Willie McCormick and Associates, Incorporated v. Lakeshore Engineering Services, Incorporated et al

Filing 139

ORDER GRANTING PLAINTIFFS MOTION FOR RELIEF FROM INTERLOCUTORYORDER 128 . Signed by District Judge Arthur J. Tarnow. (TBan)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

WILLIE MCCORMICK & ASSOCIATES,
INC.,

Case No. 12-15460
SENIOR UNITED STATES DISTRICT
JUDGE ARTHUR J. TARNOW

Plaintiff,
v.

MAGISTRATE JUDGE MONA K.
MAJZOUB

LAKESHORE ENGINEERING SERVICES,
INC., ET AL.,
Defendants.
/

ORDER GRANTING PLAINTIFF’S MOTION FOR RELIEF FROM INTERLOCUTORY
ORDER [128]
On April 23, 2013, Plaintiff filed its Amended Complaint [Doc. #33].
Plaintiff brought antitrust and Racketeer Influenced and Corrupt Organizations
(RICO) Act claims against many defendants, as well as an Equal Protection Clause
claim (pursuant to 42 U.S.C. §§ 1983 and 1981) against Defendants Kwame
Kilpatrick, Victor Mercado, and Derrick Miller. On December 20, 2013, the Court
issued an Order [96] dismissing with prejudice Plaintiff’s antitrust and RICO
claims against Defendants Anthony Soave, Lakeshore Engineering Services, Inc.,
Avinash Rachmale, Lakeshore Toltest, Toltest Corporation, Thomas Hardiman,
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A&H Contractors, Inc., Inland Waters Pollution Control, Inc., Inland/XCel, LLC,
Detroit Contracting, Inc., Nafa Khalaf, and Detroit Management JV Team, LLC
(the Dismissed Defendants).
On August 15, 2014, Plaintiff filed a Motion for Relief from Order or for
Leave to Amend Complaint [128]. On August 22, 2014, the Court issued an Order
[131] directing the Dismissed Defendants to file a consolidated response brief by
September 19, 2014.

On September 19, 2014, a majority of the Dismissed

Defendants filed a consolidated Response [133].1 Plaintiff filed a Reply [135] on
September 25, 2014.
For the reasons stated below, Plaintiff’s Motion for Relief from Order or for
Leave to Amend Complaint [128] is GRANTED.

The Court’s Order [96]

dismissing with prejudice Plaintiff’s claims against the Dismissed Defendants is
VACATED IN PART.

Plaintiff’s antitrust and RICO claims against the

Dismissed Defendants are REOPENED. The Court will resolve the Dismissed
Defendants’ alternative arguments for dismissal after an opportunity for a second
hearing.

1

Dismissed Defendants Thomas Hardiman and A&H Contractors, Inc. filed a
Notice of Joinder [134] on September 25, 2014.
2

FACTUAL BACKGROUND
In the Order under reconsideration, the Court recounted the factual
background of the case as follows:
Plaintiff Willie McCormick & Associates, Inc., (“McCormick”)
brings the present antitrust and RICO action alleging collusion and
fraudulent conspiracy between and among Defendants. McCormick
places the Defendants in three groups within the conspiracy: (1) The
Public Official Defendants;2 (2) The Ferguson Defendants;3 and [3]
The Contractor Defendants.4
...
McCormick is an underground water and sewer contractor.
Since 1992, it has performed water and sewer-line work almost
exclusively for the Detroit Water and Sewerage Department
(“DWSD”). Defendants orchestrated a secret bid-rigging scheme
whereby water and sewer subcontracts for the DWSD were distributed
amongst Defendants. They conspired with each other to rig bids,
overcharge the DWSD for services performed on its sewers and
water-lines, receive kickbacks, and manipulate DWSD contracts and
subcontracts to exclude contractors, such as McCormick, who were
not members of the conspiracy. McCormick also claims that
Defendants fraudulently concealed their scheme from the authorities
and McCormick, and that the extent of the fraudulent activity only
became known on December 15, 2010, when the grand jury released
the First Superseding Indictment in United States v. Kilpatrick, No.
10-20403.

