Opinion ID: 3048527
Heading Depth: 4
Heading Rank: 1

Heading: Associated-in-Fact Enterprise

Text: [4] The definition of “enterprise” in the text of RICO is fairly straightforward. In its entirety, the definition is as follows: “ ‘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.” 18 U.S.C. § 1961(4). As is evident from the text, this definition is not very demanding. A single “individual” is an enterprise under RICO. Similarly, a single “partnership,” a single “corporation,” a single “association,” and a single “other legal entity” are all enterprises. At issue in this case is the last kind of enterprise listed in the definition — a “group of individuals associated in fact.” It is undisputed that a corporation can be an “individual” for purposes of an associatedin-fact enterprise. What is disputed is the manner in which a group must be associated.
In United States v. Turkette, 452 U.S. 576 (1981), the only Supreme Court case directly on point, defendants were alleged to have been an associated-in-fact enterprise within the meaning of §§ 1961(4) and 1962(c). In the words of the statute, they were alleged to have been a “group of individuals associated in fact” for the purpose of engaging in acts constituting “a pattern of racketeering activity.” The First Circuit had agreed with defendants that RICO was designed “solely to protect legitimate business enterprises from infiltration by racketeers and that RICO does not make criminal the participation in an association which performs only illegal acts and which has not infiltrated or attempted to infiltrate a legitimate enterprise.” Id. at 579-80. The Supreme Court reversed, holdODOM v. MICROSOFT CORP. 4973 ing that a “group of individuals associated in fact” was an enterprise under RICO even if the purpose of the enterprise was exclusively criminal. Id. at 593. In the course of its analysis, the Court refuted various analytic mistakes by the court of appeals. The First Circuit’s conclusion that RICO did not apply to wholly illegal enterprises depended in part on its reasoning that a contrary holding would render portions of the statute superfluous. The court of appeals had stated, “If ‘a pattern of racketeering’ can itself be an ‘enterprise’ for purposes of section 1962(c), then the two phrases ‘employed by or associated with any enterprise’ and ‘the conduct of such enterprise’s affairs through [a pattern of racketeering activity]’ add nothing to the meaning of the section. The words of the statute are coherent and logical only if they are read as applying to legitimate enterprises.” Turkette, 452 U.S. at 582 (quoting United States v. Turkette, 632 F.2d 896, 899 (1st Cir. 1980) (alteration in original)). The Supreme Court was at pains to correct the court of appeals’ reading of the statute. It wrote: [The court of appeals’ conclusion] is based on a faulty premise. That a wholly criminal enterprise comes within the ambit of the statute does not mean that a “pattern of racketeering activity” is an “enterprise.” In order to secure a conviction under RICO, the Government must prove both the existence of an “enterprise” and the connected “pattern of racketeering activity.” The enterprise is an entity, for present purposes a group of persons associated together for a common purpose of engaging in a course of con- duct. The pattern of racketeering activity is, on the other hand, a series of criminal acts as defined by the 4974 ODOM v. MICROSOFT CORP. statute. The former is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit. The latter is proved by evidence of the requisite number of acts of racketeering committed by the participants in the enterprise. While the proof used to establish these separate elements may in particular cases coalesce, proof of one does not necessarily establish the other. The “enterprise” is not the “pattern of racketeering activity”; it is an entity separate and apart from the pattern of activity in which it engages. Id. at 583 (citation omitted; emphasis added). [5] In context, this passage from Turkette is easy to understand. The court of appeals had mistakenly equated the term “enterprise” with the term “pattern of racketeering activity.” The Supreme Court pointed out that the terms refer to two concepts that are “separate and apart” from one another: The “enterprise” is the actor, and the “pattern of racketeering activity” is an activity in which that actor engages. See id. These separate concepts can be expressed grammatically: “Enterprise” is the subject, and “pattern of racketeering activity” is part of the predicate. Actions that form the “pattern of racketeering activity” are often referred to as “predicate” acts, though likely not in the grammatical sense. See, e.g., Mendoza v. Zirkle Fruit Co., 301 F.3d 1163, 1168 (9th Cir. 2002); Howard, 208 F.3d at 746. In the words of the Court, italicized above, “The ‘enterprise’ is not the ‘pattern of racketeering activity’; it is an entity separate and apart from the pattern of activity in which it engages.” Turkette, 452 U.S. at 583. [6] Turkette further explained that proof of a “pattern of racketeering activity” is not, by itself, proof of an “enterprise.” Id. “Enterprise” and “pattern of racketeering activity” are separate elements that require separate proof. In the words of the Court, “[t]he existence of an enterprise at all times ODOM v. MICROSOFT CORP. 4975 remains a separate element which must be proved by the Government.” Id. (stating that “[w]hile the proof used to establish these separate elements [of “enterprise” and “pattern of racketeering activity”] may in particular cases coalesce, proof of one does not necessarily establish the other”).
The Court’s explanation of the meaning of an associatedin-fact enterprise in Turkette has not been clearly understood in the lower courts, including our own. We have taken this case en banc to correct and clarify our case law. Four circuits have read the language in Turkette to require that an associated-in-fact enterprise have some kind of ascertainable separate structure. The formulations vary among these circuits, but they all require that there be an ascertainable organizational structure beyond whatever structure is required to engage in the pattern of illegal racketeering activity. See, e.g., Asa-Brandt, Inc. v. ADM Investor Servs., Inc., 344 F.3d 738, 752 (8th Cir. 2003) (“enterprise must have . . . an ascertainable structure distinct from the pattern of racketeering”); United States v. Sanders, 928 F.2d 940, 944 (10th Cir. 1991) (“enterprise” requires evidence of “an ascertainable structure that exist[s] apart from the commission of racketeering acts”); United States v. Tillett, 763 F.2d 628, 632 (4th Cir. 1985) (“enterprise” requires evidence “to show that the organization had an existence beyond that which was necessary to commit the predicate crimes” (citations omitted)); United States v. Riccobene, 709 F.2d 214, 223-24 (3d Cir. 1983) (“enterprise” must have “an existence beyond that which is necessary merely to commit each of the acts charged as predicate racketeering offenses”); United States v. Bledsoe, 674 F.2d 647, 665 (8th Cir. 1982) (proof of ascertainable structure “might be demonstrated by proof that a group engaged in a diverse pattern of crimes or that it has an organizational pattern or system of authority beyond what was necessary to perpetrate the predicate crimes”). 4976 ODOM v. MICROSOFT CORP. The Seventh Circuit requires that there be “some” kind of ascertainable structure, but it does not require that it be a separate structure. See, e.g., Richmond v. Nationwide Cassel L.P., 52 F.3d 640, 644 (7th Cir. 1995) (requiring proof of “an ongoing structure of persons associated through time, joined in purpose, and organized in a manner amenable to hierarchical or consensual decision-making” (internal quotation marks and citation omitted)); see also United States v. Rogers, 89 F.3d 1326, 1337-38 (7th Cir. 1996) (imposing “some” structural requirements, but concluding that it would be “nonsensical to require proof that an enterprise had purposes or goals separate and apart from the pattern of racketeering activity”). By contrast, four circuits have rejected any requirement that there be an “ascertainable structure,” separate or otherwise, for an associated-in-fact enterprise. See, e.g., United States v. Patrick, 248 F.3d 11, 19 (1st Cir. 2001) (“Since Congress intended the term ‘enterprise’ to include both legal and criminal enterprises, and because the latter may not observe the niceties of legitimate organizational structures, we refuse to import an ‘ascertainable structure’ requirement into jury instructions.” (citation omitted)); United States v. Perholtz, 842 F.2d 343, 354 (D.C. Cir. 1988) (concluding that enterprise is “established by common purpose among the participants, organization, and continuity”); United States v. Cagnina, 697 F.2d 915, 921 (11th Cir. 1983) (“Turkette did not suggest that the enterprise must have a distinct, formalized structure.”); United States v. Bagaric, 706 F.2d 42, 56 (2d Cir. 1983) (stating that “it is logical to characterize any associative group in terms of what it does, rather than by abstract analysis of its structure” (emphasis in original)), abrogated on other grounds by Nat’l Org. for Women, Inc. v. Scheidler, 510 U.S. 249 (1994). [7] Our own circuit has equivocated on whether an associated-in-fact enterprise must have an ascertainable separate structure and, if so, what functions that structure must serve. See, e.g., United States v. Feldman, 853 F.2d 648, 659ODOM v. MICROSOFT CORP. 4977 60 (9th Cir. 1988) (declining to decide whether proof of ascertainable structure is necessary for an associated-in-fact enterprise because the legitimate corporations constituting the enterprise each had organizational structures); River City Mkts., Inc. v. Fleming Foods W., Inc., 960 F.2d 1458, 1461 (9th Cir. 1992) (concluding that “business relationship akin to a joint venture” was sufficient to establish an associated-infact RICO enterprise); Chang v. Chen, 80 F.3d 1293, 1299 (9th Cir. 1996) (explaining that “it is sufficient to show that the organization has an existence beyond that which is merely necessary to commit the predicate acts of racketeering” and citing the Third Circuit’s decision in Riccobene, 709 F.2d at 224). The confusion in our precedents has caused difficulties for the district courts in this circuit. See, e.g., Hansen v. Ticket Track, Inc., 280 F. Supp. 2d 1196, 1206 (W.D. Wash. 2003) (“The Court acknowledges that the Ninth Circuit case law defining an association in fact using the ‘separate structure’ analysis is less than clear.”). [8] We take this opportunity to join the circuits that hold that an associated-in-fact enterprise under RICO does not require any particular organizational structure, separate or otherwise. See Patrick, 248 F.3d at 19 (1st Cir. 2001); Perholtz, 842 F.2d at 355 (D.C. Cir. 1988); Cagnina, 697 F.2d at 921 (11th Cir. 1983); Bagaric, 706 F.2d at 55-56 (2d Cir. 1983). To the extent that our past precedent suggests the contrary, it is hereby overruled. See, e.g., Wagh v. Metris Direct, Inc., 348 F.3d 1102, 1112 (9th Cir. 2003); Simon v. Value Behavioral Health, Inc., 208 F.3d 1073, 1083-84 (9th Cir. 2000); Chang, 80 F.3d at 1298-99, 1301. c. No Requirement of Separate or Ascertainable Structure As we explain above, the Supreme Court’s statement in Turkette that an “enterprise” is “an entity separate and apart from the pattern of activity in which it engages” is not a statement that an associated-in-fact enterprise must have some kind of separate structure. 452 U.S. at 583. Rather, it is 4978 ODOM v. MICROSOFT CORP. merely a statement of the obvious: The enterprise and its activity are two separate things. One is the enterprise. The other is its activity. To read the Court’s statement in Turkette as requiring that an associated-in-fact enterprise have a structure beyond that necessary to carry out its pattern of illegal racketeering activities is not only to misread the particular passage of Turkette. It is also fundamentally to misunderstand Turkette’s holding. The First Circuit in Turkette had read RICO to impose liability only when a legitimate business was infiltrated by a criminal enterprise. In the view of the court of appeals, RICO did not impose liability on purely criminal enterprises. The Supreme Court reversed. To require that an associated-in-fact enterprise have a structure beyond that necessary to carry out its racketeering activities would be to require precisely what the Court in Turkette held that RICO does not require. Such a requirement would necessitate that the enterprise have a structure to serve both illegal racketeering activities as well as legitimate activities. In other words, it would require — as the First Circuit sought to require in Turkette — that the enterprise have a structure serving both illegitimate and legitimate purposes. But the Court in Turkette held precisely the opposite. It held that a purely criminal enterprise can be an associated-in-fact enterprise within the meaning of RICO. See also Cedric Kushner Promotions, 533 U.S. at 164-65 (stating that RICO “protects the public from those who would unlawfully use an ‘enterprise’ (whether legitimate or illegitimate) as a ‘vehicle’ through which ‘unlawful . . . activity is committed’ ”) (ellipsis in original; citations omitted). Further, to require that an associated-in-fact enterprise have an “ascertainable structure” — whether that structure serves both legitimate and illegitimate activities, or only illegitimate activities — is also to misread Turkette. As the First Circuit stated in Patrick, such a requirement improperly narrows the ODOM v. MICROSOFT CORP. 4979 definition of an associated-in-fact enterprise because criminal enterprises “may not observe the niceties of legitimate organizational structures.” 248 F.3d at 19. There must, of course, be an associated-in-fact enterprise, as required by the statute and as explained in Turkette. But there is no additional requirement that the enterprise have an “ascertainable structure.” d. Criteria for an Associated-in-Fact Enterprise [9] The Supreme Court in Turkette articulated the criteria for an associated-in-fact enterprise under RICO. According to the Court, an associated-in-fact enterprise is “a group of persons associated together for a common purpose of engaging in a course of conduct.” 452 U.S. at 583. To establish the existence of such an enterprise, a plaintiff must provide both “evidence of an ongoing organization, formal or informal,” and “evidence that the various associates function as a continuing unit.” Id. We consider these criteria in turn.
[10] We first conclude that plaintiffs have sufficiently alleged that defendants Best Buy and Microsoft have associated for “a common purpose of engaging in a course of conduct.” Id. According to the complaint, defendants had the common purpose of increasing the number of people using Microsoft’s Internet Service, and doing so by fraudulent means. Best Buy furthered this common purpose by distributing Microsoft Internet Trial CD’s and conveying its customers’ debit and credit card information to Microsoft. Microsoft then used the information to activate customer accounts. These allegations are more than adequate to establish, if true, that Microsoft and Best Buy had a common purpose of increasing the number of people using Microsoft’s Internet service through fraudulent means.
[11] We next conclude that plaintiffs sufficiently alleged an “ongoing organization,” either “formal or informal.” Turkette, 4980 ODOM v. MICROSOFT CORP. 452 U.S. at 583. An ongoing organization is “a vehicle for the commission of two or more predicate crimes.” Cagnina, 697 F.2d at 921-22 (internal quotation marks omitted) (quoting United States v. Elliott, 571 F.2d 880, 898 (5th Cir. 1978)). According to plaintiffs, Microsoft and Best Buy formed a vehicle for the commission of at least two predicate acts of fraud. Microsoft and Best Buy established mechanisms for transferring plaintiffs’ personal and financial information from Best Buy to Microsoft. That information then allowed Microsoft to activate plaintiffs’ Internet accounts without their knowledge or permission. These mechanisms enabled Microsoft to bill plaintiffs improperly for MSN services in 2001, 2002 and 2003. See United States v. Qaoud, 777 F.2d 1105, 1117 (6th Cir. 1985) (stating that “coordinated nature” of defendant’s activity supported finding of RICO enterprise). The alleged cross-marketing contract between Microsoft and Best Buy provides additional evidence of an ongoing organization. Plaintiffs allege that, in addition to the transfer of customers’ information from Best Buy to Microsoft, “Best Buy agreed to promote MSN and other Microsoft products in its stores and advertising.” In exchange, plaintiffs allege, “Microsoft invested $200 million in Best Buy and agreed to promote Best Buy’s online store through its MSN service.”
[12] Finally, we conclude that plaintiffs have alleged facts that, if proved, provide sufficient “evidence that the various associates function as a continuing unit.” Turkette, 452 U.S. at 583. The continuity requirement does not, in itself, require that every member “be involved in each of the underlying acts of racketeering, or that the predicate acts be interrelated in any way.” Qaoud, 777 F.2d at 1116. Instead, the continuity requirement focuses on whether the associates’ behavior was “ongoing” rather than isolated activity. Patrick, 248 F.3d at 19. [13] The allegations of plaintiffs Odom and MoureauxMaloney describe similar methods of fraudulently charging ODOM v. MICROSOFT CORP. 4981 Best Buy customers for MSN Internet accounts. Plaintiffs’ allegations cover almost two years of conduct by Best Buy and Microsoft. An almost two-year time span is far more than adequate to establish that Best Buy and Microsoft functioned as a continuing unit. That several employees engaged in the activity at different times does not defeat the continuity requirement. Cagnina, 697 F.2d at 921 (holding that a growing membership and diversity of activities do not preclude a finding of “continuity”).
Several courts of appeals have concluded that a broad definition of an associated-in-fact enterprise would produce undesirably expansive RICO liability. For example, when the Third Circuit in Riccobene required that an enterprise have a structure beyond that “necessary merely to commit each of the acts charged as predicate racketeering offenses,” 709 F.2d at 224, it did so to avoid what it called the “dangers” of a broad definition. Id. at 221. The Third Circuit stated that it was concerned that RICO liability would extend “to situations far removed from those actually contemplated by Congress, and that federal prosecutors could use the law to invoke an additional penalty whenever they had a case involving the commission of two offenses that, coincidentally, were among those listed as ‘racketeering activities.’ ” Id. The answer to concerns like those expressed by the Third Circuit in Riccobene was given by the Supreme Court in Sedima, when it rebuked the Second Circuit for having interpreted RICO to avoid what the court of appeals had called the “ ‘extraordinary, if not outrageous,’ uses to which civil RICO had been put.” 473 U.S. at 499. The Court’s response was to point to the text of the statute: “It is true that private civil actions under the statute are being brought almost solely against [legitimate] defendants, rather than against the archetypal, intimidating mobster. Yet this defect — if defect it is 4982 ODOM v. MICROSOFT CORP. — is inherent in the statute as written, and its correction must lie with Congress.” Id. (footnote omitted). [14] In Turkette, the Supreme Court carefully articulated the criteria for an associated-in-fact enterprise under RICO. We do not believe that we are at liberty to add to them. Applying the criteria articulated in Turkette, we conclude that plaintiffs have sufficiently alleged an associated-in-fact enterprise.