To establish liability under any subsection of section 1962, a plaintiff must allege the existence of an enterprise. As noted above, an enterprise may be an illegitimate enterprise, e.g., a Mafia family, or a wholly legitimate enterprise, e.g., a corporation. United States v. Turkette, 452 U.S. 576, 580-81 (1981). Although an enterprise can be a legal entity, such as a partnership, corporation or association, it can also be an individual or simply a relatively loose-knit group of people or legal entities. These latter groups are referred to as “association-in-fact” enterprises under the statute. 18 U.S.C. § 1961(4).
A plaintiff may plead more than one enterprise. Pleading alternative enterprises “does not undermine the plausibility of the pleadings.” Jackson v. Segwick Claims Mgmt. Serv., Inc., 699 F.3d 466, 480 (6th Cir. 2012). “If a party makes alternative statements, the pleading is sufficient if any one of them is sufficient.” Id.
Association-in-fact enterprises are probably the most useful and abundant forms of RICO enterprises, but they are also the most difficult to grasp on an analytical level. When Congress passed the RICO Act, the phrase “association-in-fact” enterprise was probably intended to apply directly to the Mafia, because a Mafia family is not a formal legal entity nor is it an individual, rather it is a “union or group of individuals associated in fact although not a legal entity.” An association-in-fact enterprise may be a group of individuals, or a group of corporations, or a group that includes both individuals and legal entities. Philip Morris USA, Inc., 566 F.3d at 1111.
i. Enterprise / Racketeering Activity Distinction
Prior to the Supreme Court’s decision in Boyle v. United States, 129 S.Ct. 2237 (2009), many circuits held that a RICO plaintiff who relied on an association-in-fact enterprise was required to plead an enterprise that had an “separate” or “ascertainable” structure distinct from the pattern of racketeering activity. See Odom v. Microsoft Corp., 486 F.3d 541, 550 ( 9th Cir. 2007). The “ascertainable structure” requirement stemmed from the Supreme Court’s decision in Turkette, where it stated: “The ‘enterprise’ is not the ‘pattern of racketeering activity’; it is an entity separate and apart from the pattern of activity in which it engages. The existence of an enterprise at all times remains a separate element which must be proved by the Government.” 452 U.S. at 582-83. The problem was that most circuits had no objective definition of “ascertainable structure,” which caused a split between circuit courts that required an “ascertainable structure” and those that did not. Even among the circuits that did require an “ascertainable structure,” inconsistent opinions made it very difficult for parties and lower courts to predict how the rule would be applied.
In Bolye, the Supreme Court resolved the split and clarified the characteristics of an actionable association-in-fact enterprise. The Supreme Court stated that an association-in-fact enterprise possesses three characteristics: (1) a purpose, (2) relationships among those associated with the enterprise, and (3) longevity sufficient to permit these associates to pursue the enterprise’s purpose. The Supreme Court further explained:
Such a group need not have a hierarchical structure or a chain of command; decisions may be made on an ad hoc basis and by any number of methods-by majority vote, consensus, a show of strength, etc. Members of the group need not have fixed roles; different members may perform different roles at different times. The group need not have a name, regular meetings, dues, established rules and regulations, disciplinary procedures, or induction or initiation ceremonies. While the group must function as a continuing unit and remain in existence long enough to pursue a course of conduct, nothing in RICO exempts an enterprise whose associates engage in spurts of activity punctuated by periods of quiescence. Nor is the statute limited to groups whose crimes are sophisticated, diverse, complex, or unique; for example, a group that does nothing but engage in extortion through old-fashioned, unsophisticated, and brutal means may fall squarely within the statute’s reach.
