United States v. 2007-05-03 | 04-35468 | ODOM VMICROSOFT CORP. | precedential | opinion |

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
 JAMES ODOM,
Plaintiff-Appellant, No. 04-35468
v. D.C. No.
 MICROSOFT CORPORATION, a CV-03-02976-MJP
Washington corporation; BEST BUY OPINION
CO., INC., a Minnesota corporation,
Defendants-Appellees. 
Appeal from the United States District Court
for the Western District of Washington
Marsha J. Pechman, District Judge, Presiding
Argued and Submitted
December 13, 2006—San Francisco, California
Filed May 4, 2007
Before: Mary M. Schroeder, Chief Circuit Judge,
Stephen Reinhardt, Diarmuid F. O’Scannlain,
Pamela Ann Rymer, Michael Daly Hawkins,
Sidney R. Thomas, Barry G. Silverman, William A. Fletcher,
Raymond C. Fisher, Richard A. Paez, Marsha S. Berzon,
Richard C. Tallman, Johnnie B. Rawlinson, Jay S. Bybee,
and Carlos T. Bea, Circuit Judges.
Opinion by Judge William A. Fletcher;
Concurrence by Judge Silverman;
Concurrence by Judge Bybee
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COUNSEL
Beth Terrell, Tousley Brain Stephens P.L.L.C., Seattle, Wash-
ington; Daniel C. Girard (argued), Girard Gibbs and De Bar-
tolomeo LLP, San Francisco, California; Anthony K. Lee, San
Francisco, California, for the plaintiff-appellant.
Charles C. Sweedler & Charles B. Casper, Montgomery,
McCracken, Walker & Rhoads, Philadelphia, Pennsylvania;
Jonathan M. Palmer, Heller Ehrman, Seattle, Washington;
Michael J. Shepard (argued), Heller Ehrman, San Francisco,
California, for defendant-appellee Microsoft Corporation.
Stacy S. Schwartz, Robins Kaplan Miller & Ciresi, Los Ange-
les, California; James Richard Murray, Gordon Murray Til-
den, Seattle, Washington; J. Kevin Snyder, Dykema Gossett,
Los Angeles, California, for defendant-appellee Best Buy Co.
OPINION
W. FLETCHER, Circuit Judge:
Putative class action plaintiffs appeal from the dismissal of
their suit under Federal Rule of Civil Procedure 12(b)(6) for
failure to allege an “associated in fact” “enterprise” under
RICO and, in the alternative, under Federal Rule of Civil Pro-
cedure 9(b) for failure to plead wire fraud with particularity.
The district court dismissed with prejudice and without leave
to amend.
We reverse and remand.
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I. Background
Named plaintiff James Odom — then the only plaintiff —
filed the first complaint in this action in the Northern District
of California, alleging that defendants Microsoft and Best
Buy had violated the Racketeer Influenced and Corrupt Orga-
nizations Act (“RICO”), 18 U.S.C. §§ 1962(c) and (d). Odom
alleged that in April 2000 defendants entered into an agree-
ment under which “Microsoft invested $200 million in Best
Buy and agreed to promote Best Buy’s online store through
its MSN service.” MSN is a division of Microsoft offering
Internet access services. In return, “Best Buy agreed to pro-
mote MSN service and other Microsoft products in its stores
and advertising.” Odom alleged that pursuant to their agree-
ment, Best Buy employees distributed different Microsoft
compact discs (“Trial CDs”) depending on what the customer
purchased. For example, a customer who purchased a com-
puter would receive a Trial CD providing a free six-month
subscription to MSN. A customer who purchased a cell phone
would receive a Trial CD providing a free thirty-day subscrip-
tion.
Odom alleged that if the customer was paying by debit or
credit card the Best Buy employee would scan the Trial CD.
If asked why the Trial CD had been scanned, the Best Buy
employee would claim it was for “inventory control or other-
wise misrepresent[ ] the purpose of the scanning.” Odom
alleged that what this scanning actually did was send the
information to Microsoft. Microsoft would then, without the
customer’s knowledge or permission, activate an MSN
account in the customer’s name. If the customer did not can-
cel the account before the expiration of the free trial period,
Microsoft would start billing the debit or credit card number.
Odom further alleged that when customers called to dispute
these charges, Microsoft directed some of them to “seek relief
from their debit or credit card issuers.”
Odom alleged that the “policies and practices by Best Buy
and its employees relating to distribution of the Trial CDs —
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including but not limited to the deliberate failure to make dis-
closures and making of misrepresentations — have been for-
mulated and implemented by Best Buy jointly with Microsoft,
by agreement with Microsoft, and/or with Microsoft’s knowl-
edge and approval for the benefit of both Best Buy and
Microsoft.” Odom alleged that no affected customer had been
fully compensated for his or her losses, defined as (1) a full
refund of the unauthorized charges; (2) a full refund of the
accrued finance charges; (3) payment of interest on the money
during the time it was held by Microsoft; and (4) compensa-
tion for the “time, effort, and expense” incurred in cancelling
MSN accounts and seeking refunds. Odom alleged that these
losses resulted from defendants’ actions taken pursuant to
their agreement.
Odom alleged that he purchased a laptop computer by
credit card from a Best Buy store in Contra Costa County,
California, in May 2002. He alleged that he told the Best Buy
employee that he did not need the Trial CD because he
already had another Internet service, and that the Best Buy
employee did not tell him that an MSN account with Micro-
soft was being established in his name or that any financial
obligation was being imposed on him. He further alleged that
he never used the free six-month service that came with his
computer purchase. After the six-month period, Microsoft
began charging his account. Odom alleged that when he
noticed the charges he called Microsoft and cancelled the ser-
vice.
Odom alleged that defendants’ acts constituted violations
of civil RICO, 18 U.S.C. §§ 1962(c) and (d). Odom alleged
that Best Buy and Microsoft, acting together pursuant to their
agreement, constituted an associated-in-fact enterprise under
RICO; that their actions, involving “thousands” of consumers,
constituted a “pattern of racketeering activity” under RICO;
and that they committed the RICO “racketeering activity”
predicate act of wire fraud in violation of 18 U.S.C. § 1343.
