Racketeering Law New Weapon
Against Slumlords

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 altogether.

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 RICO.

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 after."

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 public assistance.

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 owners.

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 Apartments.

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."

 

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