Opinion ID: 195809
Heading Depth: 2
Heading Rank: 3

Heading: Substantive RICO Violation Under 1962(c) with

Text: Aetna as the Enterprise -- Count VIII For an individual defendant to be liable for a RICO substantive violation under 1962(c), with Aetna as the enterprise, the evidence must be sufficient for the jury to find -21- 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. 1962(c). 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. First Element. Aetna is an enterprise affecting interstate commerce within the meaning of 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 (1981). Since Aetna is a major property and casualty insurer doing business in many states, Aetna's conduct of its business affects interstate commerce. See United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533 (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). 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 -22- 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. 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 (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 . . . .); United States v. Provenzano, 688 F.2d 194 (3rd Cir.), cert. denied, 459 U.S. 1071 (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). 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. -23- 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. 1962(c)(emphasis added). Nor is it supported by any identifiable public policy or by precedent. See, e.g., United States v. Yonan, 800 F.2d 164 (7th Cir. 1986) cert. denied, 479 U.S. 1055 (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); 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). 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. -24- 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. 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, 113 S.Ct. 1163 (1993). 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 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 -25- on false claims, appellants were participating in the operation of Aetna. 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 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 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. 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 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 -26- 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. Fourth Element. The final element necessary to support liability under 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. 1961 to include mail fraud, wire fraud, and bribery as well as aiding and abetting these offenses. See Oreto, No. 91-1769, slip op. at 27 (jury could find a pattern of racketeering activity for the purposes of 1962(c) if the appellants aided and abetted the commission of at least two predicate acts); see also Pereira v. United States, 347 U.S. 1, 9 (1954)(a person who aids and abets another in the commission of mail fraud, a violation of 1341, also violates 1341); 18 U.S.C. 1961 (violations of 1341 constitute predicate racketeering activity). 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 -27- preponderance of the evidence. 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); see also Moss v. Morgan Stanley, Inc., 553 F. Supp. 1347 (S.D.N.Y.), aff'd 719 F.2d 5 (2d Cir. 1983), cert. denied sub nom. Moss v. Newman, 465 U.S. 1025 (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). The elements of a mail fraud violation are a scheme to defraud and the use of the mails to execute or further this scheme. United States v. Brien, 617 F.2d 299, 311 (1st Cir.), cert. denied, 446 U.S. 919 (1980). The plaintiff alleged that each defendant committed predicate acts of mail fraud. 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 (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 -28- 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. 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). 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. Id.; 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). The evidence of the ongoing succession of fraudulent claims presented in this case easily satisfies this requirement. 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 -29- 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. D. RICO Conspiracy under Section 1962(d) -- Count IX In addition to finding the individual Arsenal defendants liable for a RICO substantive violation with Aetna as the enterprise, the jury also found each of the individual Arsenal defendants liable for a RICO conspiracy violation under 1962(d). Liability on this theory is proved against a defendant by showing (1) the existence of enterprise affecting interstate commerce, (2) that the defendant knowingly joined the conspiracy to participate in the conduct of the affairs of the enterprise, (3) that the defendant participated in the conduct of the affairs of the enterprise, and (4) that the defendant did so through a pattern of racketeering activity by agreeing to commit, or in fact committing, two or more predicate offenses. See Boylan, 898 F.2d at 241. Even though no party objected (on grounds relevant here) to the trial court's charge to the jury on the elements of the alleged RICO conspiracy (as well as the elements of the alleged RICO substantive violations), we have examined the charge to the jury and determined it to be consistent with the elements of a RICO conspiracy as we have stated them here. In arriving at this formulation, we have been sensitive to the fact that earlier cases in this circuit used the phrase knowingly joined the -30- enterprise. United States v. Angiulo, 847 F.2d 956, 964 (1st Cir.), cert. denied, 488 U.S. 928 (1988); United States v. Winter, 663 F.2d 1120, 1136 (1st Cir. 1981), cert. denied, 460 U.S. 1011 (1983). In Boylan, the court first used this same phrase (knowingly joined the enterprise), 898 F.2d at 241 (emphasis added), but in a passage following shortly thereafter referred to whether the defendants had knowingly joined the conspiracy. Id. (Our inquiry thus reduces to whether such a conspiracy, knowingly joined by all defendants, was satisfactorily proven.). In Boylan (and perhaps the earlier cases as well), this difference in phrasing was immaterial to the outcome of the case. This was so in Boylan because the evidence was undisputed that all of the defendants alleged to have joined the conspiracy were indisputably employees of the Boston Police Department, the alleged enterprise. In the present case, on the other hand, plaintiff alleged that defendants who were not employees of Aetna (the enterprise in Count VIII) knowingly joined the conspiracy. For this reason we have addressed the issue more precisely in our formulation, stated above, of the elements of a RICO conspiracy, as applied to this case. We conclude that the issue we must consider is not whether the defendants knowingly joined the victim enterprise (as first phrased in Boylan) but (as later stated in that Opinion) whether the defendants knowingly joined a conspiracy. We conclude that the evidence is sufficient to support a finding -31- that each of the appellants knowingly joined the 1962(d) RICO conspiracy. The alleged 1962(d) RICO conspiracy (Count IX) was a conspiracy to violate 1962(c). The major difference between a violation of 1962(c) itself (such as Count VIII) and a violation of 1962(d) based on 1962(c)(such as Count IX) is the additional required element that the defendant knowingly joined a conspiracy to violate 1962(c). Another difference is that, to prove that a defendant violated 1962(c), it is necessary for the plaintiff to prove two predicate offenses; under 1962(d), in contrast, this is not an element required to be proved. To prove a violation of 1962(d), it is enough to prove that a defendant agreed with one or more others that two predicate offenses be committed. See Boylan, 898 F.2d at 252. In the present case, this latter difference is of no practical consequence because we conclude that there was sufficient evidence to support a finding that each defendant in fact committed two predicate offenses. One assertion, perhaps implicit in the appellants' argument, is that, in order to prove each defendant liable for RICO conspiracy (a 1962(d) violation), the plaintiff was required to prove a conspiracy to defraud Aetna in which each of the Arsenal defendants conspired directly with one or more persons associated with each of the other body shops. This assertion is incorrect because it depends necessarily upon a misinterpretation of 1962(d) with respect to the elements necessary to prove a RICO conspiracy. It is true -32- that to find a defendant liable under 1962(d) one must find that the defendant conspired to violate a subsection of 1962. It is not necessary, however, to find that each defendant knew all the details or the full extent of the conspiracy, including the identity and role of every other conspirator. Boylan, 898 F.2d at 242 (A RICO conspiracy does not demand . . . that all defendants participate in all racketeering acts, know of the entire conspiratorial sweep, or be acquainted with all other defendants.) All that is necessary to prove this element of the RICO conspiracy, against a particular defendant, is to prove that he or she agreed with one or more co-conspirators to participate in the conspiracy. Moreover, it is not necessary for the conspiratorial agreement to be express, so long as its existence can plausibly be inferred from words, actions, and the interdependence of activities and persons involved. United States v. Concemi, 957 F.2d 942, 950 (1st Cir. 1992). In this case, the jury reasonably could have found that, although each defendant may not have known the entire sweep of the conspiracy, each defendant knew that he or she was a part of a larger fraudulent scheme. For example, since the evidence supported a finding that each of the Arsenal defendants was well aware of the fraudulent business practices of Dexter and Cummings, the jury could find that all of the Arsenal defendants knew they were part of a larger conspiracy in which other persons made uses similar to their own of fraudulent appraisals by Dexter, Cummings, or both. -33- A defendant