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.

Eleventh Circuit Opens the Door to Potential Civil RICO Lawsuits Based on Extortionate Litigation Activity

Demartino v. Town of Gulf Stream, __ F.3d __, 2019 WL 6207952 (11th Cir. Nov. 21, 2019)

The court affirmed the Defendant’s (Town of Gulfstream) motions for summary judgment finding that there was a probable cause for the Town to file a civil RICO lawsuit, even though the Court in a prior proceeding affirmed the dismissal of the civil RICO action, carving out an exception to the general rule.

Earlier Lawsuit

In year 2015, the Town alleged that plaintiff DeMartini and co-defendant O’Boyle and others “pummeled the town with nearly 2,000 public records requests, many of them frivolous, with no intention of actually reviewing the results.” Id. The Town also alleged that, if the Town failed to timely respond then the O’Boyle Law Firm would sue the Town, allegedly “engag[ing] in a pattern of frivolous litigation activity.” Id. at 441, 444. The O’Boyle Law Firm was formed by O’Boyle’s son, funded by O’Boyle, and was in the same building as O’Boyle’s real estate company. Thus, the Town and a contractor (Wantman) filed a civil suit against DeMartini, and others, alleging violations of RICO, 18 U.S.C. §§ 1962(c).

Upon motion to dismiss by the defendants, the federal district court dismissed the Town and Wantman’s class action RICO complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). The district court concluded that the defendants’ filing lawsuits, or even threatening to sue, did not constitute a predicate act under RICO. In so ruling, the district court relied on Eleventh Circuit precedent in Raney v. Allstate Ins. Co., 370 F.3d 1086, 1087–88 (11th Cir. 2004) (holding that the filing of a lawsuit did not state a claim for extortion as a predicate act under RICO), and United States v. Pendergraft, 297 F.3d 1198, 1207 (11th Cir. 2002) (holding that neither the threat to litigate nor the fabrication of evidence behind the threat of a lawsuit made the action “wrongful” within the meaning of the Hobbs Act, and, thus, could not be a predicate act under RICO).

The Court in its earlier decision, 654 Fed. Appx. 439 (11th Cir., June 21, 2016) found the conduct of Demartino “troubling,” but still affirmed given the precedent in the circuit.

Current Proceeding

 

In this proceeding, DeMartini filed the instant § 1983 action against the Town and Wantman arguing the RICO lawsuit constituted unlawful retaliation against her. As to her § 1983 First Amendment retaliation claim, DeMartini alleged that the speakers at the Town’s October 2014 Commission meeting made clear that the Town was not concerned with the merits of its RICO lawsuit or its likelihood of success and thus the Town lacked probable cause to initiate its civil RICO lawsuit against DeMartini. DeMartini contended that the Town’s RICO action was “baseless” and frivolous given Eleventh Circuit precedent that a threat to file a civil lawsuit is not a valid RICO predicate even if the plaintiff was using the litigation for extortionate purposes.

 

The Court found that prior to filing its RICO action, the Town obtained substantial information that supported a reasonable belief that DeMartini and others had committed fraud through their participation in an extortionate scheme involving fraudulent public records requests, false settlement demands, and subsequent multiple lawsuits designed to obtain attorney’s fees as opposed to the requested records known as a “windfall scheme.” The scheme involved two steps: (1) pummeling the Town with voluminous and intentionally vague public records requests that were designed to elicit either no response, an incomplete response, or an untimely response, and then (2) demanding that the Town pay an excessive settlement to avoid litigation under Florida’s public records law, including demanding attorney’s fees in excess of the fees and costs the O’Boyle Law Firm actually incurred to settle the case.

 

This Court did reiterate precedent in Pendergraft and Raney precluded the Town’s theory that a RICO action could be based on DeMartini’s litigation activity, and thus eliminated any probable cause it may have had for asserting a RICO claim. But, the court rejected DeMartini’s argument. Pendergraft and Raney made it unlikely, but not impossible, for the Town to succeed. The Town had a reasonable belief that there was a legitimate and material distinction between their RICO claim and the ones that came before it in that O’Boyle, DeMartini, and others had abused their statutory right to request public documents from the government “on a grand scale.” Given the huge number of requests and the obvious pattern that they were being filed to strip the Town of money while allowing the O’Boyle Law Firm to profit handsomely, it was not unreasonable for the Town to believe in good faith that this Court might carve out an exception to the general rule.

 

The Town had a mountain of fraudulent and extortionate conduct to present in the hopes of creating an exception to the general rule in Pendergraft and Raney. Consequently, there was no merit to DeMartini’s contention that the Town lacked a reasonable belief that it might prevail in the RICO lawsuit, and the Court concluded the Town had probable cause to file the civil RICO lawsuit.

 

David J. Stander is an Attorney who focuses on Civil RICO litigation.

Seventh Circuit is Wrong: Closed-Ended” Continuity in a RICO Action Does Not Require Pleading An Implicit Threat of Future Harm; Court Ruling is in Direct Contravention of Supreme Court Precedent

Menzies v. Seyfarth Shaw LLP, __ F.3d __, 2019 WL 5884481 (7th Cir. 2019)

 

The Seventh Circuit affirmed the dismissal of a civil RICO suit finding inadequate allegation of “continuity” sufficient to find a pattern of racketeering. At issue was whether Menzies adequately pleaded the continuity dimension of the continuity-plus-relationship test. The court stated that doing so requires “(1) demonstrating a closed-ended series of conduct that existed for such an extended period of time that a threat of future harm is implicit, or (2) an open-ended series of conduct that, while short-lived, shows clear signs of threatening to continue into the future.” *5, citing case.

 
The court discussed closed-ended continuity further and stated that to ascertain the presence of a so-called “closed-ended” series of misconduct—asks whether there were enough predicate acts over a finite time to support a conclusion that the criminal behavior would continue. The focus, therefore, is on “the number and variety of predicate acts and the length of time over which they were committed, the number of victims, the presence of separate schemes and the occurrence of distinct injuries.”

 
The Court’s view at best breeds confusion and is arguably incorrect and in direct contravention of the Supreme Court’s holding in H.J. Inc. v. Northwestern Bell, 492 U.S. 229, 242 (1989) wherein the court stated as follows with regard to closed-ended continuity:

 
A party alleging a RICO violation may demonstrate continuity over a closed period, by proving a series of related predicates extending over a substantial period of time.
In discussing “closed-ended continuity” the Court did not express that these “serious of related predicates” require acts which themselves carry the threat of continuing into the future. In fact, various circuits have found closed-ended continuity satisfied without finding that the predicates carry the implicit threat of harm into the future when the scheme has been completed and there was a series of related predicates which had occurred over a substantial period of time.

 
In fact, if Menzies was the rule, closed-ended continuity would be a nullity as any long-running scheme by a defendant that has been completed would fail the closed-ended test because the completed fraudulent acts did not carry with them “a threat of future harm.” This is particularly true for completed mail and wire fraud schemes which do not carry an implicit threat of continued activity. The goal of Menzies is to drive “mail and wire fraud” schemes out of civil RICO, which is also in direct contravention of Supreme Court law which liberally construes RICO. Sedima.

 
Unlike mail and wire fraud schemes, most violent crimes (extortion; murder etc.) carry with them the implicit threat of continuing into the future to satisfy both the closed-ended and open-ended test. But again, the mail and wire fraud scheme would not be sufficiently alleged to meet either the closed ended or open-ended test when the goal of the scheme has been completed, or terminable by a certain date, even if there was a series of related predicates over a substantial period of time. Thus, under Menzies such fraud schemes, unless continuing to the present day, would not carry with it an implicit threat of future harm and fail to satisfy both closed-ended and open-ended continuity, and not constitute a pattern.

 
Accordingly, under Menzies, long running fraud schemes which have been completed would fail the closed-ended, and open-ended test, and fail to be actionable as a pattern. This is not the intent of the drafters of the statute or the Supreme Court.

 
David J. Stander is an Attorney who focuses on civil RICO litigation.

Court Dismisses Civil RICO Suit Brought by an Employer Alleging Extortionate Acts by a Local Union When There Was No Violence or Threats of Violence.

CareOne Management LLC v. UnitedHealthcare Workers East, SEIU 1199, 2019 WL 554140 (D. N.J. Oct. 28, 2019)

Court Dismisses Civil RICO Suit Brought by an Employer Alleging Extortionate Acts by a Local Union When There Was No Violence or Threats of Violence.

