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)


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.


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.


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.


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.


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.


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]


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.


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.


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.


[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.”).

Summary Judgment to plaintiff on RICO claim

Typically defendants seek to dismiss claims filed under RICO. What if, a plaintiff argued the claim was indefensible and the defenses unsustainable, and sought summary judgment. Here, the Sixth Circuit, with one dissent, sustained a RICO summary judgment. The court explained, “considering this evidence, no reasonable juror could accept Defendants’ argument that the Plummers deceived them and concealed the fact that the Mare Lease Program was drastically oversold.” In language far more often seen for the defendant, The Sixth Circuit said,

Summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, (1986) (emphasis in original). “`[T]here must be evidence on which the jury could reasonably find for the’ non-moving party.” White v. Baxter Healthcare Corp., 533 F.3d 381, 390 (6th Cir.2008) (quoting Anderson, 477 U.S. at 252, 106 S.Ct. 2505). In other words, “where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no `genuine issue for trial.'” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

In Re ClassicStar 727 F.3d 473 (6th Cir. 2013) Opinion

West Hills Farms, LLC, Arbor Farms, LLC, Nelson Breeders, LLC, MacDonald Stables, LLC, Jaswinder Grover, Monica Grover, Plaintiffs-Appellees,
ClassicStar Farms, Inc., GeoStar Corporation, Tony P. Ferguson, ClassicStar 2004, LLC, Thomas E. Robinson (12-5467); John W. Parrott (12-5475), Defendants-Appellants.

Nos. 12-5467, 12-5475.

United States Court of Appeals, Sixth Circuit.

Argued: March 14, 2013.

Decided and Filed: July 18, 2013.

Rehearing and Rehearing En Banc Denied September 18, 2013.

478*478 ARGUED: Kannon K. Shanmugam, Williams & Connolly LLP, Washington, D.C., for Appellants. Barry D. Hunter, Frost Brown Todd, Lexington, Kentucky, for Appellees in 12-5467 and 12-5475 ON BRIEF: Kannon K. Shanmugam, Williams & Connolly LLP, Washington, D.C., for Appellants. Barry D. Hunter, Frost Brown Todd, Lexington, Kentucky, for Appellees in 12-5467 and 12-5475.

Before: MERRITT, CLAY, and GRIFFIN, Circuit Judges.

CLAY, J., delivered the opinion of the court, in which GRIFFIN, J., joined. MERRITT, J. (pp. 497-501), delivered a separate opinion concurring in part and dissenting in part.


CLAY, Circuit Judge.

This case arises from the fraudulent operation of an investment vehicle called the Mare Lease Program. Plaintiffs, a group of investors, alleged that Defendants violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962(c), by convincing them to invest in the Mare Lease Program and related entities in order to take advantage of various tax deductions. Little did Plaintiffs know that the assets which formed the basis of the touted tax deductions were dramatically undervalued and, in some cases, wholly fictitious. After extensive discovery, Plaintiffs moved for summary judgment on their RICO claim as well as parallel state-law fraud and breach of contract claims. The district court granted summary judgment to Plaintiffs on each claim and awarded damages of approximately $49.4 million and prejudgment interest in excess of $15.6 million. Because we agree that the record reflects no genuine dispute over any material facts, we AFFIRM the district court’s grant of summary judgment.


A. The Mare Lease Program

In 1990, David Plummer created the Mare Lease Program to enable investors to participate in his horse-breeding business while taking advantage of the sizable tax benefits associated with raising horses. Plummer, who operated the Mare Lease Program through a company named New Classic Breeders, LLC, was a nationally recognized expert in horse-breeding and the tax consequences of related investments. Plummer encouraged investors to take advantage of a provision in the tax code which classified horse-breeding investments as farming expenses, entitling investors to a five-year net operating loss carryback period instead of the typical two years. See 26 U.S.C. § 172(b)(1)(G).

An investor in the Program would lease a breeding mare from New Classic Breeders for a single season; the mare would be paired with a suitable stallion, and the 479*479 investor could keep any resulting foals, which could then be either kept or sold. Investors could deduct the amount of their initial investment — which, unsurprisingly, tended to be based on the amount they wished to deduct for the previous five years — and also realize the gain from owning a valuable Thoroughbred foal. Investors were encouraged to hold their foals for at least two years before selling them, qualifying the sale for the much lower long-term capital gains tax rate. See 26 U.S.C. § 1231(b)(3)(A).

Between 2001 and 2005, the Mare Lease Program generated more than $600 million in revenue. The Program was aggressively marketed to wealthy individuals, who were assured that it was a reliable way to generate tax deductions and convert ordinary income into long-term capital gains. Accordingly, the economic success of the Program hinged on the investors’ eligibility to receive the advertised tax benefits. To reassure investors that the Program’s tax advantages were legitimate, they were given tax advice by two law firms hired by Defendants: Handler, Thayer, and Duggan, LLC, and Hanna Strader P.C. These firms and an accounting firm purported to have vetted the Mare Lease Program, and they opined that the investments would be fully tax deductible as promised.

B. The Scheme

GeoStar Corporation is a privately held company specializing in oil and gas exploration. By around 2000, GeoStar and its publicly traded affiliate, Gastar Exploration, Ltd., had acquired a number of undeveloped oil and gas properties, and they were looking for ways to raise capital to exploit these properties. GeoStar executives were introduced to David Plummer and the Mare Lease Program around that time, and in 2001, GeoStar acquired New Classic Breeders through a holding company it created named ClassicStar Farms, Inc., and it renamed the business ClassicStar, LLC (“ClassicStar”). David Plummer served as the president of ClassicStar Farms, Inc. until 2003, when he became GeoStar’s director of marketing. After David Plummer moved to GeoStar, his son Spencer Plummer became president of ClassicStar Farms. Together with GeoStar executives, including Defendants, they operated the Mare Lease Program.

In an effort to finance its undeveloped oil and gas properties, GeoStar encouraged Mare Lease Program investors to exchange their interests in the Program for interests in coalbed methane wells owned by GeoStar subsidiaries, as well as Gastar stock. GeoStar and ClassicStar told investors that they could take advantage of the five-year operating loss carryback period associated with their horse-breeding investments, and then quickly convert those investments into oil and gas interests that, unlike the foals, would not need to be held for two years before being sold. Investors were told that these transfers would be tax-free because they could deduct any gain from the conversion as intangible drilling costs associated with the development of the wells. See 26 U.S.C. § 263(c). In this way, GeoStar was able to channel investors’ money through the Mare Lease Program into its oil and gas developments.

To further entice investors into the Mare Lease Program, ClassicStar arranged for a large part (usually half) of the initial investment to be financed through the National Equine Lending Company (“NELC”), which was represented to be “a national lender on approved credit.” (R. 1701, Ex. 9, at 7.) Investors would deduct the entirety of their investment, including the loan, from their taxable income from 480*480 the past five years.[1] Although it was consistently described as a third-party lender, NELC was in fact owned and operated by Gary Thomson, David Plummer’s brother-in-law. Spencer Plummer told one of Plaintiffs’ financial advisers that “we can control him [Thomson] and what he does,” (R. 1701, Ex. 7, at 8,) but none of the investors was ever told that NELC had no funds of its own. ClassicStar provided all of NELC’s funds and arranged sham three-way transactions in which funds were transferred from ClassicStar to NELC, loaned to an investor, and then paid back to ClassicStar as part of an investment in the Mare Lease Program. The purpose of these transactions was to make the Program attractive to investors by allowing them to drastically increase their investments and, by extension, their tax deductions.

GeoStar and ClassicStar’s efforts in promoting the Mare Lease Program were successful, so successful in fact that investors purchased interests in many more mares than were actually owned by ClassicStar. Although investors were repeatedly told that they were leasing actual horses, ClassicStar never owned anywhere near the number of horses purportedly being leased. Between 2001 and 2004, ClassicStar owned between $10 million and $56 million worth of mares, but sold an average of $150 million worth of mare lease packages during each of those years. (R. 1701, Ex. 23.) By the end of 2004, the difference between the value of the mares owned by ClassicStar and the value of the mare leases sold to investors was approximately $270 million. (R. 1701, Ex. 5, at 195-97.) To disguise the shortfall, ClassicStar substituted less valuable quarter-horses for Thoroughbreds and, in many cases, simply did not identify the horses that investors believed they were leasing.

To conceal the shortfall of mares and funnel money into their oil and gas interests, GeoStar and ClassicStar encouraged investors to exchange their mare leases for interests in various oil and gas properties. However, by mid-2003, these interests were also oversold. The tax deductions for intangible drilling costs used to entice investors out of the Mare Lease Program, like the mare lease deductions themselves, were dubious because they were based on fictitious assets, work that was never performed, and costs that were never expended.

Faced with a severe shortfall of assets in both the Mare Lease Program and their oil and gas programs, and no longer wishing to offer investors Gastar stock in exchange for their (largely worthless) interests in these other programs, GeoStar and ClassicStar created First Equine Energy Partners, LLC (“FEEP”). FEEP purported to offer investors a vehicle to combine equine interests — those contributed to the program by the investors themselves — with oil and gas interests to be contributed by GeoStar and its subsidiaries. (R. 1701, Ex. 68.) However, FEEP was never properly funded by GeoStar, and it owned either few assets or none at all. As one of Plaintiffs’ experts testified, “FEEP as realized by ClassicStar was merely another means to perpetuate the ruse that began with the Mare Lease Program in which ClassicStar failed to deliver mares to participants.” (R. 1701, Ex. 9, at 65.)

As a result of the dramatic overselling of the Mare Lease Program, resulting in “investments” in horses that largely did not 481*481 exist, coupled with the sham loans from NELC designed to artificially inflate the size of the investments and the illusory nature of FEEP, the IRS has since disallowed the investors’ tax deductions.[2] Among the numerous problems with the Program was that investors had claimed deductions related to improperly inflated expenditures on assets that did not exist. The government also opened a criminal investigation into the scheme to facilitate fraudulent tax deductions. Because of their participation in the Mare Lease Program, David Plummer, Spencer Plummer, an accountant named Terry Green, and one of the Defendants in this case, John Parrott, each pleaded guilty to one count of conspiracy to defraud the United States.

C. The Defendants

GeoStar Corporation has its principal place of business in Mt. Pleasant, Michigan. Together, Thom Robinson, Tony Ferguson, and John Parrott own approximately 75% of GeoStar, as well as a controlling interest in Gastar, GeoStar’s publicly traded affiliate. GeoStar acquired New Classic Breeders — later ClassicStar, LLC — through a holding company named ClassicStar Farms, Inc. ClassicStar and its employees thereafter acted as GeoStar’s agents, with all fundamental financial and operational decisions made by GeoStar. Although Robinson and GeoStar had the final word on most financial matters, particularly with respect to the Mare Lease Program, ClassicStar managed its own employees. ClassicStar Farms, Inc. and ClassicStar 2004 had no operations or employees separate from ClassicStar, but each entered into contracts in its own name.

Thomas Robinson was President and CEO of GeoStar and served as a co-manager of ClassicStar. By all accounts he had the final word on all fundamental decisions regarding ClassicStar’s operations and finances, including its management of the Mare Lease Program. Robinson orchestrated the original acquisition of New Classic Breeders from David Plummer, and he then hired Plummer first as president of Classic Star Farms, Inc., and then as GeoStar’s head of marketing. Robinson also served as President and CEO of First Source Wyoming, a GeoStar affiliate, and Gastar; in those roles he directed the acquisition and development of oil and gas properties around the world. Finally, Robinson helped create FEEP, helped draft its private placement memoranda, and sat on its advisory committee.

Tony Ferguson was a vice president of GeoStar and co-manager of ClassicStar. He also served as Vice President of Operations at First Source Wyoming, as an owner and Executive Vice President of Gastar, and as tax partner and president of the manager of FEEP. Ferguson was actively involved in the marketing and promotion of the Mare Lease Program and the conversion of those interests into oil and gas interests. All questions related to the tax implications of the conversions went to Ferguson. He provided cover stories to investors when they inquired as to why they were not being assigned specific horses, and he was aware that less valuable quarter-horses were being substituted — sometimes only on paper — for Thoroughbreds in investors’ mare lease packages. At one point, David Plummer “lamented the fact that Tony [Ferguson] was taking his money for horses and using it for 482*482 something else, using it for gas.” (R. 1701, Ex. 19, at 24-25.)

John Parrott was a vice president of GeoStar and a vice president of ClassicStar. Parrott reviewed and approved the marketing materials used by ClassicStar to promote the Mare Lease Program, including the attorney opinion letters that purported to confirm the legitimacy of the advertised tax deductions. He also either drafted or revised the language of the mare lease contracts themselves. Together with Robinson, Parrott helped draft the FEEP private placement memoranda and sat on its advisory committee. When Parrott pleaded guilty to conspiracy to defraud the United States, he admitted the following facts:

As Vice President of GeoStar Corp. between approximately 2001 and 2009, I assisted in the preparation of documents and other activities designed, pursuant to conversations and agreements with others, to allow taxpayers to take deductions to which they were not entitled, relating to their investments in the ClassicStar Mare Lease Program and related endeavors.

(R. 1701, Ex. 8, at 46.)

D. The Plaintiffs

Plaintiffs collectively invested approximately $90 million in the Mare Lease Program in 2003 and 2004. Each of them received some sort of presentation from ClassicStar describing the nature of the Program, including its tax advantages, expected return on investment, and unique financing structure. Each signed a mare lease agreement, made the appointed payments together with a loan from NELC, and later received a schedule purporting to list the mares and breeding pairs that ClassicStar had assigned to them. Each received a tax opinion letter from one of the two law firms associated with ClassicStar and GeoStar; Arbor Farms, West Hills Farms, and Nelson Breeders received advice from Hanna Strader, and the Grovers and MacDonald Stables received advice from Handler Thayer.

MacDonald Stables exchanged its interests in the Mare Lease Program for shares of Gastar stock and interests in FEEP. The Grovers converted their mare leases into interests in FEEP and other GeoStar subsidiaries. The remaining Plaintiffs each invested considerable sums in the Mare Lease Program, primarily financed through short- and long-term loans from NELC. Although Plaintiffs received the value of some of the foals they were promised, the return never approached the amount of their investments because of the absence of a sufficient number of horses in the Program. After adding their out-of-pocket losses to the amount of the fraudulently obtained tax deductions that Plaintiffs must repay to the IRS, Plaintiffs’ collective losses totaled $16,468,603.87. (R. 2267-1.)

On July 28, 2006, Plaintiffs filed a complaint in the United States District Court for the Eastern District of Kentucky, alleging twenty-eight counts against twenty-three defendants, including federal RICO claims, violations of federal and state securities laws, common-law fraud, breach of contract, negligent misrepresentation, unjust enrichment, theft, and civil conspiracy. (R. 769.) Dozens of similarly situated plaintiffs filed analogous actions against many of the same defendants in California, Florida, Pennsylvania, and Utah. Pursuant to 28 U.S.C. § 1407, the United States Judicial Panel on Multidistrict Litigation consolidated the cases before a single district court. Because Plaintiffs’ case was filed earliest, it became the lead case in the newly consolidated litigation.

After years of contentious pretrial proceedings and discovery, Plaintiffs moved for summary judgment on their RICO, fraud, and breach of contract claims. In a comprehensive opinion, the district court granted summary judgment to Plaintiffs on each of the three claims. The court accepted Plaintiffs’ damages calculation and determined that their out-of-pocket losses, or “their cash investment less any return,” amounted to $16,468,603.87. (R. 2314, at 95.) Because Plaintiffs were entitled to treble damages under RICO, see 18 U.S.C. § 1964(c), the district court multiplied these losses by three, to arrive at the figure of $49,405,811.61. The court concluded that prejudgment interest was appropriate and used the Kentucky state statutory interest rate of 8% to award prejudgment interest in the amount of $15,636,273.00.


We review a grant of summary judgment de novo, construing the evidence and drawing all reasonable inferences in favor of the nonmoving party. Martin v. Cincinnati Gas & Elec. Co., 561 F.3d 439, 443 (6th Cir.2009). Summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (emphasis in original). “`[T]here must be evidence on which the jury could reasonably find for the’ non-moving party.” White v. Baxter Healthcare Corp., 533 F.3d 381, 390 (6th Cir.2008) (quoting Anderson, 477 U.S. at 252, 106 S.Ct. 2505). In other words, “[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no `genuine issue for trial.'” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).


Plaintiffs’ primary claim against Defendants is based on the federal RICO statute, 18 U.S.C. §§ 1961-68. Among other activities, the statute prohibits the following conduct:

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.

18 U.S.C. § 1962(c). To state a claim under this section, a plaintiff must plead the following elements: “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Moon v. Harrison Piping Supply, 465 F.3d 719, 723 (6th Cir.2006) (citing Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985)). RICO defines “racketeering activity” to include numerous so-called predicate acts, including “any act which is indictable under any of the following provisions of title 18, United States Code: … section 1341 (relating to mail fraud), section 1343 (relating to wire fraud).” 18 U.S.C. § 1961(1).

To prevent organized crime from “obtaining a foothold in legitimate business,” Congress created a civil cause of action for RICO violations. See Doe v. Roe, 958 F.2d 763, 768 (7th Cir.1992). The statute provides in relevant part that “[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor … 484*484 and shall recover threefold the damages he sustains.” 18 U.S.C. § 1964(c). In addition to establishing that a given group of defendants conducted the affairs of a qualifying enterprise through a pattern of racketeering activity, civil RICO plaintiffs must show that the RICO violation was the proximate cause of the injury to their business or property. See Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 268, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992).

The district court granted summary judgment to Plaintiffs on their RICO claim, finding that Defendants had conducted the affairs of an enterprise through a pattern of racketeering activity in violation of § 1962(c). Defendants raise three distinct challenges to the district court’s conclusions. They argue 1) that there are disputed issues of material fact relating to Defendants’ intent to defraud; 2) that Plaintiffs did not establish proximate causation; and 3) that Plaintiffs did not establish the existence of a qualifying RICO enterprise. As discussed below, we reject each of these arguments.

A. Intent to Defraud

“To establish a substantive RICO violation, a plaintiff must show `a pattern of racketeering activity.'” Ouwinga v. Benistar 419 Plan Servs., Inc., 694 F.3d 783, 795 (6th Cir.2012) (citing 18 U.S.C. § 1962(c)). Mail fraud and wire fraud are among the enumerated predicate offenses that can constitute “racketeering activity.” See 18 U.S.C. § 1961(1). The district court found that Defendants committed no fewer than thirty-seven acts that would be indictable as mail and wire fraud. “A scheme to defraud is `any plan or course of action by which someone intends to deprive another … of money or property by means of false or fraudulent pretenses, representations, or promises.'” United States v. Faulkenberry, 614 F.3d 573, 581 (6th Cir.2010) (quoting United States v. Daniel, 329 F.3d 480, 485 (6th Cir.2003)). “A plaintiff must also demonstrate scienter to establish a scheme to defraud, which is satisfied by showing the defendant acted either with a specific intent to defraud or with recklessness with respect to potentially misleading information.” Heinrich v. Waiting Angels Adoption Servs., Inc., 668 F.3d 393, 404 (6th Cir.2012).

Defendants argue that summary judgment was inappropriate because there are disputed issues of fact as to whether they intended to defraud Plaintiffs through the Mare Lease Program. Defendants assert that the district court improperly relied only on circumstantial evidence to find the requisite intent and disregarded evidence that they lacked knowledge of the fraudulent scheme. Although Defendants correctly posit that “claims involving proof of a defendant’s intent seldom lend themselves to summary disposition,” Kennedy v. City of Villa Hills, Ky., 635 F.3d 210, 218 (6th Cir.2011), summary judgment is appropriate when the evidence is “so one-sided that no reasonable person could decide the contrary,” GenCorp, Inc. v. Am. Int’l Underwriters, 178 F.3d 804, 819 (6th Cir.1999); see also Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479 (6th Cir.1989) (“Cases involving state of mind issues are not necessarily inappropriate for summary judgment.”). To survive summary judgment, the “mere existence of a scintilla of evidence in support” of a party’s position will not suffice. Shropshire v. Laidlaw Transit, Inc., 550 F.3d 570, 576 (6th Cir. 2008) (citing Anderson, 477 U.S. at 252, 106 S.Ct. 2505).

