Utah Rico Law

Update: Utah Supreme Court Reverses Court of Appeals’ Decision in Grace Kelson Case

In the fall of 2014, the Utah Supreme Court ruled to reverse a 2012 Utah Court of Appeals decision in the Grace Kelson case.

In the fall of 2014, the Utah Supreme Court ruled to reverse a 2012 Utah Court of Appeals decision in the Grace Kelson case, which had vacated Ms. Kelson’s conviction for pattern of unlawful activity and reversed and remanded for a new trial on all other charges. The Utah Supreme Court’s decision remanded the case back to the court of appeals for further consideration of any remaining issues in the case, namely to consider an alternative ground for reversal of Ms. Kelson’s convictions that the court of appeals did not consider.

As background, in or around October 2001, Ms. Kelson and the owners of a mortgage company attempted to purchase a $15 million letter of credit to fund the two development projects. In order to secure the letter of credit, Ms. Kelson and the owners had to raise $125,000. As a result, they set about persuading friends, colleagues, and the families of their friends and colleagues, to provide funds for the letter of credit. In exchange for funding the letter of credit, the investors received promissory notes signed by Ms. Kelson for amounts several times larger than the amounts they provided. The promissory notes stated a financial services company that Ms. Kelson was the registered agent of would pay the investors within thirty days. However, Ms. Kelson failed to secure the line of credit and the investors were never paid. Ms. Kelson was subsequently charged and convicted on three counts of securities fraud, one count of offering or selling unregistered securities; one count of sales by an unlicensed broker-dealer, agent, or investment advisor; and one count of engaging in a pattern of unlawful activity. Ms. Kelson appealed her convictions.

On appeal, Ms. Kelson argued that her convictions should be overturned on the basis of ineffective assistance of counsel, and that the trial court erred in denying her motion for directed verdict because the court misapplied the UPUAA. The Utah Court of Appeals agreed, overturning Ms. Kelson’s UPUAA conviction and remanding for a new trial on all other charges. Specifically as it related to the pattern of unlawful activity conviction, Ms. Kelson argued that her activity in this case didn’t constitute a pattern of unlawful activity as a matter of Utah law. The court of appeals agreed. According, to the holding in Hill v. Estate of Allred, “[t]he proper test for determining whether there was a pattern of unlawful activity is whether there was `a series of related predicates extending over a substantial period of time’ or a demonstrated threat of continuing unlawful activity and not whether there were multiple schemes.” In the eyes of the court of appeals, the State had failed to satisfy the Hill test because:

Although Kelson’s actions involved multiple alleged crimes committed for the common purpose of obtaining cash, Kelson’s alleged crimes took place over a matter of days. Kelson first alerted Employee about the opportunity shortly before October 11, 2001, and all checks exchanged for promissory notes were deposited by October 15, 2001. Thus, Kelson’s alleged unlawful activity took place over a “closed period,” and the State was required to show “‘a series of related predicates extending over a substantial period of time.'” The State does not contend that it has done so, nor could it have made such a showing. As the Supreme Court noted in H.J., “[p]redicate acts extending over a few weeks or months,” which do not threaten “future criminal conduct,” do not constitute a substantial period of time sufficient to show continuity. Accordingly, Kelson’s acts over the course of only a few days are insufficient as a matter of law to satisfy Hill’s requirement that a pattern of unlawful activity must occur over a substantial period of time.

The State thereafter filed a petition of certiorari to the Utah Supreme Court, but did not challenge the court of appeals ruling on the pattern of unlawful activity conviction. The Utah Supreme Court disagreed with the court of appeals ruling on the securities conviction, and overturned the decision. The Utah Supreme Court reasoned “the jury instruction in question was an accurate statement of the underlying criminal law and not a burden-shifting evidentiary presumption.” As a result, the Utah Supreme Court “reject[ed] Kelson’s claims of ineffective assistance of counsel and plain error, and reverse[d] and remand[ed] to the court of appeals,” for further consideration of any remaining issues in the case.

While Ms. Kelson’s vacated convictions for securities fraud were ultimately overturned by the Utah Supreme Court, the court of appeals decision regarding the UPUAA has stood. The court of appeals decision is important because it further solidifies the Hill test, which recognizes that in order to constitute a pattern of unlawful activity under Utah law, the criminal activity must extend over a “substantial period of time.” If it does not, then a UPUAA charge may not be sustained as a matter of law. It remains to be seen what will happen to the rest of Ms. Kelson’s appeal, but at least her case has produced one favorable result, even if her convictions are ultimately upheld by the court of appeals.

Update: All Charges Dismissed Against Former Provo Councilman Steven Turley

In February of this year, the last of ten felony charges against former Provo council member Steven Turley was dismissed.

In February of this year, the last of ten felony charges against former Provo council member Steven Turley was dismissed. Previously, we wrote about the dismissal of three counts of communications fraud in Mr. Turley’s case in 2013. Through the entire judicial process Mr. Turley has always maintained his innocence, claiming, “I did nothing wrong. I went about regular business.” According to Turley, the charges against him were motivated by “political enemies,” and an overzealous Utah County Attorney’s Office. “They tried to create victims,” he said. “As we go through this list of alleged victims, they have voluntarily provided statements, such as, ‘We were never defrauded.'”

In 2011, around the same time Turley was charged criminally, Provo city mayor released a separate civil ethics investigation report, which found that Turley had violated the Municipal Officers’ and Employees’ Ethics Act, and as a result he should be dismissed from the council. The report’s author, retired 4^th District Judge Anthony Schofield, admitted in his report that he was under time constraints and that he could only find five instances where he found Turley violated the ethics code. Even still, Schofield’s investigation found that Turley failed to disclose ownership in property that the council was taking action on. Schofield also reported that Turley also failed to disclose his interest in swapping U.S. Forest Service land for property in Rock Canyon. Turley was “disappointed” by Schofield’s report and said that he believed Schofield was not given enough time to look into the accusations or Turley’s response.

Even in light of Schofield’s report and the laundry list of charges against him, Turley pressed on, eventually winning dismissal of all charges against him. However, he has paid a heavy price in his fight to vindicate his himself. Provo mayor John Curtis, who once spearheaded the movement calling for Turley’s resignation, has said that the former councilman has paid a heavy price and deserves a fresh start. “For a lot of people, they’re happy to have this over. I’m very pleased for Steve. I’m very pleased for his family.” When asked if he might ever return to politics, Turley said he would continue “to serve the community,” but it might be by taking his kids for a walk, and not through politics. “Quite frankly, it has devastated our family,” and “it’s a shame that we had to go through that.”

Mr. Turley’s case provides a cautionary tale for politicians engaging in real estate transactions or other business dealings. Ultimately Mr. Turley’s conduct even if not illegal or unethical drew the ire of his fellow politicians and result in the demise of his political career. It was only after approximately four years in the judicial system that Mr. Turley has been able to vindicate himself, even though the time has taken its toll on Mr. Turley and his family.

Ex-Attorney General Mark Shurtleff Eagerly Awaits Preliminary Hearing

n July 2014, both Swallow and Shurtleff were arrested on various charges including bribery, accepting gifts, tampering with witnesses and evidence, and engaging in a pattern of unlawful conduct.

Unless you’ve been living on the moon for the year or so you have undoubtedly heard about the arrests of John Swallow and Mark Shurtleff. In July 2014, both Swallow and Shurtleff were arrested on various charges including bribery, accepting gifts, tampering with witnesses and evidence, and engaging in a pattern of unlawful conduct. In all, Swallow, who was forced from office less than a year into his first term as Attorney General, was charged with eleven felonies and two misdemeanors, including multiple counts of receiving or soliciting bribes, accepting gifts, tampering with evidence, obstructing justice and participating in a pattern of unlawful conduct. As for his compatriot Shurtleff, who served as Attorney General for twelve years before Swallow took office, he was charged with ten felonies, including receiving or soliciting bribes, accepting gifts, tampering with witnesses and evidence, and participating in a pattern of unlawful conduct.

Swallow’s preliminary hearing has been set for June 8, 2015, and Shurtleff’s is set for one week later on June 15^th. According to a recent news report, Shurtleff is anxious for his day in court. “It’s time to get this evidence before a judge and we’re very excited it’s going to happen in June. I look forward to telling the rest of the story that y’all haven’t heard yet,” Shurtleff told reporters after appearing in 3rd District Court recently. According to Shurtleff’s lawyer, “It will be a year in June. His name has been vilified in the press and he wants the opportunity to hear what the state claims it has, what it thinks it can prove and really start the process now of clearing his name.”

To date, no plea offers have been made to either Swallow or Shurtleff, and that’s just fine by Shurtleff and his lawyer. “And I think that with my client that would probably be a waste of time,” Shurtleff’s lawyer said. “You can say that again,” said Shurtleff, as he stood next to his lawyer.

A pre-trial hearing is scheduled for May 22. As for the looming preliminary hearing, Shurtleff’s lawyer says, “I really don’t know what the state is planning to do .. I don’t know what the criminal information will look like. I don’t know what evidence they think they have. … I really don’t know what the case will look like at that point.” Following the preliminary hearings we will know more about the potential fates of Swallow and Shurtleff, but for now we will have to wait until June. Stay tuned.

Putting a Defendant on Adequate Notice Under the UPUAA

The Utah Supreme Court has previously explained that Article I, section 12 requires “that the accused be given sufficient information ‘so that he [or she] can know the particulars of the alleged wrongful conduct and can adequately prepare his [or her] defense.'”

Under Article I, section 12 of the Utah Constitution, “In criminal prosecutions the accused shall have the right … to demand the nature and cause of the accusation against him [and] to have a copy thereof.” The Utah Supreme Court has previously explained that Article I, section 12 requires “that the accused be given sufficient information ‘so that he [or she] can know the particulars of the alleged wrongful conduct and can adequately prepare his [or her] defense.'” The requirements of Article I, section 12 naturally extend to UPUAA charges, and defendants charged under the UPUAA must be given sufficient notice of the charges against them.

In State v. Bell, the Utah Supreme Court determined that the State had failed to give Mr. Bell sufficient notice of the particulars of the RICE (the UPUAA’s predecessor) charges against him. The first question facing the court was “whether the indictment was itself detailed enough to give Bell sufficient notice of the charges.” To this the court responded:

The indictment merely repeated verbatim the broad, vague language of the RICE statute without describing any facts or circumstances constituting the crime charged other than a statement that the crime had been committed during a ten-month period. This indictment met the minimal standards 105*105 of rule 4(b) … but by no stretch of the imagination did it provide Bell with sufficient notice of the facts underlying the charges to enable him to prepare an adequate defense.

The next question was whether Mr. Bell had “exercised his right to seek more particular notice by requesting a bill of particulars under rule 4(e) and , this preserved his claim for error. There the court determined:

Bell did submit a timely request that the State provide a bill of particulars describing the factual basis for the element of racketeering activity and specifically explaining “what enterprise is alleged as being involved.” Therefore, under rule 4(e), the State had the burden of providing an adequate bill of particulars.

Finally, the court was left to answer whether the State had met its burden, and if the State had not whether trial court’s failure to enforce the notice requirement was prejudicial. The court started by addressing the State’s conduct, finding that the State had not met its burden:

Although Bell persistently objected to the inadequacy of the bill of particulars, the State refused to amend or supplement the bill as it would have been permitted to do under rule 4(e). The State failed to meet the burden of notice imposed on it by rule 4(e), and the trial court’s failure to enforce this requirement was clearly error under the plain language of rule 4(e), as well as the standards described in Fulton.

Satisfied that the State had not met its burden and that it was error for the trial to court not to enforce the notice requirement upon the State, the court turned to the question of whether the trial court’s error was harmless or prejudicial. There the court determined:

Our review of the record leaves us unconvinced that Bell did in fact receive adequate notice through these convoluted means. None of the sources pointed to by the State explicitly laid out the three enterprise theories later presented at trial. Nor do we think that the three allegations are necessarily implicit in these sources of information, even when they are taken as a whole. Thus, the State has failed to meet its burden.

Also, we think it important to clarify that we reject the implication of the State’s argument: that the State, having failed to provide even a minimally adequate bill of particulars despite persistent requests from Bell, can excuse that failure under the guise of harmless error by claiming that Bell had pretrial access to a mass of various items of information from which, one can conclude in hindsight, Bell could have gleaned the State’s theories for the essential elements of the crimes charged. For this Court to accept such an argument would not only vitiate the specific requirements of rule 4(e), it would negate the accused’s constitutional right, implemented by rule 4(e), to “have a copy” of a document setting out in clear terms “the nature and cause of the accusation.”. A defendant, having complied with the procedural requirements of rule 4(e) in requesting a bill of particulars, ought not to have to look beyond the indictment or information and the bill of particulars to obtain sufficient notice of the specific allegations to be faced at trial.

The State has not met its Knight burden of persuading this Court that the failure to provide an adequate bill of particulars did not unfairly prejudice Bell’s ability to prepare and present a defense. Therefore, we reverse Bell’s conviction and remand for a new trial with instructions that Bell be given an adequate bill of particulars.

The court’s decision in Bell makes clear that a UPUAA defendant needs to be put on sufficient notice of the charges against him or her, and that the State may not just simply repeat the UPUAA verbatim in its charging documents. In addition to the notice requirements placed on the State, the UPUAA also requires civil plaintiffs to plead their claims with particularity. This means that civil plaintiffs must also give defendants sufficient notice of the claims against them, and may not rely on merely conclusory allegations of racketeering activity.

When are you Entitled to Attorney Fees Under the UPUAA?

Under the UPUAA, a successful civil plaintiff is entitled to recover double damages. In addition to the damages recovered, a successful plaintiff may also recover the costs of suit.

Under the UPUAA, a successful civil plaintiff is entitled to recover double damages. In addition to the damages recovered, a successful plaintiff may also recover the costs of suit, including reasonable attorney fees. However, if a defendant prevails against a private party and the claim “is dismissed prior to trial or disposed of on summary judgment, or if it is determined at trial that there is no liability, the prevailing party shall recover from the party who brought the action or asserted the claim or counterclaim the amount of its reasonable expenses incurred because of the defense against the action, claim, or counterclaim, including a reasonable attorney’s fee.” Thus, any prevailing party in a civil UPUAA action is entitled not only to the costs of suit, but are also entitled to a reasonable attorney’s fee.

In Albright v. Attorneys Title Ins. Fund, the United States District Court for the District of Utah was faced with a motion for attorney’s fees made by a prevailing a defendant in a civil UPUAA case. Plaintiffs’ claim arose out of alleged racketeering conspiracy between the Florida Fund and Cohen Cox. Plaintiffs’ complaint contained eighteen different causes of action, including claims under RICO and the UPUAA. Defendants defended against Plaintiffs’ claims, and ultimately Plaintiffs’ entire case was dismissed on summary judgment.

