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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY CHARLES J. and DIANE GILES, Individually and on behalf of all others similarly situated, : : : : Civil Action Plaintiffs, : No. 11-6239 (JBS-KMW) : v. : : WELLS FARGO BANK, N.A., PHELAN : HALLINAN& SCHMIEG, P.C., : LAWRENCE T. PHELAN, FRANCIS S. : HALLINAN, DANIEL S. SCHMIEG, : ROSEMARIE DIAMOND, FULL SPECTRUM : SERVICES, INC., and LAND TITLE SERVICES : OF NEW JERSEY, INC., : : Defendants. : PLAINTIFFS MEMORANDUM IN OPPOSITION TO MOTION OF DEFENDANT WELLS FARGO BANK, N.A. TO DISMISS PLAINTIFFS THIRD AMENDED COMPLAINT Dated: February 20, 2013 NARKIN LLC John G. Narkin 1662 South Loggers Pond Place, #31 Boise, Idaho 83706 Tel: (208) 995-6119 HARWOOD FEFFER LLP Robert I. Harwood James G. Flynn 488 Madison Avenue, 8th Floor New York, New York 10022 Tel: (212) 935-7400 TRUJILLO RODRIGUEZ & RICHARDS LLC Lisa J. Rodriguez 258 Kings Highway East Haddonfield, New Jersey 08033 Tel: (856) 795-9002

Attorneys for Plaintiffs and the Proposed Class

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Table of Contents Table of Authorities .................................................................................................. ii I. II. INTRODUCTION ........................................................................................... 1 ARGUMENT.................................................................................................................... 4 A. B. The Action Was Timely Filed Pursuant To Fed. R. Civ. P. 6(a) ............................................................................................. 4 WFBs Practices Are Protected by Neither The State Litigation Privilege Nor The Noerr-Pennington Doctrine .......................................... 5 1. 2. The Supremacy Clause Precludes Application of New Jerseys Litigation Privilege to Federal RICO Claims ... 5 Noerr-Pennington Does Not Immunize Defendants ObjectivelyBaseless Commencement of a Series of Meritless Litigations ......................................................................... 8

C.

The TAC States a Proper Claim For Relief Under RICO ...................... 22 1. 2. 3. The TAC Properly Pleads the Predicate Offenses of Mail and Wire Fraud ....................................................................... 22 The TAC Properly Pleads an Association-in-Fact Enterprise ................................................................................................ 30 Plaintiffs Have RICO Standing ......................................................... 35

III.

CONCLUSION .............................................................................................................. 38

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Table Of Authorities Cases Page

Acosta v. Campbell, Civ. No. 04-761, 2005 U.S. Dist. LEXIS 39889 (M.D. Fla. Nov. 4, 2005), magistrate report and recommendation adopted, 2006 U.S. Dist. LEXIS 4088 (M.D. Fla. Jan. 18, 2005)............................... 33 Agency Holding Corp. v. Malley-Duff & Assocs, Inc., 483 U.S. 143 (1987) ....................................................................................... 4 Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009) .................................................................................. 23 Assn of New Jersey Chiropractors v. Aetna, Inc., Civ. No. 09-3761, 2011 U.S. Dist. LEXIS 67718 (D.N.J. June 20, 2011) ................................ 33 Bank of New York v. Raftogianis, 2010 N.J. Super. LEXIS 221 (Ch. Div. 2010) ............................................. 15 Bartley v. Taylor, Civil Action No. 4:11-cv-01458, 2012 U.S. Dist. LEXIS 86925 (M.D. Pa. June 22, 2012) ....................... 10, 22 Bartley v. Taylor, Civil No. 4:11-cv-01458, 2012 U.S. Dist. LEXIS 86925 (M.D. Pa. June 22, 2012) ............................ 22 Beals v. Bank of Am. N.A., No. 10-5427 (KSH), 2011 U.S. Dist. LEXIS 128376 (D.N.J. Nov. 4, 2011) ............................... 37 Boyle v. United States, 556 U.S. 938 (2009) ............................................................................ 6, 30, 32 Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639 (2008) ..................................................................................... 36 ii

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Cheminor Drugs, Ltd. v. Ethyl Corp., 168 F.3d 119 (3d Cir. 1999).......................................................................... 14 Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516 (1992) ................................................................................ 7 Crozier v. Johnson & Johnson Consumer Cos., Civil No. 12-0008 (JBS/KMW), 2012 U.S. Dist. LEXIS 140320 (D.N.J. Sept. 28, 2012) ............................ 6-7 District 1199P Health & Welfare Plan v. Janssen, L.P., 784 F. Supp. 2d 508 (D.N.J. 2011) .............................................................. 36 Emcore Corp. v. PriceWaterhouseCoopers LLP, 102 F. Supp. 2d 237 (D.N.J. 2000) ......................................................... 34-35 Feld Entmt, Inc. v. ASPCA, 873 F. Supp. 2d 288 (D.D.C. 2012) ............................................ 10-11, 31, 34 Forbes v. Eagleson, 228 F.3d 471 (3d Cir. 2000) ........................................................................... 4 Fowler v. UPMC Shadyside, 578 F.3d 203 (3d Cir. 2009) ......................................................................... 23 Frey v. Woodard, 748 F.2d 173 (3d Cir. 1984) ........................................................................... 4 Giles v. Phelan, Hallinan & Schmieg, L.L.P., Civ. No. 11-6239, 2012 U.S. Dist. LEXIS 140289 (D.N.J. Sept. 28, 2012) ......................... 6, 27 Hoffman-La Roche Inc. v. Genpharm, Inc., 50 F. Supp. 2d 367 (D.N.J. 1999) ................................................................. 11 HT of Highlands Ranch, Inc. v. Hollywood Tanning Sys., 590 F. Supp. 2d 677 (D.N.J. 2008) .............................................................. 32

iii

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In re Chocolate Confectionary Antitrust Litig., Civil No. 1:08-MDL-1935, 2012 U.S. Dist. LEXIS 174681 (M.D. Pa. Dec. 7, 2012) ............................ 21 In re Flonase Antitrust Litig., 795 F. Supp. 2d 300 (E.D. Pa. 2011) ......................................11, 18-19, 21-22 In re Gabapentin Patent Litig., 649 F. Supp. 2d 340 (D.N.J. 2009) ......................................................... 11, 22 In re Ins. Brokerage Antitrust Litig., 618 F.3d 300 (3d Cir. 2010) ......................................................... 6, 30, 31, 32 In re Relafen Antitrust Litig., 360 F. Supp. 2d 166 (D. Mass. 2005) ........................................................... 19 In re Wellbutrin XL Antitrust Litig., Civil No. 08-2431, 2012 U.S. Dist. LEXIS 66312 (E.D. Pa. May 11, 2012) ...................... 8, 9-10 Indep. Taxicab Drivers Emps. v. Greater Hous. Transp. Co., 760 F.2d 607 (5th Cir. 1985) ....................................................................... 22 Johnson v. JP Morgan Chase Bank, 536 F. Supp. 2d 1207 (E.D. Cal. 2008) ..................................................... 7, 8 Kelly v. Palmer, Reifler, & Assocs., P.A., 681 F. Supp. 2d 1356 (S.D. Fla. 2010) ........................................................ 33 Kimes v. Stone, 84 F.3d 1121 (9th Cir. 1996) .......................................................................... 8 Kottle v. NW. Kidney Ctrs., 146 F.3d 1056 (9th Cir. 1998) ..................................................................... 14 Landmarks Holding Corp. v. Bermant, 664 F.2d 891 (2d Cir. 1981).......................................................................... 13 Loigman v. Twp. Comm., 185 N.J. 566, 889 A.2d 426 (2006) ............................................................... 8 iv

