Commercial Litigation and Arbitration

RICO — Concrete Injury — Intracorporate Conspiracy Doctrine

The RICO complaint was dismissed on multiple grounds in District 1199P Health & Welfare Plan v. Janssen, LP, 2008 U.S. Dist. LEXIS 10352 (D.N.J. Dec. 23, 2008). The basic claim was that the defendants deceptively marketed a more expensive drug (Risperdal) for off-label uses that could have been more cheaply, and equally effectively, accomplished by less expensive drugs. The plaintiffs were third-party payors who claimed they paid more than they should have had to, to achieve the same benefits for the patients. Among the interesting holdings:

[Overpayment for Effective Drug Insufficiently Concrete Injury.]Defendants assert that Plaintiffs' allegations of "overpayment" are insufficient to constitute a RICO injury, where Plaintiffs seek recovery solely for an alleged economic loss, on the theory that alternative medications might have been at least as effective and cheaper than Risperdal. Defendants argue that Plaintiffs fail to allege that their beneficiaries, insured, or employees received an ineffective medication or that Risperdal physically harmed them, but rather concede that Risperdal was safe and effective. Thus, according to Defendants, Plaintiffs' purported injury, based on paying too much for a safe and effective medication, is plainly speculative and not a "concrete financial loss" cognizable under RICO. See [Maio v. Aetna, Inc. , 221 F.3d 472, 483-84 (3d Cir. 2000)]. Indeed, in Maio..., the Third Circuit found that the plaintiffs failed to allege the facts necessary to support their assertion that they suffered a cognizable injury to business or property due to the alleged inferiority of the product received as compared to the product the defendants promised to deliver because the plaintiffs did not allege that they suffered any medical injuries, received inadequate or inferior care, or sought but were denied necessary care as a consequence of the defendants' plan. Id. at 501.


Similar to Maio, in the instant case, Plaintiffs categorize their "concrete financial loss" as overpaying for Risperdal for off-label uses due to Defendants' allegedly fraudulent and deceptive marketing practices, which inflated the number of prescriptions of Risperdal written and filled and increased Plaintiffs' co-payments and out-of-pocket costs.... Plaintiffs plead that they overpaid for Risperdal because it was "neither more effective nor safer than older typical antipyschotics." ... In addition, Plaintiffs plead that "the efficacy of all [second generation antipyschotics] is similar" and that none of the second generation antipyschotics are superior in efficacy to the cheaper older typical antipyschotics. Id. In that regard, Plaintiffs plead that they were injured by their "economic loss," which is "unaffected by whether any given patient ingested Risperdal or suffered adverse side effects." ... This is substantially similar to the Maio plaintiffs' argument of overpayment; in that, the "difference in value between the [drug] promised and the [allegedly "inferior" and less valuable drug] actually received." Maio, 221 F.3d at 486. Yet, according to Third Circuit precedent, Plaintiffs' injury theory based on financial losses of overpayment that Plaintiffs purportedly sustained by paying for this "inferior" drug is inadequate for sustaining a RICO injury, absent allegations that Defendants' drug was on some level "inferior and therefore 'worth less' than what [Plaintiffs] paid for it." ...

...[N]owhere do Plaintiffs allege that any beneficiaries, insured, or employees taking Risperdal "received [an] inadequate[or] inferior [drug] or even worse, suffered personal injuries as a result of" Defendants' alleged misrepresentations. Maio, 221 F.3d at 488.

Furthermore, Plaintiffs do not plead that Risperdal is inferior to competitor drugs.... Applying Maio, ... merely stating that Risperdal is "equally effective," "no . . . more effective," or "neither more effective nor safer," all of which imply that it is no less effective or safe, is not a sufficient pleading of inferiority to sustain Plaintiffs' RICO injury. See 221 F.3d at 488 (finding that without pleading denial of benefits, inadequate, inferior or delayed treatment, or actual injury, "there is no factual basis for appellants' conclusory allegation that they have been injured in their 'property' because the health insurance they actually received was inferior and therefore 'worth less' than what they paid for it”).... In addition, where no additional pleading of injury is alleged, Plaintiffs' allegations that there are more "cost-effective" alternatives do not meet the required pleading of overpayment as a concrete financial loss. See Maio, 221 F.3d at 488.

