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Court Dismisses RICO Claims Involving Yemeni Coffee Business

We’ve blogged before about the importance of having foreign language contracts and arbitration agreements translated by certified translators. In Mocha Mill v. Port of Mokha, Inc., the plaintiffs filed a lawsuit alleging claims of violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) along with several state law claims against the defendants. The parties had attempted to start a coffee business selling coffee imported from Yemen. As discussed below, the parties’ relationship fizzled, resulting in federal litigation.

Certified Translation of Arabic Documents

In 2013, the Arabic-speaking plaintiff and defendant started a business with the intent of importing, exporting, cultivating and distributing specialty coffee from Yemen. The parties created “Mocha Mill” with the hope of being the first company in the U.S. to sell premium coffee from Yemen. Several of the other plaintiffs joined as investors, and the individual defendant traveled to Yemen to build supply chain relationships. The parties’ relationship subsequently deteriorated, and the defendant started a separate coffee company called “Port of Mokha.”

Thereafter, the plaintiffs filed suit alleging that the defendant conspired to have the Port of Mokha beat out Mocha Mill as the first purveyor of Yemeni coffee. The defendants filed a motion to dismiss asking the court to dismiss the suit against them on several grounds.

First, the defendants argued that the plaintiffs lacked standing to initiate a lawsuit against them. The court agreed, holding that, according to well-established precedent from the 9th Circuit Court of Appeals, “a plaintiff lacks standing under RICO if the alleged injury is derivative of harm to another legal entity, such as a corporation.” In other words, the court held that shareholders and limited partners are precluded from alleging RICO claims when the harm is also derivative from the harm to their corporation or partnership. In this case, because plaintiff Mocha Mill, Inc. was a corporation, the individual plaintiffs could not also assert RICO claims themselves.

Defendants Move to Dismiss Lawsuit on Jurisdictional Grounds.

Next, the defendants moved to dismiss the complaint on the grounds that the court lacked jurisdiction over one of the entity defendants named the “Mokha Foundation.” The defendants claimed that this defendant could not be sued because it was not a legal entity. The court agreed that the plaintiffs had failed to meet their burden of proving that the plaintiff was a legal entity capable of being sued under California law.

Dispute Need Not be Heard in Yemen.

The individual defendant also argued that plaintiff’s claims against him must be dismissed pursuant to an arbitration agreement between the plaintiff investors and the individual defendant. The defendant further claimed that the parties agreed that, in the event arbitration was not successful, that all disputes arising between them would then be resolved in the Commercial Court of Sana’a in Yemen. The plaintiffs, however, argued that the agreement was void and unenforceable because it was signed under duress and resulted from extortion. The court rejected the defendant’s request to have the clams dismissed based on the arbitration provision. The court explained that “the only certified translation before the Court…is not nearly as broad” as the defendant argued, and that the arbitration agreement available in English and in Arabic did not encompass the dispute at issue in this case.

Plaintiffs’ RICO Action Fails.

The defendants further argued that the plaintiffs had failed to state a federal claim for RICO violations under Section 1962(d). Under Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985), in order to state a valid RICO claim, a plaintiff must establish the following requirements: 1) conduct 2) of an enterprise 3) through a pattern 4) of racketeering activity. The court found that the plaintiffs had failed to adequately plead wrongful conduct by an “enterprise.” The court explained that at the time, the individual defendant was the sole “person” of the plaintiff “Mocha Mill” and that allegations that the defendant were embezzling funds from Mocha Mill could not be seen as conducting the affairs of an enterprise. Rather, the defendant was participating in his own affairs by allegedly embezzling funds. The court said it could not find that “the enterprise’s affairs were to defraud the enterprise.” Therefore, the court held that the plaintiffs failed to plead the “conduct of an enterprise” element of a RICO violation.

Finally, the court held that the plaintiffs had failed to establish a “pattern” of illegal activity under RICO. The plaintiffs claimed that the defendants were engaged in ongoing money laundering due to the fact that they allegedly committed a fraud in the past. Thus, the plaintiffs creatively asserted that every transaction of the defendant’s business was “infected by the past fraud” so that each transaction constituted money laundering. However, the court rejected this theory, explaining that the plaintiffs could not cite to any RICO case that relied on this type of theory. Accordingly, the court held that the plaintiffs had failed to adequately plead the “pattern” element necessary to pursue a RICO action against the defendants.

Having dismissed the Plaintiffs’ federal RICO action, the court declined to exercise supplemental jurisdiction over the plaintiffs’ remaining state law claims.

The case is Mocha Mill, Inc. v. Port of Mokha, Inc., Case No. 18-cv-02539-HSG, decided on March 5, 2019 in the United States District Court for the Northern District of California.

*** This translation blog article should not be construed as legal advice. You should always consult a lawyer regarding your specific legal needs. ***

Legal translation service All Language Alliance, Inc. provides document translation services from English to Arabic, Simplified Chinese, Spanish, French, Traditional Chinese, Portuguese, German, and other languages for RICO litigation cases. Contact us to reserve a competent Arabic interpreter, Mandarin Chinese deposition interpreter, Amharic deposition interpreter in Denver, Colorado, and elsewhere.

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