Update: Review granted in Grace Kelson appeal

In August 2012, the Utah Court of Appeals vacated Grace Kelson’s conviction on one count of violating the Utah Pattern of Unlawful Activity Act, because there was insufficient “continuity” in her allegedly unlawful activities.  (The activities did not occur over an extended period of time, and ended before she was charged.)  The court also reversed convictions and remanded for a new trial on one count of offer or sale of unregistered securities, one count of sale by an unlicensed broker‐dealer, agent, or investment advisor, three counts of securities fraud.

Update:  On January 14, 2013, the Utah Supreme Court granted certiorari in the case, agreeing to review the Court of Appeals’ opinion.

UPUAA civil claims – is knowledge by a “high managerial agent” required?

In some ways, the Utah Pattern of Unlawful Activity Act is the same for criminal cases as in civil cases.  In other ways, the two are very different.

In a recent case we brought under the UPUAA, the defendant corporation argued that, even though it was a civil case, our clients were still required to establish certain elements of criminal responsibility from the Criminal Code.  In particular, the corporation argued that it could not be found liable in a UPUAA civil case unless a “high managerial agent” (not just an employee or lower-level agent) had knowledge of or tolerated the misconduct.

The corporation’s argument went like this:  If this were a criminal case, knowledge or participation by a high managerial agent would be required to get a conviction.  In a civil UPUAA case, a plaintiff has to prove the elements of one or more underlying criminal offenses (called “predicate” offenses.  For example, a common predicate offense in an UPUAA claim is Communications Fraud.)  Because the plaintiff has to show the elements of an underlying criminal offense, then the plaintiff should also have to show other requirements for a criminal conviction, such as the “high managerial agent” requirement.

The corporation’s argument was fairly easy to rebut.  First, it was contradicted by the Criminal Code itself, which expressly says that its provisions do not apply to civil claims.  In the introductory provisions of the Criminal Code, Utah Code Ann. § 76-1-107(3) states:

This act does not bar, suspend, or otherwise affect any right or liability to damages, penalty, forfeiture, impeachment, or other remedy authorized by law to be recovered or enforced in a civil action, administrative proceeding, or otherwise, regardless of whether the conduct involved in the proceeding constitutes an offense defined in this code.

The corporation’s argument had other problems as well.  For example, the statute upon which it relied, Utah Code Ann. § 76-2-204(2), applies only in prosecutions in which a defendant is subject to criminal sentencing.  The section addresses “criminal responsibility of corporation[s],” and says that “A corporation or association is guilty of an offense” when it has been recklessly tolerated, etc., by a high managerial agent.  Being found “guilty of an offense” triggers criminal sentencing.  Utah Code Ann. § 76-3-101(1) (“A person adjudged guilty of an offense under this code shall be sentenced in accordance with the provisions of this chapter”) (emphases added).  No criminal sentencing is at issue in a civil case.

An additional flaw in the corporation’s argument was that it disregarded the Criminal Code’s recognition that, even in criminal prosecutions, its general provisions do not apply if a different requirement is specified in a particular statute.  See Utah Code Ann. § 76-1-103(1) (“The provisions of this code shall govern the construction of, the punishment for, and defenses against any offenses defined in this code or, except where otherwise specifically provided or in the context otherwise requires, any offenses defined outside this code”).  (This, of course, is nothing more than a recognition of the settled proposition that, a more specific statutory provision always takes precedence over a more general statutory provision.  Taghipour v. Jerez, 2001 UT App 139, ¶ 10, 26 P.3d 885.)

Utah Code Annotated § 76-2-204(2)  says that, in criminal cases,

“A corporation or association is guilty of an offense when: . . . (2) The conduct constituting the offense is authorized, solicited, requested, commanded, or undertaken, performed, or recklessly tolerated by the board of directors or by a high managerial agent acting within the scope of his employment and in behalf of the corporation or association.”

Compare that to Utah Code Annotated § 76-10-1605(4), which says that, in civil cases under the Utah Pattern of Unlawful Activity Act, such a showing is required only if the plaintiff is seeking double damages:

“In all actions under this section, a principal is liable for actual damages for harm caused by an agent acting within the scope of either his employment or apparent authority.  A principal is liable for double damages only if the pattern of unlawful activity alleged and proven as part of the cause of action was authorized, solicited, requested, commanded, undertaken, performed, or recklessly tolerated by the board of directors or a high managerial agent acting within the scope of his employment.”

Under the plain wording of the UPUAA, therefore, all that claimants in a civil action need show to recover actual (single) damages is that the harm was caused by an agent acting within the scope of his employment or agency.             Interpreting the UPUAA as requiring a high managerial agent to have been involved in the unlawful activity for any damages award would render the first sentence of Subsection 76-10-1605(4) meaningless.  See also Williams General Corp. v. Stone, 632 S.E.2d 376 (Ga. 2006) (rejecting similar argument by the defendant in a civil case).

Finally, our interpretation was supported by legislative history.  When introducing a bill on the state senate floor amending UPUAA’s precursor (the Utah Racketeering Influenced and Criminal Enterprises Act), Senator David Schwendiman expressly noted this graduated corporate liability standard:

Insofar as corporations are concerned, if a corporation is involved, that corporation is not liable for double damages unless it can be proven that one of the high managerial agents or one of the partners or whomever actually sought to have the criminal conduct committed, or authorized it, or knew about it and condoned it.  Under the ordinary circumstances there would be actual damages available to a plaintiff when a corporation is involved in this type of conduct but there is no managerial agent who has sought to have a crime committed.

Sub. S.B. 145, 47th Leg., Morning Sess. (Feb. 20, 1987) (statement of Sen. Schwendiman).

There are some legal issues under the Utah Pattern of Unlawful Activity Act that could be close calls – this is not one of them.  A plaintiff in a civil case does not have to show knowledge or participation by a “high managerial agent” unless the plaintiff is seeking double damages.

If you come across interesting developments or issues involving the Utah Pattern of Unlawful Activity Act, feel free to e-mail us confidentially, kporter@chrisjen.com.

UPUAA conviction – St. George contractor

KSL.com reports on the conviction of a St. George contractor, Aaron Needham, on eight counts of communications fraud and one felony count under the Utah Pattern of Unlawful Activity Act, “after prosecutors say he pocketed nearly $800,000 instead of using the money to build homes in Utah and Nevada.”

This action was brought in 2010 in Washington County, Case No. 101500067.  Here are the the final jury instructions, and the Attorney General’s jury questionnaire.

If you learn of any developments involving the UPUAA, feel free to e-mail us confidentially, kporter@chrisjen.com.

“Utah RICO” (Utah Pattern of Unlawful Activity Act)

It’s sometimes called “Utah RICO,” or “state RICO,” or “little RICO,” but the Utah Pattern of Unlawful Activity Act (UPUAA) is not entirely identical to its federal counterpart, the Racketeer Influenced and Corrupt Organizations Act.

There are several sites that cover federal RICO, but none that focus on the state act, the UPUAA.  This site reports new decisions, examines legal issues that may arise in an UPUAA claim or prosecution, and addresses areas in which the UPUAA differs from RICO.  These are just our opinions (and sometimes just speculation) – they are not legal advice, which depends on the facts of specific cases, and no attorney-client relationship is intended.

If you learn of any developments involving the UPUAA, feel free to e-mail us confidentially, kporter@chrisjen.com.