824 F.

2d 1349
56 USLW 2051, RICO Bus.Disp.Guide 6693

PETRO-TECH, INC., Robert Chuckrow, Gary Goldberg,

Sterling
Keystone Development, Inc., S. David Friedman, Mallory
Group
& Company, Inc., John E. Karpac, Financial Programs, Inc.,
Hummingbird Associates, Inc., Sterling Keystone Services,
Inc., Howard L. Ragsdale, Rock Ridge Drilling Associates,
Northeast Drilling Associates, L.P., Pine Valley Drilling
Associates, L.P., G.G.-I Drilling Associates, L.P., Mountain
Drilling Associates, L.P., B.C.-I Drilling Associates, L.P.,
Sterling Keystone Drilling Associates, 1982-B, Sterling
Keystone Drilling Associates, 1982-C, and CDA Drilling
Associates, L.P., Appellants,
v.
The WESTERN COMPANY OF NORTH AMERICA, Joseph
Farina, Barry
R. Rodkey, Glen Konya, Matt Boese, Fred E. Schriefer,
Richard D. Rowell, Michael W. Dory, and John Does Nos. One
Through Twenty-Five, Appellees.
No. 86-3361.

United States Court of Appeals,

Third Circuit.
Argued Jan. 22, 1987.
Decided July 13, 1987.
Rehearing and Rehearing In Banc Denied Aug. 12, 1987.

Arthur M. Schwartzstein (argued), Donald L. Herskovitz, Battaglia and

Herskovitz, Washington, D.C., Roger H. Taft, MacDonald, Illig, Jones &
Britton, Erie, Pa., for appellants.
James T. Marnen (argued), Sean J. McLaughlin, Know Graham

McLaughlin Gornall and Sennett, Inc., Erie, Pa., for appellees.

Before SEITZ, BECKER and MANSMANN, Circuit Judges.
OPINION OF THE COURT
BECKER, Circuit Judge.

This appeal from the dismissal of plaintiffs' complaint in a civil RICO case for
failure to state a claim, Fed.R.Civ.P. 12(b)(6), raises important questions
concerning the role of aiding and abetting and vicarious liability under the civil
RICO statute, 18 U.S.C. Secs. 1961 et seq. Defendants seek to justify the
complaint's dismissal on several grounds.

We begin by addressing defendants' request that we define a RICO pattern, and

that we hold that requirement unmet in this case. Because the complaint alleges
so many related RICO predicate acts, however, by so many persons, and
affecting so many victims over so protracted a period, we find it unnecessary in
this case to define a RICO pattern: under any conceivable definition the
requirement is satisfied by the allegations in this case. We therefore reverse the
dismissal of Counts I through VI.

We then turn to Western's contention that there cannot be respondeat superior

or aiding and abetting liability under RICO, and therefore that it cannot be
liable under either of those theories in connection with its employees' alleged
RICO violations. We hold that a corporation which is alleged to be a RICO
enterprise under 18 U.S.C. Sec. 1962(c) cannot be held vicariously liable for
RICO violations committed by its employees if the employees are the Sec.
1962(c) persons named in the complaint as having conducted the affairs of the
enterprise through a pattern of racketeering activity. We hold further that a Sec.
1962(c) enterprise cannot be liable as an aider and abettor. We therefore affirm
the district court's dismissal of Counts XI and XII insofar as they operate in
tandem with Count III, which is brought under Sec. 1962(c) and which alleges
that Western is a RICO enterprise.

Unless the employer is the Sec. 1962(c) enterprise at the same time as its
employees are the Sec. 1962(c) persons, however, vicarious liability may be
appropriate. Similarly, so long as the aider and abettor is not alleged to have
been a Sec. 1962(c) enterprise, aiding and abetting liability may be invoked. In
all other constellations of Sec. 1962(c) enterprises and persons, and under
subsection (a) of Sec. 1962, we hold that both of these theories of liability may

be appropriate so long as the employer/enterprise actually benefited from the

persons' predicate acts. We therefore reverse the dismissal of Counts XI and
XII to the extent that they operate in tandem with Counts I, II, IV, V and VI.
5

Lastly, we hold that the complaint's allegations concerning the liability of

defendants Western and Michael Dory are sufficiently particular to satisfy the
standards imposed by Rule 9, Fed.R.Civ.P. Therefore, except as noted above,
we reverse the complaint's dismissal and remand for further proceedings.

I. Facts and Procedural History

6

Plaintiff Petro-Tech is an oil and gas drilling and well management company.
In two contracts covering different time periods and different wells, Petro-Tech
agreed to hire defendant Western, and its subsidiary defendant Western
Petroleum Services, to provide "fracing" services at wells Petro-Tech managed
for its clients. The wells contain oil-permeated rock, and in "fracing" the wells
Western would use water and sand to separate the oil from the rock. PetroTech's clients are mostly oil and gas exploration, drilling and well operating
syndicates. Nineteen of them are also plaintiffs in this case.

Plaintiffs allege that during the relevant time period the market for the services
Western sells was quite competitive. Plaintiffs claim that in over eighty
instances defendants (Western and various Western employees) responded to
this competition and the low profit margins it caused by billing plaintiffs and
other customers for more services than were actually provided, and for more
materials than were actually used, on the wells Western had agreed to frace.1
Plaintiffs allege that Western used the mails to solicit Petro-Tech's business,
and that the solicitations thus sent fraudulently described the services that
would be provided. Complaint paragraphs 35 and 36. Similarly, plaintiffs claim
that after work was done fraudulent reports of the services purportedly provided
were sent through the mails. Plaintiffs allege that the manager of the Meadville,
Pennsylvania, yard, as well as several high ranking Western officers, knew of
the challenged practices, that Western defrauded other customers in the same
way, and that "[d]efendants' wrongful conduct was deliberate company policy."
Complaint p 43. In civil RICO terms, plaintiffs allege that the defendants
conducted the affairs of an enterprise (principally Western, though the
complaint also sets out other theories, under which other entities are the
enterprise) through a pattern of racketeering activity.

