United States District Court, N.D. Illinois
March 24, 2004.
SANDRA ANN CHAMBERS, individually, in her official capacity as president of Sutherland Tenants Council (STC), and on behalf of all others similarly situated in the past, present, and future, ANGELA CHAMBERS, individually and on behalf of all others similarly situated in the past, present, and future, Plaintiffs;
HOLSTEN MANAGEMENT CORPORATION, CENTURY PLACE DEVELOPMENT, HEARTLAND ALLIANCE, CHICAGO CONNECTIONS, TRAVELERS & IMMIGRANTS AID, SID MOHN, PETER HOLSTEN, STEVE JOHNSON, LARRY HOWARD BENJAMIN CLARK and SARAH DART, Defendants
The opinion of the court was delivered by: ROBERT GETTLEMAN, District Judge
MEMORANDUM OPINION AND ORDER
Acting pro se, plaintiffs Sandra Ann Chambers and Angela
Chambers, on behalf of themselves and all others similarly situated,
filed an amended putative class action complaint against defendants
Holsten Management Corporation ("Holsten Management"), Century Place
Development ("Century Place"), Heartland Alliance, Chicago Connections,
Travelers and Immigrants Aid, Sid Mohn, Peter Holsten, Steve Johnson,
Larry Howard, Benjamin Clark, and Sarah Daft. In Count I, plaintiffs
allege that defendants violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq.,
through a rent overcharging scheme, as well as "questionable issues
concerning the phone and vending machine funds." In Count II, plaintiffs
assert that defendants violated the Fair Debt Collection Practices Act
"FDCPA"), 15 U.S.C. § 1692 et seq. The remaining
counts allege claims under various state law theories, including
violation of the Chicago residential Landlord and Tenant Ordinance (Count
III), breach of contract (Count IV), breach of implied warranty of
habitability (Count V), violation of the Illinois Consumer Fraud and
Deceptive Business Practices Act, 815 ILCS §§ 505/1 et seq.
(Count VI), common law fraud (Count VII), negligent hiring and
supervision (Count VIII), unfair enrichment (Count IX), and intentional
infliction of emotional distress (Count X), as well as an additional
count seeking injunctive relief (Count XI).
Defendants have moved to dismiss Count I for failure to state a claim
under Fed.R.Civ.P. 12(b)(6), as well as for failure to plead fraud
with particularity pursuant to Fed, R. Civ. P. 9(b). Defendants also seek
dismissal of Count II, arguing that they are not "debt collectors" within
the meaning of the FDCPA. For the reasons stated below, the court grants
defendants' motion to dismiss Counts I and II, and declines to exercise
supplemental jurisdiction over Counts III through XI.
Plaintiffs are residents of Sutherland Apartments, an apartment complex
located in Chicago, Illinois, and managed by defendant Holsten
Management. According to the amended complaint, defendants Century Place,
Heartland Alliance, Chicago Connection, and Travelers and Immigrants Aid
("TIA") are part owners of Sutherland Apartments. The individual
defendants are all current or former employees of defendants Holsten
Management and Century Place: Peter Holsten is the President of Holsten
Management, Sid Mohn is the President of Century Place, Steve Johnson
oversees the day to day operations of Sutherland
Apartments, Larry Howard is the former residential property manager/agent
for Sutherland Apartments,
Benjamin Clark is the current residential property manager/agent
for Sutherland Apartments, and Sarah Dart is the current assistant
residential property manager/agent for Sutherland Apartments.
Plaintiffs allege that, on February 17, 2002, Howard informed them that
the City Trust Fund Subsidy Program was increasing the subsidy it paid to
Holsten Management by $25, to $175. Plaintiffs believed that the
increased subsidy "logically should have decreased [each of the]
Chambers' rent $25.00."
Between February 21, 2002, and April 9, 2002, plaintiffs exchanged
correspondence with Holsten Management in which plaintiffs inquired about
"any discrepancy" presumably, the fact that plaintiffs' portions
of their respective rents did not decrease as a result of the increased
subsidy from City Trust Fun Subsidy Program. Holsten Management responded
that the request for a subsidy increase was made to the City Trust Fund
Subsidy Program to allow Holsten Management to "maintain the building
while keeping rents affordable for our tenants."
