Commercial Borrowers’ Civil RICO Suit For Inflated Appraisals and Loans Bounced by IL Fed Court


Delaware Motel Associates v. Capital Crossing Servicing Company, LLC, 2017 WL 4224618 examines the pleading requisites for civil RICO claims and the razor-thin difference between unjust enrichment and quantum meruit claims in a hotel development loan dispute.

The plaintiff real estate investors sued a lender and its appraisal firm for civil RICO violations.  The plaintiffs alleged the appraiser and lender plotted to issue fraudulent loans based on inflated property values over a multi-year span.  The Northern District of Illinois granted Defendants’ motion to dismiss the claims under Rule 12(b)(6).


To state a cognizable RICO claim, a plaintiff must plead (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. To satisfy the enterprise element – item (2) – the plaintiff has to allege “a group of persons acting together for a common purpose or course of conduct.” Here, the plaintiffs’ complaint was devoid of specific allegations that defendants worked together to advance a common objective and lacked any facts showing defendants’ common purpose.

The plaintiffs also failed to adequately allege defendants engaged in racketeering activity. Quintessential RICO conduct includes mail and wire fraud, bank fraud, extortion and money laundering. 18 U.S.C. § 1961(1). Because of their inherently fraudulent make-up, these predicate acts must be pled with acute specificity under Rule 9(b).

To satisfy Rule 9(b)’s heightened pleading standard, the civil RICO plaintiff must allege the time, place, and content of the alleged fraud.  While Federal pleading rules sometimes allow fraud to be pled “on information and belief,” the plaintiff still must supply “some firsthand information to provide grounds to corroborate their suspicions.”  The Court found the plaintiff’s mail, wire and bank fraud allegations sparse since they didn’t identify a specific fraudulent loan or inflated land appraisal.

The Court also dispatched with the plaintiffs’ intentional interference with prospective economic advantage claim.  This requires a plaintiff to allege: (1) he had a reasonable expectancy of a valid business relationship; (2) the defendant knew about the expectancy; (3) the defendant intentionally interfered with the expectancy and prevented it from ripening into a valid business relationship; and (4) the intentional interference injured the plaintiff.

In their Complaint, plaintiffs failed to allege any defendant who knew of plaintiff’s reasonable expectancy of a valid business relationship who purposefully tampered with the expectancy.

Rejecting plaintiffs’ unjust enrichment and quantum meruit claims, the court again focused on plaintiffs’ pleading deficits.  The plaintiffs failed to allege the critical unjust enrichment element that plaintiff conferred a benefit on defendants which they unfairly kept.  The plaintiffs similarly failed to plead quantum meruit as the Complaint was missing allegations that plaintiff performed a service that benefitted defendants.

Useful Bullet-Points

– This case provides a useful pleadings primer for civil RICO cases and emphasizes the paramount importance of factual specificity in fraud-based claims.  To allege a RICO enterprise, the plaintiff must allege concerted actions by a group of people to pursue a common goal.

– A viable racketeering claim sounding in mail or wire fraud requires specific factual allegations.  Otherwise, the RICO claim can be subject to Rule 12(b)(6) dismissal.


‘Perpetual’ Sales Distribution Contract Is Terminable At Will; It’s Too Indefinite



The First District recently considered whether a contract that could only be ended on both parties’ written consent was too indefinite and “perpetual” to be enforceable.  In Rico Industries v. TLC Group, Inc., 2014 IL App (1st) 131522, the parties entered into a sales contract where plaintiff would sell products to Wal-Mart through defendant – the retailing monolith’s exclusive distributor.  The agreement could only be terminated by the parties’ mutual agreement.  About five years into the contract, the plaintiff decided to sever the relationship and filed a declaratory judgment action seeking a court ruling that the contract was too indefinite to be enforced.  Defendant  countered by filing a motion for judgment on the pleadings that the contract was enforceable and also sought money damages for sales commission it claimed it was owed from the plaintiff.  The trial court agreed with the defendant distributor and entered judgment in its favor.  Plaintiff appealed.

Held: reversed.  Contract that can only be terminated on consent of both parties is too indefinite to be enforced.  The contract is terminable at will.

Q: Why?

A: In Illinois, perpetual contracts violate public policy because they are too indefinite.  A private contract will not be declared void and against public policy unless it clearly violates the constitution, Illinois statutes or caselaw or if the contract is injurious to the public welfare.  Rico, ¶¶ 15-17.  And even though Illinois safeguards freedom of contract, contracts of indefinite duration are terminable at the will of the parties because perpetual contracts are disfavored.  (¶¶ 18-19).

The courts’ stated reason for invalidating perpetual contracts is because “forever is a long time” and that businesses don’t stay viable for very long.  Because of the short shelf-life of many commercial enterprises, never-ending contracts violate Illinois public policy, which prefers contracts with definite start and ending dates.  A contract without a specific end date or terminating event, could conceivably never end.  (¶¶ 27-34).

Take-away: A good result for those that like contractual certainty.  The case’s lesson is that contracts should have a specific start and end date to avoid future disputes of enforceability and definiteness.  Rico also illustrates that contracts with permissive, equivocal termination provisions will likely be deemed perpetual and therefore void on public policy grounds.  Prudent contract drafting dictates that parties should formalize start dates, end dates, as well as termination methods and events.