       RECOMMENDED FOR FULL-TEXT PUBLICATION
            Pursuant to Sixth Circuit Rule 206
   ELECTRONIC CITATION: 2000 FED App. 0153P (6th Cir.)
               File Name: 00a0153p.06

UNITED STATES COURT OF APPEALS
              FOR THE SIXTH CIRCUIT
                _________________


SANDRA VANDENBROECK, an ;
                                  
                                  
individual; EUGENE
                                  
NICHOSON and CAROL
NICHOSON, husband and wife; 
                                      No. 98-2266

                                  
ABEL SOTO and DENISE               >
SOTO, husband and wife,           
           Plaintiffs and Class 
   Representatives-Appellants, 
                                  
                                  
                                  
            v.
                                  
                                  
                                  
COMMONPOINT MORTGAGE

                                  
COMPANY, fka Anderson

                                  
Realty, Inc., fka Allstate
                                  
Mortgage & Financial
                                  
Corporation, fka AAA
Mortgage & Financial              
                                  
                                  
Corporation, d/b/a

                                  
CommonPoint Mortgage;
                                  
MICHAEL ANDERSON, an

         Defendants-Appellees. 
individual,

                                 1
       Appeal from the United States District Court
  for the Western District of Michigan at Grand Rapids.
     No. 97-00826—Gordon J. Quist, District Judge.


                           1
2       VanDenBroeck, et al. v. CommonPoint                No. 98-2266        No. 98-2266                VanDenBroeck, et al. v.          11
        Mortgage Co., et al.                                                                     CommonPoint Mortgage Co., et al.

                     Argued: March 16, 2000                                   particularity” which would show either intent to defraud or
                                                                              reliance on the alleged misrepresentation. While in some
                Decided and Filed: May 1, 2000                                cases intent can be inferred from the facts, the differing
                                                                              definitions of “loan discount” and “discount point” clearly
Before: MERRITT, NELSON, and DAUGHTREY,Circuit                                indicate that intent cannot be inferred in this case. There may
                    Judges.                                                   have been some confusion about the meaning of “points” and
                                                                              “discount,” but such confusion does not amount to fraud.
                        _________________                                     Likewise, reliance cannot be inferred from the mere act of
                                                                              entering into the transaction because plaintiffs simply wanted
                             COUNSEL                                          a loan, and there is no showing that they expected a below-
                                                                              market rate. In light of the fact that the borrowers had
ARGUED: John E. Anding, DREW, COOPER & ANDING,                                questionable credit, could not get loans from regular lenders,
Grand Rapids, Michigan, for Appellants. John C. Englander,                    and had to turn to a “subprime” lender, there is no basis for
GOODWIN, PROCTOR & HOAR, Boston, Massachusetts,                               the proposition that they expected a below-market rate.
for Appellees. ON BRIEF: John E. Anding, Christopher G.
Hastings, DREW, COOPER & ANDING, Grand Rapids,                                   Although the district court declined to reach this issue, we
Michigan, for Appellants. John C. Englander, James W.                         may affirm the district court’s opinion on different grounds.
McGarry, GOODWIN, PROCTOR & HOAR, Boston,                                     See Brown v. Tidwell, 169 F.3d 330, 332 (6th Cir. 1999). We
Massachusetts, Thomas M. Hefferon, GOODWIN,                                   find that plaintiffs have failed to plead the elements of fraud
PROCTOR & HOAR, Washington, D.C., for Appellees.                              with sufficient specificity, having failed to allege or proffer
                                                                              any evidence showing an intentional misrepresentation and
                        _________________                                     reliance thereon. We therefore hold that plaintiffs have failed
                                                                              to adequately allege or proffer evidence of the predicate acts
                            OPINION                                           of mail fraud and wire fraud which form the basis of their
                        _________________                                     RICO claim. Accordingly, we AFFIRM the decision of the
   MERRITT, Circuit Judge. This is a section 1962(c) RICO                     district court on this ground.
fraud case,1 brought by borrowers who allege that the
defendant lender, CommonPoint Mortgage Company,
engaged in a pattern of racketeering activity consisting of mail
and wire fraud. The gist of the case is that the lender’s
undisclosed fees were unreasonable. The appeal arises from
the district court’s decision to grant the lender’s motion to


