Court Rules on Auction House’s Civil RICO Claim

In 4K & D Corp. v. Concierge Auctions, LLC, the court granted in part and denied in part the civil RICO allegations by Concierge Auctions, an auction house. The plaintiffs had alleged that the defendants fraudulently induced sellers of luxury real estate to enter into auction contracts with Concierge by making false promises and various misrepresentations about Concierge’s auction results, sales statistics, and track records, and that the defendants engaged in other fraudulent conduct such as using shill bidders, allowing bids from unregistered bidders, and adding a reserve at the last minute. As a result, Grand Estates was allegedly harmed because sellers chose Concierge instead of Grand Estates or other auction houses due to the defendants’ misrepresentations to the sellers.

The court did not accept the defendants argument that the Section 1962(c) claim failed as the plaintiffs sufficiently alleged that the RICO “enterprise” was different from the “persons” alleged to have violated Section 1962(c). In this case, the plaintiffs alleged Concierge to be the RICO “enterprise,” and alleged that defendants Brady, Russo, Graham, and CA Partners were RICO “persons” who “operated or otherwise managed Concierge through a pattern of racketeering activity.” The claim under Section 1962(c) is brought against these RICO persons only and not against Concierge. Therefore, it is clear that the plaintiffs do not seek to hold Concierge liable for the Section 1962(c) claim as a RICO “person” but only allege that Concierge was the “enterprise.” The court held that this plainly satisfies the distinctness requirement under Kushner v. King.

The defendants second argued the plaintiffs’ allegations fell short of the particularity requirement under Rule 9(b) because they failed to provide any information as to the specific circumstances constituting wire fraud. However, the court found certain other allegations satisfied the particularity requirement. In particular, the plaintiffs allege material misrepresentations in the marketing materials transmitted over the internet in which Concierge provided false statistics and track records regarding its past sales and history; and multiple property sellers allegedly relied on these misrepresentations in entering into contracts with Concierge. Therefore, with respect to each of these sellers, the court found that the plaintiffs’ allegations provided sufficient information regarding the approximate time and the context of each of these statements to state the circumstances constituting wire fraud.

However, the court did find that auction house failed to satisfy the particularity requirement for pleading fraud, as a predicate act under RICO, with respect to two defendants; the auction house lacked standing to bring RICO claim for conducting enterprise’s affairs through pattern of racketeering activity; and the auction house failed to state causes of action under RICO Act for investment of racketeering income or acquisition or maintenance of enterprise through pattern of racketeering activity. The court also found that the auction house failed to state cause of action for conspiracy to violate the RICO Act.

As a result, the court ruled that the defendants’ motion to dismiss was granted, except with respect to the claim under Section 1962(c) by two of the plaintiffs (Deborah Jarol and Sherwin Jarol) against two defendants, Brady and Russo, as to which the motion to dismiss was denied.