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NORTH BARRINGTON DEVELOPMENT, INC. v. FANSLOW

October 9, 1980

NORTH BARRINGTON DEVELOPMENT, INC., PLAINTIFF,
v.
RICHARD FANSLOW, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Decker, District Judge.

MEMORANDUM OPINION AND ORDER

Plaintiff, North Barrington Development, Inc., filed a four count complaint against defendants, Richard Fanslow, CCC General Contracting Co. (CCC), and Skokie Federal Savings and Loan Association (Skokie). The complaint alleges that plaintiff, Fanslow and CCC entered into a real estate development contract concerning a housing project entitled Knights of Huntington. Skokie was involved in the transaction to the extent that it promised to provide financing to the ultimate purchasers of the buildings in the project. Various disputes arose between the parties concerning the agreement. These disputes were resolved in a compromise agreement entered into on May 15, 1979. Plaintiff, however, felt that the May 15 agreement was being violated and filed suit against the defendants, including Skokie, in the Chancery Division of the Circuit Court of Cook County, Illinois. This suit was also settled in a second written settlement agreement. Plaintiff believes that this settlement agreement has also been breached and has brought this suit.

The instant complaint alleges that the defendants engaged in a conspiracy to defraud plaintiff and breached the settlement agreement. Specifically, Count I alleges that defendants' fraud violated the Home Owners' Loan Act (HOLA), 12 U.S.C. § 1461 et seq.; Count II alleges that the defendants' fraud violated the Racketeer Influenced and Corrupt Organization Act (RICO), 18 U.S.C. § 1961 et seq. Counts III and IV are based on state related common law violations. Jurisdiction is invoked under 28 U.S.C. § 1331, 1337 and the principles of pendent jurisdiction. Presently before the court is defendants' motion to dismiss the complaint for failure to state a cause of action.

Count I

Plaintiff's complaint alleges in great detail the actions of the defendants that are said to constitute a violation of HOLA. Count I essentially alleges that the participation of defendant Skokie in the scheme to defraud plaintiff is a "dishonest practice in violation of § 1464." Section 1464 of HOLA provides for the establishment of Federal Savings and Loan Associations and authorizes the Federal Home Loan Bank Board (Board) to promulgate and enforce rules and regulations relating to the Act. The Act's purpose and scope exclusively concern the conduct of Federal Savings and Loan Associations and the Board in its regulatory and rulemaking capacity. The Act, on its face, does not deal with the conduct of private individuals or corporations. Consequently, unless plaintiff can state a cause of action against Skokie in Count I, it cannot use HOLA as a basis for a cause of action against Fanslow and CCC.

The claim in Count I against Skokie, as well as Fanslow and CCC, must be dismissed. The Act does not prohibit or even mention "dishonest practices". The closest the statute comes to regulating any "dishonest practice" is in subsections (d)(2)(a) and (d)(3), which concern the authority of the Board to issue cease and desist orders against savings and loans which engage in any "unsafe or unsound practice in conducting the business of such association."

These sections obviously do not on their face prohibit the conduct described in the complaint.

Plaintiff seeks to avoid this problem by claiming that defendants have engaged in practices which violate several regulations promulgated pursuant to HOLA. Plaintiff, however, has failed to state a cause of action on the basis of these regulations against any of the defendants.

Plaintiff alleges that defendant Skokie issued commitments to make mortgage loans on the apartment buildings at future dates. For each of these commitments it charged a non-refundable fee of $2,160. The complaint further alleges that, though these fees were collected from prospective purchasers, no services were provided and plaintiff was forced to refund the commitment fees when defendants refused to do so. Plaintiff contends that this fee was part of the scheme to defraud and violates 12 C.F.R. § 545.8-2. This regulation, however, deals with initial loan charges and only limits federal savings and loan association's charges for items such as appraisals and credit reports to reasonable amounts. The commitment fee, which is specifically allowed in 12 C.F.R. §§ 563.17-3, 563.23-1(g)(4), is entirely separate and distinct from the reimbursement items covered by § 545.8-2. Consequently, plaintiff has failed to state a cause of action based on 12 C.F.R. § 545.8-2.

Plaintiff further alleges that each purchaser was threatened by defendants with economic loss unless the purchasers agreed to certain new contracts with Fanslow and CCC. Plaintiff contends that such action violates 12 C.F.R. § 563.35. This section, however, only prohibits certain sorts of tie-in arrangements. Specifically, it prohibits tying insurance services, building materials, construction services, legal services, services of a real estate broker and real estate management services to extensions of credit. None of these services is at issue in this case. Moreover, plaintiff has failed to explain how alleged threats of economic loss are tie-in arrangements. Consequently, plaintiff has failed to state a cause of action based on § 563.35.

Finally, the complaint alleges that Fanslow threatened the purchasers by telling them that, unless they accepted this new mortgage proposal with Skokie at higher interest rates and a higher purchase price, they would lose their earnest money deposit of $18,500. It is further alleged that Fanslow would profit from the increased revenue obtained by the alleged fraud and coercion. Plaintiff claims that such actions violate 12 C.F.R. § 563.40. This section concerns restrictions on loan procurement fees, kickbacks and unearned fees. It provides that "no affiliated person . . . may receive . . . any fee or other compensation of any kind in connection with the procurement of a loan." The complaint does not allege that any of the defendants received a "fee or compensation" for a procurement of a loan. It only alleges that the defendants, in particular Fanslow, would receive greater profits from the increased revenue allegedly obtained through the breach of contract and fraud. Consequently, plaintiff has failed to state a cause of action based on § 563.35.*fn1

Count II

Plaintiff alleges that the scheme to defraud described in Count I, constitutes a "pattern of racketeering activity" that affects interstate commerce and that defendants engaged in threats and mail fraud that caused plaintiff to part with his property. Plaintiff contends that such conduct violates 18 U.S.C. ยง 1962, 1964(c), the Racketeer Influenced and Corrupt Organizations Act (RICO). Section 1964(c) provides: ...


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