Enterprise” Be Distinct Under § 1962(C)? Jay E

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1-1-2001 Must the Alleged RICO “Person” and the Alleged RICO “Enterprise” Be Distinct Under § 1962(c)? Jay E. Grenig Marquette University Law School, [email protected]

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Repository Citation Grenig, Jay E., "Must the Alleged RICO “Person” and the Alleged RICO “Enterprise” Be Distinct Under § 1962(c)?" (2001). Faculty Publications. Paper 402. http://scholarship.law.marquette.edu/facpub/402

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success depends on his ability to Jay E. Grenig is a professor of law enter into exclusive, contractual at Marquette University Law relationships with individual boxers School in Milwaukee, Wis.; and then promote matches involv- [email protected] ing those fighters. or (414) 288-5377. He is the co-author of West's Federal Jury In 1995, Kushner signed an exclu- Practiceand Instructions sive promotional contract with a (5th edition). boxer named Hasim Rahman. Kushman later provided Rahman with 20 professional bouts with purses to Rahman totaling hundreds of thousands of dollars. In June 1998, Kushner entered into a new ISSUE exclusive promotional contract with May a claim be maintained under Rahman and gave him a $150,000 I§ 1962(c) of RICO when the alleged signing bonus. At Rahman's request, RICO "enterprise" is a corporation Kushner arranged a match against and the "person" charged with the David Tua, to be televised on HBO. violation of RICO is an officer and In September 1998, Rahman signed employee of the corporation acting another agreement with Kushner for with the scope of his corporate this match and received a $25,000 duties? advance from Kushner for training expenses. FACTS This case involves a dispute On Aug. 22, 1998, King had one of between rival boxing promoters, his attorneys call Rahman. The Cedric Kushner Promotions, Ltd. (Kushner) and Don King (King), Don (Continued on Page 360) King Productions, Inc., and DKP Corporation (DKP).

Because this case involves an appeal from a motion to dismiss, the fol- lowing facts are based on the allega- CEDRIC KUSHNER PROMOTIONS, tions in the complaint, so at this LTD. v. DON KING ET AL. stage the courts are required to DOCKET No. 00-549 accept those allegations as true. ARGUMENT DATE: According to the complaint, APRIL 18, 2001 Kushner and King are direct com- FROM: THE SECOND CIRCUIT petitors in the business of promot- ing professional boxing matches. In this business, a promoter's financial attorney told Rahman that King mon law fraud and tortious interfer- hibitions, and providing enhanced wanted to speak with him about the ence with contract. In his com- sanctions and new remedies to deal Tua fight and that he should not plaint, Kushner claimed that King with the unlawful activities of those take the fight. King and Rahman had violated Section 1962(c) of engaged in crime. met a short time later and King told RICO and had conspired to do so in Rahman not to fight Tua. violation of Section 1962(d). These RICO provides criminal and civil sections provide a basis for both sanctions. A civil RICO action may When King and Rahman met several civil and criminal liability under be brought by either a government days later, King gave Rahman a RICO. Among other things, the plaintiff or a private plaintiff $125,000 check to ensure that complaint alleged wire and insur- "injured in his business or proper- Rahman would not fight Tua. King ance fraud whereby King caused ty." A successful plaintiff can recov- told Rahman that Rahman could DKP's controller fraudulently to er treble damages in a civil RICO never be the No. 1 heavyweight alter documents and to telecopy action. An increase in the use of the challenger without King as his such falsified documents to DKP's civil RICO provisions by private promoter. insurance agents, insurance under- plaintiffs has been accompanied by writers, and others. complaints asserting that many civil In August, Kushner met with RICO suits have been beyond the Rahman and Rahman's manager and The trial court granted King's Act's scope and are abusive. See trainer. During that meeting, motion to dismiss the RICO claims Sedima, S.PR.L. v. Imrex Co., 473 Rahman confirmed that he had and also dismissed the remaining U.S. 479, 499-500 (1985) (suggest- signed a promotional contract with state law claims for lack of subject ing that correction of any defect King and said that King had threat- matter jurisdiction. 1999 WL inherent in RICO must lie with ened him. Kushner alleged that King 771366 (S.D.N.Y. 1999). Kushner Congress). The courts have was aware of plaintiffs contract with then appealed to the U.S. Court of acknowledged confusion regarding Rahman and that King's contract Appeals for the Second Circuit. The the proper interpretation of civil with Rahman directly conflicts with Second Circuit affirmed the district RICO statutes. Beauford v. Kushner's contract with Rahman. court, holding that, in order for Helmsley, 843 F.2d 103, 104 (2d Cir. there to be liability under Section 1988), opinion vacated, 492 U.S. Rahman did not fight Tua in 1998. 1962(c), the alleged RICO "person" 914 (1989) ("Despite the Supreme Kushner claimed that King persuad- and the RICO "enterprise" must be Court's decision in Sedima ... , ed Rahman to feign a hand injury distinct. 219 F.3d 115 (2d Cir. 2000) courts generally, and courts in the two weeks before the fight, and the (per curiam). Because King was an Second Circuit in particular, remain bout was subsequently canceled. employee acting within the scope of confused (and certainly confusing) his authority at DKP, the Second in their construction of the statutes Louis DelValle, another professional Circuit concluded that King, the governing so-called civil RICO, the boxer, was also under an exclusive RICO "person," and DKP, the RICO provision of a private civil remedy "enterprise," promotional agreement with were not distinct and of treble damages for injury 'by rea- Kushner. Kushner arranged for thus that there was no RICO liabili- son of a violation of' the substantive DelValle to fight Darrio Mattione, a ty under Section 1962(c). provisions of [RICO]"). professional boxer promoted by King. King agreed to pay Kushner The Supreme Court thereafter RICO is not limited in its scope to $300,000 for the DelValle bout. granted Kushner's request for review organized crime. H.J. Inc. v. When another bout scheduled for of the Second Circuit's decision. 121 Northwestern Bell Tel. Co., 492 U.S. the same evening was canceled, S.Ct. 653 (2000). 229, 243-44 (1989); Sedima, King canceled the DelValle fight S.PR.L. v. Imrex Co., 473 U.S. 479, with Mattione. Kushner was not CASE ANALYSIS 499 (1985). Defendants, whether paid under the DelValle contract. Congress enacted RICO as Title IX natural persons or corporate enti- of the Organized Crime Control Act ties, do not have to be associated In 1998, Kushner filed a complaint of 1970. The stated purpose of with organized crime in order to for $12 million in damages, assert- RICO is to seek the eradication of qualify as a "person" who has ing claims against King and DKP organized crime in the United engaged in proscribed activities. under the Racketeer Influenced and States by strengthening the legal Schacht v. Brown, 711 F.2d 1343, Corrupt Organizations Act (18 tools in the evidence-gathering 1353-54 (7th Cir.), cert. denied, 464 U.S.C.§§ 1961 et seq.) and for com- process, establishing new penal pro- U.S. 1002 (1983). Both legitimate

360 Issue No. 7 and illegitimate enterprises engaged Section 1961 defines an "enter- required to satisfy any requirement in a pattern of racketeering are prise" as including "any individual, of distinctiveness. liable under RICO. H.J. Inc. v. partnership, corporation, associa- Northwestern Bell Tel. Co., 492 U.S. tion, or other legal entity, and any King disagrees, claiming that the 229, 243-44 (1989); Sedima, union or group of individuals associ- requisite "distinctness" between a S.P.R.L. v. Imrex Co., 473 U.S. 479, ated in fact although not a legal RICO "enterprise" and a RICO "per- 499 (1985). entity." 18 U.S.C.A. § 1961(4). See son" does not exist if the employee's United States v. Thrkette, 452 U.S. alleged predicate acts are commit- "Racketeering activity" involves the 576, 583 (1981) (elements neces- ted within the scope of his or her commission of a "predicate offense." sary to establish existence of an employment and on behalf of the Sedima, S.PL.R. v. Imrex Co., 473 enterprise for RICO purposes are corporation rather than outside the U.S. 479, 495 (1985). Section (1) evidence of an ongoing organiza- scope of employment and for the 1961(1) contains a list of predicate tion, formal or informal; (2) evi- employee's own benefit. Declaring acts. The list of predicate acts is dence that various associates func- that the Second Circuit's position is exhaustive; no act not listed in tion as a continuing unit; and (3) consistent with the expressed leg- Section 1961(1) can constitute a existence separate and apart from islative intent in RICO, King con- predicate offense for purposes of the pattern of activity in which it tends that his purported racketeer- RICO. engages). ing acts are no different from those of DKP, the alleged "enterprise" on RICO does not require that a defen- RICO actions are limited to those whose behalf and for whose benefit dant be convicted of any of the suits in which the plaintiff can his actions were taken. It is King's underlying predicate acts before a prove an ascertainable ongoing orga- position that DKP and King are civil RICO action can be initiated. nization or "enterprise" that is dis- functionally identical under Section Sedima, S.PL.R. v. Imrex Co., 473 tinct from a pattern of racketeering 1962(c) because, acting in his U.S. 479, 493 (1985). A "pattern" of activity and whose members func- capacity as DKP's president and for racketeering may encompass multi- tion as a continuing unit for a com- DKP's benefit, King was DKP. ple predicates within a single mon or shared purpose. See United scheme that were related and States v. Turkette, 452 U.S. 576, According to Kushner, Section amounted to, or threatened the like- 583 (1981) (the "enterprise" is an 1962(c) is directed, in part, at lihood of, continued criminal activi- entity while the "pattern" of racke- employees of enterprises who have ty. H.J. Inc. v. Northwestern Bell teering activity is a series of crimi- the power to conduct that enter- Tel. Co., 492 U.S. 229, 237 (1989). nal acts as defined by statute). prise's affairs. When there is a for- The two most frequently alleged mal legal entity identified as the predicate acts are mail or wire Kushner argues that there is no RICO enterprise, such as DKP, fraud. express requirement in Section Kushner says there is no issue of 1962(c) to plead distinctness either scope of authority, legitimacy Section 1962(c) makes it unlawful between the RICO "person" and the of activity, type of activity, or degree for any person employed by or asso- "enterprise." According to Kushner, of distinctness; rather, the disposi- ciated with any enterprise that is any implied requirement of distinct- tive issue is whether the employee engaged in or affects interstate or ness is necessarily satisfied by iden- has the ability to operate or manage foreign commerce to conduct or tifying separate legal entities as the the enterprise so as to conduct its participate, directly or indirectly, in RICO "person" and the "enterprise" affairs through a pattern of racke- the conduct of such enterprise's without inquiring into the degree of teering. See Reves v. Ernst & Young, affairs through a pattern of racke- distinctness. Relying on United 507 U.S. 170, 179 (1993). teering activity or collection of States v. Turkette, Kushner says unlawful debt. A "person" for pur- that a corporation is both a legal In response, King states that the poses of RICO includes any individ- entity and a defined "enterprise" appropriate test for employee liabili- ual or entity capable of holding a regardless of whether its affairs are ty under Section 1962(c) is whether legal or beneficial interest in proper- legitimate or not. Kushner says the employee's alleged predicate ty. 18 U.S.C.A. § 1961(3). RICO that because he has alleged that an acts are conducted for the employ- broadly determines "person" to individual natural person (King) is ee's benefit and on his or her indi- include corporations and municipal an employee of a corporate enter- vidual behalf, or, as the Second corporations. prise (DKP), nothing more is Circuit has stressed, "on behalf of

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American Bar Association the corporation." King urges that in severe. Kushner and the United ATTORNEYS FOR THE the former instance the requisite States suggest that the Second "distinctness" exists between the Circuit's approach would permit a PARTIES employee and the "enterprise" cor- criminal to incorporate and thereby For Cedric Kushner Promotions, porate employer, but that in the lat- take advantage of the corporate Ltd. (Richard A. Edlin (212) 848- ter instance it does not. shield attendant to that separate 1000) entity and then be immune from For Don King et al. (Peter E. SIGNIFICANCE RICO prosecution because of the Fleming Jr. (212) 696-6000) The Second Circuit's decision in Second Circuit's overbroad distinct- this case conflicts with the decisions ness rule. of other courts of appeals. See, e.g., AMIcus BRIEFS JaguarCars, Inc. v. Royal Oaks King says this is incorrect. Where In Support of Cedric Kushner Motor Car Co., 46 F.3d 258, 265-69 the corporate form is a sham, King Promotions, Ltd. (3d Cir. 1995); Khurana v. asserts that Section 1962(c) would National Association of Securities Innovative Healty Care Systems, apply because individual actors can and Commercial Law Attorneys Inc., 130 F.3d 143, 156 (5th Cir. be held liable for using a sham cor- (Kevin P. Roddy (213) 861-7454) 1997); Davis v. Mutual Life Ins. Co. porate enterprise as a passive tool to The United States (Barbara D. of New York, 6 F.3d 367, 377-78 extract money or to achieve some Underwood, Acting Solicitor (6th Cir. 1993); Richmond v. other illegal purpose through a pat- General (202) 514-2217) Nationwide Cassel L.P, 52 F.3d tern of racketeering activity. He 640, 646-47 (7th Cir. 1995); Sever argues that the real threat to justice is the sweeping application of v. Alaska Pulp Corp., 978 F.2d 1529, 1534 (9th Cir. 1992); Section 1962(c) espoused by Kushner, Brannon v. Boatmen's FirstNat'l which would expose indi- Bank of Okla., 153 F.3d 1144, 1148 viduals to potential treble damage n.4 (10th Cir. 1998). liability based on garden-variety fraud allegations simply because The First Circuit, however, appears they are employed by a corporation to agree with the Second Circuit's that can then always be named as interpretation of Section 1962(c). the RICO "enterprise." See Bessette v. Avco Financial Service, Inc., 230 F.3d 439, 449-50 According to King, such exposure (1st Cir. 2000). would discourage service by quali- fied individuals on boards of direc- In its amicus brief, the United tors of both for-profit and charitable States contends that the practical corporations, "which hardly seems a consequences of upholding the wise policy decision." Second Circuit's decision would be

Issue No. 7