## Facts

- Individual homebuyers, primarily low-income minority purchasers on Long Island, sued developers, brokers, originating lenders, and secondary-market purchasers of their mortgage notes in a putative class action.
- Plaintiffs alleged a coordinated scheme in which homes were marketed and sold to minority buyers at grossly inflated values using false appraisals and misrepresentations about value, condition, and affordability.
- Originating lenders allegedly funded purchase-money mortgages on predatory terms and then sold the notes to institutional purchasers on the secondary market.
- Plaintiffs asserted that some current noteholders were unjustly enriched by overvalued notes and allegedly knew or should have known the loans were fraudulently originated.
- The action pleaded federal civil-rights and fair-housing claims, fraud-based RICO theories, and multiple state-law and common-law claims.
- After prior motion practice and an earlier order identifying pleading defects, plaintiffs filed a renewed Rule 15(a) motion for leave to amend; the court evaluated whether the proposed amendments would be futile.

## Issues

1. Whether the proposed amended complaint would be futile because it would not survive a motion to dismiss under Rule 12(b)(6).
2. Whether proposed RICO claims predicated on mail and wire fraud satisfied Rule 9(b) particularity requirements.
3. Whether a relaxed Rule 9(b) standard could apply under the “Wexner” doctrine where details were allegedly within defendants’ control.
4. Whether proposed allegations stated plausible claims against secondary-market purchasers/current lenders despite asserted holder-in-due-course protections.
5. Whether proposed amendments adequately tied each defendant to intentional discrimination or actionable conduct under federal civil-rights statutes and the Fair Housing Act.

## Decision

- The court denied plaintiffs’ renewed motion for leave to amend as proposed, finding the amendments futile to the extent they still failed to plead required elements and, for fraud-based theories, particularity.
- The court held it could not determine on the proffered materials whether the “Wexner” relaxed-pleading approach applied to any portion of the RICO allegations and did not accept it as a blanket cure for deficient fraud pleading.
- As to various secondary-market/current lender defendants, the proposed allegations did not plausibly plead notice, knowledge, or participation in the alleged fraud and were therefore futile.
- For certain civil-rights and fair-housing claims, the proposed amendments remained insufficient where they did not connect particular non-developer defendants to discriminatory intent, discriminatory decision-making, or an actionable conspiracy.
- The court provided guidance and indicated that a further, limited attempt to replead might be possible only for those claims/defendants where revised allegations could cure identified defects, while treating other claims/defendants as not salvageable by amendment.

## Legal Principles

- Leave to amend under Rule 15(a) may be denied for futility when the proposed pleading would not withstand dismissal under Rule 12(b)(6).
- Fraud-based RICO predicate acts (mail/wire fraud) must satisfy Rule 9(b) by pleading the circumstances of fraud with specificity (including the content, speaker, and context of the alleged misrepresentations).
- A plaintiff cannot rely on generalized assertions that information is in defendants’ possession to avoid Rule 9(b); any relaxation depends on a sufficient factual basis showing why details are inaccessible and how the fraud occurred.
- Claims against secondary-market purchasers require plausible factual allegations that the purchaser took with notice of fraud or otherwise participated in wrongdoing; conclusory allegations of “should have known” are insufficient.
- Civil-rights and fair-housing claims require defendant-specific factual allegations supporting discriminatory intent or actionable discriminatory conduct; disparate impact allegations untethered to a defendant’s conduct are inadequate.

## Conclusion

The court denied the renewed request to amend because the proposed pleading still failed, in key respects, to state plausible, defendant-specific claims and to plead fraud-based theories with Rule 9(b) particularity; it narrowed the case by signaling that only limited repleading might be permitted where concrete additional facts could cure identified defects.


Wilson v. Toussie, 260 F. Supp. 2d 530 (E.D.N.Y. 2003)