## Facts

- Real-estate developer plaintiffs sought land-use and development approvals in the Town of Delaware, Sullivan County, New York.
- Plaintiffs alleged that a group of town officials and private business interests used town governmental power to pressure plaintiffs to transfer money, property, and business interests.
- Plaintiffs claimed the Town of Delaware itself functioned as the RICO “enterprise,” and defendants were RICO “persons” who conducted the town’s affairs through extortionate acts and related fraud.
- Plaintiffs alleged the Town Supervisor used influence over approvals and related processes to impose coercive conditions, including demands to employ certain individuals and convey property interests.
- Plaintiffs alleged a private construction business interest removed sand and gravel from plaintiffs’ land without permission and then demanded control of the gravel pit and a transfer of business shares.
- Plaintiffs alleged that when they resisted, defendants used governmental mechanisms (including tax assessment pressure) and threats of regulatory obstruction to increase costs and impede development.
- Plaintiffs alleged defendants’ conduct affected interstate commerce, including causing the cancellation of a contract with an out-of-state logger.
- After two trials, a jury found RICO liability against key defendants; the district court set aside a substantial damages component tied to “unconsummated sales opportunities,” while leaving other aspects of the verdict intact.
- Defendants appealed, and plaintiffs cross-appealed, challenging liability rulings, dismissals of certain defendants, and the reduction of damages.

## Issues

1. Whether a municipality can constitute an “enterprise” under 18 U.S.C. § 1961(4) for a civil claim under 18 U.S.C. § 1962(c).
2. Whether the alleged RICO “persons” were sufficiently distinct from the municipal enterprise and participated in the enterprise’s affairs under the “operation or management” test.
3. Whether the evidence supported predicate acts (including extortion and fraud) and a “pattern of racketeering activity,” including continuity.
4. Whether the enterprise’s activities affected interstate commerce as required by § 1962(c).
5. Whether plaintiffs proved proximate causation and non-speculative damages, particularly for claimed losses from unconsummated sales opportunities.

## Decision

- The court affirmed in part and reversed in part the district court’s judgment.
- The court held a governmental unit may qualify as a RICO enterprise, and the Town of Delaware could serve as the enterprise for § 1962(c) purposes.
- Applying the operation-or-management standard, the court upheld findings that key defendants could be found to have conducted the town’s affairs through misuse of governmental authority over approvals and related processes.
- The court concluded that, as to principal defendants, the evidence permitted findings of extortionate and related predicate conduct and a pattern satisfying relatedness and continuity requirements.
- The court held the interstate commerce element was satisfied under the minimal-effects standard.
- The court limited recovery to injuries proximately caused by the racketeering acts and vacated substantial damages tied to remote and contingent losses, including the large award for unconsummated sales opportunities.

## Legal Principles

- A civil RICO plaintiff must prove: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity, with an effect on interstate commerce.  
- A municipality can be an “enterprise” under § 1961(4); public officials and private actors may be RICO “persons” distinct from the governmental enterprise.
- Participation under § 1962(c) requires involvement in the operation or management of the enterprise’s affairs, not merely pursuit of private interests.
- A “pattern of racketeering activity” requires related predicate acts and continuity, which may be shown through closed-ended or open-ended continuity.
- Civil RICO damages require proximate causation; losses that are speculative, contingent on third-party decisions, or otherwise indirect are not recoverable even if liability elements are satisfied.

## Conclusion

The Second Circuit recognized that a town government can serve as a RICO enterprise when officials and allied private actors misuse governmental processes to extract property, but it enforced a strict proximate-cause limitation on civil RICO damages, rejecting recovery for speculative lost opportunities such as unconsummated sales.


De Falco v. Bernas, 244 F.3d 286 (2d Cir. 2001)