Rico Conspiracy Law and the Pinkerton Doctrine: Judicial Fusing Symmetry of the Pinkerton Doctrine to Rico Conspiracy Through Mediate Causation

RICO Conspiracy Law and the Pinkerton Doctrine

Judicial Fusing Symmetry of

The Pinkerton Doctrine to RICO Conspiracy Through Mediate Causation

Dean Browning Webb

¹

Contents

Abstract

Foreword

Summary of RICO

Introduction To The Pinkerton Doctrine

The Pinkerton Doctrine, Affiliative Liability, and

The Concept of Mediate Causation

Comprehending Pinkerton

Salinas

Beck

Beck

Pinkerton Precludes Application of

Reves v. Ernst & Young

The RICO Liberal Construction Clause

Supports Application of Pinkerton

Pinkerton and RICO Conspiracy Contrasted

Pinkerton Applied in Federal Tobacco Litigation

Pinkerton and Smith v. Berg

Applied To Sub-Prime Mortgage

Applying Pinkerton To Pleading RICO Conspiracy Claim Under 18 U.S.C. § 1962(d)

A. Aiding and Abetting Instruction

B. Pattern of Racketeering Activity

C. Pinkerton Instruction

(1). RICO § 1962(d) Conspiracy and Pinkerton Doctrine Analysis Applied In Connection With Assessing Alternative Liability Under RICO Aiding and Abetting

(2). Pinkerton Doctrine Applied By The Ninth Circuit Court of Appeals To RICO § 1962(d) Criminal Conspiracy Prosecutions Supports Comparable Invocation To RICO § 1962(d) Civil Conspiracy Practice

(a).       Judicially Symmetry Accorded In Pari Materia Construction and Logical Application

3. Application to the Case at Hand

A. Pinkerton Doctrine Both Substantiates and Corroborates A Plaintiffs’ Multiple RICO § 1962(d) Conspiracy Claims.

RICO Conspiracy and Sant Properties

RICO Conspiracy and Injury

(2). RICO § 1962(d) Conspiratorial Liability and RICO Aiding and Abetting RICO § 1962(c) Substantive Offense By Application of Pinkerton Recognized

C. Ninth Circuit Judicial Construction of RICO Section 1962(d) Comports With, And Is Consonant With, Pinkerton, Salinas, and Beck.

D. Third Circuit and Seventh Circuit RICO Conspiracy Law Supports Application of Salinas and Its Construction By The Ninth Circuit Court of Appeals

E. RICO Conspiracy § 1962(d) Liberally Construed To Apply Pinkerton Doctrine Through The RICO Liberal Construction Clause.

F. Ninth Circuit Decisional Law re: RICO Respondeat Superior Liability Recognized.

G. The Ninth Circuit and Sixth Circuit Recognize Civil RICO Aiding and Abetting Liability.

Criminal Accomplice Liability:

Title 18 United States Code § 2

Criminal Accomplice Liability:

Title 18 United States Code § 2(b)

H. Supreme Court In Pari Materia Construction of RICO §1962(d) Substantiates RICO Conspiracy Claims

RICO § 1962(d) Conspiracy to Aid and Abet RICO Primarily Substantive Contraventions and RICO Aiding and Abetting RICO §1962(d) Conspiracy Judicially Cognizable

RICO §1964(c) Standing and RICO §1962(d)

Conspiracy To Conceal

Judicially Distinguishing RICO § 1962(d) Conspiracy and RICO § 1961(4) Enterprise Elements

Conclusion

Copyright © 2013 by Dean Browning Webb.

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128697

In Memoriam

In Loving Remembrance

Juretta Elizabeth Oliver

10 November 1929-25 June 1993

This literary accomplishment is dedicated in loving

remembrance to Juretta Elizabeth Oliver.

Recognition

Mary Jacqueline Evans

This literary exposition of such exceedingly complex and technical issues of law would not have been possible without the invaluable contribution and concerted collaboration of my trusted and reliable paralegal Mary Jacqueline Evans. Mary’s great attention to detail, content, and literary revision significantly facilitated and furthered the progression of this project.

Abstract

RICO civil litigation has experienced increasingly significant exponential growth. The increasing employment of the federal racketeering statute to reach and ascribe liability to both individuals and entities that do not actually commit the underlying racketeering substantive offenses has engendered the assertion of RICO conspiracy claims to achieve this result. The author advances the argument that Pinkerton v. United States , 328 U.S. 640 (1946), a rule of criminal conspiracy law, is both increasingly and appropriately invoked in the RICO civil conspiracy context, and judicially fusing the concept of mediate causation rationally supports that application. In addition, the RICO Liberal Construction Clause similarly applies in this context, and that no rational justification forecloses the Pinkerton Doctrine from judicial application and correlative recognition to civil RICO conspiracy litigation in order to achieve a concomitant result. Arguments to restrict or foreclose application of Pinkerton in pursuing civil RICO conspiracy as wholly unwarranted, producing an austere, pernicious insupportable result, are patently void of substance when examined in the context of both the Doctrine and the RICO Liberal Construction Clause.

Exclusively applying Pinkerton to RICO conspiracy criminal prosecutions is tantamount to inexplicably undermining the very reasoning animating the enactment of the federal RICO statute. The especial significance of transporting and applying the analysis of the Pinkerton Doctrine as construed and interpreted by federal courts in the federal RICO criminal conspiracy context both justifiably substantiates and significantly corroborates correlative application in the federal RICO civil conspiracy context. Judicially differentiating between both contexts, wholly supporting application of Pinkerton in RICO conspiracy criminal prosecutions, citing the RICO Liberal Construction Clause, while simultaneously condemning and fiercely resisting application of Pinkerton in RICO conspiracy civil litigation produces both judicial incongruity and inconsistent construction evidenced by flawed legal scholasticism. Judicial symmetry must be accorded in both contexts to achieve and promote the singular purpose of the RICO Liberal Construction Clause: recognizing judicial symmetry applying Pinkerton uniformly in both civil and criminal contexts.

Foreword

Litigating federal RICO issues – both civilly and criminally – is especially exacting and rigorous. Federal courts enter rulings and publish opinions addressing the multi-faceted array of issues raised in those contexts. Perhaps nowhere is this contentiousness evidenced with increasing intensity and sharply contrasting positions than that specifically addressing the federal RICO conspiracy law. The legal issues arising from this collision of various judicial interpretations embrace intricate complexities of the racketeering conspiracy statute.

The express underlying purpose of this text is intended to address the application of the Pinkerton Doctrine to federal RICO conspiracy litigation. Analyzing Pinkerton in the context of federal RICO conspiracy criminal prosecutions, applied in conjunction with recognizing the significant importance of the RICO Liberal Construction Clause, supports correlative applicability in the context of federal RICO conspiracy civil litigation. Federal courts routinely apply Pinkerton and the prescient analysis accompanying the Doctrine to criminally prosecuting individuals engaged in conspiring to commit multifarious criminal activities. Such federal RICO criminal conspiracy prosecutions selectively target persons conspiring to commit drug offenses, murder for hire, extortion, loan sharking, and money laundering. Federal courts have exhibited increasingly visible recognition rationally justifying application of Pinkerton in these particular federal RICO criminal conspiracy prosecutions.

