United States: Boyle v. United States: Supreme Court Defines Requirements For An "Association-In-Fact" Enterprise Under RICO

On June 8, 2009, the United States Supreme Court handed down the much-anticipated decision in Boyle v. United States (No. 07-1309), establishing the requirements to prove the existence of an "association-in-fact" enterprise within the meaning of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§1961-68. In Boyle, the Court considered whether individuals who were alleged to have formed an association-in-fact constituted a RICO enterprise, even though the association had no "ascertainable structure" independent of that inherent in the underlying pattern of racketeering acts they committed. In a 7-2 decision, the Court held that, while an association-in-fact enterprise must reflect a degree of structure, specifically "a purpose, relationships among the associates, and longevity sufficient to permit the associates to pursue the enterprise's purpose," no particular indicia of structure are required, only proof that the association-in-fact is "a continuing unit that functions with a common purpose."

Background

An enterprise "includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. §1961. RICO makes it unlawful for individuals to participate in, or profit from, participation in an enterprise engaged in a pattern of racketeering. Id. § 1962. Racketeering is defined as any number of enumerated federal and state crimes, including mail and wire fraud; and a pattern is generally held to be a series of related acts, either over a long period of time or capable of extending into the future. Id. §1961.

Defendant Boyle was charged criminally under RICO for a series of bank robberies committed with a varying group of other individuals who were, in turn, part of two overlapping criminal groups operating in the New York City area. The prosecution claimed that the "crew" responsible for the robberies committed the crimes as an association-in-fact enterprise, which, although it had a changing cast of characters, operated with consistent, defined roles for each member and a system for apportioning the stolen money. Boyle countered the allegation that the crew constituted an enterprise by characterizing it as informal and acting only on an impromptu basis, with no consistent membership, organization, or structure.

Boyle requested a jury instruction that would have required the prosecution to prove — by distinct evidence — that the crew was an enterprise with a formal structure that could be defined separately and apart from the acts it committed. The district court denied the request, and Boyle was convicted of RICO violations and conspiracy to violate RICO. The Second Circuit affirmed the conviction.

Three-Way Circuit Split

The Second Circuit decision in Boyle contributed to a three-way circuit split among the courts of appeals regarding how to interpret United States v. Turkette, 452 U.S. 567 (1981). In Turkette, the Supreme Court held that an enterprise could be either a legitimate enterprise that had been "infiltrated" by criminal elements to become an illegitimate enterprise, or a "wholly illicit," fundamentally criminal enterprise. While the Turkette Court held that an enterprise must be shown to be distinct from the pattern of acts its members committed — establishing "enterprise" as a separate element, demonstrated by the members' "common purpose" — the Court also held that the "proof used to establish these separate elements may in particular cases coalesce," although proof of one would not always be sufficient to show the other. Id. at 583.

The courts of appeals interpreted Turkette in three different ways. Some courts held that the evidence demonstrating an association-in-fact enterprise did not need to be distinct from the evidence showing the pattern of predicate acts (First, Second, Ninth, and Eleventh Circuits). In other words, an enterprise could be proved simply through the criminal acts in which its members engaged, with no proof of any particular aspects of structure. Other courts held that the evidence used to prove the enterprise must be distinct from that establishing the underlying criminal acts (Third, Fourth, Eighth, and Tenth Circuits), because RICO was intended to target criminal activity by coordinated organizations. These courts held that the evidence used to show what an enterprise did (for example, rob banks) goes to determine whether there was a pattern of racketeering and not the existence of an enterprise. Finally, the Seventh Circuit held that an association-in-fact enterprise must have an ascertainable structure, but that the evidence showing the enterprise and the underlying acts did not necessarily need to be separate. That court noted that, without requiring some degree of structure, a RICO "'enterprise' collapses to 'conspiracy.'" Limestone Dev. Corp. v. Vill. of Lemont, 520 F.3d 797, 805 (2008).

Resolution by the Supreme Court

In resolving this split, the Supreme Court majority opinion in Boyle identified three key questions. First, does an association-in-fact enterprise require structure? Second, does the structure have to be ascertainable, as the jury instruction requested by the defendant would have required? Third, does the structure have to be separate from any structure that is "inherent" in the underlying acts, such that it should comprise a separate element that requires separate proof?

In response to the first question, the Court ruled that an enterprise requires structure such that it reflects three core features: "a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise's purpose." The Court found that any "enterprise" by definition must have a purpose, and, similarly, that "association" among individuals implies both "interpersonal relationships and a common interest." With respect to the "longevity" prong, the Court found support in the "pattern" requirement of §1962(c), which itself requires a plaintiff to show continuity of the enterprise. Despite the specific prescription of these three elements, the Court gave district courts considerable latitude to determine how to instruct a jury about the structure requirement, holding that "so long as the substance of the relevant point is adequately expressed," the court need not even use the word "structure" in its instructions.

The Court quickly disposed of the question of whether the structure must be found to be ascertainable, finding such a requirement redundant of the requirement that the structure element (as outlined above) be proved beyond a reasonable doubt, at least in the criminal context. Finally, in addressing the most important of the three questions, the Court provided guidance as to when the proof used to show enterprise may be the same as that used to show the pattern of underlying predicate acts. To some degree, in this section of the opinion, the Court qualified its announcement of the three requisite aspects of an enterprise (purpose, association, and longevity). Although an enterprise must have purpose, the Court held that it may be carried out "on an ad hoc basis" and without a hierarchical decision-making process. And while an enterprise requires an association among its members, those members "need not have fixed roles; different members may perform different roles at different times." Lastly, although longevity is required, "nothing in RICO exempts an enterprise whose associates engage in spurts of activity punctuated by periods of quiescence."

Significance of Boyle

The Supreme Court decision has significance beyond the criminal RICO context in which it arose. The question of when an association-in-fact constitutes a RICO enterprise is relevant to both civil and criminal defendants, including defendants that are legitimate businesses involved in partnerships not traditionally thought of as constituting enterprises. For instance, in the leading Ninth Circuit case addressing this issue, the claimed association-in-fact was a joint marketing partnership between Microsoft and Best Buy whereby certain Best Buy customers were automatically enrolled in a Microsoft Internet subscription program. Odom v. Microsoft, et al., 486 F.3d 541 (9th Cir. 2007). Thus, the Boyle Court's requirement of some structure but not necessarily a formal structure makes it more likely that plaintiffs will be able to characterize common commercial relationships among businesses that are alleged to have engaged in fraudulent or otherwise unlawful conduct as RICO enterprises. The ruling in Boyle will make it more difficult to prevail on a motion to dismiss based on a failure to plead the existence of a RICO enterprise.

Taking a broader view, Boyle, along with this term's other major RICO opinion, Bridge v. Phoenix Bond & Indemnity Co., 553 U. S. ___, ___ (2008), demonstrates the Supreme Court's reluctance to cabin the reach of RICO's broad statutory language. The Boyle majority opinion reminds that "[i]n prior cases, we have rejected similar arguments in favor of the clear but expansive text of the statute," and goes on to recount the two-plus decades of holdings reflecting that trend. Given the existing turmoil in the financial markets and RICO's treble damages and fee-shifting provisions, Boyle and Bridge portend a resurgence in the use of RICO in both the criminal and civil contexts.

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