Zanghi v. Callegari, 2023 WL 1097560 (2d Cir., Jan. 30, 2023)

Second Circuit Lacked Appellate Jurisdiction to Review Appellant’s Interlocutory Appeal From An  Order Dismissing a Civil RICO Claim

Appellants Zanghi and Zanghi LLC appealed from the district court’s September 24, 2021 order dismissing a civil RICO claim against Defendant-Appellee Callegari and a January 7, 2022 order declining to exercise supplemental jurisdiction over a state-law claim against Callegari. In this interlocutory appeal, Zanghi argues that the court has appellate jurisdiction to review the orders pursuant to 28 U.S.C. § 1291 or the collateral-order doctrine, and that both were erroneous.  

This court concluded that it lacked appellate jurisdiction to review Zanghi’s interlocutory appeal from the district court’s September 24, 2021 and January 7, 2022 orders. Under 28 U.S.C. § 1291, “[t]he courts of appeals … have jurisdiction of appeals from all final decisions of the district courts.” Under the final-judgment rule, “a party is entitled to a single appeal, to be deferred until final judgment has been entered, in which claims of district court error at any stage of the litigation may be ventilated.”  To determine whether a district court’s order is “final,” we apply a “pragmatic, nontechnical ‘approach to the question of finality.’

Under the collateral-order doctrine, “only decisions [1] that are conclusive, [2] that resolve important questions separate from the merits, and [3] that are effectively unreviewable on appeal from the final judgment in the underlying action” may be appealed before final judgment. 

The appeals court first found the September 24, 2021 and the January 7, 2022 orders are not appealable “final decisions of the district court[ ]” under the final-judgment rule. 28 U.S.C. § 1291. The district court’s September 24, 2021 order dismissed claims against some parties but retained some of Zanghi’s securities-fraud and state-law claims. And while the January 7, 2022 order dismissed the remaining state-law claim against Callegari, it did not dismiss any other surviving claims against other defendants. Moreover, proceedings are still pending before the district court, underscoring that neither order terminated Zanghi’s action. The January 7, 2022 order dismissed the only remaining claim against one defendant (Callegari) in a multi-defendant action; it was not a dismissal of a discrete case consolidated with others in a multidistrict litigation. Thus, neither order was a “final decision” appealable under § 1291.

Second, the Court found the September 24, 2021 and January 7, 2022 orders do not fall within the collateral-order doctrine because, as a categorical matter, neither raises “important questions separate from the merits.”  The court stated that  “[E]ven if a particular appeal satisfies the three conditions” of the collateral-order doctrine, “we still lack jurisdiction if the appeal is of a type that does not generally fall within the doctrine.”  The Court concluded that following the categorical analysis above, neither the September 24, 2021 order nor the January 7, 2022 order is an appealable order under the collateral-order doctrine.

Finally, the Court stated that the lack of appellate jurisdiction over the January 7, 2022 order renders moot Zanghi’s request for pendent appellate jurisdiction over the September 24, 2021 order. (“[P]endent appellate jurisdiction is only appropriate where an issue is ‘inextricably intertwined’ with the other issues on appeal giving rise to the appellate court’s jurisdiction or is necessary to ensure ‘meaningful review’ of those issues.”). Without any basis for appellate jurisdiction, this court must dismiss Zanghi’s appeal.

The court also rejected Zanghi’s alternative request, which we construe as a motion for leave to file a petition for a writ of mandamus as Zanghi failed to satisfy the conditions before the writ may issue,  (1) the petitioner must have no other adequate means to attain the relief it desires; (2) the petitioner must satisfy the burden of showing that its right to issuance of the writ is clear and indisputable; and (3) the issuing court must be satisfied that the writ is appropriate under the circumstances.”  The court found availability of other avenues by which Zanghi could seek the desired relief, however, we are unconvinced that issuance of a writ of mandamus would be appropriate.

Ninth Circuit Affirms Dismissal of RICO Claim Finding Lack of Jurisdiction and Failure to Satisfy Statutory Standing

Limaco v. Wynn, 2023 WL 154965 (9^th Cir., Jan. 11. 2023) 

Appellant Angelica Limcaco appeals the dismissal of her civil claim brought under RICO and the 9^th Circuit affirmed.

Limcaco sued in federal district court in California under RICO. The core of Limcaco’s claim is that Appellees illegally influenced the appointment of WLV’s counsel, Elayna Youchah, as a magistrate judge in the District of Nevada where the Nevada Matter was pending.  She contends that Appellees were part of a RICO conspiracy to protect Wynn casino gaming licenses and that losing the Nevada Matter would threaten those licenses.

First, the district court properly determined that it lacked personal jurisdiction over Buckley. “[M]ere injury to a forum resident is not a sufficient connection to the forum.” Walden v. Fiore, 571 U.S. 277, 290 (2014). “The proper question is not where the plaintiff experienced a particular injury or effect but whether the defendant’s conduct connects him to the forum in a meaningful way.” Id. Limcaco failed to allege that Buckley directed any conduct at California or that her claims arise out of that purposeful direction. 

Second, the district court also properly determined that nationwide service of process under 18 U.S.C. § 1965(b) was inappropriate. Nationwide service under § 1965(b) requires a court to have personal jurisdiction over at least one of the participants, no other district to be able to assert personal jurisdiction over all the alleged co-conspirators, and facts showing the existence of a multidistrict conspiracy encompassing defendants.  Limcaco’s bare assertions that “there is no indication” that Nevada has jurisdiction over ML Strategies, or that Massachusetts had jurisdiction over Buckley, do not establish that § 1965(b) applies, particularly when the First Amended Complaint’s (FAC) primary theory is that all the purported bad actors were engaged in a scheme aimed at assisting a Nevada entity in securing gaming licenses in Massachusetts.

Third, Limcaco similarly failed to satisfy statutory standing under RICO because she fails to allege an injury to business or property through a RICO violation.  Limcaco asserts injuries under theories of honest services fraud, loss of chance to pursue her claim (the Nevada Matter), lost damages from the Nevada Matter, and legal fees. The district court did not err in concluding that “deprivation of honest services alone does not constitute concrete financial loss for purposes of pleading RICO’s statutory standing requirement.” Additionally, Limcaco’s assertion that she suffered injury from the lost ability to pursue her claim is not concrete nor financial because she litigated the Nevada Matter before the district court and this court on appeal.  Limcaco’s lost damages claim similarly fails because it presupposes success on the merits, which were never addressed.

