Civil Rico Update: the Evolving Pattern Requirement-part I
| Publication year | 1987 |
| Pages | 806 |
| Citation | Vol. 16 No. 5 Pg. 806 |
1987, May, Pg. 806. Civil RICO Update: The Evolving Pattern Requirement-Part I
The Racketeer Influenced and Corrupt Organizations Act ("RICO")(fn1) has become a favorite tool of civil plaintiffs in the 1980s. At the same time, the statute's broad remedies have provided nightmares for many district judges, as well as for defendants who are not accustomed to viewing themselves as "racketeers." The U.S. Supreme Court thwarted two popular judicial doctrines for curbing perceived abuses of civil RICO in Sedima, S.P.R.L. v. Imrex Co.(fn2) In the course of its decision, however, the Court opened the door to new court-imposed hurdles for plaintiffs, based on the statutory definition of a "pattern of racketeering activity."
Since the July 1, 1985, decision in Sedima, various federal courts have adopted different interpretations of the "pattern" requirement. Most views, including those favored by Colorado's federal judges, pose major barriers to plaintiffs who bring RICO claims premised on fraud. While giving defendants a powerful new weapon in their arsenal against RICO claims, the evolving pattern doctrine is also adding some new twists to various aspects of pleading and proof.
This article discusses the fast-developing RICO pattern doctrine and its application in various forums. A full understanding of the doctrine is essential to litigators who are asked to bring RICO claims on behalf of their clients, as well as to those who someday may have to defend civil RICO claims.
Civil RICO claims arise under 18 U.S.C. § 1964(c), which provides a private right of action based on violations of any provision of § 1962. As most practitioners are aware, many plaintiffs find RICO attractive because § 1964(c) provides a remedy of treble damages.
A "pattern of racketeering activity" is central to each part of § 1962. Subsection (a) prohibits the use of proceeds from such a pattern to acquire, maintain or control an enterprise. Subsection (b) prohibits the acquisition or control of an enterprise through the illegal pattern. Subsection (c) makes it a crime to conduct or participate in the conduct of an enterprise's affairs through a pattern of racketeering activity. Subsection (d) prohibits conspiracy to do any of the above.(fn3)
As defined in RICO, a 'pattern of racketeering activity' requires at least two acts of racketeering activity. . . ."(fn4) "Racketeering activity" is defined in § 1961(1) to include a wide array of federal and state criminal offenses. In the majority of civil RICO cases, the charges of racketeering activity (commonly called "predicate acts") are limited to mail fraud, wire fraud(fn5) or "fraud in the sale of securities," all among the offenses enumerated in § 1961(1). In general, any act which is indictable under the relevant criminal statute will suffice as "racketeering activity."
Critics have often complained that RICO, liberally construed, federalizes what would ordinarily be treated as common law fraud claims. This awkward result is attributable mainly to the inclusion of mail fraud and wire fraud as predicate offenses. The parallel statutes defining these criminal offenses are extraordinarily broad.(fn6) Each offense only requires the use of the mail or telephone wire services in the execution of a scheme to defraud. In other words, most incidents of common law or "garden variety" fraud really are federal crimes, as long as a mailbox or telephone was used at some point in the execution of a fraudulent scheme. Until the advent of civil RICO, only prosecutorial discretion prevented widespread indictments based on everyday commercial activities.(fn7)
Most significantly for the pattern element of RICO, each violation of the mail or wire fraud statutes is treated as a separate offense, even where multiple violations occur in the execution of a single scheme.(fn8) Thus, if a 'pattern of racketeering activity' requires at least two acts of racketeering activity" and nothing more, then someone could be held liable under RICO for mailing two postcards while executing an isolated fraudulent scheme. This is the anomalous result that the recent "pattern" jurisprudence has sought to avoid.
Prior to the U.S. Supreme Court's decision in Sedima, most federal courts were unconcerned about developing a stricter pattern test than that which was implied by the statute. These courts held that a pattern of racketeering activity could be established simply by showing that the defendant had committed two predicate acts within ten years.(fn9) At the same time, many courts (refusing to give RICO the full scope implicit in the statute's language) imposed other obstacles for civil plaintiffs. Some required plaintiffs to...
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