Inexplicably, federal courts have registered a concomitantly intense resistance, and in certain instances, outright contempt and revulsion to consider application of Pinkerton to federal RICO civil conspiracy litigation. Judicial expressions characterized such efforts as illogical, irrational, and inappropriate. Yet, the very judicial analysis federal courts consistently invoke and apply to both find and uphold RICO criminal conspiracy convictions under Pinkerton are correlatively identical, concomitantly symmetrical, and rationally proper in the RICO civil conspiracy litigation context. Federal courts, confronted with these precise legal arguments supporting application of the Doctrine in the RICO civil conspiracy context, have in many instances resorted to extreme lengths to formulate judicial arguments condemning recognition of Pinkerton when potentially applying the Doctrine to individuals including attorneys, accountants, business consultants, corporate directors, officers, and managerial personnel, as well as corporate co-managing members and managing and non-managing general partners. Indeed, federal courts would necessarily find even the remotest mention of applying Pinkerton in the white collar context both an anathema and an austere, exceedingly unacceptable application of the Doctrine.

This text provides both extensive and incisive legal analysis of Pinkerton and rational arguments supporting application of the Doctrine to RICO civil conspiracy litigation. Attorneys are provided with an invaluable resource for use and assessment in connection with analyzing and addressing this specific issue of RICO conspiracy law. Counsel will be accorded with salient, compellingly convincing legal arguments to effectively advance a client’s interest when the prospect of initiating a federal RICO action exists. Pinkerton is equally applicable in both criminal RICO conspiracy and civil RICO conspiracy contexts, and the analysis set forth within this text both logically and rationally substantiates that legal argument. The ultimate objective here is providing a textual resource that embodies legal analysis corroborating the accordance of judicial symmetrical application of the Pinkerton Doctrine in both RICO conspiracy contexts.

Summary of RICO

Congress enacted the Organized Crime Control Act, Title IX ² in 1970 which is both universally recognized and generally known by its compellingly fitting acronym as the Racketeer Influenced and Corrupt Organizations Act (RICO). ³ Congress similarly designed RICO to combat organized ⁴ crime. ⁵

In addition thereto its private enforcement provisions, RICO provides criminal sanctions for certain proscribed conduct out by, through, or against enterprises through a pattern of racketeering activity, including violence, the provision of illegal goods and services, corruption and fraud in the arena of attorneys, accountants, corporate directors, officers, and consultants, as well as in the Machiavellian⁶ world of mobsters and murderers.⁷ Congress expressly mandated that RICO be liberally construed to effectuate its remedial purposes.⁸ Persons engaged in, prosecuting, or committing activities statutorily enumerated as racketeering, in the context of a pattern of racketeering activity, by and through an enterprise," will find themselves between the Charybdis⁹ of criminal racketeering characterization and the Scylla of significant monetary liability exposure and severely punitive criminal punishment.

RICO’s purposes is "the imposition of… new civil sanction to provide new legal remedies for all types of organized criminal behavior, that is, enterprise criminality — from simple political corruption to sophisticated white-collar crime schemes to traditional Mafia-type endeavors."¹⁰ Given a RICO¹¹ complaint’s allegations of both Machiavellian¹² expediency, calculating opportunism, and the resulting Malthusian¹³ geometric and expansive injuries¹⁴ feloniously inflicted, no sharp pencil analysis is required to apply it to defendants’ fraudulent scheme.¹⁵ No defendant is immune from its

penalties,¹⁶ no matter what their alleged pedigree or purported community¹⁷ stature.¹⁸ Expansive language deliberately employed by Congress when drafting RICO, and Section 1962 in particular,¹⁹ and the statute’s mandated liberal construction,²⁰ compel its application here to provide a remedy. Arguments²¹ to severely delimit and restrict this broad RICO application are negated by Congressional mandate and Supreme Court²² construction rejecting such attempts that are inconsistent with its statutory language and/or legislative history.²³

Introduction To The Pinkerton Doctrine

The Pinkerton ²⁴ Doctrine is a rule of criminal conspiracy law. Though Pinkerton is associated with, and has been invoked in, criminal prosecutions, the doctrine has seemingly found its way into civil ²⁵ Racketeer Influenced and Corrupt Organizations Act of 1970 ²⁶ [RICO] conspiracy ²⁷ litigation.

This text comprehensively examines the evolution of the Pinkerton Doctrine, the review and analysis of particular federal RICO decisions construing Pinkerton, and advances malleable, practical arguments supporting its successful invocation in civil RICO conspiracy litigation. This text includes an analysis of the concepts of mediate causation and affiliative liability for purposes of rationally justifying the application of Pinkerton, concluding that the Pinkerton Doctrine is judicially appropriate and legally cognizable to advancing both civil RICO conspiracy claims and the underlying RICO Liberal Construction Clause.²⁸

The Pinkerton Doctrine, Affiliative Liability, and

The Concept of Mediate Causation

Understanding the Pinkerton Doctrine requires a factual review. Walter and Daniel Pinkerton, two brothers, were indicted for both substantive and conspiratorial offenses arising from evading federal liquor taxes.²⁹ The Supreme Court reviewed the case because the jury had been instructed that it could convict the Pinkertons of all substantive offenses committed to further their conspiracy.³⁰

Upholding the instructions and sustaining the convictions, Justice Douglas concluded that the brothers were affiliated within a conspiracy when the offenses were committed. Justice Douglas’s cogent analysis is both compelling and persuasive. Concluding that a conspiracy is essentially tantamount to a partnership in crime, Justice Douglas espoused the Pinkerton Doctrine. That Doctrine recognizes that because members of a conspiracy are partners in crime, they are liable for acts taken by their co-conspirators in furtherance of their joint criminal purposes.³¹ The depth and scope of the judicial treatment underpinning this analysis is cogently analyzed and thoroughly reviewed by a preeminently³² recognized leading authority and proponent that vigorously advocates both recognition and application of Pinkerton in the civil RICO conspiracy context:³³

Justice Douglas based this doctrine on two sources – a rule of proximate causation and a rule of complicity among co-conspirators. In dissent, Justice Rutledge contended that the majority’s use of the rule of complicity among co-conspirators abrogated the historic principle that in criminal law guilt is personal, not vicarious." But even before Pinkerton, participation in a conspiracy could establish liability for crimes committed by other conspirators; this was simply a means of proving complicity, and Justice Douglas derived his Pinkerton holding from this rule of complicity among co-conspirators. The major difference between the two doctrines is that under Pinkerton, membership in a conspiracy gives rise to a presumption of aiding crimes committed to further the goals of that conspiracy, while under the older rule membership was evidence of complicity but did not give rise to a presumption. (footnotes omitted).³⁴

Pinkerton, therefore, can thus be characterized as a rule of conspiracy law recognizing affiliative liability. The act of mutually agreeing to the commission of offenses is considered to have an independent causal significance that justifies holding one who agrees to a conspiracy liable for its intended results.³⁵ This observation is especially compelling when considering application of Pinkerton to civil RICO conspiracy pleading:

This act [affiliating with another for a criminal purpose] satisfies the criteria for imposing accountability under the traditional criminal law standard of personal liability: affiliating with another for criminal purposes is a voluntary act committed with a culpable mental state, or mens rea, that causes a prohibited social harm. (footnote omitted). In either of its guises, as Pinkerton liability or as complictious liability, this act is clearly more culpable than the act that suffices for imposition of vicarious liability in civil law… . The only element of criminal liability that is attenuated under Pinkerton is causation, which receives the same treatment accorded it under the kindred doctrine of accomplice liability. Liability can attach under either form of affiliative liability without showing that the affiliative act actually caused commission of certain crimes. (footnote omitted). And because the affiliative act is a wrong in itself, liability can attach even though the target crime was not accomplished. (footnote omitted).³⁶

Affiliative liability, is, therefore, judicially recognized and appropriately applicable to ascribe Pinkerton liability to RICO co-conspirators whose offense is consummating the illegal agreement to contravene RICO substantive provisions.³⁷ Brenner’s expose on the application of Pinkerton aptly reveals that guilt by association is in fact a viable legal instrument for RICO conspiratorial liability:

Instead of abrogating "the need for a personal actus reus" as an element of liability, (footnote omitted) the Pinkerton doctrine holds a party liable for the consequences of a specific personal act—affiliating with another for criminal purposes. This act permits imposition of liability for crimes committed by those with whom one shares such a relationship. The non-acting party is liable for these offenses because her criminal act of allying herself with the acting party caused them to be committed. (footnote omitted).³⁸

No rational justification militates against employing Pinkerton in the RICO conspiratorial context.³⁹ Its invocation is consonant with advancing the liberal⁴⁰ construction of RICO to eradicate innumerable forms of racketeering activity and to reach those perpetrators who occupy conspiratorial capacities who do not actually commit the underlying substantive criminal offenses:

Both the Pinkerton doctrine and rules of complicity accomplish this through a single device: they attribute causation for crimes that are physically perpetrated by another on the basis of a unique bad act that of entering into a criminal affiliation. The often-unarticulated premise of these doctrines is that the act of aligning oneself with others to pursue a criminal purpose has causal significance. The causal import of this act is an instance of mediate causation. (footnotes omitted).⁴¹

Significant within this analysis is Brenner’s compelling analysis and sharp observation that the concept of mediate causation⁴² is a recognized factor in situations in which one’s acts are deemed to have mediately caused an effect upon another’s conduct. The result is the imposition of criminal liability that comports with traditional requirements by including the element of demonstrable personal fault:

‘Mediate causation’ denotes instances in which an individual’s actions can be deemed to have exerted some causal effect upon another’s conduct. It resolves the problem of attempting to identify the extent to which one person’s acts actually affected another’s conduct by making it possible, under certain circumstances, to assume a causal effect that is sufficient to support imposition of criminal liability.⁴³ (emphasis in original).

Mediate causation⁴⁴ and affiliative liability are terms evolved from Pinkerton that can support the invocation of the Pinkerton Doctrine in civil RICO conspiracy litigation practice. Brenner’s candid recognition of causation by motivation and ‘contributing cause" are both aptly suited in support of this precise analytical framework:

Human beings, however, unite to commit crimes far more often than they become another’s instrumentality for doing so. It is this circumstance which the Pinkerton doctrine and rules of complicity address. Here, causation by motivation operates in a more refined form. The Pinkerton doctrine and rules of complicity both target the act of affiliating with another or others to achieve a criminal purpose on the premise that this act reinforces and/or exacerbates motivation that already exists on some level. Because it operates on a predisposition to engage in criminal conduct, the affiliative act at issue in these doctrines cannot be a but for cause of any criminal results. It can, however, be a contributing cause of crimes that result from such an affiliation.

A contributing cause is a force that combines with another cause to produce a given result. The concept of contributing cause is not well-developed in criminal law for two reasons. One is that criminal law requires a closer fit between cause and effect than tort law does. The other is that law has historically employed a mechanical approach to causation that emphasizes the operation of objective forces and effectively ignores subjective causation. In analyzing causation by motivation, Professor Hall attempted to introduce subjective causation into criminal law without abrogating the requirement that there be a demonstrably linear relationship between an act and a criminal result. It is possible to achieve this in instances in which one person’s will supplants another’s to become the but for cause of a criminal act. It is, however, impossible to achieve this when subjective causation is considered as an additive, rather than an overriding, force; this, of course, is the phenomenon that both the Pinkerton doctrine and rules of complicity address.⁴⁵

These particular alliterative concepts of causation accurately reflect the fundamental basis of supporting application of Pinkerton to finding RICO conspiratorial liability.⁴⁶ As analyzed herein below, these specific forms of causation, analyzed on conjunction with Pinkerton’s⁴⁷ analysis, judicially fuses appropriately into civil RICO conspiracy law.⁴⁸

Comprehending Pinkerton

To comprehend Pinkerton and its impact, an examination of subsequent Supreme Court decisions interpreting the RICO conspiracy provision is warranted.⁴⁹

The Supreme Court construed the RICO conspiracy statute’s application and construction in Beck v. Prupis ,⁵⁰ a civil RICO conspiracy decision. Beck lays to rest the conflicting positions of the federal courts relative to the necessary pleading requirements of a civil RICO conspiracy claim by conflating Section 1962(d) and the by reason of Section 1964(c) proximate causation requisite. The juridical fusion of these two provisions is intended to achieve uniformity by extending the strictures of Holmes v. Securities Investor Protection Corporation⁵¹ to civil racketeering conspiracy by requiring the commission of an overt act that proximately caused plaintiff’s injuries.

Authoring the majority opinion, Associate Justice Thomas arrives at this conclusion by invoking the law of civil conspiracy. The judicial expressions the Court relies upon in supporting its decision presume the rational justification belying proximate causality engrafted upon RICO civil conspiracy, distinguishing civil relief from criminal RICO conspiracy prosecutions.

The vigorous dissent of Associate Justices Stevens and Souter critically assail the majority’s reasoning through civil conspiracy law as misguided and denouncing the Court’s foisting the by reason of requirement of Section 1964(c) upon Section 1962(d) as inappropriate when examined in the context of Congressional intention underlying the enactment of RICO.

Beck is perilously inapposite with the Court’s Salinas v. United States ⁵² decision construing racketeering conspiracy by introducing a rigid, inflexible demarcation line between RICO criminal conspiracy under Section 1962(d), where criminal liability attaches without the need to prove that a defendant committed an overt act. Salinas held that in the RICO conspiracy context, all that must be shown is that a conspirator intended to facilitate or further an endeavor which, if completed, would satisfy all of the elements of a substantive criminal offense, and that the conspirator agreed to pursue the same criminal objective, or adopt the objective of furthering or facilitating the criminal endeavor. Under general conspiracy law, which Salinas says applies to Section 1962(d)⁵³, in order to be liable under RICO concepts, one does not have to agree to personally perform every aspect of a violation and, in particular, one does not need to agree personally to commit the predicate offenses, let alone commit an overt act. The conspiracy springs from the agreement to pursue the same criminal objective and the work may be divided up among the conspirators, yet each is responsible for the acts of the others. The lower courts have had difficulty in applying the law as set forth in Salinas to civil cases, despite the lack of any legislative intent to treat civil cases different in any way from criminal cases.

Since the Salinas ruling, federal courts have continually struggled with its application to civil RICO conspiracy claims. The resulting decisions are confusing and inconclusive. Moreover, Salinas⁵⁴ cites and follows with approval the Pinkerton⁵⁵ Doctrine, recognizing its application to criminal RICO conspiracy practice and procedure. To further understand the logical relationship between Pinkerton and its application to civil racketeering conspiracy claim pleading, a review of the doctrine and Salinas, juxtaposed with the concept of mediate causation, supports advancing Pinkerton to civil RICO conspiracy claim pleading and practice.

Salinas⁵⁶

The Supreme Court

Salinas, a RICO criminal conspiracy prosecution, involved a deputy sheriff who was acquitted of the underlying substantive RICO offenses but was convicted of the RICO conspiracy crime under Section 1962(d). The defendant argued that his Section 1962(d) conviction could not be sustained unless the prosecution proved that he personally agreed to commit two predicate offenses and actually committed those offenses in furtherance of the conspiracy. Examining the legislative intent of the RICO statutes and general conspiracy principles, the Court summarily rejected defendant’s argument, concluding:

A conspirator must intend to further an endeavor which, if completed, would satisfy all of the elements of a substantive criminal offense, but it suffices that he adopt the goal of furthering or facilitating the criminal endeavor. He may do so in any number of ways short of agreeing to undertake all of the acts necessary for the crime’s completion.⁵⁷

The Court held that to be convicted of a RICO conspiracy a person must agree with other persons that they will engage in conduct that constitutes a crime. The purpose of the conspiratorial agreement is to facilitate the commission of a crime, and a particular defendant need not perform all of the criminal acts. All a RICO conspirator need do is to agree to support a criminal objective to further an endeavor which, if completed, would satisfy all of the elements of a criminal offense. Doing so does not require the conspirator to agree to commit or facilitate each and every part of the substantive offense.

Salinas clarified the pleading and practice standard for criminal RICO conspiracy prosecutions. However, the lower courts have been slow to accord deference to the reasoning of Salinas in the civil RICO conspiracy context, and it appears that the several federal circuits will continue to attempt to narrowly construe and apply Salinas in the civil arena. The Ninth Circuit appropriately commented in both Chang v. Chen⁵⁸ and Neibel v. Trans World Assurance Co.,⁵⁹ that there is no reason in the civil RICO context to differentiate between the statutory basis of a civil and a criminal RICO case, and, accordingly, a civil RICO conspiracy claim should survive the dismissal of the Section 1962(c)

substantive claims, irregardless of whether it is a criminal RICO⁶⁰ or a civil RICO case.⁶¹ The lower courts’ difficulty with consistently applying conspiracy requirements in a civil context in the same manner as applied to conspiracy in a criminal context may result from unsupported judicial antipathy towards the use of RICO in a civil context, without adequate jurisprudential basis to distinguish between the identical legislative basis for both. Part of the problem in consistent application of the law to civil and criminal RICO conspiracy claims may also lie in the practical necessity in the civil context to show an injury, which almost always coincides with an overt act even though Salinas makes it clear that an overt act is not necessary for a RICO conspiracy conviction. Perhaps the problem in consistent application is that inchoate crimes, such as conspiracy, are sometimes difficult to conceptually translate into the civil context, even though the legislative language is straightforward and clear in decreeing that conspiracy is one of the four bases for civil and criminal RICO liability. Yet, the applicability of the Pinkerton Doctrine is appropriate in civil RICO conspiratorial context.⁶²

Beck⁶³

The Supreme Court

The Majority Opinion

The Beck Court’s majority opinion perfunctorily reviews RICO generally and then proceeds to analyze Section 1962(d) applicability in terms of civil conspiracy and proximately caused injury. Certiorari issued because of inconsistent positions between the federal circuits construing the racketeering conspiracy provision in the limited factual context of whistle blower standing:

We granted certiorari, 526 U.S. 1158 (1999), to resolve a conflict among the Courts of Appeals on the question whether a person injured by an overt act in furtherance of a conspiracy may assert a civil RICO conspiracy claim under §§1964(c) for a violation of §§1962(d) even if the overt act does not constitute racketeering activity.The majority of the Circuits to consider this question have answered it in the negative. See, e.g., Bowman v. Western Auto Supply Co., 985 F.2d 383, 388 (CA8), cert. denied, 508 U.S. 957 (1993); Miranda v. Ponce Fed. Bank, 948 F.2d 41, 48 (CA1 1991); Reddy v. Litton Indus., Inc., 912 F.2d 291, 294—295 (CA9 1990), cert. denied, 502 U.S. 921 (1991); Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 25 (CA2 1990). Other Circuits have allowed RICO conspiracy claims where the overt act was as in the instant case merely the termination of employment, and was not, therefore, racketeering activity. See, e.g., Khurana v. Innovative Health Care Systems, Inc., 130 F.3d 143, 153—154 (CA5 1997), vacated sub nom. Teel v. Khurana, 525 U.S. 979 (1998); Schiffels v. Kemper Financial Services, Inc., 978 F.2d 344, 348—349 (CA7 1992); Shearin v. E. F. Hutton Group, Inc., 885 F.2d 1162, 1168—1169 (CA3 1989).⁶⁴

The Court then summarily concluded that the resolution of the issue revolved upon the agglomerated effect of Section 1962(d) and Section 1964(c). Then, inexplicably, the Court, literally, fused the combined statutory amalgamation in the context of civil conspiracy law, requiring that an injury arise from the commission of an overt act in connection with the RICO conspiracy. In turn, that act is required to be an act statutorily⁶⁵ identified under RICO:

The principle that a civil conspiracy plaintiff must claim injury from an act of a tortious character was so widely accepted at the time of RICO’’s adoption as to be incorporated in the common understanding of civil conspiracy. See Ballentine’’s Law Dictionary 252 (3d ed. 1969) (It is the civil wrong resulting in damage, and not the conspiracy which constitutes the cause of action); Black’’s Law Dictionary 383 (4th ed. 1968) ([W]here, in carrying out the design of the conspirators, overt acts are done causing legal damage, the person injured has a right of action (emphasis added)). We presume, therefore, that when Congress established in RICO a civil cause of action for a person injured… . by reason of a conspir[acy], it meant to adopt these well-established common-law civil conspiracy principles.⁶⁶

Supported by its construction of civil conspiracy case law, the Court concluded that relief arising from a RICO conspiracy claim must be proximately attributable to the commission of an overt act specifically identified by the RICO statute. Any overt act not statutorily listed under RICO precludes the required standing to advance such a claim.

Beck

The Supreme Court

The Dissenting Opinion: Judicially Implausibility

Associate Justice Stevens penned the Beck dissenting opinion. Joined by Associate Justice Souter, the dissenting opinion astutely and constructively criticized the Majority’s misplaced reliance upon invoking civil conspiracy law to premise its decision requiring proximate causality as a condition precedent to RICO conspiracy⁶⁷ standing and correlative recovery.

The Justices similarly distended the Majority’s citations to the numerous federal and state decisional authorities that purportedly support their opinion to judicially fuse Sections 1962(d) and 1964(c), requiring a proximately caused injury emanating from an overt act listed under RICO’s racketeering activity provision:

The plain language of RICO makes it clear that petitioner’’s civil cause of action under §§1964(c) for a violation of §§1962(d) does not require that he be injured in his business or property by any particular kind of overt act in furtherance of the conspiracy. The Court’’s recitation of the common law of civil conspiracy does not prove otherwise, and, indeed, contradicts its own holding.

For these reasons, I respectfully dissent.⁶⁸

The analysis embodied within the dissenting opinion accurately and correctly states the proper and intended construction and application of the RICO conspiracy provision. Beginning with the basic premise that the plain language of RICO does not compel a person to condition recovery under Section 1962(d) by demonstrating an injury proximately caused by an overt act, i.e., a form of racketeering activity, the invoking of civil conspiracy law is, indeed, judicially implausible.

The dissent’s cogent analysis is terse yet significant. No one need look any further beyond Section 1962, which contains four alternative bases of prohibited activities. Melding Section 1964(c) to the former does not ipso facto accord a claim for relief under the latter. To adopt the Majority’s position, Title 18 USC Section 1962(d) would be rendered mere surplusage, which Associate Justice Thomas accentuated was in fact not intended.