Lastly, Limcaco cites no case in which this court has ever recognized the inurement of legal fees as a cognizable injury under RICO.  Even if legal fees could be a cognizable interest as “deprivation[s] of money,” Limcaco’s assertions still fail to be sufficiently financial or concrete. Next, Limcaco cannot establish any injury “by reason of” a RICO violation because she cannot show that Appellees’ conduct was the but-for or proximate cause of any injury.  Limcaco’s complicated theory of causation turns on a “cascading chain of events” spanning multiple years and involving several third parties. Limcaco does not adequately allege that, but-for the Appellees’ unlawful conduct in elevating Youchah, her injury would not have occurred because the district court dismissed her claim as time barred, and we affirmed that dismissal on appeal. Similarly, Limcaco fails to sufficiently allege proximate causation because her allegations are conditioned on several independent events² and do not show that “the alleged violation led directly to the plaintiff’s injuries.” 

Appellants Could Not Allege Injury From Illegal Drug Dealing As Court Finds Congress did not intend the term “business or property” in RICO to include Illegal Activity

Schulman v. Kaplan, __ 4^th __, 2023 WL 225625 (9^th Cir., Jan. 18, 2023)

Although the court stated it had appellate jurisdiction over this case pursuant to 28 U.S.C. § 1291, i.e., Article III standing, appellants lacked statutory standing under RICO..

Appellants sued Appellees in federal district court, asserting dozens of claims, two of which arise under RICO. The district court granted Appellees’ motion to dismiss with prejudice, holding that Appellants lacked standing to bring their RICO claims.

After finding that hat Appellants had Article III standing, the court considered whether

Appellants have statutory standing to bring their RICO claims. See Canyon Cnty. v. Syngenta Seeds, Inc., 519 F.3d 969, 974 n.7 (9th Cir. 2008).  The court has recognized that to establish statutory standing pursuant to RICO, a plaintiff “must show: (1) that his alleged harm qualifies as injury to his business or property; and (2) that his harm was by reason of the RICO violation, which requires the plaintiff to establish proximate causation.” 

Here, Appellants allege that Appellees devised a racketeering scheme to defraud them, committed acts of mail and wire fraud, and injured them in “their business and property, because their moneys, profits, and property” from their cannabis enterprise “have been wrongly diverted to and converted by Defendants.”  It is therefore clear from the face of the complaint that Appellants’ claimed injury arises pursuant to RICO Section 1964(c). Accordingly, for Appellants to establish RICO standing, the statute’s use of the term “business or property” must encompass businesses and property engaged in the cultivation, sale, and marketing of cannabis—an enterprise that is legal under California law, but illegal under federal law.

The text of RICO does not define either “business” or “property.” For this reason, courts usually look to state law to determine whether a particular interest amounts to property. Diaz v. Gates, 420 F.3d 897, 900 (9th Cir. 2005) (en banc) (“Without a harm to a specific business or property interest—a categorical inquiry typically determined by reference to state law—there is no injury to business or property within the meaning of RICO.”) (emphasis added). California law, unlike federal law, recognizes licensed cannabis businesses as well as a property interest in cannabis. 

The court observed that numerous courts have held that state law does not control where RICO’s statutory purpose or congressional intent in enacting the statute conflicts with the relevant state law thus presenting the following question: do either the statutory purpose of RICO or the congressional intent animating its passage conflict with the California laws recognizing a business and property interest in cannabis? We conclude that they do.

Because RICO’s definition racketeering activity necessarily encompasses dealing in cannabis, it would be inconsistent to allow a business that is actively engaged in cultivation of and commerce in cannabis to recover damages under RICO for injury to that business. The court found that since RICO and the CSA were enacted almost contemporaneously, it is clear that Congress did not intend the term “business or property” in RICO to include cannabis businesses or property. Congress enacted RICO as part of a comprehensive legislative package aimed at combating the influence of organized crime on interstate commerce. S. Rep. No. 91-617, at 76 (1969). Considering the laws in tandem, it is evident that Congress would have considered a cannabis business to be a form of organized crime and that Congress would not have intended RICO to provide damages for injury to interests in which it explicitly disclaimed the existence of any property rights.

Although some states, such as California, have changed their legal regimes pertaining to the use, cultivation, distribution, and sale of cannabis since the enactment of RICO and the CSA, these activities are still clearly illegal under federal law. Congress could not have intended to allow a drug dealer to recover RICO damages from someone who, by mail and wire fraud, stole a shipment of the drug.  Otherwise, RICO would serve to protect the same variety of conduct it was intended to combat.

For these reasons, the court held that Appellants lacked a statutory right to bring a claim under RICO and the district court’s order dismissing Appellants’ RICO claims is upheld.

Circuit Court Affirms Lower Court Decision Dismissing a RICO Claim, but Judge Bacharach Dissents

Johnson v. Heath, __4^th__, 2022 WL 17971709 (10^th Cir. Dec. 28, 2022)

This case arises from a business deal gone sideways. Defendants Michael and Dawn Heath sold Plaintiff Harry Johnson a gasoline and automobile-service station in Wells, Nevada. But soon after the sale, Plaintiff allegedly discovered that the property had material, undisclosed defects and that Defendants had artificially inflated the business’s profits by scamming customers over the years.

Defendants tricked some customers into believing that Defendants were selling gasoline at the less expensive propane price. Twenty-four customers filed complaints about this alleged practice. Besides their alleged customer scams, Defendants allegedly performed little maintenance on the property, leaving the gasoline storage tanks, propane tanks, and sewage system in disrepair. In 2013, Defendants decided to sell the Wells station and allegedly inflated the profitability data by basing it on revenue from overcharging the customers. Defendants also allegedly failed to disclose that they spent little revenue on necessary repairs to the property, further inflating the property’s value.

Defendants also bought a gas and service station in New Harmony, Utah, which they currently operate. Defendants have allegedly continued to charge customers for unnecessary tires and automobile repairs at the New Harmony station.

