LAWYERS CAN BE SUED UNDER RICO

FacebookTwitterEmailPrint

This may be news to some: lawyers are not above the law.  There have been many civil RICO cases brought against lawyers over the years, usually alleging they have perpetrated some sort of fraud along with their clients, often hiding assets from creditors in shell companies.  The lawyers’ conduct, if true, is reprehensible, but these cases have usually been dismissed at the pleading stage because RICO requires the defendant to “participate in the affairs of the enterprise.”  Federal judges have usually found that a lawyer practicing in a law firm is not part of his client’s enterprise.  These decisions claim to be following the Supreme Court’s Reves opinion from 1993 holding that an accounting firm hired to audit the financial statements of a business does not participate in its affairs because auditing is the ordinary work of accountants making them consultants to, rather than participants in, their clients’ affairs.  I don’t think that reasoning should apply to a lawyer or law firm that actually hatches a scheme with his or her client/enterprise to harm outsiders and then proceeds to implement it by writing deceptive correspondence, prepare false regulatory filings, bribe witnesses to cover up wrongdoing, etc.  In those scenarios, the lawyer is operating the enterprise even though he or she is not an officer or stockholder.

A new decision from the federal district court in Washington, D.C. agrees with this view and refused to shield a law firm and its partners from their nefarious scheme.  And this despite the fact that the lawyers operate as a self-proclaimed “public interest” law firm (meaning zealots for left-wing causes financed by the taxpayers).  The facts are worth reciting because, if true (and right now we don’t know if they are), they expose these lawyers as criminals who have no business practicing law.

The law firm is Meyer, Glitzenstein & Crystal of Washington, D.C., which boasts of a niche practice consisting of suits for violation of the Endangered Species Act and other federal laws which protect animals.   (Private organizations are allowed to bring “citizen suits” to enjoin violations against the Department of the Interior and other federal agencies who fail to carry out their statutory obligations, in the eyes of these lawyers, to protect animals.  This seems to be the stock-in-trade of the firm–it has filed scores of such suits.)   Several years ago, the law firm represented the American Society for the Prevention of Cruelty to Animals (ASPCA) and other animal rights non-profits which contended Feld Entertainment Inc., the entity that owns and operates the Ringling Bros. and Barnum & Bailey Circus, was abusing its elephants.  The allegations of abuse were made by a circus employee, Tom Rider, who never complained to his bosses or told law enforcement what he supposedly witnessed.  Rather, he went right to ASPCA, and as it was later revealed in pre-trial discovery, was paid by $190,000 by that organization and the law firm for his part in the action.  The law firm had structured the payments to Rider in such a way as to seem like reimbursement for his “costs,” but, according to the court, he was nothing more than a pawn of the ASPCA and the lawyers.  Consequently, the Court did not believe his testimony that he suffered emotional distress by witnessing the supposed mistreatment of the elephants.  (Lawyers are prohibited by ethical rules from paying fact witnesses for their testimony.  All we are allowed to provide is reimbursement for travel expenses to and from the courthouse or the deposition.  $190,000 would seem to exceed anyone’s conception of reimbursement.)

The Court found that neither ASPCA nor Rider suffered any damages and awarded judgment to Feld on that ground without reaching the merits of the abuse allegations.  After winning the case, a typical defendant would simply have sought attorneys’ fees under the Endangered Species Act, which allows any “party,” even one which has been sued, to seek reimbursement from the loser.   But the award is discretionary (in RICO it is mandatory when a plaintiff wins), and the judge apparently denied the request.  Feld was sufficiently aggrieved by what transpired during the litigation to take the extraordinary step of suing ASPCA, the law firm, and its three principals under RICO in an effort to recover its attorneys’ fees in defending the suit (probably millions).  The RICO case is being heard by the same federal judge who decided the initial suit in Feld’s favor, which is crucial because he knows first hand what malfeasance was committed.

Feld’s RICO suit accuses the lawyers of bribing Rider for his testimony (bribery being a form of racketeering activity), obstructing justice (bribing a witness in a federal court proceeding), and mail fraud.  The fraud was soliciting ASPCA’s donors to support the suit against Feld by concealing that the money was really going to pay Rider for false testimony.  This type of fraud, directed against a third party, has been allowed by the Supreme Court in RICO cases.  Yet, to prove it, Feld will have to find some ASPCA donors who will testify they gave money to the organization because of appeals to support the lawsuit, as opposed to support for its general goals of protecting animals.

The Court also allowed Feld to assert RICO claims against the three partners of the law firm based upon partnership law.  Generally, individual partners are jointly and severally liable for claims against the partnership, but courts have been wary about extending RICO liability vicariously, that is without fault, to a party which did not commit racketeering activity.  In a typical tort case, the employer would be liable for the tort of an employee committed within the scope of the employment.  This would not usually occur in a RICO suit against the employee, but it was allowed in this case, putting each of the three partners on the hook for any liability against the firm.

But the most significant part of the opinion denying the motions to dismiss the RICO case was in holding that the lawyers were participating in the affairs of an association enterprise in committing their illegal activities and not merely providing services to their clients.  Their misconduct went way beyond the traditional acts of representing a client even one whose business was illegal.  These lawyers are accused of instigating the entire suit against Feld and suborning perjury from Rider.

This case is well-worth following.  (Feld Entertainment Inc. v. American Society for the Prevention of Cruelty to Animals, 873 F. Supp. 2d 288 (D.D.C. 2012).)  Feld must prove these quite serious allegations, but the judge seems to think they are provable in allowing the case to proceed.  And its about time that lawyers who violate RICO be treated like racketeers.

P.S. Hours after I posted this it was announced that ASPCA had agreed to pay Feld more than $8 million to settle all claims against the organization.  However, according to Feld’s news release, the litigation will continue against the other non-profits, the lawyers and the law firm.