Articles Posted in RICO and Fraud Claims

Disputes between owners of construction projects and contractors occasionally include allegations of fraud and intentional wrongdoing. In these instances, it is sometimes tempting to include a claim for civil liability under the Federal Racketeer Influenced and Corrupt Organizations Act (“RICO”). Successful prosecution of a civil RICO violation includes the recovery of treble damages and attorneys’ fees, among other things. However, successful RICO claims in the civil context are relatively rare. The courts have interpreted the RICO statute to make it exceedingly difficult for a construction law dispute to turn into a recoverable RICO violation. The case of Grace International Assembly of God v. Festa, (17-CV-7090)(E.D.N.Y. April 1, 2019) highlights the difficulties in bringing a civil RICO case.

In Grace, the Plaintiff retained defendant Falcon General Construction Services Inc. (“Falcon”) to act as its general contractor for a project involving Grace’s religious sanctuary. Defendant Festa, the president and sole shareholder of Falcon, met with representatives of Grace and allegedly made numerous fraudulent misrepresentations which Grace divided into two different categories. One set of misrepresentations related to the need for advance payment of certain monies, the use of those monies on the project, and the progress of the construction on the project (“The Project Invoices Fraud Scheme”). According to Grace, it relied on the misrepresentations of defendants when it made payments to them. Furthermore, according to Grace, defendants improperly failed to make payments to subcontractors who had fully performed their work while representing to Grace that those payments had been made (the “Subcontractor Nonpayment Fraud Scheme”).

After Grace terminated defendant Falcon from the project, it commenced a legal action in the federal district court for the Eastern District of New York, alleging, in part, the two related schemes referenced above. Plaintiff also relied on the same basic set of facts to allege various state law contract and fraud-based claims.