Grace International Assembly of God v. Festa et al ___Fed. Appx. ___, 2019 WL7293871 (2d Cir. 2019)
The Second Circuit follows existing precedent in the Circuit to affirm the dismissal of a civil RICO complaint finding that the plaintiffs did not adequately plead acts sufficient to meet the “continuity” requirement for pattern. As the primary basis for its racketeering claim, Grace alleged that Defendants committed numerous counts of wire fraud, in violation of 18 U.S.C. § 1343, during the course of a construction project commissioned by Grace.
The Circuit court did not find racketeering activities which “amounted to or pose a threat of continued criminal activity.” To meet this so-called “continuity” requirement, a “plaintiff in a RICO action must allege either an open-ended pattern of racketeering activity (i.e., past criminal conduct coupled with a threat of future criminal conduct) or a closed-ended pattern of racketeering activity (i.e., past criminal conduct extending over a substantial period of time).”
- Closed-ended Continuity
The Court stated that “[t]o satisfy closed-ended continuity, the plaintiff must prove ‘a series of related predicates extending over a substantial period of time.’ ” Since the Supreme Court decided H.J. Inc., we have never found predicate acts spanning less than two years to be sufficient to constitute closed-ended continuity. “[W]hile two years may be the minimum duration necessary to find closed-ended continuity, the mere fact that predicate acts span two years is insufficient, without more, to support a finding of a closed-ended pattern.”
The court must also consider the number and variety of predicate acts, the presence or absence of multiple schemes, and the number of participants and victims. Plaintiffs allegations that the acts took place for a period extending longer than two (2) years was not sufficient because the scheme involved few victims and fewer perpetrators.
Editor Note: These extra requirements are not mandated nor required by the Supreme Court in H.J. Inc., and ignores the Supreme Court principle that civil RICO is to be liberally construed. These conditions are not required in some other circuits, most notably, the Third Circuit, the Sixth Circuit, and the Ninth Circuit, all of which have explicitly held that a plaintiff is not required to plausibly allege multiple schemes and multiple victims to show closed ended continuity, nor show ongoing conduct to meet the closed-ended prong. Meanwhile, the Seventh Circuit more closely stands with the Second Circuit. [Specific case cites will be provided in an upcoming published article].
This conflict in the circuits support the Supreme Court taking another view.
- Open-ended Continuity
There are two ways to show open-ended continuity – (1) “where the acts of the defendant or the enterprise [are] inherently unlawful, such as murder or obstruction of justice, and [are] in pursuit of inherently unlawful goals, such as narcotics trafficking or embezzlement,” or (2) “where the enterprise primarily conducts a legitimate business” but there is “some evidence from which it may be inferred that the predicate acts were the regular way of operating that business, or that the nature of the predicate acts themselves implies a threat of continued criminal activity,” The allegation of a scheme that was inherently terminable does not plausibly imply a threat of continued racketeering activity.
The court found that Plaintiffs failed to allege the first type of open-ended continuity, which primarily targets organized crime, and failed the second type as the plaintiff did not adequately identify that the nature of the predicate acts implied a threat of continuing activity nor adequately allege the “regular way of doing business.” Thus, the court concluded in reality this was one scheme with one clear victim, and clearly insufficient to establish a pattern for the purposes of RICO.
Ed. Note: The requirement for open-ended continuity – (1) “where the acts of the defendant or the enterprise [are] inherently unlawful, such as murder or obstruction of justice, and [are] in pursuit of inherently unlawful goals, such as narcotics trafficking or embezzlement” is also not a requirement set forth in H.J. Inc. The language is taken from a criminal RICO case to find continuity in such a circumstance.