Second Circuit Analyzes Civil RICO Claim Statute of Limitations Under Two-Step Process

Rosenshein v. Meschel, ___ Fed. Appx. ____, 2017 WL 1439957 (2d Cir. 2017)

The Court affirmed the dismissal of a civil RICO complaint filed by Arnold Rosenshein, a real estate investor, who sued defendants under RICO and New York state law, for fraudulently inducing his investment in high risk commercial loans by falsely representing them as low risk, finding the claims barred by the statute of limitations.

The court used a two step process, i.e., (1) analyzing when the plaintiff sustained the alleged injury for which he seeks redress, and (2) determining when the plaintiff discovered or should have discovered the injury, with the latter date triggering the four-year statute of limitations.

Step One

Here, the court stated that a RICO injury occurs when the “amount of damages becomes clear and definite.” A RICO claim predicated on an investment injury for which an investor has no contractual or legal remedies generally accrues at the time of investment, while the Plaintiff asserted that the injury from the defendants’ misrepresentations occurred at a later date.

Concluding that because the agreement guaranteed Rosenshein no legal or contractual remedies for his alleged injury, his RICO claim with respect to that investment accrued at the time of investment.  Thus, Rosenshein’s RICO claim accrued no later than 2008, when the most recent investment was made, because his legally cognizable injuries occurred at the time of each investment.  The Court stated that although “in some instances a continuing series of fraudulent transactions undertaken within a common scheme can produce multiple injuries which each have separate limitations periods,” such injuries have “to be new and independent to be actionable.”

Step Two

Here, the court set forth established law that once a RICO claim accrues, the statute of limitations begins to run when a plaintiff has actual or inquiry notice of the claim. “Storm warnings” provide inquiry notice when “the circumstances would suggest to an investor of ordinary intelligence the probability that [he or] she has been defrauded.” Id. (internal quotation marks omitted.  Storm warnings “need not detail every aspect of the alleged fraudulent scheme,” and can trigger the statute of limitations “even where the full extent of the RICO scheme is not discovered until a later date.

The court concluded that storm warnings provided inquiry notice more than four years before Rosenshein filed suit on September 18, 2015, and because the complaint here expressly pleaded storm warnings that would motivate “a reasonably diligent plaintiff” to investigate, fraudulent concealment doctrine did not stay the statute and Rosenshein was not entitled to equitable tolling.

Ed Note:   This case is important for the principle of determining when the injury is deemed to occur, i.e., when the investment is made, despite the fact there could have been subsequent misrepresentations or omissions which arguably could have extended the statute.   The court is imposing a strict review of the accrual rule in such instance arguing that continued misrepresentations would not necessarily extend the statute of limitations unless they were new and independent injuries.

“Distinctness” Between Individual RICO Defendants and Legal Entity Enterprise is clear; Where is the Ambiguity?

Moorer v. Stemgeneric Medical Group Inc., 2017 WL 12818882 (S.D. Cal., Apr. 6, 2017)

The court dismissed, without prejudice, Plaintiffs’ civil RICO claims.  The class action  complaint alleged that Defendants engaged in a nationwide scheme to “wrongfully market and sell ‘stem cell treatments’ ” to consumers who are often “sick or disabled, suffering from incurable diseases and a dearth of hope.” Specifically, Plaintiffs allege that Defendants advertise their “stem cell treatments” to consumers via their website and make misrepresentations that the treatments “effectively treat a multitude of diseases,” when in actuality, Defendants maintain “no reasonable basis” to make these claims.

Plaintiffs’ SAC names five Defendants: StemGenex Medical Group, StemGenex, Stem Cell Research Centre (all three are corporations) and individuals Andre P. Lallande, and Rita Alexander. Plaintiffs’ fifth cause of action for RICO was brought against “All Defendants.”  Although Plaintiffs were, as the court indicates, inconsistent in asserting that individual Defendant individuals Alexander and Lallande are the “alter egos” of StemGenex Inc., the court is incorrect in not recognizing that there is clear distinctness between StemGenex (a corporation) as the “enterprise” and individual defendants Alexander and Lallande, who are the persons conducting its affairs.

Strangely, although the court cites to the Supreme Court in Cedric Kushner Promotions which held and clarified that a corporate owner/employee (an individual) is distinct from the corporation itself for purposes of satisfying RICO’s “distinctness” requirement, it decided that Plaintiffs’ “alter ego” theory of liability confused the court.

Even though the allegation of “alter ego” is completely unnecessary and “ambiguous,” it is clear that that StemGenex Inc., a legal entity, is distinct from individual defendants Alexander and Lallande, and the court could have easily found the proper theory applicable instead of dismissing the case.

Plaintiffs should disregard any pre-Kushner “alter ego” theory and properly name the individuals as Defendants, and StemGenix Inc. and any subsidiaries or other legal entities as distinct.

Note:   The court stated that the Plaintiffs will be given leave to amend to more clearly distinguish the RICO enterprise from the RICO defendants in light of Plaintiffs’ alter ego liability theory.  Plaintiffs should easily be able to do this regarding the individual defendants.  However, as is common in civil RICO cases, naming a corporate legal entity as a defendant is usually difficult because the legal entities usually are conducting their own affairs, and in such a case would not be distinct.   Thus, it appears that the Stemgenix entities may be difficult to frame as civil RICO defendants here.

David J. Stander is a civil RICO Attorney who focuses on civil RICO litigation.   


District Court in Third Circuit Denies Motion to Dismiss- Commercial Fraud Civil RICO Complaint is ON

Brand Energy & Infrastructure Services v. Irex Contracting Group, 2017 WL 1105648 (E.D. Pa. March 24, 2017)

Can Company A sue Company B for commercial fraud under RICO?  How about when the pattern and enterprise existed for only two years?  Usually not, as most courts find the one-on-one litigation involving fraud to be plain and simple garden-variety fraud.

But, in the Third Circuit, governed and ruled by Tabas v. Tabas, the lawsuit is ON.

In the subject case, the court denied Defendant’s motion to dismiss finding the civil RICO complaint was adequately pleaded. The individual defendants in this case formerly worked in high-level positions at plaintiff Brand and from 2014 to 2015, all of the individual defendants left Brand and joined Irex.    Plaintiff alleges that while some of the individual defendants were moving to Irex, other individual defendants (who were still employed at Brand) were siphoning them Brand’s protected business information. This conspiracy allegedly began in early 2014 and involved the individual defendants accessing Brand’s revenues, customers, drawings, and business opportunities. According to Brand, the defendants planned all along to steal Brand’s business information including proprietary information including Brand’s future business plans and targets leave Brand, join Irex, and then run Brand out of business.

Brand claims it has lost business opportunities as a result of the defendants’ conduct. Although this alleged conspiracy began in 2014, Brand alleges the defendants’ theft and misappropriation continued consistently through 2015 and 2016, and continues to this day. Brand claims it has suffered millions of dollars in losses as a result of the defendants’ alleged theft and misappropriation.


The plaintiffs alleged a legal entity enterprise, and an association in fact enterprise.  As discussed in In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 364 (3d Cir. 2010) the first type of enterprise, a legal entity, all aspects of the enterprise structure are met by mere proof of the existence of the legal entity. Necessary to any RICO claim, however, is that the “person” alleged to have committed violations is separate and distinct from the “enterprise.” Jaguar Cars, Inc. v. Royal Oaks Motor Car Co., 46 F.3d 258, 268 (3d Cir. 1995). See also Cedric Kushner Promotions, Ltd v. King, 533 U.S. 158, 163 (2001).  Accordingly, when a plaintiff asserts a legal entity as the “enterprise,” her pleading requirements may be met “without great difficulty.” In re Ins. Brokerage Antitrust Litig., 618 F.3d at 364. It is clear from Brand’s amended complaint that Irex and Vertical Access are sufficiently pled enterprises as they are corporate entities.

In pleading the second type of enterprise, an association-in-fact, the plaintiff must conform to Boyle v. United States, 556 U.S. 938, 946 (2009). Brand alleges that defendants Rowe, Kwiatkoski, Altmeyer, Shriver, Maupin, and Keane make up an association-in-fact enterprise. Defendants counted, arguing that this association-in-fact lacks the requisite structure and longevity under RICO.   The court found Brand sufficiently pled an association-in-fact enterprise. The facts alleged show that defendants Rowe, Kwiatkoski, and Altmeyer were the “leaders” of the other individual defendants. These associates allegedly acted together, initially as co-workers at Brand, to download and steal Brand’s proprietary business information and trade secrets. Later, they acted together as employees at Irex. These members allegedly stole Brand’s scaffolding equipment, which they later used for their own benefit as employees at Irex and Vertical Access. This conduct occurred over several years with varying periods of severity, according to the amended complaint. Brand alleges these members had meetings in furtherance of their common scheme to defraud Brand by misappropriating and stealing Brand’s trade secrets and equipment.   Thus, the court was satisfied that Brand has met the Boyle standard also stating that the longevity of this alleged association-in-fact (over two years) is sufficient. *11, citing cases.

Pattern of Racketeering

While Brand does not plead an “affirmative misrepresentation,” its allegations that defendants stole Brand’s trade secrets and used thousands of email transmissions to further their scheme certainly communicates an intent to deprive Brand of something of value: its business. Contrary to Irex’s argument, reliance is not a required element of proof with respect to pleading mail and wire fraud. Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 648 (2008) emphasizing that alleging mail and wire fraud is a sufficient predicate act under RICO “even if no one relied on any misrepresenta(tion”). Brand also alleged another predicate act: defendants transported stolen property across state lines. Specifically, Brand avers that, in furtherance of a scheme to defraud, defendant Kwiatkoski stole scaffolding equipment from Brand and transported it from West Virginia to Maryland.

In conclusion, viewed together, the voluminous allegations of trade secrets theft, mail and wire fraud, and interstate transportation of stolen property form a plausible pattern of racketeering activity.* 13.

David J. Stander is a civil RICO Attorney who focuses on civil RICO litigation.   Here, it is interesting that an enterprise meets the longevity standard for two years, and presumably the pattern was satisfied by over two years.   The court does not provide the basis for finding the pattern, either it was closed-ended, over two years, or open-ended because the predicate activity was still existing.   But, given the defendant was conducting a legitimate business, and fraud itself is not inherently open-ended, the court would have had to find that Irex and its defendants were conducting an enterprise whose regular way of doing business was fraud to show open-ended continuity.   That appears the case given the “voluminous” allegations of trade theft and fraud. 





State Law Claims in Dismissed Civil RICO Action Are Retained by Court

S. D. Benner L.C. et al. v. Bradley Corp., LLC et al., 2017 WL 1179382 (W.D. Mich. Mar. 30, 2017)

In S.D. Benner v. Bradley Corp., the Court dismissd the civil RICO claims due to vailure to comply with Rule 9(b) and failure to allege a pattern of racketeering.   But, the Court declined to dismiss the pendant state claims.  Id., at *6.   The Court stated that five of the seven state claims are for variations of a claim for breach of fiduciary duty. The statute of limitations for those claims is three years. See Moross Ltd. P’ship v. Fleckensstein Capital, Inc., 466 F.3d 508, 518 (6th Cir. 2006) (citing Miller v Magline, Inc., 526 N.W.2d 761, 774 (Mich. Ct. App. 1997)).

Because the three-year limitations period expired while these motions were pending, the Court opts not to dismiss the state-laws claims.  Sharp Elec. Corp. v. Metro. Life Ins. Co., 578 F.3d 505, 514-15 (7th Cir. 2009) (noting that where the statute of limitations has run on pendant state law claims, courts should not dismiss the claims even if the federal claims have been resolved); L.A. Draper & Son v. Wheelabrator-Frye, Inc., 735 F.2d 414, 428 (11th Cir. 1984) (“If the statute of limitations had run on Ladsco’s state claims while the action in federal court was pending, previous decisions of this court strongly indicate that dismissal of the state claims would be an abuse of discretion.”)

Thus, the Court determined to retain jurisdiction over the pending state law claims against defendant Bradley Corporation.

David J. Stander is a civil RICO Attorney who focuses on civil RICO litigation.  This case shows that filing a civil RICO complaint in federal court can result in having the Court retain jurisdiction.   Thus, the plaintiff gets into Federal court for free if the SOL runs on the state law claims.


Eighth Circuit Joins Third Circuit in Finding that in a Civil RICO Conspiracy Defendant Need Not Commit a Substantive RICO Offense

Aguilar et al. v. PNC Bank, __ F.3d __, 2017 WL 490410 (8th Cir. , Feb. 7, 2017)

The Eighth Circuit affirmed the lower court’s grant of summary judgment finding insufficient evidence that the Defendant PNC Bank conspired to violate civil RICO with regard to a Ponzi scheme operated by Martin Sigillito, when PNC’s predecessor, Allegiant Bank (“Allegiant”), conspired with and aided Sigillito in his scheme to defraud investors when it served as the custodian for the self-directed individual retirement accounts (IRAs) of those who chose to invest with Sigillito.

Despite this adverse ruling to the Plaintiffs, the Court stated that there was no need to plausibly allege that a substantive RICO existed, indicating that in a civil RICO conspiracy it is not necessary to prove “operation or management,” nor is it necessary to prove commission of racketeering acts.

