The opinion of the court was delivered by: WILLIAM HART, Senior District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff Guaranty Residential Lending, Inc. alleges that it purchased
six fraudulent mortgage loans (the "Subject Loans") on the secondary
market and that the named defendants are responsible for the losses
resulting from the Subject Loans. Plaintiff alleges a scheme in which
residential properties located in Chicago, Illinois (the "Subject
Properties") were purchased and then purportedly resold at inflated
values, with the Subject Loans being based on the inflated values. As to
at least four of the Subject Properties, the purported second purchasers
and borrowers were already deceased at the time the Subject Loans were
closed. When the Subject Loans defaulted, there was no mortgagee
available for collection and the Subject
Properties were worth substantially less than the principal of the
Subject Loans. Plaintiff alleges it lost more than $770,000 on the
Subject Loans. Four corporations and six individuals are named as
defendants. One count of plaintiff's Complaint is a federal claim for
violation of the Racketeer Influenced and Corrupt Organizations Act
("RICO")", 18 U.S.C. § 1961-68. All other counts contain state common
law claims. The state law claims are supplemental to the federal RICO
claim. See 28 U.S.C. § 1367. Plaintiff also asserts that
there is diversity jurisdiction in that there is complete diversity of
citizenship and the amount in controversy exceeds $75,000.*fn1
Two motions to dismiss are: pending.*fn2 One motion is brought by
defendant Lawyers Title Insurance Corporation ("Lawyers Title") and the
other motion is brought by defendants Nations Title Agency of Illinois
("Nations Title") and Janice Seeman, who allegedly was Nations Title's
closing manager.*fn3 In
their briefs, the parties generally fail to recognize the
interrelationships between the applicable law and pleading standards
applicable to this case. While state law*fn4 provides the substantive
law for the common law claims that are alleged, federal law establishes
the pleading standard. Muzikowski v. Paramount Pictures Corp.,
322 F.3d.918, 925-26 (7th Cir. 2003); Johnson v. Hondo, Inc.,
125 F.3d 408, 417 (7th Cir. 1997); Lifton v. Board of Education of
City of Chicago, 290 F. Supp.2d 940, 946 (N.D. Ill. 2003). Thus,
Illinois law provides the elements of each particular common law claim,
but federal law controls as to what must be alleged in the Complaint.
Except as to those claims based on fraud, notice pleading is all that is
required. See Fed.R.Civ.P. 8. here fraud is alleged,
however, the circumstances must be alleged with particularity, though
intent and knowledge may still be averred generally. See Fed.
R. Civ. P. 9(b).
The Complaint contains eight counts denominated as follows: I: fraud by
all defendants; II: conspiracy to defraud by all defendants; III:
negligent misrepresentation by all
defendants; IV: promissory estoppel*fn5 by all defendants; V: RICO
violations (18 U.S.C. § 1962(a), (c), & (d)) by all defendants
based on predicate acts of mail fraud (id. § 1341), wire
fraud (id. § 1343), and bank fraud (id. §
1344); VI: breach of contract by defendant International Mortgage
Center, Inc. ("IMC") only; VII: unjust enrichment by IMC only; and VIII:
constructive trust against IMC only.
On a Rule 12(b)(6) motion to dismiss, plaintiff's well-pleaded
allegations of fact are taken as true and all reasonable inferences are
drawn in plaintiff's favor. Leatherman v. Tarrant County Narcotics
Intelligence & Coordination Unit, 507 U.S. 163, 164 (1993);
Dixon v. Page 291 F.3d 485, 486 (7th Cir. 2002); Stachon
v. United Consumers Club, Inc., 229 F.3d 673, 675 (7th Cir. 2000).
Ordinarily, a complaint need not set forth all relevant facts or recite
the law; all that is required is a short and plain statement showing that
the party is entitled to relief. Fed.R.Civ.P. 8(a)(2); Boim v.
Quaranic Literacy Institute, 291 F.3d 1000, 1008 (7th Cir. 2002);
Anderson v. Simon, 217 F.3d 472, 474 (7th Cir. 2000),
cert. denied, 531 U.S. 1073 (2001); Scott v. City of
Chicago, 195 F.3d 950, 951 (7th Cir. 1999). Ordinarily, a plaintiff
in a suit in federal court need not plead facts; conclusions may be
pleaded as long as the defendant has at least minimal notice of the
claim. Fed.R.Civ.P. 8(a)(2); Swierkiewicz v. Sorema N.A.,
534 U.S. 506, 512 (2002); Scott, 195 F.3d at 951; Albiero
v. City of Kankakee. 122 F.3d 417, 419 (7th Cir. 1997); Jackson
v. Marion County. 66 F.3d 151, 153-54 (7th Cir. 1995). However, to
the extent fraud is alleged, it must be pleaded with particularity.