Plaintiff sued Defendants in the District of Utah, asserting nine state-law claims and a federal RICO claim against Defendant Michael Heath alleging Heath ran his company, Heath Enterprises Inc., as a racketeering scheme Plaintiff calls “burning the station.” The district court dismissed the RICO claim for failure to state a claim and declined to exercise supplemental jurisdiction over Plaintiff’s remaining state claims. Defendants then moved for attorney’s fees, which the district court denied.

Plaintiff alleged that Defendant Michael Heath conducted the affairs of Heath Enterprises Inc., an enterprise, through a pattern of wire fraud, bank fraud, and access-device fraud—crimes that § 1961(1) classifies as racketeering activity. According to Plaintiff, Defendant committed these crimes by fraudulently inducing customers to use their credit cards to buy gasoline and services and then fraudulently inducing Plaintiff to buy the station for more than it was worth. Plaintiff alleged that these predicate crimes formed the RICO pattern. 

The Court agreed with the district court that even assuming Plaintiff adequately alleged predicate racketeering acts, he failed to state a RICO claim because he did not adequately allege a RICO pattern.

Relatedness: 

Plaintiff alleges the following predicate acts: the fraudulent sale of the Wells station to him, the fraudulent charges to customers of the Wells station, and the fraudulent charges to customers of the Elko and New Harmony stations. We agree with the district court that the predicate acts involving the Wells Station relate to each other. Plaintiff alleged that the fraudulent charges to the customers of the Wells station were part of a broader scheme to fraudulently sell the station to Plaintiff at an inflated price. According to Plaintiff’s allegations, Defendants defrauded the Wells-station customers so that the station would seem more profitable to a purchaser of the station. Thus, the fraudulent sales to the customers of the station and the fraudulent sale of the station to Plaintiff made up a common scheme, had similar purposes, and were interrelated under the loose relationship standard.

Open-Ended Continuity

Plaintiff alleged that Defendants operated the Wells station for about eleven years. In that span, Defendants allegedly scammed at least twenty-four customers by tricking them into thinking the propane price applied to gasoline. Defendants also allegedly fraudulently overcharged at least twenty-five customers for gasoline, tires, or automobile repairs. And then Defendants allegedly fraudulently sold Plaintiff the station. Plaintiff argues that each fraudulent transaction constituted a RICO predicate and that the RICO predicates are a regular way Defendants conduct their business—thus establishing open-ended continuity. Although Plaintiff alleged some unrelated fraudulent sales at the Elko and New Harmony stations, he failed to connect those sales to any similar scheme to “burn the station.” Thus, Plaintiff failed to allege that “burning the station” presents Defendants’ regular way of conducting business or that it threatens future repetition.*4.

Closed-Ended Continuity

We thus consider two factors when determining the existence of closed-ended continuity—the duration of the related predicate acts and the extensiveness of the racketeering scheme. Id. at *4, citing cases. Although the majority agreed that duration existed, it noted that duration alone may not establish closed-ended continuity—we also consider the extensiveness of the alleged racketeering scheme in which they consider “the number of victims, the number of racketeering acts, the variety of racketeering acts, whether the injuries were distinct, the complexity and size of the scheme, and the nature or character of the enterprise.”  No factor is required or dispositive; the factors merely guide us in seeking “a natural and commonsense result.” 

Analyzing these factors, the court found the scheme Plaintiff alleged—a scheme to inflate the value of a single property by overcharging some customers and then selling that property to an unwitting buyer without disclosing needed repairs—was neither large nor complex. Id.  But Plaintiff alleged that Defendant has performed this scheme only once. Although Plaintiff alleged that Defendant overcharged customers at the Elko and New Harmony stations, Plaintiff failed to allege that any of those transactions formed part of a similar scheme to “burn” those stations. Thus, the court concluded that Plaintiff alleged only a single scheme with the discrete goal of “burning” the Wells station—inflating its value and dumping it off on an unsuspecting buyer. Id. at 6.

Dissent

Judge Bacharach however stated that the dismissal should have been overturned because in his  view, however, the district court should have considered the allegations that Mr. Heath had inflated profits by cheating customers of the gas station. Unlike the majority, I believe that these allegations establish continuity. *8.   The Judge found that Mr. Heath allegedly deceived not only customers but also Mr. Johnson through electronic communications–• containing false information about the profitability of the gas station and• failing to disclose defects in the gas station’s fuel tanks and sewer system.

The Judge found that Mr. Johnson adequately pleaded wire fraud through misrepresentations to customers.*10. The majority failed to apply the party-presentation rule and misapplies the standards for dismissal and closed-ended continuity.

Though the majority discounts the extent of the scheme, Mr. Heath never questioned satisfaction of this factor. In district court, Mr. Heath challenged closed-ended continuity based only on the lack of “any viable predicate criminal acts.”. And on appeal, Mr. Heath argued only that the allegations had amounted to “common-law fraud” rather than “RICO fraud.” But Mr. Heath has never questioned the extent of the alleged scheme.  Because Mr. Heath hasn’t questioned the extent of the alleged scheme, I don’t think we should, for “we don’t typically ‘craft[ ] arguments for affirmance completely sua sponte and, more specifically, without the benefit of the parties’ adversarial exchange.’ ”

Also, by denying continuity based on extensiveness, the majority overrides the most important factor: duration. Although the extent of the scheme is also pertinent, we should generally focus on whether the wrongful acts are “sporadic” or part of a greater pattern.  As a result, closed-ended continuity is often found whenever the duration is sufficient.  At the motion-to-dismiss stage, the Judge questioned how we can shoehorn Mr. Johnson’s allegations into a single scheme directed at a single individual. 

The Judge stated that even when the predicate acts “arise under a single scheme,” closed-ended continuity may exist when the conduct reflects a regular way of conducting business.*  Editor Note:   Pattern is complex, and courts have usually followed the “regular way of conducting business” as a factor in determining whether there is open-ended continuity, not closed-ended continuity.  See H.J. Inc. 492 U.S. at 493.   Accordingly, I would not base a finding of closed-ended continuity on regular way of doing business, as the dissent implies, but rather argue that the factors showing ‘extensiveness’ as the dissent implies, but rather argue that the factors showing ‘extensiveness’ are sufficient to show closed-ended continuity in this case.