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Microsoft, joined by Best Buy, moved to dismiss under
Rule 12(b)(6) for failure to allege an associated-in-fact enter-
prise, and under Rule 9(b) for failure to plead wire fraud with
particularity. Microsoft also moved to transfer the case from
California to the Western District of Washington based on a
forum selection clause contained in the MSN subscriber
agreement. The California district court transferred the case to
Washington without ruling on the motion to dismiss. After
transfer, Microsoft withdrew its motion to dismiss based on
Odom’s indication that he intended to amend the complaint.
An amended complaint was filed on November 19, 2003.
Odom continues as a plaintiff. He adds slightly more detail to
the allegations made in the first complaint. He now specifies
that the Best Buy store was in Pleasant Hill, California, rather
than merely in Contra Costa County. He further alleges that
Microsoft billed his credit card account for two months after
the expiration of the six-month period, that he has paid these
credit card charges, and that he has not received any refund
or credit for these charges.
Katherine Moureaux-Maloney was added as a second
plaintiff. Moureaux-Maloney alleges that in September 2001
she purchased a cell phone and a cell phone service plan at a
Best Buy store in Reno, Nevada, using a debit card. She
alleges that a Best Buy employee scanned a Trial CD and
swiped her debit card, thereby sending the information to
Microsoft and establishing a thirty-day trial subscription in
her name. The employee did not tell Moureaux-Maloney that
this was being done. Moureaux-Maloney did not know she
had this service and never used it. After the thirty days
elapsed, Microsoft withdrew monthly MSN charges from
Moureaux-Maloney’s debit card account for seventeen
months without her knowledge or authorization. In November
2003, Moureaux-Maloney received a bill from Microsoft for
monthly MSN charges for April, May, and June 2003 after
“Microsoft was unable to continue withdrawing the charges
from her debit card account.” Upon receiving this bill,
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Moureaux-Maloney and her husband immediately contacted
Microsoft and discovered that the MSN account had been
established in her name through Best Buy. Upon reviewing
her bank statements, she discovered the withdrawals Micro-
soft had made for seventeen months. Finally, Moureaux-
Maloney alleges that she “has not received any refund for any
of the MSN charges that Microsoft withdrew from her debit
card account, and Microsoft continues to seek payment from
her of MSN charges for April, May, and June 2003.”
Plaintiffs expanded the enterprise-related allegations in the
first complaint by further describing the agreement between
Microsoft and Best Buy. The amended complaint contains the
following addition:
In Defendants’ own words (in a joint press release),
this agreement is “a comprehensive strategic alliance
that encompasses broadband, narrowband, in-store
and online efforts”; “provides for significant joint
marketing in Best Buy’s retail stores, online and
through print/broadcast vehicles, profit sharing, the
promotion of BestBuy.com to the 40 million users
throughout Microsoft’s properties, and technology
assistance”; and pursuant to which “MSN™ Internet
access and Microsoft’s full range of connectivity
solutions will be demonstrated and sold at the more
than 350 Best Buy stores in the U.S. and through
BestBuy.com,” and “Best Buy and BestBuy.com
will receive prominent and preferred placement
across Microsoft Properties, including MSNBC, and
the Expedia.com™ travel service, Hotmail™ Web-
based e-mail service, WebTV Network™, and the
newly launched MSN eShop online shopping ser-
vice.”
Microsoft and Best Buy again moved to dismiss the RICO
claims under Rule 12(b)(6) and Rule 9(b). The district court
dismissed the amended complaint on both grounds without
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leave to amend. It held that an associated-in-fact enterprise
had not been alleged within the meaning of RICO under Rule
12(b)(6), and that wire fraud had not been pled with particu-
larity under Rule 9(b). Plaintiffs then voluntarily dismissed
their non-RICO claims in order to allow entry of final judg-
ment. Plaintiffs appeal the dismissal of their RICO claims.
II. Standard of Review
We review de novo a dismissal for failure to state a claim
under Rule 12(b)(6). Cervantes v. United States, 330 F.3d
1186, 1187 (9th Cir. 2003). We read the complaint in the light
most favorable to the non-moving party. Allegations in the
complaint, together with reasonable inferences therefrom, are
assumed to be true for purposes of the motion. Associated
Gen. Contractors v. Metro. Water Dist., 159 F.3d 1178, 1181
(9th Cir. 1998). A dismissal for failure to state a claim pursu-
ant to 12(b)(6) should not be granted “unless it appears
beyond doubt that the plaintiff can prove no set of facts in
support of his claim which would entitle him to relief.” Gilli-
gan v. Jamco Dev. Corp., 108 F.3d 246, 248 (9th Cir. 1997)
(internal quotation marks omitted) (quoting Conley v. Gibson,
355 U.S. 41, 45-46 (1957)); see also Fed. R. Civ. P. 8(a).
We review de novo dismissals for failure to plead with par-
ticularity under Rule 9(b). In re Daou Sys., Inc., 411 F.3d
1006, 1013 (9th Cir. 2005), cert. denied, 126 S. Ct. 1335
(2006).
III. Discussion
A. RICO
[1] The Racketeer Influenced and Corrupt Organizations
(“RICO”) Act, passed in 1970 as Title IX of the Organized
Crime Control Act, provides for both criminal and civil liabil-
ity. Pub. L. No. 91-452, § 901, 84 Stat. 922 (1970) (codified
at 18 U.S.C. §§ 1961-1968). Civil RICO provides for treble
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damages. 18 U.S.C. § 1964(c). There has been some judicial
resistance to RICO, manifested in narrow readings of its pro-
visions by lower federal courts. In four notable cases, the
Supreme Court has corrected these narrow readings.
The first case was United States v. Turkette, 452 U.S. 576
(1981), which we discuss in detail later in this opinion. The
First Circuit had read RICO to prohibit only the infiltration of
legitimate businesses by organized crime. United States v.
