A Chicago federal judge has dismissed racketeering charges against a handful of defendants accused in a wide-ranging $25-million lawsuit of swindling commercial real estate investors by inflating the appraisals of hotel and motel properties, offering loans to investors based on the exaggerated appraisal, and, when the hotel or motel failed, seizing the property to sell at “extortionate prices.”

U.S. District Judge Matthew F. Kennelly ruled the suit brought by Delaware Motel Associates, Independence Management Associates, C. Patel Co., Turkey Foot Lake Road Land Holdings, Champakbhai N. Patel and Jashvanti C. Patel failed to give the specific examples and detailed information required to sustain charges of racketeering against certain of the defendants they named in their action.

The decision did not address the allegations against the remaining defendants.

The eight-count, $25 million suit alleges defendants spent more than 10 years on the purported scheme.

Kennelly noted that the suit does not include a single specific example of a property with an inflated appraised value, though it alleges the scheme was going on from 2003 until 2014.

In order to state a claim under the Racketeer Influenced and Corrupt Organizations Act, a plaintiff must offer sufficient facts to support an argument that an enterprise’s conduct demonstrates a pattern of racketeering activity. Kennelly broke down the four elements required by the law and found the plaintiffs were lacking in every one.

“To state a claim based on allegations of fraud, a complaint ‘must provide the who, what, when, where, and how’ of the fraudulent conduct,” Kennelly wrote. He noted that “apart from general assertions” that the criminal activity was taking place, the lawsuit does not give any particulars of any single instance of fraud.

Original defendants in the case are Capital Crossing Servicing Company LLC, Capital Crossing Holdings LLC, Advanced Appraisal Group Inc., Advanced Appraisal Consultants Inc., Advanced Appraisal Consultants LLC, William Daddono, Wolin & Rosen Ltd., SmithAmundsen LLC, The State Bank of Texas, Chandrakant Patel, Hiren Patel, Edward Fitzgerald, Phoenix NPL LLC, Phoenix REO LLC, Tarrant Capital Advisors Inc., TPG Global LLC, TPG Capital LP, TPG Group Holdings (SBS) Advisors Inc., TPG Specialty Lending Inc., TPG Opportunities Partners LP, Nicholas Lazares, Richard Wayne, David Bonderman and James G. Coulter.

Kennelly granted a motion to dismiss on behalf of Wolin & Rosen, The State Bank of Texas, Chandrakant Patel, and the people and entities related to TPG Capital, including all the TPG companies, Capital Crossing companies, Phoenix companies, Bonderman and Coulter. The court noted Lazares and Wayne have filed a separate motion for summary judgment that has yet to be fully briefed. The court’s judgment did not affect the claims against Fitzgerald, Hiren Patel, Daddono, the Advanced Appraisal companies or SmithAmundsen.

Breaking down the claims under federal racketeering law, Kennelly wrote that the plaintiffs made no allegations and offered no evidence that the defendants worked together; that they managed or operated the alleged operation; or that they committed actions such as fraud that fall within the legal definition of racketeering activity. Failure to satisfy even one of these criteria is grounds for dismissal, he wrote. The court found the same holes in the plaintiffs’ arguments also invalidated their claims under state law, and the failure to demonstrate fraud also knocked the legs out of claims for unjust enrichment and quantum meruit.

The plaintiffs also made tort claims of intentional interference with a contract and intentional interference with prospective economic advantage without actually producing any contracts or evidence of prospective business relationships soured by the alleged scheme.

The lawsuit was filed on behalf of the plaintiffs by attorney Paul Caghan.

Defendants are represented by the firms of Goodwin Procter LLP, of Boston; Riemer & Braunstein LLP, of Boston and Chicago; Chapman & Cutler, of Chicago; Katten & Temple LLP, of Chicago; Donohue Brown Mathewson & Smyth, of Chicago; and attorney Laurie Ann Silvestri, of Chicago.

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Organizations in this Story

Chapman and Cutler LLP
111 W Monroe St
Chicago, IL - 60603

Riemer and Braunstein LLP
71 South Wacker Drive Suite 3515
Chicago, IL - 60606

U.S. District Court for the Northern District of Illinois
219 S Dearborn St
Chicago, IL - 60604

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