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Schlaifer Nance & Co. v. Estate of Warhol, 119 F.3d 91, RICO Bus.Disp.Guide 9300

Facts

SNC sought a licensing agreement with Andy Warhol, but he died before they could finalize it. After his death, Warhol's estate entered into a licensing agreement with SNC, which later led to a lawsuit alleging fraud and RICO violations. SNC claimed that the estate misrepresented its control over Warhol's works, which were in the public domain, and that this misrepresentation induced them into the agreement. The estate's actions and subsequent disclosures raised significant concerns about the rights to Warhol's works, prompting SNC to file a complaint.

SNC sought a licensing agreement with Andy Warhol, the icon of 1960's and 70's pop culture, but Warhol died before they could sign an agreement. Eventually, Warhol's Estate negotiated and signed a broad-based licensing agreement with SNC.

Issue

The main legal issues were whether the defendants engaged in a pattern of racketeering activity under RICO and whether SNC reasonably relied on the estate's representations regarding the ownership of Warhol's works.

The Court of Appeals, McLaughlin, Circuit Judge, held that: (1) certain alleged acts by defendants were not sufficiently related to comprise part of alleged pattern of racketeering activity; (2) alleged fraudulent acts were not sufficiently continuous to establish pattern of racketeering activity; and (3) under New York law, agency's reliance on estate's alleged representations that estate owned all rights in artist's works was not reasonable.

Rule

To establish a RICO violation, a plaintiff must plead at least two predicate acts that are related and amount to, or pose a threat of, continuing criminal activity. Additionally, for a fraud claim under New York law, a plaintiff must prove a material misrepresentation, knowledge of its falsity, intent to defraud, reasonable reliance, and resulting damages.

To show a RICO violation, the plaintiff must plead at least two predicate acts, show that the predicate acts are related, and that they amount to, or pose a threat of, continuing criminal activity.

Analysis

The court found that the alleged acts by the defendants did not constitute a pattern of racketeering activity as they were not sufficiently related or continuous. The court also determined that SNC, as a sophisticated licensing agency, could not reasonably rely on the estate's representations regarding the ownership of Warhol's works, given the numerous red flags and the language of the licensing agreement itself.

Judge Stanton ruled that: (1) schemes A and H were not related to the other schemes; (2) the goal of Scheme B—to have SNC enter a Licensing Agreement—is inconsistent with the goal of schemes C through G and I—which effectively sought to force SNC out of the Agreement; and (3) Schemes C through G and I did not exhibit the continuity necessary to a RICO pattern.

Conclusion

The court affirmed the dismissal of the RICO claims and the judgment in favor of the defendants on the fraud claim, concluding that SNC's reliance on the estate's representations was unreasonable.

Accordingly, we affirm Judge Stanton's dismissal of the RICO claim. Even if there were actionable fraudulent activity, the fraudulent acts were either not sufficiently related or continuous to sustain a RICO conspiracy claim.

Who won?

The defendants prevailed in the case because the court found that SNC could not establish a pattern of racketeering activity under RICO and that SNC's reliance on the estate's representations was unreasonable.

SNC was founded by Roger Schlaifer and Susanne Nance Schlaifer, and both are officers of the company. SNC became very successful in the 1980's after launching a licensing program for the popular “Cabbage Patch” dolls.

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