Bigsby v. Barclays Capital Real Estate, Inc. et al

Filing 36

OPINION AND ORDER. The Court has considered all of the arguments raised by the parties. To the extent not specifically addressed, the arguments are either moot or without merit. For the foregoing reasons, the defendants' motion to dismiss is gra nted in part and denied in part. The substantive RICO claim and the RICO conspiracy claim are dismissed. The defendants' motion to dismiss is denied with regard to the plaintiffs' state-law claims (Counts III-VII). The Clerk is directed to close ECF Docket No. 26. re: 26 MOTION to Dismiss filed by Barclays Capital Real Estate, Inc. (Signed by Judge John G. Koeltl on 3/16/2016) (rjm)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
────────────────────────────────────
LAMAR BIGSBY, JR., ET AL.,
Plaintiffs,

14-cv-1398 (JGK)

- against -

OPINION AND ORDER

BARCLAYS CAPITAL REAL ESTATE, INC.,
ET AL.,
Defendants.
────────────────────────────────────
JOHN G. KOELTL, District Judge:
The plaintiffs, Lamar Bigsby, Jr. and Karla Freeland, bring
this putative class action alleging violations of the Racketeer
Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et
seq. (“RICO”), based on predicate acts of mail fraud, 18 U.S.C.
§ 1341, and wire fraud, 18 U.S.C. § 1343, and related state law
claims against defendant Barclays Capital Real Estate, Inc.
(“Barclays”) and various John Doe defendants.

The plaintiffs

allege jurisdiction under RICO and the Class Action Fairness
Act, 28 U.S.C. § 1332(d) (“CAFA”).
The plaintiffs claim that Barclays, the servicer of the
plaintiffs’ home mortgage loans, engaged in two different
schemes to overcharge borrowers fraudulently: (1) a “feeshifting scheme,” whereby Barclays allegedly charged borrowers
for administrative and outsourcing fees that it concealed under
the category “attorneys’ fees,” and (2) a “related mortgages
1

scheme,” wherein Barclays allegedly inflated costs for borrowers
with multiple mortgages.
Barclays now moves to dismiss the Amended Class Action
Complaint for lack of subject matter jurisdiction, Fed. R. Civ.
P. 12(b)(1), failure to state a claim, Fed R. Civ. P. 12(b)(6),
and failure to state with particularity circumstances
constituting fraud, Fed. R. Civ. P. 9(b).

For the reasons

explained below, the defendant’s motion is granted in part and
denied in part.
I.
Rule 12(b)(1) of the Federal Rules of Civil Procedure is
the mechanism for moving to dismiss a complaint for lack of
subject matter jurisdiction.

“Dismissal of a case for lack of

subject matter jurisdiction under Rule 12(b)(1) is proper ‘when
the district court lacks the statutory or constitutional power
to adjudicate it.’”

Ford v. D.C. 37 Union Local 1549, 579 F.3d

187, 188 (2d Cir. 2009) (quoting Makarova v. United States, 201
F.3d 110, 113 (2d Cir. 2000)).

In considering a Rule 12(b)(1)

motion, courts must construe all ambiguities and inferences in a
plaintiff’s favor.

However, a court may refer to evidence

outside of the pleadings, and the burden is on the plaintiff to
prove by a preponderance of the evidence that jurisdiction
exists.

See Makarova, 201 F.3d at 113; see also Louis v. Comm’r
2

of Soc. Sec., No. 09cv4725 (JGK), 2010 WL 743939, at *1
(S.D.N.Y. Mar. 2, 2010).
In deciding a motion to dismiss pursuant to Rule 12(b)(6),
the allegations in the complaint are accepted as true, and all
reasonable inferences must be drawn in the plaintiff’s favor.
McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir.
2007).

The Court’s function on a motion to dismiss is “not to

weigh the evidence that might be presented at a trial but merely
to determine whether the complaint itself is legally
sufficient.”
1985).

Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir.

The Court should not dismiss the complaint if the

plaintiff has stated “enough facts to state a claim to relief
that is plausible on its face.”
U.S. 544, 570 (2007).

