Court Finds Plaintiff Adequately Pleaded Injury from Payment of Legal Expenses, and Adequately Pleaded Section 1962(b) Violations

D’Addario v. D’Addario, ___ F.3d ___, 2018 WL 3848501 (2d Cir., Aug. 14, 2018)

The Second Circuit vacated the District Court’s judgment dismissing in full plaintiff Virginia D’Addario’s RICO claim and related state law claims and remanded the cause for further proceedings in accordance with this opinion. Virginia’s claim, which she asserts both individually and as Executrix of her mother’s estate, arises out of the management of her father’s probate estate (the “Estate”) over several decades by her brother David.
The court held that Virginia’s claim under RICO for legal expenses incurred in pursuing her grievances against David and other defendants is ripe and that she has plausibly alleged that her legal expense injuries were proximately caused by Defendants’ RICO violations.
From the start, Virginia has sought RICO treble damages based on two types of injuries: first, loss of the inheritance she contends that she (and her mother’s estate) would have received from the Estate had David not rendered it insolvent (the parties refer to these as “lost debt” damages); and, second, the more than $200,000 in legal expenses that she incurred in the four years before filing this suit, in her efforts to oppose David’s mismanagement of the Estate and unseat him as Executor (the parties refer to these as “collection expenses”) through various actions pursued in the courts of Connecticut. (David appears to have blocked Virginia’s attempted legal interference on at least one earlier occasion by invoking the promise she made in exchange for the 1987 loan. See D’Addario v. D’Addario, No. 27 86 23, 1991 WL 59744, at *4 (Conn. Super. Ct. Mar. 14, 1991).)

The District Court granted Defendants’ motion to dismiss the Amended Complaint. D’Addario v. D’Addario, No. 3:16cv99 (JBA), 2017 WL 1086772 (D. Conn. Mar. 22, 2017) (Arterton, J.). In a detailed ruling, it determined that Virginia’s claim for “lost debt” damages was not ripe for adjudication under applicable RICO case law because it remained uncertain whether Virginia would receive any distribution from the Estate to offset her claimed damages. This uncertainty made the amount she would ultimately be owed too speculative for recovery and trebling under RICO. The court ruled, in contrast, that her claim for collection expenses already incurred was ripe.
As to those expenses, however, the District Court concluded that the Complaint’s allegations were insufficient to state a civil RICO claim. It explained that Virginia had failed to identify a distinct “acquisition and maintenance” injury, as required to make out a claim based on a violation of section 1962(b). And it explained further that Virginia had failed sufficiently to identify an “enterprise” to support a theory for recovery under section 1962(c). Because the Complaint laid an inadequate basis for finding a violation of either of these subsections, the District Court also rejected Virginia’s claim under section 1962(d) for RICO conspiracy. Having dismissed the only federal claim presented in the Complaint, the District Court declined to exercise supplemental jurisdiction over Virginia’s state law claims.

On review, the Second Circuit concluded that the District Court correctly determined that Virginia’s claim for her share of the Estate’s assets is unripe and that her claim for collection expenses is ripe. We also determine that Virginia has sufficiently alleged that her collection expense injuries were proximately caused by the claimed RICO violations.

However, in contrast to the District Court, the Circuit ruled that Virginia has sufficiently identified a distinct acquisition and maintenance injury under section 1962(b) to support her collection expenses claim with regard to David, Gregory Garvey, and Red Knot, but not with regard to the other defendants. We further conclude that Virginia has also sufficiently alleged a section 1962(c) “enterprise” with regard to all six defendants, supporting her claim for collection expenses on this theory of recovery as well. For these reasons, we vacate the District Court’s dismissal as to Virginia’s RICO claim on her own behalf and on behalf of her mother’s estate for collection expenses and remand that claim and her state law claims for further proceedings consistent with this opinion.

The Court explained that it has long recognized that a plaintiff may recover legal fees, including expenses incurred in one or more attempts to combat a defendant’s RICO violations through the legal system, as damages in a civil RICO action, and thus within that category of cognizable damages. Accordingly, the Court concluded that Virginia’s injuries are not so removed from Defendants’ misdeeds as to place them outside the reach of the proximate causation chain as a matter of law. The expenses that she has incurred to stop the incursion are sufficiently proximate to the identified RICO violations support a claim under section 1964(c).

Also, regarding Section 1962(b) the Court stated that to successfully plead a RICO claim, a plaintiff must indeed allege distinct damages arising from the acquisition or maintenance of control of the enterprise. In other words, those damages must be different from the damages that flow from the predicate acts themselves, and Virginia sufficiently pleaded a separate and distinct “acquisition or maintenance” injury.

Ed. Note: The finding of an acquisition and maintenance injury from control of the enterprise is usually more difficult than the participation injury of section 1962c, and is well-explained by the Court.


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