Congress passed the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Sections 1961–68, over 51 years ago with the intent to close the gap in the criminal prosecution of organized crime. So why should businesses care about RICO? Because it is not just a criminal statute; it has a civil component. Although RICO conjures images of mobsters, it has morphed into a powerful tool for those claiming to be victims of organized criminal activities, white collar crime and myriad forms of fraud. Civil litigants even attempt to assert RICO claims in ordinary business disputes; while courts frown on that practice, such attempts can cause significant headaches even for defendants of meritless claims.
Civil RICO actions are now ubiquitous, so much so that plaintiffs often attempt to apply the statute to situations that bear little resemblance to the criminal racketeering activity animating the enactment of the statute in the first place. And the potential consequences of these claims need to be taken seriously. Indeed, RICO not only provides a plaintiff a private right of action, it also contemplates the possibility of treble damages and attorneys’ fee awards if a plaintiff can prove the claim. The unfortunate reality is that the mere threat of a RICO claim often can be enough to force a business to the bargaining table.
As a result, businesses from financial institutions to service providers are finding themselves defending against RICO claims in a variety of novel contexts. By way of example, RICO claims have even become a popular claim for those asserting that the 2020 election was marred by fraud. Although the stakes may be high, RICO claims are challenging to prove and often can be dismissed before parties engage in discovery.
RICO is not a simple statute. It pertains to conduct associated with an “enterprise” and “a pattern racketeering activity.” An enterprise is an individual or legal entity, or a union or group of individuals associated in fact although not a legal entity, while a pattern of racketeering activity requires long-term, organized conduct to violate state and federal laws. There are four types of activities outlawed by RICO, and claims under Section 1962(c) are the most commonly asserted:
- Section 1962(a) prohibits a person from investing in an enterprise any income derived from a pattern of racketeering activity;
- Section 1962(b) prohibits a person from using a pattern of racketeering activity to acquire or maintain control over an enterprise;
- Section 1962(c) prohibits a person from conducting the affairs of an enterprise through a pattern of racketeering; and
- Section 1962(d) prohibits a person from conspiring to violate Sections 1962(a), (b), or (c).
Civil RICO claims are not limited to conduct traditionally associated with organized crime, but they certainly are not meant to apply to ordinary business disputes. While there are a number of defenses available as to each of the four types of civil RICO claims, there are several RICO defenses that should be in every business’s playbook.
First, to bring a civil RICO claim, a plaintiff must demonstrate that their business or property was injured as a result of a RICO violation. In other words, there must be some sort of concrete financial loss directly flowing from the purported violation to support a RICO claim. Thus, if a plaintiff does not have a concrete financial loss, then the RICO claim must be dismissed. Asserting personal injuries, such as emotion distress, is insufficient.
Second, to prove most types of RICO claims, the plaintiff must plead that the defendant committed some qualifying criminal action, the most common of which is mail, wire or securities fraud. Business deals gone sour do not count. Rather, the plaintiff must be able to prove the elements of the asserted crime, and often an intent to defraud. If there is nothing criminal in nature about the complained-of conduct, RICO should not apply. It is an abuse of the RICO statute to attempt to shoehorn ordinary business or contractual disputes into a civil RICO claim.
Third, the plaintiff must plead a pattern of racketeering activity for most RICO claims. If the alleged conduct occurred once or twice, or was not continuous, it cannot form a pattern of conduct sufficient to support a RICO claim. And oftentimes, because there is a fraud component, those instances must be particularly identified in the plaintiff’s pleading—a barrier that can prove difficult to accomplish.
Fourth, for most RICO claims, the plaintiff also must plead that the alleged “person” and “enterprise,” as defined in RICO, are distinct. While often technical, this “distinctiveness” requirement provides that a corporation generally will not be liable for operating an “enterprise” consisting of itself and its officers or employees. If a business is alleged to have violated RICO based on intracompany actions, then the RICO claim has a good chance of dismissal.
Fifth, a RICO claim cannot exist without some nexus to interstate commerce. If the alleged conduct does not affect interstate commerce, it must be dismissed. While a company is unlikely to be involved in a dispute without a relationship to commerce, this element of a RICO claim should nevertheless be scrutinized as another fruitful avenue for early dismissal.
Finally, RICO has a four-year statute of limitations, which is triggered by the date a plaintiff discovered or should have discovered the purported criminal activity. Therefore, if four years has passed since that date, the claim must be dismissed. While this requirement is generally not at issue, it too should be considered as a potential argument in favor of a quick dismissal.
Civil RICO claims can be complex, and RICO defendants should develop a defense strategy early in order to dismiss meritless claims and avoid costly discovery that can distract a business from its day-to-day operations. If you have any civil RICO questions, the authors listed below can assist.
This alert is the first in a multipart series on civil RICO claims. Please stay tuned for additional alerts.
This document is intended to provide you with general information regarding civil RICO claims. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.