible for recording the erroneous lien releases or for sending the erroneous
debt forgiveness letters had any reason to believe that Chase no longer owned the loans at issue.
To the contrary, Plaintiffs expressly allege that the persons signing the lien releases “lack[ed]
any knowledge as to the relevant facts” and acknowledge that the debt forgiveness letters were
sent in error. Compl. ¶¶109-10, 138. The complaint therefore lacks any well-pleaded allegations
Third, Plaintiffs’ slander of title claim should be dismissed as duplicative of their contract
First, the conversion claim is duplicative of Plaintiffs’ contract claims. Plaintiffs do not
deny – nor could they – that their conversion claim is based on the exact same facts as their
contract claims. See Mem. 14-15. Instead, Plaintiffs assert that the conversion claim is not
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duplicative because it might entitle them to punitive damages. Opp. 20-21. The complaint,
however, fails to plead any facts suggesting the sort of egregious conduct required to state a
claim for punitive damages. Rather, Plaintiffs’ factual allegations make clear that Chase sent the
debt forgiveness letters and filed the lien releases inadvertently. See Mem. 4; supra 6, 7.
Accordingly, Plaintiffs’ request for punitive damages cannot save their conversion claim from
dismissal. See, e.g., AD Rendon Commc’ns, Inc. v. Lumina Ams., Inc., 2007 WL 2962591, at *8
(S.D.N.Y. Oct. 10, 2007) (dismissing claim for conversion as duplicative notwithstanding
plaintiff’s demand for punitive damages and conclusory allegations of malice); see also Zabas v.
Kard, 599 N.Y.S.2d 832, 833 (App. Div. 1993) (factual allegations that “amount to nothing more
than mere negligence” are insufficient to support a claim for punitive damages).
Second, the complaint fails to allege essential elements of a conversion claim. In its
opening brief, Chase established that a plaintiff asserting a claim for conversion must
demonstrate ownership of a “specific identifiable thing” over which the defendant exercised
unauthorized control to the “complete exclusion” of the plaintiff. Mem. 15. While Plaintiffs’
opposition acknowledges this pleading requirement (Opp. 21), it makes no effort to identify any
specific thing over which Chase exercised control to the complete exclusion of Plaintiffs’ rights.
Third, Plaintiffs’ conversion claim fails because they assert that Chase converted
intangible property such as loan payment streams and security interests. Mem. 15-16. Plaintiffs
suggest that the New York Court of Appeals broadly authorized claims for the conversion of
intangible property in Thyroff v. Nationwide Mutual Insurance Co., 8 N.Y.3d 283 (2007), but
they are mistaken. That case “simply eliminated the law’s arbitrary distinction between the theft
of information stored on a computer and the theft of information printed on paper.” Hyo Jung v.
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Chorus Music Studio, Inc., 2014 WL 4493795, at *8 (S.D.N.Y. Sept. 11, 2014). Because the
complaint does not allege that Chase stole Plaintiffs’ electronic records, Thyroff is inapposite.6
and its claims for fraudulent omission and negligent misrepresentation should be dismissed for
the additional reason that Chase owed no “duty of disclosure” to MRS. Mem. 20-22.
The crux of MRS’s fraud claim is that Chase falsely represented that (1) it “would
provide a complete Exhibit A to the MLPA,” (2) it would provide certain “loan documentation”
to MRS, (3) “the loans sold to MRS under the MLPA consisted of first lien[s],” and (4) the loans
had been “serviced in full compliance with applicable law.” Compl. ¶ 178. Because the MLPA
contains express terms addressing each of these issues, MRS’s misrepresentation claims
duplicate its contract claim and thus fail as a matter of law. Mem. 20-21; J.E. Morgan Knitting
Mills, Inc. v. Reeves Bros., 663 N.Y.S.2d 211, 211 (App. Div. 1997) (affirming dismissal of
fraud claim where the “fraud alleged is based on the same facts as underlie the contract claim”).
Plaintiffs counter by citing a line of cases, beginning with First Bank of Americas v.
