Court Denies Defendants’ Motion to Dismiss Civil RICO Claims, But Analysis of “Injury” Was Unclear

Diamond Consortium Inc. v. Manookian,  2017 WL 1495091 (E.D. Tex. Apr. 26, 2017)

The court denied the two Defendants’ (Defendant Mark Hammervold and his law firm, Defendant Hammervold, PLC (collectively, the “Hammervold Defendants”) motion to dismiss a civil RICO claim alleging mail fraud, wire fraud, and Travel Act violations (based on extortion violations).

In sum, the plaintiffs alleged that the Hammervold Defendants participated in a scheme with other defendants who created websites and distributed fliers falsely accusing Plaintiffs of having committed “diamond fraud” and “cheating customers through the sale of over-graded diamonds.” Plaintiffs allege that the other defendants, Manookian, threatened Plaintiffs with several diamond over-grading lawsuits, unless Plaintiffs retained Cummings Manookian as counsel and paid a $25,000 monthly retainer fee for a period of 120 months, totaling three million dollars.  The Diamond Doctor did not retain Cummings Manookian.

Plaintiffs allege that Manookian continued to defame Plaintiffs utilizing websites, Facebook posts, YouTube videos, fliers, and door hangers accusing Blank and The Diamond Doctor of being “fraudsters” and “stealing customers’ cash.” Plaintiffs allege that Manookian has threatened several other jewelers with similar “smear campaigns” to extort the jewelers into paying Cummings Manookian large retainer fees.

The Hammervold Defendants “are necessary to Manookian’s illegal acts … because Manookian solicits clients to sue the targeted jewelers and then refers those cases to Hammervold and/or Hammervold, PLC to prosecute, thereby avoiding the appearance of a conflict when Manookian subsequently enters into ‘engagement agreements’ to represent the targeted jewelers as part of his extortion scheme.”  Plaintiffs alleged, sufficiently, that Cummings Manookian, and the Hammervold Defendants are members of an association-in-fact enterprise because they “together function as a unit with a common purpose: extorting millions of their victims.”

The court found that the Hammervold Defendants participated in a scheme to defraud Plaintiffs of three million dollars. [This is curious since this was extortion, not a scheme to defraud, and Plaintiffs did not pay.   Plaintiffs sufficiently alleged that the Hammervold Defendants were a necessary part of this scheme to allow Manookian and his firm to avoid an appearance of conflict when they entered into engagement agreements.

Ed. Note:   The court did not find the extortion predicates because the Plaintiffs’ complaint states “Manookian attempted to obtain Diamond Doctor’s property (i.e., $25,000 per month for 10 years or $3 million).”   THIS IS WRONG, as section 1951 Hobbs Act specifically provides for “attempts and conspiracies.”   However, “attempts” or “conspiracies” alone in civil RICO are not usually sufficient because an injury must result from the violative activity.  Here the proper analysis would have found sufficient monetary injury resulting from the defamatory activity, which also constituted an “attempt” to commit extortion and also arguably a Travel Act violation.

RICO Conspiracy

The district court takes the easy way out here stating Plaintiff’s claim for conspiracy to commit RICO under Section 1962(d) will also be dismissed as a matter of law since the court found, for the reasons discussed above, that he has failed to sufficiently plead a substantive RICO claim.   Of course, a substantive RICO claim is not needed, but rather a conspiratorial agreement with at least one overt act causing injury, is sufficient.

Ed Note:   This appears to be a strong civil RICO case, but extortionate activities, including attempts to extort, or conspiracy to extort are clearly the proper predicates, not fraud.  The Defendants activity was not to trick Plaintiffs by misrepresentations, but was outright extortionate activity, which also affected interstate commerce.




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