Source: https://ricoconsultingattorney.wordpress.com/page/2/
Timestamp: 2019-04-24 22:29:07+00:00

Document:
The Third Circuit affirmed the lower court ruling that Plaintiffs did NOT pled sufficient facts to establish that they suffered a domestic injury to its business or property under § 1964(c).
Plaintiffs contended they lost their business as a result of alleged predicate racketeering acts. In RJR Nabisco, the Supreme Court considered “whether RICO applies extraterritorially—that is, to events occurring and injuries suffered outside the United States.” The relevant inquiry involves two separate questions: first, whether RICO’s substantive provisions apply to extraterritorial conduct, and second, whether RICO’s private right of action affords relief for “injuries that are suffered” outside the United States.
The Court discussed that those courts that have considered whether an alleged injury was suffered in the United States have applied varying standards, and thus there is no consensus on what specific factors must be considered when deciding whether an injury is domestic or foreign. RJR Nabisco did advise courts to proceed cautiously when deciding if RICO plaintiffs have alleged a sufficient domestic injury to recover under § 1964(c). The Court engaged in a fact-intensive inquiry to determine where the plaintiff “suffered the injury”—not where the injurious conduct took place, stating that a domestic injury under § 1964(c) is found where the relevant factors, appropriately weighed, establish that the alleged harm was suffered in the United States.
The Court found it was clear that the alleged injuries were suffered in China, and Plaintiffs have not alleged that they possess offices, assets, or any other property in the United States. Thus, Plaintiffs have not alleged a domestic injury pursuant to 18 U.S.C. § 1964(c), even though they do allege loss of goodwill and some unidentified number of actual and prospective U.S. customers. To the extent that these intangible assets were injured, it is not enough to overcome the Supreme Court’s caution against extraterritorial application of domestic law in RJR Nabisco. The court concluded that consequently, the District Court correctly dismissed Plaintiffs’ RICO claims.
The court also rejected the argument that, notwithstanding factors supporting a finding that the alleged injury was foreign, Plaintiffs have nonetheless alleged a domestic injury because “the alleged underlying RICO conduct plainly was both targeted at, and was intended to have substantial effects in, the United States,” distinguishing cases in which it is plausibly argued that Plaintiffs United States-based business was harmed by the defendants’ RICO conduct and that it suffered a domestic injury because it felt the impact of that injury within the United States.
The Second Circuit vacated the District Court’s judgment dismissing in full plaintiff Virginia D’Addario’s RICO claim and related state law claims and remanded the cause for further proceedings in accordance with this opinion. Virginia’s claim, which she asserts both individually and as Executrix of her mother’s estate, arises out of the management of her father’s probate estate (the “Estate”) over several decades by her brother David.
The court held that Virginia’s claim under RICO for legal expenses incurred in pursuing her grievances against David and other defendants is ripe and that she has plausibly alleged that her legal expense injuries were proximately caused by Defendants’ RICO violations.
The District Court granted Defendants’ motion to dismiss the Amended Complaint. D’Addario v. D’Addario, No. 3:16cv99 (JBA), 2017 WL 1086772 (D. Conn. Mar. 22, 2017) (Arterton, J.). In a detailed ruling, it determined that Virginia’s claim for “lost debt” damages was not ripe for adjudication under applicable RICO case law because it remained uncertain whether Virginia would receive any distribution from the Estate to offset her claimed damages. This uncertainty made the amount she would ultimately be owed too speculative for recovery and trebling under RICO. The court ruled, in contrast, that her claim for collection expenses already incurred was ripe.
As to those expenses, however, the District Court concluded that the Complaint’s allegations were insufficient to state a civil RICO claim. It explained that Virginia had failed to identify a distinct “acquisition and maintenance” injury, as required to make out a claim based on a violation of section 1962(b). And it explained further that Virginia had failed sufficiently to identify an “enterprise” to support a theory for recovery under section 1962(c). Because the Complaint laid an inadequate basis for finding a violation of either of these subsections, the District Court also rejected Virginia’s claim under section 1962(d) for RICO conspiracy. Having dismissed the only federal claim presented in the Complaint, the District Court declined to exercise supplemental jurisdiction over Virginia’s state law claims.
