ph mtf opp bs filed 2.30.13

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

THE PHELAN PARTIES TO DISMISS PLAINTIFFS’ THIRD AMENDED COMPLAINT WITH PREJUDICE, AND RELATED RELIEF

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

Case 1:11-cv-06239-JBS-KMW Document 83 Filed 02/20/13 of 40 PageID: 1852

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Table Of Contents Table of Authorities .................................................................................................. ii I. INTRODUCTION ........................................................................................... 1 II. ARGUMENT ................................................................................................. 11 A. The Giles’ Claims Are Fully Preserved .............................................. 11

B. The TAC Alleges a Plausible and Viable RICO Claim ...................... 17

1. RICO Does Not Immunize “Professionals”.............................. 17 2. The Action Was Timely Filed Pursuant To Fed. R. Civ. P. 6(a) .............................................................. 20 3. The Phelan Defendants’ Activities Were Improper Under New Jersey Law ................................... 22 4. The TAC Alleges a RICO Pattern of Racketeering .................. 25 5. Plaintiffs Suffered Injury Caused by

The Predicate Acts .................................................................... 30 III. CONCLUSION .............................................................................................. 34


ii

Table Of Authorities Cases Page Agency Holding Corp. v. Malley-Duff & Assocs., Inc.,

483 U.S. 143 (1987) ...................................................................................... 20 Bank of New York v. Raftogianis,

418 N.J. Super. 323 (Ch. Div. 2010) ...................................................... 23-24 Beals v. Bank of Am. N.A.,

No. 10-5427 (KSH), 2011 U.S. Dist. LEXIS 128376 (D.N.J. Nov. 4, 2011) ................................ 32

Bridge v. Phoenix Bond & Indem. Co.,

553 U.S. 639 (2008) ...................................................................................... 31 Cedric Kushner Promotions, Ltd. v. King,

533 U.S. 158 (2001) ...................................................................................... 29 Cotter v. Skylands Cmty. Bank (In re Cotter),

Adv. No.: 11-01619, 2011 Bankr. LEXIS 4579 (Bank. D.N.J. Oct. 24, 2011) ........................ 15, 17

DeHart v. US Bank, N.A.,

811 F. Supp. 2d 1038 (D.N.J. 2011) ....................................................... 15, 16 Deutsche Bank v. Russo,

429 N.J. Super. 91 (App. Div. 2012) ................................................ 22, 23, 24 Emcore Corp. v. PriceWaterhouseCoopers LLP,

102 F. Supp. 2d 237 (D.N.J. 2000) ......................................................... 18, 29 Feld Entm’t, Inc. v. ASPCA,

873 F. Supp. 2d 288 (D.D.C. 2012) .............................................................. 18 Forbes v. Eagleson,

228 F.3d 471 (3d Cir. 2000) ......................................................................... 20


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Fraternal Order of Police v. Del. River Port Auth., Civil No. 12-2170 (JBS/KMW), 2013 U.S. Dist. LEXIS 19732 (D.N.J. Feb. 13, 2013) .................................. 15

Frey v. Woodard,

748 F.2d 173 (3d Cir. 1984) ................................................................... 20-21 Gasoline Sales, Inc. v. Aero Oil Co.,

39 F.3d 70 (3d Cir. 1994) ............................................................................. 29 Genty v. Resolution Trust Corp.,

937 F.2d 899 (3d Cir. 1991) ......................................................................... 33 Giles v. Phelan, Hallinan & Schmieg, L.L.P.,

Civ. No. 11-6239, 2012 U.S. Dist. LEXIS 140289 (D.N.J. Sept. 28, 2012) ........................ 13, 14

H.J. Inc. v. Northwestern Bell Tel. Co.,

492 U.S. 229 (1989) .......................................................................... 25, 26, 27 HT of Highlands Ranch, Inc. v. Hollywood Tanning Sys., Inc.,

590 F. Supp. 2d 677 (D.N.J. 2008) ......................................................... 27, 28 Handeen v. Lemaire,

112 F.3d 1339 (8th Cir. 1997) ................................................................ 17-18 Hemi Group, LLC v. City of New York, N.Y.,

559 U.S. 1 (2010) .......................................................................................... 33 Hemmingsen v. Messerl, Kramer, P.A.,

675 F.3d 814 (8th Cir. 2012) ........................................................................ 13 In re Hawkins, 231 B.R. 222 (Bankr. D.N.J. 1999) ............................................................... 17 In re Hurley, 285 B.R. 871 (Bankr. D.N.J. 2002) .............................................................. 17


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Kisby Lees Mech. LLC v. Pinnacle Insulation, Inc., Civil No. 11-5093 (JBS/AMD), 2012 U.S. Dist. LEXIS 106521 (D.N.J. July 31, 2012) ............................... 17

LaSalle Bank Nat. Ass’n v. Lehman Bros. Holdings, Inc.,

237 F. Supp. 2d 618 (D. Md. 2002) .............................................................. 25 Lasalle Bank Nat’l v. Nomura Asset Capital,

180 F. Supp. 2d 465 (S.D.N.Y. 2001) .................................................... 24-25 Mosely v. Quarterman,

2008 U.S. Dist. LEXIS 17964 (N.D. Tex. Mar. 6, 2008) ......................... 1, 10 Pappa v. Unum Life Ins. Co. of Am.,

No. 3:07-cv-0708, 2008 U.S. Dist. LEXIS 21500 (M.D. Pa. 2008) ........................................... 33

Pearson v. LaSalle Bank,

No. 08-2306, 2009 U.S. Dist. LEXIS 48904 (E.D. Pa. June 9, 2009) ................................ 20

Robbins v. Wilkie,

300 F.3d 1208 (10th Cir. 2002) .................................................................... 34 Rycoline Prod., Inc. v. C & W Unlimited,

109 F.3d 883 (3d Cir. 1997) ......................................................................... 16 Sovereign Bank, FSB v. Kuelzow,

687 A.2d 1039, 297 N.J. Super. 187 (N.J. Super. A.D. 1997) ............................................... 15

Sykes v. Harris,

757 F. Supp. 2d 413 (S.D.N.Y. 2010) .................................................... 18, 32

Tabas v. Tabas, 47 F.3d 1280 (3d Cir. 1995) ....................................................... 25-26, 27, 28

US Bank Nat’l Ass’n v. Guillaume,

209 N.J. 449, 38 A.3d 570 (2012) ................................................................ 24


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U.S. Bank Nat’l Ass’n v. Nesbitt Bellevue Prop. LLC, 859 F. Supp. 2d 602 (S.D.N.Y. 2012) .......................................................... 25

United States v. Bergrin,

682 F.3d 261 (3d Cir. 2012) ......................................................................... 18 Univ. of Maryland v. Peat, Marwick, Main & Co.,

