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U.S. Supreme Court gives expansive reading to civil RICO liability

By Heidee Stoller

In Bridge v. Phoenix Bond & Indemnity Co., the United States Supreme Court last week held that a plaintiff bringing a civil RICO claim predicated on mail fraud may recover for injury from the mail fraud, even if plaintiff did not rely on the defendant?s alleged misrepresentations.

The civil RICO statute was enacted to address mob-related activities but written broadly enough that other criminal activities fall within its reach. It establishes treble damages when a person ?employed by or associated with? an enterprise engaged in interstate commerce engages in a ?pattern of racketeering activity.? ?Racketeering activity? is defined to include certain predicate acts, one of which is ?any act indictable under? a federal statute dealing with mail fraud.

Previous case law has established that the mail fraud statute does not have a reliance requirement ? in other words, the use of ?the mail to execute or attempt to execute a scheme to defraud? was a predicate act of racketeering under RICO ?even if no one relied on any misrepresentation.? Therefore a reliance requirement, if one existed, had to be found in the RICO statute in question, which enables ?[a]ny person injured in his business or property by reason of? a pattern of racketeering activity to sue for treble damages.

Justice Clarence Thomas, writing for a unanimous court, noted that the statute lacks an express reliance requirement, and held that the broad language in the statute indicated that there was no such implicit requirement: ?The statute provides a right of action to ?[a]ny person? injured by the violation, suggesting a breadth of coverage not easily reconciled with an implicit requirement that the plaintiff show reliance in addition to injury in his business or property.?

The Court also noted that the causation requirement of RICO, which requires that a person be injured ?by reason of? a pattern of racketeering activity, indicates that the activity in question must be the proximate cause of the injury. It held that first-party reliance is not ?necessary to ensure that there is a sufficiently direct relationship between the defendant?s wrongful conduct and the plaintiff?s injury to satisfy . . . proximate cause principles.? Instead it is sufficient to allege that a plaintiff was harmed because someone else relied on a misrepresentation.

The Court rejected petitioners' claims that an overly broad reading of RICO would result in the ?over-federalization? of traditional state law claims, stating that ?[w]hatever the merits of petitioners' arguments as a policy matter, we are not at liberty to rewrite RICO to reflect their?or our?views of good policy.?

Full post as published by Northwest Business Litigation Blog on June 15, 2008 (boomark / email).