In the November 7, 2024 edition of The Legal Intelligencer, Edward Kang writes, “Civil RICO’s Expanding Reach: From Foreign Schemes to Lost Employment.”

In the July 5, 2024 Edition of The Legal Intelligencer, Edward T. Kang writes, “From Mobsters to Fraudsters: Clearing the Bar for Civil RICO Claims.“

When I hear practitioners talk about RICO, I often hear how no one understands it. I also hear some practitioners talk about how RICO is dead. It is not.

The Racketeer Influenced and Corrupt Organizations Act (RICO) was enacted by Congress and signed into law in 1970 as a tool to combat organized crime in the United States. In addition to imposing substantial criminal penalties for violations, the RICO statute authorizes a private right of civil action, enabling the victims of a person or business engaging in a “pattern of racketeering activity” to recover treble damages and attorney fees for injury to their business or property. Civil RICO is seen as “the litigation equivalent of a thermonuclear device,” Miranda v. Ponce Federal Bank, 948 F.2d 41 (1st Cir. 1991), and civil RICO claims are often employed in complex, high-stakes litigation.

The U.S. Supreme Court has consistently recognized the importance of the civil RICO claims. For example, the court has stated that the object of civil RICO is “not merely to compensate victims but to turn them into prosecutors, ‘private attorneys general,’ dedicated to eliminating racketeering activity.” See Rotella v. Wood, 528 U.S. 549 (2000). Data seems to suggest that it is useful and expedient for plaintiffs attorneys to effectively bring RICO claims like prosecutors. For example, plaintiffs brought an average of 759 civil RICO claims each year between 2001 and 2006. Of all RICO cases decided by federal appellate courts between 1999 and 2001, 78% were civil, and only 22% were criminal. As a result, judges and legal scholars have routinely complained that civil RICO’s overly expansive reach gives many ordinary civil cases an entrée to federal court.

Reprinted with permission from the July 5, 2024 edition of “The Legal Intelligencer” © 2024 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.

In the January 5, 2023 edition of The Legal Intelligencer, Edward T. Kang wrote “Sophisticated Schemers Beware: Civil RICO Expands Creditors’ Arsenal“

In a recent settlement conference for a RICO case I am prosecuting, one of the defense counsel was commenting about how the case is “just a business dispute,” not a RICO case. Of course, he was downplaying the strength of the RICO case. But he surprised me when he said how no one understands RICO, including the court. It was obvious that he did not read any of my columns discussing RICO. See Civil RICO and Proximate Cause: A Tool for Defendants and Challenge for Plaintiffs; The Forgotten and Often Misunderstood Sections of RICO; and How RICO Plays a Role in the World of Harvey Weinstein and #MeToo. Contrary to counsel’s comments, the reach of RICO is expanding, not contracting, especially in the U.S. Court of Appeals for the Third Circuit.

Until recently, creditors who attempted to recover their monies against debtors using sophisticated schemes to conceal or transfer their assets could collect either under fraudulent transfer law or reverse veil-piercing. Most states have enacted the Uniform Fraudulent Transfer Act, which was intended to prevent debtors from divesting themselves of assets to prevent creditors from collecting. Reverse veil-piercing allows creditors to prove that an entity is essentially the debtor and thus the entity’s assets are used to satisfy the obligations of the debtor. Many states, however, refuse to apply this doctrine because it bypasses the normal judgment collection procedures and fails to protect nonculpable shareholders that would be prejudiced if the corporation’s assets were attached. Both the Uniform Fraudulent Transfer Act and reverse veil-piercing have their shortcomings as they are often unable to penetrate the sophisticated networks and structures designed by savvy fraudsters. Even when these legal theories are “successful,” the creditor is typically only able to salvage a limited recovery against part of a debtor’s protected assets.

