Racketeering Law New Weapon
By Margo Nash
A federal law aimed at fighting mobsters is now being used
against abusive landlords in Section 8 housing.
The specter of punishment under the statute, the Racketeer
Influenced Corrupt Organizations Act (RICO) was so powerful
that two groups of landlords in Brooklyn virtually gave away
their federally subsidized buildings in an out-of-court
settlement, rather than face the music and be put out of business
Tenant advocates are praising this new legal weapon. The RICO
statute "provides a road to real justice and a new weapon with
which to attack the real-estate industry and the government that
helps them out," says Met Council organizer William Rowen. And
the tenants of the Elva McZeal Apartments in East New York, who
now own their building, say the victory it won has helped them
improve their lives.
Let's start with the happy ending. "These people are getting
jobs. Their kids are doing better in school. They have an after-
school program for their kids and they even have computer classes
in their apartment building -- all because they got rid of an
abusive landlord and took their lives into their own hands," says
Rick Wagner, the lawyer came up with the innovative idea of using
Wagner is director of litigation for Brooklyn Legal Services
Corporation A. In 1993 a group of McZeal tenants came to him for
help in getting their landlord to fix the hundreds of hazardous
violations in their building, which was privately owned,
federally subsidized Section 8 housing.
In Section 8 housing, landlords collect rents based on a
federally set "market rate," but the tenants only pay roughly 30
percent of their family income. The federal government pays the
balance. The McZeal tenants paid between $150 and $250 a month,
depending on their income, for apartments that rented for $650 to
$950. Wagner estimates that William and Georgia, the corporation
that owned the 143-unit building, collected more than $7 million
in subsidies from it during the previous 10 years.
To receive these subsidies, landlords are required to certify
each month that they are providing safe, decent, and sanitary
housing. But William and Georgia were not.
"There were cascading water leaks, rats big enough to mug a
German shepherd, inadequate and intermittent heat and hot water,
elevators that had not worked in years, so that the elderly on
the upstairs floors were virtual hostages in their apartments who
would have starved if their neighbors had not brought them food,"
Wagner recalls. "There were lobby doors that had been entirely
missing for years and mailboxes torn out of the walls, so that
people had to get their mail in the post office. No one could say
that the Elva McZeal Apartments constituted decent housing."
It was almost by accident that Wagner came up with a new way to
tackle the situation. "There are so many legal things you never
look at, the fine print you figure someone else must have looked
at sometime," he says. "But I happened to be glancing at a box on
the request for payment form that the owners send to the
government for their subsidies, and I noticed a box in the lower
left-hand corner. In fine print, it said more or less, 'I hereby
certify pursuant to the criminal penalties provided by the U.S.
Code that every unit for which assistance is sought is in safe
and decent and sanitary condition.' To wrongly certify
constituted a felony and fraud against the U.S. statutes, and
carried severe penalties.
"My eyes snapped open so hard it hurt, and one word, one acronym.
popped into my mind: RICO! The Racketeer Influenced Corrupt
Organizations Act. Originally RICO was intended to get at
organized-crime families. It was not a crime to belong, but it
was a crime to collectively engage in extortion or to commit
usury or other crimes. And that was the way the federal
government tried to get at the enterprise. If an individual
belonged to a crime family, all the government had to do was
demonstrate membership in the family and then prove that the
family collectively engaged in criminal acts."
And the law had another part, Wagner explains. "The federal
government also wanted to give private persons who were injured
by these criminal activities a civil claim remedy against the
wrongdoers. An individual or individuals who are injured in their
person or property by the activities of a RICO enterprise can sue
for a variety of things. They can sue for all their damages, for
pain, suffering, loss of property. They can also sue to prevent
the wrongdoers from continuing to engage or operate the
enterprise. They can even sue to get a permanent order barring
them from starting or engaging in similar enterprises. I was
thunderstruck with the opportunities that this presented to the
tenants! Instead of 'Eureka!', I said 'EURICO!'"
The fact that the owners mailed in their subsidy requests and
received wire transfers of money could be termed part of an
ongoing criminal pattern of wire fraud and mail fraud, according
to Wagner. "If you commit more than two predicate crimes in the
course of operating an enterprise within a ten-year period, that
is a definition of a RICO enterprise. Well, these people were
creating in effect at least one or 143 crimes a month, depending
on whether you looked at the form as representing the building or
each unit. Even one such false statement a month for ten years is
120 predicate crimes, substantial crimes that may include fraud."
