Key Takeaways

• A recent decision by the U.S. Court of Appeals for the Second Circuit demonstrates that courts will carefully scrutinize whether civil RICO plaintiffs have satisfied the statute’s complex (and stringent) pleading requirements

• Although courts have permitted plaintiffs to invoke RICO in the context of various business disputes, well beyond RICO’s organized crime origins, counsel defending against civil RICO claims have ample opportunity to expose pleading deficiencies and prevail on motions to dismiss

On March 18, 2020, the U.S. Court of Appeals for the Second Circuit affirmed a district court order granting a motion to dismiss a civil Racketeer Influenced and Corrupt Organizations (“RICO”) Act suit and in doing so, strictly construed limitations on what has become a very broadly applied statute. The suit alleged that a group of Venezuelan business owners (the “Venezuelan defendants”) and the principals of a research and intelligence firm, Fusion GPS (“Fusion”), conspired to retaliate against a whistleblower plaintiff and others who publicized alleged corruption. Halvorssen v. Simpson et al., No. 19-3068 (2d Cir. Mar. 18, 2020). The Second Circuit held that two of the alleged RICO predicate acts were not sufficiently “related” to satisfy RICO requirements. The Court further held that the remaining predicate acts lacked the required “continuity” to establish a pattern of racketeering activity. The Second Circuit’s analysis serves as a reminder that careful, early scrutiny of RICO’s elements—and the allegations supporting them—are needed regardless of whether you are a plaintiff seeking to file a RICO action or a defendant seeking to defend against it.

To state a valid RICO claim, a plaintiff must allege a pattern of racketeering activity, which must include at least two predicate acts that are related to each other (i.e., “horizontal” relatedness) and also related to the RICO enterprise as a whole (i.e., “vertical” relatedness). In addition, a plaintiff must allege that the pattern of racketeering activity had “continuity.” Continuity may be “open-ended,” in that it carries the threat of future repetition. Alternatively, continuity may be “closed-ended,” in which the predicate acts extended over a period of time but pose no threat of continuing. The Second Circuit generally requires that when plaintiffs plead closed-ended continuity they must allege conduct that extended for a minimum of two years.

Plaintiff Thor Halvorssen is the President of the Human Rights Foundation and shareholder of Harvest Natural Resources, Inc. (“Harvest”), an energy company based in Texas that does business in Venezuela. Plaintiff allegedly wrote a letter to Harvest’s board warning it about the nomination to a board seat of one of the Venezuelan defendants and accusing the Venezuelan defendants of violating U.S. law. After plaintiff sent copies of this letter to U.S. law enforcement officials, the Venezuelan defendants allegedly engaged Fusion to produce and publicize a dossier accusing plaintiff of having committed a number of illegal and unethical activities. Fusion did so and allegedly caused a journalist to publish negative statements about plaintiff on the internet in September and October 2015. Plaintiff also alleged that, after a two-year hiatus, the journalist published a negative blog post in October 2017.

Plaintiff alleged as predicate acts Fusion’s involvement in two other schemes. In one, a company hired Fusion to compile and distribute to journalists in 2015 and 2016 a dossier of damaging information on William Browder, the principal of Hermitage Capital Management, a large foreign investor in Russia, in retaliation for efforts Browder made to draw attention to corruption in Russia.

In the other alleged scheme, the Venezuelan defendants hired Fusion to supposedly initiate a smear campaign against Aleksander Boyd, a journalist who reported on corruption in Venezuela. In November 2014, allegedly in connection with this smear campaign, Boyd’s home was burglarized.

Plaintiff brought a single-count complaint for RICO conspiracy under 18 U.S.C. § 1962(d). Plaintiff’s theory was that the conduct described above and committed by the Venezuelan defendants and Fusion (whose principals were also named defendants) constituted a closed-ended pattern of racketeering activity extending from November 2014 to October 2017. The district court granted defendants’ motions to dismiss.

The Second Circuit focused its analysis on whether two predicate acts—the scheme involving Browder and the 2017 blog post—met the relatedness requirements. First, the Court found that, although plaintiff alleged the conduct with respect to Browder was similar to the other alleged conduct because it involved efforts by Fusion to retaliate against whistleblowers, the mere fact that Fusion was alleged to have been involved in all three schemes does not mean that the schemes were “horizontally” related. For example, among other things, the Venezuelan defendants had no connection to Browder at all. Because Fusion is an ordinary company that is not in the business of racketeering, the mere fact that participants overlapped is not enough to establish horizontal relatedness. Accordingly, the Court found that the district court had properly excluded the Browder scheme as a predicate act.

Second, the Court found that plaintiff had failed to connect the 2017 blog post to the defendants, Fusion, the alleged enterprise, and the alleged conspiracy. Plaintiff did not allege facts showing that the content of the post was related to the 2015 dossier, or that the journalist had done anything other than agree to turn the dossier into an online profile, which he had already done in 2015. For these reasons, the Court found that plaintiff failed to establish "vertical" relatedness with respect to the 2017 blog post, and found that the district court had also properly excluded it as a predicate act.

Having excluded these two predicate acts, the Court found that plaintiff had alleged, at most, a scheme lasting from November 2014 to October 2015. Because this 11-month time period is well short of the two years necessary for establishing closed-ended continuity, the Court found that plaintiff failed to allege a pattern of racketeering activity and affirmed dismissal of his claim.

The Halvorssen decision makes clear that, although courts have permitted the use of civil RICO suits in various types of disputes involving legitimate businesses that are far-removed from the statute’s original focus on organized crime syndicates, there are nevertheless real limits to these suits. Efforts by plaintiffs to cobble together unrelated acts to establish a pattern of racketeering activity provide fertile territory for a motion to dismiss. And, courts, which are typically skeptical of civil RICO claims, can be expected to continue to carefully scrutinize—and reject—such claims where appropriate, as both the district court and Second Circuit did in Halvorssen.