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How NOT to Plead in a Civil RICO Complaint

On October 12, 2012, two affiliated companies that operate nursing homes and assisted living facilities in Connecticut jointly filed a RICO lawsuitagainst two local union affiliates in U.S. District Court in New Jersey. They allege the defendants engaged in a long-term pattern of criminal sabotage, intimidation and other acts of extortion in a coordinated illegal campaign in which they threatened to put the two companies out of business if they did not yield to the union’s demands. About 700 workers went on strike in July to protest what they say are imposed labor concessions.

This lawsuit is another attempt to apply the RICO statute beyond cases involving traditional racketeering activity. RICO (Racketeer Influenced and Corrupt Organizations Act), was a law originally aimed at the mob. It prohibits the conduct by a person of an enterprise through a pattern of criminal racketeering activity. It provides for extensive criminal and civil liability for acts performed as part of an ongoing criminal organization.

However, civil RICO claims are dismissed early for failing to meet the very strict pleading requirements found in the statute. For example, where a parent and subsidiary are designated as the person and enterprise the complaint must plead the separate criminal actions taken by each. The complaint should also detail a continuous period of related racketeering activity lasting more than one or two years. The pleading should identify other victims and demonstrate a pattern of racketeering activity that was highly complex.

The importance of the pleading requirements in a civil RICO case extends past the decision by the Eastern District, New York in Clark v. Cosmo. Attorney Chad Seigel represented one of the defendants in this case. In Clark, investors in an alleged Ponzi sued their former stockbroker who allegedly masterminded the scheme as well as the bank which they alleged assisted in the scheme.

The District Court granted the bank’s motion to dismiss, stating that even accepting the well-pleaded allegations in the complaints as true, “…the plaintiffs may have plausibly alleged that Bank of America was negligent or acted with disregard to the seemingly obvious signs that Agape was defrauding investors. While this may highlight a need for greater oversight and accountability from financial institutions, it is not enough to overcome the hurdle of pleading that BOA plausibly had actual knowledge or provided substantial assistance to the Agape Ponzi scheme.”

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