The opinion of the court was delivered by: Elaine E. Bucklo, United States District Judge
MEMORANDUM OPINION AND ORDER
In 1993, National Housing Exchange ("NHE") issued a bond with a face
value of $126,000,000, secured by a pool of mortgage debentures. This
bond was purchased by National Heritage Life Insurance Company ("National
Heritage") in December 1993, which entered into an Indenture and
Servicing Agreement (the "Indenture"), with Continental Stock Transfer
and Trust Company ("Continental"), the bond's trustee, and APX Mortgage
Services ("APX"), the servicer of the mortgages securing the bond, one of
Mr. Pound's enterprises. In May 1994, the Delaware Court of Chancery
placed National Heritage in rehabilitation and then in November 1995, in
liquidation. The Delaware Commissioner of Insurance, Donna Lee H.
Williams (the "Commissioner"), was appointed as receiver for National
However, things had already begun to go bad on the other side of the
deal. In the summer of 1994, Continental and the Commissioner informed
NHE and APX that they had failed to comply with their obligations under
the Indenture and were in default. In November 1994, Continental notified
NHE and APX that their rights under the Indenture were terminated, and
Midwest Independent Bank and Midwest Mortgage Servicing ("Midwest"), a
Missouri corporation and its subsidiary, took control of APX's assets
under a security agreement that Midwest and APX had entered into earlier
Now, enter RAM, the relevant defendant here. It was incorporated by
Mr. Pound, with himself as president, in October 1994, and took over
APX's business, including the servicing of the mortgages, in December
1994, when APX shut down. NHE authorized the appointment of Midwest as
servicer of the mortgages if RAM was appointed subservicer, which it was
in an agreement of December 23, 1994, the "Agreement"). When it was
informed of the appointments in January 1995, Continental was not
pleased. It rejected the designation of Midwest as servicer, and demanded
that RAM turn over all files relating to the mortgages, but RAM refused.
Continental and the Commissioner then approved Midwest as a servicer. RAM
retained possession of the files and acted as subservicer.
From December 1994 through August 1995, RAM paid itself a 1% servicing
fee of at least $982,820.53, out of bank accounts RAM maintained for
purposes of collecting and disbursing monies related to the bond (the
"bond accounts"), moreover carrying the loans at a higher principal
balance than their fair market value, increasing the amount derived from
the servicing fee.
RAM also purchased from South Star, a Florida corporation, a first,
second, and third mortgage secured by property in Laguna Beach,
California, that had been acquired, ultimately, from the Resolution Trust
Corporation. RAM used the third mortgage as collateral for the bond and,
in March 1995, purchased the first and second mortgages in the name of
NHE with $476,957.67 taken from the bond accounts. On March 24, 1995, RAM
paid South Star $130.007.95 in "unidentified funds," from an account for
monies received from borrowers that it could not otherwise attribute, and
it also paid South Star $92,274.06 in funds from another account that had
been established to maintain monies generated by mortgage loans prior to
December 29, 1993.
From December 1995 through September 1995, RAM paid itself $110,544.15
in borrower late charges from the bond accounts. Between February and May
1992, RAN paid National Workout, an Illinois firm incorporated by Mr.
Pound, purportedly devoted to renegotiating delinquent loans, a total of
$74,900 from bond accounts which was repaid from further monies Mr. Pound
transferred from loan accounts RAM was maintaining for Continental. On
March 20 1995, under a workout agreement, RAM allowed a borrower,
Valentine Short, to pay off his mortgage loan with $650,000, less than he
owed, and then paid $36,693 to South Star, purportedly as accrued
interest. From January to November 1995, RAM paid $46,542.32 of its own
corporate expenses out of the bond accounts; and in February and May
1995, it paid $3,987.60 in travel expenses for its employees out of those
Between May and August of 1995, RAM modified at least seven
non-performing mortgage loans to characterize them as "performing,"
paying itself at least $22,854.37 as "modification fees." From May to
December 1995, RAM paid itself $14,112.72 in interest accumulated in a
Tax and Insurance Account to which borrowers' insurance and tax payments
were credited. In November 1995, RAM paid itself $10,561.55 from the Real
Estate Tax Account, to which borrower's tax payments were credited. After
this case was filed on March 7, 1995, and until August of that year, RAM
paid $171.493.41 in attorneys' fees out of the bond accounts.
In an order of January 8, 1996, I appointed a receiver to take
possession of the mortgage loans, accounts, and files, and all of RAM's
bank accounts. RAM purportedly complied, but in December 1995, Mr. Pound
had withdrawn $85,000 from RAM's corporate account that he did not
disclose to the receiver; Mr. Pound subsequently redeposited the funds
and used them to pay $50,000 to a lawyer.
Mr. Pound, APX, RAM, and National Workout were indicted in April 1998
in a 93-count, 165-page indictment by the United States Attorney for the
Middle District of Florida, which included counts of fraud facilitation
and concealment, fraud and theft with relation to the bond, as well as
charges of fraud connected with APX and RAM mortgage services and money
laundering with regard to the debenture mortgages collections. Mr. Pound
was convicted of all 67 counts with which he was charged and sentenced to
serve 740 years in federal prison, three years of supervised release, and
perform 75 hours of community service, and ordered to pay $133,854,104.24
in restitution to the Commissioner.
The Commissioner moves for summary judgment on counts XIII (breach of
contract), count XIV (unjust enrichment), count XV (breach of fiduciary
duty), and count XVI (civil conspiracy) against RAM, and asks ...