Plaintiffs maintain that Holsten Management's response is inconsistent
with the purpose of the City Trust Fund Subsidy Program. According to the
amended complaint, Howard and Dart threatened plaintiffs with eviction if
they did not "go along with allowing the landlords (Holsten, Century
Place, Heartland, Chicago Connection, TIA), Mohn and P. Holsten to
administer the City Trust Fund in this manner." Plaintiffs further allege
that they "[were] threatened that if [they] kept complaining about it,
[they] would lose [their] City Trust Fund."
According to the amended complaint, "one or more of the defendants have
directly, indirectly, assisted in, and/or have not otherwise stopped the
intentional and malicious assessment (charges and/or billings) to past
and/or present tenants . . . [and] directly and/or indirectly
assessed, attempted to collect, and/or collected excessive rents" from
other members of the putative class." The amended complaint alleges
that most tenants at Sutherland Apartments are "paying a considerable
amount of rent that far exceeds the market value of their
apartments," and that many apartments do not comply with the Chicago
building code. According to plaintiffs, to receive a lower rent, "one
must either be a friend of Howard, Clark, Dart and Johnson, and/or be
sexually involved with or working for `free' for Howard."
The amended complaint further alleges that the Sutherland Tenant
Council has not received its public telephone and vending machine
commission checks and that defendants have refused to account for those
sums. According to plaintiffs, Clark directed a member of the maintenance
staff to remove the security chain from the vending machines, and then
demanded removal of the machines and prevented them from being refilled.
Plaintiffs allege that another tenant has been permitted to operate her
vending machines, notwithstanding the fact that she has no agreement with
the Sutherland Tenants Council.
According to the amended complaint, Holsten Management has also failed
to account for $42,185 that was allegedly allocated for a visitor entry
system which has not yet been installed. Plaintiffs further allege that
numerous tenants have been charged an "illegal" fifty dollar air
conditioning fee and were never informed of their right to dispute the
Plaintiffs characterize the foregoing acts as a pattern of racketeering
activity with the meaning of 18 U.S.C. § 1961(5) and allege that they
have suffered injuries in their business and property as a result,
including over payment of rent, eviction or threatened eviction,
as well as loss of employment due to stress. Plaintiffs further allege
that defendants' activities violate the FDCPA.
1. Count I: RICO
Defendants Holsten Management, Peter Holsten, Johnson, Clark, Dart and
Howard (the "Holsten defendants") have moved to dismiss Count I for
failure to allege adequately, (1) predicate criminal acts, (2) a pattern
of racketeering activity, (3) a sufficient effect on interstate
commerce and (4) causation. Defendants Century Place, Heartland
Alliance, Chicago Connections, TIA, and Sid Mohn (the "Heartland
Alliance" defendants) adopt the Holsten defendants' arguments, and
further argue that, (1) none of the Heartland Alliance defendants was
involved in any of the predicate acts alleged in the amended complaint,
(2) none of the Heartland Alliance defendants is alleged to have control
over the management or operation of the RICO enterprise, and (3) the
Heartland Alliance defendants cannot be held vicariously liable for the
alleged acts of the Holsten defendants.
For the reasons stated below, the court concludes that plaintiffs have
not provided sufficient detail regarding their fraud allegations as
required by Fed.R.Civ.P. 9(b) and that plaintiffs' allegations
regarding extortion are insufficient to state a claim under Fed.R. Civ.
P. 12(b)(6). Because the insufficiency of plaintiffs' allegations
regarding predicate acts warrant dismissal of plaintiffs' RICO claim, the
court need not reach the merits of defendants' other arguments in favor
of dismissal of Count I.
RICO was originally enacted "in an attempt to eradicate organized, long
term criminal activity." Mira v. Nuclear Measurements
Corp., 107 F.3d 466, 473 (7th Cir. 1997) (quoting Midwest
Grinding Co., Inc. v. Spitz, 976 F.2d 1016, 1019 (7th Cir. 1992)).
