Why Don’t District Courts Comply with the Supreme Court’s Liberal Construction of Civil RICO?

Published in West’s Civil RICO Reporter, November 2018

David J. Stander is an attorney who focuses his practice on civil RICO litigation and consulting. Mr. Stander can be reached at dstanderlaw@gmail.com, and invites you to visit his website at http://www.ricoconsultingattorney.com.

It seems that every defendant alleged to have committed wire fraud or mail fraud in a civil RICO claim relies upon district court holdings which improperly raise the burden on civil RICO plaintiffs. A recent district court case, Bascunan v. Elsaca, 2018 WL 4360780 (S.D.N.Y. 09/06/18, appeal filed 09/14/18), dismissed a civil RICO claim based upon fraud and recited district court cases likening civil RICO to the “litigation equivalent of a thermonuclear device.”
The Bascunan court cites statements by other district courts encouraging the dismissal of RICO allegations at an early stage of the litigation where it is otherwise appropriate to do so. These district courts proclaim that civil RICO claims based upon wire fraud or mail fraud are to merit “heightened scrutiny.”

Supreme Court Views Civil RICO Expansively

These statements conflict directly with the view of the Supreme Court’s interpretation of the legislative history of the civil RICO statute. The expansive view of civil RICO is explained in depth in various Court decisions, most notably in Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497 (1985), reversing a dismissal of a civil RICO claim based on mail fraud. In these cases, the Court cites to the legislative history of RICO wherein Congress stated that RICO’s terms are to be “liberally construed to effectuate its remedial purposes.” Pub.L. 91–452, § 904(a), 84 Stat. 947. In Sedima, supra, the Court stated–
The statute’s “remedial purposes” are nowhere more evident than in the provision of a private action for those injured by racketeering activity. See also n. 10, supra. Far from effectuating these purposes, the narrow readings offered by the dissenters and the court below would in effect eliminate § 1964(c) from the statute.
Id., at 498.
The Sedima Court went on to describe that-
RICO was an aggressive initiative to supplement old remedies and develop new methods for fighting crime. See generally Russello v. United States, 464 U.S. 16, 26–29, 104 S.Ct. 296, 302–303, 78 L.Ed.2d 17 (1983). While few of the legislative statements about novel remedies and attacking crime on all fronts, see ibid., were made with direct reference to § 1964(c), it is in this spirit that all of the Act’s provisions should be read. The specific references to § 1964(c) are consistent with this overall approach. Those supporting § 1964(c) hoped it would “enhance the effectiveness of title IX’s prohibitions,” House Hearings, at 520, and provide “a major new tool,” 116 Cong.Rec. 35227 (1970). See also id., at 25190; 115 Cong.Rec. 6993–6994 (1969).
The Sedima court continued by stating-
The fact that § 1964(c) is used against respected businesses allegedly engaged in a pattern of specifically identified criminal conduct [fraud predicates] is hardly a sufficient reason for assuming that the provision is being misconstrued.
Id. at 499-500.
The Sedima court held that the “extraordinary” uses to which civil RICO has been put (inclusion of wire, mail, and securities fraud) is an issue for Congress and not an appropriate issue for the courts to impose additional requirements. Sedima, supra, 473 U.S. at 500.

Supreme Court Has Rejected Limitations on Civil RICO Actions

In civil RICO cases, the Supreme Court has ruled against imposing any limitations to pleading civil RICO. See, e.g., United States v. Turkette, 452 U.S. 576, 586–587 (1981) (not limiting RICO to only illegitimate enterprises and setting forth an expansive view of an association-in-fact enterprise); Sedima, S.P.R.L. v. Imrex Co., supra, 473 U.S. at 497 (holding there is no requirement that a private action can proceed only against a defendant who has already been convicted of a predicate act or of a RICO violation, and also holding that there is no requirement that a plaintiff in a private action establish a “racketeering injury” as opposed to an injury resulting from the predicate acts themselves); H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 241-243 (1989) (adopting a flexible commonsense approach to finding continuity); National Organization for Women, Inc. v. Scheidler, 510 U.S. 249, 257 (1994) (rejecting Seventh Circuit holding that RICO requires proof that either the racketeering enterprise or the predicate acts of racketeering were motivated by an economic purpose); Cedric Kushner Promotions Ltd., v. Don King, 533 U.S. 158, 163 (2001) (holding an individual is “distinct” from his corporate entity and a viable RICO plaintiff based upon either “formal or practical separateness”); Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 652-653 (first-party reliance is not an element of a civil RICO case predicated on mail fraud); Boyle v. United States, 556 U.S. 939, 944 (2009) (affirming the finding of an association in fact enterprise based on concepts that “the very concept of an association in fact is expansive,” and the RICO statute provides that its terms are to be “liberally construed to effectuate its remedial purposes.”) The Boyle Court held an association-in-fact enterprise does not require business-like characteristics, nor requires a hierarchical structure.

Circuits Follow Supreme Court, Liberally Construe RICO

As a result, many circuits have followed Congress’s intent to liberally construe the civil RICO statute, and follow the Supreme Court’s direct instructions to broadly construe civil RICO, even in mail and wire fraud cases. A sample of the circuits follows: Ray v. Spirit Airlines, Inc., 767 F.3d 1220, 1227-28 (11th Cir. 2014) (vacating the dismissal of Plaintiffs’ civil RICO claim tied to Spirit’s Personal Usage Fee because Congress did not expressly or impliedly repeal RICO’s authorization of civil suits based on acts of mail and wire fraud); Odom v. Microsoft Corp., 486 F.3d 541, 546-547 (9th Cir. 2007) (reversing a dismissal of a civil RICO lawsuit alleging wire fraud stating, after review of four Supreme Court cases, the court “takes the general instruction that we should not read the statutory terms of RICO narrowly”); Haroco, Inc. v. American National Bank and Trust Company of Chicago, 747 F.2d 384, 398-399 (7th Cir. 1984) (civil RICO plaintiff need not allege or prove injury beyond any injury to business or property resulting from underlying acts of racketeering); Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1100-1101 (2d Cir. 1988) (with these principles [Sedima] in mind, along with Congress’s instructions that we broadly construe the statute, see Pub.L. 91-452, Title IX, Section 904, 84 Stat. 941, the court held that the district court erred when it applied an additional, special requirement of standing to Bankers’ civil RICO claim); Tabas v. Tabas, 47 F.3d 1280, 1297 (3rd Cir. 1995) (in finding a sufficient pattern in a civil RICO claim alleging mail fraud, and rejecting a “garden-variety” defense, the court stated it was “bound, however, by the language of RICO itself and the Supreme Court’s instruction that “RICO is to be read broadly,” citing Sedima, 473 U.S. at 497.

This tug of war between the trial courts and the circuits/Supreme Court creates needless confusion. Suffice it to say, the Supreme Court has uniformly ruled for an expansive view of civil RICO and follows Congress’s intent that the civil RICO statute is to be “liberally construed.” Moreover, the Supreme Court has never imposed “heightened” analysis on civil RICO cases alleging fraud predicates; rather, the Court has rejected any limitations on pleading civil RICO. Many circuits addressing the issue have followed suit. District courts should carefully consider these pronouncements.


Eleventh Circuit Vacates Lower Court Ruling, Distinguishes Plaintiff’s RICO Conspiracy Claim From Common Law Fraud Claim

SunLife Assurance Co. of Canada v. Imperial Premium Finance, ___F.3d ___, 2018 WL 4443054 (11th Cir. Sept. 18, 2018)

Plaintiff alleges that Imperial secured life insurance policies through an unlawful and tortious conspiratorial scheme, alleging (1) conspiracy to commit common law fraud; and (2) conspiracy to violate RICO. Imperial, for its part, contends that its acquisition and ownership of the policies was lawful, and alleges that Sun Life’s attempts to interfere with its ownership of and rights under the policies, including its filing of its lawsuit here, is itself part of Sun Life’s own fraudulent scheme and in breach of the policy contracts.
The alleged conduct underlying both conspiracy claims was the submission of fraudulent life insurance applications to Sun Life. The court first affirmed the dismissal of Sun Life’s fraud conspiracy claim describing that Sun Life’s claim that Imperial conspired with the producers to commit fraud failed because Sun Life did not plausibly allege that the producers and Imperial are independent entities that were capable of conspiring to commit common law fraud as alleged by Sun Life.

