MEC&F Expert Engineers : Federal Judge Finds that Many Companies and Individuals Conspired to Defraud Homeowners in New Jersey

Tuesday, May 19, 2015

Federal Judge Finds that Many Companies and Individuals Conspired to Defraud Homeowners in New Jersey

Tax Cos. Can't Slip NJ Lien Bid-Rigging Class Action

Law360, New York (November 03, 2014, 3:50 PM ET) -- A New Jersey federal judge on Friday declined to fully toss a consolidated class action accusing several tax companies of bid-rigging in municipal tax lien auctions, booting two claims but ruling the plaintiffs' amended complaint reinforced their antitrust claims enough to withstand a dismissal motion. 

U.S. District Judge Michael Shipp in October 2013 dismissed an earlier complaint, in which a group of tax companies including Fidelity Tax LLC and Crestar Capital LLC were accused of violating federal and state antitrust and tax laws by rigging the auctions on delinquent tax obligations to keep the interest rates on the liens artificially high. But after addressing deficient claims in an amended complaint, the plaintiffs adequately stated their antitrust claims, Judge Shipp said.

According to the decision, the amended complaint drilled down into the specifics of the alleged conspiracy in the way the initial consolidated complaint did not, adding weight to allegations that the tax companies violated the Sherman Act and the New Jersey Antitrust Act.

“Where the consolidated complaint merely provided 'exemplars' of auctions in which there was collusion between vaguely identified defendants … the [amended complaint] provides the date and location of each alleged instance of collusion, as well as the identities of the conspirators,” the opinion said. “Plaintiffs have alleged collusion on the part of defendants in connection with nearly fifty municipal auctions and, for each, have alleged sufficient facts regarding each party's conduct in advancing the conspiracy.”

Judge Shipp ruled on a joint motion to dismiss filed by Fidelity and Crestar along with Mooring Tax Asset Group, BBX Capital Corp., Heartwood 55 LLC, PAM Investors, CCTS Capital LLC and several individuals associated with the companies. The defendants challenged all of the suit's claims, which also included violation of the New Jersey Tax Sale Law and an unjust enrichment claim.

The judge booted the NJTSL and unjust enrichment claims with prejudice, ruling the defendants did not charge in excess of permitted amounts of tax sale certificates under the tax law, and because the moving defendants didn't purchase any of the plaintiffs' liens, the latter claim also collapsed.

In addition to the joint motion to dismiss, Crestar and PAM filed separate motions to dismiss the suit. Crestar argued it began operations only four months before the end of the period during which the alleged conspiracy took place, narrowing its participation in the matter. PAM argued a seven-year hiatus between its alleged activity renders the claims against it implausible.

Judge Shipp denied both, ruling the plaintiffs plausibly connected the Crestar defendants to the conspiracy, despite the short time frame, and that PAM's claims of an inactive period do not counteract allegations based on prior and subsequent activity.

The judge also denied a motion to stay the action filed by individual defendant Michael Mastellone, who in September 2013 pled guilty to a count of conspiracy to rig bids in an auction. Mastellone, whose criminal sentencing is pending, argued his Fifth Amendment rights to avert self-incrimination would be infringed if he's called to testify in the class action. But Judge Shipp said Mastellone could still invoke the privilege if he so chooses, and the issues affecting his sentence have little bearing on the class action's most relevant issues.

Representatives for the parties did not immediately respond to requests for comment on Monday.

According to court filings, New Jersey law allows the auctioning of tax liens that remain unpaid after a waiting period. The law requires that investors bid on the interest rate that delinquent property owners will pay upon redemption, staring with an 18 percent rate that is reducible to zero through a competitive bidding process.

The plaintiffs claim the defendants began conspiring in 1998 to allocate the liens among themselves and not bid against each other in order to make sure the interest rates didn't drop below the legal maximum of 18 percent.

The plaintiffs say the conspiracy harmed thousands of New Jersey real property owners by forcing them to pay higher interest rates on their tax sale certificates than they would have without the collusion, according to the amended complaint.

The plaintiffs are represented by The Wolf Law Firm LLC, Lite DePalma Greenberg LLC, Williams Cuker & Berezofsky, Cafferty Clobes Meriwether & Sprengel LLP, Schnader Harrison Segal & Lewis LLP, Mattleman Weinroth & Miller PC, Bailey & Glasser LLP, Smith & Schwartzstein LLC, Paris Ackerman & Schmierer, Poulos Lopiccolo PC and Shepherd Finkelman Miller & Shah LLP, among others.

The tax companies are represented by Carella Byrne Cecchi Olstein Brody & Agnello PC, Greenbaum Rowe Smith & Davis LLPDilworth Paxson LLP, Bellin & Associates LLC and Steven M. Janove, among others.

Mastellone is represented by Gary L. Cutler.

The case is In re: New Jersey Tax Sales Certificates Antitrust Litigation, case number 3:12-cv-01893, in the U.S. District Court for the District of New Jersey.