Tag Archives: fraud

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.