Opinion ID: 686425
Heading Depth: 2
Heading Rank: 3

Heading: Substantive RICO Violation Under Sec. 1962(c) with Aetna as the Enterprise--Count VIII

Text: 85 For an individual defendant to be liable for a RICO substantive violation under Sec. 1962(c), with Aetna as the enterprise, the evidence must be sufficient for the jury to find that (1) Aetna was an enterprise affecting interstate or foreign commerce, (2) that the defendant under consideration associated with the enterprise, (3) that this defendant participated in the conduct of the enterprise's affairs, and (4) that this defendant's participation was through a pattern of racketeering activity. 28 U.S.C. Sec. 1962(c). 86 We consider, whether the evidence was sufficient to prove each of these elements against each of the defendants the jury found liable under Count VIII. 87 First Element. Aetna is an enterprise affecting interstate commerce within the meaning of Sec. 1962(c). The major purpose of RICO is to protect legitimate business enterprises from infiltration by racketeers. Enterprise as used in this act, includes legitimate corporations. See United States v. Turkette, 452 U.S. 576, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). Since Aetna is a major property and casualty insurer doing business in many states, Aetna's conduct of its business affects interstate commerce. 88 See United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944) (a fire insurance company that conducts a substantial part of its business transactions across state lines is engaged in commerce among the several states and is subject to regulation under the Commerce Clause). 89 Appellants argue that Aetna cannot constitute the enterprise because the alleged racketeering activities were to the detriment and not the benefit of Aetna. This argument rests on a misinterpretation of the RICO statute. The statute does not require that the pattern of racketeering be in furtherance of the enterprise. In United States v. Boylan, this court upheld the convictions of Boston police detectives who violated RICO by illegally participating in the affairs of the Boston Police Department (the enterprise), through a pattern of racketeering by accepting bribes. Boylan, 898 F.2d 230. In Boylan, as in this case, the affairs of the enterprise were undermined by the illegal activity. 90 See also Yellow Bus Lines, Inc. v. Drivers Chauffeurs & Helpers Local Union 639, 913 F.2d 948, 952 (D.C.Cir.1990), cert. denied, 501 U.S. 1222, 111 S.Ct. 2839, 115 L.Ed.2d 1007 (1991) (Section 1962(c) nowhere requires proof regarding the advancement of the enterprise's affairs by the defendant's activities or proof that the enterprise itself is corrupt....); 91 United States v. Provenzano, 688 F.2d 194 (3rd Cir.), cert. denied, 459 U.S. 1071, 103 S.Ct. 492, 74 L.Ed.2d 634 (1982) (RICO is not limited to racketeering activities that advance or benefit the enterprise, but also encompasses racketeering activities that work to the detriment of the enterprise). 92 Second Element. Appellants, who are not employees of Aetna, attempt to distinguish Boylan by pointing out that in Boylan the defendants were employees of the organization that constituted the RICO enterprise. Appellants argue that the statute prohibits employees from conducting an enterprise's affairs through a pattern of racketeering activity to the detriment of the enterprise, but does not prohibit persons who are merely associated with the enterprise from conducting the enterprise's affairs to its detriment through a pattern of racketeering activity. 93 The proposed distinction is not supported by the language of the statute, which refers to person[s] employed by or associated with any enterprise. 18 U.S.C. Sec. 1962(c) (emphasis added). Nor is it supported by any identifiable public policy or by precedent. 94 See, e.g., United States v. Yonan, 800 F.2d 164 (7th Cir.1986) cert. denied, 479 U.S. 1055, 107 S.Ct. 930, 93 L.Ed.2d 981 (1987) (upholding conviction of attorney, who was not an employee of the enterprise, a prosecutor's office, for violating RICO by conducting the affairs of the prosecutor's office through bribery); 95 United States v. Bright, 630 F.2d 804, 830-31 (5th Cir.1980) (upholding RICO conviction of a bail bondsmen, who was not an employee of the enterprise, a sheriff's office, for unlawfully participating in the affairs of the enterprise through bribery). 96 Appellants also argue that the defendants cannot be held liable for a RICO substantive violation with Aetna as the enterprise because they were not even associates of the enterprise, but were outsiders and, as outsiders, could not be said to have participated in the conduct of Aetna's affairs. This is an argument more of words than substance. The statute uses the phrase associated with rather than creating a category of associates, narrowly defined to include fewer persons than those who may be said to have associated with an enterprise in a broader sense of this phrase. In ordinary usage, one who, for example, buys an insurance policy from an enterprise and depends on the solidarity of that enterprise, for protection against defined risks, has an association with, and may be said to have associated with, the enterprise. 97 Each of the individual appellants was either an insured or a claimant under an Aetna policy, or an owner or operator of a body shop involved in repairing automobiles insured by Aetna. Three of the five individual Arsenal appellants (the Tirinkians and Peter Markarian) were both insureds and operators. As an insured, a claimant, or a body shop operator, each of the appellants was in a contractual relationship with Aetna. The body shop (also an appellant) and its owners and operators were associated with Aetna because each body shop about which evidence was received at trial was a place where Aetna employees conducted appraisals and where cars that were the subject of insurance were purportedly repaired. 98 Third Element. Appellants argue that no reasonable jury could have found that the appellants participated directly or indirectly in the conduct of the enterprise's affairs because the defendants did not participate in the operation or management of the enterprise itself. Reves v. Ernst & Young, --- U.S. ----, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993). 99 Contrary to the appellants' assertion, there was sufficient evidence for a reasonable jury to find that the defendants' activities met the definition of participation adopted by the Supreme Court in Reves, which is known as the operation or management test. Id. at ----, 113 S.Ct. at 1172. Appraising allegedly damaged vehicles and investigating, processing, and paying automobile insurance claims are vital parts of Aetna's business. By acting with purpose to cause Aetna to make payments on false claims, appellants were participating in the operation of Aetna. 100 The Supreme Court in Reves interpreted the phrase conduct of the enterprise's affairs to indicate a degree of direction, which the court described as taking some part in directing the enterprise's affairs. Id. at ----, 113 S.Ct. at 1170. The evidence was sufficient to support a finding that the individual Arsenal defendants' activities affected, in a material degree, the direction of Aetna's affairs by employees of Aetna. Appellants' activities caused Aetna employees having authority to do so to direct that other employees make payments Aetna otherwise would not have made. The Court in Reves emphasized that, as in this case, the defendants' participation could be indirect in the sense that persons with no formal position in the enterprise can be held liable under Sec. 1962(c) for participating in the conduct of the enterprise's affairs. Id. The evidence was sufficient to support a finding that each of the appellants participated in the conduct of Aetna's affairs in this way. 101 Moreover, in Reves the court expressly recognized that an enterprise also might be operated or managed by others 'associated with' the enterprise who exert control over it as, for example, by bribery. Id. at ----, 113 S.Ct. at 1173. When viewed in the light most favorable to the plaintiff, in support of the verdict in this case, the evidence supports a finding that appellants caused the Aetna appraisers to approve false claims and conduct their appraisals in a manner contrary to Aetna's business practices and caused Aetna to pay out large sums of money on false claims. The evidence was sufficient to support a finding that appellants exerted control over the enterprise, if not by bribery (the example given by the Court in Reves ), then at least by other methods of inducement. Since a reasonable jury could find that the appellants exerted some control over Aetna and took part in directing some aspect of the enterprise's affairs, the appellants' actions could be found to have satisfied the operation or management test. 102 Fourth Element. The final element necessary to support liability under Sec. 1962(c) is that each defendant's participation was through a pattern of racketeering activity. In order to establish a pattern of racketeering activity, the evidence must show that each defendant committed two acts of racketeering activity within the span of ten years. The predicate acts are defined by 18 U.S.C. Sec. 1961 to include mail fraud, wire fraud, and bribery as well as aiding and abetting these offenses. 103 See Oreto, 37 F.3d at 751 (jury could find a pattern of racketeering activity for the purposes of Sec. 1962(c) if the appellants aided and abetted the commission of at least two predicate acts); 104 see also Pereira v. United States, 347 U.S. 1, 9, 74 S.Ct. 358, 363, 98 L.Ed. 435 (1954) (a person who aids and abets another in the commission of mail fraud, a violation of Sec. 1341, also violates Sec. 1341); 105 18 U.S.C. Sec. 1961 (violations of Sec. 1341 constitute predicate racketeering activity). 106 Although these terms refer to criminal offenses to which the beyond-reasonable-doubt burden of proof applies, a plaintiff in a civil RICO action may prove these acts by a preponderance of the evidence. 107 See Combustion Engineering, Inc. v. Miller Hydro Group, 13 F.3d 437, 466 (1st Cir.1993) (the preponderance of the evidence standard applies to fraud claims in civil RICO proceedings); 108 see also Moss v. Morgan Stanley, Inc., 553 F.Supp. 1347 (S.D.N.Y.), aff'd, 719 F.2d 5 (2nd Cir.1983), cert. denied sub nom. Moss v. Newman, 465 U.S. 1025, 104 S.Ct. 1280, 79 L.Ed.2d 684 (1984) (although proof in civil proceedings under RICO requires only a preponderance of the evidence, which is a lower standard of proof than in criminal proceedings, the standard does not relate to the elements of the predicate crimes, but to the burden that the plaintiff bears in showing the elements). 109 The elements of a mail fraud violation are a scheme to defraud and the use of the mails to execute or further this scheme. 110 United States v. Brien, 617 F.2d 299, 311 (1st Cir.), cert. denied, 446 U.S. 919, 100 S.Ct. 1854, 64 L.Ed.2d 273 (1980). 111 The plaintiff alleged that each defendant committed predicate acts of mail fraud. 112 The intentional filing of false insurance claims or false completed work forms in order to obtain payments from Aetna constitutes a scheme to defraud Aetna. The plaintiff does not need to prove that each defendant personally used the mails but only that the defendant acted with knowledge that the use of the mails will follow in the ordinary course of business, or [acted in circumstances] where such use can be reasonably foreseen. United States v. Maze, 414 U.S. 395, 399, 94 S.Ct. 645, 648, 38 L.Ed.2d 603 (1974). In this case, it could reasonably be foreseen by each defendant that either an insured, a claimant, a body shop or an appraiser would use the mails in connection with each of the fraudulent claims, or that Aetna would use the mails to send payments to the recipients. All of these uses of the mails were in furtherance of the defendants' fraudulent scheme. 113 See United States v. Martin, 694 F.2d 885, 890 (1st Cir.1982) (refund checks mailed by an insurance company to the defendant, an insurance agent, were closely enough related to the agent's insurance fraud scheme to bring his conduct within the statute). 114 In addition to proof of at least two predicate acts, there must be evidence of continuity sufficient to show that the predicate acts constitute a pattern of racketeering activity. Boylan, 898 F.2d at 250. Continuity may be established by proving that the predicate acts form a closed period of repeated conduct or that they are a regular way of conducting the enterprise. 115 Id.; 116 see also Digital Equipment Corp. v. Curie Enterprises, 142 F.R.D. 16 (D.Mass.1992) (holding that the use of the mails forms a pattern of racketeering activity if the uses are related and they amount to, or pose threat of, continued illegal activity). 117 The evidence of the ongoing succession of fraudulent claims presented in this case easily satisfies this requirement. 118 The appellants do not dispute that each fraudulent claim is an act of mail fraud and that mail fraud is sufficient to constitute a predicate offense under the RICO statute. Similarly, the appellants do not contend that the fraudulent insurance claims were unrelated or so dissimilar as to lack the continuity necessary to establish a pattern of racketeering activity. The appellants simply contend that there was no evidence of fraud on the part of any of the appellants. We have concluded that this assertion is contrary to the record. 119