Bell Atl. Corp. v. Twombly, 550

“A claim has facial plausibility when the

plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the
misconduct alleged.”
(2009).

Ashcroft v. Iqbal, 556 U.S. 662, 678

While the Court should construe the factual allegations

in the light most favorable to the plaintiff, “the tenet that a
court must accept as true all of the allegations contained in
the complaint is inapplicable to legal conclusions.”

Id.

When

presented with a motion to dismiss pursuant to Rule 12(b)(6),
the Court may consider documents that are referenced in the
3

complaint, documents that the plaintiff relied on in bringing
suit and that are either in the plaintiff’s possession or that
the plaintiff knew of when bringing suit, or matters of which
judicial notice may be taken.

See Chambers v. Time Warner,

Inc., 282 F.3d 147, 153 (2d Cir. 2002); see also Kerik v.
Tacopina, 64 F. Supp. 3d 542, 549-50 (S.D.N.Y. 2014).
II.
The following factual allegations are taken from the
Amended Complaint and are accepted as true for purposes of this
motion to dismiss.
The first named plaintiff, Lamar Bigsby, Jr., purchased
property in Stockbridge, Georgia in August 2005 and obtained two
mortgage loans from Fremont Investment & Loan Co. for $244,000
and $61,000, secured by his home.

HomEq Servicing (“HomEq”) was

the original servicer until it was acquired by Barclays in 2006.
Amended Compl. ¶ 29. Barclays serviced the mortgages after
November 2006.

Amended Compl. ¶¶ 51-52, 56.

Mortgage

Electronic Registrations System (“MERS”) served as the Nominee
for the lender on the loan, and Bigsby signed standardized
Fannie Mae and Freddie Mac form loan documents setting forth the
terms and conditions of the loans.

Amended Compl. ¶¶ 51-53.

On

January 1, 2007, Bigsby filed for bankruptcy protection after he
became delinquent on his loans.

Amended Compl. ¶¶ 57-58.
4

After Bigsby filed for bankruptcy, he was assessed various
fees and costs.

Bigsby alleges he was assessed “foreclosure

fees and costs,” “Bankruptcy Attorney Fees,” a fee for a “breach
letter,” and late charges.

Amended Compl. ¶¶ 67-68.

The second named plaintiff, Karla Freeland, obtained two
mortgages in 2004 and 2005 for a combined sum of over $500,000,
secured by her Plymouth, Massachusetts home.
¶¶ 122-23.

Amended Compl.

MERS served as the Nominee for the lender on both

loans, and Freeland signed standardized Fannie Mae and Freddie
Mac loan documents setting forth the terms and conditions of the
loans.

Amended Compl. ¶¶ 122-24.

At some point, Barclays

became the servicer of those loans.

Amended Compl. ¶ 128.

In

or about 2006, Freeland became delinquent on her loans and filed
for bankruptcy in 2006.

Amended Compl. ¶¶ 129, 134-35.

From 2006 through 2008, Freeland was charged by Barclays
for attorney fees and other fees that the plaintiffs claim were
improper, including post-acceleration late fees.1
¶¶ 138, 140 and 141, 142, 147.

Amended Compl.

During the course of Freeland’s

“Acceleration” of a loan occurs under an “acceleration clause,”
which is a “loan-agreement provision that requires the debtor to
pay off the balance sooner than the due date if some specified
event occurs, such as failure to pay an installment or to
maintain insurance.” “acceleration clause,” Black’s Law
Dictionary (10th ed. 2014); see also In re AMR Corp., 730 F.3d
88, 99 n.13 (2d Cir. 2013).
1

5

bankruptcy, and continuing until the first part of 2013, Feeland
paid off the amounts that were allegedly owed before she had
filed for bankruptcy, including the attorneys’ fees, postacceleration late fees, and other unpaid fees.

Amended Compl.

¶ 163; see also Amended Compl. ¶¶ 145, 157.
The loan documents for the loans to Bigsby and Freedland
allegedly contained a provision that provided for “the charging
of certain costs and expenses should the loan, after default,
become accelerated by the Note Holder to the extent that such
costs and expense[s] were not prohibited by applicable law.”
Amended Compl. ¶¶ 54, 125.

