ATTORNEYS FOR APPELLANTS ATTORNEYS FOR APPELLEES
Richard N. Bell David S. Wallace
Arend J. Abel B. Joseph Davis
Kelley J. Johnson Muncie, Indiana
Indianapolis, Indiana
_____________________________________________________________________________________________
In the
Indiana Supreme Court
FILED
_________________________________
No. 18S04-0704-CV-150
Feb 27 2008, 2:52 pm
LINDA KEESLING, HAROLD LEPHART AND
PRISCILLA LEPHART, HAGAR ANDERSON, CLERK
of the supreme court,
court of appeals and
JAMES BRIDGES, EARL AND EVELYN HAIBE, tax court
ESCAR AP, MABEL MCGUFFEY, RUTH AMICK,
AND DORA BUTRUM,
Appellants (Plaintiffs below),
v.
FREDERICK BEEGLE III, JOHN BUCHOLTZ,
FLORIDA UNDERWRITING CO., DENNIS
BAUGHER, WILLIAM JONES, AND ADVANCE INSURANCE
MARKETING,
Appellees (Defendants below).
_________________________________
Appeal from the Delaware Circuit Court, No. 18C01-0202-PL-0008
The Honorable Marianne L. Vorhees, Judge
_________________________________
On Petition to Transfer from the Indiana Court of Appeals, No. 18A04-0501-CV-10
_________________________________
February 27, 2008
Sullivan, Justice.
Both Congress and the Indiana General Assembly have passed statutes called “RICO
Acts” to combat “racketeer influenced and corrupt organizations.” There is a conflict between
opinions of the Court of Appeals as to whether liability under the Indiana RICO Act extends only
to persons who direct racketeering activity (the rule under the Federal RICO Act) or extends
below the managerial or supervisory level to a racketeering enterprise’s “foot soldiers” as well.
Because the Indiana Act uses language significantly broader than that of the Federal Act, we
conclude that it imposes RICO liability both on persons at and below a racketeering enterprise’s
managerial or supervisory level.
Background
The plaintiffs in this case are Indiana residents who purchased pay telephones and
simultaneously entered into service agreements to install, service, and maintain the telephones.
The telephone purchase contracts and the service agreements were marketed and sold by their
promoters to the plaintiffs as a package. The plaintiffs were passive investors in this program,
completely relying on the promoters to select a suitable location for the pay telephones, install
and maintain them, pay all monthly telephone and utility bills, and obtain all regulatory
certifications. SEC v. Rubera, 350 F.3d 1084, 1091-92 (9th Cir. 2003). The promoters violated
federal securities laws by not registering the pay telephone investment program with the
Securities and Exchange Commission. Id. at 1093. More details on the failed payphone program
are set forth in the Rubera decision.
Defendant Dennis Baugher, president and sole owner of defendant Florida Underwriting
Co., was not one of the ultimate promoters of the payphone program. In fact, the trial court in
this case found that the plaintiffs presented no evidence showing that Baugher “had any role in
directing” the payphone program. (Order Granting Mot. For Summ. J. by Defs. Dennis Baugher
and Florida Underwriting Co., Br. of Appellants at 42). But Baugher did have an agreement with
the ultimate promoters of the payphone program to recruit sales representatives and receive
commissions on the sales made by his recruits.
Baugher recruited defendant William Jones, co-owner of defendant Advanced Insurance
Marketing, Inc. And Jones recruited Joe Richman as a sales representative for the payphone
program. Although Jones did not make sales himself, he received commissions on Richman’s
sales. Richman made sales to plaintiffs Linda Keesling, Harold Lephart, and Priscilla Lephart.
2
Our reading of the record indicates that six of the remaining plaintiffs purchased
investments in the payphone program from defendant John Bucholtz and one from defendant
Ronald Van Deusen. It does not appear that plaintiff Hagar Anderson purchased an investment
in the payphone program from any of the defendants nor that defendant Frederick Beegle III sold
an investment in the payphone program to any of the plaintiffs.
The plaintiffs sued the defendants for their respective roles in the payphone program,
alleging violations of Ind. Code § 23-2-1-19 (the “Indiana Securities Act”) and § 35-45-6-2 (the
“Indiana RICO Act” or “Indiana Act”), fraud, conversion, and theft. The trial court entered
summary judgment in favor of the defendants on some counts with respect to some plaintiffs.
The Court of Appeals affirmed the trial court’s grant of summary judgment in favor of
defendants Beegle, Bucholtz, and Advanced Insurance Marketing in all respects and in favor of
defendants Baugher, Florida Underwriting, and Jones with respect to the fraud, conversion, and
theft allegations. Keesling v. Beegle, 858 N.E.2d 980, 993-96 (Ind. Ct. App. 2006).1 The Court
of Appeals reversed the trial court’s grant of summary judgment in favor of defendants Baugher,
Florida Underwriting, and Jones with respect to the Indiana Securities and RICO Acts
allegations. Id. at 988, 992-93, 995. We granted transfer. 869 N.E.2d 455 (Ind. 2007) (table).2
This opinion addresses the potential liability of defendants Baugher, Florida
Underwriting, and Jones with respect to the Indiana RICO Act. In all other respects, the opinion
of the Court of Appeals is summarily affirmed. Ind. Appellate Rule 58(A)(2).
1
The opinion of the Court of Appeals lists defendant Ronald Van Deusen as an appellee. However, it appears that
the appeal as to Van Deusen was not perfected, Keesling, 858 N.E.2d at 984 n.6, and we do not treat Van Deusen as
a party to this appeal.
2
Transfer was granted on the case of Keesling v. Richman. See 869 N.E.2d 455 (Ind. 2007) (table). Sales
representative Joe J. Richman was one of the defendants in the trial court. He was, however, not one of the
appellees in the Court of Appeals, and we do not treat him as a party to this appeal.
3
Discussion
I
The plaintiffs contend that each of defendants Baugher, Florida Underwriting, and Jones
violated Indiana’s Corrupt Business Influence Act by “conduct[ing] or otherwise participat[ing]
in the activities of [an] enterprise through a pattern of racketeering activity.” I.C. § 35-45-6-2(3)
(the “Indiana RICO Act” or “Indiana Act”). In granting summary judgment in favor of the
defendants, the trial court rejected this contention based on the following analysis:
Even if Plaintiffs have designated evidence sufficient to create a fact issue as to
the “conduct” element, Indiana law requires plaintiffs to establish a second
element: defendant must play some part in directing the enterprise’s affairs.
Yoder Grain, Inc. v. Antalis, 722 N.E.2d 840, 846 (Ind. [Ct.] App. 2000).
Plaintiffs designated no evidence to the Court, either in the designation or in the
brief, to show that these defendants had any role in directing this enterprise’s
affairs.
(Order Granting Mot. For Summ. J. by Defs. Dennis Baugher and Florida Underwriting Co., Br.
of Appellants at 42.)3
In Yoder Grain, the plaintiffs, investors in an automotive venture, had alleged that the
defendant had “violated the Indiana and federal civil RICO provisions.” 722 N.E.2d at 844. The
Court of Appeals began its analysis by declaring “that Indiana RICO is patterned after federal
RICO[4] and thus we discuss the Investors’ federal and state RICO claims jointly.” Id. at 845.
“[I]n order to satisfy the ‘conduct’ element,” the Yoder Grain court held that U.S. Supreme Court
precedent dictated that “the plaintiff must allege that the defendant ‘participated in the operation
or management of the enterprise itself,’ and that the defendant played ‘some part in directing the
enterprise’s affairs.’” Id. at 846 (quoting Reves v. Ernst & Young, 507 U.S. 170, 179 (1993)).
The Yoder Grain court also quoted a Seventh Circuit decision to support its holding: “[M]ere
participation in the activities of the enterprise is insufficient; the defendant must participate in the
3
The trial court used identical language in its Order Granting Mot. For Summ. J. by Defs. William Jones and
Advanced Insurance Marketing. (Br. of Appellants at 36.)
4
18 U.S.C. § 1962(c) (2000) (the “Federal RICO Act” or “Federal Act”).
4
operation or management of the enterprise.” Id. at 846 (quoting Goren v. New Vision Int’l, Inc.,
156 F.3d 721, 727 (7th Cir. 1998)).
In this case, the Court of Appeals took a decidedly different approach from its Yoder
Grain decision. It “observe[d] that Indiana’s RICO statute sweeps more broadly than the federal
statute, in that it speaks of ‘conduct[ing] or otherwise participat[ing] in the activities of [an]
enterprise[.]’ Clearly, ‘activities’ encompasses a wider range of exploits than ‘conduct’ and does
not require ‘an element of direction.’” Keesling, 858 N.E.2d at 990-91 (emphasis in the original,
citations omitted).
We resolve this conflict between the Yoder Grain and Keesling decisions of the Court of
Appeals in favor of the interpretation of the Indiana RICO Act adopted by the Court of Appeals
in Keesling for the reasons set forth below.
II
The Indiana General Assembly enacted the Indiana RICO Act ten years after Congress
enacted the Federal RICO Act.5 While the General Assembly clearly could have used the same
language as the Federal Act, the relevant language of the Indiana Act is significantly different.
The Federal RICO Act provides:
It shall be unlawful for any person employed by or associated with any enterprise
. . . 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) (2000). The Indiana RICO Act provides:
5
President Richard Nixon signed RICO (Title IX of the Organized Crime Control Act of 1970, Pub. L. No. 91-452,
84 Stat. 922 (1970)), into law on October 15, 1970. 1 David B. Smith & Terrance G. Reed, Civil RICO § 1.01
(Supp. Oct. 2007). Indiana RICO was introduced as Senate Bill 194, “[a] Bill For An Act to amend IC 34-4 and IC
35-45 concerning racketeering activity.” Indiana Senate Journal, 1980 Regular Session, at Senate 12. Indiana
Governor Otis R. Bowen signed Indiana RICO (Senate Enrolled Act 194) into law on February 27, 1980. Id. at
Senate 483.
5
A person who is employed by or associated with an enterprise, and who
knowingly or intentionally conducts or otherwise participates in the activities of
that enterprise through a pattern of racketeering activity; commits corrupt
business influence, a Class C felony.
I.C. § 35-45-6-2(3) (2004).
The most important difference between the language of these two statutes is that the
Federal Act imposes liability on a person who “conduct[s] or participate[s] . . . in the conduct of
such enterprise’s affairs” while the Indiana Act imposes liability on a person who “conducts or
otherwise participates in the activities of that enterprise.” The United States Supreme Court has
attached significance to the fact that Congress chose to use the word “conduct” twice in the
Federal Act. Reves, 507 U.S. at 178 (“Congress could easily have written ‘participate, directly
or indirectly, in [an] enterprise’s affairs,’ but it chose to repeat the word ‘conduct.’”). In
restraining the scope of liability under the Federal Act, the Supreme Court concluded that “both
as a noun and a verb in this subsection ‘conduct’ requires an element of direction.” Id.
But “conduct” is used only once in the Indiana Act – as a verb. We believe that by not
using “conduct” as a noun, the Legislature wrote the Indiana Act to mean what the Reves court
said Congress could have written but didn’t: a statute that extends liability beyond just those who
conduct the racketeering enterprise’s affairs to reach those who assist the enterprise below the
managerial or supervisory level. By imposing liability not just on a person who “conducts . . .
the activities” of a racketeering enterprise but also on a person who “otherwise participates in the
activities” of a racketeering enterprise, we think it clear that scope of liability under the Indiana
Act is broader than under the Federal Act.
In summary, the Federal Act imposes liability on persons who conduct or participate in
the conduct of a racketeering enterprise. The Indiana Act goes further to impose liability both on
persons who conduct the activities of a racketeering enterprise and on those who otherwise
participate in the activities of a racketeering enterprise. We conclude that the Legislature
intended for the Indiana Act to reach persons “below the managerial or supervisory level” as
well as those who “exert control or direction over the affairs of [a racketeering] enterprise,” see
6
State v. Siferd, 783 N.E.2d 591, 603 (Ohio Ct. App. 2002); i.e., to reach a racketeering
enterprise’s “foot soldiers” as well as its “generals,” see United States v. Oreto, 37 F.3d 739, 751
(1st Cir. 1994), cert. denied, 513 U.S. 1177 (1995).
III
To test this conclusion, we have surveyed our sister states and their treatment of this issue
as it pertains to their own RICO statutes. Our research indicates that 26 states (including
Indiana) and Puerto Rico have enacted their own “little RICO” statutes.6 The RICO statutes in
ten of these jurisdictions have provisions almost identical to the Federal RICO Act.7 Four states
have RICO provisions that are very different from both the Federal and Indiana Acts.8 The
remaining thirteen states have state RICO provisions almost identical to the Indiana RICO Act.9
And of these thirteen, courts in three have directly confronted the question presented in this case,
i.e., whether the scope of liability imposed by their “little RICO” statutes is broader than that
imposed by the Federal Act.
A federal district court has taken the same approach as Yoder Grain in analyzing the
conduct element of the Colorado RICO Act.10 While acknowledging the difference between the
6
10 William Meade Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 4951.80 (perm. ed., rev.
vol. 2001 & Cum. Supp. 2007).
7
See Del. Code Ann. tit. 11, § 1503 (2007); Idaho Code Ann. § 18-7804(c) (2007); Haw. Rev. Stat. Ann. § 842-2(3)
(2007); N.J. Stat. Ann. § 2C:41-2(c) (2007); N.M. Stat. Ann. § 30-42-4(C) (2007); N.D. Cent. Code § 12.1-06.1-
03(2) (2007); 18 Pa. Cons. Stat. § 911(b)(3) (2007); P.R. Laws Ann. tit. 25, § 971b(c) (2004); R.I. Gen. Laws § 7-
15-2(c) (2007); Utah Code Ann. § 76-10-1603(3) (2007).
8
See Ariz. Rev. Stat. Ann. § 13-2301 et seq. (2007); Cal. Penal Code § 186.1 (2007); N.Y. Penal Law § 460.20 et
seq. (2007); Wash. Rev. Code Ann. § 9A.82.001 (2007).
9
See Colo. Rev. Stat. Ann. § 18-17-104(3) (2007); Conn. Gen. Stat. Ann. § 53-395(c) (2007); Fla. Stat. Ann. §
895.03(3) (2007); Ga. Code Ann. § 16-14-4(b) (2007); Minn. Stat. Ann. § 609.903(1) (2007); Miss. Code Ann. §
97-43-5(3) (2007); Nev. Rev. Stat. Ann. § 207.400(1)(c) (2005); N.C. Gen. Stat. Ann. § 75D-4(a)(2) (2007); Ohio
Rev. Code Ann. § 2923.32(A)(1) (2007); Okla. Stat. Ann. tit. 22, § 1403(A) (2007); Or. Rev. Stat. Ann. §
166.720(3) (2005); Tenn. Code Ann. § 39-12-204(c) (2007); Wis. Stat. Ann. § 946.83(3) (2007).
10
“It is unlawful for any person employed by, or associated with, any enterprise to knowingly conduct or
participate, directly or indirectly, in such enterprise through a pattern of racketeering activity or the collection of an
unlawful debt.” Colorado Organized Crime Control Act, Colo. Rev. Stat. Ann. § 18-17-104(3) (2007).
7
language in the Colorado and Federal Acts, the court concluded that “the difference is
insignificant in light of the Supreme Court’s similar construction of each use of the word
‘conduct’ in RICO.” F.D.I.C. v. First Interstate Bank of Denver, N.A., 937 F. Supp. 1461, 1471-
72 (D. Colo. 1996), citing Reves, 507 U.S. 170.
On the other hand, the Georgia Court of Appeals has taken the same approach we do
today. In Faillace v. Columbus Bank & Trust Co., it held that “although some participation in
the racketeering activity is clearly required, there is nothing in OCGA § 16-14-4(b) to suggest
that each participant must hold a directorial or managerial position concerning that activity
before criminal liability attaches. In this respect, the Georgia statute is significantly broader than
the federal statute on which it was modeled.” 605 S.E.2d 450, 454 (Ga. Ct. App. 2004).
This is also the approach taken by the Ohio Court of Appeals and we find its analysis the
most persuasive. In State v. Siferd, Siferd appealed his conviction for violating the Ohio RICO
Act11 on grounds that the State had not proven him to have “participate[d] in the operation or
management of the enterprise itself.” 783 N.E.2d at 599.12 Siferd contended that “criminal
liability should be limited to the ‘brain trust’ of the organization.” Id.