RICO makes it unlawful, (1) to invest money derived from a pattern of
racketeering activity or through the
collection of an unlawful debt in an enterprise, 18 U.S.C. § 1962(a),
(2) to acquire or maintain an interest in or control of an
enterprise through a pattern of racketeering activity or through
collection of an unlawful debt, 18 U.S.C. § 1962(b), or (3) for any
person employed by or associated with any enterprise to conduct the
enterprise's affairs through a pattern of racketeering activity or
collection of an unlawful debt, 18 U.S.C. § 1962(c).
18 U.S.C. § 1964(c) authorizes a private suit by "[a]ny person injured in his
business or property by reason of a violation of Section 1962."
A "pattern of racketeering activity" is defined in
18 U.S.C. § 1961(5) as the commission of at least two of the predicate acts
enumerated in 18 U.S.C. § 1961(1) within a ten year
period.*fn1 At page 10 of their response brief, plaintiffs acknowledge
that the predicate acts forming the basis for their RICO claim in Count I
are fraud and extortion.
Curiously, at page 13 of their response brief, plaintiffs assert that
they "have not made a claim for mail fraud," implying that their RICO
claim is based on state law fraud. As defendants point out,
however, fraud is not one of the state law crimes that RICO includes as a
predicate act. See 18 U.S.C. § 1961(1)(A). Only violations
of particular federal fraud statutes, specifically wire and mail fraud,
constitute predicate acts. See 18 U.S.C. § 1961(1)(B).
Accordingly, to the extent that plaintiffs' RICO claim is based on state
law fraud, it fails as a matter of law.
Plaintiffs fare no better proceeding under mail or wire fraud.
Rule 9(b), which provides that "[i]n all averments of fraud . . ., the
circumstances constituting fraud . . . shall be stated with
particularity," applies to allegations of mail and wire fraud and
by extension to RICO claims that rest on predicate acts of mail and wire
fraud. Jepson, Inc. v. Makita Corp., 34 F.3d 1321, 1327 (7th
Cir. 1994). Rule 9(b) requires the plaintiff to state "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." Id. (quoting Uni* Quality, Inc. v.
Infotronx, Inc., 974 F.2d 918, 924 (7th Cir. 1992)). The complaint
must also allege facts from which it could be inferred that the
defendants engaged in the scheme with fraudulent intent.
Jepson. 34. F.3d at 1328 (citing McDonald v.
Schencker, 18 F.3d 491, 495 (7th Cir. 1994)). Moreover, in a
multiple defendant case, Rule 9(b) requires a RICO plaintiff to plead
sufficient facts to notify each defendant of his alleged participation in
the scheme. Goren v. New Vision Intern., Inc., 156 F.3d 721,
726 (7th Cir. 1998).
As defendants point out, plaintiffs' fraud allegations are lacking in
two critical respects. First, plaintiffs have not adequately alleged that
defendants made any misrepresentations at all, intentional or otherwise,
to plaintiffs. See Emery v. American General Finance, Inc.,
71 F.3d 1343, 1346 (7th Cir. 1995) ("[A]ll the [mail fraud] statute
punishes is deliberate fraud . . . where in order to get
money or something else of monetizable value from someone you make a
statement to him that you know to be false, or a half truth that you know
to be misleading, expecting him to act upon it to your benefit and his
detriment.") (emphasis in original). Second, plaintiffs have failed to
articulate each defendant's role in the alleged fraud.
From the face of the amended complaint, it appears that plaintiffs are
challenging Holsten Management's representation in a letter dated April
9, 2002, that the increase in the City Trust subsidy was to cover
increased costs so that Holsten Management could "maintain the building
while keeping rents affordable to our tenants." Plaintiffs allege
that this statement is "inconsistent with the agenda of the City Trust
Fund program," and to that end attach the 2001 Annual Report of the
Chicago Low Income Housing Trust Fund as an exhibit to the
amended complaint. The Annual report, however, which states that the Fund
"giv[es] grants to building owners and developers who agree to reduce
rents to accommodate very low income residents," does not appear
to conflict with defendants' alleged representations to plaintiffs.
Because plaintiffs have not articulated which aspects of defendants'
representations were false, if any, their fraud allegations are
insufficient under Rule 9(b).
As defendants point out, nothing in the 2001 Report or plaintiffs'
amended complaint suggests that additional subsidies paid to owners and
developers must reduce tenants' rents dollar for dollar when the
increased subsidies were designed to cover increased costs. Nor have
plaintiffs alleged that the City Trust Fund prohibits an increase in rent
at the same time as an increased subsidy. Moreover, to the extent that
defendants did make misrepresentations to plaintiffs, the amended
complaint is devoid of allegations that defendants acted with any intent
to defraud or with knowledge that their representations were false.
Second, the complaint does not distinguish among the acts of the
various defendants, as required by Rule 9(b). To the contrary, plaintiffs
allege generally that "the perpetuated acts of the defendants amount to
malicious intentions and schemes to defraud [plaintiffs]" and that "one
or more of the defendants have directly, indirectly, assisted in, and/or
have not otherwise stopped the intentional and malicious assessment
(charges and/or billings) to past and/or present tenants." Although
certain defendants are occasionally referenced with respect to specific
interactions involving plaintiffs, the amended complaint fails to notify
each defendant of his role in the
alleged scheme and does not attribute any alleged
"misrepresentations" to any particular defendant. Accordingly,
plaintiffs' allegations of fraud lack the detail required Rule 9(b). This
leaves plaintiffs' claims regarding "excessive" rents and extortion.
Although plaintiffs allege that their rent was "excessive," the amended
complaint does not assert that the rental rates were somehow fraudulent,
or criminal in any other respect that would bring them within §
1961's purview. Although plaintiffs attach a chart to their response
brief entitled "Annual Gross Household Income Limits for 2002/2003 and
Recommended Rent Portions to be Paid by Subsidized Tenants," to bolster
their assertion that their rents were "too high," this exhibit does not
save plaintiffs' RICO claim. The exhibit includes two charts, one of
which calculates a recommended rental portion based on gross income, and
another that calculates a recommended rental portion based on unit size.
As defendants point out, the chart details "recommended" rates,
confirming that the rental rates are not required by the City Trust Fund
Subsidy Program, much less any criminal statute that is included within
RICO's definition of predicate acts. Moreover, nothing in the plaintiffs'
response brief or amended complaint suggests that the defendants deviated
from these figures in calculating rents. An allegation that some tenants
may have paid less than others is not meaningful in the absence of
allegations regarding the tenants' earnings or the size of their units.
Further, even if the rates were beyond those set forth in the exhibit,
plaintiffs' complaint, drawing all reasonable inferences in their favor,
could be construed to allege only that defendants engaged in the
"collection of unlawful debt" as prohibited by 18 U.S.C. § 1962(a)-(c).
As noted by defendants, however, for the purposes of RICO,
"collection of unlawful debt" is limited to
debts from gambling activity and extremely usurious loans.
See 18 U.S.C. § 1961(6); Nolen v. Nucentrix Broadband
Networks Inc., 293 F.3d 926 (5th Cir. 2002).
Plaintiffs' allegations regarding extortion are also insufficient. As
defendants point out, extortion is defined as "the obtaining of property
from another, with his consent, induced by wrongful use of actual or
threatened force, violence, or fear." 18 U.S.C. § 1951(b)(2).
Plaintiffs allege, among other things, that defendants have threatened
tenants with eviction in response to their failure to pay rent and
electrical charges stemming from their use of air conditioners.
Plaintiffs have not alleged why this conduct is wrongful, however. In the
absence of allegations that defendants were somehow prohibited from, (1)
raising rents, (2) charging the air conditioner related
fees, and (3) seeking eviction of those tenants who refused to pay their
rents and/or fees, plaintiffs have failed to allege extortionate conduct
on the part of defendants. See Rothman v. Vedder Park
Management, 912 F.2d 315, 318 (9th Cir. 1990) (plaintiff failed to
adequately plead that landlord's threats of increased rent amounted to
extortion in absence of allegations that landlord could not increase rent
in response to a tenant's failure to sign his lease); Whitehead v.
Gateway Chevrolet, 2004 WL 316413, *6 (N.D.Ill. February 2, 2004)
(plaintiff failed to adequately plead extortion because plaintiff failed
to allege why letter stating defendant's intention to seek legal recourse
for plaintiffs default was "wrongful.").
It appears to the court that plaintiffs' RICO allegations, whether
framed in terms of subsidies, excessive rents, or threatened eviction,
are part of what plaintiffs conceive of as a fraud perpetrated by
defendants to obtain increased rent from their tenants. As noted above,
however, state law fraud is not actionable under RICO, and to the
extent that plaintiffs are seeking to allege mail or wire fraud, their
allegations do not comport with the particularity
required by Rule 9(b). Plaintiffs have not alleged any
misrepresentations by defendants or an intent to defraud, nor have
plaintiffs articulated the role of each defendant in the alleged
fraudulent scheme. Accordingly, the court dismisses Count I.
2. Count II: FDCPA
Defendants argue that plaintiffs' claim under the FDCPA must be
dismissed because none of the defendants is a "debt collector" within the
meaning of the Act. Plaintiffs respond that whether or not defendants are
debt collectors is a question of fact that should not be determined on a
motion to dismiss. For the reasons stated below, the court concludes that
the defendants are not "debt collectors," as that term is defined by the
FDCPA, and dismisses Count II.
The FDCPA prohibits a "debt collector" from using "any false,
deceptive, or misleading representation or means in connection with the
collection of any debt." 15 U.S.C. § 1692e. The FDCPA defines a "debt
collector" as "any person who uses any instrumentality of interstate
commerce or the mails in any business the principal purpose of which is
the collection of any debts, or who regularly collects or attempts to
collect, directly or indirectly, debts owed or due or asserted to be owed
or due another." 15 U.S.C. § 1692a(6). "Debt collector" does not
include "any person collecting or attempting to collect any debt . . .
which was not in default at the time it was obtained by such person,"
15 U.S.C. § 1692(a)(6)(F)(iii), unless that person is a creditor who, in
the process of collecting his own debts, uses any name other than his own
to collect those debts. See 15 U.S.C. § 1692(a)(6).
The Holsten defendants cite to Franceschi v. Mautner Glick
Corp., 22 F. Supp.2d 250 (S.D.N.Y. 1998), in support of their
contention that they are not "debt collectors" within the
meaning of the FDCPA. The Franceschi court, relying on
15 U.S.C. § 1692(a)(6)(F)(iii), held that a landlord's management agent
was not a "debt collector" under the FDCPA since it "had not only the
right but also the obligation to collect [plaintiff's] rent
before as well as after such debt was `in default,'"
Franceschi. 22 F. Supp.2d at 253. Among other things, the
Franceschi court relied on the rental agreements referenced in
the plaintiff's complaint, which explicitly defined the management agent
as the landlord's agent for purposes of collecting rent. Id.
In the instant case, the rental agreements attached to the amended
complaint define Holsten Management as the Lessor and Owner or Authorized
Management Agent, and further provide that "lessee shall pay to the
Lessor or Lessor's agent the monthly rent set forth above on or before
the first day of each and every month. . . . " Accordingly, for the
purposes of collecting rent due and owing, the Holsten defendants, which
includes Holsten Management and its agents Peter Holsten, Johnson, Clark,
Dart and Howard, are not "debt collectors" within the meaning of the
FDCPA. See 15 U.S.C. § 1692(a)(6)(F)(iii).
As to the Heartland Alliance defendants, the court notes that
plaintiffs' amended complaint is devoid of allegations that any of them
attempted to collect any rents or other sums from plaintiffs.
Accordingly, plaintiffs have failed to state a claim under the FDCPA
against the Heartland Alliance defendants, as well.
For these reasons, Count II is dismissed as to all defendants.
3. Counts III XI
Having dismissed plaintiffs' federal causes of action, the court
declines to exercise supplemental jurisdiction over plaintiffs' remaining
state law claims under 28 U.S.C. § 1367(c)(3).
For the reasons stated herein, defendants' motions to dismiss Counts I
through XI are granted. All other pending motions, including plaintiffs'
motions for temporary restraining orders (Docket Nos. 34 and 44) and
their motion for appointment of a special prosecutor (Docket No. 56) are
denied as moot.