The district court dismissed the complaint on the ground that it alleged only
"garden variety" fraud by a legitimate business enterprise, which the district
court did not believe RICO capable of reaching.2 But the Supreme Court has

squarely rejected reasoning of this kind. The Supreme Court believed that, in
passing RICO,
9
Congress
wanted to reach both "legitimate" and "illegitimate" enterprises. United
States v. Turkette, [452 U.S. 576, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981) ]. The
former enjoy neither an inherent incapacity for criminal activity nor immunity from
its consequences. The fact that Sec. 1964(c) is used against respected businesses
allegedly engaged in a pattern of specifically identified criminal conduct is hardly a
sufficient reason for assuming that the provision is being misconstrued.... "[T]he fact
that RICO has been applied in situations not expressly anticipated by Congress does
not demonstrate ambiguity. It demonstrates breadth." Haroco, Inc. v. American
National Bank & Trust Co. of Chicago, [747 F.2d 384] at 398 [ (7th Cir.1984) ].
10is true that private civil actions under the statute are being brought almost solely
It
against such defendants, rather than against the archetypal, intimidating mobster.
Yet this defect--if defect it is--is inherent in the statute as written, and its correction
must lie with Congress. It is not for the judiciary to eliminate the private action in
situations where Congress has provided it simply because plaintiffs are not taking
advantage of it in its more difficult applications.
11

Sedima v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275 at 3287, 87 L.Ed.2d 346
(1985). This language forecloses us from upholding the district court's view
that "garden variety fraud" is beyond RICO's reach.

12

Defendants do not attempt to justify the dismissal on this ground. Instead, they
defend the district court's result on essentially three other bases. We address
each of them in turn.

II. The Scope of RICO and The Definition of "Pattern"

13
14

Appellees first defend the dismissal of the complaint by suggesting that we

construe RICO's pattern requirement to exclude the kind of fraud the plaintiffs
allege here. In Sedima, 105 S.Ct. at 3287 (emphasis added), Justice White
noted that

15 "extraordinary" uses to which civil RICO has been put appear to be primarily
[t]he
the result of the breadth of the predicate offenses, the inclusion of wire, mail and
securities fraud, and the failure of Congress and the courts to develop a meaningful
concept of pattern.
16

"The definition of a 'pattern of racketeering activity,' " the Court went on to

explain,

17
differs
from the other provisions in Sec. 1961 in that it states that a pattern "requires
at least two acts of racketeering activity," Sec. 1961(5) (emphasis added), not that it
"means" two such acts. The implication is that while two acts are necessary, they
may not be sufficient. Indeed, in common parlance two of anything do not generally
form a "pattern." The legislative history supports the view that two isolated acts of
racketeering activity do not constitute a pattern. As the Senate Report explained:
"The target of [RICO] is thus not sporadic activity. The infiltration of legitimate
business normally requires more than one 'racketeering activity' and the threat of
continuing activity to be effective. It is this factor of continuity plus relationship
which combines to produce a pattern." S.Rep. No. 91-617, p. 158 (1969) (emphasis
added). Similarly, the sponsor of the Senate bill, after quoting this portion of the
Report, pointed out to his colleagues that "[t]he term 'pattern' itself requires the
showing of a relationship.... So, therefore, proof of two acts of racketeering activity,
without more, does not establish a pattern...." 116 Cong.Rec. 18940 (1970)
(statement of Sen. McClellan).
18

105 S.Ct. at 3285 n. 14. The Court in Sedima held that, in addition to requiring
two predicate acts, RICO is violated only if the two acts are related to one
another. Id.

19

Perceiving these comments as an invitation so to narrow the statute, a number

of courts have begun to use the pattern requirement to prevent RICO from
reaching "legitimate business" perpetrating "garden variety fraud." See Fleet
Management Systems v. Archer-Daniels-Midland Co., 627 F.Supp. 550, 555
(C.D.Ill.1986). Extending that invitation to us, defendants herein argue that
Sedima

20
sen[t]
a strong signal to the lower courts to further develop the pattern requirement in
such a fashion as to curb the trend of garden variety commercial disputes being
dragged before an already burdened federal judiciary because of the love of treble
damages, attorney fees and the settlement leverage to be gained from a RICO
charge.
21

Def. Br. at 30. Whatever the wisdom of defendants' proposed invitation as a

policy matter, we decline for three reasons to join this effort.

22

First, while we are touched by defendants' concern for our workload, we

believe that Sedima warns us not to construe RICO in a limited way out of a
desire to prevent the statute from reaching people other than organized
criminals. In fact, while defendants eschew reliance on the district court's
rationale for dismissing the case, defendants' invitation is nothing but a more
elaborate presentation of the ideas in Judge Willson's opinion: defendants, like

Judge Willson, attempt to distinguish between "RICO fraud" and garden variety
fraud, and to limit RICO's reach to the former. We must reject defendants'
invitation, therefore, for the same reason that defendants have correctly rejected
the rationale in the district court's opinion.
23

