Opinion ID: 2585
Heading Depth: 4
Heading Rank: 3

Heading: The Primary Enterprises

Text: The City's allegations are sufficient to meet the distinctness requirement with respect to all of the primary enterprises. In Cedric Kushner, the Supreme Court explained that the RICO person and alleged enterprise must be only legally, and not necessarily actually, distinct. 533 U.S. at 163, 166, 121 S.Ct. 2087 (determining that Don King, the alleged person, was distinct from Don King Productions, the alleged RICO enterprise, of which Don King was president and sole shareholder). The City has alleged with respect to the primary enterprises that the enterprise is an innocent corporation, with its own legal basis for existing, and the persons are employees or officers of the organization unlawfully directing the enterprise's racketeering activities. That is sufficient under the distinctness standards articulated in Cedric Kushner. We address below the additional, case-specific challenges made by certain defendants.
Defendants in NCCigarettes argue that NCCigarettes.com is a sole proprietorship run by Scott Herring, not an enterprise, and that the additional personsJeff Reinhardt and Xfirecommitted no predicate acts under RICO and are not liable because Xfire was merely an Internet service provider that provided services to the alleged enterprise. NCCigarettes.com's claim that it is a sole proprietorship is unavailing at this stage in the pleadings. Though we have not previously spoken on this, our sister circuits have allowed § 1962(c) claims to proceed when the enterprise is a sole proprietorship with a distinct and separate identity from that of the individual defendant who owns it. These circuits have held that a defendant is distinct from the sole proprietorship enterprise, unless the sole proprietor is strictly a one-man show. McCullough v. Suter, 757 F.2d 142, 144 (7th Cir.1985) (The only important thing is that [the enterprise] be either formally (as when there is incorporation) or practically (as when there are other people besides the proprietor working in the organization) separable from the individual.); United States v. Benny, 786 F.2d 1410, 1415-16 (9th Cir.) (affirming RICO conviction where defendant's sole proprietorship was a troupe, not a one-man show), cert. denied, 479 U.S. 1017, 107 S.Ct. 668, 93 L.Ed.2d 720 (1986); see also Guidry v. Bank of LaPlace, 954 F.2d 278, 283 (5th Cir.1992) (espousing the approach to sole proprietorships announced in McCullough, but holding that the distinctness requirement was not met under the circumstances of the case). Under this approach, which we now join, we find that the City has adequately alleged distinctness as to the NCCigarettes.com primary enterprise because the City has alleged that Herring's sole proprietorship is not a one-man show. However, we agree with defendants Xfire and Reinhardt that the allegations are insufficient to state a claim against them as RICO persons. As explained earlier, § 1962(c) makes it unlawful for any person employed by or associated with an enterprise ... to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs.... 18 U.S.C. § 1962(c). In Reves v. Ernst & Young, the Supreme Court explained that [i]n order to `participate, directly or indirectly, in the conduct of such enterprise's affairs,' one must have some part in directing those affairs. 507 U.S. 170, 179, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993); see also id. at 184, 113 S.Ct. 1163 ([I]t is clear that Congress did not intend to extend RICO liability under § 1962(c) beyond those who participate in the operation or management of an enterprise through a pattern of racketeering activity.). Although this is a low hurdle to clear at the pleading stage, see Satinwood, 385 F.3d at 176, the City's allegations most generously construed  simply do not clear it with respect to Xfire or Reinhardt. [28] These defendants are not alleged to have violated the Jenkins Act, and, unlike the named RICO person in the other primary enterprises, neither Xfire nor Reinhardt are alleged to have directed or caused the enterprise to commit a Jenkins Act violation. Simply alleging that certain entities provide services which are helpful to an enterprise without any allegations that those entities exert any control over the enterprise does not sufficiently allege a claim under RICO against those entities. See Reves, 507 U.S. at 179, 113 S.Ct. 1163; see also, e.g., Azrielli v. Cohen Law Offices, 21 F.3d 512, 521 (2d Cir.1994); Univ. of Md. at Baltimore v. Peat, Marwick, Main & Co., 996 F.2d 1534, 1539-40 (3d Cir.1993).
Nexicon argues that the City erroneously named it as a defendant because Cyco. net, Inc. (Nevada) sold its Internet tobacco retail business, Cyco.net, Inc. (New Mexico), to American Indian CigCo in 2003. Cyco.net, Inc. (Nevada), then changed its name to Nexicon, which is a publicly traded company engaged in network security and billing management. [29] Moreover, Richard Urrea claims to have terminated a consultancy agreement with American Indian Cigco and ceased doing business with the company, and thus argues that Nexicon should not be held liable. Whatever the merits of these factual averments, we must accept the City's allegations as true at this stage, and dismissal is not warranted on these bases. Nexicon defendants also argue that the City failed to make a showing that Nexicon exercised any control over American Indian CigCo's shipments of cigarettes. The City is not required to make a showing that Nexicon exercised any control over American Indian CigCo's shipments of cigarettes at this stage. As explained, to show the requisite level of management, the City must allege that the defendants `conduct[ed] or participate[d], directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity. Satinwood, 385 F.3d at 175-76 (quoting 18 U.S.C. § 1962(c)). By alleging that Nexicon and American Indian CigCo have entered profit sharing and employment agreements, the City has adequately pled that Nexicon has some part in directing the enterprise's affairs. Reves, 507 U.S. at 179, 113 S.Ct. 1163.