First, Defendants argue that a genuine factual dispute exists over whether they knew that the mare lease interests were oversold. On the contrary, the evidence clearly established that Defendants operated and marketed the Mare Lease Program 485*485 with the knowledge that ClassicStar never owned anywhere near the number of Thoroughbreds it purported to lease to investors. ClassicStar, through David and Spencer Plummer, and GeoStar, through Robinson, Ferguson, and Parrott, consistently represented to investors through contracts and promotional materials that the investors would be purchasing interests in actual horses that were owned or leased by ClassicStar. But in reality, ClassicStar owned no more than $56 million worth of mares between 2001 and 2004, even as it was selling an average of $150 million worth of mare leases during each of those years. By the end of 2004, the difference between the value of the mares owned by ClassicStar and the value of the mare leases sold to investors was approximately $270 million.

To disguise the shortfall and convince investors that they were purchasing interests in actual horses, Defendants substituted less valuable quarter-horses for the Thoroughbreds that were supposed to be part of the packages, and in many cases, simply did not name the horses that investors believed they were purchasing. In a cross-claim against the Plummers, ClassicStar and GeoStar acknowledged that the practice of substituting quarter-horse pairings was part of a fraudulent scheme to disguise the overselling of interests in the Mare Lease Program. (R. 58, ¶¶ 24-32.) The district court considered evidence that Defendants never intended to fulfill the mare lease obligations with these quarter-horses, but rather used them only as placeholders to facilitate fraudulent tax deductions. (See R. 1701, Ex. 42.)

The evidence is persuasive that the GeoStar defendants were aware that the Mare Lease Program was dramatically oversold. Defendants argue — as they have throughout this litigation — that the real culprits in the fraudulent scheme were David and Spencer Plummer, both of whom have since pleaded guilty to various federal tax fraud charges. However, the evidence showed that each of the individual defendants was aware of the huge gap between the value of horses owned by ClassicStar and the value of the Mare Lease Program interests being sold to investors. Shane Plummer, another of David Plummer’s sons employed by ClassicStar, testified that he discussed the shortfall a number of times with Ferguson, who understood that the quarter-horse pairings were being listed only on paper with the expectation that they would be exchanged for other interests at a later time. (R. 1701, Ex. 30, at 72-84.) Other evidence showed that Classic Star and GeoStar principals, including Ferguson and Parrott, knew that investors were being assigned nonexistent placeholder horses until they could be convinced to convert their interests into oil and gas programs.

Considering this evidence, no reasonable juror could accept Defendants’ argument that the Plummers deceived them and concealed the fact that the Mare Lease Program was drastically oversold. Defendants depict the arrangement between ClassicStar and GeoStar as being at arm’s length, with the Plummers operating ClassicStar without the knowledge, input, or control of GeoStar executives. On the contrary, between 2001 and 2004, the chronic shortfall of horses in the Mare Lease Program was a near-constant item of discussion between the Plummers and Ferguson, Robinson, Parrott, and others. In their correspondence, various tactics were suggested to conceal the shortfall from investors, including changing language in the mare lease agreements to make investors’ interests more ambiguous, (R. 1701, Ex. 98, at 3,) and pushing more investors to convert their mare lease interests into Gastar stock, (R. 1701, Ex. 98, at 5.) Based on this evidence, no reasonable juror could 486*486 have believed that Defendants were unaware of the overselling of mare lease interests.

Second, Defendants argue that they had no knowledge of the nature of First Equine Energy Partners, or FEEP. To disguise the fact that ClassicStar did not own enough mares to fulfill its obligations to Mare Lease Program investors, Defendants and the Plummers encouraged the investors to convert their interests in the Program into interests in other companies. One of these companies was FEEP, an investment vehicle that purported to offer investors oil and gas interests combined with various equine interests. In reality, however, FEEP existed solely to allow Defendants and the Plummers to move investors out of the oversold Mare Lease Program when they no longer wished to offer shares in their mining companies. FEEP was never properly funded by GeoStar, and its assets were either small or entirely fictitious.

The uncontroverted evidence submitted by Plaintiffs indicated that neither GeoStar nor its subsidiary, GeoStar Equine Energy, Inc., ever transferred any oil and gas assets to FEEP, even as contrary representations were made to investors. (R. 1701, Ex. 68; Ex. 71, at 4; Ex. 72.) Shane Plummer described conversations with Ferguson regarding GeoStar’s understanding that investors’ quarter-horse interests were not actually being transferred in exchange for interests in FEEP. (R. 1701, Ex. 30, at 206-07.) Rather, the abstract “values” associated with the horses were transferred, but the interests in the horses themselves were not, primarily because many of those quarter-horses existed only on paper. (R. 1701, Ex. 30, at 206-07.)

Contrary to Defendants’ protestations, GeoStar executives were intimately involved in the creation and development of FEEP. Robinson and Parrott helped draft FEEP’s private placement memoranda and sat on its advisory committee, and Ferguson was named its tax partner and president of its managing company. No reasonable juror could conclude that GeoStar and its executives, who were so intimately involved in the creation and management of FEEP, were somehow caught by surprise that FEEP had no assets. Defendants clearly participated in the use of FEEP as a vehicle to further conceal their fraudulent overselling of interests in the Mare Lease Program.

Finally, Defendants criticize the district court’s use of the circumstantial evidence of GeoStar’s financial control of ClassicStar to help establish GeoStar’s intent to defraud Plaintiffs. Defendants again argue that it was ClassicStar and the Plummers who engineered and implemented the Mare Lease Program; GeoStar, according to them, was merely a faraway and unobservant parent. However, the evidence established that GeoStar exercised considerable control over both the finances and the operations of ClassicStar. GeoStar executives, including Ferguson, Robinson, and Parrott, were in near-constant communication with the Plummers. (See, e.g., R. 1701, Ex. 98.) GeoStar controlled ClassicStar’s operating account, which contained virtually all of ClassicStar’s funds. Robinson and Ferguson were co-managers of ClassicStar. Robinson, as CEO and President of GeoStar, made all fundamental decisions regarding Classic Star’s operations and finances, including its management of the Mare Lease Program.

The district court did not rely on this evidence as the exclusive basis for its finding that Defendants intended to defraud Plaintiffs, but merely referenced GeoStar’s considerable operational control over ClassicStar to further undermine Defendants’ argument that the ClassicStar fraud was designed and perpetrated only by the 487*487 Plummers. Considering the evidence of GeoStar’s involvement in the Mare Lease Program, the knowledge of GeoStar executives about the massive overselling of mare lease interests, GeoStar’s participation in the creation of FEEP, and GeoStar executives’ financial and operational control over ClassicStar, Defendants’ assertion that they had no relevant knowledge is thoroughly implausible. At the very least, Defendants acted recklessly “with respect to potentially misleading information,” and no more is required to establish fraudulent intent. See Heinrich, 668 F.3d at 404. Therefore, the district court properly found that Defendants could not establish a genuine dispute regarding their intent to defraud.

B. Causation

Defendants next assert that Plaintiffs did not establish proximate causation. Plaintiffs in a civil RICO action must allege and prove that they were “injured in [their] business or property by reason of a violation of [18 U.S.C. § 1962].” 18 U.S.C. § 1964(c). The Supreme Court has repeatedly held that plaintiffs attempting to assert an injury “by reason of” a RICO violation must demonstrate both but-for causation and proximate causation. Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 653-54, 128 S.Ct. 2131, 170 L.Ed.2d 1012 (2008) (citing Holmes, 503 U.S. at 268, 112 S.Ct. 1311). Plaintiffs must show “some direct relation between the injury asserted and the injurious conduct alleged.” Holmes, 503 U.S. at 268, 112 S.Ct. 1311. The Supreme Court has emphasized that this provision, like the RICO statute generally, is to be “liberally construed to effectuate [the statute’s] remedial purposes.” Sedima, 473 U.S. at 498, 105 S.Ct. 3275 (quoting Pub.L. No. 91-452, § 904(a), 84 Stat. 947).

Although civil RICO plaintiffs must establish proximate causation, they need not necessarily show that they relied on any misrepresentations.[3] See Bridge, 553 U.S. at 661, 128 S.Ct. 2131. Plaintiffs need only show that the defendants’ wrongful conduct was “a substantial and foreseeable cause” of the injury and the relationship between the wrongful conduct and the injury is “logical and not speculative.” Trollinger v. Tyson Foods, Inc., 370 F.3d 602, 615 (6th Cir.2004). Defendants argue that they could not have caused any losses because Plaintiffs were well-aware of various aspects of the Mare Lease Program fraud. Because Plaintiffs were knowing participants in the scheme to obtain fraudulent tax deductions, the argument goes, Defendants’ conduct could not have been a “substantial and foreseeable cause” of Plaintiffs’ losses.

First, Defendants point to evidence that a number of the Plaintiffs were aware that the Thoroughbreds originally destined for their mare lease packages were being replaced with less valuable quarter-horses. But this knowledge is immaterial. The fraud was predicated on Plaintiffs being misled into believing that the value of their mare lease packages was what they had paid for them; it had nothing to do with the types of horses that were populating the packages. Some of the Plaintiffs undoubtedly were aware that their mare lease packages contained quarter-horses; indeed, one of the Plaintiffs specifically requested quarter-horses. (R. 1815, Ex. 6, 488*488 at 258.) However, Plaintiffs were never told that the Mare Lease Program did not contain anywhere near enough horses — Thoroughbreds or quarter-horses — to fulfill their mare lease packages. There is no genuine dispute that Defendants concealed the massive overselling of mare lease interests.

Second, Defendants assert that Plaintiffs knew of the cozy relationship between ClassicStar and NELC. This knowledge, they say, should have given Plaintiffs notice that the tax deductions were not legitimate. The Tax Code permits the deduction of certain business expenses when the money used in the transaction was obtained through financing, but only when those funds are actually “at risk,” meaning either that the taxpayer is personally liable for the repayment of the loan, or the loan is secured by an unrelated piece of property. See 26 U.S.C. § 465(b)(2). The Code specifies that funds are not considered at risk if they are borrowed from an entity with an interest in the business activity, a related entity, or a “related person … engaged in trades or business under common control.” Id. § 465(b)(3).

The question is not whether NELC and ClassicStar were actually related entities within the meaning of the Tax Code, thus rendering Plaintiffs’ tax deductions improper. The question is whether Plaintiffs knew that they would not be personally liable for the loans or that NELC and ClassicStar were related in a way that would disqualify their deductions. Some of the Plaintiffs were indeed aware that NELC and ClassicStar were affiliated in some way, but there was no evidence that any of the Plaintiffs knew that ClassicStar provided all of NELC’s funds or that they would not be required to repay their NELC loans. Spencer Plummer told one of the Plaintiff’s financial advisors that because his uncle, Gary Thomson (David Plummer’s brother-in-law), owned and operated NELC, “we can control him and what he does.” (R. 1701, Ex. 7, at 8.) But this information is not materially related to whether Plaintiffs’ funds were “at risk” within the meaning of the Tax Code.

Plaintiffs may have believed that ClassicStar could influence NELC to set favorable loan terms, but they could not have known that NELC was simply a conduit through which ClassicStar funds flowed in a three-way sham transaction. At all times, Defendants referred to NELC as “a national lender on approved credit,” (R. 1701, Ex. 9, at 7,) thus concealing its true nature. Furthermore, although some of the Plaintiffs believed that their long-term NELC loans would be repaid with the proceeds of their investments with GeoStar and ClassicStar, (see R. 1713, at 5-6,) there is no evidence that any of the Plaintiffs thought their loans would be forgiven altogether. Without some indication that Plaintiffs had knowledge of a fact that would disqualify the tax deductions under the Tax Code’s at-risk rules, Defendants cannot establish a genuine issue of material fact on this basis.[4]

Third, Defendants challenge the claim that Plaintiffs were deceived by opinion letters prepared by law firms that had an undisclosed financial relationship with ClassicStar. Defendants argue that those opinion letters did in fact disclose that ClassicStar’s law firms, Hanna Strader 489*489 and Handler Thayer, were to be paid by ClassicStar for preparing the letters. Furthermore, the letters warned that the firms had “a financial incentive for clients to participate” in the Mare Lease Program. (R. 1888, Ex. 4, at 12.) However, both law firms led Plaintiffs to believe that their financial incentives were based on the preparation of opinion letters, when they were actually receiving commissions based on a percentage of Plaintiffs’ mare lease purchases. To conceal these incentives from Plaintiffs, Hanna Strader drew up documentation referring to the commissions as “legal fees” instead of “commissions.” (R. 1701, Ex. 19, at 78-79.)

Because of these misrepresentations and half-truths, Plaintiffs would have had no reason to doubt the legitimacy of their promised tax deductions, and certainly no reason to request an audit of the Mare Lease Program’s assets. One of the Plaintiffs, Bryan Nelson, did have Hanna Strader’s opinion letter reviewed by KPMG, an outside accounting firm, and that firm raised no red flags about the tax deductions themselves, concluding that it would sign and submit Nelson’s tax return. (R. 1815, Ex. 18.) KPMG did recommend that another law firm examine the Program, but only to protect Nelson from the possible imposition of accuracy-related penalties by the IRS, not because it had any doubt about the legitimacy of the Mare Lease Program itself. Defendants presented no evidence that any of the Plaintiffs knew or should have known that ClassicStar’s law firms had given advice about the tax treatment of their investments without properly vetting the Program.

Finally, Defendants argue that Plaintiffs knew that FEEP had no assets and was being used merely as a tool for Plaintiffs to pay off their NELC debt. This argument is particularly weak. Plaintiffs do not dispute that they believed the FEEP conversions would provide them an attractive alternative investment to the Mare Lease Program — with additional promised tax benefits. Plaintiffs were also told that the return on their investments in FEEP could be used to pay off their NELC loans. For any such return to materialize, however, Defendants would have had to actually transfer oil and gas interests into FEEP, but they never did so. Plaintiffs could not have known that FEEP owned virtually no assets, nor could they have known that their investments in FEEP would ultimately prove worthless.

Defendants have not established the existence of any disputed issues of material fact with respect to whether their fraudulent conduct was “a substantial and foreseeable cause” of Plaintiffs’ losses. Plaintiffs’ limited knowledge about various aspects of the fraudulent scheme was largely irrelevant to their decisions to do business with Defendants. Rather, those decisions were proximately caused by numerous and repeated misrepresentations by Defendants and others in which the key pieces of information — the overselling of mare lease interests and the illusory nature of NELC and FEEP — were never disclosed. Plaintiffs were undoubtedly engaged in an attempt to take advantage of the arcane and often labyrinthine nature of the U.S. Tax Code, but their project was a lawful one.[5] The investors could not have known that Defendants 490*490 were using their interest in tax savings to fraudulently channel money into GeoStar’s oil and gas projects. In the absence of any genuinely disputed issues of material fact, the district court properly found that Defendants’ conduct proximately caused Plaintiffs’ injuries.

C. Existence of a RICO “Enterprise”

Defendants next challenge the existence of a qualifying RICO enterprise. The RICO statute makes it unlawful for “any person … associated with any enterprise… to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity.” 18 U.S.C. § 1962(c). A RICO “person” can be either an individual or a corporation. Id. § 1961(3). A RICO “`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.” Id. § 1961(4). The enterprise itself is not liable for RICO violations; rather, the “persons” who conduct the affairs of the enterprise through a pattern of racketeering activity are liable. United States v. Philip Morris USA, Inc., 566 F.3d 1095, 1111 (D.C.Cir.2009). To establish liability under § 1962(c), a plaintiff “must allege and prove the existence of two distinct entities: (1) a `person’; and (2) an `enterprise’ that is not simply the same `person’ referred to by a different name.” Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161, 121 S.Ct. 2087, 150 L.Ed.2d 198 (2001).

This principle is known as the “non-identity” or “distinctness” requirement. Begala v. PNC Bank, Ohio, N.A., 214 F.3d 776, 781 (6th Cir.2000). “Under RICO, a corporation cannot be both the `enterprise’ and the `person’ conducting or participating in the affairs of that enterprise.” Id. As we explained in Begala:

Under the “non-identity” or “distinctness” requirement, a corporation may not be liable under section 1962(c) for participating in the affairs of an enterprise that consists only of its own subdivisions, agents, or members. An organization cannot join with its own members to undertake regular corporate activity and thereby become an enterprise distinct from itself.

Id. If RICO imposed liability on a corporation for the ordinary conduct of its agents and employees, every claim of corporate fraud would automatically become a violation of RICO. See Fitzgerald v. Chrysler Corp., 116 F.3d 225, 226 (7th Cir.1997) (“The courts have excluded this far-fetched possibility by holding that an employer and its employees cannot constitute a RICO enterprise.”).

The federal courts have encountered significant conceptual difficulties when attempting to apply the distinctness requirement in the context of complex relationships among affiliated and non-affiliated corporations and individuals. See, e.g., Haroco, Inc. v. Am. Nat’l Bank & Trust Co. of Chicago, 747 F.2d 384, 401 (7th Cir.1984) (“Discussion of this person/enterprise problem under RICO can easily slip into a metaphysical or ontological style of discourse — after all, when is the person truly an entity `distinct’ or `separate’ from the enterprise?”). While all courts agree that a corporation cannot be both a RICO “person” and the “enterprise” whose affairs are conducted by that person, see Cedric Kushner, 533 U.S. at 161-62, 121 S.Ct. 2087, courts disagree over when and whether a corporate parent can be liable under RICO for participating in an association-in-fact that consists of itself, its owners and employees, and its subsidiaries. Compare Fitzgerald, 116 F.3d at 227-28 (finding that the Chrysler Corporation was not a “person” distinct from the “enterprise” 491*491 consisting of Chrysler and its dealerships and agents) with Fleischhauer v. Feltner, 879 F.2d 1290, 1297 (6th Cir.1989) (finding that an individual and his wholly-owned corporations together constituted an “enterprise”).

Plaintiffs alleged that Defendants conducted the affairs of an association-in-fact enterprise, which they label the “ClassicStar Enterprise,” consisting of each of the Defendants in this appeal, as well as numerous other entities, including Gastar, the Plummers, and NELC. Plaintiffs assert that this group of corporations and individuals formed an association-in-fact enterprise whose affairs were conducted by each of the persons who comprised the enterprise, with the goal of funneling investors’ money through the Mare Lease Program and into other interests that they controlled. Defendants dispute the existence of an enterprise sufficiently distinct from GeoStar itself. They argue that the associated entities are in reality merely GeoStar’s agents and subsidiaries, and therefore that RICO’s distinctness requirement cannot be satisfied.

The number of different approaches to the distinctness analysis roughly mirrors the number of cases that have addressed it. The analysis is so fact-intensive that a generic test is difficult to formulate. The cases run the gamut: some consider a parent corporation and its subsidiaries to be distinct from a RICO enterprise if the parent and the subsidiaries play different roles in the scheme, Lorenz v. CSX Corp., 1 F.3d 1406, 1412 (3d Cir.1993); some ask whether the corporate persons are distinct from the enterprise in the way that RICO envisions, Fitzgerald, 116 F.3d at 227; and some require that plaintiffs establish differences in corporate decision-making structures and show businesses sufficiently delineated to justify the conclusion that the alleged RICO activity is not the activity of a single, composite entity, see Riverwoods Chappaqua Corp. v. Marine Midland Bank, N.A., 30 F.3d 339, 344-45 (2d Cir.1994).

