by subsequently accepting the second, see id. P 33. The facts of this case seem at least equally consistent with the view that Superior was merely providing a service for a fee, as with the view that it was acting as an agent for a principal. If this set of facts were presented to us at the summary judgment stage, we would be inclined to grant judgment for the defendants. But given the generosity with which Rule 12 requires us to view complaints, we believe it prudent to follow the lead of the Fairman court and permit the plaintiffs to conduct discovery on their agency theory. Cf. RESTATEMENT (SECOND) OF AGENCY § 1 (1957) (whether an agency is created "depends upon the existence of required factual elements: the manifestation by the principal that the agent shall act for him, the agent's acceptance of the undertaking and the understanding of the parties that the principal is to be in control of the undertaking"). Once a full factual record is developed it will be easier to determine if the Hastings had the necessary degree of control and if Superior had the power to affect their legal rights.
In sum, we believe that the plaintiffs have adequately (though barely) alleged that the defendants conferred a benefit upon their agent without their consent and with the intent to influence their agent's conduct toward them, and this states a claim under the Illinois commercial bribery statute. This claim serves as a predicate for a violation of the Travel Act, which in turn serves as a predicate for RICO. Accordingly, we decline to dismiss the Hastings' RICO count.
b. Mail Fraud
i. Rule 9(b)
The other predicate act alleged by the Hastings is mail fraud. As a preliminary matter, the defendants argue that the Hastings' allegations do not satisfy Rule 9(b), which provides that "in all averments of fraud or mistake, the circumstances constituting the fraud or mistake shall be stated with particularity." FED. R. CIV. P. 9(b). In RICO cases based on mail or wire fraud, "the plaintiff must, within reason, describe the time, place, and content of the mail and wire communications, and it must identify the parties to these communications." Jepson, Inc. v. Makita Corp., 34 F.3d 1321, 1328 (7th Cir. 1994); see also Graue Mill Dev. Corp. v. Colonial Bank & Trust Co., 927 F.2d 988, 992 (7th Cir. 1991). The allegations must be specific enough to provide the defendants with a general outline of how the alleged fraud scheme operated and of their purported role in the scheme. See Midwest Grinding Co. v. Spitz, 976 F.2d 1016, 1020 (7th Cir. 1992); Koulouris v. Estate of Chalmers, 790 F. Supp. 1372, 1374 (N.D. Ill. 1992) (defendants need not be given a "pretrial memorandum containing all the evidentiary support for the plaintiff's case," but only "a brief sketch of how the fraudulent scheme operated, when and how it occurred, and the participants"). In evaluating the sufficiency of the pleadings, we bear in mind the purposes of Rule 9(b): (1) protecting the defendants' reputations; (2) preventing fishing expeditions; and (3) providing adequate notice to the defendants. See Vicom, Inc. v. Harbridge Merchant Servs., Inc., 20 F.3d 771, 777 (7th Cir. 1994).
At least with respect to establishing the scheme to defraud,
we believe the Complaint in this case satisfies the standard set forth in Jepson. The Hastings allege that John Snyder, Superior's President, misrepresented his intention to get them the best rate available at their initial meeting in August 1996. See Compl. PP 21-22. The Complaint also alleges the date and content of several mailings between Fidelity and the Hastings through which the defendants effectuated their scheme to defraud: (1) a "good faith estimate" of the loan terms mailed by Fidelity on August 26 which did not mention any $ 4,200 fee, Compl. P 26; (2) the first (rejected) loan document, which included a $ 4,200 fee, presented to the Hastings in Albuquerque on September 13 (though presumably mailed or faxed from Fidelity's office in Illinois shortly before that date), id. P 28; (3) a second good faith estimate mailed by Fidelity on September 13, id. P 29; and the second (accepted) loan document, which was presented in Albuquerque on September 16, id. P 31. Based on these details as well as those set forth in the Background section supra, we think the Hastings have provided Fidelity and Meriweather with a rather clear picture of how the alleged fraud scheme operated and of their purported roles in the scheme,
see Midwest Grinding, 976 F.2d at 1020, and we therefore reject the defendants' motion to dismiss under Rule 9(b).
