RICO continuity requirement applied to bank fraud: Brandenburg v. Seidel

This case involved the continuing requirement in RICO cases.

“The district court found these allegations insufficient
to set forth a RICO pattern. The court reasoned
that while the predicate acts alleged were sufficient in
number, adequately related, and spread out over time,
they lacked the requisite “continuity” to make out a
RICO pattern. See Brandenburg v. First Maryland
Sav. & Loan, 660 F.Supp. 717, 727 (D.Md.1987).
This was so, said the district court, because they were
all in furtherance of a single “limited” scheme to encourage
the public to deposit money in First Maryland
and other MSSIC-insured savings and loans by
representing deposits in those institutions to be more
secure than they actually were. See id. at 727-28. In
the district court’s view, this scheme-which it characterized
as a “one-time plan to accomplish a single
goal”-did not “set forth the type of continuous criminal
endeavor that will establish a pattern of racketeering.”

OPINION
Brandenburg v. Seidel, 859 F.2d 1179 (4th Cir. 1988)
Julian SEIDEL; Frank, Phillips Circuit Judge:

Plaintiffs, depositors in the insolvent First Maryland
Savings and Loan Association (First Maryland),
appeal the dismissal of their action against certain
former officers, directors, and senior management
personnel of First Maryland (the First Maryland defendants),
as well as certain former officers and directors
of the Maryland Savings-Share Insurance
Corporation (MSSIC) and the individual savings and
loan institutions with which those individuals were
affiliated during their tenure at MSSIC (the MSSIC
defendants). Their amended complaint contained two
counts based on the civil provisions of the Racketeer
Influenced and Corrupt Organizations Act (RICO),
18 U.S.C. §§ 1961-1968, as well as several pendent
state law claims. The district court dismissed the action
prior to trial. The court dismissed the civil RICO
count against the MSSIC defendants for failure to
state a claim and declined to exercise its discretionary
jurisdiction over the pendent state claims against
those defendants. It then dismissed the claims-both
federal and state-against the First Maryland defendants
on abstention grounds, in deference to the ongoing
state receivership proceedings. We affirm,
though on somewhat different grounds as to the
MSSIC defendants.
I
The Maryland Savings-Share Insurance Corporation
(MSSIC) was a quasi-public non-profit corporation
established by the Maryland legislature in 1962
to insure accounts in state-chartered savings and loan
associations. MSSIC was given substantial regulatory
control over its member institutions, which by 1985
numbered approximately 100.FN1 In May 1985, rumors
of financial instability at two savings and loans
insured by MSSIC-Old Court and Merritt-triggered a
general run on MSSIC-insured thrifts. The resulting
panic threw MSSIC itself into financial peril and
threatened to lead to the collapse of the state’s savings
and loan industry. In response, the Governor of
Maryland declared a state of public crisis, issued an
Executive Order limiting withdrawals from all
MSSIC-insured institutions to a maximum of $1,000
per account per month, and called the Maryland General
Assembly into emergency session. In special
sessions held in May and October-November of
1985, the General Assembly passed a package of
legislation designed to deal comprehensively with the
crisis in the state’s savings and loan industry. See
1985 Md.Laws, 1st Sp.Sess., ch. 1-11; 1985
Md.Laws, 2d Sp.Sess., ch. 3-6. Further refinements
were added in the legislature’s regular session in
1986. See 1986 Md.Laws, ch. 11-12.
FN1. MSSIC was governed by an elevenmember
Board of Directors. Three of the
eleven directors were appointed by the Governor;
the remainder were elected by
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MSSIC’s member institutions.
*1182 This legislative effort had two principal
components. First was the creation of a state-operated
deposit insurance fund, the Maryland Deposit Insurance
Fund (MDIF), to replace the ruined MSSIC.
MDIF was given all of MSSIC’s powers, duties, and
responsibilities and assumed all of its assets and liabilities,
including its insurance obligations to depositors
at member institutions. See generally
Md.Fin.Inst.Code Ann. §§ 10-101 to 10-121 (establishing
and defining structure and powers of MDIF).
Second, and of particular importance here, was the
establishment of a comprehensive framework for the
administration of conservatorship and receivership
proceedings for insolvent savings and loan associations.
See Md.Fin.Inst.Code Ann. §§ 9-701 to 9-712.
Section 9-709 gave MDIF the right to be appointed
conservator or receiver of any savings and loan association
insured by it. Section 9-710 gave the state
court administering the conservatorship or receivership
of such an institution “exclusive and plenary
jurisdiction over all claims, actions, and proceedings
that are brought by any person and that are related to
the assets, property, powers, rights, privileges, duties
and liabilities” of that institution or of MDIF in its
capacity as conservator or receiver.FN2 To implement
this comprehensive scheme, the Maryland Court of
Appeals appointed a single judge, Judge Joseph Kaplan
of the Circuit Court for the City of Baltimore, to
adjudicate all claims arising out of the conservatorship/
receivership proceedings for the failed savings
and loan associations.
FN2. Section 9-710 reads as follows:
§ 9-710. Jurisdiction of circuit court.
(a) In general.-(1) Notwithstanding any
other provision of law and to the maximum
extent permitted under the federal
and State constitutions, the circuit court
administering a conservatorship or receivership
under this title shall have exclusive
and plenary jurisdiction over all claims,
actions, and proceedings that are brought
by any person and that are related to the
assets, property, powers, rights, privileges,
duties, and liabilities of:
(i) The savings and loan association and
its subsidiaries, affiliates, or holding company;
(ii) The receivership or conservatorship
estate; and
(iii) The State of Maryland Deposit Insurance
Fund Corporation in its capacity as
receiver or conservator of the savings and
loan association.
(2) A court other than a court administering
a conservatorship or receivership under
this title may exercise jurisdiction
over claims and actions if:
(i) The court would have jurisdiction over
the claims or actions but for this section;
and
(ii) The court administering the conservatorship
or receivership approves:
1. The initiation and prosecution, or the
continued prosecution, of the claims or actions
in the other court by the conservator
or receiver; or
2. The continued prosecution of claims or
actions in the other court by any person
other than the conservator or receiver.
(b) Transfers.-Except as otherwise ordered
by the court administering the conservatorship
or receivership, any action or
proceeding described in subsection (a)(1)
of this section that is pending at the time
the conservatorship or receivership is established
under this title shall be transferred
to the circuit court administering
the conservatorship or receivership.
(1986, ch. 11, § 2.)
First Maryland was a state-chartered savings and
loan association formerly insured by MSSIC. In November
1985, Judge Kaplan found First Maryland to
be in an impaired condition and appointed MDIF as
its conservator. The conservatorship order froze the
interest rates on most First Maryland accounts at 5
1/2 % per annum. But First Maryland’s financial
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problems proved insurmountable, and on June 19,
1986, Judge Kaplan formally placed First Maryland
in receivership, appointing MDIF receiver and giving
it total control over First Maryland’s assets. The receivership
order terminated the continuing accrual of
interest of all First Maryland accounts as of that date.
No appeal was taken from that order.
In carrying out its statutory duty as receiver to
consolidate First Maryland’s assets for distribution to
its depositors and other creditors, MDIF has filed
actions in state court against various parties believed
to have participated in the misappropriation of the
institution’s assets. Chief among these is an action
against First Maryland’s former officers and directors
seeking $45 million in compensatory and punitive
damages for their wrongful depletion of the thrift’s
assets, based on theories of fraud, *1183 breach of
fiduciary duty, conspiracy, negligence, gross negligence,
waste, and conversion. MDIF v. Seidel, No.
13408 (Cir.Ct. of Mont.Co). MDIF has also instituted
a state court action against certain former directors of
MSSIC, seeking damages for their alleged complicity
in the fraud perpetrated by the former directors of
First Maryland and other insolvent thrifts. MDIF v.
Hogg, No. 113102 (Cir.Ct. Anne Arundel Co.).
To date, MDIF has distributed over $110 million
in First Maryland assets to the institution’s depositors.
In July 1986, MDIF returned up to $5,000 of principal
to each depositor, depending on the amount in his
or her account. In December 1986, MDIF distributed
another $41 million generated through the sale of
First Maryland’s assets to its depositors. As additional
assets are collected and liquidated, MDIF will distribute
the proceeds to the depositors. MDIF estimates,
however, that the depositors may not be repaid
the entire principal of their accounts until 1990 or
thereafter, and that they may never be compensated
for the interest lost on their accounts during First
Maryland’s insolvency.
Not satisfied with MDIF’s efforts, the plaintiffs
filed this action in federal court on behalf of themselves
and a class consisting of all persons who had
money deposited in First Maryland as of August 23,
1985.FN3 Named as defendants are First Maryland and
a number of its former officers, directors, and senior
management personnel (the First Maryland defendants),
as well as 12 former officers and directors of
MSSIC and the various savings and loan associations
with which those individuals were affiliated during
their tenure at MSSIC (collectively, the MSSIC defendants).
In this action, the plaintiffs seek damages
to compensate them for being deprived of the use of
their savings-and of the interest thereon-during the
period in which First Maryland has been in conservatorship
or receivership.
FN3. According to the amended complaint,
the class consists of more than 22,000 individuals.
The amended federal complaint, which is the
subject of this appeal, contains seven counts. Count I
asserts a civil RICO claim against both the First
Maryland defendants and the MSSIC defendants,
based on allegations that they used the mails and interstate
wires to make a series of fraudulent misrepresentations
about the security of deposits at First
Maryland and other MSSIC-insured savings and
loans, in order to induce the public to deposit money
in those institutions. Count II asserts a civil RICO
claim against the First Maryland defendants only,
based on allegations that they misappropriated the
thrift’s assets through numerous acts of self-dealing
extending over a number of years. The remaining
counts assert a number of pendent state claims.
Counts III and IV assert claims against the MSSIC
defendants for fraud, deceit, negligent and intentional
misrepresentation, and civil conspiracy, based on
their dissemination of allegedly false information
about the security of accounts at First Maryland and
other MSSIC-insured institutions. Count V asserts
claims against First Maryland for conversion and
breach of contract arising out of its failure “through
its conservator MDIF,” to release or pay interest on
the plaintiffs’ accounts.FN4 Counts VI and VII assert
claims against the MSSIC defendants for negligence,
gross negligence, and breach of fiduciary duty, based
on their alleged failure to exercise adequate regulatory
control over financial practices at First Maryland
and other MSSIC-insured institutions.
FN4. First Maryland has been voluntarily
dismissed from the action and is not a party
to this appeal.
The district court dismissed the plaintiffs’ claims
against all defendants prior to trial. The court held
first that the civil RICO count against the MSSIC
defendants should be dismissed under Fed.R.Civ.P.
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12(b)(6) for failure to allege a legally sufficient pattern
of racketeering activity and that the pendent state
claims against those defendants should be dismissed
under United Mine Workers v. Gibbs, 383 U.S. 715,
86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). The court then
concluded that the claims against the First Maryland
defendants-under both civil RICO and state lawshould
be dismissed on abstention grounds, *1184 in
deference to the ongoing state receivership proceedings.
This appeal followed.
II
We consider first the dismissal of the counts
against the MSSIC defendants. We agree with the
district court that the civil RICO count against those
defendants fails to state a claim, but we reach that
conclusion by a somewhat different route.
The district court dismissed on the basis that the
complaint failed adequately to allege a RICO “pattern.”
It did not address an alternative basis urged by
defendants: that even were a pattern sufficiently alleged,
an adequate causal connection between pattern
and cognizable injury to plaintiffs was not.
Because we have serious reservations about the
district court’s “no-pattern” conclusion, we rest affirmance
on the alternative “no-causal connection”
ground, a theory advanced by defendants both in the
district court and here. See Stern v. Merrill Lynch,
Pierce, Fenner and Smith, Inc., 603 F.2d 1073, 1093
(4th Cir.1979) (proper to affirm on alternative ground
advanced but not considered in trial court).
Though in the end we rest affirmance on the alternative
ground, we believe it nevertheless prudent
first to discuss in some detail the “no-pattern” basis
relied upon by the district court in order to indicate
why we decline to affirm on that basis. We do so out
of considerations of fairness to the litigants, concern
for the doctrinal integrity of our ongoing applications
of the difficult “pattern” concept, and, most importantly,
because of the special need in this case to emphasize
the conceptual independence, despite their
close relationship, of the pattern and causation elements
of the civil RICO claim.
A
To discuss the “pattern” issue, we begin at the
beginning. 18 U.S.C. § 1964(c) provides a private
action for treble damages and attorneys’ fees to
“[a]ny person injured in his business or property by
reason of a violation of section 1962 of this chapter.”
The civil RICO claim at issue here is based on alleged
violations of §§ 1962(a), (c), and (d). All of
these subsections require a showing that the defendants
engaged in a “pattern of racketeering activity.”
FN5 The RICO statute defines “racketeering activity”
to include, inter alia, any act indictable under certain
provisions of the federal criminal code, including 18
U.S.C. § 1341 (mail fraud), 18 U.S.C. § 1343 (wire
fraud), and 18 U.S.C. § 2314 (interstate transportation
of fraudulently obtained funds). See 18 U.S.C. §
1961(1). A “pattern of racketeering activity” is in
turn *1185 defined as at least two acts of racketeering
activity within ten years of each other. See 18 U.S.C.
§ 1961(5). In Sedima, SPRL v. Imrex Co., 473 U.S.
479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985), the Supreme
Court noted that while two such acts are necessary
to make out a RICO pattern, they may not be
sufficient. Id. at 496 n. 14, 105 S.Ct. at 3285 n. 14.
To constitute a pattern, the Court indicated, predicate
acts of racketeering activity must reflect both “continuity”
and “relationship.” Id.
FN5. 18 U.S.C. § 1962 provides:
§ 1962. Prohibited Activities
(a) It shall be unlawful for any person
who has received any income derived, directly
or indirectly, from a pattern of
racketeering activity or through collection
of an unlawful debt in which such person
has participated as a principal within the
meaning of section 2, title 18, United
States Code, to use or invest, directly or
indirectly, any part of such income, or the
proceeds of such income, in acquisition of
any interest in, or the establishment or operation
of, any enterprise which is engaged
in, or the activities of which affect,
interstate or foreign commerce. A purchase
of securities on the open market for
purposes of investment, and without the
intention of controlling or participating in
the control of the issuer, or of assisting
another to do so, shall not be unlawful under
this subsection if the securities of the
issuer held by the purchaser, the members
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of his immediate family, and his or their
accomplices in any pattern or [sic] racketeering
activity or the collection of an unlawful
debt after such purchase do not
amount in the aggregate to one percent of
the outstanding securities of any one class,
and do not confer, either in law or in fact,
the power to elect one or more directors of
the issuer.
(b) It shall be unlawful for any person
through a pattern of racketeering activity
or through collection of an unlawful debt
to acquire or maintain, directly or indirectly,
any interest in or control of any enterprise
which is engaged in, or the activities
of which affect, interstate or foreign
commerce.
(c) 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 or collection of unlawful
debt.
(d) It shall be unlawful for any person to
conspire to violate any of the provisions
of subsections (a), (b), or (c) of this section.
Since Sedima, this court has wrestled with the
concept of a RICO pattern on a number of occasions,
see, e.g., Walk v. Baltimore & Ohio RR, 847 F.2d
1100 (4th Cir.1988); Eastern Publishing & Advertising,
Inc. v. Chesapeake Publishing & Advertising,
Inc., 831 F.2d 488 (4th Cir.1987); HMK Corp. v.
Walsey, 828 F.2d 1071 (4th Cir.1987); International
Data Bank v. Zepkin, 812 F.2d 149 (4th Cir.1987). In
these cases, we have deliberately declined to adopt
any mechanical rules to determine the existence of a
RICO pattern, holding instead that the issue is a
“matter of criminal dimension and degree” to be decided
on a case-by-case basis. See Zepkin, 812 F.2d
at 155. Factors relevant to this inquiry include the
number and variety of predicate acts and the length of
time over which they were committed, the number of
putative victims, the presence of separate schemes,
and the potential for multiple distinct injuries. See
Morgan v. Bank of Waukegan, 804 F.2d 970, 975
(7th Cir.1986). These factors are not exclusive, and
no one of them is necessarily determinative; instead,
a carefully considered judgment taking into account
all the facts and circumstances of the particular casewith
special attention to the context in which the
predicate acts occur-is required. See Walk, 847 F.2d
at 1103-04; HMK, 828 F.2d at 1074. The mere fact
that the predicate acts alleged can be characterized as
part of the same overall scheme does not automatically
prevent their constituting a RICO pattern. See
Walk, 847 F.2d at 1106; Zepkin, 812 F.2d at 155.
Similarly, the fact that a scheme to defraud requires
several acts of mail or wire fraud in order to accomplish
its objective does not automatically make it a
RICO pattern. See Walk, 847 F.2d at 1104; Zepkin,
812 F.2d at 154-55. With us, the pattern inquiry remains
a flexible one whose ultimate focus must always
be on whether the related predicate acts indicate
“ongoing criminal activity of sufficient scope and
persistence to pose a special threat to social wellbeing.”
Walk, 847 F.2d at 1106; See Zepkin, 812 F.2d
at 155.
In this case, the civil RICO count against the
MSSIC defendants is based on allegations that they
made a series of misleading statements in order to
induce the public to deposit money in First Maryland
and other MSSIC-insured institutions, including:
(1) running print and broadcast advertisements designed
to create the misimpression that MSSIC was
an agency of the state of Maryland;
(2) distributing various documents-including a brochure
entitled “We Have the Answers” and a letter
entitled “An Open Letter to a Potential MSSIC
Saver”-designed to create the misimpression that
MSSIC was an agency of the state of Maryland and
that it effectively regulated its member institutions
to insure the safety of deposits therein;
(3) giving false assurances of security, both in writing
and over the telephone, to depositor inquiries
about the safety of accounts in MSSIC-insured institutions;
(4) encouraging member institutions to use the
MSSIC seal, which is similar to the State of Maryland’s
seal, in print and broadcast ads, in order to
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create the misimpression that their accounts were
insured by the state of Maryland;
(5) deliberately concealing adverse information
about member institutions from the press; and
(6) distributing documents and running print and
broadcast advertisements misrepresenting the nature
and value of the insurance offered by MSSIC.
See Amended Complaint paragraphs 81-84. The
plaintiffs allege that the MSSIC defendants thereby
committed multiple acts of mail and wire fraud, as
well as interstate transportation of fraudulently obtained*
1186 funds, all of which are proper predicate
offenses under the RICO statute.
The district court found these allegations insufficient
to set forth a RICO pattern. The court reasoned
that while the predicate acts alleged were sufficient in
number, adequately related, and spread out over time,
they lacked the requisite “continuity” to make out a
RICO pattern. See Brandenburg v. First Maryland
Sav. & Loan, 660 F.Supp. 717, 727 (D.Md.1987).
This was so, said the district court, because they were
all in furtherance of a single “limited” scheme to encourage
the public to deposit money in First Maryland
and other MSSIC-insured savings and loans by
representing deposits in those institutions to be more
secure than they actually were. See id. at 727-28. In
the district court’s view, this scheme-which it characterized
as a “one-time plan to accomplish a single
goal”-did not “set forth the type of continuous criminal
endeavor that will establish a pattern of racketeering
as defined in Sedima and [Zepkin ].” Id. at 727.
Though the issue is a close one and the district
court’s analysis arguably faithful to our precedents,
we are sufficiently concerned with its accuracy that
we choose not to rest affirmance upon it. The predicate
acts alleged here spanned a period of more than
three years and were directed at more than 22,000
putative victims. Though they can be characterized as
part of a single scheme, it was not a scheme that is
easily treated as one limited in scope to the accomplishment
of a single discrete objective. This is not a
case, for example, like Zepkin, where the predicate
acts alleged were all designed to defraud a small
group of victims in connection with a single transaction.
Instead, the predicate acts of fraud, as alleged
here, were directed at an enormous group of personsthe
investing public-in connection with a virtually
limitless number of deposit transactions. Nor is this
case easily likened to Walk, where the predicate acts
alleged, though occurring in connection with several
related transactions spread out over a number of
years, were all steps in the path to the accomplishment
of a single limited goal-squeezing out the minority
in a particular corporate structure. Unlike the
scheme in Walk, the scheme as alleged here did not
involve the commission of multiple preparatory acts
aimed at the infliction of a single basic injury, but the
commission of a series of independent acts that were
distinct criminal ends in themselves.FN6 In contrast to
the scheme in Walk, this scheme as alleged had no
limiting goal whose accomplishment would bring the
criminal activity it spawned to an end. Indeed, the
criminal activity as pleaded here threatened to continue
unabated, driven by the possibility of repeated
economic gain, until the defendants were caught.
Such a scheme-though “single”-is arguably of the
type whose very scope and persistence poses a special
threat to social well-being, a possibility we have
recognized. See Zepkin, 812 F.2d at 155; see also
Liquid Air Corp. v. Rogers, 834 F.2d 1297, 1304-05
(7th Cir.1987) (allegations that defendants mailed 19
separate false shipping invoices over a period of
seven months were sufficient to state a pattern, because
each false invoice threatened an independent
economic injury); Illinois Dept. of Revenue v. Phillips,
771 F.2d 312, 313 (7th Cir.1985) (allegations
that defendant mailed nine separate fraudulent sales
tax returns to the state were sufficient to state a pattern,
because each false return threatened an independent
economic injury).
FN6. The fact that the discrete objectives of
each of the predicate acts were all of the
same basic type would not, of course, prevent
the predicate acts from constituting a
pattern. As we said in Walk, the pattern requirement
cannot be avoided by “ ‘the semantical
game of generalizing th [e] illegal
objective’ ” of the related predicate acts. See
847 F.2d at 1106, quoting Montesano v. Seafirst
Comm. Corp., 818 F.2d 423, 426 (5th
Cir.1987).
As this analysis indicates, the district court’s
conclusion that a RICO pattern had not been sufficiently
alleged is open at least to serious question
under our precedents. Because the issue therefore is
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close, the pattern concept a difficult one whose outer
bounds are yet unclear, and the question as presented
here one of the sufficiency of bare-bones pleading
allegations, we decline to pass upon it. We may
*1187 do so because of our conclusion that affirmance
is compelled on the much firmer, alternative
causation ground.
Accordingly, we assume, without deciding, that
a RICO pattern was sufficiently alleged and turn, as
this assumption requires, to the causation question.
Before doing so, we emphasize that to find, or assume,
that a RICO pattern of racketeering activity
consisting of acts of mail and wire fraud has been
shown does not also establish that its intended victims
were injured, nor beyond that, that any injury
suffered by them was sufficiently caused by the acts
to create RICO liability. This follows because indictable
acts of mail or wire fraud may be proven without
any proof of detrimental reliance by, hence of injury
to, the intended victims. See Armco Indus. Credit
Corp. v. SLT Warehouse Co., 782 F.2d 475, 481-82
(5th Cir.1986).
B.
To make out a civil action for damages under the
RICO statute a private plaintiff must demonstrate not
only that the defendants have violated § 1962, but
also that he has been “injured in his business or property
by reason of [the alleged] violation of section
1962.” 18 U.S.C. § 1964(c).FN7 The quoted language
requires the plaintiff to make two closely related
showings: (1) that he has suffered injury to his business
or property; and (2) that this injury was caused
by the predicate acts of racketeering activity that
make up the violation of § 1962. See Nodine v. Textron,
Inc., 819 F.2d 347, 348 (1st Cir.1987).FN8 As the
Seventh Circuit has said, “[a] defendant who violates
section 1962 is not liable for treble damages to everyone
he might have injured by other conduct, nor is
[he] liable to those who have not been injured.” See
Haroco, Inc. v. American Nat’l Bank & Trust Co.,
747 F.2d 384, 398 (7th Cir.1984), aff’d, 473 U.S. 606,
105 S.Ct. 3291, 87 L.Ed.2d 437 (1985). The Supreme
Court has explained these injury and causation requirements
as aspects of standing, rather than elements
of the civil RICO plaintiff’s prima facie case.
See Sedima, 473 U.S. at 496-97, 105 S.Ct. at 3285
(Under § 1962(c), a “plaintiff only has standing if,
and can only recover to the extent that, he has been
injured in his business or property by the conduct
constituting the violation.”). In any event, it is clear
that a civil RICO complaint is vulnerable to a motion
to dismiss if it fails to allege either an adequate injury
to business or property, see, e.g., Drake v. BF Goodrich
Co., 782 F.2d 638, 644 (6th Cir.1986), or an
adequate causal nexus between that injury and the
predicate acts of racketeering activity alleged, see,
e.g., Pujol v. Shearson/American Express, Inc., 829
F.2d 1201, 1204-06 (1st Cir.1987); Nodine, 819 F.2d
at 348-49; Morast v. Lance, 807 F.2d 926, 932-33
(11th Cir.1987); In re Gas Reclamation, Inc. Securities
Litigation, 663 F.Supp. 1123, 1124-26
(S.D.N.Y.1987).
FN7. Section 1964(c) reads in full as follows:
Any person injured in his business or
property by reason of a violation of
section 1962 of this chapter may sue
therefor in any appropriate United States
district court and shall recover threefold
the damages he sustains and the cost of
the suit, including a reasonable attorney’s
fee.
18 U.S.C. § 1964(c).
FN8. The civil RICO claimant need not,
however, plead and prove a distinct “racketeering
injury.” Sedima, 473 U.S. at 495, 105
S.Ct. at 3284.
The civil RICO count at issue here contains an
adequate allegation of injury to the plaintiffs’ business
or property: the loss of interest income on their
First Maryland savings accounts and certificates of
deposit during the period in which First Maryland has
been in conservatorship and receivership. See
Amended Complaint paragraphs 102-107. But the
MSSIC defendants argue that the plaintiffs have
failed adequately to plead the requisite causal connection
between this injury and the predicate acts of
racketeering activity that they are alleged to have
committed. We agree.
The only predicate acts of racketeering activity
of which the MSSIC defendants stand accused are
acts of mail and wire fraud and interstate transportation
of fraudulently obtained funds committed in
connection with their dissemination of certain*1188
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PHILLIPS, Circuit Judge:
Plaintiffs, depositors in the insolvent First Maryland
Savings and Loan Association (First Maryland),
appeal the dismissal of their action against certain
former officers, directors, and senior management
personnel of First Maryland (the First Maryland defendants),
as well as certain former officers and directors
of the Maryland Savings-Share Insurance
Corporation (MSSIC) and the individual savings and
loan institutions with which those individuals were
affiliated during their tenure at MSSIC (the MSSIC
defendants). Their amended complaint contained two
counts based on the civil provisions of the Racketeer
Influenced and Corrupt Organizations Act (RICO),
18 U.S.C. §§ 1961-1968, as well as several pendent
state law claims. The district court dismissed the action
prior to trial. The court dismissed the civil RICO
count against the MSSIC defendants for failure to
state a claim and declined to exercise its discretionary
jurisdiction over the pendent state claims against
those defendants. It then dismissed the claims-both
federal and state-against the First Maryland defendants
on abstention grounds, in deference to the ongoing
state receivership proceedings. We affirm,
though on somewhat different grounds as to the
MSSIC defendants.
I
The Maryland Savings-Share Insurance Corporation
(MSSIC) was a quasi-public non-profit corporation
established by the Maryland legislature in 1962
to insure accounts in state-chartered savings and loan
associations. MSSIC was given substantial regulatory
control over its member institutions, which by 1985
numbered approximately 100.FN1 In May 1985, rumors
of financial instability at two savings and loans
insured by MSSIC-Old Court and Merritt-triggered a
general run on MSSIC-insured thrifts. The resulting
panic threw MSSIC itself into financial peril and
threatened to lead to the collapse of the state’s savings
and loan industry. In response, the Governor of
Maryland declared a state of public crisis, issued an
Executive Order limiting withdrawals from all
MSSIC-insured institutions to a maximum of $1,000
per account per month, and called the Maryland General
Assembly into emergency session. In special
sessions held in May and October-November of
1985, the General Assembly passed a package of
legislation designed to deal comprehensively with the
crisis in the state’s savings and loan industry. See
1985 Md.Laws, 1st Sp.Sess., ch. 1-11; 1985
Md.Laws, 2d Sp.Sess., ch. 3-6. Further refinements
were added in the legislature’s regular session in
1986. See 1986 Md.Laws, ch. 11-12.
FN1. MSSIC was governed by an elevenmember
Board of Directors. Three of the
eleven directors were appointed by the Governor;
the remainder were elected by
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MSSIC’s member institutions.
*1182 This legislative effort had two principal
components. First was the creation of a state-operated
deposit insurance fund, the Maryland Deposit Insurance
Fund (MDIF), to replace the ruined MSSIC.
MDIF was given all of MSSIC’s powers, duties, and
responsibilities and assumed all of its assets and liabilities,
including its insurance obligations to depositors
at member institutions. See generally
Md.Fin.Inst.Code Ann. §§ 10-101 to 10-121 (establishing
and defining structure and powers of MDIF).
Second, and of particular importance here, was the
establishment of a comprehensive framework for the
administration of conservatorship and receivership
proceedings for insolvent savings and loan associations.
See Md.Fin.Inst.Code Ann. §§ 9-701 to 9-712.
Section 9-709 gave MDIF the right to be appointed
conservator or receiver of any savings and loan association
insured by it. Section 9-710 gave the state
court administering the conservatorship or receivership
of such an institution “exclusive and plenary
jurisdiction over all claims, actions, and proceedings
that are brought by any person and that are related to
the assets, property, powers, rights, privileges, duties
and liabilities” of that institution or of MDIF in its
capacity as conservator or receiver.FN2 To implement
this comprehensive scheme, the Maryland Court of
Appeals appointed a single judge, Judge Joseph Kaplan
of the Circuit Court for the City of Baltimore, to
adjudicate all claims arising out of the conservatorship/
receivership proceedings for the failed savings
and loan associations.
FN2. Section 9-710 reads as follows:
§ 9-710. Jurisdiction of circuit court.
(a) In general.-(1) Notwithstanding any
other provision of law and to the maximum
extent permitted under the federal
and State constitutions, the circuit court
administering a conservatorship or receivership
under this title shall have exclusive
and plenary jurisdiction over all claims,
actions, and proceedings that are brought
by any person and that are related to the
assets, property, powers, rights, privileges,
duties, and liabilities of:
(i) The savings and loan association and
its subsidiaries, affiliates, or holding company;
(ii) The receivership or conservatorship
estate; and
(iii) The State of Maryland Deposit Insurance
Fund Corporation in its capacity as
receiver or conservator of the savings and
loan association.
(2) A court other than a court administering
a conservatorship or receivership under
this title may exercise jurisdiction
over claims and actions if:
(i) The court would have jurisdiction over
the claims or actions but for this section;
and
(ii) The court administering the conservatorship
or receivership approves:
1. The initiation and prosecution, or the
continued prosecution, of the claims or actions
in the other court by the conservator
or receiver; or
2. The continued prosecution of claims or
actions in the other court by any person
other than the conservator or receiver.
(b) Transfers.-Except as otherwise ordered
by the court administering the conservatorship
or receivership, any action or
proceeding described in subsection (a)(1)
of this section that is pending at the time
the conservatorship or receivership is established
under this title shall be transferred
to the circuit court administering
the conservatorship or receivership.
(1986, ch. 11, § 2.)
First Maryland was a state-chartered savings and
loan association formerly insured by MSSIC. In November
1985, Judge Kaplan found First Maryland to
be in an impaired condition and appointed MDIF as
its conservator. The conservatorship order froze the
interest rates on most First Maryland accounts at 5
1/2 % per annum. But First Maryland’s financial
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problems proved insurmountable, and on June 19,
1986, Judge Kaplan formally placed First Maryland
in receivership, appointing MDIF receiver and giving
it total control over First Maryland’s assets. The receivership
order terminated the continuing accrual of
interest of all First Maryland accounts as of that date.
No appeal was taken from that order.
In carrying out its statutory duty as receiver to
consolidate First Maryland’s assets for distribution to
its depositors and other creditors, MDIF has filed
actions in state court against various parties believed
to have participated in the misappropriation of the
institution’s assets. Chief among these is an action
against First Maryland’s former officers and directors
seeking $45 million in compensatory and punitive
damages for their wrongful depletion of the thrift’s
assets, based on theories of fraud, *1183 breach of
fiduciary duty, conspiracy, negligence, gross negligence,
waste, and conversion. MDIF v. Seidel, No.
13408 (Cir.Ct. of Mont.Co). MDIF has also instituted
a state court action against certain former directors of
MSSIC, seeking damages for their alleged complicity
in the fraud perpetrated by the former directors of
First Maryland and other insolvent thrifts. MDIF v.
Hogg, No. 113102 (Cir.Ct. Anne Arundel Co.).
To date, MDIF has distributed over $110 million
in First Maryland assets to the institution’s depositors.
In July 1986, MDIF returned up to $5,000 of principal
to each depositor, depending on the amount in his
or her account. In December 1986, MDIF distributed
another $41 million generated through the sale of
First Maryland’s assets to its depositors. As additional
assets are collected and liquidated, MDIF will distribute
the proceeds to the depositors. MDIF estimates,
however, that the depositors may not be repaid
the entire principal of their accounts until 1990 or
thereafter, and that they may never be compensated
for the interest lost on their accounts during First
Maryland’s insolvency.
Not satisfied with MDIF’s efforts, the plaintiffs
filed this action in federal court on behalf of themselves
and a class consisting of all persons who had
money deposited in First Maryland as of August 23,
1985.FN3 Named as defendants are First Maryland and
a number of its former officers, directors, and senior
management personnel (the First Maryland defendants),
as well as 12 former officers and directors of
MSSIC and the various savings and loan associations
with which those individuals were affiliated during
their tenure at MSSIC (collectively, the MSSIC defendants).
In this action, the plaintiffs seek damages
to compensate them for being deprived of the use of
their savings-and of the interest thereon-during the
period in which First Maryland has been in conservatorship
or receivership.
FN3. According to the amended complaint,
the class consists of more than 22,000 individuals.
The amended federal complaint, which is the
subject of this appeal, contains seven counts. Count I
asserts a civil RICO claim against both the First
Maryland defendants and the MSSIC defendants,
based on allegations that they used the mails and interstate
wires to make a series of fraudulent misrepresentations
about the security of deposits at First
Maryland and other MSSIC-insured savings and
loans, in order to induce the public to deposit money
in those institutions. Count II asserts a civil RICO
claim against the First Maryland defendants only,
based on allegations that they misappropriated the
thrift’s assets through numerous acts of self-dealing
extending over a number of years. The remaining
counts assert a number of pendent state claims.
Counts III and IV assert claims against the MSSIC
defendants for fraud, deceit, negligent and intentional
misrepresentation, and civil conspiracy, based on
their dissemination of allegedly false information
about the security of accounts at First Maryland and
other MSSIC-insured institutions. Count V asserts
claims against First Maryland for conversion and
breach of contract arising out of its failure “through
its conservator MDIF,” to release or pay interest on
the plaintiffs’ accounts.FN4 Counts VI and VII assert
claims against the MSSIC defendants for negligence,
gross negligence, and breach of fiduciary duty, based
on their alleged failure to exercise adequate regulatory
control over financial practices at First Maryland
and other MSSIC-insured institutions.
FN4. First Maryland has been voluntarily
dismissed from the action and is not a party
to this appeal.
The district court dismissed the plaintiffs’ claims
against all defendants prior to trial. The court held
first that the civil RICO count against the MSSIC
defendants should be dismissed under Fed.R.Civ.P.
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12(b)(6) for failure to allege a legally sufficient pattern
of racketeering activity and that the pendent state
claims against those defendants should be dismissed
under United Mine Workers v. Gibbs, 383 U.S. 715,
86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). The court then
concluded that the claims against the First Maryland
defendants-under both civil RICO and state lawshould
be dismissed on abstention grounds, *1184 in
deference to the ongoing state receivership proceedings.
This appeal followed.
II
We consider first the dismissal of the counts
against the MSSIC defendants. We agree with the
district court that the civil RICO count against those
defendants fails to state a claim, but we reach that
conclusion by a somewhat different route.
The district court dismissed on the basis that the
complaint failed adequately to allege a RICO “pattern.”
It did not address an alternative basis urged by
defendants: that even were a pattern sufficiently alleged,
an adequate causal connection between pattern
and cognizable injury to plaintiffs was not.
Because we have serious reservations about the
district court’s “no-pattern” conclusion, we rest affirmance
on the alternative “no-causal connection”
ground, a theory advanced by defendants both in the
district court and here. See Stern v. Merrill Lynch,
Pierce, Fenner and Smith, Inc., 603 F.2d 1073, 1093
(4th Cir.1979) (proper to affirm on alternative ground
advanced but not considered in trial court).
Though in the end we rest affirmance on the alternative
ground, we believe it nevertheless prudent
first to discuss in some detail the “no-pattern” basis
relied upon by the district court in order to indicate
why we decline to affirm on that basis. We do so out
of considerations of fairness to the litigants, concern
for the doctrinal integrity of our ongoing applications
of the difficult “pattern” concept, and, most importantly,
because of the special need in this case to emphasize
the conceptual independence, despite their
close relationship, of the pattern and causation elements
of the civil RICO claim.
A
To discuss the “pattern” issue, we begin at the
beginning. 18 U.S.C. § 1964(c) provides a private
action for treble damages and attorneys’ fees to
“[a]ny person injured in his business or property by
reason of a violation of section 1962 of this chapter.”
The civil RICO claim at issue here is based on alleged
violations of §§ 1962(a), (c), and (d). All of
these subsections require a showing that the defendants
engaged in a “pattern of racketeering activity.”
FN5 The RICO statute defines “racketeering activity”
to include, inter alia, any act indictable under certain
provisions of the federal criminal code, including 18
U.S.C. § 1341 (mail fraud), 18 U.S.C. § 1343 (wire
fraud), and 18 U.S.C. § 2314 (interstate transportation
of fraudulently obtained funds). See 18 U.S.C. §
1961(1). A “pattern of racketeering activity” is in
turn *1185 defined as at least two acts of racketeering
activity within ten years of each other. See 18 U.S.C.
§ 1961(5). In Sedima, SPRL v. Imrex Co., 473 U.S.
479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985), the Supreme
Court noted that while two such acts are necessary
to make out a RICO pattern, they may not be
sufficient. Id. at 496 n. 14, 105 S.Ct. at 3285 n. 14.
To constitute a pattern, the Court indicated, predicate
acts of racketeering activity must reflect both “continuity”
and “relationship.” Id.
FN5. 18 U.S.C. § 1962 provides:
§ 1962. Prohibited Activities
(a) It shall be unlawful for any person
who has received any income derived, directly
or indirectly, from a pattern of
racketeering activity or through collection
of an unlawful debt in which such person
has participated as a principal within the
meaning of section 2, title 18, United
States Code, to use or invest, directly or
indirectly, any part of such income, or the
proceeds of such income, in acquisition of
any interest in, or the establishment or operation
of, any enterprise which is engaged
in, or the activities of which affect,
interstate or foreign commerce. A purchase
of securities on the open market for
purposes of investment, and without the
intention of controlling or participating in
the control of the issuer, or of assisting
another to do so, shall not be unlawful under
this subsection if the securities of the
issuer held by the purchaser, the members
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of his immediate family, and his or their
accomplices in any pattern or [sic] racketeering
activity or the collection of an unlawful
debt after such purchase do not
amount in the aggregate to one percent of
the outstanding securities of any one class,
and do not confer, either in law or in fact,
the power to elect one or more directors of
the issuer.
(b) It shall be unlawful for any person
through a pattern of racketeering activity
or through collection of an unlawful debt
to acquire or maintain, directly or indirectly,
any interest in or control of any enterprise
which is engaged in, or the activities
of which affect, interstate or foreign
commerce.
(c) 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 or collection of unlawful
debt.
(d) It shall be unlawful for any person to
conspire to violate any of the provisions
of subsections (a), (b), or (c) of this section.
Since Sedima, this court has wrestled with the
concept of a RICO pattern on a number of occasions,
see, e.g., Walk v. Baltimore & Ohio RR, 847 F.2d
1100 (4th Cir.1988); Eastern Publishing & Advertising,
Inc. v. Chesapeake Publishing & Advertising,
Inc., 831 F.2d 488 (4th Cir.1987); HMK Corp. v.
Walsey, 828 F.2d 1071 (4th Cir.1987); International
Data Bank v. Zepkin, 812 F.2d 149 (4th Cir.1987). In
these cases, we have deliberately declined to adopt
any mechanical rules to determine the existence of a
RICO pattern, holding instead that the issue is a
“matter of criminal dimension and degree” to be decided
on a case-by-case basis. See Zepkin, 812 F.2d
at 155. Factors relevant to this inquiry include the
number and variety of predicate acts and the length of
time over which they were committed, the number of
putative victims, the presence of separate schemes,
and the potential for multiple distinct injuries. See
Morgan v. Bank of Waukegan, 804 F.2d 970, 975
(7th Cir.1986). These factors are not exclusive, and
no one of them is necessarily determinative; instead,
a carefully considered judgment taking into account
all the facts and circumstances of the particular casewith
special attention to the context in which the
predicate acts occur-is required. See Walk, 847 F.2d
at 1103-04; HMK, 828 F.2d at 1074. The mere fact
that the predicate acts alleged can be characterized as
part of the same overall scheme does not automatically
prevent their constituting a RICO pattern. See
Walk, 847 F.2d at 1106; Zepkin, 812 F.2d at 155.
Similarly, the fact that a scheme to defraud requires
several acts of mail or wire fraud in order to accomplish
its objective does not automatically make it a
RICO pattern. See Walk, 847 F.2d at 1104; Zepkin,
812 F.2d at 154-55. With us, the pattern inquiry remains
a flexible one whose ultimate focus must always
be on whether the related predicate acts indicate
“ongoing criminal activity of sufficient scope and
persistence to pose a special threat to social wellbeing.”
Walk, 847 F.2d at 1106; See Zepkin, 812 F.2d
at 155.
In this case, the civil RICO count against the
MSSIC defendants is based on allegations that they
made a series of misleading statements in order to
induce the public to deposit money in First Maryland
and other MSSIC-insured institutions, including:
(1) running print and broadcast advertisements designed
to create the misimpression that MSSIC was
an agency of the state of Maryland;
(2) distributing various documents-including a brochure
entitled “We Have the Answers” and a letter
entitled “An Open Letter to a Potential MSSIC
Saver”-designed to create the misimpression that
MSSIC was an agency of the state of Maryland and
that it effectively regulated its member institutions
to insure the safety of deposits therein;
(3) giving false assurances of security, both in writing
and over the telephone, to depositor inquiries
about the safety of accounts in MSSIC-insured institutions;
(4) encouraging member institutions to use the
MSSIC seal, which is similar to the State of Maryland’s
seal, in print and broadcast ads, in order to
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create the misimpression that their accounts were
insured by the state of Maryland;
(5) deliberately concealing adverse information
about member institutions from the press; and
(6) distributing documents and running print and
broadcast advertisements misrepresenting the nature
and value of the insurance offered by MSSIC.
See Amended Complaint paragraphs 81-84. The
plaintiffs allege that the MSSIC defendants thereby
committed multiple acts of mail and wire fraud, as
well as interstate transportation of fraudulently obtained*
1186 funds, all of which are proper predicate
offenses under the RICO statute.

The district court found these allegations insufficient
to set forth a RICO pattern. The court reasoned
that while the predicate acts alleged were sufficient in
number, adequately related, and spread out over time,
they lacked the requisite “continuity” to make out a
RICO pattern. See Brandenburg v. First Maryland
Sav. & Loan, 660 F.Supp. 717, 727 (D.Md.1987).
This was so, said the district court, because they were
all in furtherance of a single “limited” scheme to encourage
the public to deposit money in First Maryland
and other MSSIC-insured savings and loans by
representing deposits in those institutions to be more
secure than they actually were. See id. at 727-28. In
the district court’s view, this scheme-which it characterized
as a “one-time plan to accomplish a single
goal”-did not “set forth the type of continuous criminal
endeavor that will establish a pattern of racketeering
as defined in Sedima and [Zepkin ].” Id. at 727.
Though the issue is a close one and the district
court’s analysis arguably faithful to our precedents,
we are sufficiently concerned with its accuracy that
we choose not to rest affirmance upon it. The predicate
acts alleged here spanned a period of more than
three years and were directed at more than 22,000
putative victims. Though they can be characterized as
part of a single scheme, it was not a scheme that is
easily treated as one limited in scope to the accomplishment
of a single discrete objective. This is not a
case, for example, like Zepkin, where the predicate
acts alleged were all designed to defraud a small
group of victims in connection with a single transaction.
Instead, the predicate acts of fraud, as alleged
here, were directed at an enormous group of personsthe
investing public-in connection with a virtually
limitless number of deposit transactions. Nor is this
case easily likened to Walk, where the predicate acts
alleged, though occurring in connection with several
related transactions spread out over a number of
years, were all steps in the path to the accomplishment
of a single limited goal-squeezing out the minority
in a particular corporate structure. Unlike the
scheme in Walk, the scheme as alleged here did not
involve the commission of multiple preparatory acts
aimed at the infliction of a single basic injury, but the
commission of a series of independent acts that were
distinct criminal ends in themselves.FN6 In contrast to
the scheme in Walk, this scheme as alleged had no
limiting goal whose accomplishment would bring the
criminal activity it spawned to an end. Indeed, the
criminal activity as pleaded here threatened to continue
unabated, driven by the possibility of repeated
economic gain, until the defendants were caught.
Such a scheme-though “single”-is arguably of the
type whose very scope and persistence poses a special
threat to social well-being, a possibility we have
recognized. See Zepkin, 812 F.2d at 155; see also
Liquid Air Corp. v. Rogers, 834 F.2d 1297, 1304-05
(7th Cir.1987) (allegations that defendants mailed 19
separate false shipping invoices over a period of
seven months were sufficient to state a pattern, because
each false invoice threatened an independent
economic injury); Illinois Dept. of Revenue v. Phillips,
771 F.2d 312, 313 (7th Cir.1985) (allegations
that defendant mailed nine separate fraudulent sales
tax returns to the state were sufficient to state a pattern,
because each false return threatened an independent
economic injury).
FN6. The fact that the discrete objectives of
each of the predicate acts were all of the
same basic type would not, of course, prevent
the predicate acts from constituting a
pattern. As we said in Walk, the pattern requirement
cannot be avoided by “ ‘the semantical
game of generalizing th [e] illegal
objective’ ” of the related predicate acts. See
847 F.2d at 1106, quoting Montesano v. Seafirst
Comm. Corp., 818 F.2d 423, 426 (5th
Cir.1987).
As this analysis indicates, the district court’s
conclusion that a RICO pattern had not been sufficiently
alleged is open at least to serious question
under our precedents. Because the issue therefore is
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close, the pattern concept a difficult one whose outer
bounds are yet unclear, and the question as presented
here one of the sufficiency of bare-bones pleading
allegations, we decline to pass upon it. We may
*1187 do so because of our conclusion that affirmance
is compelled on the much firmer, alternative
causation ground.
Accordingly, we assume, without deciding, that
a RICO pattern was sufficiently alleged and turn, as
this assumption requires, to the causation question.
Before doing so, we emphasize that to find, or assume,
that a RICO pattern of racketeering activity
consisting of acts of mail and wire fraud has been
shown does not also establish that its intended victims
were injured, nor beyond that, that any injury
suffered by them was sufficiently caused by the acts
to create RICO liability. This follows because indictable
acts of mail or wire fraud may be proven without
any proof of detrimental reliance by, hence of injury
to, the intended victims. See Armco Indus. Credit
Corp. v. SLT Warehouse Co., 782 F.2d 475, 481-82
(5th Cir.1986).
B.
To make out a civil action for damages under the
RICO statute a private plaintiff must demonstrate not
only that the defendants have violated § 1962, but
also that he has been “injured in his business or property
by reason of [the alleged] violation of section
1962.” 18 U.S.C. § 1964(c).FN7 The quoted language
requires the plaintiff to make two closely related
showings: (1) that he has suffered injury to his business
or property; and (2) that this injury was caused
by the predicate acts of racketeering activity that
make up the violation of § 1962. See Nodine v. Textron,
Inc., 819 F.2d 347, 348 (1st Cir.1987).FN8 As the
Seventh Circuit has said, “[a] defendant who violates
section 1962 is not liable for treble damages to everyone
he might have injured by other conduct, nor is
[he] liable to those who have not been injured.” See
Haroco, Inc. v. American Nat’l Bank & Trust Co.,
747 F.2d 384, 398 (7th Cir.1984), aff’d, 473 U.S. 606,
105 S.Ct. 3291, 87 L.Ed.2d 437 (1985). The Supreme
Court has explained these injury and causation requirements
as aspects of standing, rather than elements
of the civil RICO plaintiff’s prima facie case.
See Sedima, 473 U.S. at 496-97, 105 S.Ct. at 3285
(Under § 1962(c), a “plaintiff only has standing if,
and can only recover to the extent that, he has been
injured in his business or property by the conduct
constituting the violation.”). In any event, it is clear
that a civil RICO complaint is vulnerable to a motion
to dismiss if it fails to allege either an adequate injury
to business or property, see, e.g., Drake v. BF Goodrich
Co., 782 F.2d 638, 644 (6th Cir.1986), or an
adequate causal nexus between that injury and the
predicate acts of racketeering activity alleged, see,
e.g., Pujol v. Shearson/American Express, Inc., 829
F.2d 1201, 1204-06 (1st Cir.1987); Nodine, 819 F.2d
at 348-49; Morast v. Lance, 807 F.2d 926, 932-33
(11th Cir.1987); In re Gas Reclamation, Inc. Securities
Litigation, 663 F.Supp. 1123, 1124-26
(S.D.N.Y.1987).
FN7. Section 1964(c) reads in full as follows:
Any person injured in his business or
property by reason of a violation of
section 1962 of this chapter may sue
therefor in any appropriate United States
district court and shall recover threefold
the damages he sustains and the cost of
the suit, including a reasonable attorney’s
fee.
18 U.S.C. § 1964(c).
FN8. The civil RICO claimant need not,
however, plead and prove a distinct “racketeering
injury.” Sedima, 473 U.S. at 495, 105
S.Ct. at 3284.
The civil RICO count at issue here contains an
adequate allegation of injury to the plaintiffs’ business
or property: the loss of interest income on their
First Maryland savings accounts and certificates of
deposit during the period in which First Maryland has
been in conservatorship and receivership. See
Amended Complaint paragraphs 102-107. But the
MSSIC defendants argue that the plaintiffs have
failed adequately to plead the requisite causal connection
between this injury and the predicate acts of
racketeering activity that they are alleged to have
committed. We agree.
The only predicate acts of racketeering activity
of which the MSSIC defendants stand accused are
acts of mail and wire fraud and interstate transportation
of fraudulently obtained funds committed in
connection with their dissemination of certain*1188
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allegedly misleading information about the security
of deposits in MSSIC-insured thrifts. See Amended
Complaint paragraphs 93-97.FN9 The causal connection
between these acts and the plaintiffs’ loss of interest
is not at all clear from the pleadings themselves.
The Amended Complaint alleges simply that:
FN9. As the district court noted, the great
bulk of the allegations against the MSSIC
defendants concern their allegedly negligent
or grossly negligent failure to carry out their
statutory duty to regulate the financial practices
of MSSIC’s member institutions. See
Amended Complaint paragraphs 58-80.
As a result of defendants’ violations of law, a run
did take place on MSSIC institutions, including
First Maryland, and First Maryland was unable to
meet and did not meet its obligations to First Maryland
depositors, and MSSIC was unable to meet
and did not meet its insurance obligations to First
Maryland depositors, including the plaintiffs and
class members herein.
See id. paragraph 102. There is no explanation of
how the MSSIC defendants’ misrepresentations
caused the run-nor could there be, for the cause of
the run was obviously the public’s discovery that
certain MSSIC-insured institutions were teetering
on the brink of insolvency because of self-dealing
by their officers and directors. While the MSSIC
defendants’ negligent failure to prevent unsound financial
practices at MSSIC’s member institutions
may have contributed to the run, and thus to the
plaintiffs’ injury, acts of negligence are not predicate
acts under the RICO statute, and § 1964(c)
provides no cause of action to individuals injured
by conduct other than predicate acts of racketeering
activity. See Nodine, 819 F.2d at 349.
The plaintiffs argue that the Amended Complaint
alleged two causal nexus between the MSSIC defendants’
misrepresentations and their loss of interest,
either of which is sufficient to satisfy § 1964(c). First,
they claim to have alleged that the misrepresentations
caused a huge influx of deposits into MSSIC’s member
institutions, stretching MSSIC’s insurance commitments
far beyond their limits and resulting in
MSSIC’s inability to meet its insurance obligations to
the plaintiffs when the run occurred. See Reply Brief
for Appellants at 21-22, citing Amended Complaint,
paragraphs 102-106. But while MSSIC’s overextension
may well have contributed to the plaintiffs’ lossin
the sense that it removed the safety net of insurance
that should have protected them upon First
Maryland’s insolvency-that overextension was not
caused by the MSSIC defendants’ misrepresentations
but by their negligent failure to maintain adequate
reserves.
The plaintiffs also claim to have alleged that the
MSSIC defendants’ misrepresentations induced them
to deposit their money in First Maryland. See Brief
for Appellants at 22, citing Amended Complaint,
paragraphs 3-7. But the Amended Complaint contains
no specific allegation that the named or class plaintiffs
acted in reliance on any misrepresentations directly
made by the MSSIC defendants when they
decided to deposit their money in First Maryland.FN10
Instead, the plaintiffs allege that they deposited their
money in First Maryland in reliance on deceptive
newspaper ads placed by First Maryland itself. See
Amended Complaint paragraphs 3-7. The only connection
between these ads and the MSSIC defendants
is the fact that they contained the MSSIC seal, which
the plaintiffs contend created the misimpression that
MSSIC was an agency of the state of Maryland and
thus, by implication, that deposits in its member institutions
were insured by the state. Even assuming that
use of the seal by First Maryland can be considered a
representation by the MSSIC defendants, we do not
think that representation was sufficiently misleading
to serve as the basis for a predicate act of fraud.
Though not a state agency, MSSIC was *1189 created
by the Maryland legislature as part of a regulatory
response to the state’s first savings and loan crisis.
See Letter of Stephen Sachs, Attorney General of
the State of Maryland, to Wilbur D. Preston, Jr., Special
Counsel, JA 122-23. The MSSIC seal has been in
continuous use for over 23 years, with the knowledge
and blessing of both the legislative and executive
branches of the state government. Id. Under these
circumstances, we do not think any representations of
state involvement conveyed by the seal can serve as
the basis for predicate acts of mail and wire fraud.
Accordingly, any injury caused the plaintiffs by the
ads containing the seal was not caused by any predicate
acts of racketeering activity.
FN10. The defendants correctly point out
that while, as we have noted, it is not necessary
to establish detrimental reliance by the
victim in order to make out a violation of the
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federal mail fraud statute, see Armco Indus.,
782 F.2d at 481-82, such reliance is necessary
to establish injury to business or property
“by reason of” a predicate act of mail
fraud within the meaning of § 1964(c).
In sum, we conclude that the plaintiffs have alleged
at most a cause-in-fact connection between any
fraudulent misrepresentations made by the MSSIC
defendants and plaintiffs’ later loss of interest income
on their First Maryland deposits. It is obvious that, as
a factual matter, plaintiffs would not have lost any
interest on their deposits but for having made them in
the first place. Further, it may be inferred in this context,
though it is not so obvious, that their particular
losses would have been avoided in the end by insurance
coverage but for the fact that too many others
had also made deposits. To the extent therefore that
any misrepresentations by defendants may have
caused these particular plaintiffs to deposit in the first
place and other depositors then to have increased
overall deposits past the point of insurance coverage,
the plaintiffs have surely alleged a degree of causal
connection between defendants’ conduct and their
injury. But, as indicated, it is no more than a bare
cause-in-fact connection, and a most attenuated one
at that.
Such a cause-in-fact connection, standing alone,
does not suffice to establish liability. Civil RICO is
of course a statutory tort remedy-simply one with
particularly drastic remedies. Causation principles
generally applicable to tort liability must be considered
applicable. These require not only cause-in-fact,
but “legal” or “proximate” cause as well, the latter
involving a policy rather than a purely factual determination:
“whether the conduct has been so significant
and important a cause that the defendant should
be held responsible.” Prosser and Keeton Torts, § 42
p. 272 (general principle) (5th ed. 1984); see also id.,
§ 110 p. 767 (applicable in fraud cases); Restatement
(Second) of Torts, § 548A (legal cause required in
fraud cases). As such, the legal cause determination
is properly one of law for the court, taking into consideration
such factors as the foreseeability of the
particular injury, the intervention of other independent
causes, and the factual directness of the causal
connection. See generally Restatement (Second) of
Torts § 548A comments a, b.FN11
FN11. We are aware of the Sedima Court’s
admonitions that RICO’s civil remedy provisions
are to be “liberally construed” and that
Congress did not intend civil RICO claimants
to be unduly hampered by the interrelated
“strict requirements [of] ‘standing’ to
sue and ‘proximate cause’ ” appropriate in
the related antitrust context. Sedima, 473
U.S. at 498, 105 S.Ct. at 3286. But these
admonitions obviously were not intended to
read the traditional proximate cause concerns
of tort law completely out of civil
RICO, leaving only a cause-in-fact requirement.
They were made in the context of a rejection
of the view that RICO injury, like
antitrust injury, see Brunswick Corp. v.
Pueblo Bowl-O-Mat, Inc., 429 U.S. 477,
489, 97 S.Ct. 690, 697, 50 L.Ed.2d 701
(1977), must be of a special type causally
connected to the anti-competitive effects of
the basically proscribed conduct rather than
the normally compensable type of injury
flowing from the basically proscribed conduct
(predicate acts) itself. This rejection
clearly relaxes the RICO proximate cause
test from that applied in antitrust, by focussing
inquiry on more direct cause and effect
relationships than the necessarily more attenuated
ones implied by the amorphous
concepts of “anti-competitive” injury and
violation. But it is plain that with the matter
of RICO injury and RICO violation thus settled,
the Sedima Court assumed that the
normal proximate cause inquiry into their relationship
would be appropriate. See id. 473
U.S. at 497, n. 15, 105 S.Ct. at 3285, n. 15.
Our inquiry proceeds within those bounds.
Here we conclude as a matter of law that on the
facts as alleged the misrepresentations charged to
defendants were not so significant and important a
cause of the plaintiffs’ loss of income on their deposits
and accounts that these defendants should be held
responsible for them. In more *1190 specific terms of
the statutory causation requirement, we conclude that
plaintiffs have not been “injured in [their] business or
property by reason of [the defendants’ alleged] violation
of § 1962.” 18 U.S.C. § 1964(c).
As we have pointed out, the causal connection
was in factual terms an extremely attenuated one. It
rests on an assumption of actual reliance by the
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named plaintiffs (and the entire class) upon the defendants’
advertising, through the medium of their
seal’s use, of their insured institutions’ financial stability
as the effective cause of plaintiffs’ independent
decisions to deposit their money in those institutions
rather than do something else with it. That connection
is certainly alleged, albeit in conclusory terms in the
complaint, but this does not mean we may not take
into account the slim thread of causal connection
upon which it rests. More important is the consideration
of all that had to transpire thereafter in order to
bring upon plaintiffs the RICO injury they specifically
alleged. Obviously the two most immediate
causes were the alleged depredations of the insured
institution’s management, and the MSSIC defendants’
negligent or reckless failure to prevent those depredations.
That of course is what directly caused the run
and ruin that followed, and neither of these of course
constitute RICO predicate acts chargeable to these
defendants. That these are in practical terms the intervening
direct causes of the tragic losses sustained
is of course reflected in the fact that they provide the
basis for these plaintiffs’ related pendent state claims
in this action. We therefore hold that on the facts alleged,
defendants’ alleged misrepresentations may not
properly be held the legal cause of the RICO injuries
alleged by these plaintiffs.FN12
FN12. In light of this conclusion, we find it
unnecessary to address the alternative argument,
strenuously advanced before us by the
six MSSIC member institutions that are
joined as defendants, that they cannot be
held liable in any event for the alleged misconduct
of MSSIC’s officers and directors.
In terms of our analysis, it is plain that the
causal connection between their conduct and
the plaintiffs’ injury is even more attenuated-
“legal” cause less evident-than that of the
MSSIC directors themselves.
Since there are no other federal claims against
the MSSIC defendants, we conclude that the district
court did not abuse its discretion in dismissing the
pendent state claims against those defendants as well.
United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86
S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966).
* * * *
IV
For the reasons set forth above, the district
court’s order of dismissal is affirmed.
AFFIRMED.
C.A.4 (Md.),1988.
Brandenburg v. Seidel
859 F.2d 1179, 57 USLW 2251,

Statute of limitations under RICO: Matthews v. Kidder Peabody


Statute of limitations under RICO can be tough to calculate. The Court first noted policy considerations for plaintiff. “Too much emphasis on the statute of limitations can precipitate premature and groundless suits, as plaintiffs rush to beat the deadline without being able to obtain good evidence of fraud”); Fujisawa Pharm. Co., Ltd. v. Kapoor, 115 F.3d 1332, 1335 (7th Cir.1997) (“Inquiry notice … must not be construed so broadly that the statute of limitations starts running too soon for the victim of the fraud to be able to bring suit.”).

Matthews v. Kidder Peabody 260 F.3d 239 (3d Cir. 2001)

NYGAARD, Circuit Judge.

The Appellants in this case are a number of self-professed conservative, first-time investors who purchased securities from Kidder Peabody & Co., Inc. and the Henry S. Miller Organization. They claim that Kidder and Miller fraudulently misrepresented the securities as low-risk vehicles similar to municipal bonds. Ultimately, the securities failed and the Appellants brought civil RICO claims. After extensive discovery, the District Court granted summary judgment to Kidder and Miller and held that the Appellants’ claims were barred by the applicable four-year statute of limitations. On appeal, the Appellants contend that the court erred in three major respects: It incorrectly concluded that the Appellants were injured at the time they purchased the securities; it erred in holding that the Appellants were on inquiry notice of their injuries no later than early 1990; and, finally, it erred in refusing to equitably toll the statute of limitations. We will affirm.

I. FACTS

This case involves a securities class action brought against Kidder, a retail brokerage house, and Miller, “a multi-faceted real-estate management, appraisal, and investment organization.” App. at 35. In the early 1980s, brokerage houses began working with real estate companies, such as Miller, to offer investment opportunities. They often sought to take advantage of the booming construction markets in the south and southwest regions of the United States known as the “Sunbelt.” The companies formed limited partnerships, purchased Sunbelt commercial real estate, and sold interests to the general public. They marketed the investments as tax shelters, long-term capital gain opportunities, and income-producing plans.

242*242 In 1981, Kidder and Miller created three separate investment funds. The two companies formed wholly owned subsidiaries to serve as general partners for the funds, and then sold limited partnerships to the public. The plan was to acquire commercial real estate properties in the Sunbelt, collect rental income (thus providing a steady, but modest, income stream for investors), and eventually sell the properties six to ten years later and collect substantial capital gains. The bulk of the return for investors was to come from appreciation in the properties.

Kidder prepared and distributed to its brokers a prospectus, sales information, a videotape, and other reference materials describing the first investment fund.[1] In May 1992, Kidder began selling limited partnership units in that fund. By May 1986, it had sold units in all three funds to more than six thousand investors and raised approximately eighty-four million dollars. The funds purchased properties in Texas, Florida, Georgia, New Mexico, Arizona, Arkansas, and Illinois.

The crux of the Appellants’ claims is that Kidder fraudulently suggested that the funds were low-risk, conservative investments suitable for low net-worth individuals. The Appellants believe that Kidder specifically targeted unsophisticated investors, intentionally misled them about the nature of the funds, and charged excessive fees and commissions. These acts allegedly constituted violations of the federal securities laws,[2] wire fraud, 18 U.S.C. § 1343, mail fraud, 18 U.S.C. § 1341, and RICO violations.

Furthermore, the Appellants claim that Kidder conducted inadequate due diligence in choosing commercial real estate investments. As a result, at least in part, fund properties lost many of their key tenants, and quarterly distributions (to limited partners) fell to only a few dollars per unit. Additional economic factors also weakened the Sunbelt real estate market as a whole,[3] and the value of the funds’ investments plunged. Nonetheless, the Appellants claim that Kidder intentionally “lulled [them] into a false sense of security that `things would probably work out and substantial losses would be avoided.'” App. at 39.

Economic conditions did not improve. By August 1991, Funds I and II had stopped paying quarterly distributions. In April 1992, Kidder informed investors that conditions were unlikely to rebound, and therefore it was initiating an “exit strategy.” App. at 40. By 1994, all three funds had announced their intention to liquidate, which they accomplished between February and November of 1997.

II. PROCEDURAL HISTORY

John W. Mathews invested $20,000 in Fund II in 1984. He allegedly relied primarily upon oral representations by a Kidder broker. As the fund’s value deteriorated, Mathews became understandably 243*243 frustrated and disappointed. On January 23, 1995, he filed a class action complaint contending that Kidder had intentionally misrepresented the inherent risks associated with the funds and therefore had fraudulently induced him and others to invest. He claimed that Kidder had engaged in a pattern of racketeering activity prohibited by the federal RICO statute, 18 U.S.C. §§ 1961 et seq. Specifically, he claimed that Kidder had committed the predicate acts of securities fraud, mail fraud, and wire fraud.[4]

In response, Kidder filed a motion to dismiss. It claimed that: (1) Mathews lacked standing to assert claims involving Funds I and III because he had only invested in Fund II, (2) Mathews had failed to allege the necessary RICO elements, and (3) his claims were barred by RICO’s four-year statute of limitations. The District Court denied the motion without prejudice. The court agreed that Mathews lacked standing concerning Funds I and III, but held that he could pursue his claims relating to Fund II. As to Kidder’s remaining objections, the court allowed the case to move forward to develop a more complete record.

Both parties quickly filed additional motions. Mathews sought to amend his complaint to include plaintiffs who had invested in Funds I and III. Ultimately, he moved for class certification, including investors in all three funds. Kidder opposed Mathews’ requests on procedural grounds, and in addition, argued that the Private Securities Litigation Reform Act of 1995 (“PSLRA”) barred Mathews’ RICO action. The PSLRA, which Congress enacted on December 22, 1995, amended the federal RICO statute and explicitly eliminated securities fraud as a predicate act. See Pub.L. No. 104-67, § 107, 109 Stat. 737, 758 (1995), amending 18 U.S.C. § 1964(c) (1994).

The District Court held that the PSLRA did not bar Mathews’ RICO claim. See Mathews v. Kidder Peabody & Co., Inc., 947 F.Supp. 180 (W.D.Pa.1996). In addition, the court allowed Mathews to amend his complaint to include investors in Funds I and III, and it certified his requested class. Kidder filed an interlocutory appeal to this Court arguing that the PSLRA should apply retroactively to suits pending when the Act was passed. We rejected that claim. See Mathews v. Kidder Peabody & Co., Inc., 161 F.3d 156, 170-71 (3d Cir.1998) (“[W]e are extremely reluctant to create causes of action that did not previously exist, or — as in this case — to destroy causes of action and remedies that clearly did exist before Congress acted.”).

Discovery continued until November 1999. Kidder then moved for summary judgment, or alternatively to decertify the plaintiff class. Mathews opposed these motions, and once again, sought to amend the complaint. In particular, he wanted to add a new allegation claiming that the Kidder prospectus itself was fraudulent, because it misrepresented the inherent risks of the investment. The District Court denied Mathews’ motion to amend. The court cited “undue prejudice to Defendants, undue delay on the part of the Movant, the Movant’s repeated failure to cure deficiencies by previous amendments and futility of amendment.” App. at 29. It held that amending the complaint would unduly prejudice the defendants because it “would necessitate the taking of significant additional discovery and the difficulties that would entail is persuasive.” App. at 244*244 29. Mathews filed a motion for reconsideration, which was denied.

On August 18, 2000, the District Court issued a thoughtful and thorough seventy-four page opinion and order granting Kidder’s motion for summary judgment. See App. at 33-106. The court held that Mathews’ claims were barred by the applicable four-year statute of limitations. Statute of limitations issues surrounding RICO claims historically have been tricky for two reasons. First, Congress failed to provide a statutory limitations period in the RICO statute itself, and second, the Supreme Court has consistently refused to determine when a RICO action accrues — i.e., when the applicable limitations period begins to run. It is now well settled that RICO actions enjoy a four-year limitations period; the question of accrual, however, remains a source of controversy.

