District Court Details How Plaintiffs Adequately Pleaded Civil RICO Enterprise and Pattern in a Complex Civil RICO Fraud Action

Metropolitan Property and Casualty Ins. Co., v. Savin Hill, ___ F. Supp.3d ___, 2017 WL 3120273 (D. Mass., 2017)

The court concluded that the claims for violations of RICO and RICO conspiracy asserted in Counts II and IV of the Second Amended Complaint survived the motions to dismiss.

1. Existence of a RICO Enterprise

First, the court did reject claims based on the “victim-enterprise” theory, i.e.,
“by alleging a legitimate enterprise that was victimized by a racketeering scheme” finding the Reves “conduct or participate” criterion not adequately alleged.

Editor Note: There is no such legal theory as “victim-enterprise,” as an enterprise is either a legal entity or an association in fact. Not relevant to status as an enterprise, the Court has stated that an enterprise can be a victim or a vehicle. See Cedric Kushner, so this could be the genesis of this so-called theory. The Reves test, discussed by the court as applying to “victim-enterprises” applies to any kind of enterprise as defined in RICO, but is relaxed in RICO conspiracy cases. Perhaps the court is thinking of legal entity enterprises as “victim-enterprises.” If so, all of the elements of RICO apply, including the Reves test, except the rules and conduct involving “association in fact” enterprises. See below.

Second, the court accepted as adequately pleaded the existence of an association-in-fact enterprise. See Count II and Count IV of their Second Amended Complaint. Here, the Plaintiffs allege that the defendants were a group of persons associated together for the common purpose of wrongfully obtaining insurance benefits through the Massachusetts statutory framework governing personal injury claims arising out of motor vehicle accidents, and thereby constitute an “association-in-fact enterprise,” as that term is defined in section 1961(4).

The defendants contend that these claims must be dismissed because the Plaintiffs have failed to allege the existence of a RICO enterprise having a distinct and ascertainable structure apart from the predicate acts of racketeering activity. This court disagreed for many reasons, chief of which was the Supreme Court has clarified that “an ‘association-in-fact enterprise need not have any structural features beyond ‘a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise’s purpose.’ ” Id. (quoting Boyle v. United States, 556 U.S. 938, 946, 129 S.Ct. 2237, 2244, 173 L.Ed. 2d 1265 (2009)).

The court found that each of the three criteria of Boyle are satisfied, finding that the Plaintiffs have alleged that the defendants acted for the common purpose of fraudulently obtaining “monetary payments, through insurance claims, from Metropolitan and Commerce by submitting or facilitating the submission of fraudulent chiropractic records and bills, and submitting and prosecuting fraudulent claims for insurance benefits based on such records and bills.” They have also delineated the specific roles of the defendants in the allegedly fraudulent scheme, and the nature of the relationships among the various groups of defendants. In addition, the Plaintiffs have alleged extensive and detailed facts regarding the nature of the defendants’ relationships, as “family members and business associates,” which they allegedly used “to create, develop and implement a cohesive and comprehensive network of improper and illegal relationships in order to fraudulently obtain unwarranted insurance benefits” from the Carriers.

The court specifically rejected that Plaintiffs must allege “a distinct structure amongst all of the defendants separate and apart from each of their individual endeavors,” and Plaintiffs sufficiently alleged that the defendants engaged in a coordinated effort to carry out the alleged fraudulent billing scheme. The court also ruled that the final feature of an association-in-fact enterprise, longevity, is easily met by the Plaintiffs’ allegations as well.

2. Alleged Participation in the Conduct of the RICO Enterprise

The court also found the Plaintiffs adequately alleged that the defendant[s] conducted or participated, ‘directly or indirectly, in the conduct of the RICO enterprise’s affairs’ as the Plaintiffs alleged facts showing how each of the defendants was integral to carrying out the activities of the alleged enterprise. Id., at *12-13 citing to Warren Chiropractic & Rehab Clinic P.C., 2015 WL 4724829, at *7.

