Antitrust Law Daily Wrap Up, RICO—E.D. N.Y.: Claim that contractor diverted work to non-disadvantaged businesses proceeds, (Dec 30, 2015)

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

The federal district court in Brooklyn refused to dismiss a subcontractor’s claim that the contractor and other defendants violated the Racketeer Influenced and Corrupt Organizations Act (RICO) by diverting work to non-disadvantaged business enterprises. The motion to dismiss the subcontractor’s breach of contract claim was also denied, but its unfair competition claim was dismissed (Leticia, Inc. v. Skanska USA Civil Northeast, December 29, 2015, Gleeson, J.).

Skanska USA Civil Northeast, Inc. was awarded a construction contract by the Metropolitan Transit Authority (MTA). A condition of the contract was to make a good faith effort to subcontract with disadvantaged business enterprises (DBEs), with the total value of those subcontracts to equal at least ten percent of the overall contract. Skanska subsequently subcontracted with Leticia, Inc., a certified DBE, to provide trucking and disposal services for the project.

According to Leticia, after the project commenced and as part of scheme to defraud the MTA, Skanska conspired with Environmental Energy Associates (EEA) to divert work from actual DBEs to EEA, which then subcontracted the work to non-DBE companies. At that same time, Skanska, and EEA’s president and vice-president, sent paperwork through the U.S. mail to MTA, falsely certifying that EEA was a bona fide DBE. Eventually, EEA diverted Leticia’s trucking and disposal work to non-DBE companies.

Leticia filed a breach of contract suit against Skanska in state court. While the suit was pending, it filed an action against Skanksa, EEA’s president and vice-president, and other defendants, alleging that their conduct violated RICO. Leticia also asserted causes of action for unfair competition and breach of contract.

RICO Claim. The defendants moved to dismiss Leticia’s RICO claims on grounds that it failed to: (1) sufficiently state a claim under Sec. 1962; (2) specify injuries to its business and property; and (3) allege that their claimed RICO violation was the actual and proximate cause of Leticia’s injuries.

The court determined that Leticia sufficiently stated a claim under Sec. 1962 because it alleged that: (1) EEA was the enterprise and the defendants participated in EEA’s affairs through a pattern of racketeering activity; and (2) the defendants engaged in numerous instances of mail fraud, two of the defendants’ prior guilty pleas on mail fraud charges collaterally estopped Skanska from asserting that it did not engage in racketeering activity, and the non-prosecution agreement between Skanska and the government.

The court determined that Leticia sufficiently specified injuries to its business and property, as a result of the defendants’ racketeering activities, because it alleged that: (1) the work it contracted to perform went to non-DBE companies; and (2) the defendants fraudulently led the MTA to believe that the work was going to DBE companies. It noted the defendants’ argument as to why Leticia was not entitled to receive all the work but determined that, at this stage, the merits of Leticia’s factual claims were not at issue.

Finally, the court determined that Leticia sufficiently alleged “proximate cause” because it alleged that its loss of profits was due to the defendants’ alleged scheme to defraud the MTA. It noted the defendants’ factual arguments but again determined that they were not at issue at this stage of the proceeding.

State Law Claims. The court dismissed Leticia’s unfair competition claim, based on the defendants’ misappropriation of its goodwill and property rights, because it did not allege that the defendants attempted to use Leticia’s name to: (1) commercially benefit from its efforts or reputation; (2) compete with it; or (3) otherwise injure its business.

The court determined that Leticia alleged sufficient facts in support of its breach of contract claim. However, because Leticia had previously filed a nearly identical contract claim in state court, it directed Leticia to show cause why the case should not be held in abeyance pending a state court decision on the breach of contract claims.

The case is No. 14-CV-5714 (JG) (LB).

Attorneys: Benjamin L. Federici, Kevin R. Schneider, and Michael G. O’Neill (Law Office of Michael G. O’Neill) for Leticia, Inc.; Joseph W. Martini (Wiggin and Dana) and Michael L. Kenny (Wiggin and Dana LLP) for Skanska USA Civil Northeast, Inc.; Michael Rosen (Law Office of Michael Rosen) for Balu Kamat; and James R. Froccaro for Balu Kamat and Carmine Desio.

Companies: Leticia, Inc.; Skanska USA Civil Northeast, Inc.

Cases: RICO NewYorkNews