The College Admissions Indictment- Brief Q & A on Civil RICO Implications

Mar 18, 2019 ABA Competition Torts CONNECT

David J. Stander, a veteran former RICO prosecutor with the U.S. Department of Justice’s Organized Crime and Racketeering Section, shares some initial thoughts on the potential civil RICO implications of the recent college admissions indictment in the District of Massachusetts:

1. Could the allegations in the indictment serve as the basis for a successful civil RICO case under 18 U.S.C. § 1964(c)? Probably not.

There is a vast difference between charging RICO violations and pleading civil RICO claims. The immediate difficulty in bringing such a civil case would be to find plaintiffs proximately and directly injured by the racketeering activity. An applicant to one of the schools who was not admitted, for example, would have a difficult argument alleging proximate and direct injury as a result of bribes paid to school officials. Also, how could non-acceptance to a particular university result in quantifiable losses? The U.S. Government was harmed because of the alleged charitable donations fraud, but the U.S. Government has been held not to have standing to sue for “injur[y] in [its] business or property” under Section 1964(c).

2. Why was the racketeering conspiracy only alleged under 18 U.S.C. § 1962(d), and not under the “substantive RICO” provision of 18 U.S.C. § 1962(c)? Ease of pleading and proof.

Typically, the DOJ seeks to return indictments under section 1962(d) when there are many different defendants and different but related schemes. Examples are indictments of gangs and large drug organizations. This indictment was pleaded in “Glecier” format (named after the Seventh Circuit’s decision in United States v. Glecier, 923 F.2d 496 (7th Cir. 1991)-a broad conspiracy outlining the crimes conspirators agreed would be committed. These “Glecier conspiracy” indictments have been upheld in almost every circuit as sufficiently pleaded under the Supreme Court’s seminal opinion on RICO conspiracy, Salinas v. United States, 522 U.S. 52 (1997). No racketeering acts need to be alleged.

3. Could a civil RICO claim be pleaded this way? No.
Although civil RICO conspiracy claims should be able to be pleaded in this manner, the circuits are almost uniform (with the exception of the Third Circuit) in requiring that civil RICO claims allege that at least one defendant violated the “substantive RICO” provision-Section 1962(c). Consequently, a civil RICO complaint would look very different, with at least one defendant alleged to be liable under Section 1962(c), and other defendants either also named substantively or named as just conspiracy defendants. The plaintiff would need to allege a substantive RICO violation under Section 1962(c) that meets all of the essential elements of the substantive offense; otherwise, the conspiracy allegations in the complaint would be held insufficiently pleaded, and dismissed.

Note: The views expressed in this CONNECT post are those of Mr. Stander and do not represent the views of the American Bar Association, the Section of Antitrust Law, the Competition Torts Committee, or their members.


Eleventh Circuit Broadly Views RICO Enterprise to Include an Association in Fact Consisting Solely of a Married Couple

Al-Reyes v. Willingham, 914 F.3d 1302 (11th Cir. 2019)

The Eleventh Circuit, addressing only the “enterprise” element of the RICO statute, reversed the order granting summary judgment on behalf of RICO defendant Erika Willingham. The Eleventh Circuit rejected the district court’s interpretation of the RICO enterprise element and found the element broadly construed. The enterprise alleged was an association in fact of Erika and Ben Willingham, a married couple, and the plaintiff had alleged that “in the course of that marriage [the couple] engaged in acts which may constitute mail or wire fraud.”

The Eleventh Circuit first discussed that RICO is widely regarded as a broad statute; indeed, the RICO text itself “provides that its terms are to be ‘liberally construed to effectuate its remedial purposes.” Moreover, the Court discussed the Supreme Court decision in Boyle which emphasized that the definition of enterprise has a wide reach, and the very concept of an association in fact is expansive.” Boyle, 556 U.S. at 944, 129 S.Ct. 2237 (citation omitted). Id. at 1307.

Then, the court addressed the district court’s granting of summary judgment because it determined that the evidence was insufficient to satisfy Boyle’s “purpose” requirement because the record lacked evidence that they originally married for the purpose of engaging in mail or wire fraud. The district court had stated that some additional structure or vehicle must be alleged for the pair to qualify as an association-in-fact enterprise. Id. at 1308.

The Eleventh Circuit disagreed stating that as an initial matter, to satisfy the purpose requirement, neither the text of RICO nor any relevant precedent requires an association-in-fact enterprise to consist of strangers who originally met for the purpose of engaging in illegal activity. “ In construing Boyle, the court stated that the “concept of ‘associat[ion]’ requires both interpersonal relationships and a common interest,” and nothing in that description prevents individuals with preexisting relationships—say, family members or business partners—from later joining together for the common purpose of engaging in illegal activity. The Court cited to decisions in which federal courts have routinely recognized association-in-fact enterprises made up of individuals who had relationships that predated their schemes. Id., at 1308, citing cases. Thus, the relevant “purpose” in an association-in-fact enterprise is the members’ shared purpose of engaging in illegal activity—not the purpose for which they initially became acquainted.

The Court also rejected the lower court’s position that RICO imposes a heightened “structure” requirement for married couples, requirement that the Supreme Court has already expressly rejected in Boyle. The court discussed cases and concluded that what they actually affirm is that a married couple can constitute an association-in-fact enterprise under RICO—or not—depending on the facts of the case.
In examining the facts, the Court stated that they could lead a reasonable juror to conclude that Erika and Ben came together shortly after the consent judgment was entered and orchestrated an asset-concealment scheme for the common purpose of hiding Ben’s assets from Al-Rayes. A marriage certificate does not transform alleged mail and wire fraud into ordinary household management. Id., at 1310.

In summary, the Court stated that to survive summary judgment, Al-Rayes did not need to bolster Erika and Ben’s marital relationship with evidence that the alleged association-in-fact enterprise included a business or other separate entity formed by the couple. Nor did he need to provide evidence that Erika and Ben originally married for the purpose of engaging in mail or wire fraud. Under RICO, the same rules apply to married people as to everyone else. Because the district court applied a heightened standard for association-in-fact enterprises consisting of married couples when it granted summary judgment in Erika’s favor, the Court stated that it must reverse that order.

Ed Note: One issue not discussed is whether the defendant Erika could be “distinct” of an enterprise consisting solely of herself and her husband. Given that practically and legally a married couple itself is an association distinct from each individual, the broad interpretation given to individual defendants and distinction here applies.

Magistrate Judge Rules Against Plaintiffs’ Civil RICO Claims After Trial But Liberally Construes Civil RICO

Joseph O’Keefe v. Ace Restaurant Supply LLC et al., 2019 WL 952282 (E.D. Pa., 2/27/19)

Introduction– This case involves a relatively rare circumstance, i.e., a decision after the parties have tried the case rather than a Rule 12(b)(6) opinion based on the plausibility of the allegations. Although ruling against Plaintiff, the Magistrate Judge’s decision liberally construes civil RICO, particularly in the civil RICO liberal Third Circuit:
1. The Judge did not rule on “distinctness” principles, not addressing such issue when the individual defendants and enterprise constituents were identical. A proper analysis would have been to find the individual defendants distinct from the association in fact of individuals and the legal entity, but find the legal entity not distinct under Riverwoods principles.

2. Importantly, the Judge ruled on this case at trial even though it only involved a breach of contract, thus, no dismissal based upon “garden-variety” fraud.

3. Although ultimately not accepting at trial evidence of the “regular way of conducting [their] ongoing legitimate business” because it was hearsay; does this infer that at the pleading stage, such allegations (which would only be required to be plausible) would be sufficient to allege open-ended continuity?

4. The Judge recognizes that RICO conspiracy does not require a section 1962(c) violation, following Salinas and Smith v. Berg; and