3. Continuity

The court rejected the Defendants’ argument that found Second Amended Complaint alleges related predicate acts that amount to continued criminal activity. The court found sufficient that the Plaintiffs contended that throughout the time period from January 2008 to August 4, 2016, the defendants “submitted false and/or fraudulent chiropractic records, bills, letters, PIP Applications and/or fraudulent insurance claims for payment to [the Carriers] through the use of and/or knowledge of the use of United States mails and wires[,]” or aided and abetted their co-defendants in submitting such materials. The court concluded that “[A] plaintiff who alleges a high number of related predicate acts committed over a substantial period of time establishes that those acts amount to continued criminal activity[.]” Fleet Credit Corp., 893 F.2d at 446.

4. Conspiracy to Violate RICO

The court found the Plaintiffs claim that the Defendants’ acted in a conspiracy to violate civil RICO adequately pleaded.

Ed Note: This case is a good blueprint for drafting a civil RICO complaint which will in any jurisdiction pass muster. Cases with multiple plaintiffs, long-running and diverse complex mail and wire fraud schemes, with sufficient particularity and direct injury, are almost always successful civil RICO cases.

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Court Accepts Amended Civil RICO Complaint Finding No “Futility”

Trier et al v. Genesee County et al., 2017 WL 3278360, E.D. Mich., Aug. 2, 2017

Plaintiffs sought leave to file a second amended complaint to, among other things, clarify the RICO allegations. Defendants opposed arguing that the Proposed Second Amended Complaint should be denied due to futility of amendment and result in unfair prejudice.

The court found no futility finding that Plaintiffs’ RICO claims and all proposed amendments survive a motion to dismiss. The court addressed each element of § 1962(c) to find that the factual allegations, taken as true, provided sufficient facts for the court to draw the reasonable inference that Defendants were liable for the alleged violation of § 1962(c).

a. Enterprise

The Plaintiffs alleged that Defendants formed an association in fact enterprise that had a common purpose of engaging in the alleged misconduct of exchanging deputization for money. Plaintiffs further allege that “there were relationships among those associated with the enterprise” and “there was longevity as the relationships between the members of the Enterprise began in 2006 at the latest and continued up until at least year 2016.” Therefore, Plaintiffs’ Second Amended Complaint alleged sufficient factual allegations to support the enterprise element.

b. Conduct

The court accepted Plaintiffs claim that Defendants participated in the “operation or management” of the Enterprise’s affairs. Pickell was the central figure in the association in fact who demanded payment of monies from Plaintiffs in order to have deputization duties. Hope acted as Pickell’s appointed agent and representative, and endorsed the checks and deposited them into a bank account for the personal financial gain/benefit of Defendants. In exchange for Defendant Hope’s patronage and illegal activities, Defendant Pickell rewarded Defendant Hope by awarding his company Allen & Hope Inc. the exclusive rights to all process serving activities for Defendant, Genesee County and termination Plaintiffs. Defendant, C. Hope working with co-Defendants planned and devised the method to extort Plaintiffs and assisted and managed the affairs of the enterprise with Co-Defendants by determining and implementing schemes to increase revenues for Allen and Hope. These acts were condoned by Genesee County which had the custom, practice, and policy to take money not due the County by virtue of Defendant Pickell’s influence and political office.

Thus, the court found the Second Amended Complaint sufficiently described how the proposed defendant C. Hope and others engaged in misconduct violating § 1962(c). The court finds that the factual context created by these specific allegations together with the general factual allegations constitutes sufficient support for the conduct element.

c. Pattern of Racketeering Activity

The court found the SAC adequately alleged acts of extortion in violation of federal law, as Defendant Pickell, as aided and abetted by Hope, C. Hope and Allen & Hope, obtained property from Plaintiffs, i.e., payments of for [sic] $65.00 to $150.00 a year, with their consent, wrongfully induced under fear of economic harm, all in violation of 18 U.S.C. § 1951, as Plaintiffs were told that if they did not make the payments, which were unlawful and not required under law, they would not be selected to provide paid deputization duties.

In regards to the pattern of racketeering, Plaintiffs alleged that Defendants engaged in exchanging deputization for money from December 2006 until December 2016. Plaintiffs allege both the “continuity” and “relatedness” prongs of the pattern of racketeering activity element. As to relatedness, the acts of extortion were related to the affairs of the Enterprise as the Defendants worked together so that Defendant Pickell could obtain something of value, i.e., the annual payments from Plaintiffs, to which he had no official right, and in return Defendant Pickell would reward deputization designations to the Plaintiffs. Defendants Hope, C. Hope, and Hope’s company Allen & Hope aided and abetted Defendant Pickell in return for obtaining exclusive rights to process-serving activities in Genesee County.
Plaintiffs satisfied the “relatedness” prong because they essentially alleged that Defendants engaged in “criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.”

In regards to continuity, Plaintiffs adequately alleged close-ended continuity as these were continuous acts occurring over a substantial period of time, i.e., at least eleven (11) years. Plaintiffs also adequately alleged that the pattern of racketeering activity constituted “open-ended” continuity based upon a threat of continuing racketeering activity because the predicate activity constituted the regular way Defendants did business. Because such criminal conduct was part of the regular way Pickell, Hope, and C. Hope did business it gives rise to the inference that such offenses will continue indefinitely if not interrupted. Hope and C. Hope continue to maintain the exclusive right to process serving in the County and continue their close relationships with County officials, including Defendant Pickell.

Furthermore, Plaintiffs allege that the continuous acts will continue indefinitely because Defendants “continue to maintain the exclusive right to process serving in the County and continue their close relationships with County officials, including Defendant Pickell.

Thus, the court ruled that Plaintiffs have pled sufficient facts in support of their civil RICO claim to survive a motion to dismiss. Accordingly, amendment would not be “futile.”

The court also found the amendment would not unduly prejudice the defendants. Undue prejudice is often found when the delay in amending the pleadings is unexplained, unjustified, and the case has already reached an advanced stage of litigation, which is not the case here. The court stated that no undue prejudice exists from amended pleadings simply because the opposing party would have to defend against new or better pleaded claims.

Ed Note: This ruling effectively forecloses any motion to dismiss by Defendants.  This is an important case which shows that public corruption is clearly within the realm of civil RICO actions.

 

Ninth Circuit Reverses District Court Dismissal of RICO Indictment Finding Sufficient “Distinctness” Between RICO “Person” and “Enterprise”

U.S. v. Mongol Nation, 2017 WL 2954615 (9th Cir., July 11, 2017)

The Court ruled that the district court erred in concluding that Mongol Nation (Defendant) and the Mongols Gang (Enterprise) are not sufficiently distinct.
“[T]o establish liability under [RICO] one must allege and prove the existence of two distinct entities: (1) a ‘person’; and (2) an ‘enterprise’ that is not simply the same ‘person’ referred to by a different name.” Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161 (2001).
The indictment charged Mongol Nation, an unincorporated association comprised of “official” or “full-patch” members of the Mongols Gang, as a RICO “person.” The alleged RICO “enterprise,” the Mongols Gang, is comprised of both Mongol Nation, i.e., the Mongols Gang’s official or full-patch members, and various associates. Although a RICO claim might fail on distinctiveness grounds where the “[entity] was the ‘person’ and the [entity], together with all its employees and agents, were the ‘enterprise,’ ” id. at 164 (citing Riverwoods Chappaqua Corp. v. Marine Midland Bank, N.A., 30 F.3d 339, 344 (2d Cir. 1994)), the Court stated that does not describe this case.
Rather, Mongol Nation is a subset of the alleged enterprise, which consists of legally distinct and separate persons in addition to the Defendant. When reviewing whether these entities are distinct, “the only important thing is that [the enterprise] be either formally … or practically … separable from the individual” RICO person. Sever, 978 F.2d at 1534 (brackets in original) (quoting United States v. Benny, 786 F.2d 1410, 1416 (9th Cir. 1986)). That is the case where, as here, the RICO “person” is part of the “enterprise” whole. Moreover, we have previously rejected the argument that “there is no distinction between the officers, agents and employees who operate [a] corporation and the corporation itself,” id. (internal quotation marks omitted), because “a corporate officer can be a person distinct from the corporate enterprise,” Living Designs, Inc. v. E.I. Dupont de Nemours & Co., 431 F.3d 353, 362 (9th Cir. 2005).
Accordingly, because Mongol Nation was alleged to be part of a larger whole, the Mongols Gang, which is comprised of additional individuals who together form the alleged enterprise, the district court erred by dismissing the indictment on distinctiveness grounds.
Ed. Note: This is a strong opinion, consistent with many other RICO case decisions, civil and criminal, finding that the RICO “person” can one of a number of members of the RICO enterprise. See Cullen v. Margiota, 811 F.2d 698, 730 (2d Cir. 1987); Atlas Pile Driving, 886 F.2d 986 (8th Cir.1989) (a collective entity is something more than the members of which is it is comprised). Riverwoods is distinguishable because the enterprise (the corporation and its officers and agents acting in the course of their employment) is practically the same as the RICO person.

