Criminal relationships: vertical and horizontal relatedness in criminal RICO.

• Author: McCarthy, Colman D.

INTRODUCTION

The Racketeer Influenced and Corrupt Organizations Act (RICO) (1) has been an immensely successful federal law in the fight against crime in the United States. The most extensively used provision of that act is 18 U.S.C. [section] 1962(c). The text of [section] 1962(c) reads: "It shall be unlawful for any person employed by or associated with any enterprise ... to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt." (2) This Note considers Second Circuit doctrine under the "pattern of racketeering activity" requirement. In particular, this Note will analyze the horizontal and vertical relatedness elements developed by the Second Circuit following the Supreme Court's pronouncement that a "pattern" requires "continuity plus relationship." (3) In short, horizontal relatedness is the requirement that there be an interrelationship between the crimes that form predicate offenses under RICO. Vertical relatedness is the notion that those same offenses must be related to the RICO enterprise. The ultimate conclusion is that a clear distinction between these elements is a desirable limit on RICO's breadth, but that the Second Circuit's use of indirect relation has erased the boundary between these two elements.

Judicial interpretations of RICO are not only permissible, but also desirable. RICO is a broadly written statute. Coupled with Congress's silent approval of its broad application by the courts, the only possible limits on the statute will come from judicial interpretations of its expansive terms. This Note will argue that the elements of horizontal and vertical relatedness developed by the Second Circuit act as a limit on RICO. Keeping these elements distinct is not only desirable, but also preserves the effectiveness of RICO.

Part I addresses the history of RICO and how the relationship prong of the Supreme Court's "continuity plus relationship" (4) test has evolved into the horizontal and vertical relatedness elements in the Second Circuit. Part II examines why the elaboration of horizontal and vertical relatedness elements was a permissible and logical extension of both the "continuity plus relationship" test and the language of [section] 1962. Part III briefly looks at the approach taken by other circuits. Part IV explains why the Second Circuit's use of indirect relation to prove horizontal relatedness is an erroneous practice. It also addresses some arguments in favor of retaining the use of indirect relation to prove horizontal relatedness. Part V proposes three alternative solutions: (1) the Second Circuit should discontinue its use of indirect relation; (2) the Second Circuit should dispense with the labels of "horizontal" and "vertical" relatedness, and return to an inquiry based on the language of the Supreme Court's "continuity plus relationship" test; or (3) the Second Circuit should clarify its doctrine by abandoning the requirement of horizontal relatedness.

This Note will not consider the element of continuity, which is the first prong of the "continuity plus relationship " test established by the Supreme Court to determine whether predicate offenses constitute a "pattern of racketeering activity." (5) This Note is also unconcerned with the enterprise (6) and participation elements, joinder, jurisdiction, or other matters generally disposed of by other articles on RICO. The focus of this Note is narrow because RICO itself is very broad. An attempt to discuss multiple factors would either be short and superficial, or lengthy and complex. (7)

1. HISTORY

   RICO was passed in 1970 as part of the comprehensive Organized Crime Control Act (OCCA). (8) The push for its enactment came after a growing concern with the widespread influence exercised by La Cosa Nostra, commonly referred to as the Mafia. (9) Because of this history, it is widely believed that RICO's only purpose was to eradicate organized crime. (10) However, it has been argued that this cannot be true in light of constitutional concerns that accompany the targeting of a specific group of people with a federal criminal statute. (11) Indeed, the Supreme Court itself has held that there is no requirement of an "organized crime " nexus in the statute. (12)

   Other than expanding the list of predicate offenses, Congress has done nothing to change the substantive terms of RICO in the more than thirty years since its enactment. '3 Clarification of its provisions has come through the courts. The first major interpretation by the Supreme Court came in United States v. Turkette. (14) In that case, the Supreme Court determined that the term "enterprise " was not confined to legitimate enterprises, but instead included wholly criminal enterprises. (15) This had the effect of making [section] 1962(c) applicable to groups of individuals "associated in fact," (16) whose only purpose was to commit crimes.

   The broad language of the "pattern of racketeering activity" element of [section] 1962 (17) was subject to diverse interpretations by the federal circuits. (18) The Supreme Court first addressed this element in the now famous footnote fourteen of Sedima, S.P.R.L. v. Imrex Co. (19) In that footnote, it alluded to the need for "continuity plus relationship" (20) to satisfy the "pattern of racketeering activity " requirement. The Court gave its definitive statement on this element in HJ Inc. v. Northwestern Bell Telephone Co. (21)

   1. HJ Inc. and the "Continuity Plus Relationship " Test

      In HJ Inc., a group of customers filed a class action lawsuit against Northwestern Bell under RICO's civil provision. (22) They alleged violations of, inter alia, [section] 1962(c) based on cash payments to the Minnesota Public Utilities Commission (MPUC) in exchange for approval of unfair utility rates (23) The case was dismissed in the district court because it did not meet the multiple-scheme test of the Eighth Circuit. (24) After being affirmed by the Eighth Circuit Court of Appeals, the case went to the Supreme Court. (25) At issue was the proper interpretation of [section] 1962(c)'s "pattern of racketeering activity" element.

      The Court began by reiterating its position in Sedima that RICO should not be given a restrictive interpretation. (26) It noted that the definition of "pattern of racketeering activity " does not say what the term means, but rather gives a minimum necessary condition for the existence of a pattern. (27) Looking to both the language of the statute and its legislative history, the Court emphasized its reasoning in the Sedima footnote that something more than the statutory minimum number of predicate offenses is necessary to establish a pattern ?$ The HJ Inc. Court stated that, in normal usage, a pattern is an "arrangement or order of things or activity," and it is the "relationship that they bear to each other or to some external organizing principle that renders them 'ordered' or 'arranged." (29) However, the statute mentions no requirement of an organizing principle. (30) Combining this with the legislative history of RICO, the Court found that Congress had in mind a flexible approach to the term "pattern. " But this term, the Court said, was not intended to apply to isolated or sporadic activity. (31) Relying on statements in the legislative history, the Court then held that a RICO pattern requires that the predicate offenses "are related, and that they amount to or pose a threat of continued criminal activity." (32)

      The Court then quickly dispensed with the meaning of relatedness by referring to another section of the OCCA, which defined pattern in terms of the relationship between acts. (33) Under that section, relationship entails "acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events." (34) However, the Court refrained from establishing a more detailed method for understanding how these factors contribute to the concept of a "pattern." Instead, it left further development to the lower courts. (35) Applying the concept of relatedness to the facts of the case, the Court easily found a possible relationship. The acts committed by Northwestern Bell were said to be related by the common purpose of influencing MPUC officials to approve unreasonable rates. (36)

   2. Pattern and Relatedness in the Second Circuit

      Only five months prior to the Supreme Court's decision in H.J Inc., the Second Circuit, sitting en bane, decided United States v. Indelicato. (37) In Indelicato, the Second Circuit made a lengthy review of its prior precedent in an attempt to clarify the meaning of a "pattern of racketeering activity." (38) At the time, the controlling precedent in the Second Circuit was United States v. Ianniello, (39) which had held that Sedima's footnote fourteen "continuity plus relationship " applied to the enterprise requirement, (40) and that two predicate offenses were sufficient to establish a pattern. (41) Indelicato overruled Ianniello on both issues, holding that two predicate offenses alone are not sufficient to establish a pattern, and that "continuity plus relationship" applied to the pattern requirement of [section] 1962(c), rather than the enterprise requirement. (42) The court also reasoned that predicate offenses not directly related to each other could nonetheless be indirectly related if they were related to the enterprise. (43)

      The next year, in United States v. Long, (44) the Second Circuit first used the terms "horizontal relatedness" and "vertical relatedness." (45) The court explained that horizontal relatedness refers to the interrelationship between predicate offenses, and that vertical relatedness refers to the relationship of the predicate acts to the enterprise. (46) In Long, the defendants' trial occurred before Indelicato was decided, and the jury instruction...