In this case, the District Court applied what it termed an “injury discovery and pattern rule,” see App. at 57-61, under which the statute begins to run once “all of the elements of a civil RICO cause of action existed, whether or not discovered, and the plaintiffs knew [or should have known] of the existence and source of their injury.” App. at 60 (quoting Poling v. K. Hovnanian Enters., 99 F.Supp.2d 502, 511 (D.N.J.2000)). The court assumed, for the sake of summary judgment, that Mathews’ claims had merit and that Kidder had committed securities, wire, and mail fraud. Nonetheless, it had to address two questions: When did the elements of a RICO claim exist, and when did the Appellants know, or should they have known, of their injuries?

First, the court held that “all the elements of Plaintiffs’ RICO claim and their injury were in place no later than May 1986.”[5] App. at 77. Second, the court reviewed the mix of information available to the Appellants and concluded that they should have been aware of their injury “no later than February 1990.” App. at 90. Thus, because both prongs of the “injury discovery and pattern rule” were satisfied, the statute of limitations began to run in early 1990. Mathews did not file his claim until almost five years later. Therefore, he was barred by RICO’s four-year limitations period. The court also rejected Mathews’ argument that the limitations period should be equitably tolled by Kidder’s fraudulent acts and misrepresentations. Once again, the court assumed that Mathews’ allegations were true, but nonetheless concluded that the Appellants had not exercised “reasonable diligence” and therefore could not benefit from equitable tolling.[6] Mathews filed a timely appeal.

III. Accrual Rule

The statute of limitations for civil RICO claims has engendered a great deal of controversy. The statute itself does not contain a limitations period. See Rotella v. Wood, 528 U.S. 549, 552, 120 S.Ct. 1075, 1079-80, 145 L.Ed.2d 1047 (2000). As a result, in Agency Holding Corp. v. Malley-Duff & Assocs., 483 U.S. 143, 107 S.Ct. 245*245 2759, 97 L.Ed.2d 121 (1987), the Supreme Court relied upon the Clayton Act and adopted an analogous four-year period. However, the Court did not specify when the period began, and three different interpretations arose.

A number of Courts of Appeals adopted the “injury discovery accrual rule,” which began the four-year period once “a plaintiff knew or should have known of his injury.” Rotella, 528 U.S. at 553, 120 S.Ct. at 1080. This approach did not require any knowledge of the other RICO elements. All but one of the remaining Courts adopted the “injury and pattern discovery rule … under which a civil RICO claim accrues only when the claimant discovers, or should discover, both an injury and a pattern of RICO activity.” Id. We alone adopted a third variant, the “last predicate act” rule. See Keystone Ins. Co. v. Houghton, 863 F.2d 1125 (3d Cir.1988). From a plaintiff’s perspective, this was the most lenient approach: “Under this rule, the period began to run as soon as the plaintiff knew or should have known of the injury and the pattern of racketeering activity, but began to run anew upon each predicate act forming part of the same pattern.” Rotella, 528 U.S. at 554, 120 S.Ct. at 1080.

In 1997, the Supreme Court “cut the possibilities by one,” rejecting our last predicate act rule. Id. (discussing Klehr v. A.O. Smith Corp., 521 U.S. 179, 117 S.Ct. 1984, 138 L.Ed.2d 373 (1997)). The Court based its holding on two arguments: (1) the rule created a limitations period “longer than Congress could have contemplated,” which conflicted “with a basic objective — repose — that underlies limitations periods,” and (2) it conflicted with the “ordinary Clayton Act rule” applicable in private antitrust actions. Klehr, 521 U.S. at 187-88, 117 S.Ct. at 1989-90. In 2000, the Court again narrowed the possible approaches by rejecting the injury and pattern discovery rule. See Rotella, 528 U.S. at 555-559, 120 S.Ct. at 1080-83. The Court stressed the “basic policies of all limitations provisions: repose, elimination of stale claims, and certainty about a plaintiff’s opportunity for recovery and a defendant’s potential liability.” Id. at 555, 120 S.Ct. at 1081. In addition, the Court noted that the injury discovery rule would encourage plaintiffs to investigate their claims earlier and with greater vigor. See id. at 557, 120 S.Ct. at 1082. (noting that the object of civil RICO is “not merely to compensate victims but to turn them into prosecutors, `private attorneys general,’ dedicated to eliminating racketeering activity”).

In the wake of Rotella, at least two accrual rules remain possible: an injury discovery rule, where the limitations period begins to run once a plaintiff discovers her injury, or an injury occurrence rule, where discovery is irrelevant. See Rotella, 528 U.S. at 554 n. 2, 120 S.Ct. at 1080 n. 2 (refusing to “settle upon a final rule”). In Forbes v. Eagleson, we recently considered these two approaches and adopted the injury discovery rule. 228 F.3d 471, 484 (3d Cir.2000) (“[A] discovery rule applies whenever a federal statute of limitation is silent on the issue.”); see also Rotella, 528 U.S. at 555, 120 S.Ct. at 1081 (“Federal courts, to be sure, generally apply a discovery accrual rule when a statute is silent on the issue, as civil RICO is here.”).[7]

246*246 IV. Zenith Radio

The Appellants contend that an exception to the standard RICO accrual rule applies in this case. They claim that the damages resulting from Kidder’s misconduct were unclear at the time they invested, and “a cause of action does not accrue until the fact of financial loss becomes predictable, concrete and non-speculative and damages are provable.” Appellants’ Br. at 32. Thus, they argue that their claims did not accrue until Kidder indicated, in 1993 and 1994, that the investment funds were unlikely to be profitable. See Appellants’ Br. at 31.

The Appellants rely heavily upon Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 338-42, 91 S.Ct. 795, 806-08, 28 L.Ed.2d 77 (1971),[8] a case involving alleged antitrust violations. In Zenith Radio, the defendant raised a statute of limitations defense, and argued that many of the purported injuries arose from conduct that occurred more than four years before the plaintiff filed suit. The Supreme Court rejected the defendant’s argument. The Court held that at the time of the original misconduct, future damages were speculative and unclear and therefore unrecoverable. See id. at 339, 91 S.Ct. at 806. The Court noted that it would be “contrary to congressional purpose[s]” to foreclose recovery of those damages. It held that:

[R]efusal to award future profits as too speculative is equivalent to holding that no cause of action has yet accrued for any but those damages already suffered. In these instances, the cause of action for future damages, if they ever occur, will accrue only on the date they are suffered; thereafter the plaintiff may sue to recover them at any time within four years from the date they were inflicted.

401 U.S. at 339, 91 S.Ct. at 806. The Appellants argue that this case is factually similar to Zenith Radio, and that RICO damages were merely speculative at the time of their investment. For support, they cite a list of cases from the Second Circuit Court of Appeals and our recent decision in Maio v. Aetna, Inc., 221 F.3d 472 (3d Cir.2000).[9]

247*247 The District Court rejected the proposition that the Appellants were injured when “their investments resulted in a `catastrophic loss,’ that is, loss of capital gains from appreciation of the properties when they were sold.” App. at 42. Instead, the court ruled that the underlying claim was for securities fraud, and in such cases, an injury occurs when an investor purchases overpriced securities. See App. at 66, 75 (“[I]t is well established that securities fraud in the sale of limited partnership interests occurs when the partnership interests are sold.”) (citing Volk v. D.A. Davidson & Co., 816 F.2d 1406, 1412 (9th Cir.1987)). The court, however, did not explicitly address Zenith Radio.[10] Nonetheless, we agree with the District Court’s conclusion and find the Appellants’ reliance upon Zenith Radio misplaced.

The value of a security is related to its expected return and its inherent risk. All else being equal, the greater the expected return and the lower the risk, the more valuable the security. If we accept the Appellants’ allegations as true, Kidder overstated the expected return of the funds and downplayed their inherent risks. Thus, Kidder’s misrepresentations exaggerated the value of the funds and led the Appellants to purchase overpriced securities. We therefore conclude that the Appellants sustained an injury when they purchased units in Kidder’s investment funds — the only question is whether their damages, at the time of their investment, were sufficiently concrete.

We answer in the affirmative for three reasons. First, we agree with Kidder that the actual value of the securities was readily calculable at the time of the Appellants’ investment. See Appellant’s Br. at 27 (“While this determination may require some calculation or even expert testimony, the measure of damages is not speculative.”). The raison d’etre of many investment banks and financial institutions is to calculate the value of complicated securities, many of which are far more complex than the funds at issue here. Certainly, district courts are no strangers to expert testimony concerning financial valuation. See, e.g., Sowell v. Butcher & Singer, Inc., 926 F.2d 289, 297 (3d Cir.1991) (“[D]amages are most commonly calculated as the difference between the price paid for a security and the security’s `true value.'”). In this case, as Kidder contends, “the Funds could have been valued at any time based, in part, on the yearly valuations of these properties.” Appellant’s Br. at 27. The Appellants’ damages, at the time they invested, were simply the difference between the approximate value of the Funds, calculated based upon market information free of Kidder’s misrepresentations, and the actual purchase price.

Second, we agree with the reasoning employed by the only other Circuit Court of Appeals to have addressed this issue. In a remarkably similar factual setting, the Second Circuit Court of Appeals held that investors were injured when they purchased overpriced limited partnership units based upon the defendant’s fraudulent misrepresentations. See In re Merrill Lynch Ltd. P’ships Litig., 154 F.3d 56, 59 (2d Cir.1998). Before the Merrill Lynch 248*248 decision, a number of Second Circuit cases had suggested that a RICO injury did not occur at the time of investment.[11] The District Court in Merrill Lynch summarized those cases as follows:

[They stand] for the proposition that when a creditor has been defrauded, but contractual or other legal remedies remain which hold out a “real possibility” that the debt, and therefore the injury, may be eliminated, RICO injury is speculative, and a RICO claim is not ripe until those remedies are exhausted.

In re Merrill Lynch Ltd. P’ships Litig., 7 F.Supp.2d 256, 263 (S.D.N.Y.1997). Nonetheless, the court drew a critical distinction between cases involving contractual debt instruments and those involving “equity investments with no basis for recovery other than the limited partnerships’ performance.” Id. Traditionally, the line between debt and equity has been well defined.[12] Debt contracts promise set future payments of interest and principal. Upon default, an investor can recover damages through a contract action. In contrast, an equity investment is traditionally considered an ownership stake in an underlying asset. There is no promised return; therefore, an investor has no contractual remedy if the underlying property, asset, or venture fails.

The District Court in Merrill Lynch recognized that in the debt context, a RICO injury occurs only when a debtor defaults on his contractual obligation. 7 F.Supp.2d at 263. Only at that point can an investor be sure that he will not receive the benefit of his bargain. We implicitly recognized the same principle in Maio v. Aetna, Inc., 221 F.3d 472 (3d Cir.2000). In that case, the plaintiffs claimed that Aetna’s fraudulent misrepresentations had led them to buy overpriced health insurance. We held, however, that a RICO injury did not occur until Aetna failed to perform its contractual obligations — i.e., until it failed to provide health benefits or treatment that it had promised. 221 F.3d at 488-90. In essence, we characterized the plaintiffs’ property interest as a contractual right to receive certain benefits, and distinguished it from an ownership interest in tangible property. See id. at 489-90 (“[T]he property rights at issue are different from interests in real or personal property.”).

In contrast, the Appellants’ interest in this case was an ownership stake in real property, fundamentally no different than “a plot of land or a diamond necklace.” Maio, 221 F.3d at 488. Although Kidder 249*249 may have been overly optimistic in describing its investment funds, it never promised a set return. Therefore, the Appellants have no contractual remedy for the losses they incurred. Instead, Kidder offered an equity investment, contingent upon the appreciation, or lack thereof, of the underlying Sunbelt properties. The crux of the Appellants’ claim is that they overpaid for that interest. We believe that the most accurate way to measure that loss, like for any other tangible property interest, would be to calculate the difference between what the Appellants paid and the true market value of what they received. Therefore, we agree with the Second Circuit Court of Appeals that this case is distinguishable from those involving contractual agreements, such as debt contracts. When a defendant fraudulently misleads individuals into purchasing equity interests in real property, an injury occurs at the time of investment.

Finally, caselaw concerning U.S. securities regulations also supports our conclusion. The Appellants argue that their losses did not become sufficiently concrete until Kidder decided to liquidate the funds in 1993. They presumably believe that the only non-speculative way to determine damages would be to calculate the difference between what they originally paid for the fund units and what they received upon liquidation. In other words, they believe rescission is the only proper approach. See Pinter v. Dahl, 486 U.S. 622, 641 n. 18, 108 S.Ct. 2063, 2076 n. 18, 100 L.Ed.2d 658 (1988) (“[R]escission [provides] for restoration of the status quo by requiring the buyer to return what he received from the seller;” in terms of damages, rescission provides “the consideration paid for such security with interest thereon, less the amount of any income received thereon.”). Of course, we need not determine the best method for calculating damages in the present case. Our task is merely to decide whether the Appellants’ damages could have been calculated at the time of their injury. If an “out of pocket measure” of damages (the difference between the purchase price of a security and its true value) is viable in this case, we must conclude that the Appellants’ injury, at the time of their investment, was sufficiently concrete.

The Appellants have alleged securities fraud under § 12(2) of the Securities Exchange Act of 1933. See 15 U.S.C. § 77I, App. at 38. Section 12(2) specifically provides for rescissionary damages. See Ballay v. Legg Mason Wood Walker, Inc., 925 F.2d 682, 693 (3d Cir.1991). However, the Appellants also cite § 10(b) of the Securities Exchange Act of 1934. See 15 U.S.C. § 78j(b), App. at 38. Damages in § 10(b) securities fraud cases “are most commonly calculated as the difference between the price paid for a security and the security’s `true value.'” Sowell v. Butcher & Singer, Inc., 926 F.2d 289, 297 (3d Cir.1991). Although we have declined to establish a firm rule for calculating § 10(b) damages, see Scattergood v. Perelman, 945 F.2d 618, 624 n. 2 (3d Cir.1991), the Fifth Circuit Court of Appeals has commented at length about the conceptual shortcomings of rescission:

[T]he rescissional measure permits the defrauded securities buyer to place upon the defendant the burden of any decline in the value of the securities between the date of purchase and the date of sale even though only a portion of that decline may have been proximately caused by the defendant’s wrong…. Under these circumstances, the rescissional measure is unjust insofar as it compensates an investor for the nonspecific risks which he assumes by entering the market. Losses thus accruing have no relation to either the benefits derived by 250*250 the defendants from the fraud or to the blameworthiness of their conduct.

Huddleston v. Herman & MacLean, 640 F.2d 534, 555 (5th Cir.1981), modified on other grounds, 459 U.S. 375, 103 S.Ct. 683, 74 L.Ed.2d 548 (1983). We have expressed similar sentiments. See Hoxworth v. Blinder, Robinson & Co., Inc., 903 F.2d 186, 203 n. 25 (3d Cir.1990) (“Although the Supreme Court has reserved the question whether a rescissionary measure of damages is ever appropriate for defrauded buyers under Rule 10b-5, this court has expressed clear disapproval of a damage theory that would insure defrauded buyers against downside market risk unrelated to the fraud.”).

Thus, in most § 10(b) cases, we are extremely hesitant to award rescissionary damages and instead apply an “out of pocket measure.” In this case, there is nothing in the record to suggest that the Appellants’ injuries were any more speculative or difficult to calculate than those in a typical § 10(b) claim. Therefore, we reject the Appellants’ argument that their claims require a rescissionary measure of damages. Instead, we conclude that the Appellants’ damages, at the time they purchased units in Kidder’s investment funds, could have been calculated by an “out of pocket measure” and thus were sufficiently concrete and non-speculative.

V. Injury Discovery

The Appellants’ second primary objection is that the District Court erred by holding that they should have discovered their injury “no later than February 1990.” App. at 90. Because the court granted summary judgment, the burden of proof is initially on Kidder to demonstrate the absence of a genuine issue of material fact surrounding the Appellants’ discovery of their injury. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-24, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). We recognize that this puts Kidder in the unenviable position of arguing that its fraud was so obvious that the Appellants should have discovered their injuries. In addition, the issue is extremely fact-specific. See Davis v. Grusemeyer, 996 F.2d 617, 623 n. 10 (3d Cir.1993) (“[T]he applicability of the statute of limitations usually implicates factual questions as to when plaintiff discovered or should have discovered the elements of the cause of action; accordingly, `defendants bear a heavy burden in seeking to establish as a matter of law that the challenged claims are barred.'”) (quoting Van Buskirk v. Carey Canadian Mines, Ltd., 760 F.2d 481, 498 (3d Cir.1985)). Therefore, Kidder’s task is not an easy one.[13]

In Forbes, we adopted an “injury discovery rule” whereby a RICO claim accrues when “plaintiffs knew or should have known of their injury.” 228 F.3d at 484. By our own plain language, the rule is both subjective and objective. The subjective component needs little explanation — a claim accrues no later than when the plaintiffs themselves discover their injuries. However, we offered little insight into the 251*251 objective prong of the Forbes test. We take this opportunity to do so.

In order to determine whether the Appellants were on “inquiry notice” of their injuries, the District Court relied heavily upon caselaw in other Circuits concerning securities fraud. Without a doubt, the Appellants’ claim is greatly dependent upon their allegations of securities fraud. However, it is important to note that “[t]he focus of accrual in a RICO action is different from that for a fraud claim where the focus is on the acts of the defendants.” Landy v. Mitchell Petroleum Tech. Corp., 734 F.Supp. 608, 625 (S.D.N.Y.1990). More specifically, a RICO claim accrues when the plaintiffs should have discovered their injuries. In contrast, a securities fraud claim accrues when the plaintiffs should have discovered the misrepresentations and wrong-doing of the defendants. The difference is subtle, but in some circumstances, it can be dispositive.[14] In this case, however, it is insignificant because the fraud and injury occurred at approximately the same time — when the Appellants purchased Kidder’s securities. Furthermore, in most securities fraud actions, the plaintiffs’ injuries are inextricably intertwined with the defendant’s misrepresentations. Discovery of one leads almost immediately to discovery of the other. Therefore, we believe that the District Court did not err by relying upon securities fraud precedent to determine whether the Appellants were on “inquiry notice” of their injuries.

It would be an understatement to characterize the body of caselaw concerning what constitutes “inquiry notice” in a federal securities fraud action as extensive. See, e.g., Lawrence Kaplan, Annotation, What Constitutes “Inquiry Notice” Sufficient to Commence Running of Statute of Limitations in Securities Fraud Action — Post-Lampf Cases, 148 A.L.R. Fed. 629, 1998 WL 695966 (1998). The general articulation of the inquiry notice standard, however, is fairly consistent.[15] In the context of a RICO action predicated upon a securities fraud claim, we hold that a plaintiff is on inquiry notice whenever circumstances exist that would lead a reasonable investor of ordinary intelligence, through the exercise of reasonable due diligence, to discover his or her injury.

Some courts have further refined the inquiry notice test into a multi-step analysis. See, e.g., Havenick v. Network Express, 981 F.Supp. 480 (E.D.Mich.1997); Addeo v. Braver, 956 F.Supp. 443 (S.D.N.Y.1997). The District Court in this case applied a two-part test: “(1) whether the plaintiffs knew or should have known 252*252 of the possibility of fraud (`storm warnings’) and, once that possibility arose, (2) whether plaintiffs exercised due diligence to determine the origin and extent of the fraud. The first part of the test is objective, the second subjective.” App. at 80 (citations omitted). In other words, the court asked whether there were sufficient storm warnings on the horizon, and if so, whether the Appellants exercised due diligence to recognize them.

We hold that inquiry notice should be analyzed in two steps. First, the burden is on the defendant to show the existence of “storm warnings.” As the District Court noted, storm warnings may take numerous forms, and we will not attempt to provide an exhaustive list. They may include, however, “substantial conflicts between oral representations of the brokers and the text of the prospectus, … the accumulation of information over a period of time that conflicts with representations that were made when the securities were originally purchased,” or “any financial, legal or other data that would alert a reasonable person to the probability that misleading statements or significant omissions had been made.” App. at 80-81.

The existence of storm warnings is a totally objective inquiry. Plaintiffs need not be aware of the suspicious circumstances or understand their import. It is enough that a reasonable investor of ordinary intelligence would have discovered the information and recognized it as a storm warning. Thus, investors are presumed to have read prospectuses, quarterly reports, and other information relating to their investments. This comports with the general purpose of civil RICO to encourage plaintiffs to actively investigate potential criminal activity, to become “prosecutors, `private attorneys general,’ dedicated to eliminating racketeering activity.” Rotella, 528 U.S. at 557, 120 S.Ct. at 1082.

Second, if the defendants establish the existence of storm warnings, the burden shifts to the plaintiffs to show that they exercised reasonable due diligence and yet were unable to discover their injuries. This inquiry is both subjective and objective. The plaintiffs must first show that they investigated the suspicious circumstances.[16] Then, we must determine whether their efforts were adequate — i.e., whether they exercised the due diligence expected of reasonable investors of ordinary intelligence. Because the stated goal of civil RICO is to encourage active investigation of potential racketeering activity, see Rotella, 528 U.S. at 557, 120 S.Ct. at 1082, we reject the proposition that unsophisticated investors should be held to a lower standard of due diligence.

In this case, the District Court found that Kidder had established the existence of storm warnings. In particular, our review of the record, in addition to the District Court’s findings, indicates four areas of potential concern — the initial prospectus, the “paltry” annual distributions of rental income, the falling net asset value of each partnership unit, and Kidder’s periodic assessment of the funds’ economic health. While it is true that the “mix of information” may constitute a storm warning in the aggregate, we will address the prospectus and the subsequent financial updates separately.

We begin with the prospectus. The District Court focused much of its attention upon the descriptions of risks provided in the prospectus. See App. at 49-53; 2443-2525. We do not dispute that the language cited by the court is present, or that “the specific risks discussed in the [prospectus] are most of the events on which Plaintiffs base their allegations of fraud.” App. at 82. Nonetheless, we agree with the spirit of the Appellants’ position, that there is nothing in the document to suggest the magnitude of the many enumerated risks. In fact, in reading through the numerous cautionary provisions, we are reminded of the laundry lists of possible side-effects that accompany most prescription medications. Just because there are risks, even if they are numerous, does not mean that a drug is unsafe. Similarly, there is nothing in the prospectus to suggest that the funds are especially risky or inappropriate for conservative investors.[17]

Like the Seventh Circuit Court of Appeals, we are mindful of the dangers in adopting too broad an interpretation of inquiry notice. See Law v. Medco Research, Inc., 113 F.3d 781, 786 (7th Cir. 1997) (“[T]oo much emphasis on the statute of limitations can precipitate premature and groundless suits, as plaintiffs rush to beat the deadline without being able to obtain good evidence of fraud”); Fujisawa Pharm. Co., Ltd. v. Kapoor, 115 F.3d 1332, 1335 (7th Cir.1997) (“Inquiry notice … must not be construed so broadly that the statute of limitations starts running too soon for the victim of the fraud to be able to bring suit.”). If a relatively generic enumeration of possible risks, without any meaningful discussion of their magnitude, can be enough to establish inquiry notice at the summary judgment stage, we would encourage a flood of untimely litigation. Therefore, we hold that the prospectus, by itself, does not constitute a storm warning.

Kidder’s numerous financial updates, however, are a different matter.[18] Based upon the correspondence concerning Funds I and II, we conclude that the District Court, if anything, was overly generous to the Appellants in holding that they should have discovered their injuries by early 1990. Sufficient storm warnings existed for investors in Funds I and II no later than April of 1989. On August 18, 1988, Kidder informed investors in Fund I that their quarterly distribution had fallen to $3.00 per unit.[19] This represented over a 66% decrease in the initial fund distributions, which ranged from $9.07 (Q3, 1983) to $9.40 (Q1, 1985). On that same date, Kidder informed investors in Fund II that their quarterly distributions had fallen to $1.50 per unit. This represented over a 75% decrease in the initial fund distributions, which ranged from $6.00 (Q2, 1985) 254*254 to $7.00 (Q4, 1986). Even if the distributions had returned to their original levels at some later time, this sort of volatility is simply inconsistent with a conservative investment vehicle similar to municipal bonds.

Furthermore, Kidder also sent the Appellants annual updates on the total net asset value of the individual units.[20] As of December 31, 1985, Fund I units had a total net asset value of $532. On April 8, 1989, Kidder sent a letter to Fund I investors indicating that total net asset value had fallen to $337. See App. at 1204. This represented a 36% decrease from 1985. As of December 31, 1985, Fund II units had a total net asset value of $509. On April 8, 1989, Kidder sent a letter to Fund II investors indicating that total net asset value had fallen to $351. See App. at 1872. This represented a 31% decrease from 1985.

The Appellants’ only response is that “there was ample evidence from which a jury could conclude that it was entirely reasonable for [them] to wait and see how things developed.” Appellants’ Br. at 40. The Appellants fundamentally misunderstand their own argument. They contend that Kidder fraudulently misrepresented the inherent risk of the investment funds. According to modern finance, risk is best understood as a security’s volatility. Therefore, regardless of whether the funds recovered, the large swings in their distributions and net asset values are inconsistent with low-risk, conservative investments.[21] After the funds’ net asset values fell over 30% and their distributions fell by over 60%, the Appellants should have recognized that they were not the safe, conservative vehicles promised by Kidder. Based upon the financial information received by the Appellants, we have no problem concluding that ominous storm warnings, concerning Funds I and II, were present no later than April 1989.

As the Appellants point out, however, Fund III is a closer question. By April of 1990, the Fund’s net asset value had fallen only 14%, see App. at 2629, and its distributions were still consistent. See App. at 2947-48. In fact, a noticeable decrease in the Fund’s distributions did not occur until the first quarter of 1992, and the Appellants were not informed until May 15, 1992. See App. at 981. Even when viewed in combination with Kidder’s prospectus and the cautionary language in its quarterly updates, we would be hard-pressed to find no genuine issue of material fact as to whether Fund III investors were on inquiry notice of their injuries prior to 1992. However, the Appellants did not allege a separate cause of action based solely upon Fund III. Instead, they sought and were granted certification of a class that included investors in all three funds, and they alleged a common, overarching pattern of racketeering activity. See Mathews v. Kidder Peabody & Co., No 95-85, 1996 WL 665729, at *4 (W.D.Pa. Sept. 26, 1996) (“Plaintiffs have alleged a 255*255 large, unitary scheme, a common course of conduct.”). As we previously concluded, the storm warnings pertaining to Funds I and II were overwhelming. Thus, we conclude that sufficient storm warnings existed for the entire class certified by the Appellants.

Because storm warnings were present, we must next determine whether the Appellants exercised due diligence expected of reasonable investors of ordinary intelligence. We conclude that they did not. Based upon the record, the parties’ briefs, and the District Court’s opinion, the only action that might be termed due diligence is a single letter from Attorney Robert Wolf inquiring into the status of Fund I.[22] See App. at 68-69. According to the District Court, Kidder responded with a four and one-half page letter, reiterating financial information provided in quarterly reports. The only positive sentiment in the letter was Kidder’s statement that the General Partners “remain confident in the underlying value of the Partnership’s real estate assets and believe this value will be realized once these markets turnaround.” App. at 101 n. 61. There is no evidence that Wolf followed-up in any fashion. We agree with the District Court that if anything, this evidences a lack of due diligence.

Furthermore, to determine what constitutes “reasonable” due diligence, we must consider the magnitude of the existing storm warnings. The more ominous the warnings, the more extensive the expected inquiry. In this case, the warnings, at least for investors in Fund I and II, were massive and extremely threatening. For “conservative first-time investors,” they must have appeared like funnel clouds. That none of them pressed Kidder for an explanation defies comprehension.

This case stands in stark contrast to Forbes, 228 F.3d at 479, where the plaintiffs hired an investigator, who made numerous inquiries and requested financial documents not only from the defendant, but also from other related parties. He continued to pursue his investigation in spite of continued opposition. Reasonable due diligence does not require a plaintiff to exhaust all possible avenues of inquiry. Nor does it require the plaintiff to actually discover his injury. At the very least, however, due diligence does require plaintiffs to do something more than send a single letter to the defendant. If we were to hold that the Appellants exercised reasonable due diligence in this case, it would strip the requirement of any meaningful significance. Therefore, because by early 1990, there were numerous storm warnings that the Appellants failed to adequately investigate, their claims accrued, and the limitations period began to run, on that date.[23]

VI. Fraudulent Concealment/Equitable Tolling

Finally, the Appellants argue that even if their claims accrued in 1990, the 256*256 statute of limitations should be tolled due to Kidder’s fraudulent concealment of its racketeering activity. “Fraudulent concealment is an `equitable doctrine [that] is read into every federal statute of limitations.'” Davis v. Grusemeyer, 996 F.2d 617, 624 (3d Cir.1993).

In Rotella, the Supreme Court indicated that RICO’s limitation period could be tolled “where a pattern remains obscure in the face of a plaintiff’s diligence in seeking to identify it.” 120 S.Ct. at 1084, 528 U.S. at 561. We adopted this holding in Forbes, 228 F.3d at 486-88, and held that the plaintiff has the burden of proving the three necessary elements of a fraudulent concealment claim — (1) “active misleading” by the defendant, (2) which prevents the plaintiff from recognizing the validity of her claim within the limitations period, (3) where the plaintiff’s ignorance is not attributable to her lack of “reasonable due diligence in attempting to uncover the relevant facts.” See also Klehr v. A.O. Smith Corp., 521 U.S. 179, 195-96, 117 S.Ct. 1984, 1993, 138 L.Ed.2d 373 (1997) (“[W]e conclude that `fraudulent concealment’ in the context of civil RICO embodies a `due diligence’ requirement.”). However, when a plaintiff merely seeks to survive summary judgment, there need only be a genuine issue of material fact that the doctrine applies. Thus, a court must determine:

(1) whether there is sufficient evidence to support a finding that defendants engaged in affirmative acts of concealment designed to mislead the plaintiffs regarding facts supporting their Count I claim, (2) whether there is sufficient evidence to support a finding that plaintiffs exercised reasonable diligence, and (3) whether there is sufficient evidence to support a finding that plaintiffs were not aware, nor should they have been aware, of the facts supporting their claim until a time within the limitations period measured backwards from when the plaintiffs filed their complaint. Absent evidence to support these findings there is no genuine dispute of material fact on the issue and the defendants are entitled to summary judgment.

Forbes, 228 F.3d at 487 (citing Northview Motors, Inc. v. Chrysler Motors Corp., 227 F.3d 78, 87-88 (3d Cir.2000)). Here, we will assume that Kidder actively misled the Appellants.[24] Therefore, we must determine whether they exercised “reasonable diligence” in attempting to uncover the facts necessary to support a claim.[25]

Although a fraudulent concealment defense can offer a tremendous advantage to plaintiffs,[26] it is of little 257*257 practical utility here. In order to avoid summary judgment, there must be a genuine issue of material fact as to whether the Appellants exercised reasonable due diligence in investigating their claim. We have already answered that question in the negative. Therefore, we reject the Appellants’ fraudulent concealment claim.

VII. Conclusion

For the foregoing reasons, we will affirm the District Court’s grant of summary judgment in favor Kidder Peabody & Co., Inc. and the Henry S. Miller Organization.

[*] Honorable Thomas M. Reavley, Circuit Judge for the United States Court of Appeals for the Fifth Circuit, sitting by designation.

[1] There are numerous corporate defendants in this case. See App. at 33. In order to avoid confusion, we will refer to all the Defendants/Appellees collectively as “Kidder.”

[2] Specifically, the Appellants claim that Kidder violated § 17(a) of the Securities Exchange Act of 1933, 15 U.S.C. § 77q, § 12(2) of the Securities Exchange Act of 1933, 15 U.S.C. § 77I, and § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b).

[3] Corporate divisions merged and moved their offices; a gas and oil decline hit Texas in the mid 80s; Congress passed the 1986 Tax Reform Act, which discouraged real estate investment; and aggressive construction eventually caused supply to meet and outstrip demand. See App. at 39.

[4] He also asserted a number of claims under state law, including breach of fiduciary duty and negligent misrepresentation.

[5] Assuming that Kidder committed the alleged offenses, the court concluded that the elements of securities fraud “were probably finalized by May 1986 … but certainly no later than December 1986,” App. at 68; mail fraud “occurred no later than May 1986,” App. at 72, and interstate wire fraud “occurred in the early 1980s and certainly no later than March 1985.” App. at 73.

[6] After dismissing Mathews’ federal claims, the District Court declined to exercise supplemental jurisdiction over the remaining state law claims. See App. 104 (“In a case such as this, where all the federal claims brought under the RICO statute have been dismissed, there is little to gain in the way of convenience or judicial economy in having this court hear a case now consisting entirely of state claims.”).

[7] The District Court’s decision, which preceded our ruling in Forbes by approximately two months, applied an “injury discovery and pattern rule.” App. at 60. Under this formulation, a RICO claim does not accrue until a plaintiff discovers he has been injured and all of the elements of his RICO claim, including a pattern of racketeering activity, exist. The District Court’s test, therefore, poses an important question-whether a civil RICO claim must be complete before it accrues. The Supreme Court expressly declined to provide an answer in Rotella, 528 U.S. at 558 n. 4, 120 S.Ct. at 1082 n. 4, and we too have been silent on the issue. See Forbes, 228 F.3d at 484 (addressing only the question of injury discovery because a pattern of racketeering activity was well established). We have little doubt that the question eventually will have to be addressed. However, its resolution is not necessary to the outcome of this case, because the Appellants have not contested, on appeal, the existence of a pattern of racketeering activity. Therefore, we leave the issue for another day.

[8] As Kidder recognizes in its brief, Zenith Radio concerned an antitrust violation. Under the Clayton Act, “a cause of action accrues and the statute begins to run when a defendant commits an act that injures a plaintiff’s business.” Zenith Radio, 401 U.S. at 338, 91 S.Ct. at 806. Thus, antitrust claims are subject to the less plaintiff-friendly “injury occurrence” accrual rule. Because we hold that RICO claims are governed by a more lenient “injury discovery” rule, it is unclear whether we need to adopt the Zenith Radio exception (delaying the accrual of claims when damages are merely speculative) in the RICO context. For the sake of discussion, however, we will assume without deciding that the Zenith Radio exception could apply to RICO claims.

[9] In Maio, we held that a plaintiff lacks standing to bring a RICO claim unless he has suffered a concrete financial loss. See Maio v. Aetna, Inc., 221 F.3d 472 (3d Cir.2000). Plaintiffs sued their HMO claiming that they had received an “inferior health care” product. They alleged neither a denial of medical benefits nor inferior treatment. Instead, their claim rested solely upon Aetna’s misrepresentation, which allegedly caused them to pay too much in premiums. We rejected the plaintiffs’ theory. Although we recognized that the diminution in value of tangible property, “like a plot of land or diamond necklace,” can constitute a RICO injury, the plaintiffs’ interest was merely a contractual right. 221 F.3d at 488-89. In that context, a RICO injury requires “proof that Aetna failed to perform under the parties’ contractual arrangement.” Id. at 490.

[10] The court cited Zenith Radio only once, noting that courts apply a pure injury occurrence accrual rule for Clayton Act antitrust violations. See App. at 49 n. 12.

[11] See First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 767-68 (2d Cir.1994) (holding that a RICO injury does not occur until a debt becomes uncollectible and the note holder exhausts his contractual remedies); Cruden v. Bank of New York, 957 F.2d 961, 977-78 (2d Cir.1992) (holding that a RICO injury does not occur until a debtor defaults on promised principal and equity payments); Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1103 (2d Cir.1988) (holding that a RICO injury does not occur until it becomes clear that a loan will not be repaid).

[12] We recognize that modern financial markets, and the widespread use of complicated derivative instruments, have blurred the once-sharp distinction between debt and equity. See Anthony P. Polito, Useful Fictions: Debt and Equity Classification in Corporate Tax Law, 30 Ariz. St. L.J. 761, 790 (1998) (“[F]inance theory cannot identify the true boundary between debt and equity.”). Today, debt contracts are openly traded, are valued from moment to moment, and often behave like equity, especially when a company experiences financial difficulty. Thus, any legal test dependent upon a bright-line distinction between contractual debt and equity ownership is at best precarious. However, both the Second Circuit, and possibly the Supreme Court, have apparently adopted this distinction. Luckily, because this case concerns a clear equity interest in real property, we need not explore this potential minefield any further.

[13] It is not, however, impossible. We quickly reject any suggestion by the Appellants that summary judgment can never be granted when the issue of injury discovery is contested by the parties. Instead, we agree that “[i]f the facts needed in order to determine when `a reasonable investor of ordinary intelligence’ discovered or should have discovered the fraud can be gleaned from the pleadings, a court may resolve the issue of the existence of fraud at the summary judgment stage.” App. at 78. Thus, at least in the RICO context, we disagree with the Eleventh Circuit Court of Appeals, which has held that “as a general rule, the issue of when a plaintiff in the exercise of due diligence should have known of the basis for his claims is not an appropriate question for summary judgment.” Morton’s Market, Inc. v. Gustafson’s Dairy, Inc., 198 F.3d 823, 832 (11th Cir.1999).

[14] In Landy, 734 F.Supp. at 625, the District Court held that the defendant’s fraud occurred approximately three years before the plaintiffs were injured. Thus, the plaintiffs’ securities fraud claim accrued three years before their RICO action accrued.

[15] See Great Rivers Coop. of Southeastern Iowa v. Farmland Indus., Inc., 120 F.3d 893, 896 (8th Cir.1997) (“[I]nquiry notice exists when there are `storm warnings’ that would alert a reasonable person of the possibility of misleading information, relayed either by an act or by omission.”); Gray v. First Winthrop Corp., 82 F.3d 877, 881 (9th Cir.1996) (“[I]f a prudent person would have become suspicious from the knowledge obtained through the initial prudent inquiry and would have investigated further, a plaintiff will be deemed to have knowledge of facts which would have been disclosed in a more extensive investigation.”); Dodds v. Cigna Sec., Inc., 12 F.3d 346, 350 (2d Cir.1993) (Plaintiff is on inquiry notice “when a reasonable investor of ordinary intelligence would have discovered the existence of the fraud.”); Caviness v. DeRand Res. Corp., 983 F.2d 1295, 1303 (4th Cir.1993) (Inquiry notice exists when plaintiff “has such knowledge as would put a reasonably prudent purchaser on notice to inquire, so long as that inquiry would reveal the facts on which a claim is ultimately based.”).

[16] We are reluctant to excuse Appellants’ lack of inquiry because, in retrospect, reasonable diligence would not have uncovered their injury. Such a holding would, in effect, discourage investigation of potential racketeering activity. See Rotella, 528 U.S. at 557, 120 S.Ct. at 1082. Therefore, if storm warnings existed, and the Appellants chose not to investigate, we will deem them on inquiry notice of their claims.

[17] We agree with the District Court, however, that a reasonable investor of ordinary intelligence would have read the prospectus. Therefore, we reject any argument based upon the Appellants’ ignorance of its contents.

[18] Because reasonable investors of ordinary intelligence read correspondence describing the economic health of their investments, we presume that the Appellants read the documents that Kidder sent them.

[19] There are implications in both the parties’ briefs and the District Court’s opinion that the total amount of distributions was “paltry” or excessively low. We find this argument puzzling. A $9.00 quarterly distribution, if consistent, would result in an approximate annual yield of 7.2% ($36.00 per $500 unit). This rate of return is generally consistent with a conservative, low risk investment vehicle. Contrary to the suggestions of the parties, a higher return would arouse suspicion that the securities were actually high-risk, speculative investments.

[20] We agree with the District Court that these values were, at the very least, “a good indicator … of [the fund units’] market value.” App. at 86.

[21] Even if the Appellants’ argument was on-point, courts have consistently discouraged a “wait and see” strategy. For example, in Tregenza v. Great Am. Communications Co., 12 F.3d 717, 722 (7th Cir.1993), “plaintiffs waited patiently to sue. If the stock rebounded from the cellar they would have investment profits, and if it stayed in the cellar they would have legal damages. Heads I win, tails you lose.” The court held that the plaintiffs were on inquiry notice. See also Sterlin v. Biomune Sys., 154 F.3d 1191, 1202 (10th Cir. 1998) (“The purpose behind commencing the … limitations period upon inquiry notice is to discourage investors from adopting a wait-and-see approach.”).

[22] According to the District Court’s opinion, a small number of plaintiffs testified as to having asked their brokers about the status of their investment, but they quickly “dropped the matter” after being assured that everything was all right. See App. at 69-70 & n. 62. A few cursory inquiries cannot amount to reasonable due diligence.

[23] Because we agree that the Appellants should have discovered their injuries no later than early 1990, we need not consider whether the District Court erred in denying leave to amend their complaint. Even if the Appellants were allowed to include allegations that the prospectus itself was fraudulent, it would not change the outcome of the case. See App. at 44 n. 7. Because the Appellants should have discovered Kidder’s misrepresentations, whether within or outside the prospectus, more than four years before they filed suit, their claims are barred.

[24] The Appellants rely primarily upon “optimistic statements” that Kidder included in its quarterly newsletters. See Appellants’ Br. at 46. We have carefully reviewed these statements and are skeptical that they amount to active misleading. Nonetheless, because we must draw all reasonable factual inferences in favor of the plaintiffs at the summary judgment stage, see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986), we will assume that they have satisfied the first prong of the fraudulent concealment test.

[25] The Appellants claim that they “need not demonstrate due diligence to survive summary judgment.” Appellants’ Br. at 47. This position is squarely foreclosed by Forbes, 228 F.3d at 487.

[26] Upon first inspection, the utility of a fraudulent concealment defense may not be readily apparent. In a civil RICO case where all the requisite elements are present, a claim accrues immediately upon the plaintiff’s discovery of her injury. See Forbes, 228 F.3d at 484. Absent equitable tolling doctrines, ignorance of the remaining elements of her claim, including the pattern required by RICO, is immaterial. A plaintiff has four years from the time she discovers her injury to investigate, gather evidence, and bring suit. At the end of the four years, her claim expires. However, if the defendant misleads the plaintiff to believe that she does not have a claim, fraudulent concealment doctrine tolls the limitations period. Thus, if the defendant conceals any element of the offense, including, but not limited to, the injury itself, the four-year period will be tolled. For this reason, an injury discovery rule that includes equitable tolling approaches an injury and pattern discovery rule. The primary difference is that under an equitable tolling regime, the decision whether to toll the limitations period for lack of pattern discovery is left to the court’s discretion. Nonetheless, fraudulent concealment doctrine provides an extremely generous “out” from the potentially harsh injury discovery rule of Forbes.

Links to other practice areas.

Beyond RICO our office handles other areas of practice.

Additionally we note areas of practice handled by other attorneys. (note any listing of other attorneys should not be regarded as an endorsement or evaluation).

http://www.murillolawfirm.com
http://www.chicago-defense.com
http://www.nicklowelaw.com
http://www.injuryaccidentlawyer-nyc.com
http://www.northgadivorcelaw.com
http://www.laattorney.com

Routine Wage and Hour violations do not constitute RICO predicate acts

A hospital is allegedly to have failed to pay required minimum wage. Here, even if that occurred in multiple incidents it would not constitute a RICO violation.

Opinion Lundy v. Catholic Health System, 711 F. 3d 106 (2d Cir. 2013)

DENNIS JACOBS, Chief Judge.

Plaintiffs, a respiratory therapist and two nurses, allege that the Catholic Health System of Long Island Inc., a collection of hospitals, healthcare providers, and related entities (collectively, “CHS”), failed to compensate them adequately for time worked during meal breaks, before and after scheduled shifts, and during required training sessions. They sued on behalf of a purported class of similarly situated employees (collectively, “the Plaintiffs”) and take this appeal from orders of the United States District Court for the Eastern District of New York (Seybert, J.), dismissing the claims asserted under the Fair Labor Standards Act (“FLSA”), the Racketeer Influenced and Corrupt Organizations Act (“RICO”), and the New York Labor Law (“NYLL”).

We affirm the dismissal of the FLSA and RICO claims for failure to state a claim. We also affirm the dismissal of Plaintiffs’ NYLL overtime claims, which have the same deficiencies as the FLSA overtime claims. However, because the district court did not explain why Plaintiffs’ NYLL gap-time claims were dismissed with prejudice, we vacate that aspect of the judgment and remand for further consideration of the NYLL gap-time claims.

BACKGROUND

The original complaint, alleging violations of FLSA and RICO, was filed in March 2010 by Daisy Ricks, a healthcare employee, on behalf of similarly situated employees, against the Long Island Health Network, Inc., Catholic Health Services of Long Island, and various related entities.[1] The First Amended Complaint, filed in June 2010, substituted Dennis Lundy, Patricia Wolman, and Kelly Iwasiuk as lead plaintiffs, dropped some defendants, and added claims under NYLL and state common law. The twelve causes of action pleaded were FLSA, RICO, NYLL, implied contract, express contract, implied covenants, quantum meruit, unjust enrichment, fraud, negligent misrepresentation, conversion, and estoppel. This case is one of many similar class actions brought by the same law firm, Thomas & Solomon LLP, against numerous healthcare entities in the region. A dozen of them are currently on appeal before this Court.[2]

The FLSA claims focused on alleged unpaid overtime. In relevant part, FLSA’s overtime provision states that “no employer shall employ any of his employees . . . for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.” 29 U.S.C. § 207(a)(1).[3]

It is alleged that CHS used an automatic timekeeping system that deducted time from paychecks for meals and other breaks even though employees frequently were required to work through their breaks, and that CHS failed to pay for time spent working before and after scheduled shifts, and for time spent attending training programs.[4]

The procedural history of this case was prolonged by four attempts to amend the complaint, and various orders dismissing the claims, as recounted below.

A Second Amended Complaint, filed in August 2010, replaced some of the defendants that had been sued in error. On motion, the district court dismissed most of the claims, without prejudice. The FLSA overtime claims were dismissed for failure to approximate the number of uncompensated overtime hours. The FLSA claim for “gap-time” pay (i.e., for unpaid hours below the 40-hour overtime threshold) was dismissed—with prejudice—on the ground that FLSA does not permit gap-time claims when the employment contract explicitly provides compensation for gap time worked. The RICO claims were dismissed—with prejudice—for insufficient allegations of any pattern of racketeering activity. Once the federal claims were dismissed, the state law claims were dismissed without prejudice.

The district court granted leave to replead the FLSA overtime claims that were dismissed without prejudice, but cautioned that any future complaint “should contain significantly more factual detail concerning who the named Plaintiffs are, where they worked, in what capacity they worked, the types of schedules they typically or periodically worked, and any collective bargaining agreements they may have been subject to.” Special App. 18. The district court said that it would “not be impressed if the Third Amended Complaint prattle[d] on for another 217 paragraphs, solely for the sake of repeating various conclusory allegations many times over.” Id. at 19.

The Third Amended Complaint, filed in January 2011, was largely identical to the Second (with the addition of approximately ten paragraphs). When CHS moved to dismiss, the court issued an order sua sponte urging supplemental briefing and a more definite statement. Observing that Plaintiffs had again failed to achieve sufficient specificity, the court added:

[T]he Court does not believe that it would serve anyone’s interest to enter another dismissal without prejudice, which would be followed almost assuredly by another amended complaint and then a full round of Rule 12(b)(6) briefing. Instead, the Court considers it more appropriate to sua sponte direct Plaintiffs to file a more definite statement, which it will then use to judge the sufficiency of the [Third Amended Complaint].

Special App. 26. The court expressed concern with the vagueness of the pleading, directed Plaintiffs to stop “hiding the ball,” id. at 27, and listed specific information needed for a more definite statement.

Plaintiffs failed to issue a more definite statement and instead filed a Fourth Amended Complaint (hereinafter, “the Complaint”) in May 2011. The RICO and estoppel claims were dropped, and the remaining causes of action were pleaded as before, supplemented with some more facts.

CHS’s renewed motion to dismiss was largely granted in February 2012, on the following grounds:

1. Plaintiffs insufficiently pled the requisite employer-employee relationship as to each named defendant, because Lundy, Wolman, and Iwasiuk worked only at Good Samaritan Hospital, and because the “economic realities” of the relationships among defendants did not constitute a single employment organization. The FLSA claims against all defendants other than Good Samaritan were dismissed with prejudice.[5]

2. The FLSA claims against Defendant James Harden (the CEO, President, and Director of CHS) were dismissed with prejudice because the economic reality of his relationship with Lundy, Wolman, and Iwasiuk did not amount to an employer-employee relationship.

3. As to the claim that the automatic timekeeping deductions allegedly violated FLSA as applied to Plaintiffs (even though they were not per se illegal), the Plaintiffs failed to show that they were personally denied overtime by this system.

4. As to their FLSA overtime allegations against Good Samaritan, Plaintiffs were required to plead that they worked (1) compensable hours (2) in excess of 40 hours per week, and (3) that CHS knew that Plaintiffs were working overtime. Only some of the categories of purportedly unpaid work—meal breaks, time before and after scheduled shifts, and training—constituted “compensable” hours.

Work during meal breaks is compensable under FLSA if “predominantly” for the employer’s benefit. Special App. 62. Although Plaintiffs alleged that their meal breaks were “typically” missed or interrupted, the Complaint “is void of any facts regarding the nature and frequency of these interruptions during the relevant time period or how often meal breaks were missed altogether as opposed to just interrupted.” Id. at 63. Absent such specificity, there is no claim for compensable time.

Time spent working before and after scheduled shifts is compensable if it is “integral and indispensable” to performance of the job and not de minimis. Id. at 64. Vague assertions that Wolman and Iwasiuk spent fifteen to thirty minutes before their shifts “preparing” their assignments did not state a claim for compensable time. Id. at 64-65. On the other hand, Lundy’s allegation—that he had to arrive early to receive his assignment from the nurse working the prior shift and leave late to hand off assignments to the nurse taking over—could be compensable.

Time spent at training is not compensable if it is outside regular hours, if attendance is voluntary, if the training is not directly related to the job, and if the employee does not perform productive work during the training. See id. at 66. Wolman and Lundy’s allegations regarding monthly, mandatory staff meetings stated claims for compensable time. (Iwasiuk made no allegation of uncompensated trainings.)

5. The potentially valid allegations of compensable time nevertheless did not allege that the compensable time exceeded 40 hours, as required for a FLSA overtime claim. Wolman and Iwasiuk’s sparse allegations could not support a claim for time in excess of 40 hours. And Plaintiffs conceded that Lundy never actually worked more than 40 hours in one week. The FLSA claims against Good Samaritan were therefore dismissed without prejudice.

6. Once the federal claims were dismissed, discretion was exercised against taking jurisdiction over the state law claims, thereby also dismissing them without prejudice.

Having done all this, the district court granted Plaintiffs limited leave to file a further complaint alleging only those claims that had been dismissed without prejudice, and again gave specific guidance as to the “contours” of such a complaint. Special App. 70-72.

In response to Plaintiffs’ inquiry, the district court issued another order a month later, clarifying the scope of the February 2012 order dismissing the Complaint. The court explained that it dismissed all claims against all defendants, except Good Samaritan, and that the FLSA and NYLL claims were dismissed with prejudice, while the remaining state law claims were not. See id. at 76.

Plaintiffs mercifully elected to forgo another amended complaint, and instead filed their Notice of Appeal on April 11, 2012, indicating their intent to appeal the district court’s December 2010 Order dismissing the Second Amended Complaint, the May 2011 sua sponte Order requesting supplemental briefing, the February 2012 Order dismissing the Fourth Amended Complaint, and the March 2012 Order clarifying the scope of the dismissal.

DISCUSSION

On appeal, Plaintiffs challenge the dismissal of the overtime claims under FLSA; the gap-time claims under FLSA (and NYLL); [3] the NYLL claims with prejudice; and [4] the RICO claims.

I

We review de novo dismissal of a complaint for failure to state a claim upon which relief can be granted, “accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in the plaintiff’s favor.” Holmes v. Grubman, 568 F.3d 329, 335 (2d Cir. 2009) (internal quotation marks omitted). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted).

Nevertheless, “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Id. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. Pleadings that “are no more than conclusions . . . are not entitled to the assumption of truth.” Id. at 679.

II

As to the overtime claims under FLSA, Plaintiffs argue that they sufficiently alleged [i] compensable work that was unpaid, [ii] uncompensated work in excess of 40 hours in a given week, and [iii] status as “employees” of all the Defendants. Although the district court held Plaintiffs’ complaint lacking on all three grounds, we affirm on the second ground—the failure to allege uncompensated work in excess of 40 hours in a given week—because it entirely disposes of the FLSA overtime claims.

Section 207(a)(1) of FLSA requires that, “for a workweek longer than forty hours,” an employee who works “in excess of” forty hours shall be compensated for that excess work “at a rate not less than one and one-half times the regular rate at which he is employed” (i.e., time and a half). 29 U.S.C. § 207(a)(1).[6] So, to survive a motion to dismiss, Plaintiffs must allege sufficient factual matter to state a plausible claim that they worked compensable overtime in a workweek longer than 40 hours. Under Federal Rule of Civil Procedure 8(a)(2), a “plausible” claim contains “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678; see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (“Factual allegations must be enough to raise a right to relief above the speculative level . . . on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” (internal citation omitted)).

We have not previously considered the degree of specificity needed to state an overtime claim under FLSA. Federal courts have diverged somewhat on the question. See Butler v. DirectSat USA, LLC, 800 F. Supp. 2d 662, 667 (D. Md. 2011) (recognizing that “courts across the country have expressed differing views as to the level of factual detail necessary to plead a claim for overtime compensation under FLSA”). Within this Circuit, some courts have required an approximation of the total uncompensated hours worked during a given workweek in excess of 40 hours. See, e.g., Nichols v. Mahoney, 608 F. Supp. 2d 526, 547 (S.D.N.Y. 2009); Zhong v. August August Corp., 498 F. Supp. 2d 625, 628 (S.D.N.Y. 2007). Courts elsewhere have done without an estimate of overtime, and deemed sufficient an allegation that plaintiff worked some amount in excess of 40 hours without compensation. See, e.g., Butler, 800 F. Supp. 2d at 668 (collecting cases).

We conclude that in order to state a plausible FLSA overtime claim, a plaintiff must sufficiently allege 40 hours of work in a given workweek as well as some uncompensated time in excess of the 40 hours. See 29 U.S.C. § 207(a)(1) (requiring that, “for a workweek longer than forty hours,” an employee who works “in excess of” forty hours shall be compensated time and a half for the excess hours).

Determining whether a plausible claim has been pled is “a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.”[7] Iqbal, 556 U.S. at 679. Reviewing Plaintiffs’ allegations, as the district court thoroughly did, we find no plausible claim that FLSA was violated, because Plaintiffs have not alleged a single workweek in which they worked at least 40 hours and also worked uncompensated time in excess of 40 hours.

1. Wolman was “typically” scheduled to work three shifts per week, totaling 37.5 hours. J.A. 1797. She “occasionally” worked an additional 12.5-hour shift or worked a slightly longer shift, id., but how occasionally or how long, she does not say; nor does she say that she was denied overtime pay in any such particular week. She alleges three types of uncompensated work: (1) 30-minute meal breaks which were “typically” missed or interrupted; (2) uncompensated time before and after her scheduled shifts, “typically” resulting in an additional 15 minutes per shift; and (3) trainings “such as” a monthly staff meeting, “typically” lasting 30 minutes, and respiratory therapy training consisting of, “on average,” 10 hours per year. Id.

She has not alleged that she ever completely missed all three meal breaks in a week, or that she also worked a full 15 minutes of uncompensated time around every shift; but even if she did, she would have alleged a total 39 hours and 45 minutes worked. A monthly 30-minute staff meeting, an installment of the ten yearly hours of training, or an additional or longer shift could theoretically put her over the 40-hour mark in one or another unspecified week (or weeks); but her allegations supply nothing but low-octane fuel for speculation, not the plausible claim that is required.

2. Iwasiuk “typically” worked four shifts per week, totaling 30 hours. J.A. 1799. She claims that “approximately twice a month,” she worked “five to six shifts” instead of four shifts, totaling between 37.5 and 45 hours. Id. Like Wolman, Iwasiuk does not allege that she was denied overtime pay in a week where she worked these additional shifts. By way of uncompensated work, she alleges that her 30-minute meal breaks were “typically” missed or interrupted and that she worked uncompensated time before her scheduled shifts, “typically” 30 minutes, and after her scheduled shifts, “often” an additional two hours. Id. Maybe she missed all of her meal breaks, and always worked an additional 30 minutes before and two hours after her shifts, and maybe some of these labors were performed in a week when she worked more than her four shifts. But this invited speculation does not amount to a plausible claim under FLSA.

3. Lundy worked between 22.5 and 30 hours per week, J.A. 1800, and Plaintiffs conceded below—and do not dispute on appeal—that he never worked over 40 hours in any given week.

We therefore affirm the dismissal of Plaintiffs’ FLSA overtime claims. We need not consider alternative grounds that were conscientiously explored by the district court, such as the lack of an employer-employee relationship between the named Plaintiffs and many of the Defendants, and the insufficient allegations that additional minutes, such as meal breaks, were “compensable” as a matter of law.

III

A gap-time claim is one in which an employee has not worked 40 hours in a given week but seeks recovery of unpaid time worked, or in which an employee has worked over 40 hours in a given week but seeks recovery for unpaid work under 40 hours. An employee who has not worked overtime has no claim under FLSA for hours worked below the 40-hour overtime threshold, unless the average hourly wage falls below the federal minimum wage. See United States v. Klinghoffer Bros. Realty Corp., 285 F.2d 487, 494 (2d Cir. 1960) (denying petitions for rehearing); Monahan v. Cnty. of Chesterfield, 95 F.3d 1263, 1280 (4th Cir. 1996) (“Logically, in pay periods without overtime, there can be no violation of section 207 which regulates overtime payment.”).

Notwithstanding that Plaintiffs have failed to sufficiently allege any week in which they worked uncompensated time in excess of 40 hours, Plaintiffs invoke FLSA to seek gap-time wages for weeks in which they claim to have worked over 40 hours. The viability of such a claim has not yet been settled in this Circuit, but we now hold that FLSA does not provide for a gap-time claim even when an employee has worked overtime.

As the district court explained, the text of FLSA requires only payment of minimum wages and overtime wages. See 29 U.S.C. §§ 201-19. It simply does not consider or afford a recovery for gap-time hours. Our reasoning in Klinghoffer confirms this view: “[T]he agreement to work certain additional hours for nothing was in essence an agreement to accept a reduction in pay. So long as the reduced rate still exceeds [the minimum wage], an agreement to accept reduced pay is valid. . . .” 285 F.2d at 494. Plaintiffs here have not alleged that they were paid below minimum wage.

So long as an employee is being paid the minimum wage or more, FLSA does not provide recourse for unpaid hours below the 40-hour threshold, even if the employee also works overtime hours the same week. See id. In this way federal law supplements the hourly employment arrangement with features that may not be guaranteed by state laws, without creating a federal remedy for all wage disputes—of which the garden variety would be for payment of hours worked in a 40-hour work week. For such claims there seems to be no lack of a state remedy, including a basic contract action. See, e.g., Point IV (discussing the New York Labor Law).

As the district court observed, some courts may allow such claims to a limited extent. Special App. 13 (citing Monahan, 95 F.3d at 1279, and other cases). Among them is the Fourth Circuit in Monahan, which relied on interpretive guidance provided by the Department of Labor. See 29 C.F.R. §§ 778.315, .317, .322. “Unlike regulations,” however, “interpretations are not binding and do not have the force of law.” Freeman v. Nat’l Broad. Co., 80 F.3d 78, 83 (2d Cir. 1996) (analyzing deference owed to Department of Labor interpretation of FLSA). “Thus, although they are entitled to some deference, the weight accorded a particular interpretation under the FLSA depends upon `the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade.'” Id. (quoting Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)).

The interpretive guidance on which Monahan relied, insofar as it might be read to recognize gap-time claims under FLSA, is owed deference only to the extent it is persuasive: it is not.[8]

Section 778.315 of the guidance, which considers the FLSA requirement for time-and-a-half pay, offers the following clarification: “This extra compensation for the excess hours of overtime work under the Act cannot be said to have been paid to an employee unless all the straight time compensation due him for the nonovertime hours under his contract (express or implied) . . . has been paid.” 29 C.F.R. § 778.315. This interpretation suggests that an employer could violate FLSA by failing to compensate an employee for gap time worked when the employee also works overtime; but the Department of Labor provides no statutory support or reasoned explanation for this interpretation.[9]

The Department of Labor adds, also without explanation, that “[a]n agreement not to compensate employees for certain nonovertime hours stands on no better footing since it would have the same effect of diminishing the employee’s total overtime compensation.” 29 C.F.R. § 778.317. This guidance seems to rely on nothing more than other (unreasoned) guidance, and directly conflicts with Klinghoffer, which ruled that such an agreement would not violate the limited protections of the FLSA. 285 F.2d at 494.

Accordingly, we therefore affirm the dismissal of Plaintiffs’ FLSA gap-time claims.[10]

IV

The claims under the NYLL were dismissed with prejudice. Plaintiffs argue that the district court lacked jurisdiction to dismiss Plaintiffs’ NYLL claims because it declined to exercise supplemental jurisdiction once it dismissed the federal claims.

In the welter of amended complaints, motions to dismiss, and orders that rule and clarify, the record is somewhat confusing on this point. The state law claims were considered generally in the February 2012 order, in which the district court “decline[d] to exercise supplemental jurisdiction over Plaintiff’s state law claims,” thereby dismissing them without prejudice. Special App. 69. But at the same time, the district court stated that Plaintiffs’ FLSA and NYLL claims are examined under the same legal standards, and that the analysis dismissing Plaintiffs’ FLSA claims “applies with equal force to Plaintiffs’ NYLL claims.” Id. at 47 n.4; see also id. at 61 n.8. In response to Plaintiffs’ motion for partial reconsideration and clarification, the March 2012 order explained that the “NYLL claims against these Defendants were dismissed WITH PREJUDICE.” Id. at 76.

The exercise of supplemental jurisdiction is within the sound discretion of the district court. See Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 349-50 (1988). Courts “consider and weigh in each case, and at every stage of the litigation, the values of judicial economy, convenience, fairness, and comity in order to decide whether to exercise” supplemental jurisdiction. Id. at 350. Once all federal claims have been dismissed, the balance of factors will “usual[ly]” point toward a declination. Id. at 350 n.7.

“We review the district court’s decision for abuse of discretion, and depending on the precise circumstances of a case, have variously approved and disapproved the exercise of supplemental jurisdiction where all federal-law claims have been dismissed.” Kolari v. N.Y.-Presbyterian Hosp., 455 F.3d 118, 122 (2d Cir. 2006) (internal citations omitted). The dismissal of state law claims has been upheld after dismissal of the federal claims, particularly where the state law claim implicated federal interests such as preemption, or where the dismissal of the federal claims was late in the litigation, or where the state law claims involved only settled principles rather than novel issues. Valencia ex rel. Franco v. Lee, 316 F.3d 299, 305-06 (2d Cir. 2003). And we have upheld the exercise of supplemental jurisdiction in situations when as here the “state law claims are analytically identical” to federal claims. Benn v. City of New York, 482 F. App’x 637, 639 (2d Cir. 2012); see also Petrosino v. Bell Atl., 385 F.3d 210, 220 n.11 (2d Cir. 2004).

In dismissing the NYLL claims with prejudice, the district court relied on the fact that the same standard applied to the FLSA and NYLL claims. That exercise of supplemental jurisdiction was entirely consistent with this Court’s precedent.[11] Reviewing the district court’s determination for an abuse of discretion, we largely affirm the district court’s dismissal of the NYLL claims with prejudice.

However, Plaintiffs point out that the district court order was arguably inconsistent in dismissing Plaintiffs’ NYLL claims with prejudice notwithstanding its observation that Plaintiffs may have a valid gap-time claim under NYLL.

According to the district court: “the NYLL does recognize Gap Time Claims and provides for full recovery of all unpaid straight-time wages owed.” Special App. 61 n.9 (internal quotations and citations omitted). “Thus, to the extent that the . . . Plaintiffs have adequately pled that they worked compensable time for which they were not properly paid, Plaintiffs have a statutory right under the NYLL to recover straight-time wages for those hours.” Id. This observation appears consistent with NYLL, which provides that “[i]f any employee is paid by his or her employer less than the wage to which he or she is entitled . . . he or she shall recover in a civil action the amount of any such underpayments . . . .” NYLL § 663(1) (emphasis added).

We express no view as to the merits of NYLL gap-time claims, or as to the adequacy of Plaintiffs’ pleading. But because New York law may recognize Plaintiffs’ NYLL gap-time claims, the district court erred in dismissing them with prejudice based solely on its dismissal of Plaintiffs’ FLSA claims. We therefore affirm the dismissal of Plaintiffs’ NYLL overtime claims, but vacate the dismissal of Plaintiffs’ NYLL gap-time claims and remand for further consideration in that narrow respect.

V

Finally, Plaintiffs challenge the dismissal of their RICO claims, which alleged that CHS used the mails to defraud Plaintiffs by sending them their payroll checks. The district court dismissed the RICO claims, holding that Plaintiffs had not alleged any pattern of racketeering activity.

To establish a civil RICO claim, a plaintiff must allege “(1) conduct, (2) of an enterprise, (3) through a pattern (4) of racketeering activity,” as well as “injury to business or property as a result of the RICO violation.” Anatian v. Coutts Bank (Switz.) Ltd., 193 F.3d 85, 88 (2d Cir. 1999) (internal quotation marks omitted). The pattern of racketeering activity must consist of two or more predicate acts of racketeering. 18 U.S.C. § 1961(5).

The Third Amended Complaint cites the mailing of “misleading payroll checks” to show mail fraud as a RICO predicate act, J.A. 1779, on the theory that the mailings “deliberately concealed from its employees that they did not receive compensation for all compensable work that they performed and misled them into believing that they were being paid properly.” Id. at 1764-65; see also id. at 1765-67 (describing the mailing of checks).[12]

“To prove a violation of the mail fraud statute, plaintiffs must establish the existence of a fraudulent scheme and a mailing in furtherance of the scheme.” McLaughlin v. Anderson, 962 F.2d 187, 190-91 (2d Cir. 1992). On a motion to dismiss a RICO claim, Plaintiffs’ allegations must also satisfy the requirement that, “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b); see McLaughlin, 962 F.2d at 191. So Plaintiffs must plead the alleged mail fraud with particularity, and establish that the mailings were in furtherance of a fraudulent scheme. Id. Plaintiffs’ allegations fail on both accounts.

As to particularity, the “complaint must adequately specify the statements it claims were false or misleading, give particulars as to the respect in which plaintiff contends the statements were fraudulent, state when and where the statements were made, and identify those responsible for the statements.” Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989). Plaintiffs here have not alleged what any particular Defendant did to advance the RICO scheme. Nor have they otherwise pled particular details regarding the alleged fraudulent mailings. Bare-bones allegations do not satisfy Rule 9(b).

Almost more fundamentally, Plaintiffs have not established that the mailings were “in furtherance” of any fraudulent scheme. As the district court observed, the mailing of pay stubs cannot further the fraudulent scheme because the pay stubs would have revealed (not concealed) that Plaintiffs were not being paid for all of their alleged compensable overtime. See Special App. 16-17. Mailings that thus “increase[] the probability that [the mailer] would be detected and apprehended” do not constitute mail fraud. United States v. Maze, 414 U.S. 395, 403 (1974); see also Cavallaro v. UMass Mem’l Health Care Inc., No. 09-40152, 2010 WL 3609535, at *3 (D. Mass. July 2, 2010) (examining very similar claim of mail fraud based on paychecks and ruling that the mailings “made the scheme’s discovery more likely”). We therefore affirm the dismissal of Plaintiffs’ RICO claims.

CONCLUSION

For the foregoing reasons, we affirm the dismissal of Plaintiffs’ claims under FLSA, their NYLL overtime claims, and their RICO claims, but we vacate the dismissal with prejudice of Plaintiffs’ gap-time claims under the NYLL, and remand for further consideration in that limited respect.

[*] The Honorable Sandra Day O’Connor, Associate Justice (retired) of the United States Supreme Court, sitting by designation.

[1] The complicated facts and procedural history of this case are recounted in detail in five orders issued by the district court. See Mem. & Order, Wolman v. Catholic Health System of Long Island, Inc., No. 10-CV-1326 (E.D.N.Y. Dec. 30, 2010) (Special App. 1-19); Mem. & Order, Wolman v. Catholic Health System of Long Island, Inc., No. 10-CV-1326 (E.D.N.Y. May 5, 2011) (Special App. 20-32); Mem. & Order, Wolman v. Catholic Health System of Long Island, Inc., No. 10-CV-1326 (E.D.N.Y. May 24, 2011) (Special App. 33-37); Mem. & Order, Wolman v. Catholic Health System of Long Island, Inc., No. 10-CV-1326 (E.D.N.Y. Feb. 16, 2012) (Special App. 38-74); Mem. & Order, Wolman v. Catholic Health System of Long Island, Inc., No. 10-CV-1326 (E.D.N.Y. Mar. 12, 2012) (Special App. 75-77). We recount only those that bear on the resolution of this appeal.

[2] See Yarus v. N.Y.C. Health & Hosps. Corp., No. 11-710; Megginson v. Westchester Cnty. Health Care Corp., No. 11-713; Megginson v. Westchester Med. Ctr., No. 12-4084; Alamu v. Bronx-Lebanon Hosp. Ctr., No. 11-728; Alamu v. Bronx-Lebanon Hosp. Ctr., No. 12-4085; Nakahata v. N.Y.-Presbyterian HealthCare Sys., No. 11-734; Nakahata v. N.Y. Presbyterian HealthCare Sys., No. 12-4128; Hinterberger v. Catholic Health Sys., No. 12-630; Hinterberger v. Catholic Health Sys., No. 12-918; Gordon v. Kaleida Health, No. 12-654; Gordon v. Kaleida Health, No. 12-670; Lundy v. Catholic Health Sys. of Long Island Inc., No. 12-1453.

[3] In addition to FLSA’s overtime provisions, Section 206 of FLSA requires that employers pay a minimum wage. Plaintiffs have not brought minimum wage claims in this case.

[4] Since Plaintiffs were not subject to a collective bargaining agreement while they were employed by CHS, the Labor Management Relations Act is not at issue in this case.

[5] The court also rejected arguments that all of the named defendants operated as a single enterprise, or that they were all liable under theories of agency and alter-ego. Even though the district court dismissed the FLSA claims against CHS, we use the term “CHS” in this opinion to refer to Defendants generally.

[6] In its entirety, Section 207(a)(1) provides:

Except as otherwise provided in this section, no employer shall employ any of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce, for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.

Id.

[7] Under a case-specific approach, some courts may find that an approximation of overtime hours worked may help draw a plaintiff’s claim closer to plausibility.

[8] The district court identified deficiencies in the Fourth Circuit’s view and expressed “serious concerns” about allowing gap-time claims under FLSA. Special App. 15. One judge within the Fourth Circuit has acknowledged the force of the competing view:

While I follow the direction of Monahan and the Department of Labor regulations in this opinion, I note that one could, in the alternative, take the approach that compensation for FLSA overtime hours is the sole recovery available under the FLSA maximum hour provision. This approach would leave the contractual interpretation and determination of straight time compensation to state courts, which are better positioned to address these issues.

Koelker v. Mayor & City Council of Cumberland, 599 F. Supp. 2d 624, 635 n.11 (D. Md. 2009) (Motz, J.) (emphasis in original).

[9] Section 778.322 appears to merely build from this flawed interpretation: “[O]vertime compensation cannot be said to have been paid until all straight time compensation due the employee under the statute or his employment contract has been paid.” 29 C.F.R. § 778.322. Again, the Department of Labor’s interpretation is not grounded in the statute and provides no reasoned explanation for this conclusion.

[10] Even if we were to assume that an employee who has worked overtime may also seek gap-time pay under FLSA, such a claim would not be viable if the employment agreement provided that the employee would be compensated for all non-overtime hours worked. See Monahan, 95 F.3d at 1272. Here, Plaintiffs allege “binding, express oral contracts” that include an “explicit promise to compensate Plaintiffs and Class Members for `all hours worked.'” J.A. 1819. Of course in that event a contractual remedy may be available; but the district court dismissed the breach of contract claims and Plaintiffs have not appealed on that ground.

[11] In any event, the district court’s dismissal of Plaintiffs’ NYLL claims was proper under the Cohill factors: judicial economy, convenience, fairness, and comity. See 484 U.S. at 350. Judicial economy and convenience are served by dismissing Plaintiffs’ NYLL claims with prejudice. And considering that Plaintiffs amended their complaint at least four times with express guidance from the district court, they cannot argue now that it is unfair to dismiss their inadequately pleaded NYLL claims.

[12] Federal courts are properly wary of transforming any civil FLSA violation into a RICO case. See, e.g., Vandermark v. City of New York, 615 F. Supp. 2d 196, 209-10 (S.D.N.Y. 2009) (Scheindlin, J.) (“Racketeering is far more than simple illegality. Alleged civil violations of the FLSA do not amount to racketeering.”).

U.S. v. Turkette, RICO includes enterprises also performing lawful functions

Definition of an Enterprise under RICO

Opinion Below
U.S. v. Turkette 452 U.S. 576 (1981)

UNITED STATES
v.
TURKETTE.

No. 80-808.

Supreme Court of United States.

Argued April 27, 1981.

Decided June 17, 1981.

JUSTICE WHITE delivered the opinion of the Court.

Chapter 96 of Title 18 of the United States Code, 18 U. S. C. §§ 1961-1968 (1976 ed. and Supp. III), entitled 578*578 Racketeer Influenced and Corrupt Organizations (RICO), was added to Title 18 by Title IX of the Organized Crime Control Act of 1970, Pub. L. 91-452, 84 Stat. 941. The question in this case is whether the term “enterprise” as used in RICO encompasses both legitimate and illegitimate enterprises or is limited in application to the former. The Court of Appeals for the First Circuit held that Congress did not intend to include within the definition of “enterprise” those organizations which are exclusively criminal. 632 F. 2d 896 (1980). This position is contrary to that adopted by every other Circuit that has addressed the issue.[1] We granted certiorari to resolve this conflict. 449 U. S. 1123 (1981).

I

Count Nine of a nine-count indictment charged respondent and 12 others with conspiracy to conduct and participate in the affairs of an enterprise[2] engaged in interstate commerce 579*579 through a pattern of racketeering activities, in violation of 18 U. S. C. § 1962 (d).[3] The indictment described the enterprise as “a group of individuals associated in fact for the purpose of illegally trafficking in narcotics and other dangerous drugs, committing arsons, utilizing the United States mails to defraud insurance companies, bribing and attempting to bribe local police officers, and corruptly influencing and attempting to corruptly influence the outcome of state court proceedings . . . .” The other eight counts of the indictment charged the commission of various substantive criminal acts by those engaged in and associated with the criminal enterprise, including possession with intent to distribute and distribution of controlled substances, and several counts of insurance fraud by arson and other means. The common thread to all counts was respondent’s alleged leadership of this criminal organization through which he orchestrated and participated in the commission of the various crimes delineated in the RICO count or charged in the eight preceding counts.

After a 6-week jury trial, in which the evidence focused upon both the professional nature of this organization and the execution of a number of distinct criminal acts, respondent was convicted on all nine counts. He was sentenced to a term of 20 years on the substantive counts, as well as a 2-year special parole term on the drug count. On the RICO conspiracy count he was sentenced to a 20-year concurrent term and fined $20,000.

On appeal, respondent argued that RICO was intended 580*580 solely to protect legitimate business enterprises from infiltration by racketeers and that RICO does not make criminal the participation in an association which performs only illegal acts and which has not infiltrated or attempted to infiltrate a legitimate enterprise. The Court of Appeals agreed. We reverse.

II

In determining the scope of a statute, we look first to its language. If the statutory language is unambiguous, in the absence of “a clearly expressed legislative intent to the contrary, that language must ordinarily be regarded as conclusive.” Consumer Product Safety Comm’n v. GTE Sylvania, Inc., 447 U. S. 102, 108 (1980). Of course, there is no errorless test for identifying or recognizing “plain” or “unambiguous” language. Also, authoritative administrative constructions should be given the deference to which they are entitled, absurd results are to be avoided and internal inconsistencies in the statute must be dealt with. Trans Alaska Pipeline Rate Cases, 436 U. S. 631, 643 (1978); Commissioner v. Brown, 380 U. S. 563, 571 (1965). We nevertheless begin with the language of the statute.

Section 1962 (c) makes it 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 or collection of unlawful debt.” The term “enterprise” is defined as including “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” § 1961 (4). There is no restriction upon the associations embraced by the definition: an enterprise includes any union or group of individuals associated in fact. On its face, the definition appears to include both legitimate and illegitimate enterprises within its scope; it no more excludes 581*581 criminal enterprises than it does legitimate ones. Had Congress not intended to reach criminal associations, it could easily have narrowed the sweep of the definition by inserting a single word, “legitimate.” But it did nothing to indicate that an enterprise consisting of a group of individuals was not covered by RICO if the purpose of the enterprise was exclusively criminal.

The Court of Appeals, however, clearly departed from and limited the statutory language. It gave several reasons for doing so, none of which is adequate. First, it relied in part on the rule of ejusdem generis, an aid to statutory construction problems suggesting that where general words follow a specific enumeration of persons or things, the general words should be limited to persons or things similar to those specifically enumerated. See 2A C. Sands, Sutherland on Statutory Construction § 47.17 (4th ed. 1973). The Court of Appeals ruled that because each of the specific enterprises enumerated in § 1961 (4) is a “legitimate” one, the final catchall phrase— “any union or group of individuals associated in fact”— should also be limited to legitimate enterprises. There are at least two flaws in this reasoning. The rule of ejusdem generis is no more than an aid to construction and comes into play only when there is some uncertainty as to the meaning of a particular clause in a statute. Harrison v. PPG Industries, Inc., 446 U. S. 578, 588 (1980); United States v. Powell, 423 U. S. 87, 91 (1975); Gooch v. United States, 297 U. S. 124, 128 (1936). Considering the language and structure of § 1961 (4), however, we not only perceive no uncertainty in the meaning to be attributed to the phrase, “any union or group of individuals associated in fact” but we are convinced for another reason that ejusdem generis is wholly inapplicable in this context.

Section 1961 (4) describes two categories of associations that come within the purview of the “enterprise” definition. The first encompasses organizations such as corporations and partnerships, and other “legal entities.” The second covers “any union or group of individuals associated in fact although not a legal entity.” The Court of Appeals assumed that the second category was merely a more general description of the first. Having made that assumption, the court concluded that the more generalized description in the second category should be limited by the specific examples enumerated in the first. But that assumption is untenable. Each category describes a separate type of enterprise to be covered by the statute—those that are recognized as legal entities and those that are not. The latter is not a more general description of the former. The second category itself not containing any specific enumeration that is followed by a general description, ejusdem generis has no bearing on the meaning to be attributed to that part of § 1961 (4).[4]

A second reason offered by the Court of Appeals in support of its judgment was that giving the definition of “enterprise” its ordinary meaning would create several internal inconsistencies in the Act. With respect to § 1962 (c), it was said:

“If `a pattern of racketeering’ can itself be an `enterprise’ for purposes of section 1962 (c), then the two phrases `employed by or associated with any enterprise’ and `the conduct of such enterprise’s affairs through [a pattern of racketeering activity]’ add nothing to the meaning of the section. The words of the statute are coherent and logical only if they are read as applying to legitimate enterprises.” 632 F. 2d, at 899.

This conclusion is based on a faulty premise. That a wholly criminal enterprise comes within the ambit of the statute does not mean that a “pattern of racketeering activity” is an “enterprise.” In order to secure a conviction under RICO, the Government must prove both the existence of an “enterprise” and the connected “pattern of racketeering activity.” The enterprise is an entity, for present purposes a group of persons associated together for a common purpose of engaging in a course of conduct. The pattern of racketeering activity is, on the other hand, a series of criminal acts as defined by the statute. 18 U. S. C. § 1961 (1) (1976 ed., Supp. III). The former is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit. The latter is proved by evidence of the requisite number of acts of racketeering committed by the participants in the enterprise. While the proof used to establish these separate elements may in particular cases coalesce, proof of one does not necessarily establish the other. 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.[5]

Apart from § 1962 (c)’s proscription against participating in an enterprise through a pattern of racketeering activities, RICO also proscribes the investment of income derived from racketeering activity in an enterprise engaged in or which 584*584 affects interstate commerce as well as the acquisition of an interest in or control of any such enterprise through a pattern of racketeering activity. 18 U. S. C. §§ 1962 (a) and (b).[6] The Court of Appeals concluded that these provisions of RICO should be interpreted so as to apply only to legitimate enterprises. If these two sections are so limited, the Court of Appeals held that the proscription in § 1962 (c), at issue here, must be similarly limited. Again, we do not accept the premise from which the Court of Appeals derived its conclusion. It is obvious that §§ 1962 (a) and (b) address the infiltration by organized crime of legitimate businesses, but we cannot agree that these sections were not also aimed at preventing racketeers from investing or reinvesting in wholly illegal enterprises and from acquiring through a pattern of racketeering activity wholly illegitimate enterprises such as an illegal gambling business or a loan-sharking 585*585 operation. There is no inconsistency or anomaly in recognizing that § 1962 applies to both legitimate and illegitimate enterprises. Certainly the language of the statute does not warrant the Court of Appeals’ conclusion to the contrary.

Similarly, the Court of Appeals noted that various civil remedies were provided by § 1964,[7] including divestiture, dissolution, reorganization, restrictions on future activities by violators of RICO, and treble damages. These remedies it thought would have utility only with respect to legitimate enterprises. As a general proposition, however, the civil remedies could be useful in eradicating organized crime from the social fabric, whether the enterprise be ostensibly legitimate or admittedly criminal. The aim is to divest the association of the fruits of its ill-gotten gains. See infra, at 591-593. Even if one or more of the civil remedies might be inapplicable to a particular illegitimate enterprise, this fact would not serve to limit the enterprise concept. Congress has provided civil remedies for use when the circumstances so warrant. It is untenable to argue that their existence limits the scope of the criminal provisions.[8]

586*586 Finally, it is urged that the interpretation of RICO to include both legitimate and illegitimate enterprises will substantially alter the balance between federal and state enforcement of criminal law. This is particularly true, so the argument goes, since included within the definition of racketeering activity are a significant number of acts made criminal under state law. 18 U. S. C. § 1961 (1) (1976 ed., Supp. III). But even assuming that the more inclusive definition of enterprise will have the effect suggested,[9] the language of the statute and its legislative history indicate that Congress was well aware that it was entering a new domain of federal involvement through the enactment of this measure. Indeed, the very purpose of the Organized Crime Control Act of 1970 was to enable the Federal Government to address a large and seemingly neglected problem. The view was that existing law, state and federal, was not adequate to address the problem, which was of national dimensions. That Congress included within the definition of racketeering activities a number of state crimes strongly indicates that RICO criminalized conduct that was also criminal under state law, at least when the requisite elements of a RICO offense are present. As the hearings and legislative debates reveal, Congress was well aware of the fear that RICO would “mov[e] large substantive areas formerly totally within the police power of 587*587 the State into the Federal realm.” 116 Cong. Rec. 35217 (1970) (remarks of Rep. Eckhardt). See also id., at 35205 (remarks of Rep. Mikva); id., at 35213 (comments of the American Civil Liberties Union); Hearings on Organized Crime Control before Subcommittee No. 5 of the House Committee on the Judiciary, 91st Cong., 2d Sess., 329, 370 (1970) (statement of Sheldon H. Eisen on behalf of the Association of the Bar of the City of New York). In the face of these objections, Congress nonetheless proceeded to enact the measure, knowing that it would alter somewhat the role of the Federal Government in the war against organized crime and that the alteration would entail prosecutions involving acts of racketeering that are also crimes under state law. There is no argument that Congress acted beyond its power in so doing. That being the case, the courts are without authority to restrict the application of the statute. See United States v. Culbert, 435 U. S. 371, 379-380 (1978).

Contrary to the judgment below, neither the language nor structure of RICO limits its application to legitimate “enterprises.” Applying it also to criminal organizations does not render any portion of the statute superfluous nor does it create any structural incongruities within the framework of the Act. The result is neither absurd nor surprising. On the contrary, insulating the wholly criminal enterprise from prosecution under RICO is the more incongruous position.

Section 904 (a) of RICO, 84 Stat. 947, directs that “[t]he provisions of this Title shall be liberally construed to effectuate its remedial purposes.” With or without this admonition, we could not agree with the Court of Appeals that illegitimate enterprises should be excluded from coverage. We are also quite sure that nothing in the legislative history of RICO requires a contrary conclusion.[10]

588*588 III

The statement of findings that prefaces the Organized Crime Control Act of 1970 reveals the pervasiveness of the problem that Congress was addressing by this enactment:

“The Congress finds that (1) organized crime in the United States is a highly sophisticated, diversified, and widespread activity that annually drains billions of dollars from America’s economy by unlawful conduct and the illegal use of force, fraud, and corruption; (2) organized crime derives a major portion of its power through money obtained from such illegal endeavors as syndicated gambling, loan sharking, the theft and fencing of property, the importation and distribution of narcotics and other dangerous drugs, and other forms of social exploitation; (3) this money and power are increasingly used to infiltrate and corrupt legitimate business and labor unions and to subvert and corrupt our democratic processes; (4) organized crime activities in the United States weaken the stability of the Nation’s economic system, harm innocent investors and competing organizations, interfere with free competition, seriously burden interstate and foreign commerce, threaten the domestic security, and undermine the general welfare of the Nation and its citizens; and (5) organized crime continues 589*589 to grow because of defects in the evidence-gathering process of the law inhibiting the development of the legally admissible evidence necessary to bring criminal and other sanctions or remedies to bear on the unlawful activities of those engaged in organized crime and because the sanctions and remedies available to the Government are unnecessarily limited in scope and impact.” 84 Stat. 922-923.

In light of the above findings, it was the declared purpose of Congress “to seek the eradication of organized crime in the United States by strengthening the legal tools in the evidence-gathering process, by establishing new penal prohibitions, and by providing enhanced sanctions and new remedies to deal with the unlawful activities of those engaged in organized crime.” Id., at 923.[11] The various Titles of the Act provide the tools through which this goal is to be accomplished. Only three of those Titles create substantive offenses, Title VIII, which is directed at illegal gambling operations, Title IX, at issue here, and Title XI, which addresses the importation, distribution, and storage of explosive materials. The other Titles provide various procedural and remedial devices to aid in the prosecution and incarceration of persons involved in organized crime.

Considering this statement of the Act’s broad purposes, the construction of RICO suggested by respondent and the court below is unacceptable. Whole areas of organized criminal activity would be placed beyond the substantive reach of the enactment. For example, associations of persons engaged solely in “loan sharking, the theft and fencing of property, 590*590 the importation and distribution of narcotics and other dangerous drugs,” id., at 922-923, would be immune from prosecution under RICO so long as the association did not deviate from the criminal path. Yet these are among the very crimes that Congress specifically found to be typical of the crimes committed by persons involved in organized crime, see 18 U. S. C. § 1961 (1) (1976 ed., Supp. III), and as a major source of revenue and power for such organizations. See Hearings on S. 30 et al. before the Subcommittee on Criminal Laws and Procedures of the Senate Committee on the Judiciary, 91st Cong., 1st Sess., 1-2 (1969).[12] Along these same lines, Senator McClellan, the principal sponsor of the bill, gave two examples of types of problems RICO was designed to address. Neither is consistent with the view that substantive offenses under RICO would be limited to legitimate enterprises: “Organized criminals, too, have flooded the market with cheap reproductions of hit records and affixed counterfeit popular labels. They are heavily engaged in the illicit prescription drug industry.” 116 Cong. Rec. 592 (1970). In view of the purposes and goals of the Act, as well as the language of the statute, we are unpersuaded that Congress nevertheless confined the reach of the law to only narrow aspects of organized crime, and, in particular, under RICO, only the infiltration of legitimate business.

591*591 This is not to gainsay that the legislative history forcefully supports the view that the major purpose of Title IX is to address the infiltration of legitimate business by organized crime. The point is made time and again during the debates and in the hearings before the House and Senate.[13] But none of these statements requires the negative inference that Title IX did not reach the activities of enterprises organized and existing for criminal purposes. See United States v. Naftalin, 441 U. S. 768, 774-775 (1979); United States v. Culbert, 435 U. S., at 377.

On the contrary, these statements are in full accord with the proposition that RICO is equally applicable to a criminal enterprise that has no legitimate dimension or has yet to acquire one. Accepting that the primary purpose of RICO is to cope with the infiltration of legitimate businesses, applying the statute in accordance with its terms, so as to reach criminal enterprises, would seek to deal with the problem at its very source. Supporters of the bill recognized that organized crime uses its primary sources of revenue and power— illegal gambling, loan sharking and illicit drug distribution— as a springboard into the sphere of legitimate enterprise. Hearings on S. 30, supra, at 1-2. The Senate Report stated:

“What is needed here, the committee believes, are new approaches that will deal not only with individuals, but also with the economic base through which those individuals 592*592 constitute such a serious threat to the economic well-being of the Nation. In short, an attack must be made on their source of economic power itself, and the attack must take place on all available fronts.” S. Rep. No. 91-617, p. 79 (1969) (emphasis supplied).

Senator Byrd explained in debate on the floor, that “loan sharking paves the way for organized criminals to gain access to and eventually take over the control of thousands of legitimate businesses.” 116 Cong. Rec. 606 (1970). Senator Hruska declared that “the combination of criminal and civil penalties in this title offers an extraordinary potential for striking a mortal blow against the property interests of organized crime.” Id., at 602.[14] Undoubtedly, the infiltration 593*593 of legitimate businesses was of great concern, but the means provided to prevent that infiltration plainly included striking at the source of the problem. As Representative Poff, a manager of the bill in the House, stated: “[T]itle IX . . . will deal not only with individuals, but also with the economic base through which those individuals constitute such a serious threat to the economic well-being of the Nation. In short, an attack must be made on their source of economic power itself . . . .” Id., at 35193.

As a measure to deal with the infiltration of legitimate businesses by organized crime, RICO was both preventive and remedial. Respondent’s view would ignore the preventive function of the statute. If Congress had intended the more circumscribed approach espoused by the Court of Appeals, there would have been some positive sign that the law was not to reach organized criminal activities that give rise to the concerns about infiltration. The language of the statute, however—the most reliable evidence of its intent—reveals that Congress opted for a far broader definition of the word “enterprise,” and we are unconvinced by anything in the legislative history that this definition should be given less than its full effect.

The judgment of the Court of Appeals is accordingly

Reversed.

JUSTICE STEWART agrees with the reasoning and conclusion of the Court of Appeals as to the meaning of the term “enterprise” in this statute. See 632 F. 2d 896. Accordingly, he respectfully dissents.

[*] Briefs of amici curiae urging affirmance were filed by Harvey A. Silverglate for the Boston Bar Association et al.; and by Barry Tarlow for California Attorneys for Criminal Justice et al.

[1] See United States v. Sutton, 642 F. 2d 1001, 1006-1009 (CA6 1980) (en banc), cert. pending, Nos. 80-6058, 80-6137, 80-6141, 80-6147, 80-6253, 80-6254, 80-6272; United States v. Errico, 635 F. 2d 152, 155 (CA2 1980); United States v. Provenzano, 620 F. 2d 985, 992-993 (CA3), cert. denied, 449 U. S. 899 (1980); United States v. Whitehead, 618 F. 2d 523, 525, n. 1 (CA4 1980); United States v. Aleman, 609 F. 2d 298, 304-305 (CA7 1979), cert. denied, 445 U. S. 946 (1980); United States v. Rone, 598 F. 2d 564, 568-569 (CA9 1979), cert. denied, 445 U. S. 946 (1980); United States v. Swiderski, 193 U. S. App. D. C. 92, 94-95, 593 F. 2d 1246, 1248-1249 (1978), cert. denied, 441 U. S. 933 (1979); United States v. Elliott, 571 F. 2d 880, 896-898 (CA5), cert. denied, 439 U. S. 953 (1978). See also United States v. Anderson, 626 F. 2d 1358, 1372 (CA8 1980), cert. denied, 450 U. S. 912 (1981). But see United States v. Sutton, 605 F. 2d 260, 264-270 (CA6 1979), vacated, 642 F. 2d 1001 (1980); United States v. Rone, supra, at 573 (Ely, J., dissenting); United States v. Altese, 542 F. 2d 104, 107 (CA2 1976) (Van Graafeiland, J., dissenting), cert. denied, 429 U. S. 1039 (1977).

[2] Title 18 U. S. C. § 1961 (4) provides:

“`enterprise’ includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.”

[3] Title 18 U. S. C. § 1962 (d) provides that “[i]t shall be unlawful for any person to conspire to violate any of the provisions of subsections (a), (b), or (c) of this section.” Pertinent to these charges, subsection (c) provides:

“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 or collection of unlawful debt.”

[4] The Court of Appeals’ application of ejusdem generis is further flawed by the assumption that “any individual, partnership, corporation, association or other legal entity” could not act totally beyond the pale of the law. The mere fact that a given enterprise is favored with a legal existence does not prevent that enterprise from proceeding along a wholly illegal course of conduct. Therefore, since legitimacy of purpose is not a universal characteristic of the specifically listed enterprises, it would be improper to engraft this characteristic upon the second category of enterprises.

[5] The Government takes the position that proof of a pattern of racketeering activity in itself would not be sufficient to establish the existence of an enterprise: “We do not suggest that any two sporadic and isolated offenses by the same actor or actors ipso facto constitute an `illegitimate’ enterprise; rather, the existence of the enterprise as an independent entity must also be shown.” Reply Brief for United States 4. But even if that were not the case, the Court of Appeals’ position on this point is of little force. Language in a statute is not rendered superfluous merely because in some contexts that language may not be pertinent.

[6] Title 18 U. S. C. §§ 1962 (a) and (b) provide:

“(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. A purchase of securities on the open market for purposes of investment, and without the intention of controlling or participating in the control of the issuer, or of assisting another to do so, shall not be unlawful under this subsection if the securities of the issuer held by the purchaser, the members of his immediate family, and his or their accomplices in any pattern or racketeering activity or the collection of an unlawful debt after such purchase do not amount in the aggregate to one percent of the outstanding securities of any one class, and do not confer, either in law or in fact, the power to elect one or more directors of the issuer.

“(b) It shall be unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.”

[7] Title 18 U. S. C. §§ 1964 (a) and (c) provide:

“(a) The district courts of the United States shall have jurisdiction to prevent and restrain violations of section 1962 of this chapter by issuing appropriate orders, including, but not limited to: ordering any person to divest himself of any interest, direct or indirect, in any enterprise; imposing reasonable restrictions on the future activities or investments of any person, including, but not limited to, prohibiting any person from engaging in the same type of endeavor as the enterprise engaged in, the activities of which affect interstate or foreign commerce; or ordering dissolution or reorganization of any enterprise, making due provision for the rights of innocent persons.

…..

“(c) Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney’s fee.”

[8] In discussing these civil remedies, the Senate Report on the Organized Crime Control Act of 1970 specifically referred to two state cases in which equitable relief had been granted against illegitimate enterprises. S. Rep. No. 91-617, p. 79, n. 9, p. 81, n. 11 (1969). These references were in the context of a discussion on the need to expand the remedies available to combat organized crime.

[9] RICO imposes no restrictions upon the criminal justice systems of the States. See 84 Stat. 947 (“Nothing in this title shall supersede any provision of Federal, State, or other law imposing criminal penalties or affording civil remedies in addition to those provided for in this title”). Thus, under RICO, the States remain free to exercise their police powers to the fullest constitutional extent in defining and prosecuting crimes within their respective jurisdictions. That some of those crimes may also constitute predicate acts of racketeering under RICO, is no restriction on the separate administration of criminal justice by the States.

[10] We find no occasion to apply the rule of lenity to this statute. “[T]hat `rule,’ as is true of any guide to statutory construction, only serves as an aid for resolving an ambiguity; it is not to be used to beget one. . . . The rule comes into operation at the end of the process of construing what Congress has expressed, not at the beginning as an overriding consideration of being lenient to wrongdoers.” Callanan v. United States, 364 U. S. 587, 596 (1961) (footnote omitted). There being no ambiguity in the RICO provisions at issue here, the rule of lenity does not come into play. See United States v. Moore, 423 U. S. 122, 145 (1975), quoting United States v. Brown, 333 U. S. 18, 25-26 (1948) (“`The canon in favor of strict construction [of criminal statutes] is not an inexorable command to override common sense and evident statutory purpose. . . . Nor does it demand that a statute be given the “narrowest meaning”; it is satisfied if the words are given their fair meaning in accord with the manifest intent of the lawmakers'”); see also Lewis v. United States, 445 U. S. 55, 60-61 (1980).

[11] See also 116 Cong. Rec. 602 (1970) (remarks of Sen. Yarborough) (“a full scale attack on organized crime”); id., at 819 (remarks of Sen. Scott) (“purpose is to eradicate organized crime in the United States”); id., at 35199 (remarks of Rep. Rodino) (“a truly full-scale commitment to destroy the insidious power of organized crime groups”); id., at 35300 (remarks of Rep. Mayne) (organized crime “must be sternly and irrevocably eradicated”).

[12] See also id., at 601 (remarks of Sen. Hruska); id., at 606-607 (remarks of Sen. Byrd); id., at 819 (remarks of Sen. Scott); id., at 962 (remarks of Sen. Murphy); id., at 970 (remarks of Sen. Bible); id., at 18913, 18937 (remarks of Sen. McClellan); id., at 35199 (remarks of Rep. Rodino); id., at 35216 (remarks of Rep. McDade); id., at 35300 (remarks of Rep. Mayne); id., at 35312 (remarks of Rep. Brock); id., at 35319 (remarks of Rep. Anderson of California); id., at 35326 (remarks of Rep. Vanik); id., at 35328 (remarks of Rep. Meskill); Hearings on S. 30 et al. before the Subcommittee on Criminal Laws and Procedures of the Senate Committee on the Judiciary, 91st Cong., 1st Sess., 108 (1969) (statement of Attorney General Mitchell); H. R. Rep. No. 1574, 90th Cong., 2d Sess., 5 (1968).

[13] 116 Cong. Rec. 591 (1970) (remarks of Sen. McClellan) (“title IX is aimed at removing organized crime from our legitimate organizations”); id., at 602 (remarks of Sen. Hruska) (“Title IX of this act is designed to remove the influence of organized crime from legitimate business by attacking its property interests and by removing its members from control of legitimate businesses which have been acquired or operated by unlawful racketeering methods”); id., at 607 (remarks of Sen. Byrd) (“alarming expansion into the field of legitimate business”); id., at 953 (remarks of Sen. Thurmond) (“racketeers . . . gaining inroads into legitimate business”); id., at 845 (remarks of Sen. Kennedy) (“title IX . . . may provide us with new tools to prevent organized crime from taking over legitimate businesses and activities”); S. Rep. No. 91-617, p. 76 (1969).

[14] See also, e. g., 115 Cong. Rec. 827 (1969) (remarks of Sen. McClellan) (“Organized crime . . . uses its ill-gotten gains . . . to infiltrate and secure control of legitimate business and labor union activities”); 116 Cong. Rec. 591 (1970) (remarks of Sen. McClellan) (“illegally gained revenue also makes it possible for organized crime to infiltrate and pollute legitimate business”); id., at 603 (remarks of Sen. Yarborough) (“[RICO] is designed to root out the influence of organized crime in legitimate business, into which billions of dollars of illegally obtained money is channeled”); id., at 606 (remarks of Sen. Byrd) (“loan sharking paves the way for organized criminals to gain access to and eventually take over the control of thousands of legitimate businesses”); id., at 35193 (remarks of Rep. Poff) (“[T]itle IX . . . will deal not only with individuals, but also with the economic base through which those individuals constitute such a serious threat to the economic well-being of the Nation. In short, an attack must be made on their source of economic power itself . . .”); S. Rep. No. 91-617, supra, at 78-80; H. R. Rep. No. 1574, supra, at 5 (“The President’s Crime Commission found that the greatest menace that organized crime presents is its ability through the accumulation of illegal gains to infiltrate into legitimate business and labor unions”); Hearings on Organized Crime Control before Subcommittee No. 5 of the House Committee on the Judiciary, 91st Cong., 2d Sess., 170 (1970) (Department of Justice Comments) (“Title IX is designed to inhibit the infiltration of legitimate business by organized crime, and, like the previous title, to reach the criminal syndicates’ major sources of revenue”) (emphasis supplied).

Boyle v. U.S,. definition of a RICO enterprise

The RICO law is a tough to statute to understand, with multiple requirements and phraseology sometimes difficult to understand. That is particularly true in the definition of a RICO Enterprise. Initially the test seems straightforward. The RICO statute targets group criminal enterprise and a RICO enterprise includes “any union or group of individuals associated in fact although not a legal entity.” But is it sufficient to show the association of a group or must more be demonstrated. The case adopts a broad definition but it is not clear what more than a group involved in criminal conduct generally with the common goal of making money through an unlawful scheme must be shown.

Opinion

Boyle v. U.S. 129 S.Ct. 2237 (2009)

Edmund BOYLE, Petitioner,
v.
UNITED STATES.

No. 07-1309.

Supreme Court of United States.

Argued January 14, 2009.

Decided June 8, 2009.

Justice ALITO delivered the opinion of the Court.

We are asked in this case to decide whether an association-in-fact enterprise under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq., must have “an ascertainable structure beyond that inherent in the pattern of racketeering activity in which it engages.” Pet. for Cert. i. We hold that such an enterprise must have a “structure” but that an instruction framed in this precise language is not necessary. The District Court properly instructed the jury in this case. We therefore affirm the judgment of the Court of Appeals.

I

A

The evidence at petitioner’s trial was sufficient to prove the following: Petitioner and others participated in a series of bank thefts in New York, New Jersey, Ohio, and Wisconsin during the 1990’s. The participants in these crimes included a core group, along with others who were recruited from time to time. Although the participants sometimes attempted bank-vault burglaries and bank robberies, the group usually targeted cash-laden night-deposit boxes, which are often found in banks in retail areas.

Each theft was typically carried out by a group of participants who met beforehand to plan the crime, gather tools (such as crowbars, fishing gaffs, and walkie-talkies), and assign the roles that each participant would play (such as lookout and driver). The participants generally split the proceeds from the thefts. The group was loosely and informally organized. It does not appear to have had a leader or hierarchy; nor does it appear that the participants ever formulated any long-term master plan or agreement.

From 1991 to 1994, the core group was responsible for more than 30 night-deposit-box thefts. By 1994, petitioner had joined the group, and over the next five years, he participated in numerous attempted night-deposit-box thefts and at least two attempted bank-vault burglaries.

In 2003, petitioner was indicted for participation in the conduct of the affairs of an enterprise through a pattern of racketeering activity, in violation of 18 U.S.C. 2242*2242 § 1962(c); conspiracy to commit that offense, in violation of § 1962(d); conspiracy to commit bank burglary, in violation of § 371; and nine counts of bank burglary and attempted bank burglary, in violation of § 2113(a).