Judge in SDNY- Civil RICO is To Be Liberally Construed to Encompass “Garden-Variety” Fraud

Duval v. Albano, 2017 WL 3053157 (S.D.N.Y. 2017)

The court denied the Defendants’ motion to dismiss the civil RICO claim finding that civil RICO applies even if the case involves basically a “garden-variety” fraud allegation.

In brief, Plaintiff here alleged that the Albanos operated a network of associated shell corporations (including defendant AXIS Sports Media) for the purpose of defrauding businesses and consumers alike, and that Plaintiff herself was defrauded into selling them The Manhattan Cocktail Classic (“MCC”), a business Plaintiff had founded.

Elements, Including Continuity, Satisfied

The court recited the operative case law for all elements of a civil RICO and found them satisfied.   Defendants did not challenge Plaintiff’s pleading with respect to the elements of relatedness or continuity. To the extent that Defendants intended to do so, the Court agrees with Plaintiff that such challenges would fail. Plaintiff has alleged the existence of a scheme that lasted from 2014 through 2016. Moreover, the scheme posed a threat of continued criminality insofar as the AXIS and WSOG websites remained active as of the filing of the Complaint.  A consideration of the relatedness factors—purposes, results, participants, victims, and methods of commission—led the Court to conclude that this element has been pleaded adequately as well.

Garden-Variety Fraud

Finding the elements satisfied,  the court specifically addressed Defendants’ principal argument is that Plaintiff has overstated her case—that she has attempted, through artful pleading, to transform a run-of-the-mill business dispute into a racketeering enterprise, and thereby obtain treble damages and attorney’s fees.

As a policy matter, the Court sympathized with the frustration evident in Defendants’ briefing. Indeed, there is no question that RICO’s private right of action, in conjunction with the statute’s inclusion of mail and wire fraud (for which there is no independent private right of action) as racketeering acts, creates federal treble damage actions out of business disputes that would otherwise never be in federal court.

However, the judge wrote that the Supreme Court long ago observed that “this defect—if defect it is—is inherent in the statute as written, and its correction must lie with Congress.”Fresh Meadow Food Servs., LLC v. RB 175 Corp., 282 Fed.Appx. 94, 100 (2d Cir. 2008) (summary order) (quoting Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479, 499 (1985)).

For all of the reasons outlined above, the court found that Plaintiff’s Complaint passed muster. Accordingly, Defendants’ motion to dismiss was DENIED.

Ed. Note:   It is important to note that courts in the Second Circuit, although continuing to employ the sensationalist “thermonuclear bomb” depiction of civil RICO cases in some cases, is importantly recognizing that the Supreme Court “liberally construes” civil RICO, and the Court has rejected in Sedima, supra, any limitations on civil RICO which narrow the scope of the statute.   For some S. Ct. summaries, see below.

