RICO Law Blog : RICO Lawyer & Attorney : Thomas Walker : Cosho Humphrey Law Firm : RICO Act, Federal and State Racketeering Litigation, Boise Idaho

Investors in resort properties of high-end projects filed a lawsuit in U.S. District Court in Boise, Idaho against investment bank Credit Suisse, accusing the financial giant of deliberately engineering the failure of at least four major resort projects so that it could acquire them on the cheap.   

The suit alleges a host of illegal acts by Credit Suisse and the real estate firm Cushman & Wakefield, including violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), fraud, negligence and breach of fiduciary duty, and seeks $24 billion in damages.

The lawsuit alleges that Credit Suisse’s resort loan program, which eventually included more than a dozen properties and billions of dollars in loans, was a deliberate scheme to burden the resorts with debts they could not repay so that the bank could gain ownership through foreclosure or bankruptcy. While the suit currently only includes the four projects, including Tamarack Resort in Donnelley, Idaho, it also suggests that other resorts that took loans from Credit Suisse - including Promontory in Utah and Turtle Bay in Hawaii - could eventually be part of the litigation as well.

Credit Suisse spokesman Duncan King said: “We believe the suit to be without merit and will defend ourselves vigorously.”

The lawsuit focuses on the use of an appraisal method that is not compliant with U.S. banking regulations. The co-called “total net value” appraisals, which essentially took the total estimated market value of all sale-able real estate but did not apply the normal “discount rate” that factors in market fluctuations and how quickly properties might sell, yielded a much higher value than a typical appraisal and was used to support very large loans. At Yellowstone Club the loans totaled $375 million; at Lake Las Vegas it was $540 million; at Tamarack Resort it was $250 million. Credit Suisse set up an entity in the Cayman Islands specifically to facilitate the loans, which could not be marketed by or to U.S. banks because they relied on the non-compliant appraisals.

Under the scenario outlined in the lawsuit, the resort owners, who were explicitly permitted to take hundreds of millions of dollars in loan proceeds as “dividends,” were duped by Credit Suisse into taking the money. The suit relies heavily on a Yellowstone Club case ruling by U.S. Bankruptcy Court Judge Ralph B. Kirscher, who called the Credit Suisse loan to the club “predatory” and said the behavior of the bank “shocked the conscience of this court.” That ruling led to a settlement in which the decision was vacated and Credit Suisse agreed to a sale of the property to CrossHarbor Capital Partners.

Credit Suisse now controls the “liquidating trust” in the Yellowstone Club case, and contends that it is Tim Blixseth, the developer, who acted badly in transferring so much money out of the club and that he should be required to pay the money back.

Lake Las Vegas remains mired in a highly complex bankruptcy proceeding, with its golf courses and many other facilities closed. Tamarack is also closed, and a foreclosure trial is scheduled for next month. Yellowstone Club and Promontory have emerged from bankruptcy and are now operating normally. The institutional investors who bought the debt from Credit Suisse lost about 70% of their money on Yellowstone Club, and virtually all their money on Promontory. Tamarack and Lake Las Vegas are likely to yield little if any payback for the debt-holders.

• Email This
• Print
• Comments (1)
• Trackbacks

A federal appeals court reversed a trial court’s decision denying class certification to a group of Mohawk Industries Inc. employees who claim the company ran afoul of the Racketeer Influenced and Corrupt Organizations Act by hiring illegal aliens, allegedly pushing down the plaintiffs' wages.

The U.S. Court of Appeals for the Eleventh Circuit handed down a 22-page ruling on May 14, 2009 holding that the district court abused its discretion when it denied the plaintiffs' motion seeking class certification.

• Email This
• Print
• Comments
• Trackbacks

In 2004 plaintiffs lawyers were in court seeking to represent a nationwide class of consumers and third-party payers against Warner-Lambert, predecessor to Pfizer. They made RICO and fraud claims, demanding more than $4 billion in damages.  After nearly five years of trying, a class has yet to be certified.   On May 13, 2009, Boston federal district court Judge Patti Saris denied class certification for a second time.

Saris first ruled against class certification back in August 2007, citing the plaintiffs' failure to satisfy commonality, numerosity, typicality and predominance requirements. She gave them another shot, but in her latest denial ruled that class counsel still had not shown that common questions would predominate over issues affecting individual plaintiffs.

• Email This
• Print
• Comments
• Trackbacks

The Arizona Republic reported today that twin federal lawsuits filed in Phoenix and Seattle accuse the nation's two biggest mortgage lenders of using their industry muscle to twist the independent home-appraisal process into a corrupt moneymaking scheme.
 

