Bartlett v. Bartlett, 2017 WL 5499403 (S.D. Ill., Nov. 17, 2017)
The court granted the motion to dismiss civil RICO claims alleging “Garden-Variety” wire and/or mail fraud, but denied the motion to dismiss the civil RICO claims based on trade secrets violations. in violation of 18 U.S.C. § 1832.
The court stated that courts in this circuit have been hesitant to allow RICO claims predicated on wire and/or mail fraud alone to proceed, when they are mere garden-variety disputes. See McDonald v. Schencker, 18 F.3d 491, 499 (7th Cir. 1994) (referring to a RICO claim predicated on mail fraud as “nothing more than a garden-variety business dispute recast as mail fraud”); Cmty. Ins. Servs., Ltd. v. United Life Ins. Co., No. 05-CV-4105-JPG, 2006 WL 2038652, at *5 (S.D. Ill. Mar. 24, 2006) (dismissing a RICO action predicated on wire and mail fraud as a “garden-variety fraud case concerning what is best described as a business dispute”); Faith Constr. 4, Inc. v. Girouard, No. 14 CV 2886, 2014 WL 6679118, at *3 (N.D. Ill. Nov. 21, 2014) (dismissing a RICO action that was predicated on mail fraud because the act of mailing was too remote to be the proximate cause of a RICO injury); Wankel v. S. Illinois Bancorp, Inc., No. 06-cv-0619-MJR, 2007 WL 2410328, at *10 (S.D. Ill. Aug. 21, 2007) (“it seems that Plaintiffs’ cause of action constitutes precisely what the Supreme Court and Seventh Circuit courts hope to forestall: ‘RICO’s use against isolated or sporadic criminal activity [such that] RICO [becomes] a surrogate for garden-variety fraud actions properly brought under state law’ ”).
Section 1832 was recently added as a predicate offense and it is based on theft of trade secrets, a serious federal offense. The court found that at this stage in the proceedings, the plaintiff has adequately pled that the defendants engaged in theft of trade secrets. The complaint also repeatedly asserts that the defendants intended to convert the trade secrets for their own personal gain and to the detriment of Plaintiff (Mark) and this was enough to satisfy the Twombly pleading standards.
The issue therefore involved whether the plaintiff met the continuity requirement in order to state a valid “pattern of racketeering activity” under RICO. Although only one scheme was involved, the court found that, assuming the plaintiffs allegations were true, the plaintiff adequately pleaded an open-ended scheme predicated on theft of trade secrets as plaintiff has alleged past conduct that “by its nature projects into the future with a [specific] threat of repetition” that satisfies the Twombly pleading standards.
The court stated that if the theft of trade secrets allegations are true, the diversion of financial and business data from American and B&B to Quick Cash would directly harm Plaintiff Mark’s financial interests in his holdings. Accordingly, the proximate cause standard was found met.
Ed Note: The court’s opinion further places nails in the coffins for finding “garden-variety fraud” allegations to be successfully alleged under civil RICO. Courts focus on the nature of the violation and when more serious criminal-like crimes are alleged, such as extortion, bribery, Trade Secrets Act violations, the courts can find the continuity from the “nature itself of the racketeering activity.”
In a fraud case only, the saving grace would appear to be to find facts to support that this was the “defendant’s regular way of doing business.” This could include finding other victims which would infer that the activity is not short-term limited, but carries with it the threat of continued activity.
David J. Stander is a civil RICO Attorney who focuses on civil RICO consulting and litigation.