RICO & Manufacturers: When Can Companies Be Held Liable for Racketeering?

Imagine discovering that a product you trusted, manufactured by a reputable company, was not only defective but was knowingly marketed to you under false pretenses. This isn’t just a matter of product liability; it could potentially open the door to a claim under the Racketeer Influenced and Corrupt Organizations (RICO) Act. While RICO is often associated with organized crime, its application has broadened, and manufacturers are not immune. In fact, a growing trend among plaintiffs is to pursue claims against businesses under the RICO Act, a federal statute originally designed to combat organized crime. According to the U.S. Department of Justice, in December 2020, an indictment was reported against 40 people in the largest federal racketeering case in South Carolina history. But how can a manufacturer be held liable under RICO, and what does it take to prove such a claim?

Understanding RICO

The Racketeer Influenced and Corrupt Organizations (RICO) Act was enacted in 1970 with the primary goal of combating organized crime. [12, 15] It provides both criminal penalties and civil remedies for acts performed as part of an enterprise engaged in racketeering. [1] Racketeering activity, as defined under RICO, includes a wide range of offenses, referred to as “predicate acts.” These acts can include, for example, bribery, extortion, fraud, money laundering, and a variety of other state and federal crimes. [26]

The Expansion of RICO to Product Liability

Traditionally, product liability claims focus on proving that a manufacturer placed a defective product into the stream of commerce, causing harm to the plaintiff. [2] However, some plaintiffs’ attorneys are now attempting to leverage RICO in product liability cases, arguing that a manufacturer’s knowledge of a product’s defect, combined with continued production and sale, constitutes a pattern of mail and wire fraud. [2]

One theory suggests that a product sold with a defect is not worth as much as it would have been without the defect. [1] Plaintiffs argue they suffer a RICO injury due to the lost expectation of receiving a product that would perform in a certain manner. [1]

How Manufacturers Can Be Held Liable

For a manufacturer to be held liable under RICO, several elements must be proven:

Existence of an Enterprise: There must be an “enterprise,” which can be a corporation, partnership, association, or even a group of individuals working together for a common purpose. [8, 9, 12] The enterprise doesn’t need to be illegal itself; a legitimate business used as a front for racketeering can qualify. [12]
Pattern of Racketeering Activity: This requires at least two “predicate acts” of racketeering activity within a ten-year period. [8, 9, 12, 15, 17] These acts must be related and demonstrate a threat of continued illegal activity. [12, 18] Predicate acts often alleged against manufacturers include mail fraud and wire fraud. [2, 8, 12]
Participation in the Enterprise: The defendant must have actively participated in or conducted the affairs of the enterprise’s racketeering activity. [8, 12] Mere association isn’t enough; the defendant must have played a role in directing or managing the illegal conduct. [12]
Causation: The plaintiff must demonstrate a direct causal relationship between the defendant’s participation in the enterprise and their injury. [8, 20] This requires showing that the defendant’s racketeering activity was a proximate cause of their harm. [8, 20]
Injury to Business or Property: The plaintiff must prove they suffered an injury to their business or property as a result of the RICO violation. [8, 11, 21] This could range from financial losses and damage to business reputation to other tangible harm. [8]

Predicate Acts: Mail and Wire Fraud

Mail and wire fraud are the most common predicate acts alleged in RICO claims against manufacturers. [2, 13] To prove mail or wire fraud, a plaintiff must show that the manufacturer:

Devised a scheme to defraud. [2, 8, 12]
Used the mail or wires (e.g., phone, internet) to further the scheme. [2, 8, 12]
Acted with the intent to defraud. [9]

For example, if a manufacturer knowingly conceals a defect in a product and uses the mail or internet to market and sell the product, they could be liable for mail and wire fraud. [2, 11]

The Importance of “Pattern”

A key element of a RICO claim is the “pattern of racketeering activity.” [8, 9, 12, 15, 17] This means the plaintiff must show that the manufacturer engaged in at least two related predicate acts within a ten-year period. [8, 9, 12, 15, 17] The acts must be related and demonstrate a threat of continued criminal activity. [12, 18]

Isolated incidents of fraud are not enough to establish a pattern. [16, 20, 22] The plaintiff must show that the manufacturer engaged in a series of related fraudulent activities over a period of time. [16, 20, 22]

Defenses to RICO Claims

Manufacturers facing RICO claims have several potential defenses available:

Challenging the “Enterprise” Element: Demonstrating that the alleged enterprise does not meet the structural requirements under RICO. [20]
Absence of a Pattern: Arguing that the alleged acts are isolated incidents and do not constitute a pattern of racketeering activity. [16, 20]
Lack of Evidence: Arguing that the evidence presented is insufficient or unreliable. [16]
Statute of Limitations: RICO claims have a statute of limitations, typically four years, which begins when the plaintiff discovered or should have discovered the injury. [3, 4, 5, 6, 7, 10, 21]
Preemption: Arguing that the RICO claim is preempted by other federal laws. [10, 20]
Causation: Challenging the causal link between the defendant’s actions and the alleged injuries. [8, 20]

The Statute of Limitations

Civil RICO claims are subject to a statute of limitations. [3, 4, 5, 6, 7, 10, 21] The Supreme Court has determined that the statute of limitations for civil RICO actions is four years. [5, 6, 7] This period typically begins when the plaintiff discovers or should have discovered the injury. [4, 5, 6, 10, 21]

Why File a RICO Claim?

A successful RICO claim can result in significant damages for the plaintiff. [1, 2, 12, 17, 21, 23] RICO allows for the recovery of treble damages, meaning three times the amount of actual damages. [1, 2, 12, 17, 21, 23] Plaintiffs may also be able to recover attorney’s fees and litigation costs. [1, 2] In addition, a RICO claim can provide a plaintiff with broader discovery options and the ability to join defendants from multiple jurisdictions. [11]

Recent Developments

The Supreme Court has opened the door to civil RICO claims arising from personal injury. [11] In Medical Marijuana, Inc. v. Horn, the Court held that plaintiffs can bring a civil RICO claim if they suffered a business or property harm, even if that harm is the result of a personal injury. [11] This ruling could have major consequences for product sellers and manufacturers, exposing them to RICO liability for conduct that once gave rise to typical state-law claims. [11]

Navigating the Complexities of RICO

RICO claims are complex and require a thorough understanding of the law and the facts. [10, 20, 21] Manufacturers facing potential RICO liability should consult with experienced legal counsel to assess their risk and develop a comprehensive defense strategy. [2, 20, 21] By staying informed and proactive, companies can protect their businesses and operations from the potentially devastating consequences of a RICO lawsuit. [2]

Advice

If you believe you have been harmed by a manufacturer’s racketeering activity, it is crucial to seek legal advice from an attorney experienced in RICO litigation. They can evaluate your case, explain your legal options, and help you pursue the compensation you deserve.

Disclaimer: This blog post is for informational purposes only and does not constitute legal advice. You should consult with an attorney to discuss your specific legal situation.