REVISED
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 96-30525
RAJIV KHURANA,
Plaintiff-Appellant,
VERSUS
INNOVATIVE HEALTH CARE SYSTEMS, INC.; KARRY TEEL;
CARL HOLDEN; WILLIAM MALONE; I.H.S. RIVER REGION
HOSPITAL OF VACHERIE, LA., INC.,
Defendants-Appellees.
Appeal from the United States District Court
for the Eastern District of Louisiana
December 12, 1997
Before WIENER, PARKER, Circuit Judges, and LITTLE,* Chief District
Judge.
PARKER, Circuit Judge:
Dr. Rajiv Khurana appeals the district court’s dismissal of
his complaint pursuant to Fed. R. Civ. P. 12(b)(6) on the basis
that he did not have standing to bring his civil claims under the
Racketeer Influenced and Corrupt Organizations Act (“RICO”) and
*
Chief Judge of the Western District of Louisiana, sitting by
designation.
alternatively, because Khurana failed to plead a RICO enterprise
separate and distinct from the defendant in some of his civil
claims based on 18 U.S.C. § 1962(c). Finding that Khurana may have
standing for some of his civil RICO claims, we affirm in part and
reverse and remand in part.
FACTS AND PROCEEDINGS BELOW
For purposes of this appeal, we accept the following factual
allegations as true.
Dr. Rajiv Khurana (“Khurana”) filed suit in Louisiana state
court against the defendant-appellees, alleging defamation and
wrongful discharge from his position as Medical Director of River
Region Hospital in Vacherie, Louisiana,1 as well as civil claims
under the Racketeer Influenced and Corrupt Organizations Act
(“RICO”), U.S.C. § 1961 et seq., based on violations of 18 U.S.C.
§ 1962(b), (c), and (d).2 Khurana’s civil RICO claims arise from
1
Khurana’s state law claims were remanded to state court following
the district court’s Fed. R. Civ P. 12(b)(6) dismissal of his RICO claims.
Only issues related to the dismissal of Khurana’s RICO claims are before
the panel.
2
18 U.S.C. § 1962(b)-(d) is as follows:
(b) It shall be unlawful for any person through a
pattern of racketeering activity or through collection of
an unlawful debt to acquire or maintain, directly or
indirectly, any interest in or control of any enterprise
which is engaged in, or the activities of which affect,
interstate of foreign commerce.
(c) It shall be unlawful for any person employed by or
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 or collection
of unlawful debt.
(d) It shall be unlawful for any person to conspire to
violate any of the provisions of subsection (a), (b), or
2
a Medicare and Medicaid fraud scheme in which the appellees were
engaged.
River Region Hospital (“River Region” or “hospital”) is an
owned subsidiary of Innovative Health Care Systems, Inc.
(“Innovative”). Both River Region and Innovative are defendant-
appellees in this action. Defendant-appellees also include Karry
Teel and Carl Holden, who hold offices in both Innovative and River
Region, and William Malone, River Region’s administrator.
Khurana is a practicing physician with dual specialities in
psychiatry and neurology. In July 1993, Khurana was hired to be
River Region’s Assistant Medical Director under a three-year
contract. Khurana agreed to join River Region as its Assistant
Medical Director on the basis of fraudulent misrepresentations as
to the legitimacy of the hospital’s operations and qualifications.
In June of 1994, Khurana was named the hospital’s Medical Director.
After his promotion, he became aware that the hospital was engaging
in fraudulent Medicaid and Medicare practices. He was discharged
from his position as Medical Director six months later in January
of 1995. The hospital went out of business in 1996.
After the appellees removed the suit to federal court, Khurana
filed an amended complaint alleging that the appellees committed a
variety of RICO predicate acts (wire and mail fraud, extortion,
bribery, witness tampering, and violation of the Travel Act, 18
U.S.C. § 1952) and that these acts constituted a pattern of
racketeering activity in violation of § 1962(b) and § 1962(c).
(c) of this section.
3
Khurana also alleged a conspiracy, in violation of 18 U.S.C.
§ 1962(d), to violate 18 U.S.C. § 1962(b) and § 1962(c). In his
complaint, Khurana contended (1) that he was fraudulently induced
into “harmful employment associations” which caused him a loss of
legitimate business opportunity and damage to his professional
reputation, (2) that he was wrongfully discharged which caused him
a loss in earnings, benefits and reputation, and (3) that the
appellees’ “illegal competition” with him in his private and
hospital practices caused him a loss in business income.
The appellees filed a motion to dismiss Khurana’s RICO claims
pursuant to Fed. R. Civ. P. 12(b)(6). The appellees argued to the
district court that (1) Khurana did not have standing to assert the
RICO claims, and that (2) Khurana failed to allege a RICO
“enterprise” separate and distinct from a RICO “person,” i.e., a
perpetrator, associated with or employed by the enterprise as
required for claims based on 18 U.S.C. § 1962(c). The district
court granted the motion and Khurana now presents this panel with
the same two issues in his appeal.
DISCUSSION
I. Standard of Review
We review the dismissal of a complaint for a failure to state
a claim for which relief can be granted under Fed. R. Civ. P.
12(b)(6) de novo. Fernandez-Montes v. Allied Pilots Ass’n, 987
F.2d 278, 284 (5th Cir. 1993). A claim may not be dismissed unless
it appears beyond doubt that the plaintiff cannot prove any set of
facts in support of his claim which would entitle him to relief.
4
Benton v. United States, 960 F.2d 19, 21 (5th Cir. 1992). For
purposes of our review, we must accept the plaintiff’s factual
allegations as true and view them in a light most favorable to the
plaintiff. Campbell v. City of San Antonio, 43 F.3d 973, 975 (5th
Cir. 1995).