Following the entry of summary judgment, defendants sought to recover attorneys’ fees and other expenses incurred in defending against the racketeering claims pursuant to the UPUAA. Defendants argued that while the federal RICO statute does not provide a means for a prevailing party to recover attorney fees, the court should still permit defendants to recover their entire attorney fees in this case under the UPUAA “because the state and federal racketeering claims were factually and legally related.” Plaintiffs responded by arguing that the court shouldn’t award any of the fees and costs requested by defendant because the federal RICO statute prevents an award to defendants in this case. According to plaintiffs, the federal statute only allows for recovery of attorneys’ fees by a prevailing plaintiff and not a defendant. Alternatively, plaintiffs argued that even if defendants were entitled to recover fees and expenses for prevailing on the UPUAA claims, the court should still deny their motions because defendants have failed to allocate between time and expenses spent on the UPUAA claims versus the other non-UPUAA claims.

The district court disagreed with the plaintiffs’ contentions, finding that “pursuant to Utah Code Ann. § 76-10-1605(8), Defendants are entitled to ‘recover from the party who brought the claim[s]’ their reasonable expenses and attorneys’ fees.” The court was not persuaded by the plaintiffs’ arguments that the federal RICO statute somehow precluded recovery of attorney fees by a defendant where a plaintiff asserted both state and federal racketeering claims. The district court wrote in its opinion that:

There is nothing on the face of the federal RICO statute that preempts state racketeering fee provisions. See 18 U.S.C. § 1964(c). And, although the federal statute expressly allows prevailing plaintiffs to recover attorneys’ fees, the statute is merely silent with regard to a prevailing defendant’s right to recover attorneys’ fees. Had Congress intended to preempt state law in this area, it certainly knew how, and would have done so explicitly. Moreover, as Defendants point out, courts that have been confronted with this very issue, including the Tenth Circuit Court of Appeals, have uniformly held that a defendant can recover fees and costs under a state racketeering statute even where the plaintiff asserted both state and federal racketeering claims.

After rejecting plaintiff’s arguments that defendants were not entitled to attorney fees, the court turned its attention to determining a reasonable attorneys’ fee under the circumstances of the case. However, this time the court accepted plaintiff’s arguments that defendants shouldn’t be entitled to recover their entire requested attorneys’ fees. As the court pointed out:

Having presided over this case for several years, and having a thorough knowledge of the manner in which this case was presented and ultimately resolved, the Court is of the opinion that it would be unreasonable to allow the Defendants to recover the overwhelming majority of their fees and expenses based on claims that played a somewhat minor role in the proceedings. However, the Court also recognizes that the Plaintiffs’ decision to include the state racketeering claims required the Defendants to conduct additional research, explore the different parameters of the state and federal statutes and address those differences in order to mount an appropriate defense.

As a result, defendants were precluded from recovering their entire fees. Even still the court concluded that defendants were still entitled to a reasonable fee under the UPUAA:

Accordingly, the Court is of the opinion that it is fair and equitable to award the Defendants twenty percent of the attorneys’ fees and expenses they have presented to the Court, which the Court has reviewed and has determined were reasonably incurred. The Court believes that awarding fees and expenses in this amount serves to honor the state statute, which provides for the recovery of fees and costs, while at the same time recognizing that the UPUAA claims in this case played a relatively minor role in comparison to the federal racketeering claims.

The court’s decision in Albright is significant for several reasons. First, the court’s decision gives teeth to the UPUAA’s provisions regarding attorney fees, allowing successful defendants to recover attorney fees the same as successful plaintiffs. Second, the court made clear that even if a plaintiff asserts federal RICO claims against a defendant, it makes no difference as to whether a successful defendant may recover attorney fees under the UPUAA. Finally, although the court ultimately awarded fees to the prevailing defendants, the court determined that defendants were not entitled to their entire fee request. Rather, defendants were only entitled to a reasonable attorneys’ fee, which in the court’s opinion was 20% of the entire fee requested.

Calculating Damages Under the UPUAA

The UPUAA allows for both criminal and civil liability. Under the civil liability prong of the UPUAA.

The UPUAA allows for both criminal and civil liability. Under the civil liability prong of the UPUAA:

(1) A person injured in his person, business or property by a person engaged in conduct forbidden by an provision of Section 76-10-1603 may sue in an appropriate district court and recover twice the damages he sustains, regardless of whether:

(a) the injury is separate and distinct from the injury suffered as a result of the acts or conduct constituting the pattern of unlawful conduct alleged as part of the cause of action; or

(b) the conduct has been adjudged criminal by any court of the state or the United States.

Furthermore, a principal, in addition to being responsible for actual damages caused by his or her agent(s), may also be liable for double damages:

[I]f 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.

However, even if a civil plaintiff is able to recover double damages under either section of the UPUAA, how does a court properly calculate the plaintiff’s actual damages award?

In Alta Indus. v. Hurst, the Utah Supreme Court sought to shed some light on the damages calculation question as it related to civil liability under the UPUAA. There, Steelco had sued defendants alleging claims for fraud, conversion, conspiracy, receiving stolen property, and a pattern of unlawful activity. Following a bench trial, the trial court ruled that defendants had converted property, had entered into a civil conspiracy, and committed fraud in its dealings with Alta Industries. However, the court also dismissed Steelco’s claims for relief and double damages under the UPUAA. Defendants appealed the judgment, and Steelco cross-appealed the court’s ruling dismissing its pattern of unlawful activity claim.

