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In a decision that significantly broadens the scope of civil RICO in the 3rd Circuit, a federal appeals panel has ruled that RICO conspiracy claims are not limited to those defendants who participated in the “operation or management” of a corrupt enterprise. In Smith v. Berg, a unanimous three-judge panel upheld a decision by Senior U.S. District Judge Thomas N. O’Neill Jr., who found that a recent decision of the U.S. Supreme Court had implicitly overruled the 1995 decision by the 3rd Circuit in United States v. Antar. In Antar, the 3rd Circuit had suggested that RICO conspiracy liability under Section 1962(d) extends only to those who have conspired personally to operate or manage the corrupt enterprise. But O’Neill found that Antar was overruled by the Supreme Court’s 1997 decision in Salinas v. United States, which called for a broad application of general conspiracy law to Section 1962(d) claims. The Salinas case involved a sheriff’s deputy who had knowledge of, and facilitated, a bribery scheme where an inmate paid off a sheriff for “contact visits” with his wife and girlfriend. The jury acquitted Salinas of liability under Section 1962(c) because he had not committed any predicate acts, but convicted him of RICO conspiracy because of his agreement to the scheme and his assistance. Applying Salinas, O’Neill refused to dismiss RICO conspiracy claims against the title insurance companies and banks named as defendants in a class action suit brought by alleged victims of John G. Berg, who, they claim, misled them into purchasing homes which they could not afford by fraudulently asserting that their homes would be entitled to various tax abatements and mortgage credit certificates. The plaintiffs claim that the title insurance and lending companies conspired with Berg and his companies — New Century Homes Inc. and Affordable Residences Inc. — to defraud them and realize the maximum profits from the sales and related title insurance and financings. In the RICO claims against Berg and his companies, the plaintiffs claimed that he used misleading mailings and radio and television advertisements to market residential developments in Philadelphia from 1994 to 1997. Named as conspirators in the suit are Columbia National Inc., First Town Mortgage Corp., Countrywide Credit Industries Inc., Fidelity National Financial and Fidelity National Title Insurance Co. of Pennsylvania. The suit alleges that the conspirators furthered Berg’s fraudulent enterprise by allowing Berg to assume many of their normal functions during settlements — recording false information on HUD-1 settlement statements; contacting prospective home buyers and encouraging them to make the purchases; communicating and negotiating with Berg rather than directly with the plaintiffs; failing to make Truth-In-Lending Law disclosures; and granting mortgages for which they knew the plaintiffs were unqualified. O’Neill found that if Antar were still good law, he would be forced to dismiss all of the RICO conspiracy claims against the lenders and title insurers. But O’Neill found that Salinas had overruled Antar and that the plaintiffs therefore did not have to prove that the non- Berg defendants committed any “predicate acts” of racketeering in order to hold those defendants liable under the RICO conspiracy statute. O’Neill certified his decision for an immediate appeal, and the 3rd Circuit agreed to hear it. 3RD CIRCUIT’S REASONING Now the 3rd Circuit has ruled that O’Neill was right and that Antar, while still a correct ruling in many respects, should no longer be read to impose stricter requirements for RICO conspiracy or to suggest that RICO conspiracy liability is limited to those who are also liable for a substantive violation under Section 1962(c). “We therefore hold that any reading of Antar suggesting a stricter standard of liability under Section 1962(d) is inconsistent with the broad application of general conspiracy law set forth in Salinas,” U.S. Circuit Judge Carol Los Mansmann wrote. Under the “general principles of criminal conspiracy law,” Mansmann said, “a defendant may be held liable for conspiracy to violate Section 1962(c) if he knowingly agrees to facilitate a scheme which includes the operation or management of a RICO enterprise.” Mansmann also found that O’Neill was correct in holding that the more recent decision from the Supreme Court in Beck v. Prupis did not limit application of Salinas to criminal cases. In an opinion joined by U.S. Circuit Judges Maryanne Trump Barry and Robert E. Cowen, Mansmann traced the confusion back to the U.S. Supreme Court’s 1993 decision in Reves v. Ernst & Young, which held that to be liable under Section 1962(c), a person must participate in the “operation or management” of the corrupt enterprise’s affairs. In Antar, Mansmann said, the 3rd Circuit considered a line of cases holding that conspiracy liability does not require a showing that the defendant himself participated in the operation or management of the enterprise. Finding those cases to be in tension with Reves, she said, the 3rd Circuit “crafted a novel distinction” between conspiring to operate or manage an enterprise, on the one hand, and conspiring with someone who is operating or managing the enterprise, on the other. The Antar court concluded that liability under Section 1962(d) would attach only in the first instance, Mansmann said, because “only then is the defendant conspiring to do something for which he would, if successful, be liable under Section 1962(c). But Mansmann noted that “this language in Antar was unnecessary to our holding since the court ultimately concluded that the defendant met either standard. Most other federal appellate courts, she said, have not applied the “operation or management” test in Reves to a RICO conspiracy, but instead concluded that Reves addressed only the extent of conduct or participation necessary to violate a substantive provision of the statute. In Salinas, Mansmann said, the Supreme Court resolved a conflict that had developed among the Courts of Appeals on the issue of whether a RICO conspiracy defendant must also be liable for committing predicate RICO acts. Siding with the majority of the appellate courts, the justices ruled that no predicate act is needed since RICO conspiracy requires only that the defendants share a common purpose. Mansmann found that Salinas clearly broadened the scope of RICO conspiracy and implicitly rejected the limits suggested by Antar. “The plain implication of the standard set forth in Salinas is that one who opts into or participates in a conspiracy is liable for the acts of his co-conspirators which violate Section 1962(c) even if the defendant did not personally agree to do, or to conspire with respect to, any particular element,” Mansmann wrote. And the Salinas court “did not confine its discussion … to the element of predicate acts, in which event it might be ‘harmonized’ with Antar‘s discussion of requirements as to levels of participation.” Instead, she said, the justices expressed their analysis “in broad terms,” defining an interpretation of conspiracy liability that is “directly at odds with” the way the non- Berg defendants were reading Antar. The plaintiffs in Smith v. Berg are represented by attorney James N. Gross of Philadelphia and Dean B. Webb of Vancouver, Wash. Attorney Burt M. Rublin of Ballard Spahr Andrews & Ingersoll represented Countrywide Credit Industries. Attorney Elliott A. Kolodny of Mellon Webster & Mellon in Doylestown, Pa., represented Columbia National. Attorney Natalie Finkelman of Shepherd Finkelman & Gaffigan in Media, Pa., represented First Town Mortgage Corp., while Edward J. Hayes and Lisa Carney Eldridge of Fox Rothschild O’Brien & Frankel represented Fidelity National Title Insurance Co.

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