Opinion
Case number: RWT 07cv2383.
August 26, 2008
MEMORANDUM OPINION
Plaintiff has filed an objection to the Proposed Findings of Fact and Conclusions of Law submitted by the Bankruptcy Court. Specifically, Plaintiff contends that the Bankruptcy Court erred by concluding that a claim for violation of the Racketeering Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. § 1962(c), requires a showing of a "pattern" of "collection of unlawful debt." For the reasons that follow, the Court will sustain Plaintiff's objection and remand the case to the Bankruptcy Court for further proceedings.
The Bankruptcy Court submitted its Proposed Findings of Fact and Conclusions of Law, along with a Memorandum of Decision and Proposed Order, to this Court as to this non-core proceeding, pursuant to 28 U.S.C. § 157(c)(1). Under subsection 157(c)(1), this Court exercises de novo review and "may accept, reject, or modify the proposed findings of fact and conclusions of law, receive further evidence, or recommit the matter to the bankruptcy judge with instructions." Fed.R.Bankr.P. 9033(d). In this case, because Plaintiff has raised only a narrow question of law, the Court has limited its review to the Bankruptcy Court's Proposed Findings of Fact and Conclusions of Law and the accompanying Memorandum. The limited question posed to the Court and its disposition require no recitation of the facts.
Subsection 157(c)(1) provides:
A bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11. In such proceeding, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected.
Although the objecting party is normally obligated to arrange for the transcription of the record, or such portions of it as the parties agree or the bankruptcy judge deems sufficient, Fed.R.Bankr.P. 9033(b), the Court is able to decide the instant objection as a matter of law based on the Conclusion of Law No. 15 alone, without additional portions of the record before it.
Plaintiff has filed a limited objection to the Bankruptcy Court's Conclusion of Law, No. 15, which states in full:
The court finds no evidence of a continuing enterprise or a pattern of collection of unlawful debt to bring the Defendant's conduct within the purview of the Racketeering Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(c). The court finds that this single scheme does not fall into the pattern of racketeering within the meaning of RICO. There is no evidence of planned, ongoing and continuing activity, nor are there even two acts to constitute a pattern. There is the absence of the continuity required to sustain a RICO claim.
(Citations omitted). Defendant has filed no response to Plaintiff's objection.
After leaving voice mails for both defense counsel during the week of April 14, the law clerk for the undersigned spoke with both counsel of April 25, 2008. Counsel informed my law clerk that, although she did not object to the Proposed Findings of Fact and Conclusions of Law, she had not filed a response to Plaintiff's objection at that time.
Subsection 1962(c) provides for liability based on "a pattern of racketeering activity or collection of an unlawful debt." By Conclusion No. 15, the Bankruptcy Court is proposing in effect that the Court hold that Plaintiff was required to prove a "pattern of collection of unlawful debt" in order to establish a RICO violation under subsection 1962(c). In reaching this conclusion, moreover, the Bankruptcy Court relies on three cases that discuss the elements necessary to prove a RICO pattern, albeit a pattern of racketeering activity and not a pattern of "collection of unlawful debt." See Flip Mortgage Corp. v. McElhone, 841 F.2d 531, 538 (4th Cir. 1988) (framing the issue as "whether the acts alleged constitute a `pattern of racketeering activity' within the meaning of 18 U.S.C. § 1961(5)"); Jackson v. Bellsouth Telecomms., 372 F.3d 1250, 1263 (11th Cir. 2004) (examining whether plaintiffs sufficiently alleged a "pattern of racketeering activity"); ePlus Tech., Inc. v. Aboud, 313 F.3d 166, 181-82 (4th Cir. 2002) (examining whether the plaintiff had proven that the defendant had engaged in a "pattern of racketeering activity").
Subsection 1962(c) provides in full:
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.
