, disciplinary procedures, or induction or initiation ceremonies. While the group must function as a continuing unit and remain in existence long enough to pursue a course of conduct, nothing in RICO exempts an enterprise whose associates engage in spurts of activity punctuated by periods of quiescence. Nor is the statute limited to groups whose crimes are sophisticated, diverse, complex, or unique; for example, a group that does nothing but engage
in extortion through old-fashioned, unsophisticated, and brutal means may fall squarely within the statute's reach.
Id. at 2245-46;
see also id. at 2243 n. 3 (rejecting, as "extratextual," the dissent's argument "that the definition of a RICO enterprise is limited to `business-like entities'" (citing
id. at 2247-50 (Stevens, J., dissenting))).
Boyle makes clear, in other words, that although the structure requirement demands that "the parts" of the association in fact must be "arranged or put together to form a whole," the statute does not prescribe any particular arrangement, as long as it is "sufficient to permit [the enterprise's] associates to pursue the enterprise's purpose."
Id. at 2244 (internal quotation marks omitted).
Boyle also clarified the relationship between the "enterprise" and "pattern of racketeering activity" elements of a § 1962(c) claim. The petitioner in Boyle had objected to the trial judge's jury instructions, which had stated that "the existence of an association-in-fact [enterprise] is sometimes more readily proven by what it does, rather than by abstract analysis of its structure." Id. at 2247. In the petitioner's view, the judge should have specified that, to qualify as a RICO enterprise, the association's structure must go "beyond that inherent in the pattern of racketeering activity." Id. at 2244. The Supreme Court found the petitioner's proffered language unnecessary. If the language "is interpreted to mean that the existence of an enterprise is a separate element that must be proved," the Court explained, "it is of course correct. . . . [T]he existence of an enterprise is an element distinct from the pattern of racketeering activity and `proof of one does not necessarily establish the other.'" Id. at 2245 (quoting Turkette, 452 U.S. at 583, 101 S.Ct. 2524). Indeed, the Court thought it was "easy to envision situations in which proof that individuals engaged in a pattern of racketeering activity would not establish the existence of an enterprise." Id. at 2245 n. 4. If, for example, "several individuals, independently and without coordination, engaged in a pattern of crimes listed as RICO predicates[,] . . . [p]roof of these, patterns would not be enough to show that the individuals were members of an enterprise." Id. (emphasis added). Nor would proof of a conspiracy to commit a RICO predicate offense "necessarily establish that the defendants] participated in the affairs of an . . . enterprise through a pattern of . . . crimes." Id. at 2246. While "a conspiracy is an inchoate crime that may be completed in the brief period needed for the formation of the agreement and the commission of a single overt act in furtherance of the conspiracy," § 1962(c) "demands much more: the creation of an `enterprise' — a group with a common purpose and course of conduct — and the actual commission of a pattern of predicate offenses." Id. The Court did not believe, however, that the petitioner's suggested language was necessary in order to avoid a merger of the crime proscribed by § 1962(c) and simple conspiracy to commit a predicate offense. Instead, the Court found that the statute's requirement of a pattern of predicate acts, plus the requirement of an enterprise structure — liberally defined as "a group with a common purpose and course of conduct" — was sufficient to preserve the distinction.
Not only was it unnecessary to require proof of a structure "beyond that inherent in the pattern of racketeering activity," but the phrase was also potentially misleading. For "if the phrase is used to mean that the existence of an enterprise may never be inferred from the evidence showing that persons associated with the enterprise engaged in a pattern of racketeering activity, it is incorrect." Id. at 2245. As the Court had observed in Turkette, "the evidence used to prove the pattern of racketeering activity and the evidence establishing an enterprise `may in particular cases coalesce.'" Id. (quoting Turkette, 452 U.S. at 583, 101 S.Ct. 2524); see also id. at 2246 n. 5 ("Even if the same evidence may prove two separate elements, this does not mean that the two elements collapse into one."). In other words, "proof of a pattern of racketeering activity may be sufficient in a particular case to permit a jury to infer the existence of an association-in-fact enterprise." Id. at 2247. For this reason, the trial judge's instructions to the jury, which explained that a RICO enterprise could be "form[ed] solely for the purpose of carrying out a pattern of racketeering acts," and that "the existence of an association-in-fact is oftentimes more readily proven by what it does, rather than by abstract analysis of its structure," were "correct and adequate." Id. at 2242, 2247 (internal quotation marks omitted).
Writing in dissent, Justice Stevens agreed with the majority that "[t]here may be cases in which a jury can infer [the existence of an enterprise] from the evidence used to establish the pattern of racketeering activity." Id. at 2249 (Stevens, J., dissenting). But he believed that should "be true only when the pattern of activity is so complex that it could not be performed in the absence of structures or processes for planning or concealing the illegal conduct beyond those inherent in performing the predicate acts." Id. By that standard, Justice Stevens found the jury instructions approved by the majority to be "plainly deficient." Id. at 2251. In allowing the jury to "`find an enterprise where an association of individuals, without structural hierarchy, forms solely for the purpose of carrying out a pattern of racketeering acts,'" the instructions failed, he argued, to "require the Government to prove that the alleged enterprise had an existence apart from the pattern of predicate acts." Id.; see also id. at 2250 ("By permitting the Government to prove [the `enterprise' and `pattern of racketeering activity'] elements with the same evidence, the [majority] renders the enterprise requirement essentially meaningless in association-in-fact cases."). By contrast, the majority held that an association-in-fact enterprise need not do anything other than engage in the pattern of racketeering activity, so long as it has the requisite structural features (common purpose, interrelationships among its associates, and longevity). Cf. Odom v. Microsoft Corp., 486 F.3d 541, 551 (9th Cir. 2007) (en banc) (concluding that "the Supreme Court's statement in Turkette that an `enterprise' is `an entity separate and apart from the pattern of activity in which it engages'" is not a requirement "that an associated-in-fact enterprise have a structure beyond that necessary to carry out its pattern of illegal racketeering activities," but rather "merely a statement of the obvious: The enterprise and its activity are two separate things. One is the enterprise. The other is its activity.").
In short, Boyle holds that the RICO statute defines an "enterprise" broadly, such that the "enterprise" element of a § 1962(c) claim can be satisfied by showing a "structure," that is, a common "purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise's purpose." Id. at 2244; see id. at 2245 ("[A]n association-in-fact enterprise is simply a continuing unity that functions with a common purpose."). "[A]fter Boyle, an association-in-fact enterprise need have no formal hierarchy or means for decisionmaking, and no purpose or economic significance beyond or independent of the group's pattern of racketeering activity." United States v. Hutchinson, 573 F.3d 1011, 1021 (10th Cir.), cert. denied, — ___ U.S. ___, 130 S.Ct. 656, 175 L.Ed.2d 500 (2009). To the extent our cases have interpolated additional requirements into the statute, they are abrogated by Boyle.