The documents allegedly did not

contain “any statement which permitted a late charge for a
monthly payment obligation once the Loan had been accelerated
and its full amount deemed immediately due and owing.”

Amended

Compl. ¶¶ 55. 126.
A.
The Amended Complaint alleges that Barclays, the note
holders, Fidelity, Deutsche Bank National Trust Co., and various
law firms hired by Fidelity to represent Barclays (whom the
plaintiffs refer to collectively as “the Network Law Firms”)
entered into what the Amended Complaint characterizes as a “feeshifting scheme.”

As part of this scheme and pursuant to a

Master Service Agreement, Fidelity and other “outsourcers” acted
6

as intermediaries between Barclays and law firms that handled
bankruptcy and foreclosure proceedings.
31, 35-37.

Amended Compl. ¶¶ 30-

The plaintiffs allege that the outsourcers were

compensated by Barclays, in part, out of the attorneys’ fees
charged by Barclays to borrowers ostensibly for the legal
services rendered by the law firms in the bankruptcy and
foreclosure proceedings.

Amended Compl. ¶¶ 42-43.

The

plaintiffs allege that this splitting of the attorneys’ fees
with non-lawyers was not disclosed by Barclays to the borrowers.
The plaintiffs allege that Barclays did not directly pay
Fidelity for any of these services. Instead, retainer agreements
between Fidelity and the Network Law Firms allegedly directed
how much in “attorneys’ fees” the Network Law Firms were to
charge Barclays for each specific task in bankruptcy and
foreclosure, and how much of that “attorney’s fee” would then be
divided with Fidelity.

Amended Compl. ¶¶ 174-75.

The plaintiffs allege that Barclays was aware that Fidelity
and the Network Law Firms split the fees paid by Barclays for
purported “legal services.”

Nevertheless, the plaintiffs allege

Fidelity and Barclays jointly concealed the entire amount
charged under a transaction code for “Attorneys’ Fees,”
concealing the “administrative”, “technology” and “outsourcing”
fees paid to Fidelity.

Between 2006 and 2010, Barclays,
7

Fidelity, and the Network Law Firms allegedly charged borrowers
hundreds of thousands of dollars in “administrative”,
“technology” and/or “outsourcing” fees on Barclays-serviced
loans by labeling them “attorneys’ fees.”

Amended Compl.

¶¶ 175-178.
The plaintiffs also allege that these legal fees were
improper in that they supposedly violated the State Bar of
Georgia’s Rule of Professional Conduct on fee-sharing
arrangement.2

Amended Compl. ¶¶ 66, 69, 80, 84.
B.

The Amended Complaint also alleges that Barclays, its noteholding clients, the Network Law Firms and the MERS entered into
what the Amended Complaint calls the “related mortgages scheme.”
This scheme came into play when the borrower had taken out both
a first and second mortgage with the same entity, and where a
subsequent foreclosure or bankruptcy occurred.
Under this alleged scheme, the plaintiffs’ first and second
lien loans were allegedly owned by the same entity, but separate
counsel was retained and separate fees incurred for both loans
Rule 5.4 provides that, “A lawyer or law firm shall not share
legal fees with a nonlawyer” and “A lawyer shall not permit a
person who recommends, employs, or pays the lawyer to render
legal services for another to direct or regulate the lawyer’s
professional judgment in rendering such legal services.” Ga.
Rule of Prof. Conduct § 5.4.
2

8

during the plaintiffs’ bankruptcy proceedings.

As a result, the

plaintiffs were allegedly charged duplicative fees and costs for
both loans.

The plaintiffs allege that this arrangement was

also hidden from the plaintiffs, the bankruptcy trustee, and the
bankruptcy courts.

Amended Compl. ¶¶ 180-81.
C.

The plaintiffs filed a putative class action complaint in
March 2014 and an Amended Complaint in February 2015.

The

Amended Complaint alleges substantive violations of RICO under
18 U.S.C. § 1962(c), RICO conspiracy under § 1962(d), and state
law claims for breach of contract, unjust enrichment, and
conversion.