However, Sun Life’s claim for RICO conspiracy survives because the “intracorporate conspiracy doctrine,” does not apply to civil claims for RICO conspiracy. Kirwin v. Price Commc’ns Corp., 391 F.3d 1323, 1326–27 (11th Cir. 2004) (“[J]ust as the intracorporate conspiracy doctrine cannot shield a criminal conspiracy from prosecution under the federal criminal code, the doctrine cannot shield the same conspiracy, alleging the same criminal wrongdoing, from civil liability arising under [18 U.S.C. § 1962(d) ].”) And the court disagreed with Imperial’s attacks on the merits of Sun Life’s RICO conspiracy claim, specifically, that Sun Life did not plead (i) an agreement between Imperial and the producers, and (ii) racketeering activity.

First, Sun Life’s complaint easily permits the inference that Imperial and the producers entered into an agreement to effectuate Imperial’s fraudulent plan. As discussed, the complaint contains myriad details of Imperial’s interaction with and direction of the producers with respect to Imperial’s alleged scheme, which included Imperial compensating the producers for their knowing submission of fraudulent applications to Sun Life,. In light of those allegations, an agreement between Imperial and the producers is certainly plausible.

Second, Sun Life pled RICO predicate racketeering acts: the commission of mail and wire fraud, 18 U.S.C. § § 1341, 1343, which “[b]oth … require that a person (1) intentionally participate[d] in a scheme or artifice to defraud another of money or property, and (2) use[d] or ‘cause[d]’ the use of the mails or wires for the purposes of executing the scheme or artifice.” United States v. Ward, 486 F.3d 1212, 1222 (11th Cir. 2007). Sun Life met its burden by alleging that the producers used the United States mail and interstate wire to submit life insurance applications to Sun Life that contained several misrepresentations that induced Sun Life’s issuance of the policies. Sun Life’s reliance on those misrepresentations is supported by the allegation that Sun Life framed the relevant application questions precisely to avoid issuing premium-financed policies or policies intended at the outset for the secondary market. Finally, Sun Life alleged the damages it faced by issuing less profitable premium-financed policies.

Consequently, the court concluded that the district court properly dismissed Sun Life’s fraud conspiracy claim but that it erred in dismissing Sun Life’s RICO conspiracy claim to the extent such claim alleges a conspiracy between Imperial and the producers.

Ed Note: The distinction between common law conspiracy and RICO conspiracy is on display here, explaining that the intra-corporate conspiracy doctrine which restricts a conspiracy between a parent and subsidiary, does not apply to RICO conspiracy. There is a split in the circuits on this issue. Second, although not discussed, RICO conspiracy is broader than the federal general conspiracy statute, and the common law conspiracy doctrine.

Third Circuit Addresses Extraterritorial Application of RICO Statute

Humphrey v. GlaxoSmithKline PLC, 2018 WL 4609108, ___ F.3d ___ (3d Cir., Sept. 28, 2018)

The Third Circuit affirmed the lower court ruling that Plaintiffs did NOT pled sufficient facts to establish that they suffered a domestic injury to its business or property under § 1964(c).

Plaintiffs contended they lost their business as a result of alleged predicate racketeering acts. In RJR Nabisco, the Supreme Court considered “whether RICO applies extraterritorially—that is, to events occurring and injuries suffered outside the United States.” The relevant inquiry involves two separate questions: first, whether RICO’s substantive provisions apply to extraterritorial conduct, and second, whether RICO’s private right of action affords relief for “injuries that are suffered” outside the United States.

The Supreme Court in RJR Nabisco explained that “[a]bsent clearly expressed congressional intent to the contrary, federal laws will be construed to have only domestic application.” This presumption against extraterritoriality “avoid[s] the international discord that can result when U.S. law is applied to conduct in foreign countries[.]”It also ensures that Congress—rather than the judiciary—is responsible for navigating the “delicate field of international relations.”

Nevertheless, the Court concluded that RICO can reach extraterritorial conduct, but held that 18 U.S.C. § 1964(c) does not allow recovery for injuries suffered in foreign territories stating that “[n]othing in § 1964(c) provides a clear indication that Congress intended to create a private right of action for injuries suffered outside of the United States.” Thus, the Supreme Court concluded although RICO creates a cause of action for misconduct committed abroad, § 1964(c) requires a “domestic injury.”

The Court discussed that those courts that have considered whether an alleged injury was suffered in the United States have applied varying standards, and thus there is no consensus on what specific factors must be considered when deciding whether an injury is domestic or foreign. RJR Nabisco did advise courts to proceed cautiously when deciding if RICO plaintiffs have alleged a sufficient domestic injury to recover under § 1964(c). The Court engaged in a fact-intensive inquiry to determine where the plaintiff “suffered the injury”—not where the injurious conduct took place, stating that a domestic injury under § 1964(c) is found where the relevant factors, appropriately weighed, establish that the alleged harm was suffered in the United States.

The Court found it was clear that the alleged injuries were suffered in China, and Plaintiffs have not alleged that they possess offices, assets, or any other property in the United States. Thus, Plaintiffs have not alleged a domestic injury pursuant to 18 U.S.C. § 1964(c), even though they do allege loss of goodwill and some unidentified number of actual and prospective U.S. customers. To the extent that these intangible assets were injured, it is not enough to overcome the Supreme Court’s caution against extraterritorial application of domestic law in RJR Nabisco. The court concluded that consequently, the District Court correctly dismissed Plaintiffs’ RICO claims.
The court also rejected the argument that, notwithstanding factors supporting a finding that the alleged injury was foreign, Plaintiffs have nonetheless alleged a domestic injury because “the alleged underlying RICO conduct plainly was both targeted at, and was intended to have substantial effects in, the United States,” distinguishing cases in which it is plausibly argued that Plaintiffs United States-based business was harmed by the defendants’ RICO conduct and that it suffered a domestic injury because it felt the impact of that injury within the United States.

Court Finds Plaintiff Adequately Pleaded Injury from Payment of Legal Expenses, and Adequately Pleaded Section 1962(b) Violations

D’Addario v. D’Addario, ___ F.3d ___, 2018 WL 3848501 (2d Cir., Aug. 14, 2018)

The Second Circuit vacated the District Court’s judgment dismissing in full plaintiff Virginia D’Addario’s RICO claim and related state law claims and remanded the cause for further proceedings in accordance with this opinion. Virginia’s claim, which she asserts both individually and as Executrix of her mother’s estate, arises out of the management of her father’s probate estate (the “Estate”) over several decades by her brother David.
The court held that Virginia’s claim under RICO for legal expenses incurred in pursuing her grievances against David and other defendants is ripe and that she has plausibly alleged that her legal expense injuries were proximately caused by Defendants’ RICO violations.
From the start, Virginia has sought RICO treble damages based on two types of injuries: first, loss of the inheritance she contends that she (and her mother’s estate) would have received from the Estate had David not rendered it insolvent (the parties refer to these as “lost debt” damages); and, second, the more than $200,000 in legal expenses that she incurred in the four years before filing this suit, in her efforts to oppose David’s mismanagement of the Estate and unseat him as Executor (the parties refer to these as “collection expenses”) through various actions pursued in the courts of Connecticut. (David appears to have blocked Virginia’s attempted legal interference on at least one earlier occasion by invoking the promise she made in exchange for the 1987 loan. See D’Addario v. D’Addario, No. 27 86 23, 1991 WL 59744, at *4 (Conn. Super. Ct. Mar. 14, 1991).)

The District Court granted Defendants’ motion to dismiss the Amended Complaint. D’Addario v. D’Addario, No. 3:16cv99 (JBA), 2017 WL 1086772 (D. Conn. Mar. 22, 2017) (Arterton, J.). In a detailed ruling, it determined that Virginia’s claim for “lost debt” damages was not ripe for adjudication under applicable RICO case law because it remained uncertain whether Virginia would receive any distribution from the Estate to offset her claimed damages. This uncertainty made the amount she would ultimately be owed too speculative for recovery and trebling under RICO. The court ruled, in contrast, that her claim for collection expenses already incurred was ripe.
As to those expenses, however, the District Court concluded that the Complaint’s allegations were insufficient to state a civil RICO claim. It explained that Virginia had failed to identify a distinct “acquisition and maintenance” injury, as required to make out a claim based on a violation of section 1962(b). And it explained further that Virginia had failed sufficiently to identify an “enterprise” to support a theory for recovery under section 1962(c). Because the Complaint laid an inadequate basis for finding a violation of either of these subsections, the District Court also rejected Virginia’s claim under section 1962(d) for RICO conspiracy. Having dismissed the only federal claim presented in the Complaint, the District Court declined to exercise supplemental jurisdiction over Virginia’s state law claims.

