Defendant Persons

Section 1962 refers to defendants as “persons,” and only those defendants who are named as persons under section 1962 can be held liable for violations of RICO. A defendant “person” can be an individual or corporation – it makes no difference so long as the defendant person engaged in a pattern of criminal activity.  The traditional target of the RICO claim was the Mafia Godfather; he never got his hands bloody, never unambiguously ordered anyone to commit a crime, but operated and managed a group of people who did commit crimes.

Parties often confuse the defendant “person” with the RICO enterprise and equate the RICO enterprise with a criminal enterprise. Many times, the RICO enterprise is an enterprise that perpetrates crime (e.g., a Mafia family), but many other times the RICO enterprise may be the victim of the criminal activity or a passive instrument of the defendants’ criminal acts. See National Organization for Women v. Scheidler, 510 U.S. 249, 259 n.5 (1994). For example, John Doe is a purchasing agent for ABC Company. Sally Smith sells office products to ABC Company. Sally’s prices are grossly inflated, so John Doe refuses to buy ABC’s office supplies from her. One day, Sally offers to make a personal payment of $1000 per month to John for so long as ABC buys its office supplies from her. John accepts the offer. After several months of paying Sally’s grossly inflated prices, ABC discovers the bribes, fires John and sues Sally under RICO. For purposes of its RICO claim against Sally, ABC could allege that it was the RICO enterprise through which Sally perpetrated her pattern of racketeering activity. See Reves v. Ernst & Young, 507 U.S. 170, 184 (1993) (“[a]n enterprise . . . might be ‘operated’ or ‘managed’ by others ‘associated with’ the enterprise who exert control over it as, for example, by bribery”). Thus, ABC can be the RICO enterprise even though it is a totally innocent victim and the plaintiff in the case.

The important thing to remember is that only a “person” can be held liable under section 1962(c). Naming an entity as simply a RICO enterprise does not impose any liability on that entity. United States v. Philip Morris USA, Inc., 566 F.3d 1095 (D.C. Cir. 2009). Banks, law firms, insurance companies, advertising agencies that unknowingly facilitate a defendant’s criminal activities are often named as the enterprise or part of the enterprise through which the defendant conducted his pattern of racketeering. No liability can attach to a person or entity who is merely named as a member of the enterprise or who is merely named as the enterprise itself.

Another confusing aspect of RICO is that it uses the term “person” to refer to both defendants and plaintiffs. As noted above, “person” as used in section 1962(c) refers to the defendant person. Section 1964(c), RICO’s civil liability provision, states, however, that any “person injured in their business or property by reason of a RICO violation” is entitled to damages under the statute. Person, under section 1964(c), refers to the plaintiff, the victim, or the party injured by the criminal acts – not the defendant.

Governmental entities cannot be named as defendant persons in a RICO lawsuit.  Courts give two reasons for this rule:  first, a governmental entity cannot form the necessary mental intent, i.e., mens rea, to commit a crime; second, governmental entities enjoy common law immunity from punitive damage awards, and RICO’s treble-damages provision is partially punitive.  Gil Ramirez Group, L.L.C. v. Houston Ind. Sch. Dist., 786 F.3d 400, 412 (5th Cir. 2015).

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