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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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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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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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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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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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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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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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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