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Dismissal Upheld in RICO Suit Against Garcetti, Others
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday affirmed the dismissal of an action alleging corruption on the part of government officials, including the assertion that then-Los Angeles Mayor Eric Garcetti in 2018 agreed to accept a bribe in return for facilitating the award of a contract to a technology company.
That company, Government App Solutions (“GAS”), alleges in its complaint under the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”) that it knew nothing of the bribery scheme perpetrated by Derek Bluford, an independent contractor whose services were engaged to peddle the company’s products to municipalities. Once Bluford’s operation became public, it avers, the value of its stock plummeted from $15 million to nil because municipalities shunned it.
Yesterday’s memorandum opinion—signed by Judges Jacqueline Nguyen and Patrick J. Bumatay and by Senior Judge Richard A. Paez—affirms the dismissal of the RICO claim with prejudice by District Court Judge Dale A. Drozd of the Eastern District of California based on GAS’s lack of standing.
Defendants, in addition to Garcetti, are former Sacramento mayor and NBA star player Kevin Johnson and associate Nicole West, former Stockton mayor Michael Tubbs and advisor Daniel Lopez, the city of New Haven and its former mayor Toni Harp and former controller Daryl Jones, former Phoenix mayor Gregory Stanton, and independent FBI contractor Casey Lund.
In addition to suing under RICO, GAS alleged negligence, breach of contract, fraud and theft. Drozd declined to exercise jurisdiction over the state law claims which were dismissed without prejudice to the refiling of the claims in state court.
Garcetti’s Alleged Role
As to Garcetti, GAS said in its second amended complaint, the operative pleading:
“In or about May of 2018, when Defendant Garcetti was the Mayor of the city of Los Angeles, Defendant Garcetti and Defendant Johnson agreed to a bribery scheme in which Defendant Garcetti would be given compensation in exchange for his help with Plaintiff obtaining a contract with the Los Angeles Department of Transportation (‘LADOT;). The bribery scheme was that Defendant Garcetti and Defendant Johnson would split 17% of the net revenues Plaintiff would receive through its contract with the LADOT. Defendant Johnson subsequently obtained a Consulting Agreement with Plaintiff on July 1, 2018 in which Defendant Johnson would receive 17% of the net revenues Plaintiff was to receive from any contract Plaintiff obtained with the city of Los Angeles.”
The pleading continues:
“The agreement by Defendant Garcetti and Defendant Johnson to split 17% of the net revenues constituted a conspiracy….Any bribe actually given by Defendant Johnson to Defendant Garcetti would have been in violation of the Federal bribery statute…, which applies to entities like the city of Los Angeles, which receive benefits of SI 0,000 or more from Federal programs.”
It adds that “with Defendant Garcetti’s intervention, the LADOT signed a Memorandum of Understanding with Plaintiff, who had not even a submitted a proposal to the LADOT,” in contravention of the city’s procurement policy.
Corruption Allegations
Bluford was indicted for wire fraud and other crimes in January 2018 and began cooperating with the federal government in a public corruption investigation which, GAS alleges, was without its knowledge. It says Bluford was directed by the FBI to offer and deliver bribes to mayors and city employees in return for securing contracts with GAS.
According to GAS, then-mayors Garcetti, Tubbs, Harp and Stanton received bribes or agreed to receive bribes.
GAS says it learned of the alleged bribery scheme after publication in October 2020 of Bluford’s book, “The Mighty Have Fallen,” which described his work with the F.B.I. in the investigation of the corruption allegations against the city officials.
Lack of Standing
The panel explained that a civil RICO plaintiff only has standing if it has been injured in his business or property by the conduct constituting a violation, noting that lack of proximate causation can be a bar to suits. They said the central inquiry as to standing is whether the alleged RICO violation is directly related to the plaintiff’s injuries. The judges observed that the drop in the value of GAS’s stock, even if partially stemming from the defendants’ conduct, “resulted from at least two additional factors—the publication of Bluford’s book and the decisions of municipalities to not do business with the company.”
Under those circumstances, the jurists said, it would be difficult to determine the amount of damages attributable to the defendants’ predicate acts. They added: “Moreover, lawful actions, like publishing a book or choosing not to do business with a company, can serve as independent factors rendering the purported injury too indirect from the predicate RICO acts.”
Finding that the municipalities were more directly injured by the actions alleged than GAS, the court reasoned that they would be in a better position to sue, factoring against a determination of standing as to GAS.
The case is Government App Solutions, Inc. v. City of New Haven, 23-15708.
Garcetti is now ambassador to India.
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Pictured is Derek Bluford’s book, “The Mighty Have Fallen,” in which then-Los Angeles Mayor Eric Garcetti’s receipt of a bribe is alleged. The Ninth U.S. Circuit Court of Appeals yesterday affirmed dismissal of a RICO claim against Garcetti and others by a company that claims the bribery scheme involving Garcetti and others have a devastating financial effect in it. |
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