Neither Turkette nor Boyle (nor Riccobene, for that matter) specifically addressed requirements for pleading civil RICO claims. Plaintiffs contend these cases speak only to which "attributes of an enterprise must ultimately be proven"; they do not define what must be plead in the complaint. Plaintiffs' EB Br. 70. Citing our opinion in Seville Industrial Machinery Corp. v. Southmost Machinery Corp., 742 F.2d 786 (3d Cir. 1984), plaintiffs argue that it is sufficient at the pleading stage simply to identify the entities of which the alleged association-in-fact enterprise is composed. If that were the standard, plaintiffs would have satisfied it, as they have named the defendant broker and defendant insurers within each alleged broker-centered enterprise. See Comm. SAC ¶ 502; EB SAC ¶ 523.
Turkette evaluated a challenge to the validity of a criminal indictment; Boyle reviewed jury instructions in a criminal case; and Riccobene evaluated a challenge to the sufficiency of the evidence supporting a criminal RICO conviction.
Boyle was decided after the parties filed their briefs in this appeal. Although plaintiffs' argument distinguishing burdens of proof from pleading burdens thus does not explicitly refer to Boyle, its logic would seem to call for interpreting that decision, like Turkette and Riccobene, as addressed only to burdens of proof.
Plaintiffs also argue, in the alternative, that their allegations adequately plead the enterprise features set forth in the Turkette/Boyle line of cases. See infra.
Plaintiffs, however, misconceive the pleading standard. To begin with, Seville was decided before the Supreme Court held in Bell Atlantic Corp. v. Twombly that Federal Rule of Procedure 8 requires plaintiffs to plead "enough factual matter" to state "a claim to relief that is plausible on its face." 550 U.S. at 556, 570, 127 S.Ct. 1955. But putting Twombly aside for the moment, we are skeptical that Seville, read purely on its own terms, deems it sufficient merely to identify the members of an alleged association-in-fact enterprise. It is true that Seville found neither Turkette nor Riccobene "speaks to what must be pleaded in order to state a cause of action." Seville, 742 F.2d at 790. It is also true that Seville concluded the complaint before it was adequately pled because the plaintiff had "identified the four entities it believed were the enterprises that had been marshalled against it." Id. (stating that "[t]he rules of pleading require nothing more at this early juncture than that bare allegation"). We find it significant, however, that Seville involved legal-entity enterprises, not associations in fact. See id. at 789-90. Each of the four enterprises alleged there consisted solely of a named defendant — either a corporation or a natural person. Simply identifying these legal entities was sufficient to "put the defendants] on notice," id. at 790, of the nature of the enterprises alleged (and, for that matter, to indicate the existence of the features set forth in Turkette).
When the asserted enterprise, however, is not itself a legal entity, but rather an association of legal entities, simply identifying the allegedly associated components does not serve to put defendants on notice of the RICO claim alleged against them — just as merely listing the names of alleged conspirators would not give defendants adequate notice of an alleged conspiracy. For that reason, even before Twombly, some courts required plaintiffs to provide more detail in pleading the existence of an association-in-fact enterprise. See, e.g., Richmond v. Nationwide Cassel L.P., 52 F.3d 640, 646 (7th Cir. 1995) (agreeing "with the district court that plaintiffs naming of a string of entities does not allege adequately an enterprise").
In any case, it is clear after Twombly that a RICO claim must plead facts plausibly implying the existence of an enterprise with the structural attributes identified in Boyle: a shared "purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise's purpose." Boyle, 129 S.Ct. at 2244; see Rao v. BP Prods. N. Am., Inc., 589 F.3d 389, 400 (7th Cir. 2009) (upholding dismissal of RICO claims because, inter alia, the plaintiffs allegations of an association-in-fact enterprise "do not indicate how the different actors are associated and do not suggest a group of persons acting together for a common purpose or course of conduct"); Elsevier Inc. v. W.H.P.R., Inc., 692 F.Supp.2d 297, 307 (S.D.N.Y. 2010) (finding that the complaint "fail[s] to plead the existence of . . . the so-called association in fact enterprise" because it does not plausibly "tie[] together the various defendants allegedly comprising the association in fact into a single entity that was formed for the purpose of working together," that is, "acting in concert"); see also Phillips v. County of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (stating generally that Twombly "`requires a complaint with enough factual matter (taken as true) to suggest' [each] required element" of the claim alleged). To require less would ignore Twombly's interest in "insisting] upon some specificity in pleading before allowing a potentially massive factual controversy to proceed" to an "inevitably costly and protracted discovery phase." Twombly, 550 U.S. at 558, 127 S.Ct. 1955 (internal quotation marks omitted); see id. at 557-58, 127 S.Ct. 1955 (quoting Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 347, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005)) (noting that the potential cost of such cases may have an "in terrorem" effect on defendants, coercing settlement of even groundless claims). As other courts have recognized, the concern expressed in Twombly is just "as applicable to a RICO ease, which resembles an antitrust case in point of complexity and the availability of punitive damages and of attorneys' fees to the successful plaintiff. RICO cases, like antitrust cases, are `big* cases and the defendant should not be put to the expense of big-case discovery on the basis of a threadbare claim." Limestone Dev. Corp. v. Vill of Lemont, 520 F.3d 797, 803 (7th Cir. 2008).
We do not imply that Twombly's pleading standard is applicable only to "big" cases, but we note that the "practical" reasons for this standard, see Twombly, 550 U.S. at 557-58, 127 S.Ct. 1955, are particularly evident in such cases.
In Twombly, this concern focused on the agreement element of § 1 of the Sherman Act. Because § 1 allows plaintiffs to bring suit against conspiracies, it has the potential to impose liability on a large number of defendants. To prevail, however, a § 1 plaintiff must show not simply that the defendants all engaged in similar wrongdoing, but that they agreed to undertake concerted action in restraint of trade.
The enterprise element of RICO claims is a close analogue of § l's agreement element. Unless a plaintiff is required at the pleading stage to suggest plausibly the existence of an enterprise structure — unless a plaintiff must "allege something more than the fact that individuals were all engaged in the same type of illicit conduct during the same time period," Elsevier, 692 F.Supp.2d at 307 — the RICO statute's allowance for association-in-fact enterprises becomes an open gateway to the imposition of potentially massive costs on numerous defendants, regardless of whether there is even a hint of the collaboration necessary to trigger liability.
