A title insurer sued a company and two associates after an alleged fraudulent diversion of more than $2 million from the insurer’s escrow account to the company. A couple allegedly assisted in diverting the funds. The company and couple moved to dismiss the wife and two counts from the complaint.
The case is Fidelity National Title Insurance Co. v. APM Management Service’s LLC, et al. (U.S. District Court for the Eastern District of Missouri, No. 4:22-cv-01391-JAR).
On Dec. 8, 2022, Fidelity National Title Insurance Co. received an email it believed to be from a client’s counsel requesting release of escrow funds. It received a second email purportedly from the same source on Dec. 12, 2022, providing written instructions on how to release the funds. The emails were from an unknown John Doe, whom Fidelity believed was an APM Management Service’s LLC associate. The instructions directed Fidelity to wire the funds to an account in APM’s name with Bank of America. Associates of APM, including Richard and Sarah Appelbaum, created a fraudulent wire confirmation purporting to show that the funds had been wired to an account at JPMorgan Chase Bank. The client contacted Fidelity to inform it that it did not receive the escrow funds. After reviewing the fraudulent wire instructions, the client told Fidelity the instructions were fraudulent.
On Dec. 13, 2022, Richard Appelbaum traveled from St. Louis to Chicago to transfer funds from the Bank of America account into several other accounts in the name of the Appelbaums. APM actors then dissipated those funds further by transferring them into cryptocurrency exchanges. Fidelity alleges that Richard Appelbaum is responsible for the majority of the transfers, though he and Sarah Appelbaum share responsibility for at least four transfers over $5,000. The Appelbaums also spent the escrow funds on cars, trips, jewelry, clothes, and restaurants. Sarah Appelbaum also used some of the funds to pay a mortgage on her home.
Fidelity argued that the Appelbaums associated with an organized crime enterprise consisting of APM actors. These actors directly and indirectly participated in wire fraud, bank fraud, money laundering, transportation of stolen money, and the sale or receipt of stolen money. It argued the actions underlying these violations constitute a pattern of racketeering activity.
Fidelity filed a first amended complaint on Feb. 10, 2023. In it, Fidelity brings 10 counts against all the defendants: (i) violations of the Computer Fraud and Abuse Act; (ii) violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”); (iii) fraud; (iv) conversion; (v) unjust enrichment; (vi) assumpsit; (vii) civil conspiracy; (viii) constructive trust and equitable lien against all defendants; (ix) constructive trust and equitable lien against Sarah Appelbaum; (x) request for injunction.
The defendants moved to dismiss the claims against Sarah Appelbaum and to dismiss Count II and VII of the first amended complaint.
U.S. District Judge John Ross denied the motion to dismiss Sarah Appelbaum. It granted in part and denied in part the motion to dismiss Counts II and VII.
Addressing Fidelity’s claim for constructive trust against Sarah Appelbaum, Ross stated, “Fidelity’s claim for a constructive trust is predicated on defendants defrauding Fidelity to access the escrow funds, which Fidelity alleges Mrs. Appelbaum used to pay the mortgage on Lot 198. (ECF No. 76 at para. 92). The court therefore finds that Rule 9(b)’s particularity requirements apply to Fidelity’s claim for a constructive trust. Nevertheless, at this early stage of the litigation, the court finds that Fidelity’s allegation that Sarah Appelbaum paid the mortgage with funds she obtained fraudulently is sufficient to support their claim for a constructive trust. The court will therefore deny the motion to dismiss Count IX of Fidelity’s FAC.”
