Over 80% of civil RICO cases are predicated upon mail or wire fraud. These are two of the many federal criminal statutes that Congress incorporated to RICO as forms of “racketeering activity” (also known as “predicate acts” in RICO-speak). When the first civil RICO case made it up to the U.S. Supreme Court in 1985 Justice Thurgood Marshall was horrified that the law could be used in “ordinary” business disputes because, as he pointed out, all modern business transactions use the mails or federal wires (for phone calls, faxes or, today, e-mail). Marshall predicated the Court’s 5-4 majority opinion in Sedima v. Imrex Co, allowing a fraud-based RICO case to go forward, would “revolutionize” the law by shifting a big portion of fraud cases from state to federal courts. He noted, correctly, that Congress did not intend any such revolution when it enacted RICO in 1970. “Thus,” he stated, “the private remedy [RICO’s private right of action] at issue here slipped quietly into the statute, and its entrance evinces absolutely no intent to revolutionize the enforcement scheme…” [of federal-state litigation]. But the majority disagreed and held that if Congress did not want to subject legitimate businesses to RICO, then all it had to do was change the law. Congress never did so, but as I have noted elsewhere on this site, lower court judges narrowed the law decisionally, mostly by tightening the enterprise requirement.
Twenty-five years after the Supreme Court decided Sedima mail and wire fraud are still RICO predicate acts, and legitimate businesses are the targets of more than 90% of civil RICO cases. Does this mean any business dispute alleging a few interstate telephone calls or e-mails can turn a fraud case into a RICO case? No, nor should it be so. RICO cases require a pattern of racketeering activity- not just two acts- and typically very specific allegations to show such a pattern in a federal court complaint. But if such a pattern can be alleged, the litigants may fare much better bringing their fraud-based claims in federal court under RICO than in state courts. RICO cases are difficult on both sides- for the plaintiff’s lawyer to prepare, and for the defendant’s lawyer(s) to defend. But if done skillfully, it can resolve the case more quickly than an ordinary state court tort action. RICO provides other key advantages for plaintiffs: the ability to allege a conspiracy among multiple defendants, making them all vicariously liable for each other’s acts, the ability to sue business owners and higher-ups personally, thereby piercing the corporate veil, and of course, the so-called “stigmatizing effect” of RICO allegations. The stigma is not so enveloping as many defendants contend, but in the Internet age it cannot be denied that news travels very fast and court documents can be posted online. Discovery, the bane of all civil litigation, can reveal prior frauds which constitute the pattern. And, of course, the successful RICO litigant wins triple damages plus attorney’s fees, neither of which is available in state courts.
Two years ago the Supreme Court decided another civil RICO case which eliminates the need to prove “reliance” in fraud cases. Reliance, that is to say the plaintiff relied on a fraudulent statement to his or her detriment, is required as an element of ordinary fraud actions in state courts. This decision makes civil RICO cases based upon frauds more appealing and potentially easier to prove, than their state law counterparts. This cannot be overlooked when considering litigation options.