996 F.2d 1534 (3d Cir. 1993) ....................................................................... 19 Walter v. Palisades Collection, LLC,

480 F. Supp. 2d 797 (E.D. Pa. 2007) ...................................................... 32-33 Weiss v. First Unum Life Ins. Co.,

482 F.3d 254 (3d Cir. 2007) ......................................................................... 32 Statutes & Regulations 18 U.S.C. § 1962(c) ................................................................................................. 29 Fed. R. Civ. P. 6(a) ............................................................................................ 20, 21 Fed. R. Civ. P. 9(b) ............................................................................................ 33-34

Fed. R. Civ. P. 11 .............................................................................................. 10, 25 N.J. Rule 4:50-1 ....................................................................................................... 30 N.J. Rule 4:50-1(a) ................................................................................................... 23 N.J. Rule 4:50-1(d) ................................................................................................... 23 N.J. Rule 4:64-1(b)(10) ............................................................................ 4, 22-23, 25


“‘Once is happenstance, twice is coincidence, the third time it’s enemy action.’” And the fourth time proves intent.” – Mosely v. Quarterman, 2008 U.S. Dist. LEXIS 17964, at *22-

23 n.13 (N.D. Tex. Mar. 6, 2008) (quoting Ian Fleming, Goldfinger, at v (Penguin Books 2002)).

I. INTRODUCTION Plaintiffs Charles and Diane Giles allege that WFB, a mortgage servicer,

working together with its outside law firm, Phelan P.C., its primary partners, and

the partners’ wholly-owned “default services” companies (collectively, the “Phelan

Defendants”), engaged in a scheme in which they initiated and prosecuted

improper mortgage foreclosure actions in the name of Wachovia or U.S. Bank.

Defendants named Wachovia and U.S. Bank as plaintiffs in these foreclosures as

purported “trustee” of an entity consistently and erroneously called “Pooling and

Servicing Agreement dated as of November 1, 2004, Asset-Backed Pass-Through

Certificate Series 2004-WWF1” (the “Park Place Trust”).

The Third Amended Complaint (the “TAC”)1 alleges that at no time during

the pendency of these foreclosure actions did Wachovia, the entity identified by

WFB and Phelan P.C. as the foreclosing plaintiff, own the homeowners’ mortgages

or have a right to assert any legal rights under them. ¶¶ 3, 29, 46-47, 54. Rather,

Wachovia sold all of its interest in the Park Place Trust, if any, on December 30,

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


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2005. ¶ 47. That did not stop Defendants from subsequently naming Wachovia as

the foreclosing plaintiff in cases brought against the Giles and members of the

Proposed Class.

For example, just months before Defendants commenced the foreclosure

action against the Giles, they had contested the identical issue – whether Wells

Fargo had standing to prosecute actions on behalf of the Park Place Trust – with a

separate homeowner. See Wachovia Bank, N.A. v. Good, CI-06-05585 (Pa. C.P.

Lancaster Co.), cited at ¶ 77(g). Just weeks after a senior vice president and

counsel of Wachovia informed Phelan P.C. and WFB that Wachovia was

improperly identified as plaintiff in the foreclosure against the Giles (¶ 63), WFB

and Phelan P.C.’s Pennsylvania alter ego, Phelan LLP, filed a substantively

identical foreclosure action on behalf of Wachovia against former plaintiff Laurine

Spivey. See Wachovia Bank, N.A. v. Spivey, No. 07-004303 (Pa. C.P. Phila. Co.),

cited at ¶ 77(a). In the Giles foreclosure action, the varied “signatures” of Phelan

P.C. attorney Rosemarie Diamond were evidently forged on court documents. ¶¶

50-54, 56-57, 76.

The TAC also identifies a non-exhaustive sample of five other foreclosure

cases prosecuted improperly by Phelan P.C., Phelan LLP, and WFB without legal

authority of the legal owner of mortgages purportedly included in the Park Place

Trust. ¶ 77(b)-(f). As the Phelan Defendants themselves point out, by December


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20, 2010,2 the New Jersey Judiciary took formal action against mortgage servicers

and their lawyers for prosecuting foreclosures without regard for proper

investigation into the truth of facts alleged or “certified” in court filings. Yet, as

late as 2011, the Superior Court for Bergen County, New Jersey found that Phelan

P.C. was still prosecuting a foreclosure action “without documentation …

establish[ing its client’s] right to sue.” ¶ 78.

The Phelan Defendants try to minimize their recurring conduct by

dismissively describing it as a mere “misidentifi[cation] of the named plaintiff”

that caused no harm to Plaintiffs (Phelan Br. at 14) and “the result of a mistake, not

a grand conspiracy.” (Phelan Br. at 11). However, as the TAC alleges in plausible

detail, Defendants’ misconduct is not remotely innocent or isolated. Both WFB

and the Phelan Defendants had plenty to gain from their repeated, systematic, and

willful misuse of Wachovia’s name as foreclosing plaintiff, despite having ample

notice that Wachovia no longer acted as trustee for any entity since well before

their foreclosure actions against Proposed Class members were filed.

2 See Phelan Br. at 31, referring to Admin. Order 01-2010, signed by the Hon. Glenn A. Grant, acting director of the Administrative Office, http://www.judiciary.state.nj.us/notices/2010/n101220b.pdf. Earlier in this litigation, the Phelan Defendants had insisted that Plaintiffs’ references to these proceedings were “irrelevant, impertinent, and scandalous.” Brief in Support of Motion of Phelan Party Defendants to Dismiss or Strike the Complaint (Docket Item 20-1) at 2-4.


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The TAC alleges that WFB and Phelan P.C. could not produce bona fide

evidence of a chain of title to Plaintiffs’ mortgages, even though New Jersey law

so required. ¶¶ 43, 68, 69. See N.J. Rule 4:64-1(b)(10) (“[I]f plaintiff is not the

original mortgagee or original nominee mortgagee,” the complaint must provide

“the name of the original mortgagee and a recital of all assignments in the chain of

title”).

Without a name – any name – identifying that legal owner, WFB and the

Phelan firm were unable to commence and prosecute any foreclosure action against

the Giles and other members of the Proposed Class, regardless of whether they had

fallen behind in their mortgage payments. Lacking evidence of ownership, WFB

and Phelan P.C. made the “evidence” up by preparing, executing, and certifying

court documents intended to create the false appearance that Wachovia had

standing to prosecute these actions (¶¶ 8, 79), which put them in a position where

they could and did bill and obtain inflated foreclosure fees – all based on the

fundamental myth of manufactured standing. ¶¶ 6, 72-73. But for this deception,

WFB, Phelan P.C. and its partners lacked even the veneer of legal capacity to take

action to seize Plaintiffs’ property and collect inflated foreclosure fees.

