Matthews MSJ

Document Sample
Matthews MSJ Powered By Docstoc
					Case 2:06-cv-11618-AJT-VMM              Document 142   Filed 01/17/2008   Page 1 of 15

                                SOUTHERN DIVISION

PRISCILLA MATTHEWS                                     Case No. 06-11618
                                                       Hon. Arthur J. Tarnow
                                                       Mag. Judge Virginia M. Morgan


Counsel for Plaintiff
2833 Crooks Road, Suite 104
Troy, MI 48084
(248) 614-4770; fax (248) 822-3174

             L ITF ’  TO

                                   PROOF OF SERVICE

A.      a k ru d B u ats  g
                       ’ r g ru rcc si
       B cgo n : a mh f Mota eFa dPa te

       1.     This is a mortgage fraud lawsuit, one of a number in various courts

against the Defendant Michael Baumahft and his business entities (see pp 11-12, infra).

Baumhaft obtained distressed properties in bulk at low prices and, after a brief holding

 ei , o “i e ”te t i r e o e p ho g o th o nr s at f
   o    d f
p r d s l (lp d)h m a h hpi st p o l tru h u tec u t a p ro a
           p           g  c        e                y

     a v me tpo rm”h t e ree o n v u l u h s laintiff.1
e ls en s                          di s
ra e tt i e t n “rga ta h mak tdt i id a s c a P

        a mh fs r fn u p ro h
              ’ e                    s t n o i s D 6 p 3 f 8 bi p )
                                            o       mi
      B u at Bi i S p ot f iMoi t Ds s ( E6 , 1 o 3 ; r f 2             e
in Frank Wysaski v Baumhaft et al, Case No. 06-12283 (ED MI, Hon. Denise Page
Hood) summarized basic features of his investment program:

        Mi u s oe l e o s n us p rx e 1 ,0 n h m
            e             o
       “ k b y frc s dh me a dp t a po i tl $ 00 0i ote  ma y             t
       to fix them up and then resells them to investors. He gets the properties
       rented prior to closings and the intent is after 12 to 18 months the renter
                     rd a d h n o e te o s o h e tr
                         t                l
       establishes ce i n te y us lh h me t terne.                 ”

Case 2:06-cv-11618-AJT-VMM         Document 142       Filed 01/17/2008    Page 2 of 15

         2.   Although there were a number of elements to his program, the key to this

po et l i ” c e
     yi n
        p          a i s f
“rp r -f p g sh mew sh u e o false appraisals, which systematically and

fraudulently transformed low-value properties to ones of higher value, producing a

  n s me rf o h nepi n
           t        s
ha d o poifrte e trr e i a s ot ei o t . h “rp r -f p g
                            h r p r d f i T i po et l i ”
                                   o    me  s       p
                                                  yi n

scheme with its phony appraisals defrauded Plaintiff and the other investors whom

Baumhaft had induced to participate with false statements of value and other assured

benefits if they acquired homes from him. (Many, including Plaintiff, bought more than

 n rp r u o a mh f a e sua c s h h n p ri l e e s r
o epo et d et B u at fl a s rn e . T ep o ya pa a n c sai
                   ’ s
                    s            )             ss       y

defrauded the lenders involved as well, with bank, mail or wire fraud (all RICO

predicates) taking place as a matter of course given the way real estate transactions


         3.          ’
               a mh fs rmie e ei, p r f
                                t             u       s
              B u at po s db n fs a at rm tev l s t yh d e d
                                       o h a e e b i e me

purchase price, included built-in return of equity (pegged at 10% by his promotional

material) and an after-sale rental program, which included lining up tenants, collecting

                                     a y h i et ” o
                                       e       n o         u le e a t H
rents, and arranging for eventual re-s l b te “ v s r t a q af d tn n. e

touted special relationships with lenders for these future re-sales.2 His statements of

                                              x it Pa t ’ e t n , p 1 -
                                                b    iff    i
value or performance were untrue. See motion-e h i1(lnistsmo y p 1 2

                 x it B u at po t n l tr l
                   b2        ’    o      a)
113) and motion-e h i (a mh fs rmoi a maeis.

       One was with Loan Giant, operated by Jack Wolfe, until it was placed in
receivership in 2005; see Oakland County Circuit Court case no. 05-066103-CH.
           l’ i b c
           fs c              mo f a u r , 0 3 s x it t lnis t n o
       Wo e k k a kme o J n ay4 2 0 i e h iIoPa t ’ moi frb          if f     o
various relief (DE 38) in the McGuffin matter, Case No. 06-x-50135. He promised
Baumhaft kickbacks for deals referred to Loan Giant. Such extra compensation,
undisclosed on the HUD-1, violates federal law since RESPA requires full disclosure
and allows only ordinary and necessary fees.
        h tt f c g e o e o n i ’ i n e n e ray 4 2 0 y
                         ha                      ns c
       T eSaeo Mi i nrv k dL a Ga t le s o F bu r 2 , 0 6b
                                         4 6 fr i o e l i rcc s n u n
                                                  mp         nn
OFIS consent order, case number 05-0 7 ,o “ rp re d gpa te i l i        i     cdg
                                       n . t x it o E 8 C s o 0 -x-50135.
                                         ” s      bJ
providing false data on loan applicatio s Iie h i t D 3 , a eN . 6

Case 2:06-cv-11618-AJT-VMM         Document 142        Filed 01/17/2008     Page 3 of 15

       4.     In sum, Baumhaft induced Plaintiff to become an investor in his real estate

program, as conducted through various enterprise names. Baumhaft told Plaintiff that

his properties were suitable for investment purposes and if she purchased from him he

would rent and manage them for her. He assured her that they were good investments

and worth their asserted value –based on his knowledge of the properties as verified by

                                                     x it .B s d n a mh fs
appraisals he obtained or would obtain. (See motion-e h i1) a e o B u at ’

representations, Plaintiff purchased two properties in Detroit, namely, 9250 Trinity and

 5 5 o s n H w v r B u at
1 8 8 R b o . o e e, a mh fsrepresentations were false and the appraisals

were fraudulent as he knew them to be. In addition, Baumhaft used a completely

fictitious business name, Midwest Express Funding, LLC, to hold and then sell the


       5.     The complaint presents 5 counts to redress the harm caused to Plaintiff by

 a mh fs r d l t e l s e rcc s n i l a ” v s
       ’ a e          a    i     sle    n me t po rm; n
B u at f u u n ra e tt pa te a dh i g li e t n” rga o e

under federal law (the RICO claim, which affords substantial relief, including treble

damages and attorney fees) and 4 under state law. (They are discussed in the

accompanying brief. Plaintiff does not present an argument about the fiduciary duty

claim, Count IV, and it may be considered as withdrawn.)

       6.     Plaintiff is entitled to relief under her federal (RICO) claim because

      fs r d l t rcc s r x s e wt u de s fr s co s n ln
       ’ a e       i
Baumhat f u u n pa te aee tn i , i h n rd o t n a t n i o i
                          e v     h          a    i    vvg

bank and mail/wire fraud beyond the two sales to Plaintiff in June 2004. Through his

program, he sold millions of dollars worth of real estate to numerous investors

nationwide and national lenders provided financing for the sales. Plaintiff resided in New

 ok h n e er d d e n 0 4 e i e t t ee u d d y re t
             a                  n me ”
Y r w e h d f u e h ri 2 0 ;h r“ v s ns w r fn e b Ag n

Case 2:06-cv-11618-AJT-VMM          Document 142      Filed 01/17/2008    Page 4 of 15

  r g
   g    o ay
Mota e C mp n ,a C l ri b s d l d r (re ti a “ h l a ”l d r
                  af n
                   i a a e e e. Ag n s
                    o          n                 e e n
                                             w o s l e e,

providing money to local mortgage brokers; it is a subsidiary of Ameriquest Mortgage

Company, a substantial player in the sub-prime mortgage market. See Knox v

Ameriquest Mortgage, 2005 WL 1910927 (ND, CA 2005) for this background.)

       7.       iff a     w a    i
               lnis t e a lms e lae he
              Pa t ’ s t l c i rpc t t RICO claim in large part as the

h oie e e d n h se t l i u t c s f h e ea lm. lnis
                       a r     a               a    iff
te r s d p n o te e s ni c c ms n e o te fd rlc i Pa t ’

entitlement to relief under her state law claims is secondary, as the RICO claim affords

her comprehensive relief.

B.     The Two Sales to Plaintiff in 2004

       8.                      d    n me        i     iff
               ee d n B u at o w i e t tpo et s o lni n 0 4
              D fn a t a mh fs l to“ v s n” rp re t Pa t i 2 0 ,

which were finalized in June of that year. One was a house at 9250 Trinity; the other a

house at 15858 Robson. Baumhaft acquired the Trinity property for $43,500.00 and sold

it to Plaintiff for $84,500.00; he got the Robson property for $65,000.00 and sold it to

                                       x it H D ’ o B u at c u i
                                         b       s         ’
                                                           s    si n
Plaintiff for $125,500.00. See motion-e h i3( U 1 fr a mh f a q it na d

re-sale of the two properties in question.)

       9.            ’ dg
               a mh fs o i eio
              B u at h ln p r d for each was typically brief, as he did not get

i o rp r ni u eoe i f p d a s e o r i n /60 o
 l       y
te t po et u t j tb fr h “i e ”s l .H g tTit o 31 /4 fr
              l s         p
                        s l      e        ny

 4 ,0 .0 u iw s l a y a pa e ” n //4 o $ 45 00 ,h r e e o o
                r         s                        c     d
$ 35 00 b tt a a e d “p ri d o 350 fr 8 ,0 .0 tepi h s l t

                               /4 o $ 50 00 , e iw s a pa e ” t 1 55 00
Plaintiff. He got Robson on 6/20 fr 6 ,0 .0 y tt a “p ri d a $ 2 ,0 .0

 n /20 , h h a lnis uc a e r e S e t n
          c      iff          c       o
o 41 /4 w i w sPa t ’ p rh s pi . e moi -exhibit 5, which contains

h p ri l o e n a as a
      ss           ’     o e c rp r , h h ee i n o h rk r
                                   y   c      v
tea pa a d n i R h l n mefr a hpo et w i w r g e t tebo e.

       10.    Baumhaft brought the two deals to the same local mortgage broker,

Defendant Real Financial (Barry Rogow is its principal). Baumhaft and Real Financial

Case 2:06-cv-11618-AJT-VMM           Document 142        Filed 01/17/2008     Page 5 of 15

 odc  e ui s n h a
c n u td b s e s i te s me b ii ,w i w s te “o n Ga t b ii o
                            ud g h h a h L a i ” ud g n
                             ln    c               n    ln

                                              a  pe r g d a pa a --
                                                     a         s
Northwestern Highway in Southfield. Each saleh da“r-arn e ” p ri l done

in the name of Market Value Appraisal by appraiser Ronald Rahal -- and Baumhaft

 rv e h R h l p ri l o e l i c lw o n un a e to h e e,
   d         ”    ss         a a                    n
po i dte“ a a a pa a t R a Fn n i, h i tr g v it tel d r

 re t r g , o h o s e d d o a h f p d a . e
       g         a
Ag n Mota e frtel n n e e fre c “i e ”s l S emoi -exhibit 4
                                 p      e      o

(testimony of the mortgage broker, Barry Rogow) and motion-exhibit 5, which contains

materials from the files of the broker and/or closing agent.

       11.    Thus, these sales have common circumstances. First, the appraisals

     g h h a mh fs t i f p d pi r h n . h r s o i ue b u ti
         c           s lp     c                 s
throu hw i B u at e h “i e ” r eaep o y T eein d p t a o ths

very salient fact inasmuch as the named appraiser, Defendant Ronald Rahal, has filed

an affidavit so stating. It is in DE 126, exhibit 7 (attachment 8) in the instant matter. (He

 e  i a f v fn -i l me ti h
     mir i t
          d         vv
f das l af a io “o n o e n”nteChen Oakland County lawsuit, which

involved 8 sales by Baumhaft to Mr. & Mrs. Chen. That affidavit is in DE 1, exhibit 2, in

h a u . ui s , a a d c me td h a tho g a mh fs
 s w t  )   o y                s              ’
ti l s i C r u l R h l o u ne ti fc tru hB u at own lawyers,

who just happen to be his attorneys.

       12.    Second, Baumhaft arranged the appraisals, not the mortgage broker; he

 i o v n eoe lni a d te s h atu ri e t ”o e c rp r .
 d             if
d s e e b fr Pa t w si ni da tep rc l “ v s rfr a hpo et
                 f    e fi        i a n o              y

Baumhaft provided the appraisals to the mortgage broker, who processed them in order

to obtain funding for the transactions. Payment for the appraisals went to Baumhaft;

there is a canceled check from the title company (Defendant Exact Title) showing his

deposit of the appraisal fee (he signed the check).

