In H.J. Inc. v. Northwestern Bell, 492 U.S. 229 (1989), the Supreme Court determined that the factors of relatedness and continuity combine to produce a pattern of racketeering. As a result of the Supreme Court’s decision in H.J. Inc., the statutory definition of pattern (18 U.S.C. § 1961(5)) has been rendered meaningless for all practical purposes.
To be related, the criminal actions that form the pattern must “have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics.” H.J. Inc., 492 U.S. at 240. For example, a related pattern of criminal activity probably exists when: 1) the defendant’s purpose is to defraud insurance companies by burning down his buildings; 2) insurance companies make several loss payments as a result of the defendant’s pattern of arson; 3) the defendant uses an individual or group of individuals to ignite the fires that burn his buildings; 4) the victims are always the defendant’s insurance companies and the firefighters who are injured or killed as a result of the defendant’s acts of arson; and 5) the defendant always uses the same inconspicuous-type of an electrical malfunction and accelerant to ignite the fires. On the other hand, a pattern of criminal activity may not be related when: 1) the defendant’s purpose is, at times, to defraud insurance companies while at other times to bribe police officers, extort neighborhood business owners or engage in money laundering; 2) the results of the defendant’s activities vary, sometimes people are extorted, other times buildings are burned, other times drugs are traded; 3) the defendant uses a wide variety of people to engage in these activities and seldom (if ever) associates with the same person twice; 4) the defendant’s victims are sometimes insurance companies, sometimes neighboring business persons, sometimes the communities served by the police he bribes, sometimes the IRS who is deprived of tax revenue by his money laundering. See DeGuelle v. Camilli, 664 F.3d 192 (7th Cir. 2011) (holding that an employee’s retaliatory discharge in violation of 18 U.S.C. § 1513(e) was sufficiently related to the underlying acts of racketeering that the employee had reported to federal agencies; “[r]etaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower. Although there may not be the same victims or results, in most cases retaliatory acts and the underlying scheme ‘are interrelated by distinguishing characteristics and are not isolated events'”); United States v. Daidone, 471 F.3d 371, 376 (2d Cir. 2006) (defendant’s acts of murder and money laundering were sufficiently related in that the acts of racketeering shared common goals (increasing and protecting the financial position of the enterprise) and common victims (those who threatened its goals), and drew their participants from the same pool of associates (those who were members and associates of the enterprise)).
Continuity may be close-ended or open-ended. H.J. Inc., 492 U.S. at 241. “A party alleging a RICO violation may demonstrate continuity over a closed period by proving a series of related predicates extending over a substantial period of time.” Id. at 242.
Some courts have held that “a substantial period of time” may be as little as a year. See Religious Technology Ctr. v. Wollersheim, 971 F.2d 364, 366 (9th Cir. 1992) (“[w]e have found no case in which a court has held the requirement to be satisfied by a pattern of activity lasting less than a year”). Yet, the Second Circuit Court of Appeals has noted: “we have ‘never held a period of less than two years to constitute a substantial period of time.'” Spool v. World Child Intern. Adoption Agency, 520 F.3d 178, 184 (2d Cir. 2008). There is no rigid rule as to what constitutes a “substantial period of time,” but if a pattern lasts less than a year, it is unlikely to be sufficiently continuous. See Stonebridge Collection, Inc. v. Carmichael, 791 F.3d 811, 824 (8th Cir. 2015) (holding that the plaintiff failed to establish closed-ended continuity and stating that the alleged acts of racketeering should last “at least one year”); Crest Construction II, Inc. v. Doe, 660 F.3d 346, 357 (8th Cir. 2011) (scheme lasting less than seven months lacked continuity); Giuliano v. Fulton, 399 F.3d 381, 390 (1st Cir. 2005) (“[o]ur case law suggests that the commission of 16 predicate acts over a six-month period is inadequate to establish a closed-ended pattern of racketeering”); Malvino v. Delluniversita, 840 F.3d 223, 232 (5th Cir. 2016) (five-month period of racketeering activity was insufficient to establish closed-ended continuity).