On appeal, the Utah Supreme Court had two issues to consider as it related to Steelco’s pattern of unlawful activity claim: 1) whether the trial court erred in dismissing the claim; and 2) if so, what the proper calculation of damages was sustained by Steelco. As to the first question, the court found that the trial court had erred in its interpretation of the UPUAA. According to the trial court, for the act to apply, “there must be three similar episodes that involve separate and different entities, and not within the same entity.” However, the supreme court disagreed, holding:

While subsection 76-10-1602(3) requires the commission of at least three episodes of unlawful activity, the Act does not require three separate entities. The term “entity” does not even appear in the statute. Furthermore, while the Act requires the existence of an enterprise, section 76-10-1603 expressly provides that the existence of one enterprise is sufficient to invoke liability under the Act. Indeed, our case law establishes that the Act requires proof of only a single enterprise.

Having determined that the UPUAA did not require proof of separate enterprises, the court went on to find that defendants had engaged in a pattern of unlawful activity in this case. As a result, Steelco was entitled to double damages under the UPUAA. However, an issue remained concerning the calculation of the damages sustained by Steelco.

The court started its damages calculations analysis by pointing out that the civil prong of the UPUAA “does not provide a method for calculating actual damages. Furthermore all of the predicated acts, or unlawful activities, under the Act are crimes, not civil causes of action. Accordingly, we must look outside the Act to determine a method of calculating damages.” To that end, the court looked to causes of action similar to the crimes charged in this case. According to the court:

In the instant case, because the elements of civil conspiracy are subsumed in the crime of bribery proven in this case, the damage calculation applicable to a civil conspiracy can be used to arrive at the actual damages Steelco sustained due to the kickback arrangements. Similarly, because the elements of conversion are subsumed in the crime of receiving stolen property proven in this case, the damage calculation applicable to conversion can be used to arrive at the actual damages Steelco sustained because of the theft of the steel. The trial court awarded Steelco damages on the bases of fraud, in connection with the kickback scheme, and conversion, in connection with the steel theft. Those damages may also be used to arrive at the damages Steelco sustained as a result of the pattern of unlawful activity.

However, defendants claimed that the trial court erred in its damages calculation as it related to Steelco’s conversion claim.

The trial court awarded Steelco the amount of money received by defendants from the sale of the steel plus interest. Defendants disagreed with the award, claiming that the “appropriate market for a retailer of steel is the wholesale market, not the retail market, and therefore, Steelco was only entitled to recover its replacement costs.” To answer the question raised by defendants, the court noted that the Restatement (Second) of Torts gave Steelco three options for determining its damages, which included the amount of money defendants received from the sale of the steel. The trial court’s award was based upon the amount of money defendants received from the sale of the steel. As a result, the trial court’s damages calculation was not in error, and therefore “the measure of damages is twice the amount Wasatch received for the sale of the steel plus interest.”

The Utah Supreme Court’s ruling in Alta Industries rejects any argument that in order to recover a civil judgment under the UPUAA a plaintiff must prove the existence of different enterprise. However, it also provides guidance for determining the proper damages calculations for the various offenses a defendant may commit under the UPUAA. While the UPUAA does not provide for a way to properly calculate a plaintiff’s actual damages, other areas of the law can be examined for guidance on the issue.

When Trying to Prove “Enterprise” Goes Awry

Merely being an individual engaged in a pattern of unlawful of activity does not necessarily subject a criminal defendant to a racketeering charge under the UPUAA.

Merely being an individual engaged in a pattern of unlawful of activity does not necessarily subject a criminal defendant to a racketeering charge under the UPUAA. In order to sustain a racketeering conviction under the UPUAA, the state must prove more than just the substantive offense. Rather, the State must prove the existence of an “enterprise” and its relation to the racketeering activity.

In State v. Hutchings, the Utah Court of Appeals answered the questions of whether a person could also be an entity under the UPUAA, and whether the same facts could be used to prove the unlawful activity and the existence of an “enterprise”. Even still, a question lingered regarding the “enterprise” issue. In 2004, the Utah Court of Appeals reiterated the supreme court’s words, and further clarified the required proof to sustain a racketeering charge under the UPUAA.

In State v. Bradshaw, the court of appeals was tasked with answering the question of whether the State had to prove the existence of a relationship between the unlawful activity and the “enterprise”. The State alleged Mr. Bradshaw, over a period of several months defrauded eleven people for a total of approximately $5,400. According to the State, Mr. Bradshaw falsely represented himself as the owner of various mortgage companies, and that he would promise to assist his would-be victims in obtaining refinancing or to avoid foreclosure in exchange for a fee. Two of Mr. Bradshaw’s coworkers allegedly witnessed the fraudulent activity, and Mr. Bradshaw in fact asked one of those employees to falsely represent himself as an appraiser to one of the victims. Mr. Bradshaw was charged with eleven counts of communications fraud and one count of pattern of unlawful activity, all second-degree felonies. In response to the charges against him, Mr. Bradshaw filed a motion to quash the racketeering charge under the UPUAA and to reduce the degree of offense of the communications fraud charges. The trial court denied the motion, finding that the State could prove the “enterprise” element even if Mr. Bradshaw only used the funds for personal expenses, and that the State could in fact charge Mr. Bradshaw with all eleven counts of communications fraud.

After his motion was denied, Mr. Bradshaw entered into a plea agreement with the State. Pursuant to the plea agreement, Mr. Bradshaw pled guilty to four counts of attempted communications fraud, but he reserved his right to appeal the trial court’s denial of his motion. The trial court subsequently accepted the plea and the remaining charges were dismissed. Mr. Bradshaw thereafter appealed.

On appeal, the Utah Court of Appeals reversed the trial court’s decision and remanded with instructions to grant Mr. Bradshaw’s motion to quash the UPUAA charge and to reduce the degree of offense of the communications fraud charges. As it related to the racketeering charge, Mr. Bradshaw argued that the State had failed to establish probable cause that he was engaged in an “enterprise”. The court of appeals agreed, finding that neither the criminal information nor the stipulated facts properly alleged the existence of an UPUAA “enterprise”. As the court aptly pointed out:

“The State’s information merely parrots the language of UPUAA and offers no insight into the State’s theory of the alleged enterprise. Likewise, the stipulation nowhere mentions the word “enterprise.” On appeal, the State postulates that its theory of an enterprise is an “association in fact” between Bradshaw and his two former coworkers. An “association in fact” enterprise “is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit.” The stipulation’s vague references to the fact that two of Bradshaw’s acquaintances witnessed some of the misrepresentations and may have participated on one occasion is not suggestive of an “ongoing organization” or that Bradshaw and his so-called accomplices “function[ed] as a continuing unit.”

Continuing on, the court of appeals noted that the State also misunderstood the UPUAA when it argued that it need only to point to the existence of an “individual” to satisfy the “enterprise” element. The court noted that while it is true that under Hutchings, a criminal defendant may be both an “individual” and an “enterprise” under subsections (1) ands (2) of the UPUAA, the State’s arguments in this case “would essentially collapse the ‘enterprise’ and ‘pattern of unlawful activity’ elements into one and would extend the scope of antiracketeering laws to virtually all substantive criminal offenses.” The court rejected this argument.

The court of appeals concluded its analysis of the racketeering charge by finding that the State had also failed to include any facts suggesting Mr. Bradshaw used the funds from his unlawful activity to invest or gain interest in an enterprise as required by subsection (1) of the UPUAA. According to the court of appeals:

The stipulation submitted in this case suffers from an additional fatal defect in that it fails to include any facts suggesting Bradshaw used the proceeds from his fraudulent activity to invest or gain an interest in an enterprise as required by section 76-10-1603(1). Instead, the stipulation states that Bradshaw used the money to pay his “personal bills.” The trial court nevertheless deemed the stipulation sufficient in this respect, finding that, as a matter of law, using the proceeds from a pattern of unlawful activity to pay one’s personal bills “qualif[ies as] racketeering.” We disagree.

The State appealed the court of appeals decision as it related to the communications fraud charges, but did not challenge the ruling on the UPUAA charge. The Utah Supreme Court overturned the court of appeals decision, and Mr. Bradshaw’s conviction was upheld. Even still, the court of appeals decision in Bradshaw represents an important decision regarding the necessary proof of an “enterprise” under the UPUAA and the connection that must be shown between the “unlawful activity” and that “enterprise”. Going forward, the State must do more than simply parrot the UPUAA in its charging documents and factual stipulations. Rather, it must prove the existence of an “enterprise” beyond the mere existence of the individual and that the enterprise is related to the “unlawful activity” to sustain a conviction under the UPUAA.

What Constitutes “Enterprise” Under the UPUAA?

In order to sustain a conviction under the UPUAA, the State must prove 1) the defendant is engaged in a pattern of unlawful activity and 2) the defendant is involved in an enterprise.

In order to sustain a conviction under the UPUAA, the State must prove 1) the defendant is engaged in a pattern of unlawful activity and 2) the defendant is involved in an enterprise. Often times the pattern of unlawful activity is easily proven, but proving the existence of an “enterprise” can be more challenging for the State. The UPUAA comprehensively defines “enterprise” as:

[A]ny individual, sole proprietorship, partnership, corporation, business trust, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity, and includes illicit as well as licit entities.

Thus, an “enterprise” for purposes of the UPUAA can be anything from an individual to a group of individuals to a corporation or association, whether legal or illegal. Even still, the question of what constitutes an entity under the various sections of the UPUAA isn’t as easily answered.

In 1988, the Utah Supreme Court, while the issue was not squarely before it, implicitly ruled that the same set of facts could be used to prove the pattern of unlawful activity as well as used to prove the existence of an enterprise. In State v. McGrath, the court rejected the defendant’s argument that there was insufficient evidence to prove the existence of an enterprise under the RICE Act, the predecessor to the UPUAA. In so ruling, the evidence relied on by the court to find a pattern of unlawful activity and the existence of an enterprise was the same, the defendant’s cocaine trafficking. According to the court’s opinion:

These facts show an ongoing enterprise the purpose of which was to traffic in controlled substances. Defendant’s participation in this enterprise, when combined with his acts constituting a pattern of racketeering activity, establishes the necessary elements to convict….

Almost ten years later in 1997, in State v. Hutchings, the Utah Court of Appeals clarified the supreme court’s previous statements in McGrath. In Hutchings, the court of appeals was squarely tasked with answering the question of whether a UPUAA defendant can also constitute a UPUAA enterprise under section 76-10-1603(1), (2), or (3). The court began by examining U.S. Supreme Court and federal circuit court precedent on the issue, which generally found that “the same set of facts used to prove a pattern of racketeering activity may be used to prove a RICO enterprise.” The court then turned to Utah law, which it determined had already “implicitly ruled [in McGrath] that the same set of facts used to prove the pattern of unlawful activity can be used to prove the existence of an enterprise.” As such, the court of appeals agreed with the majority of federal courts and the Utah Supreme Court’s previous implicit holding in McGrath and found that the same set of facts could be used to prove a pattern of unlawful activity and an enterprise.

The court of appeals next turned to the various provisions of the UPUAA to determine whether the whether the “person” under section 76-10-1603(1), (2), or (3) can be the same entity as the “enterprise.” The court held that, for purposes of section 76-10-1603(1), “the liable ‘person’ and the ‘enterprise’ can be the same entity,” under section 76-10-1603(1), as long as the “person” is “actually… the direct beneficiary of the pattern of racketeering activity.” Similarly, the court held that with respect to subsection (2) “the ‘person’ and ‘enterprise’ within section 76-10-1603(2) need not be separate and distinct.” However, the court wasn’t willing to extend the same reasoning to subsection (3). According to the court:

[We] hold that for the purposes of section 76-10-1603(3), the “person” and “enterprise” must be separate and distinct entities. We, too, would be stretching the interpretation of the language in section 76-10-1603(3) to impose liability on both the culpable person and the enterprise. “The enterprise is mentioned in the section only as the instrument of the person doing the racketeering, and there is no suggestion that the enterprise also may be liable, even if it is a wholly illegitimate operation.”

As a result, under Utah law in order to sustain a conviction under subsection (3), the State must prove the existence of an “enterprise” that is distinct from the defendant themselves. Furthermore, the court went on to examine whether the sole proprietorship at issue in this case could constitute an “enterprise” for purposes of subsection (3). The court of appeals determined that as it related to the sole proprietorship at issue in in this case, “the man and the proprietorship really are the same entity in law and fact.” As result the State had failed to pass the distinction test.

While the Utah Supreme Court has declined to require distinction between the individual and the entity under subsections (1) and (2), it does require the state to prove the existence of more than a one-man show under subsection (3). Defendants facing charges under the UPUAA need to be cognizant of this fact, and must take steps to ensure their counsel argues that point to the court, and that the jury is properly instructed on the issue at trial.

“Over a Substantial Period of Time”: Utah Supreme Court Defines Test for Determining a Pattern of Unlawful Activity

In Hill v. Estate of Allred, the Utah Supreme Court articulated what it determined to be the proper test for determining whether there was a pattern of unlawful activity under the UPUAA. After moving to Utah from Michigan, Ms. Hill met the leader of a small religious group, Mr. Shugart. Ms. Hill asked Mr. Shugart to help her purchase the Desert Inn Ranch, which was listed for $1.5 million. A friend of Mr. Shugart’s, Mr. Matthews and a former real estate agent, Mr. Putvin agreed to help Ms. Hill purchase the property. Mr. Shugart delivered $1 million in cash, belonging to Ms. Hill, to Mr. Putvin and Mr. Matthews and directed them to proceed with the purchase of the ranch. In addition to the $1 million, Ms. Hill provided another $500,000 for the purchase of the ranch and paid Mr. Putvin $40,000 for his services. However, Mr. Putvin and Mr. Matthews never delivered the ranch or repaid any of the money.

Ms. Hill filed suit to recover her lost money alleging claims of civil conspiracy, constructive fraud, conversion, unjust enrichment, money laundering, fraudulent misrepresentation, racketeering (pattern of unlawful activity), and intentional infliction of emotional distress. Following a bench trial, the district court determined that the defendants had engaged in a civil conspiracy to deprive Ms. Hill of her money, the defendants had converted Ms. Hill’s money, and that they had made false representations to Ms. Hill as well. However, the court found that Ms. Hill did not meet her burden of proof on her claims of racketeering and intentional infliction of emotional distress. Ms. Hill appealed, arguing among other things that the trial court erred in holding that she did not meet her burden of proving a pattern of unlawful activity under her racketeering claim. Defendants cross-appealed.

On appeal, Ms. Hill argued that each unlawful act by defendants in furtherance of the conversion of her money constitutes an episode of unlawful activity and therefore a pattern exists. Defendants argued that the conversion of Ms. Hill’s money, though not accomplished in one single act, was only one episode of criminal activity and, therefore, did not constitute a pattern of unlawful activity. The district court agreed with defendants and held that their actions did not constitute a pattern of unlawful activity because there was only one episode of criminal activity, the conversion of Ms. Hill’s money.

“Over a Substantial Period of Time”

However, the Utah Supreme Court disagreed, and reversed the district court’s holding on Ms. Hill’s pattern of unlawful activity claim. According to the Utah Supreme Court, the proper test for determining a pattern of unlawful activity is the “continuity plus relationship” test articulated in H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229 (1989). “The proper test for determining whether there was a pattern of unlawful activity is whether there was ‘a series of related predicates extending over a substantial period of time’ or a demonstrated threat of continuing unlawful activity and not whether there were multiple schemes.” (emphasis added). As a result, in order to sustain allegations of a pattern of unlawful activity, a prosecutor or civil plaintiff must prove that the defendant(s) engaged in a series of related predicates over a substantial period of time. In Hill v. Estate of Allred, the Utah Supreme Court found that a period of five years was enough to satisfy this requirement. But there is no bright line rule as to what constitutes such a “substantial period of time.” Nevertheless, the substantial period of time requirement imposed in Hill v. Estate of Allred is an element of the offense, and juries should be instructed accordingly. The test adopted in Hill v. Estate of Allred may require previous cases to be reexamined, and will undoubtedly impact UPUAA cases going forward.

Utah Passes White Collar Crime Registry Bill in a Flurry

With only two days left in the 2015 legislative session, Utah lawmakers made history by passing the first white-collar crime registry bill in the United States. The Utah Senate unanimously voted to pass HB378, White Collar Crime Registry, with no debate. The Senate hastily pushed the bill through for final passage even though it had not undergone a second and third reading. The bill has now gone to Gov. Gary Herbert for his consideration. The bill was sponsored by Rep. Mike K. McKeil and Sen. Curtis S. Bramble.

However, the bill has long been the brainchild of Utah Attorney General Sean Reyes. In a recent news release regarding the bill’s introduction, Reyes said:

Utah’s unique personal interweavings and close relationships offer a rich environment for predatory behavior and financial crimes in our state. We trust those in our neighborhoods, in our churches, in our social circles and in our professions … This registry will make already public information much more accessible for the average citizen in this digital age. It will inform anyone performing a simple name search if they are investing with someone who has previously been convicted of financial crimes … And this tool will hopefully curtail some of the billions of dollars lost in Utah to investment fraud and other financial crimes. This will be a tremendous outcome for citizens if passed.

But while the registry may make it easier for citizens of Utah to protect themselves against affinity fraud and other white-collar crimes, what does it mean for those who are facing and/or have been convicted of white-collar criminal charges?

The bill gives the AG’s Office the sole authority over the Utah White Collar Crime Offender Registry. It provides how the AG’s office is to disseminate information from the website to the public. It lists the criminal offenses for which a person must register, which include offenses specified in the UPUAA. However it also provides for a registration exception for persons convicted after December 31, 2005. Furthermore, the bill allows registered persons to petition to have his or her name removed from the Utah White Collar Crime Offender Registry.

Within 45 days of a conviction, any attorney general, county attorney, or district attorney is to inform the AG’s office of the conviction along with providing the crimes for which the offender has been convicted, a description of the offender’s targets, and any other info the AG’s office determines relevant. The AG’s office inputs the offender information into the Utah White Collar Crime Registry website, which is then disseminated to the public. The website provides to the public: 1) all names and aliases of the offender; 2) a physical description of the offender, including date of birth, height, weight, and eye and hair color; 3) a recent photo of the offender; and 4) the relevant white-collar crimes the offender has been convicted of.

A first time offender listed on the registry shall remain on the registry for ten years. A second time offender shall remain on the list for an additional ten-year period. And a third time offender will remain on the registry for a lifetime period. However, an offender who has been convicted of a relevant offense after December 31, 2005 is not required to register so long as they have complied with all court order orders, paid all fines and restitution, and not been convicted of any other crimes.

Finally, the bill provides for a mechanism by which an offender may petition to be removed from the Utah White Collar Crime Offender Registry after five years so long as the offender has completed all treatments ordered by the court or Board of Pardons, the offender has not been convicted of any other crimes, excluding traffic offenses, the offender has paid all restitution ordered by the court, notice has been given to all the victims and the prosecutor, and the offender has not been found to be civilly liable for which fraud, misrepresentation, deceit, breach of fiduciary duty, or the misuse or misappropriation of funds is an element. Within 30 days of receiving the petition, the prosecutor shall provide to the court a presentence report, any evaluation done as part of sentencing, and any other information the prosecutor deems relevant. The victim(s) may respond to the petition by filing a recommendation or an objection within 45 days after the mailing of the petition to the victim. The court then reviews the petition and all submitted documents and holds a hearing if requested by the prosecutor or the victim. Then, “[i]f the he court determines that it is not contrary to the interests of the public to do so, the court may grant the petition and order removal of the offender from the registry.”

While the bill passed unanimously with no debate, is such a registry the solution to deter future financial crimes? At least one Utah lawmaker isn’t ready to go so far as branding these white-collar criminals. Utah Representative Fred C. Cox is concerned about the stigma that such a branding would create. He said in a speech from the State House floor that “these are important crimes that we want to protect individuals against, but I’m not ready for a scarlet A, or whatever letter would be involved.” The comments of Rep. Cox raise the question of whether the registry is really about protecting the citizens of Utah, or if it is more about “shaming” those convicted of white-collar offenses. It remains to be seen if Gov. Herbert will sign the bill into law, and if so, time will only tell if the registry is really a resource to protect Utah citizens against white-collar crime. Those recently convicted of white-collar crimes will undoubtedly be watching the Governor’s office very intently in the following weeks to see whether they will be required to register with the State’s database.