692 F.Supp. 466 (E.D.Pa. 1988), Civ. A. 86-4327, Keystone Ins. Co. v. Houghton

Docket NºCiv. A. 86-4327
Citation692 F.Supp. 466
Party NameKeystone Ins. Co. v. Houghton
Case DateApril 19, 1988
CourtUnited States District Courts, 3th Circuit, Eastern District of Pennsylvania

Page 466

692 F.Supp. 466 (E.D.Pa. 1988)

KEYSTONE INSURANCE COMPANY

v.

Joseph HOUGHTON, Donna Houghton, John Cassidy, Kathleen Cassidy and Frank Livoy.

Civ. A. No. 86-4327.

United States District Court, E.D. Pennsylvania.

April 19, 1988

Page 467

Elizabeth K. Ainslie, Philadelphia, Pa., for plaintiff.

Gilbert J. Scutti, Thomas Carroll, Patricia Carroll, Philadelphia, Pa., for defendants.

MEMORANDUM

NEWCOMER, District Judge.

Plaintiff claims that the defendants defrauded from it a sizable amount of money by filing bogus insurance claims. The complaint is premised on the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968, and a pendent

Page 468

common law fraud claim. Plaintiff Keystone Insurance Co. asserts that the defendants, who shall be referred to collectively as the "Houghton Group," engaged in a pattern of racketeering activity against various insurance carriers, filed false claims against Keystone in connection with two motor vehicle accidents--one occurring on November 19, 1977, and the second on July 7, 1980--and that the defendants' conduct injured the plaintiff to the tune of $82,891.55. This action was filed on July 22, 1986.

Before the commencement of this action, the United States initiated a criminal prosecution against the defendants. The criminal indictment charged the defendants with various acts of mail fraud. Count Sixteen of that indictment charged Joseph Houghton, John Cassidy, and Kathleen Cassidy with mail fraud in connection with a July 6, 1981, letter sent to Keystone. Following a trial before Judge Luongo, the jury found the defendants guilty on this and other counts.

Defendant Joseph Houghton appealed his conviction. The Third Circuit affirmed. Recently, the Supreme Court denied his request for a writ of certiorari. U.S. v. Houghton, Crim. No. 85-349 (E.D.Pa.1986), aff'd mem., 829 F.2d 31 (3d Cir. August 10, 1987), cert. denied, --- U.S. ----, 108 S.Ct. 1014, 98 L.Ed.2d 979 (February 22, 1988).

This action was tried to the Court. During the one day bench trial plaintiff's counsel introduced into evidence the transcript, various documents, and tape recordings from the criminal trial. 1 Plaintiff also presented evidence concerning its damages. Turning to the defendants, the Cassidys also moved into evidence designated portions of the criminal trial transcript. The Cassidys did not dispute that the criminal conviction controlled with respect to the July 6, 1981, mailing. The Houghtons attempted to show that the 1977 accident did, indeed, injure Mrs. Houghton and that various claimed expenses were legitimate. The Houghtons also argued that the statute of limitations bars plaintiff's action. Following the bench trial, I permitted all counsel to submit proposed findings of fact and conclusions of law.

I have reviewed the considerable body of evidence before me. Following that review and the termination of Joseph Houghton's appeal, I am now prepared to issue my findings of fact and conclusions of law. Since counsel have emphasized various factual issues rather than the applicable requirements and standards, I believe it appropriate to first set forth the legal framework within which this case rests.

I. DISCUSSION

Plaintiff bases its first claim on 18 U.S.C. §§ 1962(c) and 1964(c). Complaint at ¶ ¶ 1, 20, 21. Section 1964(c) provides parties with a civil remedy if they have been injured by a violation of section 1962. Section 1962(c), in turn, prohibits any person from being employed by or associated with an enterprise and conducting or participating in that enterprise's affairs through a pattern of racketeering activity.