ii. The "Conduct" Element
Mere association with an enterprise does not violate § 1962(c). To be liable under this provision, a defendant must "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). The Supreme Court has held that the "conduct or participate" element requires a defendant to "have some part in directing those affairs." Reves v. Ernst Young, 507 U.S. 170, 179, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993). More precisely, "one is not liable under [§ 1962(c)] unless one has participated in the operation or management of the enterprise itself." Id. at 183, 113 S.Ct. 1163. "An enterprise is `operated' not just by upper management but also by lower rung participants in the enterprise who are under the direction of upper management." Id. at 184, 113 S.Ct. 1163. "Outsiders" may also meet the statutory requirement if they "exert control over" the enterprise, but such outsider defendants must have "conducted or participated in the conduct of the ` enterprise's affairs,' not just their own affairs." Id. at 184-85, 113 S.Ct. 1163. Accordingly, the Supreme Court found that an outside accounting firm did not "conduct or participate, directly or indirectly, in the conduct" of a farmer cooperative's affairs when it prepared and presented audit reports to the cooperative's board, reports that allegedly failed to disclose all of the information necessary to assess the solvency of the cooperative. Id. at 185-86, 113 S.Ct. 1163; see also Univ. of Md. at Baltimore v. Peat, Marwick, Main Co., 996 F.2d 1534, 1539-40 (3d Cir. 1993) ("It cannot be said that by merely performing what are generic financial and related, services to an insurance company, even if they are later found to be deficient, an accounting firm has opened itself to liability under the federal racketeering statute.").
iii. The Requisite Nexus
Simply pleading that a defendant "participated in the operation or management" of an enterprise, however, is not enough to make out a violation of § 1962(c). The defendant must have done so "through a pattern of racketeering activity." In other words, there must be not only a "nexus between the [defendant] and the conduct [of] the affairs of an enterprise," Univ. of Md., 996 F.2d at 1539, but also a nexus between the conduct of those affairs and the pattern of racketeering activity, see Banks v. Wolk, 918 F.2d 418, 424 (3d Cir. 1990). The plain language of the statute requires that the "pattern of racketeering activity" be a means by which the defendant "participate[s], directly or indirectly, in the conduct of [the] enterprise's affairs." In United States v. Provenzano, we adopted the Second Circuit's test for determining when a defendant "conducts the activities of an enterprise through a pattern of racketeering." 688 F.2d 194, 200 (3d Cir. 1982) (citing United States v. Scotto, 641 F.2d 47 (2d Or. 1980)). The test is satisfied if (1) the defendant "is enabled to commit the predicate offenses solely by virtue of his position in the enterprise or involvement in or control over the affairs of the enterprise; or (2) the predicate offenses are related to the activities of that enterprise." Id. (quoting Scotto, 641 F.2d at 54).
The Second Circuit has repudiated this standard, however, finding it inconsistent with the definition of "conduct" subsequently set forth by the Supreme Court in Reves. United States v. Wong, 40 F.3d 1347, 1372 (2d Cir. 1994) ("Although Reves does not mention Scotto, `we have recently recognized that the Supreme Court's holding in Reves . . . is irreconcilable with the relevant portion of our decision in Scotto.'" (quoting United States v. Viola, 35 F.3d 37, 40 (2*d Cir. 1994))); see also Bldg. Indus. Fund v. Local Union No. 3, 992 F.Supp. 162, 179 n. 10 (E.D.N.Y. 1996) ("To the extent that Scotto held that a person may be liable under RICO simply because the requisite nexus exists between his activity and the affairs of the enterprise, it was overruled by the Supreme Court's decision in Reves [], holding that a person must be involved in the `operation or management' of an enterprise to be liable under RICO.")
We agree with the Second Circuit that the Provenzano/Scotto standard is no longer good law. Given Reves, the inquiry must be whether the defendant participated in the "operation or management" of an enterprise's affairs, and if so, whether he did so "through a pattern of racketeering activity." As the plain language of the statute indicates, the nexus element requires a plaintiff to show that the defendant participated in the conduct of the enterprise's affairs (per Reves) through — that is, "by means of, by consequence of, by reason of, by the agency of, or by the instrumentality of," United States v. Brandon, 539 F.3d 44, 53 (1st Cir. 2008) (internal quotation marks omitted) — a pattern of racketeering activity.
We recited the Provenzano standard post- Reves in United States v. Irizarry, 341 F.3d 273, 304 (3d Cir. 2003), without addressing the potential tension with Reves or acknowledging that the Second Circuit had recognized the standard's abrogation. Irizarry's invocation of the standard appears to be dicta, as our opinion noted that the argument to which it was addressed had been waived. Id. In any case, the issue in Irizarry was whether the judge should have instructed the jury that it could not convict under § 1962(c) unless the government showed "that the defendant's motive in committing the predicate act was to further the affairs of the enterprise." Id. In finding, correctly, that "a defendant can commit a predicate act that is detrimental to the enterprise so long as the evidence establishes the requisite nexus between the predicate act and the enterprise," id., we had no occasion to address any other aspects of the Provenzano standard.
Although we adopt Brandao's definition of the statutory term "through," we believe the decision inverts the relationship specified by § 1962(c). Brandao states that "[a] sufficient nexus . . . exists . . . if the defendant was able to commit the predicate acts by means of, by consequence of, by reason of, by the agency of, or by the instrumentality of [i.e., `through'] his association with the enterprise." 539 F.3d at 53 (internal quotation marks omitted). But the statute provides that a defendant must participate in the conduct of an enterprise's affairs through the racketeering activity. See 18 U.S.C. § 1962(c). This language dictates that it is the predicate acts of racketeering that must be the "means."
b. Section 1962(d)
Under § 1962(d), it is unlawful to conspire to violate any of the substantive provisions of RICO. 18 U.S.C. § 1962(d); see 18 U.S.C. § 1962(a)-(c) (substantive provisions). In certain circumstances, a defendant may be held liable under § 1962(d) even where its own actions would not amount to a substantive RICO violation. Salinas v. United States', 522 U.S. 52, 65, 118 S.Ct. 469, 139 L.Ed.2d 352 (1997) (stating that a conspirator can violate § 1962(d) "in any number of ways short of agreeing to undertake all of the acts necessary for the crime's completion"); see Smith v. Berg, 247 F.3d 532, 537 (3d Cir. 2001) (stating that, under Salinas, a defendant "who opts into or participates in a conspiracy" to violate § 1962(c) may be liable "even if the defendant did not personally agree to do . . . any particular element" of the § 1962(c) violation); see, e.g., Salinas, 522 U.S. at 65, 118 S.Ct. 469 (holding that the RICO statute "does not permit us to excuse from the reach of [§ 1962(d)'s] conspiracy provision an actor who does not himself commit or agree to commit the two or more predicate acts requisite to the underlying [§ 1962(c)] offense"). But a § 1962(d) claim must be dismissed if the complaint does not adequately allege "an endeavor which, if completed, would satisfy all of the elements of a substantive [RICO] offense," Salinas, 522 U.S. at 65, 118 S.Ct. 469. See Efron v. Embassy Suites (Puerto Rico), Inc., 223 F.3d 12, 21 (1st Cir. 2000); Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1191 (3d Cir. 1993); see, e.g., Edwards v. First Nat. Bank, 872 F.2d 347, 352 (10th Cir. 1989) (finding that "the conspiracy claim falls when the substantive claim based on 1962(c) is deficient" because the alleged racketeering acts do not compose a "pattern"); cf. Berg, 247 F.3d at 538 (holding a defendant may be held liable for conspiring to violate § 1962(c), even if he did not operate or manage a RICO enterprise, as long as "he knowingly agree[d] to facilitate a scheme which includes the operation or management of a RICO enterprise").
