Antitrust Law Daily Wrap Up, RICO—N.D. Cal.: Former employee sufficiently alleges loss from company’s money laundering, (Jul 31, 2014)

By Jody Coultas, J.D.

A former Best Foods International Inc. (BFI) employee stated, in part, Racketeer Influenced and Corrupt Organizations Act (RICO) and California Unfair Competition Law (UCL) claims against BFI for allegedly engaging in wire fraud, the federal district court in San Francisco has held (Phan v. Best Foods International Inc., July 29, 2014, Seeborg, R.).

The former employee was BFI’s Chief Financial Officer who had engaged in various business transactions with individuals and businesses with close ties to BFI. After allegedly learning his employers and business partners were involved in money laundering and other illegal activities, and that his employment was conditioned on facilitating and concealing such unlawful conduct, the former employee objected. BFI and others allegedly defrauded the employee, threatened to kill, dismember, and defame him, and refused to pay him fees and wages owed. The employee was terminated and filed RICO claims.

In amended RICO claims, the former employee alleged deprivation of a $30,000 consulting fee, under-market sale of a joint real estate venture interest, and misappropriation of $8,300 in funds from the real estate venture.

Because the former employee stated a claim for wire fraud, and sufficiently alleged such predicate act proximately caused his $30,000 loss, the court found that he sufficiently stated a RICO claim based on the consulting fee loss. The former employee was allegedly denied his $30,000 consulting fee after refusing to engage in unlawful business practices. A third party allegedly misrepresented that his business activities in Asia were legal, that the money involved was “clean,” and intended to pressure the former employee to assist in money laundering by threatening to withhold payment at the end of a trip to Asia. Allegations regarding a phone conversation between the third party and the former employee adequately state a claim for wire fraud. The former employee sufficiently linked the fraudulent misrepresentations and concealments to the loss of the consulting fees.

The former employee failed to state a cognizable RICO injury based on his under-market sale of interest, according to the court. BFI allegedly induced the former employee to sell his interest in a real estate venture through acts of extortion, wire fraud, and mail fraud. It was unclear from the allegations what the allegedly fraudulent misrepresentations even were. Therefore, it was impossible to determine whether the purported wire fraud proximately caused the alleged injury.

The complaint also lacked sufficient evidence that the fraudulent transactions paying off a credit card debt constituted wire fraud, according to the court. The former employee alleged that an individual involved with the real estate venture used $50,000 of the venture’s funds to pay off his personal credit card debt, and that another individual facilitated this improper use of corporate funds. However, the former employee failed to allege more than a general reference to several fraudulent transactions.

The court found that the former employee had stated a claim for relief under the “unlawful” prong of the UCL. The complaint sufficiently stated RICO claims, as well as violations of the California Labor Code based upon a failure to timely to pay the former employee’s wages upon his termination. The claims established an economic injury caused by the allegedly unlawful conduct.

The case is No. CV 14-00888 RS.

Attorneys: Paul Joseph Bauer (Walter & Wilhelm Law Group) for Tuan Phan. Kim Rae Mayor (Mayor Law Offices) for Best Foods Int’l, Inc., Intercon Marketing & Investments, Inc., MTV Investments LLC, MTV Investments, Inc., and Global Quality Foods, Inc.

Companies: Best Foods Int’l, Inc.; Intercon Marketing & Investments, Inc.; MTV Investments LLC; MTV Investments, Inc.; Global Quality Foods, Inc.

Cases: RICO StateUnfairTradePractices CaliforniaNews