Turning to the claims against Sarah Appelbaum generally, Ross noted, “Fidelity alleges that ‘APM actors, in concert with John Does 1-99’ funneled the escrow funds into numerous accounts and cryptocurrency exchanges. Further in the FAC, Fidelity specifies that Richard Appelbaum is responsible for ‘the majority’ of these transfers, although Sarah Appelbaum is also responsible for at least four of the transfers greater than $5,000. Fidelity alleges that Sarah Appelbaum and APM specifically transferred the escrow funds to John Does 1-99, and spent the funds on cars, trips, jewelry, clothes, and restaurants. The defendants argue that the reference to ‘APM actors’ is insufficiently vague as to Sarah Appelbaum. The court, however, finds that the FAC sufficiently pleads Sarah Appelbaum’s involvement in the fraud to put her on notice of the allegations against her. That is, Fidelity alleges that she assisted Richard Appelbaum and APM in dissipating the escrow funds to conceal the fact that they were obtained illegally. Fidelity’s reference to ‘APM actors’ is sufficiently particular under Rule 9(b), and the court will not dismiss the claims against Sarah Appelbaum on this basis.”
The defendants also argued that the FAC failed to allege Sarah Appelbaum’s knowledge or intent, as required to prove fraud.
“Fidelity alleges that the ‘APM actors’ knew that the property transferred to various bank accounts and cryptocurrency exchanges was stolen, converted, or taken by fraud,” Ross stated. “It also alleges that Sarah Appelbaum participated in transferring the escrow funds, and that the transfers were made ‘for the purpose of concealing the fact’ that the escrow funds were illegal obtained. Fidelity defines the ‘APM actors’ as including Sarah Appelbaum, and thus, alleges that she acted with the fraudulent knowledge and intent applied to all APM actors. The court can infer from Fidelity’s allegations that Sarah Appelbaum participated in dissipating the escrow funds, that the dissipation of the escrow funds was designed to conceal their illegal origin, and that Sarah Appelbaum acted with the requisite knowledge and intent for fraud. Thus, the court denies the defendants’ motion to dismiss Sarah Appelbaum on this basis.”
The defendants sought to dismiss Count II, the RICO claim, because Fidelity failed to allege sufficient continuity. Fidelity conceded that it did not allege closed-ended continuity but stated that it sufficiently alleged open-ended continuity. It said that while the initial act of wire fraud was singular, APM and the Appelbaums continued to violate money-laundering and transportation of stolen money statutes.
“ Fidelity alleges that defendants engaged in the following predicate acts: (i) wire fraud, when the defendants caused Fidelity to transmit the escrow funds by means of false pretenses by means of a wire communication; (ii) bank fraud, when the defendants obtained the escrow funds under the control of a bank by means of false pretenses; (iii) money laundering, when the defendants conducted transactions involving the escrow funds in order to disguise that the defendants obtained the proceeds by wire and bank fraud; (iv) transportation of stolen monies, by transferring the escrow funds; and (v) sale or receipt of stolen monies, by receiving the escrow funds,” Ross stated. “The court holds that Fidelity’s allegations regarding wire fraud and bank fraud do not support finding open-ended continuity. These predicate acts pertain only to Fidelity, were designed to obtain the escrow funds, and concluded with receipt of the escrow funds.
“Although money laundering, transportation of stolen monies, and receipt of stolen monies may lend themselves to supporting open-ended continuity in the abstract, the court finds that Fidelity failed to allege open-ended continuity through these predicate acts,” he continued. “Fidelity alleges that APM, Richard Appelbaum, and Sarah Appelbaum ‘squandered’ the escrow funds through lavish spending. Further, Fidelity contends that the ‘vast majority’ of the escrow funds have dissipated. Id. at para. 41. These allegations indicate that defendants’ laundering, transferring, and receipt of the escrow funds has concluded. Fidelity is correct that the ‘fortuitous interruption’ of racketeering activity does not disrupt open-ended continuity. Nevertheless, Fidelity does not allege that APM, Richard Appelbaum, and Sarah Appelbaum ended the dissipation of the escrow funds because they were caught. Rather, Fidelity alleges that the majority of the funds were dissipated prior to their identification and freezing, thus concluding the fraudulent activity. Based on these pleadings, the court holds that Fidelity has, at this point, failed to sufficiently allege open-ended continuity to support its RICO claim. As Fidelity has continued to discover new information about the scope and extent of the fraud, the court will dismiss without prejudice Count II of Fidelity’s FAC.”
Because Ross did not dismiss Sarah Appelbaum from the case, he denied the defendants’ motion to dismiss Count VII, the civil conspiracy claim.