Joseph O’Keefe v. Ace Restaurant Supply LLC et al., 2019 WL 952282 (E.D. Pa., 2/27/19)
Introduction– This case involves a relatively rare circumstance, i.e., a decision after the parties have tried the case rather than a Rule 12(b)(6) opinion based on the plausibility of the allegations. Although ruling against Plaintiff, the Magistrate Judge’s decision liberally construes civil RICO, particularly in the civil RICO liberal Third Circuit:
1. The Judge did not rule on “distinctness” principles, not addressing such issue when the individual defendants and enterprise constituents were identical. A proper analysis would have been to find the individual defendants distinct from the association in fact of individuals and the legal entity, but find the legal entity not distinct under Riverwoods principles.
2. Importantly, the Judge ruled on this case at trial even though it only involved a breach of contract, thus, no dismissal based upon “garden-variety” fraud.
3. Although ultimately not accepting at trial evidence of the “regular way of conducting [their] ongoing legitimate business” because it was hearsay; does this infer that at the pleading stage, such allegations (which would only be required to be plausible) would be sufficient to allege open-ended continuity?
4. The Judge recognizes that RICO conspiracy does not require a section 1962(c) violation, following Salinas and Smith v. Berg; and
5. The Judge maintained jurisdiction over the state law claims and ruled in Plaintiffs favor.
Facts: Plaintiff sued Defendants for civil RICO and state law claims based upon breach of contracts by Defendants, i.e., Plaintiff testified that he contacted Defendants “[m]ultiple times” to find out about the status of the items which had not yet been delivered, and to complain about the condition of items he received because they were not in the contracted-for condition. Defendant Korey Blanck, acting as President of Defendant Ace Restaurant Supply. Defendant Nicholas Blanck testified that he worked as an independent contractor for Defendant Ace Restaurant Supply, delivering and cleaning used equipment.
(1) Enterprise Found Sufficient Although Court Did Not Address “Distinctness” Issues
The Magistrate Judge ruled that the Plaintiff had not shown an “enterprise” consisting of Defendant Korey Blanck, Defendant Nicholas Blanck, and Defendant Ace Restaurant Supply. Defendant Korey Blanck testified that he was the President, sole shareholder, and sole decisionmaker of Defendant Ace Restaurant Supply. (Tr. 76:6-77:1, 100:8-22). Defendant Nicholas Blanck testified that he worked for Defendant Ace Restaurant Supply as a deliveryman and he “helped clean up the equipment to help my father out.” Accordingly, Plaintiff has shown that Defendants acted as an “enterprise” within the meaning of the RICO statute because they were a “group of individuals associated in fact” and they were “associated together for a common purpose of engaging in a course of conduct.” Turkette, 452 U.S. at 580, 583.
(2) Pattern of Racketeering –Continuity Not Found When Evidence of Defendant’s Past Illegal Activity Was Hearsay; does this infer sufficiency at pleading stage?
The Judge first found that Plaintiff has shown the requisite number of predicate acts; specifically, the evidence adduced at trial showed that Defendants committed at least three predicate acts within ten years; i.e., a fax on March 16, 2010; a fax and mailing on April 12, 2010; and a mailing on May 21, 2010. Each of these acts—the wire and mail frauds—were undertaken with “fraudulent intent” and as a part of the “scheme to defraud” Plaintiff. [Note: We can assume that the fax was “interstate,” if not, then the court clearly erred in finding it a wire fraud act]
The Judge court found however that the related predicates acts did not extend over a substantial period of time, here, only three months, sufficient to satisfy closed-ended continuity.
Regarding open-ended continuity, the court cited to the language of H.J. Inc. to determine whether plaintiffs were able to prove at trial that the defendant’s actions constituted the “regular way of conducting [their] ongoing legitimate business.”
Citing to Tabas v. Tabas, the court stated that
“the clear implication of this language is that the ambit of RICO may encompass a ‘legitimate’ businessman who regularly conducts his business through illegitimate means, that is, who repeatedly defrauds those with whom he deals and, in the process, commits predicate acts, for instance by using the postal service as a means of accomplishing his scheme.” Id.
The court found that after trial Plaintiff has not presented sufficient evidence to establish the open-ended continuity prong with evidence of similar lawsuits brought against Defendants in Pennsylvania state court but the court ruled that they were inadmissible hearsay evidence. Accordingly, the court determined that when viewing the admissible evidence, the Court finds that Plaintiff has not demonstrated open-ended continuity. 18 U.S.C. § 1962(c). Although Defendant Korey Blanck committed fraud under Pennsylvania law, and Defendants committed numerous related predicate acts against Plaintiff, the admissible evidence does not support a finding that this is Defendants’ “regular way of conducting [their] ongoing legitimate business.” Tabas, 47 F.3d at 1295 (quoting H.J. Inc., 492 U.S. at 243).
(3) RICO Conspiracy Not Found Sufficiently Pleaded, But Judge Recognizes Salinas and Smith v. Berg
Section 1962(d) makes it “unlawful for any person to conspire to violate” Section 1962(c). To establish a RICO conspiracy, the plaintiff must show “(1) that two or more persons agreed to conduct or to participate, directly or indirectly, in the conduct of an enterprise’s affairs through a pattern of racketeering activity; (2) that the defendant was a party to or member of that agreement; and (3) that the defendant joined the agreement or conspiracy knowing of its objective to conduct or participate, directly or indirectly, in the conduct of an enterprise’s affairs through a pattern of racketeering activity.” United States v. John-Baptiste, 747 F.3d 186, 207 (3d Cir. 2014). Liability under Section 1962(d) may still be found even if the defendant has not violated Section 1962(c). Smith v. Berg, 247 F.3d 532, 537 (“[T]he Supreme Court found that a violation of section 1962(c) was not a prerequisite to a violation of section 1962(d).” (citing Salinas v. United States, 522 U.S. 52, 65 (1997)).
The Court concluded that there is insufficient evidence to establish Defendants’ liability for a violation of Section 1962(d). Specifically, there is no evidence that “two or more persons agreed to conduct…an enterprise’s affairs through a pattern of racketeering activity.” John-Baptiste, 747 F.3d at 207.
(4) State Claims Decided in Favor of Plaintiffs
The Judge maintained supplemental jurisdiction and determined the Plaintiff adequately asserted against Defendant Korey Blanck and Defendant Ace Restaurant Supply, LLC, on Plaintiff’s Counts III, IV, V, and VI, asserting state law claims of fraud, unjust enrichment, and negligent misrepresentation.