Here, § 1962(c) is the only substantive provision invoked by plaintiffs' complaints.
In Salinas, the Supreme Court explained § 1962(d)'s relationship to general conspiracy doctrine:
The relevant statutory phrase in § 1962(d) is "to conspire." We presume Congress intended to use the term in its conventional sense, and certain well-established principles follow. . . . When Congress passed RICO in 1970, the American Law Institute's Model Penal Code permitted a person to be convicted of conspiracy so long as he "agrees with such other person or persons that they or one or more of them will engage in conduct that constitutes such crime." As the drafters emphasized, "so long as the purpose of the agreement is to facilitate commission of a crime, the actor need not agree `to commit' the crime." . . . A conspirator must intend to further an endeavor which, if completed, would satisfy all of the elements of a substantive criminal offense, but it suffices that he adopt the goal of furthering or facilitating the criminal endeavor. . . . It is elementary that a conspiracy may exist and be punished whether or not the substantive crime ensues, for the conspiracy is a distinct evil, dangerous to the public, and so punishable in itself.
522 U.S. at 63-65, 118 S.Ct. 469 (internal citations omitted).
Salinas appears to hold that a violation of § 1962(d) does not require a consummated violation of a substantive RICO provision; it is sufficient that the conspiracy have as its object acts which, if completed, would constitute a substantive violation. Whether a plaintiff who had not been injured by a substantive violation would have standing to bring a civil action for violation of § 1962(d), however, is a different question. See 18 U.S.C. § 1964(c) (creating a civil cause of action for "[a]ny person injured in his business or property by reason of a violation of section 1962" and providing for triple damages); Beck v. Prupis, 529 U.S. 494, 501 n. 6, 120 S.Ct. 1608, 146 L.Ed.2d 561 (2000) (distinguishing "the question of what constitutes a violation of § 1962(d)" from "the meaning of a civil cause of action for private injury by reason of such a violation"). In Beck, the Supreme Court explained that "a civil conspiracy plaintiff cannot bring suit under RICO based on injury caused by any act in furtherance of a conspiracy that might have caused the plaintiff injury. Rather . . . a RICO conspiracy plaintiff [must] allege injury from . . . an act that is independently wrongful under RICO." Id. at 505-06, 120 S.Ct. 1608 (abrogating Shearin v. E.F. Hutton Group, Inc., 885 F.2d 1162, 1168-69 (3d Cir. 1989)). Accordingly, the Court held that the petitioner, who had been terminated by his employer for blowing the whistle on RICO activities, did not have standing to allege a § 1962(d) violation, since his injury was not "caused by an overt act that is . . . an act of racketeering or otherwise wrongful under RICO." Id. at 505, 120 S.Ct. 1608. At the very least, then, Beck stands for the proposition that a plaintiff bringing a § 1962(d) claim for conspiracy to violate § 1962(c) must allege injury from a racketeering act enumerated in § 1961(1). But Beck did not make clear whether that requisite racketeering act must be part of a consummated § 1962(c) violation. Indeed, the Court explicitly reserved the question "whether a plaintiff suing under § 1964(c) for a RICO conspiracy must allege an actionable violation under §§ 1962(a)-(c), or whether it is sufficient for the plaintiff to allege an agreement to complete a substantive violation and the commission of at least one act of racketeering that caused him injury." Id. at 506 n. 10, 120 S.Ct. 1608.
2. Application to This Case a. Section 1962(c) Claims
i. The Broker-Centered Enterprises
Plaintiffs contend they have pled facts plausibly suggesting that each defendant broker and its insurer-partners composed an association-in-fact enterprise. The District Court disagreed. Central to its conclusion was its finding that although plaintiffs had adequately alleged bilateral agreements (regarding the steering of business and the payment of contingent commissions) between each broker and its insurer-partners, plaintiffs had failed to plead facts plausibly suggesting collaboration among the insurers. The asserted hub-and-spoke structures therefore lacked a "unifying `rim.'" 2007 WL 2892700, at *20. In the absence of a plausible "rim" or "wheel" connecting the alleged insurer "spokes," the District Court determined that while plaintiffs may have alleged parallel, bilateral structures connecting a broker to each of its insurer-partners, they had failed to plead "broker-centered enterprises" encompassing each broker "hub" and all of its strategic partners.
With respect to all but the Marsh-centered enterprise alleged in the Commercial complaint, we agree with the District Court that plaintiffs' allegations of broker-centered enterprises are fatally defective. In our analysis of the antitrust claims, we determined that, with the exception of the alleged Marsh-centered commercial conspiracy, the facts alleged in the complaints do not plausibly imply a horizontal agreement among the insurer-partners. In seeking to establish a "rim" enclosing the insurer-partners in the alleged RICO enterprises, plaintiffs rely on the same factual allegations we found deficient in the antitrust context: that each insurer entered into a similar contingent-commission agreement in order to become a "strategic partner"; that each insurer knew the identity of the broker's other insurer-partners and the details of their contingent-commission agreements; that each insurer entered into an agreement with the broker not to disclose the details of its contingent-commission agreements; that the brokers utilized certain devices, such as affording "first" and "last looks," to steer business to the designated insurer; and that, in the Employee Benefits Case, insurers adopted similar reporting strategies with regard to Form 5500. As noted, these allegations do not plausibly imply concerted action — as opposed to merely parallel conduct — by the insurers, and therefore cannot provide a "rim" enclosing the "spokes" of these alleged "hub-and-spoke" enterprises.
Even under the relatively undemanding standard of Boyle, these allegations do not adequately plead an association-in-fact enterprise. They fail the basic requirement that the components function as a unit, that they be "put together to form a whole." Boyle, 129 S.Ct. at 2244 (internal quotation marks omitted). Because plaintiffs' factual allegations do not plausibly imply anything more than parallel conduct by the insurers, they cannot support the inference that the insurers "associated together for a common purpose of engaging in a course of conduct." Id. (quoting Turkette, 452 U.S. at 583, 101 S.Ct. 2524); see id. at 2245 n. 4 (stating that "several individuals" who "engaged in a pattern of crimes listed as RICO predicates" "independently and without coordination" "would not establish the existence of an enterprise"); Elsevier, 692 F.Supp.2d at 307 (stating that, as with a § 1 Sherman Act claim, a RICO claim pleading "nothing more than parallel conduct by separate actors" is insufficient: "there has to be something that ties together the various defendants allegedly comprising the association in fact into a single entity that was formed for the purpose of working together — acting in concert — by means of racketeering acts); Gregory P. Joseph, Civil RICO: A Definitive Guide 106 (3d ed. 2010) (stating that a "rimless hub-and-spoke configuration would not satisfy the `relationships' prong of Boyle's structure requirement"); see also Rao, 589 F.3d at 400 (finding the plaintiff had failed to plead an association-in-fact enterprise because the "allegations do not indicate how the different actors are associated and do not suggest a group of persons acting together for a common purpose or course of conduct"). Were the rule otherwise, competitors who independently engaged in similar types of transactions with the same firm could be considered associates in a common enterprise. Such a result would contravene Boyle's definition of "enterprise."
