Few events can damage a business’ reputation as severely as being accused of illegal conduct. However, one Federal statute, the Federal Racketeer Influenced Corrupt Organization Act, 18 U.S.C. 1961, commonly known as RICO, has been used by many plaintiffs to attempt to turn “garden variety” state law claims into Federal actions. Claims under the RICO statute are attractive to plaintiffs since the statute allows a successful plaintiff to recover treble damages and attorneys’ fees in addition to actual damages. However, the mere filing of a RICO action—which entails accusations of illegal, fraudulent, and/or criminal conduct—will often destroy a business’ good name and reputation. The attractiveness of such claims to plaintiffs, coupled with the potential damage they can do to innocent businesses, has caused some Federal Court Judges to describe the civil RICO statute as one of “the most misused statutes” in Federal law.
A firm client recently was served with a complaint asserting RICO claims in a dispute between a business and former employees and their new business. In addition to the RICO claims, state law claims including conversion, unjust enrichment, fraud, and misappropriation of proprietary information, were alleged by plaintiffs. The RICO claim included allegations of a pattern of racketeering activity through multiple and repeated acts of alleged wire fraud.
TRR filed a motion to dismiss the complaint in its entirety, arguing that the parties had been engaged in an ordinary business dispute which plaintiff wrongly attempted to characterize as a civil RICO violation. TRR’s motion argued that plaintiffs failed to adequately plead the required elements of fraud to support a RICO claim, specifically the elements of racketeering activity and the “pattern” requirement since plaintiffs had not established either closed-ended or open-ended continuity.
The Honorable Kevin P. Castel, United States District Court Judge for the Southern District of New York, granted Tesser, Ryan & Rochman’s motion and dismissed plaintiffs’ complaint, with prejudice. Judge Castel found that the complaint with respect to the allegations of wire fraud failed to satisfy the requisite specificity requirements of Federal Law. Judge Castel also found that plaintiffs failed to adequately demonstrate that the predicate acts alleged constituted a pattern of racketeering activity since plaintiffs failed to adequately plead either a close-ended or open-ended pattern.