One aspect of litigation that is usually missing from the lawyer shows is the sheer volume of time spent arguing over tangential issues that are critical to what the rules say the parties can do/say/get in court, but are themselves only loosely correlated to the extent of the defendant's guilt. You spend months fighting over whether the plaintiff’s headquarters are really in that office and not that office, because then they reside in that state and can’t bring their claims in this court. You spend weeks trying to get complete discovery on this guy’s lunch break privileges because it might make him an “employee” and not a “contractor” so then you can impute his actions to his employer and use that to bring this other company into the case.
A law you may have heard of, the RICO Act, at least on the civil side, practically exists in 2016 solely to create these stupid fights. I hate the RICO Act. (Note: From here on out, a lawyer might fairly quibble that I'm glossing over some big caveats and limitations when I discuss this law. To an extent I am, but I think I'm capturing the essence of the issue for a layperson.)
In 1967, the Presidential Commission on Law Enforcement and Administration of Justice, established two years prior by President Lyndon Johnson, published their landmark study, The Challenge of Crime in a Free Society.
Among the many topics discussed in the report was the danger of organized crime, an issue that had first come to public awareness in the 1950s. The report stated that while “[t]he core of organized crime activity” was in supplying vices like gambling, loan sharking, and narcotics, “organized crime is also extensively and deeply involved in legitimate business and in labor unions,” using illegitimate methods like “monopolization, terrorism, extortion, [and] tax evasion to drive out or control lawful ownership and leadership to exact illegal profits from the public.” Further, “to carry out its many activities secure from government interference, organized crime corrupts public officials.”
To make it easier to prosecute criminal leaders who kept their hands off the blue-collar crimes, the report recommended stiffer penalties for felonies “committed as part of a continuing illegal business” where the defendant occupied a supervisory or other management position. Shortly thereafter, several bills were introduced in the Senate to carry out this recommendation. After several revisions, amendments, and updated bills, the president signed Senate Bill 30 – the Racketeer Influenced and Corrupt Organizations Act of 1970.
The RICO statutes make it a felony to
(a) use any money received “from a pattern of racketeering activity or through collection of an unlawful debt” to acquire an interest in, establish, or operate an enterprise that engages in interstate commerce(i.e., use money from your extortion racket to open a “legitimate business”);
(b) acquire or maintain control of a business“through a pattern of racketeering activity or through collection of an unlawful debt” (i.e., take over a business by threatening to kill the owners or by calling in illegal gambling debts);
(c) conduct or participate “in the conduct of [an] enterprises’ affairs through a pattern of racketeering activity or collection of unlawful debt” (i.e., use the “legitimate business” as a front to commit crimes); and
(d) conspire to do any of the above.
Like many other laws addressing crimes against the public, the RICO Act created a private right of action for any victim harmed by a RICO violation, entitling them to recover “threefold the damages he sustains and the cost of the suit, including a reasonable attorneys fee.”
This is where shit starts going off the rails.
RICO was designed to target mobsters and gangsters who take over businesses, but very quickly that purpose was tossed aside. While “Congress viewed RICO principally as a tool for attacking the specific problem of infiltration of legitimate business by organized criminal syndicates . . . . Few notable RICO prosecutions have dealt directly with this sort of criminal activity.” Gerard E. Lynch, "Rico: The Crime of Being a Criminal," Columbia Law Review, 87 Colum. L. Rev. 661, May 1987. Instead, most criminal RICO prosecutions “have been directed at the operations of illegitimate criminal enterprises themselves.”
What Lynch is talking about is the way prosecutors have mostly ignored prongs (a) and (b) – the ones about using dirty money or muscling into a business -- to focus on prong (c), which is about running the business like a gangster. Because RICO was originally meant to attack mob takeovers of ostensibly legal commerce, it was basically written to say, “it’s now a felony to take over and run a legitimate business like criminals.” But in practice, prosecutors wield subsection (c) by finding a criminal organization and saying, “Hey, your criminal organization is committing a bunch of crimes. You’re guilty of committing those crimes, you're guilty of conspiring to commit those crimes, and you're guilty of the crime of using your criminal organization to commit those crimes.” As another writer put it, "RICO acts as an arbitrary penalty enhancer and prosecutorial bargaining tool. A violation of RICO is a crime of convenience—for prosecutors, that is." William L. Anderson & Candice E. Jackson, "Law as a Weapon How RICO Subverts Liberty and the True Purpose of Law," The Independent Review (Summer 2004). (Quick aside, I think this is a great quote but these are horrible fucking people. The Independent Review is a libertarian mouthpiece and Jackson used to be litigation counsel at Judicial Watch, who are just the fucking worst. I presume Anderson sucks as well. They can all go fuck themselves with a rusty hammer. But I do like that quote.)
