IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
February 23, 2012
ANONA DUFFY, ET AL., PLAINTIFFS
INSURANCE CO., DEFENDANT
The opinion of the court was delivered by: Stengel, J.
This action was brought against Lawyers Title Insurance Co. for Fraud and violation of Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("UTPCPL") as the result of a "mortgage rescue scam." On October 10, 2011 defendant filed this motion to dismiss, which I will deny.
In their Amended Complaint, plaintiffs allege they are victims of a series of foreclosure rescue scams, described as "equity skimming scams." (Amend. Compl. at ¶ 4). Plaintiffs claim that defendant, Lawyers Title Insurance Co., (hereinafter "Fidelity"),*fn1 is also the principal, insurer and underwriter of First County Abstract ("First County"),*fn2 and that these and other parties conspired to steal the equity in Plaintiffs' properties. (Amend. Compl. at ¶¶ 12-15, 17, 36). Specifically, Jeffrey Bennett and Steve Doherty functioned as title agents and as principals of Bennett & Doherty, P.C., a firm acting as an alter ego of and trading as First County.*fn3 (Amend. Compl. at ¶¶ 17, 25).
Plaintiffs include facts concerning their individual financial and foreclosure circumstances, but essentially each plaintiff was in the midst of a foreclosure action commenced by their respective lenders when the equity scams took place.*fn4 (Amend. Compl. at ¶ 12, 29-31). Plaintiffs claim that they had substantial equity in their homes and were attempting to avoid foreclosure through settlement conducted by First County. (Amend. Compl. at ¶ 31-37).
The Equity Skimming Scam
Plaintiffs allege that they were contacted by someone who told them that they could save their home from foreclosure by refinancing under a third party's name. (Amend. Compl. at ¶ 30). The third party was a "straw party" with good credit to act as the purchaser of the Plaintiffs' residences. Settlement for each transaction was scheduled with Bennett and Doherty, P.C. (Amend. Compl. at ¶ 51, 155, 165). Preceding settlement, First County, through Bennett, issued a preliminary HUD-1, settlement sheet, which set forth costs and showed a "cash-to-seller" payment illustrating the amount of equity in each home. (Amend. Compl. at ¶ 184). This prompted the release of the settlement funds to Bennett and Doherty. (Amend. Compl. at ¶ 168).
After the funds were released, First County, through Bennett, issued a phony final HUD-1, which reduced the proceeds paid to plaintiffs to zero. (Amend. Compl. at ¶¶ 37, 185, 195). Specifically, the defaulting mortgage was paid off through financing provided by J.P. Morgan Chase, who then obtained a new mortgage on the property.*fn5 (Amend. Compl. at ¶¶ 35-36). Lawyers Title Insurance, now Fidelity, issued title insurance through its agents, which insured the lien on the new mortgage. (Amend. Compl. at ¶ 38, 171). The proceeds of the new mortgage were then used to pay off the old mortgage and to satisfy other "obligations." (Amend. Compl. at ¶ 35). However, many of these obligations were phony, and the payments were diverted to third parties involved in the fraudulent scheme. (Amend. Compl. at ¶ 36).
Defendant's Failure to Detect the Fraud
Plaintiffs claim that defendant was imputed with the knowledge of these scams through their agents, First County, Bennett, and Doherty, and that defendant must have audited at least one of these transactions and failed to identify the fraud. (Amend. Compl. at ¶ 41-43). At oral argument, plaintiff's counsel argued that defendant, as the underwriter, should have overseen their agents, and had a duty to disclose the fraud. Plaintiffs also allege that defendant did not question, reject, investigate, or attempt to determine whether the HUD-1 transactions were scams. (Amend. Compl. at ¶ 39).
The content of the current Amended Complaint is very similar to a series of complaints filed by plaintiffs in Bucks County, including four other actions that have been stayed pending federal criminal proceedings.*fn6 Plaintiffs filed the current action in the Court of Common Pleas of Bucks County, Pennsylvania naming Fidelity and Lawyers Title Insurance as separate defendants. Fidelity filed a Notice of Removal on July 14, 2011. Plaintiffs filed an Amended Complaint in response to defendant's first motion to dismiss. Defendant then filed the current motion to dismiss and the parties argued the motion at oral argument on February 8, 2012. For the reasons below, I will deny the motion to dismiss without prejudice to raise the arguments again on summary judgment.
A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted examines the legal sufficiency of the complaint. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). The factual allegations must be sufficient to make the claim for relief more than just speculative. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). In determining whether to grant a motion to dismiss, a federal court must construe the complaint liberally, accept all factual allegations in the complaint as true, and draw all reasonable inferences in favor of the plaintiff. Id.; see also D.P. Enters. v. Bucks County Cmty. Coll., 725 F.2d 943, 944 (3d Cir. 1984).
The Federal Rules of Civil Procedure do not require a plaintiff to plead in detail all of the facts upon which he bases his claim. Conley, 355 U.S. at 47. Rather, the Rules require a "short and plain statement" of the claim that will give the defendant fair notice of the plaintiff's claim and the grounds upon which it rests. Id. The "complaint must allege facts suggestive of [the proscribed] conduct." Twombly, 550 U.S. at 564. Neither "bald assertions" nor "vague and conclusory allegations" are accepted as true. See Morse v. Lower Merion School Dist., 132 F.3d 902, 906 (3d Cir. 1997); Sterling v. Southeastern Pennsylvania Transp. Auth., 897 F. Supp. 893 (E.D. Pa. 1995). The claim must contain enough factual matters to suggest the required elements of the claim or to "raise a reasonable expectation that discovery will reveal evidence of" those elements. Phillips v. County of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at 556).
1. Count I: Unfair Practices and Consumer Protection Law
The parties disagree as to whether plaintiffs can be considered purchasers under the UTPCPL. The "general purpose of the UTPCPL is to protect the public from fraud and unfair deceptive business practices." Burke v. Yingling, 666 A.2d 288, 291 (Pa. Super. Ct. 1995). Specifically, the UTPCPL protects a person who "purchases or leases goods or services primarily for personal, family or household purposes and thereby suffers any ascertainable loss of money or property, real or personal, as a result. . . ."*fn7 73 P.S. § 201-9.2 (2011). The UTPCPL does not define "purchaser." Katz v. Aetna Cas. & Sur. Co., 972 F.2d 53, 55 (3d Cir. 1992). See, e.g., In re Barker, 251 B.R. 250, 261-62 (Bankr. E.D. Pa. 2000). However, courts have generally taken a broad approach to what constitutes a sale or a purchaser under the act. See e.g., Christopher v. First Mut. Corp., 2008 U.S. Dist. LEXIS 32781 (E.D. Pa. Apr. 21 2008).
Defendant argues the plaintiffs are not purchasers under the UTPCPL because plaintiffs were the sellers of property in various real estate transactions and as part of those transactions, Fidelity provided a title insurance policy to J.P. Morgan, not to plaintiffs. (Doc. #15 at 9). Plaintiffs argue that funds from their home's equity were used to purchase the title insurance and, therefore, even though they are not the insureds or the beneficiaries, they are indeed the purchasers. (Doc. # 16 at 12).
The case law is not clear as to whether the issue presented in this case -- whether a person whose home's equity was allegedly used by one entity to purchase title insurance from a third party -- makes that person a "purchaser" under the UTPCPL. Therefore, I decline to grant the defendant's motion to dismiss as a matter of law.
2. Count II: Civil Conspiracy
In order to establish liability for civil conspiracy, a plaintiff must show that: (1) two or more defendants conspired with a common purpose to do (a) an unlawful act, or (b) a lawful act by unlawful means or for an unlawful purpose;*fn8 (2) defendants committed an overt act in furtherance of the conspiracy; and (3) the plaintiff suffered legal damages. Weaver v. Franklin County, 918 A.2d 194, 202 (Pa. Commw. Ct. 2007). A claim for civil conspiracy cannot stand without some underlying tortious act that is independently actionable under Pennsylvania law. McKeeman v. Corestates Bank, N.A., 751 A.2d 655, 660 (Pa. Super. Ct. 2000).
