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June 11, 2024 Feature

Civil RICO: A Tool of Advocacy

James A. Johnson and Thomas Cranmer
Although RICO is fundamentally a criminal statute, its prohibitions may be enforced in both criminal and civil contexts.

Although RICO is fundamentally a criminal statute, its prohibitions may be enforced in both criminal and civil contexts.

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The Racketeer Influenced and Corrupt Organizations Act (RICO) was enacted as Title IX of the Organized Crime Control Act of 1970. The act sought to eradicate organized crime in the United States by providing enhanced and novel legal tools. However, apart from governmental intervention, civil RICO cases rarely have anything to do with organized crime. Since 1985, RICO has become the weapon of choice for civil plaintiffs because of the broad and liberal construction of the statute and the availability of treble damages, as well as attorney fees and costs. It also allows the plaintiff to identify a series of separate acts that can be presented as part of a broader unified scheme, and in so doing attach civil liability to simple things like sending items through the mail or making phone calls.

The purpose of this article is to provide guidance and an advance starting point on civil RICO claims. It touches the high points and sets out specific details on prosecuting and defending a RICO claim. Additionally, the information herein is designed to invoke the following question by plaintiffs: Is there a RICO claim or count in the facts of my case? And it will prompt defendants to ask: How can I dismiss this RICO count?

Who May Sue

Civil RICO can be utilized by institutions, corporations, banks, brokerage firms, and a bevy of other individuals and associations as plaintiffs and by defendants as counterclaims. The civil RICO cause of action is created by 18 U.S.C. § 1964(c), which provides: “Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney’s fee . . . .”

The civil racketeering provisions of RICO involve three main sections of the statute: § 1961 provides the definitions, § 1962 describes the prohibited conduct, and § 1964 details the remedies. Federal subject matter jurisdiction is conferred by § 1964(c), which creates the civil RICO cause of action. Personal jurisdiction is conferred by § 1965, which authorizes nationwide service of process. Section 1965(a), the principal venue provision, permits a party to institute a civil RICO action in any district in which a defendant resides, is found, has an agent, or transacts their affairs. Nationwide jurisdiction hinges on whether at least one defendant has minimum contacts with the forum state. If there is more than one defendant, § 1965(b) governs service over out-of-district defendants and requires that at least one defendant have minimum contacts with the forum state. This is the majority view of the Second, Third, Sixth, Seventh, Tenth, and D.C. Circuits. Civil RICO actions are subject to a four-year statute of limitations. The limitation period accrues no later than the date the plaintiff first knew or should have known of its injury.

The term “person” is broadly defined in § 1961(3) to include “any individual or entity capable of holding a legal or beneficial interest in property.” To determine who may bring suit, RICO has been liberally construed to include not only people, partnerships, corporations, and joint ventures but also domestic state governmental units. However, a showing of injury for a civil RICO claim requires proof of a concrete financial loss and not mere injury to a valuable intangible property interest. In addition, the “by reason of” language of § 1964(c) imposes a proximate cause requirement on the plaintiff. The § 1962 violations must proximately cause the plaintiff’s injury to business or property. Significantly for the purposes of this section, money is a form of property.

Seminal Supreme Court Decision in Sedima

The U.S. Supreme Court’s 1985 decision in Sedima, S.P.R.L. v. Imrex Co. is the most frequently cited RICO precedent. Sedima eliminated a bevy of defense arguments and set out the minimal pleading standards a civil racketeering claim must meet. For example, the Supreme Court overruled earlier lower court decisions that the defendant must have been convicted of criminal offenses constituting the predicate acts, or that the plaintiff must have suffered a “racketeeringinjury” distinct from the harm inflicted by the predicate acts. A RICO-based complaint must be drafted with the following instructions from Sedima as a guide.

A violation of § 1962(c), the section on which Sedima relies, requires (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. The plaintiff must allege each of the elements to state a claim. They are all equally essential components, and the complaint will fail if any one of them is not adequately pleaded. In particular, RICO claims based on mail or wire fraud must comport with Federal Rule of Civil Procedure 9(b)’s requirement that allegations involving fraud be pleaded with particularity. The practitioner through their pleadings must articulate with great care and attention a viable racketeering claim. In addition, § 1962(a), (b), and (c) are limited in scope to conduct involving enterprises engaged in or the activities of which affect interstate commerce. It is the activities of the enterprise, not each predicate act, that must affect interstate or foreign commerce. RICO requires no more than a slight effect upon interstate commerce. Even a minimal effect on interstate commerce satisfies this jurisdictional requirement.

