There is a common misconception that all RICO cases involve “organized crime.” The very name of the law, “racketeer influenced and corrupt organizations” implies something like Tony Soprano and the members of his crime family hanging out in a New Jersey bar or strip club planning their next caper. That is often what federal prosecutors allege in criminal RICO cases. The defendants/racketeers are street criminals, and the RICO “enterprise” is nothing more than their gang, almost the same thing. The only difference is that Justice Department prosecutors will not charge every member of the gang with RICO violations. The leaders get charged; their underlings typically get charged with lesser crimes not involving RICO in exchange for lesser sentences or sometimes not at all. A drug courier who does not commit murder or extortion may not be the target of the prosecutors. The leaders of the gangs always are.
The concept of the “association enterprise” has always been a problem in civil RICO cases. If the association is a group of legitimate businesses, and the RICO person is a corporation committing a long-term fraud through its agents or subsidiaries, the federal courts have held there is no valid enterprise. This is so even though the same provision of RICO applies to both types of cases. There is no statutory reason why a group of corporations cannot be a single enterprise when a group of street criminals can. Federal courts say the former grouping is too far removed from the evil Congress was trying to combat in enacting the law. But the Supreme Court has held three times that RICO should be interpreted “broadly” and so is not limited to organized crime. Originalists and textualists will side with the Supreme Court. The Chamber of Commerce and judicial realists will side with the lower courts.
Many judges are now dismissing civil RICO cases for the reason that the RICO enterprise plays no role in the racketeering activity. Under this view, the RICO defendant must commit the violations, and the enterprise must be sort of an accomplice. But nothing in RICO requires the enterprise actively do anything. It’s just exploited by the racketeer in one of three basic ways. Under 18 U.S.C. 1962(a) the enterprise launders the racketeer’s illicit gains, under 1962(b) it is taken over by a racketeer (thus is a victim), and under 1962(c) it gives an aura of legitimacy to the racketeer. So in civil cases the enterprise is likely a legitimate business, a corporation or partnership, which the racketeer(s) has established to limit his legal liability and tell potential customers they are dealing with a legitimate business entity. Perhaps the racketeer cheats here and there, like using the mail or wires to mislead customers or hires illegal immigrants to cut costs. Strictly speaking, the enterprise does nothing illegal. The racketeer decides to cheat his customers by saying something is of a certain quality on the internet when it is actually not or has an HR director hire the alien workers. Corporations do not commit illegal acts; people do. Corporation law can attribute the acts of its owners and employees to the corporation, but that is a fiction designed to deter corporations from violating legal norms. It makes no realistic difference as to who the perpetrator was. The enterprise has no role in the illegal acts.
In the high-profile RICO case against lawyer Steven Donziger now pending in New York, Judge Lewis Kaplan was correct in allowing the plaintiff, Chevron corp., to allege that Donziger’s enterprise need not have committed the many crimes at issue. He held: “One must bear in mind that the RICO enterprise in a 1962(c) case, like this one, is not and may not be a defendant and need not be charged with any wrongdoing.” Chevron v. Donziger, 871 F. Supp. 2d 229, 243 (S.D.N.Y. 2012). The Supreme Court has decided four RICO enterprise cases and has never required the enterprise to commit a RICO violation. Rather, the enterprise must be a distinct entity in which the racketeer basically controls from its “operation or management” when it is a legitimate business.
RICO plaintiffs need to point this out in response to motions to dismiss. The precise argument about the “role” of the enteprise might not be made, but district court judges on the look out to short circuit cases will find this a useful escape hatch.