The Siferd court started with the U.S. Supreme Court’s Reves decision that we have
discussed, supra, and noted its emphasis on the fact that Congress used the word “conduct”
twice. Id. at 601, quoting Reves, 507 U.S. at 177-178. “Unlike the federal RICO act,” the Ohio
court said, “the Ohio legislature chose not to repeat the word ‘conduct’ in [the Ohio RICO Act].
Instead, the phrase ‘participate in, directly or indirectly, the affairs of the enterprise’ was
adopted.” The Ohio court continued:
The Supreme Court recognized in Reves that Congress could “easily” have
utilized nearly identical language – “participate, directly or indirectly, in [an]
enterprise’s affairs” – to support a more expansive application. Indeed, the plain
meaning of “participate,” commonly understood as “taking part in” an
enterprise’s affairs, dictates that [the Ohio RICO Act] was not intended to be
11
Ohio Corrupt Activity Act, Ohio Rev. Code § 2923.32(A)(1) (2007).
12
The Ohio Supreme Court granted discretionary review (and affirmed) on a separate issue. Siferd v. State, 789
N.E.2d 237 (Ohio 2003).
8
limited to those who have directed the pattern of corrupt activity. The precise
language of the statute clearly encompasses those who have performed activities
necessary or helpful to the operation of the enterprise, whether directly or
indirectly, without an element of control.
Siferd, 783 N.E.2d at 602 (footnotes omitted). The Court concluded with a reference to the
policy of the Ohio RICO Act itself:
Considering the plain language of the statute and the legislative intent and public
policy considerations behind Ohio’s Corrupt Activity Act, we conclude that the
activity of those who do not manage or supervise racketeering activity, but
nevertheless assist it, is inimical to the interests identified and see no reason why
the legislature would limit liability to those who control the enterprise. We hold
that participatory conduct or activities may be found in acts that are below the
managerial or supervisory level and do not exert control or direction over the
affairs of the enterprise.
Id. at 603.
IV
The trial court granted summary judgment in favor of defendants Baugher, Florida
Underwriting, and Jones with respect to the plaintiffs’ Indiana RICO Act allegations on the basis
that the plaintiffs had presented no evidence to show that these defendants “had any role in
directing” the payphone program’s affairs. (Order Granting Mot. For Summ. J. by Defs. Dennis
Baugher and Florida Underwriting Co., Br. of Appellants at 42.)13 Because we hold that the
level of participation necessary to implicate the Indiana Act need not rise to the level of
direction, such a showing was unnecessary and summary judgment was not justified on that
basis.
13
The trial court uses identical language in its Order Granting Mot. For Summ. J. by Defs. William Jones and
Advanced Insurance Marketing. (Br. of Appellants at 36.) See supra, n.3.
9
Conclusion
We vacate the trial court’s grant of summary judgment in favor of defendants Baugher,
Florida Underwriting, and Jones with respect to the plaintiffs’ Indiana RICO Act allegations. In
all other respects, we summarily affirm the opinion of the Court of Appeals. We remand to the
trial court for further proceedings in accordance with this opinion and that of the Court of
Appeals.
Shepard, C.J., and Boehm, J., concur.
Dickson, J., dissents with separate opinion in which Rucker, J., concurs.
10
Dickson, Justice, dissenting.
The Court today construes Indiana’s RICO Act to impose liability beyond those who
substantially participate in the enterprise, to persons below the managerial or supervisory
level, based upon linguistic variation between the Federal RICO statute and the Indiana Act.
I disagree, finding the modest language differences to be insignificant and inconclusive.
Furthermore, in 2000, the Court of Appeals reached a different conclusion. Noting that
Indiana’s RICO Act was patterned after the federal law, the court analyzed and discussed federal
and state claims jointly in Yoder Grain v. Antalis, 722 N.E.2d 840, 845 (Ind. Ct. App. 2000),
trans. not sought. Yoder Grain held that, to be subject to RICO liability, a person must actually
be involved in directing the affairs of the alleged enterprise. Id. at 846. In the ensuing eight
years, the Indiana General Assembly has acquiesced in this interpretation of the Indiana RICO
Act, implying its agreement with Yoder Grain. Absent clear direction from the legislature, I
would not extend exposure to the onerous liability under Indiana’s RICO Act to mere “foot
soldiers” in an enterprise.
Rucker, J., concurs.