There has been substantial litigation regarding what constitutes a “pattern” of racketeering activity, what an “enterprise” can consist of, and what must be alleged to plead and prove “conduct” of same through a pattern of racketeering activity. The following will attempt to discuss some of these issues without getting lost in the weeds of any one specific issue.

Litigating 1962(c) Claims

The most prominently litigated subsection of § 1962 is § 1962(c). A plaintiff only has standing to sue if they have been injured in their business or property by conduct constituting the violation. To establish a § 1962(c) RICO claim, the following elements must be proven:

  • Enterprise: A structured group of individuals associated for a common purpose.
  • Pattern of racketeering activity: At least two acts of racketeering, as specified within the statute, within10 years.
  • Conduct: Directly or indirectly conducting the enterprise’s affairs through racketeering.
  • Injury: An injury to business or property due to the racketeering activity.

Section 1961(4) defines “enterprise” as “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” Section 1962(c) requires that the “person” who violates this section must be distinct from the “enterprise” whose affairs that person is allegedly conducting or participating in. It is because only the person and not the enterprise can be liable under § 1962(c). The person and enterprise must be separate entities. The violator of § 1962(c) who commits the pattern of predicate racketeering acts must be distinct from the enterprise of predicate racketeering acts whose affairs are thereby conducted. Therefore, the unlawful enterprise itself cannot also be the person the plaintiff charges with conducting it.

However, the Supreme Court unanimously decided to narrow, but not eliminate, the concept that a person for purposes of RICO had to be clearly and completely different from the RICO enterprise. In reversing the Second Circuit’s decisions in Bennett v. United States Trust Co. of New York and Riverwoods Chappaqua Corp. v. Marine Midland Bank, N.A., the Supreme Court in Cedric Kushner Promotions, Ltd. v. King determined that an individual who owns a corporation “is distinct from the corporation itself.” The Court reached its decision by applying the traditional analysis that a corporation as a legal fiction is an entity different from its owners. It is also noteworthy that the Eleventh Circuit has never enforced the person/enterprise distinction under § 1962(c).

The circuits are split in regard to the person/enterprise distinctness issue. It appears that the D.C. Circuit and the Fourth Circuit follow Cedric Kushner. However, the Eighth Circuit in Atlas Pile Driving Co. v. DiCon Financial Co. took an opposite view in holding that a defendant may be a member of an associated-in-fact enterprise without disturbing the required distinction of § 1962(c).

Predicate Acts Necessary to Establish a Pattern of Racketeering Activity

Section 1961(1) outlines the definition of “racketeering activity” and enumerates various predicate acts that can establish a pattern of racketeering. These predicate acts encompass a wide range of criminal activities, including but not limited to mail fraud, wire fraud, bribery, extortion, and money laundering. By citing this section, one can lay the foundation for discussing the elements that constitute racketeering under RICO.

Mail and wire fraud. Among the predicate acts specified in § 1961(1), mail fraud and wire fraud hold particular significance due to their prevalence in white-collar crimes and financial fraud schemes. Mail fraud involves the use of the postal service to execute a fraudulent scheme, while wire fraud pertains to fraudulent activities conducted via electronic communication channels. Both offenses are commonly utilized in organized crime activities and can serve as key components in establishing a pattern of racketeering activity.

The mail fraud statute provides, in pertinent part:

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses [or] representations, . . . places in any post office or authorized depository for mail matter . . . to be sent or delivered by any private or commercial interstate carrier . . . shall be fined under this title or imprisoned not more than 20 years, or both.

The mail fraud statute prohibits any person from knowingly causing the use of the mails or private carrier services like Federal Express for the purpose of executing any scheme or artifice to defraud. The actual violation is the mailing, which must relate to the underlying fraudulent scheme. Section 1964(c) requires proof that the pattern of mail fraud violations and not some other act caused the plaintiff’s injury to business or property.