Foreclosure actions in New Jersey are uncomplicated proceedings that can

be processed by an inexpensive and swift assembly-line operation because, as the

Phelan Defendants and WFB know well, more than 93 percent of foreclosure cases


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result in default judgments. ¶¶ 11, 41, 73, 81. It is for precisely this reason that the

New Jersey judiciary undertook the unprecedented step of investigating improper

practices in the residential mortgage foreclosure industry and to implement revised

court rules designed to ensure that law firms like Phelan P.C. get their facts straight

instead of racing into court to file uninvestigated foreclosure cases.

As the Chief Justice of the New Jersey Supreme Court Stuart Rabner

observed on December 20, 2010:

Today’s actions are intended to provide greater confidence that the tens of thousands of residential foreclosure proceedings underway in New Jersey are based on reliable information. Nearly 95 percent of those cases are uncontested, despite evidence of flaws in the foreclosure process…. For judges to sign an order foreclosing on a person’s home, they must first be able to rely on the accuracy of documents submitted by lenders. That step is critical to the integrity of the judicial process.3

Despite subsequent improvements in the system, the “integrity of the judicial

process” had already been compromised severely by the misconduct of WFB and

the Phelan Defendants. As the TAC alleges, Defendants’ only consideration has

been to start and finish the foreclosure process as quickly and cheaply as possible.

¶¶ 7, 35-36. The primary factor determining defendants’ ability to stay

competitive in the foreclosure industry remained how aggressively they could start

and close their exploding volume of cases to a profitable finish. ¶¶ 38, 42. The

3 See http://www.judiciary.state.nj.us/superior/press_release.htm.


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“business model” devised in 2005 by defendant Lawrence T. Phelan was

specifically designed to exploit flaws in the foreclosure process while, at the same

time, enhancing its profitability by adapting to “changes” in the residential

mortgage foreclosure “industry” mandated by government-sponsored enterprises

and the mortgage servicers they hire. ¶¶ 37-42.

It was in single-minded pursuit of these economic incentives that WFB and

the Phelan firm operated collectively in their common purpose to (1) remove

distressed homeowners from their houses through improper foreclosure pleadings

and manufactured mortgage assignments and (2) pile on fabricated or inflated fees

that benefitted themselves while making it harder for distressed families to pay

those fees, a necessary condition of staying in their homes.

In opposing these well-pleaded allegations, the Phelan Defendants fire a

blunderbuss of arguments which fall into several categories.

First, the Phelan Defendants argue that the claims are barred by various

claim preclusion doctrines, namely, the Entire Controversy Doctrine, res judicata,

and collateral estoppel. The linchpin behind each argument is the Phelan

Defendants’ not-so-subtle substitution of a single word in the Order of the state

court preserving the Giles’ RICO claim: the Chancery Court for Ocean County,

New Jersey ordered that the Giles’ “rights as to all affirmative claims are hereby

preserved.” See Mitchell Certification, Ex. D (emphasis supplied). The Phelan


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Defendants recast this, however, to “preserv[ation of] the Giles’ FDCPA claim.”

(Phelan Br. at 12; emphasis supplied.) Such legerdemain cannot be countenanced.

The Giles’ RICO claims are not subject to any prior state law ruling because the

order itself preserved all the Giles’ claims. (See Point II-A, below.)

Next, the Phelan Defendants press a panopoly of arguments under RICO,

each without merit:

The Phelan Defendants claim that RICO immunizes professionals

from their reach. (Phelan Br. at 26-27.) Nothing, however, in the RICO statute or

case law supports this assertion. RICO itself addresses conduct during litigation,

and courts have held attorneys and their agents liable under RICO. Moreover, as

the repetitive nature of their profit-making “mistakes” shows, the Phelan

Defendants’ litigation activities extended far beyond the mere rendering of

professional services. (See Point II-B-1, below.)

The Phelan Defendants contend that the Giles’ RICO claim accrued

on June 5, 2007 or, alternatively, on October 23, 2007. (Phelan Br. at 27-28.)

RICO’s four-year statute of limitations, however, runs from discovery of facts that

should have triggered an investigation, none of which occurred until, at the earliest,

October 23, 2007. Under the method of calculating time provided by Fed. R. Civ.

P. 6(a), the suit filed by the Giles on October 24, 2011 (a Monday) was timely.

(See Point II-B-2, below.)


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The Phelan Defendants claim that the TAC fails to satisfy a pattern of

RICO activity for lack of continuity. (Phelan Br. at 31-33.) The Phelan

Defendants contend that the TAC alleges only a “closed-ended” RICO scheme

lasting less than a year, and as such, is too brief to constitute a RICO pattern. The

Phelan Defendants recast, however, the pattern of misconduct alleged by Plaintiffs

to the Giles’ individual litigation experience, ignoring Plaintiffs’ explicit

allegations that the Defendants’ fraudulent scheme persisted against other

homeowners both before and after the Giles action came to its unadjudicated

conclusion. The TAC alleges that Defendants’ RICO activity began on December

31, 2005 (the date after Wachovia disposed of its corporate and institutional trust

operations and thus had no interest in Park Place Trust mortgages) (¶¶ 47, 63-64,

79) through the present (with one specific instance of Defendants’ false claims

concerning Wachovia occurring through an Essex County sheriff’s sale scheduled

as recently as August 31, 2010). See ¶ 77(b) and Plaintiffs’ Memorandum in

Opposition to Motion of Wells Fargo Bank N.A. to Dismiss Plaintiffs’ Third

Amended Complaint (“Pl. WFB Br.”), filed concurrently herewith, at 22-23. This

readily satisfies any “closed-ended” analysis. (See Point II-B-3, below.)

The Phelan Defendants claim that the TAC fails to allege a RICO

“enterprise” separate and apart from the parties named as RICO Defendants.

(Phelan Br. at 33.) As demonstrated below, however, the TAC amply explains


9

how the enterprise operated and how the Phelan Defendants acted (and profited)

beyond their capacity as mere agents of WFB. (See Point II-B-4, below.)

The Phelan Defendants argue that the Plaintiffs suffered no injury as a

result of the alleged RICO predicate acts. (Phelan Br. at 33-39.) As demonstrated

below, however, the Phelan Defendants and WFB knowingly or recklessly

prosecuted foreclosure actions against New Jersey homeowners on behalf of

illusive “clients” that had no standing to bring them. Viewed another way, rather

than conduct their business in a responsible manner, these defendants adopted and

implemented a profit model based on a deceptive “sue-now-ask-later”

methodology. The direct effect of this practice was to cause Plaintiffs and other

Proposed Class members to incur costs defending legally defective foreclosure

actions and left many homeowners, including the Giles, no choice but to sell their

homes fast and at below-market rates before they were driven into bankruptcy.

