Antitrust Law Daily Wrap Up, RICO—8th Cir.: Lack of racketeering activity clears construction companies from liability, (Jul 16, 2015)

By Greg Hammond, J.D.

A group of construction and excavating companies were properly dismissed from a suit claiming they violated the Racketeer Influenced and Corrupt Organizations Act (RICO) by engaging in bank, mail, and wire fraud. The U.S. Court of Appeals in St. Louis affirmed the lower court’s decision granting dismissal and denying leave to file a second amended complaint, finding that the plaintiffs failed to sufficiently allege any racketeering activity (H & Q Properties, Inc. v. Doll, July 15, 2015, Smith, L.).

H & Q Properties, Inc. appealed a decision by the federal district court in Omaha, dismissing its RICO and state law claims and denying its motion for leave to file a second amended complaint. Specifically, H&Q claimed that a number of construction and excavating companies (the Doll companies) and others violated RICO by performing certain banking activities without notifying or obtaining consent from H&Q. The lower court dismissed the RICO claims, finding that H&Q failed to sufficiently allege any racketeering activity and declining to exercise supplemental jurisdiction over the state law claims.

On appeal, H&Q contends that the appellees engaged in a “pattern of racketeering activity” by committing bank fraud, mail fraud, and wire fraud.

Bank fraud. The court concluded that H&Q failed to allege any appellee defrauded the bank at issue; failed to sufficiently allege any appellee engaged in false or fraudulent activities to obtain bank property; and the mere use of a bank’s traditional customer services does not per se transform the appellees’ alleged misconduct into bank fraud. Even if the court assumed that H&Q sufficiently pleaded some kind of fraud, 18 U.S.C. 1344(2) is not a plenary ban on fraud and does not federalize frauds that are only tangentially related to the banking system. The lower court consequently did not err in determining that H&Q failed to adequately allege bank fraud.

Mail and wire fraud. The district court also properly concluded that H&Q failed to allege mail and wire fraud, according to the appellate court. Specifically, the court agreed that H&Q failed to allege that its authorization was required for creation of LLC accounts, or that such authorization was required for the transfer of money from accounts belonging to the LLC. In addition the complaint was devoid of any allegation that the Doll companies attempted to conceal the existence of their accounts from H&Q. There were no allegations from which the court could infer that the Doll companies fraudulently sought to deprive H&Q of any right to customer payments, or that the Doll companies lacked any right to the customer payments transferred. Even assuming that the appellees used mail or wires to deposit checks or transfer funds, H&Q’s allegations fell woefully short of establishing mail or wire fraud, the court concluded.

Leave to amend. Lastly, the court concluded that H&Q was properly denied its motion for leave to file a second amended complaint, finding that the proposed amendments do not cure the deficiencies present in the RICO allegations.

The case number is 14-2811.

Attorneys: Dana C. Bradford, III (Bradford & Coenen) for H & Q Properties, Inc. Kathryn J. Derr (Berkshire & Burmeister Law Offices) for David E. Doll, Double D Properties, LLC, DDE, Inc., HNGC, Inc., Nebraska Lowboy Services, Inc., Double D Excavating, Inc., and Load Rite Excavating, LLC. William G. Mullin (Smith & Gardner) for Doll Construction, LLC and New Era Excavation Co. Terry C. Dougherty (Woods & Aitken) for Malvern Trust & Savings Bank.

Companies: H & Q Properties, Inc.; Double D Properties, LLC; DDE, Inc.; HNGC, Inc.; Nebraska Lowboy Services, Inc.; Double D Excavating, Inc.; Load Rite Excavating, LLC; Doll Construction, LLC; New Era Excavation Co.; Malvern Trust & Savings Bank

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