Published in West’s Civil RICO Reporter, November 2018
David J. Stander is an attorney who focuses his practice on civil RICO litigation and consulting. Mr. Stander can be reached at firstname.lastname@example.org, and invites you to visit his website at http://www.ricoconsultingattorney.com.
It seems that every defendant alleged to have committed wire fraud or mail fraud in a civil RICO claim relies upon district court holdings which improperly raise the burden on civil RICO plaintiffs. A recent district court case, Bascunan v. Elsaca, 2018 WL 4360780 (S.D.N.Y. 09/06/18, appeal filed 09/14/18), dismissed a civil RICO claim based upon fraud and recited district court cases likening civil RICO to the “litigation equivalent of a thermonuclear device.”
The Bascunan court cites statements by other district courts encouraging the dismissal of RICO allegations at an early stage of the litigation where it is otherwise appropriate to do so. These district courts proclaim that civil RICO claims based upon wire fraud or mail fraud are to merit “heightened scrutiny.”
Supreme Court Views Civil RICO Expansively
These statements conflict directly with the view of the Supreme Court’s interpretation of the legislative history of the civil RICO statute. The expansive view of civil RICO is explained in depth in various Court decisions, most notably in Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497 (1985), reversing a dismissal of a civil RICO claim based on mail fraud. In these cases, the Court cites to the legislative history of RICO wherein Congress stated that RICO’s terms are to be “liberally construed to effectuate its remedial purposes.” Pub.L. 91–452, § 904(a), 84 Stat. 947. In Sedima, supra, the Court stated–
The statute’s “remedial purposes” are nowhere more evident than in the provision of a private action for those injured by racketeering activity. See also n. 10, supra. Far from effectuating these purposes, the narrow readings offered by the dissenters and the court below would in effect eliminate § 1964(c) from the statute.
Id., at 498.
The Sedima Court went on to describe that-
RICO was an aggressive initiative to supplement old remedies and develop new methods for fighting crime. See generally Russello v. United States, 464 U.S. 16, 26–29, 104 S.Ct. 296, 302–303, 78 L.Ed.2d 17 (1983). While few of the legislative statements about novel remedies and attacking crime on all fronts, see ibid., were made with direct reference to § 1964(c), it is in this spirit that all of the Act’s provisions should be read. The specific references to § 1964(c) are consistent with this overall approach. Those supporting § 1964(c) hoped it would “enhance the effectiveness of title IX’s prohibitions,” House Hearings, at 520, and provide “a major new tool,” 116 Cong.Rec. 35227 (1970). See also id., at 25190; 115 Cong.Rec. 6993–6994 (1969).
The Sedima court continued by stating-
The fact that § 1964(c) is used against respected businesses allegedly engaged in a pattern of specifically identified criminal conduct [fraud predicates] is hardly a sufficient reason for assuming that the provision is being misconstrued.
Id. at 499-500.
The Sedima court held that the “extraordinary” uses to which civil RICO has been put (inclusion of wire, mail, and securities fraud) is an issue for Congress and not an appropriate issue for the courts to impose additional requirements. Sedima, supra, 473 U.S. at 500.
Supreme Court Has Rejected Limitations on Civil RICO Actions
In civil RICO cases, the Supreme Court has ruled against imposing any limitations to pleading civil RICO. See, e.g., United States v. Turkette, 452 U.S. 576, 586–587 (1981) (not limiting RICO to only illegitimate enterprises and setting forth an expansive view of an association-in-fact enterprise); Sedima, S.P.R.L. v. Imrex Co., supra, 473 U.S. at 497 (holding there is no requirement that a private action can proceed only against a defendant who has already been convicted of a predicate act or of a RICO violation, and also holding that there is no requirement that a plaintiff in a private action establish a “racketeering injury” as opposed to an injury resulting from the predicate acts themselves); H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 241-243 (1989) (adopting a flexible commonsense approach to finding continuity); National Organization for Women, Inc. v. Scheidler, 510 U.S. 249, 257 (1994) (rejecting Seventh Circuit holding that RICO requires proof that either the racketeering enterprise or the predicate acts of racketeering were motivated by an economic purpose); Cedric Kushner Promotions Ltd., v. Don King, 533 U.S. 158, 163 (2001) (holding an individual is “distinct” from his corporate entity and a viable RICO plaintiff based upon either “formal or practical separateness”); Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 652-653 (first-party reliance is not an element of a civil RICO case predicated on mail fraud); Boyle v. United States, 556 U.S. 939, 944 (2009) (affirming the finding of an association in fact enterprise based on concepts that “the very concept of an association in fact is expansive,” and the RICO statute provides that its terms are to be “liberally construed to effectuate its remedial purposes.”) The Boyle Court held an association-in-fact enterprise does not require business-like characteristics, nor requires a hierarchical structure.
Circuits Follow Supreme Court, Liberally Construe RICO
As a result, many circuits have followed Congress’s intent to liberally construe the civil RICO statute, and follow the Supreme Court’s direct instructions to broadly construe civil RICO, even in mail and wire fraud cases. A sample of the circuits follows: Ray v. Spirit Airlines, Inc., 767 F.3d 1220, 1227-28 (11th Cir. 2014) (vacating the dismissal of Plaintiffs’ civil RICO claim tied to Spirit’s Personal Usage Fee because Congress did not expressly or impliedly repeal RICO’s authorization of civil suits based on acts of mail and wire fraud); Odom v. Microsoft Corp., 486 F.3d 541, 546-547 (9th Cir. 2007) (reversing a dismissal of a civil RICO lawsuit alleging wire fraud stating, after review of four Supreme Court cases, the court “takes the general instruction that we should not read the statutory terms of RICO narrowly”); Haroco, Inc. v. American National Bank and Trust Company of Chicago, 747 F.2d 384, 398-399 (7th Cir. 1984) (civil RICO plaintiff need not allege or prove injury beyond any injury to business or property resulting from underlying acts of racketeering); Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1100-1101 (2d Cir. 1988) (with these principles [Sedima] in mind, along with Congress’s instructions that we broadly construe the statute, see Pub.L. 91-452, Title IX, Section 904, 84 Stat. 941, the court held that the district court erred when it applied an additional, special requirement of standing to Bankers’ civil RICO claim); Tabas v. Tabas, 47 F.3d 1280, 1297 (3rd Cir. 1995) (in finding a sufficient pattern in a civil RICO claim alleging mail fraud, and rejecting a “garden-variety” defense, the court stated it was “bound, however, by the language of RICO itself and the Supreme Court’s instruction that “RICO is to be read broadly,” citing Sedima, 473 U.S. at 497.
This tug of war between the trial courts and the circuits/Supreme Court creates needless confusion. Suffice it to say, the Supreme Court has uniformly ruled for an expansive view of civil RICO and follows Congress’s intent that the civil RICO statute is to be “liberally construed.” Moreover, the Supreme Court has never imposed “heightened” analysis on civil RICO cases alleging fraud predicates; rather, the Court has rejected any limitations on pleading civil RICO. Many circuits addressing the issue have followed suit. District courts should carefully consider these pronouncements.