DeFalco v. Bernas

United States Court of Appeals for the Second Circuit · 2001 · Torts

244 F.3d 286 (2001)

Updated July 23, 2026

TortsRICOExtortionDamages§ 1962(c)enterprise distinctnessmunicipal enterpriseoperation or management

Facts

Plaintiffs were developing a residential project and gravel pit property in Sullivan County, New York. According to the evidence viewed favorably to plaintiffs, Town Supervisor Dirie and others told DeFalco that approvals would go smoothly only if he hired or favored certain local people, gave up timber, property, and services, and later transferred one-third of JOBO stock to Bernas. When DeFalco resisted, the project was delayed or threatened through planning-board action, permit stoppages, road dedication problems, and tax pressure. Bernas also used threats of adverse Town action to obtain JOBO stock and continue taking sand and gravel from the JOBO pit.

Issue

Whether the evidence at the second trial was sufficient to support civil RICO liability and damages against Dirie and the Bernas defendants, including proof of a distinct municipal enterprise, participation in the conduct of the enterprise's affairs, predicate acts of extortion, a pattern of racketeering activity, and non-speculative damages proximately caused by the racketeering. The cross-appeal also raised whether the district court properly dismissed Rosen, excluded speculative evidence of aborted land sales, and vacated an additional $1.6 million damages award.

Rule

To establish civil liability under 18 U.S.C. § 1962(c), a plaintiff must prove conduct of an enterprise, through a pattern of racketeering activity, plus injury to business or property caused by the violation. The enterprise must be distinct from the RICO persons, but a governmental unit may qualify as the enterprise; participation requires some part in directing the enterprise's affairs under Reves; Hobbs Act extortion may be shown by wrongful use of fear of economic loss when the victim reasonably believes the defendant has power to inflict economic harm and will use it; a pattern requires related predicate acts plus closed-ended or open-ended continuity; and civil RICO damages must be supported by non-speculative proof and proximate cause.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

A real-estate investor in Albany claims that the City of Albany was used by Councilmember Nora Pike and two private paving companies she favored to pressure him into giving one company discounted fill dirt. He sues Pike and the two companies under 18 U.S.C. § 1962(c), alleging that the city itself was the enterprise through which they acted.

Which argument by the defendants is least likely to defeat the enterprise element under the majority rule?

Explanation. The majority held that a governmental unit may be a RICO enterprise and that the distinctness requirement is satisfied when separate public and private defendants use the municipality as a passive instrument of racketeering. The weakest defense argument is therefore the one contradicted by that rule: if the city is alleged as the enterprise and the defendants are separate culpable actors, distinctness can be satisfied.