Reich v. Lopez

Filing

OPINION, affirming the judgment of the order of the district court, by DJ, CFD, T.C. STANCEU, FILED.[2044129] [16-510]

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16-510-cv
Reich et. al. v. Betancourt Lopez et. al.

UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term, 2016

(Argued: March 10, 2017

Decided: May 26, 2017)

Docket No. 16-510-cv
- - - - - - - - - - - - - - - - - - - -x
THE HON. OTTO J. REICH, OTTO REICH ASSOCIATES, LLC,
Plaintiffs-Appellants,
- v.LEOPOLDO ALEJANDRO BETANCOURT LOPEZ, PEDRO JOSE TREBBAU
LOPEZ,
Defendants-Appellees.
- - - - - - - - - - - - - - - - - - - -x

Before:

JACOBS and DRONEY, Circuit Judges, and STANCEU,
Chief Judge, U.S. Court of Int’l Trade.*

Judge Timothy C. Stanceu, Chief Judge of the United States Court of
International Trade, sitting by designation.
*

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Plaintiff-Appellant Otto J. Reich is the principal of a (co-plaintiff)
consulting firm specializing, inter alia, in fighting government corruption. He
alleges that he and his firm were victims of an effort to discredit them by persons
connected to a Venezuelan energy company that was in litigation with one of
Reich’s clients. This appeal is taken from the dismissal of his RICO and state law
claims against the principals of the Venezuelan energy company, and we affirm
the rulings of the District Court for the Southern District of New York (Oetken,
J.). Dismissal of the RICO claims under Rule 12(b)(6) was proper because Reich
failed to allege that the defendants engaged in a “pattern of racketeering
activity”: of his two theories, one fails because the predicate acts posed no
continuing threat of racketeering; the other fails because the predicate acts he
chose were insufficiently related to each other. We also affirm dismissal of the
state law claims because Reich could not establish personal jurisdiction over
either defendant.
JEFFREY ERNEST GRELL, Grell Feist
Prince PLC, Minneapolis, Minnesota, for
Appellants The Hon. Otto J. Reich and Otto
Reich Associates, LLC.
FRANK H. WOHL (with Jonathan D.
Lamberti, on the brief), Lankler Siffert &
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Wohl LLP, New York, New York for
Appellee Leopoldo Alejandro Betancourt
Lopez.
JOSEPH A. DEMARIA, Fox Rothschild
LLP, Miami, Florida for Appellee Pedro
Jose Trebbau Lopez.
DENNIS JACOBS, Circuit Judge:
Plaintiff-Appellant Otto J. Reich is the principal of a (co-plaintiff)
consulting firm specializing, inter alia, in fighting government corruption. He
alleges that he and his firm were victims of an effort to discredit them by persons
connected to a Venezuelan energy company that was in litigation with one of
Reich’s clients. This appeal is taken from the dismissal of his RICO and state law
claims against the principals of the Venezuelan energy company, and we affirm
the rulings of the District Court for the Southern District of New York (Oetken,
J.). Dismissal of the RICO claims under Rule 12(b)(6) was proper because Reich
failed to allege that the defendants engaged in a “pattern of racketeering
activity”: of his two theories, one fails because the predicate acts posed no
continuing threat of racketeering; the other fails because the predicate acts he
chose were insufficiently related to each other. We also affirm dismissal of the

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state law claims because Reich could not establish personal jurisdiction over
either defendant.1

I
We take all the allegations in the complaint as true, as we must on a motion
to dismiss.
Plaintiffs allege that Derwick Associates, a Venezuelan energy company,
has stolen billions of dollars from the Venezuelan government. It allegedly
bribes Venezuelan officials in order to secure energy contracts at inflated rates
without public bidding, then subcontracts out the actual work while keeping a
substantial profit. Derwick is run by Leopoldo Alejandro Betancourt Lopez
(“Betancourt”), Pedro Jose Trebbau Lopez (“Trebbau”), and Francisco
D’Agostino Casado (“D’Agostino”), the three original defendants in this case.
Plaintiff Otto Reich was the U.S. ambassador to Venezuela in the 1980s. He
now runs a consulting agency focused on government relations and anti-

Because RICO has its own jurisdictional provisions which may apply
here, see 18 U.S.C. § 1965, we reach both the sufficiency of the RICO claim and
the question of personal jurisdiction on the state law claims.
1

