Seventh Circuit Addresses Association in Fact Enterprise Consisting of Defendant and Legal Defense Team

Sabrina Roppo v. Travelers Commercial Ins. Co., __ F.3d __, 2017 WL 3695205 (7th Cir., Aug. 28, 2017)

For various reasons, the court affirmed the district court’s dismissal of this civil RICO claim. However, in dicta, the Seventh Circuit followed the Ninth Circuit and made an important statement regarding the feasibility of an association-in-fact enterprise comprised of the Defendant and its legal defense team. This could be an important way to find “distinctness,” although the Boyle and Turkette tests would still have to be satisfied.

In this case, the Plaintiff failed to connect the legal dots between Travelers (the Defendant) and the association in fact enterprise consisting of Travelers and its outside counsel. But, the Seventh Circuit stated that:

the possibility that those players, together, could form a RICO enterprise is not without support in case law. One of our sister circuits has recognized that a corporation and its outside counsel can constitute an enterprise under RICO. See Living Designs, Inc. v. E.I. Dupont de Nemours & Co., 431 F.3d 353, 362 (9th Cir. 2005) (observing that “[j]ust as a corporate officer can be a person distinct from the corporate enterprise, DuPont is separate from its legal defense team” and holding, therefore, that “the district court erred in concluding that Plaintiffs failed to allege a distinct RICO enterprise”). Moreover, the Supreme Court recently clarified what is required to show an “association-in-fact” enterprise: “a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise’s purpose.” Boyle v. United States, 556 U.S. 938, 946, 129 S.Ct. 2237, 173 L.Ed.2d 1265 (2009). Nothing in these requirements forecloses a RICO enterprise comprised of a corporation and its outside counsel.

Id., at *12, emphasis added.

The court thus could not conclude that Plaintiff’s allegations of a RICO enterprise, although lacking in detail, were wholly insubstantial or frivolous.

Ed Note:    This is the first post-Boyle decision addressing whether a legal defense team can be part of the association in fact enterprise. This decision that attorneys who are merely representing the Defendant can be part of the enterprise appears to be contrary to established law on distinctness in which the attorneys are functionally no different than corporate employees acting on behalf of the employer within the scope of their duties. But, those who function with Defendants to commit fraud, could fit in as part of an enterprise which would be distinct of the corporate employer or an association in fact enterprise consisting of the corporation and the attorneys. Of course, the facts and circumstances of each case need to be examined.
David J. Stander is a civil RICO Attorney who focuses his practice on civil RICO litigation and consulting.



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