Smith et al v. O'Malley et al

Filing 38

MEMORANDUM OPINION and ORDER Granting Defendants Kelly O'Malley and Chicago Title Insurance Company's Motions for Joinder [28, 30], Granting in Part Defendants' 21 Motion to Dismiss, and Dismissing Remaining Claims - Signed by District Judge Judith E. Levy. (FMos)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
Malcolm Smith, Steven
Graysmark, John Eccles, Camille
Abdo Faraj, Paramjit Hough,
Ampect Investments, LLC, Brad
Lamel, Brett Specter, Andrew
Sherris, Christine Sherris, Barney
Edwards, Amanda Edwards,
Campello, LLC, Mark LlewellynJones, Kathryn Llewellyn-Jones,
and Isabel Knight,

Case No. 16-cv-14077
Judith E. Levy
United States District Judge
Mag. Judge Mona K. Majzoub

Plaintiffs,
v.
Kelly O’Malley, Escrow and Title
Services Inc., and Chicago Title
Insurance Company,
Defendants.
________________________________/
OPINION AND ORDER GRANTING DEFENDANTS KELLY
O’MALLEY AND CHICAGO TITLE INSURANCE COMPANY’S
MOTIONS FOR JOINDER [28, 30], GRANTING IN PART
DEFENDANTS’ MOTION TO DISMISS [21], AND DISMISSING
REMAINING CLAIMS
On May 3, 2013, plaintiffs Mark and Kathryn Llewellyn-Jones,
along with several others, sued a collection of real estate companies and

their associates. See Llewellyn-Jones v. Metro Property Group, LLC,
Case No. 13-cv-11977 (E.D. Mich.). That case asserted a civil claim
under the Racketeer Influenced and Corrupt Organizations Act
(“RICO”), stating that the sixteen defendants in that case engaged in a
mail and wire fraud scheme arising from the fraudulent sale of
purported rental properties in the Detroit area.

Llewellyn-Jones,

Complaint, Dkt. 1.
The Llewellyn-Joneses, along with the other plaintiffs in this case,
now bring suit against defendants Escrow and Title Services Inc., Kelly
O’Malley, and Chicago Title Insurance Company for their alleged roles
in this scheme. Each plaintiff alleges that the defendants, as a part of
the enterprise alleged in Llewellyn-Jones, also engaged in fraud related
to the closings of their respective transactions. For the reasons set forth
below, defendants’ combined motion to dismiss (Dkt. 21) is GRANTED
IN PART and this case is DISMISSED.
I.

Factual Background

Plaintiffs allege that from “April 2011 until February 2013,” they
were the victims of “a scheme to defraud investors, primarily foreign
investors.”

(Dkt. 1 at 15.)

The participants in that scheme are
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identified as Metro Property Group, LLC, Metro Property Management,
LLC, Global Power Equities, LLC, Apex Equities, LLC, and Summit
Acquisitions, LLC.

(Id.)

Each of those companies was previously

named as a defendant in Llewellyn-Jones as a part of this same scheme.
Llewellyn-Jones, Complaint, Dkt. 1.
Plaintiffs further allege that Bell Title and O’Malley, acting as
Bell Title’s agent, were recruited by the Metro Property group to assist
in the fraudulent scheme.

(Dkt. 1 at 16.)

The purported scheme

involved the Metro Property Group buying properties in Detroit,
misrepresenting the physical condition of the properties, the existence
of tenants for the properties, and the profit-generating history of the
properties.

(Id. at 16-390.)

Bell Title is generally alleged to have

known about these misrepresentations and failed to disclose the true
nature of the transactions to plaintiffs at or before closing, and to have
misrepresented the true dates of closing on each of the properties.
The plaintiffs filed suit on November 17, 2016.

(Id.)

Each

plaintiff brings claims against Bell Title and O’Malley for some
combination of silent fraud, civil conspiracy, breach of contract,
conversion, and negligent misrepresentation, all under Michigan law.
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(See generally id.) Chicago Title Insurance Company is also alleged to
have participated in some of the transactions as a title insurer, and is
alleged to have breached a title insurance policy it issued with respect
to a property purchased by Paramjit Hough. (Id. at 278.)
All plaintiffs also bring general claims against Bell Title and
O’Malley for silent fraud, civil conspiracy, negligent misrepresentation
and breach of fiduciary duty, and violation of RICO, as well as an
agency claim against Chicago Title and Insurance Company. (Id. at
390-400.) It is unclear how the general state law claims differ from the
specific claims asserted for each plaintiff.
On January 27, 2017, Bell Title filed a motion to dismiss plaintiffs’
complaint. (Dkt. 21.) O’Malley and Chicago Insurance and Title each
filed motions to join in Bell Title’s motion. (Dkts. 28, 30.) The motion to
dismiss is now fully briefed, and the Court determines that oral
argument is not necessary to determination of this motion pursuant to
E.D. Mich. Local R. 7.1(f).
II.