Pinkerton Precludes Application of

Reves v. Ernst & Young

Pinkerton similarly forecloses invocation of Reves v. Ernst & Young⁶⁹ in the RICO conspiracy context. Though professionals such as attorneys and accountants have advanced Reves as an argument to obviate RICO conspiracy liability exposure, such efforts have produced inconsistent results. In fact, Reves has engendered intense debate, and a review of conflicting judicial positions illustrates the judicial exacerbation experienced by litigants.

Reves is a stringently construed rule essentially created to benefit professionals who find themselves embroiled in RICO litigation based on the mere rendition of perfunctory services, as long as they do not conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs. Reves has generated contentiousness and increased judicial activity that otherwise would have been silenced. ⁷⁰ Federal courts have increasingly construed Reves to apply, or not apply, in a myriad of differing factual contexts. Disposition of most of those RICO actions where Reves is invoked is achieved on a motion to dismiss for failure to state a claim, and the federal courts have exhibited a growing eagerness to jettison such actions through the federal summary judgment instrument.⁷¹ A developing body of positive federal case law refusing to apply Reves in traditional professional liability based RICO actions signals an increasing revulsion and recognized antipathy towards its perceived⁷²

blanket immunization policy.⁷³

Pinkerton effectively forecloses Reves by its ostensible rule of law, supported by the RICO Liberal Construction Clause. Indeed, Salinas, Beck, and those federal decisions expansively construing this rule of law, exemplify the appropriate construction and interpretation of Section 1962(d).⁷⁴

The RICO Liberal Construction Clause

Supports Application of Pinkerton

The RICO Liberal Construction and its interpretation by the Supreme Court further substantiates the justification to invoke and apply Pinkerton in the civil RICO conspiracy context.

Resolution of the conflicting positions of the federal circuits regarding the appropriate interpretation of RICO can be achieved through review of this Court’s decisions construing RICO. In its principal RICO decisions, including Salinas v. United States,⁷⁵ NOW v. Scheidler,⁷⁶ Alexander v. United States,⁷⁷ Holmes v. Securities Investor Protection Corp.,⁷⁸ Tafflin v. Levitt,⁷⁹ H.J., Inc. v. Northwestern Bell Telephone Co.,⁸⁰ Caplin & Drysdale v. United States,⁸¹ United States v. Monsanto,⁸², Agency Holding Corp., v. Malley-Duff & Assoc.,⁸³ Shearson/Am. Express, Inc. v. McMahon,⁸⁴ Sedima, S.P.R.L. v. Imrex Co.,⁸⁵ Russello v. United States,⁸⁶ and United States v. Turkette,⁸⁷ this Court has acknowledged several propositions of statutory construction, established the basic principles that govern the interpretation of RICO, and consistently applied them to the statute:

(1) read the language of the statute,⁸⁸;

(2) language includes its structure,⁸⁹;

(3) language should be read in its ordinary or plain meaning, but must be viewed in context,⁹⁰;

(4) language should not be read differently in criminal and civil proceedings,⁹¹;

(5) look to the legislative history of the statute,⁹²;

(6) look to the policy of the statute,⁹³;

(7) the statute was aimed at the infiltration of legitimate business by organized crime,⁹⁴;

(8) the statute is to be broadly read and liberally construed,⁹⁵; and,

(9) where Congress rejects proposed limiting language in a bill, it may be presumed that the limitation was not intended.⁹⁶

These general propositions of statutory construction of the interpretation of RICO advance the statute’s Liberal Construction Clause, RICO Section 1964. Application to those propositions clearly evidence the intent of Congress to have RICO construed expansively in order to achieve its envisioned objective of eradicating criminal activity that affects the economic fiber of American society. Reading RICO is basically a question of the "language of the statute. — the most reliable evidence of its intent.⁹⁷ Read literally, the propositions are uncomplicated and unambiguous.

Finally, if a straightforward textual reading of RICO does not lead to a finding of criminal and civil accomplice liability and a clear tie-breaker is necessary, because contextual analysis results in a tie,⁹⁸ then the Liberal Construction Clause ought to be read to play that role. Reading the possibility of accomplice liability or RICO’s provision of conspiracy liability in terms of the maximum expressio unius to exclude accomplice liability or to create a new, but narrower form of conspiracy liability – either criminally or civilly – is squarely inconsistent with RICO’s Liberal Construction Clause.⁹⁹

Pinkerton and RICO Conspiracy Contrasted

Pinkerton is applied in numerous conspiracy contexts. However, the doctrine is not necessarily embraced in the civil RICO conspiracy area. The Supreme Court ruled Salinas to chiefly expand RICO conspiracy liability to reach those who facilitate and further the criminal endeavour, which, if completed, would satisfy all of the elements of a criminal offense. Salinas cited Pinkerton to support this conclusion.¹⁰⁰

An example of the application of Pinkerton, through the tenets of Salinas and Beck, is Smith v. Berg.¹⁰¹ The Third Circuit in Smith v. Berg accorded liberal construction to Salinas, ruling Reves v. Ernst & Young¹⁰² inapplicable to RICO Section 1962(d) claims. RICO conspiracy claims can be maintained against a non-acting RICO co-conspirator where a plaintiff alleges that any one RICO co-conspirator engaged in conduct that constitutes racketeering activity resulting in injury. The court found that the Supreme Court in Beck v. Prupis¹⁰³ did not prohibit this particular pleading approach under RICO Section 1962(d).

The United States District Court for the Eastern District of Pennsylvania, confronted with the incompatible arguments raised by the defendants regarding Reves and its potential application to RICO conspiracy claims, and in light of the Beck decision, ruled that the issues were significantly appropriate for certification¹⁰⁴ before the Third Circuit:

This case presents two questions: First, in light of the Supreme Court’s decision in Salinas v. United States, 522 U.S. 52, 118 S. Ct. 469 (1997), may liability under the federal Racketeer Influenced and Corrupt Organizations Act (RICO) conspiracy statute codified at 18 U.S.C. § 1962(d) be limited to those who would, on successful completion of the scheme, have participated in the operation or management of a corrupt enterprise? Second, did the Supreme Court’s more recent decision in Beck v. Prupis, 529 U.S. 494, 120 S. Ct. 1608, 146 L.Ed.2d 561 (2000), limit application of its holding in Salinas to criminal cases? Ruling against the Appellants on both issues, we will affirm the Orders of the District Court for the Eastern District of Pennsylvania. In doing so, we hold that any reading of United States v. Antar, 53 F.3d 568 (3d Cir. 1995), to the effect that conspiracy liability under section 1962(d) extends only to those who have conspired personally to operate or manage the corrupt enterprise, or otherwise suggesting that conspiracy liability is limited to those also liable, on successful completion of the scheme, for a substantive violation under section 1962(c) , is inconsistent with the broad application of general conspiracy law to section 1962(d) as set forth in Salinas.¹⁰⁵

In Smith v. Berg, class plaintiffs named three lending institutions and a title insurance carrier for contravening RICO Section 1962(d). Those institutional defendants were not named for substantively contravening RICO Section 1962(c); rather, the defendants were alleged to have facilitated and furthered the wrongful activities of John Berg, a real estate developer that selectively targeted racial and ethnic minorities to qualify to buy distressed residential properties in the Philadelphia area. The entity defendants argued that they had not engaged in any conduct constituting racketeering activity, substantially relying upon Third Circuit existing authority expressed in United States v. Antar.¹⁰⁶ The District Court denied their Rule 12(b)(6) motion and certified the two specific issues identified above for interlocutory appeal in light of Beck v. Prupis.¹⁰⁷

The Third Circuit affirmed, finding that those entities were susceptible to RICO conspiracy liability notwithstanding the fact that they did not commit any act that constituted racketeering activity. The allegations that those defendants facilitated and furthered Berg’s felonious conduct was sufficient to ascribe conspiratorial liability. The Third Circuit cited Neibel v. Trans World Assurance Co.,¹⁰⁸ footnote 8, as indicative that Reves may apply to RICO conspiracy; however, Neibel’s continued validity was seriously questioned in light of Smith v. Berg expressly overruled Antar, the decision Neibel based its holding upon. Indeed, other federal courts have severely criticized the Ninth Circuit’s retention of Neibel.

