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Franchise System Cannot Be "Enterprise" Requires for RICO Claim
Posted in RICO

An Ohio federal court ruled June 4 that a franchisee’s claims under federal racketeering law must be dismissed for failure to plead the existence of an illegal “enterprise.”  The case is Arnold v. Petland, Inc., 2010 U.S. Dist. LEXIS (S.D. Ohio June 4, 2010). Federal RICO claims, to be viable, must include the presence of an enterprise separate and distinct from the defendant itself. The complaint in this case did not define a separate enterprise, but in opposition to the motion to dismiss, the plaintiff argued that the franchisees in the system may serve as the requisite enterprise. The court held that it would be impossible for the franchisees to be both the illegal enterprise and the victim of the unlawful scheme. Because the defendant franchisor was not a separate and distinct enterprise, and the franchisees could not comprise one either, the RICO claim failed as a matter of law and was dismissed.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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