Two counts of the complaint involve RICO. The two counts are premised
on two different and contrasting allegations regarding what persons
constituted an "enterprise" as defined in section 1961(4). See
18 U.S.C. § 1964. The plaintiffs are permitted to bring these two
counts, despite the fact that the factual allegations underpinning them
may conflict. See Fed. R. Civ. P. 8(e) (a party may state alternate
claims "regardless of consistency"); see also Independent Enters. Inc.
v. Pittsburgh Water & Sewer Auth., 103 F.3d 1165, 1175 (3rd Cir. 1997).
a. Association in Fact
The first count is brought against both Capital City and Nash, and is
premised on an "association in fact" enterprise consisting of Nash,
Capital City, and others, including Leonard Walker and other unnamed
"`runners' who identified and targeted potential borrowers and induced
them to sign predatory loan documents with Capital City." Complaint,
Count I. An "association in fact" enterprise may be "any union or group
of individuals associated in fact although not a legal entity."
18 U.S.C. § 1961 (4). An "association in fact" enterprise is
established through proof of "(1) a common purpose among the
participants, (2) organization, and (3) continuity." United States v.
Richardson, 167 F.3d 621, 625 (D.C. Cir. 1999) (describing the test
established by United States v. Perholtz, 824 F.2d 343, 362 (D.C. Cir.
1988)), cert. denied, 120 S.Ct. 225 (1999).
Defendants argue that plaintiffs cannot establish that there was an
organization through their "association in fact" theory because there was
no core of constant personnel and there was no hierarchy. Defendants
support their argument that there was no core of constant personnel with
Nash's deposition testimony that Capital City had only two "dealings"
with Mr. Walker. However, plaintiffs submit evidence that Mr. Walker was
listed as broker on at least nineteen of the defendants loans, over a
five year period lasting from 1987 until 1991. Plaintiffs allege that
Mr. Walker "delivered" those loans to the defendants, and received
significant fees in exchange. That allegation is sufficient to show that
the organization had at least one other "core personnel" member for that
period of time.
As to the possibility that other brokers were part of the core of
constant personnel, defendants argue that no other brokers consistently
worked with the defendants. Nash testified in his deposition that
"[g]enerally, we hear periodically infrequently from a lot of brokers."
In contrast, the complaint indicates that the defendants used "a
specially cultivated cadre of real estate agents, loan brokers, and other
persons (hereinafter runners") with ties to the African American community
requesting that they steer borrowers to Capital City in return for
lucrative commissions that often exceeded 8 percent of the borrower's
loan." Complaint at ¶ 104. Plaintiffs assert in their opposition that
"certain brokers engaged in regular transactions with Capital City and
Nash." Opposition at 36. They support this assertion with a deposition
from Harry McGee, who admits that he placed some borrowers with Capital
City, and charged a 10% fee. See McGee Depo. at 55-56 (referring to
"some" loans, but later de-emphasizing his
involvement, saying "a couple of deals I gave to [Nash]. That's about
it."). Mr. McGee makes reference to four brokers who worked with the
defendants, and Nash in particular, indicating that Clayton, Powell, Butler,
and Laws "were his broker dudes" and that they "were special with him."
Id. at 105-06. Although the time frame remains unclear, plaintiffs
have shown that there is a genuinely disputed issue of fact as to whether
or not certain brokers, along with Nash and Capital City, formed a "core of
Defendants also argue that plaintiffs have not shown a hierarchy of
control for the alleged "association in fact." On the contrary,
plaintiffs have alleged that Nash and Capital City controlled the affairs
of the organization, financing the loans and making decisions regarding
their terms, and the brokers brought potential borrowers to the
defendants and were paid for their efforts. Defendants do not appear to
challenge those facts beyond arguing that the brokers' participation was
minimal and sporadic, but in any event, plaintiffs have placed sufficient
facts in evidence to avoid summary judgment on that point.
