RICO — In Pari Delicto As a Cognizable Defense to a Civil RICO Claim

From Rogers v. McDorman, 2008 U.S. App. LEXIS 5748 (5th Cir. March 18, 2008):

Congressional Silence No Bar. “Directors argu[e] ... that interpretations of RICO begin and end with the statute's text, which does not mention the defense; and that, as civil RICO liability turns on committing criminal RICO acts, principles of criminal jurisprudence should apply to civil RICO defenses and in pari delicto would not be a defense to a criminal RICO claim. [N]either civil RICO's textual silence nor its relationship with the criminal provisions is alone determinative of its contours.... For example, although civil RICO does not provide for a statute of limitations, the Supreme Court nevertheless held that civil RICO claims are subject to a four-year statute of limitations..... The Supreme Court has also explained that different concerns underlie civil and criminal RICO. In rejecting the argument that criminal RICO's five-year statute of limitations should apply to civil RICO claims, the Court noted that the ‘“catchall” federal 5-year statute of limitations for criminal RICO actions does not reflect any congressional balancing of the competing equities unique to civil RICO actions or, indeed, any other federal civil remedy.’”

Eleventh Circuit Analysis Adopted. “The Eleventh Circuit [in Official Comm. of Unsecured Creditors of PSA, Inc. v. Edwards, 437 F.3d 1145, 1152-56 (11th Cir.), cert. denied, Laddin v. Reliance Trust Co., 127 S. Ct. 45 (2006)]... began by analyzing the Supreme Court's decisions in Bateman Eichler, Hill Richards, Inc. v. Berner and Perma Life Mufflers, Inc. v. International Parts Corp., which considered the applicability of in pari delicto to securities and antitrust claims, respectively. Although the Court held that the defense was unavailable in each case, it was concerned that the defense would be used to defeat claims by persons who were not active participants in the violation of federal law. Perma Life Mufflers did not foreclose a defense to an antitrust claim based on a plaintiff's ‘truly complete involvement,’ and Bateman Eichler explicitly recognized that in pari delicto could be available in the securities law context. The Eleventh Circuit, therefore, concluded that in pari delicto could apply to federal statutory claims, and derived the following guidance for its application:

Under Perma Life Mufflers and Bateman Eichler, the application of the defense of in pari delicto to causes of action created by federal statutes depends on two factors: (1) the plaintiffs' active participation in the violation vel non and (2) the policy goals of the federal statute.

“The court then held that in pari delicto could apply to a civil RICO claim. The court explained that the plaintiff was not a passive participant in the fraudulent scheme giving rise to the lawsuit, but an active one. As the court noted, ‘[b]ecause federal RICO violations, as a matter of law, require affirmative wrongdoing rather than passive acquiescence, Perma Life Mufflers does not preclude the defense of in pari delicto in the RICO context.’ *** We are persuaded by the Eleventh Circuit, adopt its analysis, and therefore hold that in pari delicto is a cognizable defense to a civil RICO claim.”

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