Our approach has not been completely clear. In Fleischhauer v. Feltner, 879 F.2d 1290 (6th Cir.1989), we seemed to take into account only whether the corporate defendant “person” was legally distinct from the alleged RICO enterprise. Id. at 1296-97. The plaintiff in Feltner alleged the existence of an enterprise comprised of a number of companies, all owned by one individual defendant. The defendant argued that because he owned 100% of the corporations, “they were the equivalent of his `right arm,’ with whom he could not `conspire.'” Id. at 1297. We rejected the defendant’s argument, finding that “the fact that [the individual defendant] owned 100% of the corporations’ shares does not vitiate the fact that these corporations were separate legal entities.” Id.

In Davis v. Mutual Life Insurance Co. of New York, 6 F.3d 367 (6th Cir.1993), we seemed to take a more functionalist approach. In a scheme vaguely similar to that which was perpetrated by Defendants in this case, an insurance agent named Fletcher, his insurance agency, and the Mutual Life Insurance Company of New York (“MONY”) sold insurance policies by emphasizing the tax advantages that could be realized if certain deductions were taken. Id. at 371. After the IRS disallowed these deductions, the investors sued MONY and Fletcher under RICO, alleging that they had acted as RICO “persons” to conduct the affairs of Fletcher’s insurance agency as an “enterprise” through a pattern of racketeering activity. Id. at 372. MONY argued that the distinctness requirement had not been met because Fletcher and the agency were merely MONY’s agents and therefore were indistinct from MONY itself. Id. at 377. 492*492 Rather than asking whether the entities were legally distinct, as we had in Fletcher, we evaluated whether they were factually distinct. Id. Finding that they were, we found that RICO’s distinctness requirement was satisfied, notwithstanding the fact that the agency and Fletcher had acted as MONY’s agents. Id. at 377-78.

We have not addressed the question of distinctness in the context of corporate relationships since Davis was decided in 1993. The law in this area has slowly developed in other circuits, with no clear test or style of analysis emerging. Most courts have rejected the separate-legal-identity theory used in Feltner, reasoning that if a corporate defendant can be liable for participating in an enterprise comprised only of its agents — even if those agents are separately incorporated legal entities — then RICO liability will attach to any act of corporate wrong-doing and the statute’s distinctness requirement will be rendered meaningless. See, e.g., Riverwoods, 30 F.3d at 344 (“Because a corporation can only function through its employees and agents, any act of the corporation can be viewed as an act of such an enterprise, and the enterprise is in reality no more than the defendant itself.”).

In 2001, the Supreme Court seemed to revive the separate-legal-identity theory, if only in the narrow context of a corporation wholly owned by a single individual. In Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 121 S.Ct. 2087, 150 L.Ed.2d 198 (2001), the Court found that the defendant, Don King, was distinct from his wholly-owned corporation for the purposes of RICO. The Court found that because the individual defendant and his corporation were separate legal entities with “different rights and responsibilities,” the two were sufficiently distinct. See id. (“[W]e can find nothing in [RICO] that requires more `separateness’ than that.”).

Out of the meandering and inconsistent case law from this and other circuits, as well as the Supreme Court’s decision in Cedric Kushner, two important principles emerge: 1) individual defendants are always distinct from corporate enterprises because they are legally distinct entities, even when those individuals own the corporations or act only on their behalf; and 2) corporate defendants are distinct from RICO enterprises when they are functionally separate, as when they perform different roles within the enterprise or use their separate legal incorporation to facilitate racketeering activity. Applying these principles in this case reveals that each Defendant is sufficiently distinct from the RICO enterprise to satisfy the statute’s distinctness requirement.

1. GeoStar Was Distinct From the Enterprise

Defendants do not challenge the district court’s finding that an enterprise did in fact exist, nor could they easily do so given the Supreme Court’s repeated admonitions that the term “enterprise,” like the RICO statute itself, should be interpreted broadly. See Boyle v. United States, 556 U.S. 938, 944, 129 S.Ct. 2237, 173 L.Ed.2d 1265 (2009) (“[T]he very concept of an association in fact is expansive.”); Scheidler, 510 U.S. at 257, 114 S.Ct. 798 (“RICO broadly defines `enterprise.'”); Sedima, 473 U.S. at 497, 105 S.Ct. 3275 (“RICO is to be read broadly.”). Defendants challenge only the district court’s conclusion that the enterprise was distinct from GeoStar itself. Defendants argue that the enterprise consisted only of GeoStar’s agents, subsidiaries, and affiliates. Consequently, they claim that GeoStar cannot be liable under RICO because it cannot be both a RICO “person” and the “enterprise” whose affairs are conducted by that person.

493*493 Two of the key participants in the enterprise were corporate entities that GeoStar dominated and controlled: Gastar and ClassicStar, LLC. Typically, a parent corporation and its subsidiaries do not satisfy the distinctness requirement because they cannot form an enterprise distinct from the parent. See, e.g., Riverwoods, 30 F.3d at 344. However, the distinctness requirement may be satisfied when the parent corporation uses the separately incorporated nature of its subsidiaries to perpetrate a fraudulent scheme. See Bucklew v. Hawkins, Ash, Baptie & Co., 329 F.3d 923, 934 (7th Cir.2003) (finding that a corporate defendant is distinct from an enterprise consisting of itself and its subsidiaries when “the enterprise’s decision to operate through subsidiaries rather than divisions somehow facilitate[s] its unlawful activity”); Securitron Magnalock Corp. v. Schnabolk, 65 F.3d 256, 263-64 (2d Cir.1995) (finding that related corporations with distinct markets and roles in the scheme were distinct from the RICO enterprise comprised of each of them together). It would be strange indeed to absolve a parent corporation of liability for doing precisely what RICO was designed to prevent: the use of an association of legally distinct entities “as a vehicle through which unlawful … activity is committed.” Cedric Kushner, 533 U.S. at 164, 121 S.Ct. 2087 (internal quotation marks omitted).

GeoStar and each of its subsidiaries performed distinct roles that helped facilitate the fraudulent scheme. GeoStar’s role was that of an external, financially stable guarantor that stood behind the various conversion opportunities, including FEEP, that were presented to investors to help conceal the overselling of mare lease interests and to encourage the flow of cash through the Mare Lease Program to other investments. According to uncontroverted expert testimony provided by Plaintiffs, ClassicStar’s role was to “provide a funding source for GeoStar that was attractive to investors.” (R. 1701, Ex. 22, at 11.) Defendants admit that GeoStar brought to the table its traditional business expertise in oil and gas mining, while ClassicStar contributed its expertise in horse breeding. See Appellant’s Br. 53-54. GeoStar needed the reputation, know how, experience, and legitimacy of the Plummers and ClassicStar in order to entice investors into the Mare Lease Program. Gastar’s role was to provide a mechanism for concealing the shortage of horses in the Mare Lease Program by offering investors an alternative investment in the form of publicly traded stock. Because the enterprise successfully carried out its fraudulent scheme by enlisting the participation of GeoStar and its separately incorporated subsidiaries, with each playing a key role, we conclude that the enterprise was sufficiently distinct from GeoStar itself.

2. The Enterprise Consisted of More Than Just GeoStar Subsidiaries

Even if GeoStar were not considered distinct from Gastar and ClassicStar, the alleged RICO enterprise was comprised of other entities that were neither owned by GeoStar nor acting as its agents. The key player that falls into this category is NELC, whose owner and sole employee was David Plummer’s brother-in-law, Gary Thomson. By facilitating oversized tax deductions, NELC was an important part of the scheme to lure investors into the Mare Lease Program. There is no question that GeoStar neither owned nor directly controlled NELC, even though it obviously influenced its activities through Thomson. NELC’s ostensible status as an independent third-party lender was used to convince investors that ClassicStar’s financing scheme was legitimate. As with ClassicStar and Gastar, NELC’s separate corporate existence and purported independence 494*494 were key aspects of the fraudulent scheme. On this basis alone, the district court properly concluded that the enterprise and GeoStar were distinct.[6]

Because the district court correctly found that each of the Defendants was distinct from the alleged RICO enterprise, it properly held each of them liable under RICO, either as individually culpable RICO “persons,” or by holding the corporations vicariously liable for the RICO violations of their employees. See Davis, 6 F.3d at 379-80 (applying standard vicarious liability principles in the RICO context, provided that the corporate defendants are distinct from the RICO enterprise). Defendants have introduced no evidence that would create a genuine dispute about any material facts, and the district court properly concluded that Plaintiffs were entitled to judgment as a matter of law.

II. State Law Claims

In addition to violating RICO, Plaintiffs alleged that Defendants are liable under Kentucky state law for fraud and breach of contract. Plaintiffs argued, and the district court found, that Defendants knowingly misrepresented the nature of the Mare Lease Program and other related investment programs, and that Plaintiffs relied on those fraudulent representations to their detriment, thus satisfying the definition of fraud in Kentucky. See United Parcel Serv. Co. v. Rickert, 996 S.W.2d 464, 468 (Ky.1999). The district court further found that GeoStar was liable for the breaches of mare lease agreements by ClassicStar — breaches that Defendants apparently do not dispute. We agree with the district court that Defendants are liable under these common law theories, but we decline to conduct an exhaustive review of these claims because Plaintiffs will be fully compensated by the RICO damages awarded by the district court. Regardless of the theory of liability, Plaintiffs losses remain the same. Having upheld the district court’s judgment on the RICO claim, any further damages would be duplicative. See Best v. Cyrus, 310 F.3d 932, 936 (6th Cir.2002) (declining to address an alternative theory of liability after finding in a plaintiff’s favor on a parallel theory).

III. Prejudgment Interest

We review for an abuse of discretion the district court’s decision to award prejudgment interest. Gentek Bldg. Prods., Inc. v. Sherwin-Williams Co., 491 F.3d 320, 333 (6th Cir.2007). An abuse of discretion arises when the reviewing court is left with the “definite and firm conviction that the trial court committed a clear error of judgment. A district court abuses its discretion when it relies on clearly erroneous findings of fact, or when it improperly applies the law or uses an erroneous legal standard.” United States ex rel. A+ Homecare, Inc. v. Medshares Mgmt. Group, Inc., 400 F.3d 428, 450 (6th Cir.2005).

As a general matter, prejudgment interest is intended to make the plaintiff 495*495 whole; it “is an element of complete compensation.” EEOC v. Wilson Metal Casket Co., 24 F.3d 836, 842 (6th Cir.1994) (examining prejudgment interest in the context of Title VII); see also Shelby Cnty. Health Care Corp. v. Majestic Star Casino, 581 F.3d 355, 376 (6th Cir.2009) (finding that in the ERISA context, an award of prejudgment interest is “compensatory, not punitive”). There is virtually no Sixth Circuit case law describing the standards for awarding prejudgment interest in the context of RICO. However, when defendants are found liable under other federal statutes like ERISA, we have held that where the statute does not mandate the award of prejudgment interest, “the district court may do so at its discretion in accordance with general equitable principles.” Shelby Cnty. Health Care, 581 F.3d at 376; see also Frymire v. Ampex Corp., 61 F.3d 757, 774 (10th Cir. 1995) (finding that an award of prejudgment interest for violations of the federal WARN Act should reflect “fundamental considerations of fairness”).

The Second Circuit has held that the decision to award prejudgment interest “should be a function of (i) the need to fully compensate the wronged party for actual damages suffered, (ii) considerations of fairness and the relative equities of the award, (iii) the remedial purpose of the statute involved, and/or (iv) such other general principles as are deemed relevant by the court.” Wickham Contracting Co. v. Local Union No. 3, IBEW, AFL-CIO, 955 F.2d 831, 833-34 (2d Cir. 1992). Because prejudgment interest is compensatory in nature, it should not be awarded if it would result in the overcompensation of the plaintiff. Id. at 834. “Similarly, prejudgment interest should not be awarded if the statutory obligation on which interest is sought is punitive in nature.” Id.

Although the Supreme Court has not squarely decided this issue, it has strongly suggested that a treble-damages award under RICO is not punitive in nature. Like treble-damages provisions under the antitrust laws, the damages provision in RICO is “remedial in nature.” PacifiCare Health Sys., Inc. v. Book, 538 U.S. 401, 406, 123 S.Ct. 1531, 155 L.Ed.2d 578 (2003) (distinguishing RICO from treble damages under the False Claims Act, which are “essentially punitive in nature”). RICO damages are “designed to remedy economic injury by providing for the recovery of treble damages, costs, and attorney’s fees.” Agency Holding Corp. v. Malley-Duff & Assoc., Inc., 483 U.S. 143, 151, 107 S.Ct. 2759, 97 L.Ed.2d 121 (1987). “Although there is some sense in which RICO treble damages are punitive, they are largely compensatory in the special sense that they ensure that wrongs will be redressed in light of the recognized difficulties of itemizing damages.” Liquid Air Corp. v. Rogers, 834 F.2d 1297, 1310 n. 8 (7th Cir. 1987). Because RICO is essentially compensatory in nature, prejudgment interest awards are not categorically inappropriate, as Defendants assert.

Indeed, courts have held that because RICO is essentially compensatory and contains no provision barring prejudgment interest, any such award is within the district court’s sound discretion. See Maiz v. Virani, 253 F.3d 641, 663 n. 15 (11th Cir. 2001); Abou-Khadra v. Mahshie, 4 F.3d 1071, 1084 (2d Cir.1993) (describing the district court’s discretion as “broad”). Some courts choose to deny requests for prejudgment interest in cases where plaintiffs already stand to receive treble damages under RICO, reasoning that the trebled damages are sufficient to adequately compensate plaintiffs for their losses. See, e.g., Bingham v. Zolt, 810 F.Supp. 100, 101-02 (S.D.N.Y.1993) (finding that a 496*496 RICO treble damages award “obviates the need to award prejudgment interest”); Nu-Life Constr. Corp. v. Bd. of Educ. of N.Y., 789 F.Supp. 103, 105 (E.D.N.Y.1992). Other courts have found such awards are appropriately coupled with treble damages under RICO. See Allstate Ins. Co. v. Palterovich, 653 F.Supp.2d 1306, 1328 (S.D.Fla. 2009); D’Orange v. Feely, 894 F.Supp. 159, 163 (S.D.N.Y.1995). At least one district court, in a case involving a large and complex financial fraud involving RICO claims and state-law fraud claims, chose to award prejudgment interest on the plaintiffs’ state-law claims but not on their federal RICO claim. See In re Crazy Eddie Sec. Litig., 948 F.Supp. 1154, 1166-67 (E.D.N.Y.1996). In short, the district court has considerable discretion to fashion a prejudgment interest award in the RICO context.

Prejudgment interest may be particularly appropriate “where treble damages do not adequately compensate a plaintiff for the actual damages suffered, or where a defendant has sought unreasonably and unfairly to delay or obstruct the course of litigation.” Bingham, 810 F.Supp. at 102. Plaintiffs argue that Defendants did attempt, at virtually every turn, to delay and obstruct the course of this litigation. None of the individual Defendants agreed to offer testimony, instead asserting their Fifth Amendment rights. They had every right to refuse to testify, of course, but Defendants then denied Plaintiffs other avenues of discovery. For example, the designees of two of GeoStar’s subsidiaries were scheduled to be deposed in August 2009. Without any warning, the representatives simply failed to appear on the morning of the deposition, having notified their counsel 45 minutes before that they were unwilling to testify. (See R. 1331, at 2.) No explanation was ever offered for this failure.

A particularly egregious example of Defendants’ obstruction occurred when GeoStar’s designated witness, its accountant William Bolles, failed to appear for the second and third days of his scheduled deposition. (R. 2441, at 2.) Because each of the other GeoStar principals had refused to testify, Bolles’ deposition was extremely important to the development of Plaintiffs’ case. The district court sanctioned GeoStar for this failure, finding that Plaintiffs’ ability to conduct meaningful discovery into GeoStar’s conduct was prejudiced as a result. If we were deciding in the first instance whether these discovery abuses warranted an award of prejudgment interest, we may have chosen not to impose them. However, the discretion to award interest is not ours, but the district court’s.[7] Because Defendants unfairly delayed the course of litigation and because they provide no strong arguments for why prejudgment interest was inappropriate in this case, the district court did not abuse its “broad discretion” in awarding prejudgment interest to Plaintiffs.[8]

497*497 Alternatively, Defendants argue that even if an award of prejudgment interest was appropriate, it should have been calculated at the federal interest rate rather than the much higher Kentucky statutory interest rate of 8%. While it is well-accepted that a federal court sitting in diversity should use the state-law interest rate when awarding prejudgment interest, Gentek Bldg. Prods., 491 F.3d at 333, a federal court hearing a federal claim should apply federal common law rules, see Snow v. Aetna Ins. Co., 998 F.Supp. 852, 856 (W.D.Tenn.1998). Although this may give Defendants some hope, district courts are free to use state law to calculate prejudgment interest even on federal claims. See Ford v. Uniroyal Pension Plan, 154 F.3d 613, 619 (6th Cir.1998). We have held that the method for calculating prejudgment interest remains in the discretion of the district courts, and they are free to “look to state law for guidance in determining the appropriate prejudgment interest rate” if they so choose. Id.; see also Smith v. Am. Int’l Life Assurance Co. of N.Y., 50 F.3d 956, 958 (11th Cir.1995). But see Thomas v. iStar Fin., Inc., 652 F.3d 141, 150 (2d Cir.2010) (applying the federal rate to judgments based on combined federal and state claims).

Defendants provide no reason why the Kentucky statutory interest rate would result in overcompensation to Plaintiffs. Cf. Ford, 154 F.3d at 618-19 (finding that the Michigan statutory rate was inappropriate because legislative history showed that it was partially punitive in nature). As with the district court’s decision to impose prejudgment interest, the method for calculating it lies within that court’s discretion. Because of the expansive nature of the fraud in this case and Defendants’ unfair obstruction of the pretrial proceedings below, we find that the district court did not abuse its discretion when it awarded prejudgment interest at the Kentucky statutory interest rate.


For the foregoing reasons, we AFFIRM the district court’s grant of summary judgment.

MERRITT, Circuit Judge, concurring in part and dissenting in part.

I. Seventh Amendment Requirements

This case, in which the trial court awarded a summary judgment of $65 million to the plaintiffs, is about the role of judge and jury in a constitutional system requiring that, in civil trials of legal claims in federal court, “the right of trial by jury shall be preserved.” U.S. Const. amend. VII.[1] The district court claimed for itself the determination that the defendants caused the plaintiffs $16.5 million in damages — a figure quadrupled to $65 million after application of RICO’s treble damages provision and the addition of $15.6 million prejudgment interest — despite substantial evidence that the plaintiffs were themselves at least partly to blame for their losses. Specifically, there is evidence that would allow a reasonable jury to find that the plaintiffs invested not because of the defendants’ misrepresentations but rather because of their own greed for tax deductions. The majority now sanctions the district court’s error and fails to even discuss the summary judgment and Seventh Amendment issues. The legitimacy of summary judgment 498*498 ceases when it devolves into “trial by affidavits.” It remains a bedrock principle that “[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

As the Supreme Court long ago explained,

Twelve men of the average of the community, comprising men of education and men of little education, men of learning and men whose learning consists only in what they have themselves seen and heard, the merchant, the mechanic, the farmer, the laborer; these sit together, consult, apply their separate experience of the affairs of life to the facts proven, and draw a unanimous conclusion…. It is assumed that twelve men know more of the common affairs of life than does one man, that they can draw wiser and safer conclusions from admitted facts thus occurring than can a single judge.

R.R. Co. v. Stout, 84 U.S. (17 Wall.) 657, 664, 21 L.Ed. 745 (1874). In keeping with this sentiment, the Supreme Court has continually vindicated the Seventh Amendment against whatever novel procedural device has arisen in the name of efficiency and saving time and effort. “Maintenance of the jury as a fact-finding body is of such importance and occupies so firm a place in our history and jurisprudence that any seeming curtailment of the right to a jury trial should be scrutinized with the utmost care.” Dimick v. Schiedt, 293 U.S. 474, 486, 55 S.Ct. 296, 79 L.Ed. 603 (1935) (holding additur unconstitutional).[2]

Although the district court intoned the familiar summary judgment standards, its opinion does not evidence any real engagement with the record or with the conflicting inferences that might be drawn from that record. The opinion reads as if the district court had tried the case itself. On the question of damages, in particular, the court simply accepted the plaintiffs’ theory of the case because it saves time to avoid a trial. That is impermissible summary-judgment procedure.