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Menjivar v. Trophy Props. IV DE, LLC, Civ. No. 06-03086, 2006 U.S. Dist. LEXIS 76245 (N.D. Cal. Oct. 10, 2006) ................... 7, 8, 14 Miller v. Countrywide Home Loans, Inc., 747 F. Supp. 2d 947 (S.D. Ohio 2010) ........................................................ 33 NOW v. Scheidler, 510 U.S. 249 (1994) ...................................................................................... 38 OR v. Hutner, Civil No. 10-1711 (AET), 2011 U.S. Dist. LEXIS 4341 (D.N.J. Jan. 18, 2011) ..................................... 7 Oei v. Star Capital Acquisitions LLC, 486 F. Supp. 2d 1089 (C.D. Cal. 2006............................................................ 8 Pardi v. Kaiser Found. Hosp. Inc., 389 F.3d 840 (9th Cir. 2004) ......................................................................... 8 Phillips v. County of Allegheny, 515 F.3d 224 (3d Cir. 2008) ......................................................................... 21 Profl Real Estate Invs., Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49 (1993) ................................................................................... 9, 22 Robbins v. Wilkie, 300 F.3d 1208 (10th Cir. 2002) .................................................................... 38 Schwend v. U.S. Bank, N.A., No. 4:10CV1590, 2010 U.S. Dist. LEXIS 127915 (E.D. Mo. Dec. 3, 2010) ........................... 30 Smajlaj v. Campbell Soup Co., 782 F. Supp. 2d 84 (D.N.J. 2011) ............................................................ 22-23 Sosa v. DIRECTV, Inc., 437 F.3d 923 (9th Cir. 2006) ....................................................................... 14 v

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Sykes v. Mel Harris & Assocs., LLC, 757 F. Supp. 2d 413 (S.D.N.Y. 2010) ............................................ 12, 13, 14, 28-29, 34, 37 US Bank Natl Assn v. Guillaume, 209 N.J. 449, 38 A.3d 570 (2012) .......................................................... 16-17 Ultramares Corp. v. Touche, Niven & Co., 255 N.Y. 170 (1931) ............................................................................... 17-18 United States v. Bergrin, 682 F.3d 261 (3d Cir. 2012) ......................................................................... 34 Villa v. Heller, Civil No. 10cv1885-AJB (WMC), 2012 U.S. Dist. LEXIS 110667 (S.D. Cal. Aug. 3, 2012) ......................... 7, 8 WE, Inc. v. City of Philadelphia, 174 F.3d 322 (3d Cir. 1999) ........................................................................... 9 Winters v. Jordan, No. 2:09-CV-00522 (JAM/KJN/PS), 2011 U.S. Dist. LEXIS 24525 (E.D. Cal. Mar. 10, 2011) ......................... 7, 8 Statutes & Regulations 18 U.S.C. 1341 ..................................................................................................... 23 18 U.S.C. 1343 .................................................................................................... 23 18 U.S.C. 1962(c) ............................................................................................ 1, 30 42 U.S.C. 1985 ...................................................................................................... 7 42 U.S.C. 1986 ...................................................................................................... 7 Fed. R. Civ. P. 6(a) ............................................................................................ 1, 4-5 Fed. R. Civ. P. 8 ..................................................................................................... 38 vi

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Fed. R. Civ. P. 12(b)(6) ............................................................................... 21, 22-23 Fed. R. Civ. P. 23(b)(3) .......................................................................................... 19 New Jersey Fair Foreclosure Act N.J.S.A. 2A:50-56(c)(11).............................................................................. 16 N.J. Rule 4:50-1....................................................................................................... 35

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Plaintiffs Charles and Diane Giles (the Giles or Plaintiffs) respectfully submit this memorandum in opposition to the motion of defendant Wells Fargo Bank, N.A. (WFB) to Dismiss Plaintiffs Third Amended Complaint (the TAC).1 I. INTRODUCTION

Through its consideration of previous motions, the Court is familiar with the facts, circumstances and legal issues in this litigation. Except to the extent

necessary to correct WFBs mischaracterizations, Plaintiffs will confine this memorandum to an analysis of the law governing claims asserted in the TAC concerning defendants institutionalized scheme to prosecute fraudulent mortgage foreclosure lawsuits against members of the Proposed Class. WFBs arguments fall into three categories: First, WFB argues that Plaintiffs claims under Section 1962(c) of the Racketeering Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 1962(c), are barred by the four-year statute of limitations which runs from discovery of the wrongdoing. As demonstrated below, however, WFB ignores Fed. R. Civ. P. 6(a), under which (1) the date of accrual is not counted and (2) a statute of limitations cannot expire on a weekend.
1

Because the action was

Paragraphs in the TAC are herein referred to as ___. The same abbreviations in the TAC identifying parties in this litigation will be also used in this memorandum.

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commenced within four years after the day on which WFB contends Plaintiffs claims accrued and because the date WFB proposes is a Sunday, this lawsuit is timely. (See Point II-A, below.) Second, WFB argues that Plaintiffs Federal RICO claims are barred by both New Jerseys litigation privilege and the Noerr-Pennington doctrine. As

demonstrated below, however, state litigation privileges cannot preempt federal statutes, particularly RICO, because to do so would violate the Supremacy Clause of the U.S. Constitution. (See II-B-1, below.) Further, the Noerr-Pennington doctrine does not immunize sham litigation, such as WFBs repeated practice of directing the filing of foreclosure actions against Plaintiffs and Proposed Class members in the name of two entities without legal standing to sue (Wachovia Bank and U.S. Bank) both of which were represented, falsely, by WFB and its foreclosure law firm as the actual owner of the homeowners mortgages the trustee of the Park Place Trust (defined below). WFB and its lawyers continued to act in this identical unlawful manner, despite having notice of its impropriety through homeowner objections filed in state court predating their action against the Giles, and despite e-mails, letters, and telephone conversations from a senior officer of Wachovia, who unequivocally warned Phelan P.C. and WFB that they lacked authority to prosecute foreclosure actions in its name. (See Point II-B-2, below.)
2

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Finally, WFB argues that the TAC fails to state claims under RICO because: (a) there are insufficient allegations of mail and wire fraud by WFB; (b) there are insufficient allegations of a distinct RICO enterprise; and (c) Plaintiffs lack standing to assert a cause of action under RICO. As demonstrated below,

however, (a) Plaintiffs mail and wire fraud allegations are detailed as to how, when, and how WFB learned or should have learned that it was systematically misrepresenting the proper owner of mortgages and willfully circumventing mandatory legal standing requirements. (See Point II-C-1, below.) Further, WFBs foreclosure law firm, defendant Phelan P.C., was not merely WFBs agent, but an active participant that profited independently by pressing manufactured foreclosure litigation upon unsophisticated homeowners. The TAC provides ample detail about how WFB and its co-defendants had distinct, yet coordinated business models, such that they constituted separate persons sufficient to act as a RICO enterprise. (See Point II-C-2, below.) The TAC also details how defendants mail and wire fraud deceived Plaintiffs and the Proposed Class, as well as New Jersey Chancery Court judges, while identifying specifically the manner in which Plaintiffs and the Proposed Class suffered injury to property as a result of defendants misconduct. (See Point II-C-3, below.)

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II. A.

ARGUMENT

The Action Was Timely Filed Pursuant To Fed. R. Civ. P. 6(a) RICO actions are subject to a four-year statute of limitations. Agency

Holding Corp. v. Malley-Duff & Assocs, Inc., 483 U.S. 143, 156 (1987). In the Third Circuit, the four-year period begins at the time when the plaintiffs knew or should have known of their injury. Forbes v. Eagleson, 228 F.3d 471, 484 (3d Cir. 2000). WFB maintains that this action was not brought within the four-year statute of limitations applicable to Federal RICO claims and is, therefore, barred as a matter of law. Inexplicably, WFB disregards the manner in which time is

computed under the Federal Rules. Federal courts rely on Fed. R. Civ. P. 6(a) to calculate the expiration of limitation periods. Frey v. Woodard, 748 F.2d 173, 174-75 (3d Cir. 1984). Fed R. Civ. P. 6(a) provides: (a) Computing Time. The following rules apply in computing any time period specified in these rules, in any local rule or court order, or in any statute that does not specify a method of computing time. (1) Period Stated in Days or a Longer Unit. period is stated in days or a longer unit of time: When the

(A) exclude the day of the event that triggers the period; (B) count every day, including intermediate Saturdays, Sundays, and legal holidays; and (C) include the last day of the period, but if the last day is a Saturday, Sunday, or legal holiday, the period continues to
4

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run until the end of the next day that is not a Saturday, Sunday, or legal holiday. (Emphasis supplied.) This action was filed on Monday, October 24, 2011. The TAC alleges (TAC 63), and WFB concedes (WFB Br. at 19) that discovery of the alleged wrongdoing occurred on October 23, 2007, when Wachovia informed the Giles counsel that Wachovia was not the trustee for the Plaintiffs mortgage loan and had not acted in a trust capacity since December 30, 2005. Under Fed. R. Civ. P. 6(a), the accrual of an action excludes the day of the event that triggers the period, and it expressly provides that a limitations period cannot expire on a Saturday, Sunday, or legal holiday. Because October 23, 2011 was a Sunday,2 the statute of

limitations could not have run against the Giles until the end of Monday October 24, 2011. Despite WFBs incomprehensible miscalculation, this action is timely. B. WFBs Practices Are Protected by Neither The State Litigation Privilege Nor The Noerr-Pennington Doctrine 1. The Supremacy Clause Precludes Application of New Jerseys Litigation Privilege to Federal RICO Claims

WFB argues that New Jerseys litigation privilege doctrine precludes RICO liability for litigation activities. Although the Court decline[d] to conclusively See United States Supreme Court Calendar for October 2011 term, http://www.supremecourt.gov/oral_arguments/2011TermCourtCalendar.pdf.