Second, while in the future this Court (and ultimately the Supreme Court) will
doubtless be obliged to clarify the meaning of the pattern requirement in light of
Sedima, the breadth of the fraud alleged in this complaint satisfies us that, even
if all of the tests urged upon us by defendants were applied to this complaint,
the complaint would still pass muster. Specifically, the cases defendants urge
us to follow have interpreted RICO's "pattern" requirement to mean that, in
addition to the requisite number of predicate offenses, a complaint must allege
that the predicate offenses form at least two separate but related criminal
"schemes," Superior Oil Co. v. Fulmer, 785 F.2d 252 (8th Cir.1986) "episodes,"
Allington v. Carpenter, 619 F.Supp. 474 (C.D.Cal.1985) or "activities." Richter
v. Sudman, 634 F.Supp. 234 (S.D.N.Y.1986); Northern Trust Bank/O'Hare v.
Inryco, Inc., 615 F.Supp. 828 (N.D.Ill.1985). Whether these three terms imply
the same or different tests, we think that the acts alleged here would satisfy any
such requirement.3

24

In Superior Oil, for example, defendants had moved a device which metered the
flow of oil purchased by a customer of the plaintiff so that it would overstate
that flow. Defendants then submitted a number of reports overstating the
amount of oil the customer had consumed. The Eighth Circuit found that these
wrongful acts did not satisfy RICO's "pattern" requirement.

25

The Superior Oil court reached this result in reliance on language from RICO's
legislative history, quoted by Justice White in Sedima, that "the infiltration of
legitimate business normally requires more than one 'racketeering activity' and
the threat of continuing activity to be effective. It is this factor of continuity
plus relationship which combines to produce a pattern." See 785 F.2d at 257,
quoting Sedima, 105 S.Ct. at 3285 n. 14, which was in turn quoting legislative
history.

26

Although the Superior Oil court found the "relationship prong" of this test
satisfied, it held that plaintiff had

27
failed
to prove the "continuity" sufficient to form a "pattern of racketeering activity."
The actions of Fulmer, Branch and Nichols comprised one continuing scheme to
convert gas from Superior Oil's pipeline. There was no proof that Fulmer, Branch or
Nichols had ever done these activities in the past and there was no proof that they
were engaged in other activities elsewhere.

28

785 F.2d at 257.

29

Similarly, in Northern Trust Bank, the president of a contracting firm allegedly

worked out a kickback scheme with a subcontractor in return for the award of
the subcontract. The parties implemented the scheme through a number of
payments, alleged to constitute individual predicate acts. 615 F.Supp. at 830.
The district court dismissed a RICO count filed by the original client against
the contractor because the alleged separate instances of mail fraud were all part
of a single "scheme." Id. at 832-33.

30

We believe that the Superior Oil and Northern Trust line of cases4 is
distinguishable from this case on the basis of the time period, number of
victims, number of perpetrators and number of predicate acts at issue.
Defendants here are alleged to have defrauded plaintiffs with respect to services
and materials provided for eighty wells, owned by nineteen parties and serviced
by a twentieth, over a period of eleven months, as part of work done under two
separate contracts themselves pertaining to different time periods. These
allegations suggest more than the single schemes held inadequate to support the
civil RICO actions in Superior Oil and Northern Trust. Because the words are
so flexible, we acknowledge that these fraudulent acts could conceivably be
characterized as part of a single "scheme" or "episode." But we believe that if
faced with the complaint in this case, the Superior Oil and Northern Trust
courts would not use those words so expansively--that on these facts the
Superior Oil court would find more than one scheme, and the Northern Trust
court would find more than one episode.5 Because the allegations here would
satisfy the pattern requirement under even the most rigorous tests we find it
unnecessary to adopt any test in order to decide this case.6

31

In sum, having satisfied ourselves that plaintiffs' allegations establish a pattern

under RICO, we are unwilling to pronounce further upon the meaning of that
term after Sedima. The definitions of pattern in Superior Oil and Northern Trust
require a court to determine whether acts are sufficiently unrelated to constitute
two distinct "schemes," "episodes" or "activities." See Allington, (" 'pattern' of
racketeering activity must include racketeering acts sufficiently unconnected in
time or substance to warrant consideration as separate criminal episodes"). At
the same time, however, Sedima requires that the predicate acts must be related
to one another to some as yet unspecified degree. See 105 S.Ct. at 3285 n. 14;
Superior Oil, 785 F.2d at 257. These rules are obviously in tension with one
another--the "relatedness" rule pulling the predicate acts together, the Superior
Oil and Northern Trust rules pulling them apart. If the two rules are to operate
together the words "scheme," "episode" or "activity" will have to be defined
with sufficient precision that courts can consistently tell where one scheme

leaves off and another related one begins. We have some doubt whether that
goal could ever be attained. But if we are to attempt it we believe that a full
record is necessary. This case presents us only with bare pleadings. For that
reason as well we believe that remand is appropriate.
III. Aiding and Abetting and Vicarious Liability
32
A. Introduction
33

Defendant Western also attacks the sufficiency of this complaint on another

ground, which pertains to it alone. Western contends that the complaint
impermissibly alleges it to be both an enterprise and a person for RICO
purposes when in fact, Western argues, a defendant may fit into one or another
of those legal categories but not both at the same time. Specifically, Western
attacks Counts XI and XII of the complaint, which allege that it is liable on the
basis of the doctrine of respondeat superior or as an aider and abettor for all of
the wrongs alleged in Counts I through X of the complaint.7 Western contends
that imposing liability under either of these theories would enable plaintiffs to
circumvent what it contends is the rule preventing an enterprise from being
liable to the (other) victims of racketeering activity.

34

Since there is no federal general common law, Erie Railroad v. Tompkins, 304
U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938), the applicability of
common law doctrines in litigation under federal statutes depends on whether
those principles advance the goals of the particular federal statute which
plaintiffs allege has been violated. American Society of Mechanical Engineers
v. Hydrolevel Corp., 456 U.S. 556, 570, 102 S.Ct. 1935, 1944-45, 72 L.Ed.2d
330 (1982) (applying common law principle of apparent authority in antitrust
context because the doctrine "is consistent with the congressional intent to
encourage competition" which animates the antitrust laws).

