Extraterritoriality Explained Again by Second Circuit. Plaintiff’s SAC Sufficiently Alleged Domestic Injury

Published in West’s Civil RICO Reporter July 2019

Bascuñán v. Elsaca, __F.3d__, 2019 WL 2455168 (2d Cir., June 13, 2019)

In an important case pertaining to civil RICO extraterritoriality, the Second Circuit in Bascuñán (hereinafter, Bascuñán II) has revisited an earlier circuit opinion pertaining to this case. The Court in Bascuñán II reversed the judgment of the district court which had dismissed a SAC finding that it failed to allege a domestic injury under RICO with regard to some schemes, and remanded for further proceedings.

In sum, the first Bascuñán case, 806 F.3d 806 (2d Cir. 2017) (Bascuñán I) the Court reversed in part, vacated in part, and remanded a FAC for further proceedings. In Bascuñán I, the Court found a few of the alleged schemes were impermissibly extraterritorial as pleaded in the FAC when the schemes concerned property that was located outside the United States when it was allegedly misappropriated. The court recognized defendant’s argument that “the use of bank accounts located within the United States to facilitate or conceal the theft of property located outside of the United States does not, on its own, establish a domestic injury.” *5-*6, citing to Bascunan I, supra, 874 F.3d at 819.

Bascuñán’ II’s Conclusions

1. Bascuñán’s Injuries Occurred When Elsaca Transferred Money Out of New York Accounts

The Court has now modified its decision and credited allegations in Bascunan’s SAC that the schemes involved “domestic injury” focusing its analysis on “when” and “where” the monies were located. Thus, Defendants perpetrated their fraud by repeatedly stealing money out of Bascunan’s Estate’s Morgan Stanley bank accounts in New York. Additionally, the SAC contained new allegations that Fintair (and thus, its New York bank account) was part of the Estate between 2003 and 2009, a fact Bascuñán had not previously known.

The Second Circuit based its decision on RJR Nabisco, Inc. v. European Community, ––– U.S. ––––, 136 S. Ct. 2090, 195 L.Ed.2d 476 (2016), as well as jurisprudence surrounding fraud offenses, and particularly the law of embezzlement, which the Supreme Court has described as the “linguistic neighbor” of fraud. See Bullock v. BankChampaign, N.A., 569 U.S. 267, 274, 133 S.Ct. 1754, 185 L.Ed.2d 922 (2013). *7. The Court stated that until Elsaca transferred funds, Bascuñán could have accessed the Estate accounts in New York at any time had he known about the accounts. Thus, it follows that Bascuñán was not injured until Elsaca interfered with Estate property and converted it to his own use in the United States. Thus, since Bascuñán’s injuries occurred when Elsaca transferred money out of the New York account, these injuries thus satisfy RICO’s domestic-injury requirement. *7

2. Predicate Activity of Mail and Wire Fraud Involved Sufficient Domestic Conduct When Use of Mails/Wires Were Core Component of the Alleged Scheme

The Court discussed whether the civil RICO claims involve domestic applications of the relevant predicate statutes. The Court then discussed that there are three “essential elements” to mail or wire fraud: “(1) a scheme to defraud, (2) money or property as the object of the scheme, and (3) use of the mails or wires to further the scheme.” These elements make it clear that the regulated conduct is not merely a “scheme to defraud,” but more precisely the use of the mail or wires in furtherance of a scheme to defraud.*10.

In analyzing whether the predicate acts were sufficiently alleged, the Court disagreed with the district court, and following sister circuits held that a claim predicated on mail or wire fraud involves sufficient domestic conduct when (1) the defendant used domestic mail or wires in furtherance of a scheme to defraud, and (2) the use of the mail or wires was a core component of the scheme to defraud, i.e., not incidental use.*10. The Court held that the SAC supports a reasonable inference that the repeated use of domestic mail and wires to fraudulently order a domestic bank to transfer millions of dollars out of a domestic account was a core component of the alleged scheme to defraud and thus sufficiently furthered the scheme to defraud.*11.

3. Predicate Activity of Bank Fraud Found Sufficiently Alleged

The conduct that § 1344(2) seeks to regulate, and its focus, is a scheme to obtain property owned or controlled by a bank under false or fraudulent pretenses. This conduct is domestic when a core component of the scheme to defraud was the use of domestic mail or wires to direct the theft or misappropriation of property located within the United States and held by a domestic bank. Because the alleged schemes involve the same domestic conduct—domestic mail or wire transmissions facilitating the theft or misappropriation of property held in New York by a domestic bank, the Court thus found that § 1344(2) focused on domestic conduct as applied to each of the alleged schemes to defraud.*12.
4. Pattern of Racketeering Activity

The district court had found only one scheme to sufficiently constitute domestic conduct. But, given the Court here found all of the SAC’s alleged schemes, except for the Sham Management Fees Scheme (need more information), survived the extraterritoriality framework, and Elsaca made no argument in his brief that the numerous schemes, taken together, fail to satisfy this standard, the Court held that Elsaca waived any argument to the contrary. Thus, the Court held that the surviving schemes as pleaded in the SAC stated a pattern of racketeering activity sufficient to survive a motion to dismiss under Rule 12(b)(6).*13.

5. RICO Conspiracy

The Court stated that because the SAC states a claim under § 1962(c), and the claim involves several individuals conspiring to violate that provision, the § 1962(d) claim is not impermissibly extraterritorial.*13.

Judge Finds Putative Civil RICO Class Action Needs to Be Repleaded to Provide Specificity as to Which Particular Defendant Caused Predicate Acts

Just US Realtors LLC v. Nudge, LLC, 2019 WL 2526731 (D. Utah, June 19, 2019)

The court granted the defendants’ motion to dismiss civil RICO claims, without prejudice, due to the fact that plaintiffs did not meet Rule 9(b) in alleging “Defendants” committed mailings/wirings instead of identifying the specific Defendant who caused the mailing/wiring.

This case involves a putative class action against a number of individuals and limited liability corporations that sold and financed real estate through investor training seminars. Just Us Realtors, which bought a house through the seminars, alleges that the Defendants misrepresented the ownership and value of the real estate it offered for sale and fraudulently induced it and other investors to overpay for property.

There are four Defendant groups, all of which raise essentially the same arguments concerning the sufficiency of Just Us Realtors’ Complaint—that Just Us Realtors has not pled sufficient facts to support RICO or state law claims, and has not pled the alleged fraud with particularity under Federal Rule of Civil Procedure 9(b). The court will allow Just Us Realtors to file a motion to amend with a proposed amended complaint to cure the pleading deficiencies, which it finds “potentially curable.”

The Judge found other elements of the civil RICO claim adequately alleged;

(1) Association in Fact Enterprise

Just Us Realtors alleged an association in fact enterprise which consisted of all Defendants (except one- Invictus Law) who participated in the operation of the enterprise. Nudge, through 5 Choices, claimed to own the St. Louis property. BuyPD and Income Property USA offered properties for sale, Insider’s Cash provided financing, and Guardian Law and American Legal & Escrow facilitated and executed sales transactions. And they did so at the direction of two individuals, Mr. Poelman and Mr. Jackson, both of whom are alleged to have personally participated in the Buying Summit.

The court found that Just Us Realtors has plausibly alleged that these entities and individuals were purposefully organized to control the sale, financing, and closing of real estate, and to mask the allegedly fraudulent details of the transactions and the values of the homes. Based on an analysis of Boyle v. United States elements, the Judge found Just Us Realtors adequately pled the existence of an enterprise composed of every Defendant but one entity (Invictus Law). In finding the Defendants worked together as “strategic partners” for the purpose of selling and financing real estate. BuyPD and Income Property USA—both controlled by Mr. Poelman—advertised and offered the real estate for sale, Insider’s Cash financed the sales, and Guardian Law and American Legal & Escrow—both controlled by Mr. Jackson—facilitated the closing process. Together, these Defendants formed an enterprise distinct from each person and company. Note: Invictus Law was not found to have participated in the operation of the larger enterprise to sell real estate at the Buying Summit, and was therefore dismissed as a Defendant.
(2) Racketeering Activity

Just Us Realtors has alleged that the Defendants violated three federal statutes listed by RICO as predicate acts—18 U.S.C. §§ 1341 (mail fraud), 1343 (wire fraud), and 2314 (the National Stolen Property Act).

The Judge stated that the underlying fraud must be pled with particularity in accordance with Federal Rule of Civil Procedure 9(b). *7. [Note: There is no mention that other elements of the civil RICO claim, such as enterprise, pattern, causation etc. must be pled with particularity.]

The Judge found that Just Us Realtors adequately stated the time, place, and nature of the allegedly false statements that underlie its claims of fraud, but many of those representations were contained in a workshop handbook, presentations, and documents prepared for the sale of the St. Louis home. Because Just Us Realtors did not adequately allege who made these representations, the pleading was deficient. The court stated that these are all “potentially curable defects” and thus the complaint was dismissed without prejudice.*8.

The Judge noted that the complaint contained some concrete allegations of wire use. Ms. Hoard received two emails in April of 2015—one from American Legal & Escrow, and another from Mr. Payne, who represented BuyPD. But, even assuming that Just Us Realtors had adequately pled the existence of a fraudulent scheme, these communications would amount to just one predicate act committed by each of these Defendants.

Because the racketeering activity was not adequately pleaded, the elements of “pattern” were not analyzed by the Judge.

Ed Note: This is an example of a Judge properly applying the Boyle factors to find an association in fact enterprise. The Judge also properly found that only the fraudulent predicate acts need to be pleaded with particularity, and found this Complaint easily curable. We will follow this case and see whether the “pattern” is properly analyzed and found in this case.





Court Affirms Dismissal of Plaintiffs’ Civil RICO Claim Finding Action Precluded By Forum-Selection and Arbitration Clauses

Rebecca Wilson v. 5 Choices LLC, 2019 WL 2451068 (6th Cir., June 12, 2019)

Another hurdle for civil RICO plaintiffs when a case is brought based on misrepresentations and fraud in connection with a contract is the preclusion of the claim based on the application of forum-selection and arbitration clauses.

Plaintiffs are fourteen individuals and seven corporate entities associated with some of those individuals, who allege that Defendants, consisting of twenty-six corporate entities, defrauded Plaintiffs and other investors with a complex scheme in violation of RICO. Plaintiffs allege claims relating to damages in connection with contracts they made with one or more Defendants in the course of being deceived by the Enterprise.

After review of the RICO statute, the court stated that there was no need for the district court to address the merits of most of Plaintiffs’ RICO claims because it had dismissed the claims due to the existence of enforceable arbitration or forum-selection clauses in the contracts on which Plaintiffs sought to recover damages. The court cited to cases which held that a motion to dismiss under Rule12(b)(6) is a permissible way to enforce forum-selection and arbitration clauses.  Therefore, the dismissal of Plaintiffs’ claims was not erroneous.

Ed Note: The legislative history and Supreme Court have made it clear that civil RICO actions are arbitrable if the claim made is found to be within the scope of the party’s agreement to arbitrate. This is another hurdle for civil RICO plaintiffs, who must carefully examine any claims based on breach of contract, and whether such right to arbitrate has been waived (by having chosen to litigate in lieu of seeking enforcement of arbitration clauses.

Court Denies Defendant’s Motion to Dismiss Class Action Civil RICO Complaint; RICO Conspiracy Found Adequately Alleged

Dockery et al v. Shephen Heretick et al., 2019 WL 2122988 (E.D. Pa., May 14, 2019)

The court addressed various defense arguments in a Rule 12(b)(6) motion and denied Defendants’ motion to dismiss the substantive RICO and RICO conspiracy claims, finding them adequately alleged. Interestingly, the RICO conspiracy was found sufficient without reference to whether a section 1962(c) was adequately alleged.
In this class action litigation, Plaintiff Larry G. Dockery alleged the existence of a scheme between an attorney, companies in the business of purchasing payment streams from Structured Settlement Annuities, and additional persons to obtain annuities from unsuspecting and unsophisticated annuitants without meaningful judicial review, as required by state and federal law. Plaintiff sought to represent a class of annuitants who sold their annuities to financial institutions in exchange for lump sum cash payments, and, in so doing, received far less than the present value of their annuities.

