District Court Dismisses Civil RICO Amended Complaint Finding the PSLRA Amendment Barred Plaintiffs’ RICO Claim Regardless of Whether there Were Other Predicates Based on Conduct Not Actionable As Securities Fraud

Awad et al v. Sharif Omar and Sami Omar, 2019 WL 5727327, (S.D.N.Y., Nov. 5, 2019)

The Court granted the Defendants’ motions to dismiss the first amended complaint. The amended complaint alleged that Defendants deceived Plaintiffs (two sisters) into signing “shareholder transfer and other corporate documents” pursuant to which they sold their stock in two companies, Liptis USA and Liptis Holding, to those entities “for little or no consideration” and then defendants purchased it from the Liptis entities “for little or no consideration.” After defendants acquired the shares, Sharif allegedly “coerced” Sami “through threats and extortion” into giving Sharif all of his shares of Liptis USA and Liptis Holding. Plaintiffs contend that after defendants defrauded their sisters of their Liptis USA stock, defendants “caused their accountants to fraudulently report in the [s]isters’ federal tax returns that the payments were for the purported sale of the [s]isters’ shares of stock of Liptis.”

The amended complaint also alleges that from 2009 through 2017, defendants defrauded various lenders into issuing mortgages on the properties owned by Liptis, New Life, and Omar Holding, and then misappropriated the proceeds.

The court discussed that “[s]ection 107 of the PSLRA – which was enacted as an amendment to the RICO statute and accordingly is often referred to as the ‘RICO Amendment’ – provides that ‘no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962.’ ” MLSMK Inv. Co. v. JP Morgan Chase & Co., 651 F.3d 268, 273 (2d Cir. 2011) (quoting 18 U.S.C. § 1964(c)). The RICO Amendment not only “ ‘eliminate[s] securities fraud as a predicate offense in a civil RICO action,’ ” but it also “bar[s] a plaintiff from ‘pleading other specified offenses, such as mail or wire fraud, as predicate acts under civil RICO if such offenses are based on conduct that would have been actionable as securities fraud.’ ”

The court discussed that the RICO Amendment applies expansively and where plaintiffs allege ‘a single scheme,’ courts have held that ‘if any predicate act is barred by the PSLRA it is fatal to the entire RICO claim.’ The court found that the Plaintiffs allegations amounted to a course of conduct which amounts to a single scheme. As part of this scheme, plaintiffs allege that defendants defrauded the sisters into selling their Liptis USA stock, which fraud was plainly actionable as securities fraud.

Given this clear assertion of a securities fraud, plaintiffs’ reliance on certain alleged mail and wire frauds was unavailing.*4. The RICO Amendment accordingly barred plaintiffs’ RICO claim, and did so regardless of whether the other predicate acts that plaintiffs allege are based on conduct that is not actionable as securities fraud. *5, citing cases. The court stated that allowing such surgical presentation of the cause of action here would undermine the congressional intent behind the behind the RICO Amendment.” (internal quotation marks omitted)).

Ed Note: David J. Stander Esq. provided consulting services to the prevailing party in this matter. As mentioned, Defendant Sharif Omar presented numerous other arguments in support of his motion to dismiss which were not considered in the decision.

Circuit Court Finds Sufficient Evidence to Support Wire Fraud and Extortion Predicates in Affirming a RICO Conviction

United States v. Taylor, 2019 WL 5700359, __ F.3d __ (4th Cir., Nov. 5, 2019)

The Court affirmed the conviction of two Baltimore City police officers who submitted of overtime slips with false hours. The overtime slips were wired between [the Police Department] and ADP, the payroll provider for Baltimore City, from Maryland to South Dakota [where ADP’s servers for the payroll system were located].” The officers, who were members of the Police Department’s Gun Trace Task Force (“GTTF”), were also charged with robbing citizens during the course of their police service, taking money, jewelry, and other items. Defendants were convicted at trial of RICO conspiracy and substantive RICO.

 

Wire Fraud- Foreseeability

 

The two police officers, Taylor and Hersl, contend the government presented insufficient evidence in support of the necessary elements of wire fraud under 18 U.S.C. § 1343, one of the acts found by the jury. They argue that to show a violation of § 1343, the government had to prove that the use of interstate wires was “reasonably foreseeable” to at least one conspirator. They maintain that although “[t]he government proved without dispute that the process leading to paying overtime to … officers involved the use of interstate wires,” it “offered literally no evidence to prove that the use of the wires was foreseeable to Hersl, Taylor, or other conspirators.” More particularly, they assert that “the government introduced no evidence whatsoever that it was reasonably foreseeable to Hersl, Taylor, or coconspirators that the submission of overtime slips would lead to wire communications between [the Police Department] and ADP, let alone interstate wire transmissions from Maryland to South Dakota [where ADP’s servers for the payroll system were located].”
As the indictment charged and the jury found, the Police Department was the enterprise through which Hersl and Taylor conspired with other GTTF officers to enrich themselves by committing various racketeering acts. To establish a violation of the wire fraud statute, the government must prove (1) the existence of a scheme to defraud and (2) the fact that the defendant used or caused the use of wire communications in furtherance of that scheme. The court discussed at the outset that the interstate nexus required in § 1343 is a jurisdictional element — rather than a substantive element — of the crime of wire fraud. And while the government is generally required to prove a defendant’s mens rea with respect to substantive elements of a crime, such proof is not required for a jurisdictional element.
Thus, the Court concluded that the evidence in this case of the interstate nexus was sufficient to satisfy the jurisdictional element, finding the wire transmissions were in interstate commerce, and need not have been foreseeable to a defendant under an objective standard.
Hobbs Act Robbery
The Defendants then challenged their convictions for Hobbs Act robbery contending
that the evidence was insufficient to establish that their conduct met the statutory definition of robbery. Hersl also contended that the government failed to establish that his alleged robbery of two victims (Ronald and Nancy Hamilton) affected interstate commerce.*11. Hersl argued that even if he was involved in robbing the Hamiltons, a robbery of personal savings from a private home does not have the effect on interstate commerce required by the Hobbs Act. The Hamilton’s monies came from Hamilton’s business of purchasing cars at dealer auctions in Maryland and Pennsylvania and then sold them over the Internet or through word of mouth. Given [T]he jurisdictional predicate of the Hobbs Act requires only that the government prove a minimal effect on interstate commerce.” the government may satisfy the Hobbs Act’s jurisdictional requirement by showing a reasonable probability that the defendants’ actions depleted the assets of an entity engaged in interstate commerce, and “the effect [on interstate commerce] may be so minor as to be de minimis.” *12. While Hamilton did not quantify how much of his business he conducted out of state, a rational jury could have concluded that, since he testified to purchasing cars from only three locations, his purchases from Manheim, Pennsylvania, constituted a substantial portion of his inventory. The court stated that it had recognized that a business that purchases “a substantial portion of its inventory from out-of-state suppliers is engaged in interstate commerce for purposes of the Hobbs Act.” In addition, Hamilton specifically testified that some of the cash found in the bedroom came from selling cars, a portion of which came from Pennsylvania. Because there is no dollar-amount minimum under the depletion of assets theory, the Court concluded that the evidence was sufficient to satisfy the jurisdictional requirement of the Hobbs Act.
Ed. Note: Although this was a criminal RICO prosecution, the proof of the predicates in a civil RICO follows the same analysis, subject to a preponderance of evidence standard instead of beyond a reasonable doubt. The Court’s liberal interpretation of “foreseeability” for wire fraud, and “de minimis” for Hobbs Act may be directly applied to an analysis of these predicates in a civil RICO case.

Court Denies Defendants Motion to Dismiss Civil RICO Action; Adopting Ninth Circuit’s Liberal Interpretation of Boyle v. United States and Finding Application of Civil RICO to One Incident of Violence Causing Minimal Financial Injury

Mitchell v. First Call Bail and Surety, Inc. et al, __F. Supp.3d ___, 2019 WL 5069352 (D. Mont., Oct. 9, 2019)

The court denied Defendants motion to dismiss finding the use of unlawful force to collect a bond, resulting in damage to a door as a sufficient civil RICO case.

Mitchell failed to show for a hearing and the bond bailsman (First Call) hired a surety to recover, arrest, and surrender a defendant for whom a bail bond has been posted. A bond recovery company (MCAG) hired by First Call is accused of unlawfully arresting Mitchell after breaking his door down (damaging a door) without a warrant and the five bounty hunters present for the break-in have since been charged with assault with a weapon, aggravated burglary, unlawful restraint, accountability for aggravated burglary, and criminal mischief as a result of the incident.