       13.    Third, Baumhaft made false representations about the value of each

property –he set the value of each property -- and about the expected benefits of

Case 2:06-cv-11618-AJT-VMM          Document 142       Filed 01/17/2008       Page 6 of 15

n sn n i e l s e po rm.F ut Pa t ee n a mh fs r d l t
 v i      s
i e t gi h ra e tt “rga ” o r , lni rldo B u at f u u n
                a            h     f
                                 if i         ’ a e

 c . ih Pa t uf e c n mi n moi a iuy s e u f a mh f
  s   t   if
a t Sx , lni s f rde o o ca de t n ln r a ars lo B u at
            f e                 o    j        t       s


      14.                      d        n me        i     if
               ee d n B u at o h s w i e t tpo et s o lni y f
              D fn a t a mh fs l te eto“ v s n” rp re t Pa t b

using the Midwest Express Funding entity/name to do so. He signed deeds that

represented Midwest Express Funding as a limited liability company; yet there was and

is no such entity. (He did have a corporation under that name at the time but testified he

 lw d to e o
 l             oma tu i h U i ra H me ” a
ao e it b c med r n, s gte“ n es l o s n mea h “ei ” ni
                             v                s l n
                                            s i sl g e ty

in the recent past.) He has acknowledged using his personal tax identification number

o Mi s E pe s u d g ( iat n y e e o D c mb r 8 2 0 o t e ; s
    w             n      o   s t                     a    t
fr d e t x rs F n i .Hs t re ’l tr f e e e 1 , 0 7s s ts ii

motion-exhibit 6.) He has no tax records for his companies and does not maintain

records in the ordinary course of business. The record, thus, generally shows he

operates with disdain of particular legal form or substantive requirements.

Case 2:06-cv-11618-AJT-VMM         Document 142       Filed 01/17/2008    Page 7 of 15

      15.    The record to date supports this motion.3 Other supporting materials

accompany this motion. They are: exhibit 1 (excerpted testimony of Priscilla Matthews

 b u e ea c f a mh fs a e e rs nai s; x it
           i           ’  s
a o t h r rln e o B u at fl rpe e tt n ) e h i 2 (a mh f
                                    o       b    B u at s

 rmoi a maeis o h e l s e i e t tpo rm)e h i3 H D ’ o
    o      a     s      a n me              b       s
po t n l tr l fr i ra e tt “ v s n” rga ; x it ( U 1 fr

 a mh fs uc a es
B u at p rh s and later re-s l o tetopo et s s o i h wh “i e ”
                            a s fh w rp re , h wn o e f p d
                             e           i        g      p

them in short order at much higher prices); exhibit 4 (testimony of Barry Rogow, the

mortgage broker, who said he had nothing to do with getting the two appraisals, they

were pre-arranged); exhibit 5 (file materials of the broker/closing agent, including the

w R h l p ri l o h o s n n r i rp re uc a e y lni ;
       ”    ss               ny     i              iff
to“ a a a pa a frteR b o a dTit po et sp rh s db Pa t )

exhibit 6 (attorney letter of 12/18/07 stating Baumhaft used personal tax number for

Midwest Express Funding); exhibit 7 (appraisal values by Christopher McDonald

showing that properties sold by Baumhaft to investors were grossly over-valued); and,

 x it a pa a v l s y e rw z k o Pa t ’ w rp re h wn h y
   b      s
e h i8(p ri l a e b K nKa ca fr lnistopo et ss o i te
               u                  iff        i     g

were grossly overvalued by Baumhaft in 2004).

        In the instant lawsuit (Case No. 06-11618), Plaintiff incorporates by reference:
DE 1, Exhibit 1 (Schedules of real estate sales by Baumhaft); DE 1, Exhibit 2 (Affidavit
of Ronald Rahal, swearing no-involvement with the appraisals for the real estate sales
 o hw         h n h n y a mh f t a f.        l y a a i h h n ’ a l d o ny
t S o &C u C e b B u atIw s idb R h l teC e sO k n C u t   n                 a
lawsuit, Case No. 05-071132-CK); and DE 126, Exhibit 7 (attachment 8). Affidavit of
Ronald Rahal in the instant lawsuit swearing no-involvement with appraisals done for
the two real estate sales by Baumhaft to Priscilla Matthews.
        In the McGuffin collection matter against Baumhaft (Case No. 06-x-50135),
Plaintiff incorporates by reference: DE 38, Exhibit A (attachment 2) -- Summary of
  a mh fs n me D 8 E h i
           ’ c                     bs
B u at i o ; E 3 , x it B –E (attachments 3 - 6) -- B u at b n                   ’
                                                                         a mh f a k
deposit history (Universal Homes); DE 38, Exhibit I (attachment 10) -- 1/4/03 Jack Wolfe
kick-back memo for Baumhaft deals brought to Loan Giant; DE 38, Exhibit J
                        /40 FS e o ai re f o n i ’ i n e E 7
(attachment 11) -- 22 /6 O I rv c t n od ro L a Ga t le s ;D 5 ,    ns c
                                         tr l o c ri a mh fs e a s a e
                                            a            n
Exhibits 1-13 (attachments 2-14) -- Maeisc n en gB u at n w C s L k   ’
home acquired in May 2006 & manipulated transfers by him to conceal ownership; and
DE 57, Exhibits 1-9 (attachments 2-16) -- Added materials concerning the Cass Lake
home and related manipulated transfers by him to conceal ownership & to launder