“We have repeatedly refused to adopt narrowing constructions of RICO in order to  make it conform to a preconceived notion of what Congress intended to proscribe. See, e.g., National Organization for Women, Inc. v. Scheidler, 510 U.S. 249, 252, 114 S.Ct. 798, 127 L.Ed.2d 99 (1994) (rejecting the argument that “RICO requires proof that either the racketeering enterprise or the predicate acts of racketeering were motivated by an economic purpose”); H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 244, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989) (rejecting “the argument for reading an organized crime limitation into RICO’s pattern concept”); Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 481 (1985) (rejecting the view that RICO provides a private right of action “only against defendants who had been convicted on criminal charges, and only where there had occurred a ‘racketeering injury’ ”).” Boyle v. United States, 556 U.S. 938, 942 (2009) (enterprise is liberally construed, “no ascertainable structure” separate from the pattern is required; enterprise must have structural features but no business-like characteristics are necessary).

In fact, in Sedima, the Court was compelled by the statutory language to construe § 1964(c) to reach garden-variety fraud and breach of contract cases such as those before us today.

 

“Standing,”–Money Fraudulently Diverted From Intended Political Purposes Can Cause Injury to Plaintiffs Business and Property

Brookhaven Town Conservative Committee v. Walsh, 2017 WL 2590785 (E.D.N.Y., June 15, 2017)

The court granted the defendants’ motions to dismiss for failing to plead fraud with particularity as required by Rule 9(b), but also ruled that Plaintiffs had “standing” to bring the action under 18 U.S.C. § 1964.

Facts:

Defendant Walsh has been the Chairman of the SCCP, which is the governing body of the Suffolk County Committee of the Conservative Party of New York State. (Id. ¶ 11.) After Walsh was elected as Chairman of the SCCP, he “caused to be formed” the political committees of defendants Suffolk County Conservative Chairman’s Club (the “SCCCC”) and Suffolk County Conservative Chairman’s Committee H.K. (the “SCCCHK”); both are controlled by Walsh.  Plaintiffs allege that Walsh’s “purposes, among others, are to increase his political clout in Suffolk County by absolutely and exclusively controlling the affairs of the BTCC (and similar committees within the County) and by diverting funds received through fundraising solicitations by Walsh intended for the SCCP to his own purposes” through mail and wire fraud.

Discussion of Standing

The court discussed that “standing” under RICO, for purposes of a motion to dismiss, is not a jurisdictional concept, but instead is analyzed as a merits issue under Federal Rule of Civil Procedure 12(b)(6). See Lerner v. Fleet Bank, N.A., 318 F.3d 113, 116–17, 129–30 (2d Cir. 2003).    Indeed, the Second Circuit has described RICO standing as “a more rigorous matter than standing under Article III.” Denney v. Deutsche Bank AG, 443 F.3d 253, 266 (2d Cir. 2006).

The court further discussed that the plaintiff has standing to bring a RICO claim only if he has been injured in his business or property by the conduct constituting the RICO violation, and only when his actual loss is clear and definite. Sky Med. Supply Inc. v. SCS Support Claims Servs., Inc., 17 F.Supp.3d 207, 231 (E.D.N.Y. 2014) (same); Westchester Cnty. Indep. Party v. Astorino, 137 F.Supp.3d 586, 612–13 (S.D.N.Y. 2015) (collecting cases).

In this case, it was alleged that defendants falsely represented that plaintiffs’ BTCC’s financial donations would be used for some purpose, such as SCCP political activities, and then those funds were diverted by Walsh for his personal benefit.  The Court further observed that the FAC did not sufficiently support BTCC’s allegation that it “suffered injury based on a loss of diverted funds” and said that if BTCC wished to advance that claim, it “must file a second amended complaint that more fully sets forth such a theory of RICO injury.”

The SAC remedied this defect by enumerating “clear and definite” monetary contributions that plaintiffs made based on Walsh’s (supposedly fraudulent) solicitations. Nevertheless, defendants summarily claim that, “[a]lthough the Second Amended Complaint alleges that plaintiffs have made political contributions, there is simply no plausible allegation of any injury in fact.”