II. § 1964(c) RICO Standing
The appellant argues that the district court erred in
dismissing the RICO claims because proper causation between his
injuries and RICO violations was pleaded, giving him standing. The
appellees collapse the appellant’s injuries into one mass of
discharge complaints and contend that Khurana cannot have standing
for any of his claims because he was not the target of any
Medicaid/Medicare fraud scheme. We disagree that Khurana’s alleged
injuries may be viewed as a homogeneous group. We consider the
injuries individually because Khurana’s standing for each turns on
a proximate causation inquiry.
A. Overview of § 1964(c) Standing
Section 1964(c) provides that
[a]ny person injured in his business or property by
reason of a violation of section 1962 of this
chapter may sue therefor in any appropriate United
States district court and shall recover threefold
the damages he sustains and the cost of the suit,
including a reasonable attorney’s fee.
18 U.S.C. § 1964(c). In order to establish standing under §
1964(c), a plaintiff must show (1) a violation of § 1962, (2) an
injury to his business or property, and (3) that his injury was
proximately caused by a RICO violation. See Holmes v. Securities
Investor Protection Corp., 503 U.S. 258, 112 S. Ct. 1311, 117 L.
5
Ed. 2d 532 (1992); Cullom v. Hibernia Nat’l Bank, 859 F.2d 1211,
1214 (5th Cir. 1988). Khurana challenges the district court
determination that his injuries were not proximately caused by RICO
violations.
When the Supreme Court announced the proximate cause
prerequisite to § 1964(c) standing in Holmes, 503 U.S. 258, it
directed us to “the many shapes this concept took at common law.”
Id. at 268.
[W]e use “proximate cause” to label generically the
judicial tools used to limit a person’s
responsibility for the consequences of that person’s
own acts. At bottom, the notion of proximate cause
reflects “ideas of what justice demands, or of what
is administratively possible, or of what is
administratively possible and convenient.” W.
Keeton, D. Dobbs, R. Keeton & D. Owen, Prosser &
Keeton on Law of Torts § 41, p. 264 (5th ed. 1984).
Id. at 268. In Holmes, the Court held that an alleged stock
manipulation scheme that disabled two broker-dealers from meeting
obligations to customers did not proximately cause the claimed
injury of a plaintiff-corporation subrogated to the rights of the
broker-dealers’ non-purchasing customers. Such was too remote an
injury to satisfy the proximate cause requirement because only an
intervening insolvency connected the RICO conspirators’ acts to the
customers’ injuries. Id. at 271. Taking guidance from the common
law’s enunciation of proximate causation, the Court reasoned that
those injured only “indirectly” by racketeering activity do not
have § 1964(c) standing.3 Id. at 268, 274. Allowing for recovery
3
The Court noted that in using such a term, it did “not necessarily
use it in the same sense as courts before us have.” Holmes, 503 U.S. at
274 n.20.
6
for the Holmes’ secondary victims would run afoul of proximate
causation standards. Id. at 274. In her concurrence, Justice
O’Connor explained that the “words ‘by reason of’ [in § 1964(c)]
operate . . . to confine RICO’s civil remedies to those whom the
defendant has truly injured in some meaningful sense.”4 Id. at
279. The proximate cause requirement is intended to preclude
recovery by plaintiffs who “complain[] of harm flowing merely from
the misfortunes visited upon a third person.” Id. at 268.
In Holmes, the Court acknowledged that articulating a
definition of “proximate cause” for purposes of § 1964(c) standing
analysis was difficult:5 “the infinite variety of claims that may
arise make it virtually impossible to announce a black-letter rule
that will dictate the result in every case. Thus, our use of the
term ‘direct’ should be merely understood as a reference to the
proximate cause enquiry that is informed by the concerns set out in
the text.” 503 U.S. at 274 n.20.6 These concerns have been cited
4
To repeat, 18 U.S.C. § 1964(c) is as follows:
Any person injured in his business or property by reason
of a violation of section 1962 of this chapter may sue
therefor in any appropriate United States district court
and shall recover threefold the damages he sustains and
the cost of the suit, including reasonable attorney’s
fees.
(emphasis added).
5
In fact, it is generally true that an articulation of the meaning
of “proximate cause” is a “fruitless quest for a universal formula.”
Prosser & Keeton on Torts § 42, p. 279. “The search for some test or
formula which will serve as a universal solvent for all of the problems of
‘proximate cause’ has occupied many writers.” Id. at 276.
6
In his concurrence, Justice Scalia offered a thought in the same
vein.
7
as the demands of justice, a reluctance to open the flood gates to
administratively inconvenient and unmanageable litigation,
Standardbred Owners Ass’n v. Roosevelt Raceway Assocs., 985 F.2d
102, 104 (2d Cir. 1993) (citing Holmes, 112 S. Ct. at 1316 n.10,
1318), the potential for duplicative recoveries and superfluous
deterrence, In re Am. Express Co. Shareholder Litig., 39 F.3d 395,
401 (2d Cir. 1994), and the statutory goal of encouraging directly
injured victims to act as private attorneys general to vindicate
the law, Mendelovitz v. Vosicky, 40 F.3d 182, 185 (7th Cir. 1994);
Bieter Co. v. Blomquist, 987 F.2d 1319, 1325 (8th Cir. 1993).
Given that factual causation (i.e., “cause-in-fact” or “but-
for” causation) is now clearly insufficient to confer § 1964(c)
standing, see, e.g., Standardbred, 985 F.2d at 104, we are left
with the common law of proximate causation in making civil RICO
standing determinations. “[T]he holding of Holmes is no more than
that common law ideas about proximate causation inform the
understanding of RICO.” Israel Travel Advisory Serv., Inc. v.
Israel Identity Tours, Inc., 61 F.3d 1250, 1257 (7th Cir. 1995),
cert. denied, — U.S. —, 116 S. Ct. 1847, 134 L. Ed. 2d 948 (1996).
The pertinent inquiry in determining the existence of proximate, or
“legal,” cause is “whether the conduct has been so significant and
important a cause that the defendant should be held responsible.”
The degree of proximate causality required to recover
damages caused by predicate acts of sports bribery, for
example, will be quite different from the degree required
for damages caused by predicate acts of transporting
stolen property.
503 U.S. at 288 (Scalia, J., concurring) (statutory citations omitted).
8
Chisholm v. TransSo. Fin. Corp., 95 F.3d 331, 336 (4th Cir. 1996)
(quoting Prosser & Keeton on Torts § 42, p. 272 (5th ed. 1984)).
The proximate cause determination for RICO standing is guided by
indications of preconceived purpose, specifically intended
consequence, necessary or natural result, reasonable foreseeability
of result, the intervention of independent causes, whether the
defendant’s acts are a substantial factor in the sequence of
responsible causation, and the factual directness of the causal
connection. See, e.g., Chisholm, 95 F.3d at 338; In re Am.
Express, 39 F.3d at 400; Standardbred, 985 F.2d at 104.
B. Termination as a Result of a § 1962(b) or § 1962(c)
Violation
Khurana claimed that he was discharged from his position as
Medical Director of River Region Hospital because he refused to
participate in and attempted to stop the appellees’ RICO activities
and that his discharge was an act in furtherance of the appellees’
fraud scheme. Those claims are foreclosed for a § 1962(b) or §
1962(c) violation. In Cullom v. Hibernia Nat’l Bank,7 we held that
an employee who refuses to participate in an activity that violates
RICO and is constructively discharged for such a refusal does not
have standing to sue under § 1964(c). 859 F.2d 1211, 1212 (5th
Cir. 1988). We found that such a situation lacked the necessary
“causal connection” between the discharge and the predicate acts.
Id. at 1216 (discussing and relying on RICO “whistle blower” cases
7
While Cullom predated Holmes, like Holmes, it imposed a proximate
causation requirement for § 1964(c) standing. Thus, Holmes did not disturb
the our holding in Cullom.
9
and citing Sedima, 473 U.S. 479). In order to have standing,
Khurana’s injury, here his discharge, must “flow from the
commission of the predicate acts.” Id. (quoting Sedima, 473 U.S.
at 497). In our proximate causation discussion in Cullom, we
explained that “Cullom’s injury resulted from SNB’s decision to
fire him after he refused to participate in the alleged
scheme . . . [N]either Cullom’s injury nor SNB’s decision to fire
Cullom resulted from the alleged predicate acts.” Id. at 1216.
Just as in Cullom, Khurana pleaded predicate acts for the
alleged violations which did not proximately cause his termination.
Accordingly, Khurana lacks standing to bring a civil claim
asserting termination injuries resulting from a § 1962(b) or §
1962(c) violation.
C. Loss of Business Income as a Result of “Illegal
Competition” with Khurana’s Hospital and Private
Practices
We confront the same standing questions with respect to
Khurana’s standing to bring his civil RICO claim for “illegal
competition:” was there (1) an alleged injury to property or
business (2) proximately caused by (3) a RICO violation? See
Holmes, 503 U.S. at 258; Cullom, 859 F.2d at 1214.
Khurana alleges that the defendants illegally competed with
his post-termination medical practice. The defendants treated
psychiatric patients for which they illegally obtained Medicaid and
Medicare reimbursement, thus depleting the available number of
reimbursable patients in the region, some of whom might otherwise
have been treated by Khurana and other area hospitals at which he
10
practiced.
Khurana’s loss of business income is too remote to satisfy the
proximate causation requirement. See Holmes, 503 U.S. at 267, 272
(“direct-injury limitation [is] among the requirements of §
1964(c)”). Khurana’s injury does not “flow,” Sedima, 473 U.S. at
497, from either the conspiracy to engage in a pattern of
racketeering activity or from any engagement in a pattern of
racketeering activity. There are intervening factors between the
defendants’ fraudulently obtaining Medicaid and Medicare
reimbursement and Khurana’s loss of business income, e.g., a
significant reduction of the available pool of patients in that
market, patients’ choices of physicians, Khurana’s ability to
accommodate additional patients, and exhaustion of state-allocated
funds. Justice Scalia offered an apt observation in his
concurrence in Holmes.
Life is too short to pursue every human act to its
remote consequences; “for want of a nail, a kingdom
was lost” is a commentary on fate, not the statement
of a major cause of action against a blacksmith.
503 U.S. at 287. The necessary contributing factors to this injury
to Khurana make it clear that such an injury was not proximatley
caused by the defendants. See, e.g., Pillsbury, Madison & Sutro v.