We do not address the other grounds relied on by the District Court to support its conclusion that these "broker-centered enterprises" were inadequately pled.
As the District Court acknowledged, although the complaints do not adequately plead these asserted broker-centered enterprises, it is possible that plaintiffs' factual allegations would provide a plausible basis for the assertion of a number of bilateral enterprises, each encompassing a broker and one of its insurer-partners, or even the assertion that individual brokers or insurers each constituted an enterprise. But the District Court determined that "Plaintiffs' three previous rounds of pleadings unambiguously indicate that Plaintiffs have no interest in asserting" such smaller-scale enterprises. 2007 WL 2892700, at *34 n. 32. We agree. While plaintiffs strenuously insist they have adequately pled the existence of "broker-centered enterprises," they have conspicuously refrained, throughout the district-court proceedings and on appeal, from asserting alternative bilateral or single-entity enterprises. Accordingly, the District Court properly dismissed the claims based on these broker-centered enterprises with prejudice.
As with the antitrust claims, we reach a different conclusion with respect to the claims alleging bid rigging — the bid-rigging allegations in the Commercial complaint suffice to plead a "Marsh-centered enterprise." As Boyle clarified, a RICO "enterprise" must have a structure, but it need not have any particular structural features beyond "a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise's purpose." Boyle, 129 S.Ct. at 2244. We think the allegations of bid rigging provide the "rim" to the Marsh-centered enterprise's hub-and-spoke configuration, satisfying Boyle's requirements. The Commercial complaint alleges that Marsh prepared "broking plans" governing the placement of insurance contracts that came up for renewal. According to plaintiffs, "[t]he broking plans assigned the business to a specific insurer at a target price and outlined the coverage. The broking plans also included instructions as to which preferred Insurers would be asked to provide alternative [i.e., intentionally uncompetitive, or sham] quotes. If the incumbent Insurer hit the `target,' it would get the business and then [Marsh employees] would solicit `alternative' . . . quotes from other members of the conspiracy." Comm. SAC ¶ 117. The complaint also alleges the reasons why the insurers agreed to provide sham bids. For example, it relates a statement by a former employee of a defendant insurer that his employer had agreed to "provide[] losing quotes" to Marsh in exchange for, among other things, Marsh's "getting `quotes from other [insurance] carriers that would support the [employer, at least when it was the incumbent carrier] as being the best price.'" Comm. SAC ¶ 109. This statement plausibly evinces an expectation of reciprocity and cooperation among the insurers.
Plaintiffs also allege a "Marsh-centered enterprise" in the Employee Benefits complaint, but they do not allege that the associates of this "enterprise" engaged in bid rigging. For the reasons given above, we agree with the District Court that plaintiffs have not adequately pled the existence of such an enterprise.
In at least one sense, plaintiffs' allegations regarding the "Marsh-centered enterprise" exceed Boyle's requirements. Boyle explicitly disavowed the need for any particular organizational structure. Boyle, 129 S.Ct. at 2245-46. It upheld the conviction of a "loosely and informally organized" group of bank robbers that neither "had a leader [n]or hierarchy," nor "ever formulated any long-term master plan or agreement"; the group would meet before each robbery to "assign the roles that each participant would play (such as lookout and driver)." Id. at 2241. Here, by contrast, plaintiffs allege a hierarchical structure according to which Marsh, in accordance with its "broking plan," decided from which insurer each sham bid would be requested. Plaintiffs adequately allege a "common interest" or "purpose," id. at 2244, namely to increase profits by deceiving insurance purchasers about the circumstances surrounding their purchase. See Comm. ARCS 66. The alleged reciprocal bid rigging also adequately suggests "relationships among" the insurers "associated with the enterprise[s]"; if proved, it would plausibly demonstrate the insurers "joined together" in pursuit of the afore-mentioned common purpose. Boyle, 129 S.Ct. at 2244 (internal quotation marks omitted). Finally, the complaint alleges that the bid rigging occurred over a period of several years, plausibly alleging "that the enterprise had `affairs' of sufficient duration to permit an associate to `participate' in those affairs through `a pattern of racketeering activity.'" Id. (quoting § 1962(c)). Accordingly, plaintiffs have adequately pled the enterprise element of the RICO claims based on the alleged Marsh-centered commercial enterprise.
Defendants do not dispute that the complaint sufficiently alleges the requisite relationships between each insurer and Marsh.
The number of defendants alleged to have engaged in bid rigging appears to be slightly smaller than the number of defendants alleged to be associates of the Marsh-centered enterprise. See supra note 44. Compare Comm. SAC 1 502 (naming alleged members of an association-in-fact Marsh-centered commercial enterprise), with Plaintiffs' Comm. Br. 78 n. 17 (claiming that the defendant insurers that engaged in bid rigging are "AIG, ACE, Axis, Chubb, XL, Munich/AmRe, Liberty Mutual, St. Paul Travelers, Fireman's Fund and Zurich"), and Comm. RPS ¶¶ 27-56 (detailing bid-rigging allegations). While, as noted, plaintiffs have declined to plead alternative enterprises consisting of only individual defendants or bilateral relationships, they urge us to permit them "to proceed with their RICO claims as to Marsh and the insurers explicitly alleged to have been involved in bid-rigging." Plaintiffs' Comm. Br. 78 n. 17. Such a "downscaled" Marsh-centered enterprise has been adequately pled.
It may also be worth reiterating that membership in an enterprise is not the touchstone of § 1962(c) liability. Rather, it is the operation of that enterprise's affairs through a pattern of racketeering that constitutes a violation. Accordingly, although the Commercial complaint here appears to allege that each defendant was a member of the enterprise it "conducted," as a general matter defendants who are outside an enterprise may in certain circumstances be held liable under § 1962(c), as the Supreme Court has acknowledged. See Reves, 507 U.S. at 184-85, 113 S.Ct. 1163.