Other proposed Class members lost their homes altogether, while some of the more

“fortunate” among them were stripped of substantial equity in their property. All

of these things occurred, not because of homeowner defaults, understandable or

otherwise, but most directly because WFB and the Phelan Defendants took it upon

themselves to traduce the judicial system and the legal rights of homeowners in

blind pursuit of financial gain. While the Phelan Defendants insist that they and


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WFB did not engage in “a grand conspiracy” (Phelan Br. at 11.), the facts alleged

in the TAC demonstrate plausibly otherwise.

At very least, this issue involves disputed facts inappropriately decided as a

matter of law on a motion to dismiss. An open-minded jury at trial should be given

a full and fair opportunity to hear and evaluate the parties’ evidence, and to

conclude, in the apt words of Ian Fleming, that the misconduct of WFB and the

Phelan Defendants constituted “enemy action” taken with fraudulent “intent.” See

Mosely, 2008 U.S. Dist. LEXIS 17964, at *22-23 n.13. (See Point II-B-5, below.)

* * *

The Phelan Defendants also ask the Court to consider imposing sanctions

against Plaintiffs’ counsel under Fed. R. Civ. P. 11 for making what they call

“repugnant” “factual misrepresentations” to the Court, including “inexcusably false

and defamatory allegations.” (Phelan Br. at 2-3, 8-10.)4 Because the Phelan

4 Sad to say, the Phelan Defendants themselves engage in name-calling that, reluctantly, merits a footnoted response. They (1) insist the Giles are engaged in a “shameless ploy for undeserved sympathy by attempting to tie their Mortgage default to the tragic events of 9/11” (Phelan Br. at 2-3, 8-10), and (2) level a demonstrably false charge that the Giles somehow “walked away with $30,000 in cash” from their coerced distress sale. Id. (emphasis in original). With regard to the first point, the TAC makes only three, muted references to Mr. Giles’ devastating injuries sustained during his rescue efforts on 9/11. ¶¶ 45, 61-62, 71. This information, while hardly a “key them[e]” of this lawsuit (Phelan Br. at 3), dispels any suggestion that the Giles were financially irresponsible people who somehow deserved “the consequences of their failure to pay their Mortgage.” See, e.g., id. at 12. As to the second point, Plaintiffs are prepared, if so requested by the Court, to proffer the Giles HUD-1 Settlement Statement from their January 15,


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Defendants have not themselves complied with Rule 11’s notice requirements, it is

unnecessary for Plaintiffs to respond further to their spurious charges of bad-faith

litigation conduct.

II. ARGUMENT

A. The Giles’ Claims Are Fully Preserved

The Phelan Defendants argue that the Giles cannot prosecute their RICO

claim because the core allegation – that the foreclosing plaintiff lacked standing –

was raised and decided in state court. According to the Phelan Defendants, this

now precludes the Giles from litigating their RICO claims under any one of three

doctrines: (1) the Entire Controversy Doctrine; (2) principles of res judicata; or

(3) collateral estoppel.

There is one glaring, and fundamentally fatal, error in the Phelan

Defendants’ ten-page treatment of these issues: the state court expressly

“preserved” the Giles “rights as to all affirmative claims” relating to the wrongful

prosecution of a foreclosure action against them by the Phelan Defendants and

WFB. The order in question, dated January 18, 2008, contains four handwritten

elements:

2008 home sale to rebut the Phelan Defendants’ claim that the Giles “walked away with $30,000 in cash.” Plaintiffs are loathe, however, to introduce another distraction to the Court which is distant from the merits of the instant motion.


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Plaintiff’s Motion to Rescind Document Assignment and to Amend All Pleadings is Granted;

Defendants’ Motion To Dismiss is Denied and Defendant’s

Motion to Stay January 22, 2008 Sheriff’s Sale is Denied as Moot;

Defendants’ Rights As to All Affirmative Claims are Hereby

Preserved; and

Plaintiff’s Foreclosure Action Is Hereby Voluntarily Dismissed.

See Jan. 18, 2008 Order of the Ocean County Superior Court, Chancery Division,

New Jersey, reproduced in the Mitchell Certification, Ex. D [Docket Item 75-6]

(emphasis supplied).

Rather than come to terms with the unambiguous language of the critical

third component of the January 18, 2008 order, the Phelan Defendants try to

rewrite it in a manner more to their liking by switching the term “All” to their

preferred expression “FDCPA.” See Phelan Br. at 12 (“the 2008 orders . . . . (v)

preserved the Giles’ FDCPA claim.”) (emphasis supplied). Like the Phelan

Defendants’ persistent misuse of the name Wachovia in their post-December 30,

2005 foreclosure filings, this is not a one-time scriviner’s error. The Phelan

Defendants state repeatedly in their brief that what the Ocean County Court

“really” meant was “FDCPA,” when it said “All”: “The only affirmative claim

which the Giles ever asserted, namely their claim render the Fair Debt Collection

Practices Act . . . was subject to a one year statute of limitation.” (Phelan Br. at 5.)


13

They also compound their self-created confusion by citing and highlighting

language from an irrelevant Eighth Circuit decision, Hemmingsen v. Messerl,

Kramer, P.A., 675 F.3d 814 (8th Cir. 2012), an FDCPA case, to argue that a cause

of action under the FDCPA cannot be maintained by the Giles here, even though

they have never sought to assert one in this case. (Phelan Br. at 13-14).5 Because

the preservation of “all” of the Giles’ “affirmative claims” was ordered by the

Ocean County Court, all of the Giles’ claims have been effectively preserved for

adjudication in this action.

Moreover, the Phelan Defendants’ claim preclusion arguments are nothing

more than a warmed-over version of the Rooker-Feldman doctrine contention that

has already been rejected by the Court – a contention so patently erroneous that not

even WFB could support it. See Giles v. Phelan, Hallinan & Schmieg, L.L.P., Civ.

No. 11-6239, 2012 U.S. Dist. LEXIS 140289, at *25 (D.N.J. Sept. 28, 2012)

(“WFB’s counsel said that he was not arguing Rooker-Feldman applied to the

Giles because there was a voluntary dismissal in the Giles’ foreclosure action”).

Now, despite having the benefit of the Court’s clear guidance, the Phelan

Defendants continue to assert that (1) “TAC ¶ 9 admits the validity of the Final

Foreclosure Judgment, which subsumes all of the issues that were or could have

5 As noted above at 5, n.4, the Phelan Defendants’ odd fixation with unasserted FDCPA claims has been a “key theme” in their attempted defense of this lawsuit.


14

been raised in the Foreclosure” (Phelan Br. at 1) and (2) “TAC ¶ 9’s attempt to

split hairs by characterizing its claims not as seeking review of the Final

Foreclosure Judgment, but as based on practices involved in obtaining that

Judgment, is too fine a distinction….” (Phelan Br. at 23.)

As to the first contention, Plaintiffs have never “admit[ted] the validity” of

the fraudulently obtained default judgment against the Giles, despite the Phelan

Defendants’ insistence otherwise.6

As to the second contention, this Court has explicitly recognized and

endorsed the “too fine a distinction” that the Phelan Defendants deride as

“split[ing] hairs. Giles, 2012 U.S. Dist. LEXIS 140289, at *25 (“Plaintiffs here are

not challenging the state court judgments; they are challenging the Defendants’

actions in procuring those judgments. The Third Circuit has held that the Rooker-

Feldman doctrine does not bar such a lawsuit, even though the lawsuit may require

review of the state court litigation and may hold that the state court judgments are

erroneous”).

As this Court also noted, “[a] final judgment is mandatory for application of

the Rooker-Feldman doctrine. Giles, 2012 U.S. Dist. LEXIS 140289, at *25,

(citing Lance v. Dennis, 546 U.S. 459 (2006)). A final judgment is likewise

6 See, e.g., Pl. Gag Order Br. at 17-18, quoting Romano Certification at ¶¶ 3, 8, 33.


15

necessary for application of the Entire Controversy Doctrine,7 res judicata,8 and

collateral estoppel.9 Here, there was no final judgment.

Although a fraudulently obtained default judgment was taken against the

Giles in June 2007, the Ocean County Court retained jurisdiction over the action.

See Sovereign Bank, FSB v. Kuelzow, 687 A.2d 1039, 297 N.J. Super. 187, 196

(N.J. Super. A.D. 1997) (citing Hardyston Nat’l Bank v. Tartamella, 56 N.J. 508,

513, 267 A.2d 495 (1970) (“The Chancery judge …. presides over a court of

equity. [A] foreclosure action, although already the subject of a judgment, is not

totally concluded until the defendants’ equity of redemption is cut off by the

delivery of the sheriff’s deed”)). In these circumstances, there was nothing

conclusive or outcome determinative about the default judgment against the Giles,

which is inherently provisional under New Jersey law until a sheriff’s deed is

delivered.

Moreover, none of the purposes served by New Jersey’s claim preclusion

doctrines would be served if the fraudulently procured default judgment against the

Giles was considered “final” under the circumstances present here. For example, 7 DeHart v. US Bank, N.A., 811 F.Supp.2d 1038, 1045 (D.N.J. 2011). 8 Cotter v. Skylands Cmty. Bank (In re Cotter), Adv. No.: 11-01619, 2011 Bankr. LEXIS 4579, at *6-7 (Bank. D.N.J. Oct. 24, 2011). 9 Fraternal Order of Police v. Del. River Port Auth., Civil No. 12-2170 (JBS/KMW), 2013 U.S. Dist. LEXIS 19732, at *14 (D.N.J. Feb. 13, 2013) (citing In re Estate of Dawson, 136 N.J. 1, 20 (1994)).


16

the essential rationale underlying the Entire Controversy Doctrine is “the need for

complete and final disposition through the avoidance of piecemeal decisions.”

Rycoline Prod., Inc. v. C & W Unlimited, 109 F.3d 883, 885 (3d Cir. 1997) (citing

DiTrolio v. Antiles, 142 N.J. 253, 662 A.2d 494, 502 (1995), and Mystic Isle Dev.

Corp. v. Perskie & Nehmad, 142 N.J. 310, 662 A.2d 523, 529 (1995)). The Ocean

County Court did not envision that the default judgment constituted a “complete

and final disposition” of the Giles Foreclosure Action. The opposite is true. In

entering its January 18, 2008 Order preserving “all affirmative claims” of the Giles

resulting from Defendants’ actions in the foreclosure proceedings, the Ocean

County Court expressly contemplated subsequent “piecemeal decisions.”

Furthermore, under New Jersey law, a foreclosure defendant is unable to

assert counterclaims that are not “germane” to a state foreclosure action. DeHart,

811 F. Supp. 2d at 1045 (citing Jackson v. Midland Funding, LLC, 754 F. Supp. 2d

711, 714 (D.N.J. 2010)). The Phelan Defendants are not only aware of this

fundamental legal principle, they acknowledge that FDCPA claims are “plainly

non-germane” in New Jersey foreclosure cases. Phelan Br. at 21 n.14. It follows

axiomatically that RICO claims are not properly asserted in New Jersey

foreclosure actions.

It is well settled that “[a] party will not be barred from raising additional

claims in a subsequent proceeding if he was unable to assert these claims in the


17

initial proceeding…. For instance, the doctrine will not apply to a claim that was

barred for want of jurisdiction or that was unknown or had not accrued at the time

of the original action. Cotter, 2011 Bankr. LEXIS 4579, at *15-16) (citing In re

Hawkins, 231 B.R. 222, 232 (Bankr. D.N.J. 1999), and In re Hurley, 285 B.R. 871,

876 (Bankr. D.N.J. 2002)). Not only were the Giles disabled from asserting a

RICO cause of action before the Ocean County Court, they did not discover the

requisite pattern of racketeering necessary to prove a RICO claim until well after

entry of the Ocean County Court’s January 18, 2008 Order.

Given the clarity of the law on this subject, none of the Phelan Defendants’

claim preclusion arguments has the slightest degree of merit. Inasmuch as the

affirmative defenses claimed by the Phelan Defendants are “not apparent on the

face of the complaint,” the Court “should not resolve the case on a Rule 12(b)(6)

motion.” Kisby Lees Mech. LLC v. Pinnacle Insulation, Inc., Civil No. 11-5093

(JBS/AMD), 2012 U.S. Dist. LEXIS 106521, at *11-12 (D.N.J. July 31, 2012).

B. The TAC Alleges a Plausible and Viable RICO Claim

1. RICO Does Not Immunize “Professionals”

The Phelan Defendants assert that professionals cannot be held liable under

RICO for providing professional services to clients. (Phelan Br. at 26.) RICO,

however, offers no blanket exemption to attorneys and their clients. “An

attorney’s license is not an invitation to engage in racketeering, and a lawyer no


18

less than anyone else is bound by generally applicable legislative enactments.”

Handeen v. Lemaire, 112 F.3d 1339, 1349 (8th Cir. 1997). 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 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 v. Harris, 757 F. Supp.

2d 413, 426-27 (S.D.N.Y. 2010) (“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 Entm’t,

Inc. v. ASPCA, 873 F. Supp. 2d 288, 315-16 (D.D.C. 2012) (confirming propriety

of an association-in-fact enterprise comprised of lawyers and client accused of

bribery and illegal witness payments); Emcore Corp. v. PriceWaterhouseCoopers

LLP, 102 F. Supp. 2d 237, 251-57 (D.N.J. 2000) (accounting firm, officers,

partners, and in-house counsel constitute proper association-in-fact enterprise); and

Handeen, 112 F.3d at 1349 (court warned that it would “not shrink from finding an

attorney liable when he crosses the line between the traditional rendition of legal

services and active participation in directing the enterprise. The polestar is the

activity in question, not the defendant’s status.”)

The TAC alleges that the Phelan Defendants’ conduct extends far beyond

the rendering of professional and ancillary accounting services found inadequate


19

by the Third Circuit in Univ. of Maryland v. Peat, Marwick, Main & Co., 996 F.2d

1534 (3d Cir. 1993). Under Univ. of Maryland, the issue is not whether the

defendants are professionals but whether they participated in the affairs of the

RICO enterprise. Id. at 1539. In Univ. of Maryland, the alleged extent of the

defendant’s “wrongdoing” was to have (1) performed a deficient audit and

rendered unqualified auditor’s opinions, id., (2) attended board meetings, id., and

(3) provided accounting and consulting services “from time to time.” Id. In

contrast, the TAC alleges that the Phelan Defendants not only provided

professional and ancillary services, but that, in order to convince courts and

litigation victims alike, they certified objectively baseless assertions to the court,

not once but multiple times, such that their fraudulent deviation from professional

standards was itself the norm. ¶¶ 2-8, 77, 93-97, 98(f), 101-105.

Independently from WFB, the Phelan Defendants obtained financial gain

directly from victimized homeowners through the imposition of inflated and

churned fees. ¶¶ 6, 37-42, 72-73, 96, 101(c)-(e), 102-103. Moreover, the Phelan

firm billed its non-clients directly separately for the use of its ancillary services

such as title searches. ¶¶ 6, 101(d). This constitutes more than sufficient

uncontrolled participation by the Phelan Defendants in the affairs of the alleged

RICO enterprise.


20

Finally, the Phelan Defendants assert that “RICO was not created as a means

for a federal court to review the details and procedures of foreclosure litigation.”

(Phelan Br. at 15). The Phelan Defendants, however, fail to provide support for

this blanket immunity for a particular brand of litigation. Instead, the sole

authority upon which the Phelan Defendants rest this erroneous assumption,

Pearson v. LaSalle Bank, No. 08-2306, 2009 U.S. Dist. LEXIS 48904, at *1 (E.D.

Pa. June 9, 2009) (cited at Phelan Br. at 15), did not involve RICO at all, but rather

only claims under the FDCPA and state law.

2. 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, 156-57 (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). The Phelan Defendants maintain 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, the Phelan Defendants

disregard 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:


21

(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. When the

period is stated in days or a longer unit of time:

(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 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) 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


22

was a Sunday,10 the statute of limitations could not have run against the Giles until

the end of Monday October 24, 2011. This action is indisputably timely.

3. The Phelan Defendants’ Activities Were Improper Under New Jersey Law

The Phelan Defendants contend that they are “not liable for conduct which is

valid under New Jersey law” (Phelan Br. at 9). Yet, misconduct of the Phelan

Defendants has been documented in the well-pleaded allegations of the TAC and

recognized through actions taken by the New Jersey judiciary to redress

widespread abuses in the residential mortgage foreclosure industry, including those

by the Phelan Defendants themselves.11

The Phelan Defendants assert that the “name of the Trustee [is]

inconsequential” and “not dispositive” to the proper prosecution of a foreclosure

action in New Jersey (Phelan Br. at 6, 11), repeatedly citing Deutsche Bank v.

Russo, 429 N.J. Super. 91 (App. Div. 2012). Russo is, however, inapposite: the

court neither dispensed with standing requirements in foreclosure actions nor

relaxed the New Jersey Court rule providing that “if plaintiff is not the original

mortgagee or original nominee mortgagee,” the complaint must provide “the name

10 See United States Supreme Court Calendar for October 2011 term, http://www.supremecourt.gov/oral_arguments/2011TermCourtCalendar.pdf. 11 See, e.g., Second Amended Class Action Complaint (Docket Item 65) at ¶¶ 89-91.


23

of the original mortgagee and a recital of all assignments in the chain of title.” N.J.

Rule 4:64-1(b)(10). Instead, the Deutsche Bank court addressed cases where

foreclosure defendants demonstrated an “unexcused, years-long delay in asserting”

a defense challenging the proper standing of a mortgagee in the context of motions

under Rule 4:50-1(a) (to set aside a default judgment) and Rule 4:50-1(d)

(challenging a judgment as void). Deutsche Bank, 429 N.J. Super. at 101

(emphasis supplied).12

Deutsche Bank held merely that the remedy for lack of standing in this

particular context is left to the discretion of the lower court judge (which is

accorded “substantial deference”) and that dismissal of a foreclosure action is not

necessarily the exclusive remedy available to New Jersey Chancery Courts.13 In

doing so, the Court reconfirmed the holding in Bank of New York v. Raftogianis,

418 N.J. Super. 323 (Ch. Div. 2010), which held that a party seeking to foreclose a

mortgage must own or control the underlying debt and that, without a showing of

such ownership or control, a purported mortgagee lacks standing to proceed with a

foreclosure action. Raftogianis further stated that: “[w]hether any particular action

12 Rule 4:50-1(a) requires that movant must “establish that his failure to answer was due to excusable neglect.” “Rule 4:50-1(d) motion …. does not require a showing of excusable neglect but must be filed within a reasonable time after entry of the judgment.” Because the standing issue was raised before the Ocean County Court on a timely basis, neither of these rules apply here. 13 Deutsche Bank, 429 N.J. Super. at 98.


24

should in fact be dismissed should be addressed on a case-to-case basis, dependent

on all the circumstances. As a general matter, dismissal will probably be

appropriate, if only to provide a clear incentive to plaintiffs to see that the issue of

standing is properly addressed before any complaint is filed.” Deutsche Bank v.

Deutsche Bank, 429 N.J. Super. at 100, quoting Raftogianis, 418 N.J. Super. at

356. Although the Phelan Defendants portray Deutsche Bank v. Russo as a

revolutionary change in New Jersey jurisprudence, it is nothing of the sort,

particularly when viewed against the facts and circumstances of this litigation.