I would not object if my colleagues had limited summary judgment to the question of the defendants’ fraudulent intent. The defendants failed to call their knowledge into dispute with affidavits, and there is no other evidence to support the defendants’ version of events. The inference the defendants suggest — that they knew nothing of the horse fraud — finds no support in the record. The same cannot be said of causation, for there is more than enough evidence to support the conclusion that the plaintiffs were motivated primarily by a passion for tax deductions that the law does not allow. The defendants’ misrepresentations were irrelevant, a jury might find. The majority ignores or dismisses evidence that the plaintiffs knew the truth about crucial elements of the mare-lease program. From this evidence a jury might reasonably conclude that the plaintiffs understood or were culpably blind to the illegality of the tax deductions advertised by the defendants. The jury might then further conclude that the plaintiffs 499*499 were not defrauded, but rather that they invited the transaction as an occasion for colorable tax deductions that the IRS might not investigate. And such a conclusion could justify the jury in denying the plaintiffs a judgment.

II. The Factual Issues

The important point about the mare-lease program is that it was not a simple exchange of cash for horses. It was primarily about tax breaks. If the plaintiffs knew those tax breaks were bad — whether because of a lack of economic substance or for some other reason — then the causal link between the defendants’ actions and the plaintiffs’ losses was broken. Though the majority emphasizes that the plaintiffs did not know about the shortfall of horses, that is contested and does not address the major flaws with the tax scheme, the primary reason for the transactions. There are at least four pieces of evidence to support a conclusion that the plaintiffs knew the tax breaks were unsupportable, and that could lead a reasonable jury to find that the plaintiffs’ contribution to their losses should bar recovery.

1. Evidence that the plaintiffs knew National Equine Lending was not independent from ClassicStar. An essential feature of the mare-lease program was its ability to make long-term loans in order to achieve tax-deductible losses for investors. The scheme could hardly be cruder: 1) investor has past income on which he does not wish to pay taxes; 2) investor borrows a sum equivalent to past income; 3) investor uses borrowed funds on horse breeding, thereby creating a farming loss; and 4) investor uses that loss to wipe out past income, thus avoiding taxes. A key tax requirement for this loss-creation mechanism is that the loans come from a lender independent from the corporation to be benefited by the loan proceeds. The loan may not be the risk of a party selling the tax scheme. But there is evidence here that at least two plaintiffs knew National Equine Lending was related to the seller, ClassicStar. Plaintiff Jaswinder Grover understood that ClassicStar “had influence over [National Equine Lending’s] interest rates and could — had an association or affiliate thereof.” See R. 1714 at 7 n. 19. Plaintiff Bryan Nelson of Nelson Breeders testified that he “suspected” National Equine Lending was affiliated with ClassicStar because of “some of the level that all the loans seemed to go through [National Equine Lending], the way there was kind of just a bit of a wink and a nod in terms of, you know, you’ve got to appear at risk but not really.” See R. 1713 at 5. Despite knowledge of this flaw that would invalidate a large portion of their tax deductions, the plaintiffs invested anyway. Based on this evidence, a jury could reject the plaintiffs’ inconsistent claims that they would not have invested had they known the tax deductions were unsupportable.

The majority does not find this evidence material, because it does not show that “Plaintiffs knew that ClassicStar provided all of [National Equine Lending’s] funds or that they would not be required to repay their [National Equine Lending] loans.” Op. at 488. But as the plaintiffs’ own expert explained, the tax code precludes a taxpayer from deducting the value of a loan — even when he is personally liable on the debt — if the lender is “related” to a corporation to which the loan proceeds will flow. A lender and a corporation are “related” if they are “engaged in trades or business under common control.” See R. 1701-10 at 41-45 (quoting 26 U.S.C. § 465(c)(3)(C)(ii)). Because independence between lender and beneficiary corporation is required to deduct the value of a loan, it is indeed material that the plaintiffs knew of the relationship between National Equine Lending and ClassicStar.

500*500 2. Evidence that the plaintiffs knew the tax opinions were biased. The plaintiffs argue that they are not lawyers and that the opinions of established tax attorneys justified their investment. However, the plaintiffs were aware of a financial relationship between ClassicStar and the firms that provided the opinions. The firms disclosed that ClassicStar was paying for the opinions. Handler Thayer was especially explicit, stating that “legal fees received from ClassicStar, LLC increase with each transaction entered into by a client,” and that “our firm has a financial incentive for clients to participate.” R. 1888-5 at 12. The majority finds it important that the firms did not disclose, in so many words, that ClassicStar was providing them a “commission,” but disclosed just a payment or fee. The relevance of the distinction between a “fee” and a “commission” in this case escapes me. The plaintiffs knew ClassicStar was paying the firms for the opinions, and they knew the opinions were favorable to ClassicStar’s program in every respect. That evidence is surely sufficient for a jury to find that the plaintiffs knew the lawyers were essentially salesmen of the program. It would be reasonable for a jury to infer from this finding that, by relying only on the opinions of compromised attorneys, the plaintiffs did not invest in good faith.

3. Evidence that one plaintiff willfully ignored advice to seek independent tax counsel. In addition to not getting independent legal advice, at least one plaintiff was confronted with the inadequate nature of the tax opinions, yet hastened to invest. The defendants entered into the record an internal memo from an accountant at KPMG, plaintiff Nelson’s accounting firm. R. 1815-18. This memo assessed the lawyer-salesman’s tax opinion and analyzed the probability that, if he took the deduction in reliance on the opinion, Nelson would be assessed a penalty for underpayment of taxes without “reasonable cause,” per 26 U.S.C. § 6664. The memo concluded that the opinion financed by the sellers did not assess the specific facts of Nelson’s situation and that it appeared to be a “promoter” opinion. Nelson’s accountant advised that he disclose the mare-lease investment to the IRS or obtain a second, fact-based opinion in order to ensure that there was reasonable cause for the deduction. Nelson rejected the advice and “indicated that after consultation with his [promoter] attorneys that he wanted to proceed without disclosing the treatment in his tax return, he would not engage [Hanna Strader] to issue an updated opinion, and he would not engage another law firm to get a second opinion letter.” Id. at 5. From this evidence that Nelson relied on a “promoter” opinion to take an unreasonable tax deduction, the jury could conclude that Nelson caused his own harm.

4. Evidence that the plaintiffs continued to invest despite knowing the defendants had an insufficient number of thoroughbreds. The plaintiffs knew the defendants were giving them quarter horses instead of the promised thoroughbreds. No one disputes that, except the majority which states in footnote 4 that “there is no evidence that Plaintiffs had any knowledge of these facts,” i.e., “the overselling of mare leases.” Yet the plaintiffs continued to invest in the mare-lease program and in some instances reinvested. Their willingness to stick with the defendants regardless of whether they delivered the program’s main profit-making asset could lead a jury reasonably to conclude that the plaintiffs were primarily concerned with tax deductions rather than horse breeding. While the quarter-horse substitution may be immaterial to the question of whether the plaintiffs knew of the program’s undercapitalization (as the majority asserts), it is 501*501 material to the plaintiffs’ state of mind, which in turn reaches the issue of causation. A jury could conclude that the plaintiffs intended to take tax breaks regardless of the investments’ underlying substance. This conclusion, along with the other evidence, could justify a finding that the plaintiffs’ overriding intention to avoid taxes was the real cause of their losses.

In sum, when the evidence is viewed collectively, a colorable version of events favorable to the defendants’ argument on causation emerges. In this scenario, the plaintiffs knew their tax attorneys were selling them a scheme, knew they were not receiving a full complement of thoroughbred foals for racing or sale, knew that the company from which they were taking long-term loans was an arm of ClassicStar in violation of the risk requirements of the tax law, and refused to seek independent counsel on the validity of their tax deductions. Despite the warning signs, the plaintiffs plunged headlong into the marelease program for the tax breaks, heedless of whether those breaks had any legal basis. In this scenario, the cause of the plaintiffs’ losses was not the defendants’ fraud but the plaintiffs’ greed. Perhaps a jury would agree with the version of events that the plaintiffs, the district court, and my colleagues spin. But there is a reasonable basis in the record for the alternative conclusion, and that is all that is required for the defendants to survive summary judgment. The defendants should be permitted an attempt to persuade a jury that the plaintiffs caused their own injuries. On this record, that is what the Seventh Amendment demands.

III. The Prejudgment Interest Award

Given this conclusion, I would vacate the entirety of the $65 million damages and remand the case for trial, as the Seventh Amendment requires. But even if I believed summary judgment for the plaintiffs were warranted, I would vacate the $15.6 million prejudgment interest. Assuming for the sake of argument that prejudgment interest should ever be awarded on top of statutory treble damages, the district court’s award was erroneous under the circumstances. The majority correctly explains that federal law is used to determine prejudgment interest on a federal claim such as RICO, but it fails to acknowledge that the district court did not apply federal law. The district court imposed the state statutory interest rate of eight percent after determining the plaintiffs’ damages were “liquidated” under Kentucky law. But whether damages are “liquidated” — a term that Kentucky apparently applies beyond the normal situation of contractual stipulation — is irrelevant under federal law. Under federal law, whether to award prejudgment interest is a matter of equity guided by the need to ensure full compensation, to avoid overcompensation, and to achieve fairness. See Blau v. Lehman, 368 U.S. 403, 414, 82 S.Ct. 451, 7 L.Ed.2d 403 (1962); Rodgers v. United States, 332 U.S. 371, 373, 68 S.Ct. 5, 92 L.Ed. 3 (1947). While a federal court may consult state law as part of its equitable inquiry, it is manifest error for the court to ignore federal law altogether and to mechanically apply a state statutory rate or a state “liquidated damages” penalty. The majority suggests some rationales by which the district court might have concluded that prejudgment interest at the Kentucky statutory rate was fair, but the district court did not actually rely on those rationales in its opinion. Proper concern for federal equitable standards might have caused the district court to decline to pile $15 million prejudgment interest on top of $16 million actual damages that had already been trebled.

[1] For example, an investment of $2 million might consist of $200,000 in cash, $800,000 in a short-term loan from NELC that would be quickly repaid with the resulting tax refund, and a long-term loan of $1 million from NELC to be repaid with the profits from the Program. (R. 1701, Ex. 16, at 6.)

[2] The parties admit that the specific details of the government’s disallowance of the tax deductions was not contained in the record before the district court. However, Plaintiffs have represented to this Court that the IRS has in fact disallowed all the deductions in question. See Appellees’ Letter Br. 4.

[3] The dissent seems to prefer a standard of causation that would require all RICO plaintiffs to demonstrate reasonable reliance on a defendant’s misrepresentations, but the Supreme Court has rejected such a stringent approach, instead demanding only “some direct relation” between the injury and the defendant’s conduct. Holmes, 503 U.S. at 268, 112 S.Ct. 1311.

[4] Although the dissent focuses almost exclusively on the fact that Plaintiffs’ tax deductions did not comply with the Tax Code’s at-risk rules, it is important to note that the essence of the fraud in this case was the overselling of mare leases and the corresponding lack of economic substance or actual business expenses associated with the Mare Lease Program, two facts that obviously undermine the related tax deductions. (See R. 1701, Ex. 9.) There is no evidence that Plaintiffs had any knowledge of these facts.

[5] The dissent is swayed by what it calls Plaintiffs’ greed and their “passion for tax deductions,” see post, at 497-98, 498, 500-01, but a desire for tax deductions is as American as apple pie. Without material knowledge that they were investing in undervalued or fictitious assets, Plaintiffs cannot be said to have been complicit in the fraud, nor could any reasonable juror dispute the only statutory causation requirement — that Plaintiffs were injured “by reason of” Defendants’ pattern of fraudulent conduct. 18 U.S.C. § 1964(c).

[6] In its reply brief, Defendants assert that NELC and other unaffiliated entities were not part of the “operation or management” of the enterprise’s affairs. However, Defendants misread (or cherry-picked quotes from) our case law to arrive at that conclusion. Following the Supreme Court’s decision in Reves v. Ernst & Young, 507 U.S. 170, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993), we have held that a defendant “participates” in an enterprise’s affairs “either by making decisions on behalf of the enterprise or by knowingly carrying them out.” United States v. Fowler, 535 F.3d 408, 418 (6th Cir.2008). Given the evidence, no reasonable factfinder could conclude that NELC did not knowingly carry out the enterprise’s fraudulent scheme.

[7] Although the dissent suggests that the district court felt compelled to follow Kentucky’s rules regarding interest on “liquidated” claims, it seems to us that the court was merely “look[ing] to state law for guidance,” just as we have suggested it should do. See Ford v. Uniroyal Pension Plan, 154 F.3d 613, 619 (6th Cir.1998).

[8] Defendants’ only argument is that Plaintiffs’ out-of-pocket losses should not include their payments on the short-term loans financed by tax refunds that they only received because of their participation in the Program. This argument is more properly directed at the district court’s calculation of Plaintiffs’ RICO damages, not the decision to award prejudgment interest. Defendants have not challenged the district court’s damages calculation in this appeal.

[1] In full, the Amendment reads, “In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any Court of the United States, than according to the rules of the common law.”

[2] Many judges and legal scholars have recently complained that federal civil procedure — summary judgment in particular — is deviating more and more from Seventh Amendment standards requiring trial by jury. See Judge Mark Bennett’s recent essay on this subject, From the “No Spittin’, No Cussin’ and No Summary Judgment” Days of Employment Discrimination Litigation to the “Defendant’s Summary Judgment Affirmed Without Comment” Days: One Judge’s Four-Decade Perspective, 57 N.Y.L. Sch. L.Rev. 685 (2012-2013).

Sedima v. Imrex


Sedima, SP RL v. Imrex Co., 473 U.S. 479 (1985)


No. 84-648.

Supreme Court of United States.

Argued April 17, 1985

Decided July 1, 1985
Franklyn H. Snitow argued the cause for petitioner. With him on the brief was William H. Pauley III.

Richard Eisenberg argued the cause for respondents. With him on the brief were Alfred Weintraub and Joel I. Klein.

JUSTICE WHITE delivered the opinion of the Court.

The Racketeer Influenced and Corrupt Organizations Act (RICO), Pub. L. 91-452, Title IX, 84 Stat. 941, as amended, 18 U. S. C. §§ 1961-1968, provides a private civil action to recover treble damages for injury “by reason of a violation of” its substantive provisions. 18 U. S. C. § 1964(c). The initial dormancy of this provision and its recent greatly increased utilization[1] are now familiar history.[2] In response to what it perceived to be misuse of civil RICO by private plaintiffs, the court below construed § 1964(c) to permit private actions only against defendants who had been convicted on criminal charges, and only where there had occurred a “racketeering injury.” While we understand the court’s concern over the consequences of an unbridled reading of the statute, we reject both of its holdings.


RICO takes aim at “racketeering activity,” which it defines as any act “chargeable” under several generically described state criminal laws, any act “indictable” under numerous specific federal criminal provisions, including mail and wire fraud, and any “offense” involving bankruptcy or securities 482*482 fraud or drug-related activities that is “punishable” under federal law. § 1961(1).[3] Section 1962, entitled “Prohibited Activities,” outlaws the use of income derived from a “pattern of racketeering activity” to acquire an interest in or establish an enterprise engaged in or affecting interstate commerce; the acquisition or maintenance of any interest in an enterprise “through” a pattern of racketeering activity; 483*483 conducting or participating in the conduct of an enterprise through a pattern of racketeering activity; and conspiring to violate any of these provisions.[4]

Congress provided criminal penalties of imprisonment, fines, and forfeiture for violation of these provisions. § 1963. In addition, it set out a far-reaching civil enforcement scheme, § 1964, including the following provision for private suits:

“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.” § 1964(c).

In 1979, petitioner Sedima, a Belgian corporation, entered into a joint venture with respondent Imrex Co. to provide electronic components to a Belgian firm. The buyer was to order parts through Sedima; Imrex was to obtain the parts 484*484 in this country and ship them to Europe. The agreement called for Sedima and Imrex to split the net proceeds. Imrex filled roughly $8 million in orders placed with it through Sedima. Sedima became convinced, however, that Imrex was presenting inflated bills, cheating Sedima out of a portion of its proceeds by collecting for nonexistent expenses.

In 1982, Sedima filed this action in the Federal District Court for the Eastern District of New York. The complaint set out common-law claims of unjust enrichment, conversion, and breach of contract, fiduciary duty, and a constructive trust. In addition, it asserted RICO claims under § 1964(c) against Imrex and two of its officers. Two counts alleged violations of § 1962(c), based on predicate acts of mail and wire fraud. See 18 U. S. C. §§ 1341, 1343, 1961(1)(B). A third count alleged a conspiracy to violate § 1962(c). Claiming injury of at least $175,000, the amount of the alleged overbilling, Sedima sought treble damages and attorney’s fees.

The District Court held that for an injury to be “by reason of a violation of section 1962,” as required by § 1964(c), it must be somehow different in kind from the direct injury resulting from the predicate acts of racketeering activity. 574 F. Supp. 963 (1983). While not choosing a precise formulation, the District Court held that a complaint must allege a “RICO-type injury,” which was either some sort of distinct “racketeering injury,” or a “competitive injury.” It found “no allegation here of any injury apart from that which would result directly from the alleged predicate acts of mail fraud and wire fraud,” id., at 965, and accordingly dismissed the RICO counts for failure to state a claim.

A divided panel of the Court of Appeals for the Second Circuit affirmed. 741 F. 2d 482 (1984). After a lengthy review of the legislative history, it held that Sedima’s complaint was defective in two ways. First, it failed to allege an injury “by reason of a violation of section 1962.” In the court’s view, 485*485 this language was a limitation on standing, reflecting Congress’ intent to compensate victims of “certain specific kinds of organized criminality,” not to provide additional remedies for already compensable injuries. Id., at 494. Analogizing to the Clayton Act, which had been the model for § 1964(c), the court concluded that just as an antitrust plaintiff must allege an “antitrust injury,” so a RICO plaintiff must allege a “racketeering injury” — an injury “different in kind from that occurring as a result of the predicate acts themselves, or not simply caused by the predicate acts, but also caused by an activity which RICO was designed to deter.” Id., at 496. Sedima had failed to allege such an injury.

The Court of Appeals also found the complaint defective for not alleging that the defendants had already been criminally convicted of the predicate acts of mail and wire fraud, or of a RICO violation. This element of the civil cause of action was inferred from § 1964(c)’s reference to a “violation” of § 1962, the court also observing that its prior-conviction requirement would avoid serious constitutional difficulties, the danger of unfair stigmatization, and problems regarding the standard by which the predicate acts were to be proved.

The decision below was one episode in a recent proliferation of civil RICO litigation within the Second Circuit[5] and 486*486 in other Courts of Appeals.[6] In light of the variety of approaches taken by the lower courts and the importance of the issues, we granted certiorari. 469 U. S. 1157 (1984). We now reverse.


As a preliminary matter, it is worth briefly reviewing the legislative history of the private treble-damages action. RICO formed Title IX of the Organized Crime Control Act of 1970, Pub. L. 91-452, 84 Stat. 922. The civil remedies in the bill passed by the Senate, S. 30, were limited to injunctive actions by the United States and became §§ 1964(a), (b), and 487*487 (d). Previous versions of the legislation, however, had provided for a private treble-damages action in exactly the terms ultimately adopted in § 1964(c). See S. 1623, 91st Cong., 1st Sess., § 4(a) (1969); S. 2048 and S. 2049, 90th Cong., 1st Sess. (1967).

