Chisolm v. Transouth Financial ( 1998 )


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  • UNPUBLISHED
    UNITED STATES COURT OF APPEALS
    FOR THE FOURTH CIRCUIT
    NORA CHISOLM; TINA WILCE; LAURA
    RICHARDS; STARLETTE SEAMSTER,
    Plaintiffs-Appellants,
    No. 97-1970
    v.
    TRANSOUTH FINANCIAL CORPORATION,
    Defendant-Appellee.
    Appeal from the United States District Court
    for the Eastern District of Virginia, at Norfolk.
    John A. MacKenzie, Senior District Judge.
    (CA-93-632-2)
    Argued: April 9, 1998
    Decided: October 5, 1998
    Before ERVIN, Circuit Judge, BUTZNER, Senior Circuit Judge,
    and STAMP, Chief United States District Judge for the Northern
    District of West Virginia, sitting by designation.
    _________________________________________________________________
    Reversed and remanded by unpublished opinion. Senior Judge Butz-
    ner wrote the opinion, in which Judge Ervin and Chief Judge Stamp
    joined.
    _________________________________________________________________
    COUNSEL
    ARGUED: George Robert Blakey, NOTRE DAME LAW SCHOOL,
    Notre Dame, Indiana, for Appellants. Gregory Neil Stillman, HUN-
    TON & WILLIAMS, Norfolk, Virginia, for Appellee. ON BRIEF:
    Kieron F. Quinn, Richard S. Gordon, LAW OFFICE OF KIERON F.
    QUINN, Baltimore, Maryland; F. Paul Bland, Jr., TRIAL LAWYERS
    FOR PUBLIC JUSTICE, Washington, D.C., for Appellants. Benja-
    min V. Madison, III, HUNTON & WILLIAMS, Norfolk, Virginia; R.
    Hewitt Pate, HUNTON & WILLIAMS, Richmond, Virginia, for
    Appellee.
    _________________________________________________________________
    Unpublished opinions are not binding precedent in this circuit. See
    Local Rule 36(c).
    _________________________________________________________________
    OPINION
    BUTZNER, Senior Circuit Judge:
    Nora Chisolm and the other named plaintiffs claim TranSouth
    Financial Corporation committed mail fraud and conspired to commit
    mail fraud under the Racketeer Influenced and Corrupt Organizations
    Act (RICO). 
    18 U.S.C. § 1961
     et seq. The plaintiffs appeal the district
    court's 12(b)(6) order dismissing their complaint for failure to state
    a claim. The district court held that the plaintiffs failed to sufficiently
    plead the element of reliance in their attempt to allege RICO mail
    fraud. We reverse.
    I
    The underlying facts are briefly outlined in this opinion; a complete
    recitation of the facts may be found in this court's first decision in this
    case. See Chisolm v. TranSouth Fin. Corp., 
    95 F.3d 331
     (4th Cir.
    1996) (Chisolm I).
    Charlie Falk sold cars to customers at inflated prices, financed the
    purchases, and took security interests in the cars. Falk then assigned
    the secured notes to TranSouth. The assignments included a promise
    by Falk to buy back the notes for a fixed price if the borrowers
    defaulted on the loans.
    2
    If a borrower missed a payment, TranSouth repossessed the vehicle
    and mailed a "Notice of Private Sale" to the borrower. The notice
    informed the borrower that the car would be sold privately if it was
    not redeemed. The plaintiffs allege that these notices fraudulently
    suggested to the borrowers that TranSouth would dispose of the vehi-
    cles through legitimate private sales. As this court noted, legitimate,
    private sales under Virginia law never took place. Chisolm I, 
    95 F.3d at 334, n.3
    . Instead of legitimate sales, if a car was not redeemed by
    a borrower, Falk would buy back the note from TranSouth at the pre-
    arranged price and TranSouth would transfer the car back to Falk.
    Falk would then assign the note to JB Collection Corporation,
    Falk's subsidiary, and JB would demand payment for the deficiency.
    While JB tried to collect the deficiency from the borrower, Falk
    would attempt to resell the car. The original borrowers were never
    informed of subsequent sales, and the subsequent sales were never
    credited to the borrowers' deficiencies. The plaintiffs alleged that
    TranSouth conspired with Falk and JB to violate the customers' rights
    with this scheme. Chisolm I observes: "Indeed, concealment of the
    nature of the `private sales' was the very linchpin of the scheme." 
    95 F.3d at 338
    .