Wagner alleges that a 10-year pattern of fraud by the William and
Georgia corporation was the cause of the horrible living
conditions in the building. Thus, the tenants could fairly be
said to have been harmed in their person and property, giving
them the legal standing to sue under RICO.
They sued in federal court in Brooklyn. "Ordinarily you'd end up
in Landlord-Tenant Court," says Wagner. "But instead of going to
be heard by some judge in the housing part of Civil Court who is
inured, numb to the suffering of the litigants, where it is hard
to get meaningful relief, this gave us federal jurisdiction,
where you can get an order under the RICO statute enjoining the
defendants from continuing to operate an enterprise or starting
another because they have conducted it as a criminal racketeering
enterprise. That's the ultimate relief that you normally go
But instead of waiting two years or more for the outcome of the
litigation -- during which the owners could still collect rents
and subsidies -- Wagner asked the court to appoint a receiver to
run the building, "to ensure that every dime of income would be
used for the purpose Congress intended, the operation of safe and
decent and sanitary housing."
There was no way to defend against it. The tenants had documented
the building conditions. There were dozens of affidavits about
them on file with the court, a world of evidence.
Judge Eugene Nickerson granted the order. The owners lost both
the operation and fiscal control of the building, and had to turn
their books over to the federally appointed receiver. They are
still facing very serious charges under RICO and other claims and
protracted litigation in federal courts, says Wagner.
"So one fine day not long after we had the receiver appointed,"
he continues, "we were contacted by their attorney, who wondered
if my clients would be interested in receiving for $1 all rights
and titles to the Elva McZeal Apartments and assignment to the
HUD subsidy contracts -- to which I responded we were not going
to pay $1 for it. So the Elva McZeal Tenants Association got it
for nothing in February 1995."
The management company chosen as receiver continues to run the
building. The amazing part is that since the tenants took over
everything has changed, and the changes did not cost the
taxpayers an extra cent, notes Wagner. The tenants association
has its own tenant youth patrol, which has virtually eliminated
crime and graffiti from the building. The tenants refurbished the
entire basement area, which used to be locked and filled with
garbage, and made it into an after-school reading program and got
volunteers to donate 2,000 books. The math and reading scores of
the students who live in the building have gone up dramatically
in the last 18 months. In fact, HUD was so impressed that in
October they contributed money to open an on-site computer
learning center to help get people who live in the building off
In February 1996 Wagner went after another Section 8 landlord
under the RICO statute, this time on behalf of the tenants
association at Noble Drew Ali Plaza in Brownsville. They asked to
have a federal receiver operate the project. The motion was
granted and produced virtually the same results. The owners,
Linden Realty Associates, surrendered the project -- which had
1,600 violations -- and the Ocean Hill Brownsville Tenants
Association, a community-based organization, became the new
Others may be adopting the same tack. A tenant at the Apthorp,
the historic rental building on Broadway and West 78th Street in
Manhattan, has also filed a claim under the RICO statute against
his landlord. The Apthorp is managed by Kenton and Associates,
the same management company that used to manage the Elva McZeal
Rick Wagner says he has not seen the suit against the Apthorp's
owners and did not know on what basis RICO was used. But he adds
that using the RICO statute is certainly an option for tenants
who live in seriously deteriorated federally subsidized housing
where landlords may have lied on their subsidy-application forms.
He also notes that the TV program "Investigative Reports" did a
report about how private owners have been allowed to build HUD-
subsidized housing and bilk taxpayers out of billions of dollars.
And a recent decision by the state Court of Appeals may open
another legal approach to New Yorkers, says Met Council organizer
William Rowen. It allows people to seek monetary damages from the
state for violating their rights under the state constitution.
Meanwhile, back at the McZeal Apartments, Mae Green, the
building's property manager and one of the original tenants who
came to Rick Wagner for help, had this message for tenants
throughout the city: "Everything is possible. You have to be
willing to fight and know the avenues and get people on your
side. I knew that we could win."