Federal Statutes - Racketeer Influenced and Corrupt Organizations Act - En Banc Ninth Circuit Holds That RICO Enterprise Need Not Have Any Particular Organizational Structure. - Odom V. Microsoft Corp

Harvard Law Review, April 2008 | Go to article overview

Federal Statutes - Racketeer Influenced and Corrupt Organizations Act - En Banc Ninth Circuit Holds That RICO Enterprise Need Not Have Any Particular Organizational Structure. - Odom V. Microsoft Corp


Courts have grappled with the complexity of the Racketeer Influenced and Corrupt Organizations Act (1) (RICO) since its passage in 1970. The development of the statute has been characterized as a "tug of war" between the Supreme Court and lower courts, (2) with the Court rejecting judicially imposed limitations on the application of the statute. At the same time, civil plaintiffs have advanced the uses of RICO far beyond those that Congress primarily intended in 1970, often targeting activity that amounts to simple "business disputes" and frauds. (3) Recently, in Odom v. Microsoft Corp., (4) the Ninth Circuit held that a RICO enterprise need not have a separate structure other than that necessary to commit the underlying crimes, deepening a circuit split on the question of what sort of organization may be charged (or pleaded in civil cases) as an "enterprise" under the statute. (5) In so ruling, the majority reached the correct outcome per the text of the RICO statute and appropriately rejected an interpretation focused on the intent of Congress. Instead of limiting its discussion to RICO's text, however, the court invoked an unnecessary and overly broad interpretive rule of its own that obscures the continued importance the Supreme Court gives to common law--based limitations on the RICO statute.

In May 2002, James Odom bought a laptop computer at a Best Buy store in California. (6) The Best Buy employee who processed Odom's purchase also scanned a compact disc (CD) that provided a free trial subscription to Microsoft's internet access service, MSN. (7) Six months later, Microsoft began charging Odom's credit card for the service, which Odom cancelled after discovering the charges. (8) Odom and a class of plaintiffs filed suit against both Microsoft and Best Buy in federal district court under RICO [section] 1964(c), which allows recovery of treble damages for those injured by a violation of RICO's criminal provisions. (9) Odom alleged that, pursuant to a joint marketing agreement between Best Buy and Microsoft made in 2000, Best Buy had created an MSN subscription for Odom and sent his credit card information to Microsoft, all without Odom's knowledge or consent. (10) Odom asserted that Microsoft and Best Buy acting together therefore constituted an "enterprise" under RICO [section] 1962(c) (11) that had engaged in the predicate acts of wire fraud through the unwanted creation of the MSN accounts, (12) which also constituted a "pattern of racketeering activity" under RICO. (13) The district court dismissed the suit in March 2004. (14) The court noted that civil RICO plaintiffs, per Ninth Circuit precedent, needed to show that the alleged enterprise had some "separate structure" apart from that needed to engage in the pattern of racketeering activity. (15) The court found that Odom's complaint failed to satisfy this separate structure requirement. In particular, the alliance between the companies had neither a "separate system of authority" for directing the enterprise nor a structured "disburse[ment of] proceeds" from the alleged wire fraud. (16) The court concluded that the lack of any such evidence meant that Odom had failed to plead a RICO "enterprise."

After a panel of the Ninth Circuit heard argument, it ordered the case reargued en banc; (17) the full court then reversed and remanded. (18) Writing for the majority, Judge Fletcher (19) began his discussion by reviewing the history of Supreme Court interpretation of the RICO statute, (20) concluding as a general rule that the terms of RICO ought to be construed broadly. (21) The court noted that a circuit split existed, however, on the nature of the "enterprise" (22) that plaintiffs needed to allege, with several circuits requiring a showing of "ascertainable organizational structure beyond whatever structure is required to engage in the pattern of illegal racketeering activity" and others not. …

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