The Court stated as follows: “To prove a RICO violation, a plaintiff must produce evidence(1) that an enterprise existed; (2) that the enterprise affected interstate or foreign commerce; (3) that the defendant associated with the enterprise; (4) that the defendant participated, directly or indirectly, in the conduct of the affairs of the enterprise; and (5) that the defendant participated in the enterprise through a pattern of racketeering activity by committing at least two racketeering (predicate) acts.”

The Court further stated -“To establish the charge of conspiracy to violate the RICO statute … , [a party] must prove, in addition to elements one, two, and three described immediately above, that the defendant ‘objectively manifested an agreement to participate … in the affairs of [the] enterprise.’ ” Darden, 70 F.3d at 1518 (second alteration and second ellipsis in original) (quoting United States v. Bennett, 44 F.3d 1364, 1374 (8th Cir. 1995)). The plaintiff need not provide “[p]roof of an express agreement.” Id. Instead, the plaintiff “need only establish a tacit understanding between the parties, and this may be shown wholly through the circumstantial evidence of [each defendant’s] actions.” Id. (alteration in original) (quoting United States v. Fregoso, 60 F.3d 1314, 1325 (8th Cir. 1995)). But the plaintiff “does have to show more than ‘mere association with conspirators, knowledge of a conspiracy, and presence during conspiratorial discussions ….’ ” United States v. Muskovsky, 863 F.2d 1319, 1324 (7th Cir. 1988) (ellipsis in original) (quoting United States v. Percival, 756 F.2d 600, 610 (7th Cir. 1985)). The plaintiff must prove “that the defendant was aware of the scope of the enterprise and intended to participate in it.” United States v. Stephens, 46 F.3d 587, 592 (7th Cir. 1995).

Thus, without citing to Salinas, Osario, or other Supreme Court precedent, the Court has found that a RICO conspiracy plaintiff need only allege elements one, two, or three, plus the civil RICO conspiracy allegations.   This joins the 8th Circuit with the 3rd Circuit in finding that in civil RICO cases, the plaintiff need only prove the agreement without necessarily proving commission of multiple acts by a conspiracy Defendant.

David J. Stander is a civil RICO attorney who focuses on consulting and litigation of civil RICO cases.  


Court Wrongly Upholds Dismissal of Civil RICO; “Parallel Conduct” Not Sufficient to Find An Association in Fact Enterprise But Court Requires “Agreement”

Almanza et al. v. United Airlines, Inc. et al, ___ F.3d ___, 2017 WL 95791 (11th Cir. Mar. 13, 2017)

The court upheld the lower court’s dismissal of a civil RICO finding that the Plaintiffs did not adequately allege an association in fact enterprise.

Plaintiffs are Mexican nationals who, in flying with the Defendant airlines to and from the United States and Mexico, were charged, as part of their airfare, a tourism tax purportedly required under Mexican law, even though Defendants knew that, under Mexican law, Plaintiffs were actually exempt from the tax.  Defendant airlines kept those improperly collected “taxes” for themselves instead of remitting them to Mexico (to which they were not owed) or back to Plaintiffs (who technically could have utilized an obscure reimbursement procedure to get their money back, if only they knew about it).

Plaintiffs claim Defendants defrauded them as according to Plaintiffs, Defendants did not simply collect the Tax from only the passengers who legally owed it; rather, Defendants collected the tax from all passengers, including Exempt Travelers by not including the Tax on the “face of the tickets,” instead “bur[ying it] in the details of the costs and fees of each ticket” as a line item and then not advising Exempt Travelers that they were entitled to a refund.  The amount of the Tax varied, but it was usually between $20.00 and $25.00. Plaintiffs allege that this ticketing practice was an illegal, multi-year, multi-million dollar scheme.

The court addressed the enterprise criterion, an “union or group of individuals associated in fact although not a legal entity.”  The court discussed the Turkette and Boyle requirements, and discussed that Plaintiffs’ enterprise theory is that, through an illicit agreement, Defendants formed an enterprise among themselves to commit their racketeering.  The Court stated that there is no question that Plaintiffs adequately plead two of the three minimum Boyle structural requirements for an associated-in-fact enterprise: a “purpose” and “longevity sufficient to permit the [ ] associates to pursue the enterprise’s purpose.” Boyle, 556 U.S. at 946. What the parties really dispute is whether Plaintiffs adequately pleaded the third criterion “relationships among those associated with the enterprise.” Id. Thus, if this association-in-fact enterprise does not have sufficient relationships among Defendants as associates, it lacks the structure needed to be legally cognizable.

