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RICO — Governmental Entity Does Not Suffer Injury to Business or Property Simply Because Employee Was Bribed

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The crux of the complaint in Township of Marlboro v. Scanapieco, 2008 U.S. Dist. LEXIS 33386 (D.N.J. April 23, 2008), was bribery of municipal employees in exchange for land use approvals necessary for the construction of certain land developments. The injury allegations, as summarized by the Court:

The Amended Complaint states that, "[a]s a direct and proximate cause of . . . Defendants' pattern of racketeering activity, Marlboro has suffered injuries and losses, including the total sum of all bribes and/or gratuities paid by and among . . . Defendants, and such other losses as will be established by evidence." ... Marlboro also claims ... that Defendants' conduct defrauded it and deprived it of its right to its employees' honest services. Essentially, Marlboro claims that it suffered an injury by its employees' failures to fulfill their fiduciary obligations as public officials. It further alleges that those Defendants who were not employed by the township but who bribed the public officials proximately caused their co-Defendants to breach those duties owed to Marlboro.

Held, this does not state injury to business or property cognizable under RICO:

[T]he United States Court of Appeals for the Second Circuit "has held that where a municipality sues under RICO, it must allege injury to its business or property in its capacity as a party to a commercial transaction." City of New York v. JAM Consultants, Inc., 889 F. Supp. 103, 105 (S.D.N.Y. 1995). Under that standard, "[a]llegations that a municipality is seeking to vindicate its interests in the 'general economy' or in its 'ability to carry out its functions' do not state a claim under RICO." Ibid. (quoting Town of W. Hartford v. Operation Rescue, 915 F.2d 92, 104 (2d Cir. 1990).

The Court finds the Second Circuit's enunciation on the issue is consonant with the Third Circuit's "concrete financial loss" requirement and, thus, should be applied here. Indeed, a governmental agency's allegations that it suffered amorphous injuries to a right to its employees' honest services are not "concrete financial loss[es]" recoverable under RICO. Rather, a municipality like Marlboro must establish some "type of actual monetary loss that is sufficient to satisfy RICO's injury requirement." In re Am. Investors Life Ins. Co. Annuity Marketing and Sales Practices Litig., 2007 WL 2541216, *25 (E.D. Pa. Aug. 29, 2007) (citing Maio, supra, 221 F.3d at 483-84).

Construing as true all factual allegations asserted in the Amended Complaint, the Court concludes that Marlboro has failed to allege an injury to business or property sufficient to maintain a civil RICO cause of action pursuant to 18 U.S.C. § 1964(c). Marlboro has not pled any financial loss arising from Defendants' conduct. Rather, Marlboro emphasizes that Defendants' conduct defrauded the township and its citizens, deprived it of its "intangible right to the honest services" of its employees, and caused a diminution of public confidence. These types of injuries do not affect any of Marlboro's financial interests in business or property. 7 In addition, Marlboro has failed to claim any other injury resulting from the allegedly improper grant of land use approvals--such as a concrete loss to property value caused by the developments that were approved only because of the bribes paid.

RICO claim dismissed.

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New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.
New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.

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