De Falco v. Bernas

Synopsis of Rule of Law.

 

To establish a violation of 18 U.S.C. §1962(c), a plaintiff must show: 1) conduct 2) of an enterprise [which includes “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entityâ€] 3) through a pattern [requires at least two acts of racketeering activity (but two aren’t necessarily sufficient), one of which occurred after the effective date of the statute and the last of which occurred within 10 years after the commission of the prior act of racketeering activity] 4) of racketeering activity [encompasses various federal offenses including, inter alia, murder, kidnapping, gambling, arson, robbery, bribery and extortion]. As applied, a plaintiff must show that defendant, through the commission of two or more acts constituting a pattern of racketeering activity, directly or indirectly participated in an enterprise, the activities of which affected interstate or foreign commerce.

Facts.

Plaintiffs bought and proposed to develop land in a township in NY, and named Defendants were a group of public officials and private individuals who were either part of, or influenced, the local government of the township. Defendants threatened and intimidated Plaintiffs after they purchased the property, to compel them to give over the property and employ certain individuals in exchange for development approvals. Specifically, Defendant Dirie was Supervisor of the town and member of the town legislature, and he offered to help Plaintiff De Falco through the “muddy waters†of real estate development in the town so long as he followed Dirie’s suggestions. Defendant Bernas was involved in road construction and extracted gravel from Plaintiff’s property and demanded a transfer of shares in the business of Plaintiff. Plaintiffs brought a RICO suit under 18 U.S.C. §1962(c) claiming Defendants operated the town as a RICO enterprise (claiming conspiracy, plan and scheme to use the town as a racketeering enterprise to extort money, real property and personal property through misuse of public office in violation of the statute).

 

Issue.

Bringing suit based on an express right of action pursuant to the RICO statute, whether Plaintiffs could prove all elements of its RICO action?

 

Held.

No, despite proving all elements of racketeering under the statute, Plaintiffs could not demonstrate proximate causation of their injuries, and therefore their damage award was vacated.

Discussion.

 1) Town as a RICO Enterprise: Based on Congressional intent and noting that RICO crimes such as bribery and extortion are especially applicable to government officials, a governmental unit can be considered a RICO enterprise, and the defendants can be distinct from the enterprise itself, as individuals formed in an assortment of public officials and private citizens who used their political power to influence the town’s exercise of governmental authority over Plaintiff’s development.

2) Impact on Interstate Commerce: one of Defendants’ demands resulted in Plaintiff breaking a contract with an out-of-state company, and the regular business of the town affected interstate commerce. Because only a minimal effect on interstate commerce is required, this element is met.

3) Application of the “Operation or Management†Test: To be liable as an employee of an enterprise which conducts a pattern of racketeering activity, the employee must have some part in directing the affairs of the enterprise. Defendant Dirie obviously participated in the management of the town as member of the legislature and as Supervisor. Similarly, the Bernas defendants were involved in directing the affairs of the town, as they were able to influence officials in extorting Plaintiffs in order to get control over a gravel pit on Plaintiff’s property. “Primary responsibility†for the enterprise’s affairs is not required to satisfy the operation or management test.

4) Commission of a Minimum of Two Acts: As to Defendant Dirie, he consistently used his authority to adversely affect Plaintiffs’ development, by extorting benefits from Plaintiffs’ decisions. Wrongful use of fear of economic loss is sufficient to satisfy the element to prove extortion. As such, Dirie committed various (at least 5) predicate acts required to prove a pattern of racketeering.

Because RICO requires at least two acts of racketeering activity committed within a 10 year period and the acts must be related, and pose a threat of continued criminal activity, a plaintiff may prove the same by “closed-ended continuity†or “open-ended continuityâ€. With respect to closed-ended continuity, the Supreme Court has never held that a period of less than 2 years is sufficient, therefore Plaintiffs to prove this type against the Bernas Defendants. To establish open-ended continuity, Plaintiffs must show that there was a threat of continuing criminal activity beyond the period during which the predicate acts were performed, taking into account the nature of the acts. Despite Defendants’ argument that their demands were finite (for stock and gravel), a jury could infer that they would have no intention of stopping their extortion of Plaintiffs. Therefore, this element is met.

Finally, in order to prevail in a private right of action provided under RICO, a plaintiff must prove causation (both but-for and proximate). Here, Plaintiffs needed to prove that they would have obtained approval of Phase II of the development but for Defendants’ actions and no intervening factors affected their ability to sell the lots. The Plaintiffs could not meet their burden, thus the District Court was correct in vacating Plaintiffs’ damage award.