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corruption; it is the co-plaintiff with Reich in this suit (we refer to them
collectively as “Reich”).
In 2012, the Derwick principals filed two state court defamation lawsuits
against a Venezuelan bank that they believed was threatening to expose
Derwick’s criminal activities. The Venezuelan bank then hired Reich to help
assist its defense of the defamation suits. Concerned about the assistance Reich
might provide the bank, the Derwick principals undertook to break up the
relationship. An agent of Derwick called one of the bank’s largest shareholders to
tell him falsely that Reich was secretly working for Derwick, thus inducing the
bank to terminate its relationship with Reich. Around the same time, one of the
Derwick principals called another of Reich’s clients, Eligio Cedeño, to deliver the
same falsehood: that Reich was working for Derwick. Cedeño also terminated
his relationship with Reich. Reich’s firing by Cedeño and the Venezuelan bank
cost him tens of thousands of dollars monthly in consulting fees.
Reich filed suit against Betancourt, Trebbau, and D’Agostino in July 2013
bringing RICO and various state law claims. (D’Agostino has since been
dismissed from the case pursuant to a stipulation of dismissal.) In a series of

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rulings, the district court dismissed the RICO claims for failure to state a claim
and the state law claims for lack of personal jurisdiction.

II
We review de novo the dismissal of a complaint for failure to state a claim
upon which relief can be granted. Commercial Cleaning Servs., L.L.C. v. Colin
Serv. Sys., Inc., 271 F.3d 374, 380 (2d Cir. 2001).
RICO imposes liability on individuals working for an “enterprise” that
commits certain predicate crimes that amount to a “pattern of racketeering
activity.” 18 U.S.C. §§ 1962, 1964. Reich has alleged an “enterprise”: Derwick
Associates. And he has alleged predicate crimes covered by RICO: wire fraud
arising from the false phone calls,2 and violations of the Travel Act arising from
the bribery of Venezuelan officials. 18 U.S.C. § 1961(1). This case turns on
whether those predicate acts amount to a “pattern of racketeering activity.”

Because we affirm dismissal of the RICO claim on the basis that Reich
failed to plead a “pattern of racketeering activity,” we do not reach the
defendants’ alternative argument that Reich failed to sufficiently plead wire
fraud.
2

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The Supreme Court has interpreted that phrase to require both that the
RICO predicates pose a threat of continuous criminal activity and that they be
related to each other. H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239 (1989). Since
RICO only requires a combination of two or more predicate acts, 18 U.S.C. §
1961(5), Reich can mix-and-match predicate acts in an attempt to identify a
pattern of racketeering activity that has both “continuity” and “relatedness.” He
argues that two combinations of predicate acts each meet the pattern
requirements. His first theory is that the requisite pattern is formed by the two
acts of wire fraud alone: the false phone call to the bank shareholder and the false
phone call to Cedeño. His second theory is that the requisite pattern is formed by
the acts of wire fraud combined with the Travel Act violations.3 Both putative
patterns include a wire fraud claim, which matters because “RICO claims
premised on mail or wire fraud must be particularly scrutinized because of the
relative ease with which a plaintiff may mold a RICO pattern from allegations

The multiple Travel Act violations alone do not suffice because RICO
requires that the plaintiff suffer an injury from at least one of the predicate acts,
European Cmty. v. RJR Nabisco, Inc., 764 F.3d 149, 151 (2d Cir. 2014) (per
curiam), and Reich suffered no injury from the Travel Act violations.
3

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that, upon closer scrutiny, do not support it.” Crawford v. Franklin Credit
Mgmt. Corp., 758 F.3d 473, 489 (2d Cir. 2014).
Reich’s first theory fails because the predicate acts lack continuity. His
second theory fails because the predicate acts lack relatedness.

A.

RICO’s Continuity Requirement
RICO targets conduct that “amount[s] to or pose[s] a threat of continued

criminal activity.” H.J., 492 U.S. at 239. Such continuity can be closed-ended or
open-ended. Id.
Criminal activity that occurred over a long period of time in the past has
closed-ended continuity, regardless of whether it may extend into the future. Id.
at 242. As such, closed-ended continuity is “primarily a temporal concept,”
Spool v. World Child Int’l Adoption Agency, 520 F.3d 178, 184 (2d Cir. 2008), and
it requires that the predicate crimes extend “over a substantial period of time.”
H.J., 492 U.S. at 242. Predicate acts separated by only a few months will not do,
id.; this Circuit generally requires that the crimes extend over at least two years.
Spool, 520 F.3d at 184.

