Antitrust Law Daily Wrap Up, RICO—N.D. Ill.: Importers, suppliers dodge conspiracy claims over “transshipped” Chinese honey, (Apr 3, 2015)

By Greg Hammond, J.D.

Commercial honey importers and suppliers successfully dodged class action and parallel individual action allegations that they violated the Racketeer Influenced and Corrupt Organizations (RICO) Act when purportedly engaging in a conspiracy to “transship” Chinese honey through intermediate countries into the United States. The federal district court in Chicago granted the defendants’ motions to dismiss the RICO claims, finding the claims were inadequately pleaded. False advertising Lanham Act claims survived the motion to dismiss, however, as they were adequately pleaded and timely (In re Honey Transshipping Litigation, March 31, 2015, Gottschall, J.).

Background. Domestic commercial beekeepers and packers of honey filed RICO and Lanham Act claims against the defendants, alleging that the defendants engaged in a conspiracy to transship Chinese honey through intermediate countries into the United States. The honey illicitly arrived in the United States under false labels identifying an intermediate country as the country of origin, which allowed importers to deceive U.S. Customs officials into believing that the honey did not originate from China. Consequently, the importers could circumvent the anti-dumping duties that the U.S. government imposed on Chinese-produced honey. The honey, which supposedly contained prohibited antibiotics and other harmful contaminants, eventually passed down to commercial end users. The defendants moved to dismiss the claims.

RICO claims. In support of their motion to dismiss, the defendants argued that neither the class plaintiffs nor the individual plaintiffs could proceed with their RICO claims because the plaintiffs failed to allege that their respective injuries occurred “by reason of” the alleged RICO violations. To satisfy the “by reason of” requirement, the plaintiffs were required to prove that the pattern of racketeering activity factually and proximately caused the alleged injury.

In this case, the plaintiffs alleged that certain defendants gained a competitive edge by fraudulently avoiding customs duties and passing on the cost savings to customers via lower prices. However, the court rejected this theory of liability, because a RICO plaintiff cannot circumvent the proximate-cause requirement by simply claiming that the defendants’ aim was to increase market share at a competitor’s expense. The Section 1962(c) RICO claim was therefore dismissed, along with a Section 1962(d) claim that was based on a conspiracy to violate Section 1962(c).

The Section 1962(d) claim was dismissed because the plaintiffs failed to allege: (1) that the defendants invested proceeds from transshipping in another enterprise; or (2) that the plaintiffs suffered an injury caused by the use or investment of racketeering income.

Lastly, certain defendants alleged that the violation of Section 1962(c) claim should be dismissed for failure to allege a RICO enterprise. The court agreed, finding that the plaintiffs failed to allege that the defendants conducted the affairs of an association-in-fact enterprise. Rather, the allegations indicated that the defendants conducted business solely on their own behalf.

Lanham Act claims. The plaintiffs also brought claims for false advertising and unfair competition under the Lanham Act. The defendants, however, moved to dismiss the Lanham Act claims on three grounds: (1) the plaintiffs failed to allege their claims with requisite particularity; (2) the 2004 repeal of the Anti-Dumping Act of 1916 precluded the class plaintiffs from predicating a Lanham Act claim on the alleged avoidance of customs duties; and (3) the Lanham Act claims were untimely.

First, the court concluded that the class plaintiffs more than adequately pleaded the defendants’ role in the fraudulent transshipping scheme. Specifically, the plaintiffs identified Chinese shell companies from who the defendants purchased the illicit honey, incorporated admissions made in a criminal case, and asserted that the defendants extended the deception to the domestic marketplace for commercial honey by repeating misrepresentations to potential buyers. These allegations, according to the court, provided the defendants with a general outline of how the alleged fraud scheme operated and of their alleged role in the scheme.

The second argument, concerning the repeal of the Anti-Dumping Act, mischaracterized the Lanham Act claims, the court concluded. The claims arose from allegedly misleading labels and advertising that the defendants marketed to actual and potential purchasers, not from the deceptive customs forms that importers propounded on U.S. officials.

Finally, the court credited the class plaintiffs’ allegations of fraudulent concealment, finding that the claims were timely. The class plaintiffs did not have access to any documents from the government investigations into the commercial honey market, and could therefore not have known of the defendants’ involvement in the transshipping operation until February 2013, when the government brought charges against the defendants. The Lanham Act claims consequently survived the motion to dismiss.

The case number is 13-cv-2905.

Attorneys: Ben Barnow (Barnow and Associates, PC) for Chris Moore, Dan's Honey Co., Willow Bee, LLC, and Orange Apiary, Inc. Adam J. Levitt (Grant & Eisenhofer PA) for Wee Bee Honey Inc. and Adee Honey Farms. Abigail A. Clapp (Greenberg Traurig, LLP) for Ernest L. Groeb. James Peter Fieweger (Williams Montgomery & John, Ltd.) and Lisa Marie Noller (Foley & Lardner) for Horizon Partners, Limited, Inc. and Groeb Farms, Inc. Allan T. Slagel (Taft Stettinius & Hollister LLP) for Marquette Capital Partners. Darren Brett Watts (Swanson, Martin & Bell) for Honey Holdings 1, Ltd.

Companies: Dan's Honey Co.; Willow Bee, LLC; Orange Apiary, Inc.; Wee Bee Honey Inc.; Adee Honey Farms; Horizon Partners, Limited, Inc.; Groeb Farms, Inc.; Marquette Capital Partners; Honey Holdings 1, Ltd.

Cases: Advertising RICO IllinoisNews