On review, the Second Circuit concluded that the District Court correctly determined that Virginia’s claim for her share of the Estate’s assets is unripe and that her claim for collection expenses is ripe. We also determine that Virginia has sufficiently alleged that her collection expense injuries were proximately caused by the claimed RICO violations.
However, in contrast to the District Court, the Circuit ruled that Virginia has sufficiently identified a distinct acquisition and maintenance injury under section 1962(b) to support her collection expenses claim with regard to David, Gregory Garvey, and Red Knot, but not with regard to the other defendants. We further conclude that Virginia has also sufficiently alleged a section 1962(c) “enterprise” with regard to all six defendants, supporting her claim for collection expenses on this theory of recovery as well. For these reasons, we vacate the District Court’s dismissal as to Virginia’s RICO claim on her own behalf and on behalf of her mother’s estate for collection expenses and remand that claim and her state law claims for further proceedings consistent with this opinion.
The Court explained that it has long recognized that a plaintiff may recover legal fees, including expenses incurred in one or more attempts to combat a defendant’s RICO violations through the legal system, as damages in a civil RICO action, and thus within that category of cognizable damages. Accordingly, the Court concluded that Virginia’s injuries are not so removed from Defendants’ misdeeds as to place them outside the reach of the proximate causation chain as a matter of law. The expenses that she has incurred to stop the incursion are sufficiently proximate to the identified RICO violations support a claim under section 1964(c).
Also, regarding Section 1962(b) the Court stated that to successfully plead a RICO claim, a plaintiff must indeed allege distinct damages arising from the acquisition or maintenance of control of the enterprise. In other words, those damages must be different from the damages that flow from the predicate acts themselves, and Virginia sufficiently pleaded a separate and distinct “acquisition or maintenance” injury.
Ed. Note: The finding of an acquisition and maintenance injury from control of the enterprise is usually more difficult than the participation injury of section 1962c, and is well-explained by the Court.
the total dealings of the corporation and the individual, including the degree to which corporate formalities have been followed and corporate and individual property have been kept separately, the amount of financial interest, ownership and control the individual maintains over the corporation, and whether the corporation has been used for personal purposes.
The court found the First Amended Complaint failed to elaborate on any of the above listed factors to a satisfactory extent beyond the conclusory use of the term “corporate shells,” the plaintiffs may not avail themselves of the alter ego doctrine to pierce the corporate veil. Alternatively, a plaintiff may pierce the corporate veil by demonstrating that the owner of a business entity uses that entity “for the purpose of perpetrating, and did perpetrate an actual fraud … for the direct personal benefit of the” owner. The court did not accept this basis because it found the plaintiffs failed to state a RICO claim predicated on fraudulent acts. As they cannot sustain a claim involving fraud, they cannot pierce the corporate veil under a theory of fraud.
The court then stated that the plaintiffs failed to allege wire fraud (18 U.S.C. § 1343) with sufficient particularity under Rule 9(b) because the complaint failed to specifically identify which defendant made each individual fraudulent representation, and how each of those representations furthered the fraudulent scheme.
The court stated that because the Plaintiff failed in pleading a valid corporate veil-piercing theory, the plaintiffs cannot simply treat the defendants as a single entity in this way. Rule 9(b) requires the plaintiffs to say which specific defendant made which particular fraudulent statement to which particular plaintiff at what particular time. The plaintiffs’ allegations do not meet this standard as they do not distinguish exactly which plaintiffs received which communications from which defendants.
Ed Note: This appears an extreme example of a court dismissing a civil RICO claim. The logic is circular, i.e., no alter ego theory because the plaintiffs failed to plead fraudulent acts, but their acts could not have been fraudulent acts because of the very existence of the alter ego theory.

References: § 1964
 § 1964
 § 1964
 § 1964
 v. 
 § 1343