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Defendants Kilpatrick, Miller, and Mercado.
Defendants Ferguson, Ferguson’s Enterprises, Inc., Xcel, Detroit Management
Program JV Team, LLC, Inland/Xcel, LLC, “and other ‘proxy’ companies acting
at Ferguson’s direction.”
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Defendants Soave, Inland Waters Pollution Control, Inc., Inland/Xcel, LLC, Nafa
Khalaf, Detroit Contracting, Inc., Detroit Program Management JV Team, LLC,
Avinash Rachmale, Thomas Hardiman, and LakeShore and A & H Contractors,
Inc.
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3

The Public Official Defendants used their authority with the
City of Detroit and the DWSD to control the award of DWSD
contracts, rig the contract bidding process, and steer DWSD contracts
to members of the conspiracy. The Ferguson Defendants approached
the Contractor Defendants to solicit their agreement to include the
Ferguson Defendants as subcontractors on all DWSD bids. The
Contractor Defendants agreed to participate in the bid-rigging and to
pay kick-backs to the Ferguson and Public Official Defendants in
exchange for a monopoly of DWSD contract awards with “little or no
supervision” from the DWSD. The ultimate effect of these activities
was to steer all DWSD work to members of the conspiracy, thereby
insuring that only members of the conspiracy would be included as
contractors and subcontractors on DWSD contracts, regardless of
whether their bid was lowest during the contract bidding process.
McCormick claims that but for Defendants’ unlawful conspiracy, it
would have received contracts [from the DWSD] and subcontracts
from the DWSD [general contractors].
ANALYSIS
As a threshold matter, Defendants argue that the instant motion was
improperly brought under Federal Rule of Civil Procedure 60(b) because it does
not challenge a final order. Plaintiff concedes the point, asking the Court to
reconsider its prior order not under Rule 60(b) but instead under Rule 54(b) or
under the Court’s inherent power. The Court will exercise its inherent authority to
review the merits of its prior order. In re Saffady, 524 F.3d 799, 803 (6th Cir.
2008) (“[D]istrict courts have inherent power to reconsider interlocutory orders
and reopen any part of a case before entry of a final judgment.”) (quoting Mallory
v. Eyrich, 922 F.2d 1273, 1282 (6th Cir. 1991)).
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As explained below, the Court reconsiders and vacates the following
holdings in its prior Order: (1) Plaintiff failed to plead antitrust injury; (2) “other
relevant factors” bar Plaintiff from proceeding with its antitrust claim; (3) Plaintiff
failed to allege “injury to business or property” as required to maintain a civil
RICO claim; and (4) Plaintiff failed to adequately plead the proximate cause
element of a RICO claim. Accordingly, Plaintiff’s antitrust and RICO claims
against the Dismissed Defendants are revived. The Dismissed Defendants have
raised alternative grounds for dismissal, but the Court will address them on a later
date, after an opportunity for a second hearing.
I.

Antitrust
Section 4 of the Clayton Act broadly empowers any person “injured in his

business or property” by reason of a Sherman or Clayton Act violation to sue for
treble damages. See 15 U.S.C. § 15(a). A Section 4 plaintiff must have suffered
“antitrust injury,” meaning “injury of the type the antitrust laws were intended to
prevent and that flows from that which makes the defendant’s acts unlawful.”
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). Though
antitrust injury is necessary for antitrust standing, it is not sufficient. NicSand, Inc.
v. 3M Co., 507 F.3d 442, 450 (6th Cir. 2007) (en banc) (citing Cargill, Inc. v.
Monfort of Colo., Inc., 479 U.S. 104, 110 n. 5 (1986)). In Associated General
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Contractors of California, Inc. v. California State Council of Carpenters (AGC),
the Supreme Court set forth several factors to be analyzed to determine if a
plaintiff alleging antitrust injury has antitrust standing. See 459 U.S. 519, 535–46
(1983). The Sixth Circuit has identified five AGC factors:
(1) the causal connection between the antitrust violation and harm to
the plaintiff and whether that harm was intended to be caused; (2) the
nature of the plaintiff’s alleged injury including the status of the
plaintiff as consumer or competitor in the relevant market; (3) the
directness or indirectness of the injury, and the related inquiry of
whether the damages are speculative; (4) the potential for duplicative
recovery or complex apportionment of damages; and (5) the existence
of more direct victims of the alleged antitrust violation.
Static Control Components, Inc. v. Lexmark Intern., Inc., 697 F.3d 387, 402 (6th
Cir. 2012) (quoting Southaven Land Co., Inc. v. Malone & Hyde, Inc., 715 F.2d
1079, 1085 (6th Cir. 1983)). No single factor is dispositive. Id. (citing Peck v.
Gen. Motors Corp., 894 F.2d 844, 846 (6th Cir. 1990)).
The Court now concludes, in contrast to its prior Order, that Plaintiff has
alleged antitrust injury. The Court previously held that Plaintiff’s alleged injury—
loss of profits from DWSD contract work due to the conspiracy’s exclusion of
honest (sub)contractors from the market—was not an antitrust injury because it
was “better stated as a harm to a competitor, rather than to competition itself.” It is
true that in the course of holding that certain competitors had not suffered an
antitrust injury, the Supreme Court emphasized that the antitrust laws were enacted
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for the protection of competition, not competitors. Brunswick, 429 U.S. at 488.
This statement must be understood, however, in the context of the competitors’
claims: they complained that the defendant had preserved competition. Id. These
competitors’ loss was not an antitrust injury because it did not “stem[] from a
competition-reducing aspect or effect of the defendant’s behavior.”

