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Reich v. Lopez

United States District Court, S.D. New York

August 18, 2014

THE HONORABLE OTTO J. REICH and OTTO REICH ASSOCIATES, LLC, Plaintiffs,
v.
LEOPOLDO ALEJANDRO BETANCOURT LOPEZ, PEDRO JOSE TREBBAU LOPEZ, and FRANCISCO D'AGOSTINO CASADO, Defendants

Counsel Amended June 25, 2014.

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For The Honorable Otto J Reich, Otto Reich Associates, LLC, Plaintiffs: LEAD ATTORNEY, Mark Warren Smith, Noelle Marie Kowalczyk, Smith Valliere PLLC, New York, NY.

For Leopoldo Alejandro Betancourt Lopez, Defendant: Frank H. Wohl, LEAD ATTORNEY, Julia Claire Green, Lankler Siffert & Wohl LLP, New York, NY.

For Pedro Jose Trebbau Lopez, Defendant: Frank H. Wohl, LEAD ATTORNEY, Julia Claire Green, Lankler Siffert & Wohl LLP, New York, NY; Joseph A. DeMaria, LEAD ATTORNEY, Fox Rothschild LLP, South Financial Center, Miami, FL.

For Francisco D'Agostino Casado, Defendant: William Christopher Carmody, LEAD ATTORNEY, Shawn J. Rabin, Susman Godfrey LLP (NYC), New York, NY; Frank H. Wohl, Julia Claire Green, Lankler Siffert & Wohl LLP, New York, NY.

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OPINION AND ORDER

J. PAUL OETKEN, United States District Judge.

Plaintiffs Otto J. Reich, a former ambassador to Venezuela, and his consulting company, Otto Reich Associates, LLC (" ORA" ), allege that the activities of the defendants caused injury to their property and reputation. Plaintiffs bring claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(c-d) (" RICO" ), as well as claims of civil conspiracy, tortious interference with prospective economic advantage, trade libel, injurious falsehood, and defamation under New York state common law. Defendants move for dismissal pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(b)(2). For the reasons that follow, Defendants' motion is granted in part and denied in part.

I. Background

A. Factual Background[1]

1. Parties

Defendants Leopoldo Alejandro Betancourt Lopez (" Betancourt" ), Pedro Jose Trebbau Lopez (" Trebbau" ), and Francisco D'Agostino Casado (" D'Agostino" ) are principals of Derwick Associates USA

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LLC (" Derwick USA" ) and Derwick Associates Corporation (together " Derwick Associates" ). Betancourt is the official co-founder and president of Derwick Associates, Trebbau is the official co-founder and vice-president, and D'Agostino is a key player in the organization--potentially the unofficial founder, owner, and operator. Betancourt and Trebbau are Venezuelan citizens and D'Agostino is a dual citizen of Venezuela and Spain. Betancourt and D'Agostino own residential property in New York and reside there for part of the year, including during the time period of the alleged illegal activities. Derwick USA is incorporated in Florida and Derwick Associates Corporation is a Barbados corporation. However, Defendants conduct and manage the day-to-day affairs of both entities from their office in New York.

Plaintiff Reich is the former U.S. Ambassador to Venezuela. His professional career has focused on corruption in Latin America. Since leaving government service in 2004, Reich has managed Plaintiff ORA, a consulting company for anti-corruption organizations and individuals that assists its clients in their public relations and business endeavors.

2. Derwick Associates' Business Model

Defendants, through Derwick Associates, are in the business of securing high-valued energy-sector contracts from agencies of the Venezuelan government. These contracts are won, the complaint alleges, through the use of bribery and monetary kickbacks and are not obtained through any open bidding process. The average Derwick Associates contract is overbilled by over 200%. Upon securing the inflated contracts, Derwick Associates then subcontracts the work to multiple United States companies, including Missouri-based ProEnergy Services. These subcontractors execute essentially all required construction, but are paid substantially less than the cost of the original contract. Derwick Associates then keeps a significant portion of the proceeds from the originally inflated contract. Plaintiffs specifically identify the following improperly secured contracts: four contracts with the state-owned Petroleos de Venezuela, S.A. (" PDVSA" ), five contracts with the state-owned Corporacion Electrica de Venezuela (" CORPOELEC" ), and two contracts with the state-owned Corporacion Venezolana de Guayan (" CVG" ).