Lerner, 31 F.3d 924 (9th Cir. 1994) (finding proximate cause
lacking because plaintiff subleased office space from another
entity and direct harm ran to the master tenant since plaintiff’s
harm was contingent on the master tenant’s decision to pass the
rent increase through to the subletter-plaintiff); Imagineering
Inc. v. Kiewet Pacific Co., 976 F.2d 1303, 1312 (9th Cir. 1992)
11
(finding no “direct relationship” between defendants’ conduit
scheme and plaintiffs’ failure to earn certain profits on
subcontracts because intervening inability of prime contractors to
secure the contracts was direct cause of plaintiffs’ injuries);
Firestone v. Galbreath, 976 F.2d 279, 284, 285 (6th Cir. 1992)
(finding only indirect injury where grandchildren alleged that
defendants stole from grandmother during her lifetime, thus
decreasing the size of her estate and their inheritance); cf.,
e.g., Beiter Co. v. Blomquist, 987 F.2d 1319 (8th Cir. 1993)
(finding proximate cause where bribery of council member could have
caused rejection of developer’s development proposal). In
addition, Khurana was a distanced victim of any “illegal
competition;” the state and federal government were more directly
injured. See Rehkop v. Berwick Healthcare Corp., 95 F.3d 285, 289
(3d Cir. 1996) (noting that Medicare and Medicaid programs and
taxpayers are victims of Medicaid/Medicare fraud). As such, the
risk of multiple recoveries indicates an absence of proximate cause
in the same fashion in which it is absent in the case of
shareholders’ RICO claims that are derivative of a corporation.
See Holmes, 503 U.S. at 273; Manson v. Stacescu, 11 F.3d 1127, 1131
(2d Cir. 1993) (finding no “direct relation” because shareholder’s
injury is generally derivative of injury to corporation and thus
not directly related to defendant’s injurious conduct). Khurana
thus lacks § 1964(c) standing for all of his RICO claims premised
on any injuries from “illegal competition.”
D. Loss of Opportunity and Damage to Professional Reputation
as a Result of “Fraudulent Hiring”
12
Khurana’s set of RICO claims based on injuries resulting from
being hired at River Region must be examined under the same
proximate causation requirement.
1. Loss of Business Opportunities and Damage to
Professional Reputation as a Result of Substantive
RICO Violations
The injuries pleaded by Khurana are denigration to his
professional reputation via the “harmful employment associations”
that resulted from being “fraudulently lured” into his position at
the hospital and the loss of foregone legitimate employment
opportunities. In Sedima, the Court held that the injury relied
on by a plaintiff must be the result of a § 1962 violation. 473
U.S. at 496. The Court explained that for standing based on a §
1962(b) or § 1962(c) violation, a valid RICO injury must
necessarily stem from predicate acts that underpin the § 1962
violation. Id. at 497. The necessary racketeering activities are
those activities catalogued in § 1961(1). Id. at 495. Khurana
contends that the defendants caused him injury by fraudulently
inducing him to accept employment via mail and wire fraud, thereby
damaging his reputation through association with their fraudulent
activities and depriving him of other legitimate business
opportunities.
a. Professional Reputation Damage
Khurana pleaded injury proximately resulting from the
defendants’ violations of § 1962(b) and § 1962(c) when he asserted
the injury of business reputation harm. For § 1962(b) and §
1962(c) violations, the injurious conduct must be racketeering acts
13
as listed in § 1961(1). According to Khurana’s pleadings, he
detrimentally relied on the appellees’ misrepresentations as to the
legitimacy of the hospital’s operations in taking his position with
the hospital. Such reliance on a predicate fraud act can indicate
the necessary proximate relationship between the injury asserted
and the injurious conduct. See Chisholm v. TransSo. Fin. Corp., 95
F.3d 331, 337 (4th Cir. 1996) (citing cases); Standardbred, 985
F.2d at 104. In Standardbred, the defendants acquired a race track
financed by municipal bonds. In the application for the bonds, the
defendants stated an intent to operate the race track and assured
the plaintiffs of such as well. The defendants subsequently
stopped racing. The Second Circuit held that the plaintiffs had §
1964(c) standing because in the fraudulently induced belief that
the racing would continue, they purchased, relocated and
reconstructed capital equipment for use at the track and designed
their purchases and training of horses with the intent to race them
at the track. Khurana similarly relocated himself and his medical
practice to this hospital, a significant financial and professional
decision, allegedly as a result of the appellees’
misrepresentations as to the legitimacy of the hospital’s
operations.
In addition, the damage to Khurana’s professional reputation
was a foreseeable result of the various racketeering acts of wire
and mail fraud. See discussion supra Part II.C. Khurana, as the
hospital’s director, was essentially the figurehead of a fraud-
ridden, now defunct institution. The act of fraudulently hiring
14
him can be a proximate cause of any damage that his professional
reputation has suffered. Damage to his professional reputation is
easily seen as a natural outgrowth of such an employment
association. As the predicate acts were pleaded as responsible for
Khurana’s acceptance of his employment with River Region, we find
that the pleadings presented the claim of necessary proximate cause
for Khurana’s standing for this claim. See Cox v. Adm’r U.S. Steel
& Carnegie, 17 F.3d 1386, 1399 (11th Cir. 1994) (finding proximate
cause where defendants’ conduct was substantially responsible for
claimed injuries); see also generally Prosser & Keeton on Torts §
41, p. 268 (discussing substantial responsibility and proximate
cause).
b. Legitimate Employment Opportunity
Regarding Khurana’s claimed loss of legitimate business
opportunity, we begin our consideration by noting that RICO civil
standing is not limited to only the immediate victim of a
defendant’s RICO violation. See Zervas v. Faulkner, 861 F.2d 823,
823, 833 (5th Cir. 1988) (“A requirement that the nexus between the
injury and a predicate act be ‘direct’ may . . . be overly
restrictive.”); Mid Atl. Telecom, Inc. v. Long Distance Servs.,
Inc., 18 F.3d 260, 263 (4th Cir. 1994) (rejecting adoption of a
rule that only injuries suffered by the immediate victim of a
predicate act satisfy the “by reason of” requirement of § 1964(c)).
