Opinion ID: 2585
Heading Depth: 4
Heading Rank: 4

Heading: Association-In-Fact Enterprises

Text: Defendants also argue that the District Court correctly dismissed the City's association-in-fact enterprise allegations in Nexicon and NCCigarettes. The District Court found that while the City alleged technically legitimate enterprises based on the association-in-fact theory, the City failed to (1) allege a configuration that has an `ongoing organization, formal or informal,' and that its `various associates function as a continuing unit'; (2) allege a nexus between the RICO predicate acts and the association-in-fact enterprises; and (3) explain each participant's role in the alleged course of fraudulent conduct. Nexicon, 2006 WL 647716, at , 2006 U.S. Dist. LEXIS 10295, at -29 (quoting Turkette, 452 U.S. at 583, 101 S.Ct. 2524). [30]
The District Court erred in holding that the City failed to adequately plead an enterprise with respect to the Nexicon association-in-fact enterprise. First, the City has sufficiently alleged a functioning unit by alleging that Nexicon and American Indian CigCo entered profit sharing and employment agreements and that they have interlocking financial and management agreements. The City further alleged that American Indian CigCo transfers assets from Nexicon to American Indian CigCo in order to hide assets and that American Indian CigCo regularly transfers funds earned from illegal cigarette sales to Nexicon. The relatedness requirement also was met with respect to this enterprise. See United States v. Daidone, 471 F.3d 371, 375 (2d Cir.2006) (per curiam) (citing United States v. Minicone, 960 F.2d 1099, 1106 (2d Cir.), cert denied, 503 U.S. 950, 112 S.Ct. 1511, 117 L.Ed.2d 648 (1992)); see also Satinwood, 385 F.3d at 174. In this regard, the City alleges that defendants' business plans depended on (1) concealing their customers' purchases from state tax authorities; (2) informing their customers that the purchases would be concealed; and (3) concealing purchasers' tax liability from the purchasers themselves. Thus, the relatedness requirement was met because the alleged acts of mail and wire fraud were more than merely related to the activities of the online cigarette sellers; they were essential to defendants' business. Finally, the City also sufficiently alleges the roles that relevant defendants had in operating or managing the Nexicon association-in-fact enterprise. Defendants Nexicon, Richard Urrea and Daniel Urrea are clearly alleged to have participated in management by virtue of their roles in the organizations that make up the enterprise. [31] As the Nexicon association-in-fact enterprise is clearly alleged to be made up of several defendant persons who operated or managed the affairs of the enterprise, the dismissal of this claim must be vacated.
However, we affirm the District Court's finding that the City failed to sufficiently allege a functioning unit with respect to the Hemi Group association-in-fact enterprise. Although the City alleges that the Hemi Group association-in-fact displays a continuity of structure and personnel, and has a consensual decision-making structure, the City alleges no facts tending to support this stock allegation. The bare allegations that A1 Enterprises works with the Hemi Group to conceal from New York City cigarette sales; that Kai Gachupin is believed to be an officer or employee of A1 Enterprises, as well as an owner or shareholder of the Hemi Group, are insufficient to plead the type of continuity required for an association-in-fact enterprise.
To the extent the City's complaint can be construed as alleging an association-in-fact enterprise consisting of NCCigarettes.com and the Internet service provider, Xfire, we agree with the District Court that the City has failed to meet its pleading burden. Perhaps because the City never intended to plead an association-in-fact with respect to this group of defendants, it has not provided any solid information regarding the hierarchy, organization, and activities of the alleged enterprise, from which we could fairly conclude that its members functioned as a unit. See Satinwood, 385 F.3d at 174 (internal quotation marks omitted). Thus, to the extent that the City has indeed attempted to allege an association-in-fact enterprise with respect to this group of defendants, the District Court's dismissal of this claim is affirmed.