Court Rejects RICO Section 1962c Claim While Finding RICO Conspiracy Claim Sufficient To Withstand Summary Judgment

Corman v. Nationwide, 2002 WL 2952219 (E.D. Pa. July 26, 2022); Spokane v. Nationwide, 2022 WL 2974711 (E.D. Pa. July 27, 2022); Morgen v. Nationwide, 2022 WL 3042764 (E.D. Pa. Aug. 1, 2022)

In a ruling made by the Court on three related cases, the District Court denied defendants’ summary judgment motion on the RICO conspiracy claims while having found insufficient evidence to support the section 1962(c) substantive provision of RICO.  The defendants generally argued that since the RICO 1962(c) substantive claim and RICO 1962(c) vicarious liability claim were disposed of on summary judgment the RICO 1962(d) conspiracy relief claim should be summarily disposed.  Defendant’s argument was rejected.  THIS IS AN IMPORTANT DECISION AS IT REAFFIRMS THE THIRD CIRCUIT’S POSITION, CONTRARY TO EVERY OTHER CIRCUIT, THAT A RICO CONSPIRACY CLAIM MAY BE SUFFICIENT EVEN IF THE SUBSTANTIVE RICO-SECTION 1962C CLAIM FAILS.

Summary of Facts

Plaintiffs contended that Defendant the Nationwide Life Insurance Company (“Nationwide”) violated two sections of the ERISA, and two sections of the RICO statute, 18 U.S.C. §§ 1962(c)(d), by taking certain actions as the insurer of life insurance policies which were devalued through a larger, complex scheme to swindle funds from welfare benefit plans operated by one John Koresko. 

Conduct Element for Section 1962(c)-   Service Providers

Section 1962(c) claims are premised on Defendant’s directly liable for a RICO violation, and the others are for vicarious liability for the actions of the two Koresko brothers and their various companies. Plaintiffs’ Section 1962(c) direct liability claim fails at the first element—conduct. That is because they have not demonstrated that Defendant took “some part in directing the enterprise’s affairs” which is necessary for a finding that it “conduct[ed] or participate[d]” in the conduct of the Koresko’s enterprise under Section 1962(c)Reves v. Ernst & Young, 507 U.S. 170, 178-79 (1993). Indeed, there is consensus that Section 1962(c) claims against outside professionals providing important services to a racketeering enterprise do not constitute claims that these professions directed the affairs of the enterprise. See, e.g., Azrielli v. Cohen L. Offs., 21 F.3d 512, 521-22 (2d Cir. 1994) (provision of legal services related to fraudulent real estate transaction was not management of the RICO enterprise conducting the fraudulent transaction); Other cases cited, Accord.*11 (Corman).    

Plaintiffs contend that Defendant Nationwide’s role went beyond merely providing a policy because the plan documents incorporate the terms of the Policy, which provide that Nationwide has “ultimate control over whether and how death benefits are to be paid and the amount of the benefits.” Though Plaintiffs use a variety of verbs to describe what Defendant did, they do not provide competent evidence that Defendant directed or exercised control regarding the enterprise’s affairs. Even assuming that Defendant acted as Plaintiffs say it did—which Defendant disputes—these actions are more akin to a service provider whose support, though integral to the enterprise, does not provide the basis for RICO liability. Defendant’s Motion for Summary Judgment on Plaintiffs’ Section 1962(c) direct liability claim shall therefore be granted.

Aiding and Abetting Liability

Plaintiffs’ theory of vicarious liability under Section 1962(c) is based on Petro-Tech, Inc. v. W. Co. of N.A., 824 F.2d 1349 (3d Cir. 1987) [“Petro-Tech”], a Third Circuit decision whose reasoning was undermined by the Supreme Court in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994) [“Central Bank”]. Following the Court’s decision in Central Bank, the Third Circuit reconsidered whether aiding and abetting liability existed under RICO, and twice concluded that it did not. *12, citing cases. The court concluded that though Petro-Tech’s holding on aiding and abetting liability under RICO has been overruled, the viability of its holding on vicarious liability remains an open question as it has not been raised since the Central Bank, Rolo, Pa. Ass’n. trilogy of decisions. It is evident, however, that Petro-Tech’s holding on vicarious liability is equally undermined by the reasoning found in that trilogy. As with aiding and abetting, the text of RICO Section 1962 itself “does not in terms mention” vicarious liability, Central Bank, 511 U.S. at 175, nor does it contain any “indication that Congress intended to impose [vicarious liability] under RICO.” Rolo, 155 F.3d at 657. Indeed, while Section 1962(c) prohibits a person from “conduct[ing] or participat[ing], directly or indirectly” in a RICO violation, indirect participation does not encompass vicarious liability. The term “directly or indirectly” does not reach “persons who do not engage in the proscribed activities at all.” Central Bank, 511 U.S. at 176 (emphasis added). Vicarious liability, however, extends to principals who did not themselves engage in the violation. It thus exceeds the activity contemplated by an “indirect” RICO violation. Id.Hayden v. Paul, Weiss, Rifkind, Wharton & Garrison, 955 F. Supp. 248, 255-56 (S.D.N.Y. 1997) (applying Central Bank to aiding and abetting liability under RICO Section 1962(c)).

The text of Section 1962(c) therefore does not support a private civil cause of action under a theory of vicarious liability, “in accordance with the policies articulated in Central Bank”, and, taking into account the textualist approach, courts are generally proscribed from implying one. Rolo, 155 F.3d at 657 (internal citation and quotation marks omitted). Plaintiffs’ Section 1962(c) vicarious liability claim therefore fails as a matter of law and Defendant’s Motion for Summary Judgment on this claim shall be granted.*13. 

Conspiracy Claim Sufficient To Withstand Summary Judgment

Plaintiffs’ third RICO claim—for conspiracy under RICO Section 1962(d)—survives summary judgment as Defendant does not make any viable arguments against this claim. Instead, it points to the arguments raised in its briefing against Plaintiffs’ 1962(c) claim, arguing that, “Plaintiffs’ Section 1962(d) claim must be dismissed for the same reasons that their section 1962(c) claims fails.  Defendant’s Section 1962(c) arguments do not address the following two elements of liability under Section 1962(d): “1) knowledge of the corrupt enterprise’s activities and 2) an agreement to facilitate those activities.” Smith v. Berg, 247 F.3d 532, 535 (3d Cir. 2001) (internal citation and quotation marks omitted). Defendant’s defense against Plaintiffs’ Section 1962(d) claim thus fails because it did not argue it “in a manner that permits the court to consider its merits.” United States v. Dupree, 617 F.3d 724, 728 (3d Cir. 2010).

Conspiracy Claim-  Statute of Limitations

Defendant also argues that Plaintiffs’ 1962(d) claim is untimely because by its calculations the statute of limitations had run by either 2013 or 2016—well before Plaintiffs filed this suit in August 2017. Civil RICO claims are subject to a four-year statute of limitations which begins to run when “plaintiffs knew or should have known of their injury.”  Defendant’s “task is not an easy one.” Id.

Defendant has failed to carry its burden. Defendant concedes that issues of fact preclude a determination as to whether Plaintiffs’ claims are timely under the subjective standard. It contends, however, that Plaintiffs’ claim is untimely under the objective prong because there were “storm warnings” in the form of the Department of Labor’s 2009 suit against the Koresko, a 2012 amendment of the complaint filed in that suit, and three articles published in 2009 which advertised the suit. Defendant argues these “storm warnings” put Plaintiffs on notice of their claims in 2009 or 2012 and that they failed to exercise reasonable diligence to bring their claims. Plaintiffs counter that they did exercise reasonable diligence by regularly requesting information on the Policy from Koresko and his affiliates and the Defendant. They, however, contend that they could not learn of the racketeering conduct which gave rise to the instant action because Koresko, his affiliates, and Defendant (at Koresko’s and PPT’s instruction) did not respond to Plaintiffs’ requests for information about the Policy. On these facts, there exists a genuine issue of material fact as to whether Plaintiffs exercised due diligence on their RICO claims, which dispute must be left for the jury to resolve at trial. 

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