RICO: Whether a Pattern Exists (Predicates + Relationship + Threat of Continuing Activity) Is a Jury Question — Mailing Need Only Be Incident to Fraud, Not Fraudulent — Limited Scope of 9(b) Particularity
Sorensen v. Polukoff, 2019 WL 3819629 (10th Cir. Aug. 15, 2019) (Unpublished):
1 Sherman Sorensen, M.D., appeals the dismissal of his claims under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962. The district court determined that Dr. Sorensen’s amended complaint does not meet RICO’s “pattern requirement” because it fails to adequately plead two or more predicate acts. Sorensen v. Polukoff, No. 2:18-CV-67 TS, 2018 WL 3637518 (D. Utah July 31, 2018). For the reasons explained below, we reverse and remand for further proceedings.
Dr. Sorensen is a cardiologist who began practicing medicine in Utah in 1982. He is well-known for his extensive experience in repairing two kinds of heart defects involving incomplete closures of the atrial chambers: patent foramen ovale (PFO) and atrial septal defect (ASD). In 2006, Dr. Sorensen formed the Sorensen Cardiovascular Group (SCG), which provided cardiology services in Salt Lake City, Utah, until December 2011. Through his practice with SCG, he performed many PFO and ASD closures, provided follow-up care for those patients, and maintained medical and billing records for each patient.
SCG stored its patients’ medical charts in paper format in the SCG office and stored its patients’ billing records on hard drives housed on the SCG site. The billing records on these hard drives contained HIPAA-protected information,2 including:
(1) patient names, addresses, telephone numbers, and other personal identifying information; (2) patient demographic information; (3) patient insurance information, including medical diagnostic and procedure codes; (4) patient charges; and (5) a summary of the care SCG provided to the patients.
Appellant’s App. at 400. A local technical support company, TecCon, Inc., maintained and periodically replaced SCG’s hard drives. Dr. Sorensen and the SCG billing manager were the only people authorized to direct TecCon to perform work for SCG.
In early 2011, after taking a position at the University of Utah School of Medicine, Dr. Sorensen wanted to scale back his clinical practice. He reached out to Gerald Polukoff, M.D., a cardiologist who had previously expressed interest in joining SCG to learn how to perform PFO closures from Dr. Sorensen. Dr. Polukoff reaffirmed his interest, so he and Dr. Sorensen began negotiating terms of employment. In June 2011, Dr. Polukoff entered into a one-year employment contract to work for SCG, and he began practicing with SCG two months later. Under the agreement, Dr. Polukoff was a contract employee and was not authorized to make decisions on behalf of SCG or to access any of SCG’s medical or billing records.
In July 2011, soon after he began training Dr. Polukoff (but before Dr. Polukoff began practicing with SCG), Dr. Sorensen suffered a heart attack. Soon thereafter, Dr. Sorensen offered to sell his practice to Dr. Polukoff. Dr. Polukoff responded that he needed to ensure SCG’s financial viability before accepting the offer. In October, Dr. Sorensen announced to his staff his decision to retire, effective that December.
*2 It was around this time that the allegedly fraudulent scheme began. On October 7, 2011, Dr. Polukoff allegedly:
[m]et with TecCon, without Dr. Sorensen’s authorization or knowledge; [f]alsely informed the TecCon technician, Scott Peacock, that he would be assuming ownership of SCG and wanted to discuss future work by TecCon; [i]nstructed that new backup hard drives be installed, despite the fact that new hard drives had already been installed in May 2011 ...; [c]oncealed from Dr. Sorensen the directions to install new hard drives; and [r]equested to receive his own hard drive to take offsite.
Id. at 404–05. One week later, Dr. Polokuff “again met with TecCon without Dr. Sorensen’s authorization or knowledge” and instructed Peacock to “set up and provide him with remote access to SCG’s billing records,” which Peacock did. Id. at 405. Dr. Polukoff also sent various e-mails to Peacock about obtaining the hard drive in which he stated that he was authorized to access the patient information. Then, after obtaining the hard drive, which contained information for about 10,000 patients, Dr. Polukoff “opened a port on the server” to access “the remote desktop.” Id. Finally, on November 4, 2011, Dr. Polukoff, “without the knowledge or authorization of Dr. Sorensen, signed a new ‘TecCon Service Level Agreement’ for SCG,” which revised “the entire IT infrastructure at SCG even though it was recently upgraded.” Id.
