Opinion ID: 187362
Heading Depth: 1
Heading Rank: 2

Heading: Challenges to RICO Liability

Text: RICO makes it unlawful for any person ... associated with any enterprise... to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity. 18 U.S.C. § 1962(c). Thus, in a section 1962(c) suit, the defendants are the persons who conduct the enterprise's affairs through racketeering activity. Because RICO defines person as including any individual or entity capable of holding a legal or beneficial interest in property, id. § 1961(3), corporations as well as individuals can be liable if they conduct an enterprise's affairs through a pattern of racketeering activity. In language central to the issue before us, section 1961(4) states: enterprise includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity. Id. § 1961(4). The enterprise as such generally faces no section 1962(c) RICO liability; indeed it may be the innocent vehicle through which unlawful activity is carried out, see Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 164, 121 S.Ct. 2087, 150 L.Ed.2d 198 (2001) (RICO both protects a legitimate `enterprise' from those who would use unlawful acts to victimize it, and also protects the public from those who would unlawfully use an `enterprise' (whether legitimate or illegitimate) as a `vehicle' through which `unlawful ... activity is committed.' (quoting United States v. Turkette, 452 U.S. 576, 591, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981), and Nat'l Org. for Women, Inc. v. Scheidler, 510 U.S. 249, 259, 114 S.Ct. 798, 127 L.Ed.2d 99 (1994))). When the enterprise is an association-in-fact, members of the association may be both part of the enterprise and liable as persons under RICO if they conduct the enterprise's affairs through racketeering activity. See, e.g., United States v. Richardson, 167 F.3d 621, 626 (D.C.Cir.1999) (upholding conviction of defendant member of association-in-fact enterprise). Here, defining the RICO enterprise as a group of business entities and individuals associated-in-fact, including Defendants to this action, their agents and employees, and other organizations and individuals, the district court held that the Defendant cigarette manufacturers and trade organizations had violated section 1962(c) by participating in the conduct of the enterprise's affairs through multiple acts of mail and wire fraud. Philip Morris, 449 F.Supp.2d at 851, 867. Defendants challenge the district court's acceptance of a RICO enterprise made up of individuals and corporations, arguing that the statute provides an exclusive list of possible enterprises that covers groups of individuals associated in fact, not mixed groups of individuals and corporations associated in fact. In United States v. Perholtz, 842 F.2d 343 (D.C.Cir.1988), however, we squarely rejected this precise argument. There, we held that a group of seven individuals and eleven corporations and partnerships associated in fact may constitute a RICO enterprise. Id. at 351 n. 12, 353. We explained: [RICO] defines `enterprise' as including the various entities specified; the list of entities is not meant to be exhaustive. Id. at 353. As such, a group of individuals, corporations, and partnerships associated in fact can qualify as a RICO enterprise, even though section 1961(4) nowhere expressly mentions this type of association. In so holding, we joined several other circuits that had reached the same conclusion. Perholtz, 842 F.2d at 353 (citing the Second, Third, Seventh, and Eleventh Circuits, as well as Fifth Circuit Unit B). Indeed, both prior to and since Perholtz, every circuit to consider the question has likewise held that corporations may be part of an association-in-fact enterprise. See United States v. London, 66 F.3d 1227, 1243-44 (1st Cir.1995) (holding that corporations can be part of an association-in-fact enterprise because section 1961(4)'s list is not exhaustive); United States v. Huber, 603 F.2d 387, 394 (2d Cir.1979) (same); United States v. Aimone, 715 F.2d 822, 828 (3d Cir.1983) (same); United States v. Thevis, 665 F.2d 616, 625-26 (5th Cir. Unit B 1982) (same), superseded on other grounds by FED.R.EVID. 804(b)(6) (1997); United States v. Masters, 924 F.2d 1362, 1366 (7th Cir.1991) (same); Atlas Pile Driving Co. v. DiCon Fin. Co., 886 F.2d 986, 995 n. 7 (8th Cir.1989) (same); see also Dana Corp. v. Blue Cross & Blue Shield Mut. of N. Ohio, 900 F.2d 882, 887 (6th Cir.1990) (reaching same outcome and citing Huber, 603 F.2d at 393-94); United States v. Navarro-Ordas, 770 F.2d 959, 969 n. 19 (11th Cir.1985) (same); United States