Court Denies Leave To Amend To Add RICO Claims, Finding Allegations Of Fraud And Breach Of Contract Cannot Be Recast As Racketeering

Posted: July 10, 2026 / Written by: Jeffrey M. Eilender, Thomas A. Kissane, Samuel L. Butt, Joshua Wurtzel, Channing J. Turner / Categories Motion to Dismiss, Fraud/Misrepresentation, Breach of Contract, Commercial

Court Denies Leave To Amend To Add RICO Claims, Finding Allegations Of Fraud And Breach Of Contract Cannot Be Recast As Racketeering

On May 11, 2026, in Jennie Enterprise, et al., v. Michael Shvo, et al., Index No. 653221/2024, Justice Andrea Masley denied plaintiffs’ motion for leave to file a second amended complaint adding causes of action for civil RICO violations, RICO conspiracy, fraudulent inducement, aiding and abetting fraudulent inducement, and breach of contract.

Plaintiffs, tenants and operators of luxury private club spaces, alleged that defendants—a prominent real estate developer and affiliated entities—fraudulently induced them to enter into long-term contracts and then misappropriated funds and failed to deliver on development commitments. In the proposed second amended complaint, plaintiffs sought to transform those allegations into civil RICO claims under 18 U.S.C. § 1962(c). The court denied leave, finding the proposed RICO claim insufficient. Plaintiffs alleged that defendants had “hijacked” a legitimate joint venture to enrich themselves personally, but the court found that this characterization defeated, rather than established, the RICO enterprise element, because the alleged racketeering activity was directed at personal enrichment rather than on behalf of the enterprise. The court also found that plaintiffs failed to plead loss causation, because the claimed injuries—defective construction, project abandonment, and misuse of funds—were not caused by the alleged fraudulent misrepresentations but by conduct that “fell far below the standards contractually agreed upon.” The Court explained:

Courts must always be on the lookout for the putative RICO case that is really nothing more than an ordinary fraud case clothed in the Emperor’s trendy garb. . . . [P]laintiffs’ RICO claim is more appropriately categorized as a claim for fraudulent inducement and/or breach of contract. (citations omitted)

The court also denied leave to add claims for fraudulent inducement and breach of contract. The alleged misrepresentations supporting the fraud claim were either nonactionable future promises or nonactionable statements of opinion, the court said. The proposed breach of contract claim failed because the memorandum of understanding on which it was based expressly stated it was intended “solely for discussion purposes” and did not create any binding obligation.

The attorneys at Schlam Stone & Dolan LLP frequently litigate fraud and breach of contract claims in the Commercial Division. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.