Both Derwick Associates and various individuals associated with the corporation have drawn attention from many journalistic publications as well as from the Federal Bureau of Investigation for their questionable business practices. Defendants have attempted to conceal their ongoing illicit scheme, in part, by filing high-stakes lawsuits against critics of the company. In one instance, they filed two defamation lawsuits against Banco Venezolano and its President, Oscar Garcia Mendoza (" Mendoza" ), one in Florida and the other in New York state court. Banco Venezolano has the reputation of being highly critical of the current Venezuelan government regime. Derwick Associates has since withdrawn both actions.

3. Injury to Plaintiffs

In October and November 2012, following the commencement of the Florida lawsuit, Banco Venezolano entered into negotiations with Reich and ORA to secure assistance in defending against the claims made in the Florida lawsuit and consulting for unrelated business activities. The agreed-upon rate for such services was $20,000 per month. In late November 2012, an agent of the Defendants unsuccessfully attempted to bribe Reich to stop providing assistance to Banco Venezolano. On December 6, 2012, an agent of Defendants attempted to persuade Reich to

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work on their behalf rather than to continue consulting for Banco Venezolano. Reich rejected both offers.

On December 7, 2012, Reich was scheduled to meet with Cesar Briceño (" Briceño" ), a representative of Banco Venezolano, to discuss the ongoing Florida lawsuit. That same day, Derwick Associates amended its complaint in the Florida lawsuit to add an allegation that Briceño met with a former U.S. government official in December 2012, referring to the scheduled December 7 meeting with Reich. Shortly afterwards, Betancourt and Trebbau called their partner, Convict-Guruceaga, and instructed him to call Joaquin Urbano Berrizbeitia (" Urbano" ), a member of Banco Venezolano's Board of Directors, to assert that " Otto Reich is working for us." (Dkt. No. 29 at ¶ 147.) Around the last week of December 2012, Banco Venezolano ceased all communications and business with ORA and Reich.

During this effort to harm the relationship between ORA/Reich and Banco Venezolano, Betancourt placed a November 2012 call to Eligio Cedeño (" Cedeño" ), another client of ORA since 2010. During this call, Betancourt falsely informed Cedeño that ORA's consulting services were retained by Derwick Associates. Within days of the conversation, Cedeño terminated his business with ORA.

B. Procedural Background

Plaintiffs filed their initial complaint on July 30, 2013. On August 1, D'Agostino was personally served while in the state of New York. On January 14, 2014, Plaintiffs filed the first amended complaint. Defendants moved to dismiss on February 28, 2014.

II. Legal Standard

When considering a Rule 12(b)(6) motion to dismiss, a court is obliged to " accept as true all of the factual allegations contained in the complaint," Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 572, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), drawing " all inferences in the light most favorable to the non-moving party's favor," In re NYSE Specialists Sec. Litig., 503 F.3d 89, 95 (2d Cir. 2007). While Rule 8(a) requires only a " short and plain statement of the claim showing that the pleader is entitled to relief," Fed.R.Civ.P. 8(a), " the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); see also Twombly, 550 U.S. at 555 (noting that a court is " not bound to accept as true a legal conclusion couched as a factual allegation" (quoting Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986)). In other words, a properly stated claim includes a showing of " the grounds upon which [the plaintiff's] claim rests through factual allegations sufficient 'to raise a right to relief above the speculative level.'" ATSI Comm., Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (quoting Twombly, 550 U.S. at 546).

