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Case 2:06-cv-11618-AJT-VMM Document 142 Filed 01/17/2008 Page 1 of 15
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
PRISCILLA MATTHEWS Case No. 06-11618
Hon. Arthur J. Tarnow
Mag. Judge Virginia M. Morgan
Plaintiff,
vs
MICHAEL BAUMHAFT, et al,
Defendants.
_____________________________________/
ROBERT D. HORVATH (P27633)
Counsel for Plaintiff
2833 Crooks Road, Suite 104
Troy, MI 48084
(248) 614-4770; fax (248) 822-3174
Rdhjdlo@aol.com
____________________________________/
L ITF ’ TO
P AN IFSMO I N&BRIEF FOR SUMMARY JUDGMENT
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
1
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. ”
1
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
s
“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
y
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
l
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
occur.
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
ii
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.
2
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
2
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
b
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
properties.
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
3
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
o
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
t
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
s
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
4
Case 2:06-cv-11618-AJT-VMM Document 142 Filed 01/17/2008 Page 5 of 15
odc e ui s n h a
n
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
l
p e o
tn
(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
il
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
5
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
’
misconduct.
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
n
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
t
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.
6
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
l
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).
3
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
e
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 ’
s
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
o
(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
money.
7
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
Rdhjdlo@aol.com
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
4
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
e
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
8
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).
9
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
p
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.)
10
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
California.
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 ’
5
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.
11
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
i
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.
12
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
misrepresentations.
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
i
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
13
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
Cir.1998)
ic h v e c uy u p r
d
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
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
o
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).
14
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
Rdhjdlo@aol.com
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
15
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