35

This Court has already held that one can violate RICO criminally by aiding and
abetting the commission of two predicate acts, provided that all of RICO's other
requirements are also satisfied. United States v. Local 560, 780 F.2d 267, 288
n. 25 (3d Cir.1985). We have not yet addressed the question of civil RICO
liability for aiding and abetting. But the Fifth Circuit has declared its
willingness to find civil RICO violated by an aider and abettor, Armco Indus.
Credit Corp. v. SLT Warehouse Co., 782 F.2d 475, 485-86 (5th Cir.1986), as
has one judge in the Southern District of New York. Laterza v. American
Broadcasting Co., 581 F.Supp. 408, 412 (S.D.N.Y.1984). We now join those
courts, and hold that, if all of RICO's other requirements are met, an aider and
abettor of two predicate acts can be civilly liable under RICO.

36

We begin our explanation of this conclusion by observing that aiding and

abetting is most commonly used as a theory of criminal, rather than civil
liability. It is generally said to be defined in American law by several well
known criminal law cases, see Pinkerton v. United States, 328 U.S. 640, 66
S.Ct. 1180, 90 L.Ed. 1489 (1946); Nye & Nissen v. United States, 336 U.S.
613, 69 S.Ct. 766, 93 L.Ed. 919 (1949); United States v. Peoni, 100 F.2d 401
(2d Cir.1938), and is now a basis of federal criminal liability by operation of 18
U.S.C. Sec. 2. Through the criminal law, however, aiding and abetting has also
become a basis for civil liability under the federal securities laws. See David S.
Ruder, Multiple Defendants in Securities Law Fraud Cases: Aiding and
Abetting, Conspiracy, In Pari Delicto, Indemnification and Contribution, 120
U.Pa.L.Rev. 597, 620-28 (1972). While the Supreme Court has reserved the
issue, Ernst & Ernst v. Hochfelder, 425 U.S. 185, 190-91 n. 7, 96 S.Ct. 1375,
1380 n. 7, 47 L.Ed.2d 668 (1976), every circuit court to have addressed the
question has held that there can be civil liability for aiders and abettors of
securities law violations. See Monsen v. Consolidated Dressed Beef Co., 579
F.2d 793 (3d Cir.1978) (imposing aiding and abetting liability under Sec. 10b
of the Securities and Exchange Act of 1934); Thomas Lee Hazen, Securities
Regulation Sec. 7.8 at 208-09 & n. 4 (1985) (collecting cases).

37

The doctrine also has a civil common law application. The Restatement
(Second) of Torts Sec. 876(b) holds that liability "[f]or harm resulting to a third
person from the tortious conduct of another ... [can be imposed upon a party
who] (b) knows that the other's conduct constitutes a breach of duty and gives
substantial assistance or encouragement to the other so to conduct himself".
That Restatement provision has been applied by a number of state and federal
courts in civil litigation. See, e.g., Rael v. Cadena, 93 N.M. 684, 604 P.2d 822
(1979) (defendant liable under Sec. 876(b) for encouraging third party to
assault plaintiff); Cobb v. Indian Springs, Inc., 258 Ark. 9, 522 S.W.2d 383
(1975) (defendant liable under same theory for urging third party to drive car
recklessly, which resulted in driver's injuring plaintiff); Smith v. Thompson,
103 Idaho 909, 655 P.2d 116 (Ct.App.1982) (employer liable for encouraging
employee to burn down plaintiff's house). See the scholarly discussion of civil
aiding and abetting by Judge Wald in Halberstam v. Welch, 705 F.2d 472, 48186 (D.C.Cir.1983), which reviews in detail the nature and scope of civil liability
for aiding and abetting tortious conduct.8

38

Plaintiffs have not argued that there is a private right of action under 18 U.S.C.
Sec. 2. Moreover, this is not a securities case, and the predicate acts alleged are
violations of the mail fraud statute, 18 U.S.C. Sec. 1341, not violations of the
securities laws. We therefore proceed on the assumption that Count XII invokes
the civil common law doctrine of aiding and abetting.9

39

Applying the teaching of Mechanical Engineers in the aiding and abetting

context, we note that one important purpose of RICO's civil provisions is to
permit recovery by the victims of racketeering activity. One who has aided and
abetted the commission of two predicate offenses is guilty of those offenses.
Standefer v. United States, 447 U.S. 10, 100 S.Ct. 1999, 64 L.Ed.2d 689
(1980); United States v. Provenzano, 334 F.2d 678, 691 (3d Cir.1964); United
States v. Kegler, 724 F.2d 190, 201 (D.C.Cir.1984) ("[a]n individual can be
indicted as a principal for commission of a substantive crime and convicted by
proof showing him to be an aider and abettor"). The doctrine of aiding and
abetting is simply one way that an individual can violate the substantive
criminal laws. See 18 U.S.C. Sec. 2 ("[w]hoever commits an offense against the
United States or aids, abets, counsels, commands, induces or procures its
commission, is punishable as a principal"); Kegler, 724 F.2d at 200 ("aiding
and abetting ... is not an independent crime under 18 U.S.C. Sec. 2"). So long as
all of RICO's other requirements are met, we can see no reason why victims
should not be able to recover from anyone who has committed the predicate
offenses RICO enumerates, regardless of how he committed them. As a general
matter, therefore, civil RICO liability for aiding and abetting will advance
RICO's goals, and Mechanical Engineers-instructs us that the doctrine should
therefore be applied in this context.