In early November 2011, Dr. Polukoff rejected Dr. Sorensen’s offer to take over his practice, so they executed a release whereby Dr. Sorensen paid Dr. Polukoff $200,000 to buy out the remainder of his contract. Shortly thereafter, in mid-November, Dr. Sorensen learned of Dr. Polukoff’s unauthorized access to SCG’s billing records and informed his staff that “a backup hard drive might be missing.” Id. at 407. Dr. Sorensen sent Dr. Polukoff an e-mail asking about the missing hard drive, but Dr. Polukoff denied any knowledge or involvement. Dr. Sorensen alleges that the combined value of the hard drive and its contents exceeds $5,000.
On December 6, 2011, Dr. Polukoff filed a qui tam action against Dr. Sorensen. See United States ex rel. Polukoff v. St. Mark’s Hosp., 895 F.3d 730 (10th Cir. 2018). In the suit, which is still ongoing, Dr. Polukoff alleges that Dr. Sorensen routinely overbilled the federal government by performing medically unnecessary procedures.3 Id. at 734. Dr. Polukoff and his attorneys admit that they used information obtained from the hard drive in the qui tam litigation, though they insist that they lawfully obtained a “copy” of the hard drive. Appellant’s App. at 446.
After unsuccessfully demanding that Dr. Polukoff return the hard drive, Dr. Sorensen sued Dr. Polukoff, as well as the lawyers representing Dr. Polukoff in the qui tam action, Rand Nolen and Rhome Zabriskie, and their respective law firms, Fleming, Nolen & Jez, LLP and Zabriskie Law Firm, LLC. Dr. Sorensen alleges that the Defendants violated, and collectively conspired to violate, RICO. Specifically, Dr. Sorensen alleges violations of the following predicate acts under RICO: (1) transportation of stolen goods, in violation of 18 U.S.C. § 2314; (2) sale of or receipt of stolen goods, in violation of § 2315; (3) mail fraud, in violation of § 1341; and (4) wire fraud, in violation of § 1343. According to Dr. Sorensen, the Defendants schemed to deprive him of the hard drive through false pretenses so that they could use the information in the qui tam litigation, as well as directly solicit Dr. Sorensen’s former patients to encourage them to file malpractice suits against him. Dr. Sorensen also asserts various state-law claims.
*3 The Defendants allegedly solicited Dr. Sorensen’s patients through the U.S. mail, as well as social-media, newspaper, and website advertisements. Using the contact information discovered on the stolen drive, the Defendants mailed letters to Dr. Sorensen’s former patients asking them to indicate their interest in suing Dr. Sorensen for malpractice. When a patient did not respond, the Defendants sent a follow-up letter explaining that they were currently presenting a case to a pre-litigation medical-negligence panel, the facts of which were “nearly identical” to that of the solicited patient. Id. at 411–12. Dr. Sorensen asserts that the only way to know that a patient’s case is “nearly identical” to another’s is through the information on the allegedly stolen hard drive, because the Defendants had no direct knowledge about the solicited patients’ care from Dr. Sorensen. Id. at 412. The Defendants also solicited patients through newspaper advertisements and posts on their law-firm websites and on social-media websites, such as Reddit and Facebook. One posting on the Zabriskie firm website claims that “7,000 PFO and ASD closures were performed in violation of FDA and AMA standards,” a figure that Dr. Sorensen maintains the Defendants could know only through access to his hard drive. Id. at 424 & n.4. Dr. Sorensen maintains that the mail solicitations, newspaper advertisements, and internet posts contain false information about his medical practice.
The Defendants moved to dismiss the amended complaint, and the district court granted the motion. Dr. Sorensen has appealed. “We review de novo a district-court dismissal of a complaint for failure to state a claim.” Fernandez v. Clean House, LLC, 883 F.3d 1296, 1298 (10th Cir. 2018).
“The Racketeer Influenced and Corrupt Organizations Act (RICO), Pub.L. 91–452, Title IX, 84 Stat. 941, as amended, 18 U.S.C. §§ 1961–1968, provides a private civil action to recover treble damages for injury ‘by reason of a violation of’ its substantive provisions.” Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 481 (1985) (quoting 18 U.S.C. § 1964(c)). “RICO was an aggressive initiative to supplement old remedies and develop new methods for fighting crime,” and it “is to be read broadly” and “liberally construed to effectuate its remedial purposes.” Id. at 497–98 (citations omitted).
Dr. Sorensen alleges that the Defendants violated 18 U.S.C. § 1962(c), which makes it “unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.” Therefore, to avoid dismissal, Dr. Sorensen must allege that the Defendants “(1) conducted the affairs (2) of an enterprise (3) through a pattern (4) of racketeering activity.” George v. Urban Settlement Servs., 833 F.3d 1242, 1248 (10th Cir. 2016). He must also allege that the Defendants’ conduct caused him injury. See Hemi Grp., LLC v. City of New York, 559 U.S. 1, 9 (2010).
At issue here is whether Dr. Sorensen has sufficiently alleged facts to meet the “pattern” element. “To establish a pattern of racketeering activity, the plaintiff[ ] must allege at least two predicate acts” listed in 18 U.S.C. § 1961(1). George, 833 F.3d at 1254. “Although proof of at least two predicate racketeering acts are necessary to prove a pattern,” the plaintiff must also establish (1) “a relationship between the predicates”4 and (2) “the threat of continuing activity.”5 Resolution Tr. Corp. v. Stone, 998 F.2d 1534, 1543 (10th Cir. 1993) (quoting H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 236–37 (1989)). “Whether a pattern exists is a question of fact for the jury to determine.” Id.
*4 The district court concluded that Dr. Sorensen’s pleading fails to satisfy the “pattern” element as a matter of law, because it does not sufficiently allege any predicate acts under RICO. Sorensen, 2018 WL 3637518, at *3–10. First, it concluded that Dr. Sorensen fails to allege mail and wire fraud under 18 U.S.C. §§ 1341 and 1343, because the alleged mail and wire solicitations did not contain any fraudulent or false information. Id. at *4–7. Second, it concluded that Dr. Sorensen fails to allege either transportation of stolen goods, 18 U.S.C. § 2314, or sale of or receipt of stolen goods, id. at § 2315, because Dr. Sorensen does not allege that the physical hard drive itself was worth $5,000 or more. Id. at *7–8. Accordingly, the district court dismissed Dr. Sorensen’s RICO claims. Id. at *11.6 We agree with Sorensen that both conclusions are contrary to Tenth Circuit precedent.
A. Mail and Wire Fraud Predicate Acts
Dr. Sorensen alleges that the Defendants committed the predicate acts of mail fraud and wire fraud in furtherance of their scheme. The elements of mail fraud under 18 U.S.C. § 1341 are “(1) a scheme or artifice to defraud or obtain property by means of false or fraudulent pretenses, representations, or promises,7 (2) an intent to defraud,8 and (3) use of the mails to execute the scheme.” United States v. Zander, 794 F.3d 1220, 1226 (10th Cir. 2015) (citation omitted). Relevant here, there need not be any “direct connection between fraudulent misrepresentations and the use of the mails.” Id. at 1228. Rather, the mailing need only be “incident to an essential part of the scheme.” Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 647 (2008) (quoting Schmuck v. United States, 489 U.S. 705, 712 (1989)). “The elements of wire fraud under 18 U.S.C. § 1343 are similar [to mail fraud] but require that the defendant use interstate wire, radio or television communications in furtherance of the scheme to defraud.” Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 892 (10th Cir. 1991); see also United States v. Redcorn, 528 F.3d 727, 738 (10th Cir. 2008) (“[A wire] transmission is considered to be for the purpose of furthering a scheme to defraud so long as the transmission is incident to the accomplishment of an essential part of a scheme.” (citation and internal quotation marks omitted)).
