Day v. DB Capital Group, LLC et al
Filing
100
MEMORANDUM OPINION. Signed by Chief Judge Deborah K. Chasanow on 3/11/11. (sat, Chambers)
Day v. DB Capital Group, LLC et al
Doc. 100
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND : CESAR DAY : v. : : DB CAPITAL GROUP, LLC, et al. : MEMORANDUM OPINION Presently pending and ready for review in this civil RICO case are the motions to dismiss filed by Defendants Ralph and Tracey Spain (ECF No. 73), Defendant David Murrell (ECF Nos. 45 and 71), Defendant Brian Russell Pettiford (ECF Nos. (ECF 55 Nos. 53 and 74), Civil Action No. DKC 10-1658
Defendant
Pettiford
and
75),
Defendants
Wachovia Bank, N.A. and Wells Fargo & Company N.A. (ECF Nos. 31 and 72), Defendants Millennium Bank, N.A. and Millennium
Bankshares Corporation (ECF Nos. 47 and 70), the motion for leave to file to a surreply of in opposition to the consolidated N.A. and
motions
dismiss
Defendants
Millennium
Bank,
Millennium Bankshares Corporation filed by Plaintiff Cesar Day (ECF No. 83), the motion to dismiss the counterclaims filed of by
Defendant/Counter-Plaintiff
Tracey
Spain
Plaintiff/Counter Defendant Cesar Day (ECF No. 84), the motion to intervene filed by JP Morgan Chase Bank, National Association (ECF Nos. 62 and 76), and the motion to dismiss filed by JP
Dockets.Justia.com
Morgan Chase Bank (ECF No. 89).
The issues are fully briefed
and the court now rules pursuant to Local Rule 105.6, no hearing being deemed necessary. For the following reasons, the motions
will be granted in part and denied in part. I. Background This case involves an alleged foreclosure rescue scam
designed by Defendants and involving properties in Maryland and the District of Columbia. properties in the District Plaintiff Cesar Day, an owner of of Columbia and Maryland, filed
similar suits against the various Defendants in both the Circuit Court for Prince George's County, Maryland and the Superior
Court of the District of Columbia.
(Case No. 10-1658, ECF No. 3 The cases were removed to
and Case No. 10-2166, ECF No. 1-1).1
federal court, and several of the Defendants filed motions to dismiss in both cases. Subsequently the case pending in the
United States District Court for the District of Columbia was transferred to the District of Maryland and consolidated with the already pending case involving the parties. (ECF No. 64).
The parties' filings in the two cases prior to consolidation were extremely similar when not identical. Necessary filings from the D.C. case have been transferred to the Maryland case. The entries are in the docket report in chronological order, although not in numerical order. This memorandum cites generally to the Maryland case docket entries with references to the D.C. case docket where necessary. 2
1
A.
Factual Background purports to be the victim by of the foreclosure and
Plaintiff rescue scam
designed
and
executed
twelve
individual
corporate defendants, acting in concert, to defraud him of the equity in his properties.2 similar district. to those at issue The scheme alleged by Plaintiff is in other recent cases in this
Cf. Proctor, et al. v. Metro. Money Store Corp., et
al., 579 F.Supp.2d 724, 726 (D.Md. 2008). In one such case, Judge Messitte summarized the modus operandi of such schemes: Typically, a homeowner facing foreclosure is identified by a rescuer through foreclosure notices published in the newspapers or at government offices. The rescuer contacts the homeowner by phone, personal visit, card or flyer, and offers to stop the foreclosure by promising a fresh start through a variety
The named Defendants are (1) DB Capital Group, LLC, a Virginia limited liability corporation conducting business in Maryland and the District of Columbia; (2) David Alan Murrell, a resident of Virginia and member/manager of DB Capital Group; (3) Millennium Bank, N.A., a nationally chartered depository banking institution with its principal place of business in Virginia; (4) Millennium Bankshares Corporation, the holding company of Millennium Bank, N.A.; (5) Realty Title of Tysons, Inc., a Virginia corporation conducting real estate settlement services and issuing title insurance; (6) Wachovia Bank, N.A., a nationally chartered depository banking institution; (7) Wells Fargo & Company, N.A., a nationally chartered depository banking institution that purchased and is the successor entity to Wachovia Bank; (8) Brian Pettiford, a resident of Maryland and member/manager of DB Capital Group; (9) Integrity Financial, Inc., a Maryland corporation brokering loans for real estate transactions in Maryland and the District of Columbia; (10) Tracey L. Spain, a resident of Maryland; (11) Ralph D. Spain, a resident of Maryland; and (12) Russell Pettiford, a resident of Maryland. 3
2
of devices. As the date for the foreclosure approaches and the urgency of the matter becomes greater, the rescuer or some entity with which he is linked agrees to arrange for the pay-off of the mortgage indebtedness and to see to the transfer of title to the property to an investor pre-arranged by the rescuer, often with a leaseback of the property to the homeowner for a period of time, occasionally giving him the right to repurchase the property after the lease ends. The rescuer imposes heavy fees or other charges for his services, in effect stripping some if not all of the homeowner's equity, and does all this with little or no advance notice to the homeowner, who is usually unrepresented by counsel. Johnson, et al. v. Wheeler, et al., 492 F.Supp.2d 492, 495-96 (D.Md. 2007)(footnote omitted). Viewing Plaintiff's complaint in the light most favorable to him, as the court must when considering motions to dismiss, the scheme occurred as follows. Beginning in 2006, Plaintiff
fell behind on the monthly mortgage payments due on a multi-unit rental property he owned at 1725 29th Street, S.E., Washington, D.C. ("D.C. Property")(ECF No. 3 ¶ 65). refinance his mortgage loan prior to Plaintiff attempted to the beginning of the
foreclosure proceedings, but was unable to do so because of his poor credit, (id. ¶ 66), and foreclosure proceedings were
initiated on the D.C. property in approximately April 2007. In January 2007, Plaintiff heard an advertisement for
Defendant DB Capital Group LLC ("DB Capital") on radio station WKYS 93.9 FM wherein DB Capital offered to assist individuals 4
having problems with bad credit and refinancing to save their properties. (Id. ¶¶ 67-68). Plaintiff was prompted by the
advertisement to call DB Capital and spoke with Defendant Brian Pettiford. Mr. Pettiford arranged an in-person meeting with
Plaintiff at another property owned by Plaintiff located at 3212 Auchentoroly Terrace, Baltimore, Maryland. (Id. ¶ 69). A
subsequent meeting was set for late January or early February 2007, which took place at Mr. Pettiford's Millennium Bank office located in Vienna, Virginia. At that meeting, Mr. Pettiford
allegedly indicated that Millennium Bank, N.A. and DB Capital were the same or related entities and gave Plaintiff a business card identifying himself lending as the of Vice President Bank. of the (Id.
retail/wholesale ¶ 71).
division
Millennium
During the meeting, Mr. Pettiford also explained the
"Foreclosure Reversal Program" to Plaintiff whereby DB Capital could save Plaintiff from foreclosure by assigning a credit
investor to purchase his property for a one-year period to allow Plaintiff to repair his credit and repurchase the property with a low interest rate loan after twelve months. also told Plaintiff would have that to in order for the to Mr. Pettiford to of work the
program all three
Plaintiff
transfer
title
properties he owned:
the DC Property facing foreclosure, the
Baltimore rental property, and Plaintiff's primary residence at 14932 Nighthawk Lane, Bowie, Maryland. 5 (Id. ¶¶ 74-75).
Plaintiff agreed to participate in the program and signed the following documents for all three properties: Lease/Purchase; Authorization; Residential DB Capital Real Estate Contract to DB Capital by Owner; Heirs
Addendum
Contract,
Assignment; DB Capital Group, Inc. Reversal Program/Addendum to Contract to Sell Real Estate; and DB Capital/Reverse Contract. (Id. ¶ 80). As Plaintiff understood the Foreclosure Reversal
Program, he would be allowed to repurchase the properties within one year (with a 60 day grace period) and he would be added back onto the Deed so that he would resume sole ownership. He also
understood that for the next year DB Capital would assist him with repairing his credit, he would be allowed to leaseback all three properties, and DB Capital would make the forthcoming
mortgage payments.
(Id. ¶ 81-82).
Defendants DB Capital, Brian Pettiford, and David Murrell arranged for Defendants Tracey and Ralph Spain and Russell
Pettiford to act as the credit investor/straw purchasers for Plaintiff's properties. (Id. ¶¶ 83-88). These individuals
obtained loans to purchase the property from Defendant Integrity Financial, Inc. ("Integrity"). that the documentation they (Id. ¶ 88). submitted to Plaintiff alleges Integrity contained
false information regarding the nature of the transactions, the true owners in fact of the properties, and the funds that would be due and payable at settlement by the borrower. 6 (Id. ¶ 91).
The credit investors received $10,000 for their participation and were not required to provide any money at the settlement. (Id. ¶ 89). Defendant Realty Title of Tysons, Inc. ("RTS") conducted the real estate settlements in May and closings for all three of the
Plaintiff's
properties
2007,
including
generating
federally mandated HUD-1 Settlement Statements and Deeds for the properties. (Id. ¶¶ 95-111). Although the sale of Plaintiff's
properties resulted in substantial net proceeds, this money was transferred to DB Capital rather than Mr. Day. After the
closings on Plaintiff's properties, Mr. Murrell set up direct debits from Plaintiff's personal account with Wachovia Bank into the DB Capital account at Wachovia Bank for the rental payments on the properties. During contacted the Brian (Id. ¶ 126). months on after the closings, to Plaintiff discuss
twelve
Pettiford
multiple
occasions
obtaining financing to repurchase the properties at the end of the one-year period. (Id. ¶ 130). Plaintiff never obtained
such financing, however, and was not given an opportunity to repurchase the properties. (Id. ¶ 132). DB Capital also failed
to make the required mortgage payments on the properties, and the DC and Baltimore properties went into foreclosure. ¶ 135). (Id.
7
B.
Procedural Background
Plaintiff initially filed suit in the Superior Court of the District of Columbia and the Circuit Court for Prince George's County, Maryland. The Maryland complaint alleged counts for
violations of RICO, fraud or conspiracy to commit fraud, unjust enrichment, negligence, and breach of contract, and sought to obtain a quiet title action, compensatory and punitive damages. (ECF No. 3). The D.C. complaint contained all those counts in
addition to alleging violations of the D.C. Consumer Protection Procedures Act and the D.C. Home Equity Protection Act.
(Case No. 10-2166, ECF No. 1-1).3 were removed of to the United and
On June 21, 2010, the cases District (Case Court No. for the
States
Districts
Columbia
Maryland.
10-1658,
ECF No. 1 and Case No. 10-2166, ECF No. 1).
