Pattern of Racketeering Activity" Requirement After Sedima: Separate Schemes, Episodes Or Related Acts?

California Western Law Review Volume 24 Number 1 Article 3 1987 Interpreting RICO's "Pattern of Racketeering Activity" Requirement After Sedima: Separate Schemes, Episodes or Related Acts? Harold Selan Follow this and additional works at: https://scholarlycommons.law.cwsl.edu/cwlr Recommended Citation Selan, Harold (1987) "Interpreting RICO's "Pattern of Racketeering Activity" Requirement After Sedima: Separate Schemes, Episodes or Related Acts?," California Western Law Review: Vol. 24 : No. 1 , Article 3. Available at: https://scholarlycommons.law.cwsl.edu/cwlr/vol24/iss1/3 This Article is brought to you for free and open access by CWSL Scholarly Commons. It has been accepted for inclusion in California Western Law Review by an authorized editor of CWSL Scholarly Commons. For more information, please contact [email protected]. Selan: Interpreting RICO's "Pattern of Racketeering Activity" Requiremen CALIFORNIA WESTERN LAW REVIEW VOLUME 24 1987-1988 NUMBER 1 Interpreting RICO's "Pattern of Racketeering Activity" Requirement After Sedima: Separate Schemes, Episodes or Related Acts? HAROLD SELAN* INTRODUCTION Until 1985, the term "pattern of racketeering activity" as used in the Racketeering Influenced and Corrupt Organizations Act (RICO) was usually applied by simple reference to the RICO statute where the term is defined as the commission of two or more specified criminal acts within a ten year period of one another.' As civil RICO grew in use and popularity during the 1980s, some courts began to view the task of judicially construing the RICO statute as being similar to a "treasure hunt."2 Still, the requirement of pleading and proving a pattern of racketeering activity remained relatively free from judicial scrutiny. That changed in 1985 when the Supreme Court in Sedima, S.P.R.L. v. Imrex Co.,3 admonished both Congress and the lower courts for their failure "to develop a meaningful concept of pattern. ' 4 Al- though Sedima involved several important issues unrelated to the interpretation of "pattern of racketeering activity," the present significance of the decision is the continuing debate over the meaning of Justice White's dicta that a "pattern of racketeering activity" involves elements of "continuity plus relationship."' * Associate, Morgan, Miller & Blair, Oakland, California. Admitted to practice in California and New Hampshire. Graduate of Hastings College of Law (J.D., 1982); Uni- versity of California, Berkeley (B.A., 1979 [Phi Beta Kappa]). Areas of speciality: complex business and tort litigation. The writer wishes to acknowledge the support and encourage- ment of Helena Jia Hershel, Assistant Professor of Sociology, Dartmouth College. 1. 18 U.S.C. § 1961(5) (1982). 2. Sutcliff, Inc. v. Donovan Cos., 727 F.2d 648, 652 (7th Cir. 1984). 3. 473 U.S. 479 (1985). 4. Id. at 500. 5. Id. at 496 n.14. Published by CWSL Scholarly Commons, 2015 1 California Western Law Review, Vol. 24 [2015], No. 1, Art. 3 2 CALIFORNIA WESTERN LAW REVIEW [Vol. 24 For some courts, Sedima's dicta "create[d] a whole new ball game ' which justified wholesale re-examination of the pattern requirement. Other courts have analyzed Justice White's language as dicta and have resisted the urge to engage in judicial activism by rewriting RICO's statutory requirements. Consequently, a broad spectrum of divergent interpretations reading the pattern requirement has emerged since Sedima. Naturally, the impact of such diverse, and often antagonistic, decisions has created confu- sion both among those pleading civil RICO and courts ruling on the perimeters of the racketeering statute. Within this wide spectrum, three major theories have emerged. At one end of this spectrum is a series of decisions first articulated in the Northern District of Illinois, which restrict the interpretation of pattern as requiring a showing of separate fraudulent criminal schemes as a prerequisite to RICO liability.7 At the other end of the spectrum are courts which hold that a pattern is adequately alleged when a plaintiff claims two or more connected or related criminal acts listed in the RICO statute.8 These courts have narrowly read Sedima and have tended to follow closely the plain language of the RICO statute.9 Courts at this end of the spectrum which have confronted the separate schemes analysis have squarely rejected it as an attempt to eviscerate the RICO statute by judicially grafting requirements on the statute unfore- seen by Congress.' ° A middle approach has also evolved which, like the separate scheme theory, goes beyond RICO's stated statutory definition of pattern. However, unlike the proponents of the more restrictive separate scheme theory, the adherents to this middle approach recognize that a pattern of separatefraudulent episodes or trans- actions occurring within a single fraudulent scheme can fulfill the requirement of the RICO statute." Under this view, a number of flexible, relevant factors are used to assist the court in making the pattern determination. 12 The Seventh Circuit, summing up the middle approach, admitted that interpreting the pattern of racke- 6. Northern Trust Bank/O'Hare, N.A. v. Inryco, Inc., 615 F. Supp. 828, 833 (N.D. Ill. 1985). 7. See infra notes 46-66 and accompanying text. 8. See infra notes 67-95 and accompanying text. 9. RICO's statutory requirements are discussed at length infra notes 17-31 and accompanying text. 10. See, e.g., Volckmann v. Edwards, 642 F. Supp. 109 (N.D. Cal. 1986); Brainerd & Bridges v. Weingeroff Enters., Inc., No. 85-C-493, slip op. (N.D. I1l. Sept. 18, 1986). But see Medallion Television Enter. v. Selec-TV, 627 F. Supp. 1290 (C.D. Cal. 1986), affd, No. 86-5595, slip op. (9th Cir. Dec. 9, 1987). 11. See, e.g., Graham v. Slaughter, 624 F. Supp. 222 (N.D. Ill. 1986). 12. See infra note 94 and accompanying text. https://scholarlycommons.law.cwsl.edu/cwlr/vol24/iss1/3 2 Selan: Interpreting RICO's "Pattern of Racketeering Activity" Requiremen 1988] INTERPRETING RICO teering activity requirement is no longer a matter of merely apply- ing statutory language but rather involves the application of a legal "standard": The doctrinal requirement of a pattern of racketeering activity is a standard, not a rule, and as such its determination depends on the facts and circumstances of the particular case, with no one factor being necessarily determinative."a Courts using this middle analysis consider it a "flexible approach" towards interpreting the statutory language. These courts envision the definition and scope of what constitutes a "pattern of racketeering activity" developing as 14 an evolving fact-oriented, case by case standard. The plethora of interpretations of RICO's "pattern of racketeering activity" language and the impact of Sedima's dicta has developed into what one court has termed a "cottage industry."'" Rather than contributing to that thriving industry, the purpose here is to examine the spectrum of interpretations which have pro- liferated since Sedima, and to provide some insight into the bene- fits and deficiencies of each interpretation. I. "PATTERN OF RACKETEERING ACTIVITY": THE STATUTORY REQUIREMENTS The RICO statute16 authorizes a private civil action for treble damages for "[a]ny person injured in his business or property" by a pattern of racketeering activity.17 Five elements of proof are necessary to establish a violation: it must be shown that a "person,""' through a "pattern of racketeeringactivity"' 9 or collection of an unlawful debt, directly or indirectly: (a) invested, or (b) maintained an interest, or (c) participated in the conduct of, or (d) conspired to do (a), (b), or (c); in an "enterprise,"20 the activi- 13. Morgan v. Bank of Waukegan, 804 F.2d 970, 975-76 (7th Cir. 1986). 14. See, e.g., Lawaetz v. Bank of Nova Scotia, 653 F. Supp. 1278, 1287 (D.V.I. 1987); Temporaries, Inc. v. Maryland Nat'l Bank, 638 F. Supp. 118, 123 (D. Md. 1986). 15. Morris v. Gilbert, 649 F. Supp. 1491, 1502 (E.D.N.Y. 1986). 16. 18 U.S.C. §§ 1961-68 (1982). 17. 18 U.S.C. § 1964(c) (1982). 18. 18 U.S.C. § 1961(3) (1982) defines "person" as "any individual or entity capa- ble of holding a legal or beneficial interest in property." 19. A "pattern of racketeering activity" as defined by 18 U.S.C. § 1961(5) (1982) "requires at least two acts of racketeering activity, one of which occurred after [Oct. 15, 1970] and the last of which occurred within ten years ... after the commission of a prior act of racketeering activity." (emphasis added). 20. 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(4) (1970). Any group, whether formal or informal, legal or illegal, may be alleged as an enterprise so as long as the members are "associated in fact." United States v. Turkette, 452 U.S. 576, 581, 583 (1981) (emphasis added). Published by CWSL Scholarly Commons, 2015 3 4 CALIFORNIACalifornia WesternWESTERN Law Review,LAW REVIEW Vol. 24 [2015], No. [Vol.1, Art. 24 3 ties of which affect interstate or foreign commerce, causing injury to the plaintiff's "business or property by reason of' the RICO violation.2' The term "pattern" appears only once in the statute in the phrase "pattern of racketeering activity," and is defined as requiring at least two predicate acts of "racketeering activity" within ten years of one another.2 2 "Racketeering activity" is defined as certain "predicate acts" including any act or threat involving any of eight specified state felonies or twenty-five specified federal of- fenses including any act which is indictable under the federal mail, wire and securities fraud statutes."3 The increasing use of civil RICO in recent years has been due, in part, to the relative ease of including several of RICO's predicate acts as part of a civil RICO count, particularly mail fraud,24 wire fraud, 25 and/or fraud in the sale of securities.

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