Opinion ID: 492033
Heading Depth: 1
Heading Rank: 2

Heading: The Scope of RICO and The Definition of Pattern

Text: 14 Appellees first defend the dismissal of the complaint by suggesting that we construe RICO's pattern requirement to exclude the kind of fraud the plaintiffs allege here. In Sedima, 105 S.Ct. at 3287 (emphasis added), Justice White noted that 15 [t]he extraordinary uses to which civil RICO has been put appear to be primarily the result of the breadth of the predicate offenses, the inclusion of wire, mail and securities fraud, and the failure of Congress and the courts to develop a meaningful concept of pattern. 16 The definition of a 'pattern of racketeering activity,'  the Court went on to explain, 17 differs from the other provisions in Sec. 1961 in that it states that a pattern requires at least two acts of racketeering activity, Sec. 1961(5) (emphasis added), not that it means two such acts. The implication is that while two acts are necessary, they may not be sufficient. Indeed, in common parlance two of anything do not generally form a pattern. The legislative history supports the view that two isolated acts of racketeering activity do not constitute a pattern. As the Senate Report explained: The target of [RICO] is thus not sporadic activity. The infiltration of legitimate business normally requires more than one 'racketeering activity' and the threat of continuing activity to be effective. It is this factor of continuity plus relationship which combines to produce a pattern. S.Rep. No. 91-617, p. 158 (1969) (emphasis added). Similarly, the sponsor of the Senate bill, after quoting this portion of the Report, pointed out to his colleagues that [t]he term 'pattern' itself requires the showing of a relationship.... So, therefore, proof of two acts of racketeering activity, without more, does not establish a pattern.... 116 Cong.Rec. 18940 (1970) (statement of Sen. McClellan). 18 105 S.Ct. at 3285 n. 14. The Court in Sedima held that, in addition to requiring two predicate acts, RICO is violated only if the two acts are related to one another. Id. 19 Perceiving these comments as an invitation so to narrow the statute, a number of courts have begun to use the pattern requirement to prevent RICO from reaching legitimate business perpetrating garden variety fraud. See Fleet Management Systems v. Archer-Daniels-Midland Co., 627 F.Supp. 550, 555 (C.D.Ill.1986). Extending that invitation to us, defendants herein argue that Sedima 20 sen[t] a strong signal to the lower courts to further develop the pattern requirement in such a fashion as to curb the trend of garden variety commercial disputes being dragged before an already burdened federal judiciary because of the love of treble damages, attorney fees and the settlement leverage to be gained from a RICO charge. 21 Def. Br. at 30. Whatever the wisdom of defendants' proposed invitation as a policy matter, we decline for three reasons to join this effort. 22 First, while we are touched by defendants' concern for our workload, we believe that Sedima warns us not to construe RICO in a limited way out of a desire to prevent the statute from reaching people other than organized criminals. In fact, while defendants eschew reliance on the district court's rationale for dismissing the case, defendants' invitation is nothing but a more elaborate presentation of the ideas in Judge Willson's opinion: defendants, like Judge Willson, attempt to distinguish between RICO fraud and garden variety fraud, and to limit RICO's reach to the former. We must reject defendants' invitation, therefore, for the same reason that defendants have correctly rejected the rationale in the district court's opinion. 23 Second, while in the future this Court (and ultimately the Supreme Court) will doubtless be obliged to clarify the meaning of the pattern requirement in light of Sedima, the breadth of the fraud alleged in this complaint satisfies us that, even if all of the tests urged upon us by defendants were applied to this complaint, the complaint would still pass muster. Specifically, the cases defendants urge us to follow have interpreted RICO's pattern requirement to mean that, in addition to the requisite number of predicate offenses, a complaint must allege that the predicate offenses form at least two separate but related criminal schemes, Superior Oil Co. v. Fulmer, 785 F.2d 252 (8th Cir.1986) episodes, Allington v. Carpenter, 619 F.Supp. 474 (C.D.Cal.1985) or activities. Richter v. Sudman, 634 F.Supp. 234 (S.D.N.Y.1986); Northern Trust Bank/O'Hare v. Inryco, Inc., 615 F.Supp. 828 (N.D.Ill.1985). Whether these three terms imply the same or different tests, we think that the acts alleged here would satisfy any such requirement. 