Opinion ID: 3184502
Heading Depth: 3
Heading Rank: 1

Heading: The Collection of Unlawful Debt

Text: RICO makes it unlawful for a person associated with a RICO “enterprise” to participate in the conduct of such enterprise “through a pattern of racketeering activity or collection of unlawful debt.”5 18 U.S.C. § 1962(c). The District Court dismissed Goldenstein’s RICO claim by summarily stating “[i]t is well-settled by this court that the repossession of collateral is clearly distinguishable from the collection of unlawful debt and does not give rise to a RICO claim,” and citing to the opinion of another District Judge in the Eastern District of Pennsylvania who had reached that conclusion. Goldenstein, 2014 U.S. Dist. LEXIS 97002, at  (citing Collins v. Siani’s Salvage, LLC, No. 13-3044, 2014 U.S. Dist. LEXIS 39930, at  (E.D. Pa. Mar. 26, 2014)). Indeed, two judges in the Eastern District of Pennsylvania, in addition to the District Judge here, have held that when a repossession company repossesses a car as collateral for an unpaid debt, the repossession company “[i]s 5 While ordinarily a RICO claim requires a plaintiff to prove the defendants participated in the enterprise “through a pattern of racketeering activity,” United States v. Console, 13 F.3d 641, 652-53 (3d Cir. 1993) (citation and internal quotation marks omitted), the “collection of unlawful debt” is an act native to the RICO statute and does not require a pattern of activities to constitute a violation, see United States v. Vastola, 899 F.2d 211, 228 n.21 (3d Cir. 1990) (holding that a single collection satisfies the requirements for the “collection of unlawful debt” and no further pattern or predicate act need be shown). 10 not collecting the debt that [the lender] alleged it [i]s owed under the loan agreement. Rather, [the repossession company] [i]s repossessing the collateral for that debt.” Collins, 2014 U.S. Dist. LEXIS 39930, at  (quoting Gonzalez v. DRS Towing, LLC, No. 12-cv-05508, at 7 (E.D. Pa. Feb. 28, 2013)). That position, however, is far from settled. No Court of Appeals has yet addressed this question; nor are the District Judges unanimous, even in the Eastern District of Pennsylvania. On the contrary, in a thoughtful and well-reasoned opinion in Gregoria v. Total Asset Recovery, Inc., No. 12-4315, 2015 U.S. Dist. LEXIS 1818 (E.D. Pa. Jan. 8, 2015), Judge Lawrence F. Stengel held that the distinction between the collection of debt and the collection of collateral for a debt is a “distinction without a difference,” and observed that when a lender repossesses a debtor’s car as collateral for a loan it does so “to liquidate the collateral to satisfy the unpaid balance of [the] loan.” Id. at  (internal quotation marks omitted). Citing the “broad construction [it] must give the RICO statute,” Judge Stengel recognized that “[w]hether the [lender] collected the car or cash, the purpose of the collection was to satisfy the debt.” Id. at  & n.11. We agree with the reasoning in Gregoria. Nothing in RICO suggests that Congress intended to limit its prohibition on the “collection of unlawful debt” to the seizure of cash and to exclude the forfeiture of collateral used to secure unlawful debt. Quite the opposite. The statute defines “unlawful debt” as “a debt (A) incurred . . . which is unenforceable under State or Federal law in whole or in part as to principal or interest because of the laws relating to usury, and (B) which was incurred in connection with . . . the business of lending money or a thing of value at a rate usurious under State or 11 Federal law, where the usurious rate is at least twice the enforceable rate.” 18 U.S.C. § 1961(6). Thus, the prohibition on the “collection of unlawful debt” under the statute encompasses efforts to collect on a usurious loan, without distinguishing whether the collection is cash or collateral; in either case the defendants’ actions effect the collection of the unlawful debt. Cf. United States v. Eufrasio, 935 F.2d 553, 576 (3d Cir. 1991) (holding that “a single act which would tend to induce another to repay on an unlawful debt incurred in the business of lending money” is sufficient for the predicate act, and there need not be “[a]n actual exchange of cash”). Goldenstein’s is a case in point. Premier repossessed Goldenstein’s car for one of two purposes: either Goldenstein would pay off the loan for the return of his car or the car would be liquidated with the proceeds used to pay off that loan. Either way, the debt would be collected and the usurious loan discharged. It so happens that Goldenstein opted to pay so that Premier collected the outstanding loan balance (and then some) in cash. Thus, the collection of collateral and the “collection of unlawful debt” in this very case was a “distinction without a difference.” See Gregoria, 2015 U.S. Dist. LEXIS 1818 at . This practical reality, along with the Supreme Court’s instruction that RICO should “be read broadly,” Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497 (1985), and its clarification that Congress intended RICO to reach both legitimate and illegitimate enterprises, id. at 499-500; United States v. Turkette, 452 U.S. 576, 584-85 (1981), confirm that RICO’s prohibition on the “collection of unlawful debt” can reach even a legitimate repossession company that forfeits on collateral for a usurious loan—assuming, that is, that the 12 plaintiff can establish the other elements of the violation. To that subject, we now turn.