Columbia Park East MHP LLC et al v. US Bank National Association et al, No. 1:2018cv01086 - Document 27 (N.D. Ohio 2018)
Court Description: Opinion & Order signed by Judge James S. Gwin on 8/13/18 granting defendants' motion to dismiss for the reasons set forth in this order. (Related Doc. 11 ) (D,MA)
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Columbia Park East MHP LLC et al v. US Bank National Association et al Doc. 27 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF OHIO ----------------------------------------------------------------------: : : : : : : : : : : : COLUMBIA PARK EAST MHP, LLC, et al. Plaintiffs, v. U.S. BANK NATIONAL ASSOCIATION, et al., Defendants. CASE NO. 1:18-CV-1086 OPINION & ORDER [Resolving Doc. 11] ----------------------------------------------------------------------JAMES S. GWIN, UNITED STATES DISTRICT JUDGE: Plaintiffs Columbia Park East MHP, LLC; Columbia MHC East LLC; and Kenneth Burnham (tog—th—r, Pla“nt“ffs ) br“ng frau–ul—nt m“sr—pr—s—ntat“on, unfa“r an– –—c—pt“v— tra–— pract“c—s, an– Rack—t——r Influ—nc—– an– Corrupt Organ“zat“ons Act ( RICO ) cla“ms aga“nst D—f—n–ants U.S. Bank National Association; C-III Asset Management LLC; Andrew Farkas; and several John Does. Plaintiffs all—g— that D—f—n–ants hav— us—– Pla“nt“ffs’ commercial loan to seek illegal and fraudulent fees not allowed for by the loan contract. Defendants now move to dismiss Plaintiffs’ compla“nt for failure to state a claim.1 Alternately, Defendants ask the Court to abstain from hearing this case because of the currently pending statecourt foreclosure action involving the commercial loan between these parties. For the following reasons, the Court GRANTS D—f—n–ants’ mot“on to –“sm“ss. I. Background Plaintiffs allege that a commercial loan between themselves and Defendants has given rise to a RICO enterprise.2 Plaintiffs allege that Defendants U.S. Bank, C-III Asset Management, and Andrew Farkas, along with numerous John Does and the court-appointed Receiver in a state-court 1 2 Doc. 11. Plaintiffs oppose. Doc. 23. Defendants reply. Doc. 25. See Doc. 1 at ¶¶ 36-49. Dockets.Justia.com Case No. 1:18-CV-1086 Gwin, J. foreclosure action involving Pla“nt“ffs’ prop—rty, hav— consp“r—– to charg— “ll—gal an– frau–ul—nt f——s and to seize assets not secured by the commercial loan.3 Specifically, Plaintiffs allege that aft—r th— stat— court for—clos—– on Pla“nt“ffs’ prop—rty, the Receiver has sent a number of emails and letters demanding that Plaintiffs return approximately $330,000 to th— R—c—“v—r’s accounts.4 Plaintiffs also allege that the Receiver has misappropriated over $1.9 million in payments and expenses owed to Plaintiffs.5 Defendants, according to Plaintiffs, have demanded (through email) default interest and a lat— f—— total“ng ov—r $4 m“ll“on, allegedly based on Pla“nt“ffs’ commercial loan.6 Finally, Plaintiffs allege that Defendants sent a number of billing and payment statements in furtherance of their alleged racketeering scheme.7 Plaintiffs argue that each of these communications constitutes mail or wire fraud. All of these communications occurred between April 2017 and the present.8 II. Legal Standard When considering a motion to dismiss for failure to state a claim, the Court construes the complaint in the light most favorable to the nonmoving party, accepting its allegations as true, and drawing all reasonable inferences in favor of finding the complaint sufficient. 9 In order to survive a mot“on to –“sm“ss or for ”u–gm—nt on th— pl—a–“ngs, th— compla“nt must all—g— suff“c“—nt facts to state a claim for relief that “s plaus“bl— on “ts fac—. 10 Wh“l— –—ta“l—– factual all—gat“ons ar— 3 Id. Id. at ¶ 42(i). Since this motion was filed, the state court has held Plaintiffs in contempt for their refusal to return this $330,000. See Doc. 26-2. 5 Id. at ¶ 42(ii)-(iii). 4 6 Doc. 1 at ¶ 42(iv). Id. at ¶ 42(v). 8 Id. at ¶ 41 (–—scr“b“ng th— —nt—rpr“s— as occurr“ng [f]rom “n or about Apr“l 2017 to th— pr—s—nt t“m— ). 9 Cates v. Crystal Clear Techs., LLC, 874 F.3d 530, 534 (6th Cir. 2017) (quoting Bikerstaff v. Lucarelli, 830 F.3d 388, 396 (6th Cir. 2016)); Engler v. Arnold, 862 F.3d 571, 574 75 (6th Cir. 2017) (quoting Kottmyer v. Maas, 436 F.3d 684, 689 (6th Cir. 2006)). 10 See Nikolao v. Lyon, 875 F.3d 310, 317 (6th Cir. 2017) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). 7 -2- Case No. 1:18-CV-1086 Gwin, J. unn—c—ssary, a pla“nt“ff must prov“–— mor— than a formula“c r—c“tat“on of th— —l—m—nts of a caus— of act“on. 11 III. Analysis A. RICO Pla“nt“ffs’ RICO cla“m fa“ls b—caus— th—y hav— not adequately alleged a sufficient RICO enterprise. In order to allege that a RICO enterprise exists, a plaintiff must allege that the enterprise has suff“c“—nt cont“nu“ty. 12 A plaintiff can allege that the RICO enterprise engaged in a long, but closed-ended, period of racketeering activity.13 Or a plaintiff may present facts showing that the RICO enterprise engaged in open-ended racketeering activity that could continue into the future.14 Plaintiffs concede that Plaintiffs have alleged the —nt—rpr“s—’s rack—t——r“ng act“v“ty b—gan “n April 2017. Plaintiffs brought this case in May 2018, less than a year later. The Sixth Circuit has previously held that even seventeen months is not a suff“c“—ntly long t“m— to m——t RICO’s clos—–ended continuity test.15 Because this alleged enterprise existed for only twelve months, Pla“nt“ffs’ cannot sat“sfy RICO’s clos—–-ended enterprise continuity requirement.16 Therefore, in order to state a RICO claim, Pla“nt“ffs’ all—g—– RICO —nt—rpr“s— must b— op—nended and capable of continuing racketeering activities into the future. But Pla“nt“ffs’ all—g—– enterprise has a definitive end date: the end of the pending state foreclosure action. Here, Plaintiffs allege that Defendants have charged fees not authorized by the property loan agreement and that th— R—c—“v—r has s—“z—– prop—rty “n v“olat“on of th— stat— court’s or–—rs. 11 See id. (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)); Engler, 862 F.3d at 575 (quoting Ashcroft, 556 U.S. at 678)). 12 See H.J. Inc. v. Northwestern Bell Telephone Co. , 492 U.S. 229, 241-42 (1989). 13 Id. Id. 15 Heinrich v. Waiting Angels Adoption Services, Inc., 668 F.3d 393, 404-05 (6th Cir. 2012) (citing Vemco, Inc. v. Camardella, 23 F.3d 129, 134 (6th Cir. 1994)). 14 Plaintiffs conceded this point in their motion to dismiss response. Doc. 23 at 25 ( Th— sub”—ct Compla“nt all—g—s racketeering activity beginning in April 2017, and thus would not appear to be substantial period of enough time to meet the closed-—n–—– cont“nu“ty r—qu“r—m—nt. ). 16 -3- Case No. 1:18-CV-1086 Gwin, J. The theme tying all of these acts together is the pending state court foreclosure action. Once that action is decided, the alleged enterprise will no longer have the ability to perform any of Pla“nt“ffs’ all—g—– rack—t——r“ng act“v“t“—s. If the state court decides “n D—f—n–ants’ favor, th—n the fees charged by Defendants and the R—c—“v—r’s property seizures were proper.17 If so, Pla“nt“ffs’ prop—rty w“ll b— for—clos—–. Or, the state court may decide that Defendants improperly charged Plaintiffs fees and that the Receiver acted improperly. Then, the foreclosure action will presumably be decided in Pla“nt“ffs’ favor. If so, Defendants will have to cease attempts to collect their alleged wrongful fees and the property will leave receivership. Either way, however, the state court foreclosure action will end. And when that foreclosure case ends, so too –o—s th— poss“b“l“ty of any rack—t——r“ng by the alleged enterprise. Plaintiffs attempt to escape this conclusion by alleging that charging improper fees r—pr—s—nts D—f—n–ants’ r—gular way of –o“ng bus“n—ss. Pla“nt“ffs’ only facts support“ng this argument relate to a 2013 case that Plaintiffs voluntarily dismissed with prejudice.18 Even assuming that res judicata principles would not bar consideration of the facts from the 2013 litigation in this case,19 the 2013 litigation involved a different enterprise.20 The actions of one enterprise cannot support an allegation that a separate enterprise will engage in continuing criminal activity.21 17 Further, if the state court finds these charges proper, they obviously cannot be RICO predicate mail or wire fraud. Doc. 11-5. 19 See, e.g., M“s“sch“a v. St. John’s M—rcy H—alth Sys. , 457 F.3d 800, 804-05 (8th Cir. 2006) (barring a RICO claim on res judicata grounds because a sufficient number of predicate acts occurred to sustain the RICO claim before a completed prior suit began). 20 Compare Doc. 1 (naming U.S. Bank, Farkas, Todd Bragg, C-III Asset Management, and the Receiver, among others, as members of the enterprise), with Doc. 1-3 (naming Keybank, Newbury, and U.S. Bank as members of the enterprise). 21 Plaintiffs might protest that both enterprises included Defendant U.S. Bank. But U.S. Bank’s only alleged actions in either case involved att—mpts to coll—ct f——s or oth—rw“s— —nforc— a val“– loan. U.S. Bank’s commun“cat“ons us“ng th— mails and wires might involve a breach of contract, but they are not mail and wire fraud RICO predicates. See Blount Fin. Servs., Inc. v. Walter E. Heller & Co. , 819 F.2d 151, 152-53 (6th Cir. 1987) ( S—n–“ng a f“nanc“al stat—m—nt wh“ch misconstrues . . . the terms of the contract may breach the contract but it does not amount to a RICO mail fraud cause of act“on. ); Helios Intern. S.A.R.L. v. Cantamessa USA, Inc. 2013 WL 3943267, at *6 (S.D.N.Y. July 31, 2013) ( Plaintiffs cannot turn this case into a RICO case simply by recasting breach of contract [and common business torts] as conspiracies of –—c—pt“on an– frau–. (alteration in original)). 18 -4- Case No. 1:18-CV-1086 Gwin, J. Plaintiffs have thus failed to state a valid RICO claim. B. Plaintiffs’ Oth—r Cla“ms Plaintiffs also bring claims for fraudulent misrepresentation and unfair and deceptive trade practices. Pla“nt“ffs’ frau–ul—nt m“sr—pr—s—ntat“on cla“m is a state law tort.22 Pla“nt“ffs’ unfa“r an– deceptive trade practices claim does not specify whether it is brought under state or federal law. But Plaintiffs argue in their motion to dismiss that Minnesota state law should apply to this claim,23 so the Court presumes that Plaintiffs intended state law to apply to this claim as well. Pla“nt“ffs’ RICO cla“m was thus th—“r only f—–—ral caus— of act“on. B—caus— –“v—rs“ty jurisdiction does not exist here, 24 only supplemental jurisdiction would allow the Court to consider Pla“nt“ffs’ r—ma“n“ng stat— law cla“ms. Because the Court has no original jurisdiction over these remaining claims, th— Court –—cl“n—s to —x—rc“s— suppl—m—ntal ”ur“s–“ct“on ov—r Pla“nt“ffs’ state law claims.25 An– “mportantly, Pla“nt“ffs’ stat— law cla“ms track –—f—ns—s that Pla“nt“ffs can mak— to th— state court handling the foreclosure. No good reason appears for having two courts deal with the same legal issues. The Court therefore DISMISSES those state law claims without prejudice. 22 See, e.g., Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 659 (2008) (noting that fraud-based claims are tra–“t“onal stat—-law cla“ms ); see also Buchanan v. Improved Properties, LLC, 7 N.E. 634, 641 (Ohio Ct. App. 2014) (laying out the elements for Ohio fraudulent misrepresentation). 23 Doc. 23 at 13. 24 Plaintiffs allege that diversity jurisdiction exists, but they have not alleged the citizenship of Defendant Farkas. Defendants have averred that Defendant Farkas is a citizen of New York, as is Plaintiff Burnham. Plaintiffs have not challenged this. As such, it appears that complete diversity and therefore diversity jurisdiction does not exist here. See Strawbridge v. Curtiss, 7 U.S. 267, 267 (1806) (hol–“ng that Congr—ss’s grant of –“v—rs“ty ”ur“s–“ct“on to th— f—–—ral courts requires that no plaintiff and defendant be from the same state). 25 See 28 U.S.C. § 1367(c)(3). -5- Case No. 1:18-CV-1086 Gwin, J. CONCLUSION For those reasons, the Court GRANTS D—f—n–ants’ mot“on to –“sm“ss.26 IT IS SO ORDERED. s/ Dated: August 13, 2018 James S. Gwin JAMES S. GWIN UNITED STATES DISTRICT JUDGE 26 B—caus— th— Court “s abl— to –“sm“ss Pla“nt“ffs’ cla“ms w“thout –“scuss“ng th— propr“—ty of th— stat—-court R—c—“v—r’s actions or the parallel state proceedings, the Court expresses no opinion on whether abstention might be appropriate under Younger or Colorado River because of the potential comity, federalism, and judicial administration issues here. See, e.g., Quackenbush v. Allstate Insurance Co., 517 U.S. 706, 716 (1996) (noting that although “t r—qu“r—s —xc—pt“onal circumstances . . . abstention is warranted by considerations of proper constitutional adjudication, regard for federal-state r—lat“ons, or w“s— ”u–“c“al a–m“n“strat“on (“nt—rnal quotat“on marks and citations omitted)). -6-
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