v. Feldman, 853 F.2d 648, 655-56 (9th Cir.1988) (reaching same outcome based on different statutory analysis); United States v. Najjar, 300 F.3d 466, 484 (4th Cir.2002) (upholding without discussion RICO convictions involving an association-in-fact enterprise that included corporations). The judges of these circuits are equally unanimous, for not one has dissented from the proposition that an association-in-fact enterprise may include corporations. Defendants argue that Perholtz has no applicability where, as here, the defendants are corporations. Because the Perholtz defendants were individual members of the enterprise, not its corporate members, Defendants here claim that Perholtz applies only when individuals, not corporations, are the RICO defendants. As Defendants see it, Perholtz merely ensures that individuals are unable to escape liability simply by including corporations in their enterprise; Perholtz, they argue, does not mean that the associated-in-fact corporations can themselves incur RICO liability. But nothing in Perholtz is so limited. Quoting the Supreme Court's statement in United States v. Turkette that [t]here is no restriction upon the associations embraced by the definition [of enterprise], 452 U.S. at 580, 101 S.Ct. 2524, Perholtz sets forth its holding in broad terms: We therefore follow those courts that have held that individuals, corporations, and other entities may constitute an association-in-fact, 842 F.2d at 353. Nowhere does Perholtz suggest that the rule varies depending on the identity of the defendants. Indeed, two of the cases Perholtz relies on involved corporate defendants. Id. (citing Thevis, 665 F.2d at 625-26 (upholding RICO convictions for one individual and one corporate defendant), and Bunker Ramo Corp. v. United Bus. Forms, Inc., 713 F.2d 1272, 1285 (7th Cir. 1983) (upholding RICO charges against one individual and one corporation)). Many other decisions have similarly upheld RICO allegations involving corporate defendants who were also members of the association-in-fact enterprise. See, e.g., City of N.Y. v. Smokes-Spirits.com, Inc., 541 F.3d 425, 450-51 (2d Cir.2008); Odom v. Microsoft Corp., 486 F.3d 541, 553 (9th Cir.2007); Najjar, 300 F.3d at 484; United States v. Goldin Indus., Inc., 219 F.3d 1271, 1274 (11th Cir.2000); Dana Corp., 900 F.2d at 887; Shearin v. E.F. Hutton Group, Inc., 885 F.2d 1162, 1165-66 (3d Cir.1989), overruled on other grounds by Beck v. Prupis, 529 U.S. 494, 506, 120 S.Ct. 1608, 146 L.Ed.2d 561 (2000); Atlas Pile Driving, 886 F.2d at 995; Ocean Energy II, Inc. v. Alexander & Alexander Inc., 868 F.2d 740, 748-49 (5th Cir.1989). Moreover, Defendants' proposed limitation on Perholtz is contrary to the statute's language. As persons under section 1961(3), corporations may be RICO defendants regardless of the kind of enterprise charged. See 18 U.S.C. § 1962(c) (It shall be unlawful for any person ... associated with any enterprise ... to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity. (emphases added)). Defendants cite not a single case lending even a shred of support to the idea that the meaning of enterprise can fluctuate depending on whom the government or the plaintiff chooses to name as the defendant. Perholtz 's interpretation of section 1961(4) thus applies regardless of whether the RICO defendants are individual persons or corporate persons. To hold otherwise would require us to rewrite section 1962(c). In a further attempt to evade Perholtz, Defendants argue that even if Perholtz was correct when decided, it has been eroded by the Supreme Court's 2001 decision in Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 121 S.Ct. 2087, 150 L.Ed.2d 198 (2001). Defendants' argument begins with the premise that at the time we decided Perholtz, RICO presented a potential loophole: because the RICO defendant must be distinct from the RICO enterprise, Yellow Bus Lines, Inc. v. Drivers, Chauffeurs & Helpers Local Union 639, 839 F.2d 782, 790 (D.C.Cir.1988) ([O]ne entity may not serve as the enterprise and the person associated with it....), vacated on other grounds, 492 U.S. 914, 109 S.Ct. 3235, 106 L.Ed.2d 583 (1989), a sole shareholder who used his alter-ego corporation for racketeering might evade RICO liability because he wouldn't be sufficiently distinct from the alter-ego corporation enterprise. Defendants rely on Perholtz 's suggestion that a definition of enterprise that excluded associations-in-fact of corporations would lead to the bizarre result that only criminals who failed to form corporate shells to aid their illicit schemes could be reached by