Antitrust Law Daily Wrap Up, RICO—N.D. Ill.: Continuity not shown in concert producers’ RICO claim against venue owners, (Jun 18, 2015)

By Edward L. Puzzo, J.D.

In a dispute between concert producers and concert venue owners over ticket revenue for three concerts, plaintiffs failed to allege continuity sufficient to maintain their Racketeer Influenced and Corrupt Organizations Act (RICO) claim, the federal district court in Chicago has ruled (Natara Multimedia Group Inc. v. Carranza, June 17, 2015, Lefkow, J.).

Natara Multimedia Group and Event Life, close corporations controlled by Nick Huminsky and George Herrera respectively, were concert producers. Defendants, including Congress Theatre, Inc. and its employees, operated a concert venue. Plaintiffs’ claims arose from three concerts held in 2012 and 2013 at the Congress Theatre.

Plaintiffs alleged that defendants had breached the contracts made between the parties regarding the three concerts. As a result of methods such as reselling sold tickets through ticket-scalpers and printing unauthorized tickets, it was alleged, the defendants deprived plaintiffs of significant portions of the ticket revenue for the concerts to which they were entitled to under the contract terms. Plaintiffs, in addition to making claims against defendants for breach of contract, intentional misrepresentation, conversion, and civil conspiracy, also brought claims under RICO. Defendants moved to dismiss and the court granted the dismissal with prejudice.

RICO. To prove a pattern of racketeering activity under RICO, the court explained, plaintiffs must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity. There must be a least two predicate acts and a relationship between the predicate acts, i.e. “relatedness”, and a threat of continuing criminal activity, i.e. “continuity.”

Here, the ”relatedness” prong is satisfied by pleadings indicating that defendants used mails and interstate wires, including emails and text messages, as part of a scheme to deprive plaintiffs of ticket sales proceeds. However, the “continuity” prong was not established, stated the court.

RICO plaintiffs can satisfy the continuity prong either by (1) demonstrating a close-ended series of conduct that existed for such an extended period of time that a threat of future harm is implicit, or (2) an open-ended series of conduct that, while short-lived, shows clear signs of threatening to continue into the future.

Continuity. The allegedly fraudulent scheme spanned just over eight months, from the execution of the first agreement made on August 7, 2012 through the third concert on April 13, 2013, and plaintiffs have not indicated that defendants engaged in other racketeering schemes before or after this closed period. That eight-month period is too short to constitute a pattern of racketeering activity, the court stated. The case for continuity is not helped by the fact that there are only two victims, the plaintiffs, and they suffered a finite economic loss from the three concerts at issue. Finally, plaintiffs alleged one overarching scheme designed to deprive concert producers of their contractual rights. It is difficult to establish a RICO pattern based on a single scheme.

Open-ended continuity cannot be satisfied in this case because, subsequent to the actions in question, defendants sold the theatre involved. There is no indication of a “specific threat of repetition” or predicate acts that “can be attributed to a defendant operating as part of a long-term association that exists for criminal purposes.”

Given that the theatre is closed, it is unclear how defendants could possibly continue to operate it through a pattern of racketeering activity. There is no credible threat of future harm sufficient to satisfy the continuity requirement. Because plaintiffs have failed to allege continuity, their RICO claims must be dismissed, the court ruled.

Dismissal with prejudice. RICO was enacted in order to combat organized, long-term criminal activity, not to allow plaintiffs to cast run-of-the-mill, state-law breach of contract and fraud claims as federal RICO actions. Given the limited duration of the scheme alleged in the amended complaint, and the fact that plaintiffs have already had an opportunity to re-plead their RICO claims after reviewing defendants’ original motion to dismiss, dismissal with prejudice is appropriate, the court ruled.

State-law claims. The dismissal of the RICO claims eliminated the sole basis for federal jurisdiction in this case, stated the court. Thus the federal court should relinquish jurisdiction over plaintiff’s state-law claims of breach of contract, intentional misrepresentation, conversion, and civil conspiracy. When such claims are dismissed on jurisdictional grounds, the court explained, Illinois law gives plaintiffs additional time to commence a new action in state court, so the remaining claims can be pursued there.

The case is Civil Action No. 14 C 2791.

Attorneys: Arthur S. Gold (Gold & Associates, Ltd.) for Natara Multimedia Group. Jason Theodore Mayer (Smithamundsen LLC) for Erineo Carranza, and Congress Corp. Jonathan M. Cyrluk (Carpenter Lipps & Leland LLP) for Ticketfly, Inc.

Companies: Natara Multimedia Group; Congress Corp.; Ticketfly, Inc.

Cases: RICO IllinoisNews