Unlike fraudulent transfer law and reverse veil-piercing, civil claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961-1968 can be used effectively by plaintiffs for collection against debtors using a sophisticated system to avoid the creditor because, if successful, RICO provides for mandatory treble damages and attorney fees. The recent development of civil RICO theories, particularly in the Ninth Circuit, has sharpened the tools at the creditors’ disposal by allowing them to use RICO as a means to attack sophisticated debtor schemes. On June 10, 2022, for instance, the Ninth Circuit issued its decision in Smagin v. Yegiazaryan, 37 F.4th 562 (9th Cir. June 10, 2022), aligning itself with the Second and Third Circuits’ expansion of RICO.

In Smagin, defendant Ashot Yegiazaryan and several other Russian citizens used a series of transactions to steal plaintiff Vitaly Smagin’s (also a Russian citizen) shares in a joint real estate investment in Moscow, Russia between 2003 and 2009. In 2010, the defendant and the other schemers were criminally indicted in Russia for that fraud. As a result of the indictment, Yegiazaryan fled to Beverly Hills, California to escape criminal prosecution. Meanwhile, the plaintiff commenced arbitration proceedings in London, U.K. against the defendant for his fraudulent conduct and for his attempts to conceal the fraud. In November 2014, the arbitration panel rendered an award against the defendant for $84 million.

Following the arbitration award, the plaintiff filed an enforcement action in the U.S. District Court for the Central District of California to confirm and enforce the award against the defendant. In December 2014, a district judge confirmed the arbitration award and entered judgment against the defendant under the Convention of the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention. At the time, the defendant Yegiazaryan was in the midst of another arbitration proceeding. In 2015, the defendant settled an arbitration dispute against Suleyman Kerimov and was awarded $198 million. The plaintiff alleged that the defendant created a web of offshore entities with complex ownership structures to hide his arbitration award to avoid using the funds to pay the plaintiff’s award and judgment entered in California. The plaintiff also alleged that the defendant schemed to have associates file fraudulent claims against him in foreign jurisdictions so that they could obtain sham judgments designed to impede the California judgment. On Dec. 11, 2020,  the plaintiff filed his complaint against Yegiazaryan and his associates bringing a substantive RICO claim of participating in a criminal enterprise in violation of 18 U.S.C. Section 1962(c) and a RICO conspiracy claim of conspiring to participate in a criminal enterprise in violation of 18 U.S.C. Section 1962(d). The district court dismissed the complaint on the ground that the plaintiff failed to adequately plead a “domestic injury” in support of his RICO claims.

Under RICO “any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue in an appropriate U.S. district court …” To have statutory standing a civil RICO plaintiff must show: the alleged harm qualifies as injury to his business or property; and (2) that his harm was by reason of the RICO violation, which requires the plaintiff to establish proximate causation. Moreover, the U.S. Supreme Court held in RJR Nabisco v. European Community, 579 U.S. 325 (2016) that although RICO may have some extraterritorial effects, a private plaintiff must be able to prove that the injury to its business or property is domestic in nature. The court did little, however, to define what amounted to a “domestic injury.”

The Ninth Circuit concluded that a judgment is indeed considered property and the injury here was in fact domestic. The court noted that while the judgment in this case confirmed a foreign arbitration award, it existed as property in California because the rights that the judgment provided to the plaintiff could only be enforced in California, not Russia. Moreover, the court explained that its conclusion was bolstered by the fact that much of the defendants’ underlying conduct occurred in California. The defendants allegedly “corruptly illegally prevented the plaintiff from executing the judgment by filing false documents in the California court, intimidating a witness who resided in California, and directing, from California, a scheme to funnel millions of dollars into the United States through various companies, including a U.S.-based company that Ashot effectively controlled.” For all these reasons, the Ninth Circuit determined that the plaintiff’s rights under the judgment constituted a “domestic injury.”

The Ninth Circuit’s ruling in Smagin is consistent with the approaches taken by the Second and Third Circuits following the RJR Nabisco decision. But, it differs from the approach the Seventh Circuit has adopted, a “rigid residency”-based test for domestic injuries involving intangible property. In Amada (Singapore) PTE v. Amcol International, 885 F.3d 1090 (7th Cir. 2018), a Singapore shipping carrier entered into a contract with an Indian mining company that was owned by an Illinois company. Similar to Smagin, the Singapore carrier sued the defendants under RICO claiming that the Illinois company had divested the Indian company’s assets that were subject to a U.S. district court judgment that confirmed a foreign arbitration award. The Seventh Circuit determined that in locating the existence of intangible property, such as a judgment, the key inquiry is where the injury is suffered. The Seventh Circuit explained that a party sustains injuries to its intangible property at its residence, which for a corporate is its principal place of business. The court reasoned that because the plaintiff’s principal place of business was in Singapore, that is where the harm was experienced and therefore the injury was not domestic. As there was no domestic injury, the Seventh Circuit held that the plaintiff failed to plead a plausible claim under RICO.

For now, the Supreme Court has not weighed in as to which of the two diverging approaches is correct under RICO and the prevailing case law. The Ninth Circuit’s adoption has certainly given momentum to what has now clearly become a “majority approach” beneficial to out-of-country plaintiff’s seeking to recover for harm committed in the United States. While Uniform Fraudulent Transfer Acts and reverse veil-piercing exists as weapons for creditors to collect from fraudsters, the developments in civil RICO law have greatly expanded the creditors’ arsenal. RICO permits creditors to group the debtor, all of the entities the debtor controls and all of the conspirators together and recover treble damages as well as costs and attorney fees. Until the Supreme Court decides to significantly curtail creditors’ cause of action under RICO, fraudsters should sleep with one eye open. Those plaintiffs counsel practicing in the Third Circuit should rejoice in knowing that RICO provides a powerful tool for creditors against debtors using fraudulent means to avoid paying.

Edward T. Kang is the managing member of Kang Haggerty. He devotes the majority of his practice to business litigation and other litigation involving business entities. Contact him at ekang@kanghaggerty.com.

Reprinted with permission from the January 5, 2023 edition of “The Legal Intelligencer” © 2023 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.

A recent decision out of the U.S. District Court for the Eastern District of Michigan underscored the RICO “proximate cause” inquiry highlighting yet another, often overlooked, complexity in litigating such cases.

In the July 23, 2020 edition of The Legal Intelligencer Edward T. Kang, managing member of Kang Haggerty wrote “Civil RICO and Proximate Cause: A Tool for Defendants and Challenge for Plaintiffs.”

In March 2018, I authored a column on civil RICO claims brought under 18 U.S.C. Section 1962(a) and (b). In that space, I explained the complexity of those sections within RICO cases. A recent decision out of the U.S. District Court for the Eastern District of Michigan underscored the RICO “proximate cause” inquiry highlighting yet another, often overlooked, complexity in litigating such cases.

The complexity with RICO (the Racketeer Influenced and Corrupt Organizations Act), however, does not end there. Almost all RICO lawsuits filed are brought under Section 1962(c) (note: violation under Section 1962(d) relating to conspiracy to violate a substantive section is routinely asserted whenever there is a violation of a substantive section). But, what about Sections (a) and (b)? Why are these sections rarely used? Is it because these sections are generally inapplicable? While the specificity of Sections 1962(a) and (b) compared to the breadth of Section 1962(c) is a reason these sections are not commonly used, it is also because they are more difficult to understand, and often misunderstood. In effect, these sections have become virtually forgotten. While many lawyers have an understanding—ranging from basic to advance—of Section (c), far fewer understand (a) and (b).

Pleading and Proving a RICO Violation Under Section 1962(a)— Investment of Income

Section 1962(a) is primarily concerned with money laundering activity. This section makes it unlawful for “any person who has received any income derived … from a pattern of racketeering activity … to use or invest … any part of such income … in acquisition of an interest in … any enterprise ….” Here, the RICO enterprise is the “prize” of the racketeers whereas the RICO enterprise is the “instrument” of the racketeers under Section 1962(c).