RICO. 842 F.2d at 353. According to Defendants, we were motivated in Perholtz by the underlying concern that a criminal defendant conducting the affairs of an `enterprise' that was his own closely held corporation, would be so closely tied to the enterprise that he would escape RICO liability. Defs. Br. 37. Given that the Supreme Court has subsequently eliminated this concernholding in Cedric Kushner that an individual sole shareholder is sufficiently distinct from his alter-ego corporation to sustain RICO liability, 533 U.S. at 160, 121 S.Ct. 2087Defendants assert that Perholtz no longer represents binding authority. We do not read Perholtz as motivated by the concerns addressed in Cedric Kushner. In contrast to Cedric Kushner, the enterprise in Perholtz involved multiple individuals and numerous corporations, with no indication that the corporations were either all closely held by the individual defendants or in any other way insufficiently distinct. 842 F.2d at 351 n. 12. Indeed, at least some of the Perholtz corporate enterprise members were not closely held. For example, enterprise member International Business Services, Inc. (IBS) existed in its own right prior to the scheme and was related to the defendants through employment relationships that would not have defeated RICO's distinctness requirement: Perholtz himself was a consultant to IBS, and the other RICO defendant, Franklin Jackson, was an IBS project manager. Id. at 348. Similarly, enterprise member Remote Computer Services Corporation, although formed expressly for the purpose of the scheme, was jointly held in equal shares by three individualsPerholtz and two other individual members of the enterprise, id. at 350and thus would have been sufficiently distinct from each of those non-sole shareholders. The enterprise also included two separate real estate companies both of which apparently existed independently of the scheme and were not otherwise affiliated with the individuals. Id. at 351 n. 12. At least one individual enterprise member, John Gentile, worked for the Postal Service and apparently had no formal stake in the corporate enterprise members. Id. at 346, 351 n. 12. In Perholtz, we held that all these corporationsnot just those closely held or created solely for the schemecould be part of an association-in-fact enterprise. Indeed, only after so holding did we turn to Perholtz's entirely separate argument that he, as an individual, was insufficiently distinct from the enterprise. Far from basing our holding on this argument, we simply noted that we had no occasion to consider the separateness requirement because Perholtz associated not with himself but with others. Id. at 353. Given the structure of the Perholtz enterprise and the court's acknowledgement that distinctness was not at issue, we think Perholtz reflected a different concern, namely that a group of sophisticated racketeers who would otherwise constitute an association-in-fact might evade RICO's grasp by virtue of their ability to operate through corporations and establish complex networks of companies, kickbacks, and contracts to achieve their elicit ends. Indeed, immediately following its reference to corporate shells, Perholtz emphasized Congress's desire that RICO serve as a weapon against the sophisticated racketeer as well as (and perhaps more than) the artless. Id. Perholtz itself presented just such a situation: the defendants worked through their own companies and multiple outside corporations in an intricate web of shared commissions to game the bidding process for government contracts. The success of the scheme required the participation of companies to serve as contractors and subcontractors. This relationship of individuals and corporations is precisely what section 1962(c) was designed to attack. Id. at 354. Moreover, in asserting their Cedric Kushner argument, Defendants fail to explain how Perholtz 's interpretation would even solve the hypothetical problem they posit. According to Defendants, in order to preserve RICO liability for a sole shareholder who would be insufficiently distinct from his alter-ego corporation, the Perholtz court held that an individual and his shell corporation could together ... constitute an association-in-fact enterprise. Defs. Reply Br. 16. In Defendants' view, the sole shareholder would then be liable under RICO for conducting the affairs of this association-in-fact enterprise. Yet if an individual is insufficiently distinct from his alter-ego corporation, we seriously doubt he would suddenly be sufficiently distinct from an enterprise consisting of his