Thursday, October 16, 2008

Chemical Companies May Be Liable under RICO for Cleanup Delay

This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide.

Property owners could proceed with RICO claims against the corporate owners and operators of a chemical manufacturing plant that allegedly disposed of solid and liquid waste (DDTr pesticides) in a manner that contaminated local properties, the federal district court in Mobile, Alabama, has ruled. The companies allegedly conspired with various entities and their environmental contractors in an effort to “defraud governmental agencies and the public at large” by delaying or ignoring the cleanup of environmental hazards.

Among other things, representatives of the companies allegedly met in a hotel to “conspire to manipulate data” from their environmental risk assessments and to "form a covenant to defraud the public and governmental entities" regarding the presence and degree of environmental contamination. According to the property owners, the scheme was furthered through deceptive communications to government agencies. As a result, the companies allegedly saved millions of dollars, to the detriment of the public and interstate commerce, through machinations that were devised to convince the government and the community to delay or do nothing about the contamination. Although the companies argued that the property owners failed to allege their claims with sufficient particularity, the companies never explained how the allegations failed to satisfy the heightened pleading standard required by Rule 9(b) of the Federal Rules of Civil Procedure.

Predicate Acts

The property owners sufficiently identified two acts of mail fraud: (1) a letter that was sent to a non-party conspirator, with a request that the recipient forward its environmental risk assessments, and with an acknowledgment that the defendant would reciprocate; and (2) a letter that was sent to a company that prepared a draft endangerment assessment report for the defendant. The second letter suggested that the consultant who prepared the report should be fired--and another contractor hired--because the defendant disagreed with the report. These assertions of specific facts were sufficient to allege mail fraud as a predicate act, the court held.


The property owners sufficiently alleged that "confirmed DDTr contamination" from the chemical plant caused their property values to decline. Their theory that the defendants had effectively delayed cleanup of the contaminated sites--and that those delays allowed the contamination to continue to seep onto the owners' property, thereby injuring the owners by impairing their property values--were legally sufficient to satisfy RICO's direct causation requirement, the court ruled.

The September 10, 2008, decision in Abrams v. CIBA Specialty Chemicals Corp. (S.D. Ala.), Civil Action #08-0068-WS-B, will appear at CCH RICO Business Disputes Guide ¶11,564.

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