The federal wire fraud statute is also one of the predicate offenses used for RICO purposes. One of the most significant RICO cases alleging wire fraud is Kelly v. United States. This case arose out of a political scandal known as “bridgegate.” As Justice Kagan summarized:

For four days in September 2013, traffic ground to a halt in Fort Lee, New Jersey. The cause was an unannounced realignment of 12 toll lanes leading to the George Washington Bridge, an entryway into Manhattan administered by the Port Authority of New York and New Jersey. For decades, three of those access lanes had been reserved during morning rush hour for commuters coming from the streets of Fort Lee. But on these four days—with predictable consequences—only a single lane was set aside. The public officials who ordered that change claimed they were reducing the number of dedicated lanes to conduct a traffic study. In fact, they did so for a political reason—to punish the mayor of Fort Lee for refusing to support the New Jersey Governor’s reelection bid.

Two of the officials involved in the scandal were convicted of wire fraud under 18 U.S.C. § 1343, the same statute commonly cited as a predicate act in civil RICO cases. Their convictions were upheld by the Third Circuit but overturned by the Supreme Court.

The question before the Supreme Court involved the wire fraud statute’s language barring fraudulent schemes “for obtaining money or property.” The government first argued that the defendants had taken the Port Authority’s property by commandeering three lanes of traffic. The Court disagreed: “[T]he two defendants did not ‘commandeer’ the Bridge’s access lanes . . . . They (of course) did not walk away with the lanes; nor did they take the lanes from the Government by converting them to a non-public use.”

The government further argued that the defendants had interfered with the Port Authority’s property by causing the Port Authority to pay additional employee compensation to execute the scheme. The Court explained that it is not enough that the scheme deprived the Port Authority of additional employee compensation because the additional compensation was not diverted to the defendants. If the defendants do not “obtain,” or try to obtain, the property of the victim, there is no wire fraud under the federal statute. In other words, “a property fraud conviction cannot stand when the loss to the victim is only an incidental byproduct of the scheme.”

The takeaway for plaintiffs’ attorneys considering adding a RICO claim to a civil complaint is to think about how to define the object—the intent—of the RICO scheme and its damages. If there was no money or property belonging originally to the plaintiffs and taken into the possession of the defendants as the primary purpose of the scheme, there is not a valid civil RICO claim. The takeaway for defense counsel is to consider an attack on the elements of the predicate act itself.

RICO’s broad definition of racketeering activity and the act’s reference to mail and wire fraud as predicate offenses begs the question: Why not RICO? That is, should the plaintiff consider adding a RICO count to an existing state cause of action? Moreover, since an action under RICO arises under federal law, a plaintiff can elect to have access to federal court. Civil RICO is so broad and offers such a potentially broad pathway to pleading of such a claim in light of the inclusion of mail and wire fraud as predicate acts that a plaintiff can take almost any given set of facts and fashion their pleadings and be afforded the opportunity to plead a civil racketeering claim. The key is to make certain that each of the four critical elements previously set out is properly pleaded.

Data theft. A relatively new twist on RICO involves RICO claims based on activities involving data theft. Civil RICO applies to data theft and provides a significant remedial advantage over the federal Computer Fraud and Abuse Act (CFAA). The CFAA is limited to compensatory damages. As noted above, civil RICO provides for treble damages and attorney fees. The threshold question to consider in deciding whether to attempt to utilize RICO in connection with alleged data theft is whether the data thief was acting through a RICO “enterprise.”

As discussed above, the element of “racketeering activity” is defined by the statute to include a specified list of state and federal crimes upon which the RICO action may be predicated. The criminal acts that apply to data theft are mail fraud, wire fraud, and interstate transportation and receipt of stolen property, the value of which is $5,000 or more. That the property is intangible computer data does not make it any less property protected by the mail and wire fraud statutes. The use of the mails or interstate wires, such as emailing from state to state in furtherance of the scheme, provides federal jurisdiction for the crime.

Courts disagree on whether intangible computer data can be property stolen or received in violation of 18 U.S.C. § 2314 (interstate transportation of stolen goods) and § 2315 (receipt of stolen goods). However, where there has been some tangible item stolen, such as a disk upon which the data is stored that is taken to another state, the theft violates § 2314. The Second Circuit rejects this distinction between tangible and intangible property and applies the statutes to the theft of computer data. Astute counsel should check the appropriate circuit before filing a RICO action based on violation of § 2314 or § 2315.

Foreign Plaintiffs

While the RICO statute requires the existence of a domestic injury, the Supreme Court in Yegiazaryan v. Smagin held that foreign plaintiffs can satisfy civil RICO’s domestic-injury requirement if their injuries arose in the United States. In 2003, Russian businessmen Ashot Yegiazaryan and Vitaly Smagin partnered on a Moscow real estate project that failed in 2009. Yegiazaryan fled to Beverly Hills, California, to avoid a Russian indictment. Smagin, who remained in Russia, then won an arbitration award against Yegiazaryan in London.

Subsequently, Smagin sued Yegiazaryan in California federal court to enforce the arbitration award and obtained a judgment. Yegiazaryan engaged in a number of complex and fraudulent transactions to prevent Smagin from collecting on the federal court’s judgment, including wire fraud, witness tampering, and obstruction of justice. Smagin brought a civil RICO claim against Yegiazaryan, alleging that his actions to hide assets and avoid paying the federal court’s judgment on the arbitral award constituted a pattern of racketeering activities.

The district court dismissed Smagin’s civil RICO claim, holding that he failed to satisfy RICO’s domestic-injury requirement. The Ninth Circuit reversed, noting that Smagin confirmed the arbitral award in California and that Yegiazaryan’s alleged misconduct to evade the court’s judgment occurred in California.

Justice Sotomayor, writing for the Court, held that RICO’s domestic-injury requirement can be satisfied based on the facts and circumstances surrounding the alleged injury. The Court rejected a bright-line rule that would look only to the plaintiff’s place of residence as the place where the economic injury occurred. The decision creates opportunities for judgment creditors to use RICO to pursue assets based on domestic conduct that allegedly injures property rights, including unlawful efforts to frustrate the enforcement of foreign judgments within the United States. The Court relied on allegations that the foreign plaintiff was “injured in his ability to enforce a California judgment, against a California resident, through racketeering acts that were largely ‘designed and carried out in California.’”

Damages

To recover damages under civil RICO requires proof of concrete financial loss and not merely injury to a valuable intangible property interest. The measure of damages is the harm caused by the predicate acts constituting the pattern of racketeering activity. A compensable injury is the harm caused by predicate acts sufficiently related to constitute a pattern. Plaintiffs are required to set out a reasonable basis of recovery by competent proof and not mere speculation. Only damages to “business or property” occurring “by reason of” and proximately caused by the RICO violations are compensable under § 1964(c). Further, under Sedima, the plaintiff’s compensable injury is the harm caused by the predicate acts. Future damages may be appropriate, but only to the extent that the plaintiff can establish with reasonable certainty that future damages will occur as a result of the defendant’s RICO violation.

In addition to recovery of damages in the amount of the calculated harm, RICO is a potent weapon because it allows for a bonus recovery not typically available elsewhere. Section 1964(c) dictates the award of treble damages for civil RICO violations. It provides that the plaintiff “shall recover threefold the damages he sustains” in addition to costs and attorney fees. This is not discretionary. Imposition of treble damages is required by RICO.

It is vital for a practitioner to have a handle on the damage element for a RICO claim, as damages are only recoverable to the extent they are caused by the use of the racketeering income to cause injury to an individual, business, or property.

Defenses

To state a civil RICO case, the plaintiff must allege the substantive components of an “enterprise” and a “pattern” with specificity. The plaintiff must also allege facts sufficient to support each of the statutory elements for at least two of the pleaded predicate acts and that each defendant knowingly agreed to participate in the conspiracy. The court must read the facts alleged in the complaint in the light most favorable to the plaintiff. But a plaintiff who is unable to identify the enterprise, satisfy the pattern requirement, or plead other statutory elements with sufficient specificity can be subject to a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). Additionally, to the extent that any predicate acts sound in fraud, the pleading of those acts must satisfy the particularity requirements of Federal Rule of Civil Procedure 9(b), which provides: “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.”

