Antitrust Law Daily Wrap Up, RICO—D. Utah: Employee’s suit over unpaid wages dismissed for failure to allege enterprise, racketeering activities, (Feb 3, 2016)

By Michael Menzhuber, J.D., LL.M.

A claim that an individual and his LLCs violated the Racketeer Influenced and Corrupt Organizations (RICO) Act was dismissed by the federal district court in Salt Lake City. The court determined that the plaintiff’s complaint, amended complaint, and proposed second amended complaint did not sufficiently allege the presence of an enterprise and racketeering activities (Nielsen v. Patriot Group, LLC, February 2, 2016, Waddoups, C.).

The plaintiff, a complaining employee, who was allegedly not paid wages for warehouse work that he performed, filed a suit against The Patriot Group, LLC, dba ATK Motorcycles of Utah, its principal, Franklin White (White), and ATKUSA Holdings, LLC (collectively, “defendants”). In addition to eight state law causes of action, the suit alleged violations of the RICO Act.

The defendants filed a motion to dismiss: (1) for failure to adequately allege the necessary elements of a RICO claim; and (2) because none of the attached exhibits to the complaint qualified as a security. After considering the plaintiff’s second amended complaint to determine whether he properly pled a RICO claim, the court found that the complaint failed to plead facts supporting the RICO elements of an enterprise and facts supporting mail or wire fraud constituting RICO predicate acts committed by the defendants.

The court noted that, for an enterprise to exist, it must have an association, existence, and decision-making structure separate from itself. It found that the plaintiff made no association between White and any other entity, other than his own LLC entities whose legal formalities were unobserved, that had an existence and purpose distinct to itself. It also found that: (1) the plaintiff’s proposed addition of ATK-L and Shelton did not establish an enterprise because, other than conclusory statements, there were no facts to show that they were associated or to suggest that they had any actual involvement with conduct in an enterprise; and (2) the minimal recitation of the history of ATK’s brand in the second amended complaint did not make the brand’s parent company part of the enterprise.

Racketeering activities. The court determined that, even if the plaintiff had demonstrated a RICO enterprise, his RICO claim was fatally flawed because the plaintiff did not sufficiently state racketeering activities. In his original and first amended complaint, the plaintiff stated insufficient conclusory allegations that mail and wire services were used to perform the alleged fraudulent activities. The second amended complaint made similar allegations but also specifically identified six email communications.

The court noted that wire fraud is not committed simply by sending false statements through email. Rather, the emails must have been used to further a scheme to defraud through false pretenses. The court found that, because the emails identified by the plaintiff were sent after the occurrence of the alleged scheme to defraud by the defendants, they could not have been used in its furtherance. While the plaintiff did allege that other individuals were victims of the defendants’ scheme to defraud around the time the emails were sent, he did not allege that anyone was harmed by the defendants’ representations in those emails.

Motion to amend complaint. Because the additional factual allegations made in the plaintiff’s proposed second amended complaint did not cure the fatal flaws in his RICO claim, the court denied his motion to amend his complaint.

The case is No. 1:15-CV-00137.

Attorneys: David S. Head (Head Law PLLC) for Brian J. Nielsen. Todd D. Weiler (Todd D. Weiler Attorney at Law) for Patriot Group LLC and ATKUSA Holdings LLC.

Companies: Patriot Group LLC; ATKUSA Holdings LLC

Cases: RICO UtahNews