Antitrust Law Daily Wrap Up, RICO—Ga. App.: Georgia RICO claim dismissed for failing to allege direct nexus between predicate acts and injuries , (Jul 23, 2013)

By Peter Reap, J.D., LL.M.

Five bank employees (collectively, the “plaintiffs”) who were terminated from their positions as bank tellers with SunTrust Bank failed to adequately state a claim under the Georgia RICO statute against SunTrust and their supervisor, Samuel Wylie, because, given the lack of a direct nexus between the alleged predicate acts and the plaintiffs’ injuries, the proximate cause element of a RICO claim was not met, a Georgia appellate court has ruled (Wylie v. Denton, July 16, 2013, Branch, E.). Thus, a Georgia state trial court erred in denying the joint motion by SunTrust and Wylie to dismiss the plaintiffs’ RICO claims and that ruling was reversed.

Background. According to the complaint, sometime in the mid to late 2000’s, Sandy Ursery, an employee of SunTrust client Clayton Homes, Inc., began to embezzle money from the Clayton Homes account. Ursery allegedly accomplished this embezzlement by presenting checks made payable to fictitious Clayton Homes employees or to former employees who no longer worked for the company.

According to the plaintiffs, when Ursery first began presenting checks made out to third parties and for whom she could present no valid form of identification, they refused to cash them. Ursery then contacted Wylie, who directed each of the plaintiffs “not to question Ursery when she presented checks, but instead to cash the checks for Ursery as presented without [requiring identification].”

On April 20, 2011, approximately five months after Clayton Homes first reported Ursery’s embezzlement, the plaintiffs’ employment with SunTrust was terminated. The reason given for the plaintiffs’ firing was their violations of “bank policy in the cashing of . . . checks” on the Clayton Homes account. The plaintiffs, allege, however, that SunTrust actually fired them in an effort to cover up the role that it and Wylie played in Ursery’s scheme to embezzle money from her employer. Following their termination, the plaintiffs filed the current lawsuit.

Georgia RICO Claim

Under Georgia’s RICO statute, it is “unlawful for any person, through a pattern of racketeering activity or proceeds derived therefrom, to acquire or maintain, directly or indirectly, any interest in or control of any enterprise, real property, or personal property of any nature, including money.” To assert a civil claim based upon either a violation of the RICO statute or a conspiracy to violate that statute, a plaintiff must show that the defendants violated or conspired to violate the RICO statute; that as a result of this conduct the plaintiff has suffered injury; and that the defendant’s violation of or conspiracy to violate the RICO statute was the proximate cause of the injury.

In their amended complaint, the plaintiffs alleged the existence of two separate but related schemes. The first was a scheme to defraud (or conspire to defraud) Clayton Homes; the second scheme was to cover up the first scheme, by misleading or defrauding (or conspiring to mislead or defraud) federal bank regulators and/or the Department of Justice (DOJ).

The predicate acts alleged in furtherance of the first scheme are forgery, theft, money laundering, financial institution fraud, and engaging in a monetary transaction with property derived from an unlawful activity. The predicate acts allegedly committed in furtherance of the second scheme are mail and wire fraud, based on the fact that the false statements made to the bank regulators and/or the DOJ were transmitted by mail and electronic means. The injury alleged by the plaintiffs is “the loss of [their] long term employment with benefits at SunTrust Bank.”

These allegations were insufficient to support a claim against either Wylie or SunTrust under the Georgia RICO statute, the court held. Even assuming that the plaintiffs could prove the facts alleged in their complaint and that the alleged conduct constituted either a violation of the RICO statute or a conspiracy to violate that statute, they could not establish the required causal connection between these predicate acts and their injuries.

To satisfy the proximate cause element of RICO, a plaintiff must show that her injury flowed directly from at least one of the predicate acts. This burden is not met where a plaintiff merely showed that his injury was an eventual consequence of the predicate act or that he would not have been injured but for the predicate act, according to the court. To survive a motion to dismiss, a plaintiff asserting a RICO claim must allege more than that an act of racketeering occurred and that she was injured. Rather, she must show that her injury was the direct result of a predicate act targeted towards her, such that she was the intended victim.

With respect to the question of whether the plaintiffs here alleged a sufficient causal relationship between the predicate acts alleged and their injury, two cases were particularly instructive, the court noted. The first is Morast v. Lance, 631 F Supp. 474 (N. D .Ga. 1986).

Morast was a former bank officer who was fired from his job after he cooperated in an investigation by the Comptroller of the Currency into an illegal transaction by the bank. In support of his RICO claims against the bank and its officers, Morast alleged that the bank had engaged in a number of predicate acts in the form of banking violations and that he had been fired after discovering these violations, refusing to help cover up the violations, and cooperating with the federal investigation. The trial court granted the bank’s motion to dismiss the RICO claims, noting that Morast did not have standing to sue because his injury – the loss of his employment – was not the direct result of the alleged predicate acts.

This Court employed a similar rationale in Nicholson v. Windham, 257 Ga. App. 429, (571 SE2d 466) (2002). After she was fired from her temporary employment with a law firm, Nicholson filed suit against the firm and its partners and employees asserting claims for, among other things, violations of the Georgia RICO Act, conspiracy to violate that Act, and for aiding and abetting violations of the Georgia RICO statute. Nicholson alleged that the law firm “was operating a RICO enterprise, which she characterized as a ‘real estate transaction closing mill.’”

The trial court granted the defendants’ motion to dismiss Nicholson’s RICO claims for failure to state a claim and this Court affirmed, holding that even when taken as true, the allegations in the complaint could not satisfy the RICO proximate cause requirement. Specifically, Nicholson could not show the required “direct nexus” between any of the predicate acts and her injury, because “none of the[] [alleged predicate] acts was directed at Nicholson.”

As in Morast and Nicholson, the plaintiffs in this case seek to recover for their injuries (the loss of their jobs) that were the indirect result of predicate acts directed at third parties, the court determined. Specifically, the plaintiffs’ amended complaint alleges predicate acts directed at Clayton Homes (as the victim of the alleged acts of theft, forgery, money laundering, financial institution fraud, and engaging in a monetary transaction with property derived from an unlawful activity) and at federal bank regulators and/or the DOJ (as the victims of the alleged acts of mail and wire fraud).

Given this lack of a direct nexus, the trial court erred when it denied the joint motion to dismiss the plaintiffs’ RICO claims.

The case is Nos. A13A0132; A13A0133.

Attorneys: Neal L. Conner Jr. (Conner & Jackson PC) for Samuel Wylie. Kenneth E. Futch Jr. (The Futch Law Firm) for Angie Denton.

Companies: SunTrust Bank.

Cases: RICO GeorgiaNews