Thursday, November 15, 2007

Ex-Employees' Creation of Competing Business Could Be Participation in RICO Enterprise

This posting was written by Sonali Oberg, Editor of CCH RICO Business Disputes Guide.

Former employees of a health benefits manager could have participated in the operation or management of an alleged RICO enterprise by engaging in allegedly tortious conduct by starting a competing business, according to the federal district court in Omaha, Nebraska.

Participation in Conduct of Affairs

In order to participate in the conduct of an enterprise’s affairs, within the meaning of RICO Section 1962(c), a person must participate, to some extent, in controlling the enterprise. The “conduct of affairs” connoted more than just some relationship with the enterprise’s activities. The phrase referred to the guidance, management, direction, or other exercise of control over the course of the enterprise’s activities.

The health benefits manager’s allegations relating to the former employees’ conduct described an active involvement in the actions of others and the hands-on operation of the purported enterprise. The employees mailed letters to a group of school districts, notifying them of the creation of a competing consortium in an attempt to take over the manager’s clients. The purported enterprise had the common goals of diverting contracts and promoting its own interests at the expense of the benefits manager.

Predicate Acts

Allegations of predicate acts of mail fraud through the submission of allegedly fraudulent nonrenewal letters could constitute a pattern of racketeering activity. The clients—school districts—received the nonrenewal letters from the competitors rather than their health benefits manager.

The purportedly fraudulent mailings occurred over a four-month period. Open-ended continuity would be found only where related predicate acts occurred over a substantial period of time, and involved a distinct threat of long-term racketeering activity.

It was likely that the mails and wires would continue to be used in furtherance of the scheme to defraud, in the court’s view. The alleged predicate acts were related, as they had the same purposes—enhancing the business of the consortium at the expense of the benefits manager—that resulted in the consortium succeeding in pilfering the benefits manager’s clients.

The October 22 decision is Meccatech, Inc. v. Kiser, CCH RICO Business Disputes Guide ¶11,375.

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Anonymous said...

Education firm files Chapter 11
Albany company is target of lawsuit initially brought against related business

By ALAN WECHSLER, Business writer
Click byline for more stories by writer.
First published: Friday, May 2, 2008

ALBANY -- Joseph A. O'Hara, whose consulting company filed for bankruptcy last month, has followed the same route with a second business.

Educational Services & Products LLC of Albany filed the Chapter 11 petition on Wednesday. The company reported assets of $31.6 million and liabilities of $13.6 million.

O'Hara said Thursday the reason for the Chapter 11 filing was the same as for his previous filing, a Chapter 7 petition for Strategic Governmental Solutions Inc.: Both companies were seeking relief from a lawsuit brought by a Michigan competitor.

O'Hara said the Wednesday filing was necessary because he is seeking to sell Educational Services or find new investors, and the lawsuit would tie up any such plans. He said he hopes to identify a buyer in bankruptcy court within two weeks.

"We've got to get this thing resolved," O'Hara said. "The only way to get a clean bill of health to sell ESP is to go through this process."

O'Hara is a former owner of the Albany Patroons basketball team and the Firebirds football team.

He originally worked as a consultant to governments, then shifted to school districts. He was doing business with the Nebraska Association of School Boards when a competitor sued in 2005, claiming Strategic Governmental Solutions conspired with the group to steal away business.

Since then, ESP purchased the assets of SGS. But after SGS filed for Chapter 7 liquidation in early April, the company that brought the lawsuit, MeccaTech Inc. of Lansing, Mich., added ESP to the case, O'Hara said.

O'Hara is a part-owner in ESP, which employs 40 people and works with 1,200 U.S. school districts.