In the 1990’s one decision from the First Circuit described RICO as “the litigation equivalent of a thermonuclear device,” because of the stigma of being labeled a racketeer and the threat of triple damages. Many district court judges have cited that unfortunate and inaccurate epithet. This week it was noted in a decision by the Sixth Circuit Court of Appeals awarding Rule 11 sanctions against the plaintiff’s lawyer for filing a RICO case stemming from alleged hiding of assets in a prior state court divorce action in Michigan. Dawn Bachi-Reffitt v. Kevin Reffitt, (6th Cir. February 4, 2020). The Court believed the RICO case should never have been filed, which may more may not be correct on the merits of the RICO claim. The Complaint did not clearly enough show a pattern of racketeering activity. The gist of it is that the plaintiff’s ex-husband, Mr. Reffitt, committed mail or wire fraud in his scheme to hide assets from her and his brother did the same thing in his divorce several years earlier. If the two brothers conspired to commit the two schemes, there could be a pattern.
A lot of RICO cases get dismissed for failure to state a claim, and almost none of the lawyers who brought the claims get sanctioned. Rule 11 sanctions are rarely imposed on anyone in any case. What offended the district judge in Grand Rapids, Michigan such that he threw the book at the plaintiff’s lawyer was how RICO was being used. In his view, and in the view of the Sixth Circuit, the plaintiff was simply relitigating a state court action, violating the principle of res judicata. The decision cited numerous RICO cases which have failed on this basis. They hold the remedy to fraud in a state court action is to reopen it. But the string citation omitted two decisions from the Second Circuit which have allowed such cases to proceed: Cohen v. S.A.C. Trading Co., (2d Cir. 2013)(stemming from fraud in a divorce action) and Chevron Corp. v. Donziger, (2d Cir. 2016)(fraud on a foreign tribunal). Maybe the Sixth Circuit was aware of those two decisions, but probably the law clerks who wrote the first draft of the opinion just wanted to justify their dismissal. They did not want to grapple with the larger issue of when a federal RICO suit can follow a state court suit. To even contemplate such a tactic begs the question, is RICO a thermonuclear device?
I don’t know the definitive answer to whether a RICO suit can ever be filed to recover damages from a suit that was lost in state court because of fraud on the court. Most federal judges would prefer not to handle do overs of state court litigation. But if the racketeering activity is really a pattern of which the state court fraud was but a part, then why not? It really may be a RICO case. And state court rules enabling losers to reopen their cases to show the winner used fraud cannot infringe on the availability of a federal statute because of the Supremacy Clause of the constitution. But as to the second question, the idea RICO is a nuclear weapon, the answer is definitely no. If it were Dawn Bacci-Reffitt would have won her RICO case. Instead she not only lost but was sanctioned and now has to pay her opponent’s legal fees. Whenever a judge says RICO is a nuclear device, the statement is being made in an opinion disposing of the case. So the bomb failed to detonate. What the judges are really saying is RICO could be a bomb if I were to let it go forward, but I’m not. When waves of RICO plaintiffs actually start winning their cases, I’ll begin to think it is actually scaring anyone into settling or caving in. No such data exist.