Fifth Circuit Reverses District Court Finding No Facts to Conclusively Establish that the Civil RICO Statute of Limitations Barred Plaintiffs Action Finding Documents Only Created A Fact Issue

Petrobras America, Inc. v. Samsung Heavy Industries Company, Limited., No. 20-20338; 2021 WL 3521659, __4th __, (5th Cir. Aug. 11, 2021)  

The Fifth Circuit reversed and remanded for further proceedings the district court determination that Plaintiff Petrobras America was barred from bringing a civil RICO lawsuit because of the statute of limitations. The lawsuit was filed on March 5, 2019 and Petrobras argued that they did not have notice of their injury until May 2015, within four years of the date of filing.

Petrobras argued that the district court erred in its determination that Petrobras was on notice in 2014 of the facts that gave rise to its RICO claims. The statute of limitations is four years for both Texas fraud claims and civil RICO claims.  The statute of limitations for a RICO claim does not accrue until a plaintiff discovers, or through reasonably diligent investigation should discover, the injury.4 Rotella v. Wood, 147 F.3d 438, 440 (5th Cir. 1998)aff’d528 U.S. 549, 120 S.Ct. 1075, 145 L.Ed.2d 1047 (2000)Jensen v. Snellings, 841 F.2d 600, 607 (5th Cir. 1988) (“A plaintiff who has learned of facts which would cause a reasonable person to inquire further must proceed with a reasonable and diligent investigation, and is charged with the knowledge of all facts such an investigation would have disclosed.”).

In Petrobras’s view, it did not and could not have discovered its injury until May of 2015, when it completed an internal audit of the drilling services contract for DS-5. Samsung disagrees, arguing that Petrobras knew as far back as 2007, and certainly no later than 2014, that it had been injured. Because a “statute of limitations is an affirmative defense for which the [defendant] has the burden of proof,” we will address Samsung’s proposed dates of notice in turn. Trinity Marine Prods., Inc. v. United States, 812 F.3d 481, 486 (5th Cir. 2016)accord Fed. R. Civ. P. 8(c)(1).

In asserting that Petrobras had notice in 2007, Samsung argues that two Petrobras employees  knowledge of the bribes is imputed to Petrobras, but the court found there employees’ knowledge cannot be imputed to Petrobras.*3. 

Samsung presented another argument for dismissal, i.e., Petrobras officials knew as early as 2007 that it might not need the DS-5; thus Petrobras knew about its injury as far back as 2007. There were conflicting e-mail and documents, but the Court stated that regardless of whether Petrobras or Samsung is correct in its reading of these e-mails and documents, they do not conclusively establish that the statute of limitations had run by March 5, 2019. Rather, they create a fact issue about Petrobras’s knowledge and the 2007 e-mails and related documents are not a proper basis for 12(b)(6) dismissal. 

The court also rejected Samsung’s view that Petrobras was injured by the “unfavorable terms” in the DS-5 contract, which it ultimately did not need. In its reply brief, Petrobras characterizes the injury as “a wholly unnecessary contract that was procured through Samsung’s fraud.” The Court thus held that Samsung “has not met its burden of conclusively establishing that” Petrobras knew or should have known about its injury as far back as 2007. *4.   

The Court also rejected arguments that two newspaper articles and Petrobras’s 2014 Form 20-F Annual Report, filed in 2015 with the U.S. Securities and Exchange Commission finding that regardless of whether it was proper to consider these documents, they do not conclusively establish that the statute of limitations began running prior to March 5, 2015. The SEC filing and news articles do not mention Pride or DS-5 at all. Pride—not Samsung—entered into the DS-5 contract with Petrobras. Samsung’s involvement was “camouflaged.” The Samsung–Petrobras contract involved the construction of the Vitória 10,000 and Petrobras 10,000; the Petrobras–Pride contact involved the drilling services of the DS-5. The separate bribery schemes involved separate parties, separate contracts, and separate ships.

In short, the Court concluded that Samsung’s arguments at best raise fact questions not suitable for disposition under Rule 12(b)(6).*5, citing Acad. of Allergy & Asthma in Primary Care v. Quest Diagnostics, Inc., 998 F.3d 190, 200 (5th Cir. 2021) (reversing 12(b)(6) dismissal on statute-of-limitations grounds because Defendants failed to conclusively establish that Plaintiffs should have discovered their injury through a diligent inquiry).   Samsung has not conclusively established at the 12(b)(6) stage that Petrobras’s RICO and Texas fraud claims accrued before March 5, 2015. 

Closed-Ended Continuity Not Found When Only Single Scheme, Single Victim, Even If “Longevity” Existed

Palantir Technologies v. Abramowitz, 2021 WL 2400779 (N.D. Cal., June 11, 2021)

The court granted Defendant’s motion to dismiss the civil RICO claim finding that plaintiff did not adequately plead RICO “continuity.” 

In this case for years between 2012 and 2014, a consultant named Abramowitz engaged in discussions with Palantir’s employees regarding certain technologies and gained access to Palantir’s confidential and proprietary information regarding its Healthcare, Cyber, and Natural Resources Technologies. This conduct continued through year 2018 in which Abramowitz filed 14 domestic and international patent applications based on this confidential and proprietary information, falsely claiming on each application to be the sole inventor, Palantir alleges that it was harmed by Defendants’ actions because it spent millions of dollars developing its Healthcare, Cyber, and Natural Resources Technologies; lost value from its trade secrets by Defendants’ unauthorized publication of the trade secrets in patent applications; spent significant funds and resources investigating Defendants’ misconduct; initiated proceedings before the U.S. Patent and Trademark Office (“USPTO”) and before German courts to establish that Palantir is the true inventor of the patent applications at issue; lost substantial financial gain; and lost valuable business opportunities.

