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UNITED STATES v. MCCLENDON

December 7, 1988

UNITED STATES OF AMERICA, PLAINTIFF,
v.
LAWRENCE D. MCCLENDON, et al., DEFENDANTS



The opinion of the court was delivered by: EISELE

 GARNETT THOMAS EISELE, CHIEF UNITED STATES DISTRICT JUDGE.

 The Indictment in this action, brought under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 - 68, and containing one hundred and twenty-three Counts, alleges an enterprise, a conspiracy, and a pattern of racketeering activity consisting of many acts of mail fraud, wire fraud, and interstate transportation of stolen funds, all in connection with an alleged fraudulent coal mining scheme based in Western Tennessee, Eastern Arkansas and Northern Mississippi. Several motions are pending before the Court.

 THE MOTIONS TO DISMISS

 The defendants have filed several motions to dismiss the Indictment or portions thereof. The motions to dismiss fall into four categories: (1) Sufficiency of the RICO allegations; (2) Statute of Limitations or Delay in Bringing Prosecution; (3) Multiple Conspiracies; (4) Dismissal of Forfeiture Action. The Government has responded. For the reasons set forth below, the Court will dismiss the RICO Counts on two separate grounds: - (1) that the indictment does not allege an "enterprise" with an ascertainable structure which exists for the purpose of maintaining operations directed towards an economic goal that has an existence apart from the alleged racketeering activity; and, (2) that the indictment alleges but one scheme to defraud. The defendants' motions to dismiss on the grounds of statute of limitations will be granted as to Counts two and twenty-four. As a result of the Court's rulings herein, the defendants' other grounds for dismissal - multiple conspiracies and unconstitutionality of the forfeiture actions are moot. The defendants' motions to bifurcate are also moot.

 1. Sufficiency of the RICO Allegations

 The defendants contend that the indictment does not sufficiently allege an "enterprise" or a "pattern of racketeering activity" as defined by 18 U.S.C. § 1961. With regard to the enterprise element, the defendants state that the government must show that the alleged "enterprise" has an ascertainable structure distinct from the challenged racketeering activity. In other words, the enterprise must exist for some purpose in addition to or other than the carrying out of the illegal conduct charged in the indictment. United States v. Bledsoe, 674 F.2d 647 (8th Cir. 1982); United States v. Lemm, 680 F.2d 1193, 1198 (8th Cir. 1982); United States v. Anderson, 626 F.2d 1358, 1372 (8th Cir. 1980). This interpretation, of course, arises in part out of the expressed legislative intent of RICO to prevent the infiltration of legitimate existing businesses or unions by organized crime. But it goes beyond that as discussed below.

 With regard to the "pattern of racketeering activity" element, the defendants contend that since the Indictment alleges but one scheme, it does not allege the "continuity" required to form a pattern of racketeering activity. Superior Oil Co. v. Fulmer, 785 F.2d 252, 255 (8th Cir. 1986); Holmberg v. Morrisette, 800 F.2d 205 (8th Cir. 1986).

 For its response, the government states that the indictment properly alleges the existence of both, a RICO enterprise and a pattern of racketeering activity. With regard to the enterprise element, the government contends that the enterprise as described in the indictment - "Southeastern Fuels, Inc., Southeastern Fuels, a partnership, and Tennessee Fuels, Inc., together" - is an entity separate and distinct from the racketeering activity and satisfies the strict interpretation of "enterprise" followed in the Eighth Circuit.

 The government states that the proof will establish that Southeastern Fuels Inc., which operated corporate offices at Rossville, Tennessee, West Memphis, Arkansas, and Marion, Arkansas, "was a duly filed Tennessee corporation with initially three incorporators, two of whom were unaware of the illegal activity being conducted by employees and officers of the corporation." But it must be kept in mind that the indictment does not identify Southeastern Fuels Inc., as the RICO "enterprise." The government contends that Tennessee Fuels, Inc., "was formed and operated at the direction of the officers and principals of Southeastern Fuels, Inc., and was nothing more than an office of the corporation operating under a different name in order to avoid certain cease and desist orders which had been issued against Southeastern Fuels, Inc., . . . and for the purpose of giving the defendant, Bert Busch, an increased share of the investor purchase money." The government further contends that the West Memphis, Arkansas and Olive Branch, Mississippi offices were operated for the purpose of giving certain individuals, (namely, Bertsil Smith, Ken Baker, Dennis Moran and Jerry Chapman), a larger portion of the investor provided funds for their own benefit. The government argues that these organizations were formed to sell property in Tennessee for coal mining purposes and that the racketeering arises from the sale of the coal property fraudulently. Under the clear allegations of the Indictment, the two corporations and the partnership "together" constituted the RICO enterprise. It follows that until the last of these three legal entities was formed, the "enterprise" charged in the indictment could not have come into existence.

 The portions of the RICO statute under which the defendants were indicted state that:

 
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 tha conduct of such enterprises's affairs through a pattern of racketeering activitiy or collection of unlawful debt.

 18 U.S.C. § 1962(c) (1984).

 
"Enterprise" includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity;
 
"Pattern of racketeering activity" requires at least two acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred after the effective date of this chapter and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity;

 18 U.S.C. § 1961(4), (5) (1984).

 The Enterprise Element

 The Court agrees with the defendants' assertion that the government has not adequately alleged a RICO enterprise. The "enterprise" element is essential to a RICO claim. Without it, the indictment would only allege that the defendants participated in various criminal acts of mail fraud, wire fraud, and interstate transportation of stolen funds.

 
The 'enterprise' element provides an essential ingredient in the constitutionality of the composition and structure of section 1962(c) offense. Because a defendant may be separately prosecuted for the two predicate crimes, . . . only by requiring proof of an 'enterprise' that engages in or has activities affecting interstate or foreign commerce does section 1962(c) require proof of a fact other than facts required to prove the predicate crimes.

 United States v. Anderson, 626 F.2d 1358, 1367 (8th Cir. 1980).

 
Each element of the crime, that is, the predicate acts, the pattern of such acts, and the enterprise requirement, was designed to limit the applicability of the statute and separate individuals engaged in organized crime from ordinary criminals. The enterprise requirement must be interpreted in this light.

 United States v. Bledsoe, 674 F.2d 647, 663 (8th Cir. 1982); see also United States v. Turkette, 452 U.S. 576, 101 S. Ct. 2524, 2528, 69 L. Ed. 2d 246 (1981) (In order to secure a conviction under RICO, the Government must prove both the existence of an ...


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