Section 1962(a) prohibits investing any income derived from a pattern of racketeering activity to acquire any interest in an enterprise. The section prohibits a person from using “dirty money,” for instance, to buy a membership interest in a legitimate business. As stated above, money laundering is typically the most common goal of the racketeers under this section. By investing dirty money into a legitimate business and, in turn, using the business to write checks to themselves (or affiliates), the racketeers complete the money laundering cycle.

To have standing under this section, a plaintiff must plead and prove that he was injured from the “use” or “investment” of dirty money. Alleging that the plaintiff was injured from the racketeering activity is not sufficient. Although there is a circuit split about the type of injury necessary to confer standing under Section 1962(a), the majority view, which is followed by the U.S. Court of Appeals for the Third Circuit, holds that the investment (or use of dirty money) itself must proximately cause the plaintiff’s injury, as in Guy’s Mechanical Systems v. FIA Card Services, 339 Fed.App’x. 193, 195 (3d Cir. 2009). The Third Circuit has held that the same act cannot constitute both the predicate act through which dirty money was realized and the later investment of that money in a way that harms the plaintiff, as it would blur any distinction between Sections 1962(a) and 1962(c).

To establish Section 1962(a)’s standing requirement, plaintiffs often allege a “reinvestment” injury caused by reason of a violation of Section 1962(a). For example, plaintiffs will allege that the defendants, through an enterprise, acquired dirty money through a pattern of racketeering and then used and invested the dirty money back into the enterprise to keep it alive, so it continued to injure others, and eventually the plaintiff. Under the majority approach, it is usually insufficient to allege that the defendant only reinvested the proceeds of racketeering activity in its current business activities, thus allowing the alleged violations to continue. The relationship between the investment and injury cannot be that distant. This is understandable as, over the long term, businesses generally reinvest their profits, regardless of the source. As such, almost every racketeering act by a company will have some connection to the proceeds of an earlier act. Section 1962(c) is generally the proper avenue to redress injuries caused by the racketeering acts themselves.

So, how does one allege that he was injured from the “use” or “investment” of dirty money and successfully establish standing under section 1962(a)? A successful plaintiff could do this by connecting between a defendants’ investment of dirty money in its business and harm to the plaintiff. For example, in Ideal Steel, the Second Circuit held that the plaintiff had sufficiently alleged injury by reason of a defendants’ investment of the proceeds of racketeering activity in the ongoing business activities of the defendants under section 1962(a) where the defendant used the proceeds to open a new location in direct competition with the plaintiff. The plaintiff alleged the defendants unlawfully failed to charge cash customers sales tax and then submitted fraudulent state sales and income tax returns by wire and mail to the state that allowed them to evade millions of dollars in taxes. The plaintiff alleged that, separate from its claim under section 1962(c), this activity violated Section 1962(a) because the defendants used the proceeds they retained to open a new competing store near plaintiff where the defendants had not done business before to attract even more of plaintiff’s customers unfairly. The Second Circuit agreed with the plaintiff, finding it alleged more than a mere reinvestment injury where defendants did not merely reinvest in the same entity, but rather, created a new company.

Pleading and proving a RICO Violation Under Section 1962(b)—Interest/Control

Section 1962(b) is perhaps the most difficult RICO claim to explain and understand. The number of plaintiffs bringing a claim of RICO violation under 1962(b) is very few. From those, the number of plaintiffs surviving a motion to dismiss is even fewer. And, there is a good reason for that—it is extremely difficult to establish standing under Section 1962(b).

Section 1962(b) prohibits the acquisition of any interest in (or control of) an enterprise through a pattern of racketeering activity. The relevant language says, “it shall be unlawful for any person through a pattern of racketeering activity … to acquire … any interest in or control of any enterprise …” Under Section 1962(b), the RICO enterprise is the “victim” of the racketeers.

To successfully establish standing under Section 1962(b), a plaintiff must show an “acquisition injury,” as in Kehr Packages v. Fidelcor, 926 F.2d 1406 (3d Cir. 1991); Shearin v. E.F. Hutton Group, 885 F.2d 1162, 1168, n.2 (3d Cir. 1989). That is, a plaintiff must show that his injury was caused by reason of the defendant’s acquisition (or control) of an enterprise. Alleging that the injury was caused by the racketeering activity itself is not sufficient.

So how or when is Section 1962(b) used? Section 1962(b) is designed to prohibit criminals from infiltrating into a legitimate business through prohibited, predicate acts (e.g., extortion). I could think of many old gangster movies where a gangster is “offering” a local business person “protection” from a local thug in exchange for a “small protection fee” sometimes in the form of an ownership interest in the business (of course, the thug works for the gangster). As a result of the businessman’s accepting the “offer,” the gangster gains an interest in the business and uses it to control the business at the gangster’s pleasure. The gangster uses the business to benefit himself, resulting in the inevitable downfall of the business.

The late Judge Richard Posner discussed how to successfully plead a RICO violation under Section 1962(b). Reversing the district court’s decision to dismiss a RICO complaint, Judge Posner said the “complaint also alleges that the defendants acquired control of [the enterprise] by means of the fraud … this is a good allegation under section 1962(b),” as in Sutliff v. Donovan Companies, 727 F.2d 648, 653 (7th Cir. 1984). In that case, a plaintiff, who was suffering from mental illness, alleged that two individual defendants took advantage of her mental state, gained control of her oil wholesale business, and caused the business to sell oil to them below cost, which they resold at a profit but below the market price. While the defendants made money from profiting from the business, the business that sold its products below cost could not sustain the loss, and it collapsed. According to Judge Posner, the plaintiff had standing under Section 1962(b) because she was injured by the defendants’ acquisition of control of the business. Stated differently, the plaintiff had an acquisition injury, which is necessary under Section 1962(b).

Conclusion

Although Sections 1962(a) and (b) are rarely used (and even more rarely survive dispositive motions), they provide a powerful tool when used properly. The days of a gangster demanding a protection fee from local business owners might be over. That does not mean the criminals are gone. To the contrary, there are equally as many criminals (if not more) exist today as they did before. They are just more sophisticated today, using more sophisticated means of racketeering activity. When you remove the various means of cover-ups, however, you will find that many seemingly sophisticated schemes still involve basic fraudulent structures that meet the elements of the RICO statute. That means, with proper research and homework, you too can bring a successful RICO action under Sections 1962(a) and (b).

Edward T. Kang is the managing member of Kang Haggerty LLC. He devotes the majority of his practice to business litigation and other litigation involving business entities.

Reprinted with permission from the March 22nd edition of “The Legal Intelligencer”© 2018 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.

Overcoming Obstacles

Who in civil litigation does not love a good RICO claim? Its boundaries are seemingly endless, and in the case of Harvey Weinstein—perhaps one of the most vilified defendants on the planet right now—there is the possibility of catastrophic implications, as if being the face of an entire movement (#MeToo) is not bad enough.

Civil claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961-1968 (RICO Act), are highly desirable for plaintiffs and their attorneys because, if successful, they provide for treble damages, plus attorney fees and costs of litigation. Very few plaintiffs succeed on a RICO claim, however, so the decision to file one should not be made lightly. Many plaintiffs fail during the pleadings stage, and their claims are dismissed under Rule 12(b)(6). For defendants, like Weinstein, the possible implications of RICO can be disastrous. This potential implication is why defendants of civil RICO claims are eager to settle if the claim survives a motion to dismiss and shows a strong likelihood of surviving a motion for summary judgment. For example, in 2016, Trump University did just that—it settled a civil RICO suit for $25 million, which paled compared to its potential exposure of $170 million.

Background

The RICO Act was passed in 1970 as part of the Organized Crime Control Act of 1970 to combat large organized crime operations led by the American Mafia and their growing infiltration of legitimate businesses and organizations. Although the RICO Act was drafted to bring down gangsters, it is certainly not limited to that purpose and has evolved into a mechanism to confront business fraud and corruption over the last half-century. This is evidenced by the recent high-profile civil RICO lawsuit filed against Harvey Weinstein.

The Weinstein RICO Action

On Dec. 6, 2017, a proposed class-action lawsuit was filed on behalf of six women in New York against former Hollywood movie mogul, Harvey Weinstein and others. The plaintiffs represent a proposed class of hundreds of actresses who claim they suffered sexual assault, false imprisonment, battery, rape and other “predicate acts.” In a 300 paragraph, 104-page complaint, the plaintiffs allege that “over time Weinstein enlisted the aid of … other firms and individuals, to facilitate and conceal his pattern of unwanted sexual conduct. This coalition of firms and individuals became part of the growing ‘Weinstein Sexual Enterprise,’ a RICO enterprise.” The plaintiffs allege that the defendants violated the RICO Act through patterns of racketeering activity involving predicate acts of witness tampering and mail and wire fraud (the most common predicate acts) that restricted them and others from getting additional work in the field.

The Difficulties of Pleading and Proving Civil RICO Claims

In a survey of 145 appellate decisions between 1999 and 2001 that involved RICO civil actions, about 70 percent were dismissed on defendants’ motions to dismiss or for summary judgment. Where the appellate courts addressed the RICO matter, 80 percent of the rulings were for the defendants. Of the 9.6 percent of the suits in which plaintiffs obtained a favorable verdict after a jury trial, only 25 percent of the judgments were affirmed on appeal. Only three out of those 145 cases surveyed resulted in a victory for the plaintiffs. See Pamela H. Bucy, “Private Justice,” 76 S. Cal. L. Rev. 1, 22 (2002).

The struggle for plaintiffs to come out on top of a RICO claim comes from many problems regarding the strict requirements of the RICO Act. Two of the most difficult challenges plaintiffs face in bringing a successful civil RICO claim are meeting the heightened pleading standards under Rule 9(b) and establishing proximate cause.

The Heightened Pleading Standard Under FRCP 9(b) for Predicate Acts

The hardest hurdle to a successful RICO claim is the heightened standard of pleading under Rule 9 for predicate acts based on fraud (mail fraud, wire fraud, bank fraud, etc.). Rule 9(b) requires the plaintiff to allege the circumstances constituting fraud with particularity. Some courts made this challenge even more onerous. The Second Circuit, for instance, held that Rule 9(b) requires fraud complaints to allege facts that lead to a “strong inference” that the defendant has the requisite state of mind even though Rule 9(b) provides that conditions of a person’s mind may be alleged generally, see, e.g., IKB International v. Bank of America, 584 Fed. App’x. 26, 27 (2d Cir. 2014) (“We have repeatedly required plaintiffs to plead the factual basis which gives rise to a strong inference of fraudulent intent.”); Babb v. Capitalsource, 588 Fed. App’x. 66, 68-9 (2d Cir. 2015) (upholding dismissal of civil RICO claim where plaintiff failed to allege facts giving rise to a strong inference of fraudulent intent).

Although no other circuit court has adopted the Second Circuit’s stringent “strong inference” standard, the application of Rule 9(b) still has become more demanding with RICO claims, particularly with pleading the predicate acts for claims of extortion, wire fraud and mail fraud. That means a plaintiff filing a RICO claim in a trial court within the Third Circuit will not be required to plead a “strong inference” of fraud, like the plaintiffs in the Weinstein action. But the standard remains a difficult one to meet as plaintiffs must plead, at a minimum, “all of the essential factual background that would accompany ‘the first paragraph of any newspaper story’—that is, the ‘who, what, when, where and how’ of the events at issue.” In re Rockefeller Center Properties Securties Litigation, 311 F.3d 198, 217 (3d Cir. 2002). It is not enough, for example, to generally allege that defendants “mailed thousands of bank statements, advertisements for credit cards, contracts and promotional materials containing the fraudulent information,” as in Lum v. Bank of America, 361 F.3d 217, 224 (3d Cir. 2004), overruled on other grounds, In re Insurance Brokerage Antitrust Litigation, 618 F.3d 300 (3d Cir. 2010).