In Mid Atlantic, a plaintiff telephone company accused one of its
competitors of violating RICO by defrauding its customers with
fictitious charges, enabling it to charge lower rates to entice new
15
subscribers. The plaintiff company alleged that it lost revenues
from subscribers who were defrauded into accepting the fraudulent
lower rates of the defendant company. The Fourth Circuit rejected
the argument that the plaintiff company lacked standing because the
customers were the directly injured parties and only they were
proximately injured by its alleged misconduct. Similarly, Khurana
may not have been the intended target of the fraud scheme, but like
the telephone company in Mid Atlantic, he pleaded the loss of a
legitimate business opportunity resulting from the defendants’
alleged racketeering acts. Holmes did not preclude a RICO claim
for “indirect” injuries, but rather instructed the federal courts
to employ common law proximate causation principles. See Israel
Travel, 61 F.3d at 1257. Some indirect RICO injuries, such as this
one, satisfy the proximate causation requirements of common law.
Id. In fact, we have previously rejected a direct versus indirect
injury test as the dispositive standing inquiry for civil RICO
claims. See Ocean Energy II, Inc. v. Alexander & Alexander, Inc.,
868 F.2d 740, 746 (5th Cir. 1989); see also Reynolds v. East Dyer
Dev. Co., 882 F.2d 1249 (7th Cir. 1989) (avoiding using direct
versus indirect terminology to make standing determinations and
instead focusing on causation); Prosser & Keeton on Torts § 42, p.
273-74 (discussing direct versus indirect as only one of several
theories of proximate causation).
In Mid Atlantic, the Fourth Circuit noted that the plaintiff
was not seeking to vindicate the claims of its competitor’s
customers, but rather its own alleged distinct and independent
16
injuries of lost customers and lost revenues. Id. at 264. We
agree with the Fourth Circuit that distinct and independent
injuries are in keeping with the Supreme Court’s understanding of
proximate cause in Holmes. Khurana pleads his own injury of loss
of legitimate employment opportunity. In Holmes, an intervening
event, the insolvency of the securities brokership, broke the
causal link between the plaintiff’s injury and the defendant’s
conduct, 503 U.S. at 262, 264, so that the plaintiff was a
“secondary victim.” Id. at 273. In contrast, the plaintiff in
this case seeks to recover for losses substantially attributable to
the defendants’ conduct.
Finally, as explained before, the fact that Khurana pleaded
reliance on the defendants’ racketeering acts as a cause of this
injury indicates a valid claim that the racketeering acts
proximately caused him to forego other legitimate business
opportunities. See Chisholm, 95 F.3d at 337; Standardbred, 985
F.2d 102. Khurana claims that he was fraudulently induced to take
his position with the hospital and argues that such proximately
caused him to lose other legitimate business opportunities. As
Khurana’s loss of other employment opportunities was foreseeable by
the defendants and could certainly be anticipated as a natural
consequence of their alleged misrepresentations, Khurana has
sufficiently pleaded that the alleged substantive violations of §
1962(b) and § 1962(c) proximately caused his business opportunity
loss. See Chisholm, 95 F.3d at 337 (relying on plaintiff’s
detrimental reliance on defendants’ material misrepresentations to
17
find proximate cause and noting that “[i]n order for the scheme to
succeed, the appellants needed to be convinced that the ‘private
sales’ referenced in the TransSouth notices were
legitimate . . . . concealment of the nature of the ‘private sales’
was the very linchpin of the scheme.”); cf. Shearin v. E.F. Hutton
Group, Inc., 885 F.2d 1162, 1170 (3d Cir. 1989) (affirming the
dismissal of a RICO claim based on a “loss” of the plaintiff’s
former job where there was no allegation that the employer reneged
or the plaintiff was “duped out of her old job”).
. Standing for a § 1962(d)-based Civil RICO Claim for
Loss of Business Opportunity and Damage to
Professional Reputation as a Result of Hiring
Khurana pleaded that the defendants conspired to commit RICO
violations, and in doing so, injured his professional reputation
and caused him a loss of legitimate business opportunity. In
Cullom, we held that a “retaliatory” discharge lacks sufficient
causation for § 1964(c) standing for a substantive RICO violation.
However, Cullom was limited to a causation inquiry and did not
address standing for a RICO civil claim premised on conspiracy
acts, i.e., acts in furtherance of a conspiracy to commit a pattern
of racketeering, a violation of § 1962(d).8
There is a division of circuit authority on the question of
8
In this section we consider civil standing for a § 1962(d)
violation. Based on our previous discussion in Part II.D.1., we also
recognize that Khurana pleaded proximate cause for § 1962(d) violations
causing reputation damage and business opportunity loss where the § 1962(d)
violations are predicated upon the racketeering acts of wire and mail fraud
already discussed. Accordingly, we also reverse the district court’s
dismissal of Khurana’s claims on that basis, subject to our discussion in
Part III in which we affirm the dismissal of some of Khurana’s claims as
to the corporate defendants.
18
whether § 1964(c) civil RICO standing for a § 1962(d) violation may
be premised on injury proximately caused by overt acts in
furtherance of the conspiracy that are not § 1961(1) predicate
acts. See Reddy v. Litton Indus., Inc., 502 U.S. 921, 921, 112 S.