40

While many commentators have noted the difficulty of explaining the goals of
the doctrine of respondeat superior, see W. Page Keeton, et al., Prosser &
Keeton on Torts Sec. 69 at 500 text at note 6 (5th ed. 1984), the doctrine can
probably be best explained as an outgrowth of the sentiment that "it would be
unjust to permit an employer to gain from the intelligent cooperation of others
without being responsible for the mistakes, the errors of judgment and the
frailties of those working under his direction and for his benefit." Restatement
(Second) of Agency Sec. 219, comment a on subsection (1).10 Here too the
goals of the common law doctrine are entirely consistent with RICO's goal to
facilitate recovery by the victims of racketeering activity. We therefore hold
that the doctrine of respondeat superior may be applied under RICO where the
structure of the statute does not otherwise forbid it.

41

As the foregoing qualification suggests, however, there are some circumstances

in which both theories of liability are inconsistent with RICO's goals and
operation. In particular, this and most other courts have held that for purposes
of Sec. 1962(c) an enterprise may not be held liable under RICO. Hirsch v.
Enright Refining Co., 751 F.2d 628 (3d Cir.1984); Haroco, Inc. v. American
National Bank & Trust Co., 747 F.2d 384, 401-02 (7th Cir.1984); see Schreiber
Distributing Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1396 n. 2 (9th
Cir.1986) (collecting cases). The contrary rule has been adopted only by the

Eleventh Circuit, in United States v. Hartley, 678 F.2d 961 (11th Cir.1982).
42

If the enterprise in a particular RICO case is also the employer of the RICO
persons, respondeat superior liability may be inconsistent with the rule in
Enright. That case would also suggest that a 1962(c) enterprise cannot have
aided and abetted the RICO persons. Because the rule in Enright pertains only
to Sec. 1962(c), however, the applicability of this argument to the complaint
before us depends on which subsection of RICO each individual Count is
brought under; whether that Count is brought against Western as a defendant,
and whether or not Western is alleged to be an "enterprise" for purposes of that
Count. Application of the rule in Mechanical Engineers--that common law
doctrines will be applied in federal litigation to the extent that they advance the
goals of the statutes sued under--will therefore require a detailed inspection of
the bases on which each count of the complaint seeks to hold Western liable.
For that reason we set out the following chart, which describes the six RICO
counts for which Petro-Tech seeks to hold Western liable through the doctrines
of respondeat superior and aiding and abetting liability.

Count
names
Western
Western
Sec. 1962
an
as a
subsectio
Count
"enterprise"?
defendant? *
--------------------------------------------------------------------------I
yes
yes
a
II
no
yes
a
III
yes (alternatively
no
c
Western
Petroleum
Services
the enterprise)
IV
no
yes
c
V
no (conspiracy
yes
d
count)
VI
no (conspiracy
no
d
count)
---------------------------------------------------------------------------

43

*All counts which name Western as a defendant also name it as a person. This
44
is consistent with the structure of Sec. 1962, under which liability is imposed
45
on "persons" who engage in racketeering activity.
46
B. Respondeat Superior and Aiding and Abetting Liability Under Sec. 1962(c)
47
48

We begin with Count III, with respect to which Western's arguments have most

force. As the above chart shows, Count III of the complaint is brought under
Sec. 1962(c) and alleges that Western is an enterprise. Western is not named as
a "person," however, and Count III is not brought against Western as a
defendant. See note *, at 1358. So long as it operates only on its own, rather
than in tandem with Counts XI and XII, Count III is consistent with the rule in
Enright, because under it plaintiffs seek recovery only from the individual
defendants and not from the Sec. 1962(c) enterprise.
Section 1962(c) provides:
49shall be unlawful for any person employed by or associated with any enterprise
It
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.
50

We explained in Enright that Sec. 1962(c) was drafted in such a way that
Congress must have intended the "person" and the "enterprise" to be distinct
entities under that provision. Under the language of that provision, we held,

51 person must be employed by or associated with an "enterprise." The Enright

the
Refining Company, Inc. clearly is not employed by the Enright Refining Company,
Inc.; nor is it logical to say that the Enright Refining Company, Inc. is associated
with the Enright Refining Company, Inc. Thus the language contemplates that the
"person" must be associated with a separate "enterprise" before there can be RICO
liability on the part of the "person."
52

We therefore held that Sec. 1962(c) was intended to govern only those
instances in which an "innocent" or "passive" corporation is victimized by the
RICO "persons," and either drained of its own money or used as a passive tool
to extract money from third parties. See 751 F.2d at 633-34; see also Judge
Cudahy's thoughtful opinion in Haroco, 747 F.2d at 399-402, which explains
the rationale for this rule in very helpful detail, and upon which we relied in
Enright.

53

Western argues that Counts XI and XII have the effect of making Western,
which is named as an enterprise in Count III, responsible as a perpetrator for
the acts complained of in Count III. It claims further that such liability is
inconsistent with our recognition that Sec. 1962(c) enterprises may not be
forced to make whole the third parties which were victimized along with or
through the enterprise.