Enterprise

The Complaint alleges that Allegheny, Fidelity, First Call, Ratzburg, MCAG and its members formed an “association-in-fact” enterprise. (Id.) Allegheny and Fidelity were sureties on the bond; Ratzburg was the owner of the local bond agency (First Call), and MCAG was the bounty hunter retained by First Call, collectively known herein as “Surety Defendants.”

Surety Defendants argue that Plaintiffs failed to allege any “common purpose or course of conduct” that is separate from each defendant’s ordinary business affairs. (Doc. 21 at 20–21.) The Court has found nothing to indicate that the Ninth Circuit requires an enterprise to share a “common purpose” that is separate or secondary from its general business purpose. To the extent Surety Defendants argue that a separate (i.e. unlawful) purpose must unite the enterprise, the Court acknowledges that this is an open question in the Ninth Circuit. Gomez v. Guthy-Renker, LLC, No. EDCV-14-01425-JGB(KKX), 2015 WL 4270042, *9 (C.D. Cal. July 13, 2015); Friedman v. 24 Hour Fitness USA, Inc., 580 F. Supp. 2d 985, 991 (C.D. Cal. 2008), and in Odam v. Microsoft Corporation the Circuit made no such requirement. In Odom, the Court held that entities shared “a common purpose of increasing the number of people using Microsoft’s Internet Service” which was a valid “common purpose.” Id. at 552.
The Court agreed that all Defendants shared a common purpose of “contracting with bail bonds clients and collecting bond deposits,” in order to make their cut of the premium or bond. As in Odam, the Complaint alleges a lawful purpose carried out through fraudulent means.*9. The court concluded that the Complaint alleged an “association-in-fact” enterprise.*10.

Pattern of Racketeering

Plaintiffs assert that all Defendants engaged in the predicate acts of “extortionate extension of credit and financing extortionate credit transactions.” Plaintiffs allege that First Call and Ratzburg additionally engaged in kidnapping, extortion, and extortionate collection of credit extensions. Surety Defendants argue that many of these predicate acts fail as a matter of law, but the court found that Plaintiffs state facts sufficient to support a kidnapping charge for the same reasons that its claim for false imprisonment is viable.*11

The court also found that Plaintiffs also stated a viable claim for extortion based on the fact that “Ratzburg threatened that if … Mitchell did not pay the outstanding amount due on his premium or comply with the bond agreement, Ratzburg would ‘get’ him.” Surety Defendants argue that this was merely a warning to exercise a contractual right and “what you may do in a certain event you may threaten to do.” But the court found this is a question of fact stating that a jury could find that Ratzburg was not threatening to arrest Mitchell but threatening physical violence to coerce the remaining payment.

Next, Surety Defendants assert that the Complaint does not plead the required elements for extortionate credit transactions finding the Complaint adequately alleges a predicate offense of making extortionate extensions of credit when it describes that Ratzburg permitted Mitchell to delay part of the premium payment and then threatened Mitchell to collect payment. Because the Court has determined that the Complaint alleges predicate acts of kidnapping, extortion, and extortionate credit transactions, Plaintiffs have met their burden to plead the existence of a pattern.

Note: How could there have been continuity here?

Control Over Enterprise

The court also found that defendants had some degree of control over the “operation or management” of the enterprise’s conduct.

Proximate Cause

Importantly, the court found financial harm proximately caused resulting from the kidnapping as the Plaintiff’s door was damaged and this was “‘direct relationship’ between the injury asserted and the injurious conduct[.]” Here, the injury to the door occurred as a direct result of MCAG entering Mitchell’s house in order to arrest him and in order to recoup a $115 payment that Ratzburg represented was still outstanding. Having addressed each of Surety Defendants’ arguments, the Court concluded that the RICO claims are properly stated and may advance.

Ed Note: The finding of directly caused financial harm resulting from breaking in a door is a very broad application of civil RICO. The moral is that if financial injury can be found from violence crimes constituting predicate acts a court will accept the pleadings.

