Steven Nelson v. James Nelson ( 2016 )

United States Court of Appeals
For the Eighth Circuit
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No. 15-2610
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Steven Nelson
lllllllllllllllllllllPlaintiff - Appellant
v.
James Nelson; Chris Feller; Randy Skjerven; AgCountry Farm Credit Services, ACA
lllllllllllllllllllllDefendants - Appellees
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Appeal from United States District Court
for the District of Minnesota - Minneapolis
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Submitted: May 17, 2016
Filed: August 18, 2016
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Before RILEY, Chief Judge, COLLOTON and KELLY, Circuit Judges.
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RILEY, Chief Judge.
Steven Nelson claims his brother, James, with the connivance of an accountant
and a banker, siphoned money from the brothers’ farming business. Steven sued the
three of them, along with the accountant and banker’s employer, for violating the
Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-68.
We affirm the district court’s1 dismissal of his case. See 28 U.S.C. § 1291 (appellate
jurisdiction).
I. BACKGROUND
According to Steven, whose factual allegations we take as true at this stage,
see, e.g., Crest Constr. II, Inc. v. Doe, 660 F.3d 346, 350 n.3 (8th Cir. 2011), he and
James farmed grain and sugar beets as equal partners in J&S Nelson Farms, LLP
(J&S or the partnership). James was in charge of the finances. James hired
AgCountry Farm Credit Services, ACA, (AgCountry) to help with accounting and
taxes. Chris Feller, an accountant at AgCountry, handled J&S’s bookkeeping. Feller
also prepared tax returns for the partnership and the Nelson brothers personally.
Other than going over the books with Feller once a year, Steven took no part in
managing or monitoring the partnership’s money, instead trusting James to do so.
James, Steven says, has been abusing that trust and embezzling money for
himself, his sons, and his other businesses ever since J&S was formed in 1998. James
allegedly routinely withdrew cash or made payments with company money and then,
with Feller’s help, disguised the disbursements as business expenses or falsely
attributed them to Steven. To accomplish the transfers, James colluded with another
AgCountry employee, banker Randy Skjerven, who wired money wherever James
directed. Skjerven also arranged for J&S to take out loans on false pretenses, at “very
high” interest rates, so James could then take the money to buy property for himself.
When Steven eventually realized what was happening behind his back, he sued
James, Feller, Skjerven, and AgCountry under 18 U.S.C. § 1964(c), which lets “[a]ny
person injured in his business or property by reason of a violation of section 1962 of
this chapter” recover treble damages and litigation costs. To establish violations of
1
The Honorable Ann D. Montgomery, United States District Judge for the
District of Minnesota.
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§ 1962, Steven listed hundreds of instances in which he says James took money from
the partnership for his personal use. Steven’s theory was that because many of those
transactions involved checks or electronic transfers, they constituted mail and wire
fraud. Also, James and Feller’s submission of tax returns that mischaracterized or hid
James’s withdrawals were mail or wire fraud, because they were filed electronically.
And, according to Steven, James and Feller were also guilty of evading taxes, James
and Skjerven of committing bank fraud and forging Steven’s signature on loan
applications, and James of laundering money.2
On the defendants’ motions, see Fed. R. Civ. P. 12(b)(6), the district court
dismissed Steven’s complaint for failing to state a claim on which relief can be
granted. Steven appeals.
II. DISCUSSION
The statutory right of action under which Steven sued is based on “violation[s]
of section 1962 of this chapter.” 18 U.S.C. § 1964(c). That section contains RICO’s
four substantive prohibitions. See id. § 1962(a)-(d). Steven’s focus is § 1962(c),
which makes it illegal “for any person . . . associated with any enterprise engaged in,
or the activities of which affect, interstate or foreign commerce, to conduct or
participate, directly or indirectly, in the conduct of such enterprise’s affairs through
a pattern of racketeering activity.”3
2
Steven did not allege AgCountry itself did anything illegal, just that it is
“liable . . . through the doctrine of respondeat superior.” We need not decide whether
an employer can face vicarious RICO liability for the acts of its employees, cf. Cedric
Kushner Promotions, Ltd. v. King, 533 U.S. 158, 166 (2001) (reserving this
question), because AgCountry does not contest the point and Steven’s claims fail for
other reasons.
3
In his complaint, Steven also conclusorily alleged related violations of
§ 1962(a) and (d), which prohibit investing money derived from a pattern of
racketeering activity in an enterprise and conspiring to violate RICO, respectively.