54

We agree with Western that respondeat superior and aiding and abetting

liability would disrupt the intended operation of Sec. 1962(c), by making the
Sec. 1962(c) enterprise--the victim, as Enright tells us, of the racketeering
activity--liable. Respondeat superior would have that effect because it renders
the employer--i.e. the enterprise--responsible for the acts of the employees--i.e.
the persons. Respondeat superior liability under Sec. 1962(c) is therefore
foreclosed by the rationale in Enright insofar as it would make the enterprise
liable for the RICO violations which victimized it.11 See Schofield v. First
Commodity Corp., 793 F.2d 28, 32-33 (1st Cir.1986), which reaches the same
conclusion we do here, in reliance on similar reasoning; see also Luthi v. Tonka
Corp., 815 F.2d 1229 (8th Cir.1987). Aiding and abetting would have the same
effect when the aider and abettor is also the Sec. 1962(c) enterprise. For this
reason the dismissal of Counts XI and XII will be affirmed insofar as they
purport to hold Western liable for the liabilities of other defendants under Count
III.
C. Respondeat Superior and Aiding and Abetting Liability Under Sec. 1962(a)
55
56

Section 1962(a) provides in relevant part as follows:

57shall be unlawful for any person who has received any income derived, directly or
It
indirectly, from a pattern of racketeering activity ... to use or invest, directly or
indirectly, any part of such income, or the proceeds of such income, in acquisition of
any interest in, or the establishment or operation of, any enterprise which is engaged
in, or the activities of which affect, interstate or foreign commerce.
58

As the Seventh Circuit noted in Haroco,

59
Subsection
(a) does not contain any of the language in subsection (c) which suggests
that the liable person and the enterprise must be separate. Under subsection (a)
therefore, the liable person may be a corporation using the proceeds of a pattern of
racketeering activity in its operations. This approach to subsection (a) thus makes
the corporation-enterprise liable under RICO when the corporation is actually the
direct or indirect beneficiary of the pattern of racketeering activity, but not when it is
merely the victim, prize, or passive instrument of racketeering. This result is in
accord with the primary purpose of RICO, which after all, is to reach those who
ultimately profit from racketeering, not those who are victimized by it.
Haroco, 747 F.2d at 402. 12
60

Neither Enright nor Haroco nor any other appellate case has yet held that the
enterprise and the person must be distinct entities under Sec. 1962(a), or (what
amounts to the same thing) that the enterprise may not be liable under that

provision. Following the reasoning applied above with respect to Sec. 1962(c),
if Sec. 1962(a) enterprises may be liable under RICO then pursuant to that
subsection Western may be liable under respondeat superior, or as an aider and
abettor, even if it is alleged to be the RICO enterprise.
61

Western, however, invites us to go further than Enright and other appellate

courts have gone until now, and to hold that the aiding and abetting and
respondeat superior theories of liability are improper under all subdivisions of
RICO if the "persons" are employees of the "enterprise," or if the enterprise
itself is alleged to be an aider and abettor. Defendants' Motion to Dismiss at
Defense I, p (d), App. at 73; Defendants' Brief before this Court at 47. In so
arguing Western relies on Rush v. Oppenheimer & Co., 628 F.Supp. 1188
(S.D.N.Y.1985), which reached the conclusion advocated by Western on
vicarious liability after first deciding that an enterprise may never be liable
pursuant to any subsection of Sec. 1962. 628 F.Supp. at 1197. (Rush did not
address the question of aiding and abetting liability.)

62

We begin by noting that the Rush court's conclusion on respondeat superior is

at odds with the Seventh Circuit's conclusion in Haroco, 747 F.2d at 401-02,
and with the Ninth Circuit's decision in Schreiber Distributing Co. v. Serv-Well
Furniture Co., 806 F.2d 1393 (9th Cir.1986). Like the two appellate courts
which reached the opposite conclusion, however, the Rush court decided as it
did in reliance on the language of Sec. 1962 and on the policies which
Congress sought to advance in passing RICO. We too look to those guides in
making our decision.

63

The Rush court quoted the discussion from Haroco reproduced above, text at n.
12. But the Rush court disagreed with that analysis, reasoning as follows:One
can interpret the lack of a required nexus between person and enterprise in
section 1962(a) to indicate the need for a more distinct pleading of enterprise
and statute violator because the statute contemplates an enterprise which can be
entirely unrelated to the predicate acts. While section 1962(c) contemplates a
perpetrator working through the legitimate or illegitimate enterprise in further
(sic) of a racketeering scheme, a section 1962(a) "enterprise" can be the bounty
purchased with the racketeering profits, the entity used to "launder" the illgotten gains. Therefore, if it is inappropriate to plead identity in 1962(c), it is
then inappropriate to plead it under section 1962(a), particularly in light of our
knowledge that the statute was not intended to convict the infiltrated enterprise
but the violator of the predicate acts.

64

Rush, 628 F.Supp. at 1197. We find this reasoning unpersuasive, and we agree
instead with Haroco. Because the enterprise under Sec. 1962(a) may have been

the racketeers' victim or passive instrument, the Rush court concludes that we
must ignore those situations in which the enterprise does in fact profit from
racketeering activity perpetrated by its employees. This conclusion is
unnecessary: so long as the enterprise does in fact benefit from the racketeering
activity challenged, there is no reason why we must ignore the corporation's
role in the activity, if any, and no reason why an injured third party may not
recover from the enterprise.
65

We stress, however, that the complaint before us alleges that Western has
benefited from the activity challenged, and our decision goes only far enough to
decide the merits of that complaint. In concluding that there can be respondeat
superior and aiding and abetting liability under Sec. 1962(a) when the
enterprise benefits from the racketeering activity, we follow both the Haroco
court, 747 F.2d at 402 ("corporation-enterprise [will be] liable under RICO
when the corporation is actually the direct or indirect beneficiary of the pattern
of racketeering activity"); and the Ninth Circuit in Schreiber, 806 F.2d at 1398
("where a corporation engages in racketeering activities and is the direct or
indirect beneficiary of the pattern of racketeering activity, it can be both the
'person' and the 'enterprise' under section 1962(a)").

66

Having decided that RICO is not subverted if Sec. 1962(a) enterprises are
sometimes held liable, we conclude that vicarious liability for the employer of
RICO persons may be appropriate under that provision even if the employer is
also the RICO enterprise. For the same reasons, we hold that aiding and
abetting liability for the 1962(a) enterprise may also be appropriate.