Court Dismisses Plaintiff’s Civil RICO Complaint Relying, Mistakenly, in Part, on Pre-H.J. Inc. Case Law Pertaining to ‘Continuity”

Old Town Utility and Technology Park LLC et al v. Consolidated Edison Solutions, Inc. et al, 2019 WL 4784603 (D. Maine, Sept. 30, 2019)

The court granted in part the Defendants’ motions to dismiss finding that the civil RICO claims did not adequately allege a pattern of racketeering because it failed the “continuity” requirement. The complaint alleges that certain of the Defendants operated a criminal enterprise to procure a long-term energy supply contract with the University, and were able to do so because public entities and officials associated with the University failed to follow governmental procurement and public corruption laws.

The First Circuit takes, in my view, and overly restrictive view of adequately alleging the “continuity” factor for showing a pattern of racketeering, in both its open-ended and closed-ended analysis.

The Plaintiffs assert a RICO claim under 18 U.S.C.A. § 1962(c) against most of the Defendants. The Defendants contended the complaint fails to allege the existence of, among other things, a pattern of racketeering. The First Circuit had previously ruled, in a pre-H.J. Inc case that –

a “pattern of racketeering activity … does not encompass a single criminal event, a single criminal episode, [or] a single ‘crime’ (in the ordinary, nontechnical sense of that word) … even if that single episode involves behavior that amounts to several crimes (for example, several unlawful mailings).”

citing to Apparel Art Int’l, Inc. v. Jacobson, 967 F.2d 720, 722–23 (1st Cir. 1992) (emphasis in original).

The court discussed the two methods to satisfy the continuity plus relationship standard: the open-ended approach and the closed-ended approach. Giuliano, 399 F.3d at 387. Under the open-ended approach, a plaintiff “need not wait for a long-term pattern to develop … so long as the alleged ‘racketeering acts themselves include a specific threat of repetition extending indefinitely into the future [or] … are part of an ongoing entity’s regular way of doing business.’ ” Id. at 387 (quoting H.J. Inc., 492 U.S. at 242).

Under the closed-ended approach, by contrast, a plaintiff must show “a series of related predicates extending over a substantial period of time.” H.J. Inc., 492 U.S. at 230. “[W]here the temporal duration of the alleged activity and the alleged number of predicate acts are so extensive that common sense compels a conclusion of continuity, closed-ended continuity should be found.” Giuliano, 399 F.3d at 387 (internal quotation marks and citation omitted).

Accordingly, the First Circuit found that 95 fraudulent mailings over a four-and-a-half-year period was sufficient to show continued criminal activity. Fleet Credit Corp. v. Sion, 893 F.2d 441, 447 (1st Cir. 1990). By contrast, an allegation of “16 predicate acts over a six-month period is inadequate to establish a closed-ended pattern of racketeering activity.” Giuliano, 399 F.3d 381 at 390. Only in “middle ground” closed-ended cases “where the duration and extensiveness of the alleged conduct does not easily resolve the issue” does the court “examine other indicia of continuity.” Id. at 387.

1. Open-Ended Continuity

Regarding open-ended continuity, the complaint asserts that there is open-ended continuity because the complaint alleges that the racketeering activity “will continue into the future” but the court stated that the allegations were unduly speculative as a plaintiff must point to facts that would establish that the alleged criminal conduct is a continuing threat. Thus, in Systems Management, Inc. v. Loiselle, 303 F.3d 100 (1st Cir. 2002), the First Circuit dismissed a RICO case alleging that an employer engaged in mail fraud to conceal its non-compliance with state wage laws so as to maintain its contract. Id. at 103, 106. The court stated that, “[i]f [the defendant] had concrete plans to bid on contracts on other jobs and to carry them out through acts of mail fraud, the ‘continuing threat’ label would be supported, and the case would fit within what the Supreme Court has viewed as an ‘open ended’ pattern of racketeering sufficient under RICO.” Id. at 106. But the plaintiffs in that case could not point to any such evidence and thus could not establish a continuing threat. Id.