    This court held that in order for the plaintiffs to properly plead
    RICO mail fraud they would have to allege that they relied on the
    TranSouth mailing. To plead reliance, the court stated that the plain-
    tiffs need only allege that they relied on the mailings to assure them
    that the liquidation of the collateral was proceeding legally and legiti-
    mately. Chisolm I, 
    95 F.3d at 338-39
    . Since the complaint did not
    allege reliance, this court remanded the case with the instruction that
    the plaintiffs be given an opportunity to plead reliance.
    Upon remand, the plaintiffs filed their third amended complaint,
    which they argue alleged reliance. TranSouth, disagreeing, moved to
    dismiss the third amended complaint due to the plaintiffs' failure to
    allege reliance with the particularity required under Fed. R. Civ. P.
    9(b). The district court dismissed the complaint and denied the plain-
    tiffs the opportunity to submit another amended complaint. These rul-
    ings are the subject of this appeal.
    3
    II
    The district court's 12(b)(6) dismissal of the plaintiffs' complaint
    is reviewed de novo. Randall v. United States, 
    30 F.3d 518
    , 522 (4th
    Cir. 1994). We must accept the well pled allegations in the complaint
    as true and we construe the facts in a light most favorable to the plain-
    tiff. Id.; Little v. Federal Bureau of Investigation, 
    1 F.3d 255
    , 256 (4th
    Cir. 1993).
    The purpose of rule 9(b) is to provide a defendant with notice of
    the substance of the plaintiffs' claims and to provide the district court
    with enough information to distinguish strike suits from legitimate
    claims. Michaels Bldg. Co. v. Ameritrust Co., 848 F.2d at 674, 679-
    81 (6th Cir. 1988). The language in the plaintiffs' third amended com-
    plaint tracks the language this court suggested and meets rule 9(b)'s
    requirements. Paragraphs 84 and 88 state:
    Transouth issued false and deceptive notices of private sale
    which were intended to and which did mislead the public
    about their repossession and redemption rights. Transouth's
    notices and private sales were intended to and did assure the
    plaintiffs herein and the class that the repossession and liq-
    uidation of their collateral was proceeding legitimately and
    legally and influenced the plaintiffs and the class to accept
    the process without question, thus depriving plaintiffs and
    the class of the opportunity to assert a meritorious defense
    to JB's deficiency suit or seek other available legal reme-
    dies. Plaintiffs' and the Class' reliance on the notices of pri-
    vate sales . . . enabled the scheme to continue, and thus
    proximately caused the damages suffered by plaintiffs and
    the class.
    ...
    All of these activities of the association-in-fact form a pat-
    tern, continuous in nature, which consists of numerous
    unlawful individual acts directed to each named plaintiff and
    to each class member. . . . Each fraudulent letter and notice
    by Transouth and each fraudulent letter and pleading by JB
    were acts in furtherance of the conspiracy for which the
    4
    defendant is liable. The reliance of the plaintiff and the
    members of the class on the falsehoods contained in such
    documents . . . was justified because such documents would
    and did cause persons of ordinary experience to be con-
    vinced of the legality and regularity of the process and to
    refrain from defending what appeared to be a justifiable
    lawsuit.
    J.A. 131-132. Read in the context of the other allegations in the com-
    plaint these allegations are sufficient to meet rule 9(b)'s particularity
    requirement and purpose. Among other allegations, the complaint
    specifies: who mailed the fraudulent notices; who received the
    notices; when the notices were received; the representations made in
    the notices; the reasons why the plaintiffs consider the representations
    fraudulent; the facts of the fraudulent scheme; the plaintiffs' reliance
    on the notices; and the injury caused by the plaintiffs' reliance. Based
    on these allegations, the complaint clearly alleges sufficient facts to
    give TranSouth notice of the claims against it and the district court
    sufficient information to determine the nature of the plaintiffs' claims.
    Further, to the extent that this concerns TranSouth, the complaint is
    sufficiently particular to ensure that the plaintiffs' discovery requests
    will not be a fishing expedition. See Michaels Bldg. Co, 848 F.2d at
    680.
    III
    Because the third amended complaint sufficiently pleads reliance,
    we do not decide whether the district court properly denied the plain-
    tiffs' motion to submit another amended complaint.
    We decline the plaintiffs' invitation to provide guidance to the dis-
    trict court on the issue of class certification. This issue is not the sub-
    ject of this appeal.
    The judgment of the district court is reversed, and this case is
    remanded for further proceedings consistent with this opinion.
    REVERSED AND REMANDED
    5