Case 2:06-cv-11618-AJT-VMM             Document 142     Filed 01/17/2008     Page 8 of 15

       16.    As set forth in the Brief that follows this motion, Plaintiff is entitled to a

judgment of liability on her claims.

       WHEREFORE, Plaintiff prays the Court grant her motion.

                                                 s/ROBERT D. HORVATH (P27633)
                                                 Attorney for Plaintiff
                                                 2833 Crooks Rd., Ste. 104
                                                 Troy, MI 48084-4732
                                                 (248) 614-4770; fax (248) 822-3174
Dated: January 17, 2008

                                   BRIEF IN SUPPORT

A.     Factual Summary

                     u , ru d h h l lms e o e i a mh fs s f
                                c la       v          ’
       The primary iss e ao n w i a c i rv l ,sB u at u eo phony

 p ri l o e h e l s e i e t tpo et s o lni n 0 4 T e a d
    ss     ls       a n me          i     iff
a pa a t s l i ra e tt “ v s n” rp re t Pa t i 2 0 . h n me

appraisal (Ronald Rahal) says the appraisals are false; although they bear his name, he

says he had nothing to do with them.4 This basic fraud exists in his other sales;

Defendant Rahal filed an affidavit so stating in the Chen lawsuit.

       In addition, Christopher McDonald, a certified general appraiser and forensic

                                            a mh f y c rcc f ei
                                                  ’ pa
                                                  s       i      ln
consultant in the Chen lawsuit, documented B u at t i lpa te o s l g

         a mh fs e t n h o a a i u p c n t n e a s h r r u ru
                  ’ ao p                s               y
        B u at rl i s i t R h l s s e t o o lb c u eteeaen meo s
          s n a as a ’
appraisal i R h l n meb t l b c u ete h v tes mel y r. h c nlt
                               u a o ea s h y ae h a
                                   s                               w
                                                                  a es T e o f      ic
of interest is obvious. DeBiasi v Wayne County, 284 F Supp2d 760 (ED MI, 2003).
        Rahal has shown he is untruthful about Baumhaft. He falsely testified in this
                         t n w f a mh fu t      l cu l e k g ” Jl 0 2 0
lawsuit that he did no k o o B u at nia“o p w e sa o (u 1 , 0 7           y
deposition, pp 12-13), even though he had been served in the Chen lawsuit and filed an
  f v ae a u r 3 2 0 . ats nr hu a s ro b u a y tr la t
   i t
    d                                    y      u          i
af a id tdJ n ay2 , 0 6 A p r ’ u t tfl set na o t n maei fc                    a

Case 2:06-cv-11618-AJT-VMM         Document 142        Filed 01/17/2008     Page 9 of 15

 rp re i n a d a e . cod g o D n ls v l t n f rp re
     i   h ft
po et s wt i l e v l s A c ri t Mc o a ’ e a ai o 5 po et s
                   u        n         d     u o         i

Baumhaft sold to the Chens, there was fraud totaling $290,600.00 based on their actual

                                             . Mc o a ’ t e ns f a e o
                                                     d  a         u
appraised values as opposed their sale prices ( D n lss tme t o v l fr

those 5 properties in the Chen litigation are attached and incorporated by reference.)