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determine the issue in its Opinion last fall, the Court did observe that there is United States Supreme Court precedent that indicates that state common law does not trump federal statutory rights. [T]he Supreme Courts ruling [in Howlett By and Through Howlett v. Rose, 496 U.S. 356 (1990)] indicates that state common law traditions cannot bar federal causes of action. Giles v. Phelan, Hallinan & Schmieg, L.L.P., Civ. No. 11-6239, 2012 U.S. Dist. LEXIS 140289, at *45 (D.N.J. Sept. 28, 2012). WFB has not provided contrary authority. RICO is to be construed liberally, as the United States Supreme Court made clear. Boyle v. United States, 556 U.S. 938, 944 (2009) (the RICO statute

provides that its terms are to be liberally construed to effectuate its remedial purposes)(quoting RICO, Pub. L. No. 91-452, 904(a), 84 Stat. 947 (1970)). See also In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 366 (3d Cir. 2010). Nothing in the RICO statute suggests that it can be subordinated to state common law doctrines like New Jerseys litigation privilege. The Supremacy Clause bars application of state litigation privileges to Federal RICO claims. As this Court noted in Crozier v. Johnson & Johnson Consumer Cos., Civil No. 12-0008 (JBS/KMW), 2012 U.S. Dist. LEXIS 140320 (D.N.J. Sept. 28, 2012): Under the Supremacy Clause of the United States Constitution, federal law is the supreme law of the land and any conflicts between federal and state laws must be resolved in favor of federal law.
6

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Essentially, state law that conflicts with federal law is without effect. Id. at *22 (emphasis supplied), citing Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516 (1992) (citing U.S. Const. art. VI, cl. 2). Other courts have affirmatively ruled that no state litigation privilege can preempt RICO.3 See Villa v. Heller, Civil No. 10cv1885-AJB (WMC), 2012 U.S. Dist. LEXIS 110667, at **22-23 (S.D. Cal. Aug. 3, 2012) (and cases cited therein) (RICO preempts the state litigation privilege); Winters v. Jordan, No. 2:09-CV00522 (JAM/KJN/PS), 2011 U.S. Dist. LEXIS 24525, at *18 (E.D. Cal. Mar. 10, 2011) (Californias absolute litigation privilege does not apply to claims . . . alleg[ing] violations of the RICO statute, 18 U.S.C. 1962(d)); Johnson v. JP Morgan Chase Bank, 536 F. Supp. 2d 1207, 1213 (E.D. Cal. 2008) (same). Surveying Federal case law addressing this issue, the court in Menjivar v. Trophy Props. IV DE, LLC, Civ. No. 06-03086, 2006 U.S. Dist. LEXIS 76245 (N.D. Cal. Oct. 10, 2006),4 declared that [d]efendant provides no authority for

In OR v. Hutner, Civil No. 10-1711 (AET), 2011 U.S. Dist. LEXIS 4341, (D.N.J. Jan. 18, 2011), a civil rights case, Judge Anne E. Thompson concluded, on a Motion for Reconsideration and for Rule 60 Corrections, that the court had earlier mistakenly disregarded the Supremacy Clause in applying a state litigation privilege to bar [plaintiffs] federal civil rights claims and erred in suggesting that the litigation privilege would bar Plaintiffs Constitutional claims under 42 U.S.C. 1985, 1986. Id. at *7 WFBs citation to Menjivar is both inconsistent and inaccurate. The court in Menjivar distinguished state law privilege and Noerr-Pennington issues. Compare
7
4

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applying [a states common law] litigation privilege to RICO claims, and indeed, none appears to exist. Id. at *46.5 Nor does WFB cite any case in which a state litigation privilege precluded a federal RICO claim. 2. Noerr-Pennington Does Not Immunize Defendants ObjectivelyBaseless Commencement of a Series of Meritless Litigations

The Noerr-Pennington doctrine is based upon the principle that the First Amendment protects citizens right to petition all types of government entities, WFB Br. at 17 (a state law litigation privilege is substantively equivalent to the Noerr-Pennington Doctrine) with Menjivar, 2006 U.S. Dist. LEXIS 76245, at *47 (while the California litigation privilege does not apply to federal RICO claims, the Ninth Circuit has recently decided that the Noerr-Pennington doctrine, derived from the Petition Clause of the First Amendment, does). WFB relies on the New Jersey Supreme Courts decision in Loigman v. Twp. Comm., 185 N.J. 566, 889 A.2d 426 (2006), as authority that state litigation privilege can apply to a federal cause of action. Loigman, however, did not involve RICO. Id. Moreover, the Court in Loigman declared that it was not aware of any federal case disqualifying per se the litigation privilege in a 1983 litigation, and that it was confident that the United States Supreme Court would find that the litigation privilege is applicable in the prosecution of 1983 civil rights cases. 185 N.J. at 584-85, 889 A.2d at 436-37.
5

Despite the Loigman Courts failure to identify them, federal courts elsewhere had already reached the opposite conclusion. See, e.g., Oei v. Star Capital Acquisitions LLC, 486 F. Supp. 2d 1089, 1098 (C.D. Cal. 2006), citing Kimes v. Stone, 84 F.3d 1121, 1127 (9th Cir. 1996) (California litigation privilege did not bar plaintiffs 1983 claim due to the Supremacy Clause). See also Pardi v. Kaiser Found. Hosp. Inc., 389 F.3d 840, 851 (9th Cir. 2004) (defendant was not entitled to assert the litigation privilege as a shield against liability under the ADA). And, as demonstrated above, numerous courts that have considered the applicability of a state litigation privilege to the federal RICO statute have ruled, without fail, that the Supremacy Clause precludes such application. See, e.g., Menjivar, supra; Villa, supra; Winters, supra; and Johnson, supra.

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including the right to bring legitimate disputes to the courts for judicial resolution. In re Wellbutrin XL Antitrust Litig., Civil No. 08-2431, 2012 U.S. Dist. LEXIS 66312, at *11-12 (E.D. Pa. May 11, 2012) (citations omitted). As the Third Circuit explained in WE, Inc. v. City of Philadelphia, 174 F.3d 322 (3d Cir. 1999), because the Petition Clause of the First Amendment neither enjoys special First Amendment status nor confers an absolute immunity for privilege. . . . NoerrPennington immunity provides only a defense to liability, not an immunity from suit. Id. at 327-28. It does not confer a right not to stand trial, but rather provides only a defense against liability for certain conduct. Id. at 330. Because the immunity from liability conferred by the Noerr-Pennington doctrine is not absolute, there is a well-established sham exception to the doctrine. Professional Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc. (PRE), 508 U.S. 49, 51 (1993). The Supreme Court in PRE established a twopronged test to determine whether a partys conduct is a sham. Under the first prong of the test, the party invoking the sham exception . . . must show that [its adversarys] conduct is objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits. In re Wellbutrin, 2012 U.S. Dist. LEXIS 66312, at *14, quoting, PRE, 508 U.S. at 60. [I]f an objective litigant could conclude that the suit is reasonably calculated to elicit a favorable outcome, the suit is immunized under Noerr, and an antitrust claim premised on the sham
9

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exception must fail. . . . The existence of probable cause to institute proceedings is an absolute defense to antitrust liability. Id. (citations omitted). Only if an action is objectively baseless may a court proceed to the second prong of the sham exception definition. Under the subjective second prong, a court should examine whether the baseless suit or petition conceals an attempt to engage in wrongful conduct. Id. at *16 (citations omitted). Baseless litigation . . . is not immunized by the First Amendment right to petition. Thus, the Noerr-Pennington doctrine does not immunize individuals who initiate sham litigation. [D]etermining what litigation is sham or baseless requires the drawing of a difficult line to separate objectively reasonable claims from a pattern of baseless, repetitive claims . . . which leads the fact-finder to conclude that the . . . judicial process[] [has] been abused. Bartley v. Taylor, Civil No. 4:11-cv-01458, 2012 U.S. Dist. LEXIS 86925, at *6-7 (M.D. Pa. Jun. 22, 2012) (citations omitted; emphasis supplied). See also Feld Entmt, Inc. v. ASPCA, 873 F. Supp. 2d 288, 307 (D.D.C. 2012) (Neither the Noerr-Pennington doctrine nor the First Amendment more generally protects petitions predicated on fraud or deliberate misrepresentation. As a threshold matter, therefore, [a]ttempts to influence governmental action through overtly corrupt conduct, such as bribes (in any context) and misrepresentation (in the

10

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adjudicatory process) are not normal and legitimate exercises of the right to petition, and activities of this sort have been held beyond the protection of Noerr.) Whether a lawsuit is objectively baseless for purposes of the sham exception to the Noerr-Pennington doctrine necessarily involves [a]

determination of whether [a party] undertook a reasonable investigation before filing suit. In re Gabapentin Patent Litig., 649 F. Supp. 2d 340, 364-65 (D.N.J. 2009), citing Hoffman-La Roche Inc. v. Genpharm, Inc., 50 F. Supp. 2d 367, 380 (D.N.J. 1999). Reasonableness is a question of fact that does not lend itself to resolution on a motion to dismiss. Id. See below at p.21. Further, it is axiomatic that a party whose misrepresentations to the court deprived litigation of its legitimacy cannot be a reasonable litigant [that] could realistically expect success on the merits. See In re Flonase Antitrust Litig., 795 F. Supp. 2d 300, 311 (E.D. Pa. 2011) (emphasis supplied), citing PRE, 508 U.S. at 54, and other relevant cases. That is not to say, however, that unreasonable litigants like WFB and its foreclosure lawyers do not realistically expect success resulting from their fraudulent litigation conduct. Indeed, in this respect, defendants have

enjoyed much undeserved success at the expense of distressed homeowners, which is the essential reason for this lawsuit.

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The TAC details how WFB and each of its co-defendants engaged in a fraudulent scheme through a pattern of baseless, repetitive claims that abused the judicial process. See, for example: Prompted by WFB, sworn false and misleading statements filed by Phelan P.C. lawyers concerning mortgage ownership and legal standing (which the courts and Proposed Class members justifiably relied upon) operated as a fraud on the judicial system. 10. WFB, Phelan P.C., non-defendant Phelan LLP, Lawrence Phelan, Hallinan, Schmieg, Diamond, Full Spectrum, and Land Title each committed mail and wire fraud in violation of 18 U.S.C. 1341 and 1343. They did so through their devise and implementation of a scheme or artifice to defraud Homeowners and the New Jersey and Pennsylvania court systems, and by obtaining money or property by means of false or fraudulent pretenses and representations. 93. Specifically identifying a non-exhaustive sample of foreclosure cases prosecuted throughout the proposed Class Period (other than one involving the Representative Plaintiffs in this litigation) in which WFB and its co-defendants engaged in the identical pattern of baseless, repetitive claims that abused the judicial process. 77.

Sykes v. Mel Harris & Assocs., LLC, 757 F. Supp. 2d 413 (S.D.N.Y. 2010), an action under RICO, involved, as here, a massive scheme to circumvent judicial process. The plaintiffs in Sykes were served via sewer service where process servers would not actually serve defendants but would still report service as completed. Id. at 418. After the faulty service, creditors would then obtain default judgments and attack defendants assets. Id.6 The district court in Sykes

Compare with allegations in TAC 12 (The purpose and effect of false and misleading sworn statements by Phelan P.C. and WFB was to conceal material
6

12

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(per now-Circuit Judge Denny Chin) rejected defendants contention that NoerrPennington immunized them from RICO liability for their litigation activity: [t]he doctrines sham exception[] excludes any abuse of process that bars access to the courts, such as unethical conduct in the setting of the adjudicatory process or the pursuit of a pattern of baseless, repetitive claims. 757 F. Supp. 2d at 429 (emphasis supplied), citing Landmarks Holding Corp. v. Bermant, 664 F.2d 891, 896 (2d Cir. 1981) (quoting Calif. Motor Transp. v. Trucking Unltd., 404 U.S. 508, 513 (1972)). In denying defendants motion to dismiss RICO claims, the Sykes court also held that plaintiffs have presented strong circumstantial evidence of a scheme among defendants to defraud plaintiffs of money or property. Moreover, plaintiffs have pleaded with particularity a pattern of racketeering activity, including at least twenty allegedly fraudulent statements and eighteen acts involving use of the mail and wires over three years, in furtherance of the alleged fraud. The Complaint sufficiently alleges facts that give rise to a strong inference of fraudulent intent because defendants had a motive and opportunity to do so. The allegations

facts from Plaintiff homeowners and New Jersey Chancery Court judges prior to entry of default judgments against members of the Proposed Class. Had the truth been known, the Homeowners would have opposed, and no Chancery Court judge would have entered, fraudulently obtained default judgments against Homeowners in favor of named plaintiffs Wachovia or U.S. Bank).
13

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sufficiently establish defendants conscious misbehavior or recklessness with respect to preparing false filings with state courts. 757 F. Supp. 2d at 425.7 Despite WFBs protestations to the contrary,8 the fraudulent

misrepresentations and omissions alleged here thoroughly infect[ed] the core of

7

The cases relied upon by WFB as analogous under the Noerr-Pennington doctrine are not only factually distinguishable, but also recognized that the filing of a series of lawsuits brought pursuant to a policy of starting legal proceedings without regards to the merits could constitute sham litigation. In Sosa v. DIRECTV, Inc., 437 F.3d 923 (9th Cir. 2006), for example, the Ninth Circuit, quoting extensively from its decision in Kottle v. NW. Kidney Ctrs., 146 F.3d 1056, 1060 (9th Cir. 1998), explained that: In Kottle, we identified three circumstances in which the sham litigation exception might apply: first, where the lawsuit is objectively baseless and the defendants motive in bringing it was unlawful, 146 F.3d at 1060; second, where the conduct involves a series of lawsuits brought pursuant to a policy of starting legal proceedings without regard to the merits and for an unlawful purpose, id. and third, if the allegedly unlawful conduct consists of making intentional misrepresentations to the court, litigation can be deemed a sham if `a partys knowing fraud upon, or its intentional misrepresentations to, the court deprive the litigation of its legitimacy. 146 F.3d at 938 (citations omitted; emphasis supplied). The Ninth Circuit in Sosa concluded that defendants conduct in sending pre-litigation demand letters (as opposed to the knowing fraud upon ... the court depriv[ing] the litigation of its legitimacy involved here) did not rise to the level of shams. 146 F.3d at 939. In Menjivar, 2006 U.S. Dist. LEXIS 76245, the allegedly wrongful conduct involved misrepresentations of law [that] are not actionable as fraud and failed to adequately make an allegation identifying a misrepresentation of fact [that] may constitute mail fraud. Id. at *59 (emphasis supplied). WFB Br. at 11, quoting Cheminor Drugs, Ltd. v. Ethyl Corp., 168 F.3d 119, 120 (3d Cir. 1999).
8

14

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the systematic wrongful foreclosure claims against the Giles and other Proposed Class members by WFB and Phelan P.C. As ostensible support for its contention that these foreclosure actions were objectively reasonable within the meaning of the sham exception to the Noerr-Pennington doctrine, WFB makes two primary arguments, neither of them persuasive. WFBs argues that the identity of the securitization trustee, i.e., the named foreclosing plaintiff, was somehow immaterial because Plaintiffs were in default on their mortgage loan and . . . Wells Fargo Bank was the servicer of their loan. (WFB Br. at 8, 12-13.) The identity of the foreclosing plaintiff is, however, material under New Jersey law a fact known to WFB. Under New Jersey law, a party seeking to foreclose a mortgage must own or control the underlying debt. Bank of New York v. Raftogianis, 2010 N.J. Super. LEXIS 221, at *3 (Ch. Div. 2010). Absent a demonstration of ownership or control, a purported mortgagee lacks standing to proceed with a foreclosure action. Id. at *33. Moreover, to establish standing, a plaintiff must own or control the underlying debt, and must do so as of the date of the filing of the complaint. Id. at *34. WFB fails to mention this inconvenient threshold requirement for commencing a proper foreclosure action in New Jersey -- even though it is an essential element of a cause of action which lies at the core of the wrongful foreclosure actions prosecuted against the Proposed Class by Defendants.
15

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New Jersey also imposes a certification requirement for the filing of all foreclosure proceedings a fact, too, well understood by WFB and its codefendants. As to the ancillary role of mortgage servicers vis--vis the lenders to whom they are responsible, the New Jersey Supreme Court carefully considered whether identification of mortgage servicers, without disclosing the names of the actual parties owning or controlling a mortgage, complies substantially with the notification requirements of New Jerseys Fair Foreclosure Act, N.J.S.A. 2A:5056(c)(11). In US Bank Natl Assn v. Guillaume, 209 N.J. 449, 38 A.3d 570 (2012), the New Jersey Supreme Court held that actual lenders must be identified to homeowners facing foreclosure and that disclosure of the mortgage servicer alone is patently insufficient. explained: [T]here is a potential for significant prejudice to the defending party, the homeowner, by virtue of a banks failure to identify the lender. For example, a misunderstanding about a lenders identity could prompt a homeowner to make a critical error at a time when he or she is struggling to avert foreclosure. While the loan servicers name, address and telephone number is significant information that should be part of a notice of intention, the lenders identity is equally important to the Legislatures objective of ensuring that homeowners at risk of foreclosure are thoroughly informed. * * * 209 N.J. at 458, 38 A.3d at 574. The Court

The identity of the lender the prospective plaintiff is a crucial aspect of reasonable notice of a foreclosure claim. [A] notice of intention [must inform homeowners] of the identity of the party that
16

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would ultimately be pled as the plaintiff in the action and would pursue foreclosure. 209 N.J. at 473-74, 38 A.3d at 583-84 (emphasis supplied). Thus, the certifications that accompany the foreclosure complaints here were designed, not only to ensure that the correct party was identified, but also to assure the courts that the named plaintiff was the proper legal owner of mortgages in whose name foreclosure actions were brought. However, none of the defendants made any effort to ensure the entity they selected as foreclosing plaintiff was accurate, even though it was known in the financial community that Wachovia disposed of its entire corporate trust business on December 30, 2005.9 47, 5455, 63-64, 66-67, 77. Had they undertaken any investigation to confirm whether their allegations were true, WFB and its foreclosure counsel would have had no trouble recognizing that their assertions concerning Wachovias legal status were false.10 As Justice Cardozo wrote, [f]raud includes the pretense of knowledge

See Associated Press, Wachovia to Sell 2 Businesses, N.Y. TIMES (Nov.30, 2005), http://www.nytimes.com/2005/11/30/business/30wachovia.html?_r=0; Staff, Wachovia to lay off 274, Phil. Bus. J. (Jan. 6. 2006); http://www.bizjournals.com/philadelphia/stories/2006/01/02/daily40.html

10

See, e.g., TAC 7 (With profit and speed as their overriding concerns, WFB and Phelan P.C. willfully failed to undertake even rudimentary investigations of facts concerning the legality of their foreclosure actions.) (emphasis added); 43 (For WFB and Phelan P.C., the need for speed has motivated them to file as many foreclosure cases as they can, without proper investigation and by any means possible, even if their overstretched support staffs cannot process them adequately, and even when there is no evidence of ownership of homeowners mortgages.)
17

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when knowledge there is none. Ultramares Corp. v. Touche, Niven & Co., 255 N.Y. 170, 179 (1931). WFB next argues that the proper remedy for misnaming Wachovia as the securitization trustee was actually litigated in the Foreclosure Action [against the Giles], and the [Ocean County state] court held that the Phelan Firm could amend the pleadings to identify U.S. Bank as the trustee instead of Wachovia, and specifically denied the Giles counsels request to dismiss the Foreclosure Action. (WFB Br. at 11.) WFBs argument is misplaced. The vagaries of motion practice before the Ocean County Court in the wrongful foreclosure action against the Giles (the resolution of which was uncertain at best) are not determinative of whether WFB and Phelan P.C. had an objective basis and probable cause to bring their foreclosure action in the first instance. Even a successful preliminary injunction does not necessarily preclude a court from concluding that litigation was baseless, and an alleged sham lawsuit may be objectively baseless even if the underlying lawsuit survived summary judgment because factors other than the (emphasis added); 101 (Motivated by immediate financial gain and future opportunities for further profit that result from meeting or exceeding strict timelines required by WFB and GSEs, defendants Phelan P.C. and Diamond (and non-defendant Phelan LLP) conducted or participated in the conduct of the affairs of the Enterprise by: willfully failing to perform investigations necessary to determine the factual basis of allegations made in foreclosure lawsuits brought against members of the Proposed Class, at the direction of and in concert with WFB, in the name of Wachovia and/or U.S. Bank as Trustee of the Park Place Trust.) (emphasis added).
18

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substantive merits in the litigation may have allowed the lawsuit to survive. In re Flonase, 795 F. Supp. 2d at 317 (quoting FilmTec Corp. v. Hydranautics, 67 F.3d 931, 938 (Fed. Cir. 1995)), and In re Relafen Antitrust Litig., 360 F. Supp. 2d 166 (D. Mass. 2005). WFB contends that substantive legal issues were actually litigated by the Ocean County Courts post-sale Order dated January 18, 2008 and that such order conclusively establishes that [WFBs] filing of the Foreclosure Action was not objectively baseless.11 This is an overstretched interpretation of the Order,

which merely closed the books on the Giles foreclosure litigation by confirming its voluntary dismissal. This Order, having expressly preserved the Giles right to assert all affirmative claims resulting from Defendants wrongful foreclosure, cannot form the basis of a claim of collateral estoppel or res judicata. See

Plaintiffs Memorandum in Opposition to Motion of the Phelan Parties to Dismiss Third Amended Complaint With Prejudice and for Related Relief, filed concurrently herewith, at Point II-A (and cases cited therein). WFB also argues that the sham exception does not apply where the [l]itigation that is filed for the specific purpose for which the type of litigation is intended. WFB asserts that is the case here because it was supposedly brought for the precise purpose for which any foreclosure action is filed to foreclose on
11

WFB Br. at 10 (emphasis supplied).

19

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a mortgage that is in default. (WFB Br. at 12, 13.) Under WFBs analysis, however, Noerr-Pennington grants mortgage servicers and their foreclosure lawyers carte blanche to abuse the judicial system and trample upon the legal rights of defaulted homeowners whenever their objective is to dispossess families from their homes. This grossly mischaracterizes the law governing the Noerr-Pennington doctrine. See above at Point II-B-2 (and cases cited therein). Moreover, the objective of the scheme orchestrated by WFB and its foreclosure lawyer co-defendants was not, as WFB contends, merely to circumvent legal rights and defenses of homeowners facing foreclosure and to gain financially from quick disposition of their property obtained through fraudulently obtained default judgments. Defendants scheme also included systematic imposition of a smorgasbord of inflated and fabricated foreclosure fees upon victimized homeowners. 6, 13(b), (c), 31-33, 38, 72-73, 96, 98(f), 100(b), 101(c), (d), 103, 110. WFB boasts that, in one isolated instance, it disavowed Phelan P.C.s attempt to engage in fee-gouging of the Giles (WFB Br. at 13 n.9), but this unlawful objective nevertheless was an integral part of Defendants fraudulent scheme, which harmed every Proposed Class member, including those who sustained additional damages above and beyond those suffered by the Giles. 72-73, 77. If anything, this argument relates to the propriety of class certification
20

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under Fed. R. Civ. P. 23(b)(3), not a reason to dismiss this action with prejudice on a motion to dismiss. Although Plaintiffs hope to have the opportunity to file a motion for class certification as soon as they are permitted to do so under a Rule 16 scheduling order to be set by the Court, it is well settled that [c]ertification will not be denied simply because there is some variance in the actual damages each individual plaintiff may be able to collect. In re Chocolate Confectionary Antitrust Litig., Civil No. 1:08-MDL-1935, 2012 U.S. Dist. LEXIS 174681, at *103 (M.D. Pa. Dec. 7, 2012) (and authority cited therein). In the final analysis, WFB seeks dismissal of Plaintiffs claims as a matter of law based on the Noerr-Pennington doctrine, which confers only immunity from liability, not immunity from a lawsuit that should be resolved on its merits at trial. See Point II-B-2 above. Arguing a self-serving interpretation of disputed facts, WFB makes this request despite the established principle that Fed. R. Civ. P. 12(b)(6) requires the Court to accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief. Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (quoting Pinker v. Roche Holdings Ltd., 292 F.3d 361, 374 n.7 (3d Cir. 2002)). Numerous courts have held that whether a petition is a sham is generally a question of fact for the jury; [a] court should only rule on the objective
21