B

In instructing the jury on the meaning of a RICO “enterprise,” the District Court relied largely on language in United States v. Turkette, 452 U.S. 576, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). The court told the jurors that, in order to establish the existence of such an enterprise, the Government had to prove that: “(1) There [was] an ongoing organization with some sort of framework, formal or informal, for carrying out its objectives; and (2) the various members and associates of the association function[ed] as a continuing unit to achieve a common purpose.” App. 112. Over petitioner’s objection, the court also told the jury that it could “find an enterprise where an association of individuals, without structural hierarchy, form[ed] solely for the purpose of carrying out a pattern of racketeering acts” and that “[c]ommon sense suggests that the existence of an association-in-fact is oftentimes more readily proven by what it does, rather than by abstract analysis of its structure.” Id., at 111-112.[1]

Petitioner requested an instruction that the Government was required to prove that the enterprise “had an ongoing organization, a core membership that functioned as a continuing unit, and an ascertainable structural hierarchy distinct from the charged predicate acts.” Id., at 95. The District Court refused to give that instruction.

Petitioner was convicted on 11 of the 12 counts against him, including the RICO counts, and was sentenced to 151 months’ imprisonment. In a summary order, the Court of Appeals for the Second Circuit affirmed his conviction but vacated the sentence on a ground not relevant to the issues before us. 283 Fed.Appx. 825 (2007). The Court of Appeals did not specifically address the RICO jury instructions, stating only that the arguments not discussed in the order were “without merit.” Id., at 826. Petitioner was then resentenced, 3 and we granted certiorari, 554 U.S. ___, 129 S.Ct. 29, 171 L.Ed.2d 931 (2008), to resolve conflicts among the Courts of Appeals concerning the meaning of a RICO enterprise.

II

A

RICO makes it “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 or collection of unlawful debt.” 18 U.S.C. § 1962(c) (emphasis added).

The statute does not specifically define the outer boundaries of the “enterprise” concept but states that the term “includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” § 1961(4).[2] This enumeration of included enterprises is obviously broad, encompassing “any … group of individuals associated in fact.” Ibid. (emphasis added). The term “any” ensures that the definition has a wide reach, see, e.g., Ali v. Federal Bureau of Prisons, 552 U.S. 214, ___, 128 S.Ct. 831, 833, 169 L.Ed.2d 680 (2008) and the very concept of an association in fact is expansive. In addition, the RICO statute provides that its terms are to be “liberally construed to effectuate its remedial purposes.” § 904(a), 84 Stat. 947, note following 18 U.S.C. § 1961; see also, e.g., National Organization for Women, Inc. v. Scheidler, 510 U.S. 249, 257, 114 S.Ct. 798, 127 L.Ed.2d 99 (1994) (“RICO broadly defines `enterprise'”); Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497, 105 S.Ct. 3275, 87 L.Ed.2d 346(1985) (“RICO is to be read broadly”); Russello v. United States, 464 U.S. 16, 21, 104 S.Ct. 296, 78 L.Ed.2d 17 (1983) (noting “the pattern of the RICO statute in utilizing terms and concepts of breadth”).

In light of these statutory features, we explained in Turkette that “an enterprise includes any union or group of individuals associated in fact” and that RICO reaches “a group of persons associated together for a common purpose of engaging in a course of conduct.” 452 U.S., at 580, 583, 101 S.Ct. 2524. Such an enterprise, we said, “is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit.” Id., at 583, 101 S.Ct. 2524.

Notwithstanding these precedents, the dissent asserts that the definition of a RICO enterprise is limited to “business-like entities.” See post, at 2247-2250 (opinion of STEVENS, J.). We see no basis to impose such an extratextual requirement.[3]

B

As noted, the specific question on which we granted certiorari is whether an association-in-fact enterprise must have “an ascertainable structure beyond that inherent in the pattern of racketeering activity in which it engages.” Pet. for Cert. i. We will break this question into three parts. First, must an association-in-fact enterprise have a “structure”? Second, must the structure be “ascertainable”? Third, must the “structure” go “beyond that inherent in the pattern of racketeering activity” in which its members engage?

“Structure.” We agree with petitioner that an association-in-fact enterprise must have a structure. In the sense relevant here, the term “structure” means “[t]he way in which parts are arranged or put together to form a whole” and “[t]he interrelation or arrangement of parts in a complex entity.” American Heritage Dictionary 1718 (4th ed.2000); see also Random House Dictionary of the English Language 1410 (1967) (defining structure to mean, among other things, “the pattern of relationships, as of status or friendship, existing among the members of a group or society”).

From the terms of RICO, it is apparent that an association-in-fact enterprise must have at least three structural features: a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise’s purpose. As we succinctly put it in Turkette, an association-in-fact enterprise is “a group of persons associated together for a common purpose of engaging in a course of conduct.” 452 U.S., at 583, 101 S.Ct. 2524.

That an “enterprise” must have a purpose is apparent from meaning of the term in ordinary usage, i.e., a “venture,” “undertaking,” or “project.” Webster’s Third New International Dictionary 757 (1976). The concept of “associat[ion]” requires both interpersonal relationships and a common interest. See id., at 132 (defining “association” as “an organization of persons having a common interest”); Black’s Law Dictionary 156 (rev. 4th ed.1968) (defining “association” as a “collection of persons who have joined together for a certain object”). Section 1962(c) reinforces this conclusion and also shows that an “enterprise” must have some longevity, since the offense proscribed by that provision demands proof that the enterprise had “affairs” of sufficient duration to permit an associate to “participate” in those affairs through “a pattern of racketeering activity.”

Although an association-in-fact enterprise must have these structural features, it does not follow that a district court must use the term “structure” in its jury instructions. A trial judge has considerable discretion in choosing the language of an instruction so long as the substance of the relevant point is adequately expressed.

“Ascertainable.” Whenever a jury is told that it must find the existence of an element beyond a reasonable doubt, that element must be “ascertainable” or else the jury could not find that it was proved. 2245*2245 Therefore, telling the members of the jury that they had to ascertain the existence of an “ascertainable structure” would have been redundant and potentially misleading.

“Beyond that inherent in the pattern of racketeering activity.” This phrase may be interpreted in least two different ways, and its correctness depends on the particular sense in which the phrase is used. If the phrase is interpreted to mean that the existence of an enterprise is a separate element that must be proved, it is of course correct. As we explained in Turkette, the existence of an enterprise is an element distinct from the pattern of racketeering activity and “proof of one does not necessarily establish the other.”[4] 452 U.S., at 583, 101 S.Ct. 2524.

On the other hand, if the phrase is used to mean that the existence of an enterprise may never be inferred from the evidence showing that persons associated with the enterprise engaged in a pattern of racketeering activity, it is incorrect. We recognized in Turkette that the evidence used to prove the pattern of racketeering activity and the evidence establishing an enterprise “may in particular cases coalesce.” Ibid.

C

The crux of petitioner’s argument is that a RICO enterprise must have structural features in addition to those that we think can be fairly inferred from the language of the statute. Although petitioner concedes that an association-in-fact enterprise may be an “`informal'” group and that “not `much'” structure is needed, Reply Brief for Petitioner 24, he contends that such an enterprise must have at least some additional structural attributes, such as a structural “hierarchy,” “role differentiation,” a “unique modus operandi,” a “chain of command,” “professionalism and sophistication of organization,” “diversity and complexity of crimes,” “membership dues, rules and regulations,” “uncharged or additional crimes aside from predicate acts,” an “internal discipline mechanism,” “regular meetings regarding enterprise affairs,” an “enterprise `name,'” and “induction or initiation ceremonies and rituals.” Id., at 31-35; see also Brief for Petitioner 26-28, 33; Tr. of Oral Arg. 6, 8, 17.

We see no basis in the language of RICO for the structural requirements that petitioner asks us to recognize. As we said in Turkette, an association-in-fact enterprise is simply a continuing unit that functions with a common purpose. 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, 2246*2246 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.

The breadth of the “enterprise” concept in RICO is highlighted by comparing the statute with other federal statutes that target organized criminal groups. For example, 18 U.S.C. § 1955(b), which was enacted together with RICO as part of the Organized Crime Control Act of 1970, 84 Stat. 922, defines an “illegal gambling business” as one that “involves five or more persons who conduct, finance, manage, supervise, direct, or own all or part of such business.” A “continuing criminal enterprise,” as defined in 21 U.S.C. § 848(c), must involve more than five persons who act in concert and must have an “organizer,” supervisor, or other manager. Congress included no such requirements in RICO.

III

A

Contrary to petitioner’s claims, rejection of his argument regarding these structural characteristics does not lead to a merger of the crime proscribed by 18 U.S.C. § 1962(c) (participating in the affairs of an enterprise through a pattern of racketeering activity) and any of the following offenses: operating a gambling business, § 1955; conspiring to commit one or more crimes that are listed as RICO predicate offenses, § 371; or conspiring to violate the RICO statute, § 1962(d).

Proof that a defendant violated § 1955 does not necessarily establish that the defendant conspired to participate in the affairs of a gambling enterprise through a pattern of racketeering activity. In order to prove the latter offense, the prosecution must prove either that the defendant committed a pattern of § 1955 violations or a pattern of state-law gambling crimes. See § 1961(1). No such proof is needed to establish a simple violation of § 1955.

Likewise, proof that a defendant conspired to commit a RICO predicate offense—for example, arson—does not necessarily establish that the defendant participated in the affairs of an arson enterprise through a pattern of arson crimes. Under § 371, a conspiracy is an inchoate crime that may be completed in the brief period needed for the formation of the agreement and the commission of a single overt act in furtherance of the conspiracy. See United States v. Feola, 420 U.S. 671, 694, 95 S.Ct. 1255, 43 L.Ed.2d 541 (1975). Section 1962(c) demands much more: the creation of an “enterprise”—a group with a common purpose and course of conduct—and the actual commission of a pattern of predicate offenses.[5]

Finally, while in practice the elements of a violation of §§ 1962(c) and (d) are similar, this overlap would persist even if petitioner’s conception of an association-in-fact enterprise were accepted.

B

Because the statutory language is clear, there is no need to reach petitioner’s remaining arguments based on statutory purpose, legislative history, or the rule of lenity. In prior cases, we have rejected similar arguments in favor of the clear but 2247*2247 expansive text of the statute. See National Organization for Women, 510 U.S., at 262, 114 S.Ct. 798 (“The fact that RICO has been applied in situations not expressly anticipated by Congress does not demonstrate ambiguity. It demonstrates breadth” (quoting Sedima, 473 U.S., at 499, 105 S.Ct. 3275, brackets and internal quotation marks omitted)); see also Turkette, 452 U.S., at 589-591, 101 S.Ct. 2524. “We have repeatedly refused to adopt narrowing constructions of RICO in order to make it conform to a preconceived notion of what Congress intended to proscribe.” Bridge v. Phoenix Bond & Indemnity Co., 553 U.S. ___, ___, 128 S.Ct. 2131, 2145, 170 L.Ed.2d 1012 (2008); see also, e.g., National Organization for Women, supra, at 252, 114 S.Ct. 798 (rejecting the argument that “RICO requires proof that either the racketeering enterprise or the predicate acts of racketeering were motivated by an economic purpose”); H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 244, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989) (declining to read “an organized crime limitation into RICO’s pattern concept”); Sedima, supra, at 481, 105 S.Ct. 3275 (rejecting the view that RICO provides a private right of action “only against defendants who had been convicted on criminal charges, and only where there had occurred a `racketeering injury'”).

IV

The instructions the District Court judge gave to the jury in this case were correct and adequate. These instructions explicitly told the jurors that they could not convict on the RICO charges unless they found that the Government had proved the existence of an enterprise. See App. 111. The instructions made clear that this was a separate element from the pattern of racketeering activity. Ibid.

The instructions also adequately told the jury that the enterprise needed to have the structural attributes that may be inferred from the statutory language. As noted, the trial judge told the jury that the Government was required to prove that there was “an ongoing organization with some sort of framework, formal or informal, for carrying out its objectives” and that “the various members and associates of the association function[ed] as a continuing unit to achieve a common purpose.” Id., at 112.

Finally, the trial judge did not err in instructing the jury that “the existence of an association-in-fact is oftentimes more readily proven by what it does, rather than by abstract analysis of its structure.” Id., at 111-112. This instruction properly conveyed the point we made in Turkette that proof of a pattern of racketeering activity may be sufficient in a particular case to permit a jury to infer the existence of an association-in-fact enterprise.

We therefore affirm the judgment of the Court of Appeals.

It is so ordered.

Justice STEVENS, with whom Justice BREYER joins, dissenting.

In my view, Congress intended the term “enterprise” as it is used in the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq., to refer only to business-like entities that have an existence apart from the predicate acts committed by their employees or associates. The trial judge in this case committed two significant errors relating to the meaning of that term. First, he instructed the jury that “an association of individuals, without structural hierarchy, form[ed] solely for the purpose of carrying out a pattern of racketeering acts” can constitute an enterprise. App. 112. And he 2248*2248 allowed the jury to find that element satisfied by evidence showing a group of criminals with no existence beyond its intermittent commission of racketeering acts and related offenses. Because the Court’s decision affirming petitioner’s conviction is inconsistent with the statutory meaning of the term enterprise and serves to expand RICO liability far beyond the bounds Congress intended, I respectfully dissent.

I

RICO makes it “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.” § 1962(c). The statute defines “enterprise” to include “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” § 1961(4).

It is clear from the statute and our earlier decisions construing the term that Congress used “enterprise” in these provisions in the sense of “a business organization,” Webster’s Third New International Dictionary 757 (1976), rather than “a `venture,’ `undertaking,’ or `project,'” ante, at 2244 (quoting Webster’s Third New International Dictionary, at 757). First, the terms “individual, partnership, corporation, association, or other legal entity” describe entities with formal legal structures most commonly established for business purposes. § 1961(4). In context, the subsequent reference to any “union or group of individuals associated in fact although not a legal entity” reflects an intended commonality between the legal and nonlegal entities included in the provision. Ibid. (emphasis added). “The juxtaposition of the two phrases suggests that `associated in fact’ just means structured without the aid of legally defined structural forms such as the business corporation.” Limestone Development Corp. v. Lemont, 520 F.3d 797, 804-805 (C.A.7 2008).[1]

That an enterprise must have business-like characteristics is confirmed by the text of § 1962(c) and our decision in Reves v. Ernst & Young, 507 U.S. 170, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993). Section 1962(c) creates liability for “conduct[ing] or participat[ing] … in the conduct of [an] enterprise’s affairs through a pattern of racketeering activity.” In Reves, we examined that provision’s meaning and held that, “[i]n order to `participate, directly or indirectly, in the conduct of such enterprise’s affairs,’ one must have some part in directing those affairs.” Id., at 179, 113 S.Ct. 1163 (quoting § 1962(c)). It is not enough for a defendant to “carry on” or “participate in” an enterprise’s affairs 2249*2249 through a pattern of racketeering activity; instead, evidence that he operated, managed, or directed those affairs is required. See id., at 177-179, 113 S.Ct. 1163. This requirement confirms that the enterprise element demands evidence of a certain quantum of business-like organization— i.e., a system of processes, dealings, or other affairs that can be “directed.”

Our cases also make clear that an enterprise “is an entity separate and apart from the pattern of activity in which it engages.” United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). As with the requirement that an enterprise have business-like characteristics, that an enterprise must have a separate existence is confirmed by § 1962(c) and Reves. If an entity’s existence consisted solely of its members’ performance of a pattern of racketeering acts, the “enterprise’s affairs” would be synonymous with the “pattern of racketeering activity.” Section 1962(c) would then prohibit an individual from conducting or participating in “the conduct of [a pattern of racketeering activity] through a pattern of racketeering activity”—a reading that is unbearably redundant, particularly in a case like this one in which a single pattern of activity is alleged. The only way to avoid that result is to require that an “enterprise’s affairs” be something other than the pattern of racketeering activity undertaken by its members.[2]

Recognizing an enterprise’s business-like nature and its distinctness from the pattern of predicate acts, however, does not answer the question of what proof each element requires. In cases involving a legal entity, the matter of proving the enterprise element is straightforward, as the entity’s legal existence will always be something apart from the pattern of activity performed by the defendant or his associates. Cf. Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 163, 121 S.Ct. 2087, 150 L.Ed.2d 198 (2001). But in the case of an association-in-fact enterprise, the Government must adduce other evidence of the entity’s “separate” existence and “ongoing organization.” Turkette, 452 U.S., at 583, 101 S.Ct. 2524. There may be cases in which a jury can infer that existence and continuity from the evidence used to establish the pattern of racketeering activity. Ibid. But that will be true only when the pattern of activity is so complex that it could not be performed in the absence of structures or processes for planning or concealing the illegal conduct beyond those inherent in performing the predicate acts. More often, proof of an enterprise’s separate existence will require different evidence from that used to establish the pattern of predicate acts.

Precisely what proof is required in each case is a more difficult question, largely 2250*2250 due to the abundant variety of RICO predicates and enterprises. Because covered enterprises are necessarily business-like in nature, however, proof of an association-in-fact enterprise’s separate existence will generally require evidence of rules, routines, or processes through which the entity maintains its continuing operations and seeks to conceal its illegal acts. As petitioner suggests, this requirement will usually be satisfied by evidence that the association has an “ascertainable structure beyond that inherent in the pattern of racketeering activity in which it engages.” Pet. for Cert. i. Examples of such structure include an organizational hierarchy, a “framework for making decisions,” an “internal discipline mechanism,” “regular meetings,” or a practice of “reinvest[ing] proceeds to promote and expand the enterprise.” Reply Brief for Petitioner 31-34. In other cases, the enterprise’s existence might be established through evidence that it provides goods or services to third parties, as such an undertaking will require organizational elements more comprehensive than those necessary to perform a pattern of predicate acts. Thus, the evidence needed to establish an enterprise will vary from case to case, but in every case the Government must carry its burden of proving that an alleged enterprise has an existence separate from the pattern of racketeering activity undertaken by its constituents.

II

In some respects, my reading of the statute is not very different from that adopted by the Court. We agree that “an association-in-fact enterprise must have at least three structural features: a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise’s purpose.” Ante, at 2244. But the Court stops short of giving content to that requirement. It states only that RICO “demands proof that the enterprise had `affairs’ of sufficient duration to permit an associate to `participate’ in those affairs through `a pattern of racketeering activity,'” before concluding that “[a] trial judge has considerable discretion in choosing the language of an instruction” and need not use the term “structure.” Ante, at 2244. While I agree the word structure is not talismanic, I would hold that the instructions must convey the requirement that the alleged enterprise have an existence apart from the alleged pattern of predicate acts. The Court’s decision, by contrast, will allow juries to infer the existence of an enterprise in every case involving a pattern of racketeering activity undertaken by two or more associates.

By permitting the Government to prove both elements with the same evidence, the Court renders the enterprise requirement essentially meaningless in association-in-fact cases. It also threatens to make that category of § 1962(c) offenses indistinguishable from conspiracies to commit predicate acts, see § 371, as the only remaining difference is § 1962(c)’s pattern requirement. The Court resists this criticism, arguing that § 1962(c) “demands much more” than the inchoate offense defined in § 371. Ante, at 2246. It states that the latter “may be completed in the brief period needed for the formation of the agreement and the commission of a single overt act in furtherance of the conspiracy,” whereas the former requires the creation of “a group with a common purpose and course of conduct—and the actual commission of a pattern of predicate offenses.” Ibid. Given that it is also unlawful to conspire to violate § 1962(c), see § 1962(d), this comment provides no assurance that RICO and § 371 offenses remain distinct. Only if proof of the enterprise element—the “group with a common purpose 2251*2251 and course of conduct”—requires evidence of activity or organization beyond that inherent in the pattern of predicate acts will RICO offenses retain an identity distinct from § 371 offenses.

This case illustrates these concerns. The trial judge instructed the jury that an enterprise need have only the degree of organization necessary “for carrying out its objectives” and that it could “find an enterprise where an association of individuals, without structural hierarchy, forms solely for the purpose of carrying out a pattern of racketeering acts.” App. 112.[3] These instructions were plainly deficient, as they did not require the Government to prove that the alleged enterprise had an existence apart from the pattern of predicate acts. Instead, they permitted the Government’s proof of the enterprise’s structure and continuing nature—requirements on which all agree—to consist only of evidence that petitioner and his associates performed a pattern of racketeering activity.

Petitioner’s requested instruction would have required the jury to find that the alleged enterprise “had an ongoing organization, a core membership that functioned as a continuing unit, and an ascertainable structural hierarchy distinct from the charged predicate acts.” Id., at 95. That instruction does not precisely track my understanding of the statute; although evidence of “structural hierarchy” can evidence an enterprise, it is not necessary to establish that element. Nevertheless, the proposed instruction would have better directed the jury to consider whether the alleged enterprise possessed the separate existence necessary to expose petitioner to liability under § 1962(c), and the trial judge should have considered an instruction along those lines.

The trial judge also erred in finding the Government’s evidence in this case sufficient to support petitioner’s RICO convictions. Petitioner was alleged to have participated and conspired to participate in the conduct of an enterprise’s affairs through a pattern of racketeering activity consisting of one act of bank robbery and three acts of interstate transportation of stolen funds. Id., at 15-19. The “primary goals” of the alleged enterprise “included generating money for its members and associates through the commission of criminal activity, including bank robberies, bank burglaries and interstate transportation of stolen money.” Id., at 14. And its modus operandi was to congregate periodically when an associate had a lead on a night-deposit box that the group could break into. Whoever among the associates was available would bring screwdrivers, crowbars, and walkie-talkies to the location. Some acted as lookouts, while others retrieved the money. When the endeavor was successful, the participants would split the proceeds. Thus, the group’s purpose and activities, and petitioner’s participation therein, were limited to sporadic acts of taking money from bank deposit boxes. There is no evidence in RICO’s text or history that Congress intended it to reach such ad hoc associations of thieves.

III

Because the instructions and evidence in this case did not satisfy the requirement that an alleged enterprise have an existence separate and apart from the pattern of activity in which it engages, I respectfully dissent.

[1] The relevant portion of the instructions was as follows:

“The term `enterprise’ as used in these instructions may also include a group of people associated in fact, even though this association is not recognized as a legal entity. Indeed, an enterprise need not have a name. Thus, an enterprise need not be a form[al] business entity such as a corporation, but may be merely an informal association of individuals. A group or association of people can be an `enterprise’ if, among other requirements, these individuals `associate’ together for a purpose of engaging in a course of conduct. Common sense suggests that the existence of an association-in-fact is oftentimes more readily proven by what it does, rather than by abstract analysis of its structure.

“Moreover, you may find an enterprise where an association of individuals, without structural hierarchy, forms solely for the purpose of carrying out a pattern of racketeering acts. Such an association of persons may be established by evidence showing an ongoing organization, formal or informal, and … by evidence that the people making up the association functioned as a continuing unit. Therefore, in order to establish the existence of such an enterprise, the government must prove that: (1) There is an ongoing organization with some sort of framework, formal or informal, for carrying out its objectives; and (2) the various members and associates of the association function as a continuing unit to achieve a common purpose.

“Regarding `organization,’ it is not necessary that the enterprise have any particular or formal structure, but it must have sufficient organization that its members functioned and operated in a coordinated manner in order to carry out the alleged common purpose or purposes of the enterprise.” App. 111-113 (emphasis added).

[2] This provision does not purport to set out an exhaustive definition of the term “enterprise.” Compare §§ 1961(1)-(2) (defining what the terms “racketeering activity” and “State” mean) with §§ 1961(3)-(4) (defining what the terms “person” and “enterprise” include). Accordingly, this provision does not foreclose the possibility that the term might include, in addition to the specifically enumerated entities, others that fall within the ordinary meaning of the term “enterprise.” See H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 238, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989) (explaining that the term “pattern” also retains its ordinary meaning notwithstanding the statutory definition in § 1961(5)).

[3] The dissent claims that the “business-like” limitation “is confirmed by the text of § 1962(c) and our decision in Reves v. Ernst & Young, 507 U.S. 170, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993).” Post, at 2248. Section 1962(c), however, states only that one may not “conduct or participate, directly or indirectly, in the conduct of [an] enterprise’s affairs through a pattern of racketeering activity.” Whatever business-like characteristics the dissent has in mind, we do not see them in § 1962(c). Furthermore, Reves v. Ernst & Young, 507 U.S. 170, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993), is inapposite because that case turned on our interpretation of the participation requirement of § 1962, not the definition of “enterprise.” See id., at 184-185, 113 S.Ct. 1163. In any case, it would be an interpretive stretch to deduce from the requirement that an enterprise must be “directed” to impose the much broader, amorphous requirement that it be “business-like.”

[4] It is easy to envision situations in which proof that individuals engaged in a pattern of racketeering activity would not establish the existence of an enterprise. For example, suppose that several individuals, independently and without coordination, engaged in a pattern of crimes listed as RICO predicates—for example, bribery or extortion. Proof of these patterns would not be enough to show that the individuals were members of an enterprise.

[5] The dissent states that “[o]nly if proof of the enterprise element … requires evidence of activity or organization beyond that inherent in the pattern of predicate acts will RICO offenses retain an identity distinct from § 371 offenses.” Post, at 2250-2251 (opinion of STEVENS, J.). This is incorrect: Even if the same evidence may prove two separate elements, this does not mean that the two elements collapse into one.

[1] To be sure, we have read RICO’s enterprise term broadly to include entities with exclusively noneconomic motives or wholly unlawful purposes. See National Organization for Women, Inc. v. Scheidler, 510 U.S. 249, 252, 114 S.Ct. 798, 127 L.Ed.2d 99 (1994) (NOW); United States v. Turkette, 452 U.S. 576, 580-581, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). But those holdings are consistent with the conclusion that an enterprise is a business-like entity. Indeed, the examples of qualifying associations cited in Turkette—including loan-sharking, property-fencing, drug-trafficking, and counterfeiting operations—satisfy that criterion, as each describes an organization with continuing operations directed toward providing goods or services to its customers. See id., at 589-590, 101 S.Ct. 2524 (citing 84 Stat. 923; 116 Cong. Rec. 592 (1970)). Similarly, the enterprise at issue in NOW was a nationwide network of antiabortion groups that had a leadership counsel and regular conferences and whose members undertook an extensive pattern of extortion, arson, and other racketeering activity for the purpose of “shut[ting] down abortion clinics.” 510 U.S., at 253, 114 S.Ct. 798.

[2] The other subsections of 18 U.S.C. § 1962 further demonstrate the business-like nature of the enterprise element and its necessary distinctness from the pattern of racketeering activity. Subsection (a) prohibits anyone who receives income derived from a pattern of racketeering activity from “us[ing] or invest[ing], directly or indirectly, any part of such income … in acquisition of any interest in, or the establishment or operation of, any enterprise.” And subsection (b) prohibits anyone from “acquir[ing] or maintain[ing]” any interest in or control of an enterprise through a pattern of racketeering activity. We noted in NOW that the term enterprise “plays a different role in the structure” of those subsections than it does in subsection (c) because the enterprise in those subsections is the victim. 510 U.S., at 258-259, 114 S.Ct. 798. We did not, however, suggest that the term has a substantially different meaning in each subsection. To the contrary, our observation that the enterprise in subsection (c) is “the vehicle through which the unlawful pattern of racketeering activity is committed,” id., at 259, 114 S.Ct. 798, indicates that, as in subsections (a) and (b), the enterprise must have an existence apart from the pattern of racketeering activity.

[3] For the full text of the relevant portion of the instructions, see ante, at 2242, n. 1.

Statute of Limitations for RICO Claims

Agency Holding Corp v. Malley- Duff, 483 U.S. 143 (1987)
The Court determined that a 4 year statute of limitations applies to RICO claims.

___________________

AGENCY HOLDING CORP. ET AL.
v.
MALLEY-DUFF & ASSOCIATES, INC.

No. 86-497.

Supreme Court of United States.

Argued April 21, 1987

Decided June 22, 1987[*]
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
144*144 Robert L. Frantz argued the cause for petitioners in No. 86-531. With him on the briefs were Alexander Black and Daniel E. Wille. John H. Bingler, Jr., argued the cause for petitioners in No. 86-497. With him on the briefs was Michael R. Bucci, Jr.

Harry Woodruff Turner argued the cause for respondent in both cases. With him on the brief were David A. Borkovic and Stephen H. Kaufman.[†]

Briefs of amici curiae urging affirmance were filed for A. J. Cunningham Packing Corp. et al. by Michael D. Fishbein and Michael P. Malakoff; and for HMK Corporation by James G. Harrison, Lawrence D. Diehl, Robert A. Blackwood, and G. Robert Blakey.

JUSTICE O’CONNOR delivered the opinion of the Court.

At issue in these consolidated cases is the appropriate statute of limitations for civil enforcement actions under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U. S. C. § 1964 (1982 ed. and Supp. III).

145*145 I

Petitioner Crown Life Insurance Company (Crown Life) is a Canadian corporation engaged in the business of selling life, health, and casualty insurance policies. Respondent Malley-Duff & Associates, Inc. (Malley-Duff), was an agent of Crown Life for a territory in the Pittsburgh area. Crown Life terminated Malley-Duff’s agency on February 13, 1978, after Malley-Duff failed to satisfy a production quota. This case is the second of two actions brought by Malley-Duff following that termination.

In April 1978, Malley-Duff filed its first suit (Malley-Duff I) against the petitioners in the United States District Court for the Western District of Pennsylvania, alleging violations of the federal antitrust laws and a state law claim for tortious interference with contract. See 734 F. 2d 133 (CA3 1984). Before the antitrust action was brought to trial, however, on March 20, 1981, Malley-Duff brought this action (Malley-Duff II) in the same court, alleging causes of action under RICO, 42 U. S. C. § 1985, and state civil conspiracy law. Initially, Malley-Duff II was consolidated with Malley-Duff I, but the two cases were severed before trial. Only the RICO claim of Malley-Duff II is at issue before this Court.

The RICO claim arose out of two alleged incidents. First, Malley-Duff alleges that Crown Life, together with several Crown Life employees and petitioner Agency Holding Corporation formed an enterprise whose purpose was to acquire by false and fraudulent means and pretenses various Crown Life agencies that had lucrative territories. This enterprise allegedly acquired Malley-Duff’s agency by imposing an impossibly high annual production quota on Malley-Duff nine months into fiscal year 1977 and then terminating the agency when Malley-Duff failed to meet this quota. Malley-Duff further alleges that the petitioners used a similar scheme to acquire Crown Life agencies in other cities. Second, Malley-Duff alleges that the petitioners obstructed justice during the course of discovery in Malley-Duff I.

146*146 On July 29, 1982, the petitioners filed a motion for summary judgment. The District Court granted this motion and entered judgment for the petitioners on all counts. The District Court dismissed Malley-Duff’s RICO claims on the ground that they were barred by Pennsylvania’s 2-year statute of limitations period for fraud, 42 Pa. Cons. Stat. § 5524(7) (1982), concluding that this was the best state law analogy for Malley-Duff’s claims. The Court of Appeals for the Third Circuit reversed. In its view, under Wilson v. Garcia, 471 U. S. 261 (1985), Pennsylvania’s “catchall” 6-year residual statute of limitations, § 5527, was the appropriate statute of limitations for all RICO claims arising in Pennsylvania. 792 F. 2d 341 (1986). We granted certiorari, 479 U. S. 983 (1986), to resolve the important question of the appropriate statute of limitations for civil enforcement actions brought under RICO.

II

As is sometimes the case with federal statutes, RICO does not provide an express statute of limitations for actions brought under its civil enforcement provision. Although it has been suggested that federal courts always should apply the state statute of limitations most analogous to each individual case whenever a federal statute is silent on the proper limitations period, see Wilson v. Garcia, supra, at 280 (dissent); DelCostello v. Teamsters, 462 U. S. 151, 174 (1983) (O’CONNOR, J., dissenting), a clear majority of the Court rejected such a single path. Instead, the Court has stated:

“In such situations we do not ordinarily assume that Congress intended that there be no time limit on actions at all; rather, our task is to `borrow’ the most suitable statute or other rule of timeliness from some other source. We have generally concluded that Congress intended that the courts apply the most closely analogous statute of limitations under state law. `The implied absorption of State statutes of limitation within the interstices of the federal enactments is a phase of fashioning 147*147 remedial details where Congress has not spoken but left matters for judicial determination within the general framework of familiar legal principles.’ ” DelCostello v. Teamsters, supra, at 158-159, quoting Holmberg v. Armbrecht, 327 U. S. 392, 395 (1946).

The characterization of a federal claim for purposes of selecting the appropriate statute of limitations is generally a question of federal law, Wilson v. Garcia, supra, at 269-270, and in determining the appropriate statute of limitations, the initial inquiry is whether all claims arising out of the federal statute “should be characterized in the same way, or whether they should be evaluated differently depending upon the varying factual circumstances and legal theories presented in each individual case.” 471 U. S., at 268. Once this characterization is made, the next inquiry is whether a federal or state statute of limitations should be used. We have held that the Rules of Decision Act, 28 U. S. C. § 1652, requires application of state statutes of limitations unless “a timeliness rule drawn from elsewhere in federal law should be applied.” DelCostello v. Teamsters, 462 U. S., at 159, n. 13; see also id., at 174, n. 1 (O’CONNOR, J., dissenting). Given our longstanding practice of borrowing state law, and the congressional awareness of this practice, we can generally assume that Congress intends by its silence that we borrow state law. In some limited circumstances, however, our characterization of a federal claim has led the Court to conclude that “state statutes of limitations can be unsatisfactory vehicles for the enforcement of federal law. In those instances, it may be inappropriate to conclude that Congress would choose to adopt state rules at odds with the purpose or operation of federal substantive law.” DelCostello v. Teamsters, supra, at 161. While the mere fact that state law fails to provide a perfect analogy to the federal cause of action is never itself sufficient to justify the use of a federal statute of limitations, in some circumstances the Court has found it 148*148 more appropriate to borrow limitation periods found in other federal, rather than state, statutes:

“[A]s the courts have often discovered, there is not always an obvious state-law choice for application to a given federal cause of action; yet resort to state law remains the norm for borrowing of limitations periods. Nevertheless, when a rule from elsewhere in federal law clearly provides a closer analogy than available state statutes, and when the federal policies at stake and the practicalities of litigation make that rule a significantly more appropriate vehicle for interstitial lawmaking, we have not hesitated to turn away from state law.” DelCostello v. Teamsters, supra, at 171-172.