In 2004, the Ninth Circuit affirmatively overruled Neibel, citing Smith v. Berg with approval, in United States v. Fernandez,¹⁰⁹ a criminal RICO conspiracy prosecution. More importantly, the Ninth Circuit recognized Neibel’s legal reasoning rested upon an earlier Third Circuit decision, United States v. Antar,¹¹⁰ and that Antar was overruled by Smith v. Berg , which squarely addressed RICO conspiracy law in light of Salinas and Beck. Affirming the RICO conspiracy convictions, the Ninth Circuit expressly repudiated and overruled Neibel and announced recognition of Smith v. Berg as consonant with, and complementary to, Pinkerton, Salinas and Beck:

We now agree with the Third Circuit that the rationale underlying its distinction in Antar, and our holding in Neibel, is no longer valid after the Supreme Court’s opinion in Salinas. Accordingly, this case presents a situation similar to Miller v. Gammie, in which we held that where the reasoning or theory of our prior circuit authority is clearly irreconcilable with the reasoning or theory of intervening higher authority, a three-judge panel should consider itself bound by the later and controlling authority, and should reject the prior circuit opinion as having been effectively overruled. 335 F.3d 889, 893 (9th Cir. 2003) (en banc). We adopt the Third Circuit’s Smith test, which retains Reves’ operation or management test in its definition of the underlying substantive § 1962(c) violation, but removes any requirement that the defendant have actually conspired to operate or mange the enterprise herself. Under this test, a defendant is guilty of conspiracy to violate § 1962(c) if the evidence showed that she knowingly agree[d] to facilitate a scheme which includes the operation or management of a RICO enterprise. Smith, 247 F.3d at 538.¹¹¹

The Ninth Circuit’s explicit repudiation of Neibel¹¹² clarified the proper application and construction of Pinkerton, Salinas, Beck, and Smith v. Berg:

Relying on the governing case in this circuit on RICO conspiracy, Neibel v. Trans World Assur. Co., 108 F.3d 1123 (9th Cir.1997), Schoenberg asserts that she cannot be convicted for conspiracy to violate RICO if she did not agree to direct the enterprise’s affairs. We conclude that Neibel is no longer good law because it is inconsistent with subsequent Supreme Court precedent. Under the appropriate test outlined in Salinas v. United States, 522 U.S. 52, 62, 118 S.Ct. 469, 139 L.Ed.2d 352 (1997), the evidence presented at trial was sufficient to support Schoenberg’s conviction under § 1962(d) for conspiracy to violate § 1962(c).¹¹³

Fernandez advances the principle of Pinkerton by adopting a comprehensive ruling whose malleable elasticity is consistent with conspiracy law.¹¹⁴ The ruling is especially congruent with Brenner’s¹¹⁵ treatment of mediate causationand its applicability to Pinkerton in the civil RICO conspiracy context. Smith v. Berg significantly amplifies that application.¹¹⁶

A substantial number of federal courts¹¹⁷ cite and follow Smith v. Berg as both authoritative and as a proper construction and application of Salinas. In

United States v. Sasso,¹¹⁸ the district court found Smith v. Berg appropriately applied to, and consistent with the Second Circuit’s position expressed in United States v. Zichettello¹¹⁹ and the Seventh Circuit’s analysis advanced within Brouwer v. Raffensperger, Hughes & Co.,¹²⁰ finding that though some of the RICO co-conspirators did not participate directly within the fraudulent activities of the criminal scheme, those defendants nonetheless facilitated and furthered the criminal enterprise. Such a holding is consistent with Salinas and Smith v. Berg.¹²¹ Moreover, one court specifically found that a RICO co-conspirator who lacks knowledge of the entire conspiratorial scheme remains jointly and severally liable for all acts in furtherance of the RICO conspiracy.¹²²

The Seventh Circuit later opined in United States v. Warneke¹²³ explicitly stating that the Ninth¹²⁴ Circuit’s¹²⁵ continued reliance upon Neibel is seriously misplaced, signaling an significant uneasiness with its unjustified retention. Citing Brouwer,¹²⁶ the court specifically observed that Smith v. Berg overruled Antar, and that the Ninth Circuit’s misguidance through further retention of Antar was diametrically inapposite with the prevailing position of federal courts addressing Salinas:¹²⁷

Neibel is an unsatisfactory decision. It assumes that only a person who has committed the substantive crime can be guilty of conspiracy and then holds that this principle applies to RICO [,] too. Yet there is no such principle. * * * . Nothing in Neibel persuades us to change course, Indeed, the [N]inth [C]ircuit seems not to have recognized that it was going against the Supreme Court’s view of what is necessary to prove a criminal conspiracy. * * *, and the [T]hird [C]ircuit has disavowed the passage of Antar to which Neibel referred, and disagreed with Neibel’s holding[,] too. See Smith v. Berg, 247 F.3d 532, 536-38 (3d Cir. 2001). Every other circuit that has considered this subject likewise has disapproved Neibel. ***. We shall stick with Brouwer.¹²⁸

The District of Columbia federal court granted the government’s summary judgment motion in United States v. Philip Morris USA, Inc.,¹²⁹ specifically finding that a RICO co-conspirator’s liability does not require the defendant to participate in the operation or management of the RICO enterprise. Roundly criticizing Neibel as judicially inapposite and inexplicably misplaced, the court cogently found that:

All circuits but the Ninth have concluded that Reves addressed only the extent of conduct or participation necessary to violate Section 1962(c), and did not address the principles of conspiracy law under Section 1962(d). See Smith v. Berg, 247 F.3d 532 (3d Cir. 2001); United States v. Posada-Rios, 158 F.3d 832, 857 (5th Cir. 1998); Napoli v. United States, 45 F.3d 680, 683-84 (2d Cir. 1995); MCM Partners, Inc. v. Andrews– Bartlett & Assoc. 62 F.3d 967, 970 (7th Cir. 1995); United States v. Starrett, 55 F.3d 1525, 1547 (11th Cir. 1995); United States v. Quintanilla, 2 F.3d 1469, 1485 (7th Cir. 1993)("to hold that under section 1962(d) the government must show that an alleged coconspirator… participated to the extent required in Reves would add an element to RICO conspiracy that Congress did not direct").[footnote omitted]. Thus, Reves’ operation or management standard applies only to substantive RICO offenses under Section 1962(c) and not to a conspiracy to violate RICO under Section 1962(d).¹³⁰

Without question, Pinkerton supports the underlying tenets of the RICO Liberal Construction Clause.¹³¹ Pinkerton’s rational logic substantiates its practical application to civil RICO conspiracy litigation.¹³² Smith v. Berg similarly

furthers the expansive advance of the quintessential judicial logical application of Pinkerton.¹³³ Significantly, both the embrace of Pinkerton’s underlying cogent analysis and the concept of mediate causality is similarly applicable to reach non-acting co-conspirators. A passive, non-acting co-general partner charged with contravening RICO §1962(d)¹³⁴ as a RICO co-conspirator¹³⁵ is liable¹³⁶ for the racketeering activities of an active co-general partner¹³⁷ of a partnership. The United States District Court for the Southern District of New York correctly concluded in 131 Main Street Associates v. Manko,¹³⁸ that imposing RICO conspiratorial liability upon non-acting general partners¹³⁹ predicated upon the activities of the managing general partners.¹⁴⁰ This judicial reasoning is both consistent and consonant with Pinkerton, Salinas, Beck, and Smith v. Berg.

Pinkerton Applied in Federal Tobacco Litigation

Tobacco litigation has seized the conscience of the nation. Health concerns and monetary recompense issues predominate the day. And, RICO has found yet another area for practitioners to advance its application of the Pinkerton Doctrine. A review of two significant RICO opinions interpreting and applying Pinkerton warrant discussion.

The United States District Court for the District of Columbia entered its Final Opinion in Unted States v. Philip Morris USA, Inc.,¹⁴¹ a complex federal RICO civil action brought by the federal government against tobacco and related entities.

The court ruled that the defendants contravened Section 1962(c) and Section 1962(d).¹⁴²

Finding that each defendant individually agreed to commit at least two forms of racketeering activity,¹⁴³ and that each defendant agreed to participate in the conduct of the RICO enterprise with the knowledge and intent that other members of the conspiracy would also commit at least two racketeering acts in furtherance of the enterprise,¹⁴⁴ the court cited and followed with approval the Pinkerton Doctrine.¹⁴⁵ The court reasoned the application cogently and succinctly:

In addition, even if one conspirator did not participate in, or was unaware of, acts undertaken by co-conspirators in furtherance of the conspiracy, it is nevertheless liable for such acts, including those that occur prior to its joining the conspiracy. See, e.g., Salinas v. United States, 522 U.S. 52, 63-64 (1997); Pinkerton v. United States, 328 U.S. 640, 646-47 (1946) . . . . ¹⁴⁶

The court concluded that the evidence clearly established that defendants’ conspiracy was in existence as of December 1953, when several of the cigarette company defendants met in New York City to create the Committee on Tobacco Research and to discuss and outline the enterprise’s future strategy, ¹⁴⁷ that each defendant agreed to commit a RICO substantive offense with the knowledge that other members of the enterprise were also conspiring to commit racketeering activity¹⁴⁸, and that all defendants coordinated significant aspects of their public relations, scientific, legal, and marketing activity in furtherance of the common objective: to use mail and wire transmissions to maximize industry profits by preserving and expanding the market for cigarette through a scheme to deceive the public.¹⁴⁹

The court also found that each defendant also agreed to facilitate the substantive RICO offenses by concealing or suppressing information and documents which may have been detrimental to the interests of the members of the enterprise:¹⁵⁰

Thus, each Defendant knew the goals of the Enterprise, the general nature of the conspiracy, and that other members of the conspiracy would commit at least two Racketeering Acts in furtherance of the Enterprise’s scheme to defraud. Indeed, each Defendant took substantial steps to facilitate the scheme to defraud that was the central purpose of the conspiracy, including committing numerous Racketeering Acts in furtherance of the Enterprise’s affairs. Hence, each Defendant entered into the requisite conspiratorial agreement. Accord Salinas, 522 U.S. at 66 ("[E]ven if Salinas did not accept or agree to accept two bribes, there was ample evidence that he conspired to violate subsection (c). The evidence showed that [Salinas’ conspirator] committed at least two acts of racketeering activity when he accepted numerous bribes and that Salinas knew about and agreed to facilitate the scheme. This is sufficient to support a conviction under § 1962(d).").¹⁵¹

The court similarly concluded that the government did not have establish that each conspirator explicitly agreed with every other conspirator to commit the substantive RICO offenses, or knew his fellow co-conspirators, or was aware of all of the details of the conspiracy. Addressing the knowledge component, the court found that it was only required that te defendant know the general nature of the conspiracy and that the conspiracy extends beyond his individual rule.¹⁵² For all these reasons, the court concluded that the defendants were liable for RICO conspiracy because they both explicitly and implicitly agreed to violate 18 U.S.C. § 1962(c) of RICO.¹⁵³

Philip Morris illustrates that Pinkerton is an effective, malleable instrument appropriately suited for application to civil RICO conspiracy litigation. The cogent analysis reflected within the Full Opinion similarly connotes that the concept of mediate causation, discussed earlier, lends support to the logical fusion of that concept to Pinkerton, i.e., the bad act of agreeing with others, is sufficient to support the application of the Pinkerton Doctrine to civil RICO conspiracy litigation.

The Untied States District Court for the Eastern District of New York denied summary judgment motions on class plaintiffs’ RICO claims in Schwab v. Philip Morris USA, Inc.¹⁵⁴ Schwab is another federal RICO class action instituted against the tobacco industry. Addressing the RICO conspiracy claims, the Honourable Jack B. Weinstein cited and followed Smith v. Berg in finding the existence of triable issues of material fact, and that Second Circuit case law construing Salinas and Beck was further substantiated by Smith v. Berg:

The holdings of several circuits on a related issues – whether the reach of the RICO conspiracy statute is limited to those who would have participated in the operation or management of an enterprise – reaffirm the application of Salinas to civil cases. In light of Salinas, the Third Circuit held that a civil defendant may be held liable for conspiracy to violate section 1962(d) if he knowingly agrees to facilitate a scheme which includes the operation or management of a RICO enterprise. Smith, 247 F.3d at 538. The court overruled its prior holding in United States v. Antar, 53 F.3d 568 (3d Cir. 1995), which limited conspiracy liability to those who had conspired personally to operate or manage the corrupt enterprise. Smith at 534. See also United States v. Fernandez, 388 F.3d 1199 (9th Cir. 2004)(overruling Neibel v. Trans World Assurance Co., 108 F.3d 1123 (9th Cir. 1997), on the same grounds. Smith held that its prior holding in Antar was inconsistent with "the plain indication of the standard set forth in Salinas . . . that one who opts into or participates in a conspiracy is liable for the acts of his co-conspirators which violate section 1962(c) even if the defendant did not personally agree to do, or conspire with respect to, any particular element." Smith, 247 F.3d at 537 (emphasis in original). The court explicitly rejected defendants’ contention that Beck limited Salinas to criminal cases. Id. at 538-39.¹⁵⁵

Schwab correctly observed that Smith v. Berg¹⁵⁶ accurately construed Beck and that Beck actually limits the class of plaintiffs whose injuries are cognizable; it does not in any way limit the class of defendants who are liable. Smith, 247 F.3d at 539 n. 13.¹⁵⁷ Moreover, the District Court noted that the Second Circuit had consistently ruled as to the proper construction and interpretation of Salinas and Beck, which accurately reflects the application of Pinkerton, Salinas, and Smith v. Berg.¹⁵⁸

Pinkerton and Smith v. Berg¹⁵⁹

Applied To Sub-Prime Mortgage¹⁶⁰

Predatory Lending Practices

Americans hold sacrosanct the ideal of home ownership. And, home ownership being preferable to renting a house, prospective purchasers will resort to innumerable, even creatively high risk, financing vehicles. Regrettably, the American dream has succumbed to the cold and the calculating preoccupied with commercially exploiting their victims by offering incredibly risky, technically complex, incoherently worded financial documents to obtain a mortgage loan. Feeling secure, the unwitting victim subscribes to sub-prime mortgage obligations. Materially exacerbating this issue, mortgage lenders even resort to engaging in activities that selectively target racial¹⁶¹ and ethnic minorities, that is, racial steering, to apply for such toxic mortgages when in fact those individuals otherwise qualified for conventional mortgage financing.¹⁶²

The sub-prime mortgage crisis has overwhelmed the financial markets, producing significant losses, culminating with heretofore record home foreclosures. The psychological and emotional cost exacted in this context is incapable of mathematical exactitude. Significant litigation has ensued as a result, and financial institutions including Countrywide Home Loans, Inc., and Indymac Bank have experienced a swift and ignominious sudden demise.¹⁶³

RICO litigation arising in the sub-prime mortgage area has experienced significant growth. Certain racketeering conspiracy cases warrant review to provide practitioners with constructive insight to formulating cognizable RICO conspiracy claims under both Pinkerton and Smith v. Berg. A federal court denied summary judgment motions, finding plaintiffs’ RICO conspiracy claims sustainable. Lester v. Percudani¹⁶⁴ involved multiple RICO cases alleging that defendants perpetrated a pattern of racketeering and mail fraud, causing plaintiffs to purchase homes at inflated prices. Plaintiffs contended that defendant real estate developer Percudani orchestrated a scheme to overvalue residential real estate in the Pocono Mountains, Pennsylvania. Percudani allegedly enticed plaintiffs into home purchases using fraudulent advertisements broadcast along the East Coast. When plaintiffs responded, Percudani, he arranged home sales employing appraisals performed by Dominick Stranieri that valued the homes at inflated rates. Chase Manhattan Mortgage Corporation purportedly enable the scheme by financing mortgages for many plaintiffs in noncompliance with lending standards governing residential mortgages. Chase then sold the mortgages on the secondary market, shifting the risk of default to remote purchasers, while retaining contracts to service the loans. This scheme ultimately left the plaintiffs with mortgages that eclipsed the market values of their residential properties that produced negative equity and with unaffordable mortgage payments.

Plaintiffs initiated litigation in 2001, advancing RICO, Pennsylvania consumer protection act and common law claims.

Defendants moved for summary judgment upon the RICO claims. The District Court found that the plaintiffs’ evidence established defendants’ engaging in an artifice and scheme to defraud by issuing mortgages for homes that were overvalued, that defendants employed the federal mails and the federal interstate wires to perpetrate the scheme to defraud, that a RICO enterprise had been established, and reasonable jurors considering the evidence could conclude that the Percudani defendants knowingly engaged in a scheme to defraud and that the scheme was organized within Percudani’s corporate network to maximize profits of a distinct business venture engaged in development and sale of real estate.

Addressing the RICO conspiracy claim alleged against Chase Manhattan, the District Court found that Chase’s absence of involvement in a particular transaction had no effect on the Percudani defendants’ scheme. Finding that Chase facilitated the inflationary trend in sales process by providing financing to plaintiffs who otherwise would not have qualified to purchase residential properties, and that Chase’s aberrant financing practices enabled the Percudani to consummate numerous inflated sales which artificially increased market prices, the District Court concluded that a reasonable jury could find that the inflated prices affected any plaintiff who purchased a home from the Percudani defendants irregardless of whether Chase provided the financing.

The District Court, citing and following Smith v. Berg, denied Chase’s summary judgment motion, finding that the plaintiffs established, by the evidence, the existence of injuries proximately caused by the conspiracy’s predicate acts of mail and wire fraud. The court found that a reasonable jury could find that Chase conspired to produce inflated property values by providing financing opportunities to plaintiffs that otherwise would not have qualified to purchase. Thus, according to the District Court, reasonable jurors could conclude that Chase’s lending practices facilitated a scheme by the Percudani defendants to artificially increase home prices, and that a jury could conclude that Chase’s financing of approximately 85% of plaintiffs’ transactions provided Percudani with leverage necessary to exert inflationary pressure on market prices. Therefore, the plaintiffs established their summary judgment burden to demonstrate that Chase conspired to assist a racketeering enterprise that directly caused their harm.

A federal court denied dismissal motions filed by various real estate, title insurance, and lender institutions involved in predatory lending practices, ruling plaintiff’s RICO conspiracy claims sustainable. Meeks-Owens v. Indymac Bank, F.S.B.¹⁶⁵ involved a RICO case alleging that defendants engaged in a predatory lending scheme to induce her to purchase certain real estate in Blakeslee, Pennsylvania. Indymac Bank issued plaintiff’s mortgage loan, with knowledge that the contract price and the mortgage value of the property substantially exceeded, by more than 30%, the market value of the property at the time of purchase. The bank also knew that the plaintiff qualified only for a sub-prime mortgage, and actively engaged in a scheme to actively recruit and selectively target mortgage business from first time home buyers, especially racial and ethnic minorities, by affirmatively representing to these victims they were receiving conventional loans when in fact they were issued sub-prime mortgages which had market prices and interest rates significantly exceeding conventional rates.

Indymac issued a mortgage loan to plaintiff without investigating her ability to repay the loan, after having received both an incomplete mortgage application and an inflated patently defective appraisal, with prior knowledge that since 1999 homes were being sold at inflated values in the Pocono region. And, in further facilitation of the conspiracy, Indymac committed numerous overt acts, including receiving and adopting a HUD-1 Settlement Sheet containing false statements; paying consideration to another bank for replacement of the loan, and providing the mortgage loan without adhering to its conventionally recognized underwriting and due diligence procedures of confirming the source of the deposit money used in the purchase.

Plaintiff asserted RICO, state consumer protection act, and federal Real Estate Settlement Procedures Act, and state law claims against Indymac and other defendants. Indymac answered and subsequently moved for judgment on the pleadings under FRCP 12(c). The co-defendants filed FRCP 12(b)(6) dismissal motions.

The District Court, reviewing the magistrate judge’s findings and recommendation, sustained the RICO claims, ruling that the plaintiff sufficiently particularized the role of each defendant, factually, engaged in, and a part of, the RICO conspiracy. Citing Smith v. Berg, the court concluded that the defendants rendered services which were purposefully and knowingly directed at facilitating a criminal pattern of racketeering activity.¹⁶⁶The court similarly ruled that direct participation in the RICO conspiratorial activities was not required, negating defendants’ reliance upon Reves v. Ernst & Young.¹⁶⁷

Practitioners confronted with representing a victim of sub-prime mortgage predatory lending practices will find both Lester and Meeks-Owens constructive and helpful in structuring and formulating RICO conspiracy claims. Significant in the evaluation and assessment process by counsel is the fact that a RICO conspiracy claim, properly framed, can be successfully asserted against institutional as well as individual, defendants. Both cases cited Smith v. Berg as instrumental in their findings that sustained the RICO conspiracy claims.

Lester and Meeks-Owens are two significant decisions inasmuch as the likelihood of increased litigation activity arising from the sub prime mortgage collapse will tend to focus upon lending institutions that facilitated and furthered the conduct of real estate developers resulting in injuries to those acquiring residential properties who otherwise would have been foreclosed from qualifying for conventional mortgage financing. And, equally important, Lester illustrates