Commercial Litigation and Arbitration

RICO — Even Boyle’s Generous Definition of “Enterprise” Unsatisfied

From Rao v. BP Prods. N. Am., Inc., 589 F.3d 389 (7th Cir. 2009):

After BP Products North America, Inc. ("BP") determined that Salik Rao had secretly paid a BP manager to influence the award of operating agreements in Rao's favor, BP told Rao it was terminating its franchise relationship with him at his two BP gas stations. ***

The defendants maintain that the complaint fails to state a claim for several reasons, including that it fails to allege an enterprise. The RICO statute defines an "enterprise" to include "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). At issue here is the "association-in-fact" type of enterprise. After oral argument in this case, the Supreme Court *** held in Boyle that an association-in-fact enterprise under RICO must have a "structure," although the jury need not receive an instruction in these terms. Boyle v. United States, 129 S. Ct. 2237, 2241, 173 L. Ed. 2d 1265 (2009). The Court wrote that an association-in-fact enterprise must have "at least three structural features: a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise's purpose." Id. at 2244. However, it clarified that RICO enterprises are not limited to "business-like entities" and that they need not have a hierarchical structure or a "chain of command." Id. at 2246; cf. Limestone Dev. Corp. v. Vill. of Lemont, Ill., 520 F.3d 797, 804 (7th Cir. 2008). ***

When the district court granted the motion to dismiss the RICO counts, it noted that many of the elements of the RICO claims were set forth in boilerplate fashion. It also wrote that the amended complaint alleged violations of three different RICO subsections in the same count and did not provide any time frame for the events in question in that count. The district court further noted in its opinion that Rao had indicated a desire to include additional acts and to clarify certain allegations and so for that reason it would not detail all of the RICO counts' pleading deficiencies. Although the defendants did not file their motion for summary judgment until six months later, Rao did not further amend his complaint, and Rao's counsel on appeal acknowledges that the RICO counts "could have been pleaded more artfully."

Rao does not contest the district court's determination that the statute of limitations bars consideration of acts before September 16, 2000. The allegations in his complaint that he maintains are sufficient to state a claim for violation of section 1962(c) are: (1) Yarr, Thomason, and Schumacher forced Rao to sell his share of a station to Thomason at a false price, under the threat that he would lose his other franchises if he did not, Am. Compl. P 20(e); (2) after Rao spoke with the FBI, unnamed "[BP] employees" told Rao his franchises would be terminated if he sought help, Am. Compl. P 20(g); and (3) BP allowed Yarr to force Rao into purchasing two parcels of its land so that BP would not have to purchase the gas stations he maintained at fair market value, under the threat of increased costs and the loss of his business if he refused, Am. Compl. P 20(j).

It is difficult to see an enterprise with a structure that engaged in a pattern of racketeering activity from these allegations. Even though the Supreme Court has now made clear that the "structure" requirement can be satisfied in ways other than by demonstrating a business-like entity and that enterprise participants can come and go, an association-in-fact enterprise still requires a showing of a "group of persons associated together for a common purpose of engaging in a course of conduct." Boyle, 129 S. Ct. at 2243 (citing United States v. Turkette, 452 U.S. 576, 583, 101 S. Ct. 2524, 69 L. Ed. 2d 246 (1981)). The allegations to which Rao points, however, contain different actors for each event--Yarr, Thomason, and Schumacher in one instance; different unnamed BP employees in another; and then the company (and possibly Yarr) in the third. These allegations do not indicate how the different actors are associated and do not suggest a group of persons acting together for a common purpose or course of conduct. See Stachon v. United Consumers Club, Inc., 229 F.3d 673, 676 (7th Cir. 2000) (upholding dismissal of RICO claim that failed to show the acts complained of were "the work of an organization, however loose-knit"). The allegations to which Rao points also fail to set forth a pattern of related acts in connection with an enterprise's conduct. For example, in the first allegation at issue, individuals stood to benefit if Rao sold his share of a gas station, while the third alleges that a large corporation did not want to buy property at fair market value. Rao had plenty of time to amend his complaint and did not do so, and we decline to overturn the district court's dismissal of this count for failure to state a claim.

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