[Intracorporate Conspiracy Doctrine Among Parent & Subsidiary Under § 1962(d).] Neither the Supreme Court nor the Third Circuit has expressly decided whether RICO, § 1964(d), permits claims of intra-corporate conspiracy, or whether a corporation may conspire with its wholly owned subsidiaries. Federal courts within this Circuit disagree about whether the Third Circuit, in Shearin, held that a corporation could conspire with its wholly owned subsidiaries under § 1962(d) to violate § 1962(c) of RICO. [Citations omitted.] ... This Court finds that Shearin did not address the issue of whether a corporation and its subsidiaries may conspire to commit a violation of § 1962(d) of RICO and that it remains an open issue in this Circuit.


Other federal circuit courts also disagree about whether RICO permits intra-corporate conspiracies. See Fogie v. THORN Americas, Inc., 190 F.3d 889, 898 (8th Cir. 1999);17 Webster v. Omnitrition International, Inc., 79 F.3d 776, 787 (9th Cir.), cert. denied, 519 U.S. 865 (1996);18 Ashland Oil, Inc. v. Arnett, 875 F.2d 1271, 1281 (7th Cir. 1989). 19 Since the law in this area of RICO is unsettled, district courts have looked to antitrust cases for guidance. See, e.g., In re National Mortgage Equity Corp. Mortgage Pool Cert. Sec. Litig., 636 F. Supp. 1138, 1156 (C.D. Cal. 1986). The Supreme Court has clearly held that under the Sherman Act, 15 U.S.C. § 1, a parent company and its wholly owned subsidiary are incapable of conspiring with each other. See Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 776-77 (1984). In Copperweld, the Court determined that "[a] parent and its wholly owned subsidiary have a complete unity of interest. Their objectives are common, not disparate; their general corporate actions are guided or determined not by two separate corporate consciousnesses, but one." Id. at 771. As the parent and subsidiary always have a "unity of purpose or a common design," Id. , the Court held that parent corporation and its wholly owned subsidiary are incapable of conspiring with each other for purposes of § 1 of the Sherman Act. Id. at 777.

[Footnote 17.] The Eighth Circuit determined where the plaintiffs alleged that the only participants in the conspiracy were the parent corporation and its wholly owned subsidiaries, the plaintiffs "fail[ed] to allege a conspiracy, because as a matter of law a parent corporation and its wholly owned subsidiaries are legally incapable of forming a conspiracy with one another." Fogie v. Thorn Americas, Inc. , 190 F.3d 889, 898 (8th Cir. 1999). Applying Copperweld's principle that "[i]n any conspiracy, two or more entities that previously pursued their own interests separately are combining to act as one for their common benefit," 467 U.S. at 769, the Fogie court found that the identical conclusion was required when it is applied to alleged parent-subsidiary RICO civil conspiracies. Fogie, 190 F.3d at 898. In Fogie, the court stated that an alleged conspiracy between a parent and a subsidiary lacks this crucial element because these entities "have a complete unity of interest." Id. The Eighth Circuit criticized the Seventh and Ninth Circuits for failing "to explain why, when two entities are under common control and there is no distinctiveness or independence of action, an agreement or understanding between them creates any of the special dangers § 1962(d) targets." Id.

[Footnote 18.] The Ninth Circuit, relying on the Seventh Circuit's decision in Ashland Oil, Inc. v. Arnett, 875 F.2d 1271 (7th Cir. 1989), extended § 1962(d) liability to a wholly intra-corporate conspiracy. See Webster v. Omnitrition International, Inc., 79 F.3d 776, 787 (9th Cir.), cert. denied, 519 U.S. 865 (1996).

[Footnote 19.] The Seventh Circuit distinguished the Supreme Court's holding that a parent corporation could not conspire with its wholly-owned subsidiary for purposes of § 1 of the Sherman Act, as a barrier for relief in RICO claims "because the Sherman Act is premised, as RICO is not, on the 'basic distinction between concerted and independent action.'" Haroco, Inc. v. American Nat. Bank and Trust Co. of Chicago, 747 F.2d 384, 403 n. 22 (7th Cir. 1984) (citing Copperweld, 104 S.Ct. at 2740-44), cert. granted, 469 U.S. 1157, 105 S. Ct. 902, 83 L. Ed. 2d 917 (1985), aff'd on other grounds, 473 U.S. 606, 105 S. Ct. 3291, 87 L. Ed. 2d 437 (1985). Further, in Haroco, the court stated that "[t]he policy considerations discussed in Copperweld[] therefore do not apply to RICO, which is targeted primarily at the profits from patterns of racketeering activity." Id. The Seventh Circuit determined that the Sherman Act's theoretical "community of interest" that causes a parent and subsidiary to pose "no threat to the goals of antitrust law-protecting competition" differs from RICO conspiracies because "intracorporate conspiracies do threaten RICO's goals of preventing the infiltration of legitimate businesses by racketeers and separating racketeers from their profits." Ashland Oil, Inc. v. Arnett, 875 F.2d 1271, 1281 (7th Cir. 1989) (citing Russello v. United States, 464 U.S. 16, 26-28 (1983)). The Eighth Circuit criticized the Seventh Circuit's findings because its "recent decisions regarding intracorporate liability under § 1962(c) . . . appear to undercut the conclusions it reached in Ashland Oil. " Fogie, 190 F.3d at 897 n. 4 (noting that "[m]ore recently . . . the Seventh Circuit has indicated that related business entities may not serve as both the person and enterprise).