Turkette, 632 F.2d 896, 899 (1st Cir. 1980). In its view, RICO
did not prohibit criminal acts by purely criminal enterprises.
Id. The Supreme Court held that the court of appeals had
“clearly departed from and limited the statutory language.”
Turkette, 452 U.S. at 581. The Court explained:
As a measure to deal with the infiltration of legiti-
mate businesses by organized crime, RICO was both
preventive and remedial. . . . If Congress had
intended the more circumscribed approach espoused
by the Court of Appeals, there would have been
some positive sign that the law was not to reach
organized criminal activities that give rise to the con-
cerns about infiltration. The language of the statute,
however — the most reliable evidence of its intent
— reveals that Congress opted for a far broader defi-
nition of the word “enterprise,” and we are uncon-
vinced by anything in the legislative history that this
definition should be given less than its full effect.
Id. at 593.
The second case was Sedima, S.P.R.L. v. Imrex Co., 473
U.S. 479, 481 (1985), in which the Second Circuit had read
civil RICO to impose liability only against defendants who
had been criminally convicted, and only for what the court
termed “racketeering injury.” The Supreme Court disagreed
with both propositions. It noted that the court of appeals had
narrowly construed RICO in order to avoid what that court
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viewed as “intolerable practical consequences.” Id. at 490.
But the Court insisted that a “less restrictive reading” was
required by the text of the statute. It wrote:
RICO is to be read broadly. This is the lesson not
only of Congress’ self-consciously expansive lan-
guage and overall approach, but also of its express
admonition that RICO is to “be liberally construed to
effectuate its remedial purposes.”
. . . .
Underlying the Court of Appeals’ holding was its
distress at the “extraordinary, if not outrageous,”
uses to which civil RICO has been put. Instead of
being used against mobsters and organized crimi-
nals, it has become a tool for everyday fraud cases
brought against “respected and legitimate ‘enter-
prises.’ ” Yet Congress wanted to reach both “legiti-
mate” and “illegitimate” enterprises. The former
enjoy neither an inherent incapacity for criminal
activity nor immunity from its consequences. . . .
It is true that private civil actions under the statute
are being brought almost solely against such defen-
dants, rather than against the archetypal, intimidating
mobster. Yet this defect — if defect it is — is inher-
ent in the statute as written, and its correction must
lie with Congress.
Id. at 497-98, 499 (citations omitted).
The third case was National Organization for Women v.
Scheidler, 510 U.S. 249 (1994), in which the Seventh Circuit
had read civil RICO to provide liability only when acts of a
RICO enterprise had an economic motive. The Supreme
Court refused to read such a limitation into the statute. It
wrote,
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In United States v. Turkette, we faced the analo-
gous question whether “enterprise” as used in
§ 1961(4) should be confined to “legitimate” enter-
prises. Looking to the statutory language, we found
that “[t]here is no restriction upon the associations
embraced by the definition: an enterprise includes
any union or group of individuals associated in fact.”
. . .
The parallel to the present case is apparent. Con-
gress has not, either in the definitional section or in
the operative language, required that an “enterprise”
in § 1962(c) have an economic motive.
Id. at 260-61 (citations omitted).
The fourth case was Cedric Kushner Promotions v. King,
533 U.S. 158 (2001), a civil RICO case in which the Second
Circuit had held that the president and sole shareholder of a
corporation could not be a “person” who “conduct[s] or parti-
cipate[s] . . . in the conduct of [the corporate] enterprise’s
affairs.” Id. at 160 (quoting 18 U.S.C. § 1962(c)) (ellipsis in
original; brackets added). In the view of the court of appeals,
the president and sole shareholder was therefore not a “per-
son” made liable under RICO. Id. at 161. The Supreme Court
disagreed with this narrow construction. Characterizing the
question as whether the president and sole shareholder (the
“person”) was legally distinct from the corporation (the “en-
terprise”), the Court wrote, “The corporate owner/employee,
a natural person, is distinct from the corporation itself, a
legally different entity with different rights and responsibili-
ties due to its different legal status. And we can find nothing
in the statute that requires more ‘separateness’ than that.” Id.
at 163.
[2] We take from these cases the general instruction that we
should not read the statutory terms of RICO narrowly. Rather,
as the Court wrote in Sedima, “RICO is to be read broadly.”
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473 U.S. at 497. As Congress admonished and as the Court
repeated in Sedima, RICO should “be liberally construed to
effectuate its remedial purposes.” Id. at 498; RICO § 904(a).
B. Plaintiffs’ Suit
Plaintiffs allege that defendants have violated two provi-
sions of RICO. First, they allege violation of 18 U.S.C.
§ 1962(c), which provides:
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 com-
merce, to conduct or participate, directly or indi-
rectly, in the conduct of such enterprise’s affairs
through a pattern of racketeering activity or collec-
tion of unlawful debt.
Second, they allege violation of 18 U.S.C. § 1962(d), which
provides:
It shall be unlawful for any person to conspire to vio-
late any of the provisions of subsection (a), (b), or
(c) of this section.
In the posture of this appeal, the survival of plaintiffs’ claim
under § 1962(c) will ensure the survival of their claim under
§ 1962(d). See Howard v. Am. Online Inc., 208 F.3d 741, 751
(9th Cir. 2000). We therefore address, in the remainder of this
opinion, only plaintiffs’ claim under § 1962(c).
[3] To state a claim under § 1962(c), a plaintiff must allege
“(1) conduct (2) of an enterprise (3) through a pattern (4) of
racketeering activity.” Sedima, 473 U.S. at 496 (footnote
omitted). The only questions presented in this appeal concern
requirements (2) and (4). First, Microsoft and Best Buy con-
tend that plaintiffs have not alleged an “associated in fact”
“enterprise” under RICO. Second, Microsoft and Best Buy
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contend that while plaintiffs have properly identified wire
fraud as a predicate act of “racketeering activity,” they have
not pled fraud with particularity. We address these two con-
tentions in turn.
