RICO Claims in Business Lawsuits

By | March 4, 2015

rico-lawsuit-diagramThe RICO Act (Racketeer Influenced and Corrupt Organizations) is used in private civil litigation though its original construction and enactment was under the federal criminal code (Title IX of the Organized Crime Act of 1970). The statue provides a private right of action including recovery of treble damages (3 times damages) and attorney’s fees to any person or business injured by reason of a violation of RICO.  Its use in business litigation is often complex—sometimes overly complex—and typically avoided in favor of common law claims of fraud, breach of conduct or other business torts such as breach of fiduciary duty.

Lawyers are often attracted to adding RICO claims to commercial litigation because the ability to collect, or at least threaten, the recovery of attorney fees and treble damages (typically not available in a standard fraud or breach of fiduciary duty case) . The statute’s express ability to be utilized by a person injured in their “business or property” precipitated its use in business litigation.  Personal injury claims are expressly excluded by the statute.

State and Federal courts have concurrent jurisdiction over private (civil) RICO claims, meaning one can bring a federal RICO claim in state court. However, Colorado maintains its own organized crime act under the acronym COCCA (Colorado Organized Crime Control Act), which like its federal counterpart RICO, also contains a private civil right of action. Where RICO is used in Colorado lawsuits, it is typical that violations of COCCA are also raised in the same case.

Section 1962 of RICO identifies four types of conduct that give rise to a civil RICO claim, the most common in the case of business or commercial litigation are found in subsections (c) and (d).  Subsection (a) of 1962 makes it unlawful for any person who has derived income from a “pattern of racketeering activity” to use or invest the income in an “enterprise.”  Subsection (b) makes it unlawful to acquire or maintain an interest in an “enterprise” through a “pattern of racketeering activity.”  Subsection (c) makes it unlawful for a person employed or associated with an “enterprise” to participate in the conduct of the enterprises affairs.  And Subsection (d), a catch all of sorts, makes it illegal for any person to conspire to violate any of subsections (a) through (c).

A common element of all types of RICO claims is the racketeering conduct must be part of a “pattern” defined by statute as two or more “acts of racketeering activity.”  These underling illegal acts are called the “predicate acts” and generally consist of separate crimes, such as violations of the criminal code, controlled substances, fraud, obstruction of justice, bribery, etc.

COCCA and RICO claims in business lawsuits can be a potent tool or additional claim added to a case in addition to claims of fraud or other wrongful conduct. Proving a RICO claim in business litigation involves proving the individual “predicate acts” as well as the elements of RICO including meeting the definitions of proving an “enterprise” and “racketeering activity.” As with any litigation tool, its use should be well thought out and strategically deployed. Defense of these claims typically focus on defeating one or more of the individual elements, but only rarely and for specific purposes are civil RICO claims brought in isolation.

What is a Deposition in Your Lawsuit?

By | March 3, 2015
Not me taking a deposition.

Not me taking a deposition.

The general definition of a deposition is:  a witness’s sworn out-of-court testimony. It used to gather information as part of the discovery process and, in limited circumstances, may be used at trial. The witness being deposed is called the “deponent.”

The Deposition Notice:

The deposition is scheduled in good faith between the attorneys in the case at a time and place that is agreed upon. Once the date is chosen, a formal deposition “notice” is issued by the attorney that is taking the deposition. An important and sometimes overlooked aspect of the notice is the manner in which the deposition will be recorded. A deposition where a video is being taken in addition to a court reporter’s transcript involves a different type of preparation for the witness.

Witness Examination:

The oath is given to the witness. Questions are asked. Answers are given. The testimony is transcribed. It is a formal process of interviewing a witness or a party to the case to understand what they know, the basis of their knowledge, and their positions in this case. The central purpose of a deposition as part of the discovery process in litigation is to get at the facts and circumstances underlying the case. Of equal importance in the deposition is the ability of the examining attorney to gauge the credibility and demeanor of a witness in evaluating how the witness will present at trial.

The deposition transcript can be used in court for a variety of purposes, most commonly to call into question the credibility of a witness (impeachment) such as when their story changes between the deposition and trial. Portions of the transcript can also be used as attachments to court pleadings as evidence when seeking the judge’s ruling on a question or claim by one of the parties prior to trial.