Proving Proximate Cause

The inability to prove a direct causal link between the alleged pattern of racketeering activity and the injury the plaintiff has suffered is another common issue for plaintiffs asserting a RICO claim. Section 1964(c) of the RICO Act, as interpreted by the U.S. Supreme Court, imposes a proximate cause requirement on the plaintiff as it authorizes civil suits by “any person injured in his business or property by reason of a violation of [18 U.S.C. Section 1962].” In traditional common law tort cases, the issue of proximate cause is an issue that can be resolved only by the fact-finder. The Supreme Court, however, has held that RICO’s proximate cause analysis is a legal, not factual, issue. See Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 268 (1992).

Generally, plaintiffs cannot establish proximate cause where their injuries are too far removed from the RICO violation such that there is no direct link between the two, Anderson v. Ayling, 396 F.3d 265, 270-71 (3d Cir. 2005). In 2010, in Hemi Group v. City of New York, 559 U.S. 1 (2010), a divided Supreme Court held the RICO Act to preclude claims in which the alleged racketeering activity is not the direct cause of the plaintiff’s injuries. The court’s holding in Hemi Group replaces the traditional hallmark of proximate cause—“foreseeability”—with “directness.” While this standard is murky, this decision emphasizes the burden imposed on plaintiffs’ lawyers to set forth a clear causal link between the alleged racketeering and the alleged injury. Otherwise, proximate cause can be a tool for defendants to secure early dismissal of civil RICO claims.

In the Weinstein action, the plaintiffs allege that the “Defendants interfered with their current and prospective contractual relations, because [they] lost employment and employment opportunities, as well [as] contractual and contractual opportunities, as a result of Weinstein’s conduct.” The plaintiffs allege this conduct included witness tampering, mail fraud, and wire fraud. The crux of the claim is that Weinstein and the Weinstein Sexual Enterprise conspired to lure women, under the guise of career advancement opportunities, into situations where they could be sexually harassed or assaulted and then, Weinstein and the Weinstein Sexual Enterprise would allegedly silence the women’s accusations of wrongdoing by blacklisting or threatening to blacklist them. Hence, the plaintiffs must prove to the court that Weinstein’s actions were the reason, or at least primary reason, for their losing an acting part or a job, and that but-for this conduct, the plaintiffs would have been hired for the jobs.

Conclusion

Although the strict requirements of civil RICO claims cause inherent obstacles for many plaintiffs, this is not to say these claims lack merit. These obstacles to plaintiffs can be overcome by focusing heavily on the common issues that cause civil RICO complaints to be dismissed. With careful early planning and analysis of facts, plaintiffs could bring and establish successful RICO claims. In these instances, defendants should proceed with caution towards the potential devastation they could face at trial.

For Weinstein, the outcome remains uncertain. Judge Alvin Hellerstein, a senior U.S. District Judge and Clinton-appointee, has ordered all defendants to respond to the class action complaint by no later than Feb. 20, with no requests for extensions to be considered. As is the case in virtually every civil RICO case, motions to dismiss will likely be filed. A proposed class action with RICO claims will be a complex, lengthy and expensive process. The outcome remains to be seen but will be an interesting one to follow.

Reprinted with permission from the January 25th edition of “The Legal Intelligencer”© 2018 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.

Mathews is named to the list for his distinguished contributions to the practice area of commercial litigation. Commercial litigation involves any type of dispute that can arise in the business context, including breach of contract cases, SEC and NASD claims, class actions, business torts, civil RICO claims, breach of fiduciary duty allegations, and shareholder issues. Successful commercial litigators, such as Mathews, are able to assess the merits of a dispute and scale either a prosecution or defense that fits the legal and business needs of their clients.

Best Lawyers was founded in 1983 and is published in 70 countries and all 50 states. Its methodology employs a sophisticated, conscientious, rational, and transparent survey process designed to elicit meaningful and substantive evaluations of the quality of legal services. The 24th edition of The Best Lawyers in America highlights the top 5% of practicing attorneys in the United States, based on more than 7.4 million evaluations, recognizing attorneys in 140 practice areas.