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Delaware Federal Court Examines Pleading Requirements for Civil RICO Claims

The Hawk Mountain LLC, et al. v. Raymond A. Mirra, Jr., et al.
Case No. 13-2083-SLR/SRF (United States District Court for the District of Delaware, August 31, 2016)

by Richard J. Medoff, Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at: http://www.ded.uscourts.gov/sites/default/files/opinions/slr/2016/august/13-2083.pdf

The Hawk Mountain LLC, et al. v. Raymond A. Mirra, Jr., et al. involved a lawsuit filed by two (2) Plaintiffs against a group of Plaintiffs’ former business advisors pursuant to the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962, alleging that the Defendants engaged in a scheme to defraud the Plaintiffs by creating multiple fraudulent bank accounts. The Defendants filed a motion to dismiss based on the sufficiency of the Plaintiffs’ RICO claims. The U.S. District Court for the District of Delaware concluded that the Plaintiffs lacked standing to assert RICO claims predicated on Defendants’ bank fraud, and that the Plaintiffs failed to meet the heightened pleading requirement of Fed. R. Civ. P. 9(b) for RICO claims based on predicate acts of fraud. Thus, the Court granted the Defendants’ motion to dismiss.

By way of factual background, Plaintiffs, The Hawk Mountain LLC (“Hawk Mountain”) and Gigi Jordan (“Jordan”) (collectively, “Plaintiffs”), filed a lawsuit against Defendants, a group of Jordan’s business and financial advisors (collectively, “Defendants”), pursuant to RICO, 18 U.S.C. § 1962, alleging that Defendants implemented a scheme to defraud Plaintiffs of millions of dollars through control of the business and financial affairs of Jordan. In 1991, Jordan founded a successful healthcare company specializing in providing individualized home infusion services, which was sold in 1997 for more than $34 million. Thereafter, Plaintiffs alleged that Defendants misappropriated Plaintiffs’ funds by creating multiple fraudulent bank and brokerage accounts and trusts. Defendants subsequently filed a motion to dismiss on a variety of grounds, including the sufficiency of Plaintiffs’ RICO claims.

First, Defendants argued that Plaintiffs could not predicate their RICO claims on Defendants’ alleged bank fraud. In analyzing this issue, the Court was persuaded by the authority cited by Defendants, which included a series of cases from jurisdictions throughout the United States supporting the proposition that the Plaintiffs, who were not financial institutions, did not have standing to bring their bank fraud claims. See, e.g., Yesko v. Fell, 2014 WL 4406849, at *11 (D. Md. Sept. 5, 2014) (citing a series of cases supporting this proposition). Plaintiffs conceded that there was a line of authority which holds that only financial institutions have standing to assert RICO claims predicated on bank fraud. Plaintiffs argued, however, that there was a considerable amount of other authority which demonstrated “that a non-bank plaintiff whose injuries are proximately caused by a bank’s reliance on fraudulent misrepresentations does have standing to predicate her RICO claims on bank fraud.” The exemplar case cited by Plaintiffs in this regard was Hill v. Opus Corp., 841 F.Supp.2d 1070 (C.D. Cal. 2011). In Hill, the court reasoned that, “the fact that banks are the intended victims of the bank fraud statute does not categorically mean that plaintiffs who were otherwise injured as a result of bank fraud cannot assert claims under RICO.” Id. at 1098. The Court noted, however, that Hill acknowledged “the reality that banks, the targets of the alleged fraud, are more direct victims than plaintiffs and can be counted on to vindicate the law as private attorneys general.” Id. The Court also pointed out that Hill noted that “it is this reality that may have led other courts to hold that only banks can assert RICO claims based on predicate acts of bank fraud,” and that “the presence of a more direct victim thus weighs strongly against a finding that plaintiffs can assert a RICO claim based on bank fraud.” Id. Accordingly, the Court was not persuaded by the authority cited by Plaintiffs, and concluded that Plaintiffs lacked standing to assert RICO claims predicated on Defendants’ alleged bank fraud.

Defendants also argued that Plaintiffs failed to meet the heightened pleading requirement of Fed. R. Civ. P. 9(b) for RICO claims based on predicate acts of fraud. On this issue, the Court noted that “the purpose of the heightened pleading requirement in Fed. R. Civ. P. 9(b) is to place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants from spurious charges of immoral and fraudulent behavior.” See Grant v. Turner, 505 Fed.Appx. 107, 111 (3d Cir. 2012). The Court explained that “this requires a plaintiff to plead the date, time, and place of the alleged fraud, or otherwise inject precision into the allegations by some alternative means.” Id.

Defendants argued that each Defendant had not been properly or sufficiently placed on notice of the exact nature of the claims asserted, as the claims applied to each individual Defendant. The Court agreed with Defendants, finding that Plaintiffs complaint included impermissible “group pleading” by merely alleging that the Defendants acted together to facilitate a general fraudulent scheme, which failed to put the individual Defendants on notice of the precise misconduct with which they were charged. Accordingly, the Court concluded that Plaintiffs failed to meet the pleading requirement of Fed. R. Civ. P. 9(b) for the predicate acts based on fraud. For the above reasons, the Court granted Defendants’ motion to dismiss. 


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