3 24 In Superior Oil, for example, defendants had moved a device which metered the flow of oil purchased by a customer of the plaintiff so that it would overstate that flow. Defendants then submitted a number of reports overstating the amount of oil the customer had consumed. The Eighth Circuit found that these wrongful acts did not satisfy RICO's pattern requirement. 25 The Superior Oil court reached this result in reliance on language from RICO's legislative history, quoted by Justice White in Sedima, that the infiltration of legitimate business normally requires more than one 'racketeering activity' and the threat of continuing activity to be effective. It is this factor of continuity plus relationship which combines to produce a pattern. See 785 F.2d at 257, quoting Sedima, 105 S.Ct. at 3285 n. 14, which was in turn quoting legislative history. 26 Although the Superior Oil court found the relationship prong of this test satisfied, it held that plaintiff had 27 failed to prove the continuity sufficient to form a pattern of racketeering activity. The actions of Fulmer, Branch and Nichols comprised one continuing scheme to convert gas from Superior Oil's pipeline. There was no proof that Fulmer, Branch or Nichols had ever done these activities in the past and there was no proof that they were engaged in other activities elsewhere. 28 785 F.2d at 257. 29 Similarly, in Northern Trust Bank, the president of a contracting firm allegedly worked out a kickback scheme with a subcontractor in return for the award of the subcontract. The parties implemented the scheme through a number of payments, alleged to constitute individual predicate acts. 615 F.Supp. at 830. The district court dismissed a RICO count filed by the original client against the contractor because the alleged separate instances of mail fraud were all part of a single scheme. Id. at 832-33. 30 We believe that the Superior Oil and Northern Trust line of cases 4 is distinguishable from this case on the basis of the time period, number of victims, number of perpetrators and number of predicate acts at issue. Defendants here are alleged to have defrauded plaintiffs with respect to services and materials provided for eighty wells, owned by nineteen parties and serviced by a twentieth, over a period of eleven months, as part of work done under two separate contracts themselves pertaining to different time periods. These allegations suggest more than the single schemes held inadequate to support the civil RICO actions in Superior Oil and Northern Trust. Because the words are so flexible, we acknowledge that these fraudulent acts could conceivably be characterized as part of a single scheme or episode. But we believe that if faced with the complaint in this case, the Superior Oil and Northern Trust courts would not use those words so expansively--that on these facts the Superior Oil court would find more than one scheme, and the Northern Trust court would find more than one episode. 5 Because the allegations here would satisfy the pattern requirement under even the most rigorous tests we find it unnecessary to adopt any test in order to decide this case. 6 31 In sum, having satisfied ourselves that plaintiffs' allegations establish a pattern under RICO, we are unwilling to pronounce further upon the meaning of that term after Sedima. The definitions of pattern in Superior Oil and Northern Trust require a court to determine whether acts are sufficiently unrelated to constitute two distinct schemes, episodes or activities. See Allington, ( 'pattern' of racketeering activity must include racketeering acts sufficiently unconnected in time or substance to warrant consideration as separate criminal episodes). At the same time, however, Sedima requires that the predicate acts must be related to one another to some as yet unspecified degree. See 105 S.Ct. at 3285 n. 14; Superior Oil, 785 F.2d at 257. These rules are obviously in tension with one another--the relatedness rule pulling the predicate acts together, the Superior Oil and Northern Trust rules pulling them apart. If the two rules are to operate together the words scheme, episode or activity will have to be defined with sufficient precision that courts can consistently tell where one scheme leaves off and another related one begins. We have some doubt whether that goal could ever be attained. But if we are to attempt it we believe that a full record is necessary. This case presents us only with bare pleadings. For that reason as well we believe that remand is appropriate. 32