5. The Judge maintained jurisdiction over the state law claims and ruled in Plaintiffs favor.

Facts: Plaintiff sued Defendants for civil RICO and state law claims based upon breach of contracts by Defendants, i.e., Plaintiff testified that he contacted Defendants “[m]ultiple times” to find out about the status of the items which had not yet been delivered, and to complain about the condition of items he received because they were not in the contracted-for condition. Defendant Korey Blanck, acting as President of Defendant Ace Restaurant Supply. Defendant Nicholas Blanck testified that he worked as an independent contractor for Defendant Ace Restaurant Supply, delivering and cleaning used equipment.
(1) Enterprise Found Sufficient Although Court Did Not Address “Distinctness” Issues
The Magistrate Judge ruled that the Plaintiff had not shown an “enterprise” consisting of Defendant Korey Blanck, Defendant Nicholas Blanck, and Defendant Ace Restaurant Supply. Defendant Korey Blanck testified that he was the President, sole shareholder, and sole decisionmaker of Defendant Ace Restaurant Supply. (Tr. 76:6-77:1, 100:8-22). Defendant Nicholas Blanck testified that he worked for Defendant Ace Restaurant Supply as a deliveryman and he “helped clean up the equipment to help my father out.” Accordingly, Plaintiff has shown that Defendants acted as an “enterprise” within the meaning of the RICO statute because they were a “group of individuals associated in fact” and they were “associated together for a common purpose of engaging in a course of conduct.” Turkette, 452 U.S. at 580, 583.
(2) Pattern of Racketeering –Continuity Not Found When Evidence of Defendant’s Past Illegal Activity Was Hearsay; does this infer sufficiency at pleading stage?

The Judge first found that Plaintiff has shown the requisite number of predicate acts; specifically, the evidence adduced at trial showed that Defendants committed at least three predicate acts within ten years; i.e., a fax on March 16, 2010; a fax and mailing on April 12, 2010; and a mailing on May 21, 2010. Each of these acts—the wire and mail frauds—were undertaken with “fraudulent intent” and as a part of the “scheme to defraud” Plaintiff. [Note: We can assume that the fax was “interstate,” if not, then the court clearly erred in finding it a wire fraud act]

The Judge court found however that the related predicates acts did not extend over a substantial period of time, here, only three months, sufficient to satisfy closed-ended continuity.
Regarding open-ended continuity, the court cited to the language of H.J. Inc. to determine whether plaintiffs were able to prove at trial that the defendant’s actions constituted the “regular way of conducting [their] ongoing legitimate business.”

Citing to Tabas v. Tabas, the court stated that
“the clear implication of this language is that the ambit of RICO may encompass a ‘legitimate’ businessman who regularly conducts his business through illegitimate means, that is, who repeatedly defrauds those with whom he deals and, in the process, commits predicate acts, for instance by using the postal service as a means of accomplishing his scheme.” Id.

The court found that after trial Plaintiff has not presented sufficient evidence to establish the open-ended continuity prong with evidence of similar lawsuits brought against Defendants in Pennsylvania state court but the court ruled that they were inadmissible hearsay evidence. Accordingly, the court determined that when viewing the admissible evidence, the Court finds that Plaintiff has not demonstrated open-ended continuity. 18 U.S.C. § 1962(c). Although Defendant Korey Blanck committed fraud under Pennsylvania law, and Defendants committed numerous related predicate acts against Plaintiff, the admissible evidence does not support a finding that this is Defendants’ “regular way of conducting [their] ongoing legitimate business.” Tabas, 47 F.3d at 1295 (quoting H.J. Inc., 492 U.S. at 243).

(3) RICO Conspiracy Not Found Sufficiently Pleaded, But Judge Recognizes Salinas and Smith v. Berg

Section 1962(d) makes it “unlawful for any person to conspire to violate” Section 1962(c). To establish a RICO conspiracy, the plaintiff must show “(1) that two or more persons agreed to conduct or to participate, directly or indirectly, in the conduct of an enterprise’s affairs through a pattern of racketeering activity; (2) that the defendant was a party to or member of that agreement; and (3) that the defendant joined the agreement or conspiracy knowing of its objective to conduct or participate, directly or indirectly, in the conduct of an enterprise’s affairs through a pattern of racketeering activity.” United States v. John-Baptiste, 747 F.3d 186, 207 (3d Cir. 2014). Liability under Section 1962(d) may still be found even if the defendant has not violated Section 1962(c). Smith v. Berg, 247 F.3d 532, 537 (“[T]he Supreme Court found that a violation of section 1962(c) was not a prerequisite to a violation of section 1962(d).” (citing Salinas v. United States, 522 U.S. 52, 65 (1997)).

The Court concluded that there is insufficient evidence to establish Defendants’ liability for a violation of Section 1962(d). Specifically, there is no evidence that “two or more persons agreed to conduct…an enterprise’s affairs through a pattern of racketeering activity.” John-Baptiste, 747 F.3d at 207.