alter-ego corporation and himself. If Perholtz had been concerned with distinctness, its purported solution would make little sense. Further seeking to justify their reliance on Cedric Kushner, Defendants say that the government cites only one post- Cedric Kushner case United States v. Najjar, 300 F.3d 466 (4th Cir.2002)that upheld an association-in-fact enterprise of corporations. The relevance of this is hard to grasp, as other post- Cedric Kushner cases not cited by the government accept association-in-fact enterprises comprised of corporations. See Smokes-Spirits.com, 541 F.3d at 450-51 (holding that the plaintiff adequately pleaded an association-in-fact enterprise consisting of two corporations); Odom, 486 F.3d at 553 (holding that plaintiffs had sufficiently alleged an association-in-fact enterprise of two corporations); United States v. Cianci, 378 F.3d 71, 83 (1st Cir.2004) (It is uncontroversial that corporate entities, including municipal and county ones, can be included within association-in-fact RICO enterprises.); Living Designs, Inc. v. E.I. Dupont de Nemours & Co., 431 F.3d 353, 361 (9th Cir.2005) ([T]here is no question that DuPont [corporation] and the law firms together can constitute an `associated in fact' RICO enterprise.). And as we noted above, no circuit has ever held the opposite. Cedric Kushner thus undermines neither the unanimous judicial view that association-in-fact enterprises may include corporations nor Perholtz 's binding effect on this case. Defendants' argument that we should read section 1961(4) as an exhaustive list of possible RICO enterprises is therefore unavailing. Not only is it foreclosed by Perholtz, it is unpersuasive on its own terms. As Perholtz and many other circuits explain, the use of the word includes indicates that RICO's list of enterprises is non-exhaustive. Indeed, section 1961 makes the non-exhaustive nature of includes clear by alternating between the words means and includes to introduce the section's various definitions. Specifically, five of section 1961's ten subsections introduce definitions with the word means. For example, section 1961(1) defines racketeering activity, explaining that the term means any of a list of specific state and federal crimes. Section 1961(2) likewise introduces a definitional list with the term means: `State' means any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, any political subdivision, or any department, agency, or instrumentality thereof. 18 U.S.C. § 1961(2); see also id. § 1961(6), (7), (8) (introducing definitions of unlawful debt, racketeering investigator, and racketeering investigation with the term means). Section 1961(4), by contrast, says `enterprise' includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity. Id. § 1961(4) (emphasis added). By switching between means and includes in the same definitional provision, Congress signaled its intent to distinguish between exhaustive and non-exhaustive lists. See Helvering v. Morgan's, Inc., 293 U.S. 121, 126 n. 1, 55 S.Ct. 60, 79 L.Ed. 232 (1934) (describing a statute that introduced three definitions with the word includes and seven definitions with the word means and noting that [t]he natural distinction would be that where `means' is employed, the term and its definition are to be interchangeable equivalents, and that the verb `includes' imports a general class, some of whose particular instances are those specified in the definition). That Congress provided an exhaustive list of legal entity enterprises by adding the phrase or other legal entity hardly converts the list of non -legal entity enterprises into an exhaustive list. Had Congress wanted to limit non-legal entity associations to those expressly listed, the most obvious way to do so would have been the way Congress wrote the five clearly exhaustive definitions in the same section: it could have said `enterprise' means any individual, partnership, corporation, association, or other legal entity, or any union or group of individuals associated in fact although not a legal entity. But Congress chose to say `enterprise' includes  the listed entities. Defendants think that the phrase or other legal entity would have been unnecessary if the list were otherwise non-exhaustive. Not so. Adding or other legal entity serves to ensure that all legal entities are covered while retaining the possibility that some additional non-legal entities beyond those listed are also covered. Nor does the use of the phrase including, but not limited to to indicate a non-exhaustive list in a different section of RICO, section 1964(a), demonstrate that the sole word includes in section 1961(4) must introduce an exhaustive list. Section 1964, which establishes civil remedies for RICO violations, lacks section 1961's juxtaposition of the non-exhaustive term includes with the exhaustive term means; adding but not limited to helps to emphasize the non-exhaustive nature of section 1964(a)'s list of remedies. Section 1961 needed no such clarification because it employed the contrasting terms means and includes to distinguish exhaustive from non-exhaustive definitions. Contrary to Defendants' argument, nothing about this interpretation renders the definition of enterprise devoid of meaning. Although encompassing non-enumerated enterprises, section 1961(4)'s list defines enterprise, in part, by listing the kinds of entities Congress had in mind. Indeed, the Supreme Court has acknowledged this meaning by requiring enterprises to exhibit common purpose, organization, and continuity. Turkette, 452 U.S. at 583, 101 S.Ct. 2524; see also Richardson, 167 F.3d at 625. In sum, as Perholtz clearly holds, because RICO's list of entities is not meant to be exhaustive, individuals, corporations, and other entities may constitute an association-in-fact. 842 F.2d at 353. This binding precedentconfirmed by the statute's language, buttressed by the unanimity among our sister circuits, and undiminished by Defendants' efforts to escape itrequires that we affirm the district court's holding that the government properly alleged a RICO enterprise of individuals, cigarette manufacturers, and trade organizations. We also reject Defendants' additional challenges to the district court's findings regarding the existence of a RICO enterprise and their participation in its affairs. The district court foundpermissibly in our viewthat the enterprise had the common purpose of obtaining cigarette proceeds by defrauding existing and potential smokers, Philip Morris, 449 F.Supp.2d at 869; possessed the requisite structure both through informal association and through the formation of several formal organizations, id. at 870-71; functioned as a continuous unit despite personnel changes, id. at 871-72; and constituted a separate entity distinct from each Defendant, id. at 875. Defendants give us neither any basis for concluding that the district court's factual findings were clearly erroneous nor any reason to think them legally insufficient. The district court also foundagain permissiblythat despite competing in some aspects of their business, Defendants jointly committed fraud and so participated in the conduct of not just their own affairs but the enterprise's as well, id. at 875-78, and also that they conspired to do so, id. at 903-05. Accordingly, we affirm the district court's findings that an enterprise existed and that Defendants participated in the conduct of its affairs and conspired to do so.
Defendants complain that the district court failed to identify the racketeering acts that support the finding of liability. While it is true the district court's opinion provided no single, discrete list of specific racketeering acts, the comprehensive findingsdetailing over one-hundred racketeering actsare sufficient to warrant affirmance. Defendants raise numerous challenges to the correctness of the district court's findings that they committed racketeering acts, which we take up in Parts III and IV. In this section, however, we are concerned only with the existence of these findings, not their validity. By statutory definition, any violation of the mail or wire fraud statutes can qualify as racketeering activity. 18 U.S.C. § 1961(1). To prove a violation of the mail and wire fraud statutes, the government must show (1) a scheme or artifice to defraud and (2) a mailing or wire transmission in furtherance thereof. Id. §§ 1341, 1343. Where one scheme involves several mailings, the law is settled that each mailing constitutes a violation of the statute. Hanrahan v. United States, 348 F.2d 363, 366 (D.C.Cir.1965). Where, as here, the mail and wire fraud statutes serve as the predicate offenses for a RICO violation, each racketeering act must be a mailing or wire transmission made in furtherance of a scheme or artifice to defraud. 