See Fed.R.Civ.P. 9(b); Slaney v. The International
Amateur Athletic Federation. 244 F.3d 580, 597 (7th Cir.),
cert. denied, 534 U.S. 828 (2001); Shapo v.
O'Shaughnessy, 246 F. Supp.2d 935, 955-56 (N.D. Ill. 2002).
Additionally, even if not required to plead specific facts, a plaintiff
can plead itself out of court by alleging facts showing there is no
viable claim. See Slaney, 244 F.3d at 597; Kauthar SDN BHD
v. Sternberg, 149 F.3d 659, 669-70 & n.14 (7th Cir. 1998),
cert. denied, 525 U.S. 1114 (1999); Jackson, 66 F.3d
Ordinarily, as long as they are consistent with the allegations of the
complaint, a plaintiff may assert additional facts in its response to a
motion to dismiss. Brokaw v. Mercer County, 235 F.3d 1000, 1006
(7th Cir. 2000); Forseth v. Village of Sussex, 199 F.3d 363,
368 (7th Cir. 2000); Albiero, 122 F.3d at 419; Gutierrez
v. Peters. 111 F.3d 1364, 1367 n.2 (7th Cir. 1997). However,
Rule 9(b) requires that the necessary allegations be in the complaint itself.
Kennedy v. Venrock Associates, 348 F.3d 584, 593 (7th Cir.
2003); Abrams v. Van
Kampen Funds, Inc., 2002 WL 1160171 *2 (N.D. Ill. May
30, 2002); Chicago District Council of Carpenters Welfare Fund v.
Angulo, 169 F. Supp.2d 880, 886 (N.D. Ill. 2001); Implant
Innovations, Inc. v. Nobelpharma AB, 1995 WL 562.092 *5 (N.D. Ill.
Sept. 14, 1995). Additional allegations contained in the responsive
brief, however, may indicate that plaintiff should be given the
opportunity to amend the Complaint to comply with Rule 9(b). See
Ziemba v. Cascade International, Inc., 256 F.3d 1194, 1213 (11th
Cir. 2001); Angulo, 169 F. Supp.2d at 886; Implant
Innovations, 1995 WL 562092 at *5. While additional allegations
contained in a responsive brief are not considered to be incorporated in
the complaint, documents that are referred to in the complaint and that
are central to a claim that is made may be considered to be part of the
complaint even if not actually attached to the complaint. Rosenblum
v. Travelbyus.com Ltd., 299 F.3d 657, 661 (7th Cir. 2002);
Duferco Steel Inc. v. M/V Kalisti, 121 F.3d 321, 324 n.3 (7th
Cir. 1997); Venture, Associates Corp. v. Zenith, Data Systems
Corp.. 987 F.2d 429, 431 (7th Cir. 1993). However, where a dispute
exists as to whether a document provided by the moving party is authentic
or complete, the document will not be considered on a motion to dismiss
even if the document was referenced in the complaint and central to a
claim. Divane v. Nextiraone, LLC, 2002 WL 31433504 *2 (N.D.
Ill. Oct. 30, 2002). Where the document may properly be considered,
though, the actual
document will override inconsistent descriptions of the document
alleged in the body of the complaint. See Rosenblum, 299 F.3d
at 661 (quoting 5 Wright & Miller, Federal Practice &
Procedure: Civil 2d § 1327 at 766 (1990)); In re Wade.
969 F.2d 241, 249 (7th Cir. 1992); Beam v. IPCO Corp..
838 F.2d 242, 244-45 (7th Cir. 1988).
In the complaint itself, it, is unnecessary to specifically identify
the legal basis for a claim as long as the facts alleged would support
relief. Forseth, 199 F.3d at 368; Scott, 195 F.3d at
951; Albiero. 122 F.3d 419; Bartholet v. Reishauer A.G.
(Zurich), 953 F.2d 1073, 1078 (7th Cir. 1992); Dodaro v.