Closed Ended Continuity

The Parties are in agreement that the alleged predicate acts are wire fraud based on alleged affirmative misrepresentations and omissions.   The court discussed that “The continuity requirement reflects Congress ‘concern[ ] in RICO with long-term criminal conduct.’ ” *6 citing Mocha Mill, Inc. v. Port of Mokha, Inc., No. 18-CV-02539-HSG, 2019 WL 1048252, at *10 (N.D. Cal. Mar. 5, 2019) (quoting H.J., 492 U.S. 229, 240 (1989)). “[C]ontinuity is both a closed- and open-ended concept, referring either to a closed period of repeated conduct or to past conduct that by its nature projects into the future with a threat of repetition.” Mocha Mill, 2019 WL 1048252, at *10 (internal quotation marks omitted).

Closed-ended continuity is established by showing that related predicate acts occurred over a substantial period of time.” Id. (internal quotation marks omitted). “[T]he Ninth Circuit has explained that activity spanning only a matter of months, involving a single victim, with a singular goal, cannot sustain a RICO claim.” Mocha Mill, 2019 WL 1048252, at *10 (citing Medallion Television Enterprises, Inc. v. SelecTV of California, Inc., 833 F.2d 1360, 1363 (9th Cir. 1987)). A “single episode,” containing multiple predicate acts, “having the singular purpose of impoverishing [the plaintiff],” with “no suggestion that these defendants…ever intended anyone but [plaintiff] any harm” also cannot sustain a RICO claim. Mocha Mill, 2019 WL 1048252, at *10 (quoting Sever v. Alaska Pulp Corp., 978 F.2d 1529, 1535 (9th Cir. 1992)).

Defendants argued that, since this alleged scheme only has a single fraud—establishing competing businesses based on Palantir’s own technology to benefit the Abramowitz enterprise— and a single victim—Palantir—there can be no closed-ended continuity under Ninth Circuit law.  Palantir argues that the multiyear length of the alleged scheme is sufficient to allege closed-ended continuity and suggests, for the first time, that the USPTO is also a victim of the scheme. Opp’n 18-20.

“RICO’s continuity requirement is not satisfied if plaintiffs have merely alleged a single fraud perpetrated on a single victim.” United Energy Owners Comm., Inc. v. U.S. Energy Mgmt. Sys., Inc., 837 F.2d 356, 360 (9th Cir. 1988) (internal quotation marks omitted); accord Shwurong Lee v. Bank of New York Mellon, No. 16-CV-05094-JST, 2016 WL 8729924, at *9 (N.D. Cal. Dec. 9, 2016). The Court also previously noted that the second factor, the number of victims, is more determinative as the Ninth Circuit rarely upholds a finding of continuity where there is only a single victim. See Sever, 978 F.2d at 1535.*7.   

The Court agrees with Defendants that “longevity is only one piece of the puzzle.”*8.   Palantir’s allegations regarding the victim of the scheme (Palantir) and the single goal of the scheme (“establishing competing businesses based on Palantir’s own technology to benefit himself, KT4, and the Trust”) have not changed since the Court previously found them deficient.  The court relied on

Ninth Circuit’s decisions in Sever and Medallion to compel this Court’s decision in this case, i.e., that “although Sever alleges a number of ‘acts,’ APC’s collective conduct is in a sense a single episode having the singular purpose of impoverishing Sever, rather than a series of separate, related acts.” Id. at 1535. The Ninth Circuit found that these allegations do not satisfy the continuity requirement established by the Supreme Court in H.J. v. Northwestern BellSever, 978 F.2d at 1535. Analogizing to Medallion, the Ninth Circuit found that predicate acts designed to bring about a single event did not pose a threat of continuity. Id. at 1535-36. Single-victim cases with a single episode—regardless of the alleged number of actual acts—and a single purpose do not meet the continuity requirement. See id. at 1535.

The court found that since there is a single victim (Palantir) and acts that can properly be characterized as a single episode (stealing Palantir’s confidential and proprietary information) for a single purpose (establishing competing businesses based on Palantir’s own technology, these “[are] in a sense a single episode,” Sever, 978 F.2d at 1535, and that does not satisfy the continuity requirement stating- 

The situation in this case is analogous [to Medallion]: a single alleged fraud—theft of Palantir’s trade secrets in order to establish competing businesses to benefit the Abramowitz enterprise—was committed against a single alleged victim—Palantir. *9. 

The court also discussed that Mocha Mill, a recent decision from this district, follows Sever and MedallionMocha Mill, 2019 WL 1048252. In Mocha Mill, the plaintiffs alleged conspiratorial conduct lasting over two years “with a singular goal of stealing Mocha Mill’s business” had not established closed-ended continuity. *8.   The court concluded that since Palantir has only pled a singular goal with a single alleged episode constituting a single fraud against a single victim, it has not sufficiently pled closed-ended continuity, after multiple revisions of the Complaints, Palantir’s RICO claim based on closed-ended continuity is DISMISSED WITHOUT LEAVE TO AMEND.

Open-Ended Continuity

The court discussed that only predicate acts can form the basis of an open-ended continuity allegation. Ticor Title Ins. Co. v. Florida, 937 F.2d 447, 450 (9th Cir. 1991) (“To satisfy the continuity prong of the test, one need only show that the predicates pose a threat of continued criminal activity, such as when the illegal conduct is “a regular way of conducting [a] defendant’s ongoing legitimate business.”) (emphasis added) (quoting H.J., 492 U.S. 229, 243 (1989)).   

Because Palantir’s allegations regarding open-ended continuity rely on alleged fraud regarding patent applications—conduct that does not constitute mail or wire fraud—Palantir has not sufficiently pled open-ended continuity. See Fleet Credit Corp. v. Sion, 893 F.2d 441, 448 (1st Cir. 1990) (“A threat of continued criminal activity for purposes of RICO is not established merely by demonstrating that the Sions’ acts of common law fraud were a regular way of conducting their ongoing businesses. Rather, Fleet must demonstrate that the predicate acts—here the acts of mail fraud—were a regular way of conducting the ongoing businesses.”) (emphasis in original). The alleged predicate acts in this case, i.e., the misrepresentations by Abramowitz to induce the sharing of confidential information and material omissions concerning fraudulent plans, had ceased by the time this lawsuit was filed.

Since Palantir has repeatedly failed to cure the deficiencies with its open-ended continuity theories by amendment, Palantir’s RICO claim based on open-ended continuity was dismissed without leave to amend. 

Defendant’s Waiver of Service Did Not Waive the Right to Challenge Personal Jurisdiction Regarding a Civil RICO Claim

Don’t Look Media LLC v. Fly Victor Limited, __ F.3d ___, 2021 WL 2280897 (11th Cir., June 4, 2021)

The court affirmed the lower court decision dismissing the civil RICO claim finding lack of personal jurisdiction, and finding a revenue sharing agreement’s forum selection clause mandated litigation of the dispute in an English court.

Plaintiff Don’t Look Media, LLC (“DLM”) licensed its private jet booking website to defendant Fly Victor Ltd. in exchange for Fly Victor’s agreement to invest in increasing traffic to the site and to share booking revenues with DLM. According to DLM, Fly Victor never fulfilled its obligations. DLM sued Fly Victor, some of its directors and officers, and related entities in the Southern District of Florida. Among other things, DLM alleged that the Fly Victor directors and officers had violated RICO by defrauding DLM of the site revenues and laundering these ill-gotten gains through closely held firms.

No Service of Party Within the United States Negates Civil RICO Action

The court first based its affirmance because DLM relied only on a RICO provision that allows for service of process in any United States judicial district. 18 U.S.C. section 1965(d).  But this statute cannot provide personal jurisdiction because DLM did not serve any party within the United States. It only attempted service on the defendants in a London office building.

The court thus held that even assuming that DLM’s RICO allegations are sufficiently colorable to invoke RICO’s nationwide service of process provision, DLM did not serve any party in accordance with that provision. The court stated that Section 1965(d)’s authorization of service in any judicial district plainly does not authorize service outside the United States.*4.   RICO therefore did not supply a statutory basis for personal jurisdiction in this action, and DLM did not offer any alternative statutory basis.

Waiver of Service Did not Waive the Right to Challenge Personal Jurisdiction

The court also discussed the defense counsel’s waiver of service stating that Defense counsel’s email waived, at most, the ability to argue that DLM’s method of serving the defendants — leaving a bundle of documents for several defendants at Fly Victor’s London reception desk — was insufficient. It did not waive the right to challenge personal jurisdiction. Personal jurisdiction and proper service are distinct requirements and distinct objections. See Fed. R. Civ. P. 4(d)(5) (“Waiving service of a summons does not waive any objection to personal jurisdiction or to venue.”); Fed R. Civ. P. 12(b)(2), (5) (listing “lack of personal jurisdiction” and “insufficient service of process” as distinct defenses), citing cases.

The court also discussed that even setting aside that no defendant was served in the United States, § 1965(d)’s remaining terms did not apply as none of the Individual Defendants resided or had an agent in any United States judicial district. Nor did they “transact [their] affairs” in any such district. DLM’s only claims on this score were that Jackson is a director of, and Vorster is a director and officer of, an entity called YoungJets LLC, a California LLC that is authorized to do business in Florida and maintains a registered agent in Tallahassee. YoungJets changed its name to Fly Victor Inc. — not to be confused with defendant Fly Victor Ltd. — in 2018. But DLM did not make any allegations to support disregarding corporate separateness between Jackson and Vorster and YoungJets.*6. 

The court concluded that DLM did not serve any defendant within the United States, and thus RICO’s nationwide (not worldwide) service of process provision cannot provide the statutory basis for personal jurisdiction in this case. Therefore, the court did not reach the further questions that would necessarily have arisen had DLM served the Individual Defendants in the United States — namely whether DLM’s RICO claims are sufficiently colorable to support reliance on RICO for personal jurisdiction and whether the exercise of personal jurisdiction over the defendants in the Southern District of Florida would offend due process.*7. 

Forum Selection Clauses Found Enforceable.

Moreover, the forum selection clauses are enforceable, plainly applied to DLM’s claims, and required dismissal in favor of an English forum.*8. 

Court Dismisses Defendant’s Civil RICO Claims Involving Payments to University of Louisville Officials Allegedly Spearheaded by Adidas Finding Inadequate Causation and Inadequate Allegation of Direct Injury

Bowen, Jr. v. Adidas America, Inc., 2021 WL 2141724 (D. S. C., May 26, 2021)

Plaintiff alleges Defendants derailed his promising career when they engaged in racketeering activity by conspiring to bribe, and bribing, his father to persuade Plaintiff to play basketball for the University of Louisville (“UofL”)—an Adidas-sponsored university. The gravamen of Plaintiff’s complaint is that Defendants committed predicate acts of wire fraud against student-athletes and universities by offering payments to the families of high-school basketball players for those players to attend such universities on scholarships, which allegedly rendered false the certifications of NCAA eligibility that those players made to the universities. Plaintiff alleges Adidas spearheaded this purported RICO enterprise. Adidas disputes Plaintiff’s account, asserting it was the victim of a scheme perpetrated by Bowen Sr., two rogue mid-level Adidas employees, and others, to misappropriate Adidas’s funds.

Bowen Jr. alleged four counts of violations of RICO.  The civil RICO statute provides that “[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter may sue … in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney’s fee.” 18 U.S.C. § 1964(c). A private RICO plaintiff must show damage to “business or property” proximately caused by the defendant’s RICO violation to have standing to bring suit.  Allegations of personal injuries and the pecuniary losses incurred therefrom do not qualify as injury to “business or property.” 

Bowen Jr. claimed that, as a result of the alleged acts of racketeering, he suffered “three … categories” of damages: “(1) damage to his protected property interest and the services guaranteed therein via the June 1, 2017 contract with the University of Louisville; (2) damage to his NCAA eligibility; and (3) damage to his earnings as a professional basketball player.

  1. Louisville Scholarship

Plaintiff’ argued that he lost a contractual right under his scholarship to “prepare for the NBA” at UofL. (Id.).  The court ruled that Plaintiff’s argument was unsupported by sound legal principles. Plaintiff’s expectations did not amount to a contractual right to play basketball at UofL. The court ruled that a college athlete’s scholarship creates a protectable property interest in participation in college athletics has been rejected in other cases which held that the “interest” in playing intercollegiate athletics which the college athletes contended was created by their scholarships was “too speculative to establish a constitutionally protected right,” and commented that “the athlete on scholarship has no more ‘right’ to play than the athlete who ‘walks on.’ ” Thus, a RICO plaintiff’s claimed “injury to mere expectancy interests or to an intangible property interest” cannot confer RICO standing. *4. 

2. NCAA Eligibility

Bowen Jr. next claimed “damage to his NCAA eligibility,” under which he also groups certain alleged costs of an attorney helping Bowen Jr. to attempt to return to college basketball.  The court stated that neither is a cognizable injury here, citing to case law which has previously held that there is no right to “participation in interscholastic athletics,” and thus student-athletes’ expectations of future athletic careers are constitutionally protected.  Thus, the Court thus declined to expand RICO’s reach and finds the loss of Plaintiff’s NCAA eligibility insufficient to confer RICO standing and thus, not an actionable harm.

3. Legal Fees and Costs

Plaintiff cited legal fees and costs of $28,342.48 incurred attempting to regain his NCAA eligibility under the same genre of damages as his loss thereof. Bowen Jr.’s claimed legal fees cannot constitute an injury sufficient to confer standing because they fail to qualify as an injury to “business or property” and as such, are not compensable under the RICO statute.  The court discussed that even if Plaintiff had paid the fees, they are not recoverable for the additional reason that they derive from an attempt to remedy non-cognizable harm—a claimed inability to compete in NCAA basketball. Such derivative injuries, even if nominally to business or property, do not suffice for RICO standing as they are an indirect injury from a defendant’s conduct. *5.

4. Professional Earnings

Bowen Jr.’s claim of lost professional earnings is likewise deficient because it is not an injury to his “business or property,” but an unrecoverable expectancy interest. It is unnecessary for the Court to address the merits of these arguments, as Plaintiff’s failure to show an injury to his business or property interests is fatal to his RICO claims.

 Injunctive Relief

Plaintiff’s request for injunctive relief asked thr Court for an order enjoining Adidas from sponsoring any NCAA Division I men’s basketball programs.   Plaintiff asserted that “absent injunctive relief, RICO would be rendered hollow as it applies to illegal bribery schemes by corporate sponsors to influence intercollegiate recruiting for profit. Preventive injunctive relief is the sole vehicle to provide meaningful impact on the livelihood and development of student-athletes, like [Bowen Jr.], who have been exploited by corrupt enterprises motivated by corporate and institutional gain.”

Plaintiff’s brief notes that “[w]hile the Fourth Circuit has not weighed in on the availability of injunctive relief to private parties under RICO, oral argument on this issue was recently held” and “the Fourth Circuit is expected to issue a ruling within the coming months.” However, whether the Fourth Circuit determines RICO authorizes private plaintiffs to seek injunctive relief will have no impact on the Court’s disposition on the instant matter because plaintiff “has not sufficiently pled a RICO claim” he could not “be entitled to injunctive relief”).  As determined above, Plaintiff lacked standing for his RICO claims, and resultantly, he was foreclosed from injunctive relief on that basis. *7. 

 Limited Discovery Provided

The Court extended Plaintiff latitude in permitting the opportunity to establish factual support for his allegations in discovery before entertaining Adidas’s arguments on RICO standing, but discovery has confirmed Plaintiff cannot make the required showing. Zeal alone cannot cure the deficiencies in Plaintiff’s RICO claims. The availability of civil relief under RICO is narrowly circumscribed, and the record makes clear that Bowen Jr.’s claimed harms were not to cognizable business or property interests.

District Court Rules That Plaintiff Entitled to Strict Additional Discovery to Adequately Plead Mail Fraud RICO Predicate Crimes

Norfe Group Corp. v. R.Y. Espinoza Inc., 2021 WL 1845329 (D. P.R. May 7, 2021) 

Norfe alleges that defendants used the mails and wires to execute a fraudulent scheme whereby they would avoid their obligations to their insureds. Id. Defendants moved to dismiss for failure to state a claim, and the court found that Norfe’s amended complaint failed to comply with Rule 9(b)’s particularity requirement, as it borderline failed to plead mail fraud with specificity.  Rather than dismiss the action, the court granted Norfe limited discovery under New England Data Services, Inc. v. Becher, 829 F.2d 286 (1st Cir. 1987).  For the reasons described in the opinion, Norfe was  permitted additional strictly limited additional discovery.

A. Documents Solely in Possession of Defendant May Permit Plaintiff to Have Additional Limited Discovery

As the court has previously explained, certain of Plaintiff’s allegations did not comply with Rule 9(b)’s particularity requirement, as they borderline failed to plead mail fraud with specificity.  Nonetheless, Norfe’s RICO claims were not dismissed outright. Despite Rule 9(b)’s heightened pleading requirements, the First Circuit recognizes that “it will often be difficult for a plaintiff to plead with specificity when the facts that would support her claim are solely in the possession of a defendant….,” Cordero-Hernández v. Hernández-Ballesteros, 449 F.3d 240, 244 (1st Cir. 2006) (citing Becher, 829 F.2d at 290), a circumstance which can frequently arise in RICO mail and wire fraud cases. See Becher, 829 F.2d at 290-91 (“In the instant case, it is seemingly impossible for the plaintiff to have known exactly when the various defendants phoned or wrote to each other or exactly what was said.”). Thus, “a court faced with an insufficiently specific claim may permit limited discovery in order to give a plaintiff an opportunity to develop the claim and amend the complaint.” See Cordero-Hernández, 449 F.3d at 244 (citing Becher, 829 F.2d at 290). 

This discovery is neither automatic nor offered to plaintiffs as a matter of right. Defendants maintain that the court never authorized written discovery and that, even if written discovery were permitted, Norfe seeks material outside the scope of the limited discovery permitted under Becher. *4. 

B. Rule 9(b) Does Not Require Plaintiff to Plead Every Individual Misrepresentation with Specific Detail

Even assuming that Norfe would need information regarding other insureds’ claims for purposes of its own RICO cause of action, it would not need to provide specific details regarding each and every one of those 250 insurance claims, related emails, internal reports, and invoices to satisfy Rule 9(b)See Puerto Rico Med. Emerg. Group, Inc. v. Iglesia Episcopal Puertorriqueña, Inc., 118 F. Supp. 3d 447, 458 (D.P.R. 2015) (“To be sure, because [plaintiff] alleges an expansive scheme spanning several years and including hundreds of misrepresentations, Rule 9(b) does not require it to plead every individual misrepresentation with specific detail.”). “Setting forth the date, sender, recipient [ ], and mode of delivery for a representative sample … would suffice.” Id.

Norfe thus also sought information related to its RICO allegations and peculiarly within defendants’ control. Mindful both of the challenges inherent to pleading RICO mail fraud claims and of Rule 9(b)’s purpose to protect defendants from the harms of groundless fraud claims, the court permitted  strictly limited additional discovery, and Norfe could send new written requests to defendants within certain parameters. 

Ed. Note:   This case provides useful reiteration of the rules regarding the pleading of mail and wire fraud allegations, and appears to be a more liberal test for seeking discovery at the pleading stage than other circuits.

Court Finds Insufficient Standing for a Prospective Lessee (Sterling) to Allege Civil RICO Violations When Lessee Was Not Person Most Directly and Proximately Injured By Alleged Racketeering Activity

Sterling Suffolk Racecourse LLC v. Wynn Resorts, Ltd., 990 F.3d 31 (1st Cir. 2021)

Court Finds Insufficient Standing for a Prospective Lessee (Sterling) to Allege Civil RICO Violations When Lessee Was Not Person Most Directly and Proximately Injured By Alleged Racketeering Activity

The court of appeals affirmed the lower court’s decision dismissing the civil RICO claim but for different reasons, instead finding that the plaintiff-prospective lessee (Sterling Suffolk Racecourse, LLC- “Sterling”) did not and could not meet the causation of injury requirements set forth at 18 U.S.C. § 1964(c).

Property owner (Sterling) brought a civil RICO action alleging that casino operator Wynn Resorts, its subsidiary, its executives, and owner of site for casino conspired to deprive Sterling as a potential lessee of exclusive gaming license.  Sterling alleged these parties conspired to violate civil RICO in order to deprive Mohegan of a gaming license, costing Sterling the opportunity to lease its East Boston property to Mohegan for a casino site.

Three Supreme Court cases interpret “by reason of” to require that a plaintiff in a civil RICO action show that the defendant’s actions were “not only … a ‘but for’ cause of [plaintiff’s] injury, but … the proximate cause as well.” Id. at 35, citing cases.  The “central question” in evaluating proximate causation in the RICO context “is whether the alleged violation led directly to the plaintiff’s injuries.” Id.  See Hemi Group, LLC v. City of N.Y., 559 U.S. 1, 9, 130 S.Ct. 983, 175 L.Ed.2d 943 (2010) citing to Holmes

This court has identified in these Supreme Court cases “three functional factors with which to assess whether proximate cause exists under RICO.” In re Neurontin Mktg. & Sales Pracs. Litig., 712 F.3d 21, 35-36 (1st Cir. 2013) (citing Holmes, 503 U.S. at 269-70, 112 S.Ct. 1311). These are (1) “concerns about proof” because “the less direct an injury is, the more difficult it becomes to ascertain the amount of a plaintiff’s damages attributable to the violation, as distinct from other, independent, factors,” id. at 36 (quoting Holmes, 503 U.S. at 269, 112 S.Ct. 1311); (2) “concerns about administrability and the avoidance of multiple recoveries,” id.; and (3) “the societal interest in deterring illegal conduct and whether that interest would be served in a particular case,” id. As to this third factor, “directly injured victims can generally be counted on to vindicate the law … without any of the problems attendant upon suits by plaintiffs injured more remotely.” Id. (quoting Holmes, 503 U.S. at 269-70, 112 S.Ct. 1311).

In applying the Hemi analysis, the court ruled that it is clear that Sterling did not sufficiently allege a direct, non-contingent injury.  At minimum, Mohegan, which is not involved in this suit, is a “better situated plaintiff[ ]” with “an incentive to sue.” Id. at 11-12, 130 S.Ct. 983 (citing Holmes, 503 U.S. at 269-70, 112 S.Ct. 1311). Mohegan was Wynn’s direct competitor for the gaming license. Sterling’s theory is that Wynn’s wrongful conduct cost Mohegan the gaming license, which in turn cost Sterling the benefit of a potential lease with Mohegan. Any injury Mohegan suffered is necessarily several steps closer to Wynn’s allegedly wrongful conduct. By attempting to recover directly from Wynn, Sterling’s theory of causation both “go[es] beyond the first step” of the injuries from the alleged RICO scheme and is “purely contingent.” Id. at 9, 10, 130 S.Ct. 983.

The court ruled that Sterling is in the same position as any third-party business which hoped for a major contract from the Mohegan casino project, and lost that potential for business revenues when Mohegan lost the application bid.  Moreover, any causal link between Wynn’s conduct and Sterling’s lost rental income is “purely contingent.” Id. at 36 citing to Holmes, 503 U.S. at 271, 112 S.Ct. 1311. Sterling’s agreement with Mohegan imposed conditions that may have excused performance regardless of whether Mohegan obtained a license from the Commission. Mohegan was released from any obligation to perform in the event of a “Material Adverse Change” affecting the lease, including if construction took longer than two years for any reason outside of its control, or if local authorities other than the Commission refused to approve the project.

The court concluded that these problems with Sterling’s theory of causation caused it to fail under each of the three functional factors laid out in In re Neurontin. 712 F.3d at 36. In these circumstances, Sterling cannot show a “direct injury” from Wynn’s actions, and so its RICO claims failed as a matter of law.

Court Denies Defendants’ Motion to Dismiss Civil RICO Claim Finding Sufficient “Injury” and Also Recognizing Equitable Relief for Civil RICO Claims

Smith v. FirstEnergy Corp., et al, 2021 WL 496415 (S.D. Ohio, Feb. 10, 2021)

The court denied the Defendants’ motion to dismiss a civil RICO claim. In the summer of 2020, former Speaker of the Ohio House of Representatives Larry Householder and his political associates were indicted for a $60 million-dollar federal racketing conspiracy. The criminal complaint alleged that in exchange for hefty bribes from “Company A,” Householder and members of his racketeering enterprise (“Householder Enterprise”) worked to pass and uphold House Bill 6 (“HB 6”), a near billion-dollar nuclear power plant bailout for FirstEnergy Corp. Plaintiffs, individual and commercial ratepayers of FirstEnergy Corp., bring civil claims on behalf of a proposed class against Defendants, FirstEnergy Corp., FirstEnergy Service Co., and various individuals in decision-making roles at either entity. Plaintiffs allege that as a result of FirstEnergy’s racketeering alongside the Householder Enterprise, they have been injured by having to pay costs and fees set forth in HB 6.

The crux of Plaintiffs’ RICO and OCPA claims is that Defendants violated the statutes by engaging in a pattern of racketeering activity by making bribes to the Householder Enterprise to ensure the ultimate enactment of HB 6.  The Court found that Plaintiffs’ complaint pleaded both injury and causation adequately under § 1964(c) and rejected Defendants contention that Plaintiffs have not suffered a cognizable injury because HB 6’s surcharge provision had not yet taken effect and may never take effect.  The court stated that a federal civil RICO claim is ripe when the injury is “ascertainable and definable.” Id. at *4, citing case.   Plaintiffs injury is ascertainable and definable because the exact amount of injury—85 cents or $2,400 per month—and the imminent date at which it will begin—January 2021—are exceedingly clear. Thus, Defendants’ argument was purely a matter of statutory standing, or interpretation of the word “injured.”

The court stated that unlike an unknowable future injury at an undiscernible point in time, the injury here is defined monetarily and there is no vague contingent future event—the surcharges are part of an enacted law with an effective date.  Moreover, under Defendant’s position prospective equitable relief would never be appropriate under the statute. Equitable relief is generally available under § 1964(c), and no court has concluded that this excludes any particular type of equitable relief. 

Defendants provide no authority demonstrating that an award of preliminary injunctive relief in parallel state proceedings renders an injury pleaded in an already-filed complaint incognizable, or even unripe. State proceedings, legislative or judicial, could certainly moot this case at some point or impact the relief available to Plaintiffs. But these concerns are not raised before the Court. The issue here is one of statutory standing, and Defendants failed to show that “injured” in § 1964(c) does not contemplate imminent, ascertainable, and specified injuries.

Court Grants Defendant’s Motion to Dismiss Civil RICO Claim Finding Plaintiffs’ Claims Time-Barred As They Had Constructive Knowledge of Their Individual Injuries

Amory v. Giarla, 2021 WL 254192 (N.D. Cal., Jan. 26, 2021)

The court found that every single plaintiff’s claims for civil RICO relief was time-barred under the RICO statute of limitations. 

Plaintiffs are a group of artists and art buyers who either consigned their artwork or purchased artwork from defendant, a former gallerist, allegedly renowned, with various galleries in San Francisco. They allege that he misappropriated the proceeds from the sale or purchase of artwork entrusted to him for his own personal gain, abruptly closed all of his galleries after exhausting a Ponzi scheme to defraud them, and fled to Oregon with their property, which he held in trust, as a fiduciary. Plaintiffs allege breach of fiduciary duty and violations of RICO.

As a threshold matter, defendant contends that every single plaintiff’s claim is time barred. The linchpin of the RICO claim centers on defendant’s alleged acts of mail and/or wire fraud relating to plaintiffs Dennis, Mather, and Voskoboynikov. The statute of limitations for a civil RICO claim is four years. See Rotella v. Wood, 528 U.S. 549, 552 (2000). In Rotella, the Supreme Court held that the accrual clock for a civil RICO claim begins when a plaintiff knew or should have known of her injury. Notwithstanding that “a pattern of predicate acts may well be complex, concealed, or fraudulent,” it is the “discovery of the injury, not discovery of the other elements of a claim” that starts the clock. Id. at 553–56. Even so, a civil RICO claim is subject to equitable principles of tolling. Id. at 560.

