RICO — Pleading Enterprise, Operation and Management and Conspiracy after Boyle and Twombly
From In re Ins. Brokerage Antitrust Litig., 2010 U.S. App. LEXIS 17107 (3d Cir. Aug. 16, 2010):
1. Legal Standards
a. Section 1962(c)
i. The Enterprise Element
***After the District Court had dismissed plaintiffs' claims, and after we had heard argument in this appeal, the Supreme Court decided Boyle v. United States, 129 S. Ct. 2237 (2009). Boyle sought to clarify the required attributes of an association-in-fact enterprise in order to resolve conflicts that had developed among the courts of appeals over the proper interpretation of the Turkette factors.... Rejecting several proposed ways of cabining the definition of an "enterprise," the Boyle Court highlighted several elements of the RICO statute that pointed toward a capacious construction of the term. Most significant was the statute's specific description of possible enterprises. See 18 U.S.C. § 1961(4) (stating that an "'enterprise' includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity"). "This enumeration of included enterprises is obviously broad, encompassing 'any . . . group of individuals associated in fact.' The term 'any' ensures that the definition has a wide reach, and the very concept of an association in fact is expansive." Boyle, 129 S. Ct. at 2243 (quoting 18 U.S.C. § 1961(4)) (emphasis in Boyle) (internal citation omitted). In addition, "the RICO statute provides that its terms are to be 'liberally construed to effectuate its remedial purposes.'" Id. (quoting Organized Crime Control Act of 1970, Pub. L. No. 91-452, § 904(a), 84 Stat. 922, 947).
Informed by these background principles, the Court expounded the necessary elements of an association-in-fact enterprise. Such an enterprise must have a structure. Specifically, it "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." *** But the Court saw "no basis in the language of RICO" for requiring a particular type of organizational structure. ***
In short, Boyle holds that the RICO statute defines an "enterprise" broadly, such that the "enterprise" element of a § 1962(c) claim can be satisfied by showing a "structure," that is, a common "purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise's purpose." Id. at 2244; see id. at 2245 ("[A]n association-in-fact enterprise is simply a continuing unity that functions with a common purpose."). "[A]fter Boyle, an association-in-fact enterprise need have no formal hierarchy or means for decision-making, and no purpose or economic significance beyond or independent of the group's pattern of racketeering activity." United States v. Hutchinson, 573 F.3d 1011, 1021 (10th Cir.), cert. denied, 130 S. Ct. 656 (2009). To the extent our cases have interpolated additional requirements into the statute, they are abrogated by Boyle. ***
When the asserted enterprise, however, is not itself a legal entity, but rather an association of legal entities, simply identifying the allegedly associated components does not serve to put defendants on notice of the RICO claim alleged against them — just as merely listing the names of alleged conspirators would not give defendants adequate notice of an alleged conspiracy. For that reason, even before Twombly, some courts required plaintiffs to provide more detail in pleading the existence of an association-in-fact enterprise. ***
In any case, it is clear after Twombly that a RICO claim must plead facts plausibly implying the existence of an enterprise with the structural attributes identified in Boyle: a shared "purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise's purpose." Boyle, 129 S. Ct. at 2244; see Rao v. BP Prods. N. Am., Inc., 589 F.3d 389, 400 (7th Cir. 2009) (upholding dismissal of RICO claims because, inter alia, the plaintiff's allegations of an association-in-fact enterprise "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"); Elsevier Inc. v. W.H.P.R., Inc., 692 F. Supp. 2d 297, 307 (S.D.N.Y. 2010) (finding that the complaint "fail[s] to plead the existence of . . . the so-called association in fact enterprise" because it does not plausibly "tie together the various defendants allegedly comprising the association in fact into a single entity that was formed for the purpose of working together," that is, "acting in concert"); see also Phillips v. County of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (stating generally that Twombly "'requires a complaint with enough factual matter (taken as true) to suggest' [each] required element" of the claim alleged). To require less would ignore Twombly's interest in "insist[ing] upon some specificity in pleading before allowing a potentially massive factual controversy to proceed" to an "inevitably costly and protracted discovery phase." *** As other courts have recognized, the concern expressed in Twombly is just "as applicable to a RICO case, which resembles an antitrust case in point of complexity and the availability of punitive damages and of attorneys' fees to the successful plaintiff. RICO cases, like antitrust cases, are 'big' cases and the defendant should not be put to the expense of big-case discovery on the basis of a threadbare claim." Limestone Dev. Corp. v. Vill. of Lemont, 520 F.3d 797, 803 (7th Cir. 2008).***
iii. The Requisite Nexus
Simply pleading that a defendant "participated in the operation or management" of an enterprise, however, is not enough to make out a violation of § 1962(c). The defendant must have done so "through a pattern of racketeering activity." In other words, there must be not only a "nexus between the [defendant] and the conduct [of] the affairs of an enterprise," *** but also a nexus between the conduct of those affairs and the pattern of racketeering activity***. The plain language of the statute requires that the "pattern of racketeering activity" be a means by which the defendant "participate[s], directly or indirectly, in the conduct of [the] enterprise's affairs." ***
Given Reves, the inquiry must be whether the defendant participated in the "operation or management" of an enterprise's affairs, and if so, whether he did so "through a pattern of racketeering activity." As the plain language of the statute indicates, the nexus element requires a plaintiff to show that the defendant participated in the conduct of the enterprise's affairs (per Reves) through — that is, "by means of, by consequence of, by reason of, by the agency of, or by the instrumentality of *** — a pattern of racketeering activity. ***
b. Section 1962(d)
[A] § 1962(d) claim must be dismissed if the complaint does not adequately allege "an endeavor which, if completed, would satisfy all of the elements of a substantive [RICO] offense[.]"
2. Application to This Case
a. Section 1962(c) Claims
i. The Broker-Centered Enterprises
Plaintiffs contend they have pled facts plausibly suggesting that each defendant broker and its insurer-partners composed an association-in-fact enterprise. The District Court disagreed. Central to its conclusion was its finding that although plaintiffs had adequately alleged bilateral agreements (regarding the steering of business and the payment of contingent commissions) between each broker and its insurer-partners, plaintiffs had failed to plead facts plausibly suggesting collaboration among the insurers. The asserted hub-and-spoke structures therefore lacked a "unifying 'rim.'" .... In the absence of a plausible "rim" or "wheel" connecting the alleged insurer "spokes," the District Court determined that while plaintiffs may have alleged parallel, bilateral structures connecting a broker to each of its insurer-partners, they had failed to plead "broker-centered enterprises" encompassing each broker "hub" and all of its strategic partners.
With respect to all but the Marsh-centered enterprise alleged in the Commercial complaint, we agree with the District Court that plaintiffs' allegations of broker-centered enterprises are fatally defective. ***
[Rimless Hub-and-Spoke Conspiracy ≠Enterprise.] Even under the relatively undemanding standard of Boyle, these allegations do not adequately plead an association-in-fact enterprise. They fail the basic requirement that the components function as a unit, that they be "put together to form a whole." Boyle, 129 S. Ct. at 2244 (internal quotation marks omitted). Because plaintiffs' factual allegations do not plausibly imply anything more than parallel conduct by the insurers, they cannot support the inference that the insurers "associated together for a common purpose of engaging in a course of conduct." Id. (quoting Turkette, 452 U.S. at 583); see id. at 2245 n.4 (stating that "several individuals" who "engaged in a pattern of crimes listed as RICO predicates" "independently and without coordination" "would not establish the existence of an enterprise"); Elsevier, 692 F. Supp. 2d at 307 (stating that, as with a § 1 Sherman Act claim, a RICO claim pleading "nothing more than parallel conduct by separate actors" is insufficient: "there has to be something that ties together the various defendants allegedly comprising the association in fact into a single entity that was formed for the purpose of working together — acting in concert--by means of" racketeering acts); Gregory P. Joseph, Civil RICO: A Definitive Guide 106 (3d ed. 2010) (stating that a "rimless hub-and-spoke configuration would not satisfy the 'relationships' prong of Boyle's structure requirement"); see also Rao, 589 F.3d at 400 (finding the plaintiff had failed to plead an association-in-fact enterprise because the "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"). Were the rule otherwise, competitors who independently engaged in similar types of transactions with the same firm could be considered associates in a common enterprise. Such a result would contravene Boyle's definition of "enterprise." ***
[W]e reach a different conclusion with respect to the claims alleging bid rigging — the bid-rigging allegations in the Commercial complaint suffice to plead a "Marsh-centered enterprise." As Boyle clarified, a RICO "enterprise" must have a structure, but it need not have any particular structural features beyond "a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise's purpose." Boyle, 129 S. Ct. at 2244. We think the allegations of bid rigging provide the "rim" to the Marsh-centered enterprise's hub-and-spoke configuration, satisfying Boyle's requirements. ***
[Defendants Banding Together to Do What They Cannot Do Alone.] Here, however, the defendants are alleged to be members of the enterprise. It will often be the case that the interests of the enterprise are congruent with those of its members; such congruence presumably provides the incentive for members to participate in the enterprise. We think, therefore, that "if defendants band together to commit [violations] they cannot accomplish alone . . . then they cumulatively are conducting the association-in-fact enterprise's affairs, and not [simply] their own affairs." Joseph, supra, at 74; see Brandao, 539 F.3d at 54. Here, defendants' alleged collaboration in the Marsh-centered enterprise, most notably the bid rigging, allowed them to deceive insurance purchasers in a way not likely without such collusion.
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