August 24, 2019

Tenth Circuit: Lower-Rung Participant in RICO Association-in-Fact Enterprise Can Play Part in Carrying Out Affairs

The Tenth Circuit Court of Appeals issued its opinion in George v. Urban Settlement Services on Monday, August 15, 2016.

Plaintiffs Richard George, Steven Leavitt, Sandra Leavitt, and Darrell Dalton asserted claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) against Bank of America (BOA) and Urban Settlement Services, along with a promissory estoppel claim against BOA, based on the defendants’ allegedly fraudulent administration of the Home Affordable Modification Program (HAMP). BOA was required to participate in HAMP and comply with the program guidelines because it received funds pursuant to the Emergency Economic Stabilization Act of 2008. BOA contracted with third parties, including Urban, to administer its HAMP program. Each of the four plaintiffs had a home mortgage through BOA and applied for home loan modifications through HAMP, interacting with BOA and Urban representatives during the application process. Despite various misleading representations from BOA and Urban, the plaintiffs were unable to obtain HAMP relief, depriving them of opportunities to sell their homes or pay off other debts.

Plaintiffs brought RICO claims against BOA and Urban, alleging defendants formed a RICO enterprise with the common goal of wrongfully denying HAMP loan modifications to qualified homeowners by developing a scheme to obstruct and delay borrowers’ HAMP loan modification requests. Plaintiffs also asserted promissory estoppel claims against BOA, alleging BOA made clear promises in Trial Period Plan (TPP) documents and on its website promising permanent loan modifications to qualified borrowers who completed TPPs. BOA and Urban filed Rule 12(b)(6) motions to dismiss. BOA argued the plaintiffs failed to sufficiently allege a RICO enterprise distinct from BOA, while Urban argued they failed to sufficiently allege Urban participated in the enterprise. Both defendants argued plaintiffs failed to sufficiently allege a pattern of racketeering activity. The district court granted both defendants’ motions and dismissed plaintiffs’ claims.

On appeal, plaintiffs argued the factual allegations in their amended complaint state facially plausible RICO claims against BOA and Urban and the district court erred in dismissing the claims. The plaintiffs argued that because they alleged an association-in-fact enterprise consisting of independently owned and operated companies, the alleged enterprise is sufficiently distinct from BOA. The Tenth Circuit agreed. The plaintiffs contend the enterprise’s common purpose was to extend as few HAMP modifications as possible while appearing to comply with program rules. The district court concluded that Urban employees were BOA’s agents, who did nothing more than follow BOA’s instructions, but the Tenth Circuit disagreed. The Tenth Circuit found that plaintiffs sufficiently showed that BOA and Urban formed an association-in-fact enterprise, and that by orchestrating and operating a scheme to deny HAMP modifications, BOA and Urban furthered the enterprise’s scheme to delay modifications.

The district court also concluded that plaintiffs failed to show Urban’s participation in the enterprise. The district court characterized Urban as an outside entity having no participation in BOA’s enterprise. The Tenth Circuit noted that this mischaracterization failed to appreciate that BOA was not the alleged enterprise. Plaintiffs alleged Urban was a lower-rung participant knowingly carrying out BOA’s orders, and the Tenth Circuit agreed, noting that even a bit part participant can play some part in carrying out the enterprise’s affairs.

Defendants alternatively argued that the Tenth Circuit could affirm the district court because plaintiffs failed to show a pattern of racketeering activity. Plaintiffs alleged several acts of mail and wire fraud, but defendants argued plaintiffs failed to show particularity. As to BOA, the Tenth Circuit disagreed, noting that plaintiffs had illustrated several conversations with various BOA employees about their HAMP modifications. As to Urban, the Tenth Circuit found it was a close call. Plaintiffs argued that they were unable to show particularity without further discovery, because Urban employees frequently held themselves out as BOA employees. The Tenth Circuit found this sufficient to survive a motion to dismiss. The Tenth Circuit reversed the district court’s dismissal of plaintiffs’ RICO claims and remanded for further proceedings.

Turning to the promissory estoppel claims against BOA, the Tenth Circuit again found the district court erred. Plaintiffs described BOA’s unambiguous promises to provide permanent HAMP modifications for borrowers who complied with their TPPs. The district court found that BOA made no promise, but the Tenth Circuit determined this to be in error. Screenshots of the BOA website and TPP documents unambiguously promised borrowers permanent modifications if they complied with their TPPs. The Tenth Circuit found this sufficient to satisfy the first step of the promissory estoppel analysis. Because the district court did not address the remaining factors, the Tenth Circuit remanded for further proceedings.

The Tenth Circuit reversed the district court’s dismissal of plaintiffs’ RICO and promissory estoppel claims, and remanded for further proceedings consistent with its opinion.