The court discussed that the action was filed on July 30, 2020. Plaintiffs argued that the consignment of their artwork created a legal trust whereby defendant’s galleries held those artworks — and the proceeds from the sale of those artworks — in trust for their benefit. Plaintiff argue that their claims are not time barred because they “did not know of their injuries, nor should they have known of their injuries, until July 31, 2016, at the earliest, when they first learned via a viral Facebook post that [d]efendant had closed the [g]alleries, unilaterally and improperly terminated his consignment relationship with [them,] and fled California with their funds and/or artwork.” According to plaintiffs, their injuries lie “in the permanent loss of money and/or artwork owed to them by [d]efendant,” which did not occur until defendant severed the consignment trusts by closing the galleries and fleeing to Oregon with their property. They argue that they “had no reason to suspect that anything was amiss until at least” July 31, 2016 (id. at 12). “Until then, while the [g]alleries were still open, plaintiffs’ property was still held in trust with defendant” and there was no injury, they argue and did not have actual or constructive knowledge of defendant’s alleged fraud before July 31, 2016.   Alternatively, they argue that their RICO claim should be equitably tolled given defendant’s alleged fraudulent concealment.

 Constructive Knowledge

This order disagrees with both of plaintiffs’ arguments stating that plaintiffs’ claimed timing of their injury is intellectually dishonest as if defendant sold their consigned paintings and told plaintiffs so in 2010, they could file a suit to collect the money from the sale of the paintings in 2010, so long as the galleries remained open, notwithstanding their unsuccessful collection efforts all along.

Plaintiffs relied heavily upon Living Designs, Inc. v. E.I. Dupont de Nemours and Co., 431 F.3d 353 (9th Cir. 2005), but its facts were not directly analogous as unlike in Living Designs, plaintiffs Dennis, Mather, and Voskoboynikov circumstances demonstrate that they had constructive notice — if not actual knowledge — of defendant’s alleged fraud and their individual injuries more than four years before the filing of this action. To the extent that they argue that accrual should begin when they learned — via the Facebook post — that defendant had allegedly defrauded all of them (i.e., of his pattern of racketeering activity), that argument runs head long into Rotella’s holding that it is the “discovery of the injury, not discovery of the other elements of a claim” that starts the clock. 528 U.S at 553.

In conclusion, the three plaintiffs Dennis, Mather, and Voskoboynikov, had inquiry notice of their individual injuries — as they were not getting paid despite their collection efforts — and knew or should have known that defendant was stiffing them more than four years before they filed this action.

Equitable Tolling

Alternatively, plaintiffs argue their RICO claim should be equitably tolled due to defendant’s fraudulent concealment.  “To establish equitable tolling, … plaintiff[s] must plead with particularity that the defendant actively misled [them], and that [they] had neither actual nor constructive knowledge of the facts constituting [their] RICO claim despite [their] due diligence in trying to uncover those facts.” *10.  The allegations plaintiffs point to as being sufficient for equitable tolling are general allegations, not specific and particularized. They describe defendant’s alleged conduct in general terms, but they do not describe how any individual plaintiff, let alone how Dennis, Mather, and Voskoboynikov, in particular, were actively misled by defendant. Moreover, as already discussed, Dennis, Mather, and Voskoboynikov had at least constructive knowledge of defendant’s alleged predicate acts of wire fraud more than four years before the filing of this action. Accordingly, plaintiffs have not pled facts sufficient to justify equitable tolling. In the absence of any tolling, Dennis, Mather, and Voskoboynikov’s claims are all time barred.

Eighth Circuit Affirms District Court’s Granting of Class Certification for Civil RICO Claims

Custom Hair Designs by Sandy v. Central Payment Co., LLC, __F.3d__, 2020 WL 7755459 (8th Cir., Dec. 30, 2020)

The Court affirmed the lower court’s motion for certification of plaintiff class brought on behalf of more than 160,000 small retailers that used the defendant’s credit card processing services, seeking to recover on breach of contract, fraudulent concealment, and civil racketeering theories for defendant’s alleged misrepresentation of its fees, multiplication of fees, and inflation of fees without prior approval from issuing banks.


Regarding the civil RICO claims, the court addressed standing.  The court referred to the Supreme Court which stated that “[A] plaintiff asserting a RICO claim predicated on mail fraud need not show, either as an element of its claim or as a prerequisite to establishing proximate causation, that it relied on the defendant’s alleged misrepresentations.” Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 661 (2008). “When a court evaluates a RICO claim for proximate causation, the central question it must ask is whether the alleged violation led directly to the plaintiff’s injuries.” Id. at 654, 128 S.Ct. 2131quoting Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 461, 126 S.Ct. 1991, 164 L.Ed.2d 720 (2006).

The Court stated there is no basis that the proximate-cause analysis under RICO must precisely track the proximate-cause analysis of a common-law fraud claim.” Id. at 655, 128 S.Ct. 2131Compare In re United States Foodservice Inc. Pricing Litig., 729 F.3d 108, 121-22 (2d Cir. 2013) (affirming RICO certification in pricing case) and Torres v. S.G.E. Mgmt., LLC, 838 F.3d 629, 639 (5th Cir. 2016) (en banc) (post-Bridge case certifying RICO class), with pre-Bridge cases.

The court found that defendant CPAY’s arguments about reliance were mistaken. Although reliance is required for common law fraud, RICO’s predicate is mail or wire fraud, which did not exist at common law. Bridge, 553 U.S. at 652, 128 S.Ct. 2131. The requirements for common law fraud are not read into RICO. Id.  Thus, plaintiffs are correct that overpayments from a pattern of systemic mail fraud in CPAY’s billing would satisfy RICO’s causation requirements and be common among all plaintiffs. See In re Foodservice, 729 F.3d at 122 (holding fees “created for the purpose of misrepresenting cost and … then kept secret so as to deceive customers about overbilling” was a question amenable to common proof).

Ed Note:   This is a good case to catalogue circuit cases pertaining to class certifications of civil RICO actions.

Court Denies Defendant’s Motion to Dismiss Civil RICO Claim Finding Plaintiff Sufficiently Alleged the Elements of a Civil RICO Offense

LD et al. v. United Behavorial Health et al., 2020 WL 732566 (N.D. Cal., Dec. 18, 2020)

The court denied United Behavorial Health’s (United) motion to dismiss, but granted, without prejudice, the Plaintiffs claims against co-defendant MultiPlan asserting that additional predicate acts by MultiPlan need to be alleged.  Plaintiffs alleged that defendants violated RICO Sections 1962(c) and 1962(d) by committing the predicate offenses of wire fraud and mail fraud in violation of 18 U.S.C. §§ 1341 and 1343.

Plaintiffs alleged that in furtherance of a scheme to defraud Defendants allegedly sent various forms of communication to plaintiffs as part of the scheme, such as VOB calls, EOBs, and PAD letters, which were misleading because they did not disclose that defendants had not or would not use a methodology for reimbursing the claims for IOP (intensive care services) services at issue that was consistent with the plan requirements.  Plaintiffs were injured by this alleged scheme because they were forced to pay the difference between the billed amount for the IOP services and the artificially low amounts that United reimbursed.  Plaintiffs further allege that the billed amounts for the IOP services they received were lower than the customary rates of similar IOP providers in the geographic region; because their plans required reimbursement of out-of-network IOP services based on the customary rates of similar IOP providers in the geographic region, their plans should have covered most, if not all, of the billed amounts. 


The court first addressed civil RICO standing under 18 U.S.C. § 1964(c), requiring a plaintiff must show: (1) that his alleged harm qualifies as injury to his business or property; and (2) that his harm was ‘by reason of’ the RICO violation,” i.e., the injury is the direct result” or “a foreseeable and natural consequence of” the alleged scheme.  Id. at *11, citing to Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 658 (2008). To determine whether an injury is too remote to allow recovery under RICO, courts apply the “following three-factor ‘remoteness’ test: (1) whether there are more direct victims of the alleged wrongful conduct who can be counted on to vindicate the law as private attorneys general; (2) whether it will be difficult to ascertain the amount of the plaintiff’s damages attributable to defendant’s wrongful conduct; and (3) whether the courts will have to adopt complicated rules apportioning damages to obviate the risk of multiple recoveries.” Id. at *11, citing case.

The Court concluded that the factors for RICO standing were satisfied here because a direct relation exists between the alleged RICO scheme and plaintiffs’ alleged harm, that is, Plaintiffs’ injury, which is in the form of plaintiffs’ payment of the amounts that United did not reimburse but should have reimbursed, directly flows from this alleged scheme.  Also, other typical factors also weigh in favor of this finding, such as, there is no risk of multiple recoveries because there are no other victims who were more directly injured than plaintiffs who are in a position to sue defendants. The fact plaintiffs did not allege first-party reliance does not alter this conclusion as Plaintiffs have plausibly alleged that someone in the chain of causation relied on United’s alleged misrepresentations.


An enterprise that is not a legal entity is commonly known as an ‘association-in-fact’ enterprise” and plaintiffs alleged new facts that raise the inference that defendants engaged in in an association-in-fact enterprise. The enterprise’s affairs existed for the common purpose of keeping the difference between the artificially low amounts that United reimbursed for the IOP claims and the amount at which the claims should have been reimbursed if the plan requirements had actually been followed by defendants.

Defendants’ argument that this was merely a routine contractual relationship with a goal of cost-containment is premature. The Court does not rule on the merits but on the plausibility of the allegations. Here, the FAC raises a plausible inference that the contractual relationship between defendants was used as a cover for their scheme to profit from the fraud at plaintiffs’ expense. That a legitimate contractual relationship between the defendants exists does not undermine plaintiffs’ plausible allegations that defendants also engaged in an enterprise to defraud them and used the contractual relationship as a cover. *13. 


The court found the “conduct” element of a Section 1962(c) claim satisfied as the FAC raised the inference that United and MultiPlan each had some part in directing the alleged enterprise’s affairs. Plaintiffs aver that United and MultiPlan collaborated to develop and use on an ongoing basis the Viant database and pricing tool to under-reimburse the IOP claims at issue, and that they did so for the purpose of advancing the enterprise’s goal of defrauding plaintiffs and profiting from the under-reimbursement of the IOP claims. Plaintiffs also aver that “United determined the fraudulent rates for underpayment that would be [falsely] presented as UCR,” FAC ¶ 119, raising the inference that, in addition to having a role in the operation of the alleged enterprise, United also had a role in its management. Further, and again, the fact that defendants had a contractual relationship is not determinative to the contrary.

Pattern of Racketeering Activity

In the FAC, plaintiffs have alleged some additional facts with respect to the communications by defendants that were allegedly fraudulent or misleading. However, an analysis of all the communications alleged reveals that only the VOB calls between plaintiffs’ provider, Summit Estate, and United took place before plaintiffs received the IOP services at issue. See FAC ¶¶ 255, 291, 322, 351, 378. Accordingly, only these communications could satisfy the reliance requirement for a RICO claim predicated on mail or wire fraud. See Bridge, 553 U.S. at 658 (holding that RICO plaintiff alleging mail or wire fraud must aver facts to show that “someone relied on the defendant’s misrepresentations”).

Although plaintiffs have not averred other details of these VOB calls, such as the names of the persons who participated in such calls or the dates of the calls, the Court finds that plaintiffs have alleged sufficient factual matter as to the circumstances constituting fraud so that United “can prepare an adequate answer from the allegations.”   Accordingly, plaintiffs have satisfied the element of pattern of racketeering with respect to United. With respect to MultiPlan, plaintiffs have not averred facts raising the reasonable inference that MultiPlan engaged in at least two acts of mail fraud or wire fraud upon which plaintiffs relied that constitute a pattern of racketeering activity.