Reich v. Lopez

• Decision Date: 26 May 2017
• Docket Number: Docket No. 16-510-cv,August Term, 2016
• Citation: 858 F.3d 55
• Parties: The Hon. Otto J. REICH, Otto Reich Associates, LLC, Plaintiffs-Appellants, v. Leopoldo Alejandro Betancourt LOPEZ, Pedro Jose Trebbau Lopez, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

858 F.3d 55

The Hon. Otto J. REICH, Otto Reich Associates, LLC, Plaintiffs-Appellants,

v.Leopoldo Alejandro Betancourt LOPEZ, Pedro Jose Trebbau Lopez, Defendants-Appellees.

Docket No. 16-510-cv

August Term, 2016

United States Court of Appeals, Second Circuit.

Argued: March 10, 2017

Decided: May 26, 2017

JEFFREY ERNEST GRELL, Grell Feist Prince PLC, Minneapolis, Minnesota, for Appellants The Hon. Otto J. Reich and Otto Reich Associates, LLC.

FRANK H. WOHL (with Jonathan D. Lamberti, on the brief), Lankler Siffert & Wohl LLP, New York, New York for Appellee Leopoldo Alejandro Betancourt Lopez.

JOSEPH A. DEMARIA, Fox Rothschild LLP, Miami, Florida for Appellee Pedro Jose Trebbau Lopez.

Before: JACOBS and DRONEY, Circuit Judges, and STANCEU, Chief Judge, U.S. Court of Int'l Trade.^*

DENNIS JACOBS, Circuit Judge:

Plaintiff-Appellant Otto J. Reich is the principal of a (co-plaintiff) consulting firm specializing, inter alia, in fighting government corruption. He alleges that he and his firm were victims of an effort to discredit them by persons connected to a Venezuelan energy company that was in litigation with one of Reich's clients. This appeal is taken from the dismissal of his RICO and state law claims against the principals of the Venezuelan energy company, and we affirm the rulings of the District Court for the Southern District of New York (Oetken, J. ). Dismissal of the RICO claims under Rule 12(b)(6) was proper because Reich failed to allege that the defendants engaged in a "pattern of racketeering activity": of his two theories, one fails because the predicate acts posed no continuing threat of racketeering; the other fails because the predicate acts he chose were insufficiently related to each other. We also affirm dismissal of the state law claims because Reich could not establish personal jurisdiction over either defendant.¹

I

We take all the allegations in the complaint as true, as we must on a motion to dismiss.

Plaintiffs allege that Derwick Associates, a Venezuelan energy company, has stolen billions of dollars from the Venezuelan government. It allegedly bribes Venezuelan officials in order to secure energy contracts at inflated rates without public bidding, then subcontracts out the actual work while keeping a substantial profit. Derwick is run by Leopoldo Alejandro Betancourt Lopez ("Betancourt"), Pedro Jose Trebbau Lopez ("Trebbau"), and Francisco D'Agostino Casado ("D'Agostino"), the three original defendants in this case.

Plaintiff Otto Reich was the U.S. ambassador to Venezuela in the 1980s. He now runs a consulting agency focused on government relations and anti-corruption; it is the co-plaintiff with Reich in this suit (we refer to them collectively as "Reich").

In 2012, the Derwick principals filed two state court defamation lawsuits against a Venezuelan bank that they believed was threatening to expose Derwick's criminal activities. The Venezuelan bank then hired Reich to help assist its defense of the defamation suits. Concerned about the assistance Reich might provide the bank, the Derwick principals undertook to break up the relationship. An agent of Derwick called one of the bank's largest shareholders to tell him falsely that Reich was secretly working for Derwick, thus inducing the bank to terminate its relationship with Reich. Around the same time, one of the Derwick principals called another of Reich's clients, Eligio Cedeño, to deliver the same falsehood: that Reich was working for Derwick. Cedeño also terminated his relationship with Reich. Reich's firing by Cedeño and the Venezuelan bank cost him tens of thousands of dollars monthly in consulting fees.

Reich filed suit against Betancourt, Trebbau, and D'Agostino in July 2013 bringing RICO and various state law claims. (D'Agostino has since been dismissed from the case pursuant to a stipulation of dismissal.) In a series of rulings, the district court dismissed the RICO claims for failure to state a claim and the state law claims for lack of personal jurisdiction.

II

We review de novo the dismissal of a complaint for failure to state a claim upon which relief can be granted. Commercial Cleaning Servs., L.L.C. v. Colin Serv. Sys., Inc. , 271 F.3d 374, 380 (2d Cir. 2001).

RICO imposes liability on individuals working for an "enterprise" that commits certain predicate crimes that amount to a "pattern of racketeering activity." 18 U.S.C. §§ 1962, 1964. Reich has alleged an "enterprise": Derwick Associates. And he has alleged predicate crimes covered by RICO: wire fraud arising from the false phone calls,² and violations of the Travel Act arising from the bribery of Venezuelan officials. 18 U.S.C. § 1961(1). This case turns on whether those predicate acts amount to a "pattern of racketeering activity."