Defying their own practice of naming trustees of securitized mortgages as

the legal owner of mortgages identified as plaintiff in foreclosure complaints (not

to mention established case law and court rules requiring that practice), the Phelan

Defendants also say that the identity of a trustee is of no importance because

securitized trust investors are the beneficial owners of securitized mortgages, and

defaulted homeowners communicate only with mortgage servicers and their

foreclosure lawyers. (Phelan Br. at 11-12.) This argument, however, disregards

the decision in US Bank Nat’l Ass’n v. Guillaume, 209 N.J. 449, 458, 38 A.3d 570,

474 (2012), where 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 insufficient. 209 N.J. at 458, 38 A.3d at 574. See also Pl. WFB

Opp. Br. at 16-17. The Phelan Defendants’ argument also contradicts well-


25

established precedent holding that “a trustee of an express trust is the real party in

interest when suing on behalf of that trust.” Lasalle Bank Nat’l v. Nomura Asset

Capital, 180 F. Supp. 2d 465, 471 (S.D.N.Y. 2001)(citing Navarro Sav. Ass’n v.

Lee, 446 U.S. 458, 464 (1980)). See also U.S. Bank Nat’l Ass’n v. Nesbitt Bellevue

Prop. LLC, 859 F. Supp. 2d 602, 609 (S.D.N.Y. 2012); LaSalle Bank Nat. Ass’n v.

Lehman Bros. Holdings, Inc., 237 F. Supp. 2d 618, 632 (D. Md. 2002).14

4. The TAC Alleges a RICO Pattern of Racketeering

The Phelan Defendants also argue that the TAC fails to allege the requisite

pattern of RICO predicate acts. This argument simply ignores the law and the

TAC. To establish the requisite pattern of racketeering activity, a plaintiff must

allege that (i) predicate racketeering acts are related, and (ii) they “amount to or

pose a threat of continued criminal activity.” H.J. Inc. v. Northwestern Bell Tel.

Co., 492 U.S. 229, 239 (1989). Under the relatedness requirement, “predicate acts 14 The Phelan Defendants also accuse Plaintiffs of violating Fed. R. Civ. P. 11 because “TAC ¶¶ 53-54 make inexcusably false and defamatory allegations directed at the Phelan firm partner who executed the two certifications regarding party joinder and title searches required by R. 4:5-1 to be attached to the Foreclosure Complaint … claiming that these certifications were “false and misleading” when they plainly are not.” (Phelan Br. at 8-9.) Ironically, the Phelan Defendants make this unfounded assertion based in part on additions to “to R. 4:64-1 effective December 2010, well after the [Giles] Foreclosure was filed, to provide assurances beyond those previously required concerning the accuracy of foreclosure documents.” (Phelan Br. at 7-8 and n.5.) The rule amendments were implemented – on an emergency basis no less – precisely because of foreclosure litigation abuses committed by lawyers like defendant Rosemarie Diamond, whose varying signatures purported to “verify” uninvestigated “facts.”


26

are related if they have the same or similar purposes, results, participants, victims,

or methods of commission, or otherwise are interrelated by distinguishing

characteristics and are not isolated events.” Tabas v. Tabas, 47 F.3d 1280, 1292

(3d Cir. 1995) (internal quotations and citations omitted).

Here, the Phelan Defendants do not contest the relatedness component of the

pattern requirement. The predicate acts, as alleged, relate to the same purpose

(seizing and disposing of homeowners’ property without establishing their legal

right to do so and collection of manufactured or inflated fees), results (default

judgments and collection of manufactured or inflated fees), participants (all

Defendants in this action), victims (New Jersey homeowners sued in foreclosure

actions by the Phelan Defendants and WFB involving mortgages that were part of

the Park Place Trust), and methods of commission (meritless foreclosure

litigation). Id.

The continuity requirement of a RICO claim “is both a closed-and open-

ended concept, referring either to a closed period of repeated conduct, or to past

conduct that by its nature projects into the future with a threat of repetition.” H.J.,

492 U.S. at 242. The “temporal concept” of continuity may be established by

demonstrating either: (1) a closed-ended continuity through allegations of repeated

predicate acts extending over a “substantial” (at least twelve-month) period, Tabas

v. Tabas, supra; or (2) an open-ended continuity through allegations that “the


27

predicates are a regular way of conducting defendant’s ongoing legitimate business

(in the sense that it is not a business that exists for criminal purposes) . . . .” H.J.,

492 U.S. at 243. See HT of Highlands Ranch, Inc. v. Hollywood Tanning Sys.,

Inc., 590 F. Supp. 2d 677, 687-88 (D.N.J. 2008). Tabas, 47 F.3d at 1294-95. A

period of twelve months or longer may satisfy the requirement of long-term

conduct under the closed-ended continuity analysis. Tabas, 47 F.3d at 1293; HT,

590 F. Supp. 2d at 688.

Here, continuity is satisfied on a closed-end basis. The alleged RICO

actions extend from any and all foreclosure litigation commenced on “behalf” of

Wachovia after Wachovia’s sale of its corporate and institutional trust business on

December 30, 2005. ¶ 47. The Phelan Defendants’ wrongful actions continued

through and including the Giles’ discovery of WFB’s lack of standing on October

23, 2007, and persisted up to the time the New Jersey Judiciary initiated its efforts

to bring abusive foreclosure practices to a halt in December 2010, proceedings

that the Phelan Defendants themselves now openly acknowledge – despite their

earlier boisterous contention that Plaintiffs’ references to the New Jersey

Judiciary’s action were “irrelevant, impertinent, and scandalous.” (See above at 2

n.2).15 This period, lasting nearly five years, easily satisfies the closed-ended

15 The Phelan Defendants refer to the December 20, 2010 Supreme Court Order and the Notice to the Bar re: Emergent Amendments to R. 1:5-6, R. 4:64-1 and R. 4:64-2; and the December 10, 2010 Administrative Order Directing


28

continuity requirement. Tabas, 47 F.3d at 1293; HT, 590 F. Supp. 2d at 688.

Discovery may well confirm that Defendants’ misconduct continued unabated,

presenting the possibility that the open-ended continuity requirement may also be

established.

The Phelan Defendants focus inordinately on the circumstances of the Giles’

individual foreclosure litigation and assert that the period to be measured is less

than one year, the time it took for this foreclosure action to arrive at its

unadjudicated conclusion. In “analyzing” the issue in this myopic fashion, the

Phelan Defendants ignore altogether Plaintiffs’ well-pleaded allegations that

Defendants were on notice to investigate Wachovia’s lack of standing at least two

months before they commenced proceedings against the Giles. ¶ 77(g). They

continued to portray themselves as legal counsel for Wachovia after they were

bluntly informed otherwise on October 23, 2007 (¶¶ 63-64), and they persisted in

acting in this improper manner until at least August 31, 2010, when a sheriff’s sale

was scheduled by the Phelan Defendants and WFB “on behalf” of Wachovia. ¶ 77;

Pl. WFB Br. at 9. Although the exact dates of the beginning and end of

Defendants’ scheme are yet to be determined, the duration lasts beyond the 15

Submission of Information from Residential Mortgage Foreclosure Plaintiffs Concerning Their Document Execution Practices to a Special Master. (Phelan Br. at 31-32).