who does not know the entire conspiratorial sweep is nevertheless jointly and severally liable, in the civil context, for all acts in furtherance of the conspiracy. Using a common metaphor, one may say that Cummings and Dexter, the Aetna appraisers, were at the hub of the overall RICO conspiracy, providing the central point through which all the defendant body shops were connected. A jury could reasonably find that, through Cummings and Dexter, the conspiratorial sweep extended to all the body shops and most, if not all of the individual defendants. The jury in this case found that the RICO conspiracy included all other appellants, except for Arsenal Auto Repairs, Inc. and Betty Arhaggelidis. We need not consider whether the evidence would have supported a finding against these two appellants as well. That was not essential to the liability of others under this theory, nor to the liability of these two appellants under a different theory. From evidence of the extensive dealings of all other appellants with Cummings and Dexter, the jury could have inferred an agreement, to defraud Aetna, among all of the Arsenal defendants (Arhaggelidis not being an Arsenal defendant) and the appraisers. Through evidence of each individual Arsenal defendant's actions, the jury could infer that each defendant had the requisite state of mind for a RICO conspiracy violation -- knowing participation. See Boylan, 898 F.2d at 242 ([The plaintiff] may prove [a RICO conspiracy] through the use of circumstantial evidence, so long as the total evidence, including -34- reasonable inferences, is sufficient to warrant [the jury's findings].). The appellants do not dispute that Dexter and Cummings conspired with the owners and operators of the other body shops. Through Dexter and Cummings, the Arsenal defendants were linked to all the other defendants who were found liable for RICO conspiracy. Thus, upon proof that each defendant committed or agreed to the commission of two predicate offenses, each defendant could be held liable for the overall RICO conspiracy. Moreover, although it was not necessary for the plaintiff to prove that the Arsenal defendants knew the identity of defendants from the other body shops and conspired directly with them, the evidence was sufficient for the jury to infer that this was in fact the case. For example, Zareh Tirinkian testified that he frequently attended parties and other social engagements with the operators of the other body shops. Although Tirinkian denied discussing his practice of filing fraudulent insurance claims with the other body shop owners, the evidence showed that the body shops' racketeering activities were unusually similar. The body shops all defrauded Aetna, they reported nearly identical types of fraudulent claims, and they obtained appraisals from the same appraisers. Evidence of these similarities, considered along with other evidence, was sufficient to support a jury finding that the owners of the body shops conspired directly with one another. Id. at 242 (a jury may infer that a single overall conspiracy existed when evidence of racketeering acts shows hallmarks of -35- similarity and a significant degree of interconnectedness). E. Civil Conspiracy -- Count X Defendant Arsenal Auto Repairs, Inc. was not held liable under any RICO theory. The judgment against Arsenal Auto rests instead, upon the jury's finding that Arsenal Auto was liable for civil conspiracy. The appellants' brief does not challenge this finding against Arsenal Auto on the basis of insufficiency of the evidence. For this reason, the following discussion of civil conspiracy concerns Arhaggelidis's appeal only. Appellant Arhaggelidis challenges the judgment entered against her for civil conspiracy on the ground of insufficiency of the evidence. The plaintiff alleged that Ms. Arhaggelidis conspired with her fellow Rodco/P&B Autobody defendants to defraud Aetna. The nature of a civil conspiracy and the proof required to invoke this type of claim differ significantly from those applying to criminal conspiracies generally and to RICO conspiracies in particular. Under Massachusetts law, either of two possible causes of action may be called civil conspiracy. First. There is precedent supporting a very limited cause of action in Massachusetts for civil conspiracy of a coercive type. See Jurgens v. Abrams, F. Supp. 1381, 1386 (D. Mass. 1985). In order to state a claim of [this type of] civil conspiracy, plaintiff must allege that defendants, acting in -36- unison, had some peculiar power of coercion over plaintiff that they would not have had if they had been acting independently. Id. (quotations omitted)(citing Fleming v. Dane, 22 N.E.2d 609 (Mass. 1939)). Plaintiff, in paragraph 480 of Count X of its complaint, does allege a circumstance that, if proved, might constitute such a peculiar power of coercion. The allegation is that defendants were collectively able to negate the safeguards that would have prevented any one group of defendants, acting alone from accomplishing a fraud of this type. (App. 609). Despite the fact that the pleading was sufficient to state a claim of this type of civil conspiracy, however, Count X was tried and the jury was ultimately instructed on a second and quite different civil conspiracy cause of action. Second. This second type of civil conspiracy is more akin to a theory of common law joint liability in tort. It is explicitly recognized in Massachusetts law. See Gurney v. Tenney, 84 N.E. 428, 430 (Mass. 1908); see also Phelan v. Atlantic Nat'l Bank, 17 N.E.2d 697, 700 (Mass. 1938)([A]verment of conspiracy does not ordinarily change nature of cause of action [sounding in tort] nor add to its legal force.). In the civil context, both elsewhere and in Massachusetts, the word conspiracy is frequently used to denote vicarious liability in tort for concerted action. See W. Page Keeton, Prosser and Keeton on Torts 322 (5th ed. 1984); Restatement (Second) of Torts 876 cmt. b -37- (1977). That is, the concept is invoked to support liability of one person for a tort committed by another. For liability to attach on this basis, there must be, first, a common design or an agreement, although not necessarily express, between two or more persons to do a wrongful act and, second, proof of some tortious act in furtherance of the agreement. See Restatement (Second) of Torts 876 cmt. b. Where two or more persons act in concert, each will be jointly and severally liable for the tort. See id.; see also New England Foundation Co. v. Reed, 95 N.E. 935, 935 (1911)(The gist of a civil action of this sort is not the conspiracy, but the deceit or fraud causing damage to the plaintiff, the combination being charged merely for the purpose of fixing joint liability on the defendants.). According to the Restatement: For harm resulting to a third person from the tortious conduct of another, one is subject to liability if he (a) does a tortious act in concert with the other or pursuant to a common design with him . . . . Restatement (Second) of Torts, 876 (1977). The Supreme Judicial Court has implied that the Massachusetts common law of civil conspiracy encompasses liability of this nature, even if the elements of liability are not in all respects identical to those defined in this section of the Restatement. Kyte v. Philip Morris, Inc., 556 N.E.2d 1025, 1027 (Mass. 1990)(citing Gurney, 84 -38- N.E. 428, and declining to pause to determine whether the principles of 876 and the law of the Commonwealth are, in all respects, in complete accord because the parties accepted this section as governing the principles of civil conspiracy in the Commonwealth); see also Gurney, 84 N.E. at 430 (alluding to concert of action theory similar to 876(a)); Payton v. Abbott Labs, 512 F. Supp. 1031, 1035 (D. Mass. 1981)(The concert of action theory in Massachusetts tracks 876(a) of the Restatement.). The district court, in this case, instructing the jury on civil conspiracy, stated: The essence of conspiracy is that the person agreed with one or more other persons [to commit an unlawful act] . . . . Plus for conspiracy . . . somebody has to do something to attempt to make it come about. (App. 4817-18). Although this instruction is not precisely in accord with Restatement 876, the appellant has not presented any issue before this court regarding the instruction. In any event, she would be precluded from doing so here, not having objected to the instruction in the district court. Fed. R. Civ. P. Rule 51. She did, however, challenge the sufficiency of the evidence by her motion for judgment as a matter of law. We conclude, nevertheless, that we need not determine the precise state of Massachusetts law on concerted action in tort, because under any plausible formulation of Massachusetts law, a jury reasonably could find that Betty Arhaggelidis acted in concert with her husband and fellow Rodco/P&B Autobody defendant to defraud Aetna. -39- The jury, with support in evidence, found that Rodco/P&B Autobody was associated with thirty-seven fraudulent claims that were submitted to Aetna, and that Betty Arhaggelidis was directly involved in six of those claims. From the evidence at trial, the jury reasonably could find also that Ms. Arhaggelidis acted in concert with her husband, the owner of Rodco/P&B Autobody, pursuant to a common design. All six claims with which she was connected involved claimed damage purportedly repaired at Rodco/P&B Autobody. All six claims were supported by appraisals by Mr. Cummings, a codefendant. Her husband, Petros Arhaggelidis, allegedly repaired many of the cars personally. Evidence was received that she represented to Aetna that the repairs had been made. Also, evidence was received of other fraudulent conduct on the part of Mr. Arhaggelidis: he was a claimant on several claims the jury found to be fraudulent, and he made payments to Mr. Cummings totalling over $35,000, which the jury could have inferred to be bribes. From the evidence as a whole, the jury could infer an agreement between Betty Arhaggelidis and her husband, under which they played different roles, but nevertheless acted together with a common design to defraud Aetna.