While the pile-on of charges is familiar in criminal court, on the civil side these things can be game changers. Treble damages is a huge cudgel – it’s no picnic seeing your $27 million liability jump up to $80 million. And the fee-shifting provision means that if plaintiffs can successfully plead a RICO claim, their lawsuit becomes free – an entrepreneurial plaintiffs firm might try to make some cash on you by soliciting some clients, taking a shot, and seeing if they can get their time paid back.
Keep in mind that in modern RICO cases we’re not talking about Sammy the Bull breaking kneecaps. We’re talking about run-of-the-mill business or consumer torts. And while in your mind you might be thinking, "What do I care if BP or whoever has to pay more damages, fuck 'em," anyone might be subject to a lawsuit; every day, big businesses, small businesses, bad people, good people, and okay people find themselves on the business end of a civil complaint.
What’s maddening here is that plaintiffs might get a triple payout not because they proved the defendant was three times as bad or did something three times worse, but because they were able to check the boxes on a cause of action created by statute: returning to subsection (c) above, if you can show the defendant was employed/associated with an “enterprise,” and that the defendant “conducted” this enterprise “through a pattern of racketeering activity,” you’ve pled a RICO claim and you're in the money.
The “pattern of racketeering” element is relatively easy to satisfy. Two of the crimes defined as “racketeering activity” are federal mail fraud and wire fraud, which criminalize using the the mail or wires (i.e., TV, phones, Internet) “for the purpose of executing [a] scheme or artifice [to defraud].” If you’re accusing someone of something in 2016, it’s pretty likely they used a phone or an email at some point in the course of things, and it’s pretty likely they did so twice, some time apart. But if not, there’s a host of other transgressions to choose from.
As for the remaining question -- did the defendant “conduct” a “enterprise”? -- these arguments might not be as straightforward as what you imagine from the plain English definitions of the words. To “conduct” an enterprise does not mean be the boss, but rather requires only that you “participate in the operation or management of the enterprise itself,” with some degree of direction over the affairs of the enterprise. Reves v. Ernst & Young, 507 U.S. 170 (1993). This includes “lower rung participants in the enterprise who are under the direction of upper management.” Id. Courts have said that low-level operators could conduct an enterprise by “knowingly implementing decisions, as well as by making them." United States v. Oreto, 37 F.3d 739, 750 (1st Cir. 1994). You don't need to prove that the defendant's running the show, showing he's the prop manager is fine.
Regarding the existence, an “enterprise," here things have gotten their most vague. Over time, the meaning of the term “enterprise” drifted away from the original conception of an established organization to become simply “a continuing unit that functions with a common purpose." Boyle v. United States, 129 S. Ct. 2237 (2009). All an enterprise needs to exist is (1) "a purpose," (2) "relationships among those associated with the enterprise," and (3) "longevity sufficient to permit these associates to pursue the enterprise's purpose.” Id.
As you can imagine, this broad, definition has led to “enterprises” being found in some decidedly non-mafia situations. As The Economist wrote last year, recent civil RICO suits have spanned
from cases against firms involved in the Gulf of Mexico oil spill, or in hiring immigrant labor (brought by domestic workers alleging immigration fraud that threatens their jobs and amounts to racketeering), to a case in which a group of Atlanta teachers and school administrators received sentences of up to seven years for test-score manipulation. Sheldon Whitehouse, a U.S. senator, has suggested using RICO to charge fossil-fuel companies and climate-change deniers, on the ground that they are engaged in a conspiracy of lies. If that seems a stretch, RICO has been used against senior Catholic clergymen over sex abuse committed by their priests.
"Business and Law: Taking the Gangster Rap," The Economist (Aug. 7, 2015)
For example, in Odom v. Microsoft Corp., 486 F. 3d 541 (9th Cir. 2007), the court found the plaintiffs could plead a RICO “enterprise” where Microsoft and Best Buy launched a joint a marketing program, through which customers at Best Buy were automatically enrolled into a recurring MSN account. Just that marketing agreement, and the interactions between the two companies, was an "enterprise" under the law.
Think about that for a second. The finding of whether an an “enterprise” existed turned on a handful of facts, such as that the defendants had an “ongoing organization” because they set up a computer system to automatically transmit consumers’ contact information for enrollment. At the core, this does not make sense to me: auto-enrollment is a shitty business practice, and an example of unfair competition, but should Microsoft and Best Buy face triple liability because they set up a persistent transmittal link rather than proceeding ad hoc? It’s a fact that’s orthogonal to the harm the actually did.
The RICO Act has drifted too far from its moorings. It was a law intended to catch gangsters, and it’s become a booby prize to be chased after for settlement leverage, tripling damages because of the existence of factors that are only tangentially related to the level of the wrong or the depth of the harm. It’s time for a revision.