RICO Claims Against|Banks Face Tough Slog

OAKLAND, Calif. (CN) — A federal judge questioned whether the relationship between Wells Fargo and its subsidiary forms a sufficient basis for racketeering claims in a case accusing the bank of charging inflated fees and interest rates to homebuyers in default.

Lead plaintiff Latara Bias filed the Racketeer Influenced and Corrupt Organizations Act — commonly known as RICO — class action against Wells Fargo and JPMorgan Chase in 2012, claiming the banks use an automated mortgage-loan management system to "fraudulently conceal their unlawful assessment of improperly marked-up or unnecessary fees for default-related services."

At Tuesday's hearing of a motion for summary judgment, U.S. District Judge Yvonne Gonzalez Rogers asked the plaintiffs' attorney Daniel Alberstone to clarify why his clients' allegations indicate a RICO organization.

"I need you to do a better job explaining to me what your theory is of the enterprise in fact," Rogers said. "Because from what I can tell in the briefing, there is either a lot of waffling going on or there are a lot of alternatives going on."

Alberstine told Rogers that the Wells Fargo parent company, its subsidiary and a group of third-party vendors and brokers formed an "association-in-fact enterprise" under RICO.

Rogers then asked whether the relationship between the two Wells Fargo defendants was sufficient to support such an enterprise without applying the "something more" test, which requires something more than legal separateness to establish RICO distinctness.

"It seems to me that I need to decide whether the 'something more' test applies," the judge said. "And there is no Ninth Circuit authority on that threshold proposition."

Alberstine said that the case would pass that test because the "something more" is Wells Fargo's creation of its Premiere Asset Services department, which is responsible for the sale of bank-owned houses.

But Wells Fargo's attorney contended that the "something more" test is "not just anything more," and that Wells Fargo's parent company could not have facilitated the alleged fraud because it is nothing more than a holding company.

Rogers did not indicate how or when she expects to rule.

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