ALTISOURCE S.A.R.L v. SZUMANSKI
3:21-cv-03293
D.N.J.Mar 29, 2022Background
- AOA operates Hubzu, an online home-auction marketplace; certain Altisource employees had access to sellers’ confidential reserve prices.
- Plaintiffs allege that Altisource employees Remedios and Bellino supplied reserve-price information to broker Martin Szumanski, who used buyer clients and LLCs (including Kichan Lee and others) and straw bidders to acquire properties below market and suppress competing bids.
- Nine "Impacted Properties" are described in detail; Plaintiffs allege kickbacks, fabricated communications, and use of shared emails/PSAs to conceal the scheme.
- Plaintiffs sued under federal RICO (18 U.S.C. § 1962(c),(d)), New Jersey RICO, common-law fraud, civil conspiracy, and the Illinois Consumer Fraud Act; numerous defendants moved to dismiss.
- After briefing, the court denied RICO and related conspiracy claims as to Szumanski and Lee (and left Bellino and Remedios pending); dismissed RICO/NJ-RICO claims as to Disano, Fagan, Chin, Pascua, Santos, and the LLCs; dismissed common-law fraud and ICFA claims.
- Court found Plaintiffs adequately pleaded an association-in-fact enterprise, specific wire-communications, and standing for the surviving RICO claims, but rejected claims lacking two predicate acts or continuity.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Person–enterprise distinctness for §1962(c) | Enterprise is an association-in-fact of the Buying Agents, Buyer Defendants, and Conspiring Employees | Overlap between defendants and enterprise members defeats distinctness | Enterprise properly pleaded as association-in-fact; distinctness satisfied so long as no single defendant is alleged to be the entire enterprise |
| Participation via predicate acts (wire fraud) | Multiple wire communications, PSAs, WhatsApp/email exchanges show at least two predicate acts by key defendants | Many defendants only involved in one transaction or acted as brokers; insufficient specific acts/intention | Sufficient for Szumanski and Lee (multiple communications, directing scheme); insufficient for Disano, Chin, Pascua, Santos, and many LLCs (too few acts or mere broker role) |
| Pattern/continuity requirement | Scheme threatened repetition (open-ended): would have continued but for discovery; not limited to single transactions | Conduct lasted a short period and ceased on discovery; for single-property actors no threat of repetition | Open-ended continuity plausibly alleged for Szumanski and Lee; not for defendants who sought single properties/LLCs or otherwise posed no future threat |
| RICO standing (injury/proximate cause) | Plaintiffs lost commissions/profits because higher bids were suppressed and sellers accepted lower PSAs | Damages speculative because sellers might not have accepted other bids | Plaintiffs pleaded concrete out-of-pocket losses and proximate causation; standing found for RICO plaintiffs |
| RICO conspiracy (§1962(d)) | Defendants agreed to use inside access to procure properties below market via a pattern of racketeering | Conspiracy requires agreement to a RICO-pattern (continuity); many defendants only participated in single transactions | §1962(d) survives as to Szumanski and Lee (agreement + pattern); fails as to Disano, Fagan, Chin, Pascua, Santos, LLCs |
| NJ RICO, common-law fraud, ICFA, civil conspiracy | NJ RICO parallels federal RICO; fraud and conspiracy pleaded with particularity; ICFA covers deceptive acts | ICFA protects consumers/public market, not private-platform disputes; fraud insufficiently pleaded against some defendants | NJ RICO follows federal outcome (survives for Szumanski and Lee); common-law fraud dismissed as to Szumanski; ICFA dismissed; civil conspiracy claim survives against all defendants at pleading stage |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must state a plausible claim)
- Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479 (1985) (civil RICO standing requires proximate cause)
- Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158 (2001) (person–enterprise distinctness under §1962(c))
- Reves v. Ernst & Young, 507 U.S. 170 (1993) (liability under §1962(c) requires participation in operation or management)
- H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229 (1989) (pattern requires relatedness and continuity)
- Holmes v. Securities Investor Protection Corp., 503 U.S. 258 (1992) (proximate-cause limits for RICO standing)
- Schmuck v. United States, 489 U.S. 705 (1989) (use of mails/wires need only be incident to scheme)
- Lum v. Bank of Am., 361 F.3d 217 (3d Cir. 2004) (Rule 9(b) particularity for fraud allegations)
- In re Insurance Brokerage Antitrust Litig., 618 F.3d 300 (3d Cir. 2010) (operation/management and enterprise concepts in RICO context)
- Hughes v. Consol-Pennsylvania Coal Co., 945 F.2d 594 (3d Cir. 1991) (closed-ended continuity requires substantial period)
- Heinrich v. Waiting Angels Adoption Servs., Inc., 668 F.3d 393 (6th Cir. 2012) (open-ended continuity assessed by threat of repetition)