Finally, Defendants cite to Danielson, 941 F.2d 1220, Yellow Bus
Lines, Inc. v. Drivers, Chauffeurs and Helpers Local Union 639,
913 F.2d 948 (en banc) (D.C. Cir. 1990), and Reves v. Ernst & Young,
507 U.S. 170 (1993), for the proposition that plaintiffs failed to allege
that Mr. Walker and other non-defendant participants in the enterprise"
in any way managed or directed the enterprise." However, those cases
involved liability under section 1962(c), not the definition of an
enterprise under section 1961(4). They require only that defendants
manage the enterprise. The "defendant must have not merely participated
in the enterprise's affairs, but in the conduct of the enterprise's
affairs" which "requires participation in the operation or management of
the enterprise itself." Danielson, 941 F.2d at 1231 (internal quotations
omitted; citing Yellow Bus). Although the plaintiffs argue, in the
alternative, that the non-defendant participants participated in the
management of the enterprise, see Reves, 507 U.S. at 184, they were not
required to make such a showing.
b. Corporate Enterprise
The second count is premised on the assertion that Capital City is a
corporate RICO enterprise, and Nash is a person associated with that
enterprise. See 18 U.S.C. § 1961 (4) (enterprise may be a
corporation). Accordingly, this count is only brought against Nash.
Defendants argue that the alleged "pattern of racketeering" is not
"separate and apart" from the enterprise, because the complaint alleges
that Capital City engaged in illegal acts, and does not allege that
Capital City engaged in any other legal activities. Plaintiffs allege
that Capital City is a Maryland corporation, which is enough to establish
that it is an enterprise. It is not necessary to establish that the
enterprise "does something other than commit predicate acts." Perholtz,
824 F.2d at 363; see also United States v. White, 116 F.3d 903, 924
(D.C. Cir. 1997) ("the existence of the enterprise may be inferred from
proof of the pattern" of racketeering).
The alleged racketeering activity is mail fraud. See
18 U.S.C. § 1341.
In addition to at least two predicate acts, the plaintiffs must show that
"the racketeering predicates are related, and that they amount to or pose a
threat of continued criminal activity." See H.J. Inc. v. Northwestern Bell
Tel. Co., 492 U.S. 229, 238 (1989). Defendants argue that
multiple mailings do not establish the pattern and continuity necessary to
establish a RICO claim. However, plaintiffs have alleged multiple frauds,
occurring over a period of years, which are clearly related by purpose and
method. The alleged acts were connected because they were part of the
defendants' ongoing business of extending and servicing loans.
The defendants argue that punitive damages, damages for physical or
emotional injuries, and injunctive relief are not available under RICO.
Defendants devote only one paragraph of their motion to these broad
contentions, and in their opposition plaintiffs neither acknowledge nor
make any attempt to counter defendants' position. It is not possible to
determine from the complaint whether the plaintiffs intend to seek these
types of relief for their RICO counts, although in their general prayer
for relief, based on all counts, they do request such relief.
Defendants broadly assert that "a RICO plaintiff is not entitled to
recover for physical or emotional injuries," but the law in this area is
not so clear. Section 1964(c) provides for recovery only for "any person
injured in his business or property." The Supreme Court has stated that
Congress' limitation of recovery to business or property injury "retains
restrictive significance. It would for example exclude personal injuries
suffered." Reiter v. Sonotone Corp., 442 U.S. 330, 339 (1979). However,
there is significant dispute as to the scope of compensable business or
property injury. For example, it may be possible for pecuniary losses
associated with personal injury to be sufficiently related to "property"
injury so as to permit recovery. See Nat'l Asbes. Workers Med. Fund. v.
Philip Morris, 74 F. Supp. 221, 228 (E.D.N.Y. 1999) (finding injuries
resulting from tobacco related illnesses compensable); Guerrero v.
Gates, 2000 WL 1225775, *3 (C.D. Cal. 2000) (finding that pecuniary
losses stemming from personal injuries are compensable under RICO).
Thus, whether the plaintiff is entitled to compensation may depend on the
particular type of damages sought by the plaintiff. Without further
explication by the parties, the Court cannot determine whether the
plaintiff intends to seek non-compensable personal or emotional injuries.
The law regarding whether private plaintiffs may seek injunctions based
on RICO claims is even more murky. Compare Religious Tech. Ctr. v.
Wollersheim, 796 F.2d 1076, 1088-89 (9th Cir. 1986) (holding that
injunctive relief was not available under RICO); and Dan River, Inc. v.
Icahn. 701 F.2d 278, 290 (4th Cir. 1983) (noting "substantial doubt about
whether RICO grants private parties . . . a cause of action for equitable
relief"); with Aetna Cas. & Sur. Co. v. Liebowitz, 570 F. Supp. 908,
910-11 (E.D.N.Y. 1983) (reasoning that Congress did not intend "to
deprive the district court of its traditional equitable jurisdiction" to
grant injunctive relief for alleged violations of RICO statute), aff'd on
other grounds, 730 F.2d 905 (2d Cir. 1984); and Nat'l Org. of Women v.
