Antitrust Law Daily Wrap Up, RICO—S.D. Tex.: RICO claims proceed against construction contractor allegedly involved in bribery of school district official, (Jun 27, 2013)

By Tobias J. Gillett, J.D, LL.M.

A construction contractor sufficiently pled RICO claims against another construction company that allegedly bribed a member of the Houston Independent School District (HISD)’s board of trustees to receive construction contracts from the school district, the federal district court in Houston has ruled (The Gil Ramirez Group, LLC v. Houston Independent School District, June 25, 2013, Ellison, K.). The contractor adequately alleged predicate acts of wire fraud and bribery, but not money laundering, under federal law, and a RICO enterprise, in the court’s view.

The Gil Ramirez Group, LLC (GRG) is a construction and repair business. According to its complaint, Lawrence Marshall, a member of the HISD’s board of trustees, abused his position to obtain bribes and kickbacks from school district contractors for which he served as a purported consultant. When HISD changed its ethics rules to bar trustees from working for school district contractors, he recommended that a contractor should hire his campaign treasurer, Joyce Moss Clay, instead.

Various school district contractors, including construction contractors, hired Clay as a contractor, but Clay allegedly performed little or no work for them in exchange for monthly payments of thousands of dollars. Clay allegedly then paid Marshall a portion of the fees collected from the contractors.

In 2008, the HISD board voted to hire additional job order contractors (JOCs), and ultimately selected five new contractors, including GRG. When HISD began awarding contracts, GRG allegedly won the majority of them, and “routinely received praise for the quality and timeliness of its work.” However, after he was elected president of the board, Marshall managed to get RHJ-JOC, Inc. approved as another JOC, and GRG stopped receiving contracts. GRG learned that if it wanted to receive contracts it would have to hire Clay as a consultant.

Meanwhile, another JOC, Fort Bend Mechanical, Ltd. (FBM), allegedly made numerous campaign contributions to Marshall, many of which were not properly reported. The payments were allegedly intended to influence Marshall to award contracts to FBM. In 2010, HISD sent out a new request for proposal for JOCs. Four contractors were ultimately selected, including RHJ and FBM, but not GRG.

GRG filed suit against HISD, Marshall, Clay, FBM, RHJ, and other entities and individuals, alleging that it lost project awards and was not reselected as a JOC “because it refused to bribe Marshall by hiring Clay for an illusory consultant position.” In the present decision, the court addressed a motion filed by RHJ and a related individual to dismiss GRG’s RICO and other claims.

Pattern of racketeering activity. The court explained that a civil RICO claim “involves: (1) a person who engages in (2) a pattern of racketeering activity (3) connected to the acquisition, establishment, conduct, or control of an enterprise.” The pattern of racketeering activity “requires at least two acts of racketeering,” which must be related and “pose a threat of continued criminal activity.”

GRG adequately alleged predicate acts of wire fraud under 18 U.S.C. §1343, the court found. The court observed that the defendants’ argument that GRG did not satisfy the elements of a wire fraud claim under Texas law was irrelevant, since GRG had alleged wire fraud under federal law. Moreover, wire fraud did not “require a false representation,” and could include “a scheme to deprive another of the intangible right of honest services,” which covered “individuals who partake in bribery or kickback schemes.” GRG had also sufficiently alleged the details of the bribery scheme to satisfy Federal Rule of Civil Procedure 9(b)’s heightened pleading requirements for fraud claims.

The court also determined that GRG adequately pled predicate acts of bribery under 18 U.S.C. §201. GRG “pled a great many facts to support the inference that the RHJ Defendants made payments to Marshall via Clay, which were intended as a bribe in order to obtain contracts with HISD.” Moreover, GRG adequately pled a nexus with interstate commerce by alleging “that Clay regularly mailed invoices to collect the alleged bribes from the RHJ Defendants, and the RHJ Defendants mailed the alleged bribes as checks to Clay.”

However, the court found that GRG did not adequately plead predicate acts of money laundering under 18 U.S.C. §1956. The court observed that GRG had not shown “how the financial transactions conducted by the RHJ Defendants involved the proceeds of an unlawful activity.” It was insufficient to contend that the payments constituted acts of money laundering because the payments themselves were illegal, the court noted. Rather, the financial transaction must “involved funds that are the profits or receipts of illegal activity.”

Enterprise. The court explained that “[a]n enterprise for the purposes of the RICO Act can be either a legal entity or an association-in-fact,” that a plaintiff must show “that the various associates function as a continuing unit,” and that the enterprise must have “an existence that can be defined apart from the commission of the predicate acts.” Here, although GRG did not allege one enterprise connecting all the defendants, it did plead facts that suggested “an association between Marshall, Marshall & Associates, Clay, JM Clay & Associates, and the FBM Defendants, wherein FBM regularly, or the course of several years, paid bribes to Clay’s company, JM Clay, and JM Clay transferred some portion of those funds to Marshall or Marshall & Associates,” with the same principles holding true for the RHJ defendants in relation to the Marshall and Clay defendants. Therefore, GRG pled two separate “association[s]-in-fact designed to engage in criminal activity” for RICO purposes, in the court’s view.

The court thus declined to dismiss GRG’s RICO claims, except for those related to money laundering under 18 U.S.C. § 1956, which the court dismissed with prejudice.

The case is No. 4:10-cv-4872.

Attorneys: Chad W. Dunn (Brazil & Dunn) for The Gil Ramirez Group, LLC. Arturo Gabriel Michel (Thompson Horton LLP) for Houston Independent School District. Michael T. McGann for Fort Bend Mechanical, Ltd. Jarvis V. Hollingsworth (Bracewell Giuliana LLP) for Lawrence Marshall. Wendle Van Smith (Anderson & Smith PC) for Joyce Moss Clay.

Companies: The Gil Ramirez Group, LLC; Fort Bend Mechanical, Ltd.

Cases: RICO TexasNews