Antitrust Law Daily Wrap Up, RICO—DMont: RICO Conspiracy Claim Against Business Owner Proceeds Based on Role in False Invoicing Scheme, (Apr 8, 2013)

By William Zale, J.D.

An energy services company stated a RICO Sec. 1962(d) conspiracy claim against the owner of water drilling and trucking company, Barry Van Hook, who allegedly agreed to conduct an enterprise through a pattern of racketeering activity involving false invoicing and embezzlement, the federal district court in Billings has ruled (Basic Energy Services, L.P. v. Pierce, April 4, 2013, Cebull, R.). The court dismissed a RICO Sec. 1962(c) claim against Van Hook for conducting the enterprise through a pattern of racketeering activity because Basic Energy Services failed to allege that Van Hook personally committed any of the alleged predicate acts of mail fraud, wire fraud, and interstate transportation of stolen property.

Basic Energy Services alleged that Van Hook participated in an association-in-fact enterprise with two former Basic employees, Douglas Pierce and Richard Wolla, to create false invoices for over $100,000 in goods paid for by Basic and delivered to Van Hook, who converted them or stored them for Pierce. Van Hook allegedly compensated Pierce by quitclaiming real property to him.

Fraud pleading. Van Hook unsuccessfully contended that Basic’s allegations made on information and belief did not meet the requirements of particularity in pleading fraud under Rule 9(b) of the Federal Rules of Civil Procedure. The court noted that only three allegations were made on information and belief: that truck parts paid for by Basic were sold by Van Hook; that Van Hook sold the goods for personal gain, used them for his business, or stored them for Pierce to cover up the scheme; and that Van Hook quitclaimed property to Pierce in payment.

Recent cases have recognized that allegations of fraud may be made on information and belief where the precise details are only known to the defendant and the allegations are supported by a statement of facts on which the belief is founded, the court observed. Basic’s allegations concerning the false invoicing scheme concerned a definite time frame and, more importantly, allegedly were supported by invoices showing delivery of goods and services to Van Hook and his business, as well as a quitclaim deed. These allegations were sufficiently particular to allow Van Hook to prepare an answer. Considering the well-pleaded facts as true, the scheme alleged by Basic was plausible, the court determined.

RICO Sec. 1962(c). Basic alleged that Van Hook violated of 18 U.S.C. §1962(c) by participating in the false invoicing scheme conducted through the association-in- fact enterprise composed of Pierce, Wolla, and Van Hook. A cause of action under § 1962(c) is composed of four elements: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Van Hook’s alleged conduct, including his participation in the association by receiving and disposing of property stolen from Basic, could have constituted direct or indirect participation in the enterprise. Basic alleged that Van Hook’s action were both a direct and proximate cause of its loss.

The court, however, held that the §1962(c) claim had to be dismissed as to Van Hook for lack of an allegation that he personally took part in any of the alleged predicate acts. Basic did not allege that Van Hook personally committed any of the predicate acts of mail fraud, wire fraud, and interstate transportation of stolen property that made up the alleged pattern of racketeering activity.

RICO Sec. 1962(d). The conspiracy claim survived because Van Hook need not have personally committed two or more predicate acts to be liable for a § 1962(d) RICO conspiracy. Basic alleged that Van Hook agreed to conduct the affairs of the enterprise through a pattern of racketeering activity. The agreement did not have to be express its existence could be inferred from the words, actions, or interdependence of activities and persons involved. Basic alleged that Van Hook agreed with Pierce and Wolla to perpetuate the alleged schemes.

The case is No. CV-09-31-BLG-RFC.

Attorneys: Adam M. Olschlager (Crowley Fleck) for Basic Energy Services, L.P. John C. Heenan (Bishop and Heenan) for Barry Van Hook.

Companies: Basic Energy Services, L.P.

Cases: RICO MontanaNews