Atlantic

Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 344 (1990). However, a
competitor’s loss may constitute antitrust injury where it stems from the
competitor’s exclusion from a market. See NicSand, Inc. v. 3M Co., 507 F.3d 442,
451, 457 (6th Cir. 2007) (en banc); Re/Max Intern., Inc. v. Realty One, Inc., 173
F.3d 995, 1009 (6th Cir. 1999); Gulf States Reorganization Group, Inc. v. Nucor
Corp., 466 F.3d 961, 967–968 (11th Cir. 2006); Doctor’s Hospital of Jefferson,
Inc. v. Southeast Medical Alliance, Inc., 123 F.3d 301, 305–06 (5th Cir. 1997).
Plaintiff has alleged such loss, and has therefore alleged antitrust injury.
The Supreme Court’s decision in AGC not only reinforces the conclusion
that Plaintiff has alleged antitrust injury, but also compels the Court to reconsider
its prior holding that “other relevant factors” weigh against recognizing Plaintiff as
an appropriate antitrust plaintiff. In AGC, the Supreme Court addressed a union’s
allegation that the defendants had applied coercion to “divert business” in a
“market for construction subcontracts” from union (sub)contractors to nonunion
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(sub)contractors. 459 U.S. at 540–41. The Supreme Court stated that if the union
(sub)contractors had in fact been injured by the alleged antitrust violation, “their
injuries would be direct and . . . they would have a right to maintain their own
treble damages actions against the defendants.” Id. at 541; see also id. at 540 n.44
(stating that “a contracting or subcontracting firm that refused to yield to the
defendants’ coercive practices and therefore suffered whatever sanction that
coercion imposed … could maintain an [antitrust] action against the defendants”);
id. at 545 (contrasting the indirectly affected union entities and employees with the
“directly victimized” contractors and subcontractors). In other words, when setting
out the AGC factors, the Supreme Court stated—albeit in dicta—that a
(sub)contractor raising allegations much like Plaintiff’s would be an appropriate
antitrust plaintiff. The Dismissed Defendants have not identified any material
distinction between the allegations here and those in AGC; they only remind the
Court that the Supreme Court did not reach a binding conclusion on the issue of the
(sub)contractors’ standing. True enough, but the Supreme Court’s statements are
persuasive. The Court thus concludes that it was in error to hold that the AGC
factors bar Plaintiff from proceeding with its antitrust claim.

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In sum, the Court erred in dismissing Plaintiff’s antitrust claims against the
Dismissed Defendants for failure to plead an antitrust injury and failure to satisfy
the AGC factors for an appropriate antitrust plaintiff. The claims will be reinstated.
II.

RICO
Courts have looked to antitrust law to identify limits to civil RICO actions,

