Dandy-Veal LLC v. Lehman et al., 2017 WL 2271393 (E.D. Wis., May 23, 2017)
Plaintiff alleged Defendants provided them inadequate and defective food for their cows, leading to decreased milk production. This was not to be. The court granted a motion to dismiss although finding that mail fraud violations were adequately alleged, the court did not find the necessary “pattern,” because it did find sufficient allegations of closed-ended continuity. Close-ended continuity “refers to criminal behavior that has come to a close but endured for such a substantial period of time ‘that the duration of the criminal activity carries with it an implicit threat of continued criminal activity in the future.’ In Dandy-Veal, the parties agreed the pattern of racketeering is “closed-ended” as the fraudulent scheme had come to an end.
In sum, the fraud occurred over a two month period, but there were predicate acts of mail fraud lasting 18 to 20 months, which were mailing of invoices to its customers. Although the court incorrectly analyzed that the “number of victims, the presence of separate schemes and the occurrence of distinct injuries” were relevant, the court did correctly cite to H.J. Inc. that “duration is perhaps the closest thing we have to a bright-line continuity test: the ‘predicate acts’ must ‘extend over a substantial period of time,’; ‘a few weeks or months’ is considered insubstantial.”
Here, although Dandy Veal contended the beginning between approximately July and September 2013 and lasting until March 2015, the complaint only plausibly alleged that the scheme to sell defective Lacto–Whey occurred during February and March 2015—the months in which Dandy Veal test results showed that the Lacto–Whey failed to meet the specified content levels. It alleges that Lehman directed Packerland employees to change the Lacto–Whey formula in 2013 and 2014 to save costs, but offers nothing more in support other than its conclusory statements. Dandy Veal also alleges that its herd’s milk production noticeably decreased during “the same time period that Packerland had been selling it watered-down Lacto–Whey” but does not state with particularity when the decrease occurred or other relevant information.
Stating based on Seventh Circuit precedent “repeatedly rejected RICO claims that rely so heavily on mail and wire fraud allegations to establish a pattern,” the court stated that it did not look favorably on many instances of mail and wire fraud to form a pattern. Thus, the court found
the allegations of the complaint only allege facts that show Packerland’s Lacto–Whey was defective for a period of two months. Even accepting as true that the defendants knew the product was watered down and sent out the invoices and received payments anyway, the short two month period makes this the type of case better categorized as a garden variety fraud case rather than an ongoing pattern of racketeering. Accordingly, the complaint fails to allege the pattern of racketeering activity needed to support a RICO claim.
Ed Note: Thus, this court is measuring the length of time, or duration, by the length of the time the scheme can plausibly be alleged to cause specific injury to plaintiffs, not the length of time of the predicates, which are mailings of invoices after commission of the fraud. This view is looked as favorably by the Third Circuit (Kehr Packages), but not the Second Circuit (DeFalco). This issue of measuring “duration,” is covered in-depth in an article of mine soon to be published. It is most interesting given that Justice Alito, while on the Third Circuit, dissents in Kehr Packages, and takes a contrary view from apparently the Seventh Circuit would in this case.
David J. Stander is a civil RICO attorney who specializes in civil RICO litigation.