129 S.Ct. 2245-46; see also Jay E. Hayden Found. v. First Neighbor Bank, N.A., 610 F.3d 382, 388 (7th Cir. 2010) (dismising RICO claim where the plaintiff alleged ” just a conspiracy, between a judge-executor, lawyers, and a bank and its officers, rather than anything that looks even remotely like an enterprise, however informal; for there was no structure, organization, or leadership”); Rao v. BP Prod. North America, Inc., 589 F.3d 389, 400 (7th Cir. 2009)(dismissing RICO claim on the basis that plaintiff’s “allegations do not indicate how the different actors are associated and do not suggest a group of persons acting together for a common purpose or course of conduct”); United States v. Eiland, 738 F.3d 338, 360 (D.C. Cir. 2013) (enterprise was actionable where its members shared the common purpose to distribute drugs for profit, where each member carried out a separate role in the distribution chain, and where the enterprise distributed drugs for two years); United States v. Kamahele, 748 F.3d 984, 1003-1005 (10th Cir. 2014) (gang was an association-in-fact enterprise where the members’ common purpose was to enhance the gang’s reputation by instilling fear through criminal activity and profiting from that activity, the members were related because (among other things) they shared hostility toward anyone wearing red in the neighborhood, and the enterprise had sufficient longevity because its existence spanned multiple generations of its members); Bible v. United Student Aid Funds, Inc., 799 F.3d 633, 655-656 (7th Cir. 2015), cert. denied, 136 S.Ct. 1607 (2016) (the plaintiff adequately alleged a relationship among entity members of the association-in-fact enterprise, rather than a run-of-the-mill commercial relationship, where there was an unusual degree of economic interdependence among the entities and the entities were not completely separate); Alamanza v. United Airlines, Inc., 851 F.3d 1060, 1068 (11th Cir. 2017) (the plaintiff failed to allege an actionable association-in-fact enterprise where, at most, the members of the enterprise were engaged in parallel conduct, which was insufficient to establish a relationship among the members); United States v. Fattah, 2018 WL 3764543, *37 (2d Cir. Aug. 9, 2018) (the government established an association-in-fact enterprises where the members’ common purpose was to “maintain and preserve [the lead defendant’s] political stature by concealing the illegal loan and its repayment,” the members were related “though informal” because the lead defendant directed their activities, and the enterprise possessed sufficient longevity because it operated between 2007 and 2014). Accordingly, Boyle appears to have abrogated the “separate” or “ascertainable” structure requirement in favor of the three elements of purpose, relationship among the members, and sufficient longevity.
ii. Person / Enterprise Distinction
In addition to being distinct from the pattern of racketeering activity, the enterprise must also be distinct from the defendant person. The person / enterprise distinction arises from the long-standing common law maxim that a person cannot conspire with himself. River City Markets, Inc. v. Fleming Foods West, Inc., 960 F.2d 1458, 1461 (9th Cir. 1992). The person / enterprise distinction is most problematic in the context of corporations. As one court noted:
Because a corporation can only function through its employees and agents, any act of the corporation can be viewed as an act of such an enterprise, and the enterprise is in reality no more than the defendant himself. [Citation omitted.] Thus, where employees of a corporation associate together to commit a pattern of predicate acts in the course of their employment and on behalf of the corporation, the employees in association with the corporation do not form an enterprise distinct from the corporation.
Riverwoods Chappaqua Corp. v. Marine Midland Bank, N.A., 30 F.3d 339, 344 (2d Cir. 1995). In short, the person / enterprise distinction is not satisfied (and a RICO claim will fail) where the corporation is named as the defendant person who engages in a pattern of racketeering activity through an association-in-fact enterprise consisting exclusively of its officers and/or employees. Id. On the other hand, a corporation is a separate legal entity from its incorporators – even if the corporation is owned and controlled by a sole shareholder. Thus, one can successfully name as defendant persons the individual shareholder(s), officers, directors or employees who engage in a pattern of racketeering activity through their corporate enterprise. See Cedric Kushner Promotions, Ltd. v. Don King, 533 U.S. 158, 163-64 (2001); Abraham v. Singh, 480 F.3d 351, 357 (5th Cir. 2007); Jaguar Cars, Inc. v. Royal Oaks Motor Car Co., Inc., 46 F.3d 258, 269 (3d Cir. 1995). Under such circumstances, however, only the shareholder(s), officers, directors or employees will face individual liability under RICO. Because it is merely the enterprise, the corporation cannot face any liability.
In order for a corporation to be named as a defendant person, the corporation must engage in a pattern of racketeering activity through an enterprise that includes more than itself or its subparts. Some courts do not consider an enterprise consisting of a corporation’s subsidiaries, affiliates, dealers or captive agents to be sufficiently distinct from the corporate defendant:
. . . [W]here a large, reputable manufacturer deals with its dealers or other agents in the ordinary way, so that their role in the manufacturer’s illegal acts is entirely incidental, differing not at all from what it would be if these agents were the employees of a totally integrated enterprise, the manufacturer plus its dealers and other agents (or any subset of the corporate family) do not constitute an enterprise within the meaning of the statute.