      Those properties are: 14025 Pfent, Detroit, sold for $70,000.00; true appraised

value of $20,000 – a discrepancy of $50,000.00; 6185 Huber, Detroit, sold for

$62,000.00; true appraised value of $1,800.00 –a discrepancy of $60,200.00; 19158

Marx, Detroit, sold for $88,000.00; true appraised value of $35,900 –a discrepancy of

$52,100.00; 14830 Kentfield, Detroit, sold for $100,000.00; true appraised value of

$32,800.00 –a discrepancy of $67,200.00; and, 20745 Wakedon, Southfield, sold for

$150,000.00; true appraised value of $88,900.00 –a discrepancy of $61,100.00.

       lnis oe s o s l n, e rw z k i a y o u ne
        iff      c      t                mir
      Pa t ’ frn i c n u a t K n Ka ca ,s l l d c me td her two

properties were overvalued. He appraised her two properties at $60,000.00 (Robson –

sold for $125,500.00) and $35,000.00 (Trinity –sold for $84,500.00) when Baumhaft

 o h m o e i 0 4 T e i rp n y n a e n lnis w rp re
  d                   s           u     iff        i
s l te t h rn2 0 . h d ce a c i v l o Pa t ’ topo et sdue to

 a mh fs r d teeoe a u t t 1 50 00 .
       ’ a
B u at f u ,h rfr, mo ns o$ 1 ,0 .0

       h s t s n i ue h t h w
                  s               p ri l o h s w i e t t
                                     ss            n me
      T u ,i i u d p td ta te to a pa a frte e to “ v s n”

properties were fakes and that they were inflated. It is also undisputed that Baumhaft

arranged/produced the appraisals before the deals were sent to the mortgage broker for

processing. (The broker, Barry Rogow of Real Finanical, so testified..)

is, in itself, evidence of culpability. Reeves v Sanderson, 530 US 133, 120 SCt 2097,
2108, 147 LEd 2d 105 (2000).

Case 2:06-cv-11618-AJT-VMM         Document 142        Filed 01/17/2008     Page 10 of 15

       The records of the title company show that the appraisal fees went back to

Baumhaft, including one check from Exact Title he personally signed and deposited into

his business account (Midwest Express Funding).

       Thus, for purposes of this motion, it is established that the appraisals were false,

n a d n s d y a mh ft e h w i e t t po et s o lni Hs
 ft                     l     n me        i     iff
i l e a du e b B u atos lteto“ v s n” rp re t Pa t . i

false representations of value and authenticity defrauded Plaintiff (and the lender) and

the transactions were carried out by bank, mail and wire fraud as a matter of course. In

addition, the Court in its December 13, 2007 order for sanctions (DE 137) established

an adverse inference against Baumhaft as a result of his discovery violations.

Consequently, the record and procedural posture of this case warrants the relief

requested in this motion.

B.     The RICO claim (Count I)

       For the RICO claim, the essential elements of an enterprise, structure, common

purpose and de minimus interstate commerce impact are established. U. S. v Johnson,

440 F3d 832 (6th Cir. 2006).

        h e l s e c e u s t h d o lnis o ln l t t h e ea
               a       e
       T era e tt sh d l atc e t Pa t ’ c mp i i s aeteg n rl
                           a       iff          u
                                            a tl r

scope of the enterprise, with details for some of its other transactions (vendor & vendee

names, sale prices and dates of sale). These schedules show the basic circumstances

 fh nepi ’ r y cvy i.e.B u at po et l i ” c e
         s s ma    it          ’
                               s     yi n
o tee trr e pi r a ti, , a mh f “rp r -f p g sh me–buying

low and selling high in a short period of time. (As noted in footnote 1, supra, Baumhaft

summarized his investment program in the Wysaski mortgage fraud lawsuit; Wysaski is

an Illinois resident.)

Case 2:06-cv-11618-AJT-VMM         Document 142       Filed 01/17/2008     Page 11 of 15

       This activity involves national financial institutions (including HUD and Fannie

Mae) with millions of dollars worth of transactions, with resulting effect on interstate

commerce. (Bank records of Midwest Express Funding and Universal Homes show over

10 million dollars worth of transactions for just 2005 and 2006, with over 20 million-

 oas ot i e a 0 2) lnis w a s n l d r g s n xe s f
  l     h n
d lr w r s c l e2 0 . Pa t ’ to s l i o e mota e i e c s o
              t         iff       e vv      g

$200,000.00 funded by Argent Mortgage, a national lender whose principal office is in


       Baumhaft conducts the enterprise and others (individuals and companies)

participate in it and/or conspire with him, which makes it actionable under 18 USC §§

1962(c) and (d). This RICO activity is also actionable under 18 USC §§ 1962(a) and (b).

U. S. v Turkette, 452 US 576, 584-85, 101 S Ct 2524, 2529, 69 L.Ed.2d 246 (1981).

 a mh fs e v s
       ’ n me t f IO rc e s n h nepi r h rh n n i c
                             t        s a        t r
B u at ri e t n o RC po e d i otee trr e( te ta i od e t

personal assets) magnified the enterprise and increased his interest in and control of it.

Whaley v Auto Club Insurance Association, 891 F Supp 1237 (ED MI 1995).5

       There have been multiple predicate acts over the last four years, apart from the

two specific sales to Plaintiff, forming a pattern of racketeering with a clear nexus

between them and the enterprise, which harmed Plaintiff. This satisfies the general

elements of 18 USC § 1962 for RICO liability. McClain v Coverdell & Co., 272 F Supp

 3, 3       E     0 3. i
6 1 6 7 n 4 (D MI2 0 ) Gv n te so e a d ma n u e te e trr e
                         e h i cp n
                              r             t            ss
                                          g i d , h nepi ’

      Which furthered concealment of assets from his creditors. Baumhaft has
numerous judgment creditors, including the South Carolina bankruptcy trustee, Stanley
McGuffin as reflected in Case No. 06-x-50135, a collection matter in this Court. There is
also an adversary judgment against Baumhaft in his own bankruptcy estate. See U. S.
Bankruptcy Court, ED MI, Case No. 99-5501, Adv. No. 00-4425; judgment (DE 55) of
$140,431.98 for which there is a recent declaration by the court officer (DE 74) of seized
cash from Baumhaft at his Cass Lake home on 7/5/07 in the amount of $5,000.00.
Bankruptcy fraud is a RICO predicate.

Case 2:06-cv-11618-AJT-VMM         Document 142       Filed 01/17/2008     Page 12 of 15

fraudulent and illegal practices pose a special threat to social well-being and are

particularly subject to RICO liability. Menasco, Inc. v Wasserman, 886 F2d 681, 683-84

(4th Cir. 1989). (The number of lawsuits against Baumhaft brought by defrauded

investors further demonstrates the scope of the problem. See infra.)

      Plaintiff suffered economic injury in her two transactions. She was induced to

 uc a e w  rp re , h h h
p rh s to po et s w i s e w u n t h v , b s d o B u at
                    c        d
                           o l o ae ae                 ’
                                               n a mh fs

misrepresentations as to value/ownership and the other (falsely) promised benefits.

McClain v Coverdell & Co., supra at 637-638. She received significantly undervalued

properties in direct contrast to the false value set forth in the purchase prices and she

was denied other promised economic benefits.

      Federal and state lawsuits by investors who were similarly swindled by Baumhaft

include Frank Wysaski v Baumhaft, et al, case no. 06-12283 (Hon. Denise Page Hood),

Kevin Cody v Baumhaft, et al, 07-080901-CZ (Oakland County Circuit Court), Denise

Thomas v Mike Baumhaft et al, 06-074285-CK (Oakland County Circuit Court) and

Chun & Show Chen v Mike Baumhaft, et al, 05-071132-CK (Oakland County Circuit

Court,). These investors were defrauded by common false claims about the authenticity

of appraisals and/or value (e.g., built-in 10% equity), with common promises about post-

sale benefits/activities (e.g., Baumhaft would arrange for tenants, manage the property

or make payments if tenants were not placed, including promises about the eventual re-

sale of the property for the purchaser/investor i.e., Baumhaft would arrange with a

lender to qualify tenants for a later sale). There is also the common, yet individualized,

fraud in each sale due to a bogus appraisal, which varied by amount. These falsehoods

were carried out by bank, mail or wire fraud as a matter of course.

Case 2:06-cv-11618-AJT-VMM          Document 142        Filed 01/17/2008      Page 13 of 15

C.     State Fraud Claim (Count II)

       The elements of common law fraud are: (1) a material representation; (2) the

representation was false; (3) at the time of making the representation, the defendant

knew that it was false, or made it recklessly, without any knowledge of its truth, and as a

positive assertion; (4) the defendant made it with the intention that it should be acted

upon by plaintiff; (5) the plaintiff acted in reliance upon it; and (6) the plaintiff thereby

suffered injury. Hi-Way Motor Co. v. Int'l Harvester Co., 398 Mich. 330, 336, 247 N.W.2d

813, 816 (1976).