Seattle-based law firm Hagens Berman Sobol Shapiro LLP filed the lawsuits and is seeking class-action status in both cases.
 

Robert Carey, a Hagens Berman lawyer in Phoenix and former Arizona Chief Assistant Attorney General, said Wells Fargo has rigged the appraisal process by using an affiliated management company to bully appraisers into doing the lender's bidding. Carey filed the complaint Friday in U.S. District Court on behalf of a Scottsdale couple, Grant and Lanie Gomez.
 

The Seattle lawsuit, filed Jan. 12, makes similar allegations about Countrywide, now a wholly owned subsidiary of Bank of America. Countrywide spokeswoman Shirley Norton said the Seattle lawsuit is without merit, and Wells Fargo spokeswoman Marjorie Rice said her employer's process for obtaining home-loan appraisals is legitimate.
 

"We believe our appraisal process is fair, accurate, consistent with all governing appraisal standards, and focused on obtaining objective assessments of the residential properties involved," Rice said.
 

Both complaints accuse the lenders of violating the Real Estate Settlement Procedures Act, which protects consumers involved in real estate transactions, and the Racketeer Influenced and Corrupt Organizations Act, best known by its acronym RICO and usually associated with organized crime.
 

"You don't have to be a gangster," Carey said. "You can just have a scheme that fleeces people out of millions of dollars."
 

In each complaint, a co-defendant is listed. The Wells Fargo lawsuit names Valuation Information Technology LLC, also called Rels Valuation, the bank's designated appraisal management company.
 

Likewise, Countrywide's appraisal management company, LandSafe, is a co-defendant in the Seattle lawsuit.
 

An appraisal management company arranges with third-party appraisal firms to appraise each property involved in a new or refinanced mortgage loan.
 

The lawsuits claim those companies drove down the price of appraisals by threatening to blacklist appraisers who didn't agree to the lower fees, but continued to charge the bank's customers a higher rate.
 

They also accuse the firms of threatening to blacklist appraisers that did not provide whatever appraisal amount the banks were seeking for each home.
 

• Email This
• Print
• Comments
• Trackbacks

McKesson Corp., the nation’s largest drug distributor, has agreed to pay $350 million to settle a class action suit alleging it fraudulently hiked up the price of more than 400 medications. A class of consumers and health and welfare funds had filed suit in 2005 against the company alleging violations of the Racketeer Influenced and Corrupt Organizations Act for allegedly falsely inflating the average wholesale price (AWP) of a number of America’s most popular prescription medications.
 

Those medications included allergy drug Allegra, arthritis/pain medication Celebrex, asthma drug Flonase and cholesterol medication Lipitor, which, according to Intercontinental Marketing Services, was the world’s top-selling drug as of September. The Plaintiffs alleged in their second amended complaint that McKesson conspired with First DataBank, an electronic drug data publisher, to deceitfully increase the AWP, which is widely relied upon by “consumers, health and welfare plans, health insurers and other end payors for prescription drugs” as a pricing standard.
According to the complaint, McKesson and First DataBank devised a scheme to increase “the spread” between medications’ wholesale acquisition cost (WAC) which is the price retailers pay for drugs, and the AWP, the price at which retailers sell drugs to consumers. The complaint alleged that in late 2001 or early 2002 First DataBank, which gets the WAC and AWP information from drug manufacturers, reached an agreement with McKesson in which First DataBank would rely solely on McKesson’s WAC-to-AWP spread.
 

Source: The Legal Intelligencer
 

• Email This
• Print
• Comments
• Trackbacks

Wachovia Bank has agreed to pay more than $178 million to settle a class action RICO suit that accused the bank of allowing two telemarketing firms to swindle elderly victims by obtaining their bank account information and then drawing from their accounts through the use of "remotely created checks." The proposed settlement in Faloney v. Wachovia Bank replaces a previous $125 million settlement between Wachovia and the U.S. Treasury Department's Office of the Comptroller of the Currency. That settlement drew sharp criticism from plaintiffs lawyers and a trio of Congress members who complained that it would be ineffective because it would have required victims of the scheme to file claim forms.

• Email This
• Print
• Comments
• Trackbacks

 Melvyn Weiss, the plaintiffs’ lawyer who pioneered a controversial and lucrative area of law suing corporations on behalf of shareholders, was sentenced on June 2nd in federal court in Los Angeles to 30 months in prison. Weiss pleaded guilty in March to racketeering conspiracy in connection with his former law firm’s alleged improper payments of kickbacks to class-action clients.

