Judge in SDNY- Civil RICO is To Be Liberally Construed to Encompass “Garden-Variety” Fraud

Duval v. Albano, 2017 WL 3053157 (S.D.N.Y. 2017)

The court denied the Defendants’ motion to dismiss the civil RICO claim finding that civil RICO applies even if the case involves basically a “garden-variety” fraud allegation.

In brief, Plaintiff here alleged that the Albanos operated a network of associated shell corporations (including defendant AXIS Sports Media) for the purpose of defrauding businesses and consumers alike, and that Plaintiff herself was defrauded into selling them The Manhattan Cocktail Classic (“MCC”), a business Plaintiff had founded.

Elements, Including Continuity, Satisfied

The court recited the operative case law for all elements of a civil RICO and found them satisfied.   Defendants did not challenge Plaintiff’s pleading with respect to the elements of relatedness or continuity. To the extent that Defendants intended to do so, the Court agrees with Plaintiff that such challenges would fail. Plaintiff has alleged the existence of a scheme that lasted from 2014 through 2016. Moreover, the scheme posed a threat of continued criminality insofar as the AXIS and WSOG websites remained active as of the filing of the Complaint.  A consideration of the relatedness factors—purposes, results, participants, victims, and methods of commission—led the Court to conclude that this element has been pleaded adequately as well.

Garden-Variety Fraud

Finding the elements satisfied,  the court specifically addressed Defendants’ principal argument is that Plaintiff has overstated her case—that she has attempted, through artful pleading, to transform a run-of-the-mill business dispute into a racketeering enterprise, and thereby obtain treble damages and attorney’s fees.

As a policy matter, the Court sympathized with the frustration evident in Defendants’ briefing. Indeed, there is no question that RICO’s private right of action, in conjunction with the statute’s inclusion of mail and wire fraud (for which there is no independent private right of action) as racketeering acts, creates federal treble damage actions out of business disputes that would otherwise never be in federal court.

However, the judge wrote that the Supreme Court long ago observed that “this defect—if defect it is—is inherent in the statute as written, and its correction must lie with Congress.”Fresh Meadow Food Servs., LLC v. RB 175 Corp., 282 Fed.Appx. 94, 100 (2d Cir. 2008) (summary order) (quoting Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479, 499 (1985)).

For all of the reasons outlined above, the court found that Plaintiff’s Complaint passed muster. Accordingly, Defendants’ motion to dismiss was DENIED.

Ed. Note:   It is important to note that courts in the Second Circuit, although continuing to employ the sensationalist “thermonuclear bomb” depiction of civil RICO cases in some cases, is importantly recognizing that the Supreme Court “liberally construes” civil RICO, and the Court has rejected in Sedima, supra, any limitations on civil RICO which narrow the scope of the statute.   For some S. Ct. summaries, see below.

“We have repeatedly refused to adopt narrowing constructions of RICO in order to  make it conform to a preconceived notion of what Congress intended to proscribe. See, e.g., National Organization for Women, Inc. v. Scheidler, 510 U.S. 249, 252, 114 S.Ct. 798, 127 L.Ed.2d 99 (1994) (rejecting the argument that “RICO requires proof that either the racketeering enterprise or the predicate acts of racketeering were motivated by an economic purpose”); H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 244, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989) (rejecting “the argument for reading an organized crime limitation into RICO’s pattern concept”); Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 481 (1985) (rejecting the view that RICO provides a private right of action “only against defendants who had been convicted on criminal charges, and only where there had occurred a ‘racketeering injury’ ”).” Boyle v. United States, 556 U.S. 938, 942 (2009) (enterprise is liberally construed, “no ascertainable structure” separate from the pattern is required; enterprise must have structural features but no business-like characteristics are necessary).

In fact, in Sedima, the Court was compelled by the statutory language to construe § 1964(c) to reach garden-variety fraud and breach of contract cases such as those before us today.



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