(4) State Claims Decided in Favor of Plaintiffs

The Judge maintained supplemental jurisdiction and determined the Plaintiff adequately asserted against Defendant Korey Blanck and Defendant Ace Restaurant Supply, LLC, on Plaintiff’s Counts III, IV, V, and VI, asserting state law claims of fraud, unjust enrichment, and negligent misrepresentation.

Court Denies Defendant’s Motion to Dismiss Finding Sufficient “Distinctness” Between Defendant and Enterprise

In Re ClassicStar Mare Lease Litigation et al. v. Plummer, et al, 2019 WL 289070 (E.D. Ky., 1/18/19)

Plaintiffs aver that Defendant Parrott, among others, played a role in devising, perpetrating, carrying out, marketing and/or covering up the fraudulent Mare Lease Program scheme to individual and business investors, including Plaintiffs. Defendant GeoStar sold many more Mare Lease Programs than the thoroughbred interests owned by ClassicStar could support. Defendants, including Parrott, intentionally oversold the Mare Lease Programs knowing that ClassicStar, ClassicStar Farms, LLC or ClassicStar Farms, Inc. did not own enough thoroughbred mare interests sufficient to support the number of Mare Lease Programs sold.
The District Court concluded that Plaintiffs’ Complaint alleged an enterprise distinct from the defendants, and also properly pleaded the RICO claims. Regarding the “enterprise” issue, the court conclude that Plaintiffs have pleaded an “enterprise” distinct from the “persons” cognizable under the statute, stating that “[a]n enterprise must be merely an ongoing organization, formal or informal.” Citing cases. Even where a person owns 100% of a corporation’s shares that ownership does not change the fact that the corporation and the owner are separate legal entities.* 3, citing cases.

The Court disagreed with defendant Parrott’s assertion that there can be no RICO claim in this case because the alleged enterprise consists merely of a corporate entity (i.e., Classicstar) associated with its own employees or agents carrying on the regular affairs of the corporation. Id., at 7.

The court explained that the “enterprise” alleged is not ClassicStar, but rather the “Mare Lease Marketing Enterprise,” which was comprised of the following “persons”: David Plummer, Spencer Plummer, Tony Ferguson, John Parrot, Thom Robinson, ClassicStar, LLC, ClassicStar Farms, LLC, ClassicStar Thoroughbreds of Kentucky, ClassicStar 2004, ClassicStar 2004 Powerfoal Stable, ClassicStar 2005 PowerFoal Stables, ClassicStar 2003 Racing Partnership, GeoStar Corp., FEEP, GeoStar Equine Energy, Inc., GeoStar Financial Services, NELC, New NEL, Terry Green and Strategic Opportunity Solutions, LLC. Thus, Parrott, the other moving defendants whose requests for relief are now moot, and individuals and entities entirely unrelated to ClassicStar, such as Terry Green, are the persons forming the Mare Lease Marketing Enterprise. While, under the “distinctness” requirement, a corporation may not be liable under section 1962(c) for participating in the affairs of an enterprise that consists only of its own subdivisions, agents, or members, and cannot join with its own members to undertake “regular corporate activity” and thereby become an enterprise distinct from itself, the situation is different when (1) the enterprise consists of individuals and entities other than a corporation’s own subdivisions, agents or members and (2) undertakes activities other than “regular corporate activity.”

The distinctiveness requirement is met because the Mare Lease Marketing Enterprise consisted of several entities and individuals, including those outside the chain of corporate ownership of ClassicStar, GeoStar and other ostensibly related entity defendants. Moreover, the activities of the Mare Lease Marketing Enterprise were not the “regular corporate activities” of ClassicStar, which were purportedly breeding, raising and boarding thoroughbred horses, and the like. Thus, the Complaint adequately pleaded the element of “enterprise.” *4.

That the conspirators include related corporations, such as GeoStar and ClassicStar, and their officers, directors, managers and/or employees, such as Ferguson, Robinson and Parrott, does not, without more, mean that there is no distinction between the “persons” and the “enterprise.” For example, taking the averments of the Complaint as true, GeoStar and ClassicStar are separate and distinct legal entities, and thus separate and distinct “persons” for RICO purposes. Similarly, Ferguson, Robinson and Parrott are both corporate owners/employees and natural persons, and they are distinct from the corporation itself, a legally separate entity with different rights on the facts before this Court. RICO requires no more “separateness” than that. Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 163 (2001). An employee who conducts the affairs of a corporation through illegal acts comes within the terms of a statute that forbids any “person” unlawfully to conduct an “enterprise.” Id.