The court denied Plaintiffs’ motion for summary judgment and granted Defendants’ motion for summary judgment in this lawsuit brought by CareOne Management LLC against the labor union SEIU 1199, finding insufficient evidence of extortion and mail/wire fraud resulting from the defendants’ organizing and negotiation tactics.

Plaintiffs alleged Defendants engaged in extortion and fraud in violation of federal and state law, and alleged civil RICO violations and other violations. The SAC alleged that Defendants used force and violence in concert with unlawful economic pressure to force Plaintiffs to accede to Defendants’ bargaining and unionization demands, including “(1) engag[ed] in vandalism and other criminal acts to endanger patients and … bring about negative outcomes before the Connecticut regulatory authorities; (2) disseminat[ed] false, misleading, and defamatory information about Plaintiffs …; (3) publicly smear[ed] [Straus] and his other businesses …; and (4) abus[ed] the legal process ….”.)

Extortion

The court first clarified that “violations of state extortion statutes may qualify as RICO predicate acts, if such violations are also ‘capable of being generically classified as extortionate.’

 

Plaintiffs alleged that Defendants used demonstrations/protests and regulatory and legal processes to wrongfully pressure Plaintiffs into complying with illegitimate bargaining and unionization demands. Defendants concede that they used those tactics to put economic pressure on Plaintiffs, but dispute that neither the ends they sought or the means by which they pursued them were wrongful. The court stated that “unlike the use or threatened use of force or violence, the use of economic fear in business negotiations between private parties is not ‘inherently’ wrongful” and “the fear of economic loss is a driving force of our economy that plays an important role in many legitimate business transactions.” *4, citing case.. The threat of economic loss may constitute “fear” for purposes of an extortion analysis, but it does not include “the fear of economic loss in the context of hard business bargaining ….” The court found that the evidence would not permit a reasonable jury to conclude that defendants pursued illegitimate ends in the collective bargaining or unionization process. Because it is not unlawful to pursue “a union contract calling for higher wages and other monetary benefits.” cting to the seminal case United States v. Enmons, 410 U.S. 396, 409 (1973).

 

The court then found the tactics employed by Defendants in pursuit of their collective bargaining and unionization goals, their participation in regulatory processes was not improper. Further, the protests and demonstrations Defendants engaged in were peaceful, did not involve violence or threats of violence, and did not result in arrests or criminal charges being brought against any person or entity. (emphasis added).   Therefore, the court found that there is no genuine issue of material fact as to whether Defendants’ actions were wrongful yet recognizing “intense and coercive measures” adopted by the parties.

 

Mail & Wire Fraud

 
Plaintiffs next claim that a “central feature” of the Campaign included using the COW, flyers, and media advertisements to “disseminat[e] … false, misleading, and/or incendiary allegations regarding” Plaintiffs’ business and labor practices and Straus’s personal and professional life with the goal of depriving Plaintiffs “of their property by deceiving third-parties into believing that Plaintiffs are bad health care providers …”

 
In so doing, Plaintiffs allege that Defendants committed mail and/or wire fraud.
The elements of wire/mail fraud are: (1) a scheme or artifice to defraud, (2) culpable participation by the defendant (i.e., specific intent to defraud), and (3) use of the mails or wire transmissions to effectuate the scheme. Additionally, the object of the alleged scheme or artifice to defraud must be a traditionally recognized property right.”

 
The court stated that Plaintiff did not produce admissible evidence from which a reasonable jury could conclude that Defendants had the specific intent to deceive finding that the record is clear that the individuals who researched, drafted and/or approved the challenged publications believed their contents to be truthful. While the Campaign may have used forceful, critical, hyperbolic, and sometimes satirical statements regarding Plaintiffs’ practices and Straus’s actions, that is not the same as publishing false or misleading statements with the intent to deceive the public. As such, there was no genuine issue of material fact as to Defendants’ culpability for mail and/or wire fraud.

 
Ed. Note: The court is focusing on the Enmons standard which allows a union to conduct campaigns without violating Hobbs Act extortion provided there is no violence or threats of violence.

District Court Dismisses Civil RICO Amended Complaint Finding the PSLRA Amendment Barred Plaintiffs’ RICO Claim Regardless of Whether there Were Other Predicates Based on Conduct Not Actionable As Securities Fraud

Awad et al v. Sharif Omar and Sami Omar, 2019 WL 5727327, (S.D.N.Y., Nov. 5, 2019)

The Court granted the Defendants’ motions to dismiss the first amended complaint. The amended complaint alleged that Defendants deceived Plaintiffs (two sisters) into signing “shareholder transfer and other corporate documents” pursuant to which they sold their stock in two companies, Liptis USA and Liptis Holding, to those entities “for little or no consideration” and then defendants purchased it from the Liptis entities “for little or no consideration.” After defendants acquired the shares, Sharif allegedly “coerced” Sami “through threats and extortion” into giving Sharif all of his shares of Liptis USA and Liptis Holding. Plaintiffs contend that after defendants defrauded their sisters of their Liptis USA stock, defendants “caused their accountants to fraudulently report in the [s]isters’ federal tax returns that the payments were for the purported sale of the [s]isters’ shares of stock of Liptis.”

The amended complaint also alleges that from 2009 through 2017, defendants defrauded various lenders into issuing mortgages on the properties owned by Liptis, New Life, and Omar Holding, and then misappropriated the proceeds.

The court discussed that “[s]ection 107 of the PSLRA – which was enacted as an amendment to the RICO statute and accordingly is often referred to as the ‘RICO Amendment’ – provides that ‘no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962.’ ” MLSMK Inv. Co. v. JP Morgan Chase & Co., 651 F.3d 268, 273 (2d Cir. 2011) (quoting 18 U.S.C. § 1964(c)). The RICO Amendment not only “ ‘eliminate[s] securities fraud as a predicate offense in a civil RICO action,’ ” but it also “bar[s] a plaintiff from ‘pleading other specified offenses, such as mail or wire fraud, as predicate acts under civil RICO if such offenses are based on conduct that would have been actionable as securities fraud.’ ”

The court discussed that the RICO Amendment applies expansively and where plaintiffs allege ‘a single scheme,’ courts have held that ‘if any predicate act is barred by the PSLRA it is fatal to the entire RICO claim.’ The court found that the Plaintiffs allegations amounted to a course of conduct which amounts to a single scheme. As part of this scheme, plaintiffs allege that defendants defrauded the sisters into selling their Liptis USA stock, which fraud was plainly actionable as securities fraud.

Given this clear assertion of a securities fraud, plaintiffs’ reliance on certain alleged mail and wire frauds was unavailing.*4. The RICO Amendment accordingly barred plaintiffs’ RICO claim, and did so regardless of whether the other predicate acts that plaintiffs allege are based on conduct that is not actionable as securities fraud. *5, citing cases. The court stated that allowing such surgical presentation of the cause of action here would undermine the congressional intent behind the behind the RICO Amendment.” (internal quotation marks omitted)).

Ed Note: David J. Stander Esq. provided consulting services to the prevailing party in this matter. As mentioned, Defendant Sharif Omar presented numerous other arguments in support of his motion to dismiss which were not considered in the decision.

Circuit Court Finds Sufficient Evidence to Support Wire Fraud and Extortion Predicates in Affirming a RICO Conviction

United States v. Taylor, 2019 WL 5700359, __ F.3d __ (4th Cir., Nov. 5, 2019)

The Court affirmed the conviction of two Baltimore City police officers who submitted of overtime slips with false hours. The overtime slips were wired between [the Police Department] and ADP, the payroll provider for Baltimore City, from Maryland to South Dakota [where ADP’s servers for the payroll system were located].” The officers, who were members of the Police Department’s Gun Trace Task Force (“GTTF”), were also charged with robbing citizens during the course of their police service, taking money, jewelry, and other items. Defendants were convicted at trial of RICO conspiracy and substantive RICO.

 

Wire Fraud- Foreseeability

 

The two police officers, Taylor and Hersl, contend the government presented insufficient evidence in support of the necessary elements of wire fraud under 18 U.S.C. § 1343, one of the acts found by the jury. They argue that to show a violation of § 1343, the government had to prove that the use of interstate wires was “reasonably foreseeable” to at least one conspirator. They maintain that although “[t]he government proved without dispute that the process leading to paying overtime to … officers involved the use of interstate wires,” it “offered literally no evidence to prove that the use of the wires was foreseeable to Hersl, Taylor, or other conspirators.” More particularly, they assert that “the government introduced no evidence whatsoever that it was reasonably foreseeable to Hersl, Taylor, or coconspirators that the submission of overtime slips would lead to wire communications between [the Police Department] and ADP, let alone interstate wire transmissions from Maryland to South Dakota [where ADP’s servers for the payroll system were located].”
As the indictment charged and the jury found, the Police Department was the enterprise through which Hersl and Taylor conspired with other GTTF officers to enrich themselves by committing various racketeering acts. To establish a violation of the wire fraud statute, the government must prove (1) the existence of a scheme to defraud and (2) the fact that the defendant used or caused the use of wire communications in furtherance of that scheme. The court discussed at the outset that the interstate nexus required in § 1343 is a jurisdictional element — rather than a substantive element — of the crime of wire fraud. And while the government is generally required to prove a defendant’s mens rea with respect to substantive elements of a crime, such proof is not required for a jurisdictional element.
Thus, the Court concluded that the evidence in this case of the interstate nexus was sufficient to satisfy the jurisdictional element, finding the wire transmissions were in interstate commerce, and need not have been foreseeable to a defendant under an objective standard.
Hobbs Act Robbery
The Defendants then challenged their convictions for Hobbs Act robbery contending
that the evidence was insufficient to establish that their conduct met the statutory definition of robbery. Hersl also contended that the government failed to establish that his alleged robbery of two victims (Ronald and Nancy Hamilton) affected interstate commerce.*11. Hersl argued that even if he was involved in robbing the Hamiltons, a robbery of personal savings from a private home does not have the effect on interstate commerce required by the Hobbs Act. The Hamilton’s monies came from Hamilton’s business of purchasing cars at dealer auctions in Maryland and Pennsylvania and then sold them over the Internet or through word of mouth. Given [T]he jurisdictional predicate of the Hobbs Act requires only that the government prove a minimal effect on interstate commerce.” the government may satisfy the Hobbs Act’s jurisdictional requirement by showing a reasonable probability that the defendants’ actions depleted the assets of an entity engaged in interstate commerce, and “the effect [on interstate commerce] may be so minor as to be de minimis.” *12. While Hamilton did not quantify how much of his business he conducted out of state, a rational jury could have concluded that, since he testified to purchasing cars from only three locations, his purchases from Manheim, Pennsylvania, constituted a substantial portion of his inventory. The court stated that it had recognized that a business that purchases “a substantial portion of its inventory from out-of-state suppliers is engaged in interstate commerce for purposes of the Hobbs Act.” In addition, Hamilton specifically testified that some of the cash found in the bedroom came from selling cars, a portion of which came from Pennsylvania. Because there is no dollar-amount minimum under the depletion of assets theory, the Court concluded that the evidence was sufficient to satisfy the jurisdictional requirement of the Hobbs Act.
Ed. Note: Although this was a criminal RICO prosecution, the proof of the predicates in a civil RICO follows the same analysis, subject to a preponderance of evidence standard instead of beyond a reasonable doubt. The Court’s liberal interpretation of “foreseeability” for wire fraud, and “de minimis” for Hobbs Act may be directly applied to an analysis of these predicates in a civil RICO case.

Court Denies Defendants Motion to Dismiss Civil RICO Action; Adopting Ninth Circuit’s Liberal Interpretation of Boyle v. United States and Finding Application of Civil RICO to One Incident of Violence Causing Minimal Financial Injury

Mitchell v. First Call Bail and Surety, Inc. et al, __F. Supp.3d ___, 2019 WL 5069352 (D. Mont., Oct. 9, 2019)

The court denied Defendants motion to dismiss finding the use of unlawful force to collect a bond, resulting in damage to a door as a sufficient civil RICO case.

Mitchell failed to show for a hearing and the bond bailsman (First Call) hired a surety to recover, arrest, and surrender a defendant for whom a bail bond has been posted. A bond recovery company (MCAG) hired by First Call is accused of unlawfully arresting Mitchell after breaking his door down (damaging a door) without a warrant and the five bounty hunters present for the break-in have since been charged with assault with a weapon, aggravated burglary, unlawful restraint, accountability for aggravated burglary, and criminal mischief as a result of the incident.

Enterprise

The Complaint alleges that Allegheny, Fidelity, First Call, Ratzburg, MCAG and its members formed an “association-in-fact” enterprise. (Id.) Allegheny and Fidelity were sureties on the bond; Ratzburg was the owner of the local bond agency (First Call), and MCAG was the bounty hunter retained by First Call, collectively known herein as “Surety Defendants.”

Surety Defendants argue that Plaintiffs failed to allege any “common purpose or course of conduct” that is separate from each defendant’s ordinary business affairs. (Doc. 21 at 20–21.) The Court has found nothing to indicate that the Ninth Circuit requires an enterprise to share a “common purpose” that is separate or secondary from its general business purpose. To the extent Surety Defendants argue that a separate (i.e. unlawful) purpose must unite the enterprise, the Court acknowledges that this is an open question in the Ninth Circuit. Gomez v. Guthy-Renker, LLC, No. EDCV-14-01425-JGB(KKX), 2015 WL 4270042, *9 (C.D. Cal. July 13, 2015); Friedman v. 24 Hour Fitness USA, Inc., 580 F. Supp. 2d 985, 991 (C.D. Cal. 2008), and in Odam v. Microsoft Corporation the Circuit made no such requirement. In Odom, the Court held that entities shared “a common purpose of increasing the number of people using Microsoft’s Internet Service” which was a valid “common purpose.” Id. at 552.
The Court agreed that all Defendants shared a common purpose of “contracting with bail bonds clients and collecting bond deposits,” in order to make their cut of the premium or bond. As in Odam, the Complaint alleges a lawful purpose carried out through fraudulent means.*9. The court concluded that the Complaint alleged an “association-in-fact” enterprise.*10.

Pattern of Racketeering

Plaintiffs assert that all Defendants engaged in the predicate acts of “extortionate extension of credit and financing extortionate credit transactions.” Plaintiffs allege that First Call and Ratzburg additionally engaged in kidnapping, extortion, and extortionate collection of credit extensions. Surety Defendants argue that many of these predicate acts fail as a matter of law, but the court found that Plaintiffs state facts sufficient to support a kidnapping charge for the same reasons that its claim for false imprisonment is viable.*11

The court also found that Plaintiffs also stated a viable claim for extortion based on the fact that “Ratzburg threatened that if … Mitchell did not pay the outstanding amount due on his premium or comply with the bond agreement, Ratzburg would ‘get’ him.” Surety Defendants argue that this was merely a warning to exercise a contractual right and “what you may do in a certain event you may threaten to do.” But the court found this is a question of fact stating that a jury could find that Ratzburg was not threatening to arrest Mitchell but threatening physical violence to coerce the remaining payment.

Next, Surety Defendants assert that the Complaint does not plead the required elements for extortionate credit transactions finding the Complaint adequately alleges a predicate offense of making extortionate extensions of credit when it describes that Ratzburg permitted Mitchell to delay part of the premium payment and then threatened Mitchell to collect payment. Because the Court has determined that the Complaint alleges predicate acts of kidnapping, extortion, and extortionate credit transactions, Plaintiffs have met their burden to plead the existence of a pattern.

Note: How could there have been continuity here?

Control Over Enterprise

The court also found that defendants had some degree of control over the “operation or management” of the enterprise’s conduct.

Proximate Cause

Importantly, the court found financial harm proximately caused resulting from the kidnapping as the Plaintiff’s door was damaged and this was “‘direct relationship’ between the injury asserted and the injurious conduct[.]” Here, the injury to the door occurred as a direct result of MCAG entering Mitchell’s house in order to arrest him and in order to recoup a $115 payment that Ratzburg represented was still outstanding. Having addressed each of Surety Defendants’ arguments, the Court concluded that the RICO claims are properly stated and may advance.

Ed Note: The finding of directly caused financial harm resulting from breaking in a door is a very broad application of civil RICO. The moral is that if financial injury can be found from violence crimes constituting predicate acts a court will accept the pleadings.