29

months or even 2 years required. Emcore Corp., 102 F. Supp. 2d at 252 (14

months sufficient).

The Phelan Defendants next argue that the enterprise alleged in the TAC is

insufficient because it fails to adequately allege that the “enterprise” exists

separately from its individual members. A proper § 1962(c) claim must allege “the

existence of two distinct entities: (1) a ‘person’; and (2) an ‘enterprise’ that is not

simply the same ‘person’ referred to by a different name.” Cedric Kushner

Promotions, Ltd. v. King, 533 U.S. 158, 161 (2001). In general, a corporation must

be sufficiently distinct from the alleged “enterprises.” Gasoline Sales, Inc. v. Aero

Oil Co., 39 F.3d 70, 73 (3d Cir. 1994).

WFB and the Phelan Defendants are separate entities. The TAC does not

allege that WFB owns Phelan P.C., Phelan LLP, their “litigation service provider”

affiliates, or their buildings. Rather, the TAC alleges that the Phelan partners

control two law firms, Phelan P.C. and Phelan LLC, ¶¶ 21-23, that three of the

partners together own Land Title and Full Spectrum, ¶¶ 25-26, and that defendants

Lawrence Phelan, Francis S. Hallinan together own Camelot Enterprises, LLC,

which owns the building in New Jersey where Phelan, P.C., Land Title and Full

Spectrum are located. ¶¶ 20-26. Furthermore, the TAC sets forth how the Phelan

Defendants obtained improper payments, in the form of overstated legal fees and

also through “default management” fees that the Phelan Defendants charged


30

directly to targeted homeowners, a portion of which was kicked back as profit to

WFB ¶¶ 100(b), 102(d).

The alleged enterprise 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, two of these same defendants represented that they are so distinct from

Phelan P.C. that this Court may not even exercise personal jurisdiction over them.

As a matter of fact and law, the members of the enterprise alleged by Plaintiffs are

not synonymous.

5. Plaintiffs Suffered Injury Caused by The Predicate Acts

Finally, the Phelan Defendants allege that the alleged predicate acts did not

injure the Giles. (Phelan Br. at 33-39). Neither the law nor the facts support this

claim. The Giles knew nothing about Phelan P.C. and WFB’s 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 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


31

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, presumably none of whom would 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, 658–59 (2008) (reliance “is not in and of itself

dispositive” of whether injury is “sufficiently direct to satisfy [18 U.S.C.] §

1964(c)’s proximate-cause requirement”). But the Phelan Defendants’ smoke-and-

mirrors artifice does not hide the specific items of damage to the Giles and the

Proposed Class alleged in the TAC:

(a) diminution or complete loss of value of property taken or sold as a result of wrongful foreclosure lawsuits filed by Phelan P.C. and WFB in the name of entities other than the still-undetermined bona fide legal owner of Plaintiffs’ mortgages; (b) attorneys’ fees incurred by Proposed Class members who (like the Giles) retained counsel to represent their interests in connection with wrongful default judgments procured by Phelan P.C. and WFB; and (c) payment of manufactured and inflated foreclosure-related “costs,” including (i) padded legal fees charged by Phelan P.C. in amounts that exceeded uniform fee schedules established by Fannie Mae and Freddie Mac; and (ii) payment of manufactured and inflated


32

foreclosure-related “costs” that exceeded amounts established in uniform fee schedules published by Fannie Mae and Freddie Mac.

¶ 110(a)-(c).

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, notwithstanding the Phelan Defendants’ shrill

characterization of this claim as “absurd.” (Phelan Br. at 4.) 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 . . .

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 (D.N.J.

Nov. 4, 2011) (recognizing homeowners’ “damages in having to defend against [a]

foreclosure and in losing other options to avoid foreclosure”).

Further, costs associated with remediating or taking legal action against

RICO conduct amount to an “out-of-pocket loss” that is actionable under RICO.

See Weiss v. First Unum Life Ins. Co., 482 F.3d 254, 258 n.2 (3d Cir. 2007) (losses

from sale of home and personal property to remediate harm and payment of IRS

fees and penalties arising from defendant’s racketeering scheme involving illegal

policy of rejecting long-term disability benefits “were out-of-pocket expenses . . .

and thus qualify as an injury to property for RICO purposes.”); Walter v. Palisades


33

Collection, LLC, 480 F. Supp. 2d 797, 804 (E.D. Pa. 2007) (“[P]ayment of legal

fees can be actionable injuries under RICO.”); Pappa v. Unum Life Ins. Co. of Am.,

No. 3:07-cv-0708, 2008 U.S. Dist. LEXIS 21500, at *24 (M.D. Pa. 2008) (payment

of legal fees is an injury “proper to a RICO claim.”).16

Whatever damages may ultimately be proven 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 with

16 In Hemi Group, LLC v. City of New York, N.Y., 559 U.S. 1 (2010), the RICO plaintiff, the City of New York, alleged that an out-of-state vendor sold cigarettes in New York City without acquiring customer information required under New York State’s Jenkins Act. NYC argued that, without the required customer information, the State of New York State could not, in turn, send it to the City of New York to collect sales taxes. The Supreme Court rejected plaintiff’s RICO theory of causation as too attenuated: “Here, the conduct directly responsible for the City’s harm was the customers’ failure to pay their taxes. And the conduct constituting the alleged fraud was Hemi’s failure to file Jenkins Act reports. ... [T]he conduct directly causing the harm was distinct from the conduct giving rise to the fraud.” 559 U.S. at 17.

Here, in contrast, the link is direct: the conduct at issue – commencing fraudulent foreclosing litigation – was the very cause of the homeowner’s need to expend wasteful costs, including attorneys’ fees, and the forced, pell-mell sale of a home to avoid foreclosure. As many courts have recognized, the initiation of baseless litigation can form the basis for recovery of attorney’s fees and loss of market value to homes. See, e.g., Genty v. Resolution Trust Corp., 937 F.2d 899, 918 (3d Cir. 1991) (plaintiffs permitted to recover damages under RICO for economic harm occasioned by loss of the market value of their homes as a consequence of defendants’ fraud). Moreover, the Phelan Defendants cannot claim ignorance that they sought and obtained an order for a sheriff’s sale, ¶ 60, and that the Giles were scrambling desperately to sell their home, ¶ 70, a fact they told the Ocean County Court of Chancery on September 12, 2007. (See Mitchell Decl. Ex. A [Docket Item 75-3, at 69-70]).


34

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 the Phelan Defendants’ 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


ph mtf opp bs filed 2.30.13

Documents

bank of new york

new jersey law

floor new york

district of new jersey

plaintiffs memorandum

civil action plaintiffs

jbskmw document

phelan parties