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RICO — Physical Injuries Not Compensable under §1964(d) — §1961(1) List of Predicates Is Exclusive — Municipalities: Doctrine of Acquiescence

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Otworth v. Budnik, 2014 U.S. App. LEXIS 22378 (6th Cir. Nov. 21, 2014):

A. RICO

In order properly to allege a RICO claim, Otworth must show "'(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.'" Heinrich v. Waiting Angels Adoption Servs., Inc., 668 F.3d 393, 404 (6th Cir. 2012) (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985)). "A plaintiff must allege each element" in order "to properly state a claim" upon which relief may be granted. Id. In addition, a plaintiff must show injury to his or her business or property. See Jackson v. Sedgwick Claims Mgmt. Servs., Inc., 731 F.3d 556, 562 (6th Cir. 2013) (en banc).

Otworth's complaint names two RICO-related "injuries"--physical injury in the form of a torn aorta from the "emotional stress of being forced to continue to pay a property tax to an unincorporated [*4]  village" and money damages "in an amount to be proven at trial." R. 1 (Complaint at ¶¶ 135-36, ¶ 218) (Page ID #12, 20). Yet, as we held in Jackson, physical injuries are not cognizable under RICO. 731 F.3d at 565. Liberally construed, the request for money damages could convey a claim for compensatory damages based on the money Otworth was forced to pay towards property taxes levied by the Village.

Yet, in order to recover such damages, Otworth must show that either the Village of Lakewood Club or Fifth Third Bank engaged in a pattern of racketeering activity. Under RICO, Otworth must show that the defendants committed one of the predicate acts of racketeering, as identified in 18 U.S.C. § 1961(1)(B). Otworth's complaint is not altogether clear on this point. At various places, he alleges theft, see R. 1 (Complaint at ¶ 63) (Page ID #7); unlawful threat of foreclosure, see id. at ¶ 94 (Page ID #9); mortgage fraud, see id. at ¶ 64 (Page ID #7); unlawful assessment, collection, and receipt of property taxes, see id. at ¶ 62, 109-10 (Page ID #7, 10); and mail fraud, see id. at ¶ 155 (Page ID #14). Of these charges, theft, unlawful threat of foreclosure, and mortgage fraud are not recognized as predicate acts under RICO, and can [*5]  be dismissed immediately. 18 U.S.C. § 1961(1)(B); cf. McDonald v. Schencker, 18 F.3d 491, 495-96 (7th Cir. 1994) (noting that conversion is not a per se predicate act under §1961(1)(B), and ultimately concluding that the offense conduct "does not constitute a predicate act for purposes of RICO.").

Although the unlawful collection of debt is considered a predicate offense, RICO defines "unlawful debt" as a debt "incurred or contracted in gambling activity" or "which is unenforceable under State or Federal law in whole or in part . . . because of the laws relating to usury." 18 U.S.C. § 1961(6). Otworth's complaint comes within neither category. Similarly, although mail fraud is also considered a predicate offense, Otworth's complaint is bare of any factual allegations that would render his legal claim plausible. In paragraph after paragraph, he alleges that the defendants engaged in mail fraud and racketeering, stating, for example, that "Swanson knowingly committed mail fraud every July when she mailed demands for the payment of property taxes to the people who own land in the Village of Lakewood Club." R. 1 (Complaint at ¶ 155) (Page ID #14). Yet nowhere in his complaint does Otworth assert facts sufficient to turn his claim into a viable one.

Instead, case law indicates that, regardless of [*6]  any alleged irregularities in Lakewood Club's initial incorporation, Otworth cannot now challenge its existence, because the community's residents and the State of Michigan have acquiesced in its existence for decades. See, e.g., Stuart v. Sch. Dist. No. 1 of Vill. of Kalamazoo, 30 Mich. 69, 72-73 (1874) (describing doctrine of acquiescence and noting that "[i]f every municipality must be subject to be called into court at any time to defend its original organization and its franchises at the will of any dissatisfied citizen who may feel disposed to question them, . . . it may very justly be said that few of our municipalities can be entirely certain of the ground they stand upon, and that any single person, however honestly inclined, if disposed to be litigious, or over technical and precise, may have it in his power in many cases to cause infinite trouble, embarrassment, and mischief."). Otworth has never rebutted these points. The district court did not, in sum, err in granting defendants' motion to dismiss.

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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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