Commercial Litigation and Arbitration

The Odds Against a Civil RICO Plaintiff: Statistics

From Gross v. Waywell, 628 F. Supp. 2d 475 (S.D.N.Y.  2009):

Not surprisingly, RICO's enchantment, like the siren's song, has again drawn another crew of spellbound plaintiffs foundering against the rocks. This outcome should come as no surprise to any counsel versed in the formidable intricacies and pitfalls inherent in RICO litigation. These challenges bear out in the minimal rate of success plaintiffs have achieved in prosecuting RICO actions. A survey of 145 appellate decisions nationwide rendered from 1999 to 2001 in connection with RICO civil actions provides hard evidence of those failed expectations. It revealed that about 70 percent of the cases were finally disposed of on defendants' motions to dismiss or for summary judgment, and that in about 80 percent of those in which the appellate Court resolved a RICO issue the ruling was favorable to defendants. See Pamela H. Bucy, Private Justice, 76 S. Cal. L. Rev. 1, 22 (2002). Of the 9.6 percent of the suits in which plaintiffs obtained a favorable verdict after a jury trial, only 25 percent of the judgments were affirmed on appeal. See id. In consequence, plaintiffs achieved a final victory in only three of 145 cases -- a or final success rate of a mere two percent.

Framed another way, the statistical record indicates that in 98 percent of the RICO appellate cases surveyed, which do not include RICO actions dismissed by the district courts but not appealed, plaintiffs and counsel invested extensive time and energies in litigation only to come away with a total loss. Arguably, in some of these actions the resources plaintiffs expended were probably far greater, and yielded poorer outcomes, than the potential corresponding outlays and results had they litigated any related common law claims in state courts.

To further examine this statistical record with more recent data, and also contrast it with a sample of RICO results at the district court level, this Court conducted a rough survey of the 145 cases filed in the Southern District of New York from 2004 through 2007 in which the complaints asserted civil RICO claims. The study revealed that of the 36 cases that to date have been resolved on the merits, all resulted in judgments against the plaintiffs. Thirty were dismissed on defendants' motions pursuant to Fed. R. Civ. P. 12(b)(6), three dismissed by the district court sua sponte for lack of merit, and three dismissed on summary judgment for the defendants. Only four of the 30 Rule 12(b)(6) dismissals were appealed and each was affirmed by Second Circuit. Two of the three dismissals on summary judgment were appealed and both were affirmed. 4 Hence, experience bears out that overwhelmingly the RICO plaintiffs' gilded vision of threefold damages and attorney's fees dispels into a mirage.


[Footnote 4] Forty-eight of the remaining 109 actions were voluntarily dismissed, 22 were transferred to another district or dismissed on procedural grounds, and 31 are still pending. Of the 48 voluntary dismissals, 11 occurred following a motion to dismiss. Oddly, the only cases in which plaintiffs achieved some measure of success are eight in which no defendant appeared and default judgments were entered. In four of these the plaintiffs obtained an award of damages that specifically referred to the RICO claims. For defendants, a lesson that may be drawn from the overall RICO litigation experience supports Woody Allen's theory that a major part of success in life is just showing up. The details of this Court's survey are contained in the Chambers file for this case.

Of course, Plaintiffs' perseverance against such heavy odds derives predominantly from RICO's prospect of treble damages and attorneys fees for the successful claimant. Litigants' general preference for proceeding in federal courts adds another consideration. Tactical and economic reasons also play a role. The terrorizing aspect of a RICO charge conjures dreadful images of the defendant's involvement in the racketeering schemes of the prototypical colorful mobsters and violent thugs who ordinarily fill the plots of organized crime. For plaintiffs seeking to score a tactical edge or to deal the heaviest possible vengeful blow to the defendant's personal reputation, shocking RICO accusations may serve to strengthen their hand or induce sooner capitulation in any settlement discussions. The extraordinary costs associated with defending complex charges may also inflict added pain and provide defendants greater incentive to curtail RICO litigation.

Ironically, the attractions that explain the magnetlike pull which induces plaintiffs into filing RICO charges also generate counter-forces that repel them. In the final analysis, these pluses and minuses point to some reasons why the incidence of favorable judgments for RICO plaintiffs is so "stunningly awful." Id. Fundamentally, as many courts and commentators have noted, RICO plaintiffs have overreached well beyond the bounds of the law's reasonable construction and fair-game litigation. RICO simply was not designed by Congress to encompass many of the creative, and even "extraordinary, if not outrageous uses" for which plaintiffs have labored the statute. Sedima, S.P.R.L. v. Inrex Co., Inc., 741 F.2d 482, 487 (2d Cir. 1984), rev'd on other grounds, 473 U.S. 479, 500 (1985); see also William H. Rehnquist, Diversity Jurisdiction and Civil RICO, 21 St. Mary's L.J. 5, 11 (1989) (noting that "civil RICO claims have been raised in actions relating to divorce, trespass, legal and accounting malpractice, inheritance among family members, employment benefits, and sexual harassment by a union."); see also id. at 9 ("Virtually everyone who has addressed the question agrees that civil RICO is now being used in ways that Congress never intended when it enacted the statute in 1970."); Sedima, 473 U.S. at 500 (recognizing that "in its private civil version, RICO is evolving into something quite different from the original conception of its enactors.").

Rather, as manifested by the references to "racketeer" and "racketeering" in the legislation act as well as by its exceptional treble damages remedy, Congress signaled that the legislation was meant as both "preventive and remedial." United States v. Turkette, 452 U.S. 576, 593 (1981). This dual purpose demonstrates a design not only to compensate victims, but also to punish and deter criminal offenses. For these purposes, RICO serves as a law enforcement tool supplementing the government's efforts to protect the general public and the common good from felonious conduct by encouraging and enlisting the civil litigation services of "private attorneys general." Agency Holdg. Corp. v. Mallev-Duff & Assocs., 483 U.S. 143, 151 (1987). Instead, experience reveals that many plaintiffs, rather than fostering RICO's mission as "private attorneys general" aiding public law enforcement, actually appear as private prospectors digging for RICO's elusive gold, and more often than not generating substantial costs rather than net gains to the public. Among other ways, the negative yield from this reality stems inherently from the gravity of RICO accusