Tag: State v. Hutchings

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.

Utah Supreme CourtMerely 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.

Decorative Scales Of Justice In The CourtroomIn 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.