RICO — Outsiders Deemed to Operate and Manage Insurance Company by Filing False Claims Even Though No Insiders Involved

Puerto Rico Am. Ins. Co. v. Burgos, 2011 U.S. Dist. LEXIS 112378 (D. P.R. Sept. 30, 2011):

This protracted litigation dates back to 2001, when several insurance companies initiated a massive civil action against multiple defendants under the Racketeer Influenced and Corrupt Organizations Act ("RICO"),18 U.S.C. §§ 1961-1969. Since 2001, however, the number of defendants in this case has dwindled significantly. In fact, Rivera and his wife, Hurtado, are the only remaining ones. The cross-summary judgment motions before this Court thus solely involve Rivera, Hurtado, and their conjugal partnership. According to Plaintiffs' amended complaint (the "Complaint"), Rivera — and to a lesser extent, Hurtado — engaged in a scheme to defraud them by submitting false automobile insurance claims in contravention of RICO.... Specifically, the Complaint alleged that Rivera participated in these fraudulent claims, both as an attorney representing claimants and as a claimant himself, and that Hurtado took part in the hoax as a claimant.***

"Participated in the conduct of the enterprise"

The third line of inquiry questions whether Rivera and Hurtado participated in the conduct of the enterprises' affairs. The U.S. Supreme Court has interpreted "conduct or participate" to mean that the individual alleged to have violated the statute must have participated "in the operation or management of the enterprise itself." Reves v. Ernst & Young, 507 U.S. 170, 183, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993). Moreover, the Reves Court noted that "[t]he word 'participate' makes clear that RICO liability is not limited to those with primary responsibility for the enterprise's affairs, just as the phrase 'directly or indirectly' makes clear that RICO liability is not limited to those with a formal position in the enterprise . . . ." Id. at 179.

In conformity with Reves, the First Circuit in Aetna held that since "[a]ppraising allegedly damaged vehicles and investigating, processing, and paying automobile insurance claims are vital parts of Aetna's business, [b]y acting with purpose to cause Aetna to make payments on false claims, [defendants] were participating in the 'operation' of Aetna." Aetna, 43 F.3d at 1559. It reasoned, moreover, that the filing of false claims "[c]aused Aetna's appraisers to approve false claims and conduct their appraisals in a manner contrary to Aetna's business practices . . . ." Thus, noting that the Aetna defendants "[c]aused Aetna to pay out large sums of money on false claims[,]" the First Circuit concluded that the "participation" requirement was met. Id. at 1560.

Here, as in Aetna, a vital part of Plaintiffs' business includes investigating, processing, and paying automobile insurance claims. Furthermore, it is undisputed that Rivera and Hurtado filed several false claims with the Insurance Companies. This, in turn, led the Insurance Companies to make payments for at least eighteen false claims related to automobile insurance policies. The foregoing evidence is thus sufficient to conclude that Rivera and Hurtado "exerted control over the enterprise." Aetna, 43 F.3d at 1560; Puerto Rico American Ins. Co. v. Burgos, 556 F.Supp.2d 86, 91 (D.P.R.2008) (holding that defendants' actions causing insurance companies to make payments for false claims related to automobile insurance policies satisfied the operation and management requirement). Accordingly, Plaintiffs meet the third element insofar as Rivera and Hurtado's actions satisfy the "operation or management" test.

In an attempt to distinguish Aetna, Rivera and Hurtado contend that, since no employees of the Insurance Companies were involved in Rivera's swindle — whereas in Aetna two of the defendants were employed by the insurance company —the defendants could not have participated in the conduct of the insurance company enterprise. See Docket # 1263, p. 9. While defendants fail to cite any case law in support of this contention — a more restrictive approach to the operation and management requirement — this Court discovered that defendants' rigid view has been adopted by some courts in the Second Circuit, e.g., Allstate Ins. Co. v. Seigel, 312 F.Supp.2d 260 (D.Conn.2004); In re SmithKline Beecham Clinical Lab., Inc. Lab. Test Billing Practices Litig., 108 F.Supp.2d 84 (D.Conn.1999). Such divergence is unsurprising. Concurring, Justice Scalia once noted that some aspects of RICO "produce[] the wildest and most persistent Circuit split[s] on an issue of federal law in recent memory." Gregory P. Joseph, Civil RICO, at xiii (3d ed. 2010) (citation and internal quotation marks omitted). In failing to fully develop their argument, however, Rivera and Hurtado have fallen short of convincing this Court to deem Aetna inapplicable to the instant case. The mere fact that there were no "insiders" involved in the Rivera swindle is insufficient to distinguish this instance from Aetna. And given the liberality with which courts should construe RICO, and considering the equities involved here, this Court finds no reason to deviate from Aetna's unambiguous holding. In view of the First Circuit's liberal application of the RICO Act, this Court finds defendants' argument unavailing as it stands in direct conflict with controlling case law.

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