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Racketeer Influenced and Corrupt Organizations Act (RICO)

© 2015 Mark Courtois

RICO is a federal statute that was originally intended as an "attempt to eradicate organized, long-term criminal activity."(1) It is a criminal statute targeted at the infiltration of organized crime in legitimate businesses.(2) But RICO also provides civil remedies and allows a successful plaintiff to recover treble damages, costs, and attorney's fees.(3) To make out a claim for relief, a civil RICO claimant must prove: 1) a RICO violation of one of the four subsections of 18 U.S.C. § 1962; 2) an injury to a persons' business or property; and 3) the injury must be by reason of the alleged RICO violation.(4) For example, 18 U.S.C. § 1962(c) prohibits persons employed by or associated with any enterprise from conducting or participating in the enterprise's affairs through a pattern of racketeering. The elements of a claim under § 1962(c), require a plaintiff to show that: 1) a person who engages in; 2) a pattern of racketeering activity; 3) connected to the acquisition, establishment, conduct, or control of an enterprise.(5)

Injury. In civil actions, RICO injury requires damage to plaintiff's business or property and must consist of concrete financial loss, and not mere injury to valuable, but intangible, property interest.(6)

Enterprise. To prove that "enterprise" existed within meaning of RICO, there must be evidence of an ongoing organization, formal or informal, and evidence that various associates functioned as a continuing unit.(7)

Pattern of Racketeering Activity. The phrase "racketeering activity" means activity that violates other laws, including more than 50 specifically mentioned federal statutes, which forbid such conduct as murder for hire, extortion, and various kinds of fraud.(8) To establish a pattern of racketeering activity, the plaintiff must show: 1) the predicate acts of racketeering activity; and 2) a pattern of such acts.(9) A pattern of racketeering activity includes two or more acts of racketeering activity.(10) A pattern also requires that the acts are 'related' to each other and that they have 'continuity.'(11) The element of relatedness is established if the acts have the "same or similar purposes, results, participants, victims, or methods of commission."(12) To establish continuity, plaintiffs must prove "continuity of racketeering activity, or its threat."(13) This may be shown by either a closed period of repeated conduct, or an open-ended period of conduct that "by its nature projects into the future with a threat of repetition."(14) A closed period of conduct may be demonstrated "by proving a series of related predicates extending over a substantial period of time."(15) An open period of conduct involves the establishment of "a threat of continued racketeering activity."(16) This may be shown where there exists a "specific threat of repetition extending indefinitely into the future," or "where it is shown that the predicates are a regular way of conducting defendant's ongoing legitimate business."(17) However, where the alleged RICO predicate acts are part and parcel of a single, otherwise lawful transaction, a "pattern of racketeering activity" has not been shown.(18)

Limitations. Civil RICO claims have a four-year statute of limitations.(19) The Fifth Circuit Court of Appeals has adopted an "injury discovery rule," whereby "a civil RICO claim accrues when the plaintiff discovers, or should have discovered, the injury."(20) It is discovery of the injury, and not other elements of a RICO claim, that starts the limitations period running.(21) The Fifth Circuit has also adopted the "separate accrual rule," stating that "[w]hen a pattern of RICO activity causes a continuing series of separate injuries, the 'separate accrual' rule allows a civil RICO claim to accrue for each injury when the plaintiff discovers, or should have discovered, that injury."(22)



Notes:

1. See Mira v. Nuclear Measurements Corp., 107 F.3d 466, 473 (7th Cir. 1997).

2. See Reves v. Ernst & Young, 507 U.S. 170, 185, 113 S. Ct. 1163, 122 L. Ed. 2d 525 (1993).

3. 18 U.S.C. § 1964(c).

4. 18 U.S.C. § 1962 provides that the following practices are prohibited activities:

(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code [18 USCS § 2], to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. A purchase of securities on the open market for purposes of investment, and without the intention of controlling or participating in the control of the issuer, or of assisting another to do so, shall not be unlawful under this subsection if the securities of the issuer held by the purchaser, the members of his immediate family, and his or their accomplices in any pattern or racketeering activity or the collection of an unlawful debt after such purchase do not amount in the aggregate to one percent of the outstanding securities of any one class, and do not confer, either in law or in fact, the power to elect one or more directors of the issuer.

(b) It shall be unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.

(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.

(d) It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section.

5. See Orthoflex, Inc. v. ThermoTek, Inc., 3:11-CV-0870-D, 2012 U.S. Dist. LEXIS 96657, 2012 WL 2864510, at *2 (N.D. Tex. July 12, 2012).

6. See Pedrina v. Chun, 906 F. Supp. 1377 (D. Haw. 1995), aff'd 97 F.3d 1296, cert. denied 117 S. Ct. 2441, 138 L. Ed. 2d 201.

7. See Compagnie de Reassurance D'Ile de France v. New England Reinsurance Corp., 825 F. Supp. 370 (D. Mass. 1993), aff'd in part, vacated in part and rev'd in part, 57 F.3d 56, amended on denial of rehearing, cert. denied 116 S. Ct. 564, 133 L. Ed. 2d 490, on remand 944 F. Supp. 986.

