Friday, January 27, 2012

Involvement in Embezzlement Scheme Was Not a Civil RICO Violation

This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide.

A federal district court erred in finding that two individuals had violated RICO by engaging in a scheme to embezzle millions of dollars from an equipment manufacturer through the fraudulent issuance and receipt of accounts payable checks, the U.S. Court of Appeals in New Orleans has ruled.

Summary judgment in favor of the manufacturer was therefore reversed and the case was remanded for further proceedings.

Operating, Managing Racketeering Enterprise

The manufacturer failed to show that the two defendants had operated or managed the alleged racketeering enterprise in violation of RICO §1962(c). The fraudulent receipt of corporate funds, by itself, was insufficient to show that the individuals had operated the scheme that stole those funds.

Investment in Enterprise

The company also failed to show that it was injured by the investment of racketeering proceeds. More specifically, it failed to proffer any facts to show how the embezzled funds were invested into an enterprise or how the company was injured by that investment. Accordingly, its claim under RICO §1962(a) was defective.

RICO Conspiracy

Finally, the company failed to show that the individuals had engaged in a RICO conspiracy under §1962(d). The district court relied on the U.S. Supreme Court’s holding in Salinas v. United States (RICO Business Disputes Guide ¶9382) to support its finding that the two individuals were liable for participating in the alleged conspiracy.

Although the Salinas court held that a defendant needed only to know of and agree to the overall objective of a RICO offense to be held criminally liable for a RICO conspiracy, the Supreme Court’s subsequent holding in Beck v. Prupis  (RICO Business Disputes Guide ¶9869) made it clear that to establish a civil RICO conspiracy, a plaintiff must “allege injury from an act that is independently wrongful under RICO.”

Therefore, to prevail on its civil RICO conspiracy claim against the two defendants, the company had to allege an injury from an act on their part that was independently wrongful under RICO. This it failed to do.

The decision is Davis-Lynch, Inc. v. Moreno, CCH RICO Business Disputes Guide ¶12,162.

Further information about CCH RICO Business Disputes Guide is available here.

No comments: