Antitrust Law Daily Wrap Up, RICO—D. N.J.: Opportunity to amend RICO claims denied as futile, (Nov 25, 2014)

By Linda O’Brien, J.D., LL.M.

In an action by a marketer of chemicals for use in cleaning septic systems against a competitor for engaging in unfair advertising and marketing practices, the magistrate judge for the federal district court in Trenton, New Jersey has denied the plaintiff’s motion for leave to file an amended complaint (Newtechbio Inc. v. Septicleanse, Inc., November 24, 2014, Bongiovanni, T.).

Newtechbio Inc. markets a line of chemicals for use in cleaning septic systems under the name NT-MAX. In 2012, Newtechbio filed a complaint against competitor Septicleanse, Inc. and several individuals, asserting, in part, a violation of the Racketeer Influenced and Corrupt Organization (RICO) Act. Specifically, Newtechbio alleged that the company engaged in a pattern of unfair competition by creating fictitious consumer review websites that published derogatory reviews of Newtechbio’s products and purchased advertisements on various major search engines using Newtechbio’s trademarks and trade names. After the defendants’ motion to dismiss was granted, Newtechbio moved for leave to file an amended complaint.

The court found that the proposed amended complaint alleged claims that were legally insufficient. The plaintiff sought to assert a RICO claim against all defendants for their participation in an enterprise thought a pattern of racketeering activity. To establish an “enterprise,” the plaintiff must prove the existence of two distinct entities—a person and an enterprise.

In this case, Newtechbio named the officers and directors of Septicleanse as participants in the RICO enterprise as well as Septicleanse itself. Although Newtechbio attempted to plead an enterprise that was distinct from Septicleanse, the actions by the individual defendants appeared to correlate with the commercial activities that fell within the normal scope of Septicleanse’s business operations. Thus, Newtechbio failed to meet the distinctiveness requirement as to Septicleanse, in the court’s view.

Furthermore, Newtechbio’s inclusion of the operators of major search engines—Google, Yahoo, and Bing—in the complaint that are identified as members of the enterprise but not named as defendants, did not cure the lack of distinctiveness. Consequently, the plaintiff’s proposed allegations asserting that Septicleanse was a participant in a RICO enterprise were futile, the court concluded.

The case is No. 12-5882.

Attorneys: Arthur L. Lessler (Lessler & Lessler) for NewTechbio Inc. Joseph P. Lasala (McElroy, Deutsch, Mulvaney & Carpenter, LLP) for Septicleanse, Inc.

Companies: NewTechbio Inc.; Septicleanse, Inc.

Cases: Advertising RICO NewJerseyNews