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baselessness prong as a matter of law [w]here there is no dispute over the predicate facts of the underlying [petitions.] In re Flonase, 795 F. Supp. 2d at 310, quoting, inter alia, PRE, 508 U.S. at 60-61, and Indep. Taxicab Drivers Emps. v. Greater Hous. Transp. Co., 760 F.2d 607, 612 n.9 (5th Cir. 1985). See also Bartley v. Taylor, 2012 U.S. Dist. LEXIS 86925, at *9; In re Gabapentin, 649 F. Supp. 2d at 363. Thus, not only is WFBs Noerr-Pennington doctrine argument lacking in merit, it is also premature at this stage of the litigation. C. The TAC States a Proper Claim for Relief under RICO 1. The TAC Properly Pleads the Predicate Offenses of Mail and Wire Fraud

WFB argues that the allegations of mail and wire fraud cannot support a RICO claim because the TAC does not allege that Wells Fargo Bank knew or was aware that Wachovia was the incorrect trustee at the time it requested the Phelan Firm to institute the foreclosure action against the Giles in Wachovias name; at best, according to WFB, the TAC asserts that the Court should deem this a mere clerical error in identifying the securitization trustee. (WFB Br. at 20-23.) These arguments are misplaced. First, WFB disregards the well-known standards governing their motion under Fed. R. Civ. P. 12(b)(6). Under Fed. R. Civ. P. 12(b)(6), the Court must look to the face of the complaint and decide, taking all of the allegations of fact as true and construing them in a light most favorable to Plaintiffs, whether the Amended Complaint contains sufficient
22

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factual matter, accepted as true, to state a claim to relief that is plausible on its face. Smajlaj v. Campbell Soup Co., 782 F. Supp. 2d 84, 91 (D.N.J. 2011) (Simandle, J.), quoting Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). Here, WFB asks the Court,

improperly, to substitute WFBs innocent interpretation of allegations in lieu of the factual allegations and fair inferences of the TAC. The TAC explicitly pleads facts supporting Plaintiffs claim that WFB and its co-defendants committed mail and wire fraud in violation of 18 U.S.C. 1341 and 1343 through their devise and implementation of a scheme or artifice to defraud Homeowners and the New Jersey court systems, and to obtain money or property by means of false or fraudulent pretenses and representations. 93. The TAC details this fraudulent scheme: WFB and its co-defendants filed foreclosure suits against members of the Proposed Class in the names of Wachovia Bank, N.A and U.S. Bank, N.A. 2-3, 43-47, 63-69, 77, 94, 100(a), 106-107; and WFB and its co-defendants were, however, ignoran[t] and indifferen[t] to the identity of the bona fide owner of the Homeowners mortgages ( 5, 7, 43, 95, 101(a)), yet they misrepresented the inadequate state of their personal knowledge to state court judges and Proposed Class members by systematically fil[ing] falsified complaints, certifications, verifications, affidavits, motions, and other legal documents with the courts. 8, 10, 12, 55, 57, 68-69, 77, 97, 100(a), 101(b).

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The TAC does not merely allege a fraudulent foreclosure action against the Giles. The TAC also identifies a non-exhaustive sample of seven other

foreclosure cases where WFB and its outside foreclosure firm, in the precisely same manner, used the names of Wachovia or U.S. Bank as their ticket to fraudulently obtained default judgments. 77. As the TAC alleges, [t]he exact number and identity of [other identical fraudulent] foreclosures can be ascertained without difficulty through discovery. 81. WFB simply ignores these wellpleaded allegations. For example, in one action referenced in the TAC (at 77(g)), Wachovia Bank, N.A. v. Good, CI-06-05585 (Pa. C.P. Lancaster Co.), WFB and Phelan LLP (Phelan P.C.s alter ego in Pennsylvania) filed a foreclosure complaint and supporting attorney verification in the name of Wachovia as trustee for the Park Place Trust, the same foreclosing plaintiff identified by WFB and Phelan P.C. in the Giles action. However, the Good foreclosure case was filed on July 6, 2006, six months after Wachovia divested itself of its entire institutional trust business on December 30, 2005. 47, 63-64.12 The pro se homeowners in Good objected, that the alleged Plaintiff is not the real party of interest [sic] and that Wachovia has failed to show they have See http://www.scribd.com/doc/124584001/Wachovia-v-Good-Complaint. As WFB notes correctly, the Court may take judicial notice of these court filings because they are are referenced in the Amended Complaint and are public documents. WFB Br. at 9 n.6 (and cases cited therein).
24
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Case 1:11-cv-06239-JBS-KMW Document 82 Filed 02/20/13 Page 33 of 46 PageID: 1837

any right to bring this action (or any action) against Defendant Good as they are otherwise wanton to do now [sic].13 In response, WFB and Phelan LLP submitted a substitute verification signed by a purported Vice President Loan Documentation employed by WFBs Americas Servicing Company unit.14 The Vice Presidents verification asserted that although she was the custodian of the homeowners mortgage records, Wachovia was not familiar with the dayto-day activity on the mortgage loan. With no communication with (or any

confirmation of ownership by) Wachovia, nine months after Wachovia ceased doing business as trustee in any capacity for any entity, WFB and its outside foreclosure law firm fecklessly submitted to the court real estate assignments that purportedly conveyed ownership of the Good defendants mortgage to Wachovia as trustee for the Park Place Trust.15 The Homeowners in Good paid a steep price for Defendants systematic duplicity the loss of their homes. Based upon a false evidentiary record, the court in Good unwittingly entered an order summarily denying the homeowners legitimate objections to Wachovias lack of standing.16 The homeowners

13 14 15

See http://www.scribd.com/doc/124584459/Wachovia-v-Good-POs at 3. Id.

See http://www.scribd.com/doc/124585610/Wachovia-v-Good-Supp-POSee http://www.scribd.com/doc/124585882/Wachovia-v-Good-Order.

25

Brief.
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thereafter surrendered to a default judgment,17 and their property was taken by Wachovia through a sheriffs sale.18 The deceptive practices of WFB and the Phelan parties did not begin or end with the Giles. It merely continued with them. On February 16, 2007, two months after they fraudulently represented to the court in Good that Wachovia was the actual owner of mortgages bundled into the Park Place Trust, WFB and Phelan P.C. filed their foreclosure action against the Giles, without knowing or caring whether Wachovia had proper legal standing to bring any lawsuit against them. 5-12, 36, 43, 50-55, 94-98, 100(a), 106-107. The truth was eventually revealed to the Giles attorney on October 23, 2007, when Wachovia itself warned WFB and Phelan P.C. that they were acting improperly and without authorization in the Giles case. 63-64. Defendants had good reason and ample opportunity to discover the true facts about Wachovia when the issue was first raised by the homeowners in Good. Instead, they felt no need to ensure the honesty of their court filings. Such brazen misconduct was hardly an isolated mistake, as WFB would have this Court believe. (WFB Br. at 20-21.) Instead, WFB and its foreclosure lawyers persisted even after they learned definitively about Wachovias lack of

17

See http://www.scribd.com/doc/124586612/Wachovia-v-Good-Praecipe-forDefault-Jugment.
18

See http://www.scribd.com/doc/124587262/Wachovia-v-Good-Sheriff-Sale26

Deed.

Case 1:11-cv-06239-JBS-KMW Document 82 Filed 02/20/13 Page 35 of 46 PageID: 1839

connection to Park Place Trust mortgages during their foreclosure action against the Giles. See, for example: In Wachovia Bank, N.A. v. Spivey, No. 07-004303 (Pa. C.P. Phila.

Co.), a foreclosure action was filed in the name of Wachovia as trustee of Park Place Trust by WFB and Phelan P.C.s alter ego in Pennsylvania on December 28, 2007, over two months after Wachovia informed WFB and its foreclosure counsel that it had no interest in the operations or activities of the Park Place Trust.19 In Wachovia Bank, N.A. v. Hrubosky, No. 07-0102422 (Pa. C.P. Phila.

Co.), cited at 77(e), WFB and Phelan P.C.s Pennsylvania alter ego obtained writ of execution on a default judgment against a homeowner in the name of Wachovia as trustee of Park Place Trust on February 10, 2009, over 15 months after Wachovia informed WFB and Pheland that it had no interest in the operations or activities of Park Place; the homeowners property was taken by Wachovia through a sheriffs sale later that year.20

The Spivey action was cited at 77(a) and discussed in detail in Plaintiffs Amended Complaint filed on December 9, 2011 (Docket Item 16), at 109-116, 120. By its Order and Opinion dated September 28, 2012, the Court dismissed Ms. Spiveys claims in this litigation because, even though [her] allegations may be valid, her exclusive means of relief were in bankruptcy court. Giles v. Phelan, Hallinan & Schmieg, L.L.P., Civ. No. 11-6239, 2012 U.S. Dist. LEXIS 140289, at *32 (D.N.J. Sept. 28, 2012).
20

19

See http://www.scribd.com/doc/124222679/Wachovia-v-Hrubosky.
27

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In Wachovia Bank, N.A. v. Smith, No. F-1358107 (N.J. Super., Ch.