Open-ended continuity exists when criminal conduct is specifically threatened to be repeated or to extend indefinitely into the future. H.J. Inc., 492 U.S. at 242-43. An open-ended pattern is best exemplified by a mobster’s threat to burn down a business unless the owner pays $1,000 per month. The extortionate threat is specific and unlimited in duration: whenever you stop paying $1,000 per month (whether it’s tomorrow or ten years from now) your building will burn. Thus, the business owner could immediately state a RICO claim on the basis of this single threat, even if the threat was never made again or no money was ever paid. Threats of indefinite duration also exist where criminal conduct has become a regular way of conducting the defendants’ ongoing legitimate business. See Abraham v. Singh, 465 F.3d 719, 727-28 (6th Cir. 2006), cert. denied, 127 S. Ct. 1832 (2007) (plaintiffs adequately alleged a pattern of racketeering against the defendant employee recruiting firm where the defendant allegedly engaged in at least a two-year scheme involving repeated international travel to convince up to 200 or more Indian citizens to borrow thousands of dollars to travel to the United States only to find upon their arrival that “things were not as they had been promised. . . . [T]here is no reason to suppose that this systematic victimization allegedly begun in November 2000 would not have continued indefinitely had the Plaintiffs not filed this lawsuit”); but see Home Orthopedics Corp. v. Rodriguez, 781 F.3d 521, 531 (1st Cir. 2015) (the defendant’s continued litigation of a state lawsuit to enforce a debt, which the plaintiff claimed was unlawful, did not convert a dispute over a single contractual dispute into a scheme to defraud of indefinite duration, even if the defendant’s state lawsuit was frivolous); Hall v. Witteman, 584 F.3d 859, 867-868 (10th Cir. 2009)(the plaintiff did not allege a threat of continuing racketeering activity where defendants did no more than intimidate and coerce a local newspaper to prevent it from running an advertisement placed by the plaintiff); Moon v. Harrison Piping Supply, 465 F.3d 719, 727-28 (6th Cir. 2006) (the plaintiff did not allege a sufficiently continuous pattern even if the defendant had previously and fraudulently deprived other employees of workers compensation benefits; the court held “several instances of similar conduct . . . do not support a systematic threat of ongoing fraud”); Reich v. Lopez, 858 F.3d 55, 60 (2d Cir. 2017) (two allegedly fraudulent telephone calls did not pose a future threat of repetition where the defendant’s business was not primarily unlawful, i.e., “[e]ven if [the defendant] pays bribes; it is primarily in the energy business; it is not a narcotics ring or an organized crime family”).
The issue of open-ended continuity is judged from the time the racketeering activity occurred. Subsequent events are irrelevant to the continuity determination. Henrich v. Waiting Angels Adoption Services, 668 F.3d 393, 410 (6th Cir. 2012). A defendant cannot undermine continuity by pointing to a subsequent event, such as an arrest, indictment or guilty verdict, and assert that continuity was destroyed by that fortuitous interruption of the pattern of racketeering. Id. (holding that open-ended continuity existed even though the defendants’ arrest and criminal prosecution had obviated any on-going threat that defendants’ acts of racketeering would continue).
iii. Multiple Schemes and the Pattern
Before the H.J. Inc. decision, many different tests were used to determine the existence of a pattern. Most popular among these early approaches to the issue of pattern was the “multiple scheme” approach, whereby the courts held that to prove a pattern, the plaintiff had to establish that a defendant engaged in more than one racketeering scheme and injured more than one victim. H.J. Inc. expressly rejected the multiple scheme approach on the basis that it was not supported by the text or history of the statute. H.J. Inc., 492 U.S. at 240.
Regardless of H.J. Inc., some courts have been reluctant to abandon the multiple scheme approach. See, e.g., Western Assoc. Ltd. P’ship, ex rel. Ave. Assoc. Ltd. P’ship v. Market Square Assoc., 235 F.3d 629, 634-35 (D.C. Cir. 2001); Midwest Grinding Co., Inc. v. Spitz, 976 F.2d 1016, 1021-22 (7th Cir. 1992). Unless a party is litigating in one of these circuits, the multiple scheme approach should not be relied upon. The multiple scheme approach is not only contrary to H.J. Inc. but it can be detrimental to the elements one must establish pursuant to H.J. Inc. For example, H.J. Inc.’srelatedness requirement is more likely met when the “methods of commission” are similar – multiple schemes may indicate a dissimilarity in the methods of commission. Likewise, H.J. Inc. holds that a pattern is related if the victims are similar, arguing that there are multiple, unrelated victims only undermines plaintiffs’ relatedness arguments under H.J. Inc.
The fundamental problem with the multiple scheme approach is that almost any pattern can be depicted as either one scheme or multiple schemes, depending upon the outlook of the person analyzing the pattern. For example, a defendant bribes an employee. As a result, the employer’s invoices (which are mailed to the defendant) are reduced as a result of the bribes, and the defendant’s checks to pay the invoices also reflect the reductions obtained as a result of the illegal bribes. This scenario can be depicted as a single scheme designed to obtain the employer’s services at a below market rate, or it can be depicted as multiple schemes: to bribe the employee, to defraud the employer through the use of the U.S. mails by causing the employer to transmit invoices reflecting the unlawfully obtained price breaks, and to defraud the employer through the use of the U.S. mails by transmitting checks that reflect the unlawfully obtained price breaks. There is no objective way to define a pattern as involving either a single scheme or multiple schemes.