The resurrection of the 'single scheme' exclusion to RICO's pattern requirement.

Author:Murphy, Kevin J.
 
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INTRODUCTION

In 1970, Congress passed the Racketeer Influenced and Corrupt Organizations Act ("RICO") as Title IX of the Organized Crime Control Act. (1) RICO was designed primarily to "eliminat[e] ... the infiltration of organized crime and racketeering into legitimate organizations operating in interstate commerce." (2) But, the language of RICO was written broadly enough to reach "both legitimate and illegitimate enterprises." (3) Congress believed that RICO would effectively "strengthen [] the legal tools in the evidence-gathering process, by establishing new penal prohibitions, and by providing enhanced sanctions and new remedies" (4) to combat "enterprise criminality." (5) Congress provided for both criminal (6) and civil (7) liability under RICO for violations of 18 U.S.C. [section] 1962, which, stated simply, (8) makes it unlawful for a person to:

(a) use or invest income derived from a pattern of racketeering activity to acquire, establish, or operate an enterprise; (9)

(b) acquire or maintain any interest in an enterprise through a pattern of racketeering activity; (10)

(c) conduct or participate in the conduct of an enterprise's affairs though a pattern of racketeering activity; (11)

(d) conspire to violate any of these provisions. (12)

Crucial to proving a violation of RICO is a showing that the defendant engaged in a "pattern of racketeering activity." The phrase is used in all four sections of [section] 1962, and applies on both the criminal and civil sides of the statute. But the meaning of "pattern of racketeering activity" has proven particularly elusive, as its bounds are especially difficult to delineate. In the text of RICO, Congress merely placed a floor on what acts could constitute a "pattern of racketeering activity," requiring at least two acts of racketeering activity within ten years of one another. (13)

The question of whether two acts within ten years could be necessary but not sufficient to form a pattern of racketeering activity laid largely dormant (14) until the Court took up Sedima, S.P.R.L. v. Imrex Co. (15) in 1984. In footnote 14, in dicta, the Court famously recognized that two racketeering acts within ten years of one another may be insufficient to form a RICO pattern and that it is the "continuity plus relationship" of acts of racketeering that forms a pattern. (16) The Court stated that "[t] he legislative history [of RICO] supports the view that two isolated acts of racketeering activity do not constitute a pattern." (17) Finally, the Court quoted the definition of "pattern" from a section of the 1970 Act in pari materia: "criminal conduct forms a pattern if it embraces criminal 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." (18)

Relying on the legal material set out in this footnote, the circuit courts quickly developed widely varying and inconsistent views of the "pattern" requirement. (19) Several of the circuits held that the presence of "multiple schemes" assisted in proving the "continuity" prong. (20) The Eighth Circuit held that a single scheme could never be sufficient to satisfy the continuity element. (21) As the circuits' approaches grew further in tension with one another, the Supreme Court took up a case from the Eighth Circuit, H.J. Inc. v. Northwestern Bell Telephone Co. (22) H.J. Inc. set out to clarify the disarray on the "pattern" requirement and bring consistency to the circuits. The Court explicitly rejected the Eighth Circuit's requirement of "multiple schemes" (23) for a pattern to be present and provided a framework for analyzing whether a pattern was present. (24) It is the last word on RICO's "pattern" from the Court.

This Note will argue that the "single scheme" exclusion (also referred to throughout this Note as the "multiple scheme requirement") to RICO explicitly rejected by the Court in H.J. Inc. has improperly been resurrected. Part I of the Note will discuss the varying approaches used by the circuits prior to the Court's ruling in H.J. Inc., describing the degree of emphasis that different circuits placed on the presence of multiple schemes. Part II will describe the Court's rejection of the Eighth Circuit's "single scheme" exclusion and describe the framework for analysis of RICO's pattern element the Court set out in H.J. Inc. Finally, Part III will discuss the re-imposition of the "single scheme" exclusion by many lower courts after H.J. Inc. and argue that several cases contravene the letter and spirit of H.J. Inc., are inconsistent with a commonsense understanding of the word "pattern," yield impractical results, and add more unnecessary confusion to an already murky pattern analysis. Part III will then recommend the jettison of the "single scheme" exclusion and suggest alternative measures that could ameliorate persistent differences over the meaning of RICO's "pattern of racketeering activity."

  1. "A KALEIDOSCOPE OF CIRCUIT POSITIONS"

    In Sedima, the Court expressed discontent about the "'extraordinary' uses to which civil RICO had been put," attributing it to "the failure of Congress and the courts to develop a meaningful concept of 'pattern.'" (25) With this invitation to develop a principled limitation to an arguably errant statute, the lower courts set out to rectify the problem.

    Unfortunately, the gentle guidance that the Court gave as to the meaning of a "pattern of racketeering activity" in Sedima led to several divergent approaches in the courts of appeals, (26) provoking Justice Scalia later to describe the phenomenon as "a kaleidoscope of Circuit positions." (27) At the least restrictive end of the spectrum, several courts found that the "pattern" element was satisfied when the explicit statutory language was met, treating two acts of racketeering as sufficient. (28) Nearly as permissive was the test employed by the Fifth (29) and Eleventh Circuits, (30) which required only that the two or more racketeering activities be related. These circuits did not discuss whether the activities in question needed to be continuous in nature.

    At the opposite end of the spectrum lay the Eighth Circuit's comparably restrictive analysis, which held that "[a] single fraudulent effort or scheme is insufficient" to establish a pattern. (31) In support of its single scheme exclusion, the Eighth Circuit argued that "[i]t places a real strain on the language to speak of a single fraudulent effort, implemented by several fraudulent acts, as a 'pattern of racketeering activity.'" (32) Though several courts of appeals considered the existence of "multiple schemes" as a factor in searching for a pattern, most rejected it as a requirement. (33)

    The remainder of the circuit courts attempted to "steer [] a middle course between these two extremes, (34) though even this attempt yielded discordant results. When courts did distinctly consider the relationship and continuity prongs, they generally had much more difficulty analyzing the continuity element. (35) However, many courts had trouble conceptually separating the relatedness and continuity components (36) and examined the elements together in multi-factor tests. For example, the Third Circuit looked to "a combination of specific factors such as the number of unlawful acts, the length of time over which the acts were committed, the similarity of the acts, the number of victims, the number of perpetrators, and the character of the unlawful activity." (37)

    The Seventh Circuit performed a similar multi-factored analysis, but also considered whether the acts were part of "separate schemes" and whether "distinct injuries" were present. (38) The Seventh Circuit imposed the additional requirement that the acts formed "separate transactions." (39) Other Seventh Circuit cases considered whether the alleged acts formed multiple criminal "episodes." (40)

    Between analysis of patterns, acts, schemes, transactions, and episodes, the lower courts seemed content to trade out one vague term for another. (41) Amidst this confusion, the Court granted certiorari in H.J. Inc. v. Northwestern Bell Telephone Co, (42) and sought to put the differences to rest.

  2. H.J. INC.

    In H.J. Inc., a class of customers of Northwestern Bell Telephone Co. filed a civil RICO claim against Northwestern Bell, its officers and employees, and various members of the Minnesota Public Utilities Commission (MPUC). (43) The complaint alleged that from 1980 to 1986, Northwestern Bell sought to influence members of the MPUC in the performance of their duties through cash payments to commissioners, negotiations of future employment, and payments for meals, parties, and sporting events tickets. The complaint alleged that these bribes led the MPUC to approve excessive rates for the company, to the detriment of its customers. (44)

    The District Court for the District of Minnesota granted Northwestern Bell's motion to dismiss the RICO claim, finding that under Superior Oil the fraudulent acts alleged were part of a "single scheme to influence MPUC commissioners." (45) The Eighth Circuit affirmed, finding that "[a] single fraudulent effort or scheme is insufficient" to establish a pattern of racketeering activity. (46)

    The Supreme Court started by acknowledging that since Sedima, Congress "ha[d] done nothing ... to illuminate RICO's key requirement of a pattern of racketeering" and recognizing that "developing a meaningful concept of 'pattern' within the existing statutory framework has proved to be no easy task" for the lower courts. (47) The Court's interpretation of the "pattern" element began by explicitly rejecting the Eighth Circuit's rule that only multiple illegal schemes can constitute a pattern. (48) The Court noted that "although proof that a RICO defendant has been involved in multiple criminal schemes would certainly be highly relevant to the inquiry into the continuity of the...

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