1. Associated-in-Fact Enterprise
[4] The definition of “enterprise” in the text of RICO is
fairly straightforward. In its entirety, the definition is as fol-
lows: “ ‘enterprise’ includes any individual, partnership, cor-
poration, association, or other legal entity, and any union or
group of individuals associated in fact although not a legal
entity.” 18 U.S.C. § 1961(4). As is evident from the text, this
definition is not very demanding. A single “individual” is an
enterprise under RICO. Similarly, a single “partnership,” a
single “corporation,” a single “association,” and a single
“other legal entity” are all enterprises. At issue in this case is
the last kind of enterprise listed in the definition — a “group
of individuals associated in fact.” It is undisputed that a cor-
poration can be an “individual” for purposes of an associated-
in-fact enterprise. What is disputed is the manner in which a
group must be associated.
a. United States v. Turkette
In United States v. Turkette, 452 U.S. 576 (1981), the only
Supreme Court case directly on point, defendants were
alleged to have been an associated-in-fact enterprise within
the meaning of §§ 1961(4) and 1962(c). In the words of the
statute, they were alleged to have been a “group of individuals
associated in fact” for the purpose of engaging in acts consti-
tuting “a pattern of racketeering activity.” The First Circuit
had agreed with defendants that RICO was designed “solely
to protect legitimate business enterprises from infiltration by
racketeers and that RICO does not make criminal the partici-
pation in an association which performs only illegal acts and
which has not infiltrated or attempted to infiltrate a legitimate
enterprise.” Id. at 579-80. The Supreme Court reversed, hold-
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ing that a “group of individuals associated in fact” was an
enterprise under RICO even if the purpose of the enterprise
was exclusively criminal. Id. at 593.
In the course of its analysis, the Court refuted various ana-
lytic mistakes by the court of appeals. The First Circuit’s con-
clusion that RICO did not apply to wholly illegal enterprises
depended in part on its reasoning that a contrary holding
would render portions of the statute superfluous. The court of
appeals had stated,
“If ‘a pattern of racketeering’ can itself be an ‘enter-
prise’ for purposes of section 1962(c), then the two
phrases ‘employed by or associated with any enter-
prise’ and ‘the conduct of such enterprise’s affairs
through [a pattern of racketeering activity]’ add
nothing to the meaning of the section. The words of
the statute are coherent and logical only if they are
read as applying to legitimate enterprises.”
Turkette, 452 U.S. at 582 (quoting United States v. Turkette,
632 F.2d 896, 899 (1st Cir. 1980) (alteration in original)).
The Supreme Court was at pains to correct the court of
appeals’ reading of the statute. It wrote:
[The court of appeals’ conclusion] is based on a
faulty premise. That a wholly criminal enterprise
comes within the ambit of the statute does not mean
that a “pattern of racketeering activity” is an “enter-
prise.” In order to secure a conviction under RICO,
the Government must prove both the existence of an
“enterprise” and the connected “pattern of racketeer-
ing activity.” The enterprise is an entity, for present
purposes a group of persons associated together for
a common purpose of engaging in a course of con-
duct. The pattern of racketeering activity is, on the
other hand, a series of criminal acts as defined by the
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statute. The former is proved by evidence of an
ongoing organization, formal or informal, and by
evidence that the various associates function as a
continuing unit. The latter is proved by evidence of
the requisite number of acts of racketeering commit-
ted by the participants in the enterprise. While the
proof used to establish these separate elements may
in particular cases coalesce, proof of one does not
necessarily establish the other. The “enterprise” is
not the “pattern of racketeering activity”; it is an
entity separate and apart from the pattern of activity
in which it engages.
Id. at 583 (citation omitted; emphasis added).
[5] In context, this passage from Turkette is easy to under-
stand. The court of appeals had mistakenly equated the term
“enterprise” with the term “pattern of racketeering activity.”
The Supreme Court pointed out that the terms refer to two
concepts that are “separate and apart” from one another: The
“enterprise” is the actor, and the “pattern of racketeering
activity” is an activity in which that actor engages. See id.
These separate concepts can be expressed grammatically:
“Enterprise” is the subject, and “pattern of racketeering activi-
ty” is part of the predicate. Actions that form the “pattern of
racketeering activity” are often referred to as “predicate” acts,
though likely not in the grammatical sense. See, e.g., Mendoza
v. Zirkle Fruit Co., 301 F.3d 1163, 1168 (9th Cir. 2002);
Howard, 208 F.3d at 746. In the words of the Court, italicized
above, “The ‘enterprise’ is not the ‘pattern of racketeering
activity’; it is an entity separate and apart from the pattern of
activity in which it engages.” Turkette, 452 U.S. at 583.
[6] Turkette further explained that proof of a “pattern of
racketeering activity” is not, by itself, proof of an “enter-
prise.” Id. “Enterprise” and “pattern of racketeering activity”
are separate elements that require separate proof. In the words
of the Court, “[t]he existence of an enterprise at all times
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remains a separate element which must be proved by the Gov-
ernment.” Id. (stating that “[w]hile the proof used to establish
these separate elements [of “enterprise” and “pattern of racke-
teering activity”] may in particular cases coalesce, proof of
one does not necessarily establish the other”).
b. Confusion in the Lower Courts
The Court’s explanation of the meaning of an associated-
in-fact enterprise in Turkette has not been clearly understood
in the lower courts, including our own. We have taken this
case en banc to correct and clarify our case law.
Four circuits have read the language in Turkette to require
that an associated-in-fact enterprise have some kind of ascer-
tainable separate structure. The formulations vary among
these circuits, but they all require that there be an ascertain-
able organizational structure beyond whatever structure is
required to engage in the pattern of illegal racketeering activ-
ity. See, e.g., Asa-Brandt, Inc. v. ADM Investor Servs., Inc.,
344 F.3d 738, 752 (8th Cir. 2003) (“enterprise must have . . .
an ascertainable structure distinct from the pattern of racke-
teering”); United States v. Sanders, 928 F.2d 940, 944 (10th
Cir. 1991) (“enterprise” requires evidence of “an ascertainable
structure that exist[s] apart from the commission of racketeer-
ing acts”); United States v. Tillett, 763 F.2d 628, 632 (4th Cir.
1985) (“enterprise” requires evidence “to show that the orga-
nization had an existence beyond that which was necessary to
commit the predicate crimes” (citations omitted)); United
States v. Riccobene, 709 F.2d 214, 223-24 (3d Cir. 1983)
(“enterprise” must have “an existence beyond that which is
necessary merely to commit each of the acts charged as predi-
cate racketeering offenses”); United States v. Bledsoe, 674
F.2d 647, 665 (8th Cir. 1982) (proof of ascertainable structure
“might be demonstrated by proof that a group engaged in a
diverse pattern of crimes or that it has an organizational pat-
tern or system of authority beyond what was necessary to per-
petrate the predicate crimes”).
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The Seventh Circuit requires that there be “some” kind of
ascertainable structure, but it does not require that it be a sep-
arate structure. See, e.g., Richmond v. Nationwide Cassel L.P.,
52 F.3d 640, 644 (7th Cir. 1995) (requiring proof of “an ongo-
ing structure of persons associated through time, joined in
purpose, and organized in a manner amenable to hierarchical
or consensual decision-making” (internal quotation marks and
citation omitted)); see also United States v. Rogers, 89 F.3d
1326, 1337-38 (7th Cir. 1996) (imposing “some” structural
requirements, but concluding that it would be “nonsensical to
require proof that an enterprise had purposes or goals separate
and apart from the pattern of racketeering activity”).
By contrast, four circuits have rejected any requirement
that there be an “ascertainable structure,” separate or other-
wise, for an associated-in-fact enterprise. See, e.g., United
States v. Patrick, 248 F.3d 11, 19 (1st Cir. 2001) (“Since Con-
gress intended the term ‘enterprise’ to include both legal and
criminal enterprises, and because the latter may not observe
the niceties of legitimate organizational structures, we refuse
to import an ‘ascertainable structure’ requirement into jury
instructions.” (citation omitted)); United States v. Perholtz,
842 F.2d 343, 354 (D.C. Cir. 1988) (concluding that enter-
prise is “established by common purpose among the partici-
pants, organization, and continuity”); United States v.
Cagnina, 697 F.2d 915, 921 (11th Cir. 1983) (“Turkette did
not suggest that the enterprise must have a distinct, formalized
structure.”); United States v. Bagaric, 706 F.2d 42, 56 (2d Cir.
1983) (stating that “it is logical to characterize any associative
group in terms of what it does, rather than by abstract analysis
of its structure” (emphasis in original)), abrogated on other
grounds by Nat’l Org. for Women, Inc. v. Scheidler, 510 U.S.
249 (1994).
[7] Our own circuit has equivocated on whether an
associated-in-fact enterprise must have an ascertainable sepa-
rate structure and, if so, what functions that structure must
serve. See, e.g., United States v. Feldman, 853 F.2d 648, 659-
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60 (9th Cir. 1988) (declining to decide whether proof of
ascertainable structure is necessary for an associated-in-fact
enterprise because the legitimate corporations constituting the
enterprise each had organizational structures); River City
Mkts., Inc. v. Fleming Foods W., Inc., 960 F.2d 1458, 1461
(9th Cir. 1992) (concluding that “business relationship akin to
a joint venture” was sufficient to establish an associated-in-
fact RICO enterprise); Chang v. Chen, 80 F.3d 1293, 1299
(9th Cir. 1996) (explaining that “it is sufficient to show that
the organization has an existence beyond that which is merely
necessary to commit the predicate acts of racketeering” and
citing the Third Circuit’s decision in Riccobene, 709 F.2d at
224). The confusion in our precedents has caused difficulties
for the district courts in this circuit. See, e.g., Hansen v. Ticket
Track, Inc., 280 F. Supp. 2d 1196, 1206 (W.D. Wash. 2003)
(“The Court acknowledges that the Ninth Circuit case law
defining an association in fact using the ‘separate structure’
analysis is less than clear.”).
[8] We take this opportunity to join the circuits that hold
that an associated-in-fact enterprise under RICO does not
require any particular organizational structure, separate or
otherwise. See Patrick, 248 F.3d at 19 (1st Cir. 2001); Per-
holtz, 842 F.2d at 355 (D.C. Cir. 1988); Cagnina, 697 F.2d at
921 (11th Cir. 1983); Bagaric, 706 F.2d at 55-56 (2d Cir.
1983). To the extent that our past precedent suggests the con-
trary, it is hereby overruled. See, e.g., Wagh v. Metris Direct,
Inc., 348 F.3d 1102, 1112 (9th Cir. 2003); Simon v. Value
Behavioral Health, Inc., 208 F.3d 1073, 1083-84 (9th Cir.
2000); Chang, 80 F.3d at 1298-99, 1301.
c. No Requirement of Separate or Ascertainable Structure
As we explain above, the Supreme Court’s statement in
Turkette that an “enterprise” is “an entity separate and apart
from the pattern of activity in which it engages” is not a state-
ment that an associated-in-fact enterprise must have some
kind of separate structure. 452 U.S. at 583. Rather, it is
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merely a statement of the obvious: The enterprise and its
activity are two separate things. One is the enterprise. The
other is its activity.
To read the Court’s statement in Turkette as requiring that
an associated-in-fact enterprise have a structure beyond that
necessary to carry out its pattern of illegal racketeering activi-
ties is not only to misread the particular passage of Turkette.
It is also fundamentally to misunderstand Turkette’s holding.
The First Circuit in Turkette had read RICO to impose liabil-
ity only when a legitimate business was infiltrated by a crimi-
nal enterprise. In the view of the court of appeals, RICO did
not impose liability on purely criminal enterprises. The
Supreme Court reversed.
To require that an associated-in-fact enterprise have a struc-
ture beyond that necessary to carry out its racketeering activi-
ties would be to require precisely what the Court in Turkette
held that RICO does not require. Such a requirement would
necessitate that the enterprise have a structure to serve both
illegal racketeering activities as well as legitimate activities.
In other words, it would require — as the First Circuit sought
to require in Turkette — that the enterprise have a structure
serving both illegitimate and legitimate purposes. But the
Court in Turkette held precisely the opposite. It held that a
purely criminal enterprise can be an associated-in-fact enter-
prise within the meaning of RICO. See also Cedric Kushner
Promotions, 533 U.S. at 164-65 (stating that RICO “protects
the public from those who would unlawfully use an ‘enter-
prise’ (whether legitimate or illegitimate) as a ‘vehicle’
through which ‘unlawful . . . activity is committed’ ”) (ellipsis
in original; citations omitted).
Further, to require that an associated-in-fact enterprise have
an “ascertainable structure” — whether that structure serves
both legitimate and illegitimate activities, or only illegitimate
activities — is also to misread Turkette. As the First Circuit
stated in Patrick, such a requirement improperly narrows the
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definition of an associated-in-fact enterprise because criminal
enterprises “may not observe the niceties of legitimate organi-
zational structures.” 248 F.3d at 19. There must, of course, be
an associated-in-fact enterprise, as required by the statute and
as explained in Turkette. But there is no additional require-
ment that the enterprise have an “ascertainable structure.”
d. Criteria for an Associated-in-Fact Enterprise
[9] The Supreme Court in Turkette articulated the criteria
for an associated-in-fact enterprise under RICO. According to
the Court, an associated-in-fact enterprise is “a group of per-
sons associated together for a common purpose of engaging
in a course of conduct.” 452 U.S. at 583. To establish the
existence of such an enterprise, a plaintiff must provide both
“evidence of an ongoing organization, formal or informal,”
and “evidence that the various associates function as a contin-
uing unit.” Id. We consider these criteria in turn.
i. Common Purpose
[10] We first conclude that plaintiffs have sufficiently
alleged that defendants Best Buy and Microsoft have associ-
ated for “a common purpose of engaging in a course of con-
duct.” Id. According to the complaint, defendants had the
common purpose of increasing the number of people using
Microsoft’s Internet Service, and doing so by fraudulent
means. Best Buy furthered this common purpose by distribut-
ing Microsoft Internet Trial CD’s and conveying its custom-
ers’ debit and credit card information to Microsoft. Microsoft
then used the information to activate customer accounts.
These allegations are more than adequate to establish, if true,
that Microsoft and Best Buy had a common purpose of
increasing the number of people using Microsoft’s Internet
service through fraudulent means.
ii. Ongoing Organization
[11] We next conclude that plaintiffs sufficiently alleged an
“ongoing organization,” either “formal or informal.” Turkette,
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452 U.S. at 583. An ongoing organization is “a vehicle for the
commission of two or more predicate crimes.” Cagnina, 697
F.2d at 921-22 (internal quotation marks omitted) (quoting
United States v. Elliott, 571 F.2d 880, 898 (5th Cir. 1978)).
According to plaintiffs, Microsoft and Best Buy formed a
vehicle for the commission of at least two predicate acts of
fraud. Microsoft and Best Buy established mechanisms for
transferring plaintiffs’ personal and financial information
from Best Buy to Microsoft. That information then allowed
Microsoft to activate plaintiffs’ Internet accounts without
their knowledge or permission. These mechanisms enabled
Microsoft to bill plaintiffs improperly for MSN services in
2001, 2002 and 2003. See United States v. Qaoud, 777 F.2d
1105, 1117 (6th Cir. 1985) (stating that “coordinated nature”
of defendant’s activity supported finding of RICO enterprise).
The alleged cross-marketing contract between Microsoft and
Best Buy provides additional evidence of an ongoing organi-
zation. Plaintiffs allege that, in addition to the transfer of cus-
tomers’ information from Best Buy to Microsoft, “Best Buy
agreed to promote MSN and other Microsoft products in its
stores and advertising.” In exchange, plaintiffs allege, “Micro-
soft invested $200 million in Best Buy and agreed to promote
Best Buy’s online store through its MSN service.”
iii. Continuing Unit
[12] Finally, we conclude that plaintiffs have alleged facts
that, if proved, provide sufficient “evidence that the various
associates function as a continuing unit.” Turkette, 452 U.S.
at 583. The continuity requirement does not, in itself, require
that every member “be involved in each of the underlying acts
of racketeering, or that the predicate acts be interrelated in
any way.” Qaoud, 777 F.2d at 1116. Instead, the continuity
requirement focuses on whether the associates’ behavior was
“ongoing” rather than isolated activity. Patrick, 248 F.3d at
19.
[13] The allegations of plaintiffs Odom and Moureaux-
Maloney describe similar methods of fraudulently charging
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Best Buy customers for MSN Internet accounts. Plaintiffs’
allegations cover almost two years of conduct by Best Buy
and Microsoft. An almost two-year time span is far more than
adequate to establish that Best Buy and Microsoft functioned
as a continuing unit. That several employees engaged in the
activity at different times does not defeat the continuity
requirement. Cagnina, 697 F.2d at 921 (holding that a grow-
ing membership and diversity of activities do not preclude a
finding of “continuity”).
iv. Conclusion
Several courts of appeals have concluded that a broad defi-
nition of an associated-in-fact enterprise would produce unde-
sirably expansive RICO liability. For example, when the
Third Circuit in Riccobene required that an enterprise have a
structure beyond that “necessary merely to commit each of
the acts charged as predicate racketeering offenses,” 709 F.2d
at 224, it did so to avoid what it called the “dangers” of a
broad definition. Id. at 221. The Third Circuit stated that it
was concerned that RICO liability would extend “to situations
far removed from those actually contemplated by Congress,
and that federal prosecutors could use the law to invoke an
additional penalty whenever they had a case involving the
commission of two offenses that, coincidentally, were among
those listed as ‘racketeering activities.’ ” Id.
The answer to concerns like those expressed by the Third
Circuit in Riccobene was given by the Supreme Court in
Sedima, when it rebuked the Second Circuit for having inter-
preted RICO to avoid what the court of appeals had called the
“ ‘extraordinary, if not outrageous,’ uses to which civil RICO
had been put.” 473 U.S. at 499. The Court’s response was to
point to the text of the statute: “It is true that private civil
actions under the statute are being brought almost solely
against [legitimate] defendants, rather than against the arche-
typal, intimidating mobster. Yet this defect — if defect it is
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— is inherent in the statute as written, and its correction must
lie with Congress.” Id. (footnote omitted).
[14] In Turkette, the Supreme Court carefully articulated
the criteria for an associated-in-fact enterprise under RICO.
We do not believe that we are at liberty to add to them.
Applying the criteria articulated in Turkette, we conclude that
plaintiffs have sufficiently alleged an associated-in-fact enter-
prise.
2. Pleading Fraud with Particularity
Federal Rule of Civil Procedure 9(b) requires that fraud be
pled with particularity. It provides: “In all averments of fraud
. . . , the circumstances constituting fraud . . . shall be stated
with particularity. Malice, intent, knowledge, and other condi-
tion of mind of a person may be averred generally.” Rule 9(b)
“requires the identification of the circumstances constituting
fraud so that the defendant can prepare an adequate answer
from the allegations.” Schreiber Distrib. Co. v. Serv-Well
Furniture Co., 806 F.2d 1393, 1400 (9th Cir. 1986) (internal
quotation marks omitted) (quoting Bosse v. Crowell Collier &
MacMillan, 565 F.2d 602, 611 (9th Cir. 1977)). “[T]he
pleader must state the time, place, and specific content of the
false representations as well as the identities of the parties to
the misrepresentation.” Id. at 1401; see also Moore v. Kayport
Package Express, Inc., 885 F.2d 531, 541 (9th Cir. 1989).
While the factual circumstances of the fraud itself must be
alleged with particularity, the state of mind — or scienter —
of the defendants may be alleged generally. See In re Glen-
Fed, Inc. Sec. Litig., 42 F.3d 1541, 1547 (9th Cir. 1994) (en
banc) (“We conclude that plaintiffs may aver scienter gener-
ally, just as the rule states — that is, simply by saying that
scienter existed.”).
[15] “[A] wire fraud violation consists of (1) the formation
of a scheme or artifice to defraud; (2) use of the United States
wires or causing a use of the United States wires in further-
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ance of the scheme; and (3) specific intent to deceive or
defraud.” Schreiber, 806 F.2d at 1400 (citation omitted); see
also United States v. McNeil, 320 F.3d 1034, 1040 (9th Cir.
2003). To the degree that the first requirement — the forma-
tion of a scheme or artifice to defraud — requires a showing
of the defendants’ state of mind, general rather than particu-
larized allegations are sufficient. Similarly, the third require-
ment — specific intent to deceive or defraud — requires only
a showing of the defendants’ state of mind, for which general
allegations are sufficient. The only aspects of wire fraud that
require particularized allegations are the factual circumstances
of the fraud itself.
Plaintiff Odom specifically alleges that he bought a laptop
computer from a Best Buy store in Pleasant Hill, California,
in May 2002; that he told the Best Buy employee when he
purchased the computer that he did not need the Trial CD and
the MSN service because he already had an Internet service
provider; that the employee nevertheless scanned the Trial CD
and swiped Odom’s credit card, thereby sending the informa-
tion to Microsoft by wire and establishing an account for
Microsoft’s MSN service without his knowledge or permis-
sion; that Microsoft billed him for two months of the MSN
service that had been provided without his knowledge or per-
mission; and that he has not been compensated for his losses.
Odom does not allege the name of the Best Buy employee
who sold him the computer and established his MSN account.
Plaintiff Moureaux-Maloney specifically alleges that she
bought a cell phone and a cell phone plan from a Best Buy
store in Reno, Nevada, in September 2001; that the Best Buy
employee scanned a Trial CD and swiped her debit card,
thereby sending the information to Microsoft by wire and
establishing an account for Microsoft’s MSN service without
her knowledge or permission; that Microsoft withdrew
monthly MSN payments from her debit card account for sev-
enteen months without her knowledge or permission; that
Microsoft sent her a bill for monthly MSN services for April,
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May, and June 2003 after Microsoft was unable to withdraw
money from her debit card account; and that Microsoft has
not compensated her for losses attributable to the seventeen
months of withdrawals from her account, and has continued
to bill her for the three-month period in 2003. Like Odom,
Moureaux-Maloney does not allege the name of the Best Buy
employee who sold her the cell phone and established her
MSN account.
[16] The only arguable deficiency in Odom and Moureaux-
Maloney’s allegations of wire fraud is that the names of the
individual Best Buy employee who established their MSN
accounts are not alleged. We hold for two reasons that, in the
circumstances of a retail transaction whose full consequences
are realized only months later, the employee of the store need
not be named. First, it is unrealistic to expect that the retail
customer would remember the name of the cash register
employee. A requirement that the employee be named as a
precondition of bringing suit and commencing discovery
would, as a practical matter, defeat almost any suit based on
such a fraud. Second, as we noted above, Rule 9(b) “requires
the identification of the circumstances constituting fraud so
that the defendant can prepare an adequate answer from the
allegations.” Schreiber, 806 F.2d at 1400. In the circum-
stances of this case, we have been given no reason to believe
that defendants will be hampered in their defense by Odom
and Moureaux-Maloney’s inability to name the particular
employees.
[17] We therefore hold that plaintiffs’ allegations of the cir-
cumstances of wire fraud are sufficiently particularized to sat-
isfy the pleading requirements of Rule 9(b).
IV. Conclusion
For the foregoing reasons, we hold that plaintiffs have suf-
ficiently alleged the existence of an associated-in-fact enter-
prise within the meaning of 18 U.S.C. §§ 1961(4) and
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1962(c). We also hold that plaintiffs have alleged wire fraud
with sufficient particularity to satisfy Rule 9(b). We therefore
reverse the decision of the district court and remand for fur-
ther proceedings consistent with this opinion.
REVERSED AND REMANDED.
SILVERMAN, Circuit Judge, with whom RYMER, TALL-
MAN, RAWLINSON, and BEA, Circuit Judges, join, concur-
ring in the result:
I do not see how Odom’s complaint successfully pleads an
“enterprise” within the RICO statute.
The language in Turkette is the starting point. An “enter-
prise” is “a group of persons associated together for a com-
mon purpose,” and is proven by “evidence of an ongoing
organization, formal or informal” and “evidence that the vari-
ous associates function as a continuing unit.” United States v.
Turkette, 452 U.S. 576, 583 (1981).
Paragraph 34 of Odom’s complaint alleges only the follow-
ing with respect to defining the associated-in-fact “enterprise”
element:
Defendants’s agreement that Microsoft will advertise
and promote Best Buy and its online store on its
MSN Internet access service and various Microsoft-
owned Websites, while Best Buy will advertise and
promote MSN service in its “bricks and mortar” and
online stores, together with Defendants’ activities in
furtherance of the agreement, constitute an “enter-
prise” as defined in 18 U.S.C. § 1961(4).
Nothing in this paragraph fairly alleges an “ongoing organi-
zation” between Microsoft and Best Buy. It merely states that
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the existence of a marketing contract and the performance of
that contract by two parties constitute an enterprise. Stated
differently, the Complaint assumes that if two parties perform
a series of “predicate acts” for each other’s benefit pursuant
to a commercial agreement, they ipso facto constitute an “en-
terprise.”
I cannot agree. RICO targets a more sophisticated crowd:
those persons or entities associated in fact with “ongoing
organization” — some minimal structure, coordination, or
ordering principle to distinguish them from a run-of-the-mill
conspiracy. See Chang v. Chen, 80 F.3d 1293, 1300 (9th Cir.
1996) (“A conspiracy . . . is not an enterprise for purposes of
RICO.”); see also Turkette, 452 U.S. at 589 (noting that the
declared purpose of RICO was “to seek the eradication of
organized crime” (emphasis added and citation omitted)).
This distinction is highlighted in our cases and those of our
sister circuits. See, e.g., United States v. Patrick, 248 F.3d 11,
19 (1st Cir. 2001) (noting that the gang “had older members
who instructed younger ones, its members referred to the gang
as family, and it had ‘sessions’ where important decisions
were made”); United States v. Rogers, 89 F.3d 1326, 1337
(7th Cir. 1996) (asking whether the enterprise has a structure
“organized in a manner amenable to hierarchical or consen-
sual decision-making” (citation and internal quotation omit-
ted)); Chang, 80 F.3d at 1299 (asking whether the enterprise’s
“structure . . . provide[s] some ‘mechanism for controlling
and directing the affairs of the group on an on-going, rather
than an ad hoc, basis’ ” (quoting United States v. Riccobene,
709 F.2d 214, 222 (3d Cir. 1983)); United States v. Perholtz,
842 F.2d 343, 363 (D.C. Cir. 1988) (“The same group of indi-
viduals who repeatedly commit predicate offenses do not nec-
essarily comprise an enterprise. An extra ingredient is
required: organization.”).
There is nothing in the complaint to suggest “ongoing orga-
nization” between Best Buy and Microsoft after the ink dried
on their alleged agreement — no partnership, joint venture,
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consultation, concerted action, or joint decision-making. On
this score, Odom alleged nothing more than a contract and its
performance. As a result, the district court correctly dismissed
Odom’s complaint.1
I reject the majority’s reference to the alleged “ ‘coordi-
nated’ behavior of the two entities” — the transfer of cus-
tomer financial information and other cross promotional
activities between Microsoft and Best Buy — as satisfying the
pleading requirement for “ongoing organization.” See Maj.
Op. at 4979-80. Odom’s complaint narrowly defines the “en-
terprise” as only the marketing agreement between Best Buy
and Microsoft together and their activities in furtherance of
that agreement. It is not for us to buttress paragraph 34 with
facts that Odom could have, but did not allege to define the
“enterprise.”
Nevertheless, I vote to reverse because the district court
should have granted Odom leave to amend his complaint.
When the district court hinted that it was thinking about dis-
missing the RICO claim, plaintiffs’ counsel offered to “elabo-
rate” on how the complaint could be amended to “plead
within the statute,” but the district court declined to entertain
additional argument on the matter. Because there may be facts
which if properly pled would satisfy the RICO “enterprise”
element, and given Rule 15(a)’s mandate that “leave shall be
freely given,” the district court’s failure to do so was error.
1To the extent the complaint alleges that decisions “are made by Defen-
dants jointly,” it does not allege that the joint decision-making was suffi-
ciently systematic to constitute “ongoing organization” — some “system
of authority that guide[s] the operation of the alleged enterprise” beyond
the initial contract, Chang, 80 F.3d at 1300, or, as the Third Circuit has
aptly put the point, a “mechanism for controlling and directing the affairs
of the group on an ongoing, rather than an ad hoc, basis.” Riccobene, 709
F.2d at 222.
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BYBEE, Circuit Judge, joined by Judge REINHARDT, con-
curring:
It strikes me as outlandish that what Judge Silverman cor-
rectly describes as a “marketing contract” between Microsoft
and Best Buy could subject them to a private RICO action.
Slip Op. at 4986 (Silverman, J., concurring in the result). But
my concerns were voiced and dismissed more than twenty
years ago. See Sedmina, S.P.R.L. v. Imrex Co., 473 U.S. 479,
497-99 (1985). I therefore join Judge Fletcher’s opinion for
the court.
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