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

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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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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