Scheidler, 897 F. Supp. 1047, 1082 (N.D. Ill. 1995) (finding that private
parties may seek injunction under RICO).
Defendants also argue that punitive damages are unavailable. While some
courts have ruled that punitive damages
are unavailable, see Moravian Development Co. v. Dow Chemical Co.,
651 F. Supp. 144, 149 (E.D. Pa. 1986), in cases involving claims
under both RICO and other causes of action, courts have permitted punitive
damage awards. See Bingham v. Zolt, 823 F. Supp. 1126 (S.D.N.Y.
1993) (holding that punitive damages are unavailable for RICO claims, but
permitting a (reduced) punitive damage award pursuant to another claim)
aff'd 66 F.3d 553 (2d Cir. 1995); Al-Kazemi v. General Acceptance
& Investment Corp., 653 F. Supp. 540, 543-54 (D.D.C. 1986) (lowering,
but permitting, a punitive damage award in addition to a RICO treble damage
award); see also First American Corp. v. Al-Nahyan,
948 F. Supp. 1107, 1122 (D.D.C. 1996) (treble damage provision
of RICO may suggest a punitive element).
Given the complicated nature of these issues, and the doubt as to
whether the plaintiffs actually intend to seek these types of relief, the
portion of defendants' motion regarding the relief available under RICO is
denied without prejudice.
A fraud claim in the District of Columbia must be plead with
particularity and proven by clear and convincing evidence, and requires
(1) a false representation (2) made in reference
to a material fact, (3) with knowledge of its
falsity, (4) with the intent to deceive, and (5)
an action that is taken in reliance upon that
Hercules & Co., Ltd. v. Shama Restaurant Corp., 613 A.2d 916, 923 (D.C.
1992). Where the transaction is commercial, reliance must be reasonable.
i. The Hilliard and Birth Loan
The defendants argue that the Hilliard and Birth plaintiffs have
neither alleged nor shown evidence of any misrepresentation. They contend
that the terms of the contracts, notes, and deeds of trust were clearly
spelled out, and that the plaintiffs are bound by the contracts they
signed. They point out that the contracts themselves instructed borrowers
to seek legal counsel if they did not understand the contract terms.
Plaintiffs counter that Ralph Conley, Capital City's agent,
misrepresented the amount of the monthly payment for the property. See
Hilliard Depo. at 51-53 (monthly payment would be $794, rather that the
$2,382 required under the three notes). Plaintiffs submit that Conley
told them that they could sustain the monthly payments, even though he
knew that their joint monthly income was significantly less than the
monthly payments on the loan. Plaintiffs also offer evidence that Mr.
Conley falsely told Hilliard and Birth that the lien placed on their home
would expire after six months. The plaintiffs have alleged the
misrepresentations with particularity, and have supported their
Defendants also argue that Nash is not individually liable because he
had no direct contact with Hilliard or Birth until long after the
settlement of the purchase, and the person who made representations to
these plaintiffs, Ralph Conley, was Capital City's agent rather than
Nash's agent. Plaintiffs argue that Nash's liability is premised on his
role in Capital City as both president and, through Mortgage Banking
Trust, owner. As such, Nash directs and controls business and policy
decisions regarding the issuance of loans and their terms. He signed the
contract for the sale of the property. He hired Mr. Conley to list the
property, and received information from Mr. Conley regarding Hilliard and
Birth's financial status before extending the loan. Plaintiffs also
provide some evidence suggesting it was Nash's
decision to split the loan into multiple notes. See Plaintiffs'
Statement ¶ 55; Kuhn Depo. 625. The allegation that Nash, while aware
of the plaintiffs inability to pay, made the decision to split the loan
into three parts gives rise to a strong inference of his participation in
the alleged fraud. Plaintiffs have sufficiently alleged a claim of fraud
against Nash. Cf. Vuitch v. Furr, 482 A.2d 811 (D.C.
1984) (liability of corporate officers for torts they participate in or
ii. The Robinson Loan
Defendants argue that Robinson has established only a breach of
contract claim, not a fraud claim. They argue that the only alleged
misrepresentation was that Nash agreed to install a new roof on the
property, and that the contract language indicated "seller will install a
new roof." Robinson alleges that Nash did not provide a new roof, but
instead merely patched over the existing roof. There is a dispute as to
what "new roof' means, as the defendants argue that the terms of contract
were complied with.*fn16 The defendants argue that they had no duty to
disclose their intentions, therefore any omissions were not fraudulent.
As to Nash's statements to Robinson, they argue that such a "promissory
representation" would have to be contrary to the terms of the contract in
order to establish fraud. These arguments might be successful if
defendants' intent had been to comply with the terms of the contract as
they understood them. However, plaintiffs allege that the defendants
`never intended to perform their contractual obligations." A
misrepresentation of present intent to perform an act is an actionable
misrepresentation. See Chedick v. Nash, 151 F.3d 1077, 1081 (D.C. Cir.
1998) (citing Bennett v. Kiggins, 377 A.2d 57 (D.C. 1977)). There is a
dispute of fact as to the defendants' understanding of what installing a
"new roof' required; therefore summary judgment would be inappropriate.
III. Motions to Sever the Claims, for Separate Trials, and to Transfer
The defendants have moved to sever the plaintiffs' claims into five
separate claims and five separate trials, one based on each of the four
loans, and one based on the FHC's claims. Under Rule 42(b) this Court
has the discretion to order separate trials "in furtherance of
convenience or to avoid prejudice, or when separate trials will be
conducive to expedition and economy." Fed. R. Civ. P. 42(b); see also
American Nat'l Red Cross v. Travelers Indem. Co., 924 F. Supp. 304, 306
(D.D.C. 1996) (trial court has broad discretion). Additionally,
defendants point out that Rule 21 permits claims to be severed. See Fed.
R. Civ. P. 21 (regarding misjoinder and non-joinder of parties). The
plaintiffs' claims involve common questions of law and fact, as the issues
discussed-in this Opinion illustrate. Although the claims involve some
distinct facts, i.e. the loans, the claims also involve issues in common
because they are predicated on the ongoing patterns and practices of the
defendants operations. Plaintiffs indicate that their proof will be
interwoven, particularly as to the expert witness testimony regarding
patterns of racially discriminatory lending. Convenience and expediency,
therefore, weigh in favor of a joint trial. Prejudice to a party is
enough to warrant a separate trial in some circumstances, and defendants
have alleged prejudice. Yet, in this case there are distinct advantages
in having the claims tried together, including the minimization of
expense and delay. and the convenience of the parties and the Court. See
9 Wright and Miller, Federal Practice and Procedure 2d §
2388 (1995). The defendants have not shown that, with appropriate
instructions, a jury would be unable to fairly judge each separate claim
on its merits. The motion to sever the claims and for separate trials is
The defendants have also moved to transfer the case to the United
States District Court for Maryland. The Court has broad discretion to
transfer a case "for the convenience of parties and witnesses, in the
interest of justice." 28 U.S.C. § 1404 (a). The defendants assert
that Maryland is an appropriate and convenient forum for the case, and
they argue that because a series of articles published in the Washington
Post has created prejudice against them, and because there are "sensitive
issues of race," the case should be transferred. It is obvious that the
Washington Post is widely distributed in Maryland as well as in the
District of Columbia. Defendants have not shown that a jury selected from
the citizens of District of Columbia would not be impartial, or that the
jurors would be unable to follow the evidence and the Court's
instructions. See, e.g., United States v. Haldeman, 559 F.2d 31 (D.C.
Cir. 1976).*fn18 The motion to transfer is denied.*fn19
It is therefore
ORDERED that summary judgment is granted for the defendants as to the
RICO claims (Counts I and II) of Walter Jamison, Sr., Clyde Hargraves,
Erlinda Cooper, and the Greater Little Ark Baptist Church; it is
FURTHER ORDERED that summary judgment is granted for the defendants as
to Walter Jamison, Sr.'s claim under 42 U.S.C. § 3604; it is
FURTHER ORDERED that defendants' summary judgment is denied, without
prejudice, as to defendants' request for a ruling that damages for
physical and emotional injuries, punitive damages, and injunctive relief
are unavailable for RICO claims; it is
FURTHER ORDERED that, in all other respects, defendants' motion for
summary judgment is denied; it is
FURTHER ORDERED that defendants' motion to preclude evidence of
emotional distress is denied; it is
FURTHER ORDERED that defendants' motion to sever the claims and for
separate trials is denied; and it is
FURTHER ORDERED that defendants' motion to transfer the case to the
United States District Court of Maryland is denied.
IT IS SO ORDERED.