[Intracorporate Conspiracy Among Corporation and Employees.]The majority of courts within this Circuit agree that a corporation cannot conspire with its agents and/or employees under § 1962(d) of RICO. See, e.g., Castle v. Crouse, No. 03-5252, 2004 WL 257389, at *6 (E.D. Pa. Feb. 11, 2004) (concluding that a corporate entity cannot conspire with its employees); Hughes v. Technology Licensing Consultants, Inc., 815 F. Supp. 847, 851 (W.D. Pa. 1992) ("The majority rule is that conspiracy cannot lie against the corporate entity for the concerted action of its employees who violate RICO on its behalf."); Satellite Fin. Planning Corp. v. First Nat'l Bank of Wilmington, 633 F. Supp. 386, 405 n. 23 (D. Del. 1986) (finding parents and subsidiaries "can conspire in violation of RICO no more than they [can] for antitrust purposes"). Contra Brokerage Concepts, Inc. v. U.S. Healthcare, Inc., No. 95-1698, 1996 WL 135336, *5 (E.D. Pa. Mar. 19, 1996) ("a RICO conspiracy can exist between a corporation and its agents or employees"); Curley, 728 F. Supp. at 1135 (recognizing intra-corporate conspiracies under RICO). An alleged intra-corporate conspiracy comprised solely of a corporation acting in concert with its officers and employees should not be considered as involving separate actors conspiring under the law. See Emcore Corp. v. PricewaterhouseCoopers LLP, 102 F. Supp. 2d 237, 266 (D.N.J. 2000). The decision that a RICO conspiracy claim cannot stand where a corporation is alleged essentially to have done nothing more than act in concert with its officers and employees, stems from the premise that "[a] corporation, legally conceived, is only one person" under RICO. See Id. These courts generally agree that an exception to the rule against intra-corporate conspiracies exists where the employees act in pursuit of their own interests and not for the benefit of the corporation. See Castle, 2004 WL 257389, at *6 (internal citations omitted). Thus, only where the plaintiff alleges something more than a corporation acting in concert with its officers and employees, can a RICO conspiracy claim proceed.

The inquiry of whether a parent corporation is capable of conspiring with its wholly owned subsidiary for purposes of violating § 1962(d) of RICO is similar to that of whether a parent can conspire with its subsidiaries under § 1 of the Sherman Act or whether a corporation can conspire with its agents and/or employees under § 1962(d) of RICO. In all three scenarios, where an intracorporate conspiracy is alleged, the two conspiring entities are but one. The parent and its wholly owned subsidiary share a complete unity of interest, with common objectives. See Copperweld, 467 U.S. at 771. Similarly, a corporation typically acts in concert with its officers and employees, as one legal person, with similar goals. See Emcore, 102 F. Supp. 2d at 266. Thus, a parent corporation cannot conspire with its wholly owned subsidiary to violate § 1962(d) of RICO because the two entities always have a "unity of purpose or a common design." Copperweld, 467 U.S. at 777. There is a recognized exception, as pointed out above, in the case where a plaintiff alleges that the employees acted in pursuit of their own interests and not for the benefit of the corporation, or there is an allegation that entities no longer act as one and thus may be considered separate actors under the law. See Id.; Castle, 2004 WL 257389, at *6. Therefore, to state a claim under § 1962(d), where a parent corporation has allegedly conspired with its wholly owned subsidiary, there must be some additional allegation, e.g., that the subsidiary was fraudulently created to accomplish the racketeering activity. See, e.g., Shearin, 885 F.2d at 1166-67. That has not been done here.

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