On June 28, 2010,
Defendants Tracey and Ralph Spain filed their answer to the Maryland complaint (ECF No. 27) and motions to dismiss for lack of jurisdiction and failure to state a claim in the D.C. case. (Case No. 10-2166, ECF Nos. 9 and 11). Defendants Wachovia Bank, N.A. and Well Fargo & Company NA filed a motion to dismiss in the Maryland case (ECF No. 31) and a motion to transfer the D.C. case to Maryland. (Case No. 10-2166, ECF No. 27). On July 21,
The complaint in Case No. 10-2166 has been filed in Case No. 10-1658 as ECF No. 97, under the date of September 16, 2010, the date the cases were consolidated. 8
3
2010,
the
motion and on
to
transfer
the 16,
D.C. 2010
case the
to two
Maryland cases
was were
granted,
September
consolidated.
(ECF No. 64).
In the interim, motions to dismiss
had been filed by Defendants David Murrell (ECF Nos. 45 and 71); Millennium Bank, N.A. and Millennium Bankshares Corporation
(ECF Nos. 47 and 70), Russell Pettiford (ECF Nos. 53 and 74), and Brian Pettiford (ECF Nos. 55 and 75), and answers were filed by Realty Title of Tysons, Inc., (ECF Nos. 42 and 96 Case
No. 10-2166 ECF No. 35), DB Capital Group, LLC (ECF No. 43 and Case No. 10-2166 ECF No. 47), and Integrity Financial, Inc. (ECF No. 51 and Case No. 10-2166 ECF No. 45).4 Morgan Chase Bank filed a consent motion In addition JP to intervene.
(ECF Nos. 62 and 76). Prior to removal of the Maryland case, Defendant Tracey Spain filed a counter and cross-complaint against Mr. Day, Brian Pettiford, DB Capital, Integrity Financial, and RTS in the Ms.
Circuit Court for Prince George's County. (ECF No. 58).
Spain did not serve Plaintiff or the Defendants with a copy at that time and the pleading was not submitted to this court upon removal. On August 20, 2010, a copy of Ms. Spain's pleading was
The answers of Realty Title of Tysons, Inc., DB Capital Group, LLC, and Integrity Financial Inc. have been filed as ECF Nos. 96, 99, and 98 in Case No. 10-1658, again with the date of September 16, 2010. 9
4
submitted
through
CM/ECF
by
counsel
for to
DB
Capital. the
(ECF No. 57). counterclaims. II.
Plaintiff
subsequently
moved
dismiss
(ECF No. 84).
Motions to Dismiss A. Standard of Review
The purpose of a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) complaint. (4th Cir. is to test the sufficiency of the plaintiff's
See Edwards v. City of Goldsboro, 178 F.3d 231, 243 1999). Except in certain specified cases, a
plaintiff's complaint need only satisfy the "simplified pleading standard" of Rule 8(a), Swierkiewicz v. Sorema N.A., 534 U.S. 506, 513 (2002), which requires a "short and plain statement of the claim showing that the pleader is entitled "Rule blanket to relief." still of
Fed.R.Civ.P. requires a
8(a)(2). `showing,'
Nevertheless, rather than a
8(a)(2)
assertion,
entitlement to relief." 544, 555 n.3 (2007).
Bell Atl. Corp. v. Twombly, 550 U.S.
That showing must consist of more than "a
formulaic recitation of the elements of a cause of action" or "naked assertion[s] v. Iqbal, devoid 129 of S.Ct. further 1937, factual 1949 enhancement."
Ashcroft
(2009)(internal
citations omitted). In its determination, the court must consider all well-pled allegations in a complaint as true, Albright v. Oliver, 510 U.S. 266, 268 (1994), and must construe all factual allegations in 10
the light most favorable to the plaintiff.
See Harrison v.
Westinghouse Savannah River Co., 176 F.3d 776, 783 (4th Cir. 1999)(citing Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993)). The court need not, however, accept
unsupported legal allegations, Revene v. Charles County Comm'rs, 882 F.2d 870, 873 (4th Cir. 1989), legal conclusions couched as factual allegations, Iqbal, 129 S.Ct. at 1950, or conclusory factual allegations devoid of any reference to actual events, United Black Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir. 1979). See also Francis v. Giacomelli, 588 F.3d 186, 193
(4th Cir. 2009).
"[W]here the well-pleaded facts do not permit
the court to infer more than the mere possibility of misconduct, the complaint has alleged, but it has not `show[n] . . . that the pleader is entitled to relief.'" (quoting Fed.R.Civ.P. 8(a)(2)). Iqbal, 129 S.Ct. at 1950
Thus, "[d]etermining whether a
complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id.
B. Motion to Dismiss Filed by Tracey L. Spain and Ralph D. Spain, Sr. Defendants Tracey L. Spain and Ralph D. Spain, Sr. (the "Spains") argue that two of the counts asserted against them, count IV (fraud and civil conspiracy to commit fraud) and count VIII of the D.C. complaint (violation of the District of
11
Columbia Home Equity Protection Act) should be dismissed because the complaint does not contain sufficient factual matter to
support these counts.5 1. The
(ECF No. 73-1, at 10).
Fraud and Conspiracy to Commit Fraud Spains argue that Plaintiff's complaint lacks
sufficient factual allegations to maintain a claim of fraud or conspiracy to commit fraud against them. (ECF No. 73-1, at 11).
The Spains contend that Plaintiff has failed to satisfy the heightened pleading standard for claims of fraud and has not alleged facts to satisfy all of the claim's requisite elements. In particular, the Spains argue that the fraud claim must fail because the complaint contains no allegation that the Spains made any representations to the Plaintiff, true or otherwise, upon which he relied, and the conspiracy claim must fail because the complaint contains only conclusory allegations that the
parties had an agreement to conspire and no facts regarding the date, time, or place of such an agreement. Plaintiff responds by identifying (Id. at 11-12). the Spains' alleged
fraudulent statements in the complaint and arguing that it is
Defendants Tracey and Ralph Spain filed their motion to dismiss in the D.C. case prior to its transfer and consolidation. Their initial filing included a motion to dismiss for lack of personal jurisdiction pursuant to Fed.R.Civ.P. 12(b)(2) because the Spains lacked sufficient ties to the District of Columbia. (ECF No. 73, at 5-9). Because the case has now been transferred to Maryland, the Spains agree that this portion of their motion is moot. (ECF No. 81). 12
5
immaterial that the Spains never directly spoke with Plaintiff because they are liable for the acts of their co-conspirators. (ECF No. 77, at 7-8). In response to the Spains' arguments
regarding the conspiracy claim, Plaintiff maintains that there is no heightened pleading standard for claims of conspiracy and insists that the complaint describes in sufficient detail the common conspiracy in the case and the Spains' role therein. (Id. at 5-7). The Columbia elements are: of fraud in Maryland the and the District a of
"(1)
that
defendant
made
false
representation to the plaintiff, (2) that its falsity was either known to the defendant or that the representation was made with reckless indifference as to its truth, (3) that the
misrepresentation was made for the purpose of defrauding the plaintiff, (4) that the plaintiff relied on the
misrepresentation and had the right to rely on it, and (5) that the plaintiff suffered compensable injury resulting from the
misrepresentation."6
Md. Envtl. Trust v. Gaynor, 370 Md. 89, 97
When ruling on state law claims, a United States District Court sitting in Maryland applies Maryland's choice of law rule. McCoubrey v. Kellog, Krebs & Moran, 7 F.App'x. 215, 219 (4th Cir. 2001)(citing Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487 (1941)). Under Maryland choice of law rules, tort claims are governed by the law of the state where the injury occurred. Philip Morris Inc. v. Angeletti, 358 Md. 689, 744 (2000). "The place of injury is the place where the injury was suffered, not where the wrongful act took place." Id. (citing Johnson v. 13
6
(2002);
see
also
Bennett
v.
Kiggins,
377
A.2d
57,
59
(D.C.
1977), cert. denied, 434 U.S. 1034 (1978). Claims standard of fraud are subject 9(b). to a heightened v. pleading
under
Fed.R.Civ.P.
Harrison
Westinghouse Rule
Savannah River Co., 176 F.3d 776, 783-84 (4th Cir. 1999).
9(b) states that "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. of mind of a Malice, intent, knowledge, and other condition person may be averred generally." The word
"circumstances" "is interpreted to include the `time, place and contents of the false representation, as well as the identity of the person making the misrepresentation and what [was] obtained thereby.'" Superior Bank, F.S.B. v. Tandem Nat'l Mortg., Inc.,
197 F.Supp.2d 298, 313-14 (D.Md. 2000)(quoting Windsor Assocs. v. Greenfeld, 564 F.Supp. 273, 280 (D.Md. 1983)). The purposes
of Rule 9(b) are to provide the defendant with sufficient notice of the basis for the plaintiff's claim, protect the defendant against frivolous suits, eliminate fraud actions where all of the facts are learned only after discovery, and safeguard the defendant's reputation. Harrison, 176 F.3d at 784. In keeping
Oroweat Foods Co., 785 F.2d 503, 511 (4th Cir. 1986)). Here the injuries were suffered by Plaintiff in the District of Columbia and Maryland, so the tort law of both jurisdictions tort laws is relevant. 14
with these objectives, a "court should hesitate to dismiss a complaint under Rule 9(b) if the court is satisfied (1) that the defendant has been made aware of the particular circumstances for which she will have to prepare a defense at trial and (2) that [the] plaintiff has substantial prediscovery evidence of those facts." Here, Id. has failed to plead adequate facts to
Plaintiff
establish a claim that the Spains are independently liable for fraud. Although the complaint identifies alleged false
statements made by the Spains, it does not allege that any of these statements were made to the Plaintiff or that he relied on these false statements. Instead the Spains' alleged false
statements were made in loan applications.
With no facts to
support these key elements of the fraud claim, the claim must be dismissed and it is unnecessary to consider whether the
heightened pleading standard of Rule 9(b) has been met. Turning next to the conspiracy claim, in both Maryland and D.C. conspiracy is not a distinct tort that can sustain an award of damages in the absence of an underlying tort. Alexander &
Alexander, Inc., v. B. Dixon Evander & Assocs., 336 Md. 635, 645 (1994)("A conspiracy cannot be made the subject of a civil
action unless something is done which, without the conspiracy, would give a right of action."); see also Alleco, Inc. v. Harry & Jeanette Weinberg Found., Inc., 340 Md. 176 (1995); 15 Exec.
Sandwich
Shoppe,
Inc.
v.
Carr
Realty
Corp.,
749
A.2d
724,
738 (D.C. 2000)("[C]ivil conspiracy depends on performance of some underlying tortious acts act")(internal as an quotations omitted). of the
Instead,
"conspiracy
aggravating
element
underlying claim," Tillery v. Borden, No. CBD-07-1092, 2010 WL 3517015 (D.Md. Sept. 3, 2010), or "a means of establishing
vicarious liability for the underlying tort." Health Care Grp., 933 A.2d 314, 334
Hill v. Medlantic 2007)(internal
(D.C.
quotations omitted).
