Antitrust Law Daily Wrap Up, RICO—9th Cir.: Real estate developers fail to show “property interest,” lack RICO standing, (Jul 30, 2014)

By Greg Hammond, J.D.

The U.S. Court of Appeals in Seattle has determined that Racketeer Influenced and Corrupt Organizations Act (RICO) claims brought by two real estate developers against First Savings Bank Northwest (FSB) and Tax Attorneys, Inc. (TAI) were properly dismissed with prejudice. In affirming the lower court’s order of dismissal, the court of appeals concluded that simply alleging an “intangible right to receive honest services” is not sufficient to establish a concrete financial loss for purposes of RICO’s statutory standing requirement (Portfolio Investments LLC v. First Savings Bank Northwest, July 28, 2014, Per Curiam).

Background. Marcia and Steven Nikolich are real estate developers, who operated under the company Portfolio Investments, LLC. Beginning in 2008, the developers had trouble making loan payments to FSB. They subsequently reached an agreement with the bank to make interest-only payments for 12 months, but FSB later cancelled an insurance policy and posted notices of default on the Nikolichs’ buildings. FSB did not originally respond to the developers’ proposal to have investors purchase the outstanding loans at a 50 percent discount.

In 2010, the developers received a letter from TAI, claiming that the law firm had “inside confidential information of several institutions, including FSB,” and that it could help stop foreclosure actions through “unique litigation.” After the developers listed their properties with a real estate company associated with TAI and filed for bankruptcy, TAI stopped responding to the developers and failed to contact FSB regarding the investor purchase proposal.

In 2012, the developers filed suit against FSB, TAI, and other financial institutions and individuals, claiming—in part—violations of RICO and conspiracy to violate it. The district court dismissed the RICO claims for lack of standing with prejudice, finding that they failed to establish any “concrete financial loss”; any predicate acts proximately causing injury; or any bribery or kickbacks under the honest services fraud statute. The developers appealed the decision.

RICO standing. To establish statutory standing under RICO, the Nikolichs were required to plead: (1) their alleged harm qualified as injury to their business or property; and (2) their harm was “by reason of” the RICO violation. On appeal, the developers alleged that their intangible right to receive honest services constituted a property interest under RICO. The court disagreed, citing its previous holding that deprivation of honest services alone “does not constitute concrete financial loss” for RICO standing. The court also found that the amended complaint never alleged that Portfolio or the Nikolichs were injured in their business or property. Because the developers consequently failed to establish statutory standing under RICO, and their complaint “was riddled with deficiencies and fell woefully short of the specificity required to meet Federal Rule of Civil Procedure 9(b)’s heightened pleading standard,” the district court properly dismissed their complaint for lack of standing, the court of appeals concluded.

The case number is 13-35333.

Attorneys: Dean Browning Webb (Dean Browning Webb Attorney & Counselor at Law) for Portfolio Investments LLC. Susan Tracey Alterman (Alterman Law Office) for First Savings Bank Northwest. John Edward Woodbery (Woodbery Law Group, PS) for Tax Attorneys Inc.

Companies: Portfolio Investments LLC; First Savings Bank Northwest; Tax Attorneys Inc.

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