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Court Considers Motion to Dismiss in ABN-AMRO v. Emerson

ABN-AMRO Mortgage Group, Inc. filed a civil lawsuit in the United States District Court for the Southern District of Texas, Houston Division in 2004, against the following defendants:

Emerson Manufactured Homes LTD
Emerson Homes LTD (dismissed 8/26/04)
Emerson Land Company LTD
Emerson Estates Property Owners Association Inc (dismissed 8/26/04)
Emerson Development LLC (dismissed 8/26/04)
Emerson Management Group LLC (dismissed 8/26/04)
Trake Homes LLC
KSR Development LLC
GRR Partners LLC
Keith S Raybon (dismissed 9/2/04)
Raybon Land & Company LTD
Raybon Management LLC (dismissed 8/26/04)
Raybon Homes LLC
Keyray Masonry LP (dismissed 8/26/04)
TKO Raybon Investments LTD
Houston RPM LC (dismissed 12/7/04)
Patricia Jean Lennon dba Ameristar Appraisal Service (dismissed 12/7/04)
Hollys Heasley
Holly Heasley
Royal Lion Mortgage Inc
Rampant Financial Mortgage Group Inc (dismissed 6/16/05)
Jacqueline Stevens
Jeannie Nelson
Kandy Kay Powell
Oni Ortiz
Gillermo Oritz
Michael “Pop” Grimes, Sr
Foremost County Mutual Insurance Company
Blankenship Insurance Agency
Becky Blankenship
Hocheim Prairie Farm Mutual Insurance Company (dismissed 6/14/05)
Mercury Manufactured Home Sales LTD
Cates Insurance Agency (dismissed 6/14/05)
Cynthia Cates (dismissed 6/14/05)
Foremost Insurance Company
Blar Realty Partners Ltd
Michael Davis

Royal Lion Mortgage, Inc. filed a counter-claim against ABN-AMRO.

In the complaint, ABN-AMRO alleged that it funded 676 separate loans based upon fraudulent information provided to it primarily by Defendant Royal Lion Mortgage, Inc., who was acting in concert with the other Defendants. Plaintiff alleges that Defendants developed a scheme to obtain “refinancing” loans for mobile homes for non-creditworthy borrowers at inflated prices. According to the court’s recitiation of ABN-AMRO�s complaint, the “scheme” operated as follows:

Emerson Manufactured Homes, Ltd. sold manufactured homes to borrowers for little or no money down and no closing costs. To finance the sale, the Defendants conducted two transactions: a “pre-closing” which vested title in the borrower and created a “lien” in favor of the seller; and a “refinance” mortgage closing to pay off the fictitious, pre-existing debt to one or more of the Raybon/Emerson Defendants. Often, these “prior liens” were only one or two days old when they were refinanced.

The members of the enterprise submitted these “refinance” applications to Plaintiff prior to the time the borrower even took title to the property and often before the manufactured homes had been affixed to the real estate.

False, misleading and fraudulent loan applications, together with bloated appraisals and insurance, were submitted to Plaintiff by Royal Lion in order to induce ABN-AMRO to loan amounts greatly in excess of what was warranted by the true value of the collateral and the actual credit worthiness of the borrowers. Ownership and value of the property as well as borrower assets and income were routinely misstated on the loan applications to give the false impression of the buyer having a stake in the property and the ability to repay the mortgage.

This sham “refinance” scheme allowed the homebuyers to avoid the more stringent requirements for a purchase mortgage, such as a down payment and payment of closing costs. The pre-existing liens were mere contrivances to allow the members of the enterprise to siphon the maximum amount of loan proceeds from each closing. The scheme also greatly increased the enterprises revenues.

The complaint includes causes of action for civil RICO violations, various types of fraud, various types of negligence, and violations of the Texas Insurance Code.

Defendants Foremost Insurance Company and Foremost County Mutual Insurance Company (collectively “Foremost") brought a Rule 12(b)(6) Motion to Dismiss the RICO claims on the grounds that: (1) Plaintiff has not alleged how they may have engaged in any predicate RICO act; (2) there is no particularized allegation regarding their participation in the fraudulent scheme; (3) the alleged violations of the Texas Insurance Code do not suffice as predicate RICO acts; (4) the conduct of Becky Blankenship d/b/a Blankenship Insurance Agency ("Blankenship") cannot be imputed to them under a theory of vicarious liability because there are no allegations that Blankenship committed any wrongful acts under their direction, with their knowledge, or for their benefit; and (5) there are no allegations that they had knowledge of the unlawful scheme. Foremost also sought a more definite statement of the claims.

In the court�s discussion, they noted that the pleading of RICO claims, which are based on predicate acts of fraud, along with any predicate acts of fraud, are subject to the heightened pleading requirements of Fed. R. Civ. P. 9(b).

The predicate acts alleged by Plaintiff in support of its RICO claims in this case include mail fraud and wire fraud.  The court stated that Plaintiff did not allege, with the particularity required by Rule 9(b), what Foremost did in furtherance of the fraud. Plaintiff argued in response to the Motion to Dismiss that Foremost, together with Blankenship, its agent, used the mails and wires to transmit documents that contained false information about the value of the properties that were insured, but those allegations were not included in the complaint. Even if they had been included, they would not have been sufficiently particularized to meet the requirement Rule 9(b). There are no particularized allegations regarding the documents containing the false information, no allegations regarding the date(s) when such documents were transmitted in furtherance of the fraudulent scheme, and no allegations regarding Foremost‘s (and its alleged agent’s) specific role in the scheme. Foremost is entitled to such specifics under Rule 9(b).

The court granted Foremost�s motion to dismiss and provided ABN-AMRO 14 days in which to amend its pleading.  The court also granted the motion for a more definite statement as to the fraud and RICO causes of action based on the deficiencies under Rule 9(b). 

1. this is now a federal case and those cases that were dismissed are now under federal persecution.

   Posted by  on  11/09  at  12:56 PM