The court stated that the Plaintiffs alleged no “concrete plans” by the Defendants and contains no allegations that “racketeering activity might be a regular way of conducting defendant’s ongoing legitimate business … or of conducting or participating in an ongoing and legitimate RICO enterprise.” Efron v. Embassy Suites (P.R.), Inc., 223 F.3d 12, 19 (1st Cir. 2000) (internal quotation marks omitted). Therefore, the court stated that allegations in the complaint do not support open-ended continuity. See Kenda Corp. v. Pot O’Gold Money Leagues, Inc., 329 F.3d 216, 233 (1st Cir. 2003) (holding that multiple criminal acts “directed toward one transaction” did not establish open-ended continuity where the plaintiffs could not prove that the defendants “had plans to take over another company or pool league in the same fraudulent manner”).*5.

This holding is contrary to H.J. Inc. in which there was no requirement that Plaintiffs must allege proof that Defendants had “concrete plans” to conduct other violative behavior. In fact, this is completely wrong in view of the fact that the threat of continuing activity can be shown by the previous conduct, e.g., an extortionate demand by a hoodlum. H.J. Inc. at 242-43

2. Closed-Ended Continuity

The court also concluded that the complaint’s allegations do not support closed-ended continuity. “[A] closed-ended pattern sometimes can be established by examining only the number of alleged predicate acts and the duration of the alleged racketeering activity.” Home Orthopedics Corp., 781 F.3d at 529. Here, the complaint alleges that the Defendants’ racketeering activity spanned approximately two years, but it does not clearly enumerate the alleged predicate acts. Thus, it is difficult to say whether “the temporal duration of the alleged activity and the alleged number of predicate acts are so extensive that common sense compels a conclusion of continuity.” Giuliano, 399 F.3d at 387.

Nevertheless, even considering other indicia of continuity under the “middle ground” analysis, see id., the complaint fails to establish closed-ended continuity. These indicia include, “for instance, whether the defendants were involved in multiple schemes, as opposed to one scheme with a singular objective; whether the scheme affected many people, or only a closed group of targeted victims; and whether the scheme had the potential to last indefinitely, instead of having a finite nature.” Home Orthopedics Corp., 781 F.3d at 529 (internal quotation marks omitted).

This view is also unwarranted by H.J. Inc., which sets forth that multiple schemes are not required and closed ended may be demonstrated by “proving a series of related predicates extending over a few weeks or months.” Id. at 242-43. In any event, the court viewed the facts as a “focused, finite scheme” with only the Plaintiffs as targeted which does not establish closed-ended continuity. Relying on pre-H.J. Inc. law, the court stated that complexity alone does not establish closed-ended continuity. *7, see Apparel Art, 967 F.2d at 723 (contrasting a “single, complex interstate bank robbery,” which is not continuous, with a “a string of interstate robberies,” which may be). Thus, the court concluded that the “combination of single scheme, single injury, and few victims makes it virtually impossible” for the Plaintiffs to establish closed-ended continuity.

Ed. Note: If viewed as merely as allegations of single-scheme, single or few victims, the court does conform to the majority of district courts which have not found continuity in such a circumstance. However, these cases are overly restrictive as H.J. Inc. focuses on “duration” not to other factors such as multiple victims and multiple schemes.

David J. Stander is an attorney who focuses on civil RICO consulting and litigation.

Fifth Circuit Correctly Affirms Dismissal of Civil RICO, but Dramatically Misstates Boyle v. United States Enterprise Requirements

Walker v. Beaumont Independent School District, __F.3d ___, 2019 WL 4458378 (5th Cir. 2019)

The court affirmed the judgment finding that there insufficient facts to render plausible Walker’s attempted characterization of various unrelated Appellees as an “ongoing organization, formal or informal, that functions as a continuing unit.”*8.

The enterprise was alleged to involve approximately 35 residents and organizations in the Beaumont area, including the Beaumont Independent School District (“BISD”), the BISD Board of Trustees and subsequent BISD Board of Managers, two local newspapers and their employees, two online journalists, the local chapter of the International Brotherhood of Electrical Workers (“IBEW”) and several of its members, a Beaumont City Councilperson, two local attorneys, the United States Attorney for the Eastern District of Texas, two Assistant United States Attorneys, and two agents with the Federal Bureau of Investigation (“FBI”). The objective of this alleged conspiracy was to ruin Appellants’ reputations and businesses as part of a larger campaign to harm minority individuals who “stepped out of line” and “defied the status quo.”