Plaintiff contends that the Bankruptcy Court's Proposed Conclusion of Law No. 15 is in error because its analysis presupposes that a claim based on "collection of unlawful debt" requires a showing of a "pattern" of such collection. In contending that such a claim requires no such pattern, Plaintiff cites precedent to this effect in the First, Second, and Eleventh Circuits. See United States v. Weiner, 3 F.3d 17, 24 (1st Cir. 1993) (observing that "there is no counterpart definition of a `pattern of collection of unlawful debt,' as one would expect if such a pattern were an element of one of RICO's core provisions"); United States v. Giovanelli, 945 F.2d 479, 490 (2d Cir. 1991) ("Unlike a `pattern of racketeering activity' which requires proof of two or more predicate acts, to satisfy RICO's `collection of unlawful debt' definition the government need only demonstrate a single collection."); United States v. Pepe, 747 F.2d 632, 645 (11th Cir. 1984) (noting that "to establish the collection of unlawful debt only one act of collection must be shown"). The Court has also found similar precedent from the Third and Sixth Circuits. See United States v. Tocco, 200 F.3d 401, 426 (6th Cir. 2000) ("In a collection of an unlawful debt conspiracy, the government need only show an agreement as to one act of collection, whereas a pattern of racketeering activity RICO conspiracy requires at least two predicate acts."); United States v. Eufrasio, 935 F.2d 553, 576 (3d Cir. 1991) (holding that "[o]nly one act of collecting or attempting to collect unlawful debt is necessary"), cert. denied, 502 U.S. 925 (1991); see also United States v. Oreto, 37 F.3d 739, 751-52 (1st Cir. 1994) (reiterating its holding in Weiner that "the pattern requirement does not apply to the collection of unlawful debt"), cert. denied, 513 U.S. 1177 (1995). The Court agrees with Plaintiff, and the five unanimous circuit courts for which this Court is able to find applicable precedent, that a RICO claim based on "unlawful collection of debt" under subsection 1962(c), as opposed to "racketeering activity," does not require proof of a pattern of such activity. Although the text of subsection 1962(c), read alone, is not unambiguous as to whether "pattern" modifies both "pattern of racketeering activity" and "collection of unlawful debt," the First Circuit has provided a sound analysis of this provision in light of other parts of the Act. See Weiner, 3 F.3d at 23-24. First, Weiner points out that both subsections 1962(a) and (b), although proscribing similar acts, are structured more clearly than subsection 1962(c) in that they bar, respectively, (1) the investment in an enterprise using income derived from or (2) the acquisition or maintenance of an interest in an enterprise through, in either case, "a pattern of racketeering activity or through collection of an unlawful debt." 3. F.3d at 23 (emphasis added by court). As such, there can be no question that subsections 1962(a) and (b) require only a single instance of collection of an unlawful debt and not a pattern.
Plaintiff points out no applicable precedent from the courts of this circuit, and the Court is unable to find any such authority that has considered the issue.
Subsections (a) and (b) of section 1962 provide in relevant part:
(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal . . ., 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.
Although one could argue that the clearer language of subsections 1962(a) and (b) demonstrates that Congress knew how to be clear on this issue when it wanted to be, thereby inferring that the seeming ambiguity of subsection 1962(c) is purposeful, the Court nevertheless agrees with Weiner that subsection 1962(c) should be read in pari materia with subsection 1962(a) and (b) so as not to require proof of a pattern of collection of unlawful debt. See Weiner, 3 F.3d at 23-24. Like Weiner and Giovanelli, 945 F.2d at 490, the Court bases this conclusion on the statute's definitions in section 1961. There, Congress has defined "pattern of racketeering activity" as requiring "at least two acts of racketeering activity" within a specified period of time, 18 U.S.C. § 1961(5), but provides no such "pattern" definition for the collection of unlawful debt. If Congress truly intended to differentiate the requirements for a claim or offense under the different subsections of section 1962 — no reason for which is discernible, see Weiner, 3 F.3d at 23 — one would expect that it would have been more clear in its drafting of subsection 1962(c) or that it would have provided a definition of either "pattern" as a general matter or "pattern of collection of unlawful debt," and not simply "pattern of racketeering activity." The Court concludes, therefore, that it is inappropriate to require a Plaintiff to prove a "pattern of unlawful collection of debt."
The statute also defines both "racketeering activity," 18 U.S.C. § 1961(1), and "unlawful debt," id. § 1961(6).
As the First Circuit pointed out, "Weiner has suggested no reason why Congress might have intended that a single act of collection suffice as a source of criminal investment or to gain an interest in an enterprise but that criminally conducting the enterprise's affairs [under subsection 1962(c)] required multiple acts of collection." 3 F.3d at 23.
The Court's conclusion in this respect, however, does not end the inquiry. Still to be determined is whether Plaintiff has otherwise set forth sufficient evidence to support a claim under the unlawful collection of debt prong of subsection 1962(c). The Bankruptcy Court, however, did not reach this factual question because it understandably stopped its analysis after it found no pattern. Given the limited nature of Plaintiff's objection and the limited record presently before this Court, it would be expedient for the Bankruptcy Court to address this question in the first instance through revised Proposed Findings of Fact and Conclusions of Law, including any additional findings of fact necessary to resolve this remaining issue.
The Court's holding that a RICO claim based on unlawful collection of debt does not require a showing of a pattern of such action also means, of course, that the component elements of a "pattern" are not required either, including "continuity" and the necessity of two acts. As explained in a case cited by the Bankruptcy Court, "continuity" is merely a sub-element of the pattern requirement, as are the purported requirements that the activity in question be "planned, ongoing and continuing." See Jackson, 372 F.3d at 1264. To the extent that such conclusions of law are derived from the Court's imposition of a pattern requirement, the Bankruptcy Court should refrain from insisting on such showings in its revised Proposed Conclusions of Law.
Accordingly, the Court will remand the case to the Bankruptcy Court for further proceedings in accordance with this opinion, including but not limited to the submission to this Court of revised Proposed Findings of Fact and Conclusions of Law.