Motor Car Funding, Inc., 690 N.Y.S.2d 17 (App. Div. 1999), purportedly holding that a fraud
claim may be brought based on the alleged breach of a contractual warranty because a warranty
is a statement of “present fact.” Opp. 16-17. Ample authority, however, holds that “it is not
sufficient that the alleged misrepresentations are about then-present facts; rather, they also must
be extraneous to the contract and involve a duty separate from or in addition to that imposed by
the contract.” Torchlight Loan Servs., LLC v. Column Fin., Inc., 2012 WL 3065929, at *10
6
Plaintiffs also assert that “money may be the subject of a conversion claim where the funds in question are specific
and identifiable.” Opp. 22. But that assertion is irrelevant here because the complaint does not identify any specific
funds that Chase allegedly converted.
9
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(S.D.N.Y. July 25, 2012) (internal quotation marks omitted). Thus, “First Bank and its progeny”
are “inapplicable to situations where, as here, the fraud claim is premised entirely upon the same
warranty that also underlies the contract claim.” Kriegel v. Donelli, 2014 WL 2936000, at *14
MRS’s negligent misrepresentation and fraudulent omission claims also fail because
Chase did not owe a duty of disclosure to MRS. Mem. 21-22. Plaintiffs respond that (1) a duty
may arise under the “special facts” doctrine where a party possesses “superior knowledge,” and
(2) Chase had superior knowledge regarding the loans sold to MRS under the MLPA. Opp. 19-
20. However, the mere assertion that a seller “had superior knowledge of the particulars of its
own business practices is insufficient” to create a duty on the part of the seller in an arm’s-length
commercial transaction between two sophisticated parties. See MBIA Ins. Corp. v. Countrywide
Home Loans, Inc., 928 N.Y.S.2d 229, 235-36 (App. Div. 2011). The special facts doctrine,
moreover, is inapplicable where the information was discoverable by the plaintiff through the
“‘exercise of ordinary intelligence.’” Opp. 19 (quoting Jana L. v. W. 129th St. Realty Corp., 802
N.Y.S.2d 132, 135 (App. Div. 2005)). Here, MRS expressly acknowledged in the MLPA that it
“had an opportunity to conduct a due diligence review of each Mortgage Loan.” MLPA (Compl.
Ex. 3) § 4. MRS’s negligent misrepresentation and fraudulent omission claims therefore fail as a
matter of law.
7
Plaintiffs also argue that Chase “misrepresent[ed] that the details of the loans could not be provided because
[Chase was] having difficulty in transferring information from Washington Mutual[],” and that this
misrepresentation is not duplicative of MRS’s contract claim. Opp. 17. The complaint, however, alleges that Chase
had a contractual obligation to provide MRS with complete and correct servicing data for the loans. Compl. ¶¶ 43,
49. MRS, moreover, alleges only that it was harmed by Chase’s failure to provide that data, not that it was harmed
by Chase’s allegedly incorrect explanation of why it was unable to provide the data. Accordingly, this allegation
cannot save MRS’s fraud claims from dismissal. See Warren v. John Wiley & Sons, Inc., 952 F. Supp. 2d 610, 623
(S.D.N.Y. 2013) (“Under New York law, the alleged losses stemming from a fraud ‘must be the direct, immediate,
and proximate result of the misrepresentation.’” (quoting Kregos v. Assoc. Press, 3 F.3d 656, 665 (2d Cir. 1993)).
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Christian J. Pistilli
Michael M. Maya
Philip J. Levitz
COVINGTON & BURLING LLP
One CityCenter, 850 Tenth Street, NW
Washington, DC 20001-4956
Telephone: (202) 662-6000
Facsimile: (202) 662-6291
[email protected]
[email protected]
[email protected]
[email protected]
Michael C. Nicholson
COVINGTON & BURLING LLP
The New York Times Building
620 Eighth Avenue
New York, New York 10018-1405
Telephone: (212) 841-1000
[email protected]
11