Willie McCormick and Associates, Incorporated v. Lakeshore Engineering Services, Incorporated et al
Filing
96
OPINION AND ORDER granting 51 Motion to Dismiss; granting 53 Motion to Dismiss; granting 54 Motion to Dismiss; granting 67 Motion to Dismiss, Dismissing with prejudice Counts I-III of the First Amended Complaint as to defendants Anthony S oave, Lakeshore Engineering Services, Inc, Avinash Rachmale, Lakeshore Toltest Corporation, Thomas Hardiman, A&H Contractors, Inc, Inland Waters Pollution Control, Inc., Inland/ECel, LLC, Detroit Contracting, Inc, Nafa Khalef, and Detroit Management JV Team, LLC. Signed by District Judge Robert H. Cleland. (LWag)
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
WILLIE MCCORMICK & ASSOCIATES, INC., a
Michigan corporation,
Plaintiff,
Case No. 12-15460
v.
LAKESHORE ENGINEERING SERVICES,
INC., et al.,
Defendants.
/
OPINION AND ORDER GRANTING DEFENDANTS’
MOTIONS TO DISMISS WITH PREJUDICE
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;1 (2) The Ferguson Defendants;2 and The
Contractor Defendants.3 Its claims arise out of the Detroit Water and Sewerage
Department’s (“DWSD”) award of multiple contracts to the Contractor Defendants.
McCormick alleges that these contracts were the product of bid-rigging and unlawful
collusion between Defendants, and that because it was an honest subcontractor, it was
1
Defendants Kilpatrick, Miller, and Mercado.
2
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.”
3
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.
effectively excluded from the market. Defendants Anthony Soave, Lakeshore
Engineering Services, Inc., Avinash Rachmale, Lakeshore Toltest, Toltest Corporation,
Thomas Hardiman, A&H Contractors, Inc., Inland waters Pollution Control, Inc.,
Inland/XCel, LLC, Detroit Contracting, Inc., Nafa Khalaf, and Detroit Management JV
Team, LLC moved to dismiss McCormick’s First Amended Complaint. For the following
reasons, Defendants’ motions to dismiss will be granted.
I. BACKGROUND4
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.
The Public Official Defendants used their authority with the City of Detroit and
4
For the purposes of this order, the court must assume that all of McCormick’s
factual allegations are true. Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th
Cir.1987).
2
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 and subcontracts from the DWSD.
II. STANDARD
Federal Rule of Civil Procedure 8(a)(2) requires that a complaint contain “a short
and plain statement of the claim showing that the pleader is entitled to relief[.]” In order
to survive a motion to dismiss, the complaint must allege “[f]actual allegations
. . . enough to raise a right to relief above the speculative level . . . on the assumption
that all the allegations in the complaint are true[.]” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007). Only a complaint that states a plausible claim for relief can survive a
motion to dismiss, and “[a] claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009).
Determining whether a complaint states a plausible claim for relief will . . . be
3
a context-specific task that requires the reviewing court to draw on its judicial
experience and common sense. But where the well-pleaded facts do not
permit the court to infer more than the mere possibility of misconduct, the
complaint has alleged—but it has not shown—that the pleader is entitled to
relief.
Id. at 679 (internal quotation marks, citation, and brackets and omitted). “In determining
whether to grant a [motion to dismiss], the court primarily considers the allegations in
the complaint, although matters of public record, orders, items appearing in the record
of the case, and exhibits attached to the complaint, also may be taken into account.”
Amini v. Oberlin College, 259 F.3d 493, 502 (6th Cir. 2001) (quotation marks, citation,
and emphasis omitted).
III. DISCUSSION
A. Constitutional Standing
“If Plaintiff[] cannot establish constitutional standing, [its] claims must be
dismissed for lack of subject matter jurisdiction.” Loren v. Blue Cross & Blue Shield of
Mich., 505 F.3d 598, 607 (6th Cir. 2007). In order to satisfy constitutional standing
requirements, a plaintiff must show:
(1) it has suffered an injury in fact that is (a) concrete and particularized and
(b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly
traceable to the challenged action of the defendant; and (3) it is likely, as
opposed to merely speculative, that the injury will be redressed by a
favorable decision.
Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180–81
(2000) (internal quotation marks omitted).
Defendants Soave, Inland Waters, and Inland/Xcel argue that McCormick lacks
constitutional standing to bring its claims because McCormick failed to articulate a
concrete, particularized, and non-speculative damage as a result of Defendants’ alleged
4
conduct. Defendants assert that McCormick’s interest in being selected as a
subcontractor on any given contract was a “unilateral hope,” and that as a subcontractor
McCormick was not entitled to receive any work under any DWSD contracts.
Reasonably read, McCormick’s First Amended Complaint alleges that it received
subcontractor work from the DWSD before Kilpatrick took office, and that after Kilpatrick
began conspiring with the other Defendants to place Ferguson on DWSD contracts, it
was excluded from the market. McCormick claims that a combination of bribes, kickbacks, and bid-rigging directly injured its ability to work for the DWSD, and it seeks
damages resulting from the unlawful collusion between Defendants. The court finds
that McCormick possesses constitutional standing, and will address separately, infra,
whether McCormick satisfies the individual standing requirements under RICO and
antitrust law.
B. Statute of Limitations
Defendants argue that the four-year statute of limitations period for antitrust and
RICO actions bars McCormick’s claims. 15 U.S.C. § 15b; Agency Holding Corp. v.
Malley-Duff & Assocs., Inc., 483 U.S. 143, 156 (1987) (adopting four-year statute of
limitations for civil RICO actions). McCormick filed its original complaint on December
13, 2012, and does not dispute that many of the actions alleged in its First Amended
Complaint took place prior to December 13, 2008.
Instead, McCormick argues that its claims are not time-barred because
Defendants’ fraudulently concealed the existence of this action.
Under the doctrine of fraudulent concealment, . . . the plaintiff must allege in
the complaint that: (1) the defendant concealed the conduct that constitutes
the cause of action; (2) defendant’s concealment prevented plaintiff from
5
discovering the cause of action within the limitations period; and (3) until
discovery plaintiff exercised due diligence in trying to find out about the cause
of action. The burden of proving the elements of fraudulent concealment is
upon plaintiff.
Pinney Dock and Transp. Co. v. Penn Cent. Corp., 838 F.2d 1445, 1465 (6th Cir. 1988).
A plaintiff is required to prove affirmative acts of concealment. Id. at 1472. “[A] plaintiff
who is not reasonably diligent may not assert ‘fraudulent concealment.’” Klehr v. A.O.
Smith Corp., 521 U.S. 179, 194 (1997). “Fraudulent concealment . . . may be
established through the acts of co-conspirators.” In re Scrap Metal Antitrust Litig., 527
F.3d 517, 538 (6th Cir. 2008).
McCormick argues that the statute of limitations was tolled until the filing of the
First Superseding Indictment in the Kilpatrick case on December 15, 2010. The First
Amended Complaint claims that Kilpatrick used his position as Mayor and Special
Administrator of the DWSD to manipulate DWSD contracts with no oversight from other
city officials. Defendants perjured themselves, tampered with witnesses, and
obstructed justice in order to conceal their fraud. (Pg. ID 359–62.) McCormick alleges
that Defendants concealed bribes and kickbacks through the use of third-party couriers,
company accounts not directly involved in DWSD contracts, and payments to the Public
Official Defendants that included private jet flights, hotel rooms, and donations to
charities and political campaigns connected with the Public Official Defendants. (Id.)
McCormick also claims that Defendants used proxy companies as bidding partners, with
the understanding that the proxy companies would remove themselves once they
received a bid, and that they conducted secret meetings to bring in the Ferguson
Defendants as subcontractors on DWSD contracts. (Id.)
6
In response, Defendants argue that a variety of news articles attached to their
motions to dismiss demonstrate that inquiry notice existed that possible fraudulent
activity was happening in the Kilpatrick mayoral administration as early as 2004. (See,
e.g., Pg. ID 715–25, 741–69.) These articles raise questions regarding whether the
Kilpatrick administration received campaign money through suspect methods, and
whether Ferguson received contracts due to his friendship with Kilpatrick.
