Antitrust Law Daily Wrap Up, RICO—E.D.N.Y.: Holding company proceeds with claims developers conspired to overcharge, (Apr 21, 2016)

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

A subcontractor and a related company who allegedly conspired to overcharge for soil excavation and remediation services were not entitled to summary judgment against a holding company’s Racketeer Influenced and Corrupt Organizations Act (RICO) claims, the federal district court in Brooklyn, New York, has decided. However, summary judgment against the defendants’ affirmative defenses was granted (Hemmerdinger Corp. v. Ruocco, April 19, 2016, Kuntz, W.).

In mid-2004, ATCO, a company operated by the Hemmerdinger family, hired Plaza Construction Corporation as its general contractor for redevelopment of its industrial park. Plaza hired several subcontractors for the project. The soil excavation and soil remediation work went to a company owned by Frank Ruocco, Earth Technology, Inc. (ETI). ETI’s project manager was Boris Tomicic, and ETI, like Plaza, was paid under a “costs plus” arrangement.

During the course of the project, Plaza came across unexpected contaminations. It turned to ETI, which, in turn, hired a soil “broker,” Recycle Technology, LLC (RecTec), which was managed by William S. McCambridge. ATCO claimed that RecTec provided nothing of value and merely served as a mechanism to defraud ATCO.

In June of 2008, ATCO’s environmental lawyer learned of the Environmental Protection Agency’s investigation into Ruocco, Tomicic, McCambridge, ETI, and RecTec (collectively, “defendants”) for fraud. After criminal charges were brought against the defendants, McCambridge pleaded guilty to conspiracy to commit wire fraud and Tomicic was ultimately convicted of wire fraud.

Following the criminal prosecutions, ATCO initiated a suit against the defendants which alleged civil RICO and fraud in its overpayment of $405,068.04, which arose out of the $250-per-ton-of-soil figure submitted by ETI to Plaza. The defendants filed a motion for summary judgment. ATCO simultaneously filed a motion for partial summary judgment on the defendants’ seven affirmative defenses.

RICO theory. The court denied the defendants’ summary judgment motion on their civil RICO theory. It determined that ATCO established: (1) a separate and distinct enterprise because the individual defendants had separate and distinct roles in the alleged fraud, as established in their criminal prosecutions, and corporate defendants (ETI and RecTec) operated with parties different from one another; and (2) a pattern of racketeering activity because ATCO alleged at least two acts of racketeering activities and presented sufficient continuity on the record to survive summary judgment.

The court determined that ATCO established the “harm and causation” element of a civil RICO claim because: (1) ATCO provided a spreadsheet that precisely calculated it losses; (2) the acquittal of ETI and Ruocco in the criminal proceeding, because it was punitive in nature, not remedial, did not cure ATCO of injury; (3) ATCO’s overpayment directly stemmed from the defendants’ fraudulent invoices and the defendants’ entire RICO scheme was designed to collect unearned money form ATCO; and (4) ATCO relied on Tomicic’s convicted fraudulent acts. The court further determined that the defendants’ argument that ATCO was negligent for not discovering the fraud was without merit.

The court denied the defendants’ summary judgment motion on their statute of limitations theory. It found that the defendants provided no new evidence requiring a reconsideration of its earlier denial of their motion to dismiss on statute-of-limitations grounds.

Contract theory. The court denied the defendants’ summary judgment motion based on contract theory because: (1) their evidence supporting an agreement for $250, which amount ATCO disputed as being the result of fraud, was not dispositive of the issue; (2) whether $250 was a fair-and-reasonable fraud or a fair-and-reasonable bad business deal was an issue for a jury; (3) allegations that ATCO purposefully agreed to the inflated $250-per-ton figure to commit insurance and tax fraud were unsupported; (4) ATCO’s use of the $250-per-ton figure in representations for an insurance recovery were made prior to its discovery of the alleged fraud; and (5) ATCO’s representations during the Article 78 proceedings and its statements to the court were not necessarily inconsistent. For similar reasons, the court found the defendants’ argument for judicial estoppel inconsistent.

The court also disagreed with the defendants’ arguments concerning damages and set-offs. It found that treble damages applied because this was a civil RICO case, not a contract case. It also found that the defendants’ collateral source arguments were inapplicable because it would allow RICO defendants to escape liability so long as third parties mitigated a victim’s injury.

Duties. The court determined that the failure of Ruocco, Tomicic, and McCambridge to disclose their joint ownership of RecTec evidenced a conspiracy to defraud ATCO. It also determined that any failure of ATCO to inspect all the records in its possession did not preclude it from recovery.

Affirmative defenses. Finally for all the reasons discussed by the court, it granted ATCO’s motion for summary judgment on the defendants’ seven affirmative defenses.

The case is No: 12-cv-2650 (WFK).

Attorneys: Jillian Lee McNeil (Balestriere Fariello) for Hemmerdinger Corp. Robert M. Casale (Law Offices of Robert M. Casale) for Frank M. Ruocco, Jr.

Companies: Hemmerdinger Corp.

Cases: RICO NewYorkNews