Thus, while Plaintiff has not stated a
claim against the Spains individually for fraud, he may still maintain a claim of conspiracy to commit fraud against them provided that the elements for conspiracy to commit fraud are adequately maintain group. The elements of a civil conspiracy are: "1) an agreement a pleaded claim and of there are adequate the facts pleaded as to a
fraud
against
co-conspirators
between two or more persons; (2) to participate in an unlawful act, or in a lawful act in an unlawful manner; and (3) an injury caused by an unlawful overt act performed by one of the parties to the agreement (4) pursuant to, and in furtherance of, the common scheme." Exec. Sandwich Shoppe, 749 A.2d at 738
(internal citation omitted); Hoffman v. Stamper, 385 Md. 1, 24 (2005)("we have defined a civil conspiracy as a combination of two or more persons by an agreement 16 or understanding to
accomplish accomplish
an an
unlawful act not
act in
or
to
use
unlawful with
means
to
itself
illegal,
the
further
requirement that the act or the means employed must result in damages to the plaintiff."). whether a conspiracy theory The key question in assessing has been adequately pleaded is
whether there is adequate factual support for the existence of an agreement to conspire. 104 (D.D.C. 2004). Brady v. Livingood, 360 F.Supp.2d 94,
The "plaintiff must set forth more than just Id. The complaint
conclusory allegations of [the] agreement."
should include factual allegations that provide an indication of when and how the agreement was brokered and how each of the defendants specifically were parties to the agreement. See
Acosta Orellana v. CropLife Int'l, 711 F.Supp.2d 81, 113-114, (D.D.C. 2010). In Acosta, the court dismissed a civil
conspiracy claim because the plaintiff had failed to provide any factual support that the defendant CropLife had an agreement with the other defendants and found that it was just as likely that they were acting independently with a common motivation or goal. Id. at 114. The court explained "the plaintiffs' amended
complaint paints a maze from which it cannot be discerned with whom the plaintiffs when the are alleging the CropLife reached, Defendants and Id. what
conspired,
alleged
agreement
was
particular activity was the object of the conspiracy."
17
Here, however, Plaintiff's complaint contains more detail. It specifically indicates the parties that are alleged to have conspired and references specific instances when the Spains met with and communicated with other members of the alleged
conspiracy, namely Brian Pettiford and David Murrell on behalf of DB Capital, and Integrity. Spains signed contracts for The complaint alleges that the purchase of Plaintiff's Maryland
properties at the request of DB Capital representatives and then submitted received false $10,000 documentation for their to Integrity in and the that they
participation
foreclosure
rescue scam.
(ECF No. 3 ¶¶ 83-89).
These allegations provide
an adequate factual basis to make it not merely possible, but indeed plausible, that the Spains were part of the conspiracy to defraud. In addition, Plaintiff has adequately pleaded a case of fraud against members of the conspiracy. In particular
Plaintiff identifies a number of allegedly fraudulent statements that were made by Defendant Brian Pettiford on behalf of DB Capital during his meetings with Plaintiff in early 2007. e.g., ECF No. 3 ¶¶ 67-68, 71-81, and 195). (See,
For example, Mr.
Pettiford allegedly told Plaintiff that he would only need to transfer his properties for a year, that during that period DB Capital would work to repair his credit and help him obtain a low interest loan to repurchase his property, and that lenders 18
only look at applicant's credit history for the prior year. (Id.). Plaintiff's complaint alleges that the Defendants made
these and other statements with knowledge of their falsity and with the intention of motivating Plaintiff to sign over title to his properties, and that he did rely on the statements. ¶¶ 78-79, 85-89, and 196-200). Plaintiff's complaint (Id. also
identifies the specific harm that he suffered. combination of these allegations satisfies
Overall, the the pleading
requirements for fraud. Accordingly, at this stage in the litigation the Spains' motion to dismiss will not be granted with respect to the
conspiracy to commit fraud claim. 2. District of Columbia Home Equity Protection Act
In count VIII of the D.C. complaint, the Spains are alleged to have violated the District of Columbia Home Equity Protection Act, D.C. Code § 42-2432 (2010). liability promote, for individuals solicit who This statute creates civil "engage in, in, arrange, or carry or offer, out a
promise, rescue
participation in the
foreclosure
transaction
District
concerning
residential property in the District."
§ 42-2432(a).
The Spains argue that they cannot be liable under this Act for three reasons: (1) the Act did not become effective until
January 29, 2008, which is after the events which gave rise to the lawsuit occurred, and the Act does not have retroactive 19
effect; (2) Plaintiff has not alleged that the Spains engaged in any acts involving real estate in the District of Columbia--the properties for which they are the alleged straw purchasers are located in Maryland; and (3) Plaintiff is not a "homeowner" as the term is used in the Act and thus not entitled to relief therein. (ECF No. 73-1, at 12-14).
Plaintiff counters that even if the Act is not interpreted to have retroactive effect, the activities that form the basis of his complaint took place from April 2007 until May 2008 and the Spains can be held liable for their participation in the scheme from the Act's effective date, January 29, 2008 through May 2008. Spains can (ECF No. 77, at 9). be held liable even Plaintiff also argues that the if they did not personally
purchase homes in the District of Columbia because they were part of a common conspiracy that engaged in foreclosure services in the District. the term (Id. at 10). should be Finally Plaintiff argues that interpreted to refer to all
"homeowner"
record owners of residential property regardless of whether it is their primary residence. (Id.).
As the parties note, the Act is a recent statute, and there is no case law interpreting its meaning yet, but there is a general presumption against giving laws retroactive effect
absent express language. U.S. 244, 280 (1994).
See Landgraf v. USI Film Prods., 511 This presumption has been embraced by 20
courts in the District of Columbia when interpreting District of Columbia statutes. See, e.g., Holzsager v. District of Columbia If
Alcoholic Beverage Control Bd., 979 A.2d 52 (D.C. 2009).
there is no "express command" to apply the statute to conduct arising before its enactment and doing so would affect the
substantive rights, liabilities, or duties of individuals, then the statute should only apply prospectively. Lytes v. DC Water
& Sewer Auth., 572 F.3d 936, 939-40 (D.C. Cir. 2009). The Home Equity Protection Act does not expressly provide for retroactive effect, and its provisions presumably impose new liability for conduct that arguably was previously permissible. Thus, Plaintiff cannot invoke its protections for conduct
occurring prior to the Act's effective date of January 29, 2008. Plaintiff attempts to maneuver around this limitation by arguing that the foreclosure rescue scheme was intended to
provide for services lasting through April or May 2008 and the Spains' participation in the transaction thus lasted until May 2008. (ECF No. 77, at 9). This argument has some merit given
that the Act's prohibitions include "engage[ing] in . . . or carry[ing] out a foreclosure rescue transaction in the District or concerning residential property in the District", except for the fact that Plaintiff has not alleged any facts to connect the Spains to the D.C. property at issue in the case. The Spains'
only alleged participation in the DB Capital foreclosure rescue 21
program was their role as credit investors for the two Maryland properties. the Spains (ECF No. 3 ¶¶ 84-89). allegedly took was The only affirmative action to submit documentation to
Defendant Integrity to secure loans to purchase the Maryland properties and sign the contracts for purchase of the Maryland properties in 2007. (Id.). There are no alleged facts to And
connect their actions to the D.C. property at any time.
although Plaintiff argues in his opposition that the Spains can be held liable under the D.C. statute because they were part of the conspiracy that "engaged" in the foreclosure rescue scam in D.C., (ECF No. 77, at 10), Plaintiff has not pleaded adequate facts to support this assertion. In sum, Plaintiff has not alleged sufficient facts to
maintain a claim against the Spains for violation of the D.C. Home Equity Protection Act. C. Motions to Dismiss Filed by David Murrell, Brian Pettiford and Russell Pettiford The complaint alleges the following against Defendants count I, Corrupt II, RICO
David Murrell, Brian Pettiford, and Russell Pettiford: violation of the Act RICO, Federal ("RICO"), § Racketeer 18 U.S.C. count Influenced § III, and
Organizations violation of
1962(a);
count of
1962(c);
violation
§ 1962(d); count IV, fraud and conspiracy to commit fraud; count V, unjust enrichment; count VII, breach of contract, rescission,
22
unconscionability, and failure of consideration; and count VIII of the D.C. complaint, D.C. violation of the D.C. Home Equity and
Protection
Act,
Code
§ 42-2431.
Brian
Pettiford
Russell Pettiford are also identified with respect to count VIII of the Maryland complaint and count X of the D.C. complaint seeking a declaratory judgment/quiet title action. In addition,
David Murrell and Brian Pettiford are alleged to have violated the D.C. Consumer Protection Procedures Act, D.C. Code § 283904. damages. Finally, all three are allegedly liable for punitive While each of these Defendants filed a separate
motion, they are represented by the same counsel and there is significant overlap in their arguments. common issues to all three motions To the extent there are they will be discussed
together. As an initial matter all three Defendants argue that the complaint lacks factual allegations specifically directed toward their individual actions. David Murrell and Brian Pettiford
argue that to the extent the complaint references actions and decisions made by DB Capital they are not personally liable. (ECF No. 45, at 6, 8, 9). complaint consists of only Russell Pettiford argues that the a few factual allegations that
mention him and that none of these indicate that he personally committed any act which was harmful to Plaintiff. at 13). (ECF No. 54,
Plaintiff responds by arguing that as members of the 23
conspiracy the defendants can be held liable for the acts of their co-conspirators and that even an if they would member not of be a liable limited
individually
individual
liability company, such as DB Capital, may be held liable for torts he or she personally commits or directs even if they are performed in the name of the LLC. As discussed above, (ECF No. 69, at 5). is correct that where a
Plaintiff
conspiracy has been adequately pleaded, individual members of the conspiracy can be held liable for actions taken by co-
conspirators. limited
In addition, under Maryland and D.C. law, the company from form does not "for operate torts to he shield or she
liability members
individual
liability
personally commits, or which he or she inspires or participates in, even though performed in the name of an artificial body." Allen v. Dackman, 413 Md. 132, 153 (2010)(internal quotations omitted). "An individual may also be liable despite limitations
on his or her liability when he or she `is present on a daily basis during commission of the tort and gives direct orders that cause commission of the tort.'" Id.; see also Luna v. A.E.
Eng'g Servs., LLC, 938 A.2d 744, 748 (D.C. 2007)(applying to an LLC member the "general rule . . . that corporate officers are personally liable for torts which they commit, participate in, or inspire, even though the acts are performed in the name of the corporation"); McFarland v. Va. Ret. Servs. of Chesterfield, 24
LLC, 477 F.Supp.2d 727, 739-40 (E.D.Va. 2007)(applying rule to LLC incorporated in Virginia). Accordingly the creation of the
DB Capital entity will not preclude David Murrell and Brian Pettiford from liability where the complaint alleges facts to show that they personally committed, inspired, or directed the tortious acts. In addition, to the extent that Plaintiff has
pleaded adequate facts that Defendant Russell Pettiford was a participant in the conspiracy, like the Spains, he can be held liable for the tortious acts of his co-conspirators. The claims against these Defendants cannot be dismissed
wholesale; instead each count must be considered individually. 1. Fraud or Conspiracy to Commit Fraud all three Defendants or contend to that Plaintiff fraud has with
First, failed to
allege
fraud
conspiracy
commit
adequate specificity to satisfy the heightened pleading standard of Rule 9(b). Foremost, Defendants David Murrell and Russell
Pettiford argue that Plaintiff has failed to allege that any statements were made by them to Plaintiff to induce him to take any action. (ECF No. that 45, he at 10 and ECF No. in made 54, at 15). the their
Plaintiff fraudulent
counters
has the
described Defendants
detail and
statements
that
participation in the scheme. 1, at 17).
(ECF No. 67-1, at 23; ECF No. 69-
25
The requirements for stating a claim of fraud or conspiracy have already been discussed, as has Plaintiff's satisfactory
pleading of a claim of fraud against the members of the reverse foreclosure scheme. Generally these Defendants' arguments
suffer from the same flaws.
Plaintiff has explained how David
Murrell, Brian Pettiford and Russell Pettiford were involved in the scheme and thus, he has adequately pleaded a conspiracy. Accordingly the fraud claims will not be dismissed at this time. 2. RICO Violations
Plaintiff has asserted claims against the Defendants under RICO subsections (a)7, (c)8, and (d).9 18 U.S.C. §§ 1962(a),(c), and (d). To state a claim for a substantive violation of RICO,
Subsection (a) "is aimed at the use of racketeering proceeds to infiltrate an enterprise." Benard v. Hoff, 727 F.Supp. 211, 214 (D.Md. 1989). The elements of subsection (a) claim are: (1) a receipt of income from a pattern of racketeering activity, and (2) use or investment of this income in an enterprise. 18 U.S.C. § 1962(a); Busby v. Crown Supply, Inc., 896 F.2d 833, 837 (4th Cir. 1990). Subsection (c) "is aimed at the use of an enterprise to carry out racketeering activities." Benard, 727 F.Supp. at 214. The elements of a subsection (b) claim are: (1) conduct of or participation in (2) any enterprise (3) through a pattern (4) of racketeering activity. 18 U.S.C. § 1962(c); Sedima S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985). Subsection (d) is aimed at conspiracies to violate subsections (a) through (c) of RICO. 18 U.S.C. § 1962(d). To allege a subsection (d) claim, plaintiff must allege that "each defendant agreed that another coconspirator would commit two or more acts of racketeering." United States v. Pryba, 900 F.2d th 748, 760 (4 Cir.), cert. denied, 498 U.S. 924. (1990). 26
9 8
7
the
complaint "(1)
must
set
forth (2) of
facts an
which,
if
proven, (3)
would a
establish
conduct
enterprise
through
pattern (4) of racketeering activity."
Morley v. Cohen, 888
F.2d 1006, 1009 (4th Cir. 1989)(quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, (1985)). are defined by statute. Several of the operative terms
"Enterprise," as set forth by 18 U.S.C.
§ 1961(4), "includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." The same statute defines "racketeering activity," in relevant portion, as "any act which is indictable" under a number of enumerated criminal provisions. Id. § 1961(1). A "pattern of
racketeering activity," moreover, "requires at least two acts of racketeering activity, one of which occurred after the effective date of [RICO] and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity." Id. § 1961(5).
Plaintiff alleges that the predicate acts committed by the Defendants are proscribed by the mail and wire fraud statutes, 18 U.S.C. §§ 1341, 1343, listed in RICO § 1961(1)(B). The
elements of mail fraud are (1) a scheme disclosing an intent to defraud, and (2) the use of the mails in furtherance of the scheme." Chisolm v. TranSouth Fin. Corp., 95 F.3d 331, 336
(4th Cir. 1996)(explaining the elements of mail fraud under 18 27
U.S.C.
§
1341).
Wire
fraud
is
similar,
except
that
"wire,
radio, or television," rather than the mails, provides the means to further the fraud. 18 U.S.C. § 1343. In the context of a
RICO action, the mailings or wirings do not have to contain the misrepresentations that defrauded the plaintiff, but must merely be in furtherance of the fraudulent, material misrepresentation upon which the plaintiff justifiably relies to his or her
detriment.
Chisolm, 94 F.3d at 337; see also In re Am. Honda
Motor Co. Dealerships Litig., 941 F.Supp. 528, 546, n.19 (D.Md. 1996)(stating that "a mailing need only be a necessary step in furtherance of a scheme, and need not be fraudulent in and of itself"). Defendants argue that Plaintiff has failed to plead a
sufficient factual basis for the underlying offenses of wire and mail fraud and that Plaintiff has failed to establish a "pattern of racketeering of activity." Plaintiff's (ECF fraud No. claims 54, at 14). already The been
sufficiency addressed.
has
In addition, Plaintiff has pleaded the use of the
mail and bank wire transactions in furtherance of the scheme. (ECF No. 3 ¶¶ 30, 46-47, 112, 114, 119, 121, 123, and 125). Whether Plaintiff has alleged adequate facts to demonstrate that there was a pattern of racketeering activity requires additional analysis.
28
To allege a pattern of racketeering activity, a plaintiff must show that at least two predicate acts occurred within ten years of each other, 18 U.S.C. § 1961(5), that the acts were related, and that they "amount to or pose a threat of continued criminal activity," 229, 240 (1989). H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. Acts are related if they "have the same or
similar purposes, results, participants, victims, or methods of commission, or otherwise and are are not interrelated isolated by distinguishing Id. at 240
characteristics
events."
(quoting Sedima, 473 U.S. at 496, n.14).
With respect to the
continuity element, the Fourth Circuit has explained: Continuity . . . refers "either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition." [H.J. Inc., 492 U.S. at 242](emphasis added). To satisfy the continuity element, a plaintiff must show that "the predicates themselves amount to, or . . . otherwise constitute a threat of, continuing racketeering activity." Id. at [240](emphasis in original). Significantly, "[p]redicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement: Congress was concerned in RICO with longterm criminal conduct." Id. at [242]. . . . Thus, predicate acts must be part of a prolonged criminal endeavor. Menasco, Inc. v. Wasserman, 886 F.2d 681, 683-84 (4th Cir. 1989). The Fourth Circuit has also expressed reservations about RICO claims where the predicate acts are mail and wire fraud "because
29
it will be the unusual fraud that does not enlist the mails and wires in its service at least twice." GE Inv. Private Placement
Partners II v. Parker, 247 F.3d 543, 549 (4th Cir. 2001)(quoting Al-Abood v. El-Shamari, 217 F.3d 225, 238 (4th Cir. 2000)). liability scope and is reserved persistence for "ongoing a unlawful activities to RICO whose social
pose
special
threat
wellbeing."
Id. (quoting Menasco, 886 F.2d at 684).
The Fourth
Circuit accordingly found the continuity prong unsatisfied in Menasco where the defendants' actions were narrowly directed
toward a single fraudulent goal, involved one perpetrator, one set of victims, and the transaction took place over one year, and in Flip Mortgage where Corp. the v. McElhone, 841 F.2d a 531, series 538 of
(4th Cir.
1988),
allegations
presented
events as part of a single scheme perpetrated by defendants against a single victim. Here, Plaintiff has alleged with specificity facts relating to his participation in the scheme. Although Plaintiff owned
three properties that he sold as part of the foreclosure rescue scam, considering these separately to count at least two
predicate acts runs counter to the rulings in the Menasco and Flip Mortgage. Plaintiff's other complaint victims of contains additional scheme,
allegations
regarding
Defendants'
however, (see ECF No. 3 ¶ 144), and asserts that the enterprise "operated for at least 2 years and targeted dozens of properties 30
in Maryland."
(Id. ¶ 147).
To add further support to his
allegations, Plaintiff has attached a copy of the complaint from a separate case involving an alleged foreclosure rescue scam with Defendant Brian Pettiford filed in this court. (See
ECF No. 67 at 14, n.2 and Ex. 1).
Although not a part of the
alleged facts in his complaint, in reviewing a Rule 12(b)(6) dismissal, the court may properly take judicial notice of See, 176, need
matters of public record, such as public court filings. e.g., Philips v. 2009). Pitt Cnty. Mem'l Hosp., 572 F.3d will
180 (4th Cir.
While
ultimately,
Plaintiff
significantly more proof to establish RICO violations, he has pled adequate facts for the RICO claims to proceed based on a pattern of racketeering activity. In addition to alleging a RICO violation for a pattern of racketeering activity, Plaintiff also alleged RICO claims based on the "the collection of unlawful debt." For RICO claims based
on the collection of unlawful debt, the prevailing view is that the plaintiff need not show a pattern of such activity--one act of collection is sufficient. F.3d 17, 24 (1st Cir. See United States v. Weiner, 3 that "there is no
1993)(observing
counterpart definition of a `pattern of collection of unlawful debt,' as one would expect if such a pattern were an element of one of RICO's core provisions"); United States v. Giovanelli, 945 F.2d 479, 490 (2d Cir. 31 1991)("Unlike a `pattern of
racketeering
activity'
which
requires
proof
of
two
or
more
predicate acts, to satisfy RICO's `collection of unlawful debt' definition the government United need v. v. only Pepe, Tocco, demonstrate 747 200 F.2d F.3d a single 645 426
collection."); (11th Cir.
States States
632, 401,
1987);
United
(6th Cir. 2000); United States v. Eufrasio, 935 F.2d 553, 576 (3d Cir.), cert. denied, Idone v. United States, 502 U.S. 925 (1991); see also United States v. Oreto, 37 F.3d 739, 751-52 (1st Cir. 1994), cert. denied, 513 U.S. 1177 (1995). Circuit district has not formally within the adopted circuit this have The Fourth but
interpretation, embraced the
courts
view.10
See, e.g., Proctor v. Metro. Money Store Corp., 645 F.Supp.2d 464, 481 (D.Md. 2009); Eyler v. 3 Vista Court LLC, No. RWT 07cv2383, 2008 WL 4844962 (D.Md. Aug. 26, 2008). There are at least eight elements to a successful claim under RICO for collection of an unlawful debt: (1) there was a RICO enterprise, (2) its activities affected interstate commerce, (3) the individual defendants were employed by or associated with the enterprise, (4) the defendants used, in the operation of the enterprise, income derived from the collection of unlawful debt, (5) the individual defendants participated in the conduct of the affairs of the enterprise through collection of unlawful debt, (6) the debt was unenforceable in whole or in part
For a detailed analysis in support of this view United States v. Weiner, 3 F.3d 17, 24 (1st Cir. 1993). 32
10
see
because of state or federal laws relating to usury, (7) the debt was incurred in connection with the business of lending money at a usurious rate, and (8) the usurious rate was at least twice the enforceable rate. Durante Bros. & Sons, Inc. v. Flushing Nat'l Bank, 755 F.2d 239, 248 (2d Cir.)(citing 18 U.S.C. §§ 1962(a), 1961(6) and 1964(c)), cert denied, Durante Bros. & Sons, Inc. v. Nat'l Bank of New York City, 473 U.S. 906 (1985). with those for other RICO Many of these elements overlap claims. They key additional
requirement is simply the allegation of a collection unlawful debt and the use of proceeds from that collection to further the enterprise. that is: (A) ... unenforceable under State or Federal law in whole or in part as to the principal or interest because of the laws relating to usury, and (B) which was incurred in connection with ... the business of lending money or a thing of value at a rate usurious under State or Federal law, where the usurious rate is at least twice the enforceable rate. 18 U.S.C. § 1962(6). Plaintiff's alleged RICO violation for collection of Under RICO, an "unlawful debt" is defined as a debt
unlawful debt follows the logic of similar allegations made in Proctor. The essence of the argument is that the sale-leaseback
provision that characterized the foreclosure rescue scheme: constitutes a mortgage loan under Maryland law such that the allegedly high interest 33
rates charged by Defendants constitute the collection of an `unlawful debt' under Maryland law because the loans made to the named plaintiff[ ] . . . are alleged to be in excess of twice the usury limit in Maryland, and plaintiffs were required to repay these loans at the end of one year or they would be evicted from their homes as their equitable mortgage would be foreclosed. Proctor, 645 F.Supp.2d at 482. In his opposition to the motions to dismiss, Plaintiff
identifies only two paragraphs from the complaint that contain the substance of his allegations with respect to the collection of unlawful debt. 158. Each of the transactions concerned herein also involved the collection of "unlawful debts," as defined by RICO, §1961 (6). These transactions were unenforceable under applicable State law, in whole or in part as to principal or interest because of the laws relating to usury, and these debts were incurred in connection with the business of lending money and/or things of value at a rate usurious under applicable State law. 159. The enforceable rate of each of these loans to Plaintiff was no more than 6% per annum, and each of the three transactions involving the Plaintiff involved equitable mortgages which carried an annual percentage rate far in excess of that amount. (ECF No. 3). Plaintiff's complaint does not provide the
specific interest rates that were charged for loans, information that should be within the Plaintiff's possession, or otherwise allege any specific facts to show how the loans were above the 34
usury limit and thereby unlawful.
Thus at present Plaintiff has
not stated a RICO claim for the collection of an unlawful debt and the RICO counts cannot proceed on this basis unless
Plaintiff amends his complaint. 3. Breach of Contract Claims
The complaint alleges that David Murrell, Brian Pettiford, and Russell Pettiford are liable in count VII for breach of contract, rescission, unconscionability, or failure of
consideration.
The Defendants argue that no portion of count Defendant Russell Pettiford to identify the contract admits he
VII has been adequately pleaded. argues between that Plaintiff and has failed and
Plaintiff
himself
that
Plaintiff
received full compensation from Mr. Pettiford for the sale of the D.C. property, rendering the failure of consideration claim untenable. (ECF No. 54, at 20). Perplexingly with respect to
the unconscionability claim, Russell Pettiford argues that he is "unaware of any causable cause of action recognized in Maryland for `unconscionability,'" (id. at 19), and then proceeds to cite cases outlining the requirements for a claim of
unconscionability under Maryland law.
(Id. at 20)(citing Doyle In addition, he
v. Finance America, 173 Md.App. 370 (2007)).
argues that Plaintiff failed to plead that the terms of the contract were unconscionable. (Id.). Defendant Brian Pettiford
35
relies on the arguments made by Russell Pettiford (ECF No. 51, at 4). Defendant David Murrell argues that the breach of contract count must be dismissed against him because he was not party to any contractual was agreements DB with Plaintiff; (ECF the No. party 49, to at the 12).
contract
Defendant
Capital.
Plaintiff argues in response that he has alleged that Defendants Brian Pettiford, Russell Pettiford, and David Murrell along with DB Capital had an agreement with him whereby he would transfer ownership of his properties for one year. ECF No. 67, at 28). Despite Plaintiff's claims to the contrary in his (ECF No. 69, at 22;
oppositions to the motions to dismiss, the allegations of the complaint Defendant properties reference DB to Capital Tracey only and and agreements the between for Plaintiff sale of and his
contracts Spain
the
Ralph
and
Russell
Pettiford.
(See ECF No. 3 ¶¶ 80, 84, 88, 220).
Two basic tenets of law
then apply to shield the other Defendants from liability for breach of contract. First and foremost is the general rule that
"a person cannot be held liable under a contract to which he was not a party." (1974). not Snider Bros., Inc. v. Heft, 271 Md. 409, 414
Secondly, members of a limited liability company are liable in for the obligations or of the company, by
"personally arising
whether
contract,
tort, 36
otherwise,
solely
reason of being a member of the limited liability company."
Md.
Code Ann., Corporations and Ass'ns, § 4A-301 (2010); see also Va. Code Ann. § 13.1-10.19 (2010)("no member, manager, organizer or other agent of a limited liability company shall have any personal obligation for any liabilities of a limited liability company, whether such liabilities arise in contract, tort or otherwise, solely by reason of being a member, manager, Although, of
organizer or agent of a limited liability company."). as discussed above, the law allows for the
imposition
personal liability in tort for LLC members who are directly involved in, direct, or control the tortious activity, there is no analogous rule for contract-based actions. David Murrell and Brian Pettiford cannot be Thus, Defendants held personally Because of any
liable for the contractual obligations of DB Capital. Plaintiff has not adequately pleaded the existence
contracts that David Murrell or Brian Pettiford signed in their individual capacity, the breach of contract claims against them will be dismissed. Plaintiff does allege, however, that Russell Pettiford
knowingly agreed to execute a contract for sale and various other documents associated with the reverse foreclosure
transaction.
(ECF No. 3 ¶ 56).
While the complaint does not
specifically state the contract for sale was between Russell Pettiford and Plaintiff, that is a reasonable inference from the 37
other alleged facts.
If the other elements of the contract
claims are adequately pleaded, Plaintiff may maintain count VII against Russell Pettiford. a. Breach of contract
To state a claim for breach of contract, a plaintiff must plead the existence of a contractual obligation owed by the defendant obligation. (2010).11 to the plaintiff and a material breach of that
RRC Ne., LLC v. BAA Md., Inc., 413 Md. 638, 658
Here Plaintiff has pleaded the existence of a contract
between himself and Russell Pettiford and that Mr. Pettiford breached the contract by failing to transfer back ownership of the D.C. property after one year. (ECF No. 3 ¶ 221). These
allegations are sufficient to maintain the breach of contract claim.
As an initial matter it is unclear what law might apply to the alleged contract for sale between Plaintiff and Russell Pettiford. "Maryland applies the law of the jurisdiction where the contract was made to matters regarding the validity and interpretation of contract provisions, and a contract is made where the last act necessary to make the contract binding occurs.@ Riesett v. W.B. Doner & Co., 293 F.3d 164, 173 n.5 (4th Cir. 2002)(internal citations omitted). Plaintiff has alleged that he signed the agreements at issue in late January or February of 2007 at Brian Pettiford's office in Vienna, VA. (ECF No. 3 ¶ 80). The complaint does not allege facts to indicate where Russell Pettiford signed the contract, however, or whether it contained a choice of law provision. Because both parties reference Maryland contract law in their motions, the court will assume for the time being that Maryland contract law will govern. 38
11
b.
Rescission
Turning next to the rescission claim, Plaintiff has pleaded that the fraudulent misrepresentations of Defendants warrant A
rescission of the deeds transferring title to the properties.
contract may be rescinded where there is fraud, duress or undue influence, or the equities otherwise permit. 404 Md. 524, 535 (2008). Janusz v. Gilliam,
Here Plaintiff has pleaded that the
contracts for sale of his properties were induced by fraud, and, thus, he has stated a claim for rescission. c. Failure of Consideration also alleges . . . failure require of consideration. to be
Plaintiff Ordinarily
"contracts
consideration
enforceable."
Harford Cnty. v. Town of Bel Air, 348 Md. 363,
381-82 (1998)(citing Beall v. Beall, 291 Md. 224, 229 (1981)). Failure of consideration occurs where a contract is made, but because fails. of 3 some supervening on cause, the promised (4th performance ed. 2010).
Williston
Contracts
§ 7:11
Plaintiff alleges that because he did not receive full value for the sale of his D.C. property to Russell Pettiford the contract can be nullified. 228). (ECF No. 67-1, at 29)(citing Compl. ¶¶ 56 and
These allegations are adequate to maintain a claim of
failure of consideration against Russell Pettiford.
39
d.
Unconscionability
Finally, Plaintiff alleges that the real estate contracts were unconscionable and unenforceable. An unconscionable
contract is one "characterized by extreme unfairness, which is made evident by (1) one party's lack of meaningful choice and (2) contractual terms that unreasonably favor the other party." Walther v. Sovereign Bank, 386 Md. 412, 425 (2005)(quoting
Black's Law Dictionary 1560 (8th ed. 2004)). elsewhere the prevailing view is that both
In Maryland and procedural and
substantive unconscionability must be present for a court to invalidate a contract or clause under the doctrine of
unconscionability.
Holloman v. Circuit City Stores, Inc., 391 Procedural unconscionability focuses on
Md. 580, 603 (2006).
the bargaining process that led to the formation of the contract and "looks much like fraud or duress." Freedman v. Comcast
Corp., 190 Md. App. 179, 208 (quoting Walther, 386 Md. at 426), cert. denied, 415 Md. 39 (2010). Substantive unconscionability
"involves those one-sided terms of a contract from which a party seeks relief. Plaintiff Walther, 386 Md. at 427. argues that he has pleaded procedural
unconscionability by alleging facts that identify the unequal bargaining power and sophistication level between himself and the individuals at DB Capital him 40 and to also that to the fraudulent contract.
misrepresentations
prompted
agree
(ECF No. Plaintiff
67-1, also
at
30-31)(citing that
Compl. the
¶¶
223-26,
235).
maintains
complaint
identifies
unconscionable terms in the contract, such as the fact that there was no possible way under its terms for Plaintiff to buy back his properties after a year. pleaded sufficient facts to (Id. at 32). his Plaintiff has that the
maintain
claim
contracts for sale were unconscionable. 4. In Unjust Enrichment addition to the contract claims, Plaintiff has also The of the
alleged that Defendants are liable for unjust enrichment. Defendants unjust argue that Plaintiff them cannot because maintain he has a claim
enrichment
against
pleaded
existence of several written agreements and unjust enrichment is only available when there is no express or implied contract. (ECF No. 54 at 17-19). Plaintiff counters that the claim of
unjust enrichment can be maintained because he has alleged that the failure of consideration rendered the contract void.
(ECF No. 67-1, at 26-27). Both parties miss the broader point that the Federal Rules permit pleading in the alternative. Federal Rule of Civil
Procedure 8(d)(3) provides that "[a] party may state as many separate claims or defenses as it has, regardless of
consistency." parties may
In applying this rule, courts have held that plead inconsistent 41 facts and inconsistent legal
theories.
5 Charles Alan Wright and Arthur R. Miller, Fed. While ultimately both his unjust
Prac. & Proc. Civ. § 1283 (3d ed.)(2010). plaintiff may be unable to recover under
enrichment and breach of contract claims, he may continue to pursue them both at this time. In addition because a claim of
unjust enrichment does not require a contract, Plaintiff may continue to pursue this claim against David Murrell and Brian Pettiford as well as DB Capital. 5. District of Columbia Home Equity Protection Act
Plaintiff has alleged that Brian and Russell Pettiford and David Murrell violated the D.C. Home Equity Protection Act, D.C. Code § 42-2431, et. seq., by participating in the foreclosure rescue transaction. Defendants argue that the claim must be
dismissed because Plaintiff is not a "homeowner" as defined in the statute because Plaintiff's D.C. property was for rental income and not owner-occupied. this that he (ECF No. of the 74, Mem. at in 2). the of
Plaintiff statute
disputes and argues
interpretation because is is
homeowner "record by the
owner"
residential
property,
protected
statute.
