District Court Finds Sufficient Enterprise “Distinctness” in Civil RICO Claim

Lutrell v. Brannon, 2018 WL 3032993 (D. Kan., June 19, 2018)

The Court denied, in part, and granted, in part, Defendants’ motions to dismiss and motions for judgment on the pleadings.  In so doing, the Court addressed various important civil RICO issues. Plaintiff was a patient whom Defendant Brannon, along with another doctor (Garcia) and entities under their control or which they served on board of directors, allegedly performed unnecessary medical procedures on Plaintiff.

Injury/Standing

The court recognized a private plaintiff cannot recover for emotional, personal, or speculative future injuries under RICO, citing to Safe Streets Alliance v. Hickenlooper, 859 F.3d 865, 888-89 (10th Cir. 2017). Moreover, the circuit courts agree that the requirement of injury to “business or property” excludes all personal injuries including pecuniary losses flowing therefrom. See Jackson v. Sedgwick Claims Mgmt. Servs., Inc., 731 F.3d 556, 564-65 & n.4 (6th Cir. 2013) (citing cases).

The Plaintiff however alleged he has standing to bring these RICO claims because his RICO claims are limited to damages for the money he paid, as a result of defendants’ scheme to defraud, for unnecessary medical treatment, which payments constitute an injury to property under the statute. The court agreed with the Eleventh Circuit in Blevins v. Aksut, 849 F.3d 1016 (11th Cir. 2017), which held that “[i]n the context of unnecessary medical treatment, payment for the treatment may constitute an injury to property” under RICO, because the payments themselves are economic injuries that were for the procedures and did not flow from any personal injuries. The Court concluded that the Tenth Circuit would most likely follow Blevins in this case. See, e.g., Cory v. Aztec Steel Bldg., Inc., 468 F.3d 1226, 1232 (10th Cir. 2006) (noting Congress’s directive that RICO be liberally construed to effectuate its remedial purposes). Plaintiff’s alleged injury in paying for unnecessary treatment did not flow from any personal injury suffered because he received that treatment; rather, the personal injury resulted from his decision to have the allegedly unnecessary treatment in the first place. Accordingly, defendants’ motion to dismiss plaintiff’s RICO claims on the basis of a lack of standing is denied to the extent that plaintiff seeks damages consisting of payments that he made for unnecessary medical treatment.

Enterprise

Plaintiff has alleged an association in fact enterprise consisting of the defendants, who collectively functioned to defraud him. The Defendants argued inadequate “distinctness.” The Court discussed that the Supreme Court has confirmed that “to establish liability under § 1962(c) one must allege and prove the existence of two distinct entities: (1) a ‘person’; and (2) an ‘enterprise’ that is not simply the same ‘person’ referred to by a different name.” See Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161 (2001). Defendants argue that plaintiff has not satisfied this distinctness requirement because he generally alleges that all of the defendants formed a single group, acted for each other, and essentially are indistinguishable from each other.

The Court rejected this argument at the pleading stage stating that under Kushner a corporate enterprise and its employee are distinct from each other for purposes of this requirement, even if the employee is the corporation’s sole owner. See id. at 163. Thus, the fact that the parties forming the enterprise may be related by ownership does not necessarily doom plaintiff’s RICO claims. Defendants cite Roberts v. C.R. England, Inc., 318 F.R.D. 457 (D. Utah 2017), in which the court rejected a RICO claim for lack of distinctness. See id. at 489-90. In that case, however, plaintiff had alleged that the defendant and the enterprise were alter egos of each other. See id. at 489. In this case, plaintiff has not alleged that all of the defendants are alter egos of each other.

Operation and Management Test

The Court also rejects one of the legal entities argument that plaintiff’s complaint fails to satisfy the requirement in Section 1962(c) that the person have conducted or participated in the enterprise’s affairs as it argued that it simply provided the BGSS device that was implanted in plaintiff during surgery. According to plaintiff’s allegations, however, OSI was not simply a disinterested party who did nothing more than supply a good that ultimately benefited the enterprise; rather, plaintiff has alleged that OSI joined with others in a scheme to benefit its owner. In Safe Streets, the Tenth Circuit also reiterated that “the defendant need not have primary responsibility for the enterprise’s affairs, a formal position in the enterprise, or significant control over or within the enterprise to be liable under RICO,” and that the enterprise member need only have played “a bit part” in conducting the enterprise’s affairs. See Safe Streets, 859 F.3d at 883-84 (internal quotations omitted) (quoting George, 833 F.3d at 1251). The Court concluded that plaintiff has alleged sufficient facts to satisfy the enterprise element of liability under Section 1962(c).

Predicate Acts—Mail Fraud and Wire Fraud

The Court addressed argument of a legal entity OSI that it cannot have committed mail fraud or wire fraud because it was not involved in the mailing of the bills or the receipt of payments for plaintiff’s treatment. OSI further notes that plaintiff has alleged that “defendants” generally committed the predicate acts. In a case cited by OSI, however, the First Circuit noted that predicate acts under RICO may include aiding and abetting the listed offenses, see Aetna Cas. Sur. Co. v. P & B Autobody, 43 F.3d 1546, 1560 (1st Cir. 1994), and this Court has reached the same conclusion, see Independent Drug Wholesalers Group, Inc. v. Denton, 1993 WL 191393, at *3 (D. Kan. May 13, 1993) (Lungstrum, J.). In addition, a person who “knowingly causes [something] to be delivered by mail” may be guilty of mail fraud, see 18 U.S.C. § 1341, and a person causes the mails to be used if he “does an act with knowledge that the use of the mails will follow in the ordinary course of business, or where such use can reasonably be foreseen, even though not actually intended.” See Pereira v. United States, 347 U.S. 1, 8-9 (1954); see also Aetna, 43 F.3d at 1560 (“plaintiff does not need to prove that each defendant personally used the mails but only that the defendant acted with knowledge that the use of the mails will follow in the ordinary course of business, or acted in circumstances where such use can be reasonably foreseen”) (quoting United States v. Maze, 414 U.S. 295, 299 (1974) ). Thus, the fact that OSI did not itself send out the bills or receive the payments is not dispositive.

But, the allegation that plaintiff has merely referred to “defendants” generally in alleging these predicate acts, requires amendment.

Ed Note: This decision highlights that an association in fact enterprise can consist of all of the defendants and not fail distinctness.

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