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On the other hand, criminal activity “that by its nature projects into the
future with a threat of repetition” possesses open-ended continuity, and that can
be established in several ways. H.J., 492 U.S. at 241. Some crimes may by their
very nature include a future threat, such as in a protection racket. Id. at 242.
When the business of an enterprise is primarily unlawful, the continuity of the
enterprise itself projects criminal activity into the future. Spool, 520 F.3d at 185.
And similarly, criminal activity is continuous when “the predicate acts were the
regular way of operating that business,” even if the business itself is primarily
lawful. Cofacredit, S.A. v. Windsor Plumbing Supply Co., 187 F.3d 229, 243 (2d
Cir. 1999).
Reich’s first theory--involving wire fraud alone--is not continuous in either
sense. The two phone calls are separated by at most a few months, too short a
time for closed-ended continuity. H.J., 492 U.S. at 242 (noting that a period of a
few months is insufficient for closed-ended continuity). Open-ended continuity
is likewise unsupportable. The phone calls included no future threat of
repetition, and false phone calls were not Derwick’s “regular way of operating
[its] business.” Cofacredit, 187 F.3d at 243. Nor can Reich allege that Derwick’s
business was primarily unlawful. Even if Derwick pays bribes, it is primarily in
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the energy business; it is not a narcotics ring or an organized crime family. See
United States v. Aulicino, 44 F.3d 1102, 1111 (2d Cir. 1995) (noting that openended continuity does not exist when predicate acts are “in furtherance of
endeavors that are not inherently unlawful, such as frauds in the sale of
property”); United States v. Pizzonia, 577 F.3d 455, 465 (2d Cir. 2009) (holding, in
the context of continuity, that “long-term criminal associations plainly include
those traditionally grouped under the phrase ‘organized crime’” (internal
quotation marks omitted)).
Reich’s second theory--that the predicate acts are both the wire fraud and
the Travel Act violations--sufficiently pleads closed-ended continuity because it
alleges conduct from 2009 until at least the end of December 2012. We therefore
go on to consider whether it meets RICO’s “relatedness” requirement.

B.

RICO’s Relatedness Requirement
Because RICO does not apply to “isolated or sporadic criminal acts,” it has

a relatedness requirement in addition to the continuity requirement. United
States v. Indelicato, 865 F.2d 1370, 1383 (2d Cir. 1989) (in banc) (internal quotation
marks omitted). Predicate crimes must be related both to each other (termed
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“horizontal relatedness”) and to the enterprise as a whole (“vertical
relatedness”). United States v. Cain, 671 F.3d 271, 284 (2d Cir. 2012).
Vertical relatedness, which entails the simpler analysis, requires only:
that the defendant was enabled to commit the offense solely because of his
position in the enterprise or his involvement in or control over the
enterprise’s affairs, or because the offense related to the activities of the
enterprise.
United States v. Burden, 600 F.3d 204, 216 (2d Cir. 2010). Reich’s complaint
sufficiently alleges vertical relatedness because both crimes relate to Derwick’s
activities: the Travel Act violations were done for Derwick’s profit, and the wire
fraud was done to protect it from litigation.
The Supreme Court has explained that predicate acts are horizontally
related when they:
have the same or similar purposes, results, participants, victims, or
methods of commission, or otherwise are interrelated by distinguishing
characteristics and are not isolated events.
H.J., 492 U.S. at 240. In certain cases, we have relaxed the requirement of
horizontal relatedness and held that proof of vertical relatedness alone can also
serve as proof of a horizontal relation. See, e.g., United States v. Daidone, 471

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F.3d 371, 375 (2d Cir. 2006) (per curiam). Reich urges us to do the same here. We
decline the invitation.
When dealing with “an enterprise whose business is racketeering activity,
such as an organized crime family,” horizontal relatedness can be established
simply by linking each act to the enterprise. United States v. Coppola, 671 F.3d
220, 243 (2d Cir. 2012) (internal punctuation and citations omitted). When
dealing with an enterprise that is primarily a legitimate business, however, courts
must determine whether there is a relationship between the predicate crimes
themselves; and that requires a look at, inter alia, whether the crimes share
“purposes, results, participants, victims, or methods of commission.” H.J., 492
U.S. at 240; see also Indelicato, 865 F.2d at 1382 (looking to “temporal proximity,
or common goals, or similarity of methods, or repetitions”).4
We have explicitly drawn that same distinction--between enterprises that
are and are not primarily legitimate--in the context of the “continuity”
requirement for a RICO pattern. See Burden, 600 F.3d at 219 (“‘Where the

Such a distinction between primarily legitimate and primarily
illegitimate enterprises does not run afoul of the Supreme Court’s instruction that
we treat civil and criminal cases the same. Sedima, S.P.R.L. v. Imrex Co., 473 U.S.
479, 489 (1985).
4

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enterprise is an entity whose business is racketeering activity, an act performed
in furtherance of that business automatically carries with it the threat of
continued racketeering activity.’” (quoting Indelicato, 865 F.2d at 1383-84)); see
also United States v. Minicone, 960 F.2d 1099, 1108 (2d Cir. 1992) (“The question
of whether acts form a pattern rarely is a problem with a criminal enterprise, as
distinct from a lawful enterprise that commits occasional criminal acts.” (internal
quotation marks omitted)). That distinction ensures that RICO does not ensnare
“the perpetrators of ‘isolated’ or ‘sporadic’ criminal acts.” United States v.
Vernace, 811 F.3d 609, 615 (2d Cir. 2016). If every crime done by any employee of
a large, ramified corporation was deemed horizontally related, it would be
child’s play to plead RICO actions against those companies notwithstanding that
the crimes themselves might be “isolated” and otherwise unrelated. Id. So
where, as here, the enterprise in question is not primarily in the “business [of]
racketeering activity,” predicate acts must be related to each other in kind for a
RICO case to proceed. Coppola, 671 F.3d at 243.
That relatedness analysis begins with the factors identified in H.J.: similar
“purposes, results, participants, victims, [and] methods of commission.” 492 U.S.
at 240. But predicate acts need not be linked in every way. Daidone, 471 F.3d at
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375. Using the H.J. list as a guidepost, we consider whether the Derwick
principals’ alleged acts of wire fraud are “related” to the alleged Travel Act
violations.
The participants in both crimes were the Derwick principals, a
circumstance that weighs in favor of relatedness. However, there is little else. As
to the Travel Act violations, they were accomplished by the payment of bribes; the
result was that Derwick secured energy contracts; and the victims were competing
energy contractors and the government of Venezuela; whereas the wire fraud
was accomplished by false phone calls, the result was that two clients terminated
Reich, and the victims were Reich himself and his firm. The methods of
commission, victims, and results of the predicate acts are all dissimilar and weigh
against relatedness.
The last factor we consider is purpose, and the parties dispute which way
it cuts. In the ordinary sense of “purpose,” the Travel Act violations were
intended to secure energy contracts and the wire fraud was intended to get Reich
fired. In a very broad sense, however, the “purpose” of both crimes was to help
Derwick. But to engage purpose at that level of generality would make the factor
meaningless: virtually all crimes committed on behalf of an enterprise are done to
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help it. See Schlaifer Nance & Co. v. Estate of Warhol, 119 F.3d 91, 97 (2d Cir.
1997) (rejecting the argument that various predicate acts were related because
they shared the common goal of maximizing the wealth of the enterprise). We
therefore conclude that the distinct purposes of the alleged crimes weigh against
relatedness. Cf. Daidone, 471 F.3d at 376 (holding in the context of a primarily
illegitimate enterprise that “increasing and protecting the financial position of the
enterprise” was a “common goal[]”).
The only horizontal link between the predicate crimes is the overlap of
participants. In this case, where the enterprise in question is not primarily in the
business of racketeering, that is insufficient. See Schlaifer, 119 F.3d at 97 (holding
that predicate acts were unrelated despite an overlap of participants). Reich’s
RICO theory based on the combination of the wire fraud and the Travel Act
violations therefore fails.
Because his alternative theory--based on the wire fraud alone--lacked
continuity, dismissal of his substantive RICO claim was appropriate. His RICO
conspiracy claim fails for the same reasons. First Capital Asset Mgmt., Inc. v.
Satinwood, Inc., 385 F.3d 159, 182 (2d Cir. 2004).

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III
Reich’s various state law causes of action against Lopez and Trebbau were
dismissed for lack of personal jurisdiction. Reich argues for jurisdiction over the
defendants on several bases: general jurisdiction, specific jurisdiction, and
jurisdiction by personal service. As the district court determined, each premise is
unavailable.

A.

General Jurisdiction
For a court to exercise general jurisdiction over a defendant, 1) state law

must authorize general jurisdiction; and 2) jurisdiction “must comport with
constitutional due process principles.” Licci ex rel. Licci v. Lebanese Canadian
Bank, SAL, 673 F.3d 50, 59-60 (2d Cir. 2012). We assume for the purpose of this
appeal that state law would authorize jurisdiction, see N.Y. C.P.L.R. 301, but we
conclude that the exercise of jurisdiction over the defendants would be improper
because it would violate due process.
General jurisdiction over an individual comports with due process in the
forum where he is “at home,” meaning the place of “domicile.” Sonera Holding
B.V. v. Cukurova Holding A.S., 750 F.3d 221, 225 (2d Cir. 2014) (per curiam).
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Owning property in a forum does not alone establish domicile. “One may have
more than one residence in different parts of this country or the world, but a
person may have only one domicile.” United States v. Venturella, 391 F.3d 120,
125 (2d Cir. 2004). In an “exceptional case,” an individual’s contacts with a
forum might be so extensive as to support general jurisdiction notwithstanding
domicile elsewhere, Daimler AG v. Bauman, 134 S. Ct. 746, 761 n.19 (2014), but
the Second Circuit has yet to find such a case.
The district court found, after jurisdictional discovery, that Lopez and
Betancourt are not domiciled in New York. Reich does not contest that finding.
Instead, he argues that this case is the exceptional one in which we can exercise
general jurisdiction over the defendants even though they are domiciled
elsewhere.
This is not a case in which we need to decide the question of whether it
would ever be possible to exercise general jurisdiction over an individual in a
forum other than the one in which he is domiciled, nor do we need to define the
exact contours of what could make such an “exceptional case.” See Daimler AG,
134 S. Ct. at 761 n.19 (declining to reach the question or lay out any such
standards in the case of a corporate defendant). Betancourt, a Venezuelan
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citizen, has relationships with New York banks and law firms, and owns an
apartment in New York; but he spent fewer than 5% of nights in New York
during a 31-month period the district court examined. Trebbau, also a
Venezuelan citizen, does not own or rent any property in New York. In the same
31-month period, he spent fewer than 3% of nights in New York. The
defendants’ contacts with New York do not approach the point at which general
jurisdiction over them would comport with due process.

B.

Specific Jurisdiction
Reich argues that, even in the absence of general jurisdiction, New York’s

long-arm statute confers specific jurisdiction over the defendants. Two sections
of New York’s long-arm statute--the “tortious act” and “transaction of business”
provisions--are relevant to his claim.
New York allows for long-arm jurisdiction over defendants who “commit[]
a tortious act within the state, except as to a cause of action for defamation.” N.Y.
C.P.L.R. 302(a)(2). Reich alleges that some of the false phone calls forming the
basis of his wire fraud claim took place in New York, and he argued to the
district court that was a “tortious act within the state” which established personal
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jurisdiction. As the district court concluded, however, Reich’s various state law
claims sound in defamation, and were thus subject to the defamation exception of
Section 302(a)(2).
On appeal, Reich shifts the emphasis of his argument to N.Y. C.P.L.R.
Section 302(a)(1), which authorizes jurisdiction over defendants if: 1) the
defendants transact business in New York; and 2) the cause of action arises from
that transaction of business. Licci, 673 F.3d at 60. Reich argues that the
defendants “transacted business” in New York by making the false phone calls,
but he cannot use Section 302(a)(1) to do an end-run around the defamation
exception of Section 302(a)(2). “In defamation cases . . . the single act of uttering
a defamation, no matter how loudly, is not a transaction of business that may
provide the foundation for personal jurisdiction.” Best Van Lines, Inc. v. Walker,
490 F.3d 239, 248 (2d Cir. 2007) (internal punctuation omitted). Reich also alleges
that the defendants retained legal counsel in New York. While that is certainly a
transaction of business, it is insufficient to confer specific jurisdiction because
Reich’s claims do not arise from the defendants’ retention of counsel.

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C.

“Tag” Jurisdiction
Finally, Reich argues that Betancourt (but not Lopez) was personally

served while within the state and is thus subject to “tag” jurisdiction. Reich did
not present this argument to the district court, however, and the parties dispute
whether Betancourt was in fact personally served. Generally speaking, failure to
raise in the district court an issue that requires factfinding effects waiver of that
issue on appeal. Virgilio v. City of N.Y., 407 F.3d 105, 116 (2d Cir. 2005). We
decline to consider Reich’s waived argument for “tag” jurisdiction over
Betancourt, and there is thus no basis for us to exercise personal jurisdiction over
any of the defendants on Reich’s state law claims.

CONCLUSION
For the foregoing reasons, the order of the district court is AFFIRMED.

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