It also seeks the imposition of a constructive

trust and an accounting.
Following a pre-motion conference, the Court provided the
plaintiffs the opportunity to file a Second Amended Complaint by
March 27, 2015.

The plaintiffs chose not to file a Second

Amended Complaint.

The defendants now move to dismiss.

The

defendants argue that the Amended Complaint fails to state a
RICO claim or plead an underlying predicate act, fails to allege
a RICO conspiracy in the absence of a valid RICO claim, and that
the plaintiffs’ state law claims must be dismissed in the
absence of a valid federal claim.

9

III.
A.
The RICO statute provides in relevant part: “It shall be
unlawful for any person employed by or associated with any
enterprise . . . to conduct or participate, directly or
indirectly, in the conduct of such enterprise’s affairs through
a pattern of racketeering activity . . . .”

18 U.S.C.

§ 1962(c).
To state a claim under § 1962(c), a plaintiff must allege
“(1) that the defendant (2) through the commission of two or
more acts (3) constituting a ‘pattern’ (4) of ‘racketeering
activity’ (5) directly or indirectly . . . participates in (6)
an ‘enterprise’ (7) the activities of which affect interstate or
foreign commerce.”

Moss v. Morgan Stanley, Inc., 719 F.2d 5, 17

(2d Cir. 1983); see R.C.M. Exec. Gallery Corp. v. Rols Capital
Co., 901 F. Supp. 630, 639 (S.D.N.Y. 1995); see also Fisher v.
Offerman & Co., No. 95cv2566 (JGK), 1996 WL 563141, at *2
(S.D.N.Y. Oct. 2, 1996).

To establish a pattern of racketeering

activity, a “plaintiff must plead at least two predicate acts,
and must show that the predicate acts are related and that they
amount to, or pose a threat of, continuing criminal activity.”
GICC Capital Corp. v. Tech. Fin. Grp., 67 F.3d 463, 465 (2d Cir.
1995) (internal citation omitted).
10

Where, as here, “‘a plaintiff in a RICO claim alleges
racketeering activity based on the predicate acts of violating
the mail or wire fraud statutes, he or she must prove three
elements: (1) scheme to defraud, including proof of intent; (2)
money or property as object of scheme; (3) use of mails or wires
to further the scheme.’”

4 K&D Corp. v. Concierge Auctions,

LLC, 2 F. Supp. 3d 525, 539 (S.D.N.Y. 2014) (quoting City of
N.Y. v. Cyco.Net, Inc., 383 F.Supp.2d 526, 552 (S.D.N.Y. 2005).
Courts have repeatedly warned against attempts by
plaintiffs “‘to mold their claims to the RICO form even though
their injuries do not fall within those intended to be addressed
by the Act.’”

Lefkowitz v. Reissman, No. 12cv8703 (RA), 2014 WL

925410, at *4 (S.D.N.Y. Mar. 7, 2014) (quoting Rosenson v.
Mordowitz, No. 11cv6145 (JPO), 2012 WL 3631308, at *5 (S.D.N.Y.
Aug.23, 2012)).

The alleged predicate acts of mail and wire

fraud “‘merit particular scrutiny,’” id. (quoting Cohen v.
Cohen, No. 09cv10230 (WHP), 2014 WL 279555, at *5 (S.D.N.Y. Jan.
27, 2014)), lest the courts allow the RICO statute “to
federalize garden-variety state common law claims,” id. (quoting
Gross v. Waywell, 628 F. Supp. 2d 475, 483 (S.D.N.Y. 2009)).
A plaintiff pleading RICO predicate acts sounding in fraud
must also satisfy Federal Rule of Civil Procedure 9(b) which
requires that the complaint “‘specify the statements it claims
11

were false or misleading, give particulars as to the respect in
which plaintiffs contend the statements were fraudulent, state
when and where the statements were made, and identify those
responsible for the statements.’” 4 K&D Corp., 2 F. Supp. 3d at
537-38 (quoting Moore v. PaineWebber, Inc., 189 F.3d 165, 173
(2d Cir. 1999)).
The statement upon which the fraud claim is predicated must
be more than a false promise to fulfill the terms of the
agreement. See Bridgestone/Firestone, Inc. v. Recovery Credit
Servs., Inc., 98 F.3d 13, 19–20 (2d Cir. 1996).

A plaintiff

asserting fraud based on a counterparty’s allegedly false
promise to perform must “(i) demonstrate a legal duty separate
from the duty to perform under the contract; or (ii) demonstrate
a fraudulent misrepresentation collateral or extraneous to the
contract; or (iii) seek special damages that are caused by the
misrepresentation and unrecoverable as contract damages.” Id. at
20 (internal citations omitted).
With regard to the “fee-shifting” scheme, the plaintiffs
allege that the defendants used the mails and wires to send
monthly account statements, delinquency letters, legal papers,
and similar documents to borrowers “which fraudulently
identified the portion of the fees divided with the outsourcers
as attorneys’ fees” even though many of those charges were not
12

for attorneys.

Amended Compl. ¶ 197, 200.

The Amended

Complaint also alleges that “other documents relating to the
fee-splitting scheme were sent through the U.S. mails . . . and
over U.S. wires” by Fidelity, Barclays, the noteholders, and the
Network Law firms, among others.

Amended Compl. ¶ 198, 200.

Taking the plaintiffs’ allegations as true for purposes
only of the motion to dismiss, the defendants’ conduct amounts
at most to a breach of contract.

The defendants allegedly

listed fees as “attorneys’ fees” when they should have been
listed separately as “administrative”, “technology” and/or
“outsourcing” fees, and the defendants thereby charged for
services that they were not entitled to charge for under the
contract.

See Amended Compl. ¶¶ 54, 55 125, 126.

The gist of

the plaintiffs’ Amended Complaint is that the attorneys’ fees
that were charged to borrowers were shared with Fidelity and
other outsourcers and that a portion of the attorneys’ fees was
inappropriately charged under the loan agreements.
These allegations do not amount to a separate claim of
fraud.

The defendants did not owe the plaintiffs some legal

duty beyond the obligations contained within the contracts, and
the defendants made no misrepresentation “collateral or
extraneous to the contract.”

See Lefkowitz, 2014 WL 92541, at

*5.
13

In support of their contrary position, the plaintiffs cite
Merrill Lynch & Co. v. Allegheny Energy, Inc., 500 F.3d 171 (2d
Cir. 2007).

In that case, which did not involve a RICO

allegation, the Court of Appeals for the Second Circuit held
that the plaintiff’s claim based on fraudulent inducement of a
contract was separate and distinct from a breach of contract
claim under New York law.

But there, the seller misrepresented

facts as to the present condition of the property in question,
which amounted to fraudulent inducement to enter into the
contract.

Id. at 183-84.

inducement in this case.

There is no allegation of fraudulent
Furthermore, in this case, the

plaintiffs do not allege common law fraud claims independent of
their RICO claims; their only state law claims are for breach of
contract and related harms.

See MashreqBank, psc v. ING Grp.

N.V., No. 13cv2318 (LGS), 2013 WL 5780824, at *5 (S.D.N.Y. Oct.
25, 2013) (“A claim for fraud cannot survive where it arises out
of the identical facts and circumstances, and even contains the
same allegations, as the cause of action alleging breach of
contract.”).
No collateral or extraneous misrepresentation exists here.
The plaintiffs attempt to create one by pointing to a Georgia
ethics rule that prohibits the sharing of legal fees between
lawyers and non-lawyers.

See Amended Compl. ¶ 47.
14

For support,

the plaintiffs cite the Court‘s decision in Mazzei v. Money
Store, 288 F.R.D. 45 (S.D.N.Y. 2012).

But in that case, the

plaintiffs plainly were not contending that there was an
independent cause of action that could be asserted based on the
ethics rules.

Rather, they contended that the sharing of

attorneys’ fees with non-lawyers was a breach of contract.
id. at 65.

See

State ethics rules do not create the basis for a

separate claim.

See Schatz v. Rosenberg, 943 F.2d 485, 492 (4th

Cir. 1991) (“[E]thical rules were intended by their drafters to
regulate the conduct of the profession, not to create actionable
duties in favor of third parties.”)

Mazzei provides no support

for the plaintiffs’ fraud allegations.
The plaintiffs’ mail and wire fraud allegations “are
nothing more than breach of contract claims, and therefore do
not constitute predicate acts.”

Lefkowitz, 2014 WL 92541, at

*3; see Goldfine v. Sichenzia, 118 F. Supp. 2d 392, 404-05
(S.D.N.Y. 2000) (dismissing RICO mail fraud claims that were
duplicative of breach of contract claims); see also MashreqBank,
2013 WL 5780824, at *5-6 (dismissing fraud claims that did not
allege misrepresentations collateral or extraneous to the
contracts).
With respect to the “related mortgages” scheme, the
allegations must be dismissed for a different reason.
15

The “fee-

shifting” allegations, while insufficient to state a claim,
pointed to specific statements that were allegedly false or
misleading to satisfy Rule 9(b).

The same cannot be said of the

allegedly fraudulent statements regarding the “related mortgages
scheme.”

The Amended Complaint fails to plead specific

statements that were allegedly fraudulent and fails to “state
when and where the statements were made, and identify those
responsible for the statements.”

4 K & D Corp., 2 F. Supp. 3d

at 538 (internal quotation marks and citation omitted).
The Amended Complaint merely references general statements
that were allegedly fraudulent, without providing the kind of
specific information required by Rule 9(b).

For example, the

Amended Complaint includes general statements, such as: “[W]hen
the borrower had taken out both a first and second mortgage,
Barclays, its noteholder clients and the Network Law Firms would
identify the second mortgage holder as unrelated to the first
mortgage holder even if they were owned by the same entity.”
Amended Compl. ¶ 180; “In bankruptcy, though the holders of the
first and second mortgages were related or the same entity, that
was concealed from the debtor, the Trustee, and the bankruptcy
courts.”

Amended Compl. ¶ 182; “Bigsby and other borrowers

relied on the representation that the first and second mortgage
holders were independent of each other, paying legal fees and
16

expenses . . . [which were] either redundant or entirely
unnecessary.”

Amended Compl. ¶ 183.

To state a claim, the plaintiffs must allege that there
were specific misrepresentations that the two lenders were not
related when in fact they were, but the Amended Complaint
contains no specific representations to that effect.

The

plaintiffs must also allege when and where the
misrepresentations were made and who made them.

Without such

representations, the allegation comes down to a grievance that
it was unnecessary and redundant for the defendants to hire more
than one law firm.

Such a criticism does “not rise to the

requisite level of particularity” to state a claim.
Petrosurance, Inc. v. Nat’l Ass’n of Ins. Comm’rs, 888 F. Supp.
2d 491, 504 (S.D.N.Y. 2012), aff’d, 514 F. App’x 51 (2d Cir.
2013); see also Eastchester Rehab. & Health Care Ctr., LLC v.
Eastchester Health Care Ctr., LLC, No. 03cv7786 (LTS)(FM), 2005
WL 887154, at *4 (S.D.N.Y. Apr. 15, 2005) (holding plaintiffs
failed to plead alleged false filings fraud scheme with
sufficient particularity to survive motion to dismiss).
Moreover, the plaintiffs have failed to plead scienter, a
necessary element of fraud, with respect to either alleged
fraudulent scheme.

17

At the pleading stage, “[i]n order to establish scienter
for [a] fraud claim, the plaintiffs must either (1) identify
circumstances indicating conscious or reckless behavior by the
defendants, or (2) allege facts showing a motive for committing
fraud and a clear opportunity for doing so.”

San Leandro

Emergency Med. Grp. Profit Sharing Plan v. Philip Morris Cos.,
75 F.3d 801, 813 (2d Cir. 1996).

“While malice or intent may be

averred generally, this is not a ‘license to base claims of
fraud on speculation and conclusory allegations.’

Rather,

Plaintiff must allege facts that give rise to a strong inference
of fraudulent intent.”

Stanley v. OptumInsight, Inc., No.

1:13cv00944, 2014 WL 906145, at *6 (N.D.N.Y. Mar. 7, 2014)
(quoting Eternity Global Master Fund Ltd. v. Morgan Guar. Trust
Co., 375 F.3d 168, 187 (2d Cir. 2004)).
Here, the plaintiffs allege that the defendants’ motive was
to profit financially from their false representations.

The

plaintiffs proffer no evidence of who specifically in Barclays
stood to benefit from the alleged schemes.

The Amended

Complaint speaks vaguely of the corporate entity itself and how
it sought to reduce overhead costs.
¶ 173.

See, e.g., Amended Compl.

If a mere allegation of corporate profit were sufficient

to allege scienter, the requirement would be effectively
eliminated.
18

In the corporate context, “[s]ufficient motive allegations
‘entail concrete benefits that could be realized by one or more
of the false statements and wrongful nondisclosures alleged.’
Motives that are generally possessed by most corporate directors
and officers do not suffice; instead, plaintiffs must assert a
concrete and personal benefit to the individual defendants
resulting from the fraud.”

Kalnit v. Eichler, 264 F.3d 131, 139

(2d Cir. 2001) (quoting Novak v. Kasaks, 216 F.3d 300, 307 (2d
Cir. 2000)).

The Court of Appeals for the Second Circuit has

held that insufficient motives can include, among others, “(1)
the desire for the corporation to appear profitable and (2) the
desire to keep stock prices high to increase officer
compensation.”

Id.

The allegation of mere financial gain on behalf of
unspecified individuals is insufficient to show a motive for
committing fraud under Rule 9(b).

See Morris v. Fordham Univ.,

No. 03cv0556 (CBM), 2004 WL 906248, at *5 (S.D.N.Y. Apr. 28,
2004) (dismissing complaint where plaintiff “neither allege[d]
facts to show that defendant had both motive and opportunity to
commit fraud nor . . . allege[d] facts that constitute strong
circumstantial evidence of conscious misbehavior or
recklessness”); Harrell v. Primedia, Inc., No. 02cv2893 (JSM),
2003 WL 21804840, at *3 (S.D.N.Y. Aug. 6, 2003) (“The mere fact
19

that Defendants had a desire to see the company succeed does not
provide a motive to engage in serious fraud.”); see also San
Leandro, 75 F.3d at 814.
Similarly, the Complaint fails to allege facts that
constitute strong circumstantial evidence of conscious
misbehavior or recklessness.

The essence of the fee-shifting

allegations is that law firms billed Barclay’s for attorneys’
fees that were charged to mortgagors, but a portion of those
fees were paid to outsourcers for administrative, technology,
and overhead fees.

Amended Compl. ¶¶ 175-78.

What is missing

from the Amended Complaint are specific, non-conclusory
allegations that Barclay’s knew that the charges were
impermissible at the time they were billed.

Likewise, the

plaintiffs point to no specific, non-conclusory allegations that
Barclay’s knew that the charges for separate attorneys for more
than one loan were improper.
The insufficient allegations of fraud as to the “feeshifting” and “related mortgages” schemes doom the plaintiffs’
substantive RICO claim.

Accordingly, the plaintiffs’ RICO

conspiracy claim under 18 U.S.C. § 1962(d) must also fail.

See

Allen v. New World Coffee, Inc., No. 00cv2610, 2002 WL 432685,
at *6 (S.D.N.Y. March 19, 2002) (“Any claim under § 1962(d)
based on conspiracy to violate the other subsections of section
20

1962 must fail if the substantive claims are themselves
deficient.”).
It is unnecessary to reach the additional arguments raised
by the defendants in support of their motion to dismiss the RICO
claims.
B.
The defendants argue that in the absence of the federal
RICO claims, the plaintiffs’ state law claims must be dismissed
for lack of subject-matter jurisdiction.
12(b)(1).

See Fed. R. Civ. P.

The plaintiffs counter that the Court maintains

subject matter jurisdiction, irrespective of the RICO claims,
pursuant to CAFA.

See 28 U.S.C. § 1332(d)(2)(A), (5)(B), (6).

“To establish federal jurisdiction under CAFA, [plaintiffs]
‘must prove to a reasonable probability’ that (1) there is
minimal diversity (meaning at least one defendant and one member
of the putative class are citizens of different states); (2) the
putative class exceeds 100 people; and (3) the amount in
controversy is greater than $5 million.’”

Fields v. Sony Corp.

of Am., No. 13cv6520 (GBD), 2014 WL 3877431, at *1 (S.D.N.Y.
Aug. 4, 2014) (quoting Blockbuster, Inc. v. Galeno, 472 F.3d 53,
59 (2d Cir. 2006)).
The defendants argue that the plaintiffs cannot satisfy
CAFA’s amount-in-controversy requirement.
21

A court evaluates the

jurisdictional facts, including the amount in controversy, on
the basis of the pleadings.

See id. at *2.

“‘Where the

pleadings themselves are inconclusive as to the amount in
controversy, however, federal courts may look outside those
pleadings to other evidence in the record.’”

Orlander v.

Staples, Inc., No. 13cv703 (NRB), 2013 WL 5863544, at *2
(S.D.N.Y. Oct. 31, 2013) (quoting United Food & Commercial
Workers Union, Local 919 v. Centermark Props. Meriden Square, 30
F.3d 298, 305 (2d Cir. 1994)).

“The Court ‘constru[es] all

ambiguities and draw[s] all inferences’ in plaintiff's favor.”
Id. (quoting Aurecchione v. Schoolman Transp. Sys., 426 F.3d
635, 638 (2d Cir. 2005) (alterations in original).

When

assessing the jurisdictional amount, the Court considers the
plaintiffs’ allegations, not the likelihood of recovery.

Id.

(citing Zacharia v. Harbor Island Spa, Inc., 684 F.2d 199, 202
(2d Cir. 1982)).
While the plaintiffs here did not allege a specific damages
amount, that is not fatal to their jurisdictional claim.
Fields, 2014 WL 3877431, at *2.

See

The proposed class consists of

allegedly thousands of borrowers of residential loans originated
or serviced by Barclays who were charged post-acceleration late
fees and split attorney fees over a multi-year period.
Amended Compl. ¶¶ 19-22.

See

The Amended Complaint points to
22

representations that HomEq made in an earlier federal lawsuit
that, from February 2001 through July 2005, it referred over
46,000 loans to Fidelity in connection with bankruptcy or
foreclosure.

Amended Compl. ¶ 48. The Amended Complaint also

incorporates by reference a public Form 8-K SEC filing in which
Barclays, identified as the “New HomEq,” acquired a portfolio of
loans and that more than 19,000 loans were already in
foreclosure and bankruptcy as of June 30, 2006.
¶ 50.

The Court may consider such a document.

Chambers, 282 F.3d at 153.

Amended Compl.
See, e.g.,

This evidence gives rise to the

reasonable probability that tens of thousands of loans were
serviced during the class period.

See Amended Compl. ¶¶ 48, 50.

Each of the plaintiffs allegedly paid substantial improper fees.
Amended Compl. ¶¶ 66, 69, 70, 80, 138, 145, 148, 149.
Accordingly, taken together, plaintiffs’ allegations are
sufficient to create a presumption that the amount-incontroversy requirement is satisfied.

See, e.g., Fields, 2014

WL 3877431, at *3.
Aside from the jurisdictional amount argument, the
defendants do not contest that the Court has jurisdiction under
CAFA to consider the plaintiffs’ state law claims.

The motion

to dismiss the plaintiffs’ state law claims for lack of subject
matter jurisdiction is, therefore, denied.
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CONCLUSION
The Court has considered all of the arguments raised by the
parties.

To the extent not specifically addressed, the

arguments are either moot or without merit.

For the foregoing

reasons, the defendants’ motion to dismiss is granted in part
and denied in part.

The substantive RICO claim and the RICO

conspiracy claim are dismissed.

The defendants’ motion to

dismiss is denied with regard to the plaintiffs’ state-law
claims (Counts III-VII).

The Clerk is directed to close ECF

Docket No. 26.
SO ORDERED.
Dated:

New York, New York
March 16, 2016

____________/s/_____________
John G. Koeltl
United States District Judge

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