Commercial Litigation and Arbitration

RICO — Association-in-Fact Enterprise Composed Exclusively of the Defendants Violates the Distinctiveness Requirement of § 1962(c)

From De Lage Landen Fin. Servs. V. Rasa Floors, LP, 2009 U.S. Dist. LEXIS 19994 (E.D. Pa. Mar. 5, 2009):

[Defendant and Counterclaimant] Rasa also brings a claim against [Plaintiff and Counterclaim Defendant] DLL under the Racketeer Influenced Corrupt Organization Act ("RICO"), 18 U.S.C. § 1961 et seq. Rasa alleges that DLL and Defendants on the Counterclaim, Capital 4 and 3Com, are "persons" within the meaning of the statute, who acted through an "enterprise" in carrying out the unlawful scheme alleged in the Counterclaim. The enterprise is alleged to be an association among the same three entities, which commenced not later than February 7, 2005 and continued through the filing of the Complaint. The Counterclaim alleges that the three "persons" conducted transactions, including mail and wire fraud, by sending documents to and attempting to collect monthly payments from Rasa and others similarly situated, and that the "persons" received income as a result of this conduct….

In Cedric Kushner Promotions, the Supreme Court upheld the distinctiveness requirement but concluded that any variation between the enterprise and the "person," even a formal organizational one, may be sufficient to satisfy the rule…. Rasa responds that it met the distinctiveness requirement by alleging that the RICO enterprise is the partnership or association formed by the RICO persons, who called the enterprise the "Power of §§ero Partnership."

However, Rasa's assertion is not an accurate description of the enterprise actually alleged in the Counterclaim, which specifically states, "The association-in-fact between Capital 4, Inc., 3Com Corporation and De Lage Landen Financial Services, Inc. ("enterprise") constitutes an enterprise within the meaning of 18 U.S.C. § 1961(4)." *** Thus, the alleged members of the enterprise are the exact same three entities alleged to be the "persons" in paragraph 257 of the Counterclaim. In Zavala v. Wal-Mart Stores, Inc., the District of New Jersey explained that "[i]f the members of the enterprise are the same as the persons, the distinctness requirement has not been met, as the 'person' and the 'enterprise' must not be identical." 447 F. Supp. 2d 379, 383 (D.N.J. 2006); see also Kolar v. Preferred Real Estate Inv., Inc., 2008 WL 2552860, at *4-5 (E.D. Pa. Jun 19, 2008) (finding violation of the distinctiveness rule where the plaintiff alleged that the defendants, a natural person, corporation, and several limited partnerships, were both individual "persons" and the collective "enterprise" for RICO purposes). Thus, the Court finds that Rasa's pleadings here violate the distinctiveness rule.

As will be reflected in the third edition of my RICO book, if and when I get it to the publisher, I believe that this analysis, as stated, cannot survive the Supreme Court's subsequent decision in Boyle v. United States, 556 U.S. ___ (2009).

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