Village of Glendale Heights, 2003 WL 1720030 *8 (N.D. Ill. March 31,
2003). The plaintiff is not bound by legal characterizations of the
claims contained in the complaint. Forseth, 199 F.3d at 368;
Kirksey v. R.J. Reynolds Tobacco Co., 168 F.3d 1039, 1041 (7th
Cir. 1999). However, in response to a motion to dismiss that raises the
issue, the plaintiff must identify a legal basis for a claim and make
adequate legal arguments in support of it. Kirksey, 168 F.3d at
1041-42; Stransky v. Cummins Engine Co., 51 F.3d 1329, 1335
(7th Cir. 1995); Levin v. Childers, 101 F.3d 44, 46 (6th Cir.
1996); Gilmore v. Southwestern Bell Mobile Systems, L.L.C.,
224 F. Supp.2d 1172, 1175 (N.D. Ill. 2002); Carpenter v. City of
Northlake, 948 F. Supp. 759, 765 (N.D. Ill. 1996).
Rule 9(b) requires that "[i]n all averments of fraud or mistake, the
circumstances constituting fraud or mistake shall be stated with
particularity. Malice, intent, knowledge, and other condition of mind of
a person may be, averred generally." The circumstances of fraud generally
include "the identity of the person who made the misrepresentation, the
time, place and content of the misrepresentation, and the method by which
the misrepresentation was communicated to the plaintiff."
Slaney, 244 F.3d at 599; General Electric Capital Corp. v.
Lease Resolution Corp.. 128 F.3d 1074, 1CL78 (7th Cir. 1997). A
complaint must outline the alleged misrepresentations and reasonably
notify a defendant of the specifics of the alleged fraudulent activity,
including the particular defendant's role. Lachmund v. ADM Investor
Services, Inc., 191 F.3d 777, 782 (7th Cir. 1999); Goren v. New
Vision International, Inc., 156 F.3d 721, 730 (7th Cir. 1998);
Midwest Grinding Co., Inc. v. Spitz, 976 F.2d 1016, 1020 (7th
Cir. 1992); Ward Enterprises, Inc. v. Bang & Olufsen, 2003
WL 22859793 *1 (N.D. Ill. Dec. 2, 2003); Gilmore v. Southwestern
Bell Mobile Systems, L.L.C., 210 F.R.D. 212, 224 (N.D. Ill. 2001).
Fair notice is the most basic consideration. Vicom, Inc. v.
Harbridge Merchant Services, Inc., 20 F.3d 771, 777-78 (7th Cir.
19941; In re Bridgestone/Firestone Inc. Tires Products Liability
Litigation. 2002 WL 31689264 *8 (S.D. Ind. Nov. 20, 2002);
Gilmore. 210 F.R.D. at 224.
Additionally, the requirements of Rule 9(b) may be relaxed where
the plaintiff makes an adequate showing that necessary information is
within the control of a defendant so that particularized pleading cannot
be fully accomplished prior to receiving discovery. See Emery v.
American General Finance, Inc., 134 F.3d 1321, 1323 (7th Cir.),
cert. denied, 525 U.S. 818 (1998).
By its language, the particularity requirement of Rule 9(b) is limited
to the "circumstances constituting fraud." See Lachmund. 191
F.3d at 783; Hecht v. Commerce Clearing House, Inc.
897 F.2d 21, 26 n.4 (2d Cir. 1990); Hirata Corp. v. J.B. Oxford &
Co., 193 F.R.D. 589, 596-97 (S.D. Ind. 2000). Thus an agency
relationship establishing vicarious liability for fraud generally does
not have to be pleaded with particularity. See Lachmund, 191
F.3d at 783; Hirata, 193 F.R.D. at 597. Where a conspiracy to
commit fraud is alleged, the conspiracy itself generally need not be
alleged with particularity. See Hecht, 897 F.2d at 26 n.4;
Perlman v. Zell, 938 F. Supp. 1327, 1348-49 (N.D. 111. 1996),
aff'd, 185 F.3d 850 (7th Cir. 1999). However, where the same
circumstances establish both the fraud and an otherwise independent basis
for liability, both must be alleged with particularity. For example,
where there is no separate agency relationship relied on as a basis for
fraud, only vicarious liability based on being a coconspirator,
in the conspiracy must be alleged with particularity. See
Lachmund. 191 F.3d at 783.
The following facts are assumed to be true for purposes of ruling on
the pending motions to. dismiss. The Complaint describes the named
defendants as follows. Defendant IMC, also known as HTFC Corp., *fn6 has
its principal place of business in New York and is a licensed mortgage
banker in Illinois. Defendant Aaron Wider is IMC's chief executive
officer and sole shareholder. Defendant Century Mortgage & Funding,
Inc. ("CMF") has its principal place of business in Illinois and is a
subsidiary of or otherwise legally affiliated with IMC. CMF acted as the
mortgage broker and original lender for each of the Subject Loans.
Defendant Tommy Pililimis ("Pililimis") is an Illinois resident and was
employed by IMC and CMF. Pililimis represented that he conducted face to
face interviews with borrowers on the Subject Loans even. though those
borrowers were already dead at the time the interviews purportedly
Defendant Nations Title transacts business at a location in Illinois.
Nations Title was the title company/closing agent on each of the Subject
Loans when originated and funded by IMC/CMF. Nations Title prepared the
documents of conveyance,
settled the transactions, collected payments from the buyers and
sellers, and disbursed proceeds. It is alleged that Nations Title "is an
approved local agent of Defendant Lawyers Title Insurance Corp. and holds
itself out, as such." Compl. ¶¶ 8. Defendant Seeman was employed as a
closing manager for Nations Title and acted as the settlement agent for
each of the Subject Loan transactions. Seeman is a resident of Illinois
and a certified notary public in Illinois. Nations Title and Seeman were
involved in the closing of the Subject Loans when funded and originated
by IMC/CMF. Nations Title and Seeman were not directly involved in the
sale of the Subject Loans to plaintiff, but documents they prepared at
the closings were provided to plaintiff at the time the Subject Loans
were sold to plaintiff.
Defendant Lawyers Title transacts business at a location in Illinois.
Lawyers Title is in, the business of underwriting title insurance for
approved local agents. Lawyers Title is the underwriter for the property
title insurance for each of the Subject Loans. It is alleged that,
although Lawyers Title "did not itself actively participate in the
conspiracy to defraud Guaranty Residential, under principles of agency
law, [Lawyers Title] is vicariously liable for acts of its agent,
[Nations Title], which did actively participate in this conspiracy."
Compl. ¶ 9.
Defendants Steve Fobs, Jr., Stavros (or Steven) Bourmas, and
Anthony Mitchell (the "Appraiser Defendants") were all certified
residential real estate appraisers licensed by the State of Illinois.
Each of these defendants provided an inflated appraisal for one or more
Subject Properties. The appraisals were submitted to plaintiff at the,
time the Subject Loans were sold to plaintiff.
The Complaint specifically identifies the six Subject Loans, including
the amounts of the loans, the underlying Subject Properties, the real or
purported borrowers, the dates of the Loans, and the dates the Loans were
resold. As to five of the Subject Properties, prior sales in which the
prices increased substantially in a short time period are identified,
including the sales dates, sales prices, and purported buyers and
sellers.*fn7 As to the four purported borrowers., who were deceased
prior to the closings, their dates of death are alleged and supported by
copies of a death certificate or obituary.*fn8 As to one Subject
Property (Saginaw), it is alleged that the false representation was that
it was owner occupied. The fact that this property was
not actually owner occupied prevented plaintiff from reselling the
loan on the secondary market.
As to five*fn9 of the Subject Properties, the Appraiser Defendant's
involvement is specifically alleged. The particular Appraiser Defendant
who appraised each Subject Property is identified and deficiencies in the
"appraisals are identified. The deficiencies generally involve failure to
disclose or affirmatively misrepresenting the conditions of the Subject
Properties and failing to note the recent sales of the Subject Properties
at substantially lower prices.
It is alleged that plaintiff and IMC had a Correspondent Loan Purchase
Agreement ("CLP Agreement") dated March 22, 2002. Under the CLP
Agreement, plaintiff and IMC had an ongoing business relationship in
which plaintiff would purchase mortgage loans from IMC or its affiliates,
including CMF. IMC made fraudulent representations to plaintiff when
selling the Subject Loans in that IMC misrepresented that (a) the Subject
Loans were secured by properties worth the market values reflected in the
appraisals; (b) as to four of the Subject Loans, that the borrowers were
then-living; and (c) that authentic signatures were on loan documents for
the three deceased borrowers.*fn10 The
loan documents involving the deceased borrowers contain false
statements that a CMF or IMC employee conducted a face-to-face interview
with the borrower, Pililimis on two of the loans, Wider on one, and
nondefendant CMF ...