To prevail then under sections 1962(c) and 1964(c), the plaintiff must prove that (i) a person conducted, (ii) an enterprise, (iii) through a pattern, (iv) of racketeering activity, and (v) that the defendant's acts injured the plaintiff. Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479, 496-7, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346, 358-9 (1985); Town of Kearny v. Hudson Meadows Urban Renewal Corp., 829 F.2d 1263 (3d Cir.1987) (discussing enterprise, pattern, and injury requirements). Also, the injured party must file the complaint within four years from the date on which the action accrued. Agency Holding Corp. v. Malley-Duff & Associates, Inc., 483 U.S. 143, 107 S.Ct. 2759, 97 L.Ed.2d 121 (1987) (hereinafter " Malley-Duff "). As the parties have failed to adequately address the parameters of the above requirements and

Page 469

demonstrate the presence or absence of the requirements in the present case, I now turn to review the applicable law.

A. Standing and Injury.

A plaintiff has standing under § 1964(c) if the injury flows from the commission of a predicate act; the injury need not result from a pattern of predicate acts. Town of Kearny, 829 F.2d at 1268. To require a plaintiff to have suffered injury from each of the predicate acts would, in the words of the Seventh Circuit, "conflate what must be two separate inquiries: first, was there a pattern of racketeering activity violating RICO, and second, was the plaintiff injured by some or all of the activities comprising the RICO violation?" Marshall & Ilsley Trust Co. v. Pate, 819 F.2d 806, (7th Cir.1987) (quoted in Town of Kearny, 829 F.2d at 1268). Of course, the plaintiff must also prove that a predicate act or acts were the proximate cause of the injury. Sedima, 473 U.S. at 496-7, 105 S.Ct. at 3285, 87 L.Ed.2d at 359 (referring to Haroco, Inc. v. American National Bank & Trust Co. of Chicago, 747 F.2d 384, 398 (7th Cir.1984), aff'd, 473 U.S. 606, 105 S.Ct. 3291, 87 L.Ed.2d 437, (1985)); accord In re Gas Reclamation, Inc. Securities Litigation, 663 F.Supp. 1123 (S.D.N.Y.1987).

B. Enterprise.

The person must be either employed by or associated with an enterprise. 2 A completely illegal organization, which the Houghton Group is alleged to be, may constitute an enterprise for RICO purposes. U.S. v. Turkette, 452 U.S. 576, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). In addition, the defendant who is alleged to be the person must be associated with a separate enterprise. B.F. Hirsch v. Enright Refining Co., Inc., 751 F.2d 628, 633-4 (3d Cir.1984); cf. Town of Kearny, 829 F.2d at 1266; U.S. v. DiGilio, 667 F.Supp. 191, 194-6 (D.N.J.1987).

Following the Turkette decision, courts sought to refine the term "enterprise" so as to prevent its overbroad application. In U.S. v. Riccobene, 709 F.2d 214 (3d Cir.), cert. denied sub nom. Ciancaglini v. U.S., 464 U.S. 849, 104 S.Ct. 157, 78 L.Ed.2d 145, (1983), the Third Circuit Court of Appeals set forth the criteria to determine whether or not an enterprise exists. Plaintiff must demonstrate to the finder of fact (i) an ongoing organization with some sort of framework for making or carrying out decisions, (ii) that the associates function as a continuous unit performing certain roles to benefit the enterprise, and (iii) that the enterprise has an existence separate and apart from the pattern of racketeering activity in which it engages. The enterprise may make or execute its decisions either through a hierarchical system or consensus. The third requirement does not envision some function wholly unrelated to the racketeering activity; rather, it simply requires that the enterprise have an existence beyond that needed to commit the predicate racketeering acts. Indeed, as the Third Circuit noted, proof that an enterprise oversaw and coordinated the commission of several different predicate acts and other activities would satisfy this separate existence requirement. 709 F.2d at 221-4; accord Seville Indus. Machinery v. Southmost Machinery, 742 F.2d 786, 789-90 (3d Cir.1984).

I will now briefly review the oft-discussed pattern of racketeering activity requirement.

