Commercial Litigation and Arbitration

Civil RICO — Mail Fraud — Reliance / Inadequate Notice of Appeal

Must a civil RICO plaintiff alleging mail or wire fraud plead reliance by the plaintiff on the fraudulent representations? Two of the three judges on the panel in Brown v. Cassens Transport Co., 2007 U.S. App. LEXIS 16255 (6th Cir. July 10, 2007), thought the right answer was "No," yet the Court's ruling was "Yes." The panel considered that Sixth Circuit precedent dictated this result (on a 2 to 1 holding), paving the way for an en banc determination. The question whether a civil RICO plaintiff relying on mail or wire fraud must allege reliance on the fraudulent representations or omissions is issue that divides the Circuits. Some Circuits reject a reliance requirement. See, e.g., Systems Mgmt., Inc. v. Loiselle, 303 F.3d 100 (1st Cir. 2002) (civil RICO "does not require 'reliance' by anyone" on a mail or wire fraud). Others that recognize a reliance requirement have held that reliance by a third party satisfies it. See, e.g., Procter & Gamble Co. v. Amway Corp., 242 F.3d 539 (5th Cir. 2001). It is difficult to see why anything more than 28 U.S.C. § 1964's proximate cause requirement is necessary. Criminal mail and wire fraud do not require reliance. The difference between civil and criminal RICO is § 1964. Imposing a reliance requirement in civil RICO cases seems to be a needless embellishment of § 1964, of precisely the sort that the Supreme Court has consistently swept away.

RICO aside, the Brown opinion demonstrates the critical importance of an uncabined notice of appeal. Plaintiffs urged on appeal that they could have alleged reliance by third parties (which they argued should suffice) and sought to challenge the District Court's denial of their motion for leave to file an amended complaint. But their notice of appeal made no mention of the order denying leave to amend and was limited by its terms to the order granting the defendants' motions to dismiss. Moral of the story: appeal everything. If it's not in the notice of appeal, it's nowhere.

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