Court Found that the State Action Did Not Resolve all of the Claims in the Federal Case and Thus There Was Not Possibility of Abstention under Colorado River Doctrine

Glassie v. Douchette, 2022 WL 17412856, __4^th __, (1^st Cir., Dec. 5, 2022). 

Court Found that the State Action Did Not Resolve all of the Claims in the Federal case and thus There Was Not Possibility of Abstention under Colorado River Doctrine

Georgia Glassie, a daughter of decedent Donelson Glassie, brought suit in the federal district court for the District of Rhode Island advancing the claim that defendants Doucette, Taft, and Thomas are liable to her under the federal “RICO” laws, 18 U.S.C. § 1962.  In support of that claim, she alleges that those defendants formed an enterprise that engaged in a pattern of fraudulent interstate communications in negotiating and obtaining bank loans.

Second, Georgia alleged that in their capacity as managing members of Historic Inns, all defendants breached fiduciary duties owed to her as a minority member of the LLC by surreptitiously entering a loan transaction that effectively transferred value away from Georgia and to the favored beneficiaries.

Third, Georgia alleged that Doucette (as executor) breached fiduciary duties owed to Georgia (as a beneficiary) by engaging in transactions designed to favor other beneficiaries to her detriment and by concealing and misrepresenting facts concerning his actions as executor.

Fourth, Georgia alleged that all defendants breached the Operating Agreement for Historic Inns by causing Historic Inns to borrow money without following the proper procedures, and by amending the Operating Agreement without a meeting or consent of non-managing members.

Fifth, Georgia alleged that all defendants negligently omitted and/or misrepresented information regarding the actions they took in securing the Historic Inns loan and amending the Historic Inns Operating Agreement.

Sixth, Georgia alleged that all defendants committed fraud by failing to disclose the actions they took in securing the Historic Inns loan and amending the Historic Inns Operating Agreement.

Seventh, Georgia alleged that all defendants engaged in a civil conspiracy to unlawfully benefit themselves by taking actions that harmed Georgia’s interest in the estate but increased the value of businesses in which defendants and the favored beneficiaries held a greater interest.

As relief, Georgia sought monetary damages against Doucette, Thomas, and Taft, all in their personal capacities, plus attorneys’ fees in connection with the RICO claim under 18 U.S.C. § 1964(c).

The district court dismissed all of Georgia’s claims as barred by the probate exception to federal court jurisdiction. The court reasoned that determining the harm Georgia suffered from the defendants’ wrongful acts would require an accounting of the estate, and that granting her relief on some of her claims would require replacing the executor.

The Court considered a question of abstention about which the parties filed supplemental briefs.  Under the doctrine established in Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), a federal court may abstain in certain instances where there is a parallel state court proceeding, “based on ‘considerations of wise judicial administration’ that counsel against duplicative lawsuits.” Jiménez v. Rodríguez-Pagán, 597 F.3d 18, 27 (1st Cir. 2010) (quoting Colorado River, 424 U.S. at 817, 96 S.Ct. 1236). As mentioned, Donelson’s estate remains in Newport probate court. According to the parties, Georgia and her mother filed a petition with the probate court to remove Doucette as executor based on his breach of fiduciary duty; that petition was denied by the probate court, and the denial was appealed to the Rhode Island Superior Court. The probate court also denied a petition filed by Georgia and her mother to adjudge Doucette in contempt for failing to render inventory and account, leading to another appeal to the superior court. The probate court also found unripe a petition Georgia filed to prohibit the disbursement of estate funds to pay Doucette and the favored beneficiaries’ legal fees. Thomas, a defendant in this case, has also filed petitions in the probate court seeking a distribution of estate assets to him.

This federal lawsuit clearly covers much ground in common with these ongoing state court proceedings. But some duplication alone is not enough to justify a stay of this federal action; “[t]he crevice in federal jurisdiction that Colorado River carved is a narrow one,” and abstention must be approached with “caution” and granted only where there is the “clearest of justifications.” Id. (internal quotations omitted). As a threshold matter, a stay or dismissal of a federal lawsuit under Colorado River “necessarily contemplates that the federal court will have nothing further to do in resolving any substantive part of the case.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 28, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). For this reason, “it would be a serious abuse of discretion to grant [a] stay or dismissal at all” “[i]f there is any substantial doubt” “that the parallel state-court litigation will be an adequate vehicle for the complete and prompt resolution of the issues between the parties.” Id. In short, to create the possibility of abstention under Colorado River, the federal- and state-court cases must be “sufficiently parallel,” Villa Marina Yacht Sales, Inc. v. Hatteras Yachts, 947 F.2d 529, 533 (1st Cir. 1991); that is, the state action must resolve all of the claims in the federal case.

Here, there was substantial doubt that the state-court actions will resolve all of Georgia’s federal claims. For example, even if Georgia were to lose in state probate court on all of her claims relating to Doucette’s conduct as executor, that would not dispose of her claim that some or all of the defendants breached duties owed to her as managers of Historic Inns, since that corporate governance dispute is based on her status as a member of the LLC rather than as a beneficiary of the estate. Likewise, even if Georgia prevails on all claims in the state courts, it is unlikely that any state court in so ruling will have occasion to consider whether a RICO enterprise existed, or whether the three defendants committed bank fraud as alleged in Georgia’s federal RICO claim.

Indeed, not even the defendants contend that the state-court claims will resolve all the federal-court claims. Doucette argues, instead, that we should abstain because Georgia could bring her RICO claim in state court. But if that were sufficient to invoke abstention, abstention could become the rule, rather than the exception, except in actions impacting exclusive federal jurisdiction. See Jiménez, 597 F.3d at 29 

In sum, the Court had substantial doubt that resolution of the state-court actions will provide a vehicle for the “complete” resolution of the issues between the parties, and therefore found that the case for Colorado River abstention did not even get to first base.