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The district court based its dismissal on a determination that Steven failed to
establish the necessary “pattern of racketeering activity,” both because the
misconduct he alleged did not count as “racketeering activity,” see id. § 1961(1)
(listing dozens of crimes and other offenses under federal and state law, at various
levels of specificity), and because it did not make out a “pattern.” Although we reach
the same result, we focus instead on another key element of the alleged RICO
violation, namely the existence of an “enterprise” whose affairs were supposedly
conducted in such an illicit manner. Because whether Steven pled enough facts “to
‘state a claim to relief that is plausible on its face’” is a question of law, our analysis
of this issue is de novo. Crest Constr., 660 F.3d at 352-53 (quoting Walker v. Barrett,
650 F.3d 1198, 1203 (8th Cir. 2011)).
An enterprise, for RICO purposes, “includes any individual, partnership,
corporation, association, or other legal entity, and any union or group of individuals
associated in fact although not a legal entity.” 18 U.S.C. § 1961(4). Steven pled the
last kind, a so-called “association-in-fact,” comprising James, J&S, Feller, Skjerven,
AgCountry’s entire corporate group, including its subsidiaries and affiliates, James’s
sons, and an ill-defined cluster of other business entities James allegedly used to
facilitate taking money out of J&S. To count as a RICO enterprise, such an informal
association must be “a continuing unit that functions with a common purpose.” Boyle
v. United States, 556 U.S. 938, 948 (2009); see also United States v. Turkette, 452
U.S. 576, 583 (1981) (“The enterprise is an entity, for present purposes a group of
persons associated together for a common purpose of engaging in a course of
conduct. . . . [It] is proved by evidence of an ongoing organization, formal or
informal, and by evidence that the various associates function as a continuing unit.”).
In other words, while an association-in-fact need not have any particular indicia of
organization, such as “a hierarchical structure,” “a ‘chain of command,’” “a name,
He does not raise any arguments regarding either on appeal, so we do not address
them.
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regular meetings, dues, established rules and regulations, disciplinary procedures, or
induction or initiation ceremonies,” it does need some sort of discrete existence and
structure uniting its members in a cognizable group. Boyle, 556 U.S. at 948; see also
Turkette, 452 U.S. at 583 (“The ‘enterprise’ is not the ‘pattern of racketeering
activity’; it is an entity separate and apart from the pattern of activity in which it
engages.”).
Steven argues the alleged enterprise constituted such a “continuing unit,”
Boyle, 556 U.S. at 948, on the theory that the same individuals and entities that make
up the enterprise also run the Nelsons’ legitimate farming business. But the facts
Steven alleged about the members of the supposed enterprise doing various things
other than racketeering are unhelpful here because none of those things were done by,
or attributable to, the group as a whole. Rather, Steven’s allegations show different
subsets of the group pursuing their own ends separately—operating farming
businesses, for example, or providing financial services for hire. They therefore do
nothing to support Steven’s assertion that the group he described functioned together
as a coherent unit. See Crest Constr., 660 F.3d at 355 (“[W]hile ‘each member of
th[e] group carried on other legitimate activities, these activities were not in
furtherance of the common or shared purpose of the enterprise and, thus, were not
acts of the enterprise.’” (second alteration in original) (quoting Stephens, Inc. v.
Geldermann, Inc., 962 F.2d 808, 816 (8th Cir. 1992))); cf. Atlas Pile Driving Co. v.
DiCon Fin. Co., 886 F.2d 986, 996 (8th Cir. 1989) (concluding an enterprise
involving otherwise legitimate businesses “had an on-going structure” because, even
“[p]utting the predicate acts of mail fraud aside,” the enterprise “sold real estate,
loaned money to develop properties, performed subcontracting work, and built single-
family residences”).
Steven’s other allegations also fall short of establishing that the numerous
individuals and entities listed in his complaint formed a “continuing unit.” See
Boyle, 556 U.S. at 948. Leaving aside Steven’s conclusory references to a joint
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operation to defraud him, there is no indication Feller and Skjerven, for example, had
anything to do with each other or James’s other partnerships and businesses, or that
AgCountry itself shared any common structure or understanding with the other
members of the supposed enterprise. The facts alleged in the complaint simply show
Feller and Skjerven following James’s directions and performing various discrete
tasks within their fields of expertise, as they were hired to do. Absent any other
“‘common factor’ . . . ‘defin[ing] them as a distinct group,’” the fact that they
allegedly played roles in James’s overarching scheme and thus “‘participat[ed]’ in the
. . . scheme to defraud” while working for AgCountry does not automatically turn
their disjointed activities into a group effort. Crest Constr., 660 F.3d at 355 (quoting
Stephens, 962 F.2d at 815); see also United States v. Henley, 766 F.3d 893, 906 (8th
Cir. 2014) (explaining a RICO enterprise requires “a formal or informal organization
of the participants in which they function as a unit”). Nor is this a case where “the
existence of an enterprise”—or at least the particular enterprise Steven described in
his complaint—“may . . . be inferred from the evidence showing that persons
associated with the enterprise engaged in a pattern of racketeering activity,” Boyle,
556 U.S. at 947, because the sorts of activities he alleged do not require or suggest
the joint involvement of such a group.
III. CONCLUSION
Steven’s failure to plead the existence of an enterprise sufficiently is fatal to
his allegations of RICO violations and thus to his case under 18 U.S.C. § 1964(c).
We therefore affirm the judgment of the district court.
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