*5 Here, the district court concluded that Dr. Sorensen does not sufficiently allege mail fraud because he “fails to show any false representations or promises in the letters,” and does not sufficiently allege wire fraud because he fails to allege “any falsities in the advertisements that Defendants allegedly used to fraudulently induce his former patients to file claims against him.” Sorensen, 2018 WL 3637518, at *5, 7. But Dr. Sorensen need not allege that the mailings or the wire communications themselves were fraudulent. Rather, he needs only allege that they were “incident to an essential part” of a fraudulent scheme. See Bridge, 553 U.S. at 639; see also Redcorn, 528 F.3d at 738.
Nor does Dr. Sorensen need to “connect[ ] the names on the hard drive to any of [his former] patients that saw the posts and subsequently filed claims against” him. Sorensen, 2018 WL 3637518, at *7. To be sure, Rule 9(b) of the Federal Rule of Civil Procedure requires claims based on fraud be pleaded “with particularity.” Cayman Expl. Corp. v. United Gas Pipe Line Co., 873 F.2d 1357, 1362 (10th Cir. 1989). But the particularity requirement requires only that the plaintiff “set forth the time, place and contents of the false representation, the identity of the party making the false statements and the consequences thereof.” George, 833 F.3d at 1254 (citation omitted); see also id. at 1256 (finding a sufficient allegation of fraud where the plaintiffs identified the names of individuals who made false statements, the dates of the allegedly false statements, “the actions the plaintiffs took in reliance on those misrepresentations,” “the injuries they suffered as a result,” and how those misrepresentations furthered the defendants’ ultimate fraudulent goals); Tal v. Hogan, 453 F.3d 1244, 1266 (10th Cir. 2006) (finding communications to be “alleged with sufficient particularity to establish cognizable claims for wire fraud” where the “communications not only describe the date, the parties to the communication and the subject matter, but also how they were fraudulent and what they were designed to accomplish”).9
B. Stolen-Property Predicate Acts
Dr. Sorensen also alleges that the Defendants committed the predicate acts of transportation of stolen goods and receipt of stolen goods. The relevant statutes prohibit knowingly selling, receiving, or transporting stolen goods worth $5,000 or more. See 18 U.S.C. §§ 2314 & 2315. Significant here, because “the intangible intellectual property value of goods may vastly exceed the intrinsic worth of accompanying tangible goods,” courts must “include intangible value when thefts of tangible objects occur” to determine the value of the allegedly stolen goods under §§ 2314 and 2315. United States v. Lyons, 992 F.2d 1029, 1033 (10th Cir. 1993); see also Dowling v. United States, 473 U.S. 207, 216 (1985) (“Nor does it matter [under § 2314] that the [stolen] item owes a major portion of its value to an intangible component.”).
Here, the district court determined that “the information on the hard drive is intangible information that does not fit within the definition of a ‘good,’ so the value of the hard drive itself must be $5,000 or more in order for [Dr. Sorensen] to plead the violations of these statutes as predicate acts.” Sorensen, 2018 WL 3637518, at *8 (footnote omitted). This was a clear error. So long as some tangible property was stolen (here, the hard drive), and the combined value of the property (both tangible and intangible) is $5,000 or more, the theft qualifies under §§ 2314 and 2315. See Dowling, 473 U.S. at 216; Lyons, 992 F.2d at 1033; United States v. Brown, 925 F.2d 1301, 1308 (10th Cir. 1991).
*6 In addition, as it did for Dr. Sorensen’s mail and wire fraud allegations, the district court required more particularity than is required under Rule 9(b). At the pleading stage, Dr. Sorensen need not identify the “brand, size, serial number, and other identifying information” of the hard drive. Sorensen, 2018 WL 3637518, at *8. Rather, the district court must accept the pleaded facts about the hard drive’s value as true, so long as they are plausible. See
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