During hearings on S. 30 before the House Judiciary Committee, Representative Steiger proposed the addition of a private treble-damages action “similar to the private damage remedy found in the anti-trust laws. . . . [T]hose who have been wronged by organized crime should at least be given access to a legal remedy. In addition, the availability of such a remedy would enhance the effectiveness of title IX’s prohibitions.” Hearings on S. 30, and Related Proposals, before Subcommittee No. 5 of the House Committee on the Judiciary, 91st Cong., 2d Sess., 520 (1970) (hereinafter House Hearings). The American Bar Association also proposed an amendment “based upon the concept of Section 4 of the Clayton Act.” Id., at 543-544, 548, 559; see 116 Cong. Rec. 25190-25191 (1970). See also H. R. 9327, 91st Cong., 1st Sess. (1969) (House counterpart to S. 1623).

Over the dissent of three members, who feared the treble-damages provision would be used for malicious harassment of business competitors, the Committee approved the amendment. H. R. Rep. No. 91-1549, pp. 58, 187 (1970). In summarizing the bill on the House floor, its sponsor described the treble-damages provision as “another example of the antitrust remedy being adapted for use against organized criminality.” 116 Cong. Rec. 35295 (1970). The full House then rejected a proposal to create a complementary treble-damages remedy for those injured by being named as defendants in malicious private suits. Id., at 35342. Representative Steiger also offered an amendment that would have allowed private injunctive actions, fixed a statute of limitations, and clarified venue and process requirements. Id., at 35346; see id., at 35226-35227. The proposal was greeted with some hostility because it had not been reviewed in Committee, 488*488 and Steiger withdrew it without a vote being taken. Id., at 35346-35347. The House then passed the bill, with the treble-damages provision in the form recommended by the Committee. Id., at 35363-35364.

The Senate did not seek a conference and adopted the bill as amended in the House. Id., at 36296. The treble-damages provision had been drawn to its attention while the legislation was still in the House, and had received the endorsement of Senator McClellan, the sponsor of S. 30, who was of the view that the provision would be “a major new tool in extirpating the baneful influence of organized crime in our economic life.” Id., at 25190.


The language of RICO gives no obvious indication that a civil action can proceed only after a criminal conviction. The word “conviction” does not appear in any relevant portion of the statute. See §§ 1961, 1962, 1964(c). To the contrary, the predicate acts involve conduct that is “chargeable” or “indictable,” and “offense[s]” that are “punishable,” under various criminal statutes. § 1961(1). As defined in the statute, racketeering activity consists not of acts for which the defendant has been convicted, but of acts for which he could be. See also S. Rep. No. 91-617, p. 158 (1969): “a racketeering activity . . . must be an act in itself subject to criminal sanction” (emphasis added). Thus, a prior-conviction requirement cannot be found in the definition of “racketeering activity.” Nor can it be found in § 1962, which sets out the statute’s substantive provisions. Indeed, if either § 1961 or § 1962 did contain such a requirement, a prior conviction would also be a prerequisite, nonsensically, for a criminal prosecution, or for a civil action by the Government to enjoin violations that had not yet occurred.

The Court of Appeals purported to discover its prior-conviction requirement in the term “violation” in § 1964(c). 741 F. 2d, at 498-499. However, even if that term were 489*489 read to refer to a criminal conviction, it would require a conviction under RICO, not of the predicate offenses. That aside, the term “violation” does not imply a criminal conviction. See United States v. Ward, 448 U. S. 242, 249-250 (1980). It refers only to a failure to adhere to legal requirements. This is its indisputable meaning elsewhere in the statute. Section 1962 renders certain conduct “unlawful”; § 1963 and § 1964 impose consequences, criminal and civil, for “violations” of § 1962. We should not lightly infer that Congress intended the term to have wholly different meanings in neighboring subsections.[7]

The legislative history also undercuts the reading of the court below. The clearest current in that history is the reliance on the Clayton Act model, under which private and governmental actions are entirely distinct. E. g., United States v. Borden Co., 347 U. S. 514, 518-519 (1954).[8] The only 490*490 specific reference in the legislative history to prior convictions of which we are aware is an objection that the treble-damages provision is too broad precisely because “there need not be a conviction under any of these laws for it to be racketeering.” 116 Cong. Rec. 35342 (1970) (emphasis added). The history is otherwise silent on this point and contains nothing to contradict the import of the language appearing in the statute. Had Congress intended to impose this novel requirement, there would have been at least some mention of it in the legislative history, even if not in the statute.

The Court of Appeals was of the view that its narrow construction of the statute was essential to avoid intolerable practical consequences.[9] First, without a prior conviction to rely on, the plaintiff would have to prove commission of the predicate acts beyond a reasonable doubt. This would require instructing the jury as to different standards of proof for different aspects of the case. To avoid this awkwardness, 491*491 the court inferred that the criminality must already be established, so that the civil action could proceed smoothly under the usual preponderance standard.

We are not at all convinced that the predicate acts must be established beyond a reasonable doubt in a proceeding under § 1964(c). In a number of settings, conduct that can be punished as criminal only upon proof beyond a reasonable doubt will support civil sanctions under a preponderance standard. See, e. g., United States v. One Assortment of 89 Firearms, 465 U. S. 354 (1984); One Lot Emerald Cut Stones v. United States, 409 U. S. 232, 235 (1972); Helvering v. Mitchell, 303 U. S. 391, 397 (1938); United States v. Regan, 232 U. S. 37, 47-49 (1914). There is no indication that Congress sought to depart from this general principle here. See Measures Relating to Organized Crime, 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., 388 (1969) (statement of Assistant Attorney General Wilson); House Hearings, at 520 (statement of Rep. Steiger); id., at 664 (statement of Rep. Poff); 116 Cong. Rec. 35313 (1970) (statement of Rep. Minish). That the offending conduct is described by reference to criminal statutes does not mean that its occurrence must be established by criminal standards or that the consequences of a finding of liability in a private civil action are identical to the consequences of a criminal conviction. Cf. United States v. Ward, supra, at 248-251. But we need not decide the standard of proof issue today. For even if the stricter standard is applicable to a portion of the plaintiff’s proof, the resulting logistical difficulties, which are accepted in other contexts, would not be so great as to require invention of a requirement that cannot be found in the statute and that Congress, as even the Court of Appeals had to concede, 741 F. 2d, at 501, did not envision.[10]

492*492 The court below also feared that any other construction would raise severe constitutional questions, as it “would provide civil remedies for offenses criminal in nature, stigmatize defendants with the appellation `racketeer,’ authorize the award of damages which are clearly punitive, including attorney’s fees, and constitute a civil remedy aimed in part to avoid the constitutional protections of the criminal law.” Id., at 500, n. 49. We do not view the statute as being so close to the constitutional edge. As noted above, the fact that conduct can result in both criminal liability and treble damages does not mean that there is not a bona fide civil action. The familiar provisions for both criminal liability and treble damages under the antitrust laws indicate as much. Nor are attorney’s fees “clearly punitive.” Cf. 42 U. S. C. § 1988. As for stigma, a civil RICO proceeding leaves no greater stain than do a number of other civil proceedings. Furthermore, requiring conviction of the predicate acts would not protect against an unfair imposition of the “racketeer” label. If there is a problem with thus stigmatizing a garden variety defrauder by means of a civil action, it is not reduced by making certain that the defendant is guilty of fraud beyond a reasonable doubt. Finally, to the extent an 493*493 action under § 1964(c) might be considered quasi-criminal, requiring protections normally applicable only to criminal proceedings, cf. One 1958 Plymouth Sedan v. Pennsylvania, 380 U. S. 693 (1965), the solution is to provide those protections, not to ensure that they were previously afforded by requiring prior convictions.[11]

Finally, we note that a prior-conviction requirement would be inconsistent with Congress’ underlying policy concerns. Such a rule would severely handicap potential plaintiffs. A guilty party may escape conviction for any number of reasons — not least among them the possibility that the Government itself may choose to pursue only civil remedies. Private attorney general provisions such as § 1964(c) are in part designed to fill prosecutorial gaps. Cf. Reiter v. Sonotone Corp., 442 U. S. 330, 344 (1979). This purpose would be largely defeated, and the need for treble damages as an incentive to litigate unjustified, if private suits could be maintained only against those already brought to justice. See also n. 9, supra.

In sum, we can find no support in the statute’s history, its language, or considerations of policy for a requirement that a private treble-damages action under § 1964(c) can proceed only against a defendant who has already been criminally convicted. To the contrary, every indication is that no such requirement exists. Accordingly, the fact that Imrex and the individual defendants have not been convicted under RICO or the federal mail and wire fraud statutes does not bar Sedima’s action.


In considering the Court of Appeals’ second prerequisite for a private civil RICO action — “injury . . . caused by an 494*494 activity which RICO was designed to deter” — we are somewhat hampered by the vagueness of that concept. Apart from reliance on the general purposes of RICO and a reference to “mobsters,” the court provided scant indication of what the requirement of racketeering injury means. It emphasized Congress’ undeniable desire to strike at organized crime, but acknowledged and did not purport to overrule Second Circuit precedent rejecting a requirement of an organized crime nexus. 741 F. 2d, at 492; see Moss v. Morgan Stanley, Inc., 719 F. 2d 5, 21 (CA2 1983), cert. denied sub nom. Moss v. Newman, 465 U. S. 1025 (1984). The court also stopped short of adopting a “competitive injury” requirement; while insisting that the plaintiff show “the kind of economic injury which has an effect on competition,” it did not require “actual anticompetitive effect.” 741 F. 2d, at 496; see also id., at 495, n. 40.

The court’s statement that the plaintiff must seek redress for an injury caused by conduct that RICO was designed to deter is unhelpfully tautological. Nor is clarity furnished by a negative statement of its rule: standing is not provided by the injury resulting from the predicate acts themselves. That statement is itself apparently inaccurate when applied to those predicate acts that unmistakably constitute the kind of conduct Congress sought to deter. See id., at 496, n. 41. The opinion does not explain how to distinguish such crimes from the other predicate acts Congress has lumped together in § 1961(1). The court below is not alone in struggling to define “racketeering injury,” and the difficulty of that task itself cautions against imposing such a requirement.[12]

495*495 We need not pinpoint the Second Circuit’s precise holding, for we perceive no distinct “racketeering injury” requirement. Given that “racketeering activity” consists of no more and no less than commission of a predicate act, § 1961(1), we are initially doubtful about a requirement of a “racketeering injury” separate from the harm from the predicate acts. A reading of the statute belies any such requirement. Section 1964(c) authorizes a private suit by “[a]ny person injured in his business or property by reason of a violation of § 1962.” Section 1962 in turn makes it unlawful for “any person” — not just mobsters — to use money derived from a pattern of racketeering activity to invest in an enterprise, to acquire control of an enterprise through a pattern of racketeering activity, or to conduct an enterprise through a pattern of racketeering activity. §§ 1962(a)-(c). If the defendant engages in a pattern of racketeering activity in a manner forbidden by these provisions, and the racketeering activities injure the plaintiff in his business or property, the plaintiff has a claim under § 1964(c). There is no room in the statutory language for an additional, amorphous “racketeering injury” requirement.[13]

496*496 A violation of § 1962(c), the section on which Sedima relies, requires (1) conduct (2) of an enterprise (3) through a pattern[14] (4) of racketeering activity. The plaintiff must, of course, allege each of these elements to state a claim. Conducting an enterprise that affects interstate commerce is obviously not in itself a violation of § 1962, nor is mere commission of the predicate offenses. In addition, the 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. As the Seventh Circuit has stated, “[a] defendant who violates section 1962 is not liable 497*497 for treble damages to everyone he might have injured by other conduct, nor is the defendant liable to those who have not been injured.” Haroco, Inc. v. American National Bank & Trust Co. of Chicago, 747 F. 2d 384, 398 (1984), aff’d, post, p. 606.

But the statute requires no more than this. Where the plaintiff alleges each element of the violation, the compensable injury necessarily is the harm caused by predicate acts sufficiently related to constitute a pattern, for the essence of the violation is the commission of those acts in connection with the conduct of an enterprise. Those acts are, when committed in the circumstances delineated in § 1962(c), “an activity which RICO was designed to deter.” Any recoverable damages occurring by reason of a violation of § 1962(c) will flow from the commission of the predicate acts.[15]

This less restrictive reading is amply supported by our prior cases and the general principles surrounding this statute. RICO is to be read broadly. This is the lesson not only 498*498 of Congress’ self-consciously expansive language and overall approach, see United States v. Turkette, 452 U. S. 576, 586-587 (1981), but also of its express admonition that RICO is to “be liberally construed to effectuate its remedial purposes,” Pub. L. 91-452, § 904(a), 84 Stat. 947. The statute’s “remedial purposes” are nowhere more evident than in the provision of a private action for those injured by racketeering activity. See also n. 10, supra. Far from effectuating these purposes, the narrow readings offered by the dissenters and the court below would in effect eliminate § 1964(c) from the statute.

RICO was an aggressive initiative to supplement old remedies and develop new methods for fighting crime. See generally Russello v. United States, 464 U. S. 16, 26-29 (1983). While few of the legislative statements about novel remedies and attacking crime on all fronts, see ibid., were made with direct reference to § 1964(c), it is in this spirit that all of the Act’s provisions should be read. The specific references to § 1964(c) are consistent with this overall approach. Those supporting § 1964(c) hoped it would “enhance the effectiveness of title IX’s prohibitions,” House Hearings, at 520, and provide “a major new tool,” 116 Cong. Rec. 35227 (1970). See also id., at 25190; 115 Cong. Rec. 6993-6994 (1969). Its opponents, also recognizing the provision’s scope, complained that it provided too easy a weapon against “innocent businessmen,” H. R. Rep. No. 91-1549, p. 187 (1970), and would be prone to abuse, 116 Cong. Rec. 35342 (1970). It is also significant that a previous proposal to add RICO-like provisions to the Sherman Act had come to grief in part precisely because it “could create inappropriate and unnecessary obstacles in the way of . . . a private litigant [who] would have to contend with a body of precedent — appropriate in a purely antitrust context — setting strict requirements on questions such as `standing to sue’ and `proximate cause.’ ” 115 Cong. Rec. 6995 (1969) (ABA comments on S. 2048); see also id., at 6993 (S. 1623 proposed as an amendment to Title 18 to avoid these problems). In borrowing its “racketeering 499*499 injury” requirement from antitrust standing principles, the court below created exactly the problems Congress sought to avoid.

Underlying the Court of Appeals’ holding was its distress at the “extraordinary, if not outrageous,” uses to which civil RICO has been put. 741 F. 2d, at 487. Instead of being used against mobsters and organized criminals, it has become a tool for everyday fraud cases brought against “respected and legitimate `enterprises.’ ” Ibid. Yet Congress wanted to reach both “legitimate” and “illegitimate” enterprises. United States v. Turkette, supra. The former enjoy neither an inherent incapacity for criminal activity nor immunity from its consequences. The fact that § 1964(c) is used against respected businesses allegedly engaged in a pattern of specifically identified criminal conduct is hardly a sufficient reason for assuming that the provision is being misconstrued. Nor does it reveal the “ambiguity” discovered by the court below. “[T]he fact that RICO has been applied in situations not expressly anticipated by Congress does not demonstrate ambiguity. It demonstrates breadth.” Haroco, Inc. v. American National Bank & Trust Co. of Chicago, supra, at 398.

It is true that private civil actions under the statute are being brought almost solely against such defendants, rather than against the archetypal, intimidating mobster.[16] Yet this defect — if defect it is — is inherent in the statute as written, and its correction must lie with Congress. It is not for the judiciary to eliminate the private action in situations 500A*500A where Congress has provided it simply because plaintiffs are not taking advantage of it in its more difficult applications.

We nonetheless recognize that, in its private civil version, RICO is evolving into something quite different from the original conception of its enactors. See generally ABA Report, at 55-69. Though sharing the doubts of the Court of Appeals about this increasing divergence, we cannot agree with either its diagnosis or its remedy. The “extraordinary” uses to which civil RICO has been put appear to be primarily the result of the breadth of the predicate offenses, in particular the inclusion of wire, mail, and securities fraud, and the failure of Congress and the courts to develop a meaningful concept of “pattern.” We do not believe that the amorphous standing requirement imposed by the Second Circuit effectively responds to these problems, or that it is a form of statutory amendment appropriately undertaken by the courts.


Sedima may maintain this action if the defendants conducted the enterprise through a pattern of racketeering activity. The questions whether the defendants committed the requisite predicate acts, and whether the commission of those acts fell into a pattern, are not before us. The complaint is not deficient for failure to allege either an injury separate from the financial loss stemming from the alleged acts of mail and wire fraud, or prior convictions of the defendants. The judgment below is accordingly reversed, and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.


The Court today recognizes that “in its private civil version, RICO is evolving into something quite different from 501*501 the original conception of its enactors.” Ante, at 500. The Court, however, expressly validates this result, imputing it to the manner in which the statute was drafted. I fundamentally disagree both with the Court’s reading of the statute and with its conclusion. I believe that the statutory language and history disclose a narrower interpretation of the statute that fully effectuates Congress’ purposes, and that does not make compensable under civil RICO a host of claims that Congress never intended to bring within RICO’s purview.


The Court’s interpretation of the civil RICO statute quite simply revolutionizes private litigation; it validates the federalization of broad areas of state common law of frauds, and it approves the displacement of well-established federal remedial provisions. We do not lightly infer a congressional intent to effect such fundamental changes. To infer such intent here would be untenable, for there is no indication that Congress even considered, much less approved, the scheme that the Court today defines.

The single most significant reason for the expansive use of civil RICO has been the presence in the statute, as predicate acts, of mail and wire fraud violations. See 18 U. S. C. § 1961(1) (1982 ed., Supp. III). Prior to RICO, no federal statute had expressly provided a private damages remedy based upon a violation of the mail or wire fraud statutes, which make it a federal crime to use the mail or wires in furtherance of a scheme to defraud. See 18 U. S. C. §§ 1341, 1343. Moreover, the Courts of Appeals consistently had held that no implied federal private causes of action accrue to victims of these federal violations. See, e. g., Ryan v. Ohio Edison Co., 611 F. 2d 1170, 1178-1179 (CA6 1979) (mail fraud); Napper v. Anderson, Henley, Shields, Bradford & Pritchard, 500 F. 2d 634, 636 (CA5 1974) (wire fraud), cert. denied, 423 U. S. 837 (1975). The victims normally were restricted to bringing actions in state court under common-law fraud theories.

502*502 Under the Court’s opinion today, two fraudulent mailings or uses of the wires occurring within 10 years of each other might constitute a “pattern of racketeering activity,” § 1961 (5), leading to civil RICO liability. See § 1964(c). The effects of making a mere two instances of mail or wire fraud potentially actionable under civil RICO are staggering, because in recent years the Courts of Appeals have “tolerated an extraordinary expansion of mail and wire fraud statutes to permit federal prosecution for conduct that some had thought was subject only to state criminal and civil law.” United States v. Weiss, 752 F. 2d 777, 791 (CA2 1985) (Newman, J., dissenting). In bringing criminal actions under those statutes, prosecutors need not show either a substantial connection between the scheme to defraud and the mail and wire fraud statutes, see Pereira v. United States, 347 U. S. 1, 8 (1954), or that the fraud involved money or property. Courts have sanctioned prosecutions based on deprivations of such intangible rights as a shareholder’s right to “material” information, United States v. Siegel, 717 F. 2d 9, 14-16 (CA2 1983); a client’s right to the “undivided loyalty” of his attorney, United States v. Bronston, 658 F. 2d 920, 927 (CA2 1981), cert. denied, 456 U. S. 915 (1982); an employer’s right to the honest and faithful service of his employees, United States v. Bohonus, 628 F. 2d 1167, 1172 (CA9), cert. denied, 447 U. S. 928 (1980); and a citizen’s right to know the nature of agreements entered into by the leaders of political parties, United States v. Margiotta, 688 F. 2d 108, 123-125 (CA2 1982), cert. denied, 461 U. S. 913 (1983).