18 U.S.C. §§ 1341, 1343. Thus, in order to identify the racketeering acts, the district court must first have found a scheme to defraud, then concluded the alleged mailings or wire transmissions were in furtherance of such scheme. See Philip Morris, 449 F.Supp.2d at 852-54. Although Defendants question whether the district court clearly found a scheme to defraud, the finding on this question is explicit: The Government has proven that the Enterprise knowingly and intentionally engaged in a scheme to defraud smokers and potential smokers, for purposes of financial gain, by making false and fraudulent statements, representations, and promises. Id. at 852. The district court explains, in great detail, the seven components of the scheme to defraud. Id. at 852-67. The court also held that each of the alleged mailings and wire transmissions was in furtherance of the overarching scheme to defraud. Id. at 881. Thus it follows that any mailing or wire transmission found to have been made was found to have been a mail or wire fraud offense and therefore a racketeering act. Seventy-nine of the alleged acts were established by Defendants' own stipulations and admissions. Id. at 882 (enumerating 79 racketeering acts). Altogether, the court enumerated 108 racketeering acts in the opinion, as well as six others which it excluded on First Amendment grounds. See id. at 882, 884, 885 n. 62, 887. This total does not include the many other findings which may be tied to other racketeering acts, but for which the district court did not provide a specific list. See, e.g., id. at 883 ([I]t is clear beyond any question that Defendants caused the mailings and wire transmissions underlying the 30 Racketeering Acts involving the news media's dissemination of Defendants' press releases and advertisements to their subscribers.). The RICO statute requires a pattern of racketeering activity on the part of each defendant. 18 U.S.C. § 1962(c). [A]t least two acts of racketeering activity are necessary to form a pattern. H.J., Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 237, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989) (quoting 18 U.S.C. § 1961(5)). The district court found the requisite pattern committed by each Defendant, Philip Morris, 449 F.Supp.2d at 889-91, and this finding is not erroneous. A brief sampling of the 108 enumerated racketeering acts makes the point: Philip Morris, Reynolds, Brown & Williamson, Lorillard, American, and TI committed racketeering acts 24, 132, and 133 by mailing press releases containing false statements about the addictiveness and health consequences of smoking. Id. at 194, 282-83. Philip Morris, Reynolds, Brown & Williamson, Lorillard, American, Liggett, and CTR committed racketeering acts 66, 73, and 88 by mailing letters regarding funding of CTR's special projects to create data supporting their fraudulent claims. Id. at 101, 882, 972, 976. BATCo and Brown & Williamson committed racketeering acts 30, 50, 51, 53, and 63 through their mailings to each other concerning the enterprise's position on the health effects and addictiveness of smoking as well as smoker compensation and nicotine. Id. at 253-54, 301, 882, 965, 969. Altria committed racketeering acts 71, 72, 74, and 75 in its efforts to coordinate Defendants' public positions and fund CTR research projects to support their fraudulent claims. Id. at 295, 813, 884, 974. As these examples demonstrate, the district court found each Defendant engaged in a pattern of racketeering activity, and that finding is not erroneous. See infra Parts III, IV. The 108 enumerated acts give us ample basis to review the district court's finding. Although the district court may have concluded other racketeering acts were proven as well, we need look no further. Defendants correctly argue we must ensure the remedy imposed is tailored to the violation found, United States v. Microsoft, 253 F.3d 34, 105 (D.C.Cir.2001); the voluminous findings detailing the contours of the scheme to defraud are more than sufficient to allow this review, see, e.g., Philip Morris, 449 F.Supp.2d at 852-67. Given that a mailing or wire transmission need not itself be fraudulent, the remedy needs to be tailored to the scheme to defraud, not the specific use of the mail or wires. For similar reasons, we need not resolve Defendants' challenges to the racketeering acts involving denials of marketing to youth. As the district court imposed no remedies specifically relating to youth marketing, our assessment whether the remedies are tailored to the violation found is unaffected by the associated racketeering acts. The remaining racketeering acts are fully sufficient to support the district court's finding of a pattern of racketeering activity as to each Defendant. Because these challenges have no impact on the outcome of this appeal, we decline to address them. The district court set forth findings sufficient to allow our review of its verdict of liability and imposition of sanction.