Civil Litigation Under the Colorado Organized Crime Control Act - Part I - July 2008 - the Civil Litigator

JurisdictionColorado,United States
CitationVol. 37 No. 7 Pg. 69
Pages69
Publication year2008
37 Colo.Law. 69
Colorado Lawyer
2008.

2008, July, Pg. 69. Civil Litigation Under the Colorado Organized Crime Control Act - Part I - July 2008 - The Civil Litigator

The Colorado Lawyer
July 2008
Vol. 37, No. 7 [Page 69]

Articles
The Civil Litigator

Civil Litigation Under the Colorado Organized Crime Control Act - Part I

by John W. Mill

The Civil Litigator articles address issues of importance and interest to litigators and trial lawyers practicing in Colorado courts. The Civil Litigator is published six times a year.

Article Editors

Donald Kelso, Denver, of Holme Roberts & Owen LLP - (303) 861-7000, donald.kelso@hro.com; Eric Bentley, Colorado Springs, of Holme Roberts & Owen LLP - (719) 473-3800 eric.bentley@hro.com

About the Author

John W. Mill is a member of Sherman & Howard L.L.C. - (303) 299-8358, jmill@shermanhoward.com. He specializes in civil litigation and construction litigation.

Investing in, controlling, or conducting an enterprise through a pattern of racketeering activity, or conspiring to do so, can lead to significant civil liability under the Colorado Organized Crime Control Act (COCCA). Part I of this article provides an overview of civil COCCA claims and describes the four categories of prohibited activities under COCCA. It also addresses what criminal conduct constitutes "racketeering activity" under COCCA, including mail fraud, wire fraud, state computer crime, state securities fraud, and conduct that violates many other state or federal criminal statutes.

The Colorado Organized Crime Control Act (COCCA)(fn1) is a powerful and sometimes abused tool in civil litigation. COCCA is attractive to plaintiffs because it offers the potential to recover treble damages and attorney fees.(fn2) A well-pled, factually supported civil claim under COCCA gives the plaintiff a strong weapon against a bad-actor defendant. Indeed, some federal courts have referred to the analogous federal statute, the Racketeer Influenced and Corrupt Organizations Act (RICO),(fn3) as "an unusually potent weapon - the litigation equivalent of a thermonuclear device."(fn4)

In the right case, a civil COCCA claim can do substantial justice by compensating a victim of wrongful conduct, punishing a defendant who has engaged in criminal acts, and deterring others from such conduct. However, frivolous civil COCCA claims are not uncommon.(fn5) In the wrong case, a civil COCCA claim can subvert the search for justice by unfairly stigmatizing an innocent defendant as a "racketeer,"(fn6) imposing huge costs on a defendant,(fn7) and wasting judicial resources.

This article provides a practical overview of civil litigation under COCCA. It also summarizes the significant differences between COCCA and RICO.


Introduction to COCCA

The COCCA statute was enacted by the Colorado General Assembly in 1981.(fn8) At its heart, COCCA prohibits four statutorily defined "prohibited activities."(fn9) A person or entity who engages in any of these "prohibited activities" is subject to criminal prosecution(fn10) and/or civil liability.(fn11) This article focuses on COCCA civil litigation and does not address COCCA criminal prosecutions(fn12) or COCCA civil investigative demands.(fn13)

Despite the fact that its name expressly refers to "organized crime," COCCA is not limited to organized crime. Nothing in COCCA's operative provisions refers to organized crime. Under the federal RICO statute, the U.S. Supreme Court long ago held that it is not limited to organized crime.(fn14) The same is true with respect to COCCA.(fn15) Indeed, although COCCA has been used to criminally prosecute members of gangs (which, arguably, is a form of organized crime),(fn16) civil litigation under COCCA almost never involves traditional organized crime. Thus, it is frivolous for defendants to argue that they cannot be subject to a COCCA claim because they were not involved in Mafia-style organized crime.

COCCA and RICO are similar but not identical. COCCA was modeled after RICO.(fn17) The legislative declarations of the two statutes are similar.18 Their four prohibited activities are similar.(fn19) The elements of a claim under both statutes are similar.(fn20) These similarities have caused courts and lawyers sometimes to assume that COCCA and RICO are essentially the same.(fn21) That is not correct.

The Colorado Court of Appeals has stated frequently that case law under RICO is "instructive" as to COCCA claims.(fn22) That is true with respect to some issues, but it is not true with respect to all issues. Part II of this article demonstrates that on a number of important issues, there are significant differences between COCCA and RICO.(fn23) Thus, courts and lawyers must use care when comparing COCCA and RICO and should never assume that RICO case law on a particular issue applies to COCCA claims.


Conduct Giving Rise to Civil Liability Under COCCA

The elements of a civil COCCA claim are investment in, control of, or conduct of an "enterprise" through a "pattern" of "racketeering activity," or conspiring to do so.(fn24) From this simple definition flows significant complexity. The terms "enterprise," "pattern," and "racketeering activity" are terms of art. Their meaning is not intuitively obvious. Reported Colorado state court decisions interpreting and applying these terms are relatively rare and, when available, they sometimes reflect significant differences from the federal courts' interpretation of the same terms as used in RICO.

Civil COCCA claims can be divided into two categories. The most common civil COCCA claim is where the plaintiff alleges that the defendant conducted or participated in the conduct of an enterprise through a pattern of racketeering activity, in violation of CRS § 18-17-104(3). The great majority of civil COCCA claims are of this type. The other three categories of COCCA claims, under CRS § 18-17-104 subsections (1)(a), (2), and (4), apply to very specific fact scenarios. Civil COCCA claims based on these subsections of the statute are relatively rare.

Part I of this article first addresses the most common civil COCCA claim under subsection (3). It then describes the other three types of COCCA claims and addresses specific issues relating to the "racketeering activity" element of a COCCA claim. Part II of this article will discuss the "pattern" and "enterprise" elements of a COCCA claim, as well as the issue of standing and the remedies available to a civil COCCA plaintiff. It also will discuss the key differences between COCCA and RICO.


The Primary COCCA Claim: Conducting or Participating in an Enterprise Through a Pattern of Racketeering Activity

The most common civil COCCA claim alleges a violation of CRS § 18-17-104(3). This subsection of the statute provides:

It is unlawful for any person employed by, or associated with, any enterprise to knowingly conduct or participate, directly or indirectly, in such enterprise through a pattern of racketeering activity or the collection of an unlawful debt.(fn25)

In New Crawford,(fn26) the Colorado Court of Appeals addressed the elements of a subsection (3) claim. The plaintiff in the case alleged that two individuals, who were the principal officers and directors of a public corporation, had engaged in wire fraud and tax evasion and had defrauded secured creditors while operating the corporation and engaging in several fraudulent schemes.(fn27) The "enterprise" was the corporation. The "person[s]" referred to in the statute were the two defendants who operated and managed the corporation. The defendants allegedly were "employed by, or associated with" the enterprise and "knowingly conduct[ed] or participat[ed]"(fn28) in the enterprise through a "pattern of racketeering activity." The alleged racketeering activity consisted of wire fraud, defrauding secured creditors, and tax evasion.(fn29)

The complaint included specific dates, places, and descriptions of the alleged fraudulent acts.(fn30) The plaintiff alleged that the predicate acts of racketeering activity caused injury to itself and others.(fn31) The Court of Appeals held that these allegations were sufficient to adequately allege a COCCA claim under subsection (3).(fn32)

To adequately allege a "conduct or participate" claim under COCCA or RICO, the defendant and the enterprise must be distinct.(fn33) This "distinctness" requirement often is confusing and difficult to apply.(fn34) Generally, to establish a "conduct or participate" claim, the plaintiff "must allege and prove the existence of two distinct entities: (1) a `person'; and (2) an `enterprise' that is not simply the same `person' referred to by a different name."(fn35)

The "distinctness" requirement flows from the statutory language of subsection (3). Under this subsection, the "person" (the defendant) must be "employed by, or associated with" the enterprise.(fn36) In plain English, a person can be employed by or associated only with others, not himself or herself.(fn37) Thus, for purposes of a subsection (3) claim, a person cannot be both the defendant and the enterprise.

The "distinctness" requirement is best understood by analyzing two scenarios. First, where the "person"/defendant is an individual, it makes sense that he or she can be "employed by" a corporation,(fn38) can be "associated with" a group of individuals that includes the defendant,(fn39) or can be "associated with" a group of corporations.(fn40) Thus, a subsection (3) COCCA claim is proper where the defendant is an individual and the defendant is employed by or associated with an enterprise that is a corporation, a group of individuals, or a group of corporations, and the defendant conducts or participates in the enterprise through a pattern of racketeering activity.

In the second scenario, where the subsection (3) "person"/defendant is a corporation or other legal entity, it is...

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