RICO Law Blog : RICO Lawyer & Attorney : Thomas Walker : Cosho Humphrey Law Firm : RICO Act, Federal and State Racketeering Litigation, Boise Idaho

Seven different petitions for certiorari by or against tobacco companies, growing out of a single D.C. Circuit opinion last spring, were filed at the United State Supreme Court last month.  All concern penalties imposed on the companies under the Racketeer Influenced and Corrupt Organizations Act (RICO).

Questions presented among the seven petitions:

1. Whether a group of corporations can constitute an association-in-fact enterprise under RICO.

2. Whether a corporation can be found to have the necessary specific intent to defraud in a RICOcase without evidence that any particular individual in the corporation had such specific intent.

3. Whether the fraud statutes, the First Amendment, and due process permit speech to be deemed fraudulent when (a) the speech addressed important public controversies and potential regulation, rather than being designed to deprive consumers of money or property, (b) there was no evidence or finding that the speech was material to a reasonable consumer, (c) the speech constituted opinions regarding ongoing scientific disputes or statements that were undisputedly true under at least one reasonable interpretation, (d) there was no allegation or finding that any individual associated with the defendants said anything he believed to be false or intended to defraud, and (e) much of the speech is subject to immunity under antitrust laws.

4. Whether 18 U.S.C. § 1964(a) of RICO categorically bars a district court from ordering disgorgement of ill-gotten gains as well as other equitable relief, such as smoking cessation and public-education remedies, designed to redress the continuing consequences of RICO violations.

5. Whether federal courts may exercise injunctive jurisdiction under RICO and Article III of the Constitution when there is no statutory “enterprise” and any reasonable likelihood of future violations has been extinguished by, among other things, extensive federal tobacco legislation.

6. Whether a court of appeals is required under the First Amendment to undertake independent appellate review when a district court has found that speech is not constitutionally protected because it is fraudulent.

It will likely be more than a year before the Court’s decisions are issued.

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The AP reported on February 19, 2010 that the Obama Administration "asked the US Supreme Court on Friday to allow the government to seek nearly $300 billion from the tobacco industry for a half-century of deception that 'has cost the lives and damaged the health of untold millions of Americans.'" The Administration "wants the court to throw out rulings that bar the government from collecting $280 billion of past tobacco profits and $14 billion for a national campaign to curb smoking." Meanwhile, "leading tobacco companies want the justices to wipe away court rulings that the industry illegally concealed the dangers of cigarette smoking," and "if they succeed, the attack on their profits also would be halted."

The New York Times also noted that a "consortium of health and antitobacco groups also filed a petition with the Supreme Court Friday supporting the return of profits. 'The government is asking for a much more expansive set of remedies than it asked for at the conclusion of the trial or before the Court of Appeals,' said Matthew L. Myers, a lawyer and president of the Campaign for Tobacco-Free Kids."

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United States Attorney Benjamin B. Wagner announced on February 18, 2010 that a federal grand jury has returned a seven-count indictment charging FREDERICK SCOTT SALYER, 54, of Pebble Beach, with violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), in connection with his direction of various schemes to defraud SK Foods’ corporate customers through bribery and food misbranding and adulteration, and with wire fraud and obstruction of justice.

Additionally, SK Foods former Vice President for Operations STEVEN JAMES KING, 46, of Visalia, was charged this morning with one count of food adulteration and misbranding. He has agreed to plead guilty and to cooperate in the ongoing investigation and prosecution.

These cases are the product of a joint and extensive investigation by the FBI, the IRS-Criminal Investigation, the Food and Drug Administration Office of Criminal Investigations, and the United States Department of Justice’s Antitrust Division.

According to Assistant United States Attorney Sean C. Flynn, who is prosecuting the case with Barbara Nelson and Richard Cohen of the San Francisco Field Office of the Antitrust Division, between 1990 and 2008, SALYER was the owner and served as chief executive officer of SK Foods LP, a grower, processor, and distributor of tomato products and other food products for sale nationwide. SK Foods declared bankruptcy in May 2009, and its assets were purchased by the Singapore-based Olam International.

According to the indictment, SK Foods and its related corporate entities constituted a racketeering enterprise, an organization that SALYER directed, and other SK Foods leaders and employees helped to further through a variety of illicit activities. It is alleged that over a period of 10 years, SALYER orchestrated a number of wide-ranging schemes whereby SK Foods regularly paid bribes to the purchasing managers of many of its customers such as Kraft Foods Inc., Frito-Lay Inc., B&G Foods Inc., and Safeway Inc. to ensure that those customers purchased processed tomato products from SK Foods rather than from its competitors, and that they purchased the product from SK Foods at elevated, above-market prices. The indictment alleges that some bribes were made in order to wrongfully obtain its competitor’s proprietary bid information.

As the racketeering enterprise’s leader and primary decision maker, SALYER is also alleged to have directed a widespread practice of selling and shipping processed tomato product that did not meet contractual specifications, contained mold levels in excess of the thresholds established by the FDA and was thus unsaleable domestically. The indictment alleges that at SALYER’s direction, various individuals at SK Foods falsified both internal and customer-bound documentation to make the product appear as if it were legal and contractually compliant when, in fact, it was not.

SALYER is also charged with obstructing justice by ordering the alteration and falsification of certain SK Foods’ corporate records after the government’s investigation of the company became known. Specifically, the indictment alleges that two weeks after former SK Foods sales broker and Director Randall Lee Rahal pleaded guilty to racketeering, money laundering, and antitrust charges in December 2008, SALYER ordered certain individuals to alter the minutes of a December 14, 2007, SK Foods Board of Directors meeting to eliminate any reference to Rahal as a director of the company.

On February 4, 2010, FBI Special Agents arrested SALYER at Kennedy International Airport in New York City, based on a criminal complaint charging him with 20 counts of mail and wire fraud. According to that complaint, SALYER left the United States in October 2009, following the guilty pleas of several employees of SK Foods and some of its customers, intending to relocate abroad permanently. SALYER had instructed a subordinate to sell many of SALYER’s belongings and had transferred millions of dollars from bank accounts formerly associated with SK Foods entities to bank accounts in the Carribean and Liechtenstein. The complaint alleged that SALYER spoke with a former SK Foods employee about obtaining permanent residence status in Uruguay, Paraguay, Andorra, and France because he believed he would not be extradited from these countries. SALYER had booked a flight back to Europe the next day, February 5, 2010. Instead, SALYER made his initial appearance before U.S. Magistrate Judge Steven Gold in Brooklyn, N.Y. that afternoon. Judge Gold denied SALYER bail, stating that SALYER’s efforts constituted one of the “most elaborate schemes to flee he had ever seen.”

According to the charges filed against KING, between 1994 and 2009, he served in a variety of positions, most recently as SK Foods’ Vice President for Operations. In that role, he was responsible for overseeing and managing SK Foods production facilities in Williams and Lemoore. He also assisted in managing SK Foods’ inventory of processed tomato and other food products, and arranging for the shipment of those food products to SK Foods customers. KING has agreed to plead guilty to falsifying and directing other SK Foods employees to falsify various SK Foods’ quality control documents and to ship adulterated and misbranded tomato product to various SK Foods customers. He has admitted that his actions were conducted at the express instruction and direction of SALYER, and with the assistance of other senior leaders and directors of SK Foods, and were intended to make it appear to customers as if particular shipments of processed tomato product were compliant with USDA and FDA standards, and with customer specifications, when in fact they were not. KING is expected to appear in U.S. District Court in Sacramento in the near future to enter his guilty plea.

The current charges against SALYER and KING are the latest in the ongoing investigation of conduct at SK Foods. See attached chart for details. That investigation has not yet been concluded.

The maximum statutory penalty on racketeering charges against SALYER is 20 years in prison, a fine of up to $250,000, and the forfeiture of any interest, property or proceeds acquired or maintained as a result of the racketeering activity. The wire fraud and obstruction charges against SALYER also are punishable by up to 20 years in prison. The food misbranding and adulteration charges against KING carry a three-year maximum sentence. The actual sentences, however, will be determined at the discretion of the court after consideration of any applicable statutory sentencing factors and the Federal Sentencing Guidelines, which take into account a number of variables.

The charges are only allegations and the defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt.

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The Legal Intelligencer (1/27, Duffy) reports that a federal judge has refused to dismiss a trio of class action consumer RICO suits that accuse the companies of engaging in a pervasive pattern of overcharging for title insurance by systematically ignoring entitlement to statutory discounts.

Although title insurers have been battling a wave of consumer litigation in recent years, the three decisions by U.S. District Judge Joel H. Slomsky mark the first time that a court has green-lighted RICO claims.

Defense lawyers had urged Slomsky to dismiss the RICO claims, arguing that the plaintiffs failed to plead a proper RICO enterprise since an insurer and its agents cannot be considered legally "distinct."

Slomsky disagreed, saying "plaintiffs have satisfied the minimum 'person' and 'enterprise' distinctiveness requirement because the combination of Commonwealth Land and the title agents constitute a single 'enterprise' separate and distinct from the 'person' of defendant Commonwealth Land and this combination is permissible under RICO jurisprudence."

In the suits, homeowners claim they were overcharged for title insurance when they purchased or refinanced because they were never told that they qualified for a discounted premium.

Under Pennsylvania law, title insurance rates are governed by a statute that calls for a 10 percent "reissue rate" discount whenever a property owner purchases title insurance within 10 years of obtaining a policy issued on the same property and a 20 percent "refinance rate" discount if the property owner applies for title insurance within three years of obtaining a previous policy.

The plaintiffs lawyers contend that the routine and systematic overcharging of consumers is exactly the sort of conduct the civil RICO statute was designed to address.

"Title insurers and their agents take advantage of consumers' ignorance and trust by (1) deliberately misrepresenting and overstating the amount of money due for title insurance; (2) concealing from consumers that they are being overcharged; and (3) having title agents, acting in their capacity as settlement agents, pay the inflated bills on the consumers' behalf out of the consumers' mortgage loan proceeds -- monies that have been entrusted to the title agents in their capacity as settlement agents," the plaintiffs wrote.

But defense lawyers argued that the RICO claims were riddled with fatal flaws and failed to satisfy the strict requirements imposed by both the U.S. Supreme Court and the 3rd U.S. Circuit Court of Appeals.

In their briefs, the defense teams argued that title insurers have no fiduciary duty to disclose the alleged entitlement to the discounted rate or to inform plaintiffs of the non-disclosure.

Slomsky disagreed, saying, In "light of the complexity of title insurance rates and the expertise of defendant and title agents ... the argument that defendant had no duty to disclose the right to the discounted rate is not persuasive."

Instead, Slomsky found, the insurers and their agents "had the responsibility to charge the correct rate, and disclosure of the correct rate is part and parcel of that responsibility."

But the main thrust of the defense motions was to challenge the plaintiffs' RICO theory by attacking their pleading of an "association-in-fact" enterprise.

The RICO enterprise alleged by the plaintiffs, they argued, does not satisfy the "distinctiveness" requirement of RICO as explained in copious federal case law.

To satisfy the "distinctiveness" requirement under §1962(c), the defense team said, a plaintiff must allege that the RICO "enterprise" is distinct from the defendant "person" alleged to have violated RICO and that the "enterprise" is distinct from the alleged pattern of racketeering activity.

But the plaintiffs lawyers argued that the insurers are the liable "person" and the "enterprise" is an association-in-fact between the insurers and their title agents in Pennsylvania.

The title agents are subject to the insurers' control and take a percentage of the premiums collected as their remuneration for their services.

But defense lawyers insisted that since the insurers acted only through their agents, the "person" and "enterprise" are one and the same and therefore fail to satisfy RICO's distinctiveness requirement.

Slomsky sided with the plaintiffs, finding that their allegations are valid, at least in theory, because "these title agents are independent and distinct entities and individuals."

The title agents "are not employees" of the insurers, Slomsky noted, "but rather they are non-exclusive agents who work with different title insurance companies."

Although title agents have an "agency agreement" with the insurer, Slomsky said, "they are still separate, independent entities who do not function as subsidiaries or employees."

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The Supreme Court has ruled against New York City in its effort to use federal racketeering law to sue Internet cigarette sellers for lost tax revenue.

By a 5-3 vote Monday, the court ended the city’s lawsuit against Hemi Group, a New Mexico-based company that sells cigarettes online.

New York taxes the possession of cigarettes but finds it difficult to collect those taxes from Internet sales. The city says it loses millions of dollars in tax revenues from online sales.

Sellers like Hemi are not required to charge or collect the taxes, but they are supposed to provide information about their customers to states.

New York’s lawsuit under the Racketeer Influenced and Corrupt Organizations Act accused Hemi of fraud for failing to provide the customer information.

The court said Monday that the city cannot use the racketeering law to collect tobacco taxes from Hemi.

Chief Justice John Roberts and Justices Samuel Alito, Ruth Bader Ginsburg, Antonin Scalia and Clarence Thomas formed the majority.

Justice Sonia Sotomayor did not take part in the case because it came from the federal appeals court in New York on which she served before her elevation to the high court.

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Investors in resort properties of high-end projects filed a lawsuit in U.S. District Court in Boise, Idaho against investment bank Credit Suisse, accusing the financial giant of deliberately engineering the failure of at least four major resort projects so that it could acquire them on the cheap.   

The suit alleges a host of illegal acts by Credit Suisse and the real estate firm Cushman & Wakefield, including violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), fraud, negligence and breach of fiduciary duty, and seeks $24 billion in damages.

The lawsuit alleges that Credit Suisse’s resort loan program, which eventually included more than a dozen properties and billions of dollars in loans, was a deliberate scheme to burden the resorts with debts they could not repay so that the bank could gain ownership through foreclosure or bankruptcy. While the suit currently only includes the four projects, including Tamarack Resort in Donnelley, Idaho, it also suggests that other resorts that took loans from Credit Suisse - including Promontory in Utah and Turtle Bay in Hawaii - could eventually be part of the litigation as well.

Credit Suisse spokesman Duncan King said: “We believe the suit to be without merit and will defend ourselves vigorously.”

The lawsuit focuses on the use of an appraisal method that is not compliant with U.S. banking regulations. The co-called “total net value” appraisals, which essentially took the total estimated market value of all sale-able real estate but did not apply the normal “discount rate” that factors in market fluctuations and how quickly properties might sell, yielded a much higher value than a typical appraisal and was used to support very large loans. At Yellowstone Club the loans totaled $375 million; at Lake Las Vegas it was $540 million; at Tamarack Resort it was $250 million. Credit Suisse set up an entity in the Cayman Islands specifically to facilitate the loans, which could not be marketed by or to U.S. banks because they relied on the non-compliant appraisals.

Under the scenario outlined in the lawsuit, the resort owners, who were explicitly permitted to take hundreds of millions of dollars in loan proceeds as “dividends,” were duped by Credit Suisse into taking the money. The suit relies heavily on a Yellowstone Club case ruling by U.S. Bankruptcy Court Judge Ralph B. Kirscher, who called the Credit Suisse loan to the club “predatory” and said the behavior of the bank “shocked the conscience of this court.” That ruling led to a settlement in which the decision was vacated and Credit Suisse agreed to a sale of the property to CrossHarbor Capital Partners.

Credit Suisse now controls the “liquidating trust” in the Yellowstone Club case, and contends that it is Tim Blixseth, the developer, who acted badly in transferring so much money out of the club and that he should be required to pay the money back.

Lake Las Vegas remains mired in a highly complex bankruptcy proceeding, with its golf courses and many other facilities closed. Tamarack is also closed, and a foreclosure trial is scheduled for next month. Yellowstone Club and Promontory have emerged from bankruptcy and are now operating normally. The institutional investors who bought the debt from Credit Suisse lost about 70% of their money on Yellowstone Club, and virtually all their money on Promontory. Tamarack and Lake Las Vegas are likely to yield little if any payback for the debt-holders.

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On December 30, 2009, a federal judge dismissed criminal charges against five Blackwater guards involved in a shootout in Baghdad in September 2007 during which 14 Iraqis were killed.

US District Court Judge Ricardo Urbina ruled that federal prosecutors improperly used statements the men gave to State Department investigators under a promise of immunity to secure indictments against them.

“In their zeal to bring charges…in this case, the prosecutors and investigators aggressively sought out statements the defendants had been compelled to make to government investigators in the immediate aftermath of the shooting and in the subsequent investigation,” Urbina wrote in a 90-page opinion.

“In so doing, the government’s trial team repeatedly disregarded the warnings of experienced, senior prosecutors, assigned to the case specifically to advise the trial team on [legal] issues, that this course of action threatened the viability of the prosecution. The government used the defendants’ compelled statements to guide its charging decisions, to formulate its theory of the case, to develop investigatory leads, and ultimately to obtain the indictment[s] in the case.”

At the time of the shooting, Blackwater had a contract to provide security to the State Department in Iraq.

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A federal court judge in Oregon dismissed an unusually pled case on October 9, 2009.  In Arunga v. ACLU et al., 2009 WL 3274784  (D.Or.), plaintiffs James Aggrey-Kweggyirr Arunga and Doreen H. Lee sued 100 defendants asserting vague wrongdoings, including RICO violations. In a complaint over 90 pages long, plaintiffs' allege the following: “Nihilism;” “Racketeering;” “Bivens;” “Porno Finagling;” “Obstruction of Justice;” “Finagling Panjandrum at Law;” “Hired Hate Criminal and Hired Hit Person Obstructing Justice;” “Financial Finagler;” “SPL Hired Corrupt-Finagler Obstructing Justice;” “Concurrent-Consecutive Finagling Tortfeasors;” “SPL Political Finagler Obstructing Justice;” “Racketeering and Extortion Finagler Obstructing Justice;” and “False Business Practices.” Plaintiffs also note various random Articles and Sections of the United States Constitution, along with various United States Code provisions. Finally, plaintiffs seem to request of the court, a “Question of Law Or Fact Raised for A Class Action in Reverse.” Complaint. Specifically, plaintiffs asked: Whether a “State of Ochlocracy” composite a numerous Class of 100-Defendants that represent nationally, organized Perpetrators; Civil (Rights) Violators; and Tortfeasors can be incorporated, established, and admitted as “a New State” into the Union within the jurisdiction, junction and or parts of other States of the Union to: (1) Operate Criminal Businesses; (2) Conduct Civil (Rights) Violations; and (3) Practice concurrent-consecutive and joint Constitutional Torts Against plaintiffs.

The Arunga complaint is certainly one of the most unusual I have ever seen.

