Antitrust Law Daily Wrap Up, RICO—E.D. Mo.: Insurance company unable to show independent agent engaged in pattern of racketeering, (May 29, 2014)

By Greg Hammond, J.D.

An insurance management company was unable to state sufficient claims that one of its independent agents violated RICO after transferring his book of business to a company he formed for his daughter. In reaching its decision to dismiss the complaint, the federal district court in St. Louis determined that the company failed to demonstrate a pattern of racketeering under RICO (Dewitt Insurance, Inc. v Horton, May 28, 2014, Ross, J).

Background. Gregory Horton worked for insurance management company, Dewitt Insurance, Inc., as an independent agent and producer for a period of 13 years. Although he was told to notify Dewitt of any transfer of his ownership in his book of interest to any other entity, he formed Zigzak, Inc. and named his daughter, Sarah King, as the sole shareholder. Dewitt asserted that it would not have agreed to do business with Zigzak, or would have reduced commissions paid to the company by 20 percent, had it known King owned and controlled Zigzak. Consequently, Dewitt brought suit against Horton and King, alleging violations of RICO, fraudulent concealment, violation of the Computer Fraud and Abuse Act (CFAA), and civil conspiracy. Horton and King moved to dismiss for failure to state a federal cause of action and to plead fraud with specificity, and requested that the district court decline supplemental jurisdiction with regard to Dewitt’s state law claims.

RICO. In support of their motion to dismiss, Horton and King argued that Dewitt failed to state its RICO claim with the particularity required under Federal Rule of Civil Procedure 9(b) and failed to state the essential elements of a RICO claim. According to the court, to state a proper RICO violation, Dewitt was required to demonstrate that Horton and King participated in “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Further, to demonstrate a “pattern” of racketeering activity under RICO, Dewitt needed to demonstrate that Horton and King engaged in two or more predicate acts of “racketeering activity” that were related and pose a threat of continued criminal activity.

Although the court determined that Dewitt pleaded its RICO claim with the sufficient particularity required under Rule 9(b), it found that the company failed to demonstrate a pattern of racketeering activity. Specifically, the alleged email, mail, and wire transfers used by Horton and King were insufficient to create a pattern of racketeering because they were part of a single effort to defraud Dewitt and do not adequately allege continuity. Consequently, Horton and King’s motion to dismiss the RICO count of Dewitt’s complaint was granted.

CFAA. Under the CFAA, Dewitt was required to demonstrate that Horton: “(1) accessed a protected computer, (2) without authorization or exceeding such authorization that was granted, (3) knowingly and with intent to defraud, and thereby (4) furthered the intended fraud and obtained anything of value, causing (5) a loss to one or more persons during any one-year period aggregating at least $5,000 in value.” Horton argued that Dewitt failed to state a claim under the CFAA, as Dewitt never alleged that its computer system was hacked, that Horton lacked authorization to access information, that any information was deleted or otherwise destroyed, that any service interruption occurred, or that Horton or King took a computer without returning it. Further, Dewitt failed to identify how any damage was caused through Horton’s use of Dewitt’s computer systems. The court agreed with Horton, finding that Dewitt’s alleged percentage loss in commissions was too attenuated from Horton’s use of Dewitt’s computer systems. Consequently, Dewitt’s CFAA claims were dismissed.

Supplemental jurisdiction. Because Dewitt’s federal law claims under RICO and the CFAA were dismissed, it declined to exercise supplemental jurisdiction over the remaining state law claims of fraudulent concealment and civil conspiracy. Consequently, those claims were also dismissed.

The case number is 4:13-CV-2585 JAR.

Attorneys: Bryan P. Cavanaugh (Cavanaugh Law Firm, LLC) for DeWitt Insurance, Inc. Roger W. Pecha (Jenkins and Kling, PC) for Gregory R. Horton.

Companies: DeWitt Insurance, Inc.

Cases: RICO MissouriNews