Opinion ID: 765616
Heading Depth: 2
Heading Rank: 3

Heading: The RICO Counts

Text: 51 The Windsor Defendants next argue that there was insufficient evidence to support the district court's conclusion that they committed a substantive civil RICO violation, 18 U.S.C. § 1962(c), and conspired to commit such a violation. 18 U.S.C. § 1962(d). We analyze these claims in turn.
52 Section 1962(c) makes it unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, 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. § 1962(c). To establish a claim for a civil violation of section 1962(c), a plaintiff must show that he was injured by defendants' (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Azrielli v. Cohen Law Offices, 21 F.3d 512, 520 (2d Cir. 1994) (internal quotations omitted). 53 RICO defines racketeering activity to include a host of criminal offenses, which are in turn defined by federal and state law. See 18 U.S.C. § 1961(1). Here, however, the racketeering activity with which Cofacredit charges the Windsor Defendants includes only mail fraud, in violation of 18 U.S.C. § 1341, and wire fraud, in violation of 18 U.S.C. § 1343. Mere common-law fraud does not constitute racketeering activity for RICO purposes. See 18 U.S.C. § 1961(1). 54 RICO defines pattern of racketeering activity as requiring at least two acts of racketeering activity committed in a 10 year period. 18 U.S.C.§ 1961(5); see also Azrielli, 21 F.3d at 520. To establish a pattern, a plaintiff must also make a showing that the predicate acts of racketeering activity by a defendant are related, and that they amount to or pose a threat of continued criminal activity. See H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239 (1989). 55 The continuity necessary to prove a pattern can be either closed-ended continuity, or open-ended continuity. See id. at 239, 241. Closed-ended continuity is demonstrated by predicate acts that amount to continued criminal activity, by a particular defendant. To satisfy closed-ended continuity, the plaintiff must prove a series of related predicates extending over a substantial period of time. Predicate acts extending over a few weeks or months . . . do not satisfy this requirement. Id. at 242. Since the Supreme Court decided H.J., Inc., this Court has never held a period of less than two years to constitute a substantial period of time. See GICC Capital Corp. v. Technology Finance Group, Inc., 67 F.3d 463, 467 (2d Cir. 1995); see also Metromedia Co. v. Fugazy, 983 F.2d 350, 369 (2d Cir. 1992) (finding closed-ended continuity when predicate acts occurred over a period of two years); Jacobson v. Cooper, 882 F.2d 717, 720 (2d Cir. 1989) (finding closed-ended continuity when predicate acts occurred over a matter of years). Other circuits have similarly held. See GICC Capital Corp., 67 F.3d at 468 (collecting cases). Although closed-ended continuity is primarily a temporal concept, other factors such as the number and variety of predicate acts, the number of both participants and victims, and the presence of separate schemes are also relevant in determining whether closed-ended continuity exists. Id. 56 To satisfy open-ended continuity, the plaintiff need not show that the predicates extended over a substantial period of time but must show that there was a threat of continuing criminal activity beyond the period during which the predicate acts were performed. Id. at 242-43. In assessing whether or not the plaintiff has shown open-ended continuity, the nature of the RICO enterprise and of the predicate acts are relevant. See Schlaifer Nance & Co. v. Estate of Andy Warhol, 119 F.3d 91, 97 (2d Cir. 1997); GICC Capital Corp., 67 F.3d at 466. Where the enterprise is engaged primarily in racketeering activity, and the predicate acts are inherently unlawful, there is a threat of continued criminal activity, and thus open-ended continuity. See H.J. Inc., 492 U.S. at 242-43 ([T]he threat of continuity is sufficiently established where the predicates can be attributed to a defendant operating as part of a long-term association that exists for criminal purposes.). However, where the enterprise primarily conducts a legitimate business, there must be some evidence from which it may be inferred that the predicate acts were the regular way of operating that business, or that the nature of the predicate acts themselves implies a threat of continued criminal activity. See id. at 243; GICC Capital Corp., 67 F.3d at 466; Azrielli, 21 F.3d at 521. 57 The district court found that Cofacredit proved both closed- and open-ended continuity. In finding closed-ended continuity, the district court determined that the Defendants committed their first related predicate act in early 1988, when they used interstate wires and mails to begin financing sham invoices through Societe Generale. The court found that the predicate acts continued through late 1990, when Sholam Weiss telephoned Bank Leumi to falsely report a burglary of the HED-US inventory. Also included in the pattern found by the district court was Shalom Weiss's March 1990 representation to Bank Leumi that Leumi's loans were secured by $1.5 million in merchandise actually owned by HED-France. Thus, the district court found that the predicates spanned well over two years and displayed closed-ended continuity under our decisions. 58 As noted above, the duration of a pattern of racketeering activity is measured by the RICO predicate acts the defendants commit. See H.J., Inc., 492 U.S. at 242 (continuity test looks to period during which predicate acts were committed); GICC Capital Corp., 67 F.3d at 467 (actions that do not constitute predicate racketeering activity not included in continuity calculation). Here, the district court found that the Windsor Defendants committed multiple predicate acts of mail and wire fraud over a nearly three-year period. The mail fraud statute requires that a defendant use the mails in furtherance of scheme to defraud. 18 U.S.C. § 1341. The wire fraud statue requires that the defendant communicate by wire in interstate or foreign commerce in furtherance of a scheme to defraud. 18 U.S.C. § 1343. [P]urely intrastate communication [is] beyond the statute's reach. Smith v. Ayres, 845 F.2d 1360, 1366 (5th Cir. 1988); see also United States v. DeBiasi, 712 F.2d 785, 791-92 (2d Cir. 1983); United States v. Muni, 668 F.2d 87, 89-90 (2d Cir. 1981); Utz v. Correa, 631 F. Supp. 592, 596 (S.D.N.Y. 1986) (a RICO predicate act of wire fraud requires an interstate telephone call). 59 The district court did not err in finding that the Defendants committed predicate acts of mail and wire fraud when they communicated with Societe Generale, Cofacredit, and with each other, in furtherance of the scheme to factor sham invoices: During the period beginning in early 1988 and ending in November 1988, the Windsor Defendants utilized the mails, made international phone calls, and sent international faxes in furtherance of their scheme to defraud Cofacredit and Societe Generale. 60 However, the district court did err in considering Sholam Weiss's 1990 phone calls to Bank Leumi as predicate acts of wire fraud that extended the pattern of racketeering activity for an additional two years. The evidence Cofacredit presented at trial did not demonstrate that Weiss's phone calls to Bank Leumi were interstate or international in nature. To the contrary, Weiss lived and worked in Brooklyn, and the Bank Leumi offices with which he communicated were located on Manhattan and Long Island. Thus, the record evidence does not support the conclusion that the phone calls between Weiss and Bank Leumi constitute predicate acts of wire fraud. Indeed, Cofacredit has not identified, and we have been unable to find, any evidence of mail or wire fraud committed against Bank Leumi after the scheme to defraud Cofacredit came to an end in November 1988. As a result, even assuming that the acts of mail and wire fraud committed upon Societe Generale and Cofacredit were sufficiently related to form a single pattern of racketeering activity, 5 the predicate acts that the Windsor Defendants committed spanned less than one year-a period of insufficient length to demonstrate closed-ended continuity under our precedents. See GICC Capital Corp., 67 F.3d at 467-69 (predicates occurring over eleven-month period insufficient). 61 The district court also found that Cofacredit demonstrated open-ended continuity by showing that the acts of mail and wire fraud typified the Windsor Defendants' regular way of conducting their business. Again, the court appears to have improperly taken into account Weiss's phone calls to Bank Leumi in reaching this conclusion. Taking into account only the predicate racketeering activity that Cofacredit did prove, we conclude that the evidence is insufficient to support the court's finding. While the Windsor Defendants did commit mail and wire fraud against Societe Generale and Cofacredit for nearly one year from early 1988 to November 1988, there is insufficient evidence to support a finding that these crimes were a regular means by which the Windsor Defendants conducted their plumbing supply business. Instead, the evidence showed that the Windsor Defendants engaged in a serious, but discrete and relatively short-lived scheme to defraud a handful of victims through racketeering activity. See GICC Capital Corp., 67 F.3d at 468-69. Moreover, the nature of the predicate acts themselves does not imply a threat of ongoing racketeering activity. To the contrary, because the COFACE limits had been met, the Windsor Defendants' scheme to obtain cost-free inventory had necessarily come to its conclusion: We have previously held that such an inherently terminable scheme does not imply a threat of continued racketeering activity. See id. at 466. 62 Because we find insufficient evidence of closed- and open-ended continuity, we reverse that portion of the district court's judgment finding the Windsor Defendants liable to Cofacredit under 18 U.S.C. § 1962(c). We do not reach the Windsor Defendants' arguments that Cofacredit failed to prove the existence of an enterprise and failed to demonstrate that the RICO predicate acts were sufficiently related to form a pattern.
63 The district court also found the Windsor Defendants liable for violating 18 U.S.C. § 1962(d), which makes it unlawful for any person to conspire to violate any of the provisions of 18 U.S.C. § 1962 (a), (b), or (c). The Windsor Defendants again argue that there was insufficient evidence to support the district court's finding of liability. Again, we agree. 64 To establish the existence of a RICO conspiracy, a plaintiff must prove 'the existence of an agreement to violate RICO's substantive provisions.' United States v. Sessa, 125 F.3d 68, 71 (2d Cir. 1997) (quoting United States v. Benevento, 836 F.2d 60, 73 (2d Cir. 1987)), cert. denied sub nom., Scarpa v. United States, 118 S. Ct. 731 (1998). Thus, Cofacredit necessarily had to establish that the Windsor Defendants agreed to form and associate themselves with a RICO enterprise and that they agreed to commit two predicate acts in furtherance of a pattern of racketeering activity in connection with the enterprise. Id. Additionally, Cofacredit was required to prove that if the agreed-upon predicate acts had been carried out, they would have constituted a pattern of racketeering activity. See Salinas v. United States, 522 U.S. 52, 118 S. Ct. 469, 477 (1998) (A conspirator must intend to further an endeavor which, if completed, would satisfy all of the elements of a substantive criminal offense . . . .). 65 As noted above, there is insufficient evidence that the Windsor Defendants actually committed predicate acts displaying the continuity necessary to support a substantive RICO violation. And there is no evidence that the Windsor Defendants agreed to perform additional predicate acts that, if committed, would have displayed continuity sufficient to establish a pattern of racketeering activity. To the contrary, the Windsor Defendants appear to have carried out all of the predicate acts they agreed to commit. There was, therefore, no agreement to engage in a pattern of racketeering activity. As a result, we reverse that portion of the district court's judgment finding the Windsor Defendants liable to Cofacredit under 18 U.S.C. § 1962(d). And because we find insufficient factual bases for holding the Windsor Defendants liable for substantive or conspiracy RICO violations, we reverse those portions of the judgment awarding Cofacredit treble damages, costs, and attorney's fees pursuant to 18 U.S.C. 1964(c).