8. 18 U.S.C. § 1961(1) provides as follows: "Racketeering activity" means (A) any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical (as defined in section 102 of the Controlled Substances Act), which is chargeable under State law and punishable by imprisonment for more than one year; (B) any act which is indictable under any of the following provisions of title 18, United States Code: Section 201 (relating to bribery), section 224 (relating to sports bribery), sections 471, 472, and 473 (relating to counterfeiting), section 659 (relating to theft from interstate shipment) if the act indictable under section 659 is felonious, section 664 (relating to embezzlement from pension and welfare funds), sections 891-894 (relating to extortionate credit transactions), section 1028 (relating to fraud and related activity in connection with identification documents), section 1029 (relating to fraud and related activity in connection with access devices), section 1084 (relating to the transmission of gambling information), section 1341 (relating to mail fraud), section 1343 (relating to wire fraud), section 1344 (relating to financial institution fraud), section 1351 (relating to fraud in foreign labor contracting), section 1425 (relating to the procurement of citizenship or nationalization unlawfully), section 1426 (relating to the reproduction of naturalization or citizenship papers), section 1427 (relating to the sale of naturalization or citizenship papers), sections 1461-1465 (relating to obscene matter), section 1503 (relating to obstruction of justice), section 1510 (relating to obstruction of criminal investigations), section 1511 (relating to the obstruction of State or local law enforcement), section 1512 (relating to tampering with a witness, victim, or an informant), section 1513 (relating to retaliating against a witness, victim, or an informant), section 1542 (relating to false statement in application and use of passport), section 1543 (relating to forgery or false use of passport), section 1544 (relating to misuse of passport), section 1546 (relating to fraud and misuse of visas, permits, and other documents), sections 1581-1592 (relating to peonage, slavery, and trafficking in persons)., section 1951 (relating to interference with commerce, robbery, or extortion), section 1952 (relating to racketeering), section 1953 (relating to interstate transportation of wagering paraphernalia), section 1954 (relating to unlawful welfare fund payments), section 1955 (relating to the prohibition of illegal gambling businesses), section 1956 (relating to the laundering of monetary instruments), section 1957 (relating to engaging in monetary transactions in property derived from specified unlawful activity), section 1958 (relating to use of interstate commerce facilities in the commission of murder-for-hire), section 1960 (relating to illegal money transmitters), sections 2251, 2251A, 2252, and 2260 (relating to sexual exploitation of children), sections 2312 and 2313 (relating to interstate transportation of stolen motor vehicles), sections 2314 and 2315 (relating to interstate transportation of stolen property), section 2318 (relating to trafficking in counterfeit labels for phonorecords, computer programs or computer program documentation or packaging and copies of motion pictures or other audiovisual works), section 2319 (relating to criminal infringement of a copyright), section 2319A (relating to unauthorized fixation of and trafficking in sound recordings and music videos of live musical performances), section 2320 (relating to trafficking in goods or services bearing counterfeit marks), section 2321 (relating to trafficking in certain motor vehicles or motor vehicle parts), sections 2341-2346 (relating to trafficking in contraband cigarettes), sections 2421-24 (relating to white slave traffic), sections 175-178 (relating to biological weapons), sections 229-229F (relating to chemical weapons), section 831 (relating to nuclear materials), (C) any act which is indictable under title 29, United States Code, section 186 (dealing with restrictions on payments and loans to labor organizations) or section 501 (c) (relating to embezzlement from union funds), (D) any offense involving fraud connected with a case under title 11 (except a case under section 157 of this title), fraud in the sale of securities, or the felonious manufacture, importation, receiving, concealment, buying, selling, or otherwise dealing in a controlled substance or listed chemical (as defined in section 102 of the Controlled Substances Act), punishable under any law of the United States, (E) any act which is indictable under the Currency and Foreign Transactions Reporting Act, (F) any act which is indictable under the Immigration and Nationality Act, section 274 (relating to bringing in and harboring certain aliens), section 277 (relating to aiding or assisting certain aliens to enter the United States), or section 278 (relating to importation of alien for immoral purpose) if the act indictable under such section of such Act was committed for the purpose of financial gain, or (G) any act that is indictable under any provision listed in section 2332b (g)(5)(B);

9. See In re Burzynski, 989 F.2d 733, 742 (5th Cir. 1993) (citing H.J., Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239, 109 S. Ct. 2893, 106 L. Ed. 2d 195 (1989)).

10. See 18 U.S.C. § 1961(5).

11. See Burzynski, 989 F.2d at 742. "It is this factor of continuity plus relationship which combines to produce a pattern." H.J., Inc., 492 U.S. at 239.

12. Id. at 240.

13. Id. at 241.

14. Id. at 241.

15. Id. at 242.

16. Id.

17. Id. at 242-43.

18. See Word of Faith World Outreach Center Church, Inc. v. Sawyer, 90 F.3d 118, 122 (5th Cir. 1996).

19. See Rotella v. Wood, 528 U.S. 549, 552, 120 S. Ct. 1075, 145 L. Ed. 2d 1047 (2000); Agency Holding Corp. v. Malley-Duff & Assoc., Inc., 483 U.S. 143, 156, 107 S. Ct. 2759, 97 L. Ed. 2d 121 (1987).

20. See Love v. Nat'l Med. Enters., 230 F.3d 765, 773 (5th Cir. 2000) (citing Rotella v. Wood, 147 F.3d 438, 440 (5th Cir. 1998), aff'd. 528 U.S. 549, 120 S. Ct. 1075, 145 L. Ed. 2d 1047 (2000)).

21. See Rotella, 528 U.S. at 556.

22. See Love. 230 F.3d at 773.