including the requirements that a plaintiff allege (1) an “injury to business or
property” that is (2) proximately caused by the defendants’ predicate acts. Jackson
v. Sedgwick Claims Mgmt. Servs., 731 F.3d 556, 563–64 (6th Cir. 2013) (en banc).
To determine whether a plaintiff’s alleged injury constitutes the required “injury to
business or property,” a court must ask if Congress intended to authorize the
recovery of damages for that injury via a civil RICO claim. Id. at 565. When
determining whether a plaintiff has met the proximate cause requirement, the
central question is whether the defendants’ acts constituting the alleged RICO
violation directly led to the plaintiff’s injury. Anza v. Ideal Steel Supply Corp., 547
U.S. 451, 461 (2006). This directness requirement serves various purposes of the
proximate cause requirement, such as
avoid[ing] the difficulties associated with attempting to ascertain the
amount of a plaintiff’s damages attributable to the violation, as
distinct from other, independent, factors; prevent[ing] courts from
having to adopt complicated rules apportioning damages among
plaintiffs removed at different levels of injury from the violative acts,
to obviate the risk of multiple recoveries; and recogniz[ing] the fact
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that directly injured victims can generally be counted on to vindicate
the law as private attorneys general, without any of the problems
attendant upon suits by plaintiffs injured more remotely.
Bridge v. Phoenix Bond, 553 U.S. 639, 654–55 (2008) (citing Holmes v. Securities
Investor Protection Corp., 503 U.S. 258, 269–70 (1992)) (internal quotation marks
and citations omitted). Proximate cause is a flexible concept, to be applied on a
case-by-case basis. Wallace v. Midwest Fin. & Mortg. Servs., 714 F.3d 414, 419
(6th Cir. 2013) (citing id. at 654).
The Court now concludes that by alleging a loss of DWSD contract work
and a resulting loss of profits, Plaintiff has alleged an “injury to business or
property” sufficient to sustain a RICO claim. The Court previously held otherwise
on the grounds that under Michigan law on claims for tortious interference with a
contract or business expectancy, Plaintiff has no protected property interest in
DWSD contract work. However, RICO law does not support dismissing Plaintiff’s
claim on the grounds that Plaintiff had no entitlement to the contract work
allegedly lost. As the Fifth Circuit recently explained,
a RICO plaintiff need not demonstrate legal entitlement, a point the
Supreme Court made clear in Bridge v. Phoenix Bond & Indemnity
Co., 553 U.S. 639, 128 S.Ct. 2131, 170 L.Ed.2d 1012 (2008). The
plaintiffs in Bridge were “regular participants in Cook County’s tax
sales[,]” in which bids often ended in a tie. Id. at 643, 128 S.Ct. at
2135. The county would then allocate the auctioned property on a
rotational basis. Id. at 642, 128 S.Ct. at 2135. In order to make this
process fair, each bidder was permitted only one simultaneous bid. Id.
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at 643, 128 S.Ct. at 2135. The plaintiffs alleged that a competing
corporate bidder had arranged for false-flag bidders to channel
additional allocations. Id. The Bridge plaintiffs had no legal
entitlement to the subject matter of the auction. Nevertheless, the
Supreme Court held that “[a]s a result of petitioners’ fraud,
respondents lost valuable liens they otherwise would have been
awarded.” Id. at 649, 128 S.Ct. at 2139. Because the fact of loss was
certain, the plaintiffs could state a RICO claim.
Gil Ramirez Grp., L.L.C. v. Houston Indep. Sch. Dist., 786 F.3d 400, 409 (5th Cir.
2015).
Applying the Fifth Circuit’s reasoning in Gil Ramirez, the Court holds that
Plaintiff has alleged a sufficient injury to business or property. In Gil Ramirez, the
plaintiffs alleged that “their refusal to bribe [a public official] harmed their
business, both in the reduction in assignments under [a government construction
contract] and in [their] nonselection” for a subsequent contract. Id. at 407. The
Fifth Circuit acknowledged that the plaintiffs had no entitlement to the award of
contracts or assignment of contract work, which remained in the municipal
government’s discretion, but nevertheless held that the plaintiffs’ alleged loss
constituted a sufficient RICO injury. Id. at 409–10. Here, much like the plaintiffs
in Gil Ramirez, Plaintiff has alleged the loss of a government contract award and of
assignments under government contracts due to nonparticipation in a bribery
scheme. The Court is persuaded that these allegations suffice to meet RICO’s
injury requirement.
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The Court further holds that Plaintiff has pled a direct relation between this
injury and the alleged RICO scheme. In its prior Order, the Court described
Plaintiff’s injury as “attenuated and indirect” and indicated that Plaintiff is not an
appropriate RICO plaintiff because the DWSD, rather than Plaintiff, was more
directly injured by the alleged scheme. The Court was incorrect. Plaintiff has
alleged that the Dismissed Defendants engaged in a pattern of bribery and
extortion with the effect of funneling DSWD contract work away from Plaintiff
and other honest (sub)contractors to the Ferguson Defendants. Plaintiff’s harm
from this scheme was in no way contingent upon the harm suffered by the DWSD;
Plaintiff would have been harmed by losing work to the Ferguson Defendants even
if the Ferguson Defendants charged the DWSD fair prices.5 In fact, it would be
more accurate to say that the DWSD’s harm was contingent, in part, upon the harm

5

Plaintiff’s harm is therefore distinguishable from the indirect harm in Anza. The
plaintiff in Anza alleged a pattern of mail and wire fraud engaged in by the
defendants to withhold tax revenue from the New York state government. 547
U.S. at 457–58. The plaintiff alleged that it was harmed by the fraud only in a
manner contingent on the state’s harm: the defendants’ withholding of taxes from
the state enabled them to lower prices, and the lowered prices caused the plaintiff
to lose business. Id. Here, in contrast, Plaintiff has alleged that the Dismissed
Defendants conspired to divert contract work to the Ferguson Defendants, directly
injuring Plaintiff via the loss of contract work. See Bridge, 553 U.S. at 658
(explaining that because “[i]t was a foreseeable and natural consequence of [the
RICO defendants’] scheme to obtain more liens for themselves that other bidders
would obtain fewer liens,” the alleged loss of liens was a “direct financial injury”
sufficient to satisfy the directness requirement).
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suffered by Plaintiff and other honest (sub)contractors; the DWSD would have
paid less in overcharges if Plaintiff and its honest competitors had retained more
work.

