Academic journal article Fordham Journal of Corporate & Financial Law

Returning Rico to Racketeers: Corporations Cannot Constitute an Associated-in-Fact Enterprise under 18 U.S.C. § 1961(4)

Academic journal article Fordham Journal of Corporate & Financial Law

Returning Rico to Racketeers: Corporations Cannot Constitute an Associated-in-Fact Enterprise under 18 U.S.C. § 1961(4)

Article excerpt


The Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-68 (2006), prohibits a "person" from engaging in a "pattern of racketeering activity" in connection with the acquisition, establishment, or conduct of an "enterprise."4 Violations of the statute can trigger both civil and criminal penalties,5 including treble damages and attorneys' fees on the civil side. RICO's broad language created a potential for abuse of civil actions, which has long been recognized.6 For more than a decade, however, courts were not confronted by this potential. "Throughout the 1970s and early 1980s, RICO's civil remedies went virtually unnoticed and unused."7 Even criminal suits under RICO were rarely filed before 1982, averaging twenty per year in that period.8 Many of the precedents during these formative years read RICO in a broad, remedial fashion without fear of misapplication.9 The potential for abuse of RICO, especially on the civil side, remained latent.

This potential soon became a reality. From 2001 to 2006 alone, civil RICO plaintiffs filed, on average, 759 private civil claims each year. Although astonishing, these numbers are not anomalous given the last two decades of RICO jurisprudence,10 in whom a rising proportion of claims are inapposite to the intentions of RICO's drafters.11 Ironically, actions often target legitimate corporate organizations, among the parties whom RICO was designed to protect from mob infiltration.12 Such claims seek to RICO-ize ordinary commercial activity and turn garden-variety business disputes into federal claims for treble damages and attorney's fees. In one recent example, a professional wrestling promoter sued the makers of action figures and video games and licensing agents, alleging commercial bribery and related claims in connection with licensing agreements.13

Several courts have tried to limit RICO's reach in response to the exponential growth of civil RICO, seeking to prevent the "RICOiz[ation]"14 of the law of corporations, business, or torts. Notably, the Supreme Court limited section 1962(c) to claims based on a strict textual analysis. The Court held that a RICO defendant must participate in the RICO enterprise, not merely conduct its own affairs, to be liable under section 1962(c).15 More recently, the Court now requires that a RICO defendant be distinct from the RICO enterprise.16 In response, private plaintiffs attempt to plead around the rule. Rather than allege that a corporate defendant constitutes an entire enterprise, civil claimants assert that such a defendant belongs to part of a larger group "associated in fact."17 The Supreme Court considered this possibility in Kushner and warned lower courts not to accept this species of evasive pleading.18 Most circuits, however, have found that legal entities can be a part of larger associations in fact.19

This Article contends that a proper reading of the definition of "associated-in-fact" enterprise returns RICO to its racketeering roots. In light of the importance of the statutory definition of "enterprise," its language merits quotation in full: "'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."20 A close reading of the statute recognizes the difference between a corporation and an individual, resulting in the conclusion that corporations cannot be part of a "group of individuals associated in fact." The inclusion of "group of individuals" was designed to reach associations of figures in an unrecognized criminal organization-not legitimate corporations.21 In other words, the correct reading of RICO would return the statute to its original purpose of combating both the civil and criminal dimensions of organized criminal activity.

Part I examines the interpretation of RICO as articulated in seminal circuit precedents. These early cases relied on three principal bases for their decisions. …

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