The most interesting RICO case this year is Hale v. State Farm Insurance Co. which is now set for trial before Judge David R. Herndon in the Southern District of Illinois. The Plaintiffs are a class of people who had auto insurance through State Farm and received used replacement parts for their cars rather than more expensive new parts. Such a class of defrauded insureds was certified by an Illinois court about 15 years ago, their claims being recognized as a violation of the state’s consumer fraud statute. The damages were estimated to be over $1 billion, as the scheme had been ongoing nationwide for years, at least according to the plaintiffs’ counsel. The class certification decision was controversial because the state court allowed the Illinois Consumer Fraud statute to apply to insureds from all 50 states on the theory that the scheme emanated from State Farm’s headquarters in the Bloomington.
The Illinois Appellate Court affirmed the class certification order in 2002. That set off the events that are now the basis for this RICO case. Briefly stated, The Illinois Supreme Court agreed to hear State Farm’s appeal of the class certification order in 2003 and immediately the insurance company set about to elect a Supreme Court justice in the rural Republican southern part of the state who would overturn it. The Democratic justice from that district had annonced his retirement. State Farm and its corporate allies allegedly raised millions for candidate Lloyd A. Karmeier and then concealed their involvement in the fundraising in disclosures made to state regulators.
Karmeier won the election, joined the Court, and voted to overturn the class certification decision. Two years later they filed this RICO class action which alleges a scheme to defraud them by the election of Karmeier. I am unaware of any prior RICO case to allege a fraud of this nature, basically bribing a judge, to make it past a motion to dismiss, much less defeat summary judgment, which is what happened last week. Judge Herndon rejected every defense argument State Farm advanced to prevent the case from getting to a jury. By far the strongest challenge was to the plaintiff’s theory of proximate causation, which is that absent the contribution violations, Karmeier would not have been elected and his opponent would have voted to affirm the judgment. How to prove that? It is not clear how the plaintiffs will prove it, but they need only present a plausible theory. Most federal judges would have held the theory was too speculative. There is no way to prove a certain candidate would have won or lost an election had he not received a big infusion of campaign cash. There is also no way to prove Karmeier’s opponent would have voted to affirm the judgment, since judicial candidates do not discuss pending cases.
If the plaintiffs win the trial, the damages would be enormous, effectively reinstating the $1 billion verdict they obtained in the class action, and that will be trebled under RICO. It will be a fascinating trial, and will almost certainly be vacated on appeal to the Seventh Circuit.