Commercial Litigation and Arbitration

RICO — Closed-End Continuity = at Least 2 Years — Open-End Not Shown by Fact the Enterprise Primarily Conducts a Legitimate Business Where the Nature of the Predicate Acts Do Not Imply a Continuing Threat Because All Are Directed at a Finite Goal

W&D Imports, Inc. v. Lia, 2014 U.S. App. LEXIS 7038 (2d Cir. April 16, 2014):

Plaintiffs-Appellants W&D Imports,  [*2] Inc. d/b/a Willis Honda and David Davis (together "Willis") appeal from the April 23, 2013 judgment of the District Court dismissing all of Willis's claims against American Honda Motor Co., Inc. ("American Honda"), as well as his claims against Allstar Motors of L.I., Inc., Allstar Motors LLC, d/b/a Hamilton Honda (together "All Star"), Don Lia, Mobile Management, LLC, N.R. Automotive Inc., Michael Saporito, and Jessie Armstead (jointly the "RICO defendants"). We assume familiarity with the factual and procedural history and the issues on appeal, and repeat only those details necessary to the resolution of this appeal.


In the early 1990s, Willis learned that American Honda was considering establishing a dealership in Hamilton, New Jersey, which was within the "relevant market area" ("RMA") of Willis's dealership in Burlington, New Jersey.1  [*3] Willis proposed relocating its own dealership to Hamilton, which American Honda ultimately rejected. On November 9, 2004, American Honda notified Willis that it intended to establish the Hamilton dealership with All Star, an entity purportedly 51% controlled by Armstead, an African-American former football star, and 49% controlled by Saporito.

1   The New Jersey Franchise Practices Act "prohibits a franchisor from granting a new franchise if it would cause injury to an existing franchisee or to the public," and "requires a franchisor to give existing franchisees in the same line make within the relevant market area 90 days' advance written notice of its intention to grant . . . a franchise of the same line make" after which "an aggrieved franchisee may file a protest with the New Jersey Motor Vehicle Franchise Committee." W & D Imports, Inc. v. Lia, 11-cv-4144 (SJF) 2013 WL 1750892 (E.D.N.Y. Apr. 22, 2013). See also N.J. Stat. 56:10 §§ 16-29.

In response, Willis filed an administrative protest with the New Jersey Motor Vehicle Franchise Committee (the "Franchise Committee"), in accordance with the New Jersey Franchise Practices Act (the "Franchise Act"). See N.J. Stat. 56:10 §§ 16-29. Willis  [*4] principally sought an order prohibiting American Honda from granting All Star the Hamilton dealership on the grounds that the Hamilton dealership would "seriously endanger the profitability and viability" of Willis Honda, and that Don Lia, not Armstead, was the de facto owner of All Star. All Star's true ownership was relevant largely because Armstead is black and the Franchise Act provides that the presumption of injury ordinarily accorded to dealers protesting encroachment on their RMA does not apply when the proposed franchisee is a minority applicant. See id. § 23(c).

The Administrative Law Judge ("ALJ") assigned to the case oversaw lengthy discovery, including depositions and expert reports, and held a 12-day evidentiary hearing at which ten witnesses testified and over 200 exhibits were admitted (the "Administrative Proceeding"). On April 12, 2006, the ALJ issued a decision (the "Administrative Decision") concluding, in relevant part, that American Honda had followed the proper procedures in deciding to permit All Star to open a dealership in Hamilton, and that the establishment of the dealership was "not injurious to Willis or to the public interest." App'x 152. The ALJ stated  [*5] that, although a protesting dealer is, in certain circumstances, entitled to a presumption of injury when a new dealer is established in the RMA, N.J. Stat. 56:10 § 23(b), Willis had not established that, in these circumstances, it was eligible for that presumption. Thus, the minority applicant exception to the presumption of injury, id. § 56:10-23(c), was unnecessary to the determination that the All Star dealership was not injurious to Willis or to the public interest.