Ed Note: This case is a rather clear-cut example of distinctness. It is interesting because the enterprise does include an individual and entities who are also named as defendants (Parrott), thus supporting the principle that a defendant (individual) is different than an association of which he is merely a part. See Atlas Pile Driving; and entities are distinct when they conduct other than regular corporate activities.

Court Reverses Dismissal Finding Adequate Proximate Causation Finding Complaint Can Be Saved by Amendment; Conflicting Case Law in Circuit Regarding Whether Damage to Business Reputation Provides Standing

Hamoni International Spice Inc. v. Hume, 2019 WL 286923, __ F.3d __ (9th Cir. 1/23/19)

The appeals court reversed and remanded the district court’s denial of a civil RICO claim finding the plaintiffs adequately alleged proximate cause with respect to one category of damages, and that they should have been granted leave to amend their complaint with respect to at least a second category.
Harmoni (plaintiff) is the only importer of Chinese garlic with a “zero-duty rate,” meaning it does not have to pay the hefty anti-dumping duties imposed on other importers of Chinese garlic. Harmoni alleges that some of these importers, jealous of the competitive advantage Harmoni enjoys, conspired to eliminate or reduce that advantage through two separate unlawful schemes.
The first scheme involved efforts by Harmoni’s Chinese competitors to funnel imported garlic into the United States by submitting fraudulent shipping documents to U.S. customs officials in order to evade applicable anti-dumping duties. The defendants then sold that garlic in the United States at less than fair value, resulting in increased sales for them and a corresponding decrease in Harmoni’s sales.

The second scheme involves the filing of sham requests to force Harmoni to incur significant expenses defending itself during the course of the administrative review process. In addition, Harmoni alleges that its competitors used the administrative review process as a public forum for falsely accusing Harmoni of illegal and unethical business practices, such as using prison labor to produce its garlic. Harmoni asserts that, as a direct result of these false accusations, it suffered lost sales and harm to its business reputation.

On appeal, Harmoni challenge only the dismissal of its RICO claim as to four of the defendants: Robert Hume, Joey Montoya, Stanley Crawford, and Huamei Consulting Co., Inc. on the ground that Harmoni had not adequately alleged proximate cause.

To prevail on a civil RICO claim, a plaintiff must prove that the defendant’s unlawful conduct was not only a “but for” cause of his injury but also the “proximate cause” of the injury, which requires “some direct relation between the injury asserted and the injurious conduct alleged.”

Regarding scheme one, there is no proximate cause because the relationship between the defendants’ unlawful conduct and Harmoni’s alleged injury is too attenuated to support a finding of proximate cause.

Regarding the second scheme Harmoni has alleged, Harmoni sought to recover damages that fall into three categories: (1) expenses incurred in responding to the Department of Commerce’s administrative review; (2) lost sales; and (3) harm to its business reputation. The Court held:

Regarding (1) Harmoni has adequately alleged proximate cause with respect to the first category of damages. As to the expenses it incurred during the administrative review process, there is a “direct relation between the injury asserted and the injurious conduct alleged.” Refusing to respond to the Department of Commerce’s inquiries would have resulted in the loss of Harmoni’s zero-duty rate, thereby subjecting its imported garlic to the same prohibitively high anti-dumping duties that Harmoni’s rivals must pay. These allegations establish a direct causal link between the defendants’ allegedly wrongful conduct (filing sham requests for an administrative review) and the injury Harmoni asserts (being forced to incur expenses responding to the review triggered by the sham filings). The Court also analyzed three factors to assess when considering whether proximate cause has been shown weigh in Harmoni’s favor. See *3.

Regarding (2), lost sales attributable to the defendants’ false accusations about Harmoni’s business practices—Harmoni may be able to allege proximate cause as well, relying on Bridge v. Phoenix Bond & Indemnity Co., 553 U.S. 639, 128 S.Ct. 2131, 170 L.Ed.2d 1012 (2008), explaining why a plaintiff can be injured “by reason of” acts of mail fraud. If Harmoni can prove that it lost sales as a direct result of the defendants’ predicate acts of mail and wire fraud, the proximate cause element of its RICO claim will be satisfied.