Ct. 332, 332, 116 L. Ed. 2d 272 (1991) (White, J., dissenting from
denial of certiorari and noting circuit split); Bowman v. Western
Auto Supply Co., 985 F.2d 383, 386 (8th Cir. 1993) (collecting
cases). The Third and Seventh Circuits have held that the
injurious acts for § 1964(c) standing for a claim based on a §
1962(d) violation may be racketeering acts as listed in § 1961(1)
as well as overt acts in furtherance of the conspiracy. Schiffels
v. Kemper Fin. Servs., Inc., 978 F.2d 344 (7th Cir. 1992) (adopting
reasoning of Shearin); Shearin v. E.F. Hutton Group, Inc., 885 F.2d
1162 (3d Cir. 1989); see also Gagan v. Am. Cablevision, Inc., 77
F.3d 951, 958-59 (7th Cir. 1996) (reviewing circuit split and
following Schiffels); Rehkop v. Berwick Healthcare Corp., 95 F.3d
285, 290 & n.6 (3rd Cir. 1996) (noting circuit split and applying
Shearin). In contrast, for example, the Second Circuit has held
that because a conspiracy, an agreement to commit predicate acts,
cannot by itself cause any injury and because RICO’s purpose is to
target RICO activities and not other conduct, standing may be
founded only upon injury from overt acts that are also § 1961
predicate acts, and not upon overt acts furthering a RICO
conspiracy. See Terminate Control Corp. v. Horowitz, 28 F.3d 1335,
1344-45 (2d Cir. 1994).
Section 1962(d) provides that “[i]t shall be unlawful for any
19
person to conspire to violate any of the provisions of subsection
(a), (b), or (c) of this section.” It is well-established that we
must follow a plain meaning statutory interpretation unless a
statutory provision presents an ambiguity or an inconsistency with
a statute’s legislative purposes. United States v. Ron Pair
Enters., Inc., 489 U.S. 235, 242, 109 S. Ct. 1026, 1030, 103 L. Ed.
2d 290 (1989). Like the Seventh Circuit, we refuse to place “a
limitation on RICO standing that RICO itself does not impose.” See
Schiffels, 978 F.2d at 346. Since § 1962(d) does not require that
a predicate racketeering act actually be committed, it follows that
the act causing a § 1964(c) claimant’s injury need not be a
predicate act of racketeering. A person injured by an overt act in
furtherance of a RICO conspiracy has been injured by reason of the
conspiracy, and thus has § 1964(c) standing. See Id. at 349. To
interpret otherwise would ignore § 1964(c)’s provision for civil
liability for, inter alia, a violation of § 1962(d) that
proximately injures a person’s property or business. Buttressing
this position is the Supreme Court’s and Congress’s direction that
“RICO is to be read broadly” and “‘liberally construed to
effectuate its remedial purpose.’” Sedima, 473 U.S. at 497-98
(quoting Pub. L. No. 91-452, § 904(a), 84 Stat. 947).
In addition, while the Second Circuit noted that RICO was
designed to combat substantive violations, Hecht v. Commerce
Clearing House, Inc., 897 F.2d 21, 25 (2d Cir. 1990), the provision
for conspiracy violations was part and parcel of Congress’s intent
and plan and cannot be ignored. See Sedima, 473 U.S. at 499
20
(noting that although RICO used in ways not originally envisioned,
Congress and not the courts must amend statute).
Having determined that Khurana’s standing is not precluded by
the necessity of causative racketeering acts, we must consider
whether his pleading sufficiently alleges proximate causation for
§ 1964(c) standing premised on an underlying § 1962(d) violation.
In Shearin, the Third Circuit held that the plaintiff’s hiring
as window dressing and firing to preserve the fraud both qualified
as conspiracy acts for a § 1962(d)-based civil claim.
Shearin’s hiring and firing plausibly constitute
overt acts that not only would establish a
conspiracy, but in this case were allegedly
essential to it. Assuming that the hiring and
firing were injuries, those injuries did occur “by
reason of” Hutton’s violation of section 1962(d).
885 F.2d at 1168-69. Similar facts are presented here. Hiring
Khurana allegedly allowed the defendants to pose as a medical
facility qualifying for federal funds, which allowed them to
fraudulently obtain Medicare and Medicaid reimbursement. As in
Shearin, it appears that the hiring of Khurana was an overt act
critical to the conspiracy. As the hiring of Khurana was an
alleged predicate conspiracy act, any lost opportunity for
legitimate employment and damage to professional reputation
“flowed” from RICO predicate acts, see Cullom, 859 F.2d at 1215,
and Khurana has pleaded the necessary proximate cause for his claim
of hiring injuries based on a § 1962(d) violation. Khurana thus has
cleared, from a pleading standpoint, the proximate cause hurdle for
standing for these claims.
E. Standing for a § 1962(d)-based Civil Claim for
21
Termination Injuries
We explained earlier that Khurana does not have standing under
§ 1964(c) to pursue a § 1962(b) or § 1962(c) claim for termination
injuries. However, he may have § 1964(c) standing to pursue a
claim for termination injuries as a result of an act in furtherance
of a conspiracy. RICO racketeering acts as well as acts in
furtherance of a RICO conspiracy may provide standing to sue for
civil conspiracy claims if they are the proximate cause of an
injury.
Khurana alleged that he was discharged from his position as
Medical Director in furtherance of the appellees’ scheme of
Medicaid fraud. “The discharge was intended to remove Plaintiff
from continuing to have access to information about defendants and
to intimidate him to hinder and prevent his testimony as a witness
in future proceeding,” “to eliminate his access to information
concerning the defendants’ illegal activities” and was an act “to
maintain control of and conduct” the enterprise. In addition, and
probably most importantly, Khurana alleges that terminating him had
the effect of rescinding Khurana’s order of ten days previous in
which Khurana suspended the admission to the hospital of illegal
Medicaid patients. Khurana alleges that he was terminated so that
the defendants could “continu[e] their illegal procurement of
Medicaid and Medicare funds and minimiz[e] impediments thereto.”