The District Court, proceeding without the benefit of Boyle, found that the bid-rigging allegations were not sufficient to plead a Marsh-centered enterprise. The court believed that the defendant insurers' participation in each bid-rigging transaction was "ad hoc." See 2007 WL 2892700, at *22 (stating that in the picture painted by Plaintiffs[,] a refusal by Insurer-Defendant `X' to provide `B' quotes to the requesting Broker-Defendant was of little substantive consequence to consummation of [each] transaction because alternative `B' quotes were readily available to the Broker-Defendant from a range of other Insurer-Defendants"). Given the alleged existence of Marsh's "broking plan," which designated, for each renewal contract, the insurer from which a sham bid would be solicited, we cannot say that insurer participation in bid rigging was completely "ad hoc." In any case, Boyle makes clear that there is no need for a systematic plan ordaining in advance who is to provide a sham bid for a particular transaction; "decisions may be made on an ad hoc basis and by any number of methods." Boyle, 129 S.Ct. at 2245. Nor do "[m]embers of the group need [to] have fixed roles; different members may perform different roles at different times." Id.; cf. id. at 2241 (upholding RICO conviction predicated on an enterprise in which the participants never "formulated any long-term master plan or agreement" but instead assigned roles to each associate on a robbery-by-robbery basis). Furthermore, we see no indication that a RICO enterprise requires participants to have non-interchangeable, non-substitutable functions.
The District Court suggested that defendant insurers may have sometimes refused Marsh's request for a false bid. But even if there were occasional refusals, we do not believe they would prove fatal to plaintiffs' enterprise allegations. Cf. Boyle, 129 S.Ct. at 2245 ("[N]othing in RICO exempts an enterprise whose associates engage in spurts of activity punctuated by periods of quiescence.").
The District Court also appeared to believe that the bid-rigging allegations did not adequately plead interrelationships among the insurers, as opposed to simply bilateral relationships between Marsh and each insurer. As the District Court read the complaint, "an Insurer-Defendant `X' cared little which other Insurer-Defendant would be `accommodated' by its `B' quotes and whether these `B' quotes would actually be used at all by the requesting Broker-Defendant; the sole point of `X's' interest was to ensure that `X' would be rewarded" by the Broker, in some form, in exchange for its willingness to generate sham bids. 2007 WL 2892700, at *21. In other words, the insurers provided sham bids to the broker, at the request of the broker, in exchange for benefits provided by the broker. We agree that the complaint does not allege that the bid rigging took the form of quid pro quo transactions between insurers; Insurer "X" did not promise to provide a sham bid facilitating the renewal of Insurer "YY' account in exchange for Insurer "YV providing a sham bid facilitating the renewal of Insurer "X's" account. But, as noted, the complaint does allege that one reason the insurers were willing to furnish sham bids was so that they would be the beneficiaries of sham bids in the future. To be sure, an insurer might not need a sham bid to win the renewal of any particular account. It stands to reason, however, that sometimes a sham bid would be necessary — for example, when Marsh's client insisted on seeing multiple bids. In our view, the alleged agreement by insurers to provide sham bids plausibly suggests an interrelationship among the insurers — mediated through Marsh — in pursuit of achieving greater business and profits by means of deceiving insurance purchasers. Through this interrelationship, the insurers were allegedly able to advance this common interest to a greater extent than would have been possible on the strength of the bilateral relationships between Marsh and each broker alone. Under Boyle, this (plus the requisite longevity) is enough to plead an enterprise.
The District Court believed plaintiffs had also failed to plead the "conduct" element of their claims regarding the Marsh-centered enterprise, that is, failed to plead that defendants "conducted], or participate[d], directly or indirectly, in the conduct of such enterprise's affairs." 18 U.S.C. § 1962(c). To some extent, the District Court's conclusion appears to derive from its determination regarding the "enterprise" element of these claims. At least one of its findings, however, appears particular to the "conduct" element. In an implicit reference to the Supreme Court's Reves decision, the District Court stated that it was "not convinced" that "Defendants operated" the alleged Marsh-centered enterprise's affairs "rather than Defendants' own affairs." 2007 WL 2892700, at *31.! Reves explained that liability under § 1962(c) "depends on showing that the defendants conducted or participated in the conduct of the ` enterprise's affairs,' not just their own affairs." 507 U.S. at 185, 113 S.Ct. 1163. In Reves, the Court found that an outside accounting firm hired to audit an enterprise's books did not participate in the conduct of the enterprise's affairs simply by doing its job (even if its job performance was deficient). Id. at 185-86, 113 S.Ct. 1163; see United States v. Oreto, 37 F.3d 739, 750 (1st Cir. 1994) (stating that "the reason the accountants were not liable in Reves is that, while they were undeniably involved in the enterprise's decisions, they neither made those decisions nor carried them out").
The overlap between the District Court's analyses of these two elements is understandable. A defendant cannot participate in conducting the affairs of a non-existent enterprise.
Here, however, the defendants are alleged to be members of the enterprise. It will often be the case that the interests of the enterprise are congruent with those of its members; such congruence presumably provides the incentive for members to participate in the enterprise. We think, therefore, that "if defendants band together to commit [violations] they cannot accomplish alone . . . then they cumulatively are conducting the association-in-fact enterprise's affairs, and not [simply] their own affairs." Joseph, supra, at 332; see Brandao, 539 F.3d at 54. Here, defendants' alleged collaboration in the Marsh-centered enterprise, most notably the bid rigging, allowed them to deceive insurance purchasers in a way not likely without such collusion.
Moreover, we believe that, based on the complaint's allegations, plaintiffs have adequately pled that defendants engaged in activities constituting participation in the conduct of the enterprise. The allegations that defendant broker Marsh directed the placement of insurance contracts and solicited rigged bids from insurers plausibly imply that Marsh "participated in the operation or management of the enterprise itself." Reves, 507 U.S. at 183, 113 S.Ct. 1163. And by allegedly supplying the sham bids, Marsh's insurer-partners are also adequately alleged to have "operated" the enterprise within the meaning of Reves. Cf. id. at 184, 113 S.Ct. 1163 (stating that "[a]n enterprise is `operated' not just by upper management but also by lower rung participants in the enterprise who are under the direction of upper management"); e.g., MCM Partners, Inc. v. Andrews-Bartlett Assocs., 62 F.3d 967, 978-79 (7th Cir. 1995) (finding that two businesses participated in the conduct of an association-in-fact enterprise "by knowingly implementing decisions" by the enterprise's managers to commit crimes). We thus find plaintiffs have sufficiently pled that defendants in the Marsh-centered enterprise satisfied the "conduct" requirement set forth in Reves.
Whether plaintiffs have adequately alleged that defendants participated in the conduct of the Marsh-centered enterprise's affairs "though, a pattern of racketeering activity" is, of course, another matter. This question necessarily turns in part on whether plaintiffs have sufficiently pled a "pattern of racketeering activity." See infra note 80.
In summary, we find that plaintiffs have adequately pled both the "enterprise" and "conduct" elements of the § 1962(c) claims based on the alleged Marsh-centered commercial enterprise. Accordingly, we will vacate the District Court's judgments insofar as they dismissed those claims, and we will remand to allow the District Court an opportunity to evaluate the remaining elements of those claims.
