RICO claims: the challenge of alleging the "pattern" element.

The federal RICO legislation originated with Congress' resolve to give law enforcement adequate tools to deal with "organized crime." In the decades following the enactment of that legislation, law enforcement authorities, as expected, have made good and effective use of RICO. What was unexpected, though, was that federal and state civil RICO claims would become commonplace in commercial disputes and that courts would be called on to apply RICO principles to business activities having no connection at all to organized crime as those activities were commonly understood when RICO was enacted.

The allure of RICO claims for plaintiffs is understandable: These claims offer expanded remedies (including treble damages) and the opportunity to put before the trier of fact conduct that is often completely unrelated to the conduct causing the injury and which would not be relevant to most common law and statutory claims. To state a civil RICO claim, a plaintiff must allege that the defendant has engaged in a "pattern" of misconduct (called "racketeering" under the RICO statutes). The "pattern" element often presents the biggest challenge to a plaintiff in stating a civil RICO claim because it requires the plaintiff to show some ongoing threat of criminal activity. When a RICO claim is based not only on the conduct causing injury, but also on conduct which may have occurred many years before, it is difficult to show that this conduct will project into the future. This article will address the specific requirements to properly allege the pattern element of a civil RICO claim.

The federal and Florida RICO statutes, and the accompanying Florida Civil Remedies for Criminal Practices Act, impose civil liability on persons who conduct or participate in an enterprise through a "pattern of racketeering activity." "It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity." (1)

The "racketeering activity" described in these statutes must consist of two or more federal (or state) criminal offenses, known as "predicate acts," committed within a 10-year period for federal RICO, or a five-year period for Florida RICO. (2) A "pattern" of racketeering activity is sufficiently alleged only if there is "continuity plus relationship" between those predicate acts. (3) This can be expressed diagrammatically as follows:

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As shown, the "relationship" factor of the pattern requirement means that the predicate acts must be connected to one another. (4) The "continuity" factor of the pattern requirement means "that the predicates themselves amount to, ... or otherwise constitute a threat of, continuing racketeering activity." (5) It is the continuity requirement that frequently proves most challenging to a plaintiff asserting a civil RICO claim.

This continuity requirement is adequately pled only where the plaintiff has alleged either "closed-ended continuity" or "open-ended continuity":

"Continuity" is both a closed- and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition. It is, in either case, centrally a temporal concept--and particularly so in the RICO context, where what must be continuous, RICO's predicate acts or offenses, and the relationship these predicates must bear to one another, are distinct requirements. (6)

These two variants of continuity can be expressed diagrammatically as follows:

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* Closed-ended Continuity

To sufficiently plead closed-ended continuity, a plaintiff must allege a "series of related predicates extending over a substantial period of time. Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement." (7) This requirement indicates that "Congress was concerned in [enacting] RICO with long-term criminal conduct. (8)

There are three principal factors courts consider when analyzing whether closed-ended continuity has been sufficiently pled: 1) the number and duration of the alleged predicate acts; 2) the number of alleged victims; and 3) the number of alleged schemes. (9) Regarding the number and duration of the alleged predicate acts, the 11th Circuit Court of Appeals has found that illegal activity occurring over approximately six months was "too short a period of time ... in order to qualify as a pattern of racketeering activity." (10) Similarly, three predicate acts allegedly committed over a 15-month period of time has been held insufficient to establish closed-ended continuity. (11)

Regarding the number of the alleged victims of the alleged RICO predicate acts, closed-ended continuity is not established where the alleged scheme had one victim or one "set" of victims. (12) Where the plaintiff alleges one "set" of victims who suffered similar injuries in a similar manner as the result of a single alleged scheme, the "number of victims" factor does not weigh in favor of finding closed-ended continuity. (13)

The number of "schemes" alleged is also a relevant factor in determining whether continuity has been adequately pled. Courts have generally found that where the alleged predicate acts were committed as part of a single scheme, continuity is not established. (14)

These elements of closed-ended continuity can be shown as set out on the next page.

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* Open-ended Continuity

To adequately allege open-ended continuity, a plaintiff must show that the predicate acts alleged establish a "threat of continued racketeering activity" projecting into the future. (15) In determining whether open ended continuity is adequately alleged, both the nature of the predicate acts and the nature of the alleged enterprise are relevant. If the alleged enterprise is a long-term association that exists primarily for criminal purposes, the threat of repetition is presumed. (16) This prong of the continuity analysis includes activity traditionally labeled as "organized crime." (17)

To adequately allege open-ended continuity where the alleged enterprise is not a criminal organization, but conducts a legitimate business, the alleged predicate acts must by their nature threaten continued criminal activity, or be the regular way that the enterprise conducts its business. (18) Although many civil RICO claims are based on alleged predicate acts of mail and wire fraud, these predicate acts typically are not the type of "ongoing unlawful activities whose scope and persistence pose a special threat to social well-being." (19) It is the rare legitimate business which does not routinely use the mails, telephones, or computers. Therefore, courts are "cautious about basing a RICO claim on predicate acts of mail and wire fraud because it would be the unusual fraud that does not enlist the mails and wires in its service at least twice. (20)

If the enterprise conducts a legitimate business and the predicate acts do not by their nature threaten future criminal conduct, then a plaintiff can establish open-ended continuity only by showing that the predicate acts are the enterprise's regular way of conducting business. (21) This cannot be accomplished based on general allegations of wrongful conduct by the enterprise in conducting its legitimate business. Rather, the conduct which allegedly establishes continuity must be shown to be unlawful, i.e., that the "defendants have treated other individuals or entities in the same illegal manner alleged by the plaintiff." (22) Thus, allegations of civil fraud unconnected to the predicate acts generally are not sufficient to establish open-ended continuity:

A threat of continued criminal activity for purposes of RICO is not established merely by demonstrating that the [defendants'] acts of common law fraud were a regular way of conducting their ongoing business. Rather, [the plaintiff] must demonstrate that the predicate acts ... were a regular way of conducting the ongoing business. (23)

These elements of open-ended continuity can be expressed diagrammatically as follows:

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To conclude, RICO claims are a potent weapon for plaintiffs, but they are also difficult to successfully plead. To ensure that civil RICO claims are not used improperly and that defendants are not unfairly put on trial for stale and irrelevant conduct, courts should scrutinize the allegations closely to ensure that they show the show the "continuity plus relationship" required to establish a "pattern" of racketeering activity.

(1) 8 U.S.C. [section] 1962(c) (emphasis added); see also FLA. STAT. [section] 895.03(3) (2001) (Florida's RICO statute, substantively identical to the Federal RICO statute quoted above); FLA. STAT. [section] 772.103(3),(2001) (Florida's Civil Remedies for Criminal Practices Act, also substantively identical to the federal RICO statute quoted above).

(2) 18 U.S.C. [section] 1961(5); FLA. STAT. [section] 895.02(4) (2001); FLA. STAT. [section] 772.102(4) (2001).

(3) Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n.14 (1985) (emphasis added).

(4) H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239-40 (1989).

(5) Id. (emphasis in original).

(6) Id. at 241-42 (emphasis in original) (citations omitted).

(7) H.J., 492 U.S. at 242 (emphasis added); Fototec Int'l Corp. v. Polaroid Corp., 889 F. Supp. 1518, 1522-23 (N.D. Ga. 1995) (quoting H.J., 492 U. S. at 241-42).

(8) H.J., 492 U.S. at 242 (emphasis added).

(9) See, e.g., Fototec, 889 F. Supp. at 1523-25.

(10) Aldridge v. Lily-Tulip, Inc., 953 F.2d 587,593 (11th Cir. 1992).

(11) Fototec, 889 F. Supp. at 1524; see also, e.g., Eastern Publishing and Advertising, Inc. v. Chesapeake Publishing and Adver., 895 F.2d 971, 973 (4th Cir. 1990) (closed-ended scheme to defraud lasting over period of only three months did not demonstrate requisite continuity); Olive Can Co., Inc. v. Martin, 906 F.2d 1147, 1151 (7th Cir. 1990) (defendant's scheme to set up a sham corporation was activity over a short period of time with a natural ending and no threat of ongoing activity, and therefore, could not establish a pattern of racketeering activity); Parcoil Corp. v. Nowsco Well Serv. Ltd., 887 F.2d 502,504 (4th Cir. 1989) (alleged predicate acts consisting of 17 falsified reports sent over a period of four months not sufficient to establish closed-ended continuity); Ginsberg v. Lennar Fla. Holdings, Inc., 645 So. 2d 490, 501 (Fla. 3d D.C.A. 1994) (predicate acts extending over a few weeks or months do not satisfy the pattern of racketeering necessary for a claim under the Florida Civil Remedies for Criminal Practices Act). But see State v. Lucas, 600 So. 2d 1093, 1095 (Fla. 1992) (suggesting that a series of fraudulent activities occurring over a six-month period may be sufficient to establish closed-ended continuity); Shimek v. State, 610 So. 2d 632, 635 (Fla. 1st D.C.A. 1992) (fraudulent activities occurring over several months satisfied continuity element of RICO claim).

(12) See, e.g., Menasco, Inc. v. Wasserman, 886 F.2d 681, 684 (4th Cir. 1989) (continuity not sufficiently alleged where one set of two victims was allegedly injured as the result of a "single fraudulent goal"); Park v. Jack's Food Sys., Inc., 907 F. Supp. 914, 919-20 (D. Md. 1995) (continuity not sufficiently established where the predicate acts were directed to 18 victims that were allegedly injured as part of a single scheme).

(13) See Menasco, Inc., 886 F.2d at 683; IAC Int'l, Inc. v. James, 1996 WL 751454 at *5 (E.D. Va. 1996).

(14) See, e.g., Fototec, 889 F. Supp. at 1524-25, and cases cited therein (observing that although not dispositive, the existence of only one scheme generally will not be sufficient to satisfy the continuity requirement); Edmondson & Gallagher v. Alban Tavers Tenants Ass'n, 48 F. 3d 1260, 1264-65 (D.C. Cir. 1995) (dismissing RICO claims based on a single scheme designed to frustrate one project); Menasco, 886 F. 2d at 684; Jones v. Lampe, 845 F.2d 755, 759 (7th Cir. 1988) (continuity not established where 120 alleged predicate acts, injuring four victims, constituted one single scheme).

(15) H.J., 492 U.S. at 242.

(16) Id. at 242-43.

(17) Id. at 243.

(18) Id. at 242-43; see also, e.g., Cofacredit, S.A. v. Windsor Plumbing Supply Co. Inc., 187 F.3d 229, 243 (2d Cir. 1999) ("where the enterprise primarily conducts a legitimate business, there must be some evidence from which it may be inferred that the predicate acts were the regular way of operating that business, or that the nature of the predicate acts themselves implies a threat of continued criminal activity") (citing H.J.).

(19) GE Inv. Private Placement Partners II, v. Parker, 247 F. 3d 543 at 549 (4th Cir. 2001) (quoting Menasco, 886 F. 2d at 684); see also Efron v. Embassy Suites, Inc., 223 F.3d 12, 20 (1st Cir. 2000) ("We note that courts, including our own, have suggested that RICO claims premised on mail or wire fraud must be particularly scrutinized because of the relative ease with which a plaintiff may mold a RICO pattern from allegations that, upon closer scrutiny, do not support it.").

(20) GE, 247 F.3d at 549 (4th Cir. 2001) (quoting Al-Abood v. El Shamari, 217 F.3d 225, 238 (4th Cir. 2000)); Al-Abood, 217 F. 3d at 238 ("This caution is designed to preserve a distinction between ordinary or garden-variety fraud claims better prosecuted under state law and cases involving a more serious scope of activity").

(21) See H.J., 492 U.S. at 243; Cofacredit, S.A., 187 F.2d at 243 (citing H.J.).

(22) See, e.g., Fototec, 889 F. Supp. at 1523 (emphasis added); Food Lion, Inc. v. Capital Cities/ABC, Inc., 887 F. Supp. 811, 819 (M.D.N.C. 1995) (network's regular use of hidden cameras and microphones as part of its undercover investigations was not relevant to proving continuity in a mail/wire fraud RICO case because use of hidden cameras and microphones was not illegal and did not constitute mail/wire fraud); Johnston v. Wilbourn, 760 F. Supp. 578, 588 n.13 (S.D. Miss. 1991) (concluding that allegations of activity that was not illegal could not be relied upon to establish open-ended continuity -- "The law is clear that proof of a threat of continued criminal activity based on the regular way a business is conducted requires proof that the predicate acts themselves were a regular way of conducting business. Plaintiffs have not alleged that the pre-Johnston dealings were illegal.") (citations omitted).

(23) Fleet Credit Corp. v. Sion, 893 F.2d 441, 448 (1st Cir. 1990) (emphasis in original); see Gott v. Simpson, 745 F. Supp. 765, 771 (Me. 1990) (quoting Fleet).

Karen D. Walker and Michael G. Tanner are partners in Holland & Knight LLP, Ms. Walker in the Tallahassee office and Mr. Tanner in the Jacksonville office.

The authors thank Merideth Nagel for her research assistance for this article.

This column is submitted on behalf of the Trial Lawyers Section, Thomas P. Scarritt, Jr., chair, and Thomas P. Barber, editor.