The duration of the deposition is limited to “one day of seven hours” which can be expanded or reduced by an order of the court or agreement by the parties.

Deposition Objections: 

The attorney for the witness and attorneys for other parties in a multi-party case can make “objections” on the record during the depositions. These objections are noted by the court reporter and appear in the transcript, but the testimony continues. There is no judge that can rule on the objections. If the transcript is used in court the judge can later decide whether the objections are founded and rule accordingly.

Safe Streets Plaintiffs Dismiss Bank in Marijuana Lawsuit

By | February 26, 2015

Today in the Safe Streets Alliance RICO lawsuit in Colorado, the Bank of the West was dismissed as a Defendant. Under Rule 41(a) of the Federal Rules of Civil Procedure, a plaintiff can unilaterally dismiss a defendant by filing a “notice” without needing an order of court if the notice is filed before the opposing party files an answer or motion for summary judgment.  Such a notice was filed dismissing the bank  in the second of the two RICO cases seeking to dismantle the Colorado marijuana industry filed in Denver [1:15-cv-00350-MSK] involving co-plaintiff New Vision Hotels Two, LLC (owner of the Holiday Inn in Frisco, Colorado).  The dismissal is “without prejudice,” meaning that the Plaintiffs, should they find out more information later, could potentially rename Bank of the West as a defendant.

The full text of the notice of dismissal reads as follows:

Pursuant to Federal Rule of Civil Procedure 41(a), Plaintiffs dismiss without prejudice Defendant Bank of the West. Plaintiffs are taking this action based on Bank of the West’s written representation that its policy is never to offer accounts to recreational marijuana businesses, that it did not knowingly provide an account to the recreational marijuana conspiracy that is the focus of this litigation, and that the Bank of the West account that was linked to the recreational marijuana conspiracy at issue in this case has been closed.

The full Notice of Dismissal of Bank of the West is here.

The Plaintiffs had originally alleged in their Complaint that:

46. Since at least October 2014, Defendant Bank of the West has maintained a business bank account for Summit Marijuana. On information and belief, Bank of the West is aware that Summit Marijuana’s account is used by an illegal marijuana business and that proceeds from that business are being deposited in Summit Marijuana’s account. Bank of the West is also aware, on information and belief, that Summit Marijuana is developing property at 1121 Dillon Dam Road for the purpose of growing and selling recreational marijuana. Accordingly, Bank of the West conspired with Summit Marijuana, Olson, Katz, and John Doe 1 to assist in the enterprise’s drug crimes, thus violating 21 U.S.C. § 846, which is racketeering activity under 18 U.S.C. § 1961(1)(D).


Safe Streets Moves to Consolidate its Two Colorado Lawsuits

By | February 23, 2015

As I wrote yesterday, it was curious if not telling that Safe Streets filed two separate lawsuits in U.S. District Court in Denver.  Today, Safe Streets filed a motion to consolidate the two cases. The two cases clearly overlap on several issues, and they are certainly driving at the same fundamental goal and question–the use of civil RICO claims to shut down marijuana businesses in Colorado. While the factual issues of standing and damages are plaintiff-specific, should any or all of the plaintiffs survive motions to dismiss on those specific points, the ultimate issues in this case have a great deal of commonality.

The first case [1:15-cv-00349-REB-CBS] involves the Safe Streets Alliance and co-plaintiffs Phillis Reilly and Michael Reilly (landowners in Rye, Colorado). The second case [1:15-cv-00350-MSK] involves co-plaintiff New Vision Hotels Two, LLC (owner of the Holiday Inn in Firsco, Colorado). Safe Streets Alliance is a party to both cases. The local rules for the U.S. District Court in Denver require the disclosure of associated litigation, and in each case Safes Streets has done that relative to the other.

A copy of the Safe Streets Motion to Consolidate is available here. Safe Streets articulates the common questions involved in the two cases in its motion as follows:

Specifically, both cases concern whether those who commercially cultivate and sell recreational marijuana as authorized by Colorado law may be held liable under 18 U.S.C. § 1964 for treble damages, costs, attorneys’ fees, and appropriate injunctive relief in a suit brought by injured businesses and property owners.

