6/19/2013 10:19:00 AM,
Philip A. Janquart
(CN) - J.P. Morgan Chase & Co. must face fraud claims related to the fees it charges on delinquent home mortgages, but the RICO claims will not advance, a federal judge ruled.
The bank and two of its subsidiaries had moved in August 2012 to dismiss the putative class action led by Diana Ellis, James Schillinger and Ronald Lazar.
These borrowers said Chases used special software to fraudulently mark up, or charge unnecessary fees, in connection to its serving of home mortgage loans.
"Defendants allegedly adopted a uniform practice designed to maximize fees assessed on delinquent borrowers' accounts," U.S. District Judge Yvonne Gonzalez Rogers summarized last week.
The scheme allegedly involves J.P. Morgan subsidiaries, affiliates and third parties that marked up fees, often times, by over 100 percent and failed to disclose the fact to borrowers.
Though Rogers blocked the class from asserting claims under the Racketeer Influenced and Corrupt Organizations Act (RICO), she refused to dismiss the remaining allegations that Chase violated the California Business and Professions Code.
The class failed to show that J.P. Morgan's alleged fraud relied on "enterprise conduct" that consisted of the use of the mail and wires, according to the ruling.
"Plaintiffs have not sufficiently identified the structure of the enterprise, nor that defendants have engaged in enterprise conduct distinct from their own affairs," Rogers wrote. "Plaintiffs vaguely allege that unidentified subsidiaries, affiliated companies and/or intercompany divisions order default-related services from third-party vendors and brokers. No specific factual allegations explain how this occurs, and without this information, the court cannot ascertain the structure of the alleged enterprise. Nor can the court determine whether defendants have engaged in conduct of the enterprise, as opposed to their own affairs."
The class can nevertheless amend the RICO claim and they can pursue claims of unjust enrichment and fraud, according to the ruling.
"Defendants' failure to advise plaintiffs of the actual costs for services is linked to the inflated costs that Chase expressly demanded as due in monthly mortgage and other documents," Rogers wrote. "Using the mortgage agreements as justification, defendants allegedly demanded payment for fees that, in some cases, were never actually incurred."