Antitrust Law Daily Wrap Up, RICO—5th Cir.: Bank accounts remain frozen after couple allegedly takes $29M from employer , (Dec 8, 2015)

By Greg Hammond, J.D.

A husband and wife could not overturn a preliminary injunction that limited the couple’s access to certain bank accounts to $20,000 per month. The U.S. Court of Appeals in New Orleans affirmed the lower court’s order, finding that the lower court did not abuse its discretion and that the plaintiffs had standing to bring their Racketeer Influenced and Corrupt Organizations Act (RICO) claims based on allegations the couple illegally transferred over $29 million to bank accounts under their control (A.T.N. Industries, Inc. v. Gross, December 7, 2015, per curiam).

A.T.N. Industries, Inc. and Jiafang Steel Pipes Americas, Inc. sued Mauricio and Clara Gross in September 2014, along with certain companies the couple owned, alleging civil RICO conspiracy, fraud, and related claims. In particular, the husband was been accused of illegally transferring over $29 million from Jiafang to bank accounts owned or controlled by him and his associates. His wife was named in the complaint as a co-conspirator. The trial court granted a modified preliminary injunction, which the defendants appeal, allowing the couple to access up to $20,000 from certain accounts on a monthly basis.

Standing. The court rejected the defendants’ claim that the plaintiffs lacked standing. It determined that both Jiafang and A.T.N. were parties to many of the transactions in question, demonstrating they are injured parties, and the defendants never alleged that the plaintiffs failed to exercise due diligence in discovering the purported fraud. In addition, the owner of A.T.N. and Jiafang also had standing as a plaintiff because the plaintiffs claim he transferred his own money after the husband allegedly made misrepresentations about the availability of funds.

No abuse of discretion. The lower court also did not abuse its discretion in granting the preliminary injunction, the appellate court concluded. First, the plaintiffs demonstrated a substantial likelihood of success on the merits because the three transactions the lower court examined demonstrated Jiafang netted less money than it should have, with the profit going to the husband or his associates. Second, the plaintiffs faced a substantial threat of irreparable injury, the court found because the husband had experience and sophistication transferring money internationally, demonstrating a high risk that funds allegedly belonging to the plaintiffs could disappear. Third, the defendants failed to show how access to funds exceeding more than two times their regular income would injure them, demonstrating that the threatened injury outweighed possible damages to the defendants due to the injunction.

Finally, the court rejected the defendants’ arguments that the injunction was against the public interest because it was unduly harsh. Contrary to the defendants’ arguments, the injunction does not garnish wages, but merely limits access to funds, the court noted. In addition, the lower court did not abuse its discretion in refusing to require a bond and by extending the scope of the injunction to the accounts that it did, according to the appellate court, given the difficult task of separating innocent money from fraudulently obtained funds and given the fungible nature of the assets.

The case number is 15-20102.

Attorneys: John Francis Higgins (Porter & Hedges, LLP) and George Mencio (Holland & Knight, LLP) for A.T.N. Industries, Inc. and Jiafang Steel Pipes Americas, Inc. Yocel Alonso (Alonso Law Firm) for Mauricio Gross.

Companies: A.T.N. Industries, Inc.; Jiafang Steel Pipes Americas, Inc.; Volanss Systems Company, Ltd.; Business Management Services International, L.L.C.

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