Legal Standard

When deciding a motion to dismiss under Fed. R. Civ. P. 12(b)(6),
the Court must “construe the complaint in the light most favorable to
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the plaintiff and accept all allegations as true.” Keys v. Humana, Inc.,
684 F.3d 605, 608 (6th Cir.2012). “To survive a motion to dismiss, a
complaint must contain sufficient factual matter, accepted as true, to
state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009). A plausible claim need not contain “detailed
factual allegations,” but it must contain more than “labels and
conclusions” or “a formulaic recitation of the elements of a cause of
action[.]” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
III. Analysis
As a threshold matter, the O’Malley and Chicago Title’s motions
(Dkts. 28, 30) to join in Bell Title’s motion to dismiss are granted.
All but two of the claims in this 400-page complaint are state-law
claims.

The Court has jurisdiction over this case based on federal

question jurisdiction under 28 U.S.C. § 1331. (Dkt. 1 at 15.) Plaintiffs
assert two violations of RICO as to all plaintiffs under 18 U.S.C. §
1962(c), conducting or participating in a racketeering enterprise, and §
1962(d), conspiracy to violate RICO. Jurisdiction over the remaining
state law claims is based on supplemental jurisdiction under 28 U.S.C.
§ 1367. Because this case asserts 159 claims, and only two are federal
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claims, the Court will first address defendants’ arguments regarding
the sufficiency of their federal claims.
Defendants argue both that plaintiffs fail to state a claim for
violation of RICO, and that all but one of the plaintiffs’ RICO claims are
barred by the applicable statute of limitations.

To state a RICO

violation, a plaintiff must plead: “(1) conduct (2) of an enterprise (3)
through a pattern (4) of racketeering activity.” Moon v. Harrison Piping
Supply, 465 F.3d 719, 723 (6th Cir. 2006). A plaintiff must also show
predicate acts giving rise to the pattern of RICO activity, although the
number of and relationship between acts a plaintiff must show is
flexible. H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 236-37 (1989).
Plaintiffs allege that Bell Title was a part of an association-in-fact
enterprise with the Metro Property group under 18 U.S.C. § 1962(c),
and that Bell Title was engaged in a conspiracy to violate § 1962(c) in
violation of § 1962(d).

(Id. at 394, 399.)

An association-in-fact

enterprise is defined as “a group of persons associated together for a
common purpose of engaging in a course of conduct.” United States v.
Turkette, 452 U.S. 576, 583 (1981). A plaintiff proves the existence of
an

association-in-fact

enterprise
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“by

evidence

of

an

ongoing

organization, formal or informal, and by evidence that the various
associates function as a continuing unit.” Id.
Plaintiffs allege that this RICO enterprise committed mail and
wire fraud. (Dkt. 1 at 394-399.) “Mail fraud and wire fraud are proven
by showing a scheme or artifice to defraud combined with either a
mailing or an electronic communication for the purpose of executing the
scheme.” VanDenBroeck v. CommonPoint Mortg. Co., 210 F.3d 696, 701
(6th Cir. 2000) abrogated on other grounds by Bridge v. Phoenix Bond &
Indem. Co., 553 U.S. 639 (2008).
RICO claims alleging fraud must state with particularity the
circumstances constituting the fraud.

Fed. R. Civ. P. 9(b).

This

requires plaintiffs to “(1) specify the statements that the plaintiff[s]
contend[] were fraudulent, (2) identify the speaker, (3) state where and
when the statements were made, and (4) explain why the statements
were fraudulent.” Frank v. Dana Corp., 547 F.3d 564, 570 (6th Cir.
2008) (quotation omitted). When alleging fraud, each plaintiff must also
specifically allege the injuries attributable to themselves pursuant to