Court Affirmed Denial of Motion for Leave to Add Civil RICO Allegations Finding Insufficient Proximate Causation

Laydon v. Cooperative Robobank, U.A., 2022 WL 17491341, ___4^th __, 2d Cir. Dec. 8, 2022)

Plaintiff Jeffrey Laydon brought this putative class action against more than twenty banks and brokers, alleging a conspiracy to manipulate two benchmark rates known as Yen-LIBOR and Euroyen TIBOR. He claimed that he was injured after purchasing and trading a Euroyen TIBOR futures contract on a U.S.-based commodity exchange because the value of that contract was based on a distorted, artificial Euroyen TIBOR. Plaintiff brought claims under the Commodity Exchange Act (“CEA”), 7 U.S.C. § 1 et seq., and the Sherman Antitrust Act, 15 U.S.C. § 1 et seq., and sought leave to assert claims under RICO”), 18 U.S.C. §§ 1962, 1964(c).

The district court (Daniels, J.) dismissed the CEA and antitrust claims and denied leave to add the RICO claims. The Court affirmed.  The alleged conduct—i.e., that the bank defendants presented fraudulent submissions to an organization based in London that set a benchmark rate related to a foreign currency—occurred almost entirely overseas. Indeed, Plaintiff failed to allege any significant acts that took place in the United States. Plaintiff’s CEA claims are based predominantly on foreign conduct and are thus impermissibly extraterritorial. See Prime Int’l Trading, Ltd. v. BP P.L.C., 937 F.3d 94, 106 (2d Cir. 2019).

The court agreed with the district court that Plaintiff failed to allege proximate causation for his RICO claims.. To establish a RICO claim, a plaintiff must show: (1) a violation of the RICO statute, 18 U.S.C. § 1962; (2) an injury to business or property; and (3) that the injury was caused by the violation of [§] 1962.” Cruz v. FXDirectDealer, LLC, 720 F.3d 115, 120 (2d Cir. 2013) (citation omitted). As for this last requirement, “a plaintiff must … establish that the underlying § 1962 RICO violation was the proximate cause of his injury.” Empire Merchs., LLC v. Reliable Churchill LLLP, 902 F.3d 132, 140 (2d Cir. 2018) (cleaned up). “[T]he central question … is whether the alleged violation led directly to the plaintiff’s injuries.” Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 461, 126 S.Ct. 1991, 164 L.Ed.2d 720 (2006). As with proximate causation in the antitrust context, we “rarely ‘go beyond the first step’ ” in the causal chain. Empire Merchs., LLC, 902 F.3d at 141 (citation omitted); see also Anza, 547 U.S. at 459–60, 126 S.Ct. 1991 (looking to the directness of injury, “speculative nature of the proceedings,” risk of duplicative recoveries, and existence of more immediate victims when analyzing proximate causation in the civil RICO context).

Plaintiff failed to allege that his proposed RICO claims, premised on wire fraud, see 18 U.S.C. § 1343, proximately caused his injury. Plaintiff’s alleged injury did not flow directly from the first step in the causal chain. Not only did Plaintiff fail to allege any direct dealings with Defendants, but his asserted injury (a change in the value of his domestically traded Euroyen TIBOR futures contract) is several steps removed from Defendants’ alleged conduct (sending fraudulent Yen-LIBOR submissions to the BBA).  Plaintiff thus cannot establish proximate causation for purposes of his RICO claims for the same reason that he failed to do so for his antitrust claim.

Court Denies Defendants’ Motions for Summary Judgment of Civil RICO Claims Sending Case to the Jury

Hyundai Motor America v. West Palm Motor Sales, Inc., 2022 WL 1696846 (S.D. Fla., Nov. 16, 2022)

Defendants filed motions for summary judgment asserting that Plaintiffs failed to sufficiently allege facts which would render identify specific facts showing there is a genuine issue for trial.   Defendants allegedly made an agreement to defraud HMA by intentionally damaging engines and submitting fraudulent warranty repairs.

RICO Association in Fact Enterprise

To assert a RICO claim, a plaintiff must prove “that the defendants (1) operated or managed (2) an enterprise (3) through a pattern (4) of racketeering activity that included at least two predicate acts of racketeering, which (5) caused (6) injury to the business or property of the plaintiff.” Cisneros v. Petland, Inc., 972 F.3d 1204, 1211 (11th Cir. 2020) (citing Ray v. Spirit Airlines, Inc., 836 F.3d 1340, 1348 (11th Cir. 2016)).

Section 1961(4) broadly defines “enterprise” to include “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” 18 U.S.C. § 1961(4). “[A] RICO enterprise need not possess an ‘ascertainable structure’ distinct from the associations necessary to conduct the pattern of racketeering activity.” United States v. Goldin Indus., Inc., 219 F.3d 1271, 1274-75 (11th Cir. 2000). The existence of an enterprise “is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit.” United States v. Turkette, 452 U.S. 576, 583 (1981). Therefore, “the definitive factor in determining the existence of a RICO enterprise is the existence of an association of individual entities, however loose or informal, that furnishes a vehicle for the commission of two or more predicate crimes, that is, the pattern of racketeering activity requisite to the RICO violation.” Goldin Indus., Inc., 219 F.3d at 1275.

An enterprise, as defined within the RICO statute, includes associations in fact. Boyle v. United States, 556 U.S. 938, 944 (2009). “[T]he Supreme Court has ‘succinctly’ defined an association-in-fact enterprise as any ‘group of persons associated together for a common purpose of engaging in a course of conduct.’ ” Al-Rayes v. Willingham, 914 F.3d 1302, 1307 (11th Cir. 2019) (citing Boyle, 556 U.S. at 944; Turkette, 452 U.S. at 583). While the “ ‘concept of an association in fact is expansive,’ the Supreme Court has nevertheless found that an association-in-fact enterprise must have three ‘structural features’: (1) a ‘purpose,’ (2) ‘relationships among those associated with the enterprise,’ and (3) ‘longevity sufficient to permit these associates to pursue the enterprise’s purpose.’ ” Almanza v. United Airlines, Inc., 851 F.3d 1060, 1067 (11th Cir. 2017) (quoting Boyle, 556 U.S. at 944). In order for a plaintiff to establish the “common purpose” requirement for a RICO enterprise, the plaintiff must establish “not only that there was some commonly shared purpose among [the alleged associates], but also that they associated together for that purpose.” Lockheed Martin Corp. v. Boeing Co., 357 F. Supp. 2d 1350, 1362 (M.D. Fla. 2005).

In order to prove an associated-in-fact enterprise, “the group must function as a continuing unit,” not merely through independent, parallel conduct. Boyle, 556 U.S. at 948 (emphasis added); Almanza, 851 F.3d at 1068; Aim Recycling of Fla., LLC v. Metals USA, Inc., No. 18-CV-60292, 2020 WL 209860, at *15 (S.D. Fla. Jan. 13, 2020).

Enterprise- Distinctness

In a 1962(c) case, a party cannot be both the defendant “person” and the enterprise. Goldin Indus.., Inc., 219 F.3d at 1271. Since a corporation is included in the statutory definition of “person” under 18 U.S.C. 1961(3), a bone of contention in 1962(c) cases is often whether the corporate person is separate and distinct from individuals who operate the corporation. In the instant case, the parties vigorously dispute the distinctiveness issue. Defendants argue that HMA has failed to show how West Palm is distinct from its employees, officers or agents for purposes of a RICO enterprise. The Court has carefully considered this issue and notes that the parties seem to agree that the requisite distinctness here hinges primarily on Edward W. Napleton, who is undisputedly not an employee or officer of West Palm. However, the parties make diametrically opposed arguments as to whether Napleton is an agent of West Palm and rely on different evidence to support their positions. The Court cannot decide this issue on summary judgment as there exist material issues of fact which must be resolved by a jury.

Enterprise-   Separate and Apart

Further, “[a]n enterprise is not, for instance, the same as a pattern of racketeering activity. Instead, an enterprise “is an entity separate and apart from the pattern of activity in which it engages.” Catano v. Capuano, No. 18-20223-CIV, 2019 WL 3035752, at *6 (S.D. Fla. July 11, 2019) (citing Turkette, 452 U.S. at 580) (“The existence of an enterprise at all times remains a separate element which must be proved.”)). The Court finds that there are genuine issues of material fact in this case as to the existence of an enterprise and whether the enterprise is an entity separate and apart from the pattern of activity in which it engages. *7.

In sum, the court found that there are genuine issues of material fact as to the existence of an enterprise-in-fact—a common purpose, relationships among those associated with the enterprise, longevity sufficient to permit these associates to pursue the enterprise’s purpose—so summary judgment must be denied on this issue. In light of the foregoing, the Court finds that the enterprise-in-fact issue is one that must go to a jury.

Pattern of Racketeering

“A plaintiff in a civil RICO action must identify and prove a pattern of racketeering activity, defined as at least two ‘predicate acts’ of racketeering activity, the last of which occurred within the last ten years.” Tucker v. Morris State Bank, 154 F. App’x 183, 185 (11th Cir. 2005) (citing 18 U.S.C. § 1961(5)). “An act of racketeering activity, commonly known as a ‘predicate act,’ includes any of a long list of state and federal crimes.” Cisneros, 972 F.3d at 1215 (citing 18 U.S.C. § 1961(1)). “To successfully allege a pattern of racketeering activity, plaintiffs must charge that: (1) the defendants committed two or more predicate acts within a ten-year time span; (2) the predicate acts were related to one another; and (3) the predicate acts demonstrated criminal conduct of a continuing nature.” Trump v. Clinton, No. 22-CV-14102, 2022 WL 4119433, at *19 (S.D. Fla. Sept. 8, 2022) (quoting Jackson v. BellSouth Telecommunications, 372 F.3d 1250, 1264 (11th Cir. 2004) (citations omitted)).

Defendants argue that there is no evidence that Defendants committed predicate acts of mail and wire fraud or that each specific defendant participated in the purported enterprise’s affairs. However, the Court found that there are genuine issues of material fact regarding each of these elements of civil RICO.

Defendants argued that there is a lack of evidence that the defendants acted together to accomplish a fraudulent purpose. The Court disagreed and finds that the record evidence, discussed above, sufficiently establishes genuine issues of material fact that each defendant (or member of the enterprise) was aware of, and worked toward, defrauding HMA to financially enrich himself or itself. HMA has also presented evidence that the common purpose here is independent from the enterprise’s legitimate business activities, which are to lease and sell cars and perform legitimate repairs.

“Garden-Variety” Disputes

As other courts have noted, it is an abuse of the RICO statute to try to squeeze garden-variety business disputes into civil RICO actions. The claims made here by HMA are quite serious and the allegations involve much more than just a business dispute—or a dealership dispute—gone sour.

The Court disagreed with Defendants’ assessment that the evidence, at best, establishes garden variety fraud amongst low-level employees. HMA has provided direct and circumstantial evidence in its Statement of Material Facts and filings that Defendants operated or managed an enterprise through a pattern of racketeering activity that included at least two predicate acts of racketeering (mail or wire fraud), which caused injury to the business or property of HMA. While Defendants argue that HMA’s RICO claim is insufficient as a matter of fact and law, the Court is required to consider the facts in the light most favorable to HMA. After doing so, and considering the applicable law, the Court simply cannot grant summary judgment in Defendants’ favor on HMA’s civil RICO count. Any doubts this Court has regarding whether a trial is necessary must be resolved against the moving party.  Thus, in light of the genuine issues of material fact that exist as to Count II, the Court finds that a jury should consider and determine whether HMA can prove its civil RICO claim. HMA has met its burden to show affirmative evidence to support its RICO claim, and it will be up the jury to accept or reject HMA’s civil RICO claim.

Accordingly, the Motion was denied as to Count II, the substantive RICO claim.

RICO Conspiracy- Count Three

Defendants argue in their Motion that, since HMA’s underlying substantive RICO claim (Count II) is without merit, the RICO conspiracy claim (Count III) necessarily fails.*9.  Section 1962(d) makes it “unlawful for any person to conspire to violate any of the [RICO] provisions.” 18 U.S.C. § 1962(d). “A plaintiff can establish a RICO conspiracy claim in one of two ways: (1) by showing that the defendant agreed to the overall objective of the conspiracy; or (2) by showing that the defendant agreed to commit two predicate acts.” *10, citing cases.  “In addition to predicate crimes, a RICO conspiracy charge requires proof of an enterprise, of the continuity of racketeering activity, and of the defendant’s knowledge of, agreement to, and participation in the conspiracy.” 

