RICO — Lawyer Performing Legal Services Does Not Satisfy Reves Test Even if Named Part of Association-in-Fact Enterprise with Client
The plaintiff trust beneficiary alleged that his sister and her lawyer (who also represented the trust) comprised an association-in-fact RICO enterprise pillaging the trust. The Ninth Circuit held that the lawyer could not be held liable under 18 U.S.C. § 1962(c) because her rendering of legal services did not satisfy the operation-and-management test of Reves v. Ernst & Young, 507 U.S. 170 (1993), regardless of whether or not she was named a member of the enterprise:
We applied Reves's "operation or management" test to the provision of legal services in Baumer [v. Pachl, 8 F.3d 1341 (9th Cir. 1993)]. Emery Erdy and Estate Planning Associates, Inc. (not defendants in the RICO case) sold limited partnership interests until they got cross-threaded with the California Department of Corporations. They then retained Pachl, an attorney and RICO defendant, who wrote two letters to the Department, filed a partnership agreement, and helped Erdy in bankruptcy proceedings. We found this level of involvement insufficient to impute liability to Pachl under Reves. Pachl held no formal position in the limited partnership; he played no part in directing the affairs of the enterprise; and his role was limited to providing legal services. Further, we held: "Whether Pachl rendered his services well or poorly, properly or improperly, is irrelevant to the Reves test." 8 F.3d at 1344. It follows that [in the present case, attorney] Temple's alleged involvement is also insufficient. Like the accounting firm in Reves, she and her firm were not acting under direction from the trust or the trustees, at least, not so far as we can tell from the pleadings. Like the lawyer in Baumer, she allegedly wrote emails, gave advice, and took positions on behalf of her clients. We assume (because we must) that her performance was deficient in the respects claimed by Walter. But we know from Baumer and Reves that the quality of the services rendered doesn't matter. And there is no indication that Temple, anymore than Pachl or Arthur Young, was thereby directing the enterprise. It is not enough that Temple failed to stop illegal activity, for Reves requires "some degree of direction." 507 U.S. at 179. Finally, the factual allegations raise no inference that Temple tried to control the enterprise by anything akin, for example, to bribery. See id. at 184.
Walter maintains that reliance on Baumer and Reves is misplaced as the enterprises alleged in those cases were not associated-in-fact enterprises. ***
While true that neither Reves nor Baumer concerned an associated-in-fact enterprise, whereas this is the type of enterprise at issue here, still there must be an element of direction. Section 1962(c)'s "conduct" requirement applies without regard to the nature of the enterprise. Otherwise, as Reves explains, simply being involved would suffice. 507 U.S. at 177-78. No doubt Temple was involved as an alleged part of the enterprise, but the conduct attributed to her would not support recovery for giving, or taking, direction. Temple does not occupy a position in the "chain of command," as the First Circuit put it, through which the affairs of the enterprise are conducted. United States v. Oreto, 37 F.3d 739, 750 (1st Cir. 1994).... [S]he did not become a participant in directing the enterprise's affairs by knowingly implementing decisions of upper management. And she was not indispensable to achievement of the enterprise's goal. In this, too, Temple is different from the contractors in MCM whose participation was "vital" to the mission's success because they were the only act in town.
Share this article: