Antitrust Law Daily Wrap Up, RICO—S.D. N.Y.: Former ambassador failed to state RICO claim against foreign government contractor, (Aug 19, 2014)

By Linda O’Brien, J.D., LL.M.

In an action by a consulting firm against a business that secured foreign government contracts for allegedly engaging in activities that harmed their business and reputation, the firm failed to show a pattern of racketeering activity to establish a claim under the Racketeer Influenced and Corrupt Organization Act, the federal district court in New York City has decided. Thus, the defendants’ motion to dismiss the claim was granted (Reich v. Lopez, August 18, 2014, Oetken, J.).

Otto J. Reich, former U.S. Ambassador to Venezuela, manages Otto Reich Associates, LLC (ORA), a consulting company for anti-corruption organizations and individuals the assist clients in their public relations and business endeavors. Leopoldo Betancourt Lopez, Pedro Trebbau Lopez, and Francisco D’Agostino Casado are principals in Derwick Associates, a business that secures high value energy sector contracts from agencies of the Venezuelan government.

Reich and ORA filed suit against Betancourt, Trebbau, and D’Agostino, alleging claims under the Racketeer Influenced and Corrupt Organization Act (RICO) and civil conspiracy, among other claims. Specifically, the plaintiffs asserted that Derwick Associates obtains its contracts through the use of bribery and monetary kickbacks and attempts to conceal its ongoing illicit scheme, in part, by filing high-stakes lawsuits against its critics. In an effort to harm the business relationships between Reich, ORA and its clients, the defendants have falsely informed ORA clients that ORA’s consulting services were retained by Derwick Associates. As a result, the clients have ceased doing business with ORA. The defendants moved for dismissal.

Extraterritoriality. The court found that extraterritoriality did not bar the plaintiffs’ RICO claims. The plaintiffs must allege sufficient domestic conduct for each predicate act to sustain their application under RICO. In this case, the plaintiffs alleged that the defendants engaged in unlawful activities—the bribery of Venezuelan public officials—using wire communications, transmitted their ill-gotten gains to and from U.S. banks, directed the daily activities of Derwick Associates from the U.S., and relayed false information to ORA clients from within the U.S. Those allegations were sufficient to render the underlying conduct domestic to be actionable under RICO, the court noted.

Injury. Additionally, the plaintiffs alleged an injury that was more than reputational, according to the court. The plaintiffs contended that the defendants, through two specific telephone calls, conveyed false information to two ORA clients in order to induce them to cease all business with the plaintiffs, which resulted in the loss of their consulting fees. The loss was a relevant and sufficient injury to the plaintiffs due to the alleged wire fraud to confer RICO standing.

Pattern of racketeering activity. To show a pattern of racketeering activity, the predicate acts must possess both relatedness and continuity for a pattern to exist. The court noted that the establishment of a uniform purpose underlying both the bribery and wire fraud allegations was highly tenuous. Although the conduct may be related in both having the effect of generally increasing the defendants’ funds, the relationship between the two type of conduct was too remote to support a claim under RICO. Moreover, neither claim is sufficient to plead a RICO claim on its own since they lack continuity. Because the predicate acts could not be considered together, the RICO claim must fail, the court concluded.

The case is No. 13-CV-5307.

Attorneys: John Daniel Castiglione (Smith Valliere PLLC) for the Honorable Otto J. Reich and Otto Reich Associates, LLC. Frank H. Wohl (Lankler Siffert & Wohl LLP) for Leopoldo Alejandro Betancourt Lopez.

Companies: Otto Reich Associates, LLC

Cases: RICO NewYorkNews