While the harm done to the DWSD was undoubtedly of more public

significance than the harm done to Plaintiff, it was not more direct. Since the
central proximate cause question is the directness of the injury, rather than its
significance, this is no grounds for dismissing Plaintiff’s RICO claim on the
pleadings.
The conclusion that Plaintiff has alleged a direct injury does not resolve the
proximate cause issue—nor should it, at the pleading stage. “[A] RICO plaintiff
who can show a direct injury may still lose the case if the injury does not satisfy
other traditional requirements of proximate cause—that the wrongful conduct be a
substantial and foreseeable cause and that the connection be logical and not
speculative.” Trollinger v. Tyson Foods, Inc., 370 F.3d 602, 615 (6th Cir. 2004).
However, “a RICO case with a traditional proximate-cause problem (e.g., a weak
or insubstantial causal link, a lack of foreseeability, or a speculative or illogical
theory of damages) . . . will more often be fodder for a summary-judgment motion
under Rule 56 than a motion to dismiss under Rule 12(b)(6).” Id. (citing NOW v.
Scheidler, 510 U.S. 249, 256 (1994)). In its prior Order, the Court identified
various difficulties Plaintiff would face in proving damages proximately caused by
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the alleged scheme. However, it is not yet Plaintiff’s burden to overcome those
difficulties.
In sum, the Court erred in dismissing Plaintiff’s RICO claim against the
Dismissed Defendants for failure to plead an “injury to business or property”
proximately caused by the alleged scheme. The claim will be reinstated.
III.

Other Grounds for Dismissal
In their respective motions to dismiss, the Dismissed Defendants raised

various arguments for dismissal that the Court declined to address in its prior
Order. The Court will address them on a later date, after an opportunity for a
second hearing on the motions to dismiss.
In their response to Plaintiff’s motion for reconsideration, the Dismissed
Defendants raise a new argument for dismissal. They point out that Plaintiff filed a
petition for restitution in the criminal RICO prosecution arising from the same
scheme alleged in this case. On February 14, 2014, Judge Edmunds ruled that
Plaintiff was not entitled to restitution under the Mandatory Victims Restitution
Act (MVRA), 18 U.S.C. § 3663A. United States v. Kilpatrick, No. 14-mc-50163
(E.D. Mich. Feb. 14, 2014) (Order Denying Petition for Restitution). According to
the Dismissed Defendants, Judge Edmunds ruled that Plaintiff’s harm was not
caused by the scheme, and collateral estoppel therefore bars Plaintiff from
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establishing causation in this case. Plaintiff argues that the estoppel issue is not
properly before the Court, since collateral estoppel is an affirmative defense that
the Dismissed Defendants should raise in a pleading or motion. Even if the issue is
properly before the Court, the Court will defer its resolution until after an
opportunity for a second hearing.
CONCLUSION
For the reasons stated above,
IT IS ORDERED that Plaintiff’s Motion for Relief from Order or for Leave
to Amend Complaint [128] is GRANTED.
IT IS FURTHER ORDERED that the Court’s Order [96] granting the
Dismissed Defendants’ motions to dismiss is VACATED IN PART. It is vacated
with respect to the following conclusions: (1) Plaintiff failed to plead antitrust
injury; (2) “other relevant factors” bar Plaintiff from proceeding with its antitrust
claim; (3) Plaintiff failed to allege “injury to business or property” as required to
maintain a civil RICO claim; and (4) Plaintiff failed to adequately plead the
proximate cause element of a RICO claim.
IT IS FURTHER ORDERED that Plaintiff’s antitrust and RICO claims
against the Dismissed Defendants are REOPENED. The Court will resolve the

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Dismissed Defendants’ alternative arguments for dismissal after an opportunity for
a second hearing.
SO ORDERED.

Dated: August 28, 2015

/s/Arthur J Tarnow
Arthur J. Tarnow
Senior United States District Judge

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