    1
      Section 1962(c) of the Racketeer Influenced and Corrupt
Organizations Act provides that “[i]t shall be unlawful for any person
employed by or associated with any enterprise . . . to conduct . . . such
enterprise’s affairs through a pattern of racketeering activity . . . .” 18
U.S.C. § 1962(c) (1999) (emphasis added).
10    VanDenBroeck, et al. v. CommonPoint          No. 98-2266      No. 98-2266                VanDenBroeck, et al. v.           3
      Mortgage Co., et al.                                                             CommonPoint Mortgage Co., et al.

within a fiduciary relationship as well as in other                 dismiss with respect to the RICO claim and the several Truth
circumstances. See, e.g., Kenty v. Bank One, Columbus, N.A.,        in Lending Act claims of the plaintiffs. In addition, Judge
92 F.3d 384 (6th Cir. 1996) (applying the elements of fraud         Quist denied the plaintiffs’ motion for leave to amend the
to the RICO claim of a car buyer against the bank who               complaint to include an additional Truth in Lending Act claim
financed his car purchase).                                         and to correct any deficiencies in the existing claims.
                                                                    Plaintiffs now appeal the court’s decision to dismiss their
   Plaintiffs allege that CommonPoint made a material               RICO claim, and further appeal the district court’s denial of
misrepresentation to its customers when it charged a “loan          their motion to amend the complaint to correct any
discount” without providing a corresponding decrease in their       deficiencies which the court found. Plaintiffs do not appeal
interest rate. They rely upon the glossary of terms which           the decision to dismiss the original Truth in Lending Act
defendants provided to their customers. That glossary defines       claims. The district court dismissed the RICO claim on the
a “discounted loan” to mean that “[w]hen the note rate on a         ground that the complaint failed to allege a proper RICO
loan is less than the market rate, the lender requires additional   “enterprise” and did not reach the question of whether the
points to raise the yield on the loan to the market rate.” J.A.     complaint properly alleged fraud. We agree with the district
at 238. In addition, plaintiffs argue that a HUD pamphlet for       court that the “enterprise” element of the RICO tort is
buyers defines a “loan discount” as a “one time charge              defective, but we think this defect could be remedied by
imposed by the lender or broker to lower the rate at which the      amendment. The fraud element is also defective, and we
lender or broker would otherwise offer the loan to you.” J.A.       conclude that it cannot be remedied by amendment. Hence
at 259.                                                             we affirm the judgment of the district court.
   In response, defendants argue that the “loan discount”--                         I. Allegations of Complaint
which was charged directly beneath the designated loan
origination fee on the standard form loan agreement                    Plaintiffs, as representatives of their class, are several
CommonPoint employed--is simply a form of points like an            customers of CommonPoint Mortgage Company.
origination fee assessed to cover the administrative costs of       CommonPoint Mortgage is a so-called “subprime” lender,
the loan. For proof of this, they offer the same two                which makes loans for people with poor credit who have
documents which plaintiffs brought to the attention of the          difficulty obtaining them on their own and then sells the loans
court.     First, they argue that the glossary used by              in the secondary market. CommonPoint routinely asked their
CommonPoint also included a definition of a “discount point”        customers to sign a “financial services agreement.” That
which was an “[a]mount payable to the lending institution by        agreement provided that CommonPoint would do its best to
the borrower or seller to increase the lender’s effective yield.    obtain a loan, and if a loan was provided by a third party,
One point is equal to one percent of the loan amount.” J.A.         CommonPoint would be entitled to a fee from the customer
at 238. In addition, they argue that the same HUD pamphlet          equal to a certain percentage of the principal of the loan. The
relied on by plaintiffs points out that the term “loan discount”    allegation and general theory of plaintiffs’ case is that the
is often also called “points” or “discount points.” J.A. at 259.    “financial services agreement” made CommonPoint the agent
                                                                    or fiduciary of a customer for the purpose of securing a loan
  It seems doubtful that the use of the language “loan              from a third party, but that CommonPoint in fact made the
discount” was a misrepresentation under these circumstances,        loan itself rather than seeking a third party lender, and
but it is clear that plaintiffs have failed to allege facts “with   charged “unconscionable and hidden fees” in the process of
4    VanDenBroeck, et al. v. CommonPoint          No. 98-2266      No. 98-2266                 VanDenBroeck, et al. v.            9
     Mortgage Co., et al.                                                              CommonPoint Mortgage Co., et al.