Although these articles raise doubts regarding what McCormick knew or should
have known regarding its claims, the issue before the court is whether, taken as true,
McCormick’s allegations allow the court to infer more than the mere possibility of
misconduct. Reasonably read, McCormick’s allegations allege a scheme of fraudulent
conduct that was deliberately concealed from the outside world. McCormick alleges
that it did not become aware of the nature or extent of the conspiracy until after the
federal government released an indictment detailing the results of its lengthy
investigation into the Kilpatrick administration. The court finds that McCormick has
reasonably plead fraudulent concealment.5
C. Antitrust Claims
Section 1 of the Sherman Act provides: “Every contract, combination in the form
of trust or otherwise, or conspiracy, in restraint of trade or commerce . . . is declared to
5
Defendants Inland Waters and Inland/Xcel argue separately that McCormick’s
action against them is barred because McCormick agreed to a two-year period of
limitations in two subcontractor agreements (CS-1368 and DWS 876/77). McCormick
denies that either agreement produced by the Inland Defendants pertains to this action,
and it represents that the alleged activity in its First Amended Complaint took place prior
to June 1, 2006. Because it is unclear whether either agreement pertains to the instant
case, the court declines to decide the issue.
7
be illegal.” 15 U.S.C. § 1. “Any person who shall be injured in his business or property
by reason of anything forbidden in the antitrust laws may sue therefor in any district
court of the United States . . . and shall recover threefold the damages by him
sustained, and the cost of suit, including a reasonable attorney’s fee.” 15 U.S.C.
§ 15(a). McCormick alleges that Defendants violated the Sherman Act in two ways: (1)
by conducting bid-rigging activity, and (2) by horizontal market allocation and exclusion.
However, because McCormick lacks standing to proceed on its antitrust claims, the
court does not reach either issue.
Antitrust standing is distinct from constitutional standing. NicSand, Inc. v. 3M
Co., 507 F.3d 442 (6th Cir. 2007) (en banc). In order to establish antitrust standing,
McCormick must allege an “antitrust injury, which is to say injury of the type the antitrust
laws were intended to prevent and that flows from that which makes defendants’ acts
unlawful. The injury should reflect the anticompetitive effect either of the violation or of
anticompetitive acts made possible by the violation.” Brunswick Corp v. Pueblo Bowl-OMat, Inc., 429 U.S. 477, 489 (1977). “Far from being a mere technicality, antitrust
standing is the glue that cements each suit with the purposes of the antitrust laws, and
prevents abuses of those laws by claimants[.]” NicSand, 507 F.3d at 449. “Even an act
of pure malice by one business competitor against another does not, without more,
state a claim under the federal antitrust laws.” Brooke Group Ltd. v. Brown &
Williamson Tobacco Corp., 509 U.S. 209, 225 (1993).
McCormick alleges that as a result of Defendants’ conspiracy, it did not receive
subcontracts with the DWSD that it would have received if there had not been a
conspiracy. Simply put, Kilpatrick’s requirement that Ferguson be a member of all
8
DWSD contracts mandated that only co-conspirators would receive work from
DWSD—all honest subcontractors were barred from the market. Assuming that the bidrigging scheme McCormick describes is unlawful, it is not clear that McCormick’s injury
flows from the alleged antitrust violation. This is because “antitrust laws . . . were
enacted for the protection of competition not competitors.” Brunswick Corp., 429 U.S. at
488 (emphasis added).
The Sixth Circuit rejected a similar antitrust claim in Expert Masonry, Inc. v.
Boone Cnty., Ky., 440 F.3d 336 (6th Cir. 2006). In Expert Masonry, the plaintiff
company bid on two public construction projects and failed to win either. It brought suit
against the winning contractor as well as the government entity which awarded the
contract, claiming that the two unlawfully conspired with each other to rig the bidding
process. Id. at 338–341. The Sixth Circuit noted that “[i]t is clear that the injury alleged
here has not been previously found to be a cognizable antitrust violation under the
Sherman Act in analogous situations.” Id. at 346. The court recognized the danger of
allowing such a suit to proceed:
To allow any auction, bidding, or other competitive sales process to be
challenged whenever one potential supplier is distraught because it did not
win the sale would be to outlaw competition and salesmanship, for
companies and their staffs could not reasonably be expected to compete to
win sales, projects, and new clients if, in so doing, they risk treble damages
and even imprisonment when one rival is disappointed with the results.
Id. at 347–48. The court held that the plaintiff did not allege an injury that antitrust laws
protect, and “declin[ed] to extend antitrust liability to give succor to dejected buyers or
sellers who . . . allege that one buyer and one seller colluded to reach a deal that may
or may not have been inferior to the deal offered by the disappointed party.” Id. at 348.
9
Taking the allegations in the First Amended Complaint as true, Defendants
conspired to rig bids for DWSD contracts for their mutual benefit. Ferguson and the
Public Official Defendants received kickbacks and payment for work they did not
complete, and the Contractor Defendants received the opportunity to conduct business
with the DWSD. Although it may be true that McCormick missed out on work with the
DWSD because of the conspiracy, this is not the type of injury that makes bid-rigging
unlawful under antitrust law. Rather, bid-rigging is illegal because it increases the price
of products to consumers. See Gatt Commc’ns, Inc. v. PMC Assocs., L.L.C., 711 F.3d
68, 77 (2d Cir. 2013.) In the scheme that McCormick describes, the DWSD was the
consumer. The direct harm in this case is to the DWSD which had to pay increased
prices for its work as a result of fraudulent activity by Ferguson, Kilpatrick, and the
General Contractors who colluded in the fraud. In contrast, McCormick’s injury stems
from its exclusion from DWSD contracts, and is thus better stated as a harm to a
competitor, rather than to competition itself.
Even assuming that McCormick is able to allege an antitrust injury, its complaint
may not proceed if “[o]ther relevant factors—the nature of [McCormick’s] injury, the
tenuous and speculative character of the relationship between the alleged antitrust
violation and [McCormick’s] alleged injury, the potential for duplicative recovery or
complex apportionment of damages, and the existence of more direct victims of the
alleged conspiracy—weigh heavily against judicial enforcement.” Associated Gen.
Contractors of Cal., Inc., v. Cal. State Council of Carpenters, 459 U.S. 519, 545 (1983).
The Associated General Contractors factors are balanced, and no single factor is
outcome determinative. Indeck Energy Servs., Inc. v. Consumers Energy Co., 250 F.3d
10
972, 976 (6th Cir. 2000).
The Second Circuit’s decision in Gatt is instructive. Gatt Communications, Inc.,
bought, marketed, and sold commercial land mobile radios in New York State. The
defendant, PMC Associates, Inc., was a dealer and sales representative for Vertex
Standard USA, Inc., a manufacturer and distributor of radios. Gatt, 711 F.3d at 71.
Gatt claimed that PMC and another sales representative, Wineland, orchestrated a bidrigging scheme whereby they determined in advance which Vertex dealer would submit
the lowest bid for each government contract. This created the illusion of a competitive
bidding process, but insured that the result would be predetermined by the bidding
parties. Id. at 72. After participating in this scheme for approximately two years,6 Gatt
became dissatisfied with the arrangement, and “broke ranks and independently set and
submitted a quotation, despite PMC’s instruction to the contrary.” Id. at 73. Vertex
terminated Gatt as a distributor and PMC won the contract. Id. at 73–74.
The Second Circuit found that the Associated General Contractors factors
weighed against granting Gatt antitrust standing. First, Gatt’s injuries were indirect as it
claimed commissions that it would have otherwise earned if it had remained a Vertex
distributor. The court found these lost commissions more remote and speculative than
the losses suffered by the government agencies that paid inflated prices for Vertex’s
products. Id. at 78–79. Further, the court noted that the state agencies were a more
6
McCormick argues that unlike the plaintiff in Gatt, McCormick was never a
member of the fraudulent scheme. However, the Gatt court expressly declined to
consider whether the equitable doctrine of in pari delicto barred Gatt’s claims, and did
not rely in substantial part on Gatt’s involvement in the conspiracy in determining that it
lacked antitrust standing. See Gatt, 711 F.3d 80–81.