Fitzgerald v. Chrysler Corp., 116 F.3d 225, 228 (7th Cir. 1997); see also North Cypress Med. Ctr. Operating Co., Ltd. v. Cigna Healthcare, 781 F.3d 182, 203 (5th Cir. 2015) (parent company who was alleged to be the defendant person was not distinct from a subsidiary that was the alleged enterprise); Cruz v. FXDirectdealer, LLC, 720 F.3d 115, 121 (2d Cir. 2013) (holding that corporations that are legally separate but operate within a unified corporate structure and guided by a single corporate consciousness cannot be both the enterprise and the defendant person); U1IT4LESS, Inc. v. FEDEX Corp., 871 F.3d 199, 209 (2d Cir. 2017) (where the RICO defendant is a corporate parent and the RICO enterprise consists of wholly-owned subsidiaries that “operate within a unified corporate structure” and are “guided by a single corporate consciousness,” the mere fact of separate incorporation, without more, does not satisfy RICO’s distinctness requirement); but see In re Classicstar Mare Lease Litig., 727 F.3d 473, 492 (6th Cir. 2013) (corporate defendants are distinct from a RICO enterprise comprised of other members of the corporate family when the members are functionally distinct, as when they perform different roles within the enterprise or use their separate legal incorporation to facilitate racketeering activity); George v. Urban Settlement Serv., 833 F.3d 1242, 1249-50 (10th Cir. 2016) (the plaintiffs did not allege an association-in-fact enterprise consisting of a parent and its subsidiary; rather, the corporations were two separate legal entities; the contractual relationship between the two corporations did not render them members of the same corporate family tree). However, if a complaint alleges that a corporation engages in a pattern of racketeering activity through legal entities beyond its control, such as independent banks, law firms, accounting firms, or public relations firms, the person / enterprise distinction will more than likely be satisfied. See Living Designs, Inc. v. E.I. Dupont De Nemours and Co., 431 F.3d 353, 362 (9th Cir. 2005) (“[j]ust as a corporate officer can be a person distinct from the corporate enterprise, [the corporate defendant] is separate from its legal defense team”).
Some defendants have attempted to allege that the person / enterprise distinction cannot be met where an individual defendant person is also alleged to be part of an association-in-fact enterprise consisting of other individuals. For example, Joe Doe is alleged to be the defendant person who engages in a pattern of racketeering activity through an association-in-fact enterprise consisting of John Doe, Sally Smith and Bob Johnson. Most courts have held that in such cases the individual and association-in-fact enterprise that includes the individual — are distinct: “[l]ogically, one can associate with a group of which he is a member, with the member and the group remaining distinct entities.” River City Markets, Inc., 960 F.2d at 1461.
iii. An Enterprise Engaged in or Affecting Interstate Commerce
At first blush, one would think that RICO’s interstate commerce requirement would receive a great deal of attention from the courts, given that RICO is a federal statute and a nexus with interstate commerce is necessary to confer federal jurisdiction. RICO’s interstate commerce requirement is seldom, however, discussed by the courts – probably because a RICO claim must be predicated upon underlying acts of racketeering. When a RICO claim is based upon violations of federal criminal statutes (see 18 U.S.C. § 1961(1)(B)), the nexus with interstate commerce is necessarily established by the commission of the underlying federal crime. See United States v. Urban, 404 F.3d 754, 767 (3d Cir. 2005) (stating that the government / plaintiff “need only prove that Hobbs Act extortion potentially affected interstate commerce”). Moreover, because the U.S. Constitution confers the postal powers upon the federal government, acts of mail fraud, even intrastate use of the mails, have an inherent nexus with interstate commerce. United States v. Elliott, 89 F.3d 1360 (8th Cir. 1996). Because violations of the mail fraud statute are almost always alleged in a RICO complaint, a nexus with interstate commerce is almost always present. Finally, the state crimes upon which a RICO claim may be predicated (see 18 U.S.C. § 1961(1)(A)) are not minor offenses, and when such significant crimes are committed through an “enterprise” (rather than a mere individual), they are seldom confined to a single state.
To the extent the courts have discussed RICO’s interstate commerce requirement in particular, a plaintiff’s burden does not appear onerous. In United States v. Beasley, 72 F.3d 1518 (11th Cir.), cert. denied, 518 U.S. 1027 (1996), the court held that “[t]o satisfy [RICO’s] interstate commerce requirement, only a slight effect on interstate commerce is required.” Id. at 1526; see also United States v. Riddle, 249 F.3d 529, 538 (6th Cir.), cert. denied, 534 U.S. 930 (2001) (“a de minimus connection suffices for a RICO enterprise that ‘affects’ interstate commerce”). In short, the interstate commerce requirement is usually not a major stumbling block in RICO litigation. But see Musick v. Burke, 913 F.2d 1390, 1398 (9th Cir. 1990) (holding that the interstate affect of the enterprise’s activities must not be insubstantial as a matter of practical economics and that the plaintiff’s mere purchase of products drawn from interstate commerce did not demonstrate the “minimal” interstate nexus necessary to establish jurisdiction under RICO).