A federal judge says sandwich slinger Potbelly has thus far failed to sustain its racketeering claim against two of its former top I.T. workers and telecommunications firm Nitel.
But the judge said the restaurant chain may be able to continue with its legal action over an alleged kickback conspiracy that allegedly left Potbelly holding a bag worth hundreds of thousands of dollars.
On Aug. 17, U.S. District Judge Gary Feinerman ruled, in part, in favor of Chicago-based Nitel and the two former Potbelly information technology team leaders, identified as Michael Montalto and Anthony Buglio.
According to court documents, Montalto at one point held the title of senior I.T. director for Potbelly, while Buglio served as the company’s manager of infrastructure and networking services.
The legal dispute centered on accusations leveled by Potbelly against Montalto and Buglio. According to court documents, Potbelly accused Montalto and Buglio of accepting kickback payments worth “tens of thousands” of dollars from Nitel, in exchange for their help to “steer Potbelly’s telecommunications business to Nitel.”
According to court documents, Potbelly accused Montalto and Buglio of each creating business entities to accept and process the alleged kickbacks.
According to the court documents, Potbelly asserted Nitel then charged Potbelly and some of its franchisees “inflated rates,” which cost Potbelly “hundreds of thousands of dollars.”
Potbelly discovered the alleged scheme in 2018, and fired Montalto and Buglio. The sandwich shop chain then began “transitioning its shops away from Nitel’s telecommunications service,” according to Feinerman’s memorandum of opinion.
They asserted the alleged conspiracy amounted to an illegal racket, and violated the federal Racketeer Influenced and Corrupt Organizations (RICO) Act, as well as the federal Computer Fraud and Abuse Act. They also leveled eight counts under Illinois state law against the alleged conspirators.
Nitel, Montalto and Buglio then asked Judge Feinerman to dismiss the lawsuit, asserting Potbelly concocted the allegations in an attempt to avoid paying Nitel termination fees and can't establish its case against any of the defendants.
Feinerman agreed the allegations can’t hold up under the RICO Act. He said Potbelly has thus far failed to demonstrate any continuing threat that the alleged conspirators could “perpetrate similar frauds” on other specific companies, a key element under RICO claims.
Feinerman said the alleged scheme had only one alleged victim – Potbelly. That doesn’t constitute a “pattern,” the judge said, which is required to support a RICO claim.
The judge said Potbelly fares better under its CFAA claim, and could continue with the case under that claim.
However, the judge said the strict limits on the damages Potbelly can claim under the federal computer fraud law, compared to the potentially massive damages it could seek under Illinois state law claims, means those claims may actually belong in Illinois state court, not federal court.
The judge, however, said Potbelly’s RICO claims were dismissed without prejudice, meaning he would give Potbelly another chance to press its RICO claims, if it can, to try to keep the case in federal court.
Potbelly has until Sept. 8 to refile its RICO claims, Feinerman said, otherwise the judge would relinquish jurisdiction on the state law claims, significantly diminishing Potbelly’s potential recovery from the action.
Potbelly is represented in the action by attorneys Peter S. Roeser and Matthew D. Tanner, of Roeser Tanner & Graham LLC, of Chicago.
Montalto is represented by attorneys Martin K. LaPointe and Brian J. Sharpe, of LaPointe Law P.C., of Northbrook.
Buglio is represented by attorneys Jason M. Metnick and Monica J. Paine, of Meltzer Purtill & Stelle LLC, of Chicago.
Nitel is represented by attorneys Basileios Katris and Karl E. Analo, of Horwood Marcus & Berk Chtd., of Chicago, and Katherine H. Oblak, of Jackson Lewis P.C., of Chicago.