The complaint must describe the predicate acts with specificity and state the time, place, and content of the alleged communications perpetrating the fraud. All elements of the RICO cause of action must be set out factually and with sufficient specificity to permit the court to ascertain whether a viable claim exists and whether the plaintiff has standing to pursue it. Moreover, § 1961 requires that a RICO plaintiff establish that a defendant could be convicted for violating any of its predicate statutes. RICO is fundamentally a criminal statute, and civil RICO is dependent upon a defendant committing criminal RICO acts as set out in § 1962. To be criminal, the defendant’s conduct must be committed with the mens rea appropriate to the offense. The defendant must possess the specific intent associated with the various underlying predicate offenses. The plaintiff must prove that the defendant acted with the appropriate mens rea.

In addition, pari delicto—the doctrine that there is a bar for recovery of damages because of a wrong the litigant participated in—is an available defense to a RICO claim.

Aiding and Abetting Liability

Aiding and abetting liability under RICO requires demonstrating that the defendant knowingly participated in or facilitated the commission of a RICO violation by another party. This involvement can take various forms, such as providing substantial assistance or encouragement to the primary violator. To establish aiding and abetting liability, the plaintiff typically needs to show that the defendant had knowledge of the underlying RICO violation and intentionally assisted or encouraged the unlawful conduct. This can include actions that contribute to the success of the RICO enterprise, even if the defendant did not directly commit the predicate acts themselves. Moreover, proving aiding and abetting in civil RICO cases often involves establishing a close connection between the defendant’s actions and the overall RICO scheme. This connection can be based on factors like the defendant’s awareness of the illegal activities, their intent to further the enterprise, and the impact of their actions on the RICO violations. Ultimately, there must be evidence of an overt act by the defendant designed to aid in the success of the venture.

In addition, the defendant must have aided and abetted in at least two acts forming a pattern of racketeering activity. These acts must be related and continuous to constitute a pattern. The relatedness and continuity issue first came to prominence in a famous footnote to the Supreme Court’s decision in Sedima. In Sedima, the Court noted that the term “pattern of racketeering activity” had been left intentionally vague by Congress, and it invited further clarification by the lower courts. The Court did not provide a precise definition of what constitutes a pattern in this context. This ambiguity in the definition of the statutory word “pattern” occasioned a split among the federal circuit courts as they attempted to interpret and apply the civil RICO statute. Two primary issues emerged:

  1. Relatedness: This aspect of the pattern requirement concerns whether the alleged racketeering acts are related to each other. Courts have grappled with how closely connected these acts must be to meet the relatedness criterion. Some circuits adopted a broad interpretation, while others opted for a stricter nexus between the acts.
  2. Continuity: The continuity issue pertains to the temporal aspect of the pattern. It questions whether the racketeering acts display a continuous course of conduct over time or whether they are isolated incidents. Courts have debated how long this course of conduct must persist to satisfy the continuity criterion. Some circuits adopted a closed-ended approach (requiring acts within a specific time frame), while others embraced an open-ended approach (focusing on the threat of future racketeering activity).

To resolve these issues, various circuit courts have formulated different approaches for analyzing whether certain conduct satisfies the statutory definition of “pattern” under civil RICO.

Fifth Circuit. One of the first pattern cases to be decided after Sedima involved two acts of mail fraud. In R.A.G.S. Couture, Inc. v. Hyatt, the Fifth Circuit held that two acts of mailing a fraudulent invoice were sufficient to create a pattern of racketeering activity. The mailings came from a closely held corporation, and the principal allegation in the case was that one or both of the corporation’s two shareholders had caused the mailings. The Fifth Circuit found nothing in Sedima that would require the court to narrow its broad construction of the pattern concept. R.A.G.S. thus held that civil RICO requires only that there be two acts and that these acts be related, reading Sedima to imply simply that two “isolated” acts could not create a pattern.

Tenth Circuit. The Tenth Circuit has devised a more demanding standard for showing a pattern. Where the directors of a corporation were involved in self-dealing by secretly purchasing real estate and fraudulently reselling it to the company, the Tenth Circuit ruled that no pattern existed even though the frauds had occurred over a 10-year period. Torwest DBC, Inc. v. Dick thus rejected the Fifth Circuit’s reasoning in R.A.G.S. and refused to find a pattern where “the single scheme at issue involved one victim.” The court explained: “A scheme to achieve a single discrete objective does not in and of itself create a threat of ongoing activity, even when that goal is pursued by multiple illegal acts, because the scheme ends when the purpose is accomplished.”