On review, the Franchise Committee adopted the ALJ's "decision dismissing the petitioner's protest." App'x 125. The Appellate Division of the New Jersey Superior Court affirmed. In so doing, it concluded that it "need not address Armstead's status as a minority owner" because the Franchise Committee "accepted the ALJ's well-ground conclusion that . . . [Willis] would not qualify for a presumption [of injury] . . . even if N.J. [Stat.] 56:10 § 23(c) did not apply." W & D Imports, Inc. v. Am. Honda Motor Co. Inc., 2008 WL 281576 at *10 (N.J. Super. Ct. App. Div. Feb.4, 2008) (first and second alterations in original).

On July 6, 2011, Don Lia sued Saporito and Armstead alleging, contrary to his deposition testimony in the Administrative Proceeding, that he owned a majority stake in All Star. Lia v. Saporito, 909 F. Supp. 2d 149 (E.D.N.Y. 2012), aff'd 541 Fed App'x 71 (2d Cir. 2013). Judge Feuerstein held that he was judicially estopped from asserting ownership of All Star based on his testimony in the Administrative Proceeding, which the ALJ had credited. Id. at 178-79. In response, on August 25, 2011, Willis commenced this action contesting American Honda's decision to award the Hamilton dealership to All Star. Willis asserts various common law claims against American Honda. Against the RICO defendants, Willis claims: (1) violation of the Racketeering Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1962(c),(d); (2) RICO's New Jersey counterpart, N.J. Stat. 2C:41-2(c),(d); (3) tortious interference with present and prospective economic advantage; and (4) equitable estoppel. The District Court dismissed Willis's claims against all defendants.



B. RICO Defendants

We review de novo a district court's Rule 12(b)(6) dismissal of a civil RICO complaint, affirming where "it is clear that no relief could be granted under any set of facts that could be proved consistent with plaintiff[s'] allegations." Commercial Cleaning Servs., L.L.C. v. Colin Serv. Sys., Inc., 271 F.3d 374, 380 (2d Cir. 2001) (internal quotation marks and alterations omitted). A civil RICO claim requires: "(1) conduct, (2) of an enterprise, (3) through a pattern (4) of racketeering activity," as well as "injury to business or property as a result of the RICO violation." Lundy v. Catholic Health Sys. of Long Island Inc., 711 F.3d 106, 119 (2d Cir. 2013) (internal quotation marks omitted). The District Court dismissed the RICO claims for failure to establish that the alleged acts "amount[ed] to or pose[d] a threat of continuing activity," as required to show a pattern of racketeering under RICO. Spool v. World Child Int'l Adoption Agency, 520 F.3d 178, 183 (2d Cir. 2008).

The  [*12] continuing criminal activity requirement can be established through a "closed-ended pattern . . . of related predicate acts extending over a substantial period of time," or an "open-ended pattern of racketeering activity that poses a threat of continuing criminal conduct beyond the period during which the predicate acts were performed." Id. (internal quotation marks omitted). We agree that plaintiffs have failed to establish either a closed-ended or open-ended pattern of racketeering.

Willis asserts that it established an open-ended pattern by showing that although "the enterprise primarily conducts a legitimate business," the "nature of the predicate acts themselves implies a threat of continued criminal activity." Cofacredit, S.A. v. Windsor Plumbing Supply Co., Inc., 187 F.3d 229, 243 (2d Cir. 1999). But the alleged predicate acts all relate to the "finite goal of gaining . . . approval of the All Star application for the Hamilton dealership." W & D Imports, Inc. v. Lia, No. 11-cv-4144, 2013 WL 1750892 at *7 (E.D.N.Y. Apr. 22, 2013)  [*13] As the District Court correctly concluded, these acts do not imply a threat of continued criminal activity in the operation of the Hamilton dealership.

Willis also fails to establish a so-called closed-ended pattern in the form of "a series of related predicates extending over a substantial period of time." De Falco v. Bernas, 244 F.3d 286, 321 (2d Cir. 2001). As Willis acknowledges, a "substantial period of time" is at least two years, id., and the "Complaint [only] identified . . . acts . . . over a one and a half year period, between early 2003 and the end of 2004," Appellants' Br. 34. Bare allegations that such acts must have continued beyond 2004 are insufficient to plausibly allege a closed-ended pattern.

In sum, Willis failed to plead a pattern of racketeering as required to state a civil RICO claim.

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