The Supreme Court has interpreted that phrase to require both that the RICO predicates pose a threat of continuous criminal activity and that they be related to each other. H.J. Inc. v. Nw. Bell Tel. Co. , 492 U.S. 229, 239, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989). Since RICO only requires a combination of two or more predicate acts, 18 U.S.C. § 1961(5), Reich can mix-and-match predicate acts in an attempt to identify a pattern of racketeering activity that has both "continuity" and "relatedness." He argues that two combinations of predicate acts each meet the pattern requirements. His first theory is that the requisite pattern is formed by the two acts of wire fraud alone: the false phone call to the bank shareholder and the false phone call to Cedeño. His second theory is that the requisite pattern is formed by the acts of wire fraud combined with the Travel Act violations.³ Both putative patterns include a wire fraud claim, which matters because "RICO claims premised on mail or wire fraud must be particularly scrutinized because of the relative ease with which a plaintiff may mold a RICO pattern from allegations that, upon closer scrutiny, do not support it." Crawford v. Franklin Credit Mgmt. Corp. , 758 F.3d 473, 489 (2d Cir. 2014).

Reich's first theory fails because the predicate acts lack continuity. His second theory fails because the predicate acts lack relatedness.

A. RICO's Continuity Requirement

RICO targets conduct that "amount[s] to or pose[s] a threat of continued criminal activity." H.J. , 492 U.S. at 239, 109 S.Ct. 2893. Such continuity can be closed-ended or open-ended. Id.

Criminal activity that occurred over a long period of time in the past has closed-ended continuity, regardless of whether it may extend into the future. Id. at 242, 109 S.Ct. 2893. As such, closed-ended continuity is "primarily a temporal concept," Spool v. World Child Int'l Adoption Agency , 520 F.3d 178, 184 (2d Cir. 2008), and it requires that the predicate crimes extend "over a substantial period of time." H.J. , 492 U.S. at 242, 109 S.Ct. 2893. Predicate acts separated by only a few months will not do, id. ; this Circuit generally requires that the crimes extend over at least two years. Spool , 520 F.3d at 184.

On the other hand, criminal activity "that by its nature projects into the future with a threat of repetition" possesses open-ended continuity, and that can be established in several ways. H.J. , 492 U.S. at 241, 109 S.Ct. 2893. Some crimes may by their very nature include a future threat, such as in a protection racket. Id. at 242, 109 S.Ct. 2893. When the business of an enterprise is primarily unlawful, the continuity of the enterprise itself projects criminal activity into the future. Spool , 520 F.3d at 185. And similarly, criminal activity is continuous when "the predicate acts were the regular way of operating that business," even if the business itself is primarily lawful. Cofacredit, S.A. v. Windsor Plumbing Supply Co. , 187 F.3d 229, 243 (2d Cir. 1999).

Reich's first theory—involving wire fraud alone—is not continuous in either sense. The two phone calls are separated by at most a few months, too short a time for closed-ended continuity. H.J. , 492 U.S. at 242, 109 S.Ct. 2893 (noting that a period of a few months is insufficient for closed-ended continuity). Open-ended continuity is likewise unsupportable. The phone calls included no future threat of repetition, and false phone calls were not Derwick's "regular way of operating [its] business." Cofacredit , 187 F.3d at 243. Nor can Reich allege that Derwick's business was primarily unlawful. Even if Derwick pays bribes, it is primarily in the energy business; it is not a narcotics ring or an organized crime family. See United States v. Aulicino , 44 F.3d 1102, 1111 (2d Cir. 1995) (noting that open-ended continuity does not exist when predicate acts are "in furtherance of endeavors that are not inherently unlawful, such as frauds in the sale of property"); United States v. Pizzonia , 577 F.3d 455, 465 (2d Cir. 2009) (holding, in the context of continuity, that "long-term criminal associations plainly include those traditionally grouped under the phrase ‘organized crime’ " (internal quotation marks omitted)).

Reich's second theory—that the predicate acts are both the wire fraud and the Travel Act violations—sufficiently pleads closed-ended continuity because it alleges conduct from 2009 until at least the end of December 2012. We therefore go on to consider whether it meets RICO's "relatedness" requirement.

B. RICO's Relatedness Requirement

Because RICO does not apply to "isolated or sporadic criminal acts," it has a relatedness requirement in addition to the continuity requirement. United States v. Indelicato , 865 F.2d 1370, 1383 (2d Cir. 1989) (in banc) (internal quotation marks omitted). Predicate crimes must be related both to each other (termed "horizontal relatedness") and to the enterprise as a whole ("vertical relatedness").

United States v. Cain , 671 F.3d 271, 284 (2d Cir. 2012).

Vertical relatedness, which entails the simpler analysis, requires only:

that the defendant was enabled to commit the offense solely because of his position in the enterprise or his involvement in or control

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