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Fed. R. Civ. P. 9(b). Vennittilli v. Primerica, Inc., 943 F. Supp. 793, 799
(E.D. Mich. 1996).1
Plaintiffs allege fourteen instances of fraudulent mail or wire
activity. On April 29, 2011, plaintiff Brad Lamel alleges that he sent a
check to Bell Title to be applied to future acquisitions by Ampect
Investments, LLC. (Dkt. 1 at 396.) On June 10, July 11, and July 29,
2011, plaintiff Paramjit Hough alleges that he sent wire payments to
Bell Title. (Id.) On June 22 through June 24, 2011 and on January 20,
2012, plaintiff Brett Specter alleges that he had e-mail correspondence
with Bell Title regarding the purchase of properties, and that on
January 20 and February 23, 2012, he sent wire payments to Bell Title,
with the latter on behalf of plaintiff Campello, LLC. (Id. at 396-97.)
Finally, plaintiff Steven Graysmark alleges that he sent wire payments
to Bell Title on July 27, August 2, August 23, and August 24, 2011. (Id.
at 396.)
Plaintiffs Malcolm Smith, John Eccles, Camille Abdo Faraj,
Andrew Sherris, Christine Sherris, Barney Edwards, Amanda Edwards,
The parties frequently confuse the specific mail fraud allegations that serve as the
basis of plaintiffs’ RICO claims with the state law silent fraud claims plaintiffs
assert. Federal civil RICO claims must be based on the federal crimes specified in
18 U.S.C. § 1961. 18 U.S.C. § 1962. Only the allegations of mail fraud suffice to
sustain plaintiffs’ RICO claims.
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Mark Llewellyn-Jones, Kathryn Llewellyn-Jones, and Isabel Knight
allege that they were also victims of the purported mail and wire fraud
scheme. However, they do not allege any specific act of mail or wire
fraud by Bell Title of which any of them were victims. Accordingly,
these plaintiffs’ RICO claims must be dismissed for failure to state a
claim, as these plaintiffs have failed to identify any mail or wire fraud
conducted by Bell Title in relation to them.
The remaining plaintiffs have also failed to sufficiently plead the
alleged predicate acts serving as the basis for the mail and wire fraud
claims. Lamel and Ampect claim that on April 19, 2011, they sent a
letter to Bell Title that included a check for $5,000 to be applied to the
acquisition of future properties by Ampect.

(Dkt. 1 at 396.)

The

complaint identifies three transactions involving Lamel and Ampect
beginning in July 2011. (Id. at 236-257.) It further identifies a series of
allegedly fraudulent omissions by Bell Title in relation to the property
closings, beginning months after the April 19, 2011 letter. The vague
description of this letter and its timing do not sufficiently demonstrate
that the purpose of the letter and the money were to further the fraud
scheme at the time the communication was sent, nor does this
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description sufficiently associate the letter with the fraudulent scheme
at issue in this case.
Specter and Ampect likewise argue that they sent email
correspondence regarding real property transactions involving Ampect
on July 21, 2011. (Id. at 396.) This description is likewise too vague for
the Court to determine whether the communications were for the
purpose of furthering the alleged scheme, because plaintiffs provide no
indication of the content of the statements.
Specter also alleges that on January 20, 2012, he sent an e-mail to
“USA Property Direct” confirming Bell Title’s receipt of purchase funds
for two properties.

(Id. at 397.)

It is entirely unclear from the

complaint how e-mail correspondence with a third party that is not
alleged to be a part of the RICO conspiracy can be a communication in
furtherance of the conspiracy.
Hough, Graysmark, and Specter allege ten wire transfers between
June 10, 2011 and February 23, 2012. (Id. at 396-97.) However, the
transfers are generally described as “examples of Bell Title’s mail and
wire activity, which contributed to the pattern of racketeering activity.”
(Id. at 395.) The complaint lacks specificity as to the purpose of each of
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the transfers, some of which do not correspond to any date otherwise
referenced in the complaint, and none of which correspond to the
amounts paid for the properties at issue.
Plaintiffs have not sufficiently pleaded any predicate act under
RICO. Accordingly, they have failed to state a claim for violation of
RICO, either under § 1962(c) or (d), and those claims are dismissed.
The parties in this matter are non-diverse, as plaintiffs Ampect
Investments, LLC and Campello, LLC and defendants Bell Title and
Kelly O’Malley are each alleged to be citizens of Michigan. (Id. at 1314.)

Diversity jurisdiction is only proper in “cases in which the

citizenship of each plaintiff is diverse from the citizenship of each
defendant.”

Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996).

Accordingly, the Court declines to exercise supplemental jurisdiction
over the remaining 157 state law claims pursuant to 28 U.S.C. §
1367(c)(3), as all claims over which original jurisdiction exists have
been dismissed.
IV.

Conclusion

For the reasons set forth above, it is hereby ordered that:
Plaintiffs’ RICO claims are DISMISSED;
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O’Malley and Chicago Title Insurance Company’s motions to join
in Bell Title’s motion to dismiss (Dkts. 28, 30) are GRANTED;
Defendants’ motion to dismiss (Dkt. 21) is GRANTED IN PART;
and
The remaining state law claims are DISMISSED WITHOUT
PREJUDICE to refiling them in Michigan state court.
IT IS SO ORDERED.
Dated: April 10, 2017
Ann Arbor, Michigan

s/Judith E. Levy
JUDITH E. LEVY
United States District Judge

CERTIFICATE OF SERVICE
The undersigned certifies that the foregoing document was served
upon counsel of record and any unrepresented parties via the Court’s
ECF System to their respective email or First Class U.S. mail addresses
disclosed on the Notice of Electronic Filing on April 10, 2017.
s/Felicia M. Moses
FELICIA M. MOSES
Case Manager

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