District Court Denies Defendants’ Motion to Dismiss Civil RICO Claim Finding ‘Open-Ended’ Continuity Adequately Alleged When Defendant Defrauded Other Victims

MAY JOSEPH, FADI ESSA, HOTEL FURNITURE LIQUIDATORS INC, and PARKING LOT SERVICE INC, Plaintiffs, v. NEVAR JAHWARY, YOUSIF DAMMAN, and TANYA KLATT Defendants, 2020 WL 1249291 (E.D. Mich, March 16, 2020)

The Court denied Defendants’ motion to dismiss a civil RICO claim finding that predicate acts of wire fraud adequately constituted a pattern of racketeering meeting the “open-ended” continuity test.

Plaintiff Fadi Essa served as a mentor and provided financial assistance and financial opportunities to defendant Jahwary for several years, and alleges that defendants perpetrated a scheme to swindle Plaintiffs out of hundreds of thousands of dollars.

Specifically, in October 2017, Plaintiff Essa asked Defendant Jahwary to partner with him in purchasing a hotel in Ferndale, Michigan. Both men were supposed to contribute $150,000 dollars to the venture, work to refurbish the hotel, and ultimately run the hotel for profit.  Essa made his contribution as required by the agreement, but Jahwary collected the funds to make his own contribution through a fraud scheme referred to by Plaintiffs’ as the West Coast Wholesale fraud scheme.

Plaintiffs claim Defendants have a history of conducting fraudulent schemes similar to the West Coast Wholesale scheme, including running hotel furniture fraud schemes. Plaintiffs also allege that there were multiple victims of the West Coast Wholesale fraud scheme, and allege that Defendants engaged in various insurance fraud schemes, some of which related to their hotel businesses. Plaintiffs generally allege that Defendant Jahwary has “coordinated the actions of others” to commit insurance fraud.

The Court set forth the general principles involving open-ended continuity based on the Supreme Court’s H.J. Inc. case.*7.  Although not finding the various insurance fraud schemes sufficiently related to the West Coast Wholesale fraud scheme (which injured Plaintiffs) the Court found that Defendants ran a related scheme through an entity called Hotel Liquidators, LLC in which Jahwary and his associates allegedly duped consumers into paying for furniture while never delivering the goods. The Court found that this scheme is sufficiently related to the West Coast Wholesale fraud to support a pattern of racketeering. The two schemes share the same general purpose, category of victims, and results. The methods of the commission were slightly different: in the West Coast Wholesale scheme, Defendants reached out directly to Plaintiffs via e-mail, while the Hotel Liquidators scheme was allegedly run through a website. But conceptually the two schemes are similar—Defendants allegedly offered for sale hotel furniture at liquidation prices with the intent to never complete the sale.

Thus, the Court found that this conduct together with the West Coast Wholesale scheme was sufficiently related to the West Coast Wholesale fraud to support a pattern of racketeering.  There was no inherent limit to the number of potential customers who could fall victim to these schemes. And the allegation that Defendants still controlled the entity and website involved in the Hotel Liquidators scheme raises a potential inference that Defendants are or may still be running the scheme.  The Court also found that the plaintiffs’ allegations that the Defendants continued or attempted to continue the West Coast Wholesale scheme beyond the single encounter with Plaintiffs here, i.e., an unrelated customer (another victim) were sufficient to raise factual questions about the continuity element of the general scheme involved in the West Coast Wholesale scam to survive a motion to dismiss.

Ed Note:   The Court did not find the scheme met the “closed-ended’ continuity test, failing to meet some of the factors, but the finding of adequate allegation of the open-ended test was sufficient to sustain the Amended Complaint.

 

 

 

Court Affirms Dismissal of Civil RICO Finding No ‘Direct Injury;” Court Does Not Consider Supreme Court Decision in Bridge v. Phoenix Bond & Indemnity Co., 553 U.S. 639, 661 (2008)

Ozeran v. Robin Jacobs DBA Law Office of Robin Jacobs Inc., __ Fed. Appx. ___, 2020 WL 777646 (9th Circ., Feb. 18, 2020)

Plaintiff Robert Ozeran appealed the district court’s decision dismissing with prejudice his claims under RICO, and other claims.

