Opinion ID: 492033
Heading Depth: 2
Heading Rank: 3

Heading: Respondeat Superior and Aiding and Abetting Liability Under Sec. 1962(a)

Text: 56 Section 1962(a) provides in relevant part as follows: 57 It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity ... to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. 58 As the Seventh Circuit noted in Haroco, 59 Subsection (a) does not contain any of the language in subsection (c) which suggests that the liable person and the enterprise must be separate. Under subsection (a) therefore, the liable person may be a corporation using the proceeds of a pattern of racketeering activity in its operations. This approach to subsection (a) thus makes the corporation-enterprise liable under RICO when the corporation is actually the direct or indirect beneficiary of the pattern of racketeering activity, but not when it is merely the victim, prize, or passive instrument of racketeering. This result is in accord with the primary purpose of RICO, which after all, is to reach those who ultimately profit from racketeering, not those who are victimized by it. Haroco, 747 F.2d at 402. 12 60 Neither Enright nor Haroco nor any other appellate case has yet held that the enterprise and the person must be distinct entities under Sec. 1962(a), or (what amounts to the same thing) that the enterprise may not be liable under that provision. Following the reasoning applied above with respect to Sec. 1962(c), if Sec. 1962(a) enterprises may be liable under RICO then pursuant to that subsection Western may be liable under respondeat superior, or as an aider and abettor, even if it is alleged to be the RICO enterprise. 61 Western, however, invites us to go further than Enright and other appellate courts have gone until now, and to hold that the aiding and abetting and respondeat superior theories of liability are improper under all subdivisions of RICO if the persons are employees of the enterprise, or if the enterprise itself is alleged to be an aider and abettor. Defendants' Motion to Dismiss at Defense I, p (d), App. at 73; Defendants' Brief before this Court at 47. In so arguing Western relies on Rush v. Oppenheimer & Co., 628 F.Supp. 1188 (S.D.N.Y.1985), which reached the conclusion advocated by Western on vicarious liability after first deciding that an enterprise may never be liable pursuant to any subsection of Sec. 1962. 628 F.Supp. at 1197. (Rush did not address the question of aiding and abetting liability.) 62 We begin by noting that the Rush court's conclusion on respondeat superior is at odds with the Seventh Circuit's conclusion in Haroco, 747 F.2d at 401-02, and with the Ninth Circuit's decision in Schreiber Distributing Co. v. Serv-Well Furniture Co., 806 F.2d 1393 (9th Cir.1986). Like the two appellate courts which reached the opposite conclusion, however, the Rush court decided as it did in reliance on the language of Sec. 1962 and on the policies which Congress sought to advance in passing RICO. We too look to those guides in making our decision. 63 The Rush court quoted the discussion from Haroco reproduced above, text at n. 12. But the Rush court disagreed with that analysis, reasoning as follows:One can interpret the lack of a required nexus between person and enterprise in section 1962(a) to indicate the need for a more distinct pleading of enterprise and statute violator because the statute contemplates an enterprise which can be entirely unrelated to the predicate acts. While section 1962(c) contemplates a perpetrator working through the legitimate or illegitimate enterprise in further (sic) of a racketeering scheme, a section 1962(a) enterprise can be the bounty purchased with the racketeering profits, the entity used to launder the ill-gotten gains. Therefore, if it is inappropriate to plead identity in 1962(c), it is then inappropriate to plead it under section 1962(a), particularly in light of our knowledge that the statute was not intended to convict the infiltrated enterprise but the violator of the predicate acts. 64 Rush, 628 F.Supp. at 1197. We find this reasoning unpersuasive, and we agree instead with Haroco. Because the enterprise under Sec. 1962(a) may have been the racketeers' victim or passive instrument, the Rush court concludes that we must ignore those situations in which the enterprise does in fact profit from racketeering activity perpetrated by its employees. This conclusion is unnecessary: so long as the enterprise does in fact benefit from the racketeering activity challenged, there is no reason why we must ignore the corporation's role in the activity, if any, and no reason why an injured third party may not recover from the enterprise. 65 We stress, however, that the complaint before us alleges that Western has benefited from the activity challenged, and our decision goes only far enough to decide the merits of that complaint. In concluding that there can be respondeat superior and aiding and abetting liability under Sec. 1962(a) when the enterprise benefits from the racketeering activity, we follow both the Haroco court, 747 F.2d at 402 (corporation-enterprise [will be] liable under RICO when the corporation is actually the direct or indirect beneficiary of the pattern of racketeering activity); and the Ninth Circuit in Schreiber, 806 F.2d at 1398 (where a corporation engages in racketeering activities and is the direct or indirect beneficiary of the pattern of racketeering activity, it can be both the 'person' and the 'enterprise' under section 1962(a)). 66 Having decided that RICO is not subverted if Sec. 1962(a) enterprises are sometimes held liable, we conclude that vicarious liability for the employer of RICO persons may be appropriate under that provision even if the employer is also the RICO enterprise. For the same reasons, we hold that aiding and abetting liability for the 1962(a) enterprise may also be appropriate. 67 As we noted above, these theories of liability are out of place to the extent that they enable a plaintiff to circumvent the rule prohibiting RICO enterprises from being liable to the victims of the racketeering activity. Since we have concluded that there is no such blanket prohibition under Sec. 1962(a), both of these bases of liability may be appropriate under that section. Dismissal of Counts XI and XII insofar as they operate in tandem with Counts I, II, V and VI therefore cannot be justified on the basis of the argument Western advances. 68 The final count we deal with in this section is Count IV, which, as the chart shows, is also brought under Sec. 1962(c). It names Western as both a person and a defendant. Unlike Count III, however, Count IV does not name Western as an enterprise. The enterprise in Count IV is alleged to be an association in fact consisting of Western and the individual defendants. 13 Because Western is alleged to have attempted to benefit from its employees' racketeering activity, it is appropriate to allow the victims of that activity to recover from Western. Moreover, although Count IV is brought against Western under Sec. 1962(c), theories of respondeat superior and aiding and abetting liability are not out of place here, because under Count IV Western is not alleged to be an enterprise. Holding Western liable under those theories is therefore not inconsistent with the Enright rule that Sec. 1962(c) enterprises may not be held liable. 69