Although the Court’s conclusion based on these facts is undoubtedly correct, the Court misstated the law as rendered by the Supreme Court in Boyle v. U.S. 556 U.S. 938 (2009), including citing to pre-Boyle law which was found to an incorrect interpretation of the enterprise requirement by Boyle. (see *7 citing to United States v. Bledsoe, 674 F.2d 647, 663 (8th Cir. 1982). In relying on this rejected law, the Circuit Court mistakenly stated that –
an association in fact enterprise was not required to have to be a formal or legal entity, but it must have some sort of hierarchical or consensual decision-making structure, and it must exist for purposes other than just to commit predicate acts.
*7, citing to Bledsoe above, emphasis added.

This italicized statement of the law was rejected in Boyle. In that case, the Court upheld a lower court instruction that stated “an association in fact enterprise is oftentimes more readily proven by what it does, rather than an abstract analysis of its structure.” Boyle, 556 U.S. at 942.  The Boyle court also stated that the evidence used to prove the pattern and the evidence establishing an enterprise “may in particular cases coalesce.” Id. at 947.

Thus, it not necessary for a plaintiff to allege that the association in fact enterprise “must exist for purposes other than just to commit predicate acts.” As the Court stated in Boyle, “an association in fact enterprise is simply a continuing unit that functions with a common purpose.” Id., at 948. The Circuit Court’s mistaken interpretation will come back to harm plaintiffs who meet this criterion, but are subject to an outdated, restrictive, and mistaken interpretation of the law.
David J. Stander is an attorney who focuses on civil RICO consulting and litigation.

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.

Magistrate Judge Cites to Dissent in Boyle v. United States to Find An Enterprise Not Adequately Alleged

Catano v. Capuano and Schivato, 2019 WL 3035752 (S.D. Fla., July 11, 2019)

Magistrate Judge Edwin Torres granted defendant’s motion for summary judgment dismissing civil RICO claims. The case involved the defendants engaging together to hide embezzled funds, with Mrs. Capuano making false representations to the probate court and further impeding the recovery of estate assets, continuously through the time of the filing of Plaintiff’s complaint.

Magistrate Torres makes two critical errors in his analysis.

1. Pattern of Racketeering Argument is Not Supported by Supreme Court in H.J. Inc.

First, although Mrs. Capuano and Mr. Schirato committed the predicate acts over the course of four years, the Judge found no closed ended continuity because this was viewed as a single scheme involving only one victim.*3. This is in direct contravention of H.J. Inc. which specifically held that multiple schemes are NOT necessary to satisfy closed-ended continuity.

2. Judge Relies on Dissenting Language in Boyle v. United States To Find No Enterprise Was Separately Alleged

The Judge rests his opinion on the dissent in Boyle v. United States, 556 U.S. 239 (2009). Citing to Boyle’s dissent, the Judge is correct in stating “there must be evidence “of the entity’s ‘separate’ existence and ‘ongoing organization.’ ”Id. *7, citing Boyle, 556 U.S. at 955 (quoting Turkette, 452 U.S. at 583). But, the Judge improperly cites the Boyle dissent for the proposition that separate existence “will often require “proof of an enterprise’s separate existence,” and “different evidence from that used to establish the pattern of predicate acts.” Id. *7, citing Boyle, 556 U.S. at 955 (emphasis added). The Judge cited to the Boyle dissent for the principles that “evidence needed to establish an enterprise’s separate existence may be provided via an organizational hierarchy, an internal discipline mechanism, regular meetings, or a practice of reinvesting proceeds to promote and expand the enterprise. See Boyle, 556 U.S. at 956, ftn. 7.

These statements were specifically repudiated by the majority in Boyle, which citing to Turkette, held —
This instruction properly conveyed the point we made in Turkette that proof of a pattern of racketeering activity may be sufficient in a particular case to permit a jury to infer the existence of an association-in-fact enterprise.
Id. at 951.

Thus, there is no requirement that there be “different evidence” to show the separate existence of an enterprise. As a result, the Judge’s reliance on the dissent in Boyle, whose ideas were specifically repudiated by the majority opinion, to hold an enterprise was not separately alleged, is wrong and error.

David J. Stander is an attorney who focuses his practice on civil RICO litigation.