doing so. Plaintiffs contend that some of CommonPoint’s            fraud claim to determine whether plaintiff has alleged the
customers were charged front-end “discount fees,” which            elements of fraud with sufficient specificity to allow this case
were typically 2-5% of the loan amount in the instances in         to proceed.
which they were charged. In the case of class representative
VanDenBroeck, for instance, the discount fee was 5% of the                   IV. Sufficiency of Allegations of Fraud
loan amount on her $63,000 loan, or $3,150, which was
similar to the origination fee charged. Plaintiffs allege that       According to Rule 9(b) of the Federal Rules of Civil
these so-called “discount fees” are supposed to insure lower       Procedure, in a complaint alleging fraud “the circumstances
interest rates, but that CommonPoint not only failed to            constituting fraud . . . shall be stated with particularity.” See
actually lower the interest rates, it routinely inflated the       Advocacy Organization for Patients and Providers v. Auto
interest rate even though a lower interest rate could have been    Club Insurance Assoc., 176 F.3d 315, 322 (6th Cir. 1999). In
obtained. The interest rates charged the class representatives     this case, plaintiffs argue that mail fraud and wire fraud are
in this case ranged from 13-16%. In response to this               the predicate acts which form the basis of their RICO claim.
allegation, defendant argues that the “discount fees” were         Mail fraud and wire fraud are proven by showing a scheme or
really only typical “points” or origination fees assessed as a     artifice to defraud combined with either a mailing or an
normal byproduct of obtaining a loan, and were in no way           electronic communication for the purpose of executing the
fraudulent. After closing on the loans, CommonPoint                scheme.
routinely sold the loans to one of a number of secondary
market lenders who paid CommonPoint a fee based upon the             We have defined a scheme to defraud as “‘intentional fraud,
difference between CommonPoint’s loan rate and the                 consisting in deception intentionally practiced to induce
secondary lender’s rate for the same loan. This was referred       another to part with property or to surrender some legal right,
to as the “upsell” or “backend fee.” Plaintiffs further allege     and which accomplishes the designed end.’” Kenty v. Bank
that the interest rates ultimately received often exceeded the     One, Columbus, N.A., 92 F.3d 384, 389-90 (6th Cir. 1996)
interest rates promised in the financial services agreement,       (quoting Bender v. Southland Corp., 749 F.2d 1205, 1215-16
and that defendant failed to inform plaintiffs that the loans      (6th Cir. 1984)). In other words, in order to present a
were made at a higher rate than could have been obtained.          cognizable claim for fraud, the plaintiffs must show that
                                                                   CommonPoint Mortgage made a material misrepresentation
                     II. The “Enterprise”                          of fact that was calculated or intended to deceive persons of
                                                                   reasonable prudence and comprehension, and must also show
  Plaintiffs claimed that this scheme between CommonPoint          that plaintiffs in fact relied upon that material
and the secondary lenders with which it dealt constituted a        misrepresentation. See id. at 390.
RICO association-in-fact “enterprise” under 18 U.S.C.
§ 1962(c) (1999) (see footnote 1 for text of § 1962(c)). In          Plaintiff argues that due to the agency or “fiduciary” nature
order to prove a violation of that Act, the plaintiffs must show   of the relationship between CommonPoint and its customers--
1) that there were two or more predicate offenses; 2) that an      wherein CommonPoint was to act as the customers’ agent for
“enterprise” existed; 3) that there was a nexus between the        the purpose of securing a loan--plaintiff is relieved of the
pattern of racketeering activity and the enterprise; and 4) that   burden of proving intent and reliance and must only prove a
an injury to business or property occurred as a result of the      misrepresentation of fact. That argument is meritless. Our
above three factors. See Frank v. D’Ambrosi, 4 F.3d 1378,          cases make clear that the elements of fraud must be proven
8     VanDenBroeck, et al. v. CommonPoint           No. 98-2266      No. 98-2266                 VanDenBroeck, et al. v.           5
      Mortgage Co., et al.                                                               CommonPoint Mortgage Co., et al.

that the corporation itself constituted the enterprise, plaintiffs   1385 (6th Cir. 1993). In addition, the Supreme Court has held
expressed concern that some Circuits have held that a sole           that in order to be held responsible under the Act, a defendant
shareholder of a corporation cannot be considered sufficiently       must have not only participated in the scheme, but must have
distinct from the corporation itself to justify a holding that he    also participated in the operation or management of the
was “conspiring” with the corporation. According to this way         enterprise itself. See Reves v. Ernst & Young, 507 U.S. 170,
of conceptualizing the sole shareholder’s status under RICO,         183 (1993); see also Stone v. Kirk, 8 F.3d 1079, 1091 (6th
a sole shareholder is equivalent to the corporation he owns          Cir. 1993). The district court dismissed plaintiff’s RICO
and therefore he cannot conspire with himself. Mr. Anderson          claim for failure to show the existence of an “enterprise” and
is the sole shareholder, President, and Treasurer of                 failure to show that defendants exerted control over an
CommonPoint Mortgage.                                                “enterprise,” and therefore declined to address the further
                                                                     allegation that plaintiffs had failed to adequately allege that
  This concern is misplaced. In Fleischhauer v. Feltner, 879         defendants committed the predicate acts of federal mail and
F.2d 1290 (6th Cir. 1989), we adopted the holding of United          wire fraud.
States v. Feldman, 853 F.2d 648 (9th Cir. 1988). In Feldman,
the Ninth Circuit held that a sole shareholder was sufficiently          The Supreme Court has defined an “enterprise” under the
distinct from his corporation by virtue of both the legal shield     Act as a “group of persons associated together for a common
which the corporate form provides as well as the existence of        purpose of engaging in a course of conduct.” United States v.
employees and activities apart from the sole shareholder. The        Turkette, 452 U.S. 576, 583 (1981). An association-in-fact
court concluded that a RICO ‘person’ can be the sole                 enterprise can be proven by showing 1) that the associated
shareholder in a corporate ‘enterprise’ which forms the basis        persons formed an ongoing organization, formal or informal;
of a RICO action. See Feldman, 853 F.3d at 656. That court           2) that they functioned as a continuing unit; and 3) that the
further concluded that a defendant who is the sole shareholder       organization was separate from the pattern of racketeering
in each of several corporations associated-in-fact could also        activity in which it engaged. See Frank v. D’Ambrosi, 4 F.3d
form the basis for a RICO action. See Feldman, 853 F.3d at           1378, 1386 (6th Cir. 1993).
656.
                                                                        The association-in-fact enterprise alleged to exist in this
  We adopted the second holding of the Feldman case, which           case includes CommonPoint and its relationship with the
necessarily included the first holding. See Fleischhauer, 879        numerous secondary lenders to which it sells customers’
F.2d at 1297 (“[T]he fact that Feltner owned 100% of the             loans. The district court correctly recognized that the
corporations’ shares does not vitiate the fact that these            elements outlined above have been interpreted to require a
corporations were separate legal entities.”) The district court      certain amount of organizational structure which eliminates
did not err because it was not presented with this theory of         simple conspiracies from the Act’s reach. That is, simply
enterprise liability, but we do conclude that amendment              conspiring to commit a fraud is not enough to trigger the Act
would not be futile in this case, based on the fact that             if the parties are not organized in a fashion that would enable
plaintiffs could allege that CommonPoint Mortgage alone was          them to function as a racketeering organization for other
the enterprise which was engaged in a pattern of racketeering        purposes. Plaintiffs’ brief agrees, noting that the “hallmark of
activity. Given that plaintiffs perhaps should now be allowed        a RICO enterprise is its ability to exist apart from the pattern
to amend on the enterprise element if they otherwise have a          of wrongdoing.” Brief for Appellant at 13. All that is
plausible case, we will address the merits of the underlying
6    VanDenBroeck, et al. v. CommonPoint         No. 98-2266      No. 98-2266                 VanDenBroeck, et al. v.            7
     Mortgage Co., et al.                                                             CommonPoint Mortgage Co., et al.