As such, Khurana has presented the necessary proximate causation
for standing to pursue his claim for termination injuries because
the termination was an alleged overt act in furtherance of the
22
alleged RICO conspiracy. Such an allegation presents sufficient
causation to confer standing. See Rehkop, 95 F.3d at 290-91
(holding that the plaintiff’s termination constituted an overt act
in furtherance of an alleged conspiracy and thus the plaintiff had
RICO standing); Schiffels, 978 F.2d at 350-51 (holding that a
plaintiff-employee may have RICO standing when he alleges that he
was fired in an attempt to prevent him from causing the conspiracy
to unravel by disclosing scheme); Shearin, 885 F.2d at 1170
(holding that allegation that plaintiff was fired in furtherance of
a conspiracy in violation of § 1962(d) stated a claim for relief
under § 1964(c)); White v. Hall, 683 F. Supp. 639, 642 (E.D. Ky.
1988) (finding civil RICO standing for discharged employee for
alleged § 1962(d) violation where the plaintiff alleged that part
of conspiracy was to cover up illegalities by terminating employees
refusing to participate in schemes).
III. The Enterprise-Person Distinction for a § 1962(c)
Violation
Khurana also contends that the district court erred in
dismissing his claims under 18 U.S.C. § 1962(c) and § 1962(d) (to
the extent involving a conspiracy to violate § 1962(c)) for failure
to plead a RICO enterprise which is separate and distinct from the
RICO person referenced in § 1962(c).
We must consider this contention in relation to Khurana’s
remaining § 1962(c) claims. The remaining § 1962(d) claims must
also be considered in relation to this issue to the extent that
they are based on a conspiracy to commit a § 1962(c) violation.
Ashe v. Corley, 992 F.2d 540, 544 (5th Cir. 1993). Section 1962(c)
23
provides that
[i]t shall be unlawful for any person employed by or
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
or collection of unlawful debt.
18 U.S.C. § 1962(c). The statutory definition of enterprise
includes “any individual, partnership, corporation, association, or
other alleged legal entity, and any union or group of individuals
associated in fact although not a legal entity.” 18 U.S.C. §
1961(4). Khurana alleged that the enterprise is an association-in-
fact of all five defendants (the three individuals and the two
corporate entities).
The district court dismissed Khurana’s claims that were
bottomed on § 1962(c) on the alternative basis (from the dismissal
on the basis of standing) that Khurana failed to plead a RICO
defendant that was distinct from the enterprise in his § 1962(c)-
premised claim and his claim based on a conspiracy to commit a §
1962(c) violation in violation of § 1962(d).
For purposes of a claim based on § 1962(c), RICO persons
associated with or employed by an enterprise must be distinct from
the RICO “enterprise.” Crowe v. Henry, 43 F.3d 198, 205-06 (5th
Cir. 1995). Section 1962(c) imposes liability on an employee or
associate of an enterprise conducting affairs of the enterprise
through a pattern of racketeering activity and, logically, such an
individual cannot employ or associate with itself. See, e.g.,
Ashe, 992 F.2d at 544. Accordingly, some of Khurana’s claims that
24
are based on 18 U.S.C. § 1962(c) fail because his pleadings do not
contain a sufficient distinction between the persons who allegedly
committed the unlawful acts and the enterprise with which they are
employed or associated.
Khurana has failed to plead a corporate defendant distinct
from the enterprise in that the association-in-fact enterprise that
he pleaded is in reality a “stand-in,” or another name, for the
corporate entity. See Riverwoods Chappaqua Corp. v. Marine Midland
Bank, N.A., 30 F.3d 339, 344 (2d Cir. 1994). By alleging as a RICO
enterprise a group consisting solely of a bank and several of its
employees, the plaintiffs in Riverwoods Chappaqua effectively
identified the RICO enterprise as the corporate defendant. The
distinctiveness requirement may not be avoided
by alleging a RICO enterprise that consists merely
of a corporation defendant associated with its own
employees or agents carrying on the regular affairs
of the defendants . . . . Where employees of a
corporation associate together to commit a pattern
of predicate acts in the course of their employment
and on behalf of the corporation, the employees in
association with the corporation do not form an
enterprise distinct from the corporation.
Id. While it is theoretically possible for a corporation to play
a separate active role in RICO violations committed by its
employees and agents, see Securitron Magnalock Corp. v. Schnabolk,
65 F.3d 256, 263 (2d Cir. 1995), cert. denied, — U.S. —, 116 S. Ct.
916, 133 L. Ed. 2d 846 (1996); Brittingham v. Mobil Corp., 943 F.2d
297, 302 (3d Cir. 1991); Petro-Tech, Inc. v. Western Co. of No.
Am., 824 F.2d 1349, 1361 (3d Cir. 1987), when the alleged
association-in-fact entity is in reality no different from the
25
association of individuals or entities that constitute a defendant
“person” and carry out its activities, the distinctiveness
requirement is not met in regard to that defendant. See Parker &
Parsley Petroleum v. Dresser Indus., 972 F.2d 580, 583-84 & n.3
(5th Cir. 1992) (finding an association-in-fact of employees of
corporation to be the defendant corporate entity functioning
through its employees in the course of their employment); Glessner
v. Kenny, 952 F.2d 702, 712 (3d Cir. 1991); Brittingham, 943 F.2d
at 302 (“Without allegations or evidence that the defendant
corporation had a role in the racketeering activity that was
distinct from the undertaking of those acting on its behalf, the
distinctiveness requirement is not satisfied.”). Khurana has not
alleged that defendants River Region Hospital or Innovative had any
active role in the activities of its affiliated entity, employees
or officers. See Glessner, 952 F.2d at 712 & n.10. In fact,
Khurana alleged the exact opposite, terming the corporate entities
“passive instruments” in his complaint.