ii. Scheme to Defraud
To establish a violation of the mail fraud statute, a plaintiff must show "(1) that the defendant participated in a scheme to defraud; and (2) that the defendant caused the mail to be used in furtherance of the scheme." Spiegel v. Continental Illinois Nat. Bank, 790 F.2d 638, 646 (7th Cir. 1986). The Hastings have clearly alleged that the defendants made use of the mails, see Compl. P 47, but the parties disagree about whether they have alleged a "scheme to defraud." Fidelity argues that the Complaint is inadequate because it does not allege that it made any misrepresentations or actionable omissions in its communications with the Hastings. See Def.'s Br. at 5-8. This assertion has considerable merit. There is no indication in the Complaint that any of the defendants made any false statements to the Hastings: the only false statement alleged is Superior's representation that it intended to get the Hastings "the best interest rate and terms possible," Compl. P 22, but Superior is not a defendant in this case. Moreover, the Complaint does not suggest that there was a special relationship between the Hastings and the defendants which might render them liable for failing to disclose material information about the transaction. Cf. Emery v. American Gen. Fin., Inc., 71 F.3d 1343, 1347-48 (7th Cir. 1995) (indicating that omissions can only be actionable if the context of the transaction indicates a duty to disclose); Reynolds v. East Dyer Dev. Co., 882 F.2d 1249, 1252 (7th Cir. 1989) (stating that "mere failure to disclose, absent something more" is not fraud).
The problem with the defendants' argument is that they need not have committed fraud themselves in order to be found liable for participating in a scheme to defraud. It is true that " the scheme must involve some sort of fraudulent misrepresentations or omissions reasonably calculated to deceive persons of ordinary prudence," Spiegel, 790 F.2d at 646 (emphasis added), but it is not necessary for every participant in the scheme to make them. Here, the Complaint alleges that Superior misrepresented its intention to obtain the best possible interest rate for the Hastings, while secretly hoping to be rewarded by Fidelity for persuading the Hastings to agree to a loan at an above-market rate of interest. This is sufficient to allege a scheme to defraud.
The remaining question, therefore, is whether the Hastings have alleged that the defendants "participated" in this scheme. Mail fraud plaintiffs cannot simply claim that the defendants participated in transactions that turned out to be fraudulent: they must show that the defendants willfully participated in the scheme with knowledge of its fraudulent nature and with the intent that its illicit objectives be achieved. See United States v. Bailey, 859 F.2d 1265, 1273 (7th Cir. 1988); United States v. Dick, 744 F.2d 546, 551 (7th Cir. 1984). We believe it can reasonably be inferred from the Complaint that the defendants knew of the fraudulent representations made by Superior and intended to help Superior achieve its objectives. With respect to intent, Fidelity structured its broker premium fees so as to encourage brokers to negotiate loans at above-market interest rates. See Compl. PP 11-12. Fidelity certainly knew that Superior was persuading clients such as the Hastings to accept loans at above-market interest rates; it is possible, therefore, that Fidelity knew that Superior was making misrepresentations in order to induce such acceptance.
The Hastings' mail fraud claim might also be viable under a second theory. A long line of cases in this circuit, starting with United States v. George, 477 F.2d 508 (7th Cir. 1973), establishes that a party who pays an agent to breach its duties to its principal is participating in a scheme to defraud the principal. See, e.g., United States v. Richman, 944 F.2d 323, 332-33 (7th Cir. 1991); Ranke v. United States, 873 F.2d 1033, 1039 (7th Cir. 1989). As discussed supra, the Hastings have alleged that Superior was their agent, and the Complaint indicates that Fidelity paid Superior $ 4,200 as a reward for persuading the Hastings to accept a loan at an above-market rate of interest. An agent has a duty to act solely for the benefit of his principal in matters related to the agency, see RESTATEMENT (SECOND) OF AGENCY § 387 (1957), as well as a duty to reveal information relevant to the affairs entrusted to him, see id. § 381. Under the facts alleged, Superior appears to have violated both of these duties in order to obtain the reward offered by Fidelity. Thus, the Hastings have adequately stated a claim of mail fraud as a predicate for their RICO claim.
The defendants' second challenge to the Hastings' RICO claim is that they have failed to allege a "pattern" of racketeering activity. The statutory definition of "pattern" is not of much assistance: it merely indicates that a pattern "requires at least two acts of racketeering activity." 18 U.S.C. § 1961(5). A more fruitful source of guidance on this question is the Supreme Court's discussion in H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 106 L. Ed. 2d 195, 109 S. Ct. 2893 (1989). The Court stated that "to prove a pattern of racketeering activity a plaintiff or prosecutor must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity." Id. at 239.
