Court Dismisses Plaintiff’s Civil RICO Complaint Relying, Mistakenly, in Part, on Pre-H.J. Inc. Case Law Pertaining to ‘Continuity”

Old Town Utility and Technology Park LLC et al v. Consolidated Edison Solutions, Inc. et al, 2019 WL 4784603 (D. Maine, Sept. 30, 2019)

The court granted in part the Defendants’ motions to dismiss finding that the civil RICO claims did not adequately allege a pattern of racketeering because it failed the “continuity” requirement. The complaint alleges that certain of the Defendants operated a criminal enterprise to procure a long-term energy supply contract with the University, and were able to do so because public entities and officials associated with the University failed to follow governmental procurement and public corruption laws.

The First Circuit takes, in my view, and overly restrictive view of adequately alleging the “continuity” factor for showing a pattern of racketeering, in both its open-ended and closed-ended analysis.

The Plaintiffs assert a RICO claim under 18 U.S.C.A. § 1962(c) against most of the Defendants. The Defendants contended the complaint fails to allege the existence of, among other things, a pattern of racketeering. The First Circuit had previously ruled, in a pre-H.J. Inc case that –

a “pattern of racketeering activity … does not encompass a single criminal event, a single criminal episode, [or] a single ‘crime’ (in the ordinary, nontechnical sense of that word) … even if that single episode involves behavior that amounts to several crimes (for example, several unlawful mailings).”

citing to Apparel Art Int’l, Inc. v. Jacobson, 967 F.2d 720, 722–23 (1st Cir. 1992) (emphasis in original).

The court discussed the two methods to satisfy the continuity plus relationship standard: the open-ended approach and the closed-ended approach. Giuliano, 399 F.3d at 387. Under the open-ended approach, a plaintiff “need not wait for a long-term pattern to develop … so long as the alleged ‘racketeering acts themselves include a specific threat of repetition extending indefinitely into the future [or] … are part of an ongoing entity’s regular way of doing business.’ ” Id. at 387 (quoting H.J. Inc., 492 U.S. at 242).

Under the closed-ended approach, by contrast, a plaintiff must show “a series of related predicates extending over a substantial period of time.” H.J. Inc., 492 U.S. at 230. “[W]here the temporal duration of the alleged activity and the alleged number of predicate acts are so extensive that common sense compels a conclusion of continuity, closed-ended continuity should be found.” Giuliano, 399 F.3d at 387 (internal quotation marks and citation omitted).

Accordingly, the First Circuit found that 95 fraudulent mailings over a four-and-a-half-year period was sufficient to show continued criminal activity. Fleet Credit Corp. v. Sion, 893 F.2d 441, 447 (1st Cir. 1990). By contrast, an allegation of “16 predicate acts over a six-month period is inadequate to establish a closed-ended pattern of racketeering activity.” Giuliano, 399 F.3d 381 at 390. Only in “middle ground” closed-ended cases “where the duration and extensiveness of the alleged conduct does not easily resolve the issue” does the court “examine other indicia of continuity.” Id. at 387.

1. Open-Ended Continuity

Regarding open-ended continuity, the complaint asserts that there is open-ended continuity because the complaint alleges that the racketeering activity “will continue into the future” but the court stated that the allegations were unduly speculative as a plaintiff must point to facts that would establish that the alleged criminal conduct is a continuing threat. Thus, in Systems Management, Inc. v. Loiselle, 303 F.3d 100 (1st Cir. 2002), the First Circuit dismissed a RICO case alleging that an employer engaged in mail fraud to conceal its non-compliance with state wage laws so as to maintain its contract. Id. at 103, 106. The court stated that, “[i]f [the defendant] had concrete plans to bid on contracts on other jobs and to carry them out through acts of mail fraud, the ‘continuing threat’ label would be supported, and the case would fit within what the Supreme Court has viewed as an ‘open ended’ pattern of racketeering sufficient under RICO.” Id. at 106. But the plaintiffs in that case could not point to any such evidence and thus could not establish a continuing threat. Id.

The court stated that the Plaintiffs alleged no “concrete plans” by the Defendants and contains no allegations that “racketeering activity might be a regular way of conducting defendant’s ongoing legitimate business … or of conducting or participating in an ongoing and legitimate RICO enterprise.” Efron v. Embassy Suites (P.R.), Inc., 223 F.3d 12, 19 (1st Cir. 2000) (internal quotation marks omitted). Therefore, the court stated that allegations in the complaint do not support open-ended continuity. See Kenda Corp. v. Pot O’Gold Money Leagues, Inc., 329 F.3d 216, 233 (1st Cir. 2003) (holding that multiple criminal acts “directed toward one transaction” did not establish open-ended continuity where the plaintiffs could not prove that the defendants “had plans to take over another company or pool league in the same fraudulent manner”).*5.

This holding is contrary to H.J. Inc. in which there was no requirement that Plaintiffs must allege proof that Defendants had “concrete plans” to conduct other violative behavior. In fact, this is completely wrong in view of the fact that the threat of continuing activity can be shown by the previous conduct, e.g., an extortionate demand by a hoodlum. H.J. Inc. at 242-43

2. Closed-Ended Continuity

The court also concluded that the complaint’s allegations do not support closed-ended continuity. “[A] closed-ended pattern sometimes can be established by examining only the number of alleged predicate acts and the duration of the alleged racketeering activity.” Home Orthopedics Corp., 781 F.3d at 529. Here, the complaint alleges that the Defendants’ racketeering activity spanned approximately two years, but it does not clearly enumerate the alleged predicate acts. Thus, it is difficult to say whether “the temporal duration of the alleged activity and the alleged number of predicate acts are so extensive that common sense compels a conclusion of continuity.” Giuliano, 399 F.3d at 387.

Nevertheless, even considering other indicia of continuity under the “middle ground” analysis, see id., the complaint fails to establish closed-ended continuity. These indicia include, “for instance, whether the defendants were involved in multiple schemes, as opposed to one scheme with a singular objective; whether the scheme affected many people, or only a closed group of targeted victims; and whether the scheme had the potential to last indefinitely, instead of having a finite nature.” Home Orthopedics Corp., 781 F.3d at 529 (internal quotation marks omitted).

This view is also unwarranted by H.J. Inc., which sets forth that multiple schemes are not required and closed ended may be demonstrated by “proving a series of related predicates extending over a few weeks or months.” Id. at 242-43. In any event, the court viewed the facts as a “focused, finite scheme” with only the Plaintiffs as targeted which does not establish closed-ended continuity. Relying on pre-H.J. Inc. law, the court stated that complexity alone does not establish closed-ended continuity. *7, see Apparel Art, 967 F.2d at 723 (contrasting a “single, complex interstate bank robbery,” which is not continuous, with a “a string of interstate robberies,” which may be). Thus, the court concluded that the “combination of single scheme, single injury, and few victims makes it virtually impossible” for the Plaintiffs to establish closed-ended continuity.

Ed. Note: If viewed as merely as allegations of single-scheme, single or few victims, the court does conform to the majority of district courts which have not found continuity in such a circumstance. However, these cases are overly restrictive as H.J. Inc. focuses on “duration” not to other factors such as multiple victims and multiple schemes.

David J. Stander is an attorney who focuses on civil RICO consulting and litigation.

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