Div. Essex Co.), cited at 77(b), WFB and Phelan P.C. obtained a writ of execution on a default judgment against a homeowner in the name of Wachovia as trustee of Park Place Trust on March 10, 2010 and it scheduled a sheriffs sale of the homeowners property on August 31, 2010, nearly three years after Wachovia informed WFB and Phelan that it had no interest in the operations or activities of the Park Place Trust.21 Thus, the TAC provides ample facts demonstrating the plausibility of its claim that WFB was aware of or consciously disregarded the fact that Wachovia had no legal relationship with Park Place Trust mortgages when it instructed the Phelan firms to institute foreclosure actions in Wachovias name against the Giles and other Proposed Class members. Far from being a simple scriviners error, the institutionalized misconduct of WFB and the Phelan parties constituted a cynical abuse of the judicial process and the everyday citizens it is intended to serve. A pattern of racketeering can be pleaded by strong circumstantial evidence if an ongoing scheme to defraud plaintiffs of money or property. In Sykes, supra, the court refused to dismiss RICO claims against creditors, their lawyers, and their confederates who abused the legal system in a fraudulent scheme to obtain default judgments:
21

See http://www.scribd.com/doc/124195590/Wachovia-v-Smith.
28

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[P]laintiffs have presented strong circumstantial evidence of a scheme among defendants to defraud plaintiffs of money or property. Moreover, plaintiffs have pleaded with particularity a pattern of racketeering activity, including [numerous] allegedly fraudulent statements and [numerous] acts involving use of the mail and wires over three years, in furtherance of the alleged fraud. The Complaint sufficiently alleges facts that give rise to a strong inference of fraudulent intent because defendants had a motive and opportunity to do so. The allegations sufficiently establish defendants conscious misbehavior or recklessness with respect to preparing false filings with state courts. 757 F. Supp. 2d at 425. Given the well-documented, systemic nature of its fraudulent foreclosure activities involving mortgages pooled into the Park Place Trust and WFBs eccentric assertion that the allegations in the TAC are somehow implausible,22 WFBs argument cannot pass even the most lenient straight-face test. WFB also contends that Plaintiffs allegation that U.S. Bank lacked evidence demonstrating that U.S. Bank owned Park Place Trust mortgages is not germane to the fraudulent scheme alleged by Plaintiffs. (WFB Br. at 21 n.14.) Despite WFBs argument to the contrary, the TAC alleges that (1) [n]either Wachovia nor U.S. Bank was trustee of the Park Place Trust or the legal owner of Plaintiffs mortgages when WFB, in concert with Phelan P.C., filed and prosecuted foreclosure lawsuits against the Giles and other members of the Proposed Class ( 3) and (2) although WFB and Phelan P.C. were unable to determine what party owned Plaintiffs mortgages, they injected the name Wachovia or U.S. Bank as plaintiff in foreclosure complaints against members of the Proposed Class despite their ignorance and indifference to the identity of the bona fide owner of the Homeowners mortgages. ( 5).
22

Besides WFBs prevarications concerning Wachovias status as legal owner of Park Place Trust mortgages, a federal judge in the Eastern District of Missouri denied U.S. Banks motion to dismiss a homeowners state law claim for wrongful foreclosure, holding that there is nothing in the record to show how US Bank, Wachovia Bank, or Pooling and Servicing Agreement dated as of
29

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2.

The TAC Properly Pleads an Association-in-Fact Enterprise

Plaintiffs enterprise allegations comply fully with the law enunciated by the Supreme Court in Boyle v. United States, 556 U.S. 938, 943-47 (2009), and by the Third Circuit in In re Insurance Brokerage Antitrust Litig., 618 F.3d 300, 364-70 (3d Cir. 2010). As both cases make clear, the definition of enterprise under RICO is obviously broad, consistent with the overarching principle that RICO must be liberally construed to effectuate its remedial purposes. Ins. Brokerage, 618 F.3d at 366. The core holdings of these cases are apparent: (1) to plead a proper RICO association-in-fact enterprise, all that is needed is a common purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprises purpose (id. and at 368); (2) the alleged enterprise may include both legitimate and illegitimate enterprises within its scope (id. at 364, citation omitted); and (3) membership in an enterprise is not the touchstone of [18 U.S.C.] 1962(c) liability. Rather, it is the

November 1, 2004 came to be the holder of this note. From the record here it is not at all clear that US Bank was the lawful holder of the note with the power to foreclose, and if it was not, the claim for wrongful foreclosure is more than plausible. Schwend v. U.S. Bank, N.A., No. 4:10CV1590, 2010 U.S. Dist. LEXIS 127915, at **6-8 (E.D. Mo. Dec. 3, 2010). Here, Plaintiffs allegations regarding U.S. Banks unsubstantiated identification as trustee of the Park Place Trust are equally plausible.
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operation of that enterprises affairs through a pattern of racketeering that constitutes a violation. Id. at 376 n.76 (emphasis supplied).23 WFBs brief ignores these recent and controlling authorities, instead contending only that (1) Plaintiffs cannot plead a legally-cognizable RICO enterprise because of a lack of distinctiveness between Wells Fargo Bank and the Phelan Firm on the one hand, and the alleged enterprise on the other and (2) the Phelan/Wells Fargo Foreclosure Enterprise consists of nothing more than a mortgage servicer and its foreclosure counsel engaged in their respective and normal business activities. (WFB Br. at 23.) WFB argues that the Phelan

Defendants were mere agents of WFB and, as such, the Defendants are inefficiently distinct to constitute a RICO enterprise. WFBs argument cannot withstand reasonable analysis. The enterprise alleged by Plaintiffs includes WFB, Phelan P.C., Phelan PCs non-defendant Pennsylvania alter ego, individual partners of both law firms, and two default management support companies owned and controlled by the law firms equity partners. 89-90. In its defined scope, this enterprise is not necessarily, standing alone, illegitimate, consisting as it does of an ongoing, continuing group or unit of persons and entities associated together for the common purpose of processing See also Feld Entmt, 873 F. Supp. 2d at 315, citing Reves v. Ernst & Young, 507 U.S. 170, 185 (1993) (focus of inquiry is not on whether the enterprise was distinct from individual defendants, but whether those defendants participated in or conducted the affairs of the enterprise).
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residential mortgage foreclosure lawsuits. 91. All defendants are liable under 18 U.S.C. 1962(c) by virtue of their unlawful personal operation of this otherwise legitimate enterprise. 87-92. These allegations satisfy the pleading requirements of Boyle and Insurance Brokerage to identify an association-in-fact enterprise. See HT of Highlands Ranch, Inc. v. Hollywood Tanning Sys., 590 F. Supp. 2d 677, 688-90 (D.N.J. 2008) (So long as a civil RICO plaintiff pleads facts indicating that the various associates functioned as a unit, the plaintiff has satisfied its burden at the motion-to-dismiss stage.) (citations omitted). Nevertheless, WFB claims that the alleged enterprise consists merely of a mortgage servicer and its foreclosure counsel engaged in their respective and normal business activities. (WFB Br. at 23.) The alleged enterprise, however, includes, not only WFB and Phelan P.C., but also individual defendants Lawrence T. Phelan, Francis S. Hallinan, and Daniel S. Schmieg, equity owners of both Phelan P.C. and Phelan LLP. Earlier in this litigation, these same defendants represented that they are so distinct from Phelan P.C. that this Court may not even exercise personal jurisdiction over them.24 In addition, the alleged enterprise includes two default management companies owned and controlled by Messrs.