11
direct plaintiff to bring suit. Id. at 79; see also Holmes v. Sec. Investor Protection Corp.,
503 U.S. 258, 269 (1992) (“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.”). The Second Circuit rejected Gatt’s
allegations that had it been able to submit competitive bids, it would have received more
government contracts as speculative. Gatt, 711 F.3d at 79. The court noted that,
presumably, other contractors would have also submitted bids and there was no reason
to assume that Gatt would win the contracts over these other competitors. The
presence of these other competitors also increased the potential for duplicative
recoveries, as the court noted that other Vertex dealers would be able to file suit
alleging that had their bids not been restrained, they too could have won government
contracts. Id. at 79–80.
Similarly, the Associated General Contractors factors weigh against granting
McCormick standing. McCormick claims indirect injuries for sub-contracts that it would
have earned had there been no conspiracy between Defendants. But like Gatt, the
direct injury in this case is to the government agency which paid inflated prices for its
contracts with Defendants. See West Penn Allegheny Health Sys., Inc. v. UPMC, 627
F.3d 85, 102 (3d Cir. 2010). The DWSD is a better-situated plaintiff to bring suit against
Defendants. McCormick’s allegations that it would have been granted sub-contracts
were it not for Defendants’ conspiracy is speculative as there is no reason to believe
that it would have won these sub-contracts over other competitors. See Tal v. Hogan,
453 F.3d 1244, 1258 (10th Cir. 2006) (rejecting as too speculative claims by developer
that were it not for unlawful collusion, it would have received a redevelopment contract).
12
Lastly, the potential for duplicative recoveries in this suit would be great as other subcontractors could plausibly bring suit alleging similar antitrust violations, thereby
complicating the calculation and apportionment of damages. Holmes, 503 U.S. at 269
(“[R]ecognizing claims of the indirectly injured would force courts 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.”).
McCormick offers no meaningful argument to the contrary. Aside from supplying
the appropriate standard for evaluating antitrust standing (discussed supra), McCormick
does not cite any case finding antitrust standing in similar circumstances. Addressing
the Associated General Contractors factors, McCormick emphasizes that as a
subcontractor, it was Ferguson’s direct competitor and that it was replaced on several
DWSD contracts in order to make room for Ferguson. However, McCormick concedes
the existence of other subcontractors who may have been similarly displaced, thus
supporting Defendants’ argument that damages would be difficult to calculate. And
although McCormick tries to downplay the indirect nature of its injury, the First Amended
Complaint is clear that the DWSD was directly damaged as a result of the conspiracy
through inflated rates for DWSD contracts and kick-backs to the Public Official
Defendants. Thus, the court finds that McCormick is not able to allege an injury
protected by antitrust laws, and therefore does not have standing to proceed on counts
II and III of its First Amended Complaint.
D. RICO Claims
The Racketeer Influenced and Corrupt Organizations Act (“RICO”) provides:
It shall be unlawful for any person employed or associated with any
13
enterprise engaged in, or the activities of which affect, interstate or foreign
commerce, to conduct or participate, directly or indirectly, in the conduct of
such enterprise’s affairs through a pattern of racketeering activity or
collection of unlawful debt.
18 U.S.C. § 1962(c). Individual plaintiffs are permitted to bring civil RICO enforcement
actions, with the threat of treble damages and attorneys’ fees if they are successful. Id.
at § 1964(c). In order to state a claim under civil RICO, McCormick must allege “(1)
conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Sedima,
S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985). Because Congress modeled
§ 1964(c) on the civil-action provision of federal antitrust laws, courts frequently turn to
antitrust jurisprudence when analyzing the scope of civil RICO. See Holmes, 403 U.S.
at 267; Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 457 (2006). Congress passed
RICO with intentional broad effect; nevertheless, “RICO’s breadth is not boundless.”
Compare Sedima, 473 U.S. at 499 (“[T]he fact that RICO has been applied in situations
not expressly anticipated by Congress does not demonstrate ambiguity. It
demonstrates breadth.” ), with Jackson v. Sedgwick Claims Mgmt. Servs., Inc., 731
F.3d 556, 563 (6th Cir. 2013) (en banc).
Under civil RICO, plaintiffs must allege an injury to its “business or property.”
Sedgwick, 731 F.3d at 563–64. Courts look to state law to determine whether an
alleged injury is an injury to business or property, but federal law retains restrictive
significance in order to promote a uniform definition of “business or property” throughout
the country. Id. at 565. A failure to allege a direct relationship between the claimed
predicate acts and the resulting injury to business or property is fatal to a RICO claim.
Hemi Group, LLC v. City of New York, N.Y., 559 U.S. 1, 12 (2010).
14
McCormick’s allegations can be divided into two categories: (1) allegations
concerning contracts of which McCormick was never a subcontractor, and (2) contracts
of which McCormick was a subcontractor. For the first category (specifically, contracts
CS-1368,7 DWS 638, DWS 864, and DWS 865), McCormick argues that Defendants’
unlawful collusion prohibited it from being awarded subcontractor work. It claims that it
was unable to compete for the subcontractor work because it was not a member of the
conspiracy, and that had the bidding been conducted on a fair and equitable basis, it
would have received subcontractor work for these DWSD projects. But McCormick also
concedes that it was never actually awarded subcontractor work under any of these
contracts, thus basing its claim on the expectation that having completed subcontractor
work for the DWSD in the past, it would receive subcontractor work from the DWSD in
the future. This expectation of future contracts is not enough to grant McCormick RICO
standing.
McCormick’s strongest argument under this first category of contracts is for CS1368, a contract for which Inland was the general contractor. McCormick alleges that
the DWSD Board initially approved it as a subcontractor on CS-1368, but that Kilpatrick,
who was Special Administrator of the DWSD, refused to grant his final approval of
Inland’s contract until Inland utilized a Ferguson company as a subcontractor. (Pg. ID
342.) Once Inland replaced McCormick with Ferguson Enterprises, Kilpatrick approved
CS-1368. (Pg. ID 344.) However, this substitution does not demonstrate that
McCormick had a protected business or property interest in the anticipation that it would
7
The court notes that McCormick alleges that it performed “isolated work” on CS1368 on an “emergency[-]needs” basis. Id. at 347.
15
be a subcontractor on CS-1368. Indeed, Michigan and Sixth Circuit law provide to the
contrary. Cedroni Ass’n, Inc. v. Tomblinson, Harburn Assocs., Architechs & Planners
Inc., 821 N.W. 2d 1, 3 (Mich. 2012) (“[A] disappointed low bidder on a public contract
has no standing to sue in order to challenge the award of a contract to another bidder.”);
Talbot Pav. Co. v. City of Detroit, 67 N.W. 979, 980 (Mich. 1896) (“[N]o case can be
found holding the lowest bidder, whose bid has been rejected, to have a right to an
action at law to recover his profits.”); EBI-Detroit, Inc. v. City of Detroit, 279 F. App’x
340, 352–53 (6th Cir. 2008) (“Michigan courts have already rejected the idea that a
disappointed bidder has a valid business expectancy in a potential government contract.
We agree, and note that holding otherwise would give any low responsive bidder an
immediate business expectancy in the government contract at issue.”).
If McCormick is allowed to bring RICO claims based on the fact that it was listed
on, but never received, contracts, it would be based on a new expectancy interest that
would cloud negotiations between parties. Plaintiffs would be able to bring RICO
actions based on allegations that they were at one time the top bidder for a given
contract and that the sole reason they did not end up as the ultimate contractor for a
project is because of fraudulent collusion between the parties. Such a holding would
expand RICO liability and cloud markets with uncertainty stemming from the threat of
treble damages.
Regarding the second category of contracts, that is contracts for which
McCormick alleges that it was a subcontractor (CM 2014 and CM 2015), McCormick
encounters a different problem. For these contracts, McCormick alleges that it was a
subcontractor on the projects, but that as a result of collusion between Defendants, it
16
received harder and less profitable work, with the easiest and most profitable work
being granted to Ferguson and his proxies. (Pg. ID 351–55.) This is speculation of a
different sort. Putting aside the question of whether McCormick has a protected
property interest in better, easier, and more profitable work on the contracts, it is unclear
how it would prove that Defendants’ collusion proximately caused it to receive less,
more difficult, and lower quality work. There are any number of valid reasons that might
explain why McCormick did not receive more and “better” work under the contracts,
including: logistical concerns on the ground, relative expertise of the parties, daily
needs of the project at hand, and competitiveness of McCormick’s bid as compared with
other subcontractors on the project.