In their motion to dismiss, defendants also contended that plaintiffs had failed to plead adequately a pattern of predicate offenses. In a footnote, the District Court suggested this challenge might have merit but did not conclusively adjudicate it, instead granting the motion on the ground that "Plaintiffs' pleading of the `enterprise' and `conduct' elements warrant dismissal without granting Plaintiffs leave to amend." 2007 WL 2892700, at *33 n. 29.
ii. The CIAB Enterprise
In the Commercial Case, plaintiffs also bring § 1962(c) claims naming the Council of Insurance Agents and Brokers (CIAB), a trade organization, as a RICO enterprise. According to the complaint, the CIAB "represents the largest, most profitable of all commercial insurance agencies and brokerage firms. The Council's primary audience is CEOs and their management teams. The Council partners with its members and provides not only vital intelligence on current market conditions and trends, but also solutions to the next challenge before the need arises." Comm. SAC ¶ 513 (internal quotation marks omitted). Plaintiffs aver that defendant insurers' and brokers' association with the CIAB violated the RICO statute insofar as defendants "used vital intelligence gained through communications and meetings facilitated by CIAB and otherwise, including information about decreased profits and demand to devise [their customer allocation] scheme[s] . . . to replace competition. The [defendants] operating through the CIAB Enterprise reached consensus on how they would change the market and regarding non-disclosure" of the details of their allegedly unlawful contingent-commissions-for-guaranteed-premium-volume schemes. Id. ¶ 523.
The District Court acknowledged the complaint had adequately pled that the CIAB, a legal entity, was an enterprise, but it concluded the complaint failed to allege adequately that defendants had participated in the conduct of the CIAB "through" the acts of fraud pled as the requisite pattern of racketeering activity. In the District Court's view, the complaint's allegations "merely indicate that CIAB provided an internal and external communication tool for the members of the insurance industry. No fact stated in Plaintiffs' submissions indicates that Defendants' alleged predicate acts of mail and wire fraud (aimed at Defendants' clients) were related in any way to the activities of CIAB, or that Defendants committed the alleged predicate offenses through the means of CIAB, or that CIAB was somehow indispensable to Defendants in their alleged goal to commit the underlying predicate offenses." 2007 WL 1062980, at *17. Although the court believed that plaintiffs had adequately alleged that the CIAB afforded defendants an opportunity to meet and communicate about their challenged schemes, it found that simply making use of the forum provided by the Council did not plausibly imply the requisite nexus: "[W]ere Plaintiffs to allege that Defendants habitually met with each other . . . in a chain of coffee houses or through an Internet portal[,] such allegations would not render the corporation owning such chain of coffee houses or the online portal a RICO enterprise for the purposes of the inquiry at bar. Neither the CIAB-based [allegations], nor the coffee house or Internet portal-based alternative provides this Court with a fact drawing `a nexus between [Defendants' alleged offenses] and the conduct in the affairs' of [the alleged enterprise]." Id. (quoting United States v. Parise, 159 F.3d 790, 796 (3d Cir. 1998)) (first alteration in District Court opinion).
Plaintiffs conclusorily allege that "Defendants have conducted or participated in the conduct of the affairs of the CIAB Enterprise through a pattern of racketeering activity," Comm. SAC H 527, but as Twombly observed, "a plaintiffs obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do," Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (internal quotation marks omitted).
As the District Court observed, plaintiffs' nexus theory appears to rest primarily on the alleged fact that the CIAB provided an "opportunity" or "forum" for defendants to discuss and advance their schemes. We agree with the District Court that the allegation that defendants took advantage of an opportunity to meet provided by a legitimate enterprise in the normal course of its business does not mean — or plausibly imply — that defendants were participating in the conduct of the enterprise. By extension, the allegation that defendants utilized such an opportunity to plot or discuss or otherwise facilitate a pattern of racketeering activity does not, without more, plausibly imply that defendants conducted the enterprise's affairs through a pattern of racketeering activity. If it did, any coffee house or hotel with conference facilities could, as the District Court rightly recognized, be made into a RICO enterprise merely by dint of the fact that racketeers used the facility as a meeting place. In our view, such an expansive interpretation of § 1962(c) liability would not comport with the text or purpose of the RICO statute, nor with the cases interpreting it. As we have observed in interpreting the Supreme Court's decision in Reves, "[s]imply because one provides goods or services that ultimately benefit the enterprise does not mean that one becomes liable under RICO as a result." Univ. of Md., 996 F.2d at 1539. Similarly, we do not think a RICO violation occurs simply because an enterprise provides goods or services that ultimately benefit a defendant's racketeering efforts; in order to constitute a § 1962(c) violation, it is necessary that the defendant, in utilizing these goods or services, "participate . . . in the conduct of [the] enterprise's affairs." § 1962(c). Availing oneself of a forum provided by an enterprise does not, without more, plausibly imply that one has participated in the conduct of that enterprise's affairs.
See, e.g., Comm. SAC ¶ 513 ("CIAB provides Defendants with numerous opportunities to communicate, meet, use vital intelligence on market conditions that is shared with its partner members, and reach agreement on how they will address challenges in the marketplace. . . ."); id. ¶ 518 ("CIAB provides the Broker Defendants a forum to discuss and reach agreement with each other and with the Insurer Defendants regarding, among other things, compensation arrangements and other aspects of their relationships, what each wants and needs from the relationship, the market and market conditions, consolidation and disclosure."); id. ¶ 519 ("CIAB hosts `Executive Forums' . . . [which] allow members the opportunity to `discuss common problems and solutions.'"); id. ¶ 521 ("CIAB has also provided Defendants the opportunity to discuss and reach agreement on joint action in response to the regulatory investigations and regarding disclosure issues."); id. ¶ 522 ("CIAB provides Defendants with numerous opportunities to communicate, meet, use vital intelligence on market conditions that is shared with its partner members, and reach agreement on how they will address challenges in the marketplace. . . .") .
In an apparent attempt to supply this "something more," plaintiffs allege that "[t]he purpose of the CIAB Enterprise is to further the interests of larger brokers generally and to further the Defendants' scheme specifically." Comm. SAC ¶ 524. But to claim that the purpose of the CIAB was to further the defendants' scheme is simply to assert what must be shown through well-pled factual allegations. See Twombly, 550 U.S. at 555, 127 S.Ct. 1955; cf. supra note 81. And the alleged fact that the CIAB worked to further the interests of larger brokers generally does not plausibly imply the necessary nexus between defendants' racketeering activity and the conduct of the CIAB's affairs. The Chamber of Commerce exists to promote the interests of its member businesses, but this does not mean that if some of its members plot their racketeering activities at a Chamber meeting, they have participated in the conduct of the Chamber's affairs. In short, plaintiffs cannot distinguish trade unions like the CIAB from the District Court's hypothetical coffee house simply by invoking trade unions' "general" mission to advance their members' interests.