The court first found that the plaintiffs alleged (1) an injury to the plaintiff’s business or property that constitutes a “concrete financial loss,” and (2) that the defendant’s RICO violations proximately caused the plaintiff’s injury when plaintiffs were induced to settle without financial or legal advice and obtained judicial approved in a manner that guaranteed a lack of meaningful judicial review.
The court then found that Plaintiff’s complaint also required that Plaintiffs allege the existence of an “enterprise,” and found that Plaintiff’s complaint adequately plead the existence of an enterprise because three claims pertained to enterprises which are “legal entities” within the meaning of section 1961. The court also found the Plaintiffs adequately alleged three different association-in-fact enterprises (the “Annuity Fraud Enterprises”), as the tenets of Turkette and Boyle have been met. The court stated that although there “additional persons” involved may have changed among the various class members’ petitions, they all maintained the same role of falsely representing themselves to have provided independent advice and legitimate notarization services, and this is enough, at this stage of the proceedings, to satisfy the broad requirements of the RICO statute. See Boyle, 556 U.S. at 944 (explaining that the RICO statute must be “liberally construed to effectuate its remedial purposes”). Even though the Plaintiffs did not known the names of each constituent member of the enterprise, the court found the allegations sufficient to identify the contours of the three alleged Annuity Fraud Enterprises and put Defendants on notice of the claims they must defend.
Predicate Acts
The court also examined whether the Plaintiffs failed to plead mail fraud with the particularity required by Fed. R. Civ. P. 9(b). The took a broad view of section 9(b) stating that when mail fraud is asserted as a basis for RICO liability, “plaintiffs must plead with particularity the circumstances of the alleged fraud in order to place the defendant on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior.” Lum v. Bank of America, 361 F.3d 217, 223 (3d Cir. 2004), abrogated in part on other grounds by Twombly, 550 U.S. at 557.

The court stated that a plaintiff may satisfy the heightened pleading requirement of Rule 9(b) “by pleading the date, place or time of the fraud, or through alternative means of injecting precision and some measure of substantiation into their allegations of fraud.” Id. at 224 (internal quotation marks and citation omitted). However, “the Third Circuit has cautioned against focusing too narrowly on Rule 9(b)’s particularity language.” Mendelsohn, Drucker & Assocs. v. Titan Atlas Mfg., Inc., 885 F. Supp. 2d 767, 786 (E.D. Pa. 2012) (Baylson, J.). Thus, the predicate acts of mail fraud were adequately alleged.
The court took a broad view of RICO conspiracy stating that Plaintiff adequately alleged that defendants conspired with each other to violate 18 U.S.C. § 1962(c) by creating and operating the Enterprises alleged herein and by committing, or causing the commission of, the predicate acts identified herein.”
The court reiterated accepted case law in the Third Circuit that “[A] defendant may be held liable for conspiracy to violate section 1962(c) if he knowingly agrees to facilitate a scheme which includes the operation or management of a RICO enterprise.” Smith v. Berg, 247 F.3d 532, 538 (3d Cir. 2001). Each conspirator need not “agree to commit or facilitate each and every part of the substantive offense.” Salinas v. United States, 522 U.S. 52, 63 (1997). Rather, the allegations supporting the conspiracy claim “must be sufficient to describe the general composition of the conspiracy, some or all of its broad objectives, and the defendant’s general role in that conspiracy.” Rose v. Bartle, 871 F.2d 331, 366 (3d Cir. 1989).

Thus, without reference to whether a section 1962c existed (but which was pleaded) Plaintiff adequately alleged a tripartite conspiracy consisting of Heretick, the Purchaser Defendants, and the additional persons discussed in detail above. The parties allegedly joined together to ensure the approval of SSA transfer petitions on favorable terms for the purchasers, without objection from annuitants, and in a manner that would evade judicial detection. Their scheme was “in every instance consummated using the United States mails.” Thus, there are sufficient allegations to support a claim that the members agreed to facilitate the scheme, and each member’s role in the conspiracy is clearly alleged. Plaintiff has therefore satisfactorily alleged a claim for conspiracy to violate § 1962(c).

Ed. Note:   This district court in the Third Circuit followed the broad interpretations of Boyle, Turkette, and Smith v. Berg, and other cases, to find the adequacy of the complaint. Other district courts still rely on old and outdated law to find that conspiracy, for example, is not adequately pleaded. See, e.g., Puro-tech LTD v. Carentento, 2019 WL 2089993 (E.D. Pa., May 13, 2019), decided, wrongly, one day before Dockery, holding that a RICO conspiracy claim requires adequate pleading of completion of a section 1962c claim.