Tenth Circuit: Gang Can Meet RICO’s Interstate Commerce Element if Larger Encompassing Gang Trafficks Drugs

The Tenth Circuit Court of Appeals issued its opinion in United States v. Garcia on Tuesday, July 14, 2015.

Defendants Pablo Garcia and Gonzalo Ramirez were members of the Diablos Viejos (DV) subset of the Norteños gang in Dodge City, Kansas. Garcia and Ramirez participated in several instances of gang violence, including a shooting at the Hernandez house involving Defendant Ramirez, a home invasion of a Guatemalan immigrant involving both Garcia and Ramirez, and a shooting of rival Sureños gang members in which Garcia shot and killed one man. Defendants, along with 21 others affiliated with the Norteños, were indicted in the U.S. District Court for the District of Kansas. Defendants were charged with (1) a conspiracy to violate RICO; (2) four VICAR offenses and discharge of a firearm in furtherance of a crime of violence; and (3) two VICAR offenses and brandishing of a firearm in furtherance of a crime of violence. In addition, Ramirez was charged with three VICAR offenses and discharge of a firearm in furtherance of a crime of violence. Twenty of the other defendants pleaded guilty and one was dismissed, leaving Ramirez and Garcia to stand trial. Defendants were found guilty by a jury on all counts. Ramirez was sentenced to life imprisonment plus 57 years, and Garcia was sentenced to live imprisonment plus 32 years.

Defendants appealed, arguing several points of error: (1) a Brady violation due to the government’s failure to disclose promises made to a key cooperating witness; (2) a Napue violation based on the government’s false trial evidence concerning the same promises to the cooperating witness; (3) an incorrect jury instruction on RICO elements; (4) unconstitutional application of VICAR because their crimes did not affect interstate commerce, and (5) a Confrontation Clause violation based on erroneously admitted hearsay testimony by an expert witness.

The Tenth Circuit first addressed Defendants’ claims of a Brady violation. The witness in question, Worthey, was also a DV member who was present during the shooting. The government disclosed several meetings with Worthey but failed to disclose two meetings, during one of which he was told that his cooperation in an unrelated state case would influence the government to recommend a lower sentence in the federal case. The government falsely stated that Worthey received nothing in exchange for his testimony, but later conceded the sentence reduction. The Tenth Circuit noted that the government conceded the first two prongs of a Brady evaluation — that the government suppressed evidence favorable to defendant — but disputed the third prong — the evidence’s materiality. Evaluating Worthey’s testimony and its significance, the Tenth Circuit found that although Worthey was a key witness, Defendants vigorously impeached him, including by admitting evidence of Worthey’s other meetings with the government and his testimony in exchange for sentence reductions. The Tenth Circuit found that although the government’s concealment of the meetings was “at best, . . . the result of gross incompetence,” the nondisclosure was immaterial.

Next, the Tenth Circuit evaluated Defendants’ Napue claim, premised on the same nondisclosure. The Tenth Circuit noted that the standard for a Brady claim is lower than that for Napue, since Napue requires intentional concealment. The Tenth Circuit found that Defendants failed to establish any elements of a Napue claim, finding that the district court could reasonably have accepted that the “imprecise questioning” of defense counsel could have led a police detective to misunderstand the question regarding Worthey’s interviews, and that it was reasonable that Worthey could have forgotten to mention the recorded meetings with the government. The Tenth Circuit found it illogical to presume Worthey would have intentionally failed to disclose two meetings when he disclosed others that were equally damaging to his credibility.

The defendants next argued that jury was improperly instructed on the evidence necessary to meet RICO’s interstate commerce requirement. Defendants argued that more than a minimal effect on interstate commerce was necessary to support the RICO charges, but the Tenth Circuit disagreed, finding plenty of precedent that a minimal effect of interstate commerce is sufficient. Defendants also argued that the DVs did not directly engage in economic activity. The Tenth Circuit, however, found ample evidence that the Norteños engaged in drug trafficking, including sending money to California for drug sales and selling drugs imported from California, so it found no error in the RICO instruction. The VICAR claims were premised on the interstate commerce requirement as well, so the Tenth Circuit rejected them for much the same reason.

Finally, the Tenth Circuit addressed the Confrontation Clause issue. Defendants asserted that the testimony of gang expert Shane Webb improperly “parroted” testimonial hearsay in violation of their Confrontation Clause rights. The Tenth Circuit evaluated Webb’s challenged testimony and agreed that some of the testimony was “quintessential parroting.” However, because the evidence was cumulative, the Tenth Circuit found the testimony harmless beyond a reasonable doubt.

Defendants’ convictions were affirmed.

Tenth Circuit: Plaintiff Failed to Exercise Due Diligence to Discover Theft; RICO Limitations Period Expired

The Tenth Circuit Court of Appeals issued its opinion in Robert L. Kroenlein Trust v. Kirchhefer on Monday, August 25, 2014.