Additionally, all claims of fraud--including those under RICO--must comply with Rule 9(b)'s heightened pleading standard. See Fed.R.Civ.P. 9(b). To meet the strictures of Rule 9(b), " the complaint must: (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006) (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175

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(2d Cir. 1993)). Rule 9(b) also dictates that while the circumstances of the fraud must be pleaded with particularity, " intent, knowledge, and other conditions of a person's mind may be alleged generally."

III. Discussion

The operative complaint--the First Amended Complaint--asserts claims under the federal RICO statute (Counts I and II) as well as state law claims for tortious interference with prospective economic advantage (Counts III and IV), trade libel/injurious falsehood/defamation (Count V), defamation (Count VI), and civil conspiracy (Count VII). Defendants move to dismiss these claims on various grounds.

A. Qualifying RICO Predicate Acts

Before the Court can determine whether Plaintiffs have sufficiently pleaded the requisite elements of a RICO claim, it must determine what violations count as predicate acts of racketeering activity. Plaintiffs allege three types of predicate acts: violations of the Travel Act, 18 U.S.C. § 1952(a) et seq.; violations of the Foreign Corrupt Practices Act (" FCPA" ), 15 U.S.C. § 78dd-1 et seq., and wire fraud under 18 U.S.C. § 1343. The violations of the Travel Act and FCPA are based upon the allegedly improperly secured contracts between Defendants and PDVSA, CORPOELEC, and CVG. The violations of the wire fraud statute are based upon the November and December 2012 phone calls to Banco Venezuelo and Cedeño.

With respect to the Travel Act and FCPA violations, RICO provides an exhaustive list of qualifying predicate acts and the latter is notably absent. See 18 U.S.C. § 1961(1). " The FCPA, unlike the Travel Act, is not a[n] [independent] RICO predicate." United States v. Young & Rubicam, Inc., 741 F.Supp. 334, 338 (D. Conn. 1990). While Plaintiffs cite many instances in which an FCPA violation is considered in a court's analysis of whether a RICO claim has been properly pleaded, see Environmental Tectonics v. W.S. Kirkpatrick, Inc., 847 F.2d 1052, 1063 (3d Cir. 1988); Rotec Indus. v. Mitsubishi Corp., 163 F.Supp.2d 1268, 1278 (D. Or. 2001); Dooley v. United Technologies Cmp., 803 F.Supp. 428, 438-40 (D.D.C. 1992), an FCPA violation is never counted separately and in addition to a violation of the Travel Act. However, " FCPA violations [can serve] as a basis for Travel Act violations, which, in turn, are alleged as predicates for the RICO offense charged." Young & Rubicam, Inc., 741 F.Supp. at 338.

In this case, the same alleged conduct underlies the violations of both the Travel Act and the FCPA. By presenting these as separate and independent predicate acts, Plaintiffs are impermissibly attempting to double-count this conduct, notwithstanding RICO's requirement that each predicate act have its own source of conduct. " [I]t is not proper under RICO to charge two predicate acts where on[e] action violates two statutes. A pattern of racketeering activity requires 'at least two acts of racketeering,' not 'at least two statutory offenses." Watkins v. Smith, 12 Civ. 4635 (DLC), 2012 WL 5868395, *4-5 (S.D.N.Y. Nov. 19, 2012), aff'd, 561 F.App'x 46, 2014 WL 1282290 (2d Cir. 2014) (quoting United States v. Kragness, 830 F.2d 842, 860-61 (8th Cir.1987)). Therefore, this Court will review the plausibility of the RICO claim based upon the Travel Act violations (with the FCPA violations subsumed) and the alleged wire fraud.[2]

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B. Extraterritoriality of RICO

As a general matter, " unless there is the affirmative intention of the Congress clearly expressed to give a statute extraterritorial effect, [courts] must presume it is primarily concerned with domestic conditions." Norex Petroleum Ltd. v. Access Indus., Inc., 631 F.3d 29, 32 (2d Cir. 2010) (quoting Morrison v. National Australia Bank Ltd., 561 U.S. 247, 130 S.Ct. 2869, 2877-78, 177 L.Ed.2d 535 (2010)). Consequently, " absent an ...


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