Our analysis thus confirms the District Court's conclusion that the allegations it recited were inadequate to plead the nexus element of plaintiffs' CIAB-based RICO claims. We believe, however, that the complaint might reasonably be construed as asserting additional facts that present a closer question. Specifically, the complaint appears to allege that defendant brokers did not merely make use of the CIAB as a forum, but actually utilized its institutional machinery to formulate strategy and issue public statements in aid of their fraudulent acts. The complaint avers that the defendant brokers effectively operated and controlled the CIAB; the brokers sat on its Board of Directors. CIAB allegedly formulated a "position statement that was intended to stave off any meaningful regulatory disclosure requirements and reassure insurance purchasers that their brokers were acting in their best interests." Comm. SAC ¶ 445. "The CIAB position statement was made available for review and editing by its members before being finally approved by CIAB's Executive Committee, which included executives from Marsh, Aon, and HRH. . . . Further, one or more representatives of all of the Broker Defendants, or their predecessors, were on CIAB's Board of Directors at the time the CIAB position statement was issued." Id. ¶ 446. The Brokers then allegedly incorporated language from this position statement into their allegedly fraudulent disclosures. See id. ¶ 458 ("The [Broker] disclosures were modeled after the CIAB position statement in order to create the impression of transparency, by stating that the brokers `may' have contingent commission agreements that might result in some additional revenue, while failing to disclose any information regarding the strategic partnerships that the Broker Defendants had entered into with the Insurer Defendants or the significance of these partnerships and the contingent payments arrangements [for] the insurance placement process and the premiums charged.")
Assuming the truth of these allegations, one might arguably make a plausible inference that defendant brokers participated in the conduct of the CIAB enterprise, and furthermore, that one way they operated the enterprise was to have it craft the allegedly misleading disclosure statements incorporated by defendants into their allegedly fraudulent communications with clients (and perhaps others). This inference, however, would raise additional questions that would have to be resolved before we could conclude that plaintiffs have adequately pled their CIAB-based RICO claims. First, under § 1962(c), which is the only substantive RICO provision invoked by plaintiffs, the defendants must be distinct from the enterprise they conduct. See Gasoline Sales, Inc. v. Aero Oil Co., 39 F.3d 70, 72 (3d Cir. 1994); see also Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161, 121 S.Ct. 2087, 150 L.Ed.2d 198 (2001) ("We do not quarrel with the basic principle that to establish liability under § 1962(c) one 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. The statute's language, read as ordinary English, suggests that principle."). Here, plaintiffs appear to allege that the CIAB crafted fraudulent statements released directly to the public and incorporated into defendants' own disclosures. Defendants are alleged to have sat on the board of directors of CIAB. Although the Supreme Court has held that a corporate owner may successfully be pled as a defendant distinct from the corporate enterprise it owns, Cedric Kushner, 533 U.S. at 163-66, 121 S.Ct. 2087, the Court's decision examined a complaint clearly alleging the defendant owner's role in the acts supposedly constituting both a "pattern of racketeering activity" and participation in the conduct of the enterprise. See Cedric Kushner, No. 98 Civ. 6859, 1999 WL 771366, at *l-2 (S.D.N.Y. Sept. 28, 1999), aff'd, 219 F.3d 115 (2d Cir. 2000), rev'd, 533 U.S. 158, 121 S.Ct. 2087, 150 L.Ed.2d 198. The complaint here, by contrast, appears to say little about defendant brokers' involvement in CIAB's crafting of the allegedly fraudulent statements other than that defendants sat on CIAB's board at the time. There may therefore be a question about whether plaintiffs have adequately pled not only a connection between the CIAB and the alleged pattern of racketeering activity, but also the requisite connection between that pattern and defendants' conduct of the CIAB.
This possible inference pertains only to the defendant brokers. The complaint does not contain well-pled factual allegations plausibly implicating the defendant insurers in the creation of the disclosure statements.
As noted, the requisite nexus element would not be satisfied by the mere allegation that the defendants' alleged racketeering activity benefitted from goods or services provided by the CIAB.
Second, there is a question about whether plaintiffs have adequately pled that defendant brokers' allegedly misleading disclosure statements constitute a "pattern of racketeering activity." In other words, even assuming plaintiffs have adequately alleged a connection between defendants' conduct of the CIAB and the statements alleged to be fraudulent, it remains to be determined whether the fraudulent nature of these statements has itself been adequately alleged. Cf. Am. Dental Ass'n v. Cigna Corp., 605 F.3d 1283, 1290-93 (11th Cir. 2010) (holding that the district court properly dismissed plaintiffs' § 1962(c) claims because plaintiffs had not sufficiently pled the acts of mail and wire fraud alleged to form a pattern of racketeering activity). Although the District Court expressed significant skepticism about plaintiffs' allegations of fraud, its dismissal of the CIAB-based RICO claims does not appear to be based on this issue.
See supra note 80 and accompanying text.
In light of these significant questions, as well as our discussion of the nexus standard, see supra Section II.B.l.a.iii., we will vacate the dismissal of the CIAB-based claims. None of these questions was squarely addressed by the parties on appeal, and we believe the District Court is best positioned to decide them in the first instance. On remand, the District Court may proceed in any way consistent with our opinion.
The court may choose in its discretion, for instance, to address the adequacy of plaintiffs' fraud allegations before returning to the question of the nexus between that alleged fraud and defendants' alleged conduct of the CIAB.
b. Section 1962(d) Claims
The District Court dismissed the § 1962(d) RICO conspiracy claims on the ground that plaintiffs had failed to plead any viable § 1962(c) claims. Because we will vacate the dismissal of the § 1962(c) claims relating to the alleged Marsh-centered commercial enterprise and the CIAB enterprise, we will also vacate the § 1962(d) claims based on those two enterprises. We will affirm the District Court's dismissal of the remaining § 1962(d) claims because with respect to these claims, plaintiffs have failed to allege adequately "an endeavor which, if completed, would satisfy all of the elements of a substantive [RICO] offense." Salinas, 522 U.S. at 65, 118 S.Ct. 469.
C. State-Law Claims
A district court "may decline to exercise supplemental jurisdiction" over state-law claims if it "has dismissed all claims over which it has original jurisdiction." 28 U.S.C. § 1367(c)(3). Having dismissed all federa1-1aw claims, the District Court here exercised this statutory grant of discretion and dismissed plaintiffs' state-law claims.
Because we will vacate in part the judgment dismissing the federal claims, we will also vacate the dismissal of the state-law claims. See Shaev v. Saper, 320 F.3d 373, 384 (3d Cir. 2003).
III. Conclusion
For the forgoing reasons, we will vacate the dismissal of the Sherman Act claims with respect to defendants alleged to have engaged in bid rigging in the Marsh-centered commercial conspiracy; the dismissal of the RICO claims based on the alleged Marsh-centered commercial enterprise, with respect to those same defendants; the dismissal of the RICO claims based on the alleged CIAB enterprise, with respect to the defendant brokers; and the dismissal of the state-law claims. We will affirm the District Court's judgment in all other respects and remand for further proceedings consistent with this opinion.