Antitrust Law Daily Wrap Up, RICO—D. N.J.: Lessor’s RICO claims against commercial tenant for dumping hazardous waste survive motion to dismiss, (May 6, 2014)

By Linda O’Brien, J.D., LL.M.

A lessor of commercial real estate sufficiently alleged Racketeer Influenced and Corrupt Organizations Act (RICO) claims against a former commercial tenant for allegedly forming an illegal enterprise to furtively dump hazardous waste and toxins on the lessor’s property, the federal district court in Newark has held (AMA Realty LLC v.9440 Fairview Avenue LLC, May 2, 2014, McNulty, K.).

AMA Realty owns commercial real property situated at the intersection of two waterways. AMA entered into a ten-year lease with 9440 Fairview Avenue LLC (9440 LLC) for use and occupancy of the property. Under the lease, 9440 LLC promised not to alter the property without express written consent of AMA. 9440 LLC owned North Bergen Asphalt LLC (NBR), which engaged in the business of asphalt and concrete recycling and was based on an adjacent property. After 9440 LLC leased the property from AMA, NBR expanded its operation onto the property.

AMA filed suit against 9440 LLC, NBR, and their owners and managers, alleging violations of RICO, among other claims. AMA alleged that the owners and managers formed a corrupt enterprise to lease AMA’s property and that NBR dumped contaminated or hazardous materials on the property without AMA’s knowledge, causing a change in grade of the property that resulted in flooding and rendering the property unusable, with little value until costly remediation upon the land can be completed. NBR moved for dismissal.

RICO. The court found that AMA sufficiently alleged a concrete injury for standing under RICO. A plaintiff has standing if he has been injured in his business or property by the conduct constituting a violation of RICO. In rejecting the defendants’ argument that AMA did not allege it spent any money in response to the defendants’ actions, the court noted that AMA claimed that the defendants’ actions left the property unrentable and unsaleable, with little or no value, and that AMA will have incurred millions of dollars of damages by the time extensive environmental remediation can be performed on the property. AMA also estimated its damages with specificity in supplemental pleadings which were sufficient allegations of concrete financial losses.

Additionally, AMA sufficiently alleged RICO predicate acts, according to the court. A RICO claim requires a predicate act constituting racketeering activity. To state a claim for mail fraud, a plaintiff must allege (1) the existence of a scheme to defraud; (2) the use of the mails; and (3) culpable participation by the defendant. AMA alleged the elements with particularly. The complaint set forth dates and communications by NBR to the New Jersey Department of Environmental Protection (NJDEP) in which NBR intentionally omitted any reference to residual material remaining from the recycling process and its manner of disposal. The circumstances of fraud were evident from the factual allegations that NBR dumped contaminants on the property without an NJDEP permit or informing the owner AMA.

The court also determined that AMA adequately alleged that it was harmed by the predicate act. AMA alleged that each owner or manager owned and/or controlled NBR, engaged in a deliberate scheme to defraud AMA and various government agencies while keeping their illegal hidden, was associated with the enterprise, and committed a series of overt acts in furtherance of the conspiracy. Thus, the allegations gave the defendants notice of the precise misconduct with which they were charged, the court noted.

Finally, AMA plausibly alleged that the NBR owners and managers conducted the affairs of NBR, according to the court. AMA alleged that the owners and managers owned and/or controlled NBR, the alleged enterprise, by forming and registering the company; enabled NBR to expand onto the property by signing 9440 LLC’s lease with AMA; and acted through NBR in sending correspondence comprising the mail fraud. The allegations of the operation and participation in NBR by the owners and managers were sufficient to show that each conducted the enterprise’s affairs, the court concluded.

The case is No. 13-457.

Attorneys: John A. Daniels (Daniels and Daniels) for AMA Realty LLC. Neil V. Shah (Connell Foley LLP) for 9440 Fairview Avenue LLC, North Bergen Asphalt LLC, and Tilcon New York, Inc.

Companies: AMA Realty LLC; 9440 Fairview Avenue LLC; North Bergen Asphalt LLC; Tilcon New York Inc.

Cases: RICO NewJerseyNews