Robert L. Kroenlein owned and operated J&B Liquors, a liquor store in Wyoming, through the Robert L. Kroenlein Trust. When Kroenlein died, his daughter became trustee, and his son-in-law, Eric Alden, took over management of the store. Alden lived in another town and left the operations of the store to another manager. During this time, the store purchased Anheuser Busch products from a distributor named Orrison through a salesman named Kirchhefer. Unbeknownst to Alden, Kirchhefer was operating a scheme in which he would order more beer than J&B needed and then steal the extra beer and sell it to other bars. As early as 2005, J&B’s accountants discovered that beer purchases exceeded sales. Eventually, Alden discovered that Kirchhefer was the thief, set up security cameras to capture the theft, and called law enforcement.

On August 15, 2011, Alden filed a complaint through the Kroenlein Trust against Kirchhefer, the bars to which he was selling the stolen beer, and the owners of the bars, alleging two state law claims and six RICO claims. According to the complaint, the defendants engaged in a pattern of racketeering by committing wire fraud. The district court granted summary judgment to defendants on the grounds that all of Kroenlein’s RICO claims were time-barred. The district court also determined that no “enterprise” existed between Kirchhefer and the other defendants, and therefore the RICO claims were barred on this alternative ground as well.

Kroenlein appealed, alleging the district court erred in determining its claims were time-barred. Kroenlein argued there was no way for it to have discovered its injury prior to August 31, 2007, and alternatively the limitations period was equitably tolled by defendants’ fraudulent concealment. The Tenth Circuit disagreed, concluding that had Kroenlein exercised due diligence it would have discovered the fraud as early as September 2005 under the injury-discovery rule. RICO’s four-year statute of limitations expired in 2009. RICO requires only discovery of harm, not discovery of the source of harm. Kroenlein’s equitable tolling for fraudulent concealment claims also failed because the undisputed evidence failed to support that by the exercise of due diligence plaintiff could not have known a cause of action may have existed.

The district court’s summary judgment was affirmed.

Tenth Circuit: Courts Must Accept Executive Branch’s Determination of Foreign Heads of State’s Immunity

The Tenth Circuit Court of Appeals issued its opinion in Habyarimana v. Kagame on Wednesday, October 10, 2012.

The widows of the former presidents of Rwanda and Burundi allege current Rwandan President Paul Kagame is responsible for their husbands’ deaths. The former presidents were killed when the plane they were in was shot down. This incident sparked the Rwandan genocide in 1994. The widows filed suit in Oklahoma federal court seeking to hold Kagame liable under the Alien Tort Claims Act, 28 U.S.C. § 1350, the Torture Act, 18 U.S.C. § 2340A, the Racketeeer Influenced and Corrupt Organization Act, 18 U.S.C. § 1962, and several other state and international laws. The executive branch of the United States filed a “Suggestion of Immunity” on behalf of President Kagame as a sitting foreign head of state. The district court dismissed the case based on this immunity. In affirming the district court, the Tenth Circuit held that a “determination by the Executive Branch that a foreign head of state is immune from suit is conclusive and a court must accept such a determination without reference to the underlying claims of a plaintiff.” This is so even though the acts complained of occurred before Kagame was head of state.

Tenth Circuit: Existence of an Enterprise Not an Essential Element of 18 U.S.C. § 1962(d) RICO Conspiracy

The Tenth Circuit Court of Appeals published its opinion in United States v. Harris on Tuesday, September 18, 2012.

The defendant, Tracy Harris, was convicted, among other crimes, of conspiracy to commit a substantive violation of the Racketeering Influenced and Corrupt Organizations Act (RICO) under 18 U.S.C. § 1962(d). He argued on appeal that the RICO conspiracy jury instruction was incorrect because the jury was not required to find the existence of an enterprise. The court reviewed for plain error and found none, holding that “the existence of an enterprise is not an element of § 1962(d) conspiracy to commit a substantive RICO violation.”

Next Harris argued that there was insufficient evidence to convict him because the indictment referred to a single enterprise, “the Crips,” but evidence at trial showed there no single Crips enterprise, but rather three sets of Crips. He argued the three sets were too loosely affiliated to be an enterprise under RICO. Although it had already rejected the argument that an enterprise needed to be proven, the court discussed what is necessary to establish an “association-in-fact” enterprise and held the evidence was sufficient to establish an association-in-fact enterprise.

The court also found no abuse of discretion in the district court’s refusal to instruct the jury on the affirmative defense of withdrawal. Harris failed to meet either of the withdrawal tests. He did not “take affirmative action, either by reporting to the authorities or communicating his intentions to his coconspirators.” Even if he had withdrawn from the gang, he had not withdrawn from the conspiracy of selling drugs.

Finally, because of the concurrent sentence doctrine, the court declined to address Harris’s challenge to his RICO sentence.