       These elements exist in the case at bar, as shown by the discussion for the

RICO claim. Baumhaft made numerous representations about value and benefits from

his investment program. They were false. Plaintiff relied upon them, as he knew she

 o l lni uf e c n mi n moi a n r s
   d   iff e
w u .Pa t s f rd e o o c a d e t n liuy a a rs l o B u at
                                o    j         t        ’
                                            e u f a mh fs


D.     Negligence (Count III)

        h lm s i u s d s n l rai o o e a y ru n ta B u at
         s a      s          t    v
       T i c i i d c se a a a en tet c v r n ag me th t a mh fs

conduct was other than intentional. The proofs, including the negative inference created

 y h o rs e e e 1 , 0 7 re, k t l rh t e c
        ’                         e         e y eb rt
b teC ut D c mb r 3 2 0 od rma eic a ta h a tdb ad leae

 l . ts h rfr, et n h t i s n u t a u ra o a l a h lm
 a     ,
p n I i teeoe c r i ta h mi o d c w s“ne s n b ”(sti c i
                 a      s  c                  e    s a

requires) inasmuch as his conduct was actually more egregious, being intentional

and/or malicious.

       The tort of negligent misrepresentation imposes liability when a defendant: (1)

acts in the course of his business, profession, or employment, or in a transaction in

which he has a pecuniary (as opposed to gratuitous) interest; and (2) supplies faulty

Case 2:06-cv-11618-AJT-VMM         Document 142        Filed 01/17/2008     Page 14 of 15

information meant to guide others in their business transaction; and (3) fails to exercise

reasonable care in obtaining or communicating the information; and (4) the plaintiff

justifiably relies on the information. Menuskin v Willams, 145 F3d 755, 763 (6th


        ic h v e c uy u p r
       Sn e te e i n e fl s p ot Pa t ’ i e t n l
                        l          iff   t o -harm theories, this
                               s lnis n ni a

negligence claim is unnecessary or redundant; but the elements exist as a sub-set of

 a mh fs s
       ’  c
B u at mi onduct.

E.     MUSA (Michigan Uniform Securities Act) (Count V)

       MUSA is broadly construed to effectuate its purpose, which is the protection of

the investing public. People v Dempster, 396 Mich 700, 704 (1976). MUSA generally

prohibits any deceitful or fraudulent practice, MLC 451.501.

        h se t le tr f s c ri ” a o en d y h c i h u l
                a              te    e                       i
       T e e s ni faue o a “e ui s s l g v re b te A tste p bc

solicitation of venture capital for a business enterprise. Prince v. Heritage Oil Co., 109

 c A p 1 9 1 8 1 8 ) B u ht oce i e t s nationwide to participate in
  h                          it n o
Mi .p . 8 , 9 (9 1. a ma fs li d“ v s r”

his real estate program and promised to manage the investments for their benefit.

                      8  c p , 5 1 7 )H
                          h                ree i po rm” s
People v Breckenridge, 1Mi A p6 1 (9 8. emak tdh “rga a a

security and it is governed by MUSA.

        ic a mh fs n s
                 ’ v me t po rm”s u j to
                                    e      S ,h r r ai s
       Sn eB u at i e t n “rga i s b c t MU A teeaev r u

statutory violations. One is the failure to register his investment program with the State,

MCL 451.810(a)(1); another arises from the various deceptions described above, MCL.

451.810(a)(2). See also Nord v Claxton, Morgan, Flockhart & Vanliere, 186 Mich App

333, 337-338 (1990).

Case 2:06-cv-11618-AJT-VMM        Document 142       Filed 01/17/2008     Page 15 of 15

      Given the nature of the protections afforded by MUSA and its broad definition of

   e ui, a mh f e l s e rga
       t       ’
               s     a
a s c ry B u at ra e tt po rm – marketed to people nationwide -- is

governed by the statute and he is liable for the violations described above. As noted,

h ee i e u d n t lnis te c i n s rs ne ee o e n t t
 s i              iff       a                          r
ti rlfsrd n a toPa t ’ oh r lmsa di pe e tdh r t d mo s ae

that Plaintiff could recover against Baumhaft on a number of bases, although her RICO

claim affords the most comprehensive outcome.

                                               s/ROBERT D. HORVATH (P27633)
                                               Attorney for Plaintiff
                                               2833 Crooks Rd., Ste. 104
                                               Troy, MI 48084-4732
                                               (248) 614-4770; fax (248) 822-3174
Dated: January 17, 2008

                                PROOF OF SERVICE

      The undersigned certifies that on the aforementioned date this motion was
      electronically filed with the Clerk of the Court using the ECF system, which
      will send notification of such filing to defense counsel.
                                    s/Robert D. Horvath


Shared By: