In Part I of this series Defending RICO Claims in the Business Context, we described why a plan to defend against potential claims under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961–68, should be in every business’s toolkit. Although the term RICO usually conjures up images of organized crime and mobsters from the movies, plaintiffs across the country are now using RICO to bring civil suits against companies for a wide variety of purported wrongdoing that RICO was never intended to address. This practice can cause serious disruptions even where the RICO claim is completely meritless.
In Part II, we describe one of the best tools businesses have in the toolkit—moving to dismiss a RICO claim because the plaintiff failed to allege that his purported injuries are sufficient to convey what is “RICO standing.”
Fortunately for defendants, the RICO standing requirement greatly restricts the types of claims that can survive a motion to dismiss. If a plaintiff brings a civil suit alleging a RICO violation, the plaintiff must plausibly allege that his injury animating the RICO claim is associated with his business or property by reason of the defendant’s violation of the RICO laws. Absent these allegations, the lawsuit must be dismissed.
RICO standing is distinct from the more well-known concept of constitutional standing. For RICO claims, in addition to pleading a sufficiently specific injury, including allegations that the plaintiff has suffered known damages (as opposed to mere speculative or unprovable damages), the plaintiff must allege that he suffered an injury to his business or property that bears some causal relationship to the alleged act or acts that violated RICO. This fundamental RICO requirement helps ensure that RICO is not expanded beyond its original intent.
Although “business” and “property” are not defined under RICO, these terms are not all-encompassing. Indeed, most courts have construed them narrowly to mean that there must be a pecuniary injury to a proprietary interest, and thus a plaintiff must show some sort of concrete financial loss. In addition, the injury must be ascertainable and definable, such as when a plaintiff is deprived of the ability to use or transfer property.
In light of this, certain types of injuries are insufficient to meet the RICO standing requirement. Although the “injury to business or property” does not need to be the predominant injury alleged, courts have held that personal injuries, such as harm to a plaintiff’s dignity or reputation, even where such harm causes a loss of income, do not constitute business or property injuries for purposes RICO. The same is true in many jurisdictions as to injuries in wrongful death actions, allegations of loss of employment, allegations of emotional distress and injuries associated with “risk of loss” or “lost opportunity.” Ironically considering RICO’s association to organized crime, if a defendant threatened to break a plaintiff’s leg—an image evoked by countless mobster movies—RICO does not provide the plaintiff with a means to recover damages for the pain and suffering caused by having his legs broken.
In contrast, in addition to more obvious injuries to business or property, courts have determined that a plaintiff’s alleged injuries were sufficient in cases involving lost profits, excessive interest charges, property damage and interference with business, such as decreased business profits or increased costs of doing business. Injuries to intangible business assets (such as lost customers or business relationships) are also usually sufficient.
Moreover, the alleged injury to a plaintiff’s business or property must be both factually and proximately caused by the defendant’s alleged violation of RICO. This means not only that absent the defendant’s alleged violation of RICO, the injury to the plaintiff’s business or property would not have occurred (i.e., but-for causation), but also that the alleged violation must directly lead to the plaintiff’s injuries. The latter significantly limits RICO’s reach and prohibits those indirectly harmed from bringing flimsy RICO claims.
Therefore, considering the large number of types of cases that do not confer RICO standing, and the requirement that the injury must be proximately caused by the defendant’s violation of RICO, an entity or individual accused of a RICO violation should immediately examine whether the plaintiff is alleging an injury to his business or property and if these alleged injuries have some direct relationship with the alleged wrongdoing.
Civil RICO claims are complex, and RICO defendants should develop a defense strategy early in order to dismiss meritless claims, including those that fail to allege RICO standing, and to avoid costly discovery that can distract a business from its important day-to-day operations. If you have any civil RICO questions, the authors listed below can assist.
This article is Part II of a multipart series on Civil RICO. Please stay tuned for additional articles.
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