In addition, the distinctiveness requirement is not satisfied
by pleading a subsidiary corporation or affiliated entity as a
perpetrator-defendant if the parent corporation and the
subsidiary’s roles in the alleged racketeering activities are not
sufficiently distinct. Discon, Inc. v. Nynex Corp., 93 F.3d 1055,
1063-64 (2d Cir. 1996) (distinctiveness requirement not satisfied
where three corporate defendants that constituted alleged
enterprise, although legally separate, “operated within a unified
corporate structure” and were “guided by a single corporate
26
consciousness”), cert. denied, — U.S. —, 118 S. Ct. 49, — L. Ed. 2d
— (1997); Compagnie De Reassurance D’Ile de France v. New England
Reins. Corp., 57 F.3d 56 (1st Cir. 1995); Lorenz v. CSX Corp., 1
F.3d 1406, 1412 (3d Cir. 1993) (“A RICO claim under § 1962(c) is
not stated where the subsidiary merely acts on behalf of, or to the
benefit of, its parent.”); Chamberlain Mfg. Corp. v. Maremont
Corp., 919 F. Supp. 1150, 1154-58 (N.D. Ill. 1996)(holding that
where enterprise was an association-in-fact of the parent
corporation and its subsidiary, it lacked its own distinct legal
identity for purposes of § 1962(c)). In this case, Khurana did not
plead any distinct roles for the subsidiary River Region and the
parent corporation Innovative so that they might be regarded as
having any distinctiveness from the alleged enterprise. “We would
not take seriously . . . an assertion that a defendant could
conspire with his right arm, which held, aimed and fired the fatal
weapon.” United States v. Computer Sciences Corp., 689 F.2d 1181,
1190 (4th Cir. 1982). As the association-in-fact pleaded by
Khurana is in reality the corporate entity, we must affirm the
district court as to its dismissal of these claims against the
corporate entities as the distinctiveness requirement is not met in
relation to these two defendants. River Region and Innovative
cannot simultaneously be both the enterprise and the named
defendants. See Securitron, 65 F.3d at 263. Therefore, we
conclude that Khurana’s attempt to circumvent the distinction
requirement in regard to the corporate defendants by pleading an
association-in-fact theory must be rejected.
27
We must also consider the claims in relation to the other
named defendants, the officers and employees of the two corporate
entities. See, e.g, Banks v. Wolk, 918 F.2d 418, 424 (3d Cir.
1990) (leaving RICO action intact against certain individual
defendants while dismissing the corporate defendant for failure to
withstand distinctiveness requirement); Kehr Packages, Inc. v.
Fidelcor, Inc., 926 F.2d 1406, 1411 (3d Cir. 1991) (considering
§ 1962(c) claim separately for each defendant’s fulfillment of
distinctiveness and other requirements). As we explained above,
Khurana’s complaint essentially pleads the corporation as the
enterprise. Section 1962(c) may impose liability on individual
corporate officers and employees who conduct the corporate
enterprise which employs them through a pattern of racketeering
activity. See Jaguar Cars, Inc. v. Royal Oaks Motor Car Co., 46
F.3d 258, 266-269 (3d Cir. 1995); United States v. Robinson, 8 F.3d
398, 407 (7th Cir. 1993); Sever v. Alaska Pulp Corp., 978 F.2d
1529, 1534 (9th Cir. 1992); Ashland Oil, Inc. v. Arnett, 875 F.2d
1271, 1280 (7th Cir. 1989); McCullough v. Suter, 757 F.2d 142, 144
(7th Cir. 1985); see also Securitron, 65 F.3d at 263. Accordingly,
we reverse the dismissal of the remaining § 1962(c)-related claims
against the three individual defendants.
CONCLUSION
For the foregoing reasons, we REVERSE in part and AFFIRM in
part. We affirm the district court’s dismissal of Khurana’s claims
based on alleged violations of § 1962(c) and § 1962(d) (to the
extent they allege conspiracy to violate § 1962(c)) against the two
28
corporate defendants. We also affirm the district court’s
dismissal of all claims alleging injury from “illegal competition.”
Additionally, we affirm the district court’s dismissal of Khurana’s
claims alleging termination injuries as a result of § 1962(b) and
§ 1962(c) violations. We reverse the district court’s dismissal of
all other claims with directions to reinstate them for further
proceedings consistent with this opinion.9
9
Our reversal of the dismissal of these claims is not meant to
express any opinion as to other issues related to these claims which the
district court may address on remand. Given that the parties did not brief
any other issues to the district court and that only the appellant briefed
the properness of his pleadings of RICO violations, we have concerned
ourselves only with the district court’s legal conclusions supporting its
dismissal of Khurana’s RICO claims, namely the issues of proximate
causation for his standing and the necessary distinctiveness for the §
1962(c)-related claims. We leave any other issues or challenges for the
district court’s consideration in the first instance. See Youmons v.
Simon, 791 F.2d 341, 348 (5th Cir. 1986) (declining to consider challenges
to the particularity with which mail and wire fraud allegations were
pleaded in a RICO claim, preferring to remand to district court because the
district court did not consider such challenges); Morosani v. First Nat’l
Bank of Atlanta, 703 F.2d 1220, 1222 (11th Cir. 1983) (refusing to decide
at interlocutory appeal stage theories for dismissing RICO claims that were
not decided by district court, preferring to remand theories for district
court to address in first instance).
29