Second Circuit. The Second Circuit (which decided the Sedima case) adopted a relatively lenient view of continuity and relatedness, making it easier for plaintiffs to establish a RICO pattern. In United States v. Indelicato, the Second Circuit held that the nearly simultaneous shooting and killing of three persons to effect a change in leadership of an organized crime family constituted more than one predicate “act of racketeering activity” and was sufficient to establish the basis for a “pattern.” The guidance provided by Indelicato on what constitutes one “act” for RICO purposes is straightforward—“where in fact there are a number of different acts, each should be separately counted.” Temporal proximity of “like acts for similar purposes against a number of victims” does not require that two or more acts be counted as one.

Third Circuit. The Third Circuit, on the other hand, took a more stringent approach, requiring a showing of both closed-ended (a series of related predicate acts within a specific time frame) and open-ended (a threat of future racketeering activity) continuity. In Kolar v. Preferred Real Estate Investments, Inc., the Third Circuit noted that a “single, finite transaction cannot by itself underpin a pattern of racketeering activity” and cautioned that a “[plaintiff] cannot successfully transmute [their claims] into RICO claims by simply appending the terms ‘false’ and ‘fraudulent.’”

Eighth Circuit. The Eighth Circuit has held that multiple acts of mail and wire fraud in the furtherance of a single audit scheme to defraud bespeaks a sufficient continuity (and does not indicate sporadic activity under RICO). In Superior Oil Co. v. Fulmer, an employee and two others stole liquid petroleum from Superior Oil’s pipeline. Acts of mail and wire fraud were alleged to have been committed while obtaining the oil from the pipeline and in filing fraudulent reports regarding the pressure at the well. The court held that the patten element under civil RICO had not been satisfied because there was no evidence that the defendants had engaged in this activity in the past or were presently engaged in it elsewhere.

Ninth Circuit. The Ninth Circuit follows a more flexible approach, looking at the totality of the circumstances to determine pattern existence. In Sun Savings & Loan Ass’n v. Dierdorff, the court acknowledged that while there must be some relatedness and continuity between predicate acts to constitute a pattern, the degree of relatedness and continuity may vary depending on the case. The Ninth Circuit stressed the importance of examining the specific allegations of racketeering activity and the relationship between the acts when determining whether a pattern exists. Ultimately, Sun Savings found that the plaintiffs had adequately alleged a pattern of racketeering activity based on the specific facts of the case. The case involved a complex series of real estate transactions in Southern California during the 1980s, a period marked by significant real estate investment and development in the region. Sun Savings was a financial institution that provided loans for real estate development projects. The defendants in the case included developers, brokers, and individuals involved in these real estate transactions. Sun Savings alleged that the defendants engaged in a pattern of racketeering activity in connection with various real estate deals. Rather than focusing on “pattern” through the use of extraneous criteria such as the number of schemes or the extent of the continuity, the Ninth Circuit concluded that a RICO pattern claim requires predicate acts that are not “isolated or sporadic.”

Jury Instructions

Consulting jury instructions is an important part of any civil RICO practice because they focus the jury on the specific issues and laws applicable to the case being tried. They also are a valuable tool for practitioners when thinking through the substantive requirements to make out a viable RICO claim, along with what they will need to establish through discovery and case development. Because jury instructions lay out the “end point” of any litigation, they are a great primer for lawyers starting from scratch on a new case and as they think through what will ultimately need to be shown or defended against as the case proceeds. As with any case, jury instructions should guide the jury in plain English regarding the legal principles they are to apply. A proper verdict requires understandable jury instructions.

The Eleventh Circuit’s Pattern Jury Instructions are helpful in this regard. Instruction 7.1 provides:

To succeed on [a RICO] claim, [name of plaintiff] mustprove each of the following four facts by a preponderanceof the evidence:

First, you must find that [name of defendant]derived income, either directly or indirectly, from a pattern of racketeering activity.