On review, the Second Circuit concluded that the District Court correctly determined that Virginia’s claim for her share of the Estate’s assets is unripe and that her claim for collection expenses is ripe. We also determine that Virginia has sufficiently alleged that her collection expense injuries were proximately caused by the claimed RICO violations.

However, in contrast to the District Court, the Circuit ruled that Virginia has sufficiently identified a distinct acquisition and maintenance injury under section 1962(b) to support her collection expenses claim with regard to David, Gregory Garvey, and Red Knot, but not with regard to the other defendants. We further conclude that Virginia has also sufficiently alleged a section 1962(c) “enterprise” with regard to all six defendants, supporting her claim for collection expenses on this theory of recovery as well. For these reasons, we vacate the District Court’s dismissal as to Virginia’s RICO claim on her own behalf and on behalf of her mother’s estate for collection expenses and remand that claim and her state law claims for further proceedings consistent with this opinion.

The Court explained that it has long recognized that a plaintiff may recover legal fees, including expenses incurred in one or more attempts to combat a defendant’s RICO violations through the legal system, as damages in a civil RICO action, and thus within that category of cognizable damages. Accordingly, the Court concluded that Virginia’s injuries are not so removed from Defendants’ misdeeds as to place them outside the reach of the proximate causation chain as a matter of law. The expenses that she has incurred to stop the incursion are sufficiently proximate to the identified RICO violations support a claim under section 1964(c).

Also, regarding Section 1962(b) the Court stated that to successfully plead a RICO claim, a plaintiff must indeed allege distinct damages arising from the acquisition or maintenance of control of the enterprise. In other words, those damages must be different from the damages that flow from the predicate acts themselves, and Virginia sufficiently pleaded a separate and distinct “acquisition or maintenance” injury.

Ed. Note: The finding of an acquisition and maintenance injury from control of the enterprise is usually more difficult than the participation injury of section 1962c, and is well-explained by the Court.

Court Grants Motion to Dismiss Civil RICO Claims Finding Insufficient Particularity After Rejecting “Alter-ego” Status of Defendants

Ocoro v. Montelongo et al, 2010 WL 3040582 (W.D. Tex., June 19, 2018)

The Court granted the defendants’ motion to dismiss finding that the civil RICO claim did not adequately allege the wire fraud predicates with particularity under Rule 9(b). The Plaintiffs alleged that distinguishing between Montelongo, a real estate instructor, and three of his companies controlled by him was not necessary because the companies were under control of Montelongo and thus the corporate veil of the companies could be pierced

The court rejected the Plaintiffs allegations to apply the alter ego doctrine, discussing that to pierce the corporate veil, a court considers the following factors:

the total dealings of the corporation and the individual, including the degree to which corporate formalities have been followed and corporate and individual property have been kept separately, the amount of financial interest, ownership and control the individual maintains over the corporation, and whether the corporation has been used for personal purposes.

The court found the First Amended Complaint failed to elaborate on any of the above listed factors to a satisfactory extent beyond the conclusory use of the term “corporate shells,” the plaintiffs may not avail themselves of the alter ego doctrine to pierce the corporate veil. Alternatively, a plaintiff may pierce the corporate veil by demonstrating that the owner of a business entity uses that entity “for the purpose of perpetrating, and did perpetrate an actual fraud … for the direct personal benefit of the” owner. The court did not accept this basis because it found the plaintiffs failed to state a RICO claim predicated on fraudulent acts. As they cannot sustain a claim involving fraud, they cannot pierce the corporate veil under a theory of fraud.

The court then stated that the plaintiffs failed to allege wire fraud (18 U.S.C. § 1343) with sufficient particularity under Rule 9(b) because the complaint failed to specifically identify which defendant made each individual fraudulent representation, and how each of those representations furthered the fraudulent scheme.