Ozeran’s RICO claim was based on the theory that, as a workers’ compensation attorney competing in the same geographic market as the attorney Defendants, he was injured by Defendants’ operation of an unlawful referral scheme under which Defendants would pay “cappers” a monthly fee in exchange for the referral of “an agreed upon minimum number of retained clients per month.” This scheme, according to Ozeran, constituted an enterprise that, together with other related enterprises, was operated by Defendants through a pattern of mail and wire fraud.

The court concluded could not satisfy the proximate causation standards for civil RICO claims.

In order to establish proximate causation, a civil RICO plaintiff must plead and prove that there is “ ‘some direct relation between the injury asserted and the injurious conduct alleged.’ ” citing Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 457, 126 S.Ct. 1991, 164 L.Ed.2d 720 (2006) (emphasis added) (finding the plaintiffs claim was too indirect to establish proximate causation. Id. at 456–61, 126 S.Ct. 1991. As the Court explained, the state was the direct victim of the predicate acts of mail and wire fraud, and the plaintiff competitor was injured only indirectly by virtue of the collateral impact of the defendants’ sales-tax cheating on the steel-supply market. Id. at 460–61, 126 S.Ct. 1991. The fact that the defendant carried out the scheme in order to injure the plaintiff did not cure the lack of a direct connection between the alleged RICO violation and the plaintiff’s injuries: “A RICO plaintiff cannot circumvent the proximate-cause requirement simply by claiming that the defendant’s aim was to increase market share at a competitor’s expense.” Id. at 460, 126 S.Ct. 1991.

Ozeran’s RICO claim failed as a matter of law under Anza.  Ozeran does not, and could not, contend that he was the direct victim of the alleged predicate acts of mail and wire fraud on which his RICO claim is based; rather, the direct victims of those fraudulent acts were the recruited clients and the insurance companies from whom the capping scheme was hidden.  The court stated that like the plaintiff in Anza, Ozeran cannot avoid his inability to allege proximate causation by alleging that Defendants’ “aim was to increase market share at a competitor’s expense.” Anza, 547 U.S. at 460, 126 S.Ct. 1991.

Ed Note:   The Ninth Circuit did not consider the more recent Supreme Court decision in Bridge which could serve as a basis for reversal the dismissal of the complaint. In Bridge v. Phoenix Bond & Indemnity Co., 553 U.S. 639, 645, 661 (2008),  unlike in Anza and Hemi Group, where other parties suffered more direct injuries than the plaintiffs, in Bridge, the county—which sold tax liens at prices not dependent on who was the buyer—was not injured. Id. at 658. Rather, the plaintiffs were the immediate victims of the defendants’ fraud and were best situated to sue the defendants. Id. Thus, the Supreme Court held that the plaintiffs had sufficiently alleged proximate cause under RICO. Id. at 661, 128 S.Ct. 2131.

Accordingly, the direct link between the RICO violations and the injury asserted can be met under Bridge when it is foreseeable the scheme would cause plaintiffs injury.

 

District Court Finds Association-In-Fact Enterprise Adequately Alleged in Civil RICO Class-Action Litigation and Broadly Construes RICO’s “Conduct” Test

In Re Broiler Chicken Anti-Trust Litigation, 2020 WL 1030674 (N.D. Ill., March 3, 2020)

The court denied defendant Sanderson’s motion to dismiss and found an association in fact enterprise was adequately alleged, and the Defendant Sanderson adequately engaged in the “conduct of the affairs” of that enterprise.

First, the court stated that the heightened pleading standard of Rule 9(b) does not apply to allegations of an “enterprise” under RICO.

Next, plaintiffs had alleged in this class-action that a group of individuals, including Sanderson, known as the Georgia Dock Defendants associated with each other to form and participate in a RICO ‘enterprise.’   The court found the allegations in the Complaint overwhelmingly indicated that the Georgia Dock RICO Defendants conspired to manipulate the Georgia Dock price, whatever their specific means of communication. been noticed. Even though it was possible to manipulate the Georgia Dock price with fewer than all the Georgia Dock RICO Defendants participating, Plaintiffs allegations made it plausible that all the Georgia Dock RICO Defendants colluded to submit prices within a range that took into account the one-cent rule, in order to keep the Georgia Dock price high. The allegations of “relationship” and “purpose” (along with undisputed longevity) were thus sufficient to plausibly allege an “enterprise.”

