Antitrust Law Daily Wrap Up, RICO—DMass: Demolition Company Fails to Plead Pattern of Racketeering Activity in RICO Claims Against General Contractor, (Dec 19, 2012)

By Tobias J. Gillett, J.D., LLM.

A demolition and salvage company failed to adequately plead RICO claims against the subsidiary of a general contractor and its principals over alleged fraud committed during a demolition project because it did not demonstrate a pattern of racketeering activity, the federal district court in Boston has ruled (Atlantic Acquisitions, LLC v. J.H. Reid General Contractor, December 17, 2012, Tauro, J.).

In its complaint, the demolition and salvage company, Atlantic Acquisitions, LLC, alleged that it entered into a project agreement with the general contractor, J.H. Reid, and another salvage company, Etco Recycling, under which the parties would jointly purchase, demolish, and salvage two out-of-commission industrial plants. J.H. Reid established a subsidiary, Reid Commodities, LLC, for purposes of carrying out this agreement.

However, Atlantic alleged that Reid never distributed any profits to Atlantic. Moreover, Atlantic alleged that Reid Commodities and J.H. Reid’s principals, James Reid and Eric Reid, engaged in wire fraud by placing telephone calls and sending e-mails to Atlantic misrepresenting the tonnage of scrap materials, copper, and steel at the plants, the revenue derived from the plants, and the expenses incurred during the projects.

Atlantic sued Reid Commodities, James Reid, and Eric Reid, asserting a variety of claims including RICO claims based on the predicate acts of wire fraud. The defendants moved to dismiss.

The court granted the motion, finding that Atlantic had failed to properly plead the requisite pattern of racketeering activity for a RICO violation. The court explained that a RICO claim “requires at least two predicate acts of racketeering activity” to establish a pattern for RICO purposes, and that the predicate acts must be “(1) related and (2) amount to or pose a threat of continued criminal activity.” This requirement can be satisfied by pleading either “open-ended continuity” or “closed-ended continuity.”

Closed-ended continuity, the court further explained, demands predicate acts “extending over a substantial period of time that amount to a threat of continued activity.” Acts occurring over a few weeks or months are generally insufficient, while those occurring over several years may qualify.

However, the court observed that some cases “fall into a middle ground where the duration and extensiveness of the alleged conduct does not easily resolve the issue.” The court believed Atlantic’s case, alleging fraudulent telephone calls and e-mails on an approximately weekly basis over nine months, to be one that occupied that middle ground.

The court found that in “middle ground” cases the First Circuit had consistently refused to find closed-ended continuity where the alleged predicate acts involved “one scheme with a singular objective and a closed group of target victims.” As Atlantic’s case involved only one contract, one goal (diverting profits from the projects), two victims (Atlantic and Etco), one injury (lost profits), and a relatively short duration (nine months), the court declined to find closed-ended continuity.

Open-ended continuity, the court explained, requires the plaintiff to allege that “the racketeering acts themselves include a specific threat of repetition extending indefinitely into the future” or that the acts “are part of an ongoing entity’s regular way of doing business.” As the scheme alleged by Atlantic had a natural endpoint, the completion of the demolition projects and had no threat of proceeding into the future, and as Atlantic had not alleged that Reid or its principals engaged in wire fraud in other business transactions or as a regular means of doing business, the court declined to find open-ended continuity.

Since the court found that Atlantic had not established either closed-ended or open-ended continuity, the court determined that Atlantic had not demonstrated the required pattern of racketeering activity, and dismissed Atlantic’s RICO claim.

The case is No. 12-10271-JLT.

Keith P. Carroll (Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, PC) for Atlantic Acquisitions, LLC. Alexa H. O'Keefe (Nutter, McClennen & Fish, LLP) for J.H. Reid General Contractor.

Cases: RICO MassachusettsNews