(ECF No. 67-1, at 22). In contrast to Defendants Tracey and Ralph Spain, Plaintiff has alleged that the Pettifords were involved in the transfer of the D.C. property and thus they may have "engaged in or
arranged," a "foreclosure rescue transaction in the District or 42
concerning residential property in the District" in violation of the Act. See D.C. Code § 42-2432. But the question of whether
Plaintiff constitutes a homeowner as defined by the act remains. Because the issue has not been thoroughly briefed by the parties and the D.C. courts have not yet had an opportunity to interpret and apply the statute, this court will not dismiss this claim as to the Pettifords at this time. 6. Action to Quiet Title
Defendants Brian and Russell Pettiford also seek to dismiss Plaintiff's them. declaratory judgment/quiet title action against
The thrust of Defendants' argument is that the Maryland
Code only permits an individual to maintain an action to quiet title if he is "in actual peaceable possession of property" or in "constructive and peaceable possession" of "vacant and
unoccupied property" and Plaintiff has failed to plead either circumstance. (ECF No. 54, at 21-22). Plaintiff responds that
he did retain possession of the properties and that the deed in question functioned as an equitable mortgage rather than
absolute transfer of title.
(ECF No. 67-1, at 33-34).
In their briefing both parties have overlooked the fact that the property for which the Pettifords currently hold title is located in the District of Columbia and not Maryland. a firmly established principle that questions It is
involving See
interests in land are governed by the law of the situs. 43
Restatement
(2nd)
of
Conflict
of
Laws,
Ch.
9,
Topic
2,
Introductory Note (1971).
Thus, Maryland code provisions on
actions to quiet title are irrelevant, and D.C. law will govern. The D.C. code does not set forth any specific procedures or requirement for actions to quiet title that are not based on a claim of adverse possession. (D.C. 1985). See In re Tyree, 493 A.2d 314, n.3
D.C. courts have established, however, that "an
action to quiet title may not be dismissed for failure to state a claim when the complaint alleges . . . that the plaintiffs are the owners of the land in fee simple." Id. at 317.
The claim will not be dismissed at this time. 7. Act District of Columbia Consumer Protection Procedures
Plaintiff has alleged that Defendants Brian Pettiford and David Murrell violated the District of Columbia Consumer The
Protection Procedures Act, D.C. Code § 28-3904 ("CPPA").
CPPA includes 34 subsections, only five of which are referenced in the Complaint.12 The CPPA "affords a panoply of strong
The Complaint quotes from subsections (a), (e), (f), (r), and (gg) without specific citation. Those subsections provide as follows: It shall be a violation of this chapter, whether or not any consumer is in fact misled, deceived or damaged thereby, for any person to: (a) represent that goods or services have a source, sponsorship, approval, certification, accessories, characteristics, 44
12
remedies,
including
treble
damages,
punitive
damages,
and
attorneys' fees, to consumers who are victimized by unlawful trade practices." Ford v. ChartOne, Inc., 908 A.2d 72, 80-81
ingredients, uses, benefits, or quantities that they do not have; (e) misrepresent as to a material fact which has a tendency to mislead; (f) fail to state a material fact if such failure tends to mislead; (r) make or enforce unconscionable terms or provisions of sales or leases; in applying this subsection, consideration shall be given to the following, and other factors: (1) knowledge by the person at the time credit sales are consummated that there was no reasonable probability of payment in full of the obligation by the consumer; (2) knowledge by the person at the time of the sale or lease of the inability of the consumer to receive substantial benefits from the property or services sold or leased; (3) gross disparity between the price of the property or services sold or leased and the value of the property or services measured by the price at which similar property or services are readily obtainable in transactions by like buyers or lessees; (4) that the person contracted for or received separate charges for insurance with respect to credit sales with the effect of making the sales, considered as a whole, unconscionable; and (5) that the person has knowingly taken advantage of the inability of the consumer reasonably to protect his interests by reasons of age, physical or mental infirmities, ignorance, illiteracy, or inability to understand the language of the agreement, or similar factors; (gg) violate any provision of the Home Equity Protection Act of 2007 [Chapter 24A of Title 42]. 45
(D.C. 2006). that
The general thrust of Plaintiff's allegations is David or Murrell and Brian Pettiford when knowingly convincing scam.
Defendants
misrepresented Plaintiff to
omitted in
material their
facts
participate
foreclosure
rescue
(ECF No. 97 ¶ 234). Defendant David Murrell does not address this count
specifically in his motion to dismiss and relies only on his general argument that Plaintiff has not pleaded sufficient facts to hold him individually liable for any of the counts.
(ECF No. 71).
Defendant Brian Pettiford argues that the statute
is inapplicable to this case because Plaintiff does not meet the definition of a "consumer" who is entitled to protection under the CPPA. Mr. Pettiford further explains that because the D.C.
property was used by Plaintiff for commercial leasing and not as his primary residence, he cannot recover under the Act.
(ECF No. 75 ¶ 11). Plaintiff because residence one and argues of the he in response that the CPPA was does apply
properties does
at
issue as a
his
personal under the
that
qualify
consumer
statute because he is someone "who receives consumer goods or services." And he argues that the Defendants have cited no case
law holding that a consumer cannot bring an action under the Act because he owns rental properties. (ECF No. 65, at 11).
46
The CPPA defines consumer as "a person who does or would purchase, lease (from), or receive consumer goods or services, including a co-obligor or surety, or a person who does or would provide the economic demand for a trade practice." § 28-3901(a)(2). When used as an adjective D.C. Code "`consumer'
describes anything, without exception, which is primarily for personal, household, or family use." Id. D.C. courts have
interpreted this language to preclude recovery under the CPPA by individuals or organizations whose purchases or transactions See, e.g.,
were motivated by business or commercial purposes.
Mazanderan v. Indep. Taxi Owners' Ass'n, Inc., 700 F.Supp. 588, 591 (D.D.C. 1988)(holding that cab driver's purchase of gasoline was not covered by CPPA because it was made in connection with his role as an independent businessman). Elaborating on the
meaning of the statute, the D.C. Court of Appeals explained: the relevant distinction is one between retail and wholesale transactions. Transactions along the distribution chain that do not involve the ultimate retail customer are not "consumer transactions" that the Act seeks to reach. Rather, it is the ultimate retail transaction between the final distributor and the individual member of the consuming public that the Act covers. Accordingly, it is not the use to which the purchaser ultimately puts the goods or services, but rather the nature of the purchaser that determines the nature of the transaction. If the purchaser is regularly engaged in the business of buying the goods or service in question for later resale to another in the distribution chain, or at 47
retail to the general public, then a transaction in the course of that business is not within the Act. If, on the other hand, the purchaser is not engaged in the regular business of purchasing this type of goods or service and reselling it, then the transaction will usually fall within the Act. Adam A. Weschler & Son, Inc. v. Klank, 561 A.2d 1003, 1005 (D.C. 1989). The circumstances of Plaintiff's reliance on DB Capital's foreclosure situation. rescue services present somewhat of a hybrid
Although Plaintiff did not intend to resell the
services, they were meant to help him maintain ownership of a property he used to earn rental income. is similar to the situation presented In that way, this case in Mazanderan where
although the cab driver did not intend to resell the gasoline, it was purchased to support his commercial business activities. Plaintiff attempts to shift the analysis by arguing that DB Capital's services were intended to help him maintain ownership of his personal residence in Maryland as well. But the facts as
alleged make clear that it was Plaintiff's risk of foreclosure on his D.C. property, used for rental income, that initially motivated him to contact DB Capital. Moreover, the CPPA does
not provide a cause of action for violations that occur outside of the District of Columbia. Under these circumstances,
48
Plaintiff does not constitute a consumer under the CPPA and Plaintiff's CPPA claims will be dismissed. D. Motions to Dismiss Filed by Wachovia Bank, Wells Fargo & Company, and Millennium Bank Defendants Wachovia Bank, N.A. and Wells Fargo & Company, N.A., (collectively "Wachovia Bank")13 and Defendants Millennium Bank, N.A. and Millennium Bankshares Corporation (collectively "Millennium Bank") filed motions to dismiss all the counts Because
asserted against them.
(ECF Nos. 31, 47, 70, and 72).
the banks are alleged to have played analogous roles in the foreclosure rescue scam, were identified in the same two counts (count VI (negligence) and count XI (punitive damages)), and raise the same arguments in their papers, their motions will be addressed together. Defendants Wachovia Bank and Millennium Bank are allegedly liable for negligence under a respondeat superior theory of
liability. employees alleged to
Defendants David Murrell and Brian Pettiford were of Wachovia and Millennium aspects of respectively the scheme and are their
have
conducted
from
places of employment.
Wachovia and Millennium Bank argue that
the claims against them should be dismissed, however, because
Wachovia Bank, N.A. merged into Wells Fargo Bank, N.A. on March 20, 2010. Wachovia is now a division of Wells Fargo Bank, N.A. which in turn is a wholly owned subsidiary of Well Fargo & Company. (ECF No. 31, at n.1). 49
13
the
factual
allegations
are
insufficient
to
support
the
respondeat superior claim. at 2; ECF No. 47, at 1).
(ECF No. 72-1, at 2; ECF No. 32, Defendants argue that the misconduct
of Mr. Pettiford and Mr. Murrell was clearly outside the scope of their employment with the banks because they were not acting to further any interests of the banks. ECF No. 47, at 5-6)). claim for punitive (ECF No. 32, at 2, 7-8;
In addition, the banks argue that the against be them must be dismissed claims of
damages
because
punitive
damages
cannot
awarded
for
ordinary negligence. Defendant Wells
(ECF No. 32, at 8; ECF No. 47, at 2, 7). Fargo & Company raises the additional
argument that even if Wachovia Bank is vicariously liable for Mr. Murrell's conduct, Wells Fargo & Company would be shielded from liability by virtue of its corporate status. at 10). Plaintiff counters that the complaint alleges an adequate basis to establish respondeat superior liability for Wachovia and Millennium Banks based on the actions of their employees. (ECF No. 68, at 6-12; ECF No. 66-1, at 3-4, 7-14). maintains that the types of activities Mr. Murrell Plaintiff and Mr. (ECF No. 32,
Pettiford conducted as part of the foreclosure rescue scheme were identical to the types of activities they conducted as employees of the banks, including setting up bank accounts and dealing with deposits, (ECF No. 68, at 8; ECF No. 66-1, at 750
12), and that their actions were beneficial to the banks because they brought them additional business. ECF No. 66-1, at 13). (ECF No. 68, at 11;
Plaintiff also notes that Defendants have
failed to address the allegation that the banks are directly liable for negligent supervision irrespective of the outcome of the respondeat superior claim. 1, at 15). allows employer for (ECF No. 68, at 13; ECF No. 66-
Additionally, Plaintiff argues that Maryland law the imposition on the of punitive acts damages of its against an
based
intentional
employees.