Standing: Regarding (3) -harm to Harmoni’s business reputation—that issue would need to be litigated on remand. The parties dispute whether damage to business reputation constitutes a compensable injury under RICO. Harmoni argues that harm to business reputation constitutes an injury to a “specific business or property interest” under California law and is therefore covered by RICO. See Diaz v. Gates, 420 F.3d 897, 900 (9th Cir. 2005) (en banc) (per curiam). The defendants argue that RICO precludes recovery for harm to intangible property interests and that the reputation of a business constitutes such an interest. See Oscar v. University Students Co-operative Association, 965 F.2d 783, 785–86 (9th Cir. 1992) (en banc). Because the district court has not yet addressed this issue and the parties have not adequately briefed it on appeal, we decline to resolve it here. The issue remains open for the district court to take up on remand.

Because the complaint could potentially be saved by amendment, the district court should have granted Harmoni leave to amend.

Court Rules a Foreign Corporation’s Inability to Collect on a Judgement Was Not “Domestic Injury” and Thus No Claim Existed Under Civil RICO

Cevdet Aksut Ve Ogullari Koll.Sti (“Cevdet”) v. Cavusoglu, 2018 WL 6016549 (3rd Cir., November 16, 2018)

The Third Circuit affirmed the dismissal of plaintiff’s “RICO” claims. The plaintiffs asserted defendant Cavusoglu failed to pay Cevdet for goods. The District Court dismissed Cevdet’s RICO claims holding that Cevdet failed to plead a predicate pattern of racketeering activity and continuity to state a RICO claim and that Cevdet failed to plead a domestic injury as required by RICO.

The Court reviewed Cevdet’s assertion that the District Court erred in concluding that it did not suffer a domestic injury as required under RICO, 18 U.S.C. § 1964(c), and dismissing its RICO claim. RICO creates a private right of action for injuries to a person’s business or property. 18 U.S.C. § 1964(c). While “RICO applies to some foreign racketeering activity,” “[s]ection 1964(c) requires a civil RICO plaintiff to allege and prove a domestic injury to business or property and does not allow recovery for foreign injuries.” RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2103, 2111 (2016).

The Court stated that RICO allows recovery for domestic injuries to both tangible and intangible property, and the Court must identify where the property is harmed. The harm to tangible property is deemed to occur where the property is located. So, a plaintiff suffers a domestic injury to tangible property “if the plaintiff’s property was located in the United States when it was stolen or harmed, even if the plaintiff himself resides abroad.” *3, citing Bascunan v. Elsaca, 874 F.3d 806, 820-21 (2d Cir. 2017).

However, where “harm to intangible business interests is alleged[,] [t]he location of such injuries simply cannot be identified with the same geographic certainty that is endemic in the very concept of tangible property.” Humphrey v. GlaxoSmithKline PLC, 905 F.3d 694, 703-04 (3d Cir. 2018). To determine the location of an injury to intangible property, the court “must focus primarily upon where the effects of the predicate acts were experienced.” Id. at 707. To this end, the Court stated that it must weigh a number of factors, including:

where the injury itself arose; the location of the plaintiff’s residence or principal place of business; where any alleged services were provided; where the plaintiff received or expected to receive the benefits associated with providing such services; where any relevant business agreements were entered into and the laws binding such agreements; and the location of the activities giving rise to the underlying dispute.


No one factor is “presumptively dispositive.” Id.

The Court discussed that Cevdet describes its injury as the damage to its $1.1 million judgment against Cavusoglu caused by Defendants’ transfer of funds that shielded Cavugolu’s assets from collection by creditors like Cevdet. This judgment does not have a physical existence and is an ‘intangible asset[.]’ ” Applying the Humphrey factors, the Court concluded that Cevdet’s injury is not domestic for the purposes of § 1964(c). Although Cevdet has a judgment against Cavusoglu under United States law, Cevdet is a Turkish company with its principal place of business in Turkey, and Cevdet experiences the loss from its inability to collect on its judgment in Turkey. Because its injury is not felt in the United States, Cevdet has not suffered a domestic injury and is therefore foreclosed from stating a RICO claim, and the District Court properly dismissed it. *3.

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, and invites you to visit his website at

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.