Second, you must find that [name of defendant] participated as a principal in the pattern of racketeering activity.

Third, you must find that some part of that income, or proceeds of that income, was used to acquire or maintain an interest in, or to operate, an enterprise.

And fourth, you must find that the enterprise engaged in,or had some effect on, interstate or foreign commerce.

The instructions also explain in detailed fashion how the jury can find in favor of a plaintiff in a civil RICO claim by specifying the following:

  • A “racketeering activity” refers to a violation of a specific statute. For the first element, the plaintiff can show a “pattern of racketeering activity” by pointing to at least two distinct but related predicate acts. Related predicate acts have the “same or similar purposes, results, participants, victims, or methods.” The plaintiff is also required to show “continuity” by either showing that the predicate acts extended over a “substantial period of time” or that the conduct by its nature “is likely to be repeated into the future.”
  • For the second element, the plaintiff must prove that the defendant “participated as a principal” by either committing (or aiding, abetting, counseling, commanding, inducing, or procuring) two or more alleged predicate acts or “willfully” causing the commission of the predicate acts.
  • For the third element, the plaintiff needs to prove that some part of the income or proceeds derived from the racketing activity was “used to acquire, maintain an interest in, or operate an enterprise.”
  • The fourth and final element requires proof that the “enterprise” engaged in or had an effect on interstate (or foreign) commerce.

Takeaways

The following rules of thumb should be considered before attempting to make use of RICO.

Keep in mind that RICO is fundamentally a criminal statute because it requires at least two predicate acts that are criminal. However, RICO’s prohibitions may be enforced in both criminal and civil contexts. In the context of a civil action, a plaintiff must be directly injured by reason of the defendant’s racketeering activities. Proximate cause, as an aspect of RICO’s “by reason of” standard, requires a RICO plaintiff to show that the defendant’s racketeering offenses led directly to the plaintiff’s injuries.

RICO creates a private cause of action under 18 U.S.C. § 1964(c). To state a civil RICO claim, a plaintiff must allege (1) two or more predicate racketeering offenses, (2) the existence of an enterprise affecting interstate commerce, (3) a connection between the racketeering offenses, and (4) an injury by reason of the above.

While civil RICO may be difficult to plead in regard to each specific required element, the statute is broad in its potential applications. It can apply to data theft and a plethora of tort and contract claims, so long as the core facts fit § 1961 and at least two predicate acts are presented together with the other requirements set out herein. Because of RICO’s broad definition of racketeering activity and the act’s reference to mail and wire fraud as predicate offenses, the plaintiff must plead factual allegations sufficient to meet the dictates of Federal Rule of Civil Procedure 8 (“short and plain statement”) and its interpretation by the U.S. Supreme Court in Iqbal and Twombly; and if fraud is alleged, it must be alleged with sufficient particularity under Rule 9.

The defendant has a bevy of weapons to combat a RICO claim. Initially, they may bring a Rule 12(b)(6) motion to dismiss for failure to plead with sufficient plausibility and particularity to satisfy the standards outlined under Supreme Court precedent in Iqbal, Twombly, and/or Rule 9(a). The defendant can also take aim at the pleading of the enterprise, the pleading of the pattern, and the issue of whether conduct of the enterprise has been sufficiently pleaded. If that fails, the defense can fashion a RICO-based counterclaim against a given plaintiff arising out of the same facts that the plaintiff initially advanced. And, after discovery is complete, a Rule 56 motion for summary judgment remains an appropriate vehicle to dismiss unfounded claims.

Civil RICO should be a tool of advocacy in every trial lawyer’s toolbox, for both plaintiffs and defendants.

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    James A. Johnson

    James A. Johnson, Esq.

    James A. Johnson is an accomplished attorney with over 40 years as a trial lawyer and transactional attorney. He concentrates on complex civil litigation, sports and entertainment law, and criminal defense.

    Thomas Cranmer

    Miller Canfield

    Thomas Cranmer is a senior partner, co-group leader, and accomplished trial lawyer with Miller Canfield, with over 40 years of courtroom experience. He concentrates his practice in civil and criminal litigation, with an emphasis on white-collar criminal defense and complex civil litigation.