Toward the end of HBO’s legendary television series,
The Sopranos, a classic racketeering scheme is presented.
Two members of Tony Soprano’s crime family enter a
Starbucks-like, big-box coffee store and speak to the manager. They
inform the manager that they are from the “North Ward
Merchants Protection Cooperative” and offer him
“round-the-clock security.” Such security is needed,
the mobsters explain, because even though its an up and coming
neighborhood, it still contains “some marginal types.”
As the mobsters further explain: “Your weekly dues to us will
give you all the supplemental safety net you’ll ever
need.”
The problem, however, is that the manager has no discretionary
funds to pay the “tax”; all expenses have to “go
through corporate in Seattle.” But, the mobsters object,
“how do you think corporate would feel if for the sake of
argument, someone threw a brick through your window?” The
manager is unmoved: “They’ve got 10,000 stores in North
America. I don’t think they’d feel anything.” The
mobsters try again: “What if, God forbid, it wasn’t
just vandalism? What if an employee, even the manager say, was
assaulted?”
What is being presented here is classic racketeering—the
so-called “protection tax” extortion scheme, a
“bread and butter” of mafia-like organized crime. The
United States Supreme Court has had occasion to discuss such
schemes in the context of the Racketeer Influenced and Corrupt
Organizations Act, 18 U.S.C. § 1961, et seq.
(“RICO”); specifically, with regard to RICO’s
“pattern” requirement:
Suppose a hoodlum were to sell “insurance” to a neighborhood’s storekeepers to cover them against breakage of their windows, telling his victims he would be reappearing each month to collect the “premium” that would continue their “coverage.” Though the number of related predicates involved may be small and they may occur close together in time, the racketeering acts themselves include a specific threat of repetition extending indefinitely into the future, and thus supply the requisite threat of continuity.
H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 242
(1989).
In the context of defending a civil RICO claim, the protection tax
analogy could be the key to early dismissal. Those who litigate
what on the surface appear to be garden variety business disputes
occasionally discover that the plaintiff has lodged claims for
racketeering under RICO.
A client’s initial reaction to such a contention is generally
disbelief. After all, RICO was initially established as part of the
Organized Crime Control Act of 1970. But RICO’s alluring
civil remedies, including treble damages and attorneys’ fees
for the successful plaintiff, have led many plaintiffs to take
otherwise garden variety business disputes and dress them as
racketeering schemes.
My first advice to litigators and their clients defending such
claims is to stay with your initial instincts and to keep in mind
the “gangster” origins of RICO. Chances are that the
alleged wrongdoing injures only the plaintiff (or a small group of
plaintiffs). If so, RICO’s “pattern” requirement
could provide a powerful argument for dismissal.
Let’s take, for example, the allegation that the defendant
has violated 18 U.S.C. 1962(c), which prohibits any person from
operating or managing an enterprise through a pattern of
racketeering activity. In order to state a valid RICO claim under
§ 1962(c), a plaintiff must allege “(1) conduct, (2) of
an enterprise, (3) through a pattern, (4) of racketeering
activity.” Jarvis v. Regan, 833 F.2d 149, 151-52
(9th Cir. 1987) (citations omitted).
Rarely will an ordinary business dispute, where the alleged conduct
either took place over a short period of time, or allegedly injured
a single victim or set of victims, satisfy RICO’s
“pattern” requirement. That is because RICO is not
violated by a short-term episode of “racketeering.”
There must be a “pattern” of racketeering
activity—meaning long-term, organized conduct. Stated
differently, the RICO statute is intended to address repeat, rather
than one-shot, criminal activity. As the Fourth Circuit has
stated:
[T]he pattern requirement is meant to prevent ordinary commercial fraud from being transformed into a federal RICO claim. To determine if a fraudulent scheme rises to the level of a RICO violation, the court must determine its scale, duration and number of victims. RICO is reserved for those schemes whose scope and persistence set them above the routine.
Tudor Associates, Ltd., II By & Through Callaway v.
AJ & AJ Servicing, Inc., 36 F.3d 1094 (4th Cir.
1994).
A “pattern” of racketeering activity requires proof
that the racketeering predicates are related and “that they
amount to or pose a threat of continued criminal activity.”
H.J. Inc., 492 U.S. at 239. “Continuity is both a
closed- and open-ended concept, referring either to a closed period
of repeated conduct, or to past conduct that by its nature projects
into the future with a threat of repetition.” Id. at
241.
Open-ended continuity is generally lacking where the plaintiff has
not alleged any facts showing that “the racketeering acts
themselves include a specific threat of repetition extending
indefinitely into the future.”
H.J., Inc., 492 U.S. at 242 (emphasis added). As one
district court has explained, when assessing whether a complaint
meets the continuity requirement, “the question ... must be
whether the racketeering activity inherently
includes the potential for repetition in
perpetuity.” Ace Pro Sound & Recording, LLC v.
Albertson, 512 F. Supp. 2d 1259, 1267 (S.D. Fla. 2007)
(emphasis in original). Drawing on the protection tax schema
analogy, the Ace Pro Sound Court explained:
[T]he question, here, must be whether the racketeering activity inherently includes the potential for repetition in perpetuity. An example of this would be an organized crime or a gang “protection tax” forced upon neighborhood stores with the expectation that mafia members would collect the tax indefinitely at regular intervals.
512 F. Supp. 2d at 1267.
The protection tax scheme demonstrates actionable conduct that
projects into the future with the threat of repetition because it
leaves multiple victims in its wake as it continues indefinitely
into the future and because the scheme promises to recur in the
future at regular intervals. RICO cases involving multiple victims
often inherently contain a continued threat of racketeering
activity precisely because the conduct will continue beyond the
victimization of any one target. For example, the protection tax
scheme projects into the future with the threat of repetition, in
part, because it is aimed at multiple victims (“a
neighborhood’s storekeepers”), will continue long after
the termination of any one victim, and therefore is capable of
“repetition extending indefinitely into the future.”
H.J. Inc., 492 U.S. at 242.
This has led many courts to conclude that where a single scheme is
alleged against a single victim or discrete set of victims,
RICO’s pattern requirement has not been met. See e.g.,
Medallion Television Enterprises v. SelecTV of California,
Inc., 833 F.2d 1360, 1363 (9th Cir.1987) (no threat of
continuity in a case involving “a single alleged fraud with a
single victim”); Sever v. Alaska Pulp Corp., 978 F.
2d 1529 (9th Cir. 1992) (defendants’ single purpose scheme to
terminate plaintiff’s employment does not constitute a
pattern for purposes of RICO”); Buran Equip. Co. v. Hydro
Elec. Constructors, 656 F. Supp. 864, 866 (N.D. Cal. 1987) (no
RICO violation where “all of the alleged offenses in this
case relate to one commercial transaction and involve a single
victim and single injury”); Ricotta v. State of
California, 4 F. Supp. 2d 961, 978 (S.D.Cal.1998) (no pattern
when defendants acted with the singular goal of depriving a single
victim of his share of marital estate); Homes by Michelle, Inc.
v. Fed. Sav. Bank, 733 F. Supp. 1495, 1502 (N.D. Ga. 1990)
(finding no pattern where, inter alia, “plaintiffs have not
alleged injury to other parties”); Ward v. Nierlich,
617 F. Supp. 2d 1226, 1238 (S.D. Fla. 2008) (“one scheme,
causing harm to a few victims, and causing one injury does not
create close-ended continuity”); Flip Mortg. Corp. v.
McElhone, 841 F.2d 531, 538 (4th Cir. 1988) (holding that a
fraudulent scheme occurring over several years but impacting only
“a single victim” did not constitute a RICO
violation).
The next time you are confronted by a plaintiff seeking to convert
an ordinary business dispute into an elaborate racketeering scheme,
think of RICO’s origins in combating organized crime, and
specifically mafia protection tax schemes. It might just be your
ticket to early dismissal.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.