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Federal Deception Law: 8.3.4 Collection of an Unlawful Debt

Attorneys can easily overlook the fact that RICO targets the engagement in an enterprise not just through a pattern of racketeering activity but also through “collection of an unlawful debt.”161 An unlawful debt is defined to include a usurious debt that is unenforceable in whole or in part as to interest or principal and that bears an interest rate of at least twice the enforceable rate.162

Federal Deception Law: 8.4.3.1 Introduction

Once a plaintiff has identified the associates, the plaintiff must show an association among them to establish an “association-in-fact enterprise.” In 1981, in United States v. Turkette,196 the Supreme Court concluded that such an enterprise is “proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit.”197 In 2009, in Boyle v.

Federal Deception Law: 8.4.3.2 The Enterprise’s “Ongoing Organization”

Under Boyle, to show that an association-in-fact enterprise has some sort of ongoing organization, a plaintiff must show that the enterprise has the following three structural features: (1) a purpose; (2) relationships among those associated with the enterprise; and (3) longevity sufficient to permit these associates to pursue the enterprise’s purpose.208 However, the association in fact need not have a structural hierarchy, a chain of command, or any kind of dues, rules, or rituals.209

Federal Deception Law: 8.4.3.3 A Continuing Unit

Boyle v. United States also gives some guidance on the “continuing unit” aspect of an enterprise.222 The Court held that, “[w]hile the group must function as a continuing unit and remain in existence long enough to pursue a course of conduct, nothing in RICO exempts an enterprise whose associates engage in spurts of activity punctuated by periods of quiescence.”223 Thus, a plaintiff need not show that the group engaged in an uninterrupted chain of illicit conduct.

Federal Deception Law: 8.4.4.1 General

Section 1962(c) prohibits one “employed by or associated with” an enterprise from “[conducting or participating] . . . in the conduct of such enterprise’s affairs” in a defined manner.

Federal Deception Law: 8.4.4.2 The Defendant-Employees Enterprise

When a corporation is the defendant, some courts appear to hold that the legal distinction between it and its employees is sufficient to meet the distinctness requirement, so long as the corporation’s actions can be shown to be separate from those of its agents.244 Showing that the two had different goals for their actions may be one way to demonstrate this separation.

Federal Deception Law: 8.4.4.3 The Defendant-Employer Enterprise

When employees are the named defendants and the employing corporation is the alleged enterprise, some courts find no distinctness problem,248 while others require the plaintiff to show that the employees were somehow acting outside the scope of their authority while engaging in the predicate offenses in order to establish that they were distinct from the enterprise they were conducting.249

Federal Deception Law: 8.4.4.4 The Defendant-Parent Corporation Enterprise

Many courts refuse to find a parent corporation to be a distinct enterprise from subsidiary defendants, at least when the plaintiff fails to allege that the enterprise included some person or entity operating outside of the defendant’s normal scope of business.250 However, other courts have ruled that a subsidiary can be sufficiently distinct from a parent to satisfy the requirement, when the parent is alleged to be the enterprise.251

Federal Deception Law: 8.4.4.5 The Defendant-Subsidiary Enterprise

When the parent corporation serves the role of defendant and one or more of its subsidiaries as the enterprise, courts are also reluctant to find a distinct enterprise without some evidence that the subsidiary acted outside an ordinary parent/subsidiary relationship,257 unless additional parties had roles in the enterprise.

Federal Deception Law: 8.4.6.1 Introduction

The major implication of having to plead an enterprise distinct from the defendant is that the corporation involved in a scheme will often present itself as the obvious enterprise, and corporate employees or officers as the apparent defendants. But the corporation may be the party with the deep pockets and the individuals may be largely judgment proof.

Federal Deception Law: 8.4.6.2 Respondeat Superior

The corporation may be vicariously liable under principles of respondeat superior,269 but several decisions have held that respondeat superior should not be available to circumvent the section 1962(c) requirement that the “person” and the “enterprise” be distinct.270 When the employer is not the alleged enterprise, however, other courts have pointed out that respondeat superior liability can both motivate employers to monitor their employees and keep them from enga

Federal Deception Law: 8.4.6.3 Indemnification and Insurance

The corporation may be required to indemnify individual employees who incur RICO liability. However, several courts have held that contribution and indemnification are not available under RICO. Indemnification for RICO liability is not always favored.279 When indemnification is not precluded, care should be taken to name as the defendant an officer, director, or agent of an enterprise for whose actions the enterprise is responsible or whom it will indemnify.

Federal Deception Law: 8.4.6.4 Aiding and Abetting

A party can be liable under RICO for aiding and abetting the RICO violation even if that party did not have the requisite participation in the enterprise. However, a Supreme Court decision construing the Securities Exchange Act may hinder aider and abettor liability under RICO. In Central Bank v.

Federal Deception Law: 8.5.1 Introduction

RICO prohibits a defendant from engaging in a pattern of racketeering activity or collection of an unlawful debt with an identified enterprise in any of four prohibited ways. These four prohibited practices are discussed below. Section 8.4, supra, discusses the nature of an “enterprise.”

Federal Deception Law: 8.5.5 Conspiracy: Section 1962(d)

18 U.S.C. § 1962(d) declares it unlawful for any person to conspire to violate any of the provisions of subsections (a), (b), or (c) of section 1962. Salinas v. United States330 resolved a split in the circuits as to the requirements of section 1962(d) by choosing the broader of two possible readings.

Federal Deception Law: 8.6.1 General

“Any person injured in his business or property by reason of a violation of section 1962” may sue for treble RICO damages.341 The Supreme Court has explicitly rejected any constrictive constructions of this injury requirement that would require private RICO plaintiffs to prove “racketeering,” “competitive,” or “commercial” injury.342 But in RJR Nabisco, Inc. v.

Federal Deception Law: 8.6.2.2 Injury Under Section 1962(b)

Section 1962(b) prohibits a person, through a pattern of racketeering activity or collection of an unlawful debt, from acquiring or maintaining an interest in or control of an enterprise. Similar to the discussion regarding section 1962(a), courts hold that a plaintiff who alleges a violation of section 1962(b) must plead that the injury suffered was caused by the defendant’s acquisition or maintenance of an interest in or control of an enterprise, as distinct from an injury resulting from the predicate offenses.353