Opinion ID: 425977
Heading Depth: 3
Heading Rank: 3

Heading: District Court Dismissal of RICO

Text: 57 We now turn to the remaining rationales offered by the district court to support its dismissal of plaintiff's RICO claim. The district court dismissed the RICO claim on the grounds that plaintiff had failed to allege several elements essential to pleading such a claim. Most notably, the court found that the complaint failed to allege (1) the existence of an enterprise and that this enterprise was economically independent from defendants' pattern of racketeering activity, 16 and (2) that the enterprise, or any of the defendants, had a tie to organized crime. We do not agree with the district court's assessment that these omissions required dismissal of the complaint.
58 The district court's opinion is replete with expressions of concern about the broad scope of civil RICO. The court began its analysis by noting that [t]he Racketeer Influenced and Corrupt Organizations Act, part of the Organized Crime Control Act of 1970, was designed in a multifaceted campaign against the pervasive presence of organized crime infiltrated in American business and trade, 553 F.Supp. at 1359, and then cautioned that [t]he statutory language and recent Supreme Court and Second Circuit precedent, if carefully applied, can be extraordinarily effective in limiting RICO to its intended scope and filtering out many RICO claims that are just efforts to claim treble damages for ordinary violations of criminal or tort laws. Id. at 1360. The court continued, The sweep of the statute does not embrace ordinary violators charged in common law fraud actions or federal securities law violations as the predicate offenses for RICO relief, id. at 1361, and finally concluded that there is nothing in the legislative history to suggest that Congress intended to create a private right of action for treble damages for violations of substantive statutes by ordinary business[es] or parties. Id. at 1361. 59 We sympathize with the district court's concerns. However, it is not the [judiciary's] role to reassess the costs and benefits associated with the creation of a dramatically expansive ... tool for combating organized crime. Schact v. Brown, 711 F.2d at 1361 (citing United States v. Turkette, 452 U.S. at 586-87, 101 S.Ct. at 2530, 69 L.Ed.2d 246). In this regard we agree with the author of the Note, Civil RICO: The Temptation and Impropriety of Judicial Restriction, 95 Harv.L.Rev. 1101, 1120-21 (1982): 60 Courts should not be left to impose liability based on their own tacit determination of which defendants are affiliated with organized crime. Nor should they create standing requirements that would preclude liability in many situations in which legislative intent would compel it. Complaints that RICO may effectively federalize common law fraud and erode recent restrictions on claims for securities fraud are better addressed to Congress than to courts. 61 Although we appreciate the concerns motivating the district court to limit RICO's scope, we believe that the court misinterpreted the elements essential to pleading a RICO cause of action.
62 The district court stated that application of RICO should be restricted sharply to organized crime and the enterprises on which its talons have fastened. Thus, courts in the Southern District and elsewhere have held that RICO claims for damages could be maintained only if there was a tie to organized crime. 553 F.Supp. at 1361 (citing Noonan v. Granville-Smith, 537 F.Supp. 23, 29 (S.D.N.Y.1981); Barr v. WUI/TAS, Inc., 66 F.R.D. 109, 112-13 (S.D.N.Y.1975); and Waterman Steamship Corp. v. Avondale Shipyards, Inc., 527 F.Supp. 256, 260 (E.D.La.1981)); accord Wagner v. Bear, Stearns & Co., [current] Fed.Sec.L.Rep. (CCH) p 99,032 (N.D.Ill.1982); City of Atlanta v. Ashland-Warren, Inc., 1982-1 Trade Cas. (CCH) p 64,527 (N.D.Ga.1982). 63 It is true that RICO's legislative history states that it was enacted to provide enhanced sanctions and new remedies to deal with the unlawful activities of those engaged in organized crime. Organized Crime Control Act of 1970, Pub.L. No. 91-452, 84 Stat. 922, reprinted in 1970 U.S.Code Cong. & Ad.News 1073; see United States v. Ivic, 700 F.2d 51, 62 (2d Cir.1983). The language of the statute, however, does not premise a RICO violation on proof or allegations of any connection with organized crime. 17
64 The district court recognized that section 1962(c) requires plaintiffs to plead that an enterprise exists and that there must be some nexus between the pattern of racketeering activity and the enterprise. 553 F.Supp. at 1363. We agree. Section 1962(c) states: It shall be unlawful for any person employed by or 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. Sec. 1962(c) (1976). Enterprise is defined as 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. Sec. 1961(4) (1976); see United States v. Turkette, 452 U.S. 576, 581-82, 101 S.Ct. 2524, 2527-28, 69 L.Ed.2d 246 (1981). 65 Yet, in addition to requiring plaintiff to plead the existence of this enterprise, the district court required him to allege facts showing that the enterprise had an independent economic significance from the pattern of racketeering activity. 553 F.Supp. at 1363. The district court concluded that because Morgan Stanley's and Newman's alleged pattern of activity [was] identical to the enterprise ... the plaintiff completely fails to make out this element [enterprise] of a RICO claim. Id. This conclusion cannot stand in light of our recent decisions in United States v. Mazzei, 700 F.2d 85 (2d Cir.1983), cert. denied, --- U.S. ----, 103 S.Ct. 2124, 77 L.Ed.2d 1304 (1983), and United States v. Bagaric, 706 F.2d 42 (2d Cir.1983). 66 In United States v. Mazzei we expressly rejected the Eighth Circuit's view that the evidence offered to prove the enterprise and pattern of racketeering must necessarily be distinct. Id. at 89-90; see Bennett v. Berg, 685 F.2d at 1060; United States v. Anderson, 626 F.2d 1358, 1372 (8th Cir.1980) (enterprise to encompass only an association having an ascertainable structure which exists for the purpose of maintaining operations directed toward an economic goal that has an existence that can be defined apart from the commission of the predicate acts constituting the 'pattern of racketeering activity.' ), cert. denied, 450 U.S. 912, 101 S.Ct. 1351, 67 L.Ed.2d 336 (1981). Instead, we relied on the Supreme Court's decision in Turkette that proof used to establish the 'pattern of racketeering activity' element 'may in particular cases coalesce' with the proof offered to establish the 'enterprise' element of RICO. United States v. Mazzei, 700 F.2d at 89 (quoting United States v. Turkette, 452 U.S. at 583, 101 S.Ct. at 2528); see United States v. Bagaric, 706 F.2d at 55. In Mazzei a group of individuals--bettors and Boston College basketball players--conspired illegally to shave points in Boston College basketball games in order to maximize their gambling proceeds. The enterprise consisted of the Boston College conspirators functioning as a continuing unit, i.e., during the 1978-79 B.C. basketball season and the pattern of racketeering activity consisted of  'fixing' nine B.C. basketball games. 700 F.2d at 89. We upheld the propriety of Mazzei's RICO conviction even though the proof offered to establish the existence of these two elements had coalesced. Id.; see United States v. Bagaric, 706 F.2d at 55 (We have upheld application of RICO to situations where the enterprise was, in effect, no more than the sum of the predicate racketeering acts.). 67 In this case the enterprise allegedly consisted of Courtois' use of his position at Morgan Stanley to obtain confidential information about imminent tender offers; Antoniu's transmission of tender offer information to Newman; and Newman's use of his brokerage abilities to purchase the target's stock. The criminal indictment of these individuals reported that their tender offer enterprise existed for approximately two years. J.App. at 60-62. As previously mentioned, the pattern of racketeering activity consisted of Newman's purchase and sale of Deseret stock on the basis of the confidential information about the imminent tender offer. We can see no logical or practical basis upon which to distinguish between the enterprise/racketeering relationship of the illegal gamblers in Mazzei and the enterprise/racketeering relationship of the securities schemers in this case. See also United States v. Errico, 635 F.2d 152, 156 (2d Cir.1980) (a network of jockeys and bettors, who joined together for the single illegal purpose of betting on fixed horseraces, constituted an enterprise for the purposes of RICO), cert. denied, 453 U.S. 911, 101 S.Ct. 3142, 69 L.Ed.2d 994 (1981). We find that under the standard articulated in Mazzei, the district court erred in its characterization of RICO's enterprise and pattern of racketeering activity elements.