A hair salon owner recently sued its landlord over an alleged pattern of over-billing tenants for electrical utility usage. The landlord’s practice of hiding the true cost of electricity and then intentionally overcharging the tenants was not only a breach of contract but also a violation of state and federal racketing laws, according to the lawsuit. A Naples Daily News report indicated that the alleged misconduct by the landlord may have cost tenants tens of thousands of dollars each.
The lead plaintiff in the federal class action, filed in the Middle District of Florida, was Salon Adrian, Inc., a hair and nail salon business situated in the Gulf Coast Town Center, a shopping mall in Fort Myers. In 2006, Church signed a 10-year lease to rent a space at the mall. The lease stated that the landlord would bill the tenant for certain utility charges that were “not separately metered or assessed” or were “used in common with other tenants,” but the tenants’ bills would not be any higher than what they would have paid if they had contracted directly with the electric utility provider.
According to the Daily News report, the salon’s owner, Adrian Church, became suspicious of her landlord when she replaced the existing light bulbs and appliances at the salon with new energy-saving ones, but she experienced no change in the electric bill she received from the mall’s owner, CBL & Associates Properties, Inc. After one of CBL’s lenders filed a foreclosure action against it, another entity, McKinley, Inc., was court-appointed to manage the mall. That entity did a usage assessment and discovered that the salon should have been paying around $270 per month for electric service, not $615.
The class action included, in addition to claims for breach of contract related to the terms of the lease agreement, claims for civil violations of state and federal racketeering laws, also known as “civil RICO.” The salon accused the landlord of conspiring with Valquest, an energy company, to send out electrical surveys and electric service invoices that were intentionally false. This years-long pattern of sending out false surveys and invoices allegedly violated both federal mail fraud and wire fraud laws.
A federal civil RICO conspiracy claim must establish that the co-conspirators violated at least two of a specific list of federal criminal violations, also known as the “predicate acts.” The list includes bribery, sports bribery, counterfeiting, theft from interstate shipments, embezzlement from pension or welfare funds, extortionate credit transactions, transmission of gambling information, mail fraud, wire fraud, and transactions in obscene matters, among others. Mail fraud and wire fraud are two of the most commonly used predicate acts in civil RICO cases arising from commercial disputes.
Additionally, a civil RICO plaintiff must prove that the alleged racketeering activity went on for a significant period of time, or that it threatens to continue into the future. For cases not alleging possible future racketeering activity, this typically means multiple years. Previous 11th Circuit Court of Appeals cases have ruled patterns of activity lasting six months and 15 months were too short. In Salon Adrian’s case, the salon alleged that the conspiracy and fraud had been going on for six years and continued to take place.
Civil RICO claims in business disputes are often unsuccessful. For the claims that do succeed, there can be a substantial reward, though, since the law allows for successful plaintiffs to recover triple damages in some cases.
Commercial disputes can be complex matters, made even more so by the fact that the legal claims involved may extend beyond just breach of contract, as the RICO claims in the Salon Adrian case show. The experienced Florida landlord-tenant attorneys at Stok Folk + Kon are here to help your business, offering knowledgeable advice and representation across the full range of commercial disputes.
Contact us online or by calling (305) 935-4440 to schedule your consultation.
More blog posts:
Cruise Line Unable to Stop Florida Class Action by Doctors Alleging Underpayment for Services, Florida Business Lawyers Blog, April 27, 2016
Miami-Dade Commercial Tenant Wins Evidentiary Hearing to Prove Payments Counted as Rent, Florida Business Lawyers Blog, Oct. 8, 2015