Opinion ID: 2585
Heading Depth: 3
Heading Rank: 2

Heading: Disposition of the City's RICO Claims

Text: At the same time that it dismissed the state law claims in 2005, the District Court also dismissed the City's RICO claims, with leave to amend, for failure to plead distinctness in the enterprise allegations. [15] See Nexicon, 383 F.Supp.2d at 551. In March 2006, after the City amended its complaints and RICO Statements, the District Court again dismissed the complaints, this time with prejudice, for failure to state a claim. See Nexicon, No. 03 Civ. 383, 2006 WL 647716, 2006 U.S. Dist. LEXIS 10295 (S.D.N.Y. Mar. 15, 2006); Smokes-Spirits, No. 04 Civ. 6616, 2006 WL 726228, 2006 U.S. Dist. LEXIS 11954 (S.D.N.Y. Mar.21, 2006); NCCigarettes, No. 03 Civ. 7715, 2006 U.S. Dist. LEXIS 11922, (S.D.N.Y. Mar. 22, 2006); EZTobacco, No. 03 Civ. 10091, 2006 WL 722009, 2006 U.S. Dist. LEXIS 11953 (S.D.N.Y. Mar. 22,2006). [16] The District Court held that while the structure of the alleged primary enterprises was legally viable, the alleged RICO persons (employees and/or officers of the businesses) did not have individual duties to file Jenkins Act reports, and thus could not have committed the alleged predicate racketeering acts. The court explained: [T]he language of the Jenkins Act prohibits persons from transferring cigarettes for profit in interstate commerce. The statute defines person as including: corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals. 15 U.S.C. § 375(1). Employing basic statutory construction analysis, it is clear that companies are the primary entities responsible for filing Jenkins Act reports. The catch-all phrase as well as individuals suggests a separate class of people who may be liable under the Jenkins Act, but does not by any means connote officers or directors of the business entities listed before the phrase. Accordingly, as only the Defendant companies are responsible for filing the reports, and only they can be accused of fraudulently concealing such reports by not filing them, only the Defendant companies may be considered as having committed predicate acts. Thus, only they may properly be considered persons under the definition of the Jenkins Act and under RICO. Given the unique facts of the instant case, where a company is statutorily required to perform a function that it fails to do, resulting in fraud . . . the persons for purposes of RICO cannot be the officers of the companies, but must be the companies themselves. Nexicon, 2006 WL 647716, at , 2006 U.S. Dist. LEXIS 10295, at -26. Accordingly, with respect to the alleged primary enterprises, the District Court found that the City failed to state a claim. Id. at , 2006 U.S. Dist. LEXIS, at . With respect to the alternatively pled association-in-fact enterprises, the District Court explained that, under well settled law, an enterprise cannot consist solely of employees associating with their corporate employer, and that the City apparently tried to circumvent this rule by tacking on other companies with which each corporate defendant associated. The problem with this approach, the court found, was that while the City had alleged technically legitimate enterprises, (1) the City had failed to sufficiently allege that the tacked-on members of the enterprise shared a common purpose with the defendant corporations, [17] (2) the City failed to allege a nexus between the RICO predicate acts and the association-in-fact enterprises; and (3) the City failed to explain each participant's role in the alleged course of fraudulent conduct. Nexicon, 2006 WL 647716, at , 2006 U.S. Dist. LEXIS 10295, at -29. In sum, the District Court found that while the City alleged that defendants have relationships with the third-party companies, the City has not shown how the various components of the enterprise engaged in a fraudulent course of conduct together. Id. at , 2006 U.S. Dist. LEXIS, at .