Third Circuit Court dismisses FDCPA, RICO Act claims in mortgage lawsuit

By Nicholas Malfitano | May 20, 2016

PHILADELPHIA – On May 5, the U.S. Court of Appeals for the Third Circuit upheld a trial court verdict which dismissed claims filed under the Fair Debt Collection Practices Act (FDCPA), Racketeer Influenced Corrupt Organization (RICO) Act, and declined to exercise supplemental jurisdiction over state law claims.

Judges Joseph A. Greenaway Jr., Thomas I. Vanaskie and Patty Shwartz ruled to affirm a decision from the U.S. District Court for the Western District of Pennsylvania, dismissing the aforementioned charges filed by Anthony and Alexander Hlista versus Safeguard Properties, LLC, John Bradley Duvall, Essential Services, Inc., Mitchell Home Services and Jeff Riems. Shwartz authored the Court’s opinion in this matter.

The Hlistas sued several entities and individuals operating in the property preservation and security business, alleging their actions at the Hlistas’ home in Bethel Park violated FDCPA, RICO and state law.

In August 2007, the Hlistas purchased their home secured by a mortgage serviced by Seterus. Shwartz stated the Hlistas alleged the property was “never subject to foreclosure”, and there was “no allegation in the pleadings that they defaulted on the loan.”

“From December 2011 to December 2012, the Hlistas temporarily lived in South Carolina. During that time, Mrs. Hlista’s parents maintained the property,” Shwartz explained.

The Hlistas allege the defendants broke into their Pennsylvania home four times throughout the course of 2012, and committing such acts as nailing the windows shut and installing a Seterus-branded lockbox and doorknob on the back door.

The Hlistas sued the defendants for allegedly violating the FDCPA, RICO and state law claims. In response, the defendants collectively motioned for judgment on the pleadings through Rule 12(c) of the Federal Rules of Civil Procedure.

The District Court decided in March the defendants “were not debt collectors” and hence not liable under the FDCPA, that the plaintiffs “failed to plausibly plead a RICO claim” and “declined to exercise supplemental jurisdiction over the remaining state law claims.” The Hlistas appealed the trial court’s ruling.

“The FDCPA addresses abusive, deceptive, and unfair debt collection practices by debt collectors…and ‘provides a remedy for consumers’ aggrieved by such practices. A threshold requirement of the FDCPA is that the prohibited practices are used in an attempt to collect a debt,” Shwartz said.

As the Hlistas did not acknowledge any existence of a debt or that the defendants allegedly broke into their home to collect a debt, Shwartz said the defendants’ supposed conduct falls outside the boundaries of the FDCPA.

“As a result, the FDCPA does not apply. Accordingly, the District Court properly granted Defendants’ Rule 12(c) motions on the FDCPA claim,” Shwartz said.

With respect to the Hlistas’ claim of RICO conspiracy violation on the part of the defendants (minus Mitchell), Shwartz indicated they also failed to properly allege a plausible claim on this count.

“A plaintiff bringing a substantive RICO claim under Section 1962(c) must allege conduct of an enterprise through a pattern of racketeering activity,” Shwartz said.

In order to establish a pattern, a defendant must commit at least two predicate acts, such as mail fraud and wire fraud, over a 10-year period. Per Rule 9(b) of the Federal Rules of Civil Procedure, the burden of proof associated with these acts is held to a “heightened pleading standard.”

The Hlistas claimed the defendants in question violated RICO by committing mail and/or wire fraud to further a scheme designed to break into the Hlistas’ and others’ homes, but Shwartz said these allegations “fail to set forth any information that supports an inference that any defendant attempted to mislead or deceive the Hlistas or any other person.”

“Because the Hlistas fail to allege facts from which a scheme to defraud may be inferred, they fail to state a claim under Section 1962(c), and the District Court properly granted judgment on the pleadings in favor of Essential, Duvall, and Riems on the substantive RICO claim,” Shwartz said.

“For the same reasons, the Hlistas’ RICO conspiracy claim against Safeguard was appropriately dismissed. As stated previously, when the pleadings do not state a substantive RICO claim, the RICO conspiracy claim must fail,” Shwartz clarified. “Because the third amended complaint fails to state a substantive RICO claim under Section 1962(c), the District Court properly granted judgment on the pleadings in favor of Safeguard on the RICO conspiracy claim.”

Shwartz noted because the Hlistas had already been provided several opportunities to amend their claim previously, they would not be provided another one in the interest of judicial economy.

The appellants are represented by Michael P. Malakoff in Pittsburgh.

The appellees are represented by Markus E. Apelis of Gallagher Sharp and Brian C. Lee of Reminger Co. LPA, both in Cleveland, plus William D. Clifford and Ashley E. Sharek of Dickie McCamey & Chilcote, also in Pittsburgh.

U.S. Court of Appeals for the Third Circuit case 15-1812

U.S. District Court for the Western District of Pennsylvania case 2:13-cv-00835

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at

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