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

 

A jury in a Boston-based US District court case found that Pfizer, the world’s largest drug maker, violated federal antiracketeering laws by promoting Neurontin for off-label uses. Neurontin is FDA-approved for the treatment of epilepsy, but the jury found Pfizer guilty of marketing it for migraine headaches and bipolar disorder.

The jury set damages at $47 million. This amount is tripled under the Racketeer Influenced and Corrupt Organizations Act, meaning that Pfizer must pay damages equaling $141 million.

The case was brought by Kaiser Foundation Health Plan and Kaiser Foundation Hospitals. Kaiser alleged that it overpaid for Neurontin as a result of Pfizer’s illegal marketing tactics.

In an unrelated case in 2004, Pfizer plead guilty to similar charges and agreed to pay $430 million to settle the matter.

Pfizer’s Neurontin marketing campaign transformed the underperforming epilepsy drug into a $2 billion per year blockbuster before generic versions became available in 2004.

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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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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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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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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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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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