The court rejected Sanderson’s argument the enterprise was not separate from a “pattern of racketeering activity” because the Supreme Court in Boyle  has said that “the evidence used to prove the pattern of racketeering activity and the evidence establishing an enterprise may in particular cases coalesce.” Boyle, 556 U.S. at 947 (emphasis added). That is true of Plaintiffs’ allegations in this case. Plaintiffs’ allegations plausibly show both common and concerted unlawful activity, because the Georgia Dock price would not have remained high above other prices unless at least a weighted majority of the Georgia Dock RICO Defendants agreed to submit higher prices within a range that avoided being knocked out by the one-cent rule. Sanderson also notes that the Supreme Court has emphasized that allegations of a pattern of racketeering activity “would not be enough to show that the individuals were members of an enterprise,” if the individuals acted “independently and without coordination.” But here, the racketeering activity alleged permits the plausible inference that the fraudulent price submissions were coordinated.

Thus, the allegations do not “collapse” the “two statutory elements” into “one.” It simply acknowledges, as has the Supreme Court, that sometimes the same allegations can be a basis to show both racketeering activity and an enterprise. Despite Sanderson’s argument, this was an uncontroversial conclusion that has been reached by a number of courts.

Thus, the evidence cited in the complaint (both documentary and testimonial), showed that the five Georgia Dock RICO Defendants’ price submissions were always within one cent of the previous week’s price, and were very rarely lower than the previous week’s price plausibly indicating an agreement among those five Georgia Dock RICO Defendants.*4.

Lastly, Sanderson argued in passing that Plaintiffs have failed to allege that Sanderson “conducted” the enterprise, which is another element of the claims.*5.  But Sanderson is “alleged to be part of the enterprise itself,” which is sufficient to allege “conduct” under RICO. MCM Partners, Inc. v. Andrews-Bartlett & Assocs., Inc., 62 F.3d 967, 979 (7th Cir. 1995). The allegation of Sanderson’s express agreement with the other Georgia Dock RICO Defendants to submit fraudulent prices to the Georgia Dock, which the Court finds Plaintiffs have plausibly alleged, is sufficient to allege “conduct.” See In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 378 (3d Cir. 2010) (“[I]f defendants band together to commit [violations] they cannot accomplish alone … then they cumulatively are conducting the association-in-fact enterprise’s affairs, and not [simply] their own affairs.”).

Ed Note:   The Seventh Circuit’s district courts sometimes take a very hard line on civil RICO elements, such as the “pattern of racketeering” element, not addressed herein, but an expansive, and yet correct interpretation of an ‘association in fact enterprise.’

 

 

Second Circuit Affirms Dismissal of Civil RICO Finding Insufficient Continuity When Plaintiff Alleges Multiple Racketeering Acts Pursuant to a Single Discreet Scheme to Defraud

Liang v. Home Reno Concepts, LLC, __ Fed. Appx. ___, 2020 WL 747941 (2d Cir., Feb. 14, 2020)

The Court dismissed Plaintiffs second amended complaint which alleged civil RICO violations.  Defendants’ company, Home Reno, although it marketed itself as “fully licensed and insured,” was never actually licensed to provide home renovation services in either New York City or Nassau County, nor was it “fully … insured.”

In July 2016, after viewing Home Reno’s website and speaking with Home Reno owners, Liang hired Home Reno to renovate her home’s flooring, lighting, and upstairs bathroom and install a new heating system. The renovation projects were not successful and the heating system was never activated. When Liang called Home Reno to ask if someone could turn on the system, she was told that she still had an unpaid balance, which was not true, and that Home Reno would only send someone if she paid additional money. The other renovations were also not satisfactory. Liang and her family ultimately paid someone else to redo the work.

The Complaint alleged mail fraud and wire fraud in the form of false and misleading statements posted on defendants’ website, Yelp.com, and print advertisements, and extortion in defendants’ demanding of additional payment for turning on Liang’s home heating system. The district court dismissed Liang’s mail and wire fraud claims for a failure to allege fraudulent intent, and Liang’s extortion claim because a single act cannot constitute a pattern under RICO § 1962(c),

The Court affirmed the dismissal of Liang’s RICO claims because the conduct at issue, while arguably fraudulent (defendants represented they were fully licensed and insured when they were not), did not constitute “a pattern of racketeering activity.”  The Court relied on an earlier decision, Schlaifer Nance & Co. v. Estate of Warhol, 119 F.3d 91, 97 (2d Cir. 1997) where the court affirmed the dismissal of the RICO claim for lack of continuity — there was only “one purportedly fraudulent act: the negotiation of the [licensing] Agreement.” 119 F.3d at 98.

