surprise that private lawsuits against violent criminals or members of organized crime do not account for the boom in civil RICO suits. These cases, What does account for the boom? According to a study by the American Bar Association, nearly three quarters of all reported RICO cases involved allegations of business or securities fraud. which are regarded by most judges and commentators as cases of "garden variety commercial disputes," form the vast bulk of the RICO explosion. Why do civil plaintiffs invoke RICO? The reasons are parallel to those that attract federal prosecutors. If you have a contract dispute with a customer or supplier, or a claim that you were cheated in a real estate transaction, your ordinary recourse will be to state courts. will be no federal jurisdiction. Absent diversity of citizenship, there But in most commercial centers, the state courts are clogged and often inefficient. In many parts of the country, and certainly in New York, lawyers generally prefer to litigate in federal court, where the caseloads are lower, the courts' attention more available, the rules of procedure more modern, and the judges more highly regarded. If your claim can be recast as a RICO claim, federal jurisdiction will be available, both for the RICO claim itself and, through the doctrine of pendent jurisdiction, over more conventional claims you might make as well. And, just as prosecutors are attracted by the higher penalties and plea bargaining leverage RICO gives them over criminal defendants, fecs civil plaintiffs are attracted to the treble damages and attorneys that are available under RICO, but not under more traditional legal theories. Many lawyers have reportedly remarked that if a client has a legitimate claim that can be cast in RICO terms, it is virtually malpractice not to add a RICO cause of action to the complaint how can a lawyer committed to represent her client zealously fail to take advantage of a provision that provides three times the payoff, and, unlike ordinary litigation, permits recovery of the (often oppressive) costs of pursuing the suit? And, into the bargain, framing the suit as a RICO claim labels the defendant a racketeer terminology that, at least marginally, increases the settlement pressure on defendants worried about the reputational damage of extended and possibly unsuccessful defense of a lawsuit. - Of course, it would not matter that RICO provides attractive incentives to plaintiffs if RICO made those benefits available only in a carefully defined category of cases. Plaintiffs might well wish to take advantage of the attractive remedies, but could not do so unless they could legitimately allege that the specified violation had been committed. But once again, the sprawling shapelessness of RICO creates the problem, by making it relatively easy for plaintiffs to formulate a RICO cause of action. Remember that mail fraud and securities fraud are predicate crimes for a RICO violation. There is little if any difference between civil and criminal securities law violations. To the extent that the criminal violation requires a more stringent showing of intentional wrongdoing, the lesser civil burden of proof significantly mitigates the difficulty. Thus, virtually any litigation in which a plaintiff alleges a violation of the securities laws can be recast as a claim that criminal acts have occurred. The enterprise and pattern elements necessary to turn the securities claim into a RICO violation are also easy to allege: since all securities law violations are committed in the course of conducting the affairs of some business enterprise or other, the enterprise element is automatic, and the pattern requirement is satisfied if more than one technical violation can be charged. 22 22 There is one qualification that must be added to the statement in the text. Courts unhappy with the ease of creating "patterns of racketeering" have sought to limit the meaning of that term. In particular, the patent injustice of making RICO violations out of multiple instances of mail fraud where the only multiplicity is in the number of letters mailed has led some courts to hold that a RICO "pattern" must include proof not of multiple acts of mail fraud but of multiple fraudulent schemes. This issue is currently pending before the Supreme Court. See H.J. Inc. v. Northwestern Bell, 829 F.2d 648 (8th Cir. 1987), cert. granted, 108 S.Ct. 1219 (1988). This qualification is almost impossible to square with the language of the statute, which makes each "act indictable under" the mail fraud statute a separate act of racketeering. 18 U.S.C. §1961 (1)(B). Moreover, the requirement is as vague as anything else in RICO. If a defendant sets out to deceive thousands of consumers, is that not a classic RICO violation, conducting the affairs of his business through a (very widespread) pattern of fraud, simply because the massive fraud is part of a single scheme? Other courts have held that, since a pattern only exists where the racketeering acts demonstrate "continuity plus relationship," Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n.14 (1985), they can generally disqualify civil RICO suits whenever, in the totality of the circumstances, the pattern seems insufficiently continuous. But these various approaches have only spawned further litigation, as plaintiffs and defendants war over the proper interpretation of a bundle of confusing and contradictory precedents. The real problem, once again, is that the concept of pattern itself has little content. Even outside the securities area, creating & RICO con; laint is not difficult. Most kinds of commercial dispute can be described by the aggrieved party as some species of fraud, and, given the ubiquity of the mails and interstate wire communications, as mail or wire fraud. Once again, escalating the claim of criminal fraud into a RICO claim is easy. Of course, winning all these lawsuits is another matter, and defenders of civil RICO make much of the fact that the most obviously meritless RICO claims have been rejected by the courts. But this claim obscures the reality of litigation, both for courts and for litigants. For the courts, sorting through the complicated issues presented by RICO cases has clearly added significantly to the workload of an overburdened system even dismissing a lawsuit is a significant operation that - And for the litigants, requires significant judicial resources. prevailing on a particular claim isn't always the point. Most lawsuits are settled, and adding to the plaintiff's bargaining position even a small chance of tripling the recovery (not to mention of the defendant's having to pay attorneys' fees and being labeled a racketeer) can shift significant resources toward plaintiffs. Many plaintiffs, indeed, have meritorious demands, and our system of protracted litigation gives significant advantages to defendants, especially ones with deep pockets. Still, it is questionable whether randomly bolstering the bargaining position of those plaintiffs who can meet the rather arbitrary pleading requirements of civil RICO is a particularly desirable way of redressing any imbalance. Undoubtedly, in the course of these hearings, the committee will hear descriptions of many situations in which meritorious cases benefited from RICO, and equally many in which frivolous cases were brought into the federal courts, or even won excessive settlements or verdicts, in part because of RICO. There will be claims by consumer groups that RICO has been or could be used as a valuable weapon against consumer fraud, and counter-claims by civil libertarians that it has been or could be used to intimidate demonstrators. As with similar claims on the criminal side, however, it is wise to look beyond the specific applications to the basic concepts of RICO. A law that strengthens the hand of plaintiffs in a generalized and somewhat randor way - like one will surely be capable of valuable applications in situations where plaintiffs with meritorious claims hold an otherwise weak bargaining position. And such a law will also be subject to occasional abuse. The question is, has the law been drafted to single out categories of plaintiffs who ought to be strengthened? Or are the law's effects substantially random? The defenders of civil RICO are by and large correct that the horror stories about civil RICO are exaggerated: the most ridiculous examples of wild RICO claims are almost all cases that have been dismissed by the courts. But the critics, I think, are more fundamentally correct. If over 70% of the civil RICO cases are essentially ordinary business disputes, in most of which no prosecutor would dream of charging criminal violations, there is little justification for continuing as broad a civil remedy as is contained in the present law. |