course is immune from the defenses raised by plaintiffs to their notes, except for fraud in the factum. 28 D.C. Code § 3-305. The Court has concluded that the claims of fraud in the factum have not been established by the preponderance of the evidence (see p. 19 infra) and the status of defendants as holders in due course accordingly becomes crucial if other defenses to the notes are available to plaintiffs. For reasons set forth below, the Court has determined that such defenses exist, since it cannot seriously be questioned that plaintiffs' first trust notes were obtained by Monarch through misrepresentation to finance unconscionable home improvement contracts.
Following trial, plaintiffs submitted a financial analysis of the loan papers in evidence covering the transactions that individual plaintiffs had with either Jefferson or Montgomery.
Among other things, this analysis enables in most instances a direct comparison between Monarch's contract price and the actual cost plus a reasonable profit for Monarch's contractor who performed the actual work. The comparison is startling. Putting Lapin's "commission" and other charges to one side, the contract price was usually double or more than double the cost and reasonable profit to the contractor. No possible justification for this excessive exaction appears in the record and indeed the proof establishes that the object of the conspiracy was to market home improvement services for excessive amounts. To be sure, the cost of the job plus reasonable profit to the contractor is not the outside figure that Monarch, absent conspiracy, could fairly exact, but it is blatantly apparent that Monarch's "override," which doubled or tripled the contractor's charges for the work done, was unconscionable. Properly informed, the homeowner would not have made the contract or signed the notes, and no honest, fair man would have charged the price. See Williams v. Walker-Thomas Furniture Co., 121 U.S. App. D.C. 315, 350 F.2d 445 (1965); 28 D.C. Code § 2-302.
Moreover, the unconscionable results were induced by fraudulent material misrepresentations reasonably relied upon by plaintiffs. While the proof established that in some instances explicit misrepresentations were made to induce the contract and note, or that the contract was "bumped" to further the objectives of the conspiracy,
there is a common factor established by the evidence and applicable to all cases that demonstrates how plaintiffs, targets of the conspiracy, were fraudulently induced to enter into Monarch contracts and make these notes.
Lapin knew from the outset of his activities as a real estate broker that the scheme to defraud was in operation. He knew that his role was to effectuate refinancing which would enable Monarch to be compensated for grossly overcharged work. He at all times represented Monarch's interests, working in close intimate daily contact with Cohen and other corporations. If the customer's credit assured adequate payment, he gave the signal to go ahead and was assured a commission from Monarch if he could not squeeze on a commission from the borrower at settlement. While he did not necessarily know the precise representations made to each borrower, he was well aware that false representations might well be used as part of the Monarch high pressure tactics. He revealed none of this to the homeowners but pictured himself as one to be relied on as an experienced financial expert. Rather, he undertook to act as the homeowner's agent and led them through the settlement process without warning of the trap into which he well knew they were falling. As a real estate broker and agent he was legally obligated to disclose what he knew, and his concealment, designed to make things appear differently than they were in fact, was fraudulent from start to finish. There is no possibility that plaintiffs would have gone forward had they been fully advised of the essential facts.
The failure of Lapin to disclose what he well knew, while supposedly acting as agent for plaintiffs, constitutes a willful concealment of material facts which, under a long line of well-reasoned decisions, is as much a fraud as affirmative misrepresentation. Moore v. Crawford, 130 U.S. 122, 128, 9 S. Ct. 447, 32 L. Ed. 878 (1889); S.E.C. v. Capital Gains Bureau, 375 U.S. 180, 194, 84 S. Ct. 275, 11 L. Ed. 2d 237 (1963); McNabb v. Thomas, 88 U.S. App. D.C. 379, 190 F.2d 608, cert. denied, 342 U.S. 859, 72 S. Ct. 86, 96 L. Ed. 646 (1951); Nichoalds v. McGlothlin, 330 F.2d 454, 457 (10th Cir. 1964); American National Ins. Co. v. Murray, 383 F.2d 81, 86 (5th Cir. 1967). Long ago the Supreme Court noted that
[fraud], indeed, in the sense of a court of equity properly includes all acts, omissions and concealments which involve a breach of legal or equitable duty, trust, or confidence, justly reposed, and are injurious to another, or by which an undue and unconscientious advantage is taken of another.
Moore v. Crawford, supra, 130 U.S. at 128, 9 S. Ct. at 448, quoting 1 Story, Eq. Jur. § 187.
Lapin had such a duty to make to these plaintiffs with whom he had a trust or fiduciary relationship "a full disclosure of any and all material facts within his knowledge, and of which he knows or should know that the other person is ignorant." American National Ins. Co. v. Murray, supra, 383 F.2d at 86 (footnote omitted).
The Claim that the Notes Were Held in Due Course.
Neither Jefferson nor Montgomery nor Atlas was, however, a party to the fraud practiced on these homeowners nor did they have direct knowledge of its existence. Accordingly, as a defense against plaintiffs' claims the defendants have each interposed that they hold plaintiffs' notes in due course. If the claim of holder in due course prevails, defendants are, of course, immune from defenses to the notes based on claims of fraud in the inducement, unconscionable dealing and usury. The burden of proof rests always on the one claiming to be a holder in due course even where the entire transaction occurred prior to the effective date of the U.C.C. 28 D.C. Code § 3-307(3); United Securities Corp. v. Bruton, 213 A. 2d 892 (D.C. Ct. App. 1965). A holder, to sustain this burden, must demonstrate that he meets the standards set forth in 28 D.C. Code § 3-302, which provides in pertinent part:
Holder in Due Course