However, the court ruled that assuming the truth of plaintiffs’ allegations, their “economic losses would constitute an injury to both the plaintiffs’ business and property. Money constitutes ‘property’ within the meaning of RICO.” Simply put, if then “defendants fraudulently induced plaintiffs to take actions and make expenditures that would result in their financial injury.” This purported harm falls squarely within RICO’s statutory ambit.  Id., at 6.

Ed Note:   This is a useful case because it shows that monies received and not placed for the purposes intended is “injury” even though the plaintiff is not out of pocket any more money than what he intended to contribute.  Honest service fraud is on the civil RICO plate.  It is certainly a puzzle why Plaintiffs did not allege color of official right extortion, which is not subject to Rule 9(b).

 

“Standing,”–Money Fraudulently Diverted From Intended Political Purposes Can Cause Injury to Plaintiffs Business and Property

Brookhaven Town Conservative Committee v. Walsh, 2017 WL 2590785 (E.D.N.Y., June 15, 2017)

The court granted the defendants’ motions to dismiss for failing to plead fraud with particularity as required by Rule 9(b), but also ruled that Plaintiffs had “standing” to bring the action under 18 U.S.C. § 1964.

Facts:

Defendant Walsh has been the Chairman of the SCCP, which is the governing body of the Suffolk County Committee of the Conservative Party of New York State. (Id. ¶ 11.) After Walsh was elected as Chairman of the SCCP, he “caused to be formed” the political committees of defendants Suffolk County Conservative Chairman’s Club (the “SCCCC”) and Suffolk County Conservative Chairman’s Committee H.K. (the “SCCCHK”); both are controlled by Walsh.  Plaintiffs allege that Walsh’s “purposes, among others, are to increase his political clout in Suffolk County by absolutely and exclusively controlling the affairs of the BTCC (and similar committees within the County) and by diverting funds received through fundraising solicitations by Walsh intended for the SCCP to his own purposes” through mail and wire fraud.

Discussion of Standing

The court discussed that “standing” under RICO, for purposes of a motion to dismiss, is not a jurisdictional concept, but instead is analyzed as a merits issue under Federal Rule of Civil Procedure 12(b)(6). See Lerner v. Fleet Bank, N.A., 318 F.3d 113, 116–17, 129–30 (2d Cir. 2003).    Indeed, the Second Circuit has described RICO standing as “a more rigorous matter than standing under Article III.” Denney v. Deutsche Bank AG, 443 F.3d 253, 266 (2d Cir. 2006).

The court further discussed that the plaintiff has standing to bring a RICO claim only if he has been injured in his business or property by the conduct constituting the RICO violation, and only when his actual loss is clear and definite. Sky Med. Supply Inc. v. SCS Support Claims Servs., Inc., 17 F.Supp.3d 207, 231 (E.D.N.Y. 2014) (same); Westchester Cnty. Indep. Party v. Astorino, 137 F.Supp.3d 586, 612–13 (S.D.N.Y. 2015) (collecting cases).

In this case, it was alleged that defendants falsely represented that plaintiffs’ BTCC’s financial donations would be used for some purpose, such as SCCP political activities, and then those funds were diverted by Walsh for his personal benefit.  The Court further observed that the FAC did not sufficiently support BTCC’s allegation that it “suffered injury based on a loss of diverted funds” and said that if BTCC wished to advance that claim, it “must file a second amended complaint that more fully sets forth such a theory of RICO injury.”

The SAC remedied this defect by enumerating “clear and definite” monetary contributions that plaintiffs made based on Walsh’s (supposedly fraudulent) solicitations. Nevertheless, defendants summarily claim that, “[a]lthough the Second Amended Complaint alleges that plaintiffs have made political contributions, there is simply no plausible allegation of any injury in fact.”