(ECF No. 68, at 16; ECF No. 66-1, at 16-17).
Finally, Plaintiff
argues that there are documents and other evidence to indicate that Wells Fargo are and Wachovia are the same entity, but if
Defendants
correct
regarding
their
corporate
structure,
Plaintiff should be allowed to amend his complaint to substitute Well Fargo Bank, N.A. for Wells Fargo & Company, N.A.
(ECF No. 68, at 16-18). The doctrine of respondeat superior allows an employer to be held vicariously liable for the tortious conduct of its
employee when that employee was acting within the scope of the employment relationship. Dhanraj v. Potomac Elec. Power Co.,
305 Md. 623, 627 (1986); see also Penn Cent. Transp. Co. v. Reddick, 398 A.2d 27, 29 (D.C. 1979). "To be within the scope
of the employment the conduct must be of the kind the servant is employed to perform and must 51 occur during a period not
unreasonably employment in
disconnected a locality
from not
the
authorized distant
period from
of the
unreasonably
authorized area, and actuated at least in part by a purpose to serve the master." 190 322 Md. Md. E. 256, 247, Coast 285 255 Freight (1948); (1991). Lines see v. Mayor Sawyer factors of v. are
Baltimore, Humphries,
also
Many
considered, including: (a) whether or not the act is one commonly done by such servants; (b) the time, place and purpose of the act; (c) the previous relations between the master and the servant; (d) the extent to which the business of the master is apportioned between different servants; (e) whether the act is outside the enterprise of the master or, if within the enterprise, has not been entrusted to any servant; (f) whether or not the master has reason to expect that such an act will be done; (g) the similarity in quality of the act done to the act authorized; (h) whether or not the instrumentality by which the harm is done has been furnished by the master to the servant; (i) the extent of departure from the normal method of accomplishing an authorized result[;] and (j) whether or not the act is seriously criminal. Sawyer, 322 Md. at 256 (internal quotations
omitted)(incorporating factors from First Restatement of Agency § 229). factor The Sawyer court continued to note that an additional is "whether and the employee's that conduct in was expectable of or
foreseeable"
reiterated
cases
employees
committing intentional torts "where an employee's actions are
52
personal, or where they represent a departure from the purpose of furthering the employer's business, or where the employee is acting to protect his own interests, even if during normal duty hours and at an authorized locality, the employee's actions are outside the scope of his employment." Id.
The parties' briefs cite primarily to cases considering the applicability circumstances Plaintiff of respondeat unlike where superior the one liability here. were in For factual example, for
entirely cases
cites
employers
found
liable
sexual or physical assaults carried out by security guards or school counselors. (See ECF No. 66-1, at 10-11). These cases
are not especially enlightening given the facts of this case. Other courts have considered whether to hold banks
vicariously liable for the fraudulent or otherwise tortious or illegal conduct of their employees. One such case is Oki
Semiconductor Co. v. Wells Fargo Bank, Nat'l Ass'n, 298 F.3d 768, 771-72 (9th Cir. 2002), where the United States Court of Appeals for the Ninth Circuit considered whether to impose
respondeat superior liability on Wells Fargo bank for the RICO violations of its employees where one of its branch tellers had used her position to orchestrate the financial affairs of a RICO conspiracy. The complaint included allegations strikingly
similar to those made against the banks in this case including: "that Wells Fargo was liable because it reaped benefits from 53
[the employee's] activities by `obtaining numerous new accounts and receiving millions of dollars in deposits'" and that the employee "committed her crimes `while acting within the course and scope of her employment ... using the training, offices, and other instrumentalities of her employment.'" Id. at 772. The
Ninth Circuit held that these actions were not within the course of her employment at Wells Fargo and did not render Wells Fargo liable for actions committed by the RICO defendants. Id. The
Ninth Circuit proclaimed that "conspiring to violate RICO was outside the course and scope of Tran's employment . . . [and] was well beyond her job description as a bank teller." at 777. extending Id.
In addition the Ninth Circuit expressed concern that the respondeat superior theory of liability in
situations like that would have the effect of making employers liable for the conduct of non-employee RICO co-conspirators over whom the employer "demolish had the no control or ability to monitor doctrine and of
thereby
equitable
balance Id. the
the
respondeat superior seeks to achieve." In order to determine whether
facts
alleged
are
adequate to maintain a respondeat superior theory, the specific acts of Mr. Murrell the and Mr. Pettiford of their that allegedly must were be
conducted considered. Plaintiff
within
scope with that
employment and Mr.
Beginning alleged
Wachovia Mr. 54
Bank
Murrell, credit
has
Murrell
would
recruit
investors for the foreclosure rescue scheme from depositors and other customers of Wachovia (ECF No. 3 ¶¶ 6, 16), and would identify Wachovia customers at risk of foreclosure to
participate in the program.
(Id. ¶ 24).
Plaintiff also alleges
that DB Capital, the entity that managed and ran the scheme, maintained a bank account with Wachovia that was managed by Mr. Murrell and that Mr. Murrell arranged for funds to be
transferred from Plaintiff's account at Wachovia to DB Capital's account alleges as part Mr. of the scheme. utilized More generally, "to Plaintiff the
that
Murrell
Wachovia
conduct
business of DB Capital including calling participants to monitor rental payments, sending facsimiles and other electronic data, and setting up DB Capital bank accounts into which the illegal proceeds of Defendants' scam would be deposited and distributed from." (Id. ¶ 123).
With respect to Mr. Pettiford's work at Millennium Bank, Plaintiff alleges that Mr. Pettiford used his position as a Vice-President at Millennium Bank to recruit property owners in need of financial assistance to participate in the scheme and customers with good credit seeking to acquire a loan or
refinance to act as straw purchasers in the scam.
(ECF No. 3
55
¶¶ 25-26).14
Plaintiff
also
alleges
that
he
met
with
Mr.
Pettiford at his office at Millennium Bank during normal work hours to discuss the details of Plaintiff's participation in the program and Mr. Pettiford and ¶¶ his DB allegedly were indicated the same that or the
Millennium entities. Pettiford paperwork
Bank (Id. used and
Capital And at run
related that Mr.
71-73). office
Plaintiff to
alleges "sign and
Millennium credit
necessary otherwise
agreements,
checks,
conduct the business of DB Capital." Plaintiff has not alleged
(Id. ¶ 62). facts to maintain
sufficient
negligence claims against Wachovia or Millennium Bank under a respondeat superior theory. Plaintiff has alleged only that
Defendants Murrell and Pettiford conducted acts relating to the DB Capital foreclosure rescue scam from their offices at
Wachovia and Millennium Bank and during business hours and that their actions may have had the incidental effect of obtaining a few extra customers for the banks. Plaintiff has not alleged
In his opposition to the motion to dismiss, Plaintiff argues that Defendant Tracey Spain is an example of a Millennium bank customer who was recruited to participate in the scam in just this fashion. (ECF No. 66-1, at 7-8). The details regarding Ms. Spain's relationship to Millennium Bank are included in Ms. Spain's counterclaims, however, and Plaintiff would need to amend his complaint to make this allegation part of his claim. Moreover, the fact that one credit investor was recruited by Defendant DB Capital from Millennium Bank's customer base is not adequate to impose respondeat superior liability on the bank. 56
14
any facts to indicate that Mr. Murrell or Mr. Pettiford were motivated by a desire to benefit their employers. While acknowledging that the complaint does not include
specific facts alleging that Mr. Murrell was acting to further Wachovia's interests, Plaintiff argues that he satisfied his
burden by alleging that Mr. Murrell "was acting within the scope of his employment with Wachovia." (ECF No. 69, at 10).
According to Plaintiff, this allegation "incorporates the legal meaning of the phrase which, by definition, includes actions taken at least in part, to further the interests of an employer" and as such he "need not incorporate into his pleading the
elements of proof required in order to prevail on this claim." (Id.). Under the pleading standards set forth in Twombly and The
Iqbal, however, Plaintiff's allegations are insufficient.
allegation that Mr. Murrell was acting within the scope of his employment is precisely the sort of "naked assertion devoid of further factual enhancement" or "formulaic recitation of the See
elements of a cause of action" that is not permissible. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949
(2009)(internal
citations omitted). Plaintiff maintains that the complaint also alleges that the banks are directly liable because of their negligent
supervision of Mr. Murrell and Mr. Pettiford.
(ECF No. 68-1,
57
at 13-14).15
To establish liability for negligent supervision a
plaintiff must show that his or her injury was caused by the tortious conduct of an employee, the employer knew or should have known that the employee was capable of inflicting harm of some type, the employer failed to use proper care in supervising that employee, and the employer's breach was the proximate cause of the plaintiff's injury. Greater Md., Inc., 923 See Bryant v. Better Bus. Bureau of F.Supp. only 720, the 751 bare (D.Md. legal 1996).
Plaintiff's
complaint
contains
assertion
that the banks failed to supervise properly Defendants Murrell and Pettiford without specific factual allegations to support this assertion. The complaint contains no allegations that the
banks were aware of Mr. Murrell or Mr. Pettiford's participation
In its reply brief, Millennium Bank argues that Plaintiff cannot assert claims for negligent supervision and negligence based on respondeat superior liability in the same count and thus if Plaintiff's complaint is construed to contain a separate count of negligent supervision it must fail for duplicity. (ECF No. 78, at 8). Plaintiff filed a motion for leave to file a surreply to address this argument on October 26, 2010, twentytwo days after Defendant's reply was filed. (ECF No. 83). As Plaintiff notes, surreply are not permitted as a matter of course in this district; pursuant to Local Rule 105.2(a) leave of court is necessary in order to file surreply. Reply briefs are typically due fourteen days after service of opposition briefs. Local Rule 105.2(a). Plaintiff's motion for leave to file a surreply was thus untimely and Plaintiff offered no explanation or justification for his delay in filing. Accordingly Plaintiff's motion for leave to file a surreply will not be granted. Because the court finds both theories of negligence deficient, it is not necessary to consider Millennium Bank's duplicity argument. 58
15
in
the
scheme the
or
any
indication conducted
of or
the how
type it
and was
level
of
supervision
banks
deficient.
Plaintiff has not stated a claim for negligent supervision. Because Plaintiff has failed to plead adequately any basis by which the banks are liable for negligence, Plaintiff's claim for punitive damages from the banks in count XI also fails. See, e.g., Montgomery Ward & Co., Inc. v. Keulemans, 275 Md. 441 (1975)(holding that there must be an award of compensatory All claims
damages for an award of punitive damages to stand). against the banks will be dismissed. III. Motion to Intervene
JP Morgan Chase Bank, N.A. ("Chase") filed a consent motion to intervene pursuant to Fed.R.Civ.P. 24 on September 13, 2010 (ECF Nos. 62 and 76). Chase contends that it has an interest in
the case because it acquired a Deed of Trust that First Magnus Financial Corporation had acquired on one of the properties at issue in the case, 1729 29th Street, S.E., Washington, D.C. from Defendants Brian and Russell Pettiford. (ECF No. 62-1, at 2).
