“Standing,”–Money Fraudulently Diverted From Intended Political Purposes Can Cause Injury to Plaintiffs Business and Property

Brookhaven Town Conservative Committee v. Walsh, 2017 WL 2590785 (E.D.N.Y., June 15, 2017)

The court granted the defendants’ motions to dismiss for failing to plead fraud with particularity as required by Rule 9(b), but also ruled that Plaintiffs had “standing” to bring the action under 18 U.S.C. § 1964.

Facts:

Defendant Walsh has been the Chairman of the SCCP, which is the governing body of the Suffolk County Committee of the Conservative Party of New York State. (Id. ¶ 11.) After Walsh was elected as Chairman of the SCCP, he “caused to be formed” the political committees of defendants Suffolk County Conservative Chairman’s Club (the “SCCCC”) and Suffolk County Conservative Chairman’s Committee H.K. (the “SCCCHK”); both are controlled by Walsh.  Plaintiffs allege that Walsh’s “purposes, among others, are to increase his political clout in Suffolk County by absolutely and exclusively controlling the affairs of the BTCC (and similar committees within the County) and by diverting funds received through fundraising solicitations by Walsh intended for the SCCP to his own purposes” through mail and wire fraud.

Discussion of Standing

The court discussed that “standing” under RICO, for purposes of a motion to dismiss, is not a jurisdictional concept, but instead is analyzed as a merits issue under Federal Rule of Civil Procedure 12(b)(6). See Lerner v. Fleet Bank, N.A., 318 F.3d 113, 116–17, 129–30 (2d Cir. 2003).    Indeed, the Second Circuit has described RICO standing as “a more rigorous matter than standing under Article III.” Denney v. Deutsche Bank AG, 443 F.3d 253, 266 (2d Cir. 2006).

The court further discussed that the plaintiff has standing to bring a RICO claim only if he has been injured in his business or property by the conduct constituting the RICO violation, and only when his actual loss is clear and definite. Sky Med. Supply Inc. v. SCS Support Claims Servs., Inc., 17 F.Supp.3d 207, 231 (E.D.N.Y. 2014) (same); Westchester Cnty. Indep. Party v. Astorino, 137 F.Supp.3d 586, 612–13 (S.D.N.Y. 2015) (collecting cases).

In this case, it was alleged that defendants falsely represented that plaintiffs’ BTCC’s financial donations would be used for some purpose, such as SCCP political activities, and then those funds were diverted by Walsh for his personal benefit.  The Court further observed that the FAC did not sufficiently support BTCC’s allegation that it “suffered injury based on a loss of diverted funds” and said that if BTCC wished to advance that claim, it “must file a second amended complaint that more fully sets forth such a theory of RICO injury.”

The SAC remedied this defect by enumerating “clear and definite” monetary contributions that plaintiffs made based on Walsh’s (supposedly fraudulent) solicitations. Nevertheless, defendants summarily claim that, “[a]lthough the Second Amended Complaint alleges that plaintiffs have made political contributions, there is simply no plausible allegation of any injury in fact.”

However, the court ruled that assuming the truth of plaintiffs’ allegations, their “economic losses would constitute an injury to both the plaintiffs’ business and property. Money constitutes ‘property’ within the meaning of RICO.” Simply put, if then “defendants fraudulently induced plaintiffs to take actions and make expenditures that would result in their financial injury.” This purported harm falls squarely within RICO’s statutory ambit.  Id., at 6.

Ed Note:   This is a useful case because it shows that monies received and not placed for the purposes intended is “injury” even though the plaintiff is not out of pocket any more money than what he intended to contribute.  Honest service fraud is on the civil RICO plate.  It is certainly a puzzle why Plaintiffs did not allege color of official right extortion, which is not subject to Rule 9(b).

 

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