Ultimately I believe there are threshold issues of law that are common enough to warrant consolidation, and the defendants in each of the cases could move for consolidation at this point as well, at least as to the common questions of law.  For example, both cases appear to involve yet-to-open marijuana businesses, both cases appear to allege damages that are arguably speculative or not at this point ripe, and both cases will need to demonstrate a requite element of interstate commerce (the legal question–what is that requisite level?). These are blended factual and legal questions involving each plaintiff, but at this point Safe Streets has obviously reconsidered its strategy and believes the better course is a single case.  The defendants in both cases are equally served to consider their joint strategies as well. The realities are that both cases would be assigned to the same judge, and legal inconsistencies between the court’s rulings less likely. Issues at the trial stage if the cases were to proceed would be vastly different and plaintiff-specific. If consolidation is granted now, bifurcation would be explored later.

Safe Streets Alliance’s Colorado Marijuana Lawsuit Raises Standing and Causation Questions

By | February 22, 2015

The Safe Streets Alliance out of Washington D.C. has filed two lawsuits in federal court in Denver that pose a full frontal attack on the legalized recreational and medical marijuana industry in Colorado.  Service providers, regulators, landlords and investors to the marijuana industry will take notice and follow these cases. These cases seek not only damages for the individual plaintiffs named, but also injunctive and declaratory relief shutting down the (proposed) marijuana facilities in question as well as a definitive ruling from the federal courts on preemption of federal law over the states on the issue of marijuana’s illegality.

Colorado Safe Streets Case Press

Colorado Safe Streets Case Press

The first case [1:15-cv-00349-REB-CBS] involves the Safe Streets Alliance and co-plaintiffs Phillis Reilly and Michael Reilly (landowners in Rye, Colorado).  The second case [1:15-cv-00350-MSK] involves co-plaintiff New Vision Hotels Two, LLC (owner of the Holiday Inn in Frisco, Colorado).  Both were filed on February 19, 2015.  Both allege interesting legal theories centered on the Racketeer Influenced and Corrupt Organizations Act (“RICO”) claims against anyone and seemingly everyone that Safe Streets believes to have a finger in the alleged “enterprise.”

What are likely to be Safe Streets’ known weaknesses in these cases become apparent when reading each of the two complaints in their entirety. The plaintiffs filed these as two separate cases.  While there will be significant overlap between the cases in several areas, it is notable that  two cases were filed as if one is the back-up of the obviously mission critical goal. At least one of the plaintiffs, in one of the cases, must demonstrate standing and otherwise survive a motion to dismiss in order for a single case to proceed to the merits. In both cases it is alleged that the co-plaintiffs are members of Safe Streets, critical to Safe Streets’ ability to maintain standing as an organization (more on that in a separate post). As to actual damages or injuries, the yet-to-open marijuana facilities in both cases are alleged to have already caused reduction in the “value” of the plaintiffs’ respective properties.  See New Vision’s Complaint at paragraph 60, Reillys’ Complaint at paragraph 79.  Such allegations of impact on property value may become issues of proof. Other allegations of damages–such as the bricks-and-mortar construction of the facility affecting “the mountain views” from an unoccupied property–appear more tenuous.

The immediate issues that were apparent to me on reading the two complaints were standing and causation. Both issues will likely be in the top three or four issues any defense lawyer retained on these cases will be looking at very closely. The strain exerted in the two complaints to allege actual damages or injuries related to the mere prospect of marijuana trade in the vicinity of the plaintiffs’ business or property is palpable, and in some places bordering speculative on its face.

A recent (December 8, 2014) opinion of the Tenth Circuit Court of Appeals (sitting in Denver, Colorado), has articulated these central issues as follows:

Under RICO’s “by reason of” requirement, to state a claim  the plaintiff is required to show that a RICO predicate [unlawful] offense not only was a “but for” cause of his injury, but was the proximate cause as well. Sufficiently establishing the element of causation—both actual and proximate—is crucial to proving any violation of RICO. When a court evaluates a RICO claim for proximate causation, the central question it must ask is whether the alleged violation led directly to the plaintiff’s injuries.  (internal citations and quotes omitted).

Whether in response to a motion to dismiss or later in these proceedings, it may be difficult for the plaintiffs here to show “proximate cause” in addition to “injury in fact.” The federal courts also limit “standing” in such cases to plaintiffs who suffer injuries that are proximately and factually caused by the alleged violations of RICO.  While the courts treat “standing” and “causation” of damages as interrelated concepts, the U.S. Supreme Court has held in  Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 461 (2006) that:

When a court evaluates a RICO claim for proximate causation, the central question it must ask is whether the alleged violation led directly to the plaintiff’s injuries. (emphasis added).

The U.S. Supreme Court has interpreted the RICO statute in civil cases to require the plaintiff to demonstrate conduct that is the “but-for” cause of plaintiff’s injury and also the “proximate cause.” To establish standing under RICO, the Safe Streets plaintiffs must show that they have been “injured in [their] business or property by reason of a violation of section 1962.” 18 U.S.C. § 1964(c).

The allegations of damages by the plaintiffs in the two Safe Streets cases filed in Denver are seemingly thin, prospective, and may be the type of issues in the immediate cross-hairs of the defendants that will surely be seeking to dismiss this case.  A decision on whether the plaintiffs’ allegations withstand the first round of motions in this case is months away.  I’ll be digging deeper into the allegations of injuries set forth in the complaints, as well as the prospective nature of the operations alleged to have even caused any damages. How a yet to operate business is engaged in activities affecting interstate commerce (also an element to prove a RICO violation) is yet another worthy of exploration.

Extensive Amendments Proposed to the Colorado Rules of Civil Procedure (CRCP) for 2015

By | January 20, 2015

2015 CRCP Amendments RedlinesFrom the Bar Association’s Legal Connection:

The Colorado Supreme Court is seeking public comment on proposed changes to the Colorado Rules of Civil Procedure. Amendments to rules 1, 12, 16, 16.1, 26, 30, 31, 34, 37, 54, and 121, § 1-22 are proposed; some of the amendments, including those for Rule 16, “Case Management and Trial Management,” are extensive. A redline of the proposed changes is available here.

Written comments to the proposed rule changes can be submitted to Christopher Ryan, the Clerk of the Colorado Supreme Court, at 2 East 14th Ave., Denver, CO 80203. Comments must be received no later than 5 p.m. on April 17, 2015.

A public hearing on the changes will be held on April 30, 2015, at 1:30 p.m. in the Colorado Supreme Court courtroom. The courtroom is located on the 4th floor of the Ralph Carr Justice Center at 2 East 14th Avenue in Denver.

I intend to provide detailed comments and commentary on the rules.  Many of the amendments are modeled on the CAPP (Civil Action Pilot Project) rules and have mixed reviews from attorneys.  Having handled several cases under the CAPP rules, I see the pros and cons, many of which are a function of adapting litigation practice and strategy to the new rules.


It’s a Civil Matter

By | January 1, 2015

The call is familiar.  Someone has ripped them off, stolen property, and won’t return it.

They’ve already contacted law enforcement, and the response was the typical refrain.

Sorry, ma’am. There’s nothing we can do. This is a civil matter. You’ll need to contact an attorney.

And, that’s exactly what they do. Discouraged already, they seem to know the response the lawyer is going to give them–that there’s nothing the lawyer can do for them either. The reasons are usually the same–the amount they are pursuing isn’t enough to justify the lawyer’s fees, or the crook isn’t good for it anyway. It’s why they turned to the police in the first place, because at least if the cops did something, there could be punishment if not repayment.Garnett Consumer Protection Complaint

Having handled the above calls and seen the scenario dozens of time, I was happy to recently read that Boulder County District Attorney Stan Garnett has actually ventured into the civil realm and filed a civil case against Defendants Boulder Marathon, LLC, and Jeffrey Mason.  I know nothing about the case, but I can tell you that it involves a little known and little exercised provision under Colorado’s civil code (C.R.S. 6-1-103) that allows Colorado DAs and the Attorney General’s office to enforce the Colorado Consumer Protection Act. According to the Complaint, it is alleged that entry fees for the 2013 Marathon that was canceled without refunds “ranged from $80.00 to $121.00 per runner.”

Enforcement of the Consumer Protection Act is typically handled by privately retained attorneys.  Sometimes the resources and ability of law enforcement are turned to for justice, and from reviewing the case, significant investigation went into this case before it was filed.  The DA’s office here getting involved and following through is a welcomed sight as any one of the runners most certainly could have been told “It’s a civil matter” may now have their interests represented and see their day in court.