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Greg Webb posted on InjuryBoard.com that a federal judge in Los Angeles has refused to seal a wrongful termination lawsuit filed by Dimitrios Biller, a former in-house attorney for Toyota Motor Sales USA Inc. Biller claims Toyota hid and destroyed evidence in many rollover lawsuits. While Toyota argues the suit violates the confidentiality agreement in Biller’s severance package and will cause the company to suffer more harm if the complaint is not sealed, the judge ruled it would be pointless to seal the complaint since information regarding the lawsuit is already on the Internet. Biller has also filed a wrongful termination suit against the Los Angeles district attorney’s office, where he worked after Toyota, claiming his termination here violated the American’s With Disabilities Act because of diagnosed dyslexia and mental conditions. Though Toyota was not part of this lawsuit, they have been attempting to seal documents from this case as well, claiming Biller divulged confidential information about the automaker that is protected by attorney-client privilege.

From 2003 until his resignation in 2007, Biller was national managing counsel in the legal services group in charge of Toyota's rollover program. His lawsuit alleges Toyota violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), causing him to be wrongfully terminated and intentionally inflicted emotional distress; Biller claims he suffered a mental breakdown and was forced to resign from his position after Toyota attempted to stop his efforts to turn over missing evidence. In response, he received a $3.7 million in severance. Not only did he claim Toyota committed criminal acts in rollover cases, but Biller also claims the automaker engaged in a conspiracy to hide and destroy evidence that he was obligated to turn over to the plaintiff’s attorney. Biller alleges his boss told him not to keep some electronic discovery materials in at least three hundred rollover cases, which was "tantamount to the destruction of evidence and/or concealing evidence, either of which would have amounted to obstruction of justice." Following a 2006 performance review, Biller wrote a twenty-three page memo that outlined Toyota’s "dysfunctional" product liability group and accused his boss of causing the company to break the law. Biller claims this memo, which was signed by his boss, was destroyed.

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In a letter to Attorney General Eric Holder, Senator David Vitter argues that ACORN's alleged misdeeds warrant a Racketeer Influenced and Corrupt Organizations (RICO) investigation into its business practices. A probe of that magnitude — potentially the most aggressive investigation requested by any ACORN critic to date — would permit investigators exceptional leverage in rooting out any criminal wrongdoing.

"The recent reports and video footage of ACORN workers from various cities and states giving 'how-to' instructions on carrying out crimes, ranging from violating numerous immigration laws to tax fraud, warrants an immediate RICO investigation into ACORN," Vitter said in his letter.

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The AP (8/10) reported that Randall Sutton, president and CFO of defunct Missouri funeral contract company National Prearranged Services Inc., "is facing federal fraud charges in an alleged scheme to loot hundreds of millions of dollars from customers' prepaid funeral accounts." Sutton "is among 45 defendants named in a civil racketeering, fraud and fiduciary negligence lawsuit filed Thursday in federal court in St. Louis against officials of National Prearranged Services, its insurance affiliates and various banks, law firms, auditors and investment advisers connected to the consortium of companies.

The lawsuit "was brought by Donna Garrett, the deputy receiver appointed to administer the companies after their failure, and by groups representing the insurance guarantee funds of about three dozen states. It seeks an unspecified amount of damages, which plaintiffs attorneys said Monday could surpass $1 billion."

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Altria Group Inc. and other U.S. cigarette makers asked a federal appeals court to reconsider its ruling that the companies violated racketeering laws and barring them from marketing cigarettes as “light” or “low-tar.”

On July 31, Altria and the other companies asked the full U.S. Circuit Court of Appeals in Washington to overturn the decision by a three-judge panel in a case filed by the Clinton administration in 1999. In the May decision, the court upheld a 2006 ruling by U.S. District Judge Gladys Kessler, who found the companies conspired for decades to defraud the public and were likely to violate racketeering laws in the future.

“The panel’s opinion upholds the government’s unprecedented effort to impose pervasive regulation on the tobacco industry, not through legislative channels, but through the Racketeer Influenced and Corrupt Organizations Act,” Altria’s Philip Morris USA unit said in its court filing.

The companies have argued that the ban on “light” and “low-tar” descriptors, which was delayed pending resolution of the appeal, would cost hundreds of millions of dollars and would “fundamentally alter the business landscape.”

Kessler’s ruling came after a nine-month trial that began in September 2004. In May the appeals court also upheld Kessler’s order barring the companies from future violations of the Racketeer Influenced and Corrupt Organizations Act, or RICO.

The appeals court agreed that the companies may be required to publish statements correcting past misstatements about addiction, the dangers of smoking and second-hand smoke, the companies’ manipulation of cigarette design and the dangers of “light” and “low-tar” cigarettes.

Kessler found that the companies misled consumers into believing that “light” cigarettes are less dangerous than other types. She ruled the restrictions were needed to prevent future RICO violations, rejecting the companies’ argument that a 1999 agreement between U.S. cigarette makers and 46 states already prevents them from violating the law.

In court papers filed July 31, Philip Morris argued that legislation signed in June giving the U.S. Food and Drug Administration new authority to regulate the tobacco industry “makes clear that there is no reasonable likelihood of defendants’ committing future RICO violations.”

The case is U.S. v. Philip Morris USA, 06-5267, U.S. Court of Appeals, District of Columbia Circuit (Washington).

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The tobacco industry has hit a rough patch lately. The industry lost big in the courts in May. First, the California Supreme Court reinstated a major consumer lawsuit aimed at cigarette-makers’ decades-long advertising campaign. The case focuses on industry deceits including claims implying that “light” cigarettes were less harmful than regular cigarettes.

A few days later, the U.S. Court of Appeals in Washington, D.C., affirmed a 2006 lower court decision that the tobacco industry violated the Racketeer Influenced and Corrupt Organizations Act, citing past industry claims that nicotine was not addictive, that tobacco did not cause cancer and that secondhand smoke was not harmful. Then in June, President Obama signed legislation placing the U.S. Food and Drug Administration in charge of tobacco regulation.

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Three casino companies have filed a $267 million racketeering lawsuit against former Illinois Gov. Rod Blagojevich and a prominent racetrack owner over a controversial law that requires casinos to funnel part of their revenues to struggling horse tracks.

The complaint, filed in U.S. District Court in Chicago on June 12, 2009, grew out of a federal investigation into an alleged pay-to-play scheme the former governor is accused of running.

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The Supreme Court issued its opinion on June 8, 2009 upholding the District Court’s refusal to instructthe jury that an association-in-fact enterprise must have an ascertainable structure beyond that inherent in the pattern of racketeering activity in which it engages. Judge Alito wrote: “From the terms of RICO, it is apparent that an association-in-fact enterprise must have at least three structural features: a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise's purpose. As we succinctly put it in Turkette, an association-in-fact enterprise is ‘a group of persons associated together for a common purpose of engaging in a course of conduct.’ 452 U.S., at 583.” See Boyle v. U.S., 2009 WL 1576571 (U.S.)

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A federal appeals court reversed a trial court’s decision denying class certification to a group of Mohawk Industries Inc. employees who claim the company ran afoul of the Racketeer Influenced and Corrupt Organizations Act by hiring illegal aliens, allegedly pushing down the plaintiffs' wages.

The U.S. Court of Appeals for the Eleventh Circuit handed down a 22-page ruling on May 14, 2009 holding that the district court abused its discretion when it denied the plaintiffs' motion seeking class certification.

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A federal district court has denied Countrywide Financial Corp.’s motion to dismiss a consolidated class action complaint against the lender. Judge Dana M. Sabraw, who is overseeing the multidistrict litigation against Countrywide entitled In Re Countrywide Financial Corp Mortgage Marketing and Sales Practices Litigation, sustained all claims for the majority of plaintiffs. The plaintiffs in the consolidated actions Levas v. Bank of America Corp., Jackson v. Countrywide Financial Corp. and White v. Countrywide Financial Corp. accuse Countrywide of steering borrowers into risky and inappropriate subprime mortgages irrespective of their suitability to borrowers in order to maximize profits. Whatley Drake & Kallas, LLC is co-lead interim class counsel in the multidistrict litigation.

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On May 28, 2009 Loretta King, Acting Assistant Attorney General for the Justice Department's Civil Rights Division, and Matt J. Whitworth, Acting U.S. Attorney for the Western District of Missouri, announced that 12 defendants, including eight Uzbekistan nationals, have been charged in a 45-count indictment returned by a federal grand jury in Kansas City, Mo., on May 6, 2009, on RICO (Racketeer Influenced and Corrupt Organizations Act) charges related to labor racketeering, forced labor trafficking and immigration and other violations in 14 states.

The RICO indictment alleges that, since January 2001, the criminal enterprise carried out unlawful activities to further the enterprise. Among the criminal acts alleged in a pattern of racketeering activity are forced labor trafficking, identity theft, harboring illegal aliens, mail fraud, conspiracy to commit money laundering, transporting illegal aliens, visa fraud, extortion, interstate travel in aid of racketeering, wire fraud and inducing the illegal entry of foreign nationals. Many of the workers were employed at hotels in the Kansas City area and in Branson, Mo.

According to the indictment, Abrorkhodja Askarkhodjaev owned and operated a labor leasing company, Giant Labor Solutions, in Kansas City, MO.  Through Giant Labor and a dozen other businesses that he associated with or controlled as part of the alleged criminal enterprise, Askarkhodjaev allegedly secured fraudulent labor leasing contracts from clients in the hotel/resort, casino and construction industries in Missouri, Kansas, Alabama, Arizona, California, Colorado, Florida, Louisiana, Massachusetts, Minnesota, Nevada, New Jersey, South Carolina and Wyoming. The criminal enterprise allegedly used illegal aliens to fulfill labor contracts for housekeeping, cleaning services and other duties. The workforce was predominately comprised of foreign nationals, the indictment says, who either entered the United States illegally, overstayed their visas, or did not have legal authorization to reside or work in their specific locations during their term of employment.

The federal indictment also alleges that Askarkhodjaev and others aided and abetted each other to obtain the labor and services of a person by means of serious harm and threats of serious harm, and by means of the abuse and threatened abuse of law and legal process.

According to the indictment, the enterprise required the foreign nationals to work where the enterprise assigned them. However, the enterprise threatened to cancel the immigration status of foreign nationals who refused to work as directed by the enterprise. The enterprise allegedly charged the foreign nationals numerous fees. It further profited, the indictment says, by requiring the foreign national workers to reside in apartments it exclusively secured, controlled and for which it charged exorbitant rents. According to the indictment, the enterprise often threatened to cancel the immigration status of foreign nationals who requested permission to seek alternative housing.

Allegedly, these fees and expenses, combined with the lack of payment for hours worked, underpayment for hours worked and lack of work assignments, often resulted in the foreign national workers receiving a paycheck with negative earnings. The enterprise allegedly ensured that the workers did not make enough to repay their debt, to purchase a plane ticket home, or pay for their own living expenses while in the United States. It further controlled the foreign national workers in the Kansas City area by not allowing them to receive mail.

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Altria Group Inc. and other U.S. cigarette makers lost an appeal of a lower court’s decision that the companies violated racketeering laws and barring them from marketing cigarettes as “light” or “low-tar.”

The U.S. Court of Appeals in Washington today upheld U.S. District Judge Gladys Kessler’s August 2006 ruling, which found that the companies conspired for decades to defraud the public and were likely to violate racketeering laws in the future. Today’s decision is a victory for the Justice department, which sued the industry in 1999.

“The district court found -- permissibly in our view -- that the enterprise had the common purpose of obtaining cigarette proceeds by defrauding existing and potential smokers,” the appeals court said in its 3-0 decision.

The companies had argued that the ban on “light” and “low-tar” descriptors, which was delayed pending the appeal, would cost hundreds of millions of dollars and would “fundamentally alter the business landscape.”

Altria and its Philip Morris USA unit said in a statement today that they intend to appeal. Reynolds American Inc.’s R.J. Reynolds Tobacco also said it will appeal.

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For the past few decades the largest Hispanic street gang, the Latin Kings, wreaked havoc in many large cities around the country, initiating in Chicago as the result of prejudice against Puerto Rican immigrants in the 1940s. While they were originally not great in numbers, their increased propensity for violence caused them to be a force to be reckoned with in Chicago, competing against larger gangs in the area. Their inevitable downfall did not occur until 2006, when RICO conspiracy charges brought down the majority of the state leadership members. A total of 39 were arrested, furthering the stipulation that RICO laws are successful in bringing down any gang-related criminals. 

 

The Latin Kings have been a difficult gang in which to determine criminal activity; it was uncertain for years as to whether or not they stood as a negative criminal force, or a positive community organization. The stages of consciousness, according to the “Latin King Manifesto”, involve a rigorous state of mind for years. The primitive stage usually involves a new member to be subjected to the gang life and therefore participate in much gang-related behavior on the street. The majority of the Latin Kings remain in this stage for most of their gang life, and it is this reason why the public assumes the group in general is responsible for gang-related activity. However, the next stage is the Conservative stage wherein a member no longer actively participates in street violence but is still wholly aware of the racial lines that exist in most of humanity. As the gang is prevalent in Chicago, there are many racial barriers to break through and many different nationalities that live within inner city streets. Additionally, Puerto Rican immigrants were discriminated against for many years within urban cities such as this one, and the Kings have held onto this past hatred for decades in an attempt to bring awareness to their own communities. The final stage, however, is the New King Stage in which the member recognizes the freedom of a revolution of the mind. This final stage is the end product of years of enlightenment where one’s thoughts are no longer clouded by previous prejudices and humanity is recognized as one giant entity rather than separate bubbles of race.

Nonetheless, RICO laws were still able to bring down many of the top leaders, as this community organization was still responsible for multiple murders and other accounts of criminal activity as defined by their racketeering law.   Chicago alone contains over 25,000 members of the Latin Kings who have been responsible for many violent acts within the city. The instatement of this type of act has encouraged many gangs to rethink their criminal activities on the off chance that they may be jailed not for the activities themselves but for repeat convictions of racketeering charges. 

This post was contributed by Kimberly Peterson, who writes about online criminal justice degrees. She welcomes your feedback at KimPeterson2006 at gmail.com

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In 2004 plaintiffs lawyers were in court seeking to represent a nationwide class of consumers and third-party payers against Warner-Lambert, predecessor to Pfizer. They made RICO and fraud claims, demanding more than $4 billion in damages.  After nearly five years of trying, a class has yet to be certified.   On May 13, 2009, Boston federal district court Judge Patti Saris denied class certification for a second time.

Saris first ruled against class certification back in August 2007, citing the plaintiffs' failure to satisfy commonality, numerosity, typicality and predominance requirements. She gave them another shot, but in her latest denial ruled that class counsel still had not shown that common questions would predominate over issues affecting individual plaintiffs.

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On May 8th Norman Hsu, a former top fundraiser for the Democratic Party, pleaded guilty Thursday to running a fraudulent investment scheme, but continues to fight charges of making fraudulent political contributions.

Hsu, 58, pleaded guilty to five counts of mail fraud and five counts of wire fraud at a hearing in New York federal court, admitting that he used new investor money to pay off older investors in order to give the impression his investment scheme was legitimate. “I knew what I was doing was illegal,” Hsu said. It feels like so many years ago, but Hsu’s the guy who skipped town after a warrant for his arrest was issued, only to resurface on an Amtrak train in Colorado after having injured himself.

Jury selection is scheduled on the four remaining counts of campaign finance fraud beginning on Monday. Hsu faces up to 20 years in prison on the mail and wire fraud charges. Alan Seidler, Hsu’s lawyer, said he made the plea without having a plea agreement with the government.

Prosecutors had alleged Hsu falsely represented to investors that his companies - Components Ltd. and Next Components Ltd. - were in the business of extending short-term financing to companies and promised short-term, high-return investments.

Between 1997 and August 2007, the government claims Hsu convinced investors to entrust him with at least $60 million in a Ponzi scheme. After repaying some investors their principal and interest, Hsu allegedly swindled other investors out of at least $20 million, prosecutors said.

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Cintas Corporation announced on May 7, 2009 that it has appealed the ruling issued March 9th, 2009 by the U.S. District Court for the Southern District of New York dismissing the company’s federal Racketeer Influenced and Corrupt Organizations (RICO) and trademark infringement claims against the labor unions UNITE HERE, International Brotherhood of Teamsters and Change to Win.

“We strongly believe in the merits of this case and are hopeful that the Second Circuit Court of Appeals will not allow the District Court’s decision to stand,” said Scott Farmer, Chief Executive Officer of Cintas Corporation. “We disagree with the recent ruling and remain committed to protecting Cintas and our employees from the unions’ ongoing extortion,” he added.

Cintas alleges that, for the last six years, UNITE HERE and the above named labor organizations have carried on a campaign of negative, untrue and unlawful attacks against Cintas in an effort to extort concessions from the company that would enable UNITE HERE and the Teamsters to become the official bargaining representatives for Cintas employees without a valid showing of majority support and without those employees ever being able to freely decide whether they want a union.

At the outset of its corporate campaign against Cintas, Bruce Raynor, Co-President of UNITE HERE publicly stated he intended to ‘break the back’ of Cintas if the company did not agree to his demands. The company has long maintained that the right to choose whether to be a member of a union belongs to each individual employee, and has continually reiterated its commitments to protect its employees’ rights to the secret ballot election process.

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The Supreme Court granted certiorari to hear Hemi Group, LLC, et al. v. City of New York (08-969). 

Issue: Whether city government meets the Racketeer Influenced and Corrupt Organizations Act standing requirement that a plaintiff be directly injured in its “business or property” by alleging non commercial injury resulting from non-payment of taxes by non litigant third parties. The case summary can be found that www.SCOTUSblog.com.

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A federal court in Massachusetts approved a $350 million settlement. The case alleged a drug wholesaler of inflating drug prices.

Consumers brought the lawsuit against McKesson and FirstDataBank to recover some of their money back.

FirstData is a publisher of drug pricing information. The sole drug manufacturer the FirstData surveyed was McKesson. The two marked up the average price of certain drugs from 20 to 25 percent.

The suit alleged that McKesson and FirstData violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”). The complaint alleged that the companies used interstate mail to fraudulently raise the average price of McKesson’s drugs.

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WICHITA - After 11 days of deliberation, a federal jury on April 15^th found five men guilty of conspiring to operate organized crime through the Crips street gang in Wichita, Kansas, but jurors could not agree whether the defendants had participated in a pattern of racketeering.

A sixth defendant, whose lawyer said he had the least association with the group, was found not guilty of murder, racketeering and conspiracy.

The case posed the question of whether the street gang rose to the level of organized crime under the federal Racketeer Influenced and Corrupt Organizations Act, commonly known as RICO.

While the jury found that all the men committed criminal acts, jurors either acquitted or were unable to reach a verdict on charges that the alleged Crips members operated a criminal organization that met RICO standards.

However, five of the defendants were found guilty on RICO charges of conspiracy to engage in racketeering.

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San Diego, Calif.- (April 7, 2009) U.S. Attorney Karen P. Hewitt announced today the unsealing of an indictment charging 24 individuals with conspiracy to conduct enterprise affairs through a pattern of racketeering activity under the Racketeer Influenced and Corrupt Organizations Act (RICO). Specifically, the defendants are charged with using a corrupt enterprise to conduct a pattern of racketeering activity, namely, wire fraud, bank fraud, and money laundering. The charged racketeering activity all stems from an extensive mortgage fraud scheme based in San Diego, that involved 220 properties with a total sales price of more than $100 million dollars.

According to Assistant U.S. Attorneys Todd W. Robinson and Nicole Acton Jones, who are prosecuting the case, the lead defendants charged with running the corrupt enterprise are: Darnell Bell, aka D-Bell, Michael Ivy, Stanley Gentry and Billie Bishop. The indictment alleges that Darnell Bell, a documented member of the Lincoln Park street gang, was the leader of the corrupt enterprise and that he received at least $9 million in proceeds from the racketeering conspiracy. Michael Ivy was primarily responsible for negotiating the purchase of real estate on behalf of the enterprise. Stanley Gentry, a licensed real estate broker, allowed the corrupt enterprise to use his broker's license to facilitate the fraudulent purchase of property in exchange for a $10,000 monthly payment and a percentage of the real estate commission and broker's fees associated with each fraudulent purchase. Billie Bishop was an escrow officer who facilitated the fraudulent purchase of more than 100 properties on behalf of the enterprise.

The indictment alleges that the defendants devised a scheme to defraud mortgage lenders and to obtain money and property by false and fraudulent means. According to the indictment, between January 2005 and at least April 2008, the defendants used multiple real estate businesses, including the Ivy House, Inc., the Real Estate Center of Southern California, and the Real Estate Center of La Mesa, to facilitate the fraudulent purchase of real estate. In general terms, the scheme charged in the indictment worked as follows:

• Defendants identified properties for sale throughout Southern California that had been on the market for an extended period of time and for which the original asking price had been reduced.
• Defendants then recruited "straw buyers" who allowed their names and credit histories to be used to obtain mortgage loans and purchase properties in name only on behalf of the racketeering enterprise.
• Defendants prepared and submitted offers to purchase the identified properties that substantially exceeded the asking price for those properties.
• Defendants hired real estate appraisers, including co-defendant Esteban Valenzuela, to prepare inflated appraisals for the identified properties; the inflated appraisals were then used to fraudulently induce lenders to believe that the loans being given to the "straw buyers" would be fully secured by the value of the properties being purchased.
• Defendants prepared and submitted false loan applications for the "straw buyers" in order to induce lenders to make loans to persons and at terms that the lenders otherwise would not have funded.
• Defendants prepared and submitted false documents and information in response to lender verification inquiries, including "CPA letters," verification of employment forms, verification of rent forms and "discrepancy letters."
• Members of the Enterprise ensured that the "straw buyers" purchased the identified properties with mortgages amounting to 100 percent of the purchase price of the property, thus ensuring that the defendants did not have any money at risk in the fraudulent transactions.
• Defendants arranged to have the amount of money that exceeded the asking price (i.e., the "kickback amount") paid at the close of escrow to a shell construction company maintained by the racketeering enterprise.
• Defendants falsely informed the lenders that the "kickback amount" would be used to pay for handicap accessing and property upgrades to the identified properties, thereby falsely inducing the lenders to believe that the entire loan amount would be secured by the value of the identified properties.
• Based upon the investigation to date, none of the properties that were purchased as part of the enterprise had any handicap accessibility or property upgrades performed by the defendants' shell firm, Bell Construction.
• Defendants disbursed the "kickback amount" to members and associates of the racketeering enterprise as payment for those individuals' participation in the fraudulent scheme.

The "straw buyers" subsequently failed to make the required mortgage payments for the fraudulently purchased properties, which ultimately resulted in the properties being foreclosed and the lenders suffering severe financial losses.

The indictment also charges that several real estate professionals were members of the racketeering conspiracy, including: Diana Jaime, a public notary; Jorge Cortez, a licensed real estate agent; Esteban Valenzuela, a licensed real estate appraiser; Anton Ewing, a Certified Public Accountant; and Randolph Hirsch and Dennis Tapia, registered tax preparers. Latashia McKinney and Marcus Dozzell, aka Kali, recruited individuals to obtain fraudulent mortgage loans and purchase properties on behalf of the corrupt enterprise. Lorena Callu was employed by the corrupt enterprise and facilitated the fraudulent purchase of real estate by, among other things, preparing and submitting false loan applications. Desiree Holiday, Dexter Holiday, Keith Holiday, Gerard Holiday, Ray Logan, aka Jack Nasty, David Lewis, Joseph Lewis, Stevie Frazier, Jorge Magana, Nicoele Watson and Daniel Williams are all alleged to have fraudulently obtained mortgage loans and purchased properties on behalf of the corrupt enterprise.

An indictment itself is not evidence that the defendants committed the crimes charged. The defendants are presumed innocent until the Government meets its burden in court of proving guilt beyond a reasonable doubt.

U.S. Attorney Hewitt said, "This indictment represents the largest mortgage fraud case ever prosecuted in the history of the Southern District of California. Although this case marks an important milestone for the U.S. Attorney's Office, the FBI and the IRS, we have much additional investigative work ahead of us to hold accountable those individuals who engaged in similar mortgage fraud schemes throughout San Diego and Imperial counties."

FBI Special Agent-in-Charge Keith Slotter commented, "The individuals charged in this indictment have one thing in common: greed. They represent precisely those who have undermined our country's financial system by perpetuating such egregious schemes. The FBI and our law enforcement partners remain vigilant and will pursue those who engage in this type of criminal activity. The extent to which this group of people went to defraud lenders should also serve as a warning to the public. We urge people to come forward with information of suspicious activities they may encounter when engaged in real estate and mortgage transactions."

"Today's indictment of this criminal enterprise spearheaded by Darnell Bell speaks volumes to those who choose to engage in organized criminal activity that undermines the financial health of our communities," said Thomas J. Holloman, Acting Special Agent-in-Charge, IRS Criminal Investigation, Los Angeles Field Office. "The racketeering, forfeiture, and money laundering charges are indicative of the joint-agency law enforcement effort that has focused on dismantling this criminal organization that has grossly profited from mortgage fraud."

The case is the product of an investigation by agents of the FBI and IRS Criminal Investigation and is being prosecuted in San Diego federal court by Assistant U.S. Attorneys Todd W. Robinson and Nicole Acton Jones.

SOURCE: U.S. Department of Justice

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In a civil RICO suit that accused three doctors of operating a fraud mill that sharply inflated the costs of medical care for car accident victims, a federal jury last week awarded more than $15.4 million to State Farm Mutual Automobile Insurance Co.

After a three-week trial, the jury on Thursday awarded State Farm more than $4 million in compensatory damages and $11.4 million in punitive damages.

Lead defendant Arnold Lincow, an osteopathic doctor alleged to be the leader of the fraud ring, was hit the hardest with an order to pay $5 million in punitive damages.

The jury also levied punitive awards of $600,000 each against two other osteopaths, Lawrence Forman and Richard Mintz, and two chiropractors, Stephen Hennessy and Richard Butow. Another doctor, Stephen Sacks, struck a confidential settlement with State Farm prior to the trial.

Four medical service companies were also hit with punitive awards.

In court papers, State Farm alleged that Lincow concocted a scheme to drastically inflate the medical bills of car accident victims by systematically prescribing a full menu of tests and treatments, as well as prescriptions and medical equipment -- whether medically necessary or not -- and then routinely padding the files with bills for additional treatments that were never provided.

The allegations were that Lincow "created standardized treatment plans and medical records" for his patients, and systematically instructed his employees "to document, for billing purposes, services that were never rendered, services that were different and more costly than services actually rendered, as well as services that were not medically necessary or appropriate and/or not reimbursable under applicable law."

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A federal grand jury has handed down an indictment on the heels of a racketeering lawsuit filed in federal court in Seattle by ING Bank, the nation’s second-largest thrift, alleging a criminal conspiracy by an escrow agent, a mortgage broker and 10 couples to defraud the bank of at least $6 million through falsified mortgages. See previous post on this blog for information on the civil suit.
 

In that suit, the bank says David and Alla Sobol, two of the defendants in the federal indictment in Seattle, formed a family limited partnership to keep fraudulently gained fees out of creditors’ reach.
The latest in the onslaught of local prosecutions of mortgage fraud today comes from Seattle where a grand jury has returned a 40-count indictment against seven people alleging they conspired to commit mortgage, bank and wire fraud totaling more than $47 million.
 

According to the Seattle Times story, the seven conspired to fraudulently purchase dozens of homes in Seattle and its tony eastern suburbs at inflated prices. They allegedly got loans using phony buyers.
 

The Times explains:
“The charges allege they would obtain loans using ‘straw buyers’ — people who had no intention of living in the home but allowed their identities and credit to be used for a fee — and sometimes using unwitting applicants convinced they could make a buck by buying a home and then immediately reselling it. ‘The defendants . . . caused the loan application for the straw buyers and otherwise unqualified buyers to be prepared based upon fraudulent representations related to gross income, employment status, assets and liabilities, and whether the property would be used as a primary residence,’ the indictment says.”
 

The defendants then allegedly pocketed the some of the loan proceeds from the escrow accounts to buy two 2004 Lamborghini Gallardo sports cars, among other items.
 

Attorneys for the men say the Russian-speaking immigrants are victims.
 

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The Minnesota developer of Indian-owned casinos has alleged that the Milberg law firm and three lawyers, including jailed attorney William Lerach, extorted an $18 million settlement from the firm in a 2000 securities class action.

The suit, filed March 23 in the Minnesota district court, alleged that Lerach, along with his former firm Milberg, Weiss, Bershad, Hynes & Lerach, engaged in a racketeering conspiracy to force a securities class settlement from Stratosphere Corp. and Grand Lakes Inc., in a 2000 Nevada class action.

The suit alleges former Milberg Weiss expert, John B. Torkelsen, supplied inflated damage estimates that helped prompt an $18 million settlement. In exchange, Torkelsen allegedly received pay based on successful results in the class case. Lakes Entertainment, Inc., v. Milberg, 09-cv-677PAM (Dist. Minn.)
Torkelsen, a damages expert in hundreds of class actions for law firms between 1985 and 2003, was sentenced in September to 18 months in prison after pleading guilty to lying to a federal judge in 1999 about how he was paid.

Eck alleged in the Minnesota suit that Torkelsen's contingent fee arrangement "undermined his objectivity and credibility."

The lawsuit seeks not only $18 million in compensatory damages, but also a tripling of the damages suffered by Lakes for the alleged racketeering activities.
 

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ING Bank, the nation’s second-largest thrift, is seeking more than $6 million from a group it alleges engaged in a conspiracy to obtain fraudulent mortgage loans. This unusual racketeering lawsuit was filed in federal court in Seattle, alleging a criminal conspiracy by an escrow agent, a mortgage broker and 10 couples to defraud the bank of at least $6 million through falsified mortgages.
 

The bank, an arm of the Netherlands-based ING Group, is also seeking a court order to foreclose on eight properties in King, Snohomish, Pierce and Grant counties because the borrowers have failed to pay their interest-only, adjustable-rate mortgages on time and allegedly made false statements in their loan applications.
 

Some of the borrowers received between $1,500 and $12,500 in cash from the loan proceeds, court documents filed by the bank suggest.
 

And ING contends two of the borrowers never lived in the houses they bought with the loans.
For their part, the borrowers, all Eastern European immigrants, say they are victims of the alleged fraud as well.
 

Legal experts said the suit may be one of the first in the nation in which a bank — unable to recoup its losses by selling the loans or the collateral properties — uses the racketeering law to collect money from borrowers and the real-estate professionals who helped them buy a house.
 

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Peter J. Henning, a professor at Wayne State Law School, occasionally writes as a guest blogger for The Deal Professor. Mr. Henning specializes in issues related to white-collar crime and is a former editor of the White Collar Crime Law Prof Blog. Here are Professor Henning’s comments on the possible forfeiture of Ruth Madoff’s assets.

Lawyers for Bernard L. Madoff, the alleged Ponzi scheme operator, have asked that assets worth almost $70 million be exempt from his case because they are actually owned by his wife, Ruth, and have no connection to the fraud. While numerous victims were destroyed financially by the multibillion-dollar scheme, if Mr. Madoff’s legal team gets their way, Ms. Madoff would be allowed to keep the apartment in New York’s Upper East Side, $45 million of municipal bonds, and $17 million in cash held at Wachovia bank.

This has to be a better joke than any ever told by Henny Youngman.

The assets appear to be in Ms. Madoff’s name, and in a legal filing, Mr. Madoff’s lawyers claim that the money is distinct from the Ponzi scheme that prosecutors say he operated for years before confessing in December 2008.

However, simply putting assets into another person’s name, or giving them as a gift, does not necessarily shield them when they are the proceeds of criminal activity.

The government has not yet filed a complete set of criminal charges against Mr. Madoff, and the current deadline for seeking an indictment is March 11. Federal prosecutors can pursue criminal asset forfeiture under a range of statutes that could authorize the seizure of the assets claimed by Ms. Madoff if they are considered to be the product of his crimes.

Criminal asset forfeiture is a fairly recent phenomenon, first adopted as part of the Racketeer Influenced and Corrupt Organizations statute, known as RICO, which was enacted in 1970. While that law was designed to reach criminal organizations like the Mafia, its terms are much broader and can be used in a wide variety of cases. For example, former Illinois Gov. George Ryan was convicted under RICO for taking bribes.

One provision of RICO, Section 1963(a)(3), allows prosecutors to seek the forfeiture of “any property constituting, or derived from, any proceeds which the person obtained, directly or indirectly, from racketeering activity” engaged in by the defendant. Among the crimes that can constitute the “racketeering activity” in violation of RICO is mail and wire fraud.

It would be fairly easy to charge Mr. Madoff with a RICO violation under Section 1962(c), which requires proof that he conducted an enterprise, like his investment advisory business, through a pattern of mail and wire fraud. The mailing of falsified account statements and the receipt of customer wire transfers over the years that he operated the Ponzi scheme would establish a RICO violation in fairly short order.

If he were convicted under RICO, the government could then seek the forfeiture of all proceeds of his criminal activity. One might think that giving the property away or putting it in his wife’s name might insulate Mr. Madoff from the forfeiture provision, but that is not necessarily the case.

The power of the criminal asset forfeiture provision is through the “relation back” doctrine. Under Section 1963(c), all “right, title, and interest” in property that is traceable to the RICO violation “vests in the United States upon the commission of the act giving rise to forfeiture under this section.” In other words, when the crime took place, the government immediately became the owner of any property that was the product of the mail and wire fraud scheme. It appears that Mr. Madoff’s entire investment advisory business was a scam, so any money derived from that operation would be subject to forfeiture.

The “relation back” doctrine prevents a defendant from simply transferring legal ownership of property acquired through the criminal activity. Thus, if the Upper East Side apartment where he currently resides came from money generated by the Ponzi scheme, then it belongs to the government as of the moment the crime occurred.

The key issue is tracing the proceeds of the fraud to determine what is subject to the “relation back” principle. Mr. Madoff operated two firms, one the investment advisory business that defrauded so many investors, the other a brokerage business that, to all outward appearances, was legitimate. But to the extent proceeds from the Ponzi scheme were used to fund or expand the brokerage business, then that operation would itself be subject to forfeiture because the government owns the proceeds from the crime, including any business acquired or expanded with tainted money.

To argue that the assets in Ms. Madoff’s name are in fact separate, it will be necessary for her to show they were acquired by untainted money. That may be difficult to prove because the records from Mr. Madoff’s investment advisory business do not appear to be very clear. If the government is able to show the brokerage operation was supported by the Ponzi scheme, then money taken from that business may not be immune to forfeiture.

The fact that Ms. Madoff did not know the money she received from him was the proceeds of unlawful activity — a point the government may well contest — would not insulate the property and accounts in her name. Under the asset forfeiture laws, ignorance of the source of the tainted money is not a defense. Instead, the only basis to resist a criminal asset forfeiture claim to property traceable to the crime is if the purported owner acquired the interest before any criminal activity generated the proceeds, or if the person is a bona fide purchaser for value of the property.

Given that the government believes Mr. Madoff operated his Ponzi scheme for a number of years, perhaps as far back as the 1970s, it will be difficult for Ms. Madoff to show she acquired the assets before the fraud began. To qualify as a “purchaser,” a gift from one spouse to another, or even the sharing of marital assets, would not be sufficient to insulate the assets: One must furnish actual value in an arm’s-length exchange.

Even if Ms. Madoff amassed her fortune by using the household money provided by Mr. Madoff, if that money is traceable to his fraud, then it would not be shielded from an asset forfeiture order.

Another weapon in the government’s forfeiture arsenal is the power to take what are known as “substitute assets.” If there is a forfeiture order but the government cannot find enough money or assets traceable to the crime, then it can take other assets owned by the defendant even if they are unconnected to the criminal activity. The assets could be perfectly legitimate, but criminal asset forfeiture is a punishment so anything else held by a defendant can be used to comply with a forfeiture order.

The courts are divided on whether the “relation back” doctrine applies to substitute assets. If the government were to acquire title to substitute assets at the time of the crime, then any untainted money given by Mr. Madoff could still be reached. That is a bit of a stretch, to be sure, but may be a means to get to the $70 million in Ms. Madoff’s name if the assets in her name cannot be traced to his fraud.

Putting assets in a spouse’s name sounds like a convenient way to hide money if you are engaged in criminal conduct. Mr. Madoff’s fraud was of astounding proportions, and it may be that part of his plan was to ensure his wife was taken care of if he were ever caught. The criminal asset forfeiture laws may well cut him off at the pass, however, if the government can show that the assets in her name were the proceeds of his criminal activity.

 

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As part of an investigation into suspicions that the 2008 death of 58-year-old John Celmer was an assisted suicide, Georgia Bureau of Investigation set up a sting operation at a Decatur residence aimed at members of the Final Exit Network. Members of Final Exit, known as “Exit Guides” were believed to provide assistance with helium-induced suicides using methods that were confirmed by GBI agents during the sting operation.
 

Agents arrested 76-year-old Claire Blehr or Atlanta and 63-year-old Thomas Goodwin of Punta Gorda and Kennesaw Wednesday. Warrants were also issued for Dr. Lawrence Egbert, 81, and Nicholas Alec Sheridan, 60, of Baltimore, who turned themselves in to authorities in Forsyth County Monday afternoon. All four individuals are charged with Assisted Suicide, Tampering with Evidence, and violation of the Georgia Racketeer Influenced and Corrupt Organizations (RICO) Act. All four individuals have posted bond. If convicted on all counts, each could face up to 18 years in prison.
 

Following the arrests in Georgia, the GBI is assisting law enforcement from other states, including Florida, Maryland, Michigan, Ohio, Missouri, Colorado, and Montana, who began executing search warrants and conducting interviews to gather further evidence in the Final Exit Network investigation. The GBI states that as the investigation continues, other arrests are possible.
 

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Brian Mann posted the following interesting article on The In Box Blog today. Here it is.

For nearly thirty years, Federal prosecutors have wielded a powerful tool for clamping down on organized crime.

The "RICO" law -- the Racketeer Influenced and Corrupt Organizations Act -- has devastated criminal operations ranging from the Hells Angels to the Gambino crime family.

Maybe it's time to dust off RICO and use it against America's financiers? It now appears that many banking executives were simply robbing their corporations, their shareholders and the taxpayers.

Consider this dispatch from the Wall Street Journal:

As bad as 2008 was for Merrill Lynch & Co., it was very good for Andrea Orcel, the firm's top investment banker. Although Merrill's net loss ballooned to $27.6 billion last year, Mr. Orcel, 45 years old, was paid $33.8 million in cash and stock, just shy of his pay in 2007.

While Merrill staggered, 11 top executives were paid more than $10 million in cash and stock last year, say people familiar with the situation. An additional 149 received $3 million or more.

Meanwhile, former executives from Countrywide Financial -- the geniuses who helped inflate the devastating housing bubble -- are now profiting from the implosion. Here are the details from the New York Times.

Stanford L. Kurland, Countrywide’s former president, and his team have been buying up delinquent home mortgages that the government took over from other failed banks, sometimes for pennies on the dollar. They get a piece of what they can collect.
“It has been very successful — very strong,” John Lawrence, the company’s head of loan servicing, told Mr. Kurland one recent morning in a glass-walled boardroom here at PennyMac’s spacious headquarters, opened last year in the same Los Angeles suburb where Countrywide once flourished.
“In fact, it’s off-the-charts good,” he told Mr. Kurland, who was leaning back comfortably in his leather boardroom chair, even as the financial markets in New York were plunging.

Is profiteering criminal? Probably not.

But the RICO laws give prosecutors wide leeway to seize assets built through the commission of dozens of federal and state crimes, including bankruptcy fraud, embezzlement, racketeering, insider trading, and money laundering.

As we pour billions in taxpayer dollars into the financial system, the Feds need to move aggressively to identify and punish those who behaved criminally.

Good job, Brian!
 

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An embattled West Virginia radiologist, his son and others have been sued in Mississippi on racketeering and other charges related to an alleged scheme involving asbestos screenings for lawsuits across the nation.

Ray Harrron and Andrew Harron are two of the defendants named in a lawsuit filed Feb. 9 in Holmes County Circuit Court by National Service Industries, also known as North Brothers.

"The primary cause of this action is a widespread unlawful enterprise engaged in a pattern of racketeering activity across state lines and a conspiracy to engage in racketeering activity involving numerous RICO (the Racketeer Influenced and Corrupt Organizations Act) predicate acts for at least the past 10 calendar years," the complaint states. "The predicate acts include mail fraud and wire fraud ..."

Since 1995, the defendants "have schemed to generate false medical test results, false medical reports and false diagnoses to substantiate tens of thousands of personal injury cases filed against plaintiff and other similarly situated companies or bankruptcy trusts involving allegations of asbestos related disease."

NSI says the defendants engaged in this "unlawful scheme for the purpose of monetary gain by creating fraudulent medical documentation to make the individuals that they recruited and 'screened' appear to suffer from asbestos-related disease to extract money from plaintiff and others through the court system and/or claims settlements."

NSI describes the acts of Harron and the other defendants as "mass assembly-line screenings of persons suspected of work-related exposure to products containing asbestos."

Others defendants named are N&M Inc., Charlie Heath Mason, Molly Ruth Netherland, Christopher Linn Taylor and yet unnamed John Doe defendants 1-20.

The defendants' screenings typically included the generation of exposure histories, chest x-rays, accompanying reads by physicians, physical exams, pulmonary function tests and diagnoses by Harron and other defendants for personal injury law firms.

"These law firms then used this purported "medical evidence" to file and/or settle thousands of asbestos-related injury claims," the complaint states. "Defendants' screenings were massive recruitment programs carried out for personal injury law firms and attorneys on targeted populations of current and former industrial and construction workers with the sole purpose of generating a phenomenal volume of potential claimants as clients for these law firms."

The lawsuit says the defendants spent more than $1.5 million "aggressively marketing" their screening services to their law firm and attorney "customers" and on mass advertisements soliciting individual subjects for screening.
 

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The American Medical Association, Connecticut State Medical Society and several other state societies are suing Aetna (NYSE:AET) and CIGNA (NYSE:CI), claiming the companies shortchanged doctors by millions of dollars for out-of-network care. The groups filed lawsuits, proposed as class actions, in a New Jersey federal court this week seeking restitution for what they call a scheme by the insurers to maximize profits.

Aetna and some other insurers have already agreed to pay millions to settle New York Attorney General Andrew Cuomo's investigation into the same matter, but those amounts didn't include any restitution for physicians. The money will be used to create a new database to replace the problematic one run by Ingenix, a UnitedHealth Group (NYSE:UNH) unit.

The Ingenix system is accused of collecting and providing skewed data that insurers use to determine what they consider is "reasonable and customary" to pay physicians who don't participate in their networks. In out-of-network care, doctors can bill patients for the balance if insurance reimbursement falls short.

The lawsuits allege that Aetna and CIGNA violated the Racketeer Influenced and Corrupt Organizations Act, the Sherman Antitrust Act, and the Employee Retirement Insurance Security Act.

Plaintiffs in the suits include medical societies in New York, New Jersey, Texas and North Carolina.
 

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The Arizona Republic reported today that twin federal lawsuits filed in Phoenix and Seattle accuse the nation's two biggest mortgage lenders of using their industry muscle to twist the independent home-appraisal process into a corrupt moneymaking scheme.
 

Seattle-based law firm Hagens Berman Sobol Shapiro LLP filed the lawsuits and is seeking class-action status in both cases.
 

Robert Carey, a Hagens Berman lawyer in Phoenix and former Arizona Chief Assistant Attorney General, said Wells Fargo has rigged the appraisal process by using an affiliated management company to bully appraisers into doing the lender's bidding. Carey filed the complaint Friday in U.S. District Court on behalf of a Scottsdale couple, Grant and Lanie Gomez.
 

The Seattle lawsuit, filed Jan. 12, makes similar allegations about Countrywide, now a wholly owned subsidiary of Bank of America. Countrywide spokeswoman Shirley Norton said the Seattle lawsuit is without merit, and Wells Fargo spokeswoman Marjorie Rice said her employer's process for obtaining home-loan appraisals is legitimate.
 

"We believe our appraisal process is fair, accurate, consistent with all governing appraisal standards, and focused on obtaining objective assessments of the residential properties involved," Rice said.
 

Both complaints accuse the lenders of violating the Real Estate Settlement Procedures Act, which protects consumers involved in real estate transactions, and the Racketeer Influenced and Corrupt Organizations Act, best known by its acronym RICO and usually associated with organized crime.
 

"You don't have to be a gangster," Carey said. "You can just have a scheme that fleeces people out of millions of dollars."
 

In each complaint, a co-defendant is listed. The Wells Fargo lawsuit names Valuation Information Technology LLC, also called Rels Valuation, the bank's designated appraisal management company.
 

Likewise, Countrywide's appraisal management company, LandSafe, is a co-defendant in the Seattle lawsuit.
 

An appraisal management company arranges with third-party appraisal firms to appraise each property involved in a new or refinanced mortgage loan.
 

The lawsuits claim those companies drove down the price of appraisals by threatening to blacklist appraisers who didn't agree to the lower fees, but continued to charge the bank's customers a higher rate.
 

They also accuse the firms of threatening to blacklist appraisers that did not provide whatever appraisal amount the banks were seeking for each home.
 

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Insidecounsel.com reported on January 28, 2009 that the latest organized "crime," according to the 6th Circuit, is conspiring to defraud injured employees of their workers compensation benefits.
 

In the first decision of its kind, the appeals court recently stunned employment attorneys across America by holding that employers alleged to have schemed with their insurance carriers and/or physicians to wrongfully deny workers compensation benefits can now be sued for treble damages and attorneys fees under the civil fraud provisions of the Racketeer Influenced and Corrupt Organizations Act (RICO).
 

Although RICO originally targeted criminal organizations such as the Mafia and Hells Angels, the decision in Brown v. Cassens Transport Co. exposes businesses to RICO litigation and extensive discovery into their handling of workers compensation claims.
 

The 6th Circuit revived the RICO civil fraud claims of six truckers. They allege that their self-insured employer, Cassens Transport Co., along with the Cassens claims adjuster and the doctor who found them ineligible for benefits, committed mail and wire fraud in a scheme to wrongfully deny them benefits under the Michigan Workers’ Disability Compensation Act (WDCA).
 

The plaintiffs contend that the company deliberately selected doctors who could be relied upon to provide medical opinions supporting decisions to cut off or deny benefits..
 

The 6th Circuit paved the way for the suit to proceed by overturning a 2005 ruling by the U.S. District Court for the Eastern District of Michigan dismissing the action for failing to state a claim for available relief. The unanimous appeals panel ruled Oct. 23 that the plaintiffs had sufficiently alleged at least 13 predicate acts involving fraudulent communications by mail and wire, and that the plaintiffs lost workers compensation benefits and incurred medical care and attorneys fees due to the defendants’ alleged "pattern of racketeering activity."
 

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On January 14, 2009, LawyersandSettlements.com reported that two Arizona senior citizens filed a proposed class-action lawsuit against EquitTrust Life Insurance Company, claiming the Iowa-based financial company duped consumers into purchasing financial products through deceptive sales practices, among other charges.

According to the lawsuit, EquiTrust designed a scheme that defrauds policyholders, especially the elderly -- a group in need of retirement saving and spending vehicles without onerous surrender charges and lengthy maturation periods -- to create large product spreads in order to pay its agents oversized commissions, to lure prospects with illusory bonuses, and to earn a large profit margin.

To help protect this group, 47 states have adopted a consumer protection statute -- the Standard Nonforfeiture Law for Individual Deferred Annuities (SNFLIDA) -- that limits surrender penalties through a prospective test. This test generally protects those over the age of 60 from individual deferred annuity products that have optional maturity dates and surrender charges that exceed 10 percent of the policyholder's premium.

The suit claims EquiTrust's surrender charges are often 20 percent, twice the permitted amount. The SNFLIDA test also prohibits issuing such annuities to the elderly that have surrender penalty periods in excess of 10 years. EquiTrust's annuities often have surrender penalty periods of up to 14 years.

The lawsuit claims EquiTrust builds into its annuities package a maturity that occurs after the policyholders' 105th birthday. As the fine print is built into plaintiff's contracts with EquiTrust, these dates cannot be changed. This conniving tactic protects the insurance company from risk while significantly damaging the financial security of the policyholder, the suit claims.

Annuities receive a beneficial tax treatment under U.S. Tax Code in that the growth on principal within the annuity accumulates on a tax-deferred basis until the funds are withdrawn. This is a big incentive for prospective purchasers and one EquiTrust offsets by its product spread in its indexed annuities, plaintiffs claim.

The lawsuit claims the "scheme was devised and intentionally crafted to ensure that plaintiffs and class members would purchase indexed annuities and not receive full benefits from the annuities or be subject to exorbitant surrender charges."

Plaintiffs claim the class has been forced to pay hundreds of millions of dollars in premiums and surrender charges for annuity products that, by design, could not perform as advertised.

The lawsuit names several counts against EquiTrust including violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), unjust enrichment and common law civil conspiracy.

The suit seeks to represent anyone who purchased an indexed annuity product from EquiTrust from 2004 until present.
 

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McKesson Corp., the nation’s largest drug distributor, has agreed to pay $350 million to settle a class action suit alleging it fraudulently hiked up the price of more than 400 medications. A class of consumers and health and welfare funds had filed suit in 2005 against the company alleging violations of the Racketeer Influenced and Corrupt Organizations Act for allegedly falsely inflating the average wholesale price (AWP) of a number of America’s most popular prescription medications.
 

Those medications included allergy drug Allegra, arthritis/pain medication Celebrex, asthma drug Flonase and cholesterol medication Lipitor, which, according to Intercontinental Marketing Services, was the world’s top-selling drug as of September. The Plaintiffs alleged in their second amended complaint that McKesson conspired with First DataBank, an electronic drug data publisher, to deceitfully increase the AWP, which is widely relied upon by “consumers, health and welfare plans, health insurers and other end payors for prescription drugs” as a pricing standard.
According to the complaint, McKesson and First DataBank devised a scheme to increase “the spread” between medications’ wholesale acquisition cost (WAC) which is the price retailers pay for drugs, and the AWP, the price at which retailers sell drugs to consumers. The complaint alleged that in late 2001 or early 2002 First DataBank, which gets the WAC and AWP information from drug manufacturers, reached an agreement with McKesson in which First DataBank would rely solely on McKesson’s WAC-to-AWP spread.
 

Source: The Legal Intelligencer
 

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On December 31, 2008, the Ninth Circuit Court of Appeals in A. Farber & Partners, Inc. v. Garber et al., 2008 WL 5427956 (C.A.9 (Cal.)), held that a Canadian receiver had standing to bring a lawsuit under RICO. A. Farber & Partners, Inc. (the “Receiver”) was appointed interim receiver over the assets of Salim Damji and Strategic Trading Systems Instant White (“STS”) by an order issued by the Ontario Superior Court of Justice. The Receiver's appointment followed a Canadian class action by a group of investors against Damji for fraud. Acting under the order, the Receiver brought this RICO action against Maynard Garber and the other defendants. The Receiver appealed the district court's order granting summary judgment on the ground that the Receiver lacked standing to bring a RICO action.

Under RICO's civil suit provision, “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.”18 U.S.C. § 1964(c). The Receiver alleged that the defendants violated several provisions of § 1962 as part of a large-scale money laundering scheme that involved transfers of approximately $34 million out of Canada to various straw companies and illegal gambling operations. The only issue before this court is whether the Receiver has standing under 18 U.S.C. § 1964(c) to assert these RICO claims against the defendants.

Section 7(e) of the Canadian receivership order authorizes the Receiver “to initiate, prosecute and continue the prosecution of any and all proceedings as may in its judgment be necessary or desirable to properly protect or realize upon the Property.”E.R. 8: 1464. By the terms of this section of the court's order, the Receiver is not the personal representative of Damji and does not stand in his shoes. The Receiver's power springs from its appointment to collect and preserve the Property. The “Property” is defined in the order as “all of the present and future assets, undertaking and property of [Damji and STS] and any funds, proceeds or other assets directly or indirectly related to the funds allegedly raised by [Damji and STS] as alleged in [the Canadian class action complaint].” E.R. 8: 1462-63. The Receiver’s RICO action was authorized by the Canadian receivership order and approved by the Ontario Superior Court of Justice.

The Ninth Circuit accepted the Receiver's averments that (1) the defendants participated in a conspiracy to launder funds over which the Receiver has legal control, and (2) that the Receiver suffered injury when the funds under its protection were transferred by the defendants' RICO violations. Consequently, the court held that the Receiver had sufficiently alleged that it was injured in its property by reason of a violation of section 1962 and found that the district court erred in holding that the Receiver did not have standing to bring its RICO claims under § 1964(c).
 

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U.S. Attorney Patrick Fitzgerald has requested a three month extension of time to bring an indictment against Illinois Governor Rod Blagojevich, stating that he needed more time to review thousands of telephone intercepts and to interview new witnesses. William A. Jacobson, Associate Clinical Professor of Law, Cornell Law School, opines in his Blog, Le-gal In-sur-rec-tion, that, it looks likely that Fitzgerald will seek an indictment under the Racketeer Influenced and Corrupt Organizations Act charging Blagojevich with conspiracy to violate RICO through a corrupt enterprise, namely, the Office of the Governor of the State of Illinois.

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The Bloomberg News (1/2, Scheer, Frank) reports, "The U.S. Securities and Exchange Commission, which sued Bernard Madoff last month for allegedly directing a $50 billion fraud, won't make public a list of his assets filed yesterday, the regulator said." A "Columbia Law School Professor John Coffee told Bloomberg Television, adding that the SEC wants to keep the assets secret to protect them" said, "I think one of the fears here is that much of this money may be in offshore funds." He added, "There is the danger that foreign regulators and foreign creditors may seek to seize that money if the names and sources are made public." While "a federal judge ordered Madoff to provide the SEC an accounting of all investments, loans, lines of credit, business interests, brokerage accounts and other holdings, the court hasn't authorized its public disclosure, said SEC enforcement official Andrew Calamari, who confirmed receipt of the list." The AP (1/1, Bernard, Caruso) also reported the story.

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Bloomberg News(12/31, Larson) reports, "Bernard Madoff, the financial adviser who allegedly admitted to running a $50 billion fraud, was sued by three New York investors who say he should be barred from distributing money to family and friends." They say that he "should have his assets permanently frozen and be prevented from continuing the alleged fraud." The suit was "filed by Anthony, Maria, and Toni Sciremammano, all residents of Massapequa Park, NY. The trio started investing with Madoff in 1995 and had a total of about $2 million invested as of September, they said." The case is Anthony Sciremammano v. Bernard L. Madoff, 08- cv-11332, U.S. District Court, Southern District of New York (Manhattan).

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Look for cases arising our of Bernie Madoff's Ponzi scheme to include claims under civil RICO.  Investigations by several prominent law firms are expanding the potential pool of defendants.  The Financial Times (12/30, Chung, Brewster) reports, "As victims of Bernard Madoff's alleged $50bn fraud try to recover losses, the 'feeder funds' that channeled money to him are emerging as a key target of investor lawsuits, lawyers say." There have only been a "handful of lawsuits...filed since the alleged fraud came to light this month, questions about the level of due diligence performed by the feeder funds have become a central issue." Now, "the search for deep-pocketed sources of compensation could lead plaintiffs' law firms to examine the potential liability of auditors who signed off on feeder funds' accounts."

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 On November 25, 2008, the Superior Court of New Jersey held that informing the jury of the ultimate outcome of a verdict on the RICO count was inappropriate. Finderne Management Company, Inc. et al. v. James W. Barrett, et al., --- A.2d ----, 2008 WL 4979937, N.J.Super.A.D.,2008; citing St. James v. Future Fin., 342 N.J.Super. 310, 348 (App.Div.), certif. denied, 170 N.J. 388 (2001). The trial judge advised the jury that if the defendants were liable under RICO, the damages are trebled and attorney's fees awarded. 18 U.S.C.A. § 1964(c). The court went on to explain that those federal courts addressing the issue have consistently held that the implementation of treble damages is a function for the court, not the jury. HBE Leasing Corp. v. Frank, 22 F.3d 41, 45 (2d Cir.1994). This avoids presenting the jury with information irrelevant to its deliberations that could tempt jurors to manipulate the outcome and lead to intellectually dishonest results.

Plaintiffs Finderne Management Company, Inc. (“FMC”) and others sought recovery of losses alleged to have resulted from false and misleading representations by defendants. The defendants induced plaintiffs to establish what they represented was a “tax qualified,” “419 annuity” by participating in a program known as the Employers Participating Insurance Cooperative (EPIC). EPIC purported to be a multiple employer welfare benefit plan and trust that provided employers with a tax-deductible vehicle to fund pre-retirement death benefits for owner-employees through the purchase of specific life insurance products, and allowed the individual insured to convert the insurance policy to obtain post-retirement benefits.

Six years after FMC commenced participation in EPIC, the Internal Revenue Service audited the company and disallowed claimed deductions for two tax years. As a result of the IRS audit, plaintiffs paid additional taxes and interest deemed due. Thereafter, plaintiffs terminated participation in EPIC. Plaintiffs' complaint asserted various misrepresentation claims, sounding in negligence and fraud.
 

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CQPolitics.com (11/14) reports, "A federal grand jury on Thursday indicted Rep. Rick Renzi on eight additional charges, including racketeering and making false statements on his 2005 tax return. The expanded indictment also levies additional conspiracy and insurance fraud charges against Renzi, R-Ariz." Renzi was originally "accused of conspiring to commit insurance fraud with James W. Sandlin, a former business associate, in a land-swap scheme in his home state and with Andrew Beardall, formerly the general counsel of a Renzi-owned insurance agency. The new indictment adds a fourth defendant, accountant Dawayne Lequire, who worked at Renzi's insurance agency." Renzi is accused of captaining "a criminal enterprise for at least six years based on the misappropriation of insurance premiums."

The Washington Times (11/14) adds, "A three-term congressman who did not seek re-election this year, Mr. Renzi had pleaded not guilty."

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The White Collar Crime Prof Blog reported yesterday on an interesting issue presented in the Chronicle of Higher Education, Harvard Law Professor Takes New Tack Against RIAA (citing Jaikumar Vijayan, Computer World, Harvard professor offers new challenge to RIAA antipiracy campaign -Nesson claims Digital Theft Act, on which RIAA lawsuits are based, is unconstitutional) on whether the Digital Theft Act as used in a civil lawsuit is improper because the statute is limited to criminal matters.

Years back the issue would not have arisen as the overlap between criminal and third-party civil statutes did not exist.  With the Racketeer Influenced & Corrupt Organization Act (RICO) in 1970 we have seen statutes that allow for both criminal and civil enforcement, with the civil enforcement being extended beyond a government agency.  The rationale for these civil actions being allowed is that DOJ can't do it alone and allowing third-party civil actions can assist with enforcement. This was appealing with RICO because its initial focus was organized crime.  But RICO was interpreted broadly and went well beyond its roots and with it went the third-party civil actions. DOJ had and continues to have guidelines that restrict application of the statutes by providing oversight on prosecutorial discretion.  There are, however, no guidelines on the civil side.  This caused Congress to place additional limits on the civil side of RICO as seen in 18 U.S.C. 1964(c).

Other criminal statutes have seen attempts to be used in civil matters, such as the Foreign Corrupt Practices Act.  In Lamb v. Phillip Morris, Inc., 915 F.2d 1024 (6th Cir. 1024), the court did not allow the civil action. (See also Lewis v. Spock, 612 F. Supp. 1316 (N.D. Cal. 1985)).  Interestingly, one finds civil RICO actions that use the FCPA.

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The Associated Press reported today that Smithfield Foods and the United Food and Commercial Workers International union have settled the company's racketeering lawsuit.

The agreement was reached this morning as the case was about to go to trial in federal court in Richmond, Virginia 

In a joint statement, Smithfield and the union said the deal calls for a union election at the company's slaughterhouse in Tar Heel, N.C. In exchange, the union will end its public campaign against Smithfield, which included product boycotts and other actions.

Smithfield had claimed in its lawsuit that the union's economic threats amounted to extortion and cost the company about $900 million. Union attorneys said using economic pressure to achieve a lawful purpose is not extortion.

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Wachovia Bank has agreed to pay more than $178 million to settle a class action RICO suit that accused the bank of allowing two telemarketing firms to swindle elderly victims by obtaining their bank account information and then drawing from their accounts through the use of "remotely created checks." The proposed settlement in Faloney v. Wachovia Bank replaces a previous $125 million settlement between Wachovia and the U.S. Treasury Department's Office of the Comptroller of the Currency. That settlement drew sharp criticism from plaintiffs lawyers and a trio of Congress members who complained that it would be ineffective because it would have required victims of the scheme to file claim forms.

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The U.S. Court of Appeals for the D.C. Circuit scheduled arguments today to hear from both the industry and the government. The two parties are challenging different aspects of a judge's 2006 ruling that the tobacco industry violated RICO by deceiving the public for decades about smoking risks.

In August 2006, U.S. District Judge Gladys Kessler ruled that the nation's top cigarette makers violated racketeering laws, misleading the public for years about the health hazards of smoking. But she said she lacked authority to order them to pay the billions of dollars the government had sought. The ruling, however, barred cigarette companies from using terms such as "low tar" or "light" in their marketing, but did not impose financial penalties.

Judge Kessler also ordered the companies to publish in newspapers and on their Web sites "corrective statements" on the adverse health effects and addictiveness of smoking and nicotine.

In her 1,653 page ruling, the judge said, "Over the course of more than 50 years, defendants lied, misrepresented and deceived the American public, including smokers and the young people they avidly sought as 'replacement smokers,' about the devastating health effects of smoking and environmental tobacco smoke (secondhand smoke)."

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Last spring I reported on a case filed in Russia by the Russian Federation against the Bank of New York Mellon (BONY) in which Russia sought to apply the United States’ RICO statute in the Russian court. The Wall Street Journal Law Blog reported this morning that the Russian Federal Customs Service failed to send a representative to appear in a Moscow court for the resumption of pretrial hearings.

As background: The Russian Federal Customs Service is suing BONY over an illegal wire transfer scheme from the 1990s, when two Russian émigrés — one of whom worked for BONY — moved $7.5 billion to American accounts from Russia via unlicensed wire transfers. They later pleaded guilty to various offenses under U.S. law. BONY, under a non-prosecution agreement with the DOJ, acknowledged failure to properly monitor wire transfer activity and paid a fine of $14 million. Now the Russians claim they, too, should be awarded a fine, to the tune of $22.5 billion, and are basing their argument on the RICO statute.

 

Russian Judge Lyodmila Pulova said the customs service had faxed her a petition requesting a delay until Oct. 15, and explaining only that the service’s lawyers were busy with other matters. Judge Pulova was unimpressed. She overruled the request and agreed to hear testimony from two of the bank’s U.S. experts ‒ including former attorney general Richard Thornburgh. When the witnesses finished, Pulova put off continuation of the hearing until Nov. 13.

 

BONY is using Gregory Joseph as a RICO expert. Mr. Joseph reportedly presented an 80-slide PowerPoint presentation to the court, explaining why he believes that the case would require the court to interpret U.S. criminal laws.

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RICO or the Racketeer Influenced and Corrupt Organizations Act, the federal law that allows the prosecution of criminal acts performed by individuals as part of a mob or criminal organization, is used to fight against organized crime and its adverse effects on legitimate business activities. The law states that “It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering", a statement that is easily misinterpreted by those not familiar with the intricacies of the law.

The reason for this confusion arises because, according to the rules of RICO, any individual who has been proven to belong to a criminal organization is liable for prosecution just by association. This means that if any member of said organization has been found guilty of a serious offense like murder, kidnapping, gambling, arson, robbery or bribery, other persons who are known to belong to the same organization can be prosecuted for a pattern of crimes (two or more of 8 state crimes and 16 federal crimes) that have been found to be the organization’s handiwork, even if they are not directly or indirectly responsible for the crime that the defendant has been found guilty of.

The law has been framed this way to get at the entire organization rather than just one or two members. But the ambiguity of the word “association” gets people asking the question – am I liable to be prosecuted if law enforcement officers saw me engaged in an innocent conversation with the defendant in a murder trial? Does the word association extend even to casual relationships where there is no knowledge that one person (the defendant) is engaged in illegal activities? The RICO law allows only for the prosecution of conspirators, people who have knowledge of the crime committed and have supported it in some form or the other. So while the cops do have the option of acquiring a warrant to search your home and office if they suspect you of association with a criminal organization, they cannot book you until they find proof of your involvement.

RICO violations are punishable with up to 20 years of imprisonment.

By-line:

This post was contributed by Kelly Kilpatrick, who writes on the subject of the criminal justice schools. She invites your feedback at kellykilpatrick24 at gmail dot com.

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The D.C. Circuit will hear an appeal of the decade-long civil racketeering case against the tobacco industry this fall. The case is United States v. Philip Morris.  Philip Morris, now known as Altria Group, is challenging the 2006 verdict which found that it and six other Big Tobacco defendants conspired for years to deceive the public about the health risks of tobacco.  In addition to upholding the lower-court verdict, the government is asking the court to order the tobacco industry to pay more than $12 billion to fund a smoking cessation program and to fund an educational, counter-marketing campaign.

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On August 18, 2008, the Ninth Circuit ruled that the management and operation test applies to associated-in-fact enterprises in Walter v. Drayson, --- F.3d ----, 2008 WL 3823027 (C.A.9 (Hawai'i)). In Walter, Robert W. Walter, a beneficiary of a trust established by his mother asserted violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(c) and (d), as well as various state law claims, against a trustee, the trustee’s  CPA, who was also a trustee; and Karen Temple, a lawyer, together with her law firm, Bodden & Temple, who provided legal services to the trustor and the trustees. Robert's RICO theory was that the trustees, the CPA, the lawyer and her law firm were an associated-in-fact enterprise whose purpose was to gain and maintain control of the trust and to facilitate the wrongful taking of trust assets.

The district court dismissed Robert’s second amended complaint in a published opinion. Walter v. Drayson, 496 F.Supp.2d 1162 (D.Haw2007). It held that Temple's role was limited to providing legal services such that she did not operate or manage the enterprise and so, could not be liable for conducting its affairs under Reves v. Ernst & Young, 507 U.S. 170, 179 (1993), and Baumer v. Pachl, 8 F.3d 1341, 1344 (9th Cir.1993). For this reason the court also dismissed the RICO conspiracy allegations. Robert appealed to the Ninth Circuit, arguing that the district court misapprehended the “operation and management” test in the context of an associated-in-fact enterprise. The Ninth Circuit disagreed with Robert and affirmed the district court dismissal of his RICO claims with prejudice.

The Ninth Circuit noted that Robert's second amended complaint showed that Temple and her firm were part of the enterprise but failed to show that she or her firm had “some part in directing its affairs.”Reves, 507 U.S. at 179. One can be “part” of an enterprise without having a role in its management and operation. Simply performing services for the enterprise does not rise to the level of direction, whether one is “inside” or “outside.” Accordingly, neither reasonable inferences, nor triable issues, exist sufficient to subject Temple or her firm to liability under § 1962(c).

Thus, in order to be subject to RICO liability a member of an associated-in-fact enterprise must operate, manage or direct the enterprise.

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The Oregon Supreme Court affirmed a jury verdict awarding $2.5 million to the American Federation of Teachers-Oregon, AFT, AFL-CIO and against Oregon Taxpayers United Pac, an Oregon political committee and the Oregon Taxpayers United Education Foundation, an Oregon nonprofit corporation in American Fed. Teachers v. Oregon Taxpayers United,--- P.3d ----, 2008 WL 2636555 (Or.)).This case required the court to interpret and apply the Oregon Racketeer Influenced and Corrupt Organization Act (ORICO).  A jury found that defendants ‒ a political action committee and a nonprofit corporation controlled by the same individuals ‒ engaged with others in a pattern of racketeering activity, as defined in ORICO, by forging signatures to qualify two ballot measures for the 2000 general election and by filing false statements with the state from 1998 through 2000 concerning their expenditures and contributions. The jury also found that defendants' illegal conduct injured plaintiffs-two labor organizations-that spent substantial amounts of money opposing the ballot measures. The jury determined that plaintiffs had suffered damages of approximately $840,000, which the trial court trebled pursuant to ORICO. The trial court entered a money judgment in favor of plaintiffs in the amount of approximately $2.5 million and issued an injunction barring defendants from engaging in certain activities. The Court of Appeals reversed one part of the judgment, but otherwise affirmed.

On review, defendants argued that, even if their acts constituted ORICO violations, those acts were not the cause of plaintiffs' injuries and, therefore, that plaintiffs were not “injured by reason of” defendants' acts within the meaning of ORINCO. The Oregon Supreme Court concluded that the evidence was sufficient to permit a jury to find that plaintiffs were “injured by reason of” defendants' conduct.

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In Liquidation Commission of Banco Intercontinental, S.A. v. Renta, --- F.3d ----, 2008 WL 2446320 (C.A.11 (Fla. June 19, 2008), the Eleventh Circuit Court of Appeals held that the Racketeer Influenced and Corrupt Organizations Act ("RICO") can be applied extraterritorially. This case is a civil RICO and fraudulent transfer case arising out of the 2003 collapse of Banco Intercontinental SA (BanInter), which at that time was among the largest banks in the Dominican Republic. After its collapse, the affairs of BanInter were taken over by the Liquidation Commission, a receivership established by the Dominican government. The Commission brought this suit against Luis Alvarez Renta, a Florida businessman, claiming that Renta, with the help of BanInter insiders, wrongfully diverted millions in BanInter funds to finance other business ventures and personal expenses.

Three RICO claims and one fraudulent transfer claim were tried to a jury, which returned a verdict for the Liquidation Commission in all respects. After trebling of the racketeering damages, the judgment totaled approximately $177 million.

Renta appealed, arguing that the entire case should have been dismissed for forum non conveniens, that the RICO claims should have been dismissed for unripeness and because the statute cannot apply extraterritorially. Judge Kravitch, writing for the panel of three judges, upheld the District Court’s judgment. With regarding to the extraterritorial issue, Judge Kravitch framed the initial question as whether Congress intended the statute in question to apply to conduct occurring outside the United States. The Court noted that some courts have held that RICO does not apply to conduct outside of the United States. However, the more widely accepted view, and the one the Eleventh Circuit adopted, is that RICO may apply extraterritorially if conduct material to the completion of the racketeering occurs in the United States, or if significant effects of the racketeering are felt in the United States.

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On June 9, 2008 Justice Thomas delivered the opinion in Bridge v. Phoenix Bond & Indemnity Co., --- S.Ct. ----, 2008 WL 2329761 (U.S.) for a unanimous court holding that a plaintiff asserting a RICO claim predicated on mail fraud need not show, either as an element of its claim or as a prerequisite to establishing proximate causation, that it relied on the defendant's alleged misrepresentations. The Racketeer Influenced and Corrupt Organizations Act (RICO or Act), 18 U.S.C. 1961 - 1968, provides a private right of action for treble damages to “[a]ny person injured in his business or property by reason of a violation” of the Act's criminal prohibitions.  The question presented in this case is whether a plaintiff asserting a RICO claim predicated on mail fraud must plead and prove that it relied on the defendant's alleged misrepresentations.

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 Melvyn Weiss, the plaintiffs’ lawyer who pioneered a controversial and lucrative area of law suing corporations on behalf of shareholders, was sentenced on June 2nd in federal court in Los Angeles to 30 months in prison. Weiss pleaded guilty in March to racketeering conspiracy in connection with his former law firm’s alleged improper payments of kickbacks to class-action clients.

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Although not involving a civil RICO claim, the court in Connor v. Sun Trust Bank, 2008 WL 623027 (N.D.Ga. Mar. 5, 2008) sanctioned the defendant for failing to produce an email.  Emails are often important evidence in civil RICO cases.  So this decision is noteworthy.  In the Connor case the plaintiff alleged interference and retaliation claims under the Family and Medical Leave Act (FMLA).  The plaintiff filed a motion for sanctions based on the defendant’s failure to produce a highly relevant email during discovery. The plaintiff located, through other means, a relevant email that explained her dismissal to other employees. The defendant moved for summary judgment relying on their 30-day email destruction policy which automatically deleted emails that were thirty days old, unless they were first archived by the user. The court, unpersuaded by the defendant’s reasoning, granted the plaintiff’s motion for sanctions and issued an adverse jury instruction.

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Yesterday, April 3, 2008, the Second Circuit Court of Appeals reversed Judge Jack Weinstein’s grant of class certification for “light” cigarette litigants in McLaughlin v. American Tobacco Co., --- F.3d ----, 2008 WL 878627 (C.A.2 (N.Y.). Plaintiffs, a group of smokers allegedly deceived-by defendants' marketing and branding-into believing that “light” cigarettes (“Lights”) were healthier than “full-flavored” cigarettes, sought and were granted class certification. Schwab v. Philip Morris USA, Inc., 449 F.Supp.2d 992 (E.D.N.Y.2006) (Jack B. Weinstein, Judge). Plaintiffs' suit was brought under RICO, with mail and wire fraud as the necessary predicate acts. See 18 U.S.C. § 1962(c) (forbidding “any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity”); see also id.§ 1961(1) (providing that mail and wire fraud constitute racketeering activity); cf. id. § 1341 (mail fraud statute); id. § 1343 (wire fraud statute). The essence of plaintiffs’ complaint is that defendants’ implicit representation that Lights were healthier led them to buy Lights in greater quantity than they otherwise would have and at an artificially high price, resulting in plaintiffs' overpayment for cigarettes.  Plaintiffs allege claims arising from their purchase of Lights from 1971, when defendants first introduced Lights, until the date on which trial commences.