The Hastings attempt to allege a pattern by asserting that "it is the policy and practice of Fidelity to make payments to mortgage brokers . . . similar to the 'broker premium fee' paid in connection with plaintiffs' transaction." Compl. P 12; see also id. P 18 (indicating that Fidelity "continuously offered, and routinely paid, these illicit bribes . . . ."). This allegation will suffice insofar as the plaintiffs' RICO claim is predicated on violations of the Travel Act, but "where the [predicate] acts are acts of fraud, the circumstances of each act must be pleaded with particularity." Emery, 71 F.3d at 1348 (citing FED. R. CIV. P. 9(b)). In Emery, the Seventh Circuit affirmed the dismissal of a RICO claim for failure to allege a pattern where the plaintiff had alleged with particularity the fraud directed at her, but then generally alleged that the defendant had done the same thing to other parties. See id. The court observed, however, that plaintiffs whose claims are dismissed under this reasoning should be given a chance to amend their pleadings when they acquire more specific information, see id., which would presumably require at least preliminary discovery. See Feinstein v. Resolution Trust Corp., 942 F.2d 34, 42-43 (1st Cir. 1991) (discussing the conditions under which plaintiffs should be allowed discovery to cure particularity problems in their RICO claims). This approach is consistent with the principle that Rule 9(b)'s particularity requirement should be relaxed with respect to details that are within the defendant's exclusive knowledge. See Jepson, 34 F.3d at 1328. Accordingly, the Hastings' RICO claim is dismissed insofar as it rests on mail fraud as its predicate act, but they will be given leave to amend their Complaint and reinstate this claim if discovery provides them with facts tending to establish that the defendants engaged in a pattern of mail fraud.
The defendants' final objection to the Hastings' RICO claims is that they fail to allege an "enterprise" as the statute requires. 18 U.S.C. §§ 1962(c); see also Richmond, 52 F.3d at 645 ("A RICO complaint must identify the enterprise."). The statute defines an "enterprise" as any "individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact . . . ." 18 U.S.C. § 1961(4). In elaborating on this statutory term, the Seventh Circuit has characterized an enterprise as an "'ongoing structure of persons associated through time, joined in purpose, and organized in a manner amenable to hierarchical or consensual decision-making.'" Richmond, 52 F.3d at 644 (quoting Jennings v. Emry, 910 F.2d 1434, 1440 (7th Cir. 1990)). The structure and goals cannot simply be the commission of the predicate acts: RICO plaintiffs must allege there is "an entity separate and apart from the pattern of activity in which it engages." United States v. Turkette, 452 U.S. 576, 583, 69 L. Ed. 2d 246, 101 S. Ct. 2524 (1981). In addition, even after an enterprise has been identified, a § 1962(c) plaintiff must also allege that a "'person' associated with the enterprise conducted or participated, 'directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity.'" Richmond, 52 F.3d at 646 (quoting § 1962(c)). The alleged "person" must be distinct from the enterprise itself, see Haroco v. American Nat'l Bank & Trust Co., 747 F.2d 384, 402 (7th Cir. 1984), aff'd, 473 U.S. 606, 87 L. Ed. 2d 437, 105 S. Ct. 3291 (1985), and must participate in the operation or management of the enterprise's affairs, not just its own, see Reves v. Ernst & Young, 507 U.S. 170, 113 S. Ct. 1163, 1173, 122 L. Ed. 2d 525 (1993).
The Hastings allege several different enterprises, see Compl. P 44, and we find at least one of them to be sufficient: the association of Fidelity and Superior. The Complaint indicates that there is a structure to their relationship: Superior originates loans for Fidelity, which provides the necessary capital. Id. P 9. This relationship is alleged to be continuous, see id. P 18, which is logical since Superior, as a mortgage broker, needs to have a constant source of capital to provide loans to its clients, and Fidelity needs to have a means of connecting with prospective borrowers. The two companies share a goal of providing loans for customers at a profitable rate of interest (too profitable, according to the Hastings, see id. PP 18-19). The association appears to be amenable to consensual decision-making: Fidelity and Superior must agree on an appropriate broker premium fee for each transaction. The association exists separate and apart from the pattern of racketeering activity alleged in the Complaint, since Fidelity would require the services provided by mortgage brokers such as Superior even if it did not participate in schemes designed to artificially inflate the interest rates charged to borrowers.
Fidelity is a "person" separate from the association-in-fact involving it and Superior, and it undoubtedly participated in the operation and management of the association. This satisfies the "person" and "enterprise" requirements of the Hastings' RICO claim. In light of this conclusion, we need not determine at this juncture whether the other enterprises proposed by the plaintiffs are sufficient.
To the extent the plaintiffs' RICO claim rests on violations of the Travel Act as its predicate, the defendants motion to dismiss is denied. Insofar as it rests on mail fraud, the motion to dismiss is granted, but the plaintiffs will be permitted to amend their pleadings if they can provide the requisite degree of particularity regarding the existence of a "pattern" of fraudulent acts.
Counts III and IV of the Complaint allege that Fidelity's payment of a yield spread premium to Superior violated RESPA. The statute provides:
(a) No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding . . . that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.
(b) No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service . . . other than for services actually performed.