Unreported / Non-Citable
Background
Megatel Homes and related entities sued Mehrdad Moayedi, United Development Funding entities, and others, alleging an elaborate fraud scheme. Megatel alleged that Moayedi fraudulently induced them to enter into real estate development contracts by promising performance he never intended to fulfill. Centurion American Custom Homes, which Moayedi controlled, was a primary borrower from UDF entities and frequently contracted with Megatel as a builder on UDF-financed projects. After the 2008 financial crisis, Megatel claims Moayedi and UDF orchestrated a scheme to siphon hundreds of millions in loan funds, converting earnest money and other payments for personal enrichment.
Megatel asserted seven claims: four separate RICO violations (under 18 U.S.C. §§ 1962(a), (b), (c), and (d)), common law fraud, statutory fraud, and aiding and abetting fraud. Moayedi moved to dismiss under Rules 12(b)(6) and 9(b), arguing Megatel failed to adequately plead essential elements including racketeering activity, a pattern of racketeering, a RICO enterprise, injury and causation, and fraud with particularity.
The Court’s Holding
The Northern District of Texas granted Moayedi’s motion to dismiss in part, dismissing several claims but allowing others to proceed past the motion to dismiss stage. On the predicate acts of racketeering, the court found Megatel adequately pleaded mail fraud (letters sent to induce contracts) but failed to adequately plead wire fraud (no allegations of interstate communications) or interstate transportation of stolen property (no facts showing interstate movement of funds).
On substantive RICO claims, the court found Megatel adequately pleaded claims under §§ 1962(a) and 1962(c) based on the mail fraud predicate acts. Megatel satisfied the pattern requirement through four mail fraud acts spanning approximately five years (2014–2019), constituting a “substantial period.” The court also found Megatel adequately alleged a RICO enterprise—Centurion and affiliated entities controlled by Moayedi functioning as a continuing unit for land development. However, the court dismissed the § 1962(b) claim because Megatel failed to allege Moayedi gained control of the enterprise *through* racketeering activity; he already controlled it beforehand.
The court granted leave to amend the complaint by November 29, 2021, permitting Megatel to cure the pleading deficiencies identified, particularly regarding wire fraud allegations and the § 1962(b) claim.
Key Takeaways
- A RICO enterprise can be alleged through an association-in-fact where related entities operate as a continuing unit with common purpose, even without formal hierarchy or fixed roles.
- Mail fraud predicate acts require Rule 9(b) particularity: the complaint must identify specific mailings, their contents, timing, location, and identity of the sender—conclusory allegations are insufficient.
- Wire fraud requires explicit allegations that interstate communications were used in furtherance of the scheme; the court will not infer this from the scheme’s general nature.
- A § 1962(b) claim requires showing the defendant *gained* control of the enterprise through racketeering; pre-existing control cannot support this theory.
Why It Matters
This decision provides useful guidance on pleading standards for complex civil RICO cases involving real estate fraud schemes. It illustrates the Fifth Circuit’s pragmatic approach to RICO enterprises—permitting flexible association-in-fact concepts while maintaining strict particularity requirements for fraud predicate acts. The court’s distinction between mail fraud (sufficient particularity) and wire fraud (insufficient) shows that alleging electronic communications in furtherance of fraud requires specific factual allegations, not legal conclusions.
For practitioners, the case underscores that motion to dismiss stages in civil RICO cases turn heavily on Rule 9(b) compliance and proper fact-pleading about predicate acts. The court’s willingness to grant leave to amend rather than dismiss with prejudice reflects the contemporary approach favoring opportunity to replead over dismissing viable theories prematurely. Plaintiffs pursuing commercial fraud claims should ensure they allege particularized facts about each fraudulent communication—including dates, means (mail vs. wire), senders, and falsity—to survive initial scrutiny.