MAY JOSEPH, FADI ESSA, HOTEL FURNITURE LIQUIDATORS INC, and PARKING LOT SERVICE INC, Plaintiffs, v. NEVAR JAHWARY, YOUSIF DAMMAN, and TANYA KLATT Defendants, 2020 WL 1249291 (E.D. Mich, March 16, 2020)
The Court denied Defendants’ motion to dismiss a civil RICO claim finding that predicate acts of wire fraud adequately constituted a pattern of racketeering meeting the “open-ended” continuity test.
Plaintiff Fadi Essa served as a mentor and provided financial assistance and financial opportunities to defendant Jahwary for several years, and alleges that defendants perpetrated a scheme to swindle Plaintiffs out of hundreds of thousands of dollars.
Specifically, in October 2017, Plaintiff Essa asked Defendant Jahwary to partner with him in purchasing a hotel in Ferndale, Michigan. Both men were supposed to contribute $150,000 dollars to the venture, work to refurbish the hotel, and ultimately run the hotel for profit. Essa made his contribution as required by the agreement, but Jahwary collected the funds to make his own contribution through a fraud scheme referred to by Plaintiffs’ as the West Coast Wholesale fraud scheme.
Plaintiffs claim Defendants have a history of conducting fraudulent schemes similar to the West Coast Wholesale scheme, including running hotel furniture fraud schemes. Plaintiffs also allege that there were multiple victims of the West Coast Wholesale fraud scheme, and allege that Defendants engaged in various insurance fraud schemes, some of which related to their hotel businesses. Plaintiffs generally allege that Defendant Jahwary has “coordinated the actions of others” to commit insurance fraud.
The Court set forth the general principles involving open-ended continuity based on the Supreme Court’s H.J. Inc. case.*7. Although not finding the various insurance fraud schemes sufficiently related to the West Coast Wholesale fraud scheme (which injured Plaintiffs) the Court found that Defendants ran a related scheme through an entity called Hotel Liquidators, LLC in which Jahwary and his associates allegedly duped consumers into paying for furniture while never delivering the goods. The Court found that this scheme is sufficiently related to the West Coast Wholesale fraud to support a pattern of racketeering. The two schemes share the same general purpose, category of victims, and results. The methods of the commission were slightly different: in the West Coast Wholesale scheme, Defendants reached out directly to Plaintiffs via e-mail, while the Hotel Liquidators scheme was allegedly run through a website. But conceptually the two schemes are similar—Defendants allegedly offered for sale hotel furniture at liquidation prices with the intent to never complete the sale.
Thus, the Court found that this conduct together with the West Coast Wholesale scheme was sufficiently related to the West Coast Wholesale fraud to support a pattern of racketeering. There was no inherent limit to the number of potential customers who could fall victim to these schemes. And the allegation that Defendants still controlled the entity and website involved in the Hotel Liquidators scheme raises a potential inference that Defendants are or may still be running the scheme. The Court also found that the plaintiffs’ allegations that the Defendants continued or attempted to continue the West Coast Wholesale scheme beyond the single encounter with Plaintiffs here, i.e., an unrelated customer (another victim) were sufficient to raise factual questions about the continuity element of the general scheme involved in the West Coast Wholesale scam to survive a motion to dismiss.
Ed Note: The Court did not find the scheme met the “closed-ended’ continuity test, failing to meet some of the factors, but the finding of adequate allegation of the open-ended test was sufficient to sustain the Amended Complaint.