Court Reverses Dismissal of Civil RICO Claim; Evidence Sufficient to Find Campaign Contribution Was a Bribe and Such Bribe Caused Plaintiffs Injury Sufficient To Proceed to Trial

Waste Management of Louisiana LLC v. River Birch Incorporated, __ F.3d __, 2019 WL 1550248 (5th Cir., Apr. 10, 2019)

The Court vacated the district court’s judgment dismissing a civil RICO claim on a summary judgment motion, and remanded this case for further proceedings.

Appellants challenge the district court’s order granting partial summary judgment in favor of Defendants River Birch, Inc., Albert Ward, Frederick Heebe and Highway 90, L.L.C (collectively referred as “River Birch”). Plaintiff Waste Management alleged that Defendants bribed former New Orleans Mayor Ray Nagin to shut down a landfill opened in the city in the aftermath of Hurricane Katrina. Plaintiff was the operator of the shuttered landfill, and Defendants owned and operated competing landfills. Plaintiff alleged that the closure of its Chef Menteur landfill caused it to lose business that accrued to the benefit of its competitor, the River Birch landfill.

On summary judgment, the district court concluded that the Rule 56 evidence presented no jury question regarding the essential causation element to Plaintiff’s civil action under RICO, 18 U.S.C. § 1962(c) and (d). Specifically, the district court, without considering whether Defendants’ $ 20,000 campaign contribution was a bribe, held that the summary judgment evidence failed to create a genuine issue of material fact to allow a jury to find that this payment was the but for and proximate cause of Nagin’s decision to shut down Plaintiff’s landfill at Chef Menteur Highway.

The Court found the evidence was sufficient for a jury to make positive findings on both Plaintiff’s claim that the $ 20,000 payment to Nagin (made through shell corporations) was a bribe and that the bribe was causally related to Nagin’s action in shuttering the Chef Menteur landfill.

The Court considered the following legal issues:

1. Was there sufficient evidence so that a jury could find $ 20,000 contribution by Defendants to Nagin was a bribe under Louisiana law and thus a “predicate act” under RICO?

The issue is whether the payment was made “with the intent to influence a public official’s conduct in relation to his position, employment, or duty.” The court discussed various facts and scenarios and determined that based on Mouton’s testimony [Mouton was a former commissioner for the Louisiana Department of Wildlife and Fisheries who plead guilty to receiving a bribe] Mouton played a large role in Defendants’ underlying scheme to shutter the Chef Menteur landfill. Because there was a scheme to shutter the Chef Menteur landfill, the evidence suggesting Defendants’ intent to bribe Mouton can be considered by the jury in determining Defendants’ motive and intent in connection with their contribution to Nagin’s campaign. There is also the additional fact that these contributions in the amount of $ 5,000 each were made not in Defendants’ names, but rather by four shell corporations. The Court concluded that It is critical in cases such as this that inferences from circumstantial evidence about intent and motives about which reasonable minds could differ be sorted out by the jury, and thus denied the motion for summary judgment.

2. Was there evidence to support a jury finding that there was a causal connection between Defendants’ $ 20,000 payment and Nagin’s ultimate decision to shut down the Chef Menteur landfill?

The Court discussed various issues and concluded that a reasonable jury could infer causation from Mayor Nagin’s disregard of the evidence that the Chef Menteur landfill was safe and badly needed in the City’s disaster cleanup.

Accordingly, for various reasons, the Court concluded that the record reflected genuine issues of material fact as to both whether the Defendants’ campaign contribution to Nagin was a bribe, and whether the payment was the but for and proximate cause of Nagin’s decision to close the Chef Menteur landfill. Thus, the Court held that Plaintiff has provided sufficient evidence to survive a summary judgment challenge in this case. [A dissenting Judge opined that there was inadequate evidence of causation to bring the case to a jury].

Ed Note: When civil RICOs involve predicate crimes such as bribery, courts often have more leeway to allow those cases to proceed. Bribery is at the heartland of civil litigation and criminal RICO prosecutions. Civil litigants who can plausibly allege felony bribery violations stand a strong chance of successfully litigating their case.

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.