Commercial Litigation and Arbitration

RICO — Corporation + Subsidiaries + Respective Officers/Employees ≠ Enterprise

From Cardinal Health Solutions, Inc. v. Valley Baptist Med. Ctr., 2009 U.S. Dist. LEXIS 3909 (S.D. Tex. Jan. 21, 2009)):

Defendants allege that "Cardinal Health, Inc., Cardinal Health Solutions, Inc., Cardinal Health 101, Inc., Cardinal Health 109, Inc., Cardinal Health 303, Inc., Cardinal Distribution and their officers, agents and employees (the 'Enterprise'), acted as a group of persons associated together in fact for the common purpose of carrying out [their] fraudulent scheme . . . ." ...


Valley Baptist has provided no evidence that Cardinal Health, Inc., "principally a holding company that owns stock of its subsidiaries who are involved in various aspects of the healthcare industry," formed an ongoing association with Cardinal Health, 109, Inc. for the purposes of mailing the allegedly fraudulent invoices. *** The closest Defendants come to providing evidence of such an association is to make the conclusory assertion that because many of the same individuals serve as officers of various Cardinal Health entities, including Cardinal Health 109, Inc., this "demonstrate[s] that a function of these subsidiaries is to facilitate or conceal the fraud of Cardinal Health, Inc. since the same individuals who control Cardinal Health, Inc. have also controlled Cardinal Health, 109, Inc. and other Cardinal entities. This is also evidence that Cardinal Health, Inc. conducted or participated in the conduct of the enterprise's affairs." ...

The factual similarities between this case and Atkinson [v. Anadarko Bank and Trust Co., 808 F.2d 438, 440 (5th Cir. 1987)] are striking. In both cases, RICO violations are alleged based on the mailing of false statements (or invoices) requesting payment in excess of an agreed amount. In both cases, the mailing of the statements or invoices is an activity of the subsidiary of a holding company, and in both cases there is no evidence presented that the holding company and its subsidiary "functioned as a continuing unit or formed an ongoing association" for the purposes of committing the predicate acts.

***Despite months of discovery, Defendants have provided nothing more than the bald assertion that since some of the same individuals serve as officers of both Cardinal Health, Inc. and Cardinal Health 109, Inc., Cardinal Health, Inc. must be participating in the submission of the allegedly fraudulent invoices. This is insufficient. Reasonable jurors could not find the existence of an association-in-fact enterprise separate and apart from the activities of Cardinal Health, 109, Inc., and so Defendants fail to meet an essential element of their RICO claim. Accordingly, Plaintiff's Motion for Summary Judgment on the RICO claim is GRANTED.

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