Antitrust Law Daily Wrap Up, RICO—EDNY: Moving Company’s RICO Claims Against Ocean Carrier Alleging Extortionate Business Practices Dismissed, (Dec 13, 2012)

By Tobias J. Gillett, J.D., LLM.

An international moving company could not state Racketeer Influenced and Corrupt Organizations Act claims against an ocean cargo company and other corporations and individuals over claimed extortionate business practices because the cargo company and its affiliated corporations and individuals did not constitute an “enterprise” for RICO purposes and because the moving company failed to plead a cognizable injury arising from the defendants’ investment of proceeds from the alleged RICO enterprise, the federal district court in Central Islip, New York has ruled (Atlantic International Movers, LLC v. Ocean World Lines, Inc., December 11, 2012, Feuerstein, S.).

According to the complaint, between 2006 and 2008, Comtrans, a moving company and alleged predecessor in interest to the plaintiff moving company, Atlantic International Movers, LLC (AIM), entered into a series of bills of lading with Ocean World Lines, Inc. (OWL), an international ocean cargo company. Under a 2006 agreement, AIM alleged, OWL agreed to permit Contrans to pay off its past debts to OWL by paying an additional $1,000 with each new bill of lading.

However, AIM alleged that in 2007 OWL “arbitrarily, and without legal justification” demanded that Comtrans pay the full amount of the remaining debt. To force Comtrans to pay, OWL allegedly held the cargo from Comtrans’s customers and threatened to sell it, while also charging “exorbitant and extortionate” demurrage fees. OWL also allegedly contacted Comtrans’s customers directly to demand payment to release the cargo.

In addition, OWL allegedly filed a lawsuit in Virginia asserting non-payment under the bills of lading and “fraudulently” moved for default judgment on invoices that Comtrans’s customers had already paid, and that included false demurrage charges.

AIM alleged that this conduct forced Comtrans out of business, whereupon Comtrans assigned its claims to AIM. AIM brought suit, asserting a range of claims, including violations of the RICO Act.

RICO Enterprise

The court listed the elements of a RICO claim under 18 U.S.C. §1964(c) as “(1) conduct, (2) of an enterprise, (3) through a pattern (4) of racketeering activity.” AIM had identified a RICO enterprise consisting of “four separate legal entities and four separate individuals.” The court noted that a “corporate entity may not be simultaneously the ‘enterprise and the ‘person’ who conducts the affairs of the enterprise through a pattern of racketeering activity,” and that a plaintiff may not circumvent this requirement by “alleging an enterprise consisting of a corporate entity and its affiliates and agents.”

AIM argued that OWL and its affiliated companies—Ocean World Lines Europe, Ocean World Lines Bremen GmbH, and RF International, Ltd.—constituted separate legal entities, and therefore it had sufficiently pled a RICO enterprise. However, the court observed that AIM had acknowledged that all of the companies were affiliates of OWL and that all of the individual defendants were employees of those companies. Since AIM had pled no more than a corporation and its employees working together to accomplish a common goal, the court found AIM had failed to properly allege a RICO enterprise, and dismissed AIM’s §1964(c) claim.

Investment of Proceeds from a RICO Enterprise

The court identified the elements of a RICO claim under 18 U.S.C. §1964(a) as “(1) that defendants used or invested racketeering income to acquire or maintain an interest in the alleged enterprise; and (2) that plaintiff suffered an injury as a result of that investment by defendants.”

AIM alleged that OWL and the other defendants had illegally extorted funds from Comtrans and its customers, and that those funds were invested back into OWL and its affiliates, and caused injury to Comtrans “because funds were used to bring a lawsuit against Comtrans (in Virginia), and lawsuits against Comtrans clients (in Germany), and to collect extension of credit by extortionate means.”

The court found AIM had failed to properly allege the required injury for a §1964(a) claim. The court observed that the injuries AIM had alleged—the filing of court cases and extortionate collection of credit—were the same as the predicate racketeering acts that it had alleged. As the court found, merely asserting that proceeds from racketeering were reinvested in a defendant’s general operations was insufficient to demonstrate an injury caused by the investment, as opposed to an injury from the racketeering activity itself. Therefore, the court dismissed AIM’s §1964(a) claim.

The court also dismissed claims for fraud, tortious interference with contract, and civil conspiracy, with leave to amend only the fraud and tortious interference claims.

The case is No. 12-CV-2464 (SJF) (GRB).

Martin Frederik Gusy (Gusy Van der Fandt LLP) for Atlantic International Movers, LLC. Leonard Leroy Fleisig (Willcox & Savage PC) for Ocean World Lines, Inc.

Cases: RICO NewYorkNews