Friday, November 20, 2009

Contractor Could Proceed with RICO Claim Alleging Extortionate Credit Line

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

A construction contractor sufficiently alleged a RICO conspiracy by three individuals who allegedly engaged in a scheme to force the contractor to accept an extortionate line of credit, the federal district court in Cleveland has ruled.

According to the contractor, one of the defendants refused to pay him $168,000 for gutter and siding work he had performed for the defendant’s company, a second defendant offered to assist him with a loan of $150,000 (in the form of cash from an illegal gambling operation), and a third defendant offered him “protection and collection services” in exchange for money.

Breach of Contract v. Extortion

Although the defendants tried to characterize the contractor’s RICO claim as a simple breach of contract claim, the contractor alleged that he: (1) was offered a $150,000 loan from one of the defendants; (2) reasonably believed that the defendants had previously used extortion to collect or attempt to collect similar debts; and (3) reasonably believed that the defendants had a reputation for using extortion to collect those debts (or to punish debtors that failed to repay them). These allegations sufficiently identified a claim for an extortionate extension of credit, in the court’s view.

More specifically, the allegations indicated that one defendant had refused to pay for gutter and siding work so another defendant could offer an extortionate line of credit.

They also indicated that the actions of the third defendant—attempting to gain a monetary benefit by implicitly and explicitly threatening violence and harm if the contractor did not pay for protection services—established a state law extortion claim that was punishable by imprisonment for more than a year.


According to the court, the contractor sufficiently alleged that his injuries—$168,000 in unpaid charges for gutter and siding work—were proximately caused by the defendants’ scheme to force him to accept an extortionate line of credit.

The decision is Matteo Gutter Systems v. Millenia Housing Management Ltd., CCH RICO Business Disputes Guide, ¶11,762.

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