The only restraining influence on the “inexorable expansion of the mail and wire fraud statutes,” United States v. Siegel, supra, at 24 (Winter, J., dissenting in part and concurring in part), has been the prudent use of prosecutorial discretion. Prosecutors simply do not invoke the mail and wire fraud provisions in every case in which a violation of the relevant statute can be proved. See U. S. Dept. of Justice, United States Attorney’s Manual § 9-43.120 (Feb. 16, 1984). 503*503 For example, only where the scheme is directed at a “class of persons or the general public” and includes “a substantial pattern of conduct,” will “serious consideration . . . be given to [mail fraud] prosecution.” In all other cases, “the parties should be left to settle their differences by civil or criminal litigation in the state courts.” Ibid.

The responsible use of prosecutorial discretion is particularly important with respect to criminal RICO prosecutions — which often rely on mail and wire fraud as predicate acts — given the extremely severe penalties authorized by RICO’s criminal provisions. Federal prosecutors are therefore instructed that “[u]tilization of the RICO statute, more so than most other federal criminal sanctions, requires particularly careful and reasoned application.” Id., § 9-110.200 (Mar. 9, 1984). The Justice Department itself recognizes that a broad interpretation of the criminal RICO provisions would violate “the principle that the primary responsibility for enforcing state laws rests with the state concerned.” Ibid. Specifically, the Justice Department will not bring RICO prosecutions unless the pattern of racketeering activity required by 18 U. S. C. § 1962 has “some relation to the purpose of the enterprise.” United States Attorney’s Manual § 9-110.350 (Mar. 9, 1984).

Congress was well aware of the restraining influence of prosecutorial discretion when it enacted the criminal RICO provisions. It chose to confer broad statutory authority on the Executive fully expecting that this authority would be used only in cases in which its use was warranted. See Measures Relating to Organized Crime: 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., 346-347, 424 (1969) (hereinafter cited as Senate Hearings). Moreover, in seeking a broad interpretation of RICO from this Court in United States v. Turkette, 452 U. S. 576 (1981), the Government stressed that no “extreme cases” would be brought because the Justice Department would exercise 504*504 “sound discretion” through a centralized review process. See Brief for United States in No. 80-808, O. T. 1980, p. 25, n. 20.

In the context of civil RICO, however, the restraining influence of prosecutors is completely absent. Unlike the Government, private litigants have no reason to avoid displacing state common-law remedies. Quite to the contrary, such litigants, lured by the prospect of treble damages and attorney’s fees, have a strong incentive to invoke RICO’s provisions whenever they can allege in good faith two instances of mail or wire fraud. Then the defendant, facing a tremendous financial exposure in addition to the threat of being labeled a “racketeer,” will have a strong interest in settling the dispute. See Rakoff, Some Personal Reflections on the Sedima Case and on Reforming RICO, in RICO: Civil and Criminal 400 (Law Journal Seminars-Press 1984). The civil RICO provision consequently stretches the mail and wire fraud statutes to their absolute limits and federalizes important areas of civil litigation that until now were solely within the domain of the States.

In addition to altering fundamentally the federal-state balance in civil remedies, the broad reading of the civil RICO provision also displaces important areas of federal law. For example, one predicate offense under RICO is “fraud in the sale of securities.” 18 U. S. C. § 1961(1) (1982 ed., Supp. III). By alleging two instances of such fraud, a plaintiff might be able to bring a case within the scope of the civil RICO provision. It does not take great legal insight to realize that such a plaintiff would pursue his case under RICO rather than do so solely under the Securities Act of 1933 or the Securities Exchange Act of 1934, which provide both express and implied causes of action for violations of the federal securities laws. Indeed, the federal securities laws contemplate only compensatory damages and ordinarily do not authorize recovery of attorney’s fees. By invoking RICO, in contrast, a successful 505*505 plaintiff will recover both treble damages and attorney’s fees.

More importantly, under the Court’s interpretation, the civil RICO provision does far more than just increase the available damages. In fact, it virtually eliminates decades of legislative and judicial development of private civil remedies under the federal securities laws. Over the years, courts have paid close attention to matters such as standing, culpability, causation, reliance, and materiality, as well as the definitions of “securities” and “fraud.” See, e. g., Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723 (1975) (purchaser/seller requirement). All of this law is now an endangered species because plaintiffs can avoid the limitations of the securities laws merely by alleging violations of other predicate acts. For example, even in cases in which the investment instrument is not a “security” covered by the federal securities laws, RICO will provide a treble-damages remedy to a plaintiff who can prove the required pattern of mail or wire fraud. Cf. Crocker National Bank v. Rockwell International Corp., 555 F. Supp. 47 (ND Cal. 1982). Before RICO, of course, the plaintiff could not have recovered under federal law for the mail or wire fraud violation.

Similarly, a customer who refrained from selling a security during a period in which its market value was declining could allege that, on two occasions, his broker recommended by telephone, as part of a scheme to defraud, that the customer not sell the security. The customer might thereby prevail under civil RICO even though, as neither a purchaser nor a seller, he would not have had standing to bring an action under the federal securities laws. See also 741 F. 2d 482, 499 (1984) (“two misstatements in a proxy solicitation could subject any director in any national corporation to `racketeering’ charges and the threat of treble damages and attorneys’ fees”).

The effect of civil RICO on federal remedial schemes is not limited to the securities laws. For example, even though 506*506 commodities fraud is not a predicate offense listed in § 1961, the carefully crafted private damages causes of action under the Commodity Exchange Act may be circumvented in a commodities case through civil RICO actions alleging mail or wire fraud. See, e. g., Parnes v. Heinold Commodities, Inc., 487 F. Supp. 645 (ND Ill. 1980). The list goes on and on.

The dislocations caused by the Court’s reading of the civil RICO provision are not just theoretical. In practice, this provision frequently has been invoked against legitimate businesses in ordinary commercial settings. As the Court recognizes, the ABA Task Force that studied civil RICO found that 40% of the reported cases involved securities fraud and 37% involved common-law fraud in a commercial or business setting. See ante, at 499, n. 16. Many a prudent defendant, facing ruinous exposure, will decide to settle even a case with no merit. It is thus not surprising that civil RICO has been used for extortive purposes, giving rise to the very evils that it was designed to combat. Report of the Ad Hoc Civil RICO Task Force of the ABA Section of Corporation, Banking and Business Law 69 (1985) (hereinafter cited as ABA Report).

Only 9% of all civil RICO cases have involved allegations of criminal activity normally associated with professional criminals. See ante, at 499, n. 16. The central purpose that Congress sought to promote through civil RICO is now a mere footnote.

In summary, in both theory and practice, civil RICO has brought profound changes to our legal landscape. Undoubtedly, Congress has the power to federalize a great deal of state common law, and there certainly are no relevant constraints on its ability to displace federal law. Those, however, are not the questions that we face in this case. What we have to decide here, instead, is whether Congress in fact intended to produce these far-reaching results.

507*507 Established canons of statutory interpretation counsel against the Court’s reading of the civil RICO provision. First, we do not impute lightly a congressional intention to upset the federal-state balance in the provision of civil remedies as fundamentally as does this statute under the Court’s view. For example, in Santa Fe Industries, Inc. v. Green, 430 U. S. 462 (1977), we stated that “[a]bsent a clear indication of congressional intent, we are reluctant to federalize the substantial portion of the law of corporations that deals with transactions in securities.” Id., at 479. Here, with striking nonchalance, the Court does what it declined to do in Santa Fe Industries — and much more as well. Second, with respect to effects on the federal securities laws and other federal regulatory statutes, we should be reluctant to displace the well-entrenched federal remedial schemes absent clear direction from Congress. See, e. g., Train v. Colorado Public Interest Research Group, Inc., 426 U. S. 1, 23-24 (1976); Radzanower v. Touche Ross & Co., 426 U. S. 148, 153 (1976).

In this case, nothing in the language of the statute or the legislative history suggests that Congress intended either the federalization of state common law or the displacement of existing federal remedies. Quite to the contrary, all that the statute and the legislative history reveal as to these matters is what Judge Oakes called a “clanging silence,” 741 F. 2d, at 492.

Moreover, if Congress had intended to bring about dramatic changes in the nature of commercial litigation, it would at least have paid more than cursory attention to the civil RICO provision. This provision was added in the House of Representatives after the Senate already had passed its version of the RICO bill; the House itself adopted a civil remedy provision almost as an afterthought; and the Senate thereafter accepted the House’s version of the bill without even requesting a Conference. See infra, at 518-519. Congress simply does not act in this way when it intends to effect fundamental changes in the structure of federal law.

508*508 II

The statutory language and legislative history support the view that Congress did not intend to effect a radical alteration of federal civil litigation. In fact, the language and history indicate a congressional intention to limit, in a workable and coherent manner, the type of injury that is compensable under the civil RICO provision. As the following demonstrates, Congress sought to fill an existing gap in civil remedies and to provide a means of compensation that otherwise did not exist for the honest businessman harmed by the economic power of “racketeers.”


I begin with a review of the statutory language. Section 1964(c) grants a private right of action to any person “injured in his business or property by reason of a violation of section 1962.” Section 1962, in turn, makes it unlawful to invest, in an enterprise engaged in interstate commerce, funds “derived . . . from a pattern of racketeering activity,” to acquire or operate an interest in any such enterprise through “a pattern of racketeering activity,” or to conduct or participate in the conduct of that enterprise “through a pattern of racketeering activity.” Section 1961 defines “racketeering activity” to mean any of numerous acts “chargeable” or “indictable” under enumerated state and federal laws, including state-law murder, arson, and bribery statutes, federal mail and wire fraud statutes, and the antifraud provisions of federal securities laws. It states that “a pattern” of racketeering activity requires proof of at least two acts of racketeering within 10 years.

By its terms, § 1964(c) therefore grants a cause of action only to a person injured “by reason of a violation of § 1962.” The Court holds today that the only injury a plaintiff need allege is injury occurring by reason of a predicate, or racketeering, act — i. e., one of the offenses listed in § 1961. But § 1964(c) does not by its terms provide a remedy for injury by 509*509 reason of § 1961; it requires an injury by reason of § 1962. In other words:

“While section 1962 prohibits the involvement of an `enterprise’ in `racketeering activity,’ racketeering itself is not a violation of § 1962. Thus, a construction of RICO permitting recovery for damages arising out of the racketeering acts simply does not comport with the statute as written by Congress. In effect, the broad construction replaces the rule that treble damages can be recovered only when they occur `by reason of a violation of section 1962,’ with a rule permitting recovery of treble damages whenever there has been a violation of section 1962. Such unwarranted judicial interference with the Act’s plain meaning cannot be justified.” Comment, 76 Nw. U. L. Rev. 100, 128 (1981) (footnotes omitted).

See also Bridges, Private RICO Litigation Based Upon “Fraud in the Sale of Securities,” 18 Ga. L. Rev. 43, 67 (1983).

In addition, the statute permits recovery only for injury to business or property. It therefore excludes recovery for personal injuries. However, many of the predicate acts listed in § 1961 threaten or inflict personal injuries — such as murder and kidnaping. If Congress in fact intended the victims of the predicate acts to recover for their injuries, as the Court holds it did, it is inexplicable why Congress would have limited recovery to business or property injury. It simply makes no sense to allow recovery by some, but not other victims of predicate acts, and to make recovery turn solely on whether the defendant has chosen to inflict personal pain or harm to property in order to accomplish its end.

In summary, the statute clearly contemplates recovery for injury resulting from the confluence of events described in § 1962 and not merely from the commission of a predicate act. The Court’s contrary interpretation distorts the statutory language under the guise of adopting a plain-meaning definition, and it does so without offering any indication of congressional 510*510 intent that justifies a deviation from what I have shown to be the plain meaning of the statute. However, even if the statutory language were ambiguous, see Haroco, Inc. v. American National Bank & Trust Co. of Chicago, 747 F. 2d 384, 389 (CA7 1984), aff’d, post, p. 606, the scope of the civil RICO provision would be no different, for this interpretation of the statute finds strong support in the legislative history of that provision.


In reviewing the legislative history of civil RICO, numerous federal courts have become mired in controversy about the extent to which Congress intended to adopt or reject the federal antitrust laws as a model for the RICO provisions. The basis for the dispute among the lower courts is the language of the treble-damages provision, which tracks virtually word for word the treble-damages provision of the antitrust laws, § 4 of the Clayton Act;[1] given this parallel, there can be little doubt that the latter served as a model for the former. Some courts have relied heavily on this congruity to read an antitrust-type “competitive injury” requirement into the civil RICO statute. See, e. g., North Barrington Development, Inc. v. Fanslow, 547 F. Supp. 207 (ND Ill. 1980). Other courts have rejected a competitive-injury requirement, or any antitrust analogy, relying in significant part on what 511*511 they perceive as Congress’ rejection of a wholesale adoption of antitrust precedent. See, e. g., Yancoski v. E. F. Hutton & Co., Inc., 581 F. Supp. 88 (ED Pa. 1983); Mauriber v. Shearson/American Express, Inc., 567 F. Supp. 1231, 1240 (SDNY 1983).

Many of these courts have read far too much into the antitrust analogy. The legislative history makes clear that Congress viewed the form of civil remedies under RICO as analogous to such remedies under the antitrust laws, but that it did not thereby intend the substantive compensable injury to be exactly the same. The legislative history also suggests that Congress might have wanted to avoid saddling the civil RICO provisions with the same standing requirements that at the time limited standing to sue under the antitrust laws. However, the Committee Reports and hearings in no way suggest that Congress considered and rejected a requirement of injury separate from that resulting from the predicate acts. Far from it, Congress offered considerable indication that the kind of injury it primarily sought to attack and compensate was that for which existing civil and criminal remedies were inadequate or nonexistent; the requisite injury is thus akin to, but broader than, that targeted by the antitrust laws and different in kind from that resulting from the underlying predicate acts.

A brief look at the legislative history makes clear that the antitrust laws in no relevant respect constrain our analysis or preclude formulation of an independent RICO-injury requirement. When Senator Hruska first introduced to Congress the predecessor to RICO, he proposed an amendment to the Sherman Act that would have prohibited the investment or use of intentionally unreported income from one line of business to establish, operate, or invest in another line of business. S. 2048, 90th Cong., 1st Sess. (1967). After studying the provision, the American Bar Association issued a report that, while acknowledging the effects of organized crime’s infiltration of legitimate business, stated a preference for a 512*512 provision separate from the antitrust laws. See 115 Cong. Rec. 6994 (1969). According to the report:

“By placing the antitrust-type enforcement and recovery procedures in a separate statute, a commingling of criminal enforcement goals with the goals of regulating competition is avoided.


“Moreover, the use of antitrust laws themselves as a vehicle for combating organized crime could create inappropriate and unnecessary obstacles in the way of persons injured by organized crime who might seek treble damage recovery. Such a private litigant would have to contend with a body of precedent — appropriate in a purely antitrust context — setting strict requirements on questions such as `standing to sue’ and `proximate cause.’ ” Id., at 6995.

Congress subsequently decided not to pursue an addition to the antitrust laws but instead to fashion a wholly separate criminal statute. If in fact that decision was made in response to the ABA’s statement and not to other political concerns, it may be interpreted at most as a rejection of antitrust standing requirements. Court-developed standing rules define the requisite proximity between the plaintiff’s injury and the defendant’s antitrust violation. See Blue Shield of Virginia v. McCready, 457 U. S. 465, 476 (1982) (discussing antitrust standing rules developed in the Federal Circuits). Thus, at most we may read the early legislative history to eschew wholesale adoption of the particular nexus requirements that limit the class of potential antitrust plaintiffs. Courts that read this history to bar any analogy to the antitrust laws simply read too much into the scant evidence available to us. In particular, courts that read this history to bar an injury requirement akin to “antitrust” injury are in error. The requirement of antitrust injury, as articulated in Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U. S. 477 (1977), differs in kind from the standing requirement to 513*513 which the ABA referred and, in fact, had not been articulated at the time of the ABA comments.

At the same time, courts that believe civil RICO doctrine should mirror civil antitrust doctrine also read too much into the legislative history. It is absolutely clear that Congress intended to adopt antitrust remedies, such as civil actions by the Government and treble damages. The House of Representatives added the civil provision to Title IX in response to suggestions from the ABA and Congressmen that there be a remedy “similar to the private damage remedy found in the anti-trust laws,” Organized Crime Control: Hearings on S. 30 and Related Proposals, before Subcommittee No. 5 of the House Committee on the Judiciary, 91st Cong., 2d Sess., 520 (1970) (statement of Rep. Steiger) (hereinafter House Hearings); see also id., at 543 (statement of Edward L. Wright, ABA president-elect) (suggesting an amendment “to include the additional civil remedy of authorizing private damage suits based upon the concept of Section 4 of the Clayton (Antitrust) Act”); 116 Cong. Rec. 35295 (1970) (remarks of Rep. Poff, chief spokesman for the bill) (explaining bill’s adoption of the antitrust remedy for use against organized crime). The decision to adopt antitrust remedies does not, however, compel the conclusion that Congress intended to adopt substantive antitrust doctrine. Courts that construe these references to the antitrust laws as indications of Congress’ intent to adopt the substance of antitrust doctrine also read too much into too little language.


While the foregoing establishes that Congress sought to adopt remedies akin to those used in antitrust law — such as civil government enforcement — and to reject antitrust standing rules, other portions of the legislative history reveal just what Congress intended the substantive dimensions of the civil action to be. Quite simply, its principal target was the economic power of racketeers, and its toll on legitimate businessmen. 514*514 To this end, Congress sought to fill a gap in the civil and criminal laws and to provide new remedies broader than those already available to private or government antitrust plaintiffs, different from those available to government and private citizens under state and federal laws, and significantly narrower than those adopted by the Court today.

In 1967, Senator Hruska proposed two bills, S. 2048 and S. 2049, 90th Cong., 1st Sess., which were designed in part to implement recommendations of the President’s Commission on Law Enforcement and the Administration of Justice (the Katzenbach Commission) on the fight against organized crime. See 113 Cong. Rec. 17998-18001 (1967). The former bill proposed an amendment to the Sherman Act prohibiting the investment or use of unreported income derived from one line of business in another business. Id., at 17999. The latter bill, which was separate from the Sherman Act, prohibited the acquisition of a business interest with income derived from criminal activity. Ibid. Representative Poff introduced similar bills in the House of Representatives. See H. R. 11266, H. R. 11268, 90th Cong., 1st Sess. (1967); 113 Cong. Rec. 17976 (1967).

Introducing S. 2048, Senator Hruska explained that “[b]y limiting its application to intentionally unreported income, this proposal highlights the fact that the evil to be curbed is the unfair competitive advantage inherent in the large amount of illicit income available to organized crime.” Id., at 17999 (emphasis added). He described how organized crime had infiltrated a wide range of businesses, and he observed that “[i]n each of these instances, large amounts of cash coupled with threats of violence, extortion, and similar techniques were utilized by mobsters to achieve their desired objectives: monopoly control of these enterprises.” Id., at 17998 (emphasis added). He identified four means by which control of legitimate business had been acquired:

“First. Investing concealed profits acquired from gambling and other illegal enterprises.

515*515 “Second. Accepting business interests in payment of the owner’s gambling debts.

“Third. Foreclosing on usurious loans.

“Fourth. Using various forms of extortion.” Id., at 17998-17999.

The Senator then explained how this infiltration takes its toll:

“The proper functioning of a free economy requires that economic decisions be made by persons free to exercise their own judgment. Force or fear limits choice, ultimately reduces quality, and increases prices. When organized crime moves into a business, it brings all the techniques of violence and intimidation which it used in its illegal businesses. Competitors are eliminated and customers confined to sponsored suppliers. Its effect is even more unwholesome than other monopolies because its position does not rest on economic superiority.” Id., at 17999.

Congress never took action on these bills.