With respect to the plaintiffs’ RICO claims, Judge John Walker in the Second Circuit’s opinion noted that Section 1964(c) of Title 18 (“civil RICO”) gives private citizens a cause of action under RICO by providing that “[a]ny person injured in his business or property by reason of a violation of [RICO's substantive provisions] 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.”18 U.S.C. § 1964(c). To fulfill the requirement that the injury occur “by reason of” a defendant's action, a plaintiff must show “that the defendant's violation not only was a ‘but for’ cause of his injury, but was the proximate cause as well.”Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 268 (1992); see also Commercial Cleaning Servs., L.L.C. v. Colin Serv. Sys., Inc., 271 F.3d 374, 380 (2d Cir.2001) ( “RICO's use of the clause ‘by reason of’ has been held to limit standing to those plaintiffs who allege that the asserted RICO violation was the legal, or proximate, cause of their injury, as well as a logical, or ‘but for,’ cause.”). “But for” causation is also known as “transaction causation,” or “reliance,” while proximate causation is often referred to as “loss causation.” See, e.g., Moore v. PaineWebber, Inc., 189 F.3d 165, 169-70 (2d Cir.1999); Powers v. British Vita, P.L.C., 57 F.3d 176, 189-90 (2d Cir.1995); see also Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341 (2005) (noting that reliance is “often referred to ... as ‘transaction causation’ ”). Thus, a plaintiff asserting a civil RICO claim must be able to support allegations of (1) a RICO violation, (2) injury, and (3) transaction and loss causation. First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 769 (2d Cir.1994). Judge Walker noted that to prevail in their argument for class certification, plaintiffs must establish that the issues of injury and causation do not defeat the predominance requirement of Rule 23(b)(3).  For the reasons set forth in the opinion, the Second Circuit found that plaintiffs failed to meet this burden.

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A national class action was certified on March 19, 2008 in New England Carpenters Health Benefits Fund v. First DataBank, Inc., 2008 WL 723774 (D.Mass.) against First DataBank, Inc. and McKesson Corporation. Plaintiffs allege that First DataBank and McKesson engaged in a racketeering enterprise (the “Scheme”) to fraudulently state the “average wholesale price” (“AWP”) for numerous prescription pharmaceuticals beginning in late 2001, in violation of 18 U.S.C. § 1964 and California state law. The Scheme allegedly jacked up the AWP by five percent for over 400 brand-name, self-administered drugs sold through retail pharmacies, including mail order (the “Marked Up Drugs”). This allegedly fraudulent price hike caused damages to consumers and 11,000 third party payors (“TPPs”) across the nation.

To recap the allegations, beginning in late 2001, First DataBank, a drug pricing publisher, and McKesson, a drug wholesaler, reached a secret agreement to raise the Wholesale Acquisition Cost (“WAC”) to AWP spread from 20% to 25% for the over four hundred Marked Up Drugs. McKesson communicated these new 25% WAC to AWP markups to First DataBank, which then published AWPs with the new markup. To conceal the Scheme, McKesson and First DataBank agreed to effectuate price changes only when some other WAC-based price announcement was made by a drug manufacturer. By 2002, McKesson estimated that 95% of all prescription drug manufacturers used the inflated 25% markup, and that, by 2004, 99% of all prescription drug manufacturers did so. The Scheme ended on March 15, 2005, when First DataBank disclosed that it had ceased to conduct surveys of the market to obtain AWP information, contradicting prior statements.

The Scheme allegedly resulted in higher profits for retail pharmacies that purchase drugs on the basis of WAC, but get reimbursed on the basis of AWP.  According to the Plaintiffs, McKesson implemented the Scheme in order to provide this greater AWP “spread” to important retail pharmacy clients like Rite Aid and Walmart as well as its own pharmacy related businesses.

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On February 13, 2008, Chief Judge Curtis L. Collier of the United States District Court, Eastern District of Tennessee, Winchester Division, granted Tyson Foods’ motion for summary judgment in a lengthy, vigorously contested civil case brought by a class of current and former employees at several chicken processing plants. The plaintiffs brought the lawsuit under the civil provisions of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1962, 1964. The plaintiffs alleged that Tyson was a member of a conspiracy to knowingly bring illegal immigrants into the United States and employ them in violation of United States Immigration laws. This alleged conspiracy involved prolonged efforts to harbor and conceal these illegal immigrants from detection by the proper authorities. The plaintiffs claimed that, by hiring and harboring illegal immigrants, Tyson was thus able to pay less than the going market wage to its employees. As a result, plaintiffs, as legally-authorized employees, were paid less than they should have been as a result of Tyson’s use of illegal alien labor. Plaintiffs sought to recover damages in the amount of triple the difference between their artificially-depressed wages and the competitive market wages Plaintiffs should have been paid.

Judge Collier concluded that the plaintiffs failed to establish a RICO claim predicated on evidence showing Tyson had at least ten illegal aliens employed at each of its facilities, and that Tyson had actual knowledge each facility employed at least ten individuals who were unauthorized to work in the United States and were brought into the country for purposes of illegal employment.

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Since state and federal racketeering cases must be based upon the commission of a crime, defendants in a civil racketeering case need to be aware of the likelihood that a parallel criminal investigation will be conducted during the pendency of the civil case. This reality presents significant risks to the civil racketeering defendant. I plan to deal with the enormous difficulties faced by a defendant exposed to parallel civil and criminal prosecutions in later posts. For now I just want to provide an overview of the criminal discovery process.

At the outset the point must be made that the government’s ability to discover information is significantly broader than that of a defendant, although a defendant’s rights are protected by certain constitutional guarantees.

1.  Investigation

The most obvious source of information for the prosecution is the investigatory arm of law enforcement. By the time the prosecution’s attention is drawn to an individual, law enforcement has typically gathered substantial evidence relating to the alleged offense. The government’s ability to gather evidence is further enhanced by the use of search and seizure, a mechanism not available to the defense.

Like the government, defendants can employ investigators to gather potential exculpatory evidence. However, an innocent defendant has no prior knowledge of the accusations against which he must defend himself and a defendant who has committed many crimes does not know which the government has discovered. Consequently, the defendant must rely on the government’s disclosures to calculate how best to present a defense.

2.  Grand Jury

Grand jury proceedings provide another significant avenue for the prosecution to gather evidence. It is a “fundamental maxim” that the grand jury “has a right to every man’s evidence....”  Before the grand jury, prosecutors have wide latitude to compel testimony and obtain documentary evidence without the restrictions imposed by the state and federal rules of evidence and out of the presence of the defendant and his counsel.

Unlike the prosecution, the defendant has little or no access to grand jury proceedings. A defendant may not even be aware of a grand jury investigation until it is complete. Further, state and federal rules of criminal procedure require that grand jury proceedings be kept confidential.

3. Constitutional Disclosure

The Constitution requires the prosecution to produce certain evidence material to the defense. The most familiar requirement is the prosecution’s obligation to produce exculpatory evidence.  The United States Supreme Court has held that the government’s failure to provide a defendant with exculpatory evidence in its possession violated the defendant’s constitutional rights. This obligation extends to evidence that a defendant can use to impeach the government’s witnesses.

4.  Discovery Authorized by Statute

The Jencks Act, 18 U.S.C. § 3500, provides that statements by government witnesses in the hands of the government must be produced, but not until after those witnesses have testified. Certain statutes provide some defendants with additional discovery. For example, defendants charged with capital offenses are entitled to a list of the witnesses against them at least three days before commencement of trial.

5.  Discovery Under the Federal Rules of Criminal Procedure

A. Rule 16. Rule 16 of the Federal Rules of Criminal Procedure requires that the parties disclose certain information. Upon request, the prosecution must provide certain statements made by the defendant; the defendant’s criminal record; access to certain physical evidence; and reports related to expert, scientific, and medical evidence. Significantly, the Rule does not require disclosure of statements made by government witnesses.

Rule 26.2 of the Federal Rules of Criminal Procedure provides that after a witness testifies, a party may compel production of any relevant statements made by that witness. The Rule does not provide a method for discovery of statements or documents in the hands of a non-party even if they are relevant statements by a witness who has testified.

B. Rule 17(c) Subpoenas

Finally, there is Rule 17(c) of the Federal Rules of Criminal Procedure, which provides:

(1) In General. A subpoena may order the witness to produce any books, papers, documents, data, or other objects the subpoena designates. The court may direct the witness to produce the designated items in court before trial or before they are to be offered in evidence. When the items arrive, the court may permit the parties and their attorneys to inspect all or part of them.

(2) Quashing or Modifying the Subpoena. On motion made promptly, the court may quash or modify the subpoena if compliance would be unreasonable or oppressive.

6.  Cases

There are numerous cases dealing with criminal discovery, a discussion of which is well beyond the scope of this post.

7. Conclusion.

This brief overview is intended only as an introduction to the criminal discovery process. Books have been written about it. Hopefully this information will be helpful.

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On January 4, 2008, the Supreme Court of the United States agreed to determine “Whether reliance is a required element of a RICO claim predicated on mail fraud and, if it is, whether that reliance must be by the plaintiff.” According to the grant of the petition for a writ of certiorari in John Bridge, et al. v. Phoenix Bond & Indemnity, et al., the brief of petitioners is to be filed on or before Thursday, February 14, 2008. The brief of respondents is to be filed on or before Wednesday, March 12, 2008. A reply brief, if any, is to be filed in accordance with Rule 25.3 of the Rules of the Court. RICO Law Blog will keep an eye on this important case,

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In an apparent effort to stop “harassment” by the United Food and Commercial Workers union’s “corporate campaign,” Smithfield Foods management personnel brought a $5 million lawsuit against the union for its “public smear campaign.”  The suit was filed in Richmond, Va. under the Racketeer Influenced and Corrupt Organizations Act.   According to Smithfield’s management, the United Food Workers have carried their aggressive “tricks” to far. Smithfield claims it has been harassed for many year, including boycotts, heckling people who promote Smithfield food products, and disruptive protests during shareholder meetings.  A company manager remarked, “This lawsuit was a last resort.” Smithfield’s huge hog-processing plant in Bladen County, North Carolina employing 5000 people is a union target for organization.

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The Dow Jones Newswire reported on December 5, 2007 that Sebastian River Holding's Inc. (SBRV) filed a lawsuit against E*Trade Financial Corp. alleging collusion by E*Trade employees to manipulate Sebastian's stock price.

The Sebastian, Fla., financial holding company said E*Trade illegally froze shareholders' accounts, preventing them from buying or selling shares or withdrawing cash.

Sebastian River is suing under the civil section of the Racketeer Influenced and Corrupt Organizations Act and seeking actual and punitive damages for loss of market value and loss of business opportunity.

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The plaintiffs in a lawsuit accusing Tyson Foods Inc. of hiring illegal aliens to work at poultry plants are focusing on the meat producer’s relationship with the League of Latin American Citizens. The class-action suit in U. S. District Court in Eastern Tennessee claims Springdale-based Tyson Foods knowingly hired illegal aliens to work for wages below what American workers would take. It was filed in April 2002 on behalf of former Tyson workers in several states, not including Arkansas. Trial is set for March 3, 2008.  

The plaintiffs in Trollinger v. Tyson are chicken plant workers who said they were harmed by a scheme by Tyson’s top management to depress wages, court documents state. “We believe Tyson has used its relationship with LULAC to help carry out a ‘willful blindness’ policy of hiring illegal workers,” said the plaintiffs ’ attorney, Howard W. Foster of Chicago. “Tyson is very close with LULAC, especially in Springdale, and we’re alleging that the groups have agreed not to investigate workers who are suspected illegal aliens.” Last week, the former director of the Arkansas chapter of the League of Latin American Citizens filed a motion to avoid giving a deposition in the case. In October, LULAC’s Housing Commission fought subpoenas seeking evidence in the case.

Tyson spokesman Gary Mickelson said the company continues to deny claims in the suit and will file a motion for summary judgment mid-month. “We have a zero-tolerance policy for hiring people who are not authorized to work in the United States,” Mickelson said. “We value our relationships with various advocacy groups, including those representing the Hispanic community. Claims that those relationships are improper are not only false, but they are absurd.”

Mr. Foster, the plaintiffs’ lawyer, commented that this is one of the first suits to allege “illegal immigrant hiring scheme” under the RICO. RICOLaw Blog will keep an eye on this case.

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Since 2003 the Recording Industry Association of America (RIAA) has filed almost 15,000 lawsuits charging computer users with trading music online. Now one of its targets is suing back. Tanya Andersen, a 42-year-old disabled single mother, has filed a countersuit in Oregon alleging that the industry's practices violate, among other laws, the state's Racketeer Influenced and Corrupt Organizations Act.

Last February, Andersen got a letter from a Los Angeles law firm informing her she was being sued for copyright infringement.  MediaSentry, an investigator retained by the recording industry, had allegedly caught her collecting gangsta rap on her hard drive late one night using peer-to-peer file sharing software.  Andersen's attorney, Lory R. Lybeck, says Andersen doesn't know how to use such software – indeed, that she doesn't even like gangsta rap. According to Lybeck, when Andersen tried to protest her innocence and offered up her computer for forensic analysis, she was told that the suit had to continue or others might be deterred from settling.

If Andersen really is being falsely charged, she probably isn't unique. In October attorney Ray Beckerman, who is defending another single mother against an RIAA suit, told Wired News he believes thousands of defendants may have been falsely accused. As Electronic Frontier Foundation Legal Director Cindy Cohn points out, investigators may incorrectly link file lists to Internet protocol addresses, and cable companies have been known to incorrectly link IP addresses to customers. Furthermore, as home and cafe wireless networks become more common, there's no guarantee that the customer was the one sharing music.

Article provided by Mustang 88 FM Jakarta.

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The Supreme Court on Monday October 15^th rejected an appeal by Microsoft Corp. and a unit of Best Buy Co. to dismiss a lawsuit alleging violation of racketeering laws through fraudulently signing up customers for Microsoft's online service.

The companies asked the justices to overturn a May ruling by the San Francisco-based U.S. 9th Circuit Court of Appeals, which said the civil suit could proceed. The Supreme Court is letting that ruling stand, which means the class-action lawsuit involving thousands of consumers with complaints against the companies will be litigated in federal district court.

Under a joint venture, Redmond, Wash.-based Microsoft invested $200 million in Richfield, Minn.-based Best Buy in April 2000 and agreed to promote the retailer's online store through its Internet access service, MSN. In turn, Best Buy agreed to promote MSN in its stores.

The dispute began in 2003, when James Odom sued the companies after purchasing a laptop computer at Best Buy.

Best Buy allegedly signed up Odom for a six-month free trial of MSN with the credit card he used to pay for the computer. After the trial ended, Microsoft began charging him for the account.

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A New Jersey federal judge on Friday, September 28^th, threw out the remaining racketeering claims pending against several dozen insurers and brokers in a class action lawsuit stemming from industry wide investigations into bid-rigging and client-steering allegations.

The decision, which follows a recent ruling dismissing antitrust claims against the brokers and insurers, resolves the major claims in the consolidated litigation brought on behalf of commercial property/casualty insurance policyholders and employee benefit plan sponsors, who sued the firms following the investigations initiated by then-New York Attorney General Eliot Spitzer.

Plaintiffs alleged that the companies engaged in a conspiracy in which they allocated clients, fixed prices and restrained trade in violation of Racketeer Influenced and Corrupt Organizations Act and the Sherman Antitrust Act. In earlier rulings, Judge Brown and a previously assigned judge rejected antitrust and RICO allegations against the insurers and brokers. Judge Brown earlier this year gave plaintiffs a final chance to amend their filings and bolster their case with supplemental pleadings.

After ruling in late August that the consolidated suit lacked factual support for claims of a widespread antitrust conspiracy, U.S. District Judge Garrett E. Brown Jr. said Friday the suit also lacked factual evidence of a RICO enterprise.

“Plaintiffs’ allegations offer nothing more than a kaleidoscope of acts executed by a kaleidoscope of actors, and combine broker-defendants and insurer-defendants in such a fashion that the court is unable to discern any systemic permutation,” Judge Brown wrote in his 73-page decision. “While discussing dozens of transactions and hundreds of actors, plaintiffs fail to outline even a single set of actors that interacted with each other and executed their transactions systemically.”

The plaintiffs alleged the brokers and insurers participated in the operation or management of a RICO enterprise by, among other things, reaching agreements with each of the insurers regarding the amount of contingent commissions to be paid to the broker and the level of business to be steered to each insurer defendant and then coordinated the concealment of the scheme, according to court papers.

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Carl J. Mayer, on behalf of himself and all others similarly situated, filed a Class Action RICO lawsuit against The New England Patriots and Coach Bill Belichick in The United States District Court For The District Of New Jersey. The complaint states that the core of the lawsuit is that the Defendants, during a game with the New York Jets on September 9, 2007, instructed an agent of the Defendants to surreptitiously videotape the New York Jets coaches and players on the field with the purpose of illegally recording, capturing and stealing the New York Jets signals and visual coaching instructions. The Defendants were in fact subsequently found by the National Football League (“NFL”) to have improperly engaged in such conduct. This violated the contractual expectations and rights of New York Jets ticket-holders who fully anticipated and contracted for a ticket to observe an honest match played in compliance with all laws and regulations. Plaintiffs also contend that in purchasing tickets to watch the New York Jets that, as a matter of contract, the tickets imply that each game played will be played in accordance with NFL rules and regulations as well as all applicable federal and state laws. Among several other claims, the Plaintiffs contend that Defendants violated state and federal racketeering laws.

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There are cases in which combining federal antitrust and RICO claims in a single suit can create a powerful litigation strategy. Such situations often arise in “associated in fact” enterprises consisting of several different business entities that have engaged, or are engaging, in a scheme that defrauds consumers and at the same time restrains trade and/or fixes prices.

Complaints asserting antitrust violations usually rely on the classic underlying antitrust statute, section 1 of the Sherman Act. Since its enactment almost a century ago, this statute has provided essentially as follows: “Every contract, combination . . . conspiracy in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. . . .” Section 2 of the Sherman Act may also be implicated: “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony . . . .”

Combinations violating the Sherman Act may also constitute an “associated in fact” enterprise, and if the combination uses the United States mail, or telephone and facsimile services, or email and/or the Internet to implement and carry out a program that defrauds consumers or other businesses, the perpetrators also commit mail and wire fraud in violation of 18 U.S.C. §§ 1341 and 1343, respectively, which are predicate acts under the federal RICO Act.

The Sherman and RICO Acts provide for treble damages and an award of litigation costs and fees to the prevailing plaintiff. There are other similarities between the elements of the Sherman and RICO Acts that provide additional leverage to a plaintiff injured in his business or property by reason of the defendants’ violations of these two potent federal statutes. In addition, such cases usually involve pendent state law claims, including violations of state competition and racketeering acts that can also be tried in the federal court.