required is some minimal level of organizational structure        control over the alleged enterprise under the holding of Reves
between the entities involved.                                    v. Ernst & Young, 507 U.S. 170 (1993).
   The district court noted that four steps were undertaken in                      III. The Motion to Amend
the current scheme. First, CommonPoint obtained the
borrower. Second, a secondary lender determined an interest          Plaintiffs also challenge the district court’s denial of their
rate at which it would make a loan. Third, CommonPoint            motion to amend the complaint. Denial of a motion to amend
made a loan to the borrower at a different rate based on the      is reviewed for abuse of discretion. See Vild v. Visconsi, 956
secondary lender’s proposed interest rate. Fourth, the loan       F.2d 560, 565 (6th Cir. 1992). When CommonPoint’s motion
was sold to the secondary lender and CommonPoint collected        to dismiss had been pending for about seven months,
a “backend” fee. The parties have pointed out that there were     plaintiffs moved the district court to allow them to amend
dozens of secondary lenders purchasing the loans. There is        their complaint to add an additional Truth in Lending Act
no allegation that there were a discreet number of secondary      claim, and also to allow them to cure any defects in pleading
lenders that were used, which means that this conspiracy          which the district court found during its review of the pending
could have transpired with any lender in the secondary            motion to dismiss. The court held that neither delay nor
lending market. The district court found that these facts do      prejudice would bar such amendment under the Foman v.
not show any type of mechanism by which this “group”              Davis standard and the precedent of this Circuit. See Foman
(CommonPoint and the entire secondary lending market)             v. Davis, 371 U.S. 178 (1962). However, the court found
conducted its affairs or made decisions.                          that futility, one of the articulated Foman v. Davis grounds for
                                                                  restriction of the freely given right to amend the complaint,
   Most cases interpreting the elements applicable to this        would in this case be grounds to deny amendment. The
statute require evidence of some sort of “chain of command”       district court stressed that it was futility, and not undue delay
or other evidence of a hierarchy, even a highly limited one.      or prejudice, which was the basis for its denial of the motion
Evidence of any such hierarchical structure is absent from this   to amend.
appeal. Although plaintiffs argue that CommonPoint’s
routine use of the “Approval Advice” form--which assured             Although the district court was not presented with an
ultimate approval of a loan by a secondary lender before          alternative enterprise theory, we do not believe that
CommonPoint issued its own loan to the customer--was              amendment of this complaint would have been futile, but
evidence of the enterprise, the use of those forms seems to       rather that plaintiffs could have amended this complaint to
indicate nothing more than that CommonPoint had a business        allege a cognizable RICO enterprise. It is elementary that a
relationship with the secondary lenders. It does not allege or    corporation alone can serve as an enterprise for purposes of
show that they “function[ed] as a continuous unit.” Turkette,     RICO, and pleading the RICO claim in this manner would
452 U.S. at 583. Due to the fact that the enterprise alleged to   eliminate the burden of proving that the entire secondary
exist in this case is too unstable and fluid an entity to         lending market was part of the enterprise at issue. See 18
constitute a RICO enterprise, we must AFFIRM the district         U.S.C. § 1961(4) (1999) (defining an “enterprise” as “any
court’s holding on this issue. In light of this holding, it is    individual, partnership, corporation, association, or other legal
unnecessary for this court to further consider the plaintiffs’    entity, and any union or group of individuals associated in fact
appeal based on their contention that the district court erred    although not a legal entity.”) In response to this panel’s
in determining that CommonPoint did not exert sufficient          inquiry concerning why the plaintiffs did not simply allege