See also Occidental Life Ins. Co. of Cal. v. EEOC, 432 U. S. 355 (1977) (adopting federal statute of limitations for Equal Employment Opportunity Commission enforcement actions); McAllister v. Magnolia Petroleum Co., 357 U. S. 221 (1958) (federal limitations period applied to unseaworthiness action under general admiralty law); Holmberg v. Armbrecht, supra (refusing to apply state limitations period to action to enforce federally created equitable right).

Federal courts have not adopted a consistent approach to the problem of selecting the most appropriate statute of limitations for civil RICO claims. Indeed, an American Bar Association task force described the current state of the law regarding the applicable statute of limitations for civil RICO claims as “confused, inconsistent, and unpredictable.” Report of the Ad Hoc Civil RICO Task Force of the ABA Section of Corporation, Banking and Business Law 391 (1985) (hereinafter ABA Report). Some courts have simply used the state limitations period most similar to the predicate offenses alleged in the particular RICO claim. See, e. g., Silverberg v. Thomson McKinnon Securities, Inc., 787 F. 2d 1079 (CA6 1986); Burns v. Ersek, 591 F. Supp. 837 (Minn. 1984). Others, such as the Court of Appeals in this case, have chosen a uniform statute of limitations applicable to all 149*149 civil RICO actions brought within a given State. See, e. g., Tellis v. United States Fidelity & Guaranty Co., 805 F. 2d 741 (CA7 1986); Compton v. Ide, 732 F. 2d 1429 (CA9 1984); Teltronics Services, Inc. v. Anaconda-Ericsson, Inc., 587 F. Supp. 724 (EDNY 1984). The courts, however, have uniformly looked to state statutes of limitations rather than a federal uniform statute of limitations. See ABA Report 387.

We agree with the Court of Appeals that, for reasons similar to those expressed in Wilson v. Garcia, 471 U. S., at 272-275, a uniform statute of limitations should be selected in RICO cases. As Judge Sloviter aptly observed:

“RICO is similar to [42 U. S. C.] § 1983 in that both `encompass numerous and diverse topics and subtopics.’ [Wilson v. Garcia, supra, at 273.] Many civil RICO actions have alleged wire and mail fraud as predicate acts, but 18 U. S. C. § 1961 defines `racketeering activity’ to include nine state law felonies and violations of over 25 federal statutes, including those prohibiting bribery, counterfeiting, embezzlement of pension funds, gambling offenses, obstruction of justice, interstate transportation of stolen property, and labor crimes.” A. J. Cunningham Packing Corp. v. Congress Financial Corp., 792 F. 2d 330, 337 (CA3 1986) (concurring in judgment).

Although the large majority of civil RICO complaints use mail fraud, wire fraud or securities fraud as the required predicate offenses, a not insignificant number of complaints allege criminal activity of a type generally associated with professional criminals such as arson, bribery, theft and political corruption. ABA Report 56-57. As the Court of Appeals noted, “[e]ven RICO claims based on `garden variety’ business disputes might be analogized to breach of contract, fraud, conversion, tortious interference with business relations, misappropriation of trade secrets, unfair competition, usury, disparagement, etc., with a multiplicity of applicable limitations periods.” 792 F. 2d, at 348. Moreover, RICO is designed to remedy injury caused by a pattern of racketeering, 150*150 and “[c]oncepts such as RICO `enterprise’ and `pattern of racketeering activity’ were simply unknown to common law.” Ibid.

Under these circumstances, therefore, as with § 1983, a uniform statute of limitations is required to avoid intolerable “uncertainty and time-consuming litigation.” Wilson v. Garcia, 471 U. S., at 272. This uncertainty has real-world consequences to both plaintiffs and defendants in RICO actions. “Plaintiffs may be denied their just remedy if they delay in filing their claims, having wrongly postulated that the courts would apply a longer statute. Defendants cannot calculate their contingent liabilities, not knowing with confidence when their delicts lie in repose.” Id., at 275, n. 34. It is not surprising, therefore, that the petitioners no less than the respondent support the adoption of a uniform statute of limitations. See Brief for Petitioners in No. 86-497, p. 17; Brief for Petitioners in No. 86-531, p. 12.

Unlike § 1983, however, we believe that it is a federal statute that offers the closest analogy to civil RICO. The Clayton Act, 38 Stat. 731, as amended, 15 U. S. C. § 15, offers a far closer analogy to RICO than any state law alternative. Even a cursory comparison of the two statutes reveals that the civil action provision of RICO was patterned after the Clayton Act. The Clayton Act provides:

“Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States . . . and shall recover threefold the damages by him sustained, and the cost of suit including a reasonable attorney’s fee.” 15 U. S. C. § 15(a).

RICO’s civil enforcement provision provides:

“Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and 151*151 the cost of the suit, including a reasonable attorney’s fee.” 18 U. S. C. § 1964(c).

Both RICO and the Clayton Act are designed to remedy economic injury by providing for the recovery of treble damages, costs, and attorney’s fees. Both statutes bring to bear the pressure of “private attorneys general” on a serious national problem for which public prosecutorial resources are deemed inadequate; the mechanism chosen to reach the objective in both the Clayton Act and RICO is the carrot of treble damages. Moreover, both statutes aim to compensate the same type of injury; each requires that a plaintiff show injury “in his business or property by reason of” a violation.

The close similarity of the two provisions is no accident. The “clearest current” in the legislative history of RICO “is the reliance on the Clayton Act model.” Sedima, S. P. R. L. v. Imrex Co., 473 U. S. 479, 489 (1985). As early as 1967, Senator Hruska had proposed bills that would use “the novel approach of adapting antitrust concepts to thwart organized crime.” ABA Report 78. As Senator Hruska explained:

“The antitrust laws now provide a well established vehicle for attacking anticompetitive activity of all kinds. They contain broad discovery provisions as well as civil and criminal sanctions. These extraordinarily broad and flexible remedies ought to be used more extensively against the `legitimate’ business activities of organized crime.” 113 Cong. Rec. 17999 (1967).

The American Bar Association’s Antitrust Section agreed that “[t]he time tested machinery of the antitrust laws contains several useful and workable features which are appropriate for use against organized crime,” including the use of treble-damages remedies. 115 Cong. Rec. 6995 (1969).

The use of an antitrust model for the development of remedies against organized crime was unquestionably at work when Congress later considered the bill that eventually became 152*152 RICO. That bill, introduced by Senators McClellan and Hruska in 1969, did not, in its initial form, include a private civil enforcement provision. Representative Steiger, however, proposed the addition of a private treble-damages action “similar to the private damage remedy found in the anti-trust laws.” Hearings on S. 30, and Related Proposals, before Subcommittee No. 5 of the House Committee on the Judiciary, 91st Cong., 2d Sess., 520 (1970). During these same hearings, the American Bar Association proposed an amendment “to include the additional civil remedy of authorizing private damage suits based upon the concept of Section 4 of the Clayton Act” that would adopt a treble-damages civil remedy. Id., at 543-544. The Committee approved the amendment, and the full House approved a bill that included the civil enforcement remedy. During the House debates, the bill’s sponsor described the civil enforcement remedy as “another example of the antitrust remedy being adapted for use against organized criminality,” 116 Cong. Rec. 35295 (1970), and Representative Steiger stated that he viewed the RICO civil enforcement remedy as a “parallel private. . . remed[y]” to the Clayton Act. Id., at 27739 (letter to House Judiciary Committee).

Together with the similarities in purpose and structure between RICO and the Clayton Act, the clear legislative intent to pattern RICO’s civil enforcement provision on the Clayton Act strongly counsels in favor of application of the 4-year statute of limitations used for Clayton Act claims. 15 U. S. C. § 15b. This is especially true given the lack of any satisfactory state law analogue to RICO. While “[t]he atrocities” that led Congress to enact 42 U. S. C. § 1983 “plainly sounded in tort,” Wilson v. Garcia, 471 U. S., at 277, there is no comparable single state law analogue to RICO. As noted above, the predicate acts that may establish racketeering activity under RICO are far ranging, and unlike § 1983, cannot be reduced to a single generic characterization. The Court of Appeals, therefore, selected Pennsylvania’s “catchall” 153*153 statute of limitations. In Wilson v. Garcia, supra, at 278, we rejected the use of a “catchall” statute of limitations because we concluded that it was unlikely that Congress would have intended such a statute of limitations to apply. Furthermore, not all States have a “catchall” statute of limitations, see ABA Report 391, and the absence of such a statute in some States “distinguishes the RICO choice from the § 1983 choice made in Wilson v. Garcia.” A. J. Cunningham Packing Corp. v. Congress Financial Corp., 792 F. 2d, at 339 (Sloviter, J., concurring in judgment). While we concluded in Wilson v. Garcia that characterization of all § 1983 actions as personal injury claims minimized the risk that the choice of a state limitations period “would not fairly serve the federal interests vindicated by § 1983,” 471 U. S., at 279, “a similar statement could not be made with confidence about RICO and state statutory `catch alls.’ ” A. J. Cunningham Packing Corp. v. Congress Financial Corp., 792 F. 2d, at 339. Any selection of a state statute of limitations in those States without a catchall statute would be wholly at odds with the Court of Appeals’ recognition of the sui generis nature of RICO. Ibid.

The federal policies at stake and the practicalities of litigation strongly suggest that the limitations period of the Clayton Act is a significantly more appropriate statute of limitations than any state limitations period. JUSTICE SCALIA recognizes that under his preferred approach to the question before us a federal statute “may be sufficient to pre-empt a state statute that discriminates against federal rights or is too short to permit the federal right to be vindicated.” Post, at 162. In our view the practicalities of RICO litigation present equally compelling reasons for federal pre-emption of otherwise available state statutes of limitations even under JUSTICE SCALIA’S approach. As this case itself illustrates, RICO cases commonly involve interstate transactions, and conceivably the statute of limitations of several States could govern any given RICO claim. Indeed, some nexus to interstate 154*154 or foreign commerce is required as a jurisdictional element of a civil RICO claim, 18 U. S. C. §§ 1962(b) and (c), and the heart of any RICO complaint is the allegation of a pattern of racketeering. Thus, predicate acts will often occur in several States. This is in marked contrast to the typical § 1983 suit, in which there need not be any nexus to interstate commerce, and which most commonly involves a dispute wholly within one State. The multistate nature of RICO indicates the desirability of a uniform federal statute of limitations. With the possibility of multiple state limitations, the use of state statutes would present the danger of forum shopping and, at the very least, would “virtually guarante[e]. . . complex and expensive litigation over what should be a straightforward matter.” ABA Report 392. Moreover, application of a uniform federal limitations period avoids the possibility of the application of unduly short state statutes of limitations that would thwart the legislative purpose of creating an effective remedy. Ibid.; see also DelCostello v. Teamsters, 462 U. S., at 166, 167-168 (concluding that the federal statute of limitations was appropriate because state limitation periods were too short).

The petitioners, however, suggest that the legislative history reveals that Congress specifically considered and rejected a uniform federal limitations period. The petitioners note that Representative Steiger offered a comprehensive amendment that, together with six other provisions, included a proposed 5-year statute of limitations. 116 Cong. Rec. 35346 (1970). Congress did not “reject” this proposal, however. Instead, Representative Steiger voluntarily withdrew the proposed amendment immediately after it was introduced so that it could be referred to the House Judiciary Committee for study. Id., at 35346-35347. The reason for the reference to the House Judiciary Committee had absolutely nothing to do with the proposed statute of limitations. Instead, the amendment had included yet another civil remedy, and Representative Poff observed that “prudence would dictate 155*155 that the Judiciary Committee very carefully explore the potential consequences that this new remedy might have.” Id., at 35346. Under these circumstances, we are unable to find any congressional intent opposing a uniform federal statute of limitations. The petitioners also point to the fact that a predecessor bill to RICO introduced by Senator Hruska, S. 1623, included a 4-year statute of limitations. 115 Cong. Rec. 6996 (1969). Senator Hruska, however, dropped his support for this bill in order to introduce with Senator McClellan the bill that eventually became RICO. See ABA Report 87. The reason that this new bill did not include a statute of limitations is simple, and in no way even remotely suggests the rejection of a uniform federal statute of limitations: the new bill included no private treble-damages remedy, and thus obviously had no need for a limitations period. Id., at 88. Finally, the petitioners cite the inclusion of a statute of limitations provision in S. 16, the Civil Remedies for Victims of Racketeering Activity and Theft Act of 1972, which would have amended § 1964 of RICO but was not enacted. 118 Cong. Rec. 29368 (1972). This proposed bill, however, was not focused on the addition of a statute of limitations. Instead, the purpose of the bill was to broaden even further the remedies available under RICO. In particular, it would have authorized the United States itself to sue for damages and to intervene in private damages actions, and it would have further permitted private actions for injunctive relief. Congress’ failure to enact this proposal, therefore, cannot be read as a rejection of a uniform federal statute of limitations.

We recognize that there is also available the 5-year statute of limitations for criminal prosecutions under RICO. See 18 U. S. C. § 3282. This statute of limitations, however, is the general “catchall” federal criminal statute of limitations. RICO itself includes no express statute of limitations for either civil or criminal remedies, and the 5-year statute of limitations applies to criminal RICO prosecutions only because 156*156 Congress has provided such a criminal limitations period when no other period is specified. Thus, the 5-year statute of limitations for criminal RICO actions does not reflect any congressional balancing of the competing equities unique to civil RICO actions or, indeed, any other federal civil remedy. In our view, therefore, the Clayton Act offers the better federal law analogy.

JUSTICE SCALIA accepts our conclusion that state statutes of limitations are inappropriate for civil RICO claims, but concludes that if state codes fail to furnish an appropriate limitations period, there is none to apply. Post, at 170. As this Court observed in Wilson v. Garcia, 471 U. S., at 271, however:

“A federal cause of action `brought at any distance of time’ would be `utterly repugnant to the genius of our laws.’ Adams v. Woods, 2 Cranch 336, 342 (1805). Just determinations of fact cannot be made when, because of the passage of time, the memories of witnesses have faded or evidence is lost. In compelling circumstances, even wrongdoers are entitled to assume that their sins may be forgotten.”

In sum, we conclude that there is a need for a uniform statute of limitations for civil RICO, that the Clayton Act clearly provides a far closer analogy than any available state statute, and that the federal policies that lie behind RICO and the practicalities of RICO litigation make the selection of the 4-year statute of limitations for Clayton Act actions, 15 U. S. C. § 15b, the most appropriate limitations period for RICO actions.

This litigation was filed on March 20, 1981, less than four years after the earliest time Malley-Duff’s RICO action could have accrued — i. e., the date of Malley-Duff’s termination on February 13, 1978. Accordingly the litigation was timely brought. Because it is clear that Malley-Duff’s RICO claims accrued within four years of the time the complaint was filed, 157*157 we have no occasion to decide the appropriate time of accrual for a RICO claim.

The judgment of the Court of Appeals is

Affirmed.

JUSTICE SCALIA, concurring in the judgment.

The Court today continues on the course adopted in DelCostello v. Teamsters, 462 U. S. 151 (1983), and concludes that although Congress has enacted no federal limitations period for civil actions for damages brought under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U. S. C. § 1964 (1982 ed. and Supp. III), it will supply one by “borrowing” the 4-year statute of limitations applicable to suits under the Clayton Act. 15 U. S. C. § 15b. While at first glance it may seem a small step from the familiar practice of borrowing state statutes of limitations to today’s decision to borrow a federal one, in my view it turns out to be a giant leap into the realm of legislative judgments. I therefore cannot join the Court’s opinion.

I

The issue presented by this case cannot arise with respect to federal criminal statutes, as every federal offense is governed by an express limitations period. If no statute specifically defines a limitations period (or prescribes the absence of a limitations period, see 18 U. S. C. § 3281) for a particular offense, a “catchall” statute operates to forbid prosecution, trial, or punishment “unless the indictment is found or the information is instituted within five years next after such offense shall have been committed.” § 3282. Congress has not provided that kind of a default limitations period, however, for federal civil suits; and since it has long been enacting civil statutes without express limitations periods, courts have long been wrestling with the problem of determining what, if any, limitations periods to apply. Prior to DelCostello, the virtually uniform practice was to look to applicable state statutes of limitations. Indeed, we departed 158*158 from that practice only when the applicable state limitations period would have frustrated the policy of the federal statute, concluding that in such a case no limitations period governs the suit. See Occidental Life Ins. Co. of Cal. v. EEOC, 432 U. S. 355, 361, 366-372 (1977). Until DelCostello, we never responded to legislative silence by applying a limitations period drawn from a different federal statute.

To understand why this new practice differs from — and is less legitimate than — the practice of borrowing state statutes, it is necessary to understand the two-phase history through which the earlier practice developed. It is in turn essential to that understanding to recognize that certain common conceptions about the borrowing of state limitations statutes are mistaken. As Part I-A explains in more detail, the very label used to describe that practice — “borrowing” — is misleading. In its original form, during what I term the “first phase” of the borrowing doctrine, our practice of applying state law in reality involved no borrowing at all; rather, we applied state limitations periods to federal causes of action because we believed that those state statutes applied of their own force, unless pre-empted by federal law. In the “second phase” of our development of the borrowing doctrine, we approached the issue rather differently. Whereas we had originally focused on the federal statute creating the cause of action only for purposes of our pre-emption inquiry — i. e., in order to ascertain whether the otherwise applicable state statute of limitations conflicted with the federal statute’s terms or purposes — we later came to believe that the federal statute itself was the source of our obligation to apply state law. That is, instead of treating Congress’ silence on the limitations question as a failure to pre-empt state law, we came to treat it as an affirmative directive to borrow state law. In my view, that deviation from the “first phase” approach was an analytical error. It has led in turn to the further error the Court commits (or compounds) today in deciding to treat congressional silence as a directive to borrow a 159*159 limitations period from a different federal statute. Today’s error is by far the more serious of the two. As the history outlined above (and discussed in detail below) suggests, the borrowing of state statutes on the erroneous ground of congressional intent has a basis in, and to a reasonable degree approximates the results of, the approach that I think is correct as an original matter. The same cannot be said for the borrowing of federal statutes.

A

The analysis representing the “first phase” of the borrowing doctrine is exemplified by McCluny v. Silliman, 3 Pet. 270 (1830), the first case presenting the question of what limitations period, if any, applies to a claim having its source in federal law when federal law does not specify the applicable time limit. Plaintiff-in-error McCluny had sought to purchase land under a federal statute providing for the sale of lands owned by the United States, but the register, a federal officer, had refused his tendered payment. McCluny then brought an action for trespass on the case in the Circuit Court for the District of Ohio, arguing that the register had wrongfully withheld the land, causing him $50,000 in damages. The register prevailed below on the ground that the Ohio statute of limitations governing actions for trespass on the case barred plaintiff’s suit. McCluny argued that the Circuit Court had erred. The Ohio limitations statute, he contended, had no application in a suit brought in federal court against a federal officer for violation of a right conferred by an Act of Congress, not because Congress did not intend so (an issue raised by neither party to the dispute) but because the Ohio Legislature did not intend so. Id., at 270-274. We agreed with McCluny that the issue was whether the statute applied as a matter of Ohio law, see id., at 276 (“The decision in this cause depends upon the construction of the statute of Ohio”), but agreed with the register that under Ohio law, the statute applied. We reasoned that while it 160*160 was doubtless true that Ohio had not contemplated that its statute would govern such actions, by framing it to apply to all actions for trespass on the case the legislature had designed the statute to cover numerous torts not specifically within its contemplation. Id., at 277-278. At no point did we even question Ohio’s power to enact statutes of limitations applicable to federal rights, so long as Congress had not provided otherwise. Rather, we simply noted that it was “well settled” that such statutes are “the law of the forum, and operat[e] upon all who submit themselves to its jurisdiction.” Id., at 276-277. In the course of our opinion, we also mentioned the Rules of Decision Act, which provides:

“[T]he laws of the several states, except where the constitution, treaties, or statutes of the United States shall otherwise require or provide, shall be regarded as rules of decision in trials at common law in the courts of the United States in cases where they apply.” § 34, Judiciary Act of 1789, 1 Stat. 92, codified, as amended, at 28 U. S. C. § 1652.

But we discussed that statute not as the source of Ohio’s power, but as confirmation of it where “no special provision had been made by congress,” 3 Pet., at 277.

McCluny is an odd case to modern ears, because although a federal statute was clearly the source of McCluny’s claim of right, it did not expressly create his cause of action. Yet neither the parties nor the Court raised the question we would certainly ask today: whether the federal statute gave him an “implied right” to sue. Instead McCluny simply brought an action seeking a common-law writ of trespass on the case. That feature of the case leaves open the argument that our acceptance of Ohio’s power to pass limitations periods applicable to federal rights was based on the fact that the cause of action itself came from the common law rather than a federal statute.

That argument, however, was rejected in Campbell v. Haverhill, 155 U. S. 610 (1895), where we were faced with the 161*161 question whether to apply to a suit for patent infringement a Massachusetts statute of limitations requiring actions for tort to be brought within six years. In patent infringement suits, both the right and the cause of action were created by congressional legislation, and the federal courts had exclusive jurisdiction. Accordingly, it was argued that “the States, having no power to create the right or enforce the remedy, have no power to limit such remedy or to legislate in any manner with respect to the subject matter.” Id., at 615. We replied that “this is rather to assert a distinction than to point out a difference,” ibid., and that in the absence of congressional provision to the contrary, the States had the power to pass statutes of limitations that apply neutrally to federal rights, id., at 614-615, 618-620 (although they might not have the power to enact statutes that discriminated against federal rights or provided excessively short time periods for bringing suit, id., at 614-615).[1]

B

These early cases provide the foundation for a reasonably coherent theory about the application of state statutes of limitations to federal statutory causes of action. First, state statutes of limitations whose terms appear to cover federal statutory causes of action apply as a matter of state law to such claims, even though the state legislature that enacted the statutes did not have those claims in mind. McCluny, supra, at 277-278. Second, imposition of limitations periods on federal causes of action is within the States’ powers, if not pre-empted by Congress. Campbell v. Haverhill, supra, at 162*162 614-615, 618-620; McCluny, 3 Pet., at 276-277. Third, the obligation to apply state statutes of limitations does not spring from Congress’ intent in enacting the federal statute; rather, that intent is relevant only to the question whether the state limitations period had been pre-empted by Congress’ failure to provide one. Campbell v. Haverhill, supra, at 616. Fourth, congressional silence on the limitations issue is ordinarily insufficient to pre-empt state statutes; “special provision” by Congress is required to do that. Ibid.; McCluny, supra, at 277. Fifth, the federal statute — its substantive provisions rather than its mere silence — may be sufficient to pre-empt a state statute that discriminates against federal rights or is too short to permit the federal right to be vindicated. Campbell v. Haverhill, supra, at 614-615.

As to the role of the Rules of Decision Act: Although Campbell v. Haverhill in particular is not clear on the question, the Rules of Decision Act plays no role in deriving the first two principles stated above. It directs federal courts to follow state laws only “in cases where they apply,” which federal courts would be required to do even in the absence of the Act. That is clear not only from the borrowing cases, but also from other early opinions of this Court displaying the clear understanding that the Act did not make state laws applicable to any new classes of cases. See Hawkins v. Barney’s Lessee, 5 Pet. 457, 464 (1831) (the Rules of Decision Act “has been uniformly held to be no more than a declaration of what the law would have been without it: to wit, that the lex loci must be the governing rule of private right, under whatever jurisdiction private right comes to be examined”); Bank of Hamilton v. Dudley’s Lessee, 2 Pet. 492, 525-526 (1829) (“The laws of the states . . . would be . . . regarded [as rules of decision in the courts of the United States] independent of that special enactment”); Hill, The Erie Doctrine in Bankruptcy, 66 Harv. L. Rev. 1013, 1026, 1035 (1953); see also Jackson v. Chew, 12 Wheat. 153, 162 (1827) (holding that the Supreme Court would follow rules of property law settled 163*163 by state-court decisions without mentioning the Rules of Decision Act); Shelby v. Guy, 11 Wheat. 361, 367 (1826) (holding that the Court was required to follow state statutes and their construction by state courts because of its duty to administer the laws of the respective States, without mentioning the Rules of Decision Act). In fact, because the Act required application of future state laws as well as those in effect at the time of its passage, it would have been considered open to serious constitutional challenge as an improper delegation of congressional legislative power to the States had it been anything other than declaratory on that point. See Wayman v. Southard, 10 Wheat. 1, 47-48 (1825).

Thus, the Act changes the analysis of the question whether a federal court should look to state law only insofar as it provides the basis for the fourth principle. Its directive to federal courts to apply state law unless federal law otherwise “requires or provides” creates a presumption against implicit pre-emption which must be rebutted by affirmative congressional action, except for the implicit preclusion of state statutes that discriminate against federal claims or provide too short a limitations period to permit vindication of the federal right.

II

So understood, the borrowing doctrine involves no borrowing at all. Instead, it only requires us to engage in two everyday interpretive exercises: the determination of which state statute of limitations applies to a federal claim as a matter of state law, and the determination of whether the federal statute creating the cause of action pre-empts that state limitations period. We need not embark on a quest for an “appropriate” statute of limitations except to the limited extent that making those determinations may entail judgments as to which statute the State would believe “appropriate” and as to whether federal policy nevertheless makes that statute “inappropriate.” Finally, if we determine that the state limitations period that would apply under state law is pre-empted 164*164 because it is inconsistent with the federal statute, that is the end of the matter, and there is no limitation on the federal cause of action.

In my view, that is the best approach to the question before us, and if a different historical practice had not intervened I would adhere to it. See also DelCostello v. Teamsters, 462 U. S., at 172-174 (STEVENS, J., dissenting). For many years, however, we have used a different analysis. In the second phase of development of the borrowing doctrine, perhaps forgetting its origins, the Court adopted the view that we borrow the “appropriate” state statute of limitations when Congress fails to provide one because that is Congress’ directive, implied by its silence on the subject. See Automobile Workers v. Hoosier Cardinal Corp., 383 U. S. 696, 706 (1966); Holmberg v. Armbrecht, 327 U. S. 392, 395 (1946).[2] As an original matter, that is not a very plausible interpretation of congressional silence. If one did not believe that state limitations periods applied of their own force, the most natural intention to impute to a Congress that enacted no limitations period would be that it wished none. However, after a century and a half of the Court’s reacting to congressional silence by applying state statutes — first for the right 165*165 reason, then for the wrong one — by now at least it is reasonable to say that such a result is what Congress must expect, and hence intend, by its silence. The approach therefore has some legitimacy, and in any event generally produces the same results as the one I believe to be correct.[3]

III

As JUSTICE O’CONNOR pointed out in her dissent in DelCostello, however, if we are serious about this “congressional intent” justification for the borrowing doctrine, we should at least require some evidence of actual alternation of that intent before departing from it. See 462 U. S., at 174-175 (O’CONNOR, J., dissenting). For if the basis of the rule is, in some form, that Congress knows that we will borrow state statutes of limitations unless it directs otherwise, it also knows that it 166*166 has to direct otherwise if it wants us to do something else. In addition, as under our former approach, should we discover that there is no appropriate state statute to borrow, because all the available ones run afoul of federal policy, we ought to conclude that there is no limitations period.

In the case before us, however, the Court does not require any showing of actual congressional intent at all before departing from our practice of borrowing state statutes, prowling hungrily through the Statutes at Large for an appetizing federal limitations period, and pouncing on the Clayton Act. Of course, a showing of actual congressional intent that we depart from tradition and borrow a federal statute is quite impossible. Under ordinary principles of construction, the very identity between the language and structure of the Clayton Act’s and RICO’s private civil-remedy provisions relied on by the Court as arguments for borrowing 15 U. S. C. § 15b, would, when coupled with Congress’ enactment of a limitations period for the former and failure to enact one for the latter, demonstrate — if any intent to depart from the state borrowing rule — a desire for no limitations period at all. The same is suggested by the legislative history discussed by the Court, showing that Congress has passed up several opportunities to impose a federal limitations period on civil RICO claims, ante, at 154-155. The Court avoids the troublesome requirement of finding a congressional intent to depart from state borrowing by the simple expedient of reformulating the rule, transforming it from a presumption that congressional silence means that we should apply the appropriate state limitations period into a presumption that congressional silence means we should apply the appropriate limitations period, state or federal. I cannot go along with this, for two reasons.

First, I can find no legitimate source for the new rule. Whereas our prior practice provides some basis for arguing that when Congress creates a civil cause of action without a limitations period, it expects and intends application of an 167*167 appropriate state statute, there is no basis whatsoever for arguing that its silence signifies that the most appropriate statute, state or federal, should be borrowed. To the contrary, all available evidence indicates that when Congress intends a federal limitations period for a civil cause of action, it enacts one — for example, 15 U. S. C. § 15b itself. The possibility of borrowing a federal statute of limitations did not occur to any of the parties in this litigation until it was suggested by a concurring judge in the Court of Appeals, see 792 F. 2d 341, 356 (CA3 1986), and all of the Federal Courts of Appeals that have passed on the issue of the appropriate RICO limitations period have applied state statutes. See 792 F. 2d 341 (1986) (case below); Cullen v. Margiotta, 811 F. 2d 698 (CA2 1987); La Porte Construction Co. v. Bayshore National Bank, 805 F. 2d 1254 (CA5 1986); Silverberg v. Thomson McKinnon Securities, Inc., 787 F. 2d 1079 (CA6 1986); Tellis v. United States Fidelity & Guaranty Co., 805 F. 2d 741 (CA7 1986); Alexander v. Perkin Elmer Corp., 729 F. 2d 576 (CA8 1984); Compton v. Ide, 732 F. 2d 1429 (CA9 1984); Hunt v. American Bank & Trust Co., 783 F. 2d 1011 (CA11 1986). It is extremely unlikely that Congress expected anything different. Moreover, had our prior rule been that a federal statute should be borrowed if appropriate, the considerations the Court advances as to why that is the right course here — that it will promote uniformity and avoid litigation, and that there are differences between the federal action and the actions covered by state statutes — would have been sufficient to warrant selection of a federal limitations period for almost any federal statute, a conclusion plainly inconsistent with the results of our cases.[4]

168*168 Second, as the case before us demonstrates, the new rule involves us in a very different kind of enterprise from that required when we borrow state law. In general, the type of decision we face in the latter context is how to choose among various statutes of limitations, each of which was intended by the state legislature to apply to a whole category of causes of action. Federal statutes of limitations, on the other hand, are almost invariably tied to specific causes of action. The first consequence of this distinction is that in practice the inquiry as to which state statute to select will be very close to the traditional kind of classification question courts deal with all the time. Thus, for example, if a federal statute creates a cause of action that has elements of tort and contract, we may frame the question of which statute to apply as whether it is more “appropriate” to apply the State’s tort or contract limitations period. In reality, however, rather than examine whether the policies of the federal statute are better served by one limitations period than the other, we will generally answer 169*169 that question by determining whether the federal cause of action should be classified as sounding in tort or contract. See, e. g., Goodman v. Lukens Steel Co., 482 U. S. 656, 662 (1987) (42 U. S. C. § 1981 actions sound in tort); id., at 670 (BRENNAN, J., dissenting) (§ 1981 actions sound in contract). In deciding whether to borrow a federal statute that clearly does not apply by its terms, however, we genuinely will have to determine whether, for example, the Clayton Act’s limitations period will better serve the policies underlying civil actions under RICO than the limitations period covering criminal actions under RICO, or whether either will do the job better than state limitations upon actions for economic injury. That seems to me to be quintessentially the kind of judgment to be made by a legislature. See generally Wilcox v. Fitch, 20 Johns. *472, *475 (N. Y. 1823) (limitations are creatures of statute, and did not exist at common law); Wall v. Robson, 2 Nott & McCord 498, 499 (S. C. 1820) (same); 2 E. Coke, Institutes 95 (6the ed. 1680).

The second consequence of the generality of state statutes of limitations versus the particularity of federal ones is that in applying a state statute, we do not really have to make a new legislative judgment. The state legislature will already have made the judgment that, for example, in contract actions, a certain balance should be struck between “protecting valid claims . . . [and] prohibiting the prosecution of stale ones.” Johnson v. Railway Express Agency, 421 U. S. 454, 464 (1975). That judgment will have been made in the knowledge that it will apply to a broad range of contractual matters, some of which the legislature has not specifically contemplated. That is not true of a federal statute enacted with reference to a particular cause of action, such as the one for the Clayton Act. The Court is clearly aware of this difficulty. It declines to apply 18 U. S. C. § 3282, the general 5-year criminal statute of limitations, on the ground that it “does not reflect any congressional balancing of the competing equities unique to civil RICO actions.” Ante, at 156. 170*170 That objection should also, however, lead it to reject a 4-year limitations period, which clearly reflects only the balance of equities Congress deemed appropriate to the Clayton Act.

* * *

Thus, while I can accept the reasons the Court gives for refusing to apply state statutes of limitations to the civil RICO claim at issue here, ante, at 152-154, they lead me to a very different conclusion from that reached by the Court. I would hold that if state codes do not furnish an “appropriate” limitations period, there is none to apply. Such an approach would promote uniformity as effectively as the borrowing of a federal statute, and would do a better job of avoiding litigation over limitations issues than the Court’s approach. That was the view we took in Occidental Life Ins. Co. of Cal. v. EEOC, 432 U. S. 355 (1977), as to Title VII civil enforcement actions, unmoved by the fear that that conclusion might prove ” ` “repugnant to the genius of our laws.” ‘ ” Ante, at 156, quoting Wilson v. Garcia, 471 U. S. 261, 271 (1985), in turn quoting Adams v. Woods, 2 Cranch 336, 342 (1805).[5] See also 18 U. S. C. § 3281 (no limitations period for federal capital offenses). Indeed, it might even prompt Congress to enact a limitations period that it believes “appropriate,” a judgment far more within its competence than ours.

[*] Together with No. 86-531, Crown Life Insurance Co. et al. v. Malley-Duff & Associates, Inc., also on certiorari to the same court.

[†] David P. Bruton and Eric A. Schaffer filed a brief for Congress Financial Corporation et al. as amici curiae urging reversal.

[1] Although the opinion states that the Rules of Decision Act requires us to apply state statutes, 155 U. S., at 614, and therefore appears to suggest that the Act rather than the state laws themselves was the source of our obligation to do so, a careful reading of the opinion belies that interpretation. Because the Act directs the federal courts to regard state laws as rules of decision only “in cases where they apply,” the parties and the Court treated the questions of the applicability of the Act and the applicability of state law of its own force as interchangeable.

