Antitrust Law Daily Wrap Up, RICO—S.D.N.Y.: Real estate developers’ claims dismissed for failure to establish an enterprise, (Mar 13, 2014)

By Jody Coultas, J.D.

New York real estate development companies could not state Racketeer Influenced and Corrupt Organizations Act (RICO) claims against City National Bank and others for conspiring to steal money invested in fictitious real estate projects, the federal district court in New York City has held (D. Penguin Brothers Ltd. v. City National Bank, March 11, 2014, Griesa, T.).

In two separate but related actions, corporations that purchase, develop, manage, and sell property in low- and middle-income communities in New York alleged that an attorney and a number of companies defrauded them out of approximately $6 million by inducing them to invest in fictitious real estate projects. The development companies alleged that all of the defendants conspired to “perpetrate thefts and related crimes” and to use the proceeds from those thefts to purchase the favor and influence of government officials.

To state a RICO § 1962(c), the complaint must demonstrate, as to each defendant, that while employed by or associated with an enterprise engaged in interstate or foreign commerce, and through the commission of at least two predicate acts constituting a pattern of racketeering, the defendant directly or indirectly conducted or participated in the conduct of the affairs of such enterprise.

The development companies failed to plead any facts which indicated the existence of an enterprise, according to the court. An “enterprise” is “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” The development companies alleged that the National Black United Fund (NBUF), a not-for-profit corporation, and an unincorporated association of defendants whose purpose was to steal money in order to purchase favors and political influence on behalf of NBUF were enterprises under RICO.

There was no evidence of a common purpose among defendants. Even if the court assumed a common purpose, the development companies failed to depict the requisite concerted action. The development companies claimed that the defendant companies “facilitated” the thefts, but there was no evidence of their involvement. Individuals who allegedly acted on behalf of City National Bank were not identified, and there was no evidence of those individuals’ connection to NBUF or any of the other defendants.

The scheme alleged by the development companies was not covered by RICO, according to the court. Each of the RICO defendants allegedly participated in a pattern of racketeering activity that encompassed multiple acts of mail fraud, wire fraud, money laundering, and interstate transportation of stolen money. To establish predicate acts based on mail or wire fraud, there had to be a scheme to defraud, knowing participation in such a scheme, and the use of wire or mail communications in interstate commerce in furtherance of that scheme. However, the development companies failed to make any reference to the use of the mails. There was also no evidence that any of the defendant companies knew the money at issue was stolen.

The cases are Nos. 13 Civ. 0041 (TPG) and 13 Civ. 0706 (TPG).

Attorneys: David Edward Gordon (Gordon & Haffner, LLP ) for D. Penguin Brothers Ltd., H.T.A. Equities, Inc., Ambassador Investors Group, Inc., Red, White & Blue Properties Inc. and 64 Green Street L.L.C. John Bagnall Webb (Reed Smith, LLP) for City National Bank. Charles E. Dorkey, III (McKenna Long &Aldridge) for NBUF Development Ltd., Black United Fund of New York, Inc., First Pro Group, Inc. and Inner City Strategies.

Companies: City National Bank; D. Penguin Brothers Ltd.

Cases: RICO NewYorkNews