Chisolm v. Transouth Financial

UNPUBLISHED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Reversed and remanded by unpublished opinion.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Unpublished opinions are not binding precedent in this circuit.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.

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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.

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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

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 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

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