C. Pattern of Racketeering Activity.

RICO prohibits persons from acting through a pattern of racketeering activity. 3

Page 470

Footnote fourteen of Sedima has taught us that two predicate acts may not be sufficient to establish a pattern of racketeering activity.

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 form a pattern."

Sedima, 473 U.S. at 496 n. 14, 105 S.Ct. at 3285 n. 14, 87 L.Ed.2d at 358 n. 14 (citation and emphasis omitted).

In the wake of Sedima, the Third Circuit Court of Appeals has held that there is no rigid rule for determining the presence or absence of a pattern; rather, courts must make a case-by-case analysis. Factors relevant to the case-by-case analysis include, but are not limited to, the number of unlawful acts, the length of time over which the acts were committed, the similarity of the acts, the number of victims, the number of perpetrators, and the character of the unlawful activity. Barticheck v. Fidelity Union Bank, 832 F.2d 36, 39 (3d Cir.1987); accord Marshall-Silver Construction Co. v. Mendel, 835 F.2d 63, 66 (3d Cir.1987). As noted above, courts may look beyond the predicate acts which allegedly injured the plaintiff to determine whether or not a pattern existed. Town of Kearny, 824 F.2d at 1268.

D. When Does a RICO Cause of Action Accrue?

A plaintiff must file a civil RICO cause of action within four years from the date that the action accrued. The question which still faces federal courts is: when does a civil RICO cause of action accrue? Malley-Duff, 792 F.2d 341 (3d Cir.1986), aff'd on...

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2 practice notes
  • 863 F.2d 1125 (3rd Cir. 1988), 88-1405, Keystone Ins. Co. v. Houghton
    • United States
    • Federal Cases United States Courts of Appeals Court of Appeals for the Third Circuit
    • 15 Diciembre 1988
    ...of racketeering activity which injured Keystone. 1 We will, therefore, reverse the district court on the statute of limitations issue, 692 F.Supp. 466, and remand for entry of judgment in favor of I. On November 19, 1977, Joseph and Donna Houghton were involved in a minor automobile acciden......
  • 850 F.Supp. 1105 (S.D.N.Y. 1993), 21-61, In re Integrated Resources Real Estate Ltd. Partnerships Securities Litigation
    • United States
    • Federal Cases United States District Courts 2nd Circuit Southern District of New York
    • 22 Diciembre 1993
    ...adopted by two district courts, Bankers Trust Co. v. Feldesman, 648 F.Supp. 17, 35-36 (S.D.N.Y.1986) and Keystone Ins. Co. v. Houghton, 692 F.Supp. 466 (E.D.Pa.1988) both of which were reversed upon appeal. See Paul B. O'Neill, " Mother of Mercy, is This the Beginning of RICO?": T......
2 cases
  • 863 F.2d 1125 (3rd Cir. 1988), 88-1405, Keystone Ins. Co. v. Houghton
    • United States
    • Federal Cases United States Courts of Appeals Court of Appeals for the Third Circuit
    • 15 Diciembre 1988
    ...of racketeering activity which injured Keystone. 1 We will, therefore, reverse the district court on the statute of limitations issue, 692 F.Supp. 466, and remand for entry of judgment in favor of I. On November 19, 1977, Joseph and Donna Houghton were involved in a minor automobile acciden......
  • 850 F.Supp. 1105 (S.D.N.Y. 1993), 21-61, In re Integrated Resources Real Estate Ltd. Partnerships Securities Litigation
    • United States
    • Federal Cases United States District Courts 2nd Circuit Southern District of New York
    • 22 Diciembre 1993
    ...adopted by two district courts, Bankers Trust Co. v. Feldesman, 648 F.Supp. 17, 35-36 (S.D.N.Y.1986) and Keystone Ins. Co. v. Houghton, 692 F.Supp. 466 (E.D.Pa.1988) both of which were reversed upon appeal. See Paul B. O'Neill, " Mother of Mercy, is This the Beginning of RICO?": T......