See, e.g., Defendants Brief in Support of Order to Show Cause (Docket Item 5-1) at 11; Certification of Judith T. Romano (Docket Item 5-2) at 23, 36; Certification of John G. Narkin, Exhibits A and C) (Docket Item 9).
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Phelan, Hallinan and Schmieg, whose questionable services were utilized by Phelan P.C., Phelan LLP and WFB. 25-26, 38-39, 90, 96, 103. As a matter of fact and law, the members of the enterprise alleged by Plaintiffs are not synonymous. Yet, WFB advances the theory that lenders and their debt-collection lawyers are axiomatically one and the same for RICO pleading purposes, and that the enterprise alleged by Plaintiffs fails because it is indistinct from the pattern of racketeering activity at issue in this litigation.25 According to WFB, the misconduct alleged in the TAC amounts to nothing more than normal, garden-variety business between WFB and its co-defendant foreclosure lawyers. (WFB Br. at 23-26.) The cases cited by WFB do not support this extravagant proposition. See Kelly v. Palmer, Reifler, & Assocs., P.A., 681 F. Supp. 2d 1356, 1382 (S.D. Fla. 2010) (no allegations or evidence that lawyers went beyond the offering of traditional legal services and volunteered to take part in the defendants enterprise); Miller v. Countrywide Home Loans, Inc., 747 F. Supp. 2d 947, 965 (S.D. Ohio 2010) (Plaintiff has alleged no more than that this Defendant provided a limited amount of lawful legal advice and services to Countrywides facially lawful business, in connection with the latters foreclosure proceeding against Plaintiff.); Assn of New Jersey Chiropractors v. Aetna, Inc., Civ. No. 09-3761, 2011 U.S. Dist. LEXIS 67718, at *16 (D.N.J. Jun. 20, 2011) (interconnections among alleged enterprise members appear[ ] to be nothing more than ordinary business relationships); and Acosta v. Campbell, Civ. No. 04-761, 2005 U.S. Dist. LEXIS 39889, at *18-19 (M.D. Fla. Nov. 4, 2005), magistrate report and recommendation adopted, 2006 U.S. Dist. LEXIS 4088 (M.D. Fla. Jan. 18, 2005) (allegations clearly fail to allege . . . [law firms] involvement in any enterprise whatsoever; allegations concerning lender and servicer relate merely to activities that [they] regularly engage in for the purpose of originating, settling, and investing in mortgages; they are not enterprise activities separate and apart from their regular business activities).
25

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While unlawful activity of the type detailed in the TAC may well have been garden variety for WFB, Phelan PC, and Phelan LLP, it is likely that in many cases WFB and these law firms did (and do) follow proper legal procedure in the processing of garden-variety residential mortgage foreclosure lawsuits which is the true purpose of the enterprise alleged by Plaintiffs. 91. Despite WFBs idiosyncratic argument to the contrary, the association-in-fact identified in the TAC does exist for purposes other than simply to commit the predicate acts alleged by Plaintiffs. (WFB Br. at 25) (and cases cited therein; emphasis supplied). RICO offers no blanket exemption to attorneys and their clients. Where, as here, attorneys, law firms, and their clients have acted in a manner inimical to the integrity of the judicial system, courts do not lightly permit them to evade liability under RICO. See, e.g., United States v. Bergrin, 682 F.3d 261 (3d Cir. 2012) (attorney allegedly engaged in, inter alia, witness tampering); Sykes, 757 F. Supp. 2d at 426-27 (Complaint sufficiently describes a collective enterprise among [lawyer, law firm and client] defendants, formed for the common purpose of securing default judgments through fraudulent means); Feld Entmt, 873 F. Supp. 2d at 315-16 (confirming propriety of an association-in-fact enterprise comprised of lawyers and client accused of bribery and illegal witness payments); and Emcore Corp. v. PriceWaterhouseCoopers LLP, 102 F. Supp. 2d 237, 257 (D.N.J.

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2000) (accounting firm, officers, partners, and in-house counsel constitute proper association-in-fact enterprise). Plaintiffs in this allegation have alleged a RICO enterprise sufficient to survive WFBs motion to dismiss. 3. Plaintiffs Have RICO Standing

WFB argues that Plaintiffs RICO claim also should be dismissed because the alleged mail/wire fraud and racketeering activity were not the proximate cause of their claimed damages. (WFB Br. at 26-29.) WFBs contentions are that (1) the Giles and other Proposed Class members did not rely on defendants misrepresentation concerning the legal owner of their mortgages and therefore could not have sustained damages caused thereby; (2) an intervening cause of the Giless damages was their decision to short-circuit the judicial process by putting their house up for sale and accepting a [low-ball] offer for their home before the conclusion of proceedings in the foreclosure action prosecuted by WFB and Phelan P.C.; and (3) legal fees paid by the Giles were unrelated to defendants fraudulent scheme. The Giles were unaware of Phelan P.C. and WFBs deception until October 23, 2007, after a non-final default judgment was entered against them on June 5, 2007. Once the deception was revealed by Wachovia to their lawyer, the Giles promptly challenged the non-final judgment as required by N.J. Rule 4:50-1. Had
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the Giles discovered the misrepresented facts earlier, they would have raised these same issues before entry of any default judgment. 55. Had the Ocean County Court known about these misrepresentations, it would not have entered the judgment in the first place. 12. The Giles relied and had every right to rely upon the integrity of the judicial system and the trustworthiness of formal court filings by lawyers and litigants that avail themselves of the benefits of the system. Perhaps most significantly, WFB and Phelan P.C.s fraudulent scheme was perpetrated against New Jersey Chancery Judges assigned to adjudicate foreclosure cases,26 none of whom (it is hoped) would ever tolerate institutionalized deceit in their courtrooms. ( 10, 12, 55, 58, 82(c), 93, 95, 100(a), 101(b) and 106-107.) The issue of reliance is a mere smokescreen. Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 65859 (2008) (reliance not in and of itself dispositive of whether injury is sufficiently direct to satisfy [18 U.S.C.] 1964(c)s proximate-cause requirement); District 1199P Health & Welfare Plan v. Janssen, L.P., 784 F. Supp. 2d 508, 520 (D.N.J. 2011) (Court need not accept as true unsupported conclusions and unwarranted inferences concerning RICO injury).
26

In 2010, the New Jersey Judiciary began an investigation into misbehavior of mortgage servicers and their foreclosure law firms and ordered fundamental changes to court rules governing foreclosures. See http://www.judiciary.state.nj.us/notices/2010/n101220b.pdf. The Judiciarys main concern was unrepresented or pro se homeowners who never learn of (and are most vulnerable to) falsified information infecting their foreclosure proceedings. Id.
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Other standing arguments raised by WFB are likewise misconceived. Although the Giles fell behind on their mortgage payments, the wrongful foreclosure action prosecuted by WFB and Phelan P.C. was the direct and superseding reason why the Giles were forced to submit to a distress sale of their home. Alternatives to foreclosure were available -- and the subject of apparently bad-faith negotiation by WFB and Phelan P.C. 60, 65. Yet, Defendants elected to press ahead with litigation asserting legal rights they did not possess. Moreover, fees paid by the Giles to their attorney to (1) oppose the wrongful foreclosure prosecution by WFB and Phelan P.C. and (2) resist Phelan P.C.s attempt to extract foreclosure fee overcharges ( 70, 72-73) are damages caused directly by defendants. See, e.g., Sykes, 757 F. Supp. 2d at 427-28 (defendants pursuit of default judgments and attempts to enforce them against plaintiffs proximately caused their injuries, which include[s] . . . incurring of legal costs to challenge those default judgments); Beals v. Bank of Am. N.A., No. 10-5427 (KSH), 2011 U.S. Dist. LEXIS 128376, at **44-45 (D.N.J. Nov. 4, 2011) (recognizing homeowners damages in having to defend against [a] foreclosure and in losing other options to avoid foreclosure). Whatever damages may ultimately be established at trial, at the pleading stage of civil RICO actions, a plaintiff must plead damages to business or property in a manner consistent with Rule 8 to show standing and is not required to plead
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with the particularity required by Rule 9(b). Robbins v. Wilkie, 300 F.3d 1208, 1211 (10th Cir. 2002), citing NOW v. Scheidler, 510 U.S. 249, 256 (1994).

III.

CONCLUSION

For the reasons identified above, Plaintiffs respectfully request this Court to deny WFBs motion to dismiss the TAC with prejudice. Dated: February 20, 2013 Respectfully submitted, TRUJILLO RODRIGUEZ & RICHARDS LLC s/ Lisa J. Rodriguez 258 Kings Highway East Haddonfield, New Jersey 08033 Tel: (856) 795-9002 NARKIN LLC John G. Narkin 1662 South Loggers Pond Place, #31 Boise, Idaho 83706 Tel: (208) 995-6119 HARWOOD FEFFER LLP Robert I. Harwood James G. Flynn 488 Madison Avenue, 8th Floor New York, New York 10022 Tel: (212) 935-7400 Attorneys for Plaintiffs and the Proposed Class

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