The court stated that because the Plaintiff failed in pleading a valid corporate veil-piercing theory, the plaintiffs cannot simply treat the defendants as a single entity in this way. Rule 9(b) requires the plaintiffs to say which specific defendant made which particular fraudulent statement to which particular plaintiff at what particular time. The plaintiffs’ allegations do not meet this standard as they do not distinguish exactly which plaintiffs received which communications from which defendants.

Ed Note: This appears an extreme example of a court dismissing a civil RICO claim. The logic is circular, i.e., no alter ego theory because the plaintiffs failed to plead fraudulent acts, but their acts could not have been fraudulent acts because of the very existence of the alter ego theory.

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.


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.


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.

EDNY Provides Civil RICO Primer in Denying Motions to Dismiss RICO Claims Based on Fraud and Bribery

Eagle One Roofing Contractors Inc. v. Dawn M. Acquafredda, 2018 WL 1701939 (E.D.N.Y., March 31, 2018)

The court heard motions to dismiss from two groups of Defendants- Insider Defendants, and the “Accord” Defendants. Insider Defendants were employees of Eagle One, a construction company, who worked with Accord Defendants, subcontractors to Eagle One, in submitting fictitious invoices for work performed. The Accord Defendants consisted of individuals and two legal entities (Accord Inc. and Accord Sales Inc). The court denied motions to dismiss the civil RICO claims of the Accord Defendants, finding a sufficient enterprise, sufficient participation, and sufficient allegation of a pattern of racketeering.
The Enterprise consisted of the Defendants, individuals and entities, who worked together to defraud Eagle One. Defendants claimed that they are separate individuals who have no common association, and Plaintiff’s asserted purpose of the RICO enterprise is identical to the alleged pattern of racketeering activity, and therefore fails to allege distinct conduct establishing an enterprise.
The court made clear that:

(1) there is distinctness between the individual defendants and the enterprise as “[t]his does not foreclose the possibility of a corporate entity being held liable as a defendant under section 1962(c) where it associates with others to form an enterprise that is sufficiently distinct from itself.” Thus, “a defendant may be a RICO person and one of a number of members of the RICO enterprise.” See Moss v. BMO Harris Bank, N.A., 258 F. Supp. 3d 289, 298-99 (E.D.N.Y. 2017) (citing Riverwoods, at 344). Here, the RICO persons are distinct from the alleged RICO enterprise. Not only is the enterprise a corporation with its own employees, but it included the Insider Defendants who were not employees of Accord;
(2) the enterprise was distinct from the underlying conduct that establishes a pattern of racketeering, citing to United States v. Turkette, 452 U.S. 576, 583 (1981). “While the proof used to establish these separate elements may in particular cases coalesce, proof of one does not necessarily establish the other.” Id. “Proof of these separate elements [need not] be distinct and independent, as long as the proof offered is sufficient to satisfy both elements.” United States v. Mazzei, 700 F.2d 85, 89 (2d Cir. 1983), also citing Pavlov v. Bank of New York Co., 25 Fed.Appx. 70, 71 (2d Cir. 2002) “The enterprise need not necessarily have a continuity extending beyond the performance of the pattern of racketeering acts alleged, or a structural hierarchy, so long as it is in fact an enterprise as defined in the statute.” see also Boyle v. United States, 556 U.S. 938, 947 (2009) (“the evidence used to prove the pattern of racketeering activity and the evidence establishing an enterprise may in particular cases coalesce.”). The court further stated that the fact that the purpose of the enterprise is identical with the alleged pattern of racketeering does not preclude the finding of an enterprise. See Fuji Photo Film U.S.A., Inc. v. McNulty, 640 F. Supp. 2d 300, 314 (S.D.N.Y. 2009) (“The Complaint further alleges that the association-in-fact was united by a common purpose, namely that of defrauding [Plaintiff]. Accordingly, Plaintiff has sufficiently pled a RICO enterprise under Rule 8(a).”). *7.
(3) Defendants, except one (Stankey) sufficiently participated in the conduct of the enterprise’s affairs.” Elsevier, Inc. v. W.H.P.R., Inc., 692 F. Supp. 2d 297, 307 (S.D.N.Y. 2010) (citing 18 U.S.C. § 1962(c) (making it unlawful “to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity”) ). see Aerowest GmbH v. Freitag, No. CV-15-2894 (LW), 2016 WL 3636619, at *3 (E.D.N.Y. June 28, 2016) (“While each defendant need not have primary responsibility for the functioning of the enterprise, each must, at least, have some part in directing the affairs of the alleged unit.”).
Racketeering Activity
1) the predicate acts of racketeering activity were sufficiently pleaded addressing the issue of whether “when fraud is alleged against multiple defendants, a plaintiff must plead with particularity by setting forth separately the acts or omissions complained of by each defendant.” Odyssey Re (London) Ltd. v. Stirling Cooke Brown Holdings Ltd., 85 F. Supp. 2d 282, 293 (S.D.N.Y. 2000), aff’d, 2 Fed.Appx. 109 (2d Cir. 2001). The court found that fraud was not pleaded with sufficient particularity with regard to some defendants finding Accord defendants sent invoices requesting payment for work done on the 55 Water Street Job even though no work was being done there at the time. While Eagle One is unable to point to which of the American Express invoices represent actual work and which are fraudulent, the allegations are sufficiently detailed for Rule 9(b). See Fuji, 640 F. Supp. 2d at 315 (“The Complaint alleges that many of the services for which [defendant] billed [plaintiff] were never performed. Although the Complaint does not identify the specific invoice descriptions that pertain to unperformed services, [plaintiff] has provided a schedule of all invoices submitted by [defendant].”).
Thus, because there is no particularity requirement in pleading knowledge or intent, one need only allege facts that carry a strong inference of fraudulent intent, and there is no requirement that the defendant him or herself use the mails. It suffices if the defendant caused them to be used by an agent, or set in motion events which foreseeably would involve their use.” Chevron Corp. v. Donziger, 871 F. Supp. 2d 229, 250 (S.D.N.Y. 2012) (citing United States v. Bortnovsky, 879 F.2d 30, 39 (2d Cir. 1989) ).
In sum, the Complaint identified the particular invoices believed to be false, identified who made them, stated where and when they were made, and explained why they were fraudulent. See Fuji, 640 F. Supp. 2d at 310. Accordingly, Eagle One has sufficiently pleaded fraud with regard to Accord, Yopp, and Carnabuci. Each individual fraudulent invoice can serve as a predicate act of fraud. Alternatively, each job collectively is a single act of fraud. Regardless, Eagle One has established the necessary two predicate acts for a RICO claim.
2) The court found other predicate acts, including commercial bribery and found a pattern as plaintiff alleged that the fraudulent scheme took place “from at least July of 2012 through January of 2015.” This allegation is supported by the invoices that establish that the 55 Water Street job lasted from September 2013 through January 2015, and that the American Express job lasted from July 2012 through October 2014. Because the court has previously determined that Plaintiff has sufficiently pleaded claims of fraud and bribery, Plaintiff has pleaded a pattern of at least two predicate acts of racketeering (the fraudulent invoices from the 55 Water Street job and the American Express job, and the checks from Accord to Eagle One employees), within ten years of each other, that extended for a period longer than two years. THIS IS IMPORTANT SINCE IT SHOWS THE SECOND CIRCUIT MEASURES TIME BY THE PREDICATE ACTS, NOT LENGTH OF THE FRAUDULENT SCHEME.

The court takes a view contrary to the district’s State Farm case holding because Eagle One failed to plead substantive RICO violations by Stankey or Jack Acquafredda, Eagle One’s conclusory allegation that they too “entered into a scheme to embezzle Eagle One funds” is insufficient, and the RICO conspiracy charges against them are dismissed. Discon, Inc. v. NYNEX Corp., 93 F.3d 1055, 1062-63 (2d Cir. 1996) (“Since we have held that the prior claims do not state a cause of action for substantive violations of RICO, the present [§ 1962(d) ] claim does not set forth a conspiracy to commit such violations.”).
Ed Note: This case provides detailed analysis and case law to support civil RICO claims in which Defendants commonly put forth arguments. The conspiracy analysis still is not congruent with Salinas.