In 1969, Senator McClellan introduced the Organized Crime Control Act, which altered numerous criminal law areas such as grand juries, immunity, and sentencing, but which contained no provision like that now known as RICO. See S. 30, 91st Cong., 1st Sess.; 115 Cong. Rec. 769 (1969). Shortly thereafter, Senator Hruska introduced the Criminal Activities Profits Act. S. 1623, 91st Cong., 1st Sess.; 115 Cong. Rec. 6995-6996 (1969). He explained that S. 1623 was designed to synthesize the earlier two bills (S. 2048 and S. 2049) while placing the “unified whole” outside the Sherman Act in response to the ABA’s concerns. According to the Senator, the bill was meant to attack “the economic power of organized crime and its exercise of unfair competition with honest businessmen,” and to address “[t]he power of organized crime to establish a monopoly within numerous business fields” and the impact on the free market and honest 516*516 competitors of “a racketeer dominated venture.” Id., at 6993 (emphasis added).

As introduced, S. 1623 contained a provision for a private treble-damages action; the language of that provision was virtually identical to that in § 1964(c), and it likely served as the model for § 1964(c). See id., at 6996. Explaining this provision, Senator Hruska said:

“In addition to this criminal prohibition, the bill also creates civil remedies for the honest businessman who has been damaged by unfair competition from the racketeer businessman. Despite the willingness of the courts to apply the Sherman Anti-Trust Act to organized crime activities, as a practical matter the legitimate businessman does not have adequate civil remedies available under that act. This bill fills that gap.” Id., at 6993 (emphasis added).

The Senate did not act directly on either S. 30 or S. 1623. Instead, Senators McClellan and Hruska jointly introduced S. 1861, the Corrupt Organizations Act of 1969, 91st Cong., 1st Sess.; 115 Cong. Rec. 9568-9571, which combined features of the two other bills and added to them. The new bill expanded the list of offenses that would constitute “racketeering activity” and required that the proscribed conduct be committed through a pattern of “racketeering activity.” It did not, however, contain a private civil remedy provision, but only authorization for an injunctive action brought by the Attorney General. Senator McClellan thereafter requested that the provisions of S. 1861 be incorporated by amendment into the broad Organized Crime Control Act, S. 30. See 115 Cong. Rec. 9566-9571 (1969).

In December 1969, the Senate Judiciary Committee reported on the Organized Crime Control Act, S. 30, as amended to include S. 1861 as Title IX, “Racketeer Influenced and Corrupt Organizations.” Title IX, it is clear, was 517*517 aimed at precisely the same evil that Senator Hruska had targeted in 1967 — the infiltration of legitimate business by organized crime. According to the Committee Report, the Title

“has as its purpose the elimination of the infiltration of organized crime and racketeering into legitimate organizations operating in interstate commerce. It seeks to achieve this objective by the fashioning of new criminal and civil remedies and investigative procedures.” S. Rep. No. 91-617, p. 76 (1969).

In language taken virtually verbatim from the earlier floor statements of Senator Hruska, the Report described the extraordinary range of legitimate businesses and unions that had been infiltrated by racketeers, and the means by which the racketeers sought to profit from the infiltration. It described “scams” involving bankruptcy and insurance fraud, and the use of “force or fear” to secure a monopoly in the service or product of the business, and it summed up: “When the campaign is successful, the organization begins to extract a premium price from customers.” Id., at 77.

Similarly, Senator Byrd spoke in favor of Title IX and gave other examples of the “awesome power” of racketeers and their methods of operation. He described, for example, how one racketeer had gained a foothold in a detergent company and then had used arson and murder to try to get the A & P Tea Co. to buy a detergent that A & P had tested and rejected. 116 Cong. Rec. 607 (1970). As another example, he explained that racketeers would corner the market on a good or service and then withhold it from a businessman until he surrendered his business or made some other related economic concession. Ibid. In each of these cases, I note, the racketeer engaged in criminal acts in order to accomplish a commercial goal — e. g., to destroy competition, create a monopoly, or infiltrate a legitimate business. See also id., at 602 (statement of Sen. Hruska) (“[Organized crime] employs 518*518 physical brutality, fear and corruption to intimidate competitors and customers to achieve increased sales and profits”) (emphasis added). In sum, “[s]crutiny of the Senate Report. . . establishes without a doubt a single dominating purpose of the Senate in proposing the RICO statute: “Title IX represents the committee’s careful efforts to fashion new remedies to deal with the infiltration of organized crime into legitimate organizations operating in interstate commerce.’ ” ABA Report 105.

The bill passed the Senate after a short debate by a vote of 73 to 1, without a treble-damages provision, and it was then considered by the House. In hearings before the House Judiciary Committee, it was suggested that the bill should include “the additional civil remedy of authorizing private damage suits based upon the concept of Section 4 of the Clayton Act.” House Hearings, at 543-544 (statement of Edward Wright, ABA president-elect); see also id., at 520 (statement of Rep. Steiger) (suggesting addition of a private civil damages remedy). Before reporting the bill favorably in September 1970, the House Judiciary Committee made one change to the civil remedy provision — it added a private treble-damages provision to the civil remedies already available to the Government; the Committee accorded this change only a single statement in the Committee Report: “The title, as amended, also authorizes civil treble damage suits on the part of private parties who are injured.” H. R. Rep. No. 91-1549, p. 35 (1970). Three Congressmen dissented from the Report. Their views are particularly telling because, with language that is narrow compared to the extraordinary scope the civil provision has acquired, these three challenged the possible breadth and abuse of the private civil remedy by plaintiff-competitors:

“Indeed, [§ 1964(c)] provides invitation for disgruntled and malicious competitors to harass innocent businessmen 519*519 engaged in interstate commerce by authorizing private damage suits. A competitor need only raise the claim that his rival has derived gains from two games of poker, and, because this title prohibits even the `indirect use’ of such gains — a provision with tremendous outreach — litigation is begun. What a protracted, expensive trial may not succeed in doing, the adverse publicity may well accomplish — destruction of the rival’s business.” Id., at 187 (emphasis added).

The bill then returned to the Senate, which passed it without a conference, apparently to assure passage during the session. Thus, the private remedy at issue here slipped quietly into the statute, and its entrance evinces absolutely no intent to revolutionize the enforcement scheme, or to give undue breadth to the broadly worded provisions — provisions Congress fully expected Government enforcers to narrow.

Putting together these various pieces, I can only conclude that Congress intended to give to businessmen who might otherwise have had no available remedy a possible way to recover damages for competitive injury, infiltration injury, or other economic injury resulting out of, but wholly distinct from, the predicate acts. Congress fully recognized that racketeers do not engage in predicate acts as ends in themselves; instead, racketeers threaten, burn, and murder in order to induce their victims to act in a way that accrues to the economic benefit of the racketeer, as by ceasing to compete, or agreeing to make certain purchases. Congress’ concern was not for the direct victims of the racketeers’ acts, whom state and federal laws already protected, but for the competitors and investors whose businesses and interests are harmed or destroyed by racketeers, or whose competitive positions decline because of infiltration in the relevant market. Its focus was on the victims of the extraordinary economic power that racketeers are able to acquire through a wide 520*520 range of illicit methods. Indeed, that is why Congress provided for recovery only for injury to business or property — that is, commercial injuries — and not for personal physical or emotional injury.

The only way to give effect to Congress’ concern is to require that plaintiffs plead and prove that they suffered RICO injury — injury to their competitive, investment, or other business interests resulting from the defendant’s conduct of a business or infiltration of a business or a market, through a pattern of racketeering activity. As I shall demonstrate, this requirement is manageable, and it puts the statute to the use to which it was addressed. In addition, this requirement is faithful to the language of the statute, which does not appear to provide recovery for injuries incurred by reason of individual predicate acts. It also avoids most of the “extraordinary uses” to which the statute has been put, in which legitimate businesses that have engaged in two criminal acts have been labeled “racketeers,” have faced treble-damages judgments in favor of the direct victims, and often have settled to avoid the destructive publicity and the resulting harm to reputation. These cases take their toll; their results distort the market by saddling legitimate businesses with uncalled-for punitive bills and undeserved labels. To allow punitive actions and significant damages for injury beyond that which the statute was intended to target is to achieve nothing the statute sought to achieve, and ironically to injure many of those lawful businesses that the statute sought to protect. Under such circumstances, I believe this Court is derelict in its failure to interpret the statute in keeping with the language and intent of Congress.

Several lower courts have remarked, however, that a “RICO injury” requirement, while perhaps contemplated by the statute, defies definition. I disagree. The following series of examples, culled in part from the legislative history of the RICO statute, illustrates precisely what does and does not fall within this definition.

521*521 First. If a “racketeer” uses “[t]hreats, arson and assault. . . to force competitors out of business and obtain larger shares of the market,” House Hearings, at 106 (statement of Sen. McClellan), the threats, arson, and assault represent the predicate acts. The pattern of those acts is designed to accomplish, and accomplishes, the goal of monopolization. Competitors thereby injured or forced out of business could allege “RICO” injury and recover damages for lost profits. So, too, purchasers of the racketeer’s goods or services, who are forced to buy from the racketeer/monopolist at higher prices, and whose businesses therefore are injured, might recover damages for the excess costs of doing business. The direct targets of the predicate acts — whether competitors, suppliers, or others — could recover for damages flowing from the predicate acts themselves, but under state or perhaps other federal law, not RICO.

Second. If a “racketeer” uses arson and threats to induce honest businessmen to pay protection money, or to purchase certain goods, or to hire certain workers, the targeted businessmen could sue to recover for injury to their business and property resulting from the added costs. This would be so if they were the direct victims of the predicate acts or if they had reacted to offenses committed against other businessmen. In each case, the predicate acts were committed in order to accomplish a certain end — e. g., to induce the prospective plaintiffs to take action to the economic benefit of the racketeer; in each case the result would have taken a toll on the competitive position of the prospective plaintiff by increasing his costs of doing business.

At the same time, the plaintiffs could not recover under RICO for the direct damages from the predicate acts. They could not, for example, recover for the cost of the building burned, or for personal injury resulting from the threat. Indeed, compensation for this latter injury is barred already by RICO’s exclusion of personal injury claims. As in the previous 522*522 example, these injuries are amply protected by state-law damages actions.

Third. If a “racketeer” infiltrates and obtains control of a legitimate business either through fraud, foreclosure on usurious loans, extortion, or acceptance of business interests in payment of gambling debts, the honest investor who is thereby displaced could bring a civil RICO action claiming infiltration injury resulting from the infiltrator’s pattern of predicate acts that enabled him to gain control. Thereafter, if the enterprise conducts its business through a pattern of racketeering activity to enhance its profits or perpetuate its economic power, competitors of that enterprise could bring civil RICO actions alleging injury by reason of the enhanced commercial position the enterprise has obtained from its unlawful acts, and customers forced to purchase from sponsored suppliers could recover their added costs of doing business. At the same time, the direct victims of the activity — for example, customers defrauded by an infiltrated bank — could not recover under civil RICO. The bank does not, of course, thereby escape liability. The customers simply must rely on the existing causes of action, usually under state law.

Alternatively, if the infiltrated enterprise operates a legitimate business to a businessman’s competitive disadvantage because of the enterprise’s strong economic base derived from perpetration of predicate acts, the competitor could bring a civil RICO action alleging injury to his competitive position. The predicate acts then would have enabled the “enterprise” to gain a competitive advantage that brought harm to the plaintiff-competitor. Again, the direct victims of the predicate acts whose profits were invested in the “legitimate enterprise,” would not be able to recover damages under civil RICO for injury resulting from the predicate acts alone.

These examples are not exclusive, and if this formulation were adopted, lower courts would, of course, have the opportunity 523*523 to smooth numerous rough edges. The examples are designed simply to illustrate the type of injury that civil RICO was, to my mind, designed to compensate. The construction I describe offers a powerful remedy to the honest businessmen with whom Congress was concerned, who might have had no recourse against a “racketeer” prior to enactment of the statute. At the same time, this construction avoids both the theoretical and practical problems outlined in Part I. Under this view, traditional state-law claims are not federalized; federal remedial schemes are not inevitably displaced or superseded; and, consequently, ordinary commercial disputes are not misguidedly placed within the scope of civil RICO.[2]


The Court today permits two civil actions for treble damages to go forward that are not authorized either by the language and legislative history of the civil RICO statute, or by the policies that underlay passage of that statute. In so doing, the Court shirks its well-recognized responsibility to assure that Congress’ intent is not thwarted by maintenance of unintended litigation, and it does so based on an unfounded and ill-considered reading of a statutory provision. Because I believe the provision at issue is susceptible of a narrower interpretation that comports both with the statutory language and the legislative history, I dissent.

JUSTICE POWELL, dissenting.

I agree with JUSTICE MARSHALL that the Court today reads the civil RICO statute in a way that validates uses of the statute that were never intended by Congress, and I join his dissent. I write separately to emphasize my disagreement 524*524 with the Court’s conclusion that the statute must be applied to authorize the types of private civil actions now being brought frequently against respected businesses to redress ordinary fraud and breach-of-contract cases.[1]


In United States v. Turkette, 452 U. S. 576 (1981), the Court noted that in construing the scope of a statute, its language, if unambiguous, must be regarded as conclusive “in the absence of `a clearly expressed legislative intent to the contrary.’ ” Id., at 580 (emphasis added) (quoting Consumer Product Safety Comm’n v. GTE Sylvania, Inc., 447 U. S. 102, 108 (1980)). Accord, Russello v. United States, 464 U. S. 16, 20 (1983). In both Turkette and Russello, we found that the “declared purpose” of Congress in enacting the RICO statute was ” `to seek the eradication of organized crime in the United States.’ ” United States v. Turkette, supra, at 589 (quoting the statement of findings prefacing the Organized Crime Control Act of 1970, Pub. L. 91-452, 84 Stat. 923); accord, Russello v. United States, supra, at 26-27. That organized crime was Congress’ target is apparent from the Act’s title, is made plain throughout the legislative history of the statute, see, e. g., S. Rep. No. 91-617, p. 76 (1969) (S. Rep.), and is acknowledged by all parties to these two cases. Accord, Report of the Ad Hoc Civil RICO Task Force of the ABA Section of Corporation, Banking and Business Law 70-92 (1985) (ABA Report). The legislative history cited by the Court today amply supports this conclusion, see ante, at 487-488, and the Court concedes that “in its private civil version, RICO is evolving into something quite 525*525 different from the original conception of its enactors. See generally ABA Report 55-69.” Ante, at 500. Yet, the Court concludes that it is compelled by the statutory language to construe § 1964(c) to reach garden-variety fraud and breach of contract cases such as those before us today. Ibid.

As the Court of Appeals observed in this case, “[i]f Congress had intended to provide a federal forum for plaintiffs for so many common law wrongs, it would at least have discussed it.”[2] 741 F. 2d 482, 492 (1984). The Court today concludes that Congress was aware of the broad scope of the statute, relying on the fact that some Congressmen objected to the possibility of abuse of the RICO statute by arguing that it could be used “to harass innocent businessmen.” H. R. Rep. No. 91-1549, p. 187 (1970) (dissenting views of Reps. Conyers, Mikva, and Ryan); 116 Cong. Rec. 35342 (1970) (remarks of Rep. Mikva).

In the legislative history of every statute, one may find critics of the bill who predict dire consequences in the event of its enactment. A court need not infer from such statements by opponents that Congress intended those consequences to occur, particularly where, as here, there is compelling evidence to the contrary. The legislative history reveals that Congress did not state explicitly that the statute would reach only members of the Mafia because it believed there were constitutional problems with establishing such a specific status offense. E. g., id., at 35343-35344 (remarks of Rep. Celler); id., at 35344 (remarks of Rep. Poff). Nonetheless, theless, the legislative history makes clear that the statute was intended to be applied to organized crime, and an influential sponsor of the bill emphasized that any effect it had beyond such crime was meant to be only incidental. Id., at 18914 (remarks of Sen. McClellan).

526*526 The ABA study concurs in this view. The ABA Report states:

“In an attempt to ensure the constitutionality of the statute, Congress made the central proscription of the statute the use of a `pattern of racketeering activities’ in connection with an `enterprise,’ rather than merely outlawing membership in the Mafia, La Cosa Nostra, or other organized criminal syndicates. `Racketeering’ was defined to embrace a potpourri of federal and state criminal offenses deemed to be the type of criminal activities frequently engaged in by mobsters, racketeers and other traditional members of `organized crime.’ The `pattern’ element of the statute was designed to limit its application to planned, ongoing, continuing crime as opposed to sporadic, unrelated, isolated criminal episodes. The `enterprise’ element, when coupled with the `pattern’ requirement, was intended by the Congress to keep the reach of RICO focused directly on traditional organized crime and comparable ongoing criminal activities carried out in a structured, organized environment. The reach of the statute beyond traditional mobster and racketeer activity and comparable ongoing structured criminal enterprises, was intended to be incidental, and only to the extent necessary to maintain the constitutionality of a statute aimed primarily at organized crime.” Id., at 71-72 (footnote omitted).

It has turned out in this case that the naysayers’ dire predictions have come true. As the Court notes, ante, at 499, and n. 16, RICO has been interpreted so broadly that it has been used more often against respected businesses with no ties to organized crime, than against the mobsters who were the clearly intended target of the statute. While I acknowledge that the language of the statute may be read as broadly as the Court interprets it today, I do not believe that it must 527*527 be so read. Nor do I believe that interpreting the statutory language more narrowly than the Court does will “eliminate the [civil RICO] private action,” ante, at 499, in cases of the kind clearly identified by the legislative history. The statute may and should be read narrowly to confine its reach to the type of conduct Congress had in mind. It is the duty of this Court to implement the unequivocal intention of Congress.


The language of this complex statute is susceptible of being read consistently with this intent. For example, the requirement in the statute of proof of a “pattern” of racketeering activity may be interpreted narrowly. Section 1961(5), defining “pattern of racketeering activity,” states that such a pattern “requires at least two acts of racketeering activity.” This contrasts with the definition of “racketeering activity” in § 1961(1), stating that such activity “means” any of a number of acts. The definition of “pattern” may thus logically be interpreted as meaning that the presence of the predicate acts is only the beginning: something more is required for a “pattern” to be proved. The ABA Report concurs in this view. It argues persuasively that “[t]he `pattern’ element of the statute was designed to limit its application to planned, ongoing, continuing crime as opposed to sporadic, unrelated, isolated criminal episodes,” ABA Report 72, such as the criminal acts alleged in the case before us today.

The legislative history bears out this interpretation of “pattern.” Senator McClellan, a leading sponsor of the bill, stated that “proof of two acts of racketeering activity, without more, does not establish a pattern.” 116 Cong. Rec. 18940 (1970). Likewise, the Senate Report considered the “concept of `pattern’ [to be] essential to the operation of the statute.” S. Rep., at 158. It stated that the bill was not aimed at sporadic activity, but that the “infiltration of legitimate business normally requires more than one `racketeering 528*528 activity’ and the threat of continuing activity to be effective. It is this factor of continuity plus relationship which combines to produce a pattern.” Ibid. (emphasis added). The ABA Report suggests that to effectuate this legislative intent, “pattern” should be interpreted as requiring that (i) the racketeering acts be related to each other, (ii) they be part of some common scheme, and (iii) some sort of continuity between the acts or a threat of continuing criminal activity must be shown. ABA Report, at 193-208. By construing “pattern” to focus on the manner in which the crime was perpetrated, courts could go a long way toward limiting the reach of the statute to its intended target — organized crime.

The Court concedes that “pattern” could be narrowly construed, ante, at 496, n. 14, and notes that part of the reason civil RICO has been put to such extraordinary uses is because of the “failure of Congress and the courts to develop a meaningful concept of `pattern,’ ” ante, at 500. The Court declines to decide whether the defendants’ acts constitute such a pattern in this case, however, because it concludes that that question is not before the Court. Ibid. I agree that the scope of the “pattern” requirement is not included in the questions on which we granted certiorari. I am concerned, however, that in the course of rejecting the Court of Appeals’ ruling that the statute requires proof of a “racketeering injury” the Court has read the entire statute so broadly that it will be difficult, if not impossible, for courts to adopt a reading of “pattern” that will conform to the intention of Congress.