Examination of these issues would require inquiry into the parties’ business
judgment, a task for which the court is not well-suited. For example, in James Cape &
Sons Co. v. PCC Const. Co., 453 F.3d 396 (7th Cir. 2006), the plaintiff construction
company alleged that the defendants participated in bid-rigging activity and caused the
plaintiff to lose contracts with the Wisconsin Department of Transportation. Id. at
398–99. The Seventh Circuit rejected the plaintiff’s RICO claim as too speculative:
A court could never be certain whether Cape would have won any of the
contracts that were the subject of the conspiracy ‘for any number of reasons
unconnected to the asserted pattern of fraud.’ It is entirely possible that
Defendants would have won some bids absent the bid-rigging scheme, even
if making less profits in the meantime.
Id. at 403 (quoting Anza, 547 U.S. at 458). “Businesses lose and gain customers for
many reasons, and it would require a complex assessment to establish what portion of
[the plaintiff’s] lost sales were the product of . . . [unlawful racketeering].” Anza, 547
U.S. at 459. Although it has intuitive appeal, the nature of McCormick’s claim is vague
17
and speculative. What constitutes “better” work on a sewer maintenance and
construction project? Is it the speed of completion that matters, or merely the
profitability of the completed project? Or is it some combination of the above factors?
The court is unable to answer these questions, nor can it—they are entirely subjective
and speculative, and not a protected interest under RICO.
Underlying McCormick’s entire claim is the fact that it is not the most directly
injured party in First Amended Complaint. Rather, as discussed supra, the DWSD was
directly injured by Defendants’ alleged fraud. According to the allegations in the First
Amended Complaint, the DWSD suffered increased rates as a result of the fraudulent
kickbacks to the Ferguson and Kilpatrick. Its contract prices were inflated, and it was
robbed of honest competition in its bidding process due to collusion between
Defendants. In contrast, McCormick’s injury is attenuated and indirect. See Anza, 547
U.S. at 458; James Cape, 453 F.3d at 404. Thus, the court grants Defendants’ motion
to dismiss count I of the First Amended Complaint.
IV. CONCLUSION
McCormick lacks antitrust and RICO standing to bring its claims. Accordingly,
IT IS ORDERED that Defendants’ motions to dismiss McCormick’s First Amended
Complaint [Dkt. ## 51, 53, 54, 67] are GRANTED and counts I–III of the First Amended
Complaint [Dkt. # 33] are DISMISSED WITH PREJUDICE as to Defendants Anthony
Soave, Lakeshore Engineering Services, Inc., Avinash Rachmale, Lakeshore Toltest,
Toltest Corporation, Thomas Hardiman, A&H Contractors, Inc., Inland Waters Pollution
Control, Inc., Inland/XCel, LLC, Detroit Contracting, Inc., Nafa Khalaf, and Detroit
Management JV Team, LLC. Counts I–III remain as to non-moving Defendants Kwame
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Kilpatrick, Victor M. Mercado, Derrick A. Miller, Bobby W. Ferguson, Ferguson’s
Enterprises, Inc., and Xcel Construction Services, Inc.
IT IS FURTHER ORDERED that Defendants Anthony Soave, Lakeshore
Engineering Services, Inc., Avinash Rachmale, Lakeshore Toltest, Toltest Corporation,
Thomas Hardiman, A&H Contractors, Inc., Inland Waters Pollution Control, Inc.,
Inland/XCel, LLC, Detroit Contracting, Inc., Nafa Khalaf, and Detroit Management JV
Team, LLC, are DISMISSED from this action.
s/Robert H. Cleland
ROBERT H. CLELAND
UNITED STATES DISTRICT JUDGE
Dated: December 20, 2013
I hereby certify that a copy of the foregoing document was mailed to counsel of record
on this date, December 20, 2013, by electronic and/or ordinary mail.
s/Lisa Wagner
Case Manager and Deputy Clerk
(313) 234-5522
S:\Cleland\JUDGE'S DESK\C2 ORDERS\12-15460.McCormick.DefendantsMotsDismiss.jac2.wpd
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