The Racketeer Influenced and Corrupt Organizations Act (RICO) was enacted in 1970. This statute, part of the Organized Crime Control Act of 1970, is designed to prevent and punish “racketeering activity.” RICO was aimed at mobsters and organized criminals. However, I’ve used the RICO statutes very effectively in lawsuits involving fraud by business people.
RICO is a Potent Litigation Weapon
The statute authorizes any person injured by a violation of the section describing unlawful activity (18 USC § 1962) to sue and recover treble damages, costs, and attorneys’ fees. For those of you who have litigated to a victory only to find out that the American Rule precludes you from recovering the attorneys’ fees you spent to win your case, adding a RICO claim can add tens if not hundreds of thousands of dollars to your award. On top of that, treble damages is a form of punitive damages. As a result, if your damages are, for example, $300,000, under RICO you could win $900,000. Indeed, RICO is a powerful tool.
How Our Clients Have Benefited From RICO Claims
One would be surprised to know that very few business litigators have a working knowledge of RICO and, as a consequence, they almost never add a RICO claim to their lawsuit.
Contracts Without Recovery of Fees, No attorneys’ Fees Statute
In one case, my client was a minority shareholder in a small corporation. The defendant (who was the majority shareholder) owned several other corporations, and he paid the expenses of his other corporations using my client’s corporation’s checks. In other words, he stole from my client’s company, and he was able to easily conceal his activities because, on the surface, when my client looked at the corporation’s accounting records, he saw that the money was used for “expenses.” My client did not know the “expenses” were lining his partner’s pockets with what should have been my client’s share of profits.
Normally, my client would have no right to recover his attorneys’ fees in this case because he had no contract that provided for recovery of fees, and no attorneys’ fees statute applied. Without a chance to recoup his litigation expenses, this case would have been a tough one to prosecute because the damages were only around $100-200K, and attorneys’ fees could easily – and actually did – surpass the damages, making any victory a net loss.
Not here. I added a RICO claim to our lawsuit. We won. The court trebled (tripled) my client’s damages and added all of his attorneys’ fees (over $200,000). It was a great victory.
Reimbursement of ALL Attorneys’ Fees
Even the smallest cases can be satisfying victories because of RICO. Another client invested $200,000 in gold coins. After wiring the money to the gold coin vendor in Southern California, the vendor refused to deliver the gold or return my client’s money. We were forced to sue. After I obtained an immediate pre-judgment injunction freezing the vendor’s assets, the vendor sent a check for the $200,000 to settle the case. However, it cost my client $25,000 to get to that stage, and I insisted on reimbursement of all attorneys’ fees based solely on our RICO claim. After some lawyerly arguing, and with the threat that we would not accept the $200,000 because RICO gave us the opportunity to win $600,000, the defendant paid every penny in attorneys’ fees. This result never would have happened without a RICO claim.
RICO Suitable for Victims of Business Fraud
With the exception of one lawyer, I never see lawyers include a RICO claim – even when I believe it could apply. Because RICO was designed to get real criminals and not business people who commit fraud, many courts are reluctant to allow a RICO claim to proceed. But, I’ve been able to convince courts that RICO is appropriate in business fraud cases, and I have used it as a great tool in obtaining justice for my clients.