[2] Thus, although we did not squarely reject our earlier approach until DelCostello v. Teamsters, 462 U. S. 151 (1983), the Court correctly argued in that case that our way of analyzing the issue had changed before then. Id., at 159-160, n. 13. Contrary to the DelCostello Court’s claim, however, neither our decision in Erie R. Co. v. Tompkins, 304 U. S. 64 (1938), nor the Rules of Decision Act scholarship underlying it in any way required that change. Neither remotely established that that statute applies only in diversity cases. See Hill, The Erie Doctrine in Bankruptcy, 66 Harv. L. Rev. 1013, 1033-1034 (1953); see also DelCostello v. Teamsters, supra, at 173, n. 1 (STEVENS, J., dissenting) (noting that ” `the [Act] itself neither contains nor suggests . . . a distinction’ ” between diversity and federal-question cases, quoting Campbell v. Haverhill, 155 U. S. 610, 616 (1895)); Friendly, In Praise of Erie — And of the New Federal Common Law, 39 N. Y. U. L. Rev. 383, 408, n. 122 (1964) (characterizing the view that Erie requires application of state law only in diversity cases as an “oftencountered heresy”).

[3] It need not always produce the same results, because the implicit directive attributed to Congress is not (as the old approach provided) that the courts apply the statute of limitations that the State deemed appropriate, but rather that the courts instead determine which state limitations period will best serve the policies of the federal statute. See, e. g., Automobile Workers v. Hoosier Cardinal Corp., 383 U. S. 696, 706 (1966); cf. Wilson v. Garcia, 471 U. S. 261, 268-269 (1985). Imagine, for example, a federal statute with no limitations period creating a cause of action in favor of handicapped persons discriminated against in the making of contracts. If a State had two statutes of limitations, one covering tortious personal injury, and one covering tortious economic injury, under the old approach the question would have been whether the federal statutory cause of action was an action for personal or economic injury. Under the new approach the question, at least in theory, is whether application of the personal injury or economic injury statute best serves the policies of the federal Act.

Second, even before conducting pre-emption analysis, the old approach can lead to the conclusion that state law supplies no statute of limitations. For example, that would be true in the case of our hypothetical federal statute if a State had limitations periods only for assault and battery. The new approach, however, should never lead to that conclusion, because we have already made the determination that federal law directs us to borrow some limitations period, and the only question is which one.

In fact, however, our analysis under the new approach has not been ruthlessly faithful to its logic, so that it has turned out in practice to be almost indistinguishable from the old approach. See infra, at 168-169.

[4] Even DelCostello does not fully support the Court’s reformulation in the present opinion. It specifically noted that “our holding today should not be taken as a departure from prior practice in borrowing limitations periods for federal causes of action” and that it did “not mean to suggest that federal courts should eschew use of state limitations periods anytime state law fails to provide a perfect analogy.” 462 U. S., at 171. It also involved borrowing a federal statute that was arguably applicable by its own terms. Id., at 170. In any event, to the extent our decision here rests on our interpretation of congressional intent, the Court’s conclusion in that case that Congress intended § 10(b) of the National Labor Relations Act, 29 U. S. C. § 160(b), to be borrowed for suits claiming breach of the duty of fair representation tells us nothing as to what Congress intended in enacting RICO.

Because we claimed in DelCostello not to have abandoned our prior practice, that decision did not place Congress on notice that henceforth we would interpret its silence as a directive to borrow federal statutes of limitations. Any decision that the lower federal courts, whose regular task involves interpreting our opinions, did not understand to have worked a change in the law, see supra, at 167, is certainly not clear enough to form the basis for a presumption that Congress’ expectations were transformed. In any event, even if that decision had announced a general change of approach, to which it could be expected that Congress would adapt, it would only be appropriate to make the assumption that it had done so with respect to statutes passed after the decision came down. RICO was passed in 1970, well before our opinion in DelCostello. Pub. L. 91-452, 84 Stat. 943, 18 U. S. C. § 1963.

[5] In Adams v. Woods, that argument was advanced not as a reason why the Court should apply a clearly inapplicable statute of limitations, but as a reason why it should interpret an arguably ambiguous one to apply to the claim at issue. 2 Cranch, at 341-342.

RICO Enterprise requirement, Boyle v. U.S. and Association in Fact

In Boyle v. U.S. the defendant unsuccessfully argued that a structure needed to be established to demonstrate a RICO enterprise. Instead the Court adopted a fairly lenient standard for an association in fact.


Boyle v. U.S. Full Case Opinion 129 S.Ct. 2237 (2009)

Edmund BOYLE, Petitioner,
v.
UNITED STATES.

No. 07-1309.

Supreme Court of United States.

Argued January 14, 2009.

Decided June 8, 2009.

2241*2241 Marc Fernich, New York City, for petitioner.

Anthony Yang, Washington, D.C., for respondent.

Marc Fernich, Counsel of Record, Law Office of Marc Fernich, New York, New York, Debra A. Karlstein, Spears & Imes LLP, New York, New York, for Petitioner.

Gregory G. Garre, Solicitor General, Counsel of Record, Matthew W. Friedrich, Acting Assistant Attorney General, Michael R. Dreeben, Deputy Solicitor General, Anthony A. Yang, Assistant to the Solicitor General, Joel M. Gershowitz, Attorney, Department of Justice, Washington, D.C., for the United States.

Justice ALITO delivered the opinion of the Court.

We are asked in this case to decide whether an association-in-fact enterprise under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq., must have “an ascertainable structure beyond that inherent in the pattern of racketeering activity in which it engages.” Pet. for Cert. i. We hold that such an enterprise must have a “structure” but that an instruction framed in this precise language is not necessary. The District Court properly instructed the jury in this case. We therefore affirm the judgment of the Court of Appeals.

I

A

The evidence at petitioner’s trial was sufficient to prove the following: Petitioner and others participated in a series of bank thefts in New York, New Jersey, Ohio, and Wisconsin during the 1990’s. The participants in these crimes included a core group, along with others who were recruited from time to time. Although the participants sometimes attempted bank-vault burglaries and bank robberies, the group usually targeted cash-laden night-deposit boxes, which are often found in banks in retail areas.

Each theft was typically carried out by a group of participants who met beforehand to plan the crime, gather tools (such as crowbars, fishing gaffs, and walkie-talkies), and assign the roles that each participant would play (such as lookout and driver). The participants generally split the proceeds from the thefts. The group was loosely and informally organized. It does not appear to have had a leader or hierarchy; nor does it appear that the participants ever formulated any long-term master plan or agreement.

From 1991 to 1994, the core group was responsible for more than 30 night-deposit-box thefts. By 1994, petitioner had joined the group, and over the next five years, he participated in numerous attempted night-deposit-box thefts and at least two attempted bank-vault burglaries.

In 2003, petitioner was indicted for participation in the conduct of the affairs of an enterprise through a pattern of racketeering activity, in violation of 18 U.S.C. 2242*2242 § 1962(c); conspiracy to commit that offense, in violation of § 1962(d); conspiracy to commit bank burglary, in violation of § 371; and nine counts of bank burglary and attempted bank burglary, in violation of § 2113(a).

B

In instructing the jury on the meaning of a RICO “enterprise,” the District Court relied largely on language in United States v. Turkette, 452 U.S. 576, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). The court told the jurors that, in order to establish the existence of such an enterprise, the Government had to prove that: “(1) There [was] an ongoing organization with some sort of framework, formal or informal, for carrying out its objectives; and (2) the various members and associates of the association function[ed] as a continuing unit to achieve a common purpose.” App. 112. Over petitioner’s objection, the court also told the jury that it could “find an enterprise where an association of individuals, without structural hierarchy, form[ed] solely for the purpose of carrying out a pattern of racketeering acts” and that “[c]ommon sense suggests that the existence of an association-in-fact is oftentimes more readily proven by what it does, rather than by abstract analysis of its structure.” Id., at 111-112.[1]

Petitioner requested an instruction that the Government was required to prove that the enterprise “had an ongoing organization, a core membership that functioned as a continuing unit, and an ascertainable structural hierarchy distinct from the charged predicate acts.” Id., at 95. The District Court refused to give that instruction.

Petitioner was convicted on 11 of the 12 counts against him, including the RICO counts, and was sentenced to 151 months’ imprisonment. In a summary order, the Court of Appeals for the Second Circuit affirmed his conviction but vacated the sentence on a ground not relevant to the issues before us. 283 Fed.Appx. 825 (2007). The Court of Appeals did not specifically address the RICO jury instructions, stating only that the arguments not discussed in the order were “without merit.” Id., at 826. Petitioner was then resentenced, 2243*2243 and we granted certiorari, 554 U.S. ___, 129 S.Ct. 29, 171 L.Ed.2d 931 (2008), to resolve conflicts among the Courts of Appeals concerning the meaning of a RICO enterprise.

II

A

RICO makes it “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 or collection of unlawful debt.” 18 U.S.C. § 1962(c) (emphasis added).

The statute does not specifically define the outer boundaries of the “enterprise” concept but states that the term “includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” § 1961(4).[2] This enumeration of included enterprises is obviously broad, encompassing “any … group of individuals associated in fact.” Ibid. (emphasis added). The term “any” ensures that the definition has a wide reach, see, e.g., Ali v. Federal Bureau of Prisons, 552 U.S. 214, ___, 128 S.Ct. 831, 833, 169 L.Ed.2d 680 (2008) and the very concept of an association in fact is expansive. In addition, the RICO statute provides that its terms are to be “liberally construed to effectuate its remedial purposes.” § 904(a), 84 Stat. 947, note following 18 U.S.C. § 1961; see also, e.g., National Organization for Women, Inc. v. Scheidler, 510 U.S. 249, 257, 114 S.Ct. 798, 127 L.Ed.2d 99 (1994) (“RICO broadly defines `enterprise'”); Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497, 105 S.Ct. 3275, 87 L.Ed.2d 346(1985) (“RICO is to be read broadly”); Russello v. United States, 464 U.S. 16, 21, 104 S.Ct. 296, 78 L.Ed.2d 17 (1983) (noting “the pattern of the RICO statute in utilizing terms and concepts of breadth”).

In light of these statutory features, we explained in Turkette that “an enterprise includes any union or group of individuals associated in fact” and that RICO reaches “a group of persons associated together for a common purpose of engaging in a course of conduct.” 452 U.S., at 580, 583, 101 S.Ct. 2524. Such an enterprise, we said, “is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit.” Id., at 583, 101 S.Ct. 2524.

Notwithstanding these precedents, the dissent asserts that the definition of a RICO enterprise is limited to “business-like entities.” See post, at 2247-2250 (opinion of STEVENS, J.). We see no basis to impose such an extratextual requirement.[3]

2244*2244 B

As noted, the specific question on which we granted certiorari is whether an association-in-fact enterprise must have “an ascertainable structure beyond that inherent in the pattern of racketeering activity in which it engages.” Pet. for Cert. i. We will break this question into three parts. First, must an association-in-fact enterprise have a “structure”? Second, must the structure be “ascertainable”? Third, must the “structure” go “beyond that inherent in the pattern of racketeering activity” in which its members engage?

“Structure.” We agree with petitioner that an association-in-fact enterprise must have a structure. In the sense relevant here, the term “structure” means “[t]he way in which parts are arranged or put together to form a whole” and “[t]he interrelation or arrangement of parts in a complex entity.” American Heritage Dictionary 1718 (4th ed.2000); see also Random House Dictionary of the English Language 1410 (1967) (defining structure to mean, among other things, “the pattern of relationships, as of status or friendship, existing among the members of a group or society”).

From the terms of RICO, it is apparent that an association-in-fact enterprise must have at least three structural features: a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise’s purpose. As we succinctly put it in Turkette, an association-in-fact enterprise is “a group of persons associated together for a common purpose of engaging in a course of conduct.” 452 U.S., at 583, 101 S.Ct. 2524.

That an “enterprise” must have a purpose is apparent from meaning of the term in ordinary usage, i.e., a “venture,” “undertaking,” or “project.” Webster’s Third New International Dictionary 757 (1976). The concept of “associat[ion]” requires both interpersonal relationships and a common interest. See id., at 132 (defining “association” as “an organization of persons having a common interest”); Black’s Law Dictionary 156 (rev. 4th ed.1968) (defining “association” as a “collection of persons who have joined together for a certain object”). Section 1962(c) reinforces this conclusion and also shows that an “enterprise” must have some longevity, since the offense proscribed by that provision demands proof that the enterprise had “affairs” of sufficient duration to permit an associate to “participate” in those affairs through “a pattern of racketeering activity.”

Although an association-in-fact enterprise must have these structural features, it does not follow that a district court must use the term “structure” in its jury instructions. A trial judge has considerable discretion in choosing the language of an instruction so long as the substance of the relevant point is adequately expressed.

“Ascertainable.” Whenever a jury is told that it must find the existence of an element beyond a reasonable doubt, that element must be “ascertainable” or else the jury could not find that it was proved. 2245*2245 Therefore, telling the members of the jury that they had to ascertain the existence of an “ascertainable structure” would have been redundant and potentially misleading.

“Beyond that inherent in the pattern of racketeering activity.” This phrase may be interpreted in least two different ways, and its correctness depends on the particular sense in which the phrase is used. If the phrase is interpreted to mean that the existence of an enterprise is a separate element that must be proved, it is of course correct. As we explained in Turkette, the existence of an enterprise is an element distinct from the pattern of racketeering activity and “proof of one does not necessarily establish the other.”[4] 452 U.S., at 583, 101 S.Ct. 2524.

On the other hand, if the phrase is used to mean that the existence of an enterprise may never be inferred from the evidence showing that persons associated with the enterprise engaged in a pattern of racketeering activity, it is incorrect. We recognized in Turkette that the evidence used to prove the pattern of racketeering activity and the evidence establishing an enterprise “may in particular cases coalesce.” Ibid.

C

The crux of petitioner’s argument is that a RICO enterprise must have structural features in addition to those that we think can be fairly inferred from the language of the statute. Although petitioner concedes that an association-in-fact enterprise may be an “`informal'” group and that “not `much'” structure is needed, Reply Brief for Petitioner 24, he contends that such an enterprise must have at least some additional structural attributes, such as a structural “hierarchy,” “role differentiation,” a “unique modus operandi,” a “chain of command,” “professionalism and sophistication of organization,” “diversity and complexity of crimes,” “membership dues, rules and regulations,” “uncharged or additional crimes aside from predicate acts,” an “internal discipline mechanism,” “regular meetings regarding enterprise affairs,” an “enterprise `name,'” and “induction or initiation ceremonies and rituals.” Id., at 31-35; see also Brief for Petitioner 26-28, 33; Tr. of Oral Arg. 6, 8, 17.

We see no basis in the language of RICO for the structural requirements that petitioner asks us to recognize. As we said in Turkette, an association-in-fact enterprise is simply a continuing unit that functions with a common purpose. 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, 2246*2246 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.

The breadth of the “enterprise” concept in RICO is highlighted by comparing the statute with other federal statutes that target organized criminal groups. For example, 18 U.S.C. § 1955(b), which was enacted together with RICO as part of the Organized Crime Control Act of 1970, 84 Stat. 922, defines an “illegal gambling business” as one that “involves five or more persons who conduct, finance, manage, supervise, direct, or own all or part of such business.” A “continuing criminal enterprise,” as defined in 21 U.S.C. § 848(c), must involve more than five persons who act in concert and must have an “organizer,” supervisor, or other manager. Congress included no such requirements in RICO.

III

A

Contrary to petitioner’s claims, rejection of his argument regarding these structural characteristics does not lead to a merger of the crime proscribed by 18 U.S.C. § 1962(c) (participating in the affairs of an enterprise through a pattern of racketeering activity) and any of the following offenses: operating a gambling business, § 1955; conspiring to commit one or more crimes that are listed as RICO predicate offenses, § 371; or conspiring to violate the RICO statute, § 1962(d).

Proof that a defendant violated § 1955 does not necessarily establish that the defendant conspired to participate in the affairs of a gambling enterprise through a pattern of racketeering activity. In order to prove the latter offense, the prosecution must prove either that the defendant committed a pattern of § 1955 violations or a pattern of state-law gambling crimes. See § 1961(1). No such proof is needed to establish a simple violation of § 1955.

Likewise, proof that a defendant conspired to commit a RICO predicate offense—for example, arson—does not necessarily establish that the defendant participated in the affairs of an arson enterprise through a pattern of arson crimes. Under § 371, a conspiracy is an inchoate crime that may be completed in the brief period needed for the formation of the agreement and the commission of a single overt act in furtherance of the conspiracy. See United States v. Feola, 420 U.S. 671, 694, 95 S.Ct. 1255, 43 L.Ed.2d 541 (1975). Section 1962(c) demands much more: the creation of an “enterprise”—a group with a common purpose and course of conduct—and the actual commission of a pattern of predicate offenses.[5]

Finally, while in practice the elements of a violation of §§ 1962(c) and (d) are similar, this overlap would persist even if petitioner’s conception of an association-in-fact enterprise were accepted.

B

Because the statutory language is clear, there is no need to reach petitioner’s remaining arguments based on statutory purpose, legislative history, or the rule of lenity. In prior cases, we have rejected similar arguments in favor of the clear but 2247*2247 expansive text of the statute. See National Organization for Women, 510 U.S., at 262, 114 S.Ct. 798 (“The fact that RICO has been applied in situations not expressly anticipated by Congress does not demonstrate ambiguity. It demonstrates breadth” (quoting Sedima, 473 U.S., at 499, 105 S.Ct. 3275, brackets and internal quotation marks omitted)); see also Turkette, 452 U.S., at 589-591, 101 S.Ct. 2524. “We have repeatedly refused to adopt narrowing constructions of RICO in order to make it conform to a preconceived notion of what Congress intended to proscribe.” Bridge v. Phoenix Bond & Indemnity Co., 553 U.S. ___, ___, 128 S.Ct. 2131, 2145, 170 L.Ed.2d 1012 (2008); see also, e.g., National Organization for Women, supra, at 252, 114 S.Ct. 798 (rejecting the argument that “RICO requires proof that either the racketeering enterprise or the predicate acts of racketeering were motivated by an economic purpose”); H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 244, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989) (declining to read “an organized crime limitation into RICO’s pattern concept”); Sedima, supra, at 481, 105 S.Ct. 3275 (rejecting the view that RICO provides a private right of action “only against defendants who had been convicted on criminal charges, and only where there had occurred a `racketeering injury'”).

IV

The instructions the District Court judge gave to the jury in this case were correct and adequate. These instructions explicitly told the jurors that they could not convict on the RICO charges unless they found that the Government had proved the existence of an enterprise. See App. 111. The instructions made clear that this was a separate element from the pattern of racketeering activity. Ibid.

The instructions also adequately told the jury that the enterprise needed to have the structural attributes that may be inferred from the statutory language. As noted, the trial judge told the jury that the Government was required to prove that there was “an ongoing organization with some sort of framework, formal or informal, for carrying out its objectives” and that “the various members and associates of the association function[ed] as a continuing unit to achieve a common purpose.” Id., at 112.

Finally, the trial judge did not err in instructing the jury that “the existence of an association-in-fact is oftentimes more readily proven by what it does, rather than by abstract analysis of its structure.” Id., at 111-112. This instruction properly conveyed the point we made in Turkette that proof of a pattern of racketeering activity may be sufficient in a particular case to permit a jury to infer the existence of an association-in-fact enterprise.

We therefore affirm the judgment of the Court of Appeals.

It is so ordered.

Justice STEVENS, with whom Justice BREYER joins, dissenting.

In my view, Congress intended the term “enterprise” as it is used in the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq., to refer only to business-like entities that have an existence apart from the predicate acts committed by their employees or associates. The trial judge in this case committed two significant errors relating to the meaning of that term. First, he instructed the jury that “an association of individuals, without structural hierarchy, form[ed] solely for the purpose of carrying out a pattern of racketeering acts” can constitute an enterprise. App. 112. And he 2248*2248 allowed the jury to find that element satisfied by evidence showing a group of criminals with no existence beyond its intermittent commission of racketeering acts and related offenses. Because the Court’s decision affirming petitioner’s conviction is inconsistent with the statutory meaning of the term enterprise and serves to expand RICO liability far beyond the bounds Congress intended, I respectfully dissent.

I

RICO makes it “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.” § 1962(c). The statute defines “enterprise” to include “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” § 1961(4).

It is clear from the statute and our earlier decisions construing the term that Congress used “enterprise” in these provisions in the sense of “a business organization,” Webster’s Third New International Dictionary 757 (1976), rather than “a `venture,’ `undertaking,’ or `project,'” ante, at 2244 (quoting Webster’s Third New International Dictionary, at 757). First, the terms “individual, partnership, corporation, association, or other legal entity” describe entities with formal legal structures most commonly established for business purposes. § 1961(4). In context, the subsequent reference to any “union or group of individuals associated in fact although not a legal entity” reflects an intended commonality between the legal and nonlegal entities included in the provision. Ibid. (emphasis added). “The juxtaposition of the two phrases suggests that `associated in fact’ just means structured without the aid of legally defined structural forms such as the business corporation.” Limestone Development Corp. v. Lemont, 520 F.3d 797, 804-805 (C.A.7 2008).[1]

That an enterprise must have business-like characteristics is confirmed by the text of § 1962(c) and our decision in Reves v. Ernst & Young, 507 U.S. 170, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993). Section 1962(c) creates liability for “conduct[ing] or participat[ing] … in the conduct of [an] enterprise’s affairs through a pattern of racketeering activity.” In Reves, we examined that provision’s meaning and held that, “[i]n order to `participate, directly or indirectly, in the conduct of such enterprise’s affairs,’ one must have some part in directing those affairs.” Id., at 179, 113 S.Ct. 1163 (quoting § 1962(c)). It is not enough for a defendant to “carry on” or “participate in” an enterprise’s affairs 2249*2249 through a pattern of racketeering activity; instead, evidence that he operated, managed, or directed those affairs is required. See id., at 177-179, 113 S.Ct. 1163. This requirement confirms that the enterprise element demands evidence of a certain quantum of business-like organization— i.e., a system of processes, dealings, or other affairs that can be “directed.”

Our cases also make clear that an enterprise “is an entity separate and apart from the pattern of activity in which it engages.” United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). As with the requirement that an enterprise have business-like characteristics, that an enterprise must have a separate existence is confirmed by § 1962(c) and Reves. If an entity’s existence consisted solely of its members’ performance of a pattern of racketeering acts, the “enterprise’s affairs” would be synonymous with the “pattern of racketeering activity.” Section 1962(c) would then prohibit an individual from conducting or participating in “the conduct of [a pattern of racketeering activity] through a pattern of racketeering activity”—a reading that is unbearably redundant, particularly in a case like this one in which a single pattern of activity is alleged. The only way to avoid that result is to require that an “enterprise’s affairs” be something other than the pattern of racketeering activity undertaken by its members.[2]

Recognizing an enterprise’s business-like nature and its distinctness from the pattern of predicate acts, however, does not answer the question of what proof each element requires. In cases involving a legal entity, the matter of proving the enterprise element is straightforward, as the entity’s legal existence will always be something apart from the pattern of activity performed by the defendant or his associates. Cf. Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 163, 121 S.Ct. 2087, 150 L.Ed.2d 198 (2001). But in the case of an association-in-fact enterprise, the Government must adduce other evidence of the entity’s “separate” existence and “ongoing organization.” Turkette, 452 U.S., at 583, 101 S.Ct. 2524. There may be cases in which a jury can infer that existence and continuity from the evidence used to establish the pattern of racketeering activity. Ibid. But that will be true only when the pattern of activity is so complex that it could not be performed in the absence of structures or processes for planning or concealing the illegal conduct beyond those inherent in performing the predicate acts. More often, proof of an enterprise’s separate existence will require different evidence from that used to establish the pattern of predicate acts.

Precisely what proof is required in each case is a more difficult question, largely due to the abundant variety of RICO predicates and enterprises. Because covered enterprises are necessarily business-like in nature, however, proof of an association-in-fact enterprise’s separate existence will generally require evidence of rules, routines, or processes through which the entity maintains its continuing operations and seeks to conceal its illegal acts. As petitioner suggests, this requirement will usually be satisfied by evidence that the association has an “ascertainable structure beyond that inherent in the pattern of racketeering activity in which it engages.” Pet. for Cert. i. Examples of such structure include an organizational hierarchy, a “framework for making decisions,” an “internal discipline mechanism,” “regular meetings,” or a practice of “reinvest[ing] proceeds to promote and expand the enterprise.” Reply Brief for Petitioner 31-34. In other cases, the enterprise’s existence might be established through evidence that it provides goods or services to third parties, as such an undertaking will require organizational elements more comprehensive than those necessary to perform a pattern of predicate acts. Thus, the evidence needed to establish an enterprise will vary from case to case, but in every case the Government must carry its burden of proving that an alleged enterprise has an existence separate from the pattern of racketeering activity undertaken by its constituents.

II

In some respects, my reading of the statute is not very different from that adopted by the Court. We agree that “an association-in-fact enterprise must have at least three structural features: a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise’s purpose.” Ante, at 2244. But the Court stops short of giving content to that requirement. It states only that RICO “demands proof that the enterprise had `affairs’ of sufficient duration to permit an associate to `participate’ in those affairs through `a pattern of racketeering activity,'” before concluding that “[a] trial judge has considerable discretion in choosing the language of an instruction” and need not use the term “structure.” Ante, at 2244. While I agree the word structure is not talismanic, I would hold that the instructions must convey the requirement that the alleged enterprise have an existence apart from the alleged pattern of predicate acts. The Court’s decision, by contrast, will allow juries to infer the existence of an enterprise in every case involving a pattern of racketeering activity undertaken by two or more associates.

By permitting the Government to prove both elements with the same evidence, the Court renders the enterprise requirement essentially meaningless in association-in-fact cases. It also threatens to make that category of § 1962(c) offenses indistinguishable from conspiracies to commit predicate acts, see § 371, as the only remaining difference is § 1962(c)’s pattern requirement. The Court resists this criticism, arguing that § 1962(c) “demands much more” than the inchoate offense defined in § 371. Ante, at 2246. It states that the latter “may be completed in the brief period needed for the formation of the agreement and the commission of a single overt act in furtherance of the conspiracy,” whereas the former requires the creation of “a group with a common purpose and course of conduct—and the actual commission of a pattern of predicate offenses.” Ibid. Given that it is also unlawful to conspire to violate § 1962(c), see § 1962(d), this comment provides no assurance that RICO and § 371 offenses remain distinct. Only if proof of the enterprise element—the “group with a common purpose 2251*2251 and course of conduct”—requires evidence of activity or organization beyond that inherent in the pattern of predicate acts will RICO offenses retain an identity distinct from § 371 offenses.

This case illustrates these concerns. The trial judge instructed the jury that an enterprise need have only the degree of organization necessary “for carrying out its objectives” and that it could “find an enterprise where an association of individuals, without structural hierarchy, forms solely for the purpose of carrying out a pattern of racketeering acts.” App. 112.[3] These instructions were plainly deficient, as they did not require the Government to prove that the alleged enterprise had an existence apart from the pattern of predicate acts. Instead, they permitted the Government’s proof of the enterprise’s structure and continuing nature—requirements on which all agree—to consist only of evidence that petitioner and his associates performed a pattern of racketeering activity.

Petitioner’s requested instruction would have required the jury to find that the alleged enterprise “had an ongoing organization, a core membership that functioned as a continuing unit, and an ascertainable structural hierarchy distinct from the charged predicate acts.” Id., at 95. That instruction does not precisely track my understanding of the statute; although evidence of “structural hierarchy” can evidence an enterprise, it is not necessary to establish that element. Nevertheless, the proposed instruction would have better directed the jury to consider whether the alleged enterprise possessed the separate existence necessary to expose petitioner to liability under § 1962(c), and the trial judge should have considered an instruction along those lines.

The trial judge also erred in finding the Government’s evidence in this case sufficient to support petitioner’s RICO convictions. Petitioner was alleged to have participated and conspired to participate in the conduct of an enterprise’s affairs through a pattern of racketeering activity consisting of one act of bank robbery and three acts of interstate transportation of stolen funds. Id., at 15-19. The “primary goals” of the alleged enterprise “included generating money for its members and associates through the commission of criminal activity, including bank robberies, bank burglaries and interstate transportation of stolen money.” Id., at 14. And its modus operandi was to congregate periodically when an associate had a lead on a night-deposit box that the group could break into. Whoever among the associates was available would bring screwdrivers, crowbars, and walkie-talkies to the location. Some acted as lookouts, while others retrieved the money. When the endeavor was successful, the participants would split the proceeds. Thus, the group’s purpose and activities, and petitioner’s participation therein, were limited to sporadic acts of taking money from bank deposit boxes. There is no evidence in RICO’s text or history that Congress intended it to reach such ad hoc associations of thieves.

III

Because the instructions and evidence in this case did not satisfy the requirement that an alleged enterprise have an existence separate and apart from the pattern of activity in which it engages, I respectfully dissent.

[1] The relevant portion of the instructions was as follows:

“The term `enterprise’ as used in these instructions may also include a group of people associated in fact, even though this association is not recognized as a legal entity. Indeed, an enterprise need not have a name. Thus, an enterprise need not be a form[al] business entity such as a corporation, but may be merely an informal association of individuals. A group or association of people can be an `enterprise’ if, among other requirements, these individuals `associate’ together for a purpose of engaging in a course of conduct. Common sense suggests that the existence of an association-in-fact is oftentimes more readily proven by what it does, rather than by abstract analysis of its structure.

“Moreover, you may find an enterprise where an association of individuals, without structural hierarchy, forms solely for the purpose of carrying out a pattern of racketeering acts. Such an association of persons may be established by evidence showing an ongoing organization, formal or informal, and … by evidence that the people making up the association functioned as a continuing unit. Therefore, in order to establish the existence of such an enterprise, the government must prove that: (1) There is an ongoing organization with some sort of framework, formal or informal, for carrying out its objectives; and (2) the various members and associates of the association function as a continuing unit to achieve a common purpose.

“Regarding `organization,’ it is not necessary that the enterprise have any particular or formal structure, but it must have sufficient organization that its members functioned and operated in a coordinated manner in order to carry out the alleged common purpose or purposes of the enterprise.” App. 111-113 (emphasis added).

[2] This provision does not purport to set out an exhaustive definition of the term “enterprise.” Compare §§ 1961(1)-(2) (defining what the terms “racketeering activity” and “State” mean) with §§ 1961(3)-(4) (defining what the terms “person” and “enterprise” include). Accordingly, this provision does not foreclose the possibility that the term might include, in addition to the specifically enumerated entities, others that fall within the ordinary meaning of the term “enterprise.” See H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 238, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989) (explaining that the term “pattern” also retains its ordinary meaning notwithstanding the statutory definition in § 1961(5)).

[3] The dissent claims that the “business-like” limitation “is confirmed by the text of § 1962(c) and our decision in Reves v. Ernst & Young, 507 U.S. 170, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993).” Post, at 2248. Section 1962(c), however, states only that one may not “conduct or participate, directly or indirectly, in the conduct of [an] enterprise’s affairs through a pattern of racketeering activity.” Whatever business-like characteristics the dissent has in mind, we do not see them in § 1962(c). Furthermore, Reves v. Ernst & Young, 507 U.S. 170, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993), is inapposite because that case turned on our interpretation of the participation requirement of § 1962, not the definition of “enterprise.” See id., at 184-185, 113 S.Ct. 1163. In any case, it would be an interpretive stretch to deduce from the requirement that an enterprise must be “directed” to impose the much broader, amorphous requirement that it be “business-like.”

[4] It is easy to envision situations in which proof that individuals engaged in a pattern of racketeering activity would not establish the existence of an enterprise. For example, suppose that several individuals, independently and without coordination, engaged in a pattern of crimes listed as RICO predicates—for example, bribery or extortion. Proof of these patterns would not be enough to show that the individuals were members of an enterprise.

[5] The dissent states that “[o]nly if proof of the enterprise element … requires evidence of activity or organization beyond that inherent in the pattern of predicate acts will RICO offenses retain an identity distinct from § 371 offenses.” Post, at 2250-2251 (opinion of STEVENS, J.). This is incorrect: Even if the same evidence may prove two separate elements, this does not mean that the two elements collapse into one.

[1] To be sure, we have read RICO’s enterprise term broadly to include entities with exclusively noneconomic motives or wholly unlawful purposes. See National Organization for Women, Inc. v. Scheidler, 510 U.S. 249, 252, 114 S.Ct. 798, 127 L.Ed.2d 99 (1994) (NOW); United States v. Turkette, 452 U.S. 576, 580-581, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). But those holdings are consistent with the conclusion that an enterprise is a business-like entity. Indeed, the examples of qualifying associations cited in Turkette—including loan-sharking, property-fencing, drug-trafficking, and counterfeiting operations—satisfy that criterion, as each describes an organization with continuing operations directed toward providing goods or services to its customers. See id., at 589-590, 101 S.Ct. 2524 (citing 84 Stat. 923; 116 Cong. Rec. 592 (1970)). Similarly, the enterprise at issue in NOW was a nationwide network of antiabortion groups that had a leadership counsel and regular conferences and whose members undertook an extensive pattern of extortion, arson, and other racketeering activity for the purpose of “shut[ting] down abortion clinics.” 510 U.S., at 253, 114 S.Ct. 798.

[2] The other subsections of 18 U.S.C. § 1962 further demonstrate the business-like nature of the enterprise element and its necessary distinctness from the pattern of racketeering activity. Subsection (a) prohibits anyone who receives income derived from a pattern of racketeering activity from “us[ing] or invest[ing], directly or indirectly, any part of such income … in acquisition of any interest in, or the establishment or operation of, any enterprise.” And subsection (b) prohibits anyone from “acquir[ing] or maintain[ing]” any interest in or control of an enterprise through a pattern of racketeering activity. We noted in NOW that the term enterprise “plays a different role in the structure” of those subsections than it does in subsection (c) because the enterprise in those subsections is the victim. 510 U.S., at 258-259, 114 S.Ct. 798. We did not, however, suggest that the term has a substantially different meaning in each subsection. To the contrary, our observation that the enterprise in subsection (c) is “the vehicle through which the unlawful pattern of racketeering activity is committed,” id., at 259, 114 S.Ct. 798, indicates that, as in subsections (a) and (b), the enterprise must have an existence apart from the pattern of racketeering activity.

[3] For the full text of the relevant portion of the instructions, see ante, at 2242, n. 1.