Defendant argues that plaintiffs cannot maintain a civil conspiracy action because a conspiracy under Pennsylvania law cannot arise between a principal and its agent.*fn9
(Doc. # 15 at 10-11).*fn10 Plaintiffs cite the exception to the intracorporate conspiracy doctrine applicable when "the employees have acted for their sole personal benefit." Heffernan v. Hunter, et al., 189 F3d 405 (3d Cir 1999). Plaintiffs maintain that Bennett and Doherty acted for their own personal benefit when they received kickbacks outside their employment as title agents. (Doc. #16-2 at 20).
It is well-settled that a corporation cannot conspire with its subsidiaries, its agents, or its employees. Michael v. Shiley, Inc., 1994 U.S. Dist. LEXIS 1973, at * 46-47 (E.D.Pa. Feb. 25, 1994) (granting summary judgment to defendants on state law conspiracy claim involving alleged conspiracy between parent and subsidiary); Glessner v. Kenny, 952 F.2d 702, 710 (3d Cir. 1991). This is known as the "intracorporate conspiracy doctrine." See General Refractories Co. v. Fireman's Fund Ins. Co., 337 F.3d 297, 313 (3d Cir. 2003) (applying Pennsylvania law) (citing Heffernan v. Hunter, 189 F.3d 405, 413 (3d Cir. 1999)).
In Heffernan, the Third Circuit analyzed the application of the intracorporate conspiracy doctrine in the context of attorney-client conspiracies under 42 U.S.C. § 1985(1) & (2) and held that a conspiracy between a corporation and an officer may exist only "if the officer is acting in a personal, as opposed to official, capacity." Id. at 412. However, the fact that an agent may have acted in bad faith or with the illegitimate purpose of abusing process in mind, does not, in itself, bring the agent's actions outside the scope of the relationship.*fn11 Gen. Refractories Co. v. Fireman's Fund Ins. Co., 337 F.3d 297, 314 (3d Cir. Pa. 2003).
At this stage of the proceedings, the exact relationship of the parties cannot be ascertained. Accepting the complaint's allegations as true, I will assume for the purposes of this motion that the defendant had a "duty to disclose." Additionally, because it is unclear whether Bennett and Doherty may have been acting outside the scope of employment or acting within the scope of its authority, but in a negligent and fraudulent manner, I will not dismiss the civil conspiracy claim based on the intracorporate conspiracy doctrine at this time. See Lawyers Title Ins. Corp. v. Phillips Title Agency, 361 F.Supp.2d 443 (D.N.J. 2005).
3. Pleading Fraud with Particularity
Plaintiffs and defendant agree that complaints which allege fraud must comport with Rule 9(b), but disagree as to whether the complaint satisfies the heightened pleading requirements. Rule 9(b) applies "not only to fraud actions under federal statutes, but to fraud claims based on state law." Christidis v. First Pennsylvania Mortg. Trust, 717 F.2d 96, 99 (3d Cir. 1983). Rule 9(b) requires the plaintiff plead "the circumstances of the alleged fraud in order to place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior."*fn12 Lum v. Bank of Am., 361 F.3d 217, 223-24 (3d Cir. 2004) (quoting Seville Industrial Machinery Corp. v. Southmost Machinery Corp., 742 F.2d 786, 791 (3d Cir. 1984)).
Plaintiffs allege that they have satisfied the heightened pleading requirements by incorporating by reference all of the state court pleadings. (Doc. # 16-2 at 21). Defendant argues that plaintiffs merely allege what they were "told" and "not told," and they make only general allegations without asserting the specific identity of the people who made false statements or the documents containing the false statements. (Doc. # 14-15 at 15). These details put the defendant on adequate notice of the alleged fraud to enable it to answer the complaint. Accordingly, because the complaint states with particularity the circumstances constituting fraud as required by Rule 9(b) of the Federal Rules of Civil Procedure, I will deny the defendant's motion to dismiss.
For the foregoing reasons, I will deny defendants' motion to dismiss Counts I and
II of the Complaint without prejudice to be raised again at a later stage in the litigation.
An appropriate order follows.