Proving sufficient relationships for an associated-in-fact enterprise is not a particularly demanding task, but the endeavor can be elusive as in essence the Plaintiffs must show that

Defendants acted as a continuing unit, and not merely independently.  [This is also relevant to commonality of purpose].   The Court stated that Plaintiffs conclusorily alleged that Defendants entered into an agreement, either express or tacit, to collect the Mexico Tourism Tax from Exempt Travelers, and that this alleged agreement “is itself an association in fact.”

Plaintiffs real argument is that the Court should infer an agreement—and thus an enterprise—from the parallel conduct of Defendants. And Plaintiffs have indeed alleged parallel conduct: according to the complaint, each Defendant represented to the Exempt Travelers that they were required to pay the Tax and concealed from them that they were exempt; each charged them the Tax; each did not offset ticket prices for the Exempt Travelers; and each failed to refund the Tax.

But “parallel conduct” alone cannot support a plausible inference of an agreement.  In Twombly, the Supreme Court rejected as inadequate the conclusory allegation of a conspiratorial agreement, despite the fact that the allegation was coupled with allegations of parallel conduct. Parallel conduct, the Court explained, can just as easily indicate “independent action” as it can collusion.   Thus, the Court did not find the constituent parts of the enterprise had the requisite relationships among with each other to find an association in fact enterprise.

Ed Note:  The Court discusses in the absence of any allegation plausibly suggesting a meeting of the minds, it must assume that the parallel conduct exhibited by Defendants is just as consistent with independent action (including independent action by actors who are conscious of what the other actors are doing) as it is with an agreement to commit a racketeering scheme.  Id. at *10.   But, “relationships” does not require an agreement between the members of the enterprise; as the Court stated enterprise and “agreement” for purposes of civil RICO conspiracy are distinct concepts.

The Court’s analysis is faulty and wrong.

David J. Stander is a civil RICO attorney who focuses on litigating civil RICO cases.




Court Vacates Lower Court’s Dismissal of a Civil RICO; How Could Have the Lower Courts Made Such a Ruling?

Blevins v. Aksut, ___ F. 3d ___, 2017 WL 782288 (11th Cir., 2017)

The Eleventh Circuit vacated the district court’s grant of Defendants’ motion to dismiss because Plaintiffs’ alleged economic injuries that are recoverable under RICO.  The Plaintiff alleged that the defendant, Doctor Aksut, would falsely tell a patient that the patient needed heart surgery, would then perform the procedure at a facility operated by Defendants medical centers, and then bill the patient for the procedure. According to the complaint, each Plaintiff underwent some type of unnecessary procedure at one of these medical center locations.

Plaintiffs allege that “Defendants operated a medical services enterprise that falsely represented to patients that certain interventional cardiology procedures were medically necessary.” Plaintiffs also contend that Defendants committed mail and wire fraud through this enterprise by billing Plaintiffs for the unnecessary procedures.

A person “injured in his business or property” limits an aggrieved party’s ability to recover because it “excludes personal injuries, including the pecuniary losses therefrom.” Grogan v. Platt, 835 F.2d 844, 847 (11th Cir. 1988). Thus, “both personal injuries and pecuniary losses flowing from those personal injuries fail to confer relief under § 1964(c).” Jackson v. Sedgwick Claims Mgmt. Servs., Inc., 731 F.3d 556, 565 (6th Cir. 2013). * 4.

Here, the lower court concluded that Plaintiffs failed to allege injuries to their business or property because their alleged harm—their medical expenses—flowed from their personal injuries—the unnecessary procedures. But Plaintiffs alleged in their complaint that “Plaintiffs and class members and/or their indemnitors paid or are obligated to pay monies to the defendants” for the unnecessary medical procedures.

The court relied on precedent to find that in the context of unnecessary medical treatment, payment for the treatment may constitute an injury to property. Id., at *4, citing case.  Thus, Plaintiffs sought seek to recover damages under § 1964(c) for the amounts they paid for the unnecessary heart procedures. These injuries do not flow from any personal injuries; rather the payments themselves are economic injuries because they were for medically unnecessary procedures. That Plaintiffs also seek redress for personal injuries under other legal theories does not change the outcome.

Accordingly, because Plaintiffs alleged injuries to “business or property,” the Court vacated the district court’s grant of Defendants’ motion to dismiss.

Ed. Note:   How could the Plaintiffs be seeking treatment for “personal injuries”, i.e., they were not ill and never injured physically as the thrust of the fraud is the unnecessary surgery which was performed.  Thus, it is difficult to understand how a Magistrate and District court could reject this case on those grounds. It shows the antipathy of some courts to civil RICO cases.

David J. Stander is a civil RICO attorney who focuses on litigating civil RICO cases.