Antitrust Law Daily Wrap Up, RICO—3d Cir.: Res judicata required dismissal of RICO claims relating to real estate transaction, (Jun 12, 2015)

By Michael Menzhuber, J.D., LL.M.

A district court properly determined that a Racketeer Influenced and Corrupt Organizations Act (RICO) claim filed by an individual in connection with a multi-parcel real estate transaction was barred by the doctrine of res judicata and, in the alternative, that the plaintiff failed to sufficient state a RICO claim, according to the U.S. Court of Appeals in Philadelphia (Foster v. Denenberg, June 10, 2015, Per Curiam).

Background. Frederick Foster filed a complaint in district court against David Denenberg; his law firm, Abraham and Denenberg, P.C.; and Antoine Gardiner in connection with a multi-parcel real estate transaction. The complaint alleged a violation of RICO, as well as fraud, conversion, breach of contract, and breach of fiduciary duty. The issue in the action was whether Foster’s sale of the property to Gardiner required partitioning of the property into two separate properties.

The district court dismissed the complaint on the ground that Foster failed to sufficiently plead his RICO claim. Foster appealed and the court of appeals summarily affirmed. Foster filed another civil action in federal court, alleging a RICO violation against the same defendants and in connection with the same real estate transaction. The defendants moved to dismiss on the ground that the doctrine of res judicata barred Foster from relitigating what was essentially the same cause of action. In the alternative, the defendants argued that Foster once again failed to state sufficient allegations to establish a plausible RICO claim.

The district court noted that Foster had alleged new predicate acts in support of his RICO claim but held that these new allegations all related back to the real estate transaction at issue in the prior lawsuit. In the alternative, the court held that Foster’s allegations did not sufficiently show that the defendants had engaged in a pattern of racketeering, as required to make out a RICO violation. Foster appealed the decision.

Res judicata. The court of appeals determined that the district court correctly concluded that res judicata applied because: (1) Foster’s original complaint resulted in a final judgment on the merits; (2) the parties in the original complaint and the present complaint were the same; and (3) both complaints were based on the same cause of action. In summarily affirming the district court’s decision, that court of appeals noted that the focal point of the “same cause of action” analysis is not whether there are new facts occurring after the final judgment, but whether the material facts alleged in each suit are the same, and the whether the witnesses and documentation required to prove the allegations are the same.

RICO. The court of appeals also agreed that with the district court that Foster’s claims did not state a RICO claim for relief. It determined that Foster’s allegation of a single fraudulent real estate transaction did not satisfy RICO’s continuity requirement that there be a “pattern of racketeering activity.” Foster argued that the defendants engaged in numerous other real estate transactions and those transactions must necessarily have involved fraud. The court of appeals, however, dismissed this argument as being “speculative.”

The case is No. 14-2674

Attorneys: Frederick Foster, pro se. Thomas Bruno, II (Abramson & Denenberg P.C.) for David H. Denenberg, and Abramson & Denenberg, P.C.

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