Antitrust Law Daily Wrap Up, RICO—E.D.N.Y.: Pet grooming business owner fails to state RICO claims against former landlord, (Aug 23, 2013)

By Tobias J. Gillett, J.D., LL.M.

The former owner of a pet grooming business failed to state RICO claims against her former landlord and three of his businesses over their allegedly fraudulent and extortionate conduct in calculating her utility payments, raising her rent, threatening to cut off her utilities if she did not agree to certain lease terms, terminating her lease, informing customers that her business had folded, and committing various legal violations against the town in which the businesses were located, the federal district court in Central Islip, New York has ruled (Pieper v. Benerin, LLC, August 22, 2013, Spatt, A.).

Susan Pieper, doing business as Pet Expressions, leased premises for her pet grooming business from Benerin, LLC, owned and operated by Ron Coiro. According to Pieper, Coiro charged Peiper for 65 percent of the utility bills for the building, despite knowing that she only accounted for 40 percent of the utility usage. On November 1, 2011, Coiro allegedly informed Pieper that her rent would be increasing about 20 percent, and demanded that Pieper repair nonexistent structural damage using a contractor that would have overcharged Pieper to subsidize other work it was performing for Coiro. Coiro also allegedly threatened that he would turn off Pieper’s utilities if she did not agree to the new lease terms.

On February 14, 2012, Benerin sent a letter terminating Pieper’s lease. Pieper filed for declaratory relief against termination in New York state court, and the parties reached a settlement under which Pieper vacated the premises. Pieper alleged that she left the premises in a commercially reasonable manner, but Benerin sued Pieper for utility payments and the cost of alleged repairs.

On July 5, 2012, Coiro opened Smithaven Grooming, a pet grooming business, in Pieper’s former premises. Smithaven Grooming and Coiro’s other business, Smithaven Veterinary Clinic, Inc., allegedly told customers that Pet Expressions had gone out of business or that Smithaven Grooming was Pet Expressions. Pieper alleged that these actions were part of a scheme to disrupt and destroy her business. She also alleged that Benerin had illegally rented apartments for residential use without an appropriate permit; that Benerin added a second floor to a building without notifying the Town of Smithtown, resulting in underestimated property taxes; and that Coiro filled a swimming pool without a permit and without using clean fill.

Pieper filed suit against Benerin, Smithaven Veterinary Hospital, Smithaven Grooming, and Coiro, alleging that their conduct violated the RICO Act, as well as asserting various state law claims. The defendants filed a motion to dismiss.

Predicate acts against town. The court concluded that Pieper lacked standing to assert RICO claims based on alleged predicate acts committed against the Town of Smithtown. RICO conferred standing on “any person injured in his business or property by reason of a violation” of the RICO Act, and the “compensable injury” was “the harm caused by predicate acts sufficiently related to constitute a pattern.” As the predicate acts allegedly committed against Smithtown did not injure Pieper, she lacked standing to raise those predicate acts.

Smithaven Veterinary Hospital and Smithaven Grooming. The court found that Pieper did not sufficiently plead her claims against Smithaven Veterinary Hospital and Smithaven Grooming. Pieper’s “claims consist[ed] only of vague and unspecific allegations of complicity in a larger scheme to defraud and destroy [Pieper’s] business,” according to the court.

Benerin and Coiro

Relatedness. Pieper’s claims satisfied the requirement that her predicate acts had to be related to each other. Her predicate acts of wire fraud, mail fraud, and extortion were “related to each other in that they share[d] the same participants, victim and purpose,” and because “all of the acts were allegedly committed by Coiro in carrying out his position as President of Benerin.”

Continuity. However, Pieper failed to satisfy the requirement that her predicate acts must “amount to or pose a threat of continued criminal activity.” The court explained that continuity can be either open-ended, “where a defendant’s predicate acts represent an ongoing way of conducting the defendant’s business,” or closed-ended, where the defendant’s “activities were neither isolated nor sporadic,” and the defendant “engaged in such activity for a substantial period of time.” The court noted that the Second Circuit had never considered a period of less than two years to constitute “a substantial period of time.”

The court found that Pieper failed to establish open-ended continuity. “Benerin was a primarily legitimate business engaged in leasing units,” and Pieper’s allegations did not “indicate that the regular operations of Benerin involved the use of mail fraud or extortion nor imply a threat that these same acts [would] be committed in the future.” Moreover, the defendants’ alleged wire fraud committed through checks tendered by Pieper for rent and utilities would have ceased when Peiper left the premises, and Pieper’s complaint did not “suggest that the defendants [would] commit any future wire fraud because it [did] not suggest that any other tenant pay[ed] Benerin in the form of a check that [would] be cleared through the interstate banking system.” The alleged scheme to disrupt and destroy Pieper’s business was “inherently terminable,” according to the court.

Pieper also did not sufficiently plead closed-ended continuity, in the court’s view. Piper only alleged with specificity four counts of mail fraud occurring in a period of less than two years, and acts of extortion spanning three dates in 2012. Although Pieper also alleged 84 counts of wire fraud over 84 months, she failed to “plead specific dates and times of the alleged wire fraud,” “that the bank transactions were themselves fraudulent and not more than incidental to the alleged fraud,” “facts showing the use of the wires at all in the bank transactions,” or “that the bank transactions involved more than intrastate activity.” Moreover, wire fraud required “a fraudulent transmission by means of wire communication in interstate or foreign commerce,” and therefore the court “doubt[ed] that use of banking wires alone can constitute a wire communication for wire fraud.” Further, the use of the wires was “only a technical and incidental step,” and “[t]he alleged fraud could just as easily have been committed without the use of the banking system.”

The court therefore dismissed Pieper’s RICO claims with prejudice. The court also declined to exercise its supplemental jurisdiction over Pieper’s state law claims.

The case is No. 12-CV-3999 (ADS)(AKT).

Attorneys: Keith Altman (The Law Office of Keith Altman) for Susan Pieper. Patrick McCormick (Campolo, Middleton, & McCormick, LLP) for Benerin, LLC.

Companies: Pet Expressions; Benerin, LLC; Smithaven Veterinary Hospital, P.C.; Smithaven Grooming

Cases: RICO NewYorkNews