Tenth Circuit Takes Position on “Distinctness” in Civil RICO Litigation

Lauca v. Western Range Association, __ F.3d ___, 2019 WL 337227 (10th Cir., July 16, 2019)

The Tenth Circuit reversed a dismissal of a civil RICO claim against an individual (Richins). The Circuit followed the majority of circuits and Supreme Court law in Cedric Kushner in interpreting the “distinctness” provision of the civil RICO statute in complaints alleging section 1962(c) violations, and found the RICO claim was plausibly alleged against corporate officer (individual), but distinctness not found for RICO claims alleged against defendant associations (legal entity) where the associations, and its employees, were “part of, not distinct from, the identified enterprise.

The Tenth Circuit discussed that for liability to attach to a RICO defendant, the defendant “‘person’ must be an entity distinct from the alleged enterprise.” This interpretation flows from the statute’s mandate that the person who engages in the pattern of racketeering activity be ‘employed by or associated with’ the enterprise.”

The Tenth Circuit stated that this statutory distinctness requirement “is one of the most heavily litigated requirements in RICO cases,” and has also generated substantial disagreement among the circuits.

The Tenth Circuit found that the district court erred in dismissing the RICO claim against Richins, the individual, under the principles of Cedric Kushner, but on the other hand, affirmed the district court’s dismissal of the RICO claims against WRA and MPAS, associations, where the enterprise was an association-in-fact involving the associations and its members. The Court explained the Association Defendants, were “part of, not distinct from, the identified enterprises.” Id. at *14.

The Court relied on the D.C. Circuit’s decision in Yellow Bus Lines, 883 F.2d at 141, which examined the relationship among the members of the enterprise association to the relationship of parts to a whole. That is, while the corporate or organizational defendant may itself be a member of the enterprise association, the member of the enterprise association may not simply be subdivisions, agents, or members of the defendant organization. In short, an organization cannot join with its own members to do that which it normally does and thereby form an enterprise separate and apart from itself. Where, as here, the organization is named as defendant, and the organization associates with its member to form the enterprise “association-in-fact,” the requisite distinctness does not obtain. … Furthermore, allowing plaintiffs to generate such “contrived partnerships” consisting of an umbrella organization and its subsidiary parts, would render the non-identity requirement of section 1962(c) meaningless. The Court declined to permit such an “end run” around the statutory requirements.

Thus, the Circuit ruled the rule set out in Yellow Bus Lines is entirely consistent with extant Tenth Circuit precedent. The Defendants did not direct the court to a single case holding that an association like WRA and MPAS can be legally distinct from an association-in-fact made up solely of the association and its members. Nor has this court been able to locate any such precedent, and the prior Circuit decision in George does not support the assertion WRA and MPAS are distinct from the enterprises composed of themselves and their members.

David J. Stander, Esq. is an attorney who focuses on civil RICO litigation.

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