Damages Under RICO: Characterization and Computation, 61 Notre

Dame L. Rev. 526, 533-34 (1986):

Treble damages have unique characteristics that can be
creatively used to address the problems of

sophisticated crime. Treble damages can be used to (1)
encourage private citizens to bring RICO actions, (2)
deter future violators, and (3) compensate victims for
all accumulative harm. These multiple and convergent
purposes make the treble damage provision a powerful
mechanism in the effort to vindicate the interests of
those victimized by crime.

10.1 Myth: The Racketeer Label Leads Legitimate Business People to Settle Garden Variety Fraud Claims For Extortionate Amounts.

See 132 Cong. Rec. E. 3531 (Oct. 10, 1986 daily ed.) (remarks of Rep. Frederick C. Boucher, the House floor manager of H.R. 5445):

...

[RICO] allows plaintiffs to raise the stakes
significantly in [commercial disputes] because a
civil RICO claim carries with it the threat of treble
damages, attorney's fees, and the opprobrium of being
labeled a "racketeer. As Justice Marshall concluded
in examining the current situation created by civil
RICO:

Many a prudent defendant, facing ruinous
exposure, will decide to settle even a case
with no merit. It is thus not surprising
that civil RICO has been used for extortive
purposes, giving rise to the very evils that
it was designed to combat.

10.2 Fact: The Racketeer Label Inhibits, Not Facilitates, Settlement; Fraud Is Not a Garden Variety Problem.

Mr. Philip A. Feign, Assistant Securities Commissioner, Colorado Division of Securities, and spokesman for the North

American Securities Administrators Association before the Senate Judiciary Committee, aptly observed:

Euphemisms like "commercial disputes," "commercial
frauds," "garden variety frauds" and "technical
violations" ... are sanitized phrases often used by
"legitimate businesses and individuals" to distinguish
their frauds from the "real" frauds perpetrated by the
"real" crooks. Yet all wilful fraudulent conduct has
in common the elements of premeditation, planning,
motivation, execution over time, and injury to victims
and commerce. And it is all crime. Oversight at 535.

On the role of euphemisms in encouraging public and official reluctance to enforce the law and providing rationalizations for the violators themselves in the white-collar crime area, see Task Force Report: Crime And Its Impact--An Assessment: Task Force On Assessment, President's Commission On Law Enforcement And Administration Of Justice 104-08 (1976) ("most white collar crime is not at all morally neutral"); D. Cressey, Other Peoples Money 102 (1952) (that embezzlers rationalize their conduct as different from theft is an important fact in behavior pattern). Indeed, it was persuasively argued in 1934 before the Copeland Committee that it was in part our failure as a society to bring white collar crime to justice that significantly contributed to the development during prohibition of what all now concede to be organized crime, a problem that did not end with prohibition's repeal:

Both crime and racketeering of today have derived their
ideals and methods from the business and financial
practices of the last generation
It is a law of
social psychology that the socially inferior tend to
ape the socially superior .... It was inevitable that,
sooner or later, we would succeed in "Americanizing"
the "small fry"--especially the foreign small fry ....
All was relatively safe, since the legal profession was
already ethically impaired through its affiliations
with the reputable racketeers
The idea that when
prohibition is ended the racketeers will meekly and
contritely turn back to blacking shoes is downright

...

silly. They will apply the technique they have
mastered to the dope ring

...

... They will find crafty lawyers all too willing to defend them from the "strong arm" of the law for value received .. So long as the

....

lawless can get protection in return for keeping
corrupt politicians in office, we shall not be free
from the crime millstone about our necks. Hearings
Before a Subcomm. of the Senate Committee on Commerce,
73rd Cong. 2nd Sess. 710-11 (1934) (remarks of
Professor Harry Elmer Barnes).

It is simply not true, moreover, that the "racketeer" label results in extortionate settlements. As quoted by Representative Boucher, Justice Marshall suggests that "a prudent defendant, facing ruinous exposure [under RICO] will decide to settle even a case with no merit." 105 S. Ct. at 3295.

Accordingly, civil

RICO lends itself, he argued, to the very extortive purpose "it was designed to combat." Justice Marshall cites as authority for this extraordinary proposition the Ad Hoc Civil RICO Task Force: Corporations, etc. 69 (1985). The Ad Hoc Task Force, in turn, conducted a survey of 3,200 corporate litigation lawyers, of whom only 350 responded. Two factors, however, undermine the scientific credibility of the general results of the survey: the population questioned was unrepresentative of the bar, and (2) the response rate was insufficient to warrant broad generalizations.

(1)

More to the point here, the survey did not ask each of the respondents a carefully phrased question calling for their opinion or experience with RICO as a settlement weapon. Instead, the opinion relied upon by Justice Marshall was volunteered by only two of the 350 respondents as grounds for repealing RICO. In fact, it is the experience of a majority of seasoned litigators in the RICO area that adding a RICO claim to

a suit does not facilitate settlement; it inhibits it, particularly when a legitimate business is involved. See A Comprehensive Perspective on Civil and Criminal RICO Legislation and Litigation: ABA Criminal Justice Section 121-23 (1985).

Generally, businesses wrongfully accused of "racketeering" will not settle suits - even those that should be compromised as long as the racketeer label is in the litigation.

Indeed, it

is difficult to understand how Justice Marshall or Representative Boucher could believe that a suit with "no merit" faces a defendant with "ruinous exposure. " If the plaintiff's suit has no merit, his chance of success is zero, and zero multiplied by three (or any other number) is still zero. Before any one accepts the Task Force's, Justice Marshall's or Representative Boucher's claim, he ought to ask for the names of the defendants and the cases allegedly so settled; he should then inquire of the plaintiffs what their evidence was. It is doubtful that it will be found that the litigation was meritless.

It is doubtful, in

short, that responsible corporate or other defendants are paying

off strike suits in the RICO

or any other area at more than their settlement value, no matter what the theory of the complaint is. Neither the racketeer label nor the threat of treble damages will convince prudent managers to surrender lightly scarce resources, merely because another files a suit. No matter how colorfully it is phrased, the claim that such managers act against their own interest is not credible.

Finally, white collar crime, principally fraud, is no

"garden variety" problem in the United States today. Current estimates put it in the $200 billion range. Annual Report of the U. S. Attorney General 42 (1985). That figure is similar in dimension to drugs. Hearings before House Subcommittee on Crime,

99th Cong., 2nd Sess. 1 (1986) (remarks of Rep. William J.
Hughes) ($110 billion spend annually; lost productivity, etc.,
$60 billion). Commodities investment fraud, for example, costs
$200 million. S. Rep. No. 495, 97th Cong., 2nd Sess. V (1982).
Bank fraud, particularly by insiders, is also deeply disturbing.
In the 1980-81 period, the failure of 105 banks and savings and
loans cost one billion dollars. Roughly one-half of the bank
failures and one-quarter of the savings and loan collapses had as
a major contributing factor criminal activities by insiders, few
of whom, according to the findings of a study by the Bernard
Committee, were adequately sanctioned, criminally or civilly. In
1984, the Committee noted:

Despite such enormous losses, neither the banking nor
the criminal justice systems impose effective sanctions
or punishment to deter white-collar bank fraud. The
few insiders who are singled out for civil sanctions by
the banking agencies are usually either fined de
minimis amounts or simply urged to resign. The few who
are criminally prosecuted usually serve little, if any,
time in prison for thefts that often cost millions of
dollars. H. R. Rep. No. 1137, 98th Cong., 2d Sess. at
5 (1984).

Since then, the Federal Deposit Insurance Corporation has reported that bank failures, more than 100 per year, continued to run at post-Depression record levels. N.Y. Times, Jan. 5, 1987, col. 1, p. 20. Most banks, in fact, do not have the financial