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Federal prosecutors are wrapping up -- without going to trial – a case against eight people accused of smuggling millions of dollars worth of cigarettes from North Idaho to tribal smoke shops in western Washington.

A trial date was recently cancelled with guilty pleas from four final defendants, including accused ringleader Louie Mahoney, of Plummer, Idaho.

The latest guilty pleas came eight months after at least three defendants from western Washington cut plea-bargain deals with federal prosecutors and agreed to testify against Mahoney and other co-conspirators living in North Idaho, court documents reveal.

The smuggling operation between 1999 and May 2003 cost the state of Washington an estimated $56 million in lost taxes, according to Jim McDevitt, the U.S. attorney for the Eastern District of Washington.

As part of the investigation and an earlier companion case involving six other defendants, a special task force seized $5.1 million in cash and more than 200,000 cartons of cigarettes.

Defendants in both cases agreed to forfeit the cash and cigarettes to the federal government as a condition of their plea agreements.

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The Franchise Opportunity WebLog posted the following report on August 16, 2007:

Quizno’s might have been one of the first chains in the country to market toasted subs, but it’s the franchisees who are feeling toasted right now. A class action suit has been filed in U.S. District Court in Colorado against Quizno’s.

The class action lawsuit was announced in a press release by the Toasted Subs Franchisee Association, Inc.. Their class action lawsuit has been filed on behalf of an estimated 5,000 Quizno's franchisees across the country according to the press release. The franchisees have alleged that Quinzo’s has violated a collection of five different laws.

These charges allege that they have broken laws such as statutory and common law fraud and violated both federal and state antitrust laws. Allegations also include that Quizno's violated the Racketeer Influenced and Corrupt Organizations Act (RICO Act). Franchisees are also claiming that Quizno’s is guilty of breach of contract, along with violating Colorado’s franchise and consumer protection laws.

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For some unexplained reason landowners who feel they have gotten the short end of the stick from zoning officials often sue under the Racketeer Influenced and Corrupt Organizations Act (RICO), or a state law equivalent. These cases are almost always unsuccessful. The latest appeals court decision dealing with these issues was issued by the Tenth Circuit Court of Appeals in Gillmor v. Thomas, 490 F.3d 791, (10^th Cir. 2007),a case brought by several landowners against Summit County, Utah and its zoning regime. The landowners brought suit against several County Officials alleging that their administration of Summit County's zoning ordinances constitutes a pattern of extortion in violation of RICO.  The United States District Court concluded that the county officials had not committed any illegal predicate acts as required to support a RICO claim. Consequently, it granted summary judgment against the landowners and dismissed their case. The landowners appealed to the Tenth Circuit.

The Tenth Circuit held that the landowners' allegations that the administration of county's zoning ordinances by county officials constituted a pattern of extortion in violation of RICO were sufficient to establish a causal connection between the officials' alleged racketeering activities and some injury to landowners’ business or property, as required to have standing to bring RICO claims against the officials.  However, the Appellate Court found that the county officials' enforcement of presumptively valid county zoning ordinances against landowners did not constitute a pattern of extortion under the Hobbs Act, and thus the officials' enforcement actions were not predicate acts, as would support the landowners' RICO claims. The court noted that most of the officials' actions were simply the normal administrative duties required to enforce the zoning ordinances, including explaining to landowners either how the zoning scheme worked, or rejecting allegations of the scheme's invalidity.

The Tenth Circuit concluded that the district court was correct in finding that the landowners could not prove the existence of any predicate acts, as required by § 1961 of RICO.

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The Ninth Circuit overruled prior Ninth Circuit precedent in Odom v. Microsoft Corp., 486 F.3d 541, 543 (9th Cir. 2007), holding that its prior case law concerning “enterprises” under Racketeer Influenced and Corrupt Organizations Act (RICO) is confusing and inconsistent with United States Supreme Court authority.

Odom v. Microsoft was filed as a class action alleging a RICO violation because “Best Buy and Microsoft, acting together pursuant to their agreement, constituted an associated-in-fact enterprise under RICO; that their actions, involving ‘thousands’ of consumers, constituted a ‘pattern of racketeering activity’ under RICO; and that they committed the RICO ‘racketeering activity’ predicate act of wire fraud in violation of 18 U.S.C. § 1343.” The complaint alleged that Best Buy gave customers different MSN trial software depending on the product purchased, and scanned debit/credit card information with the trial software not for “inventory control” (as purportedly represented to customers) but so Microsoft would have billing information for customers who failed to cancel their trial subscriptions to MSN.  Specifically, one of the plaintiffs alleged that he purchased a laptop computer from Best Buy and told the company that he did not need the MSN trial software because he used another Internet service, that he never used the MSN software during the 6-month trial period following his purchase, and that after 6 months MSN began charging the credit card he used to purchase the laptop for Internet service.

Best Buy and Microsoft moved to dismiss the case under Rule 12(b)(6), Federal Rules of Civil Procedure, and United States District Court Judge for the Western District of Washington, Marsha J. Pechman, dismissed the customers' class action Racketeer Influenced and Corrupt Organizations Act (RICO) suit for failure to allege an “associated in fact” “enterprise” and for failure to plead wire fraud with particularity. The Ninth Circuit reversed and remanded the case for trial holding that (1) an associated-in-fact enterprise under RICO does not require any particular organizational structure, separate or otherwise; overruling Wagh v. Metris Direct, Inc., 348 F.3d 1102;Simon v. Value Behavioral Health, Inc., 208 F.3d 1073 and Chang v. Chen, 80 F.3d 1293; (2) the customers sufficiently alleged that manufacturer and retailer formed an associated-in-fact enterprise; and (3) employee of retailer's store did not need to be named in order to plead predicate act of wire fraud.

Judge Silverman wrote a concurring opinion, joined in by Rymer, Tallman, Rawlinson and Bea, that argued the class action complaint failed to plead an “enterprise” within the meaning of RICO because it fails to allege an “ongoing organization” between Microsoft and Best Buy, but concurred in the result because the district court should have granted leave to amend the complaint. Judge Bybee also wrote a concurring opinion, joined in by Reinhardt, that argued it was “outlandish that what Judge Silverman correctly describes as a ‘marketing contract’ between Microsoft and Best Buy could subject them to a private RICO action.”

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A case reported out of the United States District Court, E.D. Virginia, Norfolk Division on July 25, 2007, Rux v. Republic of Sudan, 2007 WL 2127210 (E.D.Va.), reminded me of the unique breadth of RICO. In Rux, the court referred to Southway v. Cent. Bank of Nigeria, 198 F.3d 1210, 1216 (10^th Cir. 1999). The 10^th Circuit held in Southway that the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”) was enforceable against a foreign state by virtue of an exception contained in the Foreign Sovereign Immunities Act of 1976.

The Rux case arose from the October 12, 2000, terrorist bombing of the American warship U.S.S. Cole during a temporary refueling stop in the Port of Aden, Yemen, in which seventeen American sailors were killed.  Plaintiffs, consisting of more than fifty surviving family members of the deceased sailors, allege that Defendant Republic of Sudan was liable for damages from the attack because it provided material support and assistance to Al Qaeda, the terrorist organization whose operatives planned and carried out the attack. Plaintiffs brought their action pursuant to the Foreign Sovereign Immunities Act, which establishes subject matter jurisdiction for personal injury or death resulting from acts of state-sponsored terrorism. Upon evidence adduced at a non-jury trial before this Court on March 13-14, 2007, the Court awarded judgment in favor of the plaintiffs in the total amount of $7,956,344.

As I have noted in previous posts, although some state racketeering acts provide a cause of action arising out of personal injuries, federal RICO does not. So, unlike in the Rux case, in order to recover damages under the federal civil RICO statute, a plaintiff must prove injury to his business or property “by reason of a violation of section 1962” of RICO. But, damage to business or property is often a result of terrorist criminal acts. Consequently, RICO may provide a remedy for those persons who suffer such losses because of terrorist activity, if the facts fit one of the exceptions in Foreign Sovereign Immunities Act of 1976.

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Federal prosecutors announced they plan to seek a "superseding" indictment soon, meaning more charges and defendants are possible and that additional details about the case could become public. Word has it that the new indictment will include charges of violations of RICO. RICO Law Blog predicts that Vick and associates will also be facing civil RICO in the not to distant future. Although the civil RICO cases will be hard to make because of the requirement that the plaintiff suffer injury to his business or property by reason of the violations of RICO. Since betting on dog fights is illegal, the losing gamblers would not likely find a sympathetic judge’s ear in federal court.

However, much more likely, are civil RICO lawsuits against the NBA and Tim Doughty, the alleged fixer referee who may owe the Columbo family big bucks.

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Douglas M. Jennings designed an aftermarket dashboard bezel-that is, a molded shape that fits over an automobile's instrument panel. Hoping to make money from his design through manufacturing and selling his bezels in the auto parts aftermarket and to forestall copycats, Jennings applied to the U.S. Patent and Trademark Office (“PTO”) for a patent. As part of her review of Jennings's application, the patent Examiner contacted defendants Auto Meter Products, Inc., Gauge Works, LLC, and Gregory Day to inquire whether the bezel they were selling was on sale or publicly available before Jennings applied for his patent. Jennings believes that the defendants, in response to the Examiner's inquiries, fraudulently misled her into believing that Jennings was not in fact the inventor of the bezel.

In addition to continuing to pursue his patent application, Jennings filed a civil lawsuit against the defendants under the Racketeer Influenced and Corrupt Organizations Act (“RICO”). RICO fit the bill, in Jennings's opinion, because the defendants were engaged in “the type of unfair competition that one would expect from a Mafia family or narcotics cartel.” His complaint alleged that the defendants had commandeered the PTO through a pattern of racketeering activity by flooding it (via mail and wire transmissions) with false information in order to deny Jennings a patent and thereby “exploit the market for the bezel without compensating Jennings for use of his invention.”

Unfortunately for Mr. Jennings, neither William T. Lawrence, Magistrate Judge, sitting in the United States District Court for the Southern District of Indiana, nor the United States Court of Appeals for the Seventh Circuit bought his pitch.

Although plaintiffs continue to amaze me with their “innovative” theories, nearly all courts are unreceptive to RICO being "commandeered" to gain leverage in ordinary commercial disputes. See the Seventh Circuit’s opinion at Jennings v. Auto Meter Products, Inc., 2007 WL 2120337 (C.A.7 (Ind.).

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Carissa Wyant of the Minneapolis / St. Paul Business Journal reported in its July 20, 2007 edition that the Minnesota Workers' Compensation Reinsurance Association and the Minnesota Workers' Compensation Insurers Association filed suit against American International Group Inc. on July 17, 2007 seeking to recover more than $100 million in damages for fraudulent actions and violations of the Federal Racketeer Influenced and Corrupt Organizations Act.

The suit filed in United States District Court for the District of Minnesota alleges that New York-based AIG understated its workers' compensation business in Minnesota for the past 22 years, in order to avoid paying part of a collective statewide fund covering large workplace injury claims. AIG representatives said the company does not comment on ongoing litigation.

The WCRA is a nonprofit association of about 600 members, which was created by the Minnesota Legislature in 1979 to supply reinsurance to all insurers and self-insurers in Minnesota. This reinsurance is used to pay catastrophic workers' compensation claims to injured Minnesota workers.

RICO Law Blog will keep an eye on this one. AIG will likely make a motion to dismiss under Federal Rule 12(b)(6) within the next few weeks.

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For some reason pro se litigants (persons representing themselves) are attracted to RICO. My informal survey indicates that dozens of frivilous RICO claims are filed in state and federal courts each year. They almost always result in dismissal, with prejudice, at the very early stages of the lawsuit – mostly for failure to state a claim for which relief can be granted. As noted in my previous posts, pleading and proving a RICO case is a daunting task, but this fact does not seem to dissuade some people with an ax to grind.  A decision entered in the United States District Court for the District of Nevada on July 5, 2007 provides an entertaining example of a person with a problem – you decide what his problem is.   The District Court’s decision in Charles Caston, et al. v. U.S. President George BUSH, Jr., et al. provides the following recitation of the relief Mr. Caston sought in his RICO lawsuit.

Charles Caston, acting pro se, has brought suit on his own behalf and on the behalf of Casinos Las Vegas, Reno. Plaintiff is suing U.S. President George Bush, Jr. [sic], Governor Gibbons, George Bush, Nancy Poloski [sic], California Governor Arnold Swartznagger [sic], Texas Governor Rick Perry, New York Governor George Pataki [sic], Vice President Dick Chaney, and Mexico's President Andres Manuel Lopex Obrador [sic] for violating his constitutional rights. Plaintiff asks the court to seize 84 Lumber, Office Depot, the Pentagon, and the White House. Plaintiff also requests the court to stop the war in Iraq and release the prisoners in Guantanamo Bay and Afghanistan.

The Court goes on to note:

Plaintiff claims that the Pentagon and the White House need to be seized because they are involved in R.I.C.O. violations and overcharging plaintiff everything he buys. Plaintiff also accuses an unspecified defendant of controlling the slot machines, breaking and entering his storage unit, taking money out of his bank account, and black mailing American Indians. Further, plaintiff claims that urine was poured on him while he slept, he is being stalked by U.S. Military personnel, and that his cousin was killed by the U.S. Military. Finally, plaintiff states that he is being denied a home, a family, a drivers license, and sex with women. Given the delusional allegations of plaintiff's Complaint, the legal and factual deficiencies cannot be cured by amendment.

Not surprisingly, the Court dismissed Mr. Caston’s complaint with prejudice. In any event, thanks, Mr. Caston, for the entertainment value of your RICO claims.

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The Wall Street Journal Law Blog reported this morning that --

. . . the jury in the Conrad Black trial has found the fallen media baron guilty on four of the 13 charges brought against him. He was convicted on three counts of mail fraud and one count of obstruction of justice, but the jury acquitted him of wire fraud, racketeering and several other counts.

The jury of nine men and three women delivered their verdict after deliberating 11 days following 14 weeks of testimony. Black, 62, a member of the British House of Lords, faces a maximum of 35 years in prison for the offenses the jury convicted him of, plus a maximum penalty of $1 million.

Black’s three co-defendants were all found guilty of three counts of mail fraud. They are former Hollinger International vice presidents John Boultbee, Peter Y. Atkinson and Chicago attorney Mark Kipnis.

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In late June 2007, the United States Supreme Court held in Wilkie v. Robbins, 2007 WL 1804315 (U.S.) (June 25,2007), that BLM officials did not violate RICO by their cumulative and very aggressive actions to force Frank Robbins, a Wyoming guest ranch operator, to regrant the government an easement across his private land. The lengthy statement of facts included in the decision by Justice Souter defies summarization because – in the words of Justice Souter – “The substance of Robbins's claim, and the degree to which existing remedies available to him were adequate, can be understood and assessed only by getting down to the details, which add up to a long recitation.” Suffice it to say that the Court seemed to be sympathetic to Mr. Robbins, but rather half-heartedly held that he had adequate non-RICO remedies available to him -- some Robbins unsuccessfully asserted and some he didn’t claim at all.

Justice Souter framed the issues as follows: “The questions here are whether the landowner has either a private action for damages of the sort recognized in Bivens v. Six Unknown Fed. Narcotics Agents, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971), or a claim against the officials in their individual capacities under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968 (2000 ed. and Supp. IV). We hold that neither action is available.”

The Tenth Circuit Court of Appeals held that Robbins had a clearly established right to be free from retaliation for exercising his Fifth Amendment right to exclude the Government from his private property, Robbins v. Wilkie, 433 F.3d 755, 765-767 (2006), and it explained that Robbins could go forward with the RICO claim because Government employees who “engag[e] in lawful actions with an intent to extort a right-of-way from [a landowner] rather than with an intent to merely carry out their regulatory duties” commit extortion under Wyoming law and within the meaning of the Hobbs Act, 18 U.S.C. § 1951.  68. The Court of Appeals rejected the defense based on a claim of the Government's legal entitlement to demand the disputed easement: “if an official obtains property that he has lawful authority to obtain, but does so in a wrongful manner, his conduct constitutes extortion under the Hobbs Act.” Id., at 769. However, the Supreme Court reversed as follows:

RICO does not give Robbins a claim against defendants in their individual capacities. Robbins argues that the predicate act for his RICO claim is a violation of the Hobbs Act, which criminalizes interference with interstate commerce by extortion, along with attempts or conspiracies, 18 U.S.C. § 1951(a), and defines extortion as “the obtaining of property from another, with his consent ... under color of official right,” § 1951(b)(2). Robbins’s claim fails because the Hobbs Act does not apply when the National Government is the intended beneficiary of allegedly extortionate acts.”

Upon review of the extensive recitation of “bad acts” by the government employees, I was left with the abiding feeling that Robbins’s RICO claims should have survived.  But, in accord with a clear trend in the federal courts, the Supreme Court is not inclined to allow a plaintiff to avail himself of RICO remedies, if there are other adequate (in the mind of the court) remedies available to the plaintiff.

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Pleading and proving the specialized direct cause of injury requirement under the RICO Act is just one of many important challenges confronting plaintiffs who want to take advantage of the powerful impact a RICO claim almost always has on a defendant.

RICO’s provision for civil actions reads that --

[a]ny 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.  18 U.S.C. § 1964(c). [Emphasis added.]

Unlike proximate cause in a tort case, which exists whenever a plaintiff’s injury is a reasonably foreseeable consequence of the defendant’s tortuous conduct, RICO’s “by reason of” language makes proximate cause a matter of law.  Consequently, unless properly pled, a plaintiff will find himself on the short end of a motion to dismiss and/or motion for summary judgment based on lack of causation.

In Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 268 (1992), the United States Supreme Court expressly held that section 1964(c)’s language limiting civil claims to plaintiffs injured “by reason of a violation of section 1962” required civil plaintiffs to prove that their damages were “proximately caused” by the RICO violation. Thus, the plaintiff must plead and prove direct injury – meaning that no other causes could intervene between the defendant’s RICO violation and the plaintiff’s injury. As pointed out by RICO Act commentator, Jeff Grell, in Holmes, “. . . the Supreme Court encouraged lower courts to use ‘proximate cause’ as a sword to attack the abusive practice of bringing RICO claims whenever mail or wire fraud arguably occurs.”

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The Wall Street Journal Law Blog reported yesterday that Dickie Scruggs sued State Farm in federal court in Mississippi, accusing the company of engaging in a “pattern of racketeering” by manipulating engineering reports on Hurricane Katrina damage so the company could deny policyholder claims. Scruggs is already pursuing litigation against the company, but this is the first lawsuit alleging violations of the civil Racketeer Influenced Corrupt Organization Act, or RICO.  See the WSJ Blog site for a link to the 101-page complaint.

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The Journal of the American Association for Justice reported in its June 2007 issue that the Third Circuit ruled that policyholders can bring federal racketeering suits against insurers in New Jersey despite the state’s lack of provisions for private rights of action.

The decision in Weiss v. First Unum Life Ins. Co., 2007 WL 968391 (3d Cir. Apr. 3, 2007) overturned a lower court’s reverse preemption ruling and held that RICO claims are not barred by the McCarran-Ferguson Act, which prohibits any federal law that would “invalidate, impair, or supersede” state insurance law unless it specifically relates to the business of insurance.

“There is nothing in the regulatory scheme that indicates that allowing other remedies as part of its regulation of insurance would frustrate or interfere with New Jersey’s insurance regime,” Judge Marjorie Rendell wrote, concluding that RICO augments, rather than impairs, the state’s insurance law.

Richard Weiss, a former investment banker, was disabled in 2001 after a heart attack left him with permanent left ventricular dysfunction and extremely low blood pressure. He had short- and long-term disability benefits provided by First Unum through his employer at the time, Tucker Anthony Sutro. The insurer paid Weiss short-term disability benefits and then approved long-term benefits of more than $11,000 a month, but it discontinued payments after three months.

Weiss, who initially sued to recover losses under state law, added the RICO claim when First Unum moved the case to federal court, alleging that the state law claims were preempted by the Employee Retirement Income Security Act. Weiss argued that the insurer violated RICO by discontinuing his disability payments as part of its racketeering scheme to stop paying expensive claims.

The ruling expanded on the U.S. Supreme Court’s holding in Humana, Inc. v. Forsyth, in which the justices held that RICO claims would not frustrate the goals of Nevada’s insurance law. (525 U.S. 299 (1999).) The defense argued that unlike in Nevada, New Jersey insurance law neither allows a statutory private right of action for nonpayment of benefits nor specifically makes punitive damages available in these cases.

But the Third Circuit found that the remedies established in the state’s Insurance Trade Practices Act (ITPA) “are not intended to be exclusive.”

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If you’ve read my previous few posts, you may think that I hold a generally negative opinion of civil RICO. Not true! Although I am cautious and meticulous during pre-litigation investigation, once we decide to “pull the trigger” and file a case, my litigation team is relentless in pursuing it. By the time we file the complaint, we have decided that the defendant deserves to be “pulled through the knothole.” We are aggressive because we can be – we have done our homework and we know we have a good case. We have the forensic proof in hand and supported by at least one expert’s report and affidavit. This approach often overwhelms the unsuspecting defendant and his unprepared counsel.

On the other hand, if we’re defending, we undertake a thorough investigation of our own as soon as the defendant retains us.  Because of the complexity of defending civil RICO claims, most experienced lawyers require a large retainer to support an early concentration of efforts, including engaging one or more experts. Since the linchpin of a RICO claim is damage, most cases require us to hire a forensic accountant or certified fraud examiner right out of the starting blocks. From day one, we commit to a tenacious discovery effort. Delay in launching comprehensive discovery is not an option. Work must commence immediately to marshal the facts and law necessary to move for dismissal of the case at the earliest possible time. The defendant’s reputation is at stake and, as his counsel we must make every effort get the RICO claims dismissed as soon as possible. Then, we can concentrate on defending against the other claims, if any.  If our motion to dismiss is not granted, then our efforts shift to eliminating the RICO claims on summary judgment. Sometimes, we file a motion to dismiss for failure to state a claim and a motion for summary judgment at the same time. This gives the judge an opportunity to learn a lot about the facts and applicable defenses very early in the case.

Of course, while we are working our defense we expect that a well-prepared plaintiff’s lawyer will already have his opposition to our motion to dismiss and motion for summary judgment ready to go.

RICO lawsuits are demanding, exciting, and exhausting for both sides. Lawyers and their clients engaged in these cases better be prepared for the sting of battle – they better “. . . love the smell of napalm in the morning. . . .” ala Robert Duvall, Lt. Col. Bill Kilgore, in Apocalypse Now --

Kilgore: Smell that? You smell that?
Lance: What?
Kilgore: Napalm, son. Nothing in the world smells like that.
[kneels]
Kilgore: I love the smell of napalm in the morning.

There is usually plenty of fire, heat and devastation in a RICO lawsuit.

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In my last post I talked a bit about the impact of the Fifth Amendment in civil RICO cases, but I did not have time to discuss the strategies for dealing with the defendant’s dilemma. First of all, defense counsel should make a Rule 12(b)(6) motion to dismiss for failure to state a claim for which relief can be granted. If the RICO claim is dismissed before any discovery is undertaken, the defendant may avoid the Fifth Amendment dilemma altogether. This may not, however, be the end of the case. A plaintiff will often try to amend his deficient complaint. If that is successful, then the defendant will be faced with responding to discovery, which will likely expose him to criminal indictment. At this stage there are at least three motions to stay the prosecution of the RICO claims that should be considered by defense counsel: (1) motion to stay pending discovery on the non-RICO claims; (2) motion to stay pending mediation or arbitration; and (3) motion to stay pending completion of a parallel criminal proceeding.

A motion to stay pending non-RICO discovery may not be effective if the facts are such that discovery regarding the non-RICO claims will require the defendant to answer potentially incriminating questions. A motion to stay pending mediation or arbitration may be effective, but the defendant usually must have the ability to make the plaintiff an offer he can’t refuse. Although such a settlement will probably cause the defendant significant financial pain, at least he will not have too provide incriminating testimony. Finally, where the civil RICO defendant is a defendant in a parallel criminal prosecution or a target of an ongoing parallel grand jury investigation, a stay of the civil case may be granted in the discretion of the court.

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The Fifth Amendment privilege against self incrimination presents a difficult dilemma for a civil RICO defendant. If he takes the Fifth, a presumption arises in the civil case that his testimony, if truthfully given, would be against his interests. As Supreme Court Justice Louis Brandeis declared, speaking for a unanimous court in United States ex. rel. Bilokumsky v. Tod,   263 U.S. 149, 153-54 (1923). “Silence is often evidence of the most persuasive character.” This follows the long ago established common law rule that suppression of evidence is an “admission by conduct” that the evidence would be unfavorable to the person responsible for its unavailability. There are a number of reasons that the law allows the finder of fact to draw a negative inference from a defendant’s invocation of the Fifth Amendment in a civil case.  Most importantly, allowing the defendant-witness to exclude incriminating information undermines the fact finder’s search for the truth.  If the privilege was allowed to be invoked without penalty in a civil case, the privilege places the private RICO plaintiff at a severe disadvantage.  This is especially true in RICO cases where civil liability arises from criminal conduct. The incantation of “I refuse to answer pursuant to my Fifth Amendment privilege. . .” precludes discovery and frustrates the truth-determining capacity of the litigation process.

On the other hand, if the defendant has potential liability for plaintiff’s claims and he doesn’t take the Fifth, he may end up giving the criminal prosecutor all the evidence he needs to send him to prison.

This dilemma faces every civil RICO defendant, if he has not already been criminally prosecuted. Every one familiar with the O.J. Simpson case knows that even an acquittal in a criminal case doesn’t mean the defendant is home free. The evidence developed in a criminal RICO case can make the civil RICO case much easier because the burden of proof in the civil case is typically by a preponderance of the evidence. The beyond a reasonable doubt burden simply doesn’t apply. In some states, including Idaho, fraud must be proved by clear and convincing evidence, which although a heavier burden than the preponderance standard, it is much less than beyond a reasonable doubt.

On the other side of the coin, a successful civil RICO prosecution can lead to a criminal prosecution. My last plaintiff’s RICO case, which we settled very advantageously, led to a grand jury indictment for embezzlement and related crimes. The prosecutor was happy to have all of the forensic accounting evidence we developed in the civil case demonstrating that the defendant had embezzled nearly $1 million over a 15-year period.

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I always emphasize the need for thorough preparation in any lawsuit, but extreme preparation by both the plaintiff and the defendant is the gold standard in a RICO case.

Sometimes it’s difficult to “get the goods” on a potential RICO defendant without the discovery tools available after the lawsuit is filed. So, in the words of Tony Soprano – “Whatta ya gonna do?” The answer: File the lawsuit as soon as you have enough evidence to bring a case for breach of contract, breach of statutory or fiduciary duties, minority shareholder oppression, or any other civil claim that does not require more than notice pleading. If you have enough evidence to plead fraud with particularity as required by F.R.C.P 9(b), or the state rule equivalent, then plead fraud too.

Once the case is filed implement your discovery plan designed to find the evidence you need to support a RICO claim. When you have the evidence, file a motion for leave to amend to add the RICO claim. In some cases, you may be able to amend to add punitive damages too. Although the court decisions are not consistent, the availability of punitive damages in a RICO case depends on whether the court views the purpose of treble damages as remedial or punitive. The U.S. Supreme Court has held that RICO is primarily remedial and only secondarily punitive. Nevertheless, some commentators have suggested that even where punitive damages are recoverable, they must be reduced by the amount that the actual damages were trebled. Talk about awesome leverage – nothing beats a case with the potential for treble damages, punitive damages and recovery of substantial costs and fees – none of which are dischargeable in bankruptcy.

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I have previously mentioned the potentially devastating impact of RICO on a defendant. The RICO arsenal includes the prospect of treble damages, punitive damages and the right to recover attorney fees and litigation costs. At first blush, you might think that treble damages are the big hammer, but sometimes an award of costs and fees may carry greater financial consequences. This can occur because it is very difficult and expensive to prosecute a civil RICO case. Fees and costs usually run to more than $100,000 and sometimes exceed $1 million. Obviously, the risks to both plaintiff and defendant are enormous. No civil RICO case should be filed or pursued unless the clients on both sides have carefully considered the risks after a thorough evaluation of the relevant facts and applicable law. No doubt, these risks result in the vast majority of civil RICO cases settling. Very few actually get to trial.

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Many federal district courts have issued standing orders requiring a “RICO Case Statement” be filed at, or shortly after, the time a complaint alleging civil RICO claims is filed. These case statements are intended to meet the “reasonable inquiry” standard required by Fed.R.Civ.P. 11. The court in the Eastern District of Tennessee reminded an errant plaintiff of this requirement in a decision issued on May 21, 2007. The court in Anderson v. Thompson, 2007 WL 1490596 (May 21, 2007) (E.D.Tenn.) provided the requirements of its RICO Case Statement in a decision issued in response to a “curious proposed order” that was delivered by plaintiff’s counsel to the Court's chambers in contravention of the Federal Rules of Civil Procedure and applicable local rules. One must wonder “What were they thinking?” In any event, check out the decision for the RICO Case Statement required in the Eastern District of Tennessee, which is typical of such standing orders.

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As I reported in previous posts, a civil RICO plaintiff must prove that he suffered damages by reason of the defendant’s criminal activity. In addition, RICO requires that the defendant’s criminal acts must constitute a “pattern” of criminal activity. A single criminal act, short-term criminal conduct, or criminal actions that bear no relationship to each other do not support a RICO claim. The United States Supreme Court has ruled that criminal actions constitute a “pattern” only if they are related and continuous. In order to be “related,” the criminal acts must involve the same victims, have the same methods of commission, involve the same participants, or be related in some other fashion. A pattern may be sufficiently continuous if the criminal actions occurred over a substantial period of time or posed a threat of indefinite duration. Accordingly, even if the plaintiff has been injured by a criminal act, he will not have a RICO claim unless that criminal act is part of a larger pattern of criminal activity.

As with most RICO issues the “pattern” requirement has nuances and is often difficult to identify in practice. For example, as noted above, a single criminal act or short term criminal conduct may not support a RICO claim, but a single scheme may be sufficient to establish a pattern of racketeering if the plaintiff establishes that the predicate acts themselves amount to, or constitute a threat of, continuing racketeering activity.

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As I have previously noted, properly pleading RICO claims is a challenge. The reality is that if the RICO claims are not comprehensively documented in the complaint, the plaintiff will face a motion to dismiss under Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure, or the state rule equivalents, before the defendant answers. A couple of recent cases are on point. Yesterday the Wall Street Journal Law Blog reported that last Friday afternoon, a federal judge in Manhattan dismissed a lawsuit brought by a Brunei prince against two of his advisers, a British husband-and-wife team. The prince claimed the couple conned him and his companies out of millions of dollars, violating federal racketeering laws in the process. Judge Lewis Kaplan dismissed the claims for lack of subject-matter jurisdiction; after he issued the ruling, the plaintiffs turned around and filed the claim in New York state court. Here’s the amended complaint that was filed in federal court. The complaint is interesting because of the detailed pleading of complex facts. The WJS law bloggers, however, noted:

The reason we write about this case has nothing to do with civil procedure or financial fraud. Rather, we’re pleased to report that we have a new member of the Law Blog All-Name Team. The Brunei prince’s name: Duli Yang Teramat Mulia Paduka Seri Pengiran Digadong Sahibul Mal Pengiran Muda Haji Jefri Bolkiah.  It’s the longest-named litigant we’ve ever seen and, who knows, it might just be the longest name ever to grace the caption of a U.S. lawsuit.

In TransFirst Holdings, Inc. v. Phillips, 2007 WL 1468553  (N.D. Tex.) (May 18, 2007), the court dealt with a motion to dismiss under Rules 12(b)(6) and 9(b). This decision lays out the factors most courts typically consider in evaluating pleading of RICO claims.

The federal court in the Eastern District of California issued a decision last week in McColm v. Restoration Group, Inc., 2007 WL 1470106 (E.D.Cal.) (May 18, 2007) addressing a plaintiff’s attempt to turn an ordinary dispute into a federal RICO case. In this regard the court noted –

Indeed, after careful review of the complaint, the court concludes that plaintiff has attempted, unsuccessfully, to conflate simple state law contract and fraud claims involving California residents into a federal RICO action. More specifically, plaintiff has failed to allege criminal “predicate acts” and “continuity” required to establish a “pattern of racketeering activity.”

A review of the Prince Jefri complaint and the two cases noted above should be instructive.

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In my last post I mentioned the causation prerequisite. Not only must the RICO plaintiff have suffered damages, the damages must be “by reason of” the crimes committed by the defendant. A civil racketeering claim is a specialized cause of action intended to control specifically targeted criminal activity. The effectiveness of such a remedy is diminished by plaintiffs who attempt to gain leverage in a lawsuit by alleging RICO violations in an ordinary commercial dispute. Recognizing the need to maintain the integrity of the RICO statute, numerous federal courts have held that a cause of action will not lie unless the plaintiff can establish that the subject damages are directly caused “by reason of” the criminal activities that RICO was designed to address.

“In traditional tort cases, the issue of proximate cause is one of fact that can be resolved only by the finder-of-fact.  Given that the state and federal racketeering acts are statutory creations reflecting unique legislative concerns, the racketeering act proximate cause standard presents policy considerations that are exclusively within the competence of the court. This is an issue, therefore, that can be dealt with in a summary judgment proceeding.”

In Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 268 (1992), the United States Supreme Court also held that RICO’s proximate cause analysis presented a legal, not factual, issue:

It is often difficult to determine whether injuries are proximately caused by a RICO violation. One thing is certain, plaintiffs must do more than merely demonstrate monetary loss.  In considering Holmes, the Sixth Circuit stated that “[plaintiffs] employ flawed logic in their insistence that an ‘actual monetary loss’ equates with a ‘direct injury.’ . . . The [Holmes] Court held that RICO contains a proximate cause requirement . . . . This requirement forces the plaintiff to demonstrate a direct relationship between the injury suffered and the alleged injurious conduct.  Thus, the concept of direct injury refers to the relationship between the injury and the defendant’s action, not the plaintiff’s pocketbook.” Firestone v. Galbreath, 976 F.2d 279, 285 (6th Cir. 1992).

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In my last post I talked a bit about the devastating power of civil RICO and its proclivity for abuse. A careful investigation of the facts is mandatory before launching a civil RICO case. Too many lawyers file complaints alleging RICO without having substantial credible evidence that the defendant committed several crimes and that the plaintiff has been damaged as a direct result of those crimes – the “causation” prerequisite.

Although RICO requires the commission of at least two indictable offenses within a ten year period (or shorter period under some state racketeering statutes), RICO is intended to address long-term serious criminal activity, not isolated wrongful conduct. For example, the last RICO case I prosecuted to a successful conclusion involved an embezzlement scheme that extended over a period of more than 15 years. On the other hand, a RICO case I am currently defending involves claims of over billing by a lone defendant during a single residential construction project that only lasted several months. Each of these cases – as with many civil RICO cases – involved allegations of financial crimes. Such cases require the retention of experienced and competent forensic accountants by both sides because financial records can be easily misinterpreted and are often misunderstood.  First and foremost, before filing a RICO case, you must be sure that the plaintiff has been damaged by the defendant’s conduct. RICO imposes strict proof requirements for damages, and unlike criminal cases, damages are a necessary element of every civil RICO case.

In fact, no civil case should be filed without meticulous attention to the damages element. Like the “no crime – no RICO violation” rule, there is the equally important rule: “No damages – no RICO violation – no case.”

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I have learned several things while litigating civil racketeering cases over the past several years. One thing for sure – many, if not most, civil cases alleging violations of state and federal racketeering acts are not well founded. So, if you’re thinking about accusing someone of being a criminal be sure your supporting facts are solid and you have a thorough understanding of the law. Each of these tasks requires a lot of work. Don’t skimp on either.

Notice I used the word “criminal”. Even though you may be filing a civil RICO case, you must allege that the defendant committed more than one crime. Not just any crime, but one of those listed in the statute (“predicate offense” in RICO parlance). Most RICO commentators agree, no crimes -- no RICO violation. Since civil RICO defendants are not provided the constitutional protections afforded to every criminal defendant, each of us – whether lawyer or client – has a duty not to abuse the tremendous power provided to civil plaintiffs by RICO.

An article in the National Law Journal captured the essence of RICO litigation in its February 27, 2006 edition –

"The thought of defending a civil Racketeering Influenced and Corrupt Organizations Act (RICO) claim frequently triggers a degree of trepidation in the minds of defense counsel and their clients. The former due to the undeniably complex nature of the RICO statute itself, which even the U. S. Supreme Court has expressed difficulty in interpreting. See, H.J. Inc. v. Northwest Bell Tel. Co., 492 U.S. 229, 251-256 (1989) (Scalia, J. concurring). And the later due to RICO’s potentially crippling remedial scheme, aptly described by the 1^st Circuit Court of Appeals as ‘the litigation equivalent of a thermonuclear device.’" Miranda v. Ponce Fed. Bank, 948 F.2d 41, 44 (1^st Cir. 1991).

With that sobering thought in mind, I’ll sign off for now.

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