Counsel for Plaintiffs and for Defendants agreed that the RICO conspiracy count (Count III) rises and falls with the substantive RICO count (Count II). The applicable law cited above states this as well. The Court found that there are material issues of fact which preclude a grant of summary judgment in Defendants’ favor as to Count III. Just as Defendants’ Motion is being denied as to Count II in light of the genuine issues of material fact that have been presented, Defendants’ Motion was denied as to Count III of the Second Amended Complaint for the same reasons.

Court Denies Defendants’ Motions to Dismiss Finding Closed-Ended Continuity Sufficiently Alleged By Multiple Related Acts Over Multiple Years

SS Richmond LLC, et al. v. Christopher A. Harrison, et al.,  2022 WL 1685570 (E.D. Va., Nov. 9, 2022)

The Court denied the defendants motions to dismiss civil RICO claims resulting from Defendants’ alleged series of fraudulent transactions relating to the development of the Model Tobacco Project. Defendants’ alleged fraud and embezzlement induced Plaintiffs to invest millions of dollars into the Project which Plaintiffs seek to recover.

Count One alleged a RICO claim against Harrison, both individually and by and through entities he controlled, i.e., CAH, CAHC and MBDC, alleging a pattern of racketeering activity to acquire and maintain interest in and control of Developer, MT Development and the Model Tobacco Project. Defendants sought dismissal arguing that Plaintiffs fail to allege a pattern of racketeering activity under Count One.  The Court began by discussing Defendants’ Motion to Dismiss the Amended Complaint, first taking up the RICO claim before moving to the securities fraud claim and then the state law fraud, breach of contract and dissociation claims. 

Regarding the civil RICO claim, Defendants do not dispute that the alleged predicates constitute related acts. Instead, the Motion to Dismiss focuses solely on the alleged lack of continuity of the “pattern” of racketeering activity. Regardless, undoubtably, Plaintiffs allegations satisfy the relatedness prong, as all allegations relate to the Model Tobacco Project.

Continuity

As the Supreme Court explained in H.J. Inc., continuity “is both a closed-and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition.” 492 U.S. at 241. A plaintiff can show closed-ended continuity through “a series of related predicates extending over a substantial period of time” or open-ended continuity by proving that a defendant’s past acts pose a threat of continued or future racketeering activity. 

Closed-Ended Continuity –   Single Scheme Sufficient

Plaintiffs alleged that Defendants’ actions constitute closed-ended continuity, as evidenced by a showing of a “series of related predicates extending over a substantial period of time.” H.J. Inc., 492 U.S. at 242. All of Defendants’ acts, Plaintiffs allege, furthered the Model Tobacco Project. The fact that only one scheme constituted the whole of the predicate acts’ goal does not defeat a finding of closed-ended continuity.   The court discussed that the years-long, multi-document scheme that Plaintiffs allege here remains a far cry from a single prospectus distribution. Thus, the single project nature of Model Tobacco alone did not defeat the claim.  Thus, Plaintiffs allege that Harrison, individually and through his entities CAH, CAHC and MBDC, defrauded both the named Plaintiffs and other individuals with regard to multiple interconnected projects, including the Model Tobacco Project, and alleged five years of predicate acts.*7.  

Furthermore, as continuity constitutes a temporal prong, the Fourth Circuit and other courts evaluate ‘ “the number and variety of predicate acts and the length of time over which they were committed, the number of putative victims, the presence of separate schemes, and the potential for multiple distinct injuries.’ ”*8.   The court stated most circuits have agreed with the Fourth Circuit that related racketeering activity over a period of years constitutes closed-ended continuity sufficient to satisfy the pattern prong.id.  Additionally, while most of the acts alleged do constitute mail and wire fraud, and Defendants do not dispute the high number of alleged acts, Plaintiffs also allege thirty-three acts of bank fraud, numerous acts of money laundering and additional acts of fraud.

Regardless of the weight that the Court affords to the wire fraud allegations, the sheer number of predicate acts — both with and without the wire fraud allegations — sufficiently demonstrates closed-ended continuity. More than fifty acts over a period of five years constitutes the type of long-term criminal activity that Congress sought to curtail in enacting the RICO statute.

Closed-Ended Continuity-   Other Crimes

Plaintiffs further allege that Harrison, individually and through his controlled entities, committed additional fraudulent acts through other related and unrelated schemes.  In H.J. Inc., the Court noted that “proof that a RICO defendant has been involved in multiple criminal schemes would certainly be highly relevant to the inquiry into the continuity of the defendant’s racketeering activity.” 492 U.S. at 240. The Court finds these allegations further proof of the existence of a closed-ended continuity which, with the relatedness of the predicate acts, establishes a RICO pattern. *10. 

Dechert’s Alleged Hacks Draw Uncommon Civil Racketeering Claims

Bloomberg Law November 3, 2022

• Civil RICO claims unusual in hacking cases, attorneys say
• Cases against law firm will be difficult to prove, they add

Two lawsuits against Dechert LLP for its alleged role in an international “hack and dump scheme” will likely face challenges in proving the global law firm is civilly liable under a racketeering law, an unusual claim in cyberattack cases, attorneys say.

Last month, an Iranian American aviation executive and a former Wall Street Journal reporter separately sued Dechert and a litany of other entities, both claiming civil violations of the federal Racketeer Influenced and Corrupt Organizations Act after the firm allegedly led a hacking campaign to steal and reveal documents and communications that damaged their respective businesses.

That statute is most commonly used in the non-criminal context to address business disputes, and civil RICO cases over computer hacking are uncommon, attorneys say. 

Despite the fact-specific nature of the Dechert litigation, RICO could be attractive to plaintiffs because it offers triple damages and attorneys’ fees, lawyers said. However, RICO litigation is highly complex and difficult to win, they added.

“Because the civil RICO claims have these draconian penalties, courts look at civil RICO claims very strictly,” said David J. Stander, a solo practitioner who spent two decades as a trial attorney for the Department of Justice’s Organized Crime and Racketeering Section.