• Email This
• Print
• Comments
• Trackbacks

The plaintiffs in a lawsuit accusing Tyson Foods Inc. of hiring illegal aliens to work at poultry plants are focusing on the meat producer’s relationship with the League of Latin American Citizens. The class-action suit in U. S. District Court in Eastern Tennessee claims Springdale-based Tyson Foods knowingly hired illegal aliens to work for wages below what American workers would take. It was filed in April 2002 on behalf of former Tyson workers in several states, not including Arkansas. Trial is set for March 3, 2008.  

The plaintiffs in Trollinger v. Tyson are chicken plant workers who said they were harmed by a scheme by Tyson’s top management to depress wages, court documents state. “We believe Tyson has used its relationship with LULAC to help carry out a ‘willful blindness’ policy of hiring illegal workers,” said the plaintiffs ’ attorney, Howard W. Foster of Chicago. “Tyson is very close with LULAC, especially in Springdale, and we’re alleging that the groups have agreed not to investigate workers who are suspected illegal aliens.” Last week, the former director of the Arkansas chapter of the League of Latin American Citizens filed a motion to avoid giving a deposition in the case. In October, LULAC’s Housing Commission fought subpoenas seeking evidence in the case.

Tyson spokesman Gary Mickelson said the company continues to deny claims in the suit and will file a motion for summary judgment mid-month. “We have a zero-tolerance policy for hiring people who are not authorized to work in the United States,” Mickelson said. “We value our relationships with various advocacy groups, including those representing the Hispanic community. Claims that those relationships are improper are not only false, but they are absurd.”

Mr. Foster, the plaintiffs’ lawyer, commented that this is one of the first suits to allege “illegal immigrant hiring scheme” under the RICO. RICOLaw Blog will keep an eye on this case.

• Email This
• Print
• Comments (1)
• Trackbacks

The Supreme Court on Monday October 15^th rejected an appeal by Microsoft Corp. and a unit of Best Buy Co. to dismiss a lawsuit alleging violation of racketeering laws through fraudulently signing up customers for Microsoft's online service.

The companies asked the justices to overturn a May ruling by the San Francisco-based U.S. 9th Circuit Court of Appeals, which said the civil suit could proceed. The Supreme Court is letting that ruling stand, which means the class-action lawsuit involving thousands of consumers with complaints against the companies will be litigated in federal district court.

Under a joint venture, Redmond, Wash.-based Microsoft invested $200 million in Richfield, Minn.-based Best Buy in April 2000 and agreed to promote the retailer's online store through its Internet access service, MSN. In turn, Best Buy agreed to promote MSN in its stores.

The dispute began in 2003, when James Odom sued the companies after purchasing a laptop computer at Best Buy.

Best Buy allegedly signed up Odom for a six-month free trial of MSN with the credit card he used to pay for the computer. After the trial ended, Microsoft began charging him for the account.

• Email This
• Print
• Comments
• Trackbacks (1)

A New Jersey federal judge on Friday, September 28^th, threw out the remaining racketeering claims pending against several dozen insurers and brokers in a class action lawsuit stemming from industry wide investigations into bid-rigging and client-steering allegations.

The decision, which follows a recent ruling dismissing antitrust claims against the brokers and insurers, resolves the major claims in the consolidated litigation brought on behalf of commercial property/casualty insurance policyholders and employee benefit plan sponsors, who sued the firms following the investigations initiated by then-New York Attorney General Eliot Spitzer.

Plaintiffs alleged that the companies engaged in a conspiracy in which they allocated clients, fixed prices and restrained trade in violation of Racketeer Influenced and Corrupt Organizations Act and the Sherman Antitrust Act. In earlier rulings, Judge Brown and a previously assigned judge rejected antitrust and RICO allegations against the insurers and brokers. Judge Brown earlier this year gave plaintiffs a final chance to amend their filings and bolster their case with supplemental pleadings.

After ruling in late August that the consolidated suit lacked factual support for claims of a widespread antitrust conspiracy, U.S. District Judge Garrett E. Brown Jr. said Friday the suit also lacked factual evidence of a RICO enterprise.

“Plaintiffs’ allegations offer nothing more than a kaleidoscope of acts executed by a kaleidoscope of actors, and combine broker-defendants and insurer-defendants in such a fashion that the court is unable to discern any systemic permutation,” Judge Brown wrote in his 73-page decision. “While discussing dozens of transactions and hundreds of actors, plaintiffs fail to outline even a single set of actors that interacted with each other and executed their transactions systemically.”

The plaintiffs alleged the brokers and insurers participated in the operation or management of a RICO enterprise by, among other things, reaching agreements with each of the insurers regarding the amount of contingent commissions to be paid to the broker and the level of business to be steered to each insurer defendant and then coordinated the concealment of the scheme, according to court papers.

• Email This
• Print
• Comments
• Trackbacks (1)