The Court bases its rejection of the “racketeering injury” requirement on the general principles that the RICO statute is to be read “broadly,” that it is to be ” `liberally construed to effectuate its remedial purposes,’ ” ante, at 498 (quoting Pub. L. 91-452, § 904(a), 84 Stat. 947), and that the statute was part of “an aggressive initiative to supplement old remedies and develop new methods for fighting crime.” Ante, at 498. Although the Court acknowledges that few of the legislative statements supporting these principles were made 529*529 with reference to RICO’s private civil action, it concludes nevertheless that all of the Act’s provisions should be read in the “spirit” of these principles. Ibid. By constructing such a broad premise for its rejection of the “racketeering injury” requirement, the Court seems to mandate that all future courts read the entire statute broadly.

It is neither necessary to the Court’s decision, nor in my view correct, to read the civil RICO provisions so expansively. We ruled in Turkette and Russello that the statute must be read broadly and construed liberally to effectuate its remedial purposes, but like the legislative history to which the Court alludes, it is clear we were referring there to RICO’s criminal provisions. It does not necessarily follow that the same principles apply to RICO’s private civil provisions. The Senate Report recognized a difference between criminal and civil enforcement in describing proposed civil remedies that would have been available to the Government. It emphasized that although those proposed remedies were intended to place additional pressure on organized crime, they were intended to reach “essentially an economic, not a punitive goal.” S. Rep., at 81 (emphasis added). The Report elaborated as follows:

“However remedies may be fashioned, it is necessary to free the channels of commerce from predatory activities, but there is no intent to visit punishment on any individual; the purpose is civil. Punishment as such is limited to the criminal remedies . . . .” Ibid. (emphasis added; footnote omitted).

The reference in the Report to “predatory activities” was to organized crime. Only a small fraction of the scores of civil RICO cases now being brought implicate organized crime in any way.[3] Typically, these suits are being brought — in the 530*530 unfettered discretion of private litigants — in federal court against legitimate businesses seeking treble damages in ordinary fraud and contract cases. There is nothing comparable in those cases to the restraint on the institution of criminal suits exercised by Government prosecutorial discretion. Today’s opinion inevitably will encourage continued expansion of resort to RICO in cases of alleged fraud or contract violation rather than to the traditional remedies available in state court. As the Court of Appeals emphasized, it defies rational belief, particularly in light of the legislative history, that Congress intended this far-reaching result. Accordingly, I dissent.

[*] Briefs of amici curiae urging reversal were filed for the State of Arizona et al. by the Attorneys General for their respective States as follows: Robert K. Corbin of Arizona, Norman C. Gorsuch of Alaska, John Van de Kamp of California, Duane Woodard of Colorado, Joseph Lieberman of Connecticut, Jim Smith of Florida, Michael Lilly of Hawaii, Jim Jones of Idaho, Neil Hartigan of Illinios, Linley E. Pearson of Indiana, David L. Armstrong of Kentucky, William J. Guste, Jr., of Louisiana, Frank J. Kelley of Michigan, Edward L. Pittman of Mississippi, William L. Webster of Missouri, Mike Greely of Montana, Brian McKay of Nevada, Irwin L. Kimmelman of New Jersey, Paul Bardacke of New Mexico, Lacy H. Thornburg of North Carolina, Nicholas J. Spaeth of North Dakota, Anthony Celebrezze of Ohio, Michael Turpen of Oklahoma, David Fronmayer of Oregon, Dennis J. Roberts II of Rhode Island, T. Travis Medlock of South Carolina, Mark V. Meierhenry of South Dakota, W. J. Michael Cody of Tennessee, David L. Wilkinson of Utah, John J. Easton of Vermont, Kenneth O. Eikenberry of Washington, Charlie Brown of West Virginia, Bronson C. La Follette of Wisconsin, Archie G. McClintock of Wyoming; for the State of New York by Robert Abrams, Attorney General, and Robert Hermann, Solicitor General; for the City of New York et al. by Frederick A. O. Schwarz, Jr., James D. Montgomery, and Barbara W. Mather; and for the County of Suffolk, New York, by Mark D. Cohen.

Briefs of amici curiae urging affirmance were filed for the Alliance of American Insurers et al. by James F. Fitzpatrick and John M. Quinn; for the American Institute of Certified Public Accountants by Philip A. Lacovara, Jay Kelly Wright, Kenneth J. Bialkin, and Louis A. Craco; and for the Securities Industry Association by Joel W. Sternman, Eugene A. Gaer, and William J. Fitzpatrick.

[1] Of 270 District Court RICO decisions prior to this year, only 3% (nine cases) were decided throughout the 1970’s, 2% were decided in 1980, 7% in 1981, 13% in 1982, 33% in 1983, and 43% in 1984. Report of the Ad Hoc Civil RICO Task Force of the ABA Section of Corporation, Banking and Business Law 55 (1985) (hereinafter ABA Report); see also id., at 53a (table).

[2] For a thorough bibliography of civil RICO decisions and commentary, see Milner, A Civil RICO Bibliography, 21 C. W. L. R. 409 (1985).

[3] RICO defines “racketeering activity” to mean

“(A) any act or threat involving murder, kidnaping, gambling, arson, robbery, bribery, extortion, or dealing in narcotic or other dangerous drugs, which is chargeable under State law and punishable by imprisonment for more than one year; (B) any act which is indictable under any of the following provisions of title 18, United States Code: Section 201 (relating to bribery), section 224 (relating to sports bribery), sections 471, 472, and 473 (relating to counterfeiting), section 659 (relating to theft from interstate shipment) if the act indictable under section 659 is felonious, section 664 (relating to embezzlement from pension and welfare funds), sections 891-894 (relating to extortionate credit transactions), section 1084 (relating to the transmission of gambling information), section 1341 (relating to mail fraud), section 1343 (relating to wire fraud), section 1503 (relating to obstruction of justice), section 1510 (relating to obstruction of criminal investigations), section 1511 (relating to the obstruction of State or local law enforcement), section 1951 (relating to interference with commerce, robbery, or extortion), section 1952 (relating to racketeering), section 1953 (relating to interstate transportation of wagering paraphernalia), section 1954 (relating to unlawful welfare fund payments), section 1955 (relating to the prohibition of illegal gambling businesses), sections 2312 and 2313 (relating to interstate transportation of stolen motor vehicles), sections 2314 and 2315 (relating to interstate transportation of stolen property), section 2320 (relating to trafficking in certain motor vehicles or motor vehicle parts), sections 2341-2346 (relating to trafficking in contraband cigarettes), sections 2421-2424 (relating to white slave traffic), (C) any act which is indictable under title 29, United States Code, section 186 (dealing with restrictions on payments and loans to labor organizations) or section 501(c) (relating to embezzlement from union funds), (D) any offense involving fraud connected with a case under title 11, fraud in the sale of securities, or the felonious manufacture, importation, receiving, concealment, buying, selling, or otherwise dealing in narcotic or other dangerous drugs, punishable under any law of the United States, or (E) any act which is indictable under the Currency and Foreign Transactions Reporting Act.” 18 U. S. C. § 1961(1) (1982 ed., Supp. III).

[4] In relevant part, 18 U. S. C. § 1962 provides:

“(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 . . . 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. . . .

“(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.”

[5] The day after the decision in this case, another divided panel of the Second Circuit reached a similar conclusion. Bankers Trust Co. v. Rhoades, 741 F. 2d 511 (1984), cert. pending, No. 84-657. It held that § 1964(c) allowed recovery only for injuries resulting not from the predicate acts, but from the fact that they were part of a pattern. “If a plaintiff’s injury is that caused by the predicate acts themselves, he is injured regardless of whether or not there is a pattern; hence he cannot be said to be injured by the pattern,” and cannot recover. Id., at 517 (emphasis in original).

The following day, a third panel of the same Circuit, this time unanimous, decided Furman v. Cirrito, 741 F. 2d 524 (1984), cert. pending, No. 84-604. In that case, the District Court had dismissed the complaint for failure to allege a distinct racketeering injury. The Court of Appeals affirmed, relying on the opinions in Sedima and Bankers Trust, but wrote at some length to record its disagreement with those decisions. The panel would have required no injury beyond that resulting from the predicate acts.

[6] A month after the trio of Second Circuit opinions was released, the Eighth Circuit decided Alexander Grant & Co. v. Tiffany Industries, Inc., 742 F. 2d 408 (1984), cert. pending, Nos. 84-1084, 84-1222. Viewing its decision as contrary to Sedima but consistent with, though broader than, Bankers Trust, the court held that a RICO claim does require some unspecified element beyond the injury flowing directly from the predicate acts. At the same time, it stood by a prior decision that had rejected any requirement that the injury be solely commercial or competitive, or that the defendants be involved in organized crime. 742 F. 2d, at 413; see Bennett v. Berg, 685 F. 2d 1053, 1058-1059, 1063-1064 (CA8 1982), aff’d in part and rev’d in part, 710 F. 2d 1361 (en banc), cert. denied, 464 U. S. 1008 (1983).

Two months later, the Seventh Circuit decided Haroco, Inc. v. American National Bank & Trust Co. of Chicago, 747 F. 2d 384 (1984), aff’d, post, p. 606. Dismissing Sedima as the resurrection of the discredited requirement of an organized crime nexus, and Bankers Trust as an emasculation of the treble-damages remedy, the Seventh Circuit rejected “the elusive racketeering injury requirement.” 747 F. 2d, at 394, 398-399. The Fifth Circuit had taken a similar position. Alcorn County v. U. S. Interstate Supplies, Inc., 731 F. 2d 1160, 1169 (1984).

The requirement of a prior RICO conviction was rejected in Bunker Ramo Corp. v. United Business Forms, Inc., 713 F. 2d 1272, 1286-1287 (CA7 1983), and USACO Coal Co. v. Carbomin Energy, Inc., 689 F. 2d 94 (CA6 1982). See also United States v. Cappetto, 502 F. 2d 1351 (CA7 1974), cert. denied, 420 U. S. 925 (1975) (civil action by Government).

[7] When Congress intended that the defendant have been previously convicted, it said so. Title 18 U. S. C. § 1963(f) (1982 ed., Supp. III) states that “[u]pon conviction of a person under this section,” his forfeited property shall be seized. Likewise, in Title X of the same legislation Congress explicitly required prior convictions, rather than prior criminal activity, to support enhanced sentences for special offenders. See 18 U. S. C. § 3575(e).

[8] The court below considered it significant that § 1964(c) requires a “violation of section 1962,” whereas the Clayton Act speaks of “anything forbidden in the antitrust laws.” 741 F. 2d, at 488; see 15 U. S. C. § 15(a). The court viewed this as a deliberate change indicating Congress’ desire that the underlying conduct not only be forbidden, but also have led to a criminal conviction. There is nothing in the legislative history to support this interpretation, and we cannot view this minor departure in wording, without more, to indicate a fundamental departure in meaning. Representative Steiger, who proposed this wording in the House, nowhere indicated a desire to depart from the antitrust model in this regard. See 116 Cong. Rec. 35227, 35246 (1970). To the contrary, he viewed the treble-damages provision as a “parallel private remedy.” Id., at 27739 (letter to House Judiciary Committee). Likewise, Senator Hruska’s discussion of his identically worded proposal gives no hint of any such intent. See 115 Cong. Rec. 6993 (1969). In any event, the change in language does not support the court’s drastic inference. It seems more likely that the language was chosen because it is more succinct than that in the Clayton Act, and is consistent with the neighboring provisions. See §§ 1963(a), 1964(a).

[9] It is worth bearing in mind that the holding of the court below is not without problematic consequences of its own. It arbitrarily restricts the availability of private actions, for lawbreakers are often not apprehended and convicted. Even if a conviction has been obtained, it is unlikely that a private plaintiff will be able to recover for all of the acts constituting an extensive “pattern,” or that multiple victims will all be able to obtain redress. This is because criminal convictions are often limited to a small portion of the actual or possible charges. The decision below would also create peculiar incentives for plea bargaining to non-predicate-act offenses so as to ensure immunity from a later civil suit. If nothing else, a criminal defendant might plead to a tiny fraction of counts, so as to limit future civil liability. In addition, the dependence of potential civil litigants on the initiation and success of a criminal prosecution could lead to unhealthy private pressures on prosecutors and to self-serving trial testimony, or at least accusations thereof. Problems would also arise if some or all of the convictions were reversed on appeal. Finally, the compelled wait for the completion of criminal proceedings would result in pursuit of stale claims, complex statute of limitations problems, or the wasteful splitting of actions, with resultant claim and issue preclusion complications.

[10] The Court of Appeals also observed that allowing civil suits without prior convictions “would make a hash” of the statute’s liberal-construction requirement. 741 F. 2d, at 502; see RICO § 904(a). Since criminal statutes must be strictly construed, the court reasoned, allowing liberal construction of RICO — an approach often justified on the ground that the conduct for which liability is imposed is “already criminal” — would only be permissible if there already existed criminal convictions. Again, we have doubts about the premise of this rather convoluted argument. The strict-construction principle is merely a guide to statutory interpretation. Like its identical twin, the “rule of lenity,” it “only serves as an aid for resolving an ambiguity; it is not to be used to beget one.” Callanan v. United States, 364 U. S. 587, 596 (1961); see also United States v. Turkette, 452 U. S. 576, 587-588 (1981). But even if that principle has some application, it does not support the court’s holding. The strict- and liberal-construction principles are not mutually exclusive; § 1961 and § 1962 can be strictly construed without adopting that approach to § 1964(c). Cf. United States v. United States Gypsum Co., 438 U. S. 422, 443, n. 19 (1978). Indeed, if Congress’ liberal-construction mandate is to be applied anywhere, it is in § 1964, where RICO’s remedial purposes are most evident.

[11] Even were the constitutional questions more significant, any doubts would be insufficient to overcome the mandate of the statute’s language and history. “Statutes should be construed to avoid constitutional questions, but this interpretative canon is not a license for the judiciary to rewrite language enacted by the legislature.” United States v. Albertini, 472 U. S. 675, 680 (1985).

[12] The decision below does not appear identical to Bankers Trust. It established a standing requirement, whereas Bankers Trust adopted a limitation on damages. The one focused on the mobster element, the other took a more conceptual approach, distinguishing injury caused by the individual acts from injury caused by their cumulative effect. Thus, the Eighth Circuit has indicated its agreement with Bankers Trust but not Sedima. Alexander Grant & Co. v. Tiffany Industries, Inc., 742 F. 2d, at 413. See also Haroco, Inc. v. American National Bank & Trust Co. of Chicago, 747 F. 2d, at 396. The two tests were described as “very different” by the ABA Task Force. See ABA Report, at 310.

Yet the Bankers Trust court itself did not seem to think it was departing from Sedima, see 741 F. 2d, at 516-517, and other Second Circuit panels have treated the two decisions as consistent, see Furman v. Cirrito, 741 F. 2d 524 (1984), cert. pending, No. 84-604; Durante Brothers & Sons, Inc. v. Flushing National Bank, 755 F. 2d 239, 246 (1985). The evident difficulty in discerning just what the racketeering injury requirement consists of would make it rather hard to apply in practice or explain to a jury.

[13] Given the plain words of the statute, we cannot agree with the court below that Congress could have had no “inkling of [§ 1964(c)’s] implications.” 741 F. 2d, at 492. Congress’ “inklings” are best determined by the statutory language that it chooses, and the language it chose here extends far beyond the limits drawn by the Court of Appeals. Nor does the “clanging silence” of the legislative history, ibid., justify those limits. For one thing, § 1964(c) did not pass through Congress unnoticed. See Part II, supra. In addition, congressional silence, no matter how “clanging,” cannot override the words of the statute.

[14] As many commentators have pointed out, the definition of a “pattern of racketeering activity” differs from the other provisions in § 1961 in that it states that a pattern “requires at least two acts of racketeering activity,” § 1961(5) (emphasis added), not that it “means” two such acts. The implication is that while two acts are necessary, they may not be sufficient. Indeed, in common parlance two of anything do not generally form a “pattern.” The legislative history supports the view that two isolated acts of racketeering activity do not constitute a pattern. As the Senate Report explained: “The target of [RICO] is thus not sporadic activity. The infiltration of legitimate business normally requires more than one `racketeering activity’ and the threat of continuing activity to be effective. It is this factor of continuity plus relationship which combines to produce a pattern.” S. Rep. No. 91-617, p. 158 (1969) (emphasis added). Similarly, the sponsor of the Senate bill, after quoting this portion of the Report, pointed out to his colleagues that “[t]he term `pattern’ itself requires the showing of a relationship . . . . So, therefore, proof of two acts of racketeering activity, without more, does not establish a pattern . . . .” 116 Cong. Rec. 18940 (1970) (statement of Sen. McClellan). See also id., at 35193 (statement of Rep. Poff) (RICO “not aimed at the isolated offender”); House Hearings, at 665. Significantly, in defining “pattern” in a later provision of the same bill, Congress was more enlightening: “[C]riminal conduct forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.” 18 U. S. C. § 3575(e). This language may be useful in interpreting other sections of the Act. Cf. Iannelli v. United States, 420 U. S. 770, 789 (1975).

[15] Such damages include, but are not limited to, the sort of competitive injury for which the dissenters would allow recovery. See post, at 521-522. Under the dissent’s reading of the statute, the harm proximately caused by the forbidden conduct is not compensable, but that ultimately and indirectly flowing therefrom is. We reject this topsy-turvy approach, finding no warrant in the language or the history of the statute for denying recovery thereunder to “the direct victims of the [racketeering] activity,” post, at 522, while preserving it for the indirect. Even the court below was not that grudging. It would apparently have allowed recovery for both the direct and the ultimate harm flowing from the defendant’s conduct, requiring injury “not simply caused by the predicate acts, but also caused by an activity which RICO was designed to deter.” 741 F. 2d, at 496 (emphasis added).

The dissent would also go further than did the Second Circuit in its requirement that the plaintiff have suffered a competitive injury. Again, as the court below stated, Congress “nowhere suggested that actual anti-competitive effect is required for suits under the statute.” Ibid. The language it chose, allowing recovery to “[a]ny person injured in his business or property,” § 1964(c) (emphasis added), applied to this situation, suggests that the statute is not so limited.

[16] The ABA Task Force found that of the 270 known civil RICO cases at the trial court level, 40% involved securities fraud, 37% common-law fraud in a commercial or business setting, and only 9% “allegations of criminal activity of a type generally associated with professional criminals.” ABA Report, at 55-56. Another survey of 132 published decisions found that 57 involved securities transactions and 38 commercial and contract disputes, while no other category made it into double figures. American Institute of Certified Public Accountants, The Authority to Bring Private Treble-Damage Suits Under “RICO” Should be Removed 13 (Oct. 10, 1984).

[*] [This opinion applies also to No. 84-822, American National Bank & Trust Company of Chicago et al. v. Haroco, Inc., et al, post, p. 606.]

[1] Section 1964(c) 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 the cost of the suit, including a reasonable attorney’s fee.”

Section 4 of the Clayton Act, 15 U. S. C. § 15, provides in relevant part:

“[A]ny 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 in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover three-fold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.”

[2] The analysis in my dissent would lead to the dismissal of the civil RICO claims at stake here. I thus do not need to decide whether a civil RICO action can proceed only after a criminal conviction. See ante, at 488-493.

[1] The Court says these suits are not being brought against the “archetypal, intimidating mobster” because of a “defect” that is “inherent in the statute.” Ante, at 499. If RICO must be construed as the Court holds, this is indeed a defect that Congress never intended. I do not believe that the statute must be construed in what in effect is an irrational manner.

[2] The force of this observation is accented by RICO’s provision for treble damages — an enticing invitation to litigate these claims in federal courts.

[3] As noted in the ABA Report, of the 270 District Court RICO decisions prior to this year, only 3% (9cases) were decided throughout the entire decade of the 1970’s, whereas 43% (116 cases) were decided in 1984. ABA Report, at 53a (Table). See ante, at 481, n. 1.