Here, the allegations in the Complaint likewise arose from a single act — Liang’s contracting with defendants to perform home renovation services. The court found Liang’s attempt to stretch this sole act into seven discreet acts, which she contends include defendants’ statements on their website, Yelp.com page, and print newsletter, as well as their sending her an email demanding an “invalid payment,” unavailing.  The Court stated that “courts must take care to ensure that the plaintiff is not artificially fragmenting a singular act into multiple acts simply to invoke RICO.” 119 F.3d at 98. In this case, Liang’s allegations stemmed from a single, allegedly fraudulent act and could not form the basis for a civil RICO claim.

Ed Note:   This case would likely fail closed-ended continuity for multiple reasons, e.g., lack of multiple victims, lack of amount of time the fraud existed etc.  But is noteworthy the Court is following the position of the Department of Justice which states that multiple individual mailings, wirings, and demands in furtherance of a “single discrete scheme” to defraud one victim is not sufficient to constitute multiple racketeering acts.   This does conflict with H.J. Inc. as written which does not require multiple schemes to show continuity.

 

Third Circuit Concludes that Civil RICO section 18 U.S.C. § 1965(b), not Section 1965(d), Applies to Determine Personal Jurisdiction over Defendants from a Neighboring State

Laurel Gardens LLC v. McKenna, 948 F.3d 1051 (3rd Cir. 2020)

The Appeals court vacated the order entered by the District Court disposing of the parties’ dismissal motions to the extent that it granted certain Defendants’ (Isken Defendants) motion to dismiss for lack of personal jurisdiction under Rule 12(b)(2) as well as the District Court’s Rule 54(b) order insofar as it designated this prior order as the final judgment as to the Isken Defendants.

The case was brought in the Eastern District of Pennsylvania, although it is undisputed that Defendants Isken are residents of the State of Delaware and that IE is a Delaware limited liability company with its principal place of business located in Newark, Delaware.

The Court of Appeals concluded that 1965 subsection (b) (and not subsection (d)) applies here. In turn, Plaintiffs satisfied the statutory (and constitutional) requirements for the exercise of personal jurisdiction over the Isken Defendants. Furthermore, Plaintiffs’ state law claims then fall under the doctrine of pendent personal jurisdiction.

The Court agreed with Plaintiffs that the issue of personal jurisdiction under the RICO provision is properly before the Court.  Under the circumstances, the Court limited its ruling to this threshold jurisdictional issue under Rule 12(b)(2) and therefore refrained from considering whether Plaintiffs fail to state a claim upon which relief can be granted under Rule 12(b)(6).

The Appeals court discussed there is a circuit split regarding which specific subsection of the RICO provision governs the exercise of personal jurisdiction in this case. Plaintiffs recognize that two circuits (the Fourth and the Eleventh Circuits) have looked to § 1965(d). According to the Eleventh Circuit, “Section 1965(d) of the RICO statute provides for service in any judicial district in which the defendant is found.” Republic of Panama v. BCCI Holdings (Lux.) S.A., 119 F.3d 935, 942 (11th Cir. 1997). Citing Republic of Panama, the Fourth Circuit reached the same conclusion. ESAB Grp., Inc. v. Centricut, Inc., 126 F.3d 617, 626 (4th Cir. 1997).

Five circuits (the Second, Seventh, Ninth, Tenth, and D.C. Circuits) (the Majority) have stated that subsection (b) governs nation-wide service of process and personal jurisdiction over “other parties.” See FC Inv. Grp. v. IFX Markets, Ltd., 529 F.3d 1087, 1098-1100 (D.C. Cir. 2008) Cory v. Aztec Steel Bldg., Inc., 468 F.3d 1226, 1229-33 (10th Cir. 2006)PT United Can Co. v. Crown Cork & Seal Co., 138 F.3d 65, 70-72 (2d Cir. 1998)Lisak, 834 F.2d at 671-72Butcher’s Union Local No. 498 v. SDC Inv., Inc., 788 F.2d 535, 538-39 (9th Cir. 1986). 

Holding–  The Third Circuit agreed with the majority approach based on the language and structure of the RICO provision itself as well as the relative absence of reasoning in support of the minority position. The history of the legislation and the Circuit’s own prior case law provide further support for this majority approach.

The Court stated that reading all of the subsections of § 1965 together, the court found that § 1965 does not provide for nationwide jurisdiction over every defendant in every civil RICO case, no matter where the defendant is found.

First§ 1965(a) grants personal jurisdiction over an initial defendant in a civil RICO case to the district court for the district in which that person resides, has an agent, or transacts his or her affairs. In other words, a civil RICO action can only be brought in a district court where personal jurisdiction based on minimum contacts is established as to at least one defendant.  

Second, § 1965(b) provides for nationwide service and jurisdiction over “other parties” not residing in the district, who may be additional defendants of any kind, including co-defendants, third-party defendants, or additional counter-claim defendants. This jurisdiction is not automatic but requires a showing that the “ends of justice” so require.

Going further, subsection (c) “simply refers to service of subpoenas on witnesses”—specifically in civil or criminal actions or proceedings instituted by the government. Id.

Finally, “subsection (d)’s reference to ‘ “all other process” ’ must mean process different than a summons or a government subpoena, both of which are dealt with in previous subsections.” Cory, 468 F.3d at 1230 (quoting PT United, 138 F.3d at 72).

The circuit courts adopting the minority approach did not offer a detailed explanation for their selection of subsection (d).

The structure of § 1965 as well as the “other parties” language of subsection (b) clearly require the presence of at least one defendant that meets the traditional contacts test. With the apparent exception of the Seventh Circuit, see Lisak, 834 F.2d at 671-72, the circuit courts following the majority approach have adopted this requirement.

“Where Congress has statutorily authorized nationwide service of process, such service establishes personal jurisdiction, provided that the federal court’s exercise of jurisdiction comports with Fifth Amendment due process.” Cory, 468 F.3d at 1229 (citing Peay v. BellSouth Med. Assistance Plan, 205 F.3d 1206, 1209 (10th Cir. 2000)); see also, e.g., In re Automotive Refinishing Paint Antitrust Litig., 358 F.3d 288, 297-99 (3d Cir. 2004)Pinker, 292 F.3d at 368-71. Having determined that “the ends of justice require” the Isken Defendants “be brought before” the District Court under § 1965(b), we have no difficulty concluding that the District Court’s exercise of personal jurisdiction over them comports with the Fifth Amendment. In this context, we are not limited to the defendant’s contacts with the forum state and instead consider contacts with the nation as a whole.

The Court concluded that the District Court’s exercise of personal jurisdiction over defendants from a neighboring state does not offend traditional notions of fair play and substantial justice.

 

Circuit Split on Closed-Ended Continuity in Civil RICO is Clear! This Case Should Be Appealed

Grace International Assembly of God v. Festa et al ___Fed. Appx. ___, 2019 WL7293871 (2d Cir. 2019)

The Second Circuit follows existing precedent in the Circuit to affirm the dismissal of a civil RICO complaint finding that the plaintiffs did not adequately plead acts sufficient to meet the “continuity” requirement for pattern. As the primary basis for its racketeering claim, Grace alleged that Defendants committed numerous counts of wire fraud, in violation of 18 U.S.C. § 1343, during the course of a construction project commissioned by Grace.

The Circuit court did not find racketeering activities which “amounted to or pose a threat of continued criminal activity.”  To meet this so-called “continuity” requirement, a “plaintiff in a RICO action must allege either an open-ended pattern of racketeering activity (i.e., past criminal conduct coupled with a threat of future criminal conduct) or a closed-ended pattern of racketeering activity (i.e., past criminal conduct extending over a substantial period of time).”

  1. Closed-ended Continuity

The Court stated that “[t]o satisfy closed-ended continuity, the plaintiff must prove ‘a series of related predicates extending over a substantial period of time.’ ”  Since the Supreme Court decided H.J. Inc., we have never found predicate acts spanning less than two years to be sufficient to constitute closed-ended continuity. “[W]hile two years may be the minimum duration necessary to find closed-ended continuity, the mere fact that predicate acts span two years is insufficient, without more, to support a finding of a closed-ended pattern.”

The court must also consider the number and variety of predicate acts, the presence or absence of multiple schemes, and the number of participants and victims. Plaintiffs allegations that the acts took place for a period extending longer than two (2) years was not sufficient because the scheme involved few victims and fewer perpetrators.

Editor Note:  These extra requirements are not mandated nor required by the Supreme Court in H.J. Inc., and ignores the Supreme Court principle that civil RICO is to be liberally construed.   These conditions are not required in some other circuits, most notably, the Third Circuit, the Sixth Circuit, and the Ninth Circuit, all of which have explicitly held that a plaintiff is not required to plausibly allege multiple schemes and multiple victims to show closed ended continuity, nor show ongoing conduct to meet the closed-ended prong.  Meanwhile, the Seventh Circuit more closely stands with the Second Circuit.    [Specific case cites will be provided in an upcoming published article].

This conflict in the circuits support the Supreme Court taking another view.

  1. Open-ended Continuity

There are two ways to show open-ended continuity – (1) “where the acts of the defendant or the enterprise [are] inherently unlawful, such as murder or obstruction of justice, and [are] in pursuit of inherently unlawful goals, such as narcotics trafficking or embezzlement,”  or (2) “where the enterprise primarily conducts a legitimate business” but there is “some evidence from which it may be inferred that the predicate acts were the regular way of operating that business, or that the nature of the predicate acts themselves implies a threat of continued criminal activity,”  The allegation of a scheme that was inherently terminable does not plausibly imply a threat of continued racketeering activity.

The court found that Plaintiffs failed to allege the first type of open-ended continuity, which primarily targets organized crime, and failed the second type as the plaintiff did not adequately identify that the nature of the predicate acts implied a threat of continuing activity nor adequately allege the “regular way of doing business.”  Thus, the court concluded in reality this was one scheme with one clear victim, and clearly insufficient to establish a pattern for the purposes of RICO.

Ed. Note:    The requirement for open-ended continuity – (1) “where the acts of the defendant or the enterprise [are] inherently unlawful, such as murder or obstruction of justice, and [are] in pursuit of inherently unlawful goals, such as narcotics trafficking or embezzlement” is also not a requirement set forth in H.J. Inc.   The language is taken from a criminal RICO case to find continuity in such a circumstance.

 

 

 

 

 

 

District Court Judge Denies Defendant’s Motion to Dismiss A Civil RICO Claim Finding Enterprise and Pattern of Racketeering Adequately Pleaded

Foster et al v. Attias, et al., 2019 WL 676402 (E.D. Pa., Dec. 11, 2019)

Judge Goldberg issued a thorough and thoughtful opinion in denying Defendant Moshe Attias’s motion to dismiss a civil RICO claim. The Amended Complaint alleges a pattern of racketeering activity conducted by Attias through an association in fact enterprise of various LLCs of which he is the owner, including Unity Loft, LLC and Lippincott Lofts, LLC. Defendant used these entities to siphon money from Plaintiffs through various real estate transactions. The Judge concluded the allegations give rise to an actionable claim for relief under RICO.

A. RICO Enterprise

1. Distinctness Between Individual Person and Enterprise Found

First, the Judge found “distinctness.” The Amended Complaint (AC) alleged an enterprise consisting of Defendant/Individual Attias’ companies and himself as an individual. The Judge stated that it is well-settled that an “association-in-fact” enterprise may consist of a corporation together with non-employee individuals. Moreover, a RICO enterprise “may be comprised only of defendants, or of defendants and non-defendants.” *4 citing to United States v. Urban, 404 F.3d 754, 782 (3d Cir. 2005).

Defendant Attias challenged the distinctness between the enterprise and the individual defendant but the Judge correctly cited to Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 163 (2001) and Third Circuit law to find the Amended Complaint plausibly pleaded both a “person” and a distinct “enterprise.” The RICO cause of action has been brought against Defendant Attias as a “person” within the meaning of 18 U.S.C. § 1961(3) and § 1964(c). Thus, the “enterprise,” an association-in-fact consisting of Attias together with the separate legal entities of which he is the owner, including Unity Loft, LLC and Lippincott Lofts, LLC. was distinct from Attias, the person.

2. Association in Fact Enterprise Adequately Alleged

The Judge found the enterprise was properly alleged. The Amended Complaint goes on to contend that the enterprise, “an association in fact of an individual and legal entities, has a structure separate and apart from the pattern of racketeering activity in which Defendant engaged.” Finally, the Amended Complaint asserted that “members and associates of the Enterprise, an association in fact enterprise, functioned together as a continuing unit, with a common purpose for the economic benefit and gain of the RICO Defendant Attias.” At this stage of the litigation, these allegations plausibly plead RICO’s second element of enterprise.

Defendants urged that these allegations are insufficient because the Amended Complaint does not identify acts engaged in by Defendant Unity or any non-parties towards a common purpose. They assert that Defendant Unity and non-party Lippincott Lofts, LLC “were each only involved in one of the many transactions in dispute and therefore can neither be part of the RICO enterprise nor can they have engaged in a pattern of racketeering activity.” Without citation to any authority, Defendants contend that absent allegations that each of the members of the enterprise participated in each of the challenged transactions, no RICO enterprise exists.

The Judge rejected this argument citing to Boyle v. United States, 556 U.S. 938 (2009), wherein the Supreme Court noted that an association-in-fact enterprise “need not have a hierarchical structure or a ‘chain of command’; decisions may be made on an ad hoc basis and by any number of methods—by majority vote, consensus, a show of strength, etc. Members of the group need not have fixed roles; different members may perform different roles at different times.” Id. at 948.

In compliance with Boyle principles, the Amended Complaint alleges that the enterprise acted outside the normal affairs of a business relationship and “functioned for the purpose of defrauding Plaintiffs and enriching the Enterprise’s members and associates through falsely claiming that funds provided by Plaintiffs would be used to acquire and develop real property but instead were used for Defendants’ personal enrichment.” In furtherance of this scheme, Plaintiff alleges that Defendant Attias used fraudulent communications to cause Plaintiffs to wire funds to Attias under the representation that the properties acquired with the funds would be placed in Plaintiff Foster’s name, even though Attias actually used the funds to purchase the properties in the name of enterprise members Unity and Lippincott Lots, LLC.

Given that these allegations sufficiently plead both a “person” and a distinct RICO “enterprise,” the Judge declined to dismiss the RICO count on this ground.

B. Pattern of Racketeering Activity

1. Only The Person Named as Defendant Need Commit Acts

The Judge rejected the Defendant’s argument that the RICO claim cannot survive because Plaintiffs do not sufficiently plead a pattern of racketeering activity underlying Plaintiffs’ claims in this action. Here, Plaintiffs alleged predicate acts of racketeering activity involving fraud. Defendants now contend that, “[a]t most, Plaintiffs’ factual averments infer only that one individual, Defendant Attias, allegedly made certain statements and received certain payments by wire transfer. There is no fact asserted that any other individual or entity, including Defendant Unity, committed any predicate act, let alone the two predicate acts necessary to establish a pattern of racketeering activity.” In turn, Defendants claim that the unilateral actions of only Defendant Attias cannot establish a pattern of racketeering activity.

The Judge found that contrary to Defendants’ argument, however, Plaintiffs need not allege that more than one individual or entity that is part of the enterprise committed a predicate act. Rather, RICO liability requires a showing that the defendant participated in the conduct or affairs of the enterprise “through a pattern of racketeering activity that must include the allegation of at least two racketeering acts.”

Here, the RICO cause of action is brought only against Attias as a “person” acting through an “enterprise” that includes non-RICO Defendant Unity and non-party Lippincott Lots, LLC. As such, it is only Attias, as the sole RICO Defendant, who must commit the predicate acts and conduct the enterprise’s affairs through a pattern of racketeering.

2. Closed Ended Continuity Found for Conduct of 20 Months

According to the Amended Complaint, Defendant Attias satisfied this requirement by using multiple interstate wires to defraud Plaintiffs of millions of dollars, all of which were done close in time, were related, and occurred over a substantial period of time (from April 2016 through January 2018). Note: This finding of closed ended continuity based on a closed period of time of about 20 months is significant.

Because Defendants have not cited any authority for the proposition that all members of the enterprise—whether or not defendants in the RICO claim—must commit at least two predicate acts, the Judge denied their motion for dismissal.

Ed. Note: David J. Stander Esq. focuses on civil RICO litigation. Along with named counsel, Mr. Stander provided assistance in the litigation of the above claim, including substantial assistance drafting the Amended Complaint and Plaintiffs’ Response memorandum.