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Stitt v. Citibank, N.A.

United States District Court, N.D. California

January 6, 2015

GLORIA STITT, ET AL., Plaintiffs,
CITIBANK, N.A., ET AL., Defendants.



In July of 2012, named plaintiffs Gloria Stitt, Ronald Stitt, Judi Shatzer, Mark Zirlott, and Terri Zirlott ("plaintiffs), individually and on behalf of other members similarly situated filed this action against Citibank, N.A., and CitiMortgage, Inc. (together, "Citi" or "defendants"). (Dkt. No. 1.) Plaintiffs allege that Citi engaged in fraudulent practices by charging unnecessary fees in connection with defendants' home mortgage loan servicing businesses. By Order dated April 25, 2013, the Court granted in part and denied in part defendants' first motion to dismiss and provided plaintiffs leave to amend their complaint. (Dkt. No. 21 ("Order").) On May 27, 2014, the Court granted plaintiffs' unopposed motion for leave to amend (Dkt. No. 67), and plaintiffs promptly filed their First Amended Complaint ("FAC") (Dkt. No. 69; see also Dkt. No. 70-2).

Now before the Court is defendants' motion to dismiss plaintiffs' Racketeer Influenced and Corrupt Organizations Act ("RICO") claims. Having carefully considered the papers submitted and the pleadings in this action, oral argument at the hearing held on September 30, 2014, relevant case law, and for the reasons set forth below, the Court hereby GRANTS defendants' motion without leave to amend.[1]


The facts alleged in plaintiffs' original complaint are well-known to the parties and are set forth in substantial detail in the Court's previous Order. For the sake of efficiency, the Court will not repeat them here. Rather, because the substance of the instant motion concerns the sufficiency of plaintiff's allegations vis-a-vis their civil RICO claims, the Court will briefly review the deficiencies it identified in plaintiffs' original complaint with respect to only those claims. The Court will then summarize plaintiffs' amended factual allegations, which represent their attempt to cure the identified deficiencies after discovery.

In dismissing plaintiffs' original RICO claims with leave to amend, the Court stated as follows:

[...] Plaintiffs have not sufficiently identified the structure of the enterprise, nor that Defendants have engaged in enterprise conduct distinct from their own affairs. Throughout the Complaint, Plaintiffs allege that the enterprise includes "subsidiaries, " "affiliated companies, " "intercompany divisions, " and third-party property preservation vendors and real estate brokers. (Compl. ¶¶ 2, 4, 9, 34, 41, 47, 96.) Defendants "order[ed] default-related services from their subsidiaries and affiliated companies, who, in turn, obtain[ed] the services from third-party vendors." ( Id. ¶ 41.) These vendors charged Defendants for services, but Defendants marked-up the fees in excess of any amounts actually paid. ( Id. ) Defendants "provided mortgage invoices, loan statements, payoff demands, or proofs of claims to borrowers" to "demand" payment of fees, but these documents "fraudulently concealed" the true nature of the fees, some of which were "never incurred" at all by Defendants. ( Id. ¶¶ 102, 104 & 132.) Plaintiffs also allege that the enterprise's common purpose was to "limit[ ] costs and maximiz[e] profits by fraudulently concealing assessments for unlawfully marked-up and/or unnecessary third party fees for default-related services on borrowers' accounts." ( Id. ¶ 97.)
These allegations stand in contrast to those alleged in a related action, Bias, et al. v. Wells Fargo & Co., et al., Case No. 12-cv-00664-YGR. Here, Plaintiffs repeatedly state that subsidiaries, affiliated companies, and intercompany divisions are members of the enterprise. However, Plaintiffs fail to specifically identify these members or to provide any factual allegations to detail their involvement or make their involvement in the enterprise plausible. In Bias, plaintiffs alleged sufficient structure and distinctiveness to the enterprise largely because it identified Premiere Asset Services ("Premiere"), an intercompany division that was created to give borrowers the impression that it was an independent entity. Premiere sub-contracted with third-party vendors and brokers to conduct the BPOs. However, Premiere also created fictitious invoices at Wells Fargo's direction, which Wells Fargo used to substantiate the charges it sought to collect from borrowers. In addition, Wells Fargo never paid these invoices, and instead paid a lower amount directly to third-party vendors and brokers-all of which had been coordinated by Premiere.
In the case of the Bias Second Amended Complaint, plaintiffs made specific allegations that Wells Fargo and non-defendant Premiere had associated together for a common purpose, each played different roles to accomplish that purpose, and that Wells Fargo engaged in conduct of the enterprise, not only their own affairs. Premiere served a critical role to connect Wells Fargo, who designed the scheme to defraud, with the third-party vendors and brokers who provided the default-related services at the core of the scheme. The interplay between Premiere, Wells Fargo, and the creation of fictitious invoices to perpetuate their "common purpose" of maximizing profits provided a critical piece of the enterprise.
In contrast, Plaintiffs here have vaguely alleged that unidentified subsidiaries, affiliated companies, and/or intercompany divisions order default-related services from third-party vendors and brokers. No specific factual allegations explain how this occurs, and without this information, the Court cannot ascertain the structure of the alleged enterprise. Nor can the Court determine whether Defendants have engaged in conduct of the enterprise, as opposed to their own affairs.
In addition, the Court notes that the "common purpose" here is the same as that alleged against Wells Fargo in Bias -to limit costs and maximize profits by fraudulently concealing marked-up and/or unnecessary third party fees. However, an associated-in-fact enterprise must consist of "a group of persons associated together for a common purpose of engaging in a course of conduct." Odom, 486 F.3d at 552 (quoting Turkette ). Plaintiffs' Complaint lacks factual allegations that show that the unidentified enterprise members associated together with Defendants for that alleged common purpose. This is unlike in Bias, where plaintiffs alleged that Wells Fargo had associated with Premiere for a common purpose.

Stitt v. Citibank, N.A., 942 F.Supp.2d 944, 956-58 (N.D. Cal. 2013).

In their FAC, plaintiffs have made adjustments to their original allegations. Notably, plaintiffs no longer allege improper fee mark-ups as a basis for their RICO claims. Instead, plaintiffs contend only that defendants have engaged in charging class members for unnecessary default-related services, such as property inspections and BPOs.

With respect to the existence of a RICO association-in-fact enterprise, plaintiffs allege that the Citi entities, along with their subsidiaries, affiliated companies, intercompany divisions, and third-party "property preservation" vendors, "formed an unlawful enterprise and decided to game the [lending industry] system." (FAC ¶ 35.) The FAC goes on to allege specifically that (i) Citi, (ii) its subsidiary, (iii) their "property inspection and preservation" vendor Safeguard Real Estate Properties, LLC d/b/a of Safeguard Properties, LLC ("Safeguard"), and (iv) the real estate brokers who provide BPOs for Citi, including Corelogic, "formed an enterprise and devised a scheme to defraud borrowers and obtain money from them by means of false pretenses." ( Id. ¶ 46.) Plaintiffs further allege that Citibank, N.A., CitiMortgage, Inc., including their directors, employees, and agents, along with property inspection and preservation vendor Safeguard and the real estate brokers who provide BPOs for Citi, including Corelogic (together, the "Citi Enterprise" or "enterprise"), "conducted the affairs of an association-in-fact enterprise." ( Id. ¶ 96). Plaintiffs allege the enterprise is an "ongoing, continuing group or unit of persons and entities associated together for the common purpose of routinely, and repeatedly, ordering, conducting, and assessing borrowers' accounts for unnecessary default-related services." ( Id. ¶ 97.) Although the members of the Citi enterprise participate and are part of the enterprise, plaintiffs allege that they ...

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