Commercial Litigation and Arbitration

RICO — Hobbs Act Predicate Requires Proof that Defendant Deprived Victim of Property Valuable in Defendants’ Hands — Circuit Split as to Whether Increasing Chances of Winning Contract by Destroying Competitor Suffices

United States v. Cain, 2012 U.S. App. LEXIS 1772 (2d Cir. Jan. 31, 2012):

On October 3, 2007, a federal grand jury in the Western District of New York returned a 21-count indictment charging David Cain, his brother Chris Cain, and their cousin Jamie Soha with participating in and conspiring to participate in the conduct of the affairs of an association-in-fact enterprise through a pattern of racketeering activity, in violation of RICO, 18 U.S.C. §§ 1962(c) and (d), as well as with a variety of other substantive crimes allegedly connected to or arising out of that participation. The racketeering counts were predicated on twenty violations of state or federal law, including primarily various acts of extortion and arson, each of which was detailed in the indictment.

The case was tried to a jury over the course of six weeks in the fall of 2007. Proof at trial included the testimony of 60 witnesses, 241 exhibits and several stipulations among the parties. In support of the racketeering allegations, the government argued that during the period from 1994 to 2005 the defendants participated in a loosely-organized gang, headed by David Cain, whose purpose was the enrichment of its members and the avoidance of detection and prosecution by state and federal authorities. Much of the testimony was provided by cooperating witnesses who testified as to their involvement with various defendants in acts of extortion, marijuana trafficking, arson, robbery, insurance fraud and witness and evidence tampering. ***

I. The David's Tree Service Extortion Counts [Hobbs Act]

At the core of the government's case against David Cain were allegations that he supervised Jamie Soha and numerous other associates, many of whom testified at trial, in a criminal campaign aimed at cornering the tree service and logging market in northwest New York State. Consistent with this theory, the indictment charged Cain and Soha with three counts of extortion in connection with their efforts to take over business from Keith Kent, Chuck Bracey and Dan Gollus, all of whom were competitors of Cain's company, David's Tree Service. The jury returned guilty verdicts against both defendants on all three counts and the corresponding RICO predicates. On appeal, Soha (joined by David Cain) argues that the proof at trial was inadequate to sustain the jury's guilty finding on the three extortion charges.

The Hobbs Act, the statute under which the defendants were convicted, defines "extortion" as "the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right." 18 U.S.C. § 1951(b)(2). In asserting that the evidence at trial was insufficient for the jury to find that this definition was satisfied, the defendants rely heavily on Scheidler v. National Organization for Women, Inc., in which the Supreme Court suggested that property is "obtained" within the meaning of the Hobbs Act only if the defendants "received something of value . . . that they could exercise, transfer, or sell." 537 U.S. 393, 405, 123 S. Ct. 1057, 154 L. Ed. 2d 991 (2003) (internal quotation marks omitted). The defendants argue that because the government introduced no evidence that through their coercive conduct they obtained specific tree service jobs or a quantifiable portion of the tree-service market, it failed to carry its burden under Scheidler. This argument is unpersuasive for several reasons. ***

The government's primary theory at trial was that David Cain threatened and employed force to induce his competitors to abandon their work "in order to enlarge his share of the tree service and logging markets." Contrary to the defendants' assertions, this theory of extortion is entirely consistent with the law as articulated by the Supreme Court and this Circuit. In United States v. Tropiano, 418 F.2d 1069 (2d Cir. 1969), we held that the right to solicit accounts constituted property within the definition of the Hobbs Act, such that a defendant who owned a trash removal business could be convicted of a substantive violation of the Act for making threats that induced a competitor to stop soliciting business in the area. Although our decision in Tropiano predates Scheidler, it remains good law.

In Scheidler, a group of abortion clinics brought a civil RICO action against members of an antiabortion organization, alleging a nationwide conspiracy to shut down clinics through a pattern of racketeering activity that included acts of extortion in violation of the Hobbs Act. The plaintiffs' theory was that "because the right to control the use and disposition of an asset is property, [the protesters], who interfered with, and in some instances completely disrupted, the ability of the clinics to function, obtained or attempted to obtain [the clinics'] property." Scheidler, 537 U.S. at 401. The Supreme Court rejected this argument, reasoning that, while the protestors "may have deprived or sought to deprive [the clinics] of their alleged property right of exclusive control of their business assets," they did not acquire that right for their own use. Id. at 405.

It is true that, following Scheidler, in each Hobbs Act case we must now consider an issue that we did not address in Tropiano — whether the property that is the subject of the extortion is valuable in the hands of the defendant. Yet this will rarely be a problem in cases such as Tropiano or this one, in which the defendant seeks to exploit the very intangible right that he extracts from the victim. Indeed, Scheidler specifically cited Tropiano as a case whose holding was not implicated by the rule announced by the Supreme Court majority. See Scheidler, 537 U.S. at 402 n.6. Our decision in United State v. Gotti subsequently explicated the distinction between the two cases in greater detail:

Had the Tropiano defendants sought merely to get Caron to stop soliciting collection accounts because they believed that the Milford area should be entirely free from any solicitation, Tropiano could not stand; like the anti-abortion protestors, the Tropiano defendants would have been seeking simply to deprive someone of a right without doing anything affirmative with that right themselves. But unlike the anti-abortion protestors, the Tropiano defendants did seek to take action with respect to Caron's solicitation rights; they sought to transfer those rights to themselves so that they could continue their own solicitation unimpeded by competition, and thus, in a sense, broaden their own solicitation rights.

459 F.3d 296, 324 (2d Cir. 2006).

That reasoning is equally applicable here. In contrast to the Scheidler protesters, who had no interest in controlling the clinics' abortion business apart from stopping the clinics themselves from performing abortions, David Cain's purpose in using violence against his victims was to acquire the market share held by Kent, Bracey and Gollus and to exploit it for his own enrichment. Indeed, the record is replete with statements by David Cain establishing that the purpose behind his campaign of vandalism was to induce his competitors to cede their rights to solicit business to him, "and thus, in a sense, broaden [Cain's] own solicitation rights." Id. As one criminal associate put it, "He basically wanted to put the other tree businesses out of service so he could be number one in Niagara County." Most blatantly, Cain used his reputation for violence and explicit threats to pressure Gollus to sell him his business for far less than Gollus believed it was worth. Those actions, as well as Cain's conduct towards Kent and Bracey, constitute extortion under the Hobbs Act.

Footnote 4. To the extent our conclusion today is inconsistent with United States v. McFall, 558 F.3d 951 (9th Cir. 2009), we respectfully disagree with the Ninth Circuit's analysis in light of our own reading of Scheidler and our precedents in Tropiano and Gotti.

Editorial Note: McFall, 558 F.3d at 956-57, held as follows:

The indictment charged McFall and his collaborators with "attempt[ing] to obtain from Calpine Corporation a financial benefit not due any of them, that is, its right to solicit business in San Joaquin County, to bid on the construction of a power plant and to construct a power plant at the Port of Stockton." In essence, McFall argues, the government charged him with employing coercion to derail Calpine's bid to build a power plant at the Port of Stockton, thereby increasing the probability, at least theoretically, that Sunlaw would secure the right to build the plant at the contested site.

We agree that decreasing a competitor's chance of winning a contract, standing alone, does not amount to obtaining a transferable asset for oneself (or one's client). Neither Calpine nor Sunlaw had a vested right to build at the contested site, and there was no guarantee that either company would secure such a right. The district court concluded that McFall's "improper attempt to secure a business advantage" satisfied the Hobbs Act's obtaining element, but this formulation fails to account for Scheidler's principal point: To violate the Hobbs Act, an alleged extortionist must actually appropriate (or attempt to appropriate) the victim's property such that it can be exercised, transferred or sold. Id. at 405. It is not enough to gain some speculative benefit by hindering a competitor.

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