67

As we noted above, these theories of liability are out of place to the extent that
they enable a plaintiff to circumvent the rule prohibiting RICO enterprises from
being liable to the victims of the racketeering activity. Since we have
concluded that there is no such blanket prohibition under Sec. 1962(a), both of
these bases of liability may be appropriate under that section. Dismissal of
Counts XI and XII insofar as they operate in tandem with Counts I, II, V and VI
therefore cannot be justified on the basis of the argument Western advances.

68

The final count we deal with in this section is Count IV, which, as the chart
shows, is also brought under Sec. 1962(c). It names Western as both a person
and a defendant. Unlike Count III, however, Count IV does not name Western
as an enterprise. The enterprise in Count IV is alleged to be an association in
fact consisting of Western and the individual defendants.13 Because Western is
alleged to have attempted to benefit from its employees' racketeering activity, it
is appropriate to allow the victims of that activity to recover from Western.
Moreover, although Count IV is brought against Western under Sec. 1962(c),

theories of respondeat superior and aiding and abetting liability are not out of
place here, because under Count IV Western is not alleged to be an enterprise.
Holding Western liable under those theories is therefore not inconsistent with
the Enright rule that Sec. 1962(c) enterprises may not be held liable.
IV. The Particularity with Which Dory's and Western's
69
Involvement is Pled
70

Finally, defendants Dory and Western argue that they should be dismissed from
the case because their involvement has not been pled with the degree of
particularity required by Rule 9(b), Fed.R.Civ.P. We reject this argument. First,
Rule 9(b) provides that "malice, intent, knowledge, and other condition of mind
of a person may be averred generally." Some precedent has construed this
language to mean that a party's vicarious liability need not be pled with
particularity. See In re National Student Marketing Litigation, 413 F.Supp.
1156, 1158 (D.D.C.1976); Keys v. Wolfe, 540 F.Supp. 1054, 1066
(N.D.Tex.1982). Even if particularity is required here, however, the complaint
in this case is sufficiently detailed about Western's involvement in the scheme.

71

Dory's involvement has also been pled with the requisite degree of particularity.
Plaintiffs have alleged the acts involved and the people who they believe
committed them. At least at this stage of the case plaintiffs need not attribute
each individual act to the individual defendant who committed it.

V. Conclusion
72

For the foregoing reasons, we affirm the district court's dismissal of Counts XI
and XII insofar as those Counts operate in tandem with Count III of the
Complaint. Because we reverse the dismissal of the rest of the RICO claims,
however, we order that the pendent state claims in Counts VII through X be
reinstated. The district court's vacation of the default judgment entered against
defendant Farina is also reversed, and that judgment is reinstated.

73

When the complaint was dismissed plaintiffs' discovery requests, and a motion
to compel responses thereto, were outstanding. On remand the district court
will decide the merits of plaintiffs' motion, including plaintiffs' contention that,
by failing to respond in good faith to the discovery sought defendants have
waived whatever objections they may once have had to those requests.

74

The judgment of the district court is affirmed in part and reversed in part, and
the case is remanded for further proceedings consistent with this opinion.

Specifically, in paragraph 41 of the complaint, plaintiffs allege that:

(a) Defendants used less sand than the amount contracted. At times, Western
would send less sand than required for a frac to the well site; sometimes one of
two sand trucks sent to the site was empty. At times, the Meadville Yard ran
out of sand and defendant Farina complained to defendant Rowell, who told
him to "fake it."
(b) Defendants used less flow rate than the contracted rate to frac zones.
(c) Defendants charged for zones that were not treated.
(d) Defendants delayed starting sand and cut sand short as wells were treated.
Instead of using the proper sand/water ratio, defendants treated the wells with a
lesser ratio of sand to water, or with only water. Western's service engineers
would falsely indicate on charts that proper amounts of sand had been used.
(e) Instead of using the contracted time to deliver the treatment, defendants
treated wells for a shorter period. Western's service engineers rolled chart paper
manually to falsely indicate that the time required to deliver the full treatment
had been provided.
(f) Many times Farina would return to the Meadville Yard with sand sold to
Petro-Tech but not used due to defendants' wrongful conduct. Defendant
Rowell would re-sell the same sand to Petro-Tech or others. It was a common
joke around the Meadville Yard as to which service engineer could return from
a frac job with the most sand that should have been used during the treatment.
(g) ... The metering equipment for sand concentration frequently did not work
so that the blender tender (the Western employee controlling the sand/water
ratio) would have to guess on the amount of sand going into the tub of the
blender (where the sand and water are combined). The calibration of the pump
truck did not accurately reflect the true flow rate which was actually less than
indicated. Western's service engineers manually adjusted the indicated
calibration to falsely show the correct flow rate.

Judge Willson believed that the complaint should be dismissed because "[t]he
sum and substance of the wrong committed by defendants against plaintiffs can
be characterized as a simple garden variety of fraud." Slip op. at 3, App. at 524.
He explained further that
[p]laintiffs attempt to invoke a federal question jurisdiction because of the use

of the mails in sending the inflated invoices, but that is an outgrowth of an

ordinary alleged fraud or breach of contract. It is not a racketeering activity as
prohibited in the definitions, Sec. 1961 of RICO.
Slip op. at 8, App. at 529.
3

As we discuss in more detail below, a RICO pattern can be found only when
the predicate acts are sufficiently related to one another. See at 1355, text
following note 5. Defendants concede that the alleged acts are sufficiently
related to satisfy this prong of the pattern requirement

See, e.g., Morgan v. Bank of Waukegan, 615 F.Supp. 836 (N.D.Ill.1985)

(Shadur, J.) ("single plot" to defraud plaintiffs in connection with sale to them
of interest in drug store chain did not satisfy RICO's pattern requirement),
reversed, 804 F.2d 970 (7th Cir.1986); Allington, (pattern requirement unmet
where defendants induced plaintiffs to make several loans, secured by
worthless promissory notes or real estate trust deeds, by falsely promising high
rates of return)

No courts appear to have construed the pattern requirement more rigorously

than the Eighth Circuit in Superior Oil and Judge Shadur in Inryco. A number
of courts, however, have found the requirement less demanding. See
International Data Bank, Ltd. v. Zepkin, 812 F.2d 149, 154-55 (4th Cir.1987)
(holding that "a single, limited fraudulent scheme" does not satisfy the pattern
requirement but cautioning that "no mechanical test can determine the existence
of a RICO pattern"); Bank of America v. Touche Ross & Co., 782 F.2d 966,
971 (11th Cir.1986) and United States v. Watchmaker, 761 F.2d 1459, 1475
(11th Cir.1985) (rejecting the argument that a RICO pattern requires more than
one "scheme or transaction"); Morgan v. Bank of Waukegan, 804 F.2d 970,
(7th Cir.1986) (rejecting Judge Shadur's approach in Inryco and holding that "
[i]n order to be sufficiently continuous to constitute a pattern of racketeering
activity, the predicate acts must be ongoing over an identified period of time so
that they can fairly be viewed as constituting separate transactions"); United
States v. Ianniello, 808 F.2d 184, 190 (2d Cir.1986) (pattern requirement
satisfied whenever defendant alleged to have committed two related predicate
acts); R.A.G.S. Couture, Inc. v. Hyatt, 774 F.2d 1350, 1355 (5th Cir.1985)
(same). But see Montesano v. Seafirst Commercial Corp., 818 F.2d 423 (5th
Cir.1987) (following R.A.G.S. but urging that it be overturned en banc). Given
our conclusion that the complaint satisfies the Superior Oil and Inryco
standards, it follows a fortiori that it also meets the less demanding
requirements imposed in these cases

Neither has this Court been required on any other occasion to adopt a particular

test. See Malley-Duff Associates v. Crown Life Ins. Co., 792 F.2d 341, 353 n.
20 (3d Cir.1986)
7

Count XI alleges that the individual defendants "were duly authorized

employees, agents and representatives of defendant Western and acted with
actual and apparent authority of Western" (p 100); that the individual
defendants "were acting within the course and scope of their employment and
authority at all times relevant to this complaint" (p 101); and that "[d]efendant
Western is liable for the acts committed and damages caused by" the individual
defendants "under the doctrine of respondeat superior." (p 101)
Count XII alleges that "defendant Western aided and abetted" the individual
defendants "by rendering substantial assistance to those defendants" (p 104) and
that "[a]s a direct and proximate result of its conduct, defendant Western is
jointly and severally liable to plaintiffs for all damages as alleged in this
complaint" (p 105).
Counts VII through X are pendent state common law claims. Western does not
argue that it cannot be liable as an aider and abettor, or under the doctrine of
respondeat superior, for the wrongs alleged in these state law counts.

But see Cenco, Inc. v. Seidman & Seidman, 686 F.2d 449, 452 (7th Cir.1982)
("[t]here is no tort of aiding and abetting under Illinois law or, so far as we
know, the law of any other state; all the cases that [plaintiff] has cited with
regard to [the aiding and abetting] count are criminal cases.")

We deal here only with the question of whether or not the common law doctrine
of aiding and abetting can apply under RICO. We have no occasion today to
discuss the doctrine's reach or limitations

10

See also Prosser & Keeton on Torts, Sec. 69 at 500:

losses caused by the torts of employees ... are placed upon the employer
because, having engaged in an enterprise, which will on the basis of all past
experience involve harm to others through the torts of employees, and sought to
profit by it, it is just that he, rather than the innocent injured plaintiff, should
bear them; and because he is better able to absorb them, and to distribute them,
through prices, rates or liability insurance, to the public, and so to shift them to
society, to the community at large.

11

Under the common law of respondeat superior, it is not clear whether liability
will attach when the employer does not benefit, or when the employee does not
at least in part intend that the employer will benefit from the wrongful activity.
See Restatement (Second) of Agency Sec. 219. In this case Western is alleged

to have benefited from all the activity alleged in all counts--even Count III,
which is brought under Sec. 1962(c), and in which Western is alleged to be an
enterprise. We assume, however, that there could be circumstances in which the
common law of respondeat superior would hold an employer liable even when
the employer did not benefit from the employee's conduct
Enright did not hold, however, that a motion to dismiss would be granted under
Sec. 1962(c) whenever the enterprise in fact benefited from the racketeering
activity; it simply held that there can be no recovery from the enterprise when a
claim is made under Sec. 1962(c). It is thus possible for an employer alleged to
be an enterprise under Sec. 1962(c) to have benefited from the racketeering
activity. Indeed, it may be common. But that does not matter under Enright so
long as no attempt is made to recover from the employer. Respondeat superior
circumvents the prohibition on recovery, however, and is therefore
impermissible under Sec. 1962(c).
12

Although this language was dictum in Haroco, which did not involve a claim
under Sec. 1962(a), the Seventh Circuit explicitly adopted this discussion and
the rule it justifies in Masi v. Ford City Bank & Trust Co., 779 F.2d 397, 401
(7th Cir.1985)

13

18 U.S.C. Sec. 1961(4) defines an enterprise to include "any ... group of

individuals associated in fact although not a legal entity."