Chase further argues that because Plaintiff's quiet title action seeks to adjudicate the validity of the Pettiford's interest in the D.C. property, the outcome of the case will impact Chase's interest in the subject property and without allowing Chase to participate its interest will not be protected. (Id. at 3).
59
Federal intervene in
Rule an
of
Civil upon
Procedure timely
24
permits
anyone The
to Rule
action
application.
distinguishes between intervention as of right pursuant to Rule 24(a), and permissive intervention pursuant to Rule 24(b). 24(a)(2) states as follows: On timely motion, the court must permit anyone to intervene who: . . . (2) claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest. The Fourth Circuit has explained that an intervenor under Rule 24(a)(2) must satisfy four requirements: (1) the intervenor must submit a timely motion; (2) it must demonstrate a "direct and substantial interest" in the property or transaction; (3) it must prove that the interest would be impaired if the Rule
intervention was not allowed; and (4) it must establish that the interest is inadequately represented by existing parties. In re
Richman, 104 F.3d 654, 659 (4th Cir. 1997)(citing In re Kaiser Steel Corp., 998 F.2d 783, 790 (10th Cir. 1993)); see also In re Thompson, 965 F.2d 1136, 1142 (1st Cir. 1992). to intervene should be viewed on the "An application and in
pleadings,
considering whether a party should intervene in a case, a court should not be concerned with whether the applicant is likely to prevail on the merits." First Penn-Pacific Life Ins. Co. v. 60
William
R.
Evans,
Chartered,
200
F.R.D.
532,
536
(D.Md.
2001)(citing Williams & Humbert Ltd. v. W. & H. Trade Marks Ltd., 840 F.2d 72, 75 (D.C. Cir. 1988) The permissive intervention of a third party to an action is governed by Fed.R.Civ.P. 24(b), which provides as follows in relevant part: On timely motion, the court may permit anyone to intervene who: . . . (b) has a claim or defense that shares with the main action a common question of law or fact. . . . In exercising its discretion the court must consider whether the intervention will unduly delay or prejudice the adjudication of the original parties' rights. Permissive intervention primarily lies at the discretion of the court. See Hill v. W. Elec. Co., 672 F.2d 381, 385 (4th Cir.),
cert. denied, 459 U.S. 981 (1982). Here, Chase has established that intervention is warranted under both Fed.R.Civ.P motion 24(a)(2) is and 24(b). as it was As an initial before
matter,
Chase's
timely
filed
discovery has begun and before several of the Defendants have filed their answers. By virtue of its acquisition of the First
Magnus Deed of Trust, Chase has a direct interest in the D.C. property at issue in this case. Because the quiet title action
in the complaint seeks to void any Deeds of Trust on the D.C. property, the outcome of the case will impact and potentially impair Chase's interests in that property, and there are no
61
current parties to the case that can protect Chase's interests. Accordingly, Chase's intervention must be permitted pursuant to Rule 24(a)(2) and the motion will be granted. IV. Motion to Dismiss Filed By JP Morgan Chase Bank While its motion to intervene was pending, Chase filed a motion to dismiss the quiet title action relating to the
property at 1729 29th Street, SE, Washington, DC. (ECF No. 89). By way of argument, Chase incorporates the motions to dismiss filed by Defendants Russell and Brian Pettiford. at 2). (ECF No. 89-1,
As discussed above the Pettifords' motion to dismiss the For the same reasons,
quiet title action count will be denied. Chase's motion will be denied. V.
Motion to Dismiss Counterclaims Filed by Plaintiff Cesar Day Tracey Spain filed a counter-complaint in the Maryland case
prior to removal that asserted three counts against Plaintiff-- two for fraud and one for unjust enrichment relating to
Plaintiff's Baltimore property. to dismiss these counterclaims
(ECF No. 58). for improper
Plaintiff moves service and/or
failure to state a claim.
(ECF No. 84).
Plaintiff's initial argument is that the claims should be dismissed because he was not properly served. Ms. Spain filed
her counter and cross claims with the Circuit Court for Prince George's County prior to removal but did not serve a copy on
62
Plaintiff or her co-defendants.
When the case was removed, a
copy of the pleading was not initially provided to the court. In August 2010, counsel for Defendants DB Capital, David
Murrell, Russell Pettiford, and Brian Pettiford, recognized that this pleading was missing from the CM/ECF docket and submitted a copy "to perfect the record." (ECF No. 57). Mr. Day alleges he
first learned of the counterclaim at that time and argues that this does not constitute proper service. Ms. Spain concedes
that she did not serve Mr. Day with her countercomplaint when it was filed in Prince George's County. ECF No. 93). (ECF No. 85, at 2 and
She contends, however, that "it was served through
CM/ECF service when the case was removed to this court [and] any problems with service were cured by Mr. Day's filing of his motion to dismiss."16 (ECF No. 85, at 2).
Irrespective of whether proper procedures were followed in state court or at the time of removal, Ms. Spain's counterclaims and cross claims were definitively made a part of the district court record on August 23, 2010 and copies were provided to all parties electronically. The counterclaims will not be dismissed
for improper service and all parties have twenty-one days from the date of the order accompanying this memorandum opinion to
None of the Defendants identified in Ms. Spain's crossclaims have filed answers or other responses to the crossclaims. 63
16
file answers or other responses.
Because Plaintiff has already
raised substantive challenges to Ms. Spain's counterclaims, the court will consider those now. A. Ms. Fraud Counts Spain has alleged two counts of fraud against
Plaintiff--one seeking rescission of the deed transferring title to the Baltimore property (count I) and one seeking damages (count II). pursuant plead to Plaintiff argues that both should be dismissed Fed.R.Civ.P. facts 12(b)(6) because a Ms. Spain of has not In
sufficient
to
establish
claim
fraud.
particular, Plaintiff argues that there is no allegation that he made any representations directly to Ms. Spain, let alone any fraudulent representations on which she may have relied, and that she has failed to meet the elevated pleading requirement for fraud pursuant to Fed.R.Civ.P. 9(b) (ECF No. 84, at 5).
Plaintiff contends that Ms. Spain was fully aware of the nature of the transaction and nothing was concealed from her. at 10). (Id.
In response Ms. Spain argues that Mr. Day knew that the
Baltimore property was not worth $280,000, he knew that Ms. Spain did not seek to purchase the property for $280,000 with a fourteen percent interest rate, and he knew that by signing the Deed and loan documents he was not really transferring ownership to her, yet he signed the Deed containing these representations. (ECF No. 85, at 4-5). 64
The length. "(1) that
elements
of
fraud
have
already
been
discussed
at
To recap, under Maryland law a plaintiff must prove: the (2) or defendant that the its made a false was representation either was made known with to to the the
plaintiff, defendant
falsity
that
representation
reckless
indifference as to its truth, (3) that the misrepresentation was made for the purpose of defrauding the plaintiff, (4) that the plaintiff relied on the misrepresentation and had the right to rely on it, and (5) that the plaintiff suffered compensable injury resulting from the misrepresentation." v. Gaynor, 370 Md. 89, 97 (2002). Plaintiff primarily argues that Ms. Spain has failed to plead adequate facts to satisfy elements one and four. With Md. Envtl. Trust
respect to element one, the alleged fraudulent representation(s) identified by Ms. Spain in her counterclaims are statements in the Deed signed by Plaintiff. (ECF No. 58 ¶¶ 39, 52). Ms.
Spain does not identify the specific statements or portions of the deed that she contends are false, nor does she allege that Plaintiff himself drafted the deed or otherwise was responsible for its contents or that he directly communicated these
representations to her.
With respect to element four, Ms. Spain
also never alleges that she relied on any statements made by Plaintiff. Instead she alleges that she agreed to participate
in the program "acting on Mr. Pettiford's advice and counsel," 65
(ECF
No.
58
¶ 14),
and
that
she
signed
documents
at
Mr.
Pettiford's and RTS's direction.
(Id. ¶ 22).
Ms. Spain's counterclaims do not contain adequate facts to establish elements one and four of fraud. And unlike Plaintiff,
Ms. Spain has not alleged a conspiracy to commit fraud involving Plaintiff and Mr. Pettiford or other Defendants that would allow her to use their collective acts to establish fraud.
Accordingly, the fraud counts as to Mr. Day will be dismissed. B. Unjust Enrichment
In count IV of her counterclaims, Ms. Spain asserts a claim for unjust enrichment against Plaintiff. (ECF No. 58 ¶¶ 63-71).
In Maryland, a claim of unjust enrichment consists of three elements: (1) the plaintiff confers a benefit upon the
defendant, (2) the defendant knows or appreciates the benefit, and (3) the defendant accepts or retains the benefit under such circumstances as to make it inequitable for the defendant to retain the benefit without the payment of its value. Cross Country Settlements, LLC, 402 Md. 281, 295 (2007). Plaintiff argues the unjust enrichment claim should be Hill v.
dismissed because he did not receive any benefit from Ms. Spain. (ECF No. 84, at 11). higher than she fair Ms. Spain has alleged that by taking out a market on value mortgage the on the Baltimore of being
property,
conferred
Plaintiff
benefit
relieved from his loans and foreclosure on the property as well 66
as the benefit of rental income from his tenants in the property for two years. (ECF No. 85, at 6; ECF No. 58 ¶ 66). Plaintiff
disputes these allegations and maintains that he lost title to and equity in his Baltimore property while Ms. Spain received $10,000 for her participation in the program and that the rent Ms. Spain alleges he received actually went to DB Capital.
(ECF No. 84, at 12). Plaintiff's argument is not that Ms. Spain has failed to allege the requisite elements of unjust enrichment but rather that her allegations are false. In ruling on a 12(b)(6) motion,
the court must consider all well-pled allegations as true and construe them in the light most favorable to the non-moving party. The court cannot evaluate the merits of the parties' On its
respective pleadings or make factual determinations.
face, Ms. Spain's pleading states a claim for unjust enrichment against Mr. Day and accordingly the motion to dismiss this count will be denied. VI. Conclusion For the foregoing reasons, the motion by Defendants Tracey and Ralph Spain to dismiss will be granted in part and denied in part; the motion by Defendant David Murrell to dismiss will be granted in part and denied in part; the motion by Defendant Russell Pettiford to dismiss will be denied; the motion by
Defendant Brian Pettiford to dismiss will be granted in part and 67
denied in part; the motion by Defendants Wachovia Bank, NA. and Wells Fargo & Company, N.A. to dismiss will be granted; the motion by Defendants Millennium Bank, N.A. and Millennium
Bankshares Corporation to dismiss will be granted; the motion by Plaintiff Cesar Day for leave to file a surreply will be denied; the motion by JP Morgan Chase Bank to intervene will be granted; the motion by JP Morgan Chase Bank to dismiss will be denied; and the motion by Plaintiff Cesar Day to dismiss Tracey Spain's counterclaims will be granted in part and denied in part. A separate Order will follow.
/s/ DEBORAH K. CHASANOW United States District Judge
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