Defendants seeking dismissal of civil RICO claims “usually” prevail, he said. “If I were to give a percentage, I’d say maybe 80% of the time they’re successful,” Stander said.

Hacking Allegations

Both cases claim that Dechert partner Neil Gerrard, the firm’s former co-head of white-collar litigation, helped orchestrate an effort that began as early as 2015 to hack aviation executive Farhad Azima’s email accounts and publish his messages, photos, financial records, and other information on behalf of Gerrard’s alleged client, the Ras Al Khaimah Investment Authority.

RAKIA, which is the sovereign wealth fund of a member of the United Arab Emirates, and Azima were embroiled in litigation over a hotel sale, and the “hack and dump scheme” was intended to give the emirate leverage, according to the two lawsuits.

Dechert and others are accused of engaging in various racketeering activities related to the hacks and attempts to cover them up. Azima is seeking over $100 million in

Former WSJ reporter Jay Solomon said in his lawsuit that his communications with Azima, who he considered a source, were stolen by the hackers and shared with his employer in an effort to discredit his work.

Azima reportedly offered Solomon a small stake in one of his businesses, and the journalist was subsequently fired from the WSJ, “blackballed” by the journalism industry, and lost money on book publishing contracts, according to the lawsuit. Solomon is seeking at least $75,000 in statutory damages and “and further monetary damages in an amount to be proven at trial.”

Dechert LLP denied the claims in both lawsuits in an emailed statement, and attorneys for Gerrard and Azima did not respond to multiple emailed requests for comment.

Cases’ Strengths, Weaknesses

Illegal hacking doesn’t qualify as a predicate RICO crime, but it could be associated with other acts that are applicable under RICO like theft of trade secrets or economic espionage, former DOJ attorney David J. Stander said.

Based on the facts presented in Azima’s complaint, the lawyers missed an opportunity to cite two federal laws that address hacking activity and qualify for civil RICO claims, said Jay Bogan, a Kilpatrick Townsend & Stockton LLP partner who

represents businesses in civil RICO litigation.

The alleged hacking and stealing of trade secrets for the benefit of a foreign actor would fall under both the Federal Defend Trade Secrets Act and the Federal Espionage Act, Bogan said. The most common statutory method of addressing hacking, the Computer Fraud and Abuse Act, does not fall under RICO, he added.

Azima’s lawsuit includes a litany of other allegations—like obstruction of justice and witness tampering related to covering up the hack—that are predicate crimes under RICO and are better suited to implicate the wide umbrella of that statute, according to Bogan.

But while the Azima lawsuit is well organized and presents compelling details to tie its allegations to civil RICO violations, the case presented by Solomon contains less direct evidence to support its RICO claims, he said.

Solomon’s lawsuit is less likely than Azima’s to survive a motion to dismiss, said Bridget DuPey, an associate at Brownstein Hyatt Farber Schreck LLP who penned a blog post series on civil RICO law for the firm.

“I was struck by kind of a lack of detail in the Solomon complaint that was present in the Azima complaint, not in a way that necessarily makes it fatal,” DuPey said. “But pleading particulars as in dates and times and who participated in conversations, where they occurred, things of that nature, did seem to be a bit lacking in that regard, which could make it more susceptible to such a challenge.”

The ties to RICO violations in Solomon’s lawsuit are “sloppy,” and fail to provide enough details that establish a pattern of racketeering activity to the standard civil RICO claims requires, Bogan said.

Court Addressed Lower Court’s Rulings on the Civil RICO Claim, Including Finding Sufficient “Continuity”

Planned Parenthood Federation of America, Inc., v. Troy Newman, et al., 2022 WL 13613963 (9^th Cir., Oct. 21, 2022)

The Court found no error in the district court’s rulings on the RICO claim.

Interstate Commerce Nexus

Planned Parenthood’s RICO claim satisfied the minimal interstate commerce nexus requirement under 18 U.S.C. § 1028(c)(3)(A).  The production and transfer of the fake driver’s licenses affected interstate commerce because Appellants used the fake licenses to gain admission to out-of-state conferences and facilities, and then presented those licenses at the out-of-state conferences and facilities, which were operating in interstate commerce. See United States v. Turchin, 21 F.4th 1192, 1202–03 (9th Cir. 2022). And further, Daleiden’s use of the internet to search for and arrange the purchase of two fake driver’s licenses was “intimately related to interstate commerce.” See United States v. Sutcliffe, 505 F.3d 944, 952 (9th Cir. 2007).

Threat of Continuity Found

The Court also found the district court did not err in denying Appellants’ renewed motion for judgment as a matter of law regarding the required pattern of predicate acts necessary to violate RICO. A pattern may be established by proof that defendants’ conduct possessed “open-ended continuity,” i.e., that their conduct “by its nature project[ed] into the future with a threat of repetition.” H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 241 (1989) (emphasis added). “As long as a threat of continuing activity exists at some point during the racketeering activity, the continuity requirement is satisfied.” Sun Sav. & Loan Ass’n v. Dierdorff, 825 F.2d 187, 194 n.5 (9th Cir. 1987).

The evidence showed that various Appellants had previously advocated for or used undercover sting operations targeting Planned Parenthood, and CMP and BioMax were still extant and intended to carry out future projects. The district court did not err in determining that “there was sufficient evidence on which a reasonable jury could rely to establish open-ended continuity.”

Proximate Causation

The district court did not err in denying Appellants’ post-trial motion for judgment as a matter of law on RICO proximate cause. There was a direct relationship between Appellants’ production and transfer of the fake driver’s licenses and the alleged harm. See Hemi Grp., LLC v. City of New York, N.Y., 559 U.S. 1, 12 (2010); see also Harmoni Intl. Spice, Inc. v. Hume, 914 F.3d 648, 651–52 (9th Cir. 2019). The district court permitted only infiltration damages and security damages, limiting any difficulty in determining what damages were attributable to Appellants’ RICO violation; there is no risk of Planned Parenthood recovering duplicative damages; holding Appellants liable discourages illegal behavior; and there are no more directly injured victims. See Painters & Allied Trades Dist. Council 82 Health Care Fund v. Takeda Pharms. Co. Ltd., 943 F.3d 1243, 1249–52 (9th Cir. 2019); Harmoni, 914 F.3d at 652.