However, the court ruled that assuming the truth of plaintiffs’ allegations, their “economic losses would constitute an injury to both the plaintiffs’ business and property. Money constitutes ‘property’ within the meaning of RICO.” Simply put, if then “defendants fraudulently induced plaintiffs to take actions and make expenditures that would result in their financial injury.” This purported harm falls squarely within RICO’s statutory ambit.  Id., at 6.

Ed Note:   This is a useful case because it shows that monies received and not placed for the purposes intended is “injury” even though the plaintiff is not out of pocket any more money than what he intended to contribute.  Honest service fraud is on the civil RICO plate.  It is certainly a puzzle why Plaintiffs did not allege color of official right extortion, which is not subject to Rule 9(b).

 

 

 

Plaintiff Will Have to Wait “Till the Cows Come Home”- District Court Dismisses Civil RICO Defective Cow Food Case

Dandy-Veal LLC v. Lehman et al., 2017 WL 2271393 (E.D. Wis., May 23, 2017) 

Plaintiff alleged Defendants provided them inadequate and defective food for their cows, leading to decreased milk production.  This was not to be.  The court granted a motion to dismiss although finding that mail fraud violations were adequately alleged, the court did not find the necessary “pattern,” because it did find sufficient allegations of closed-ended continuity.   Close-ended continuity “refers to criminal behavior that has come to a close but endured for such a substantial period of time ‘that the duration of the criminal activity carries with it an implicit threat of continued criminal activity in the future.’ In Dandy-Veal, the parties agreed the pattern of racketeering is “closed-ended” as the fraudulent scheme had come to an end.

In sum, the fraud occurred over a two month period, but there were predicate acts of mail fraud lasting 18 to 20 months, which were mailing of invoices to its customers.  Although the court incorrectly analyzed that the “number of victims, the presence of separate schemes and the occurrence of distinct injuries” were relevant, the court did correctly cite to H.J. Inc. that “duration is perhaps the closest thing we have to a bright-line continuity test: the ‘predicate acts’ must ‘extend over a substantial period of time,’; ‘a few weeks or months’ is considered insubstantial.”

Here, although Dandy Veal contended the beginning between approximately July and September 2013 and lasting until March 2015, the complaint only plausibly alleged that the scheme to sell defective Lacto–Whey occurred during February and March 2015—the months in which Dandy Veal test results showed that the Lacto–Whey failed to meet the specified content levels. It alleges that Lehman directed Packerland employees to change the Lacto–Whey formula in 2013 and 2014 to save costs, but offers nothing more in support other than its conclusory statements.  Dandy Veal also alleges that its herd’s milk production noticeably decreased during “the same time period that Packerland had been selling it watered-down Lacto–Whey” but does not state with particularity when the decrease occurred or other relevant information.

Stating based on Seventh Circuit precedent “repeatedly rejected RICO claims that rely so heavily on mail and wire fraud allegations to establish a pattern,” the court stated that it did not look favorably on many instances of mail and wire fraud to form a pattern.  Thus, the court found  

the allegations of the complaint only allege facts that show Packerland’s Lacto–Whey was defective for a period of two months. Even accepting as true that the defendants knew the product was watered down and sent out the invoices and received payments anyway, the short two month period makes this the type of case better categorized as a garden variety fraud case rather than an ongoing pattern of racketeering. Accordingly, the complaint fails to allege the pattern of racketeering activity needed to support a RICO claim.

Ed Note:   Thus, this court is measuring the length of time, or duration, by the length of the time the scheme can plausibly be alleged to cause specific injury to plaintiffs, not the length of time of the predicates, which are mailings of invoices after commission of the fraud.   This view is looked as favorably by the Third Circuit (Kehr Packages), but not the Second Circuit (DeFalco).  This issue of measuring “duration,” is covered in-depth in an article of mine soon to be published.   It is most interesting given that Justice Alito, while on the Third Circuit, dissents in Kehr Packages, and takes a contrary view from apparently the Seventh Circuit would in this case.

David J. Stander is a civil RICO attorney who specializes in civil RICO litigation.