Reich v. Lopez, __ F.3d ___, 2017 WL 2293546 (2d Cir. 2017)
The court affirmed the dismissal of a civil RICO complaint alleging wire fraud and Travel Act violations regarding an effort by defendants to discredit Plaintiffs connected to a Venezuelan energy company that was in litigation with one of Reich’s clients. The court found dismissal proper because Reich failed to allege that the defendants engaged in a “pattern of racketeering activity.” Of his two theories, one was found to fail because the predicate acts posed no continuing threat of racketeering; the other failed because the predicate acts chosen were insufficiently related to each other.
Plaintiff alleged that two combinations of predicate acts each meet the pattern requirements. His first theory is that the requisite pattern is formed by the two acts of wire fraud alone: a false phone call to the bank shareholder and another false phone call to Cedeño. His second theory is that the requisite pattern is formed by the acts of wire fraud combined with the Travel Act violations.
The court found that Reich’s first theory failed because the predicate acts lack continuity.
The court discussed RICO targets conduct that “amount[s] to or pose[s] a threat of continued criminal activity.” See H.J Inc. 492 U.S. at 239, 109 S.Ct. 2893. The court found that under each theory continuity was not supportable, as the wire fraud alone was not continuous in either sense, the phone calls included no future threat of repetition, and false phone calls were not Derwick Associates’ (the enterprise), a Venezuelan energy company, “regular way of operating [its] business” stating that although Derwick allegedly bribed Venezuelan officials, it is not a narcotics ring or an organized crime family.
Reich’s second theory—that the predicate acts are both the wire fraud and the Travel Act violations—sufficiently pleaded closed-ended continuity because it alleges conduct from 2009 until at least the end of December 2012. But, the court found that although the predicate crimes were “vertically” related to the activities of the Enterprise, it applied also a “horizontal relatedness” test to find that there was insufficient relatedness and thus no pattern.
In contravention of the explicit holding in H.J. Inc., the court first stated that the Plaintiff has to prove both “vertical” and “horizontal” relatedness. Also, in contravention of H.J. Inc., the court drew the same distinction used in H.J. Inc. in a continuity analysis, that is determining whether enterprises that are and are not primarily legitimate. The court stated because the enterprise (Derwick), a company alleged to having engaged in bribes, was found to be an enterprise not primarily in the “business [of] racketeering activity,” predicate acts must also be “horizontally related.” Finding the methods of commission, victims, purpose, and results of the predicate acts were all dissimilar, the court concluded there was no “horizontal relatedness” and thus no pattern.
(1) H.J. Inc. held that “relatedness” can be shown in the disjunctive, and there is no authority to find that both need be applied. H.J. Inc. does not apply an enterprise test to relatedness.
(2) The court’s finding that open-ended continuity need be a narcotics ring or organized crime family is plain wrong, and contrary to the explicit language in H.J. Inc. In H.J. Inc., the Supreme Court found that RICO open-ended continuity may be found when, for example, there is a legitimate business (as enterprise) which regularly conducts business through illegitimate means, by committing acts of fraud for example. 109 S.Ct. at 2902-03. The requirement that open-ended continuity can only be found in violent enterprises, such as narcotics rings and organized crime families, also disregard those enterprises primarily in the “business [of] racketeering activity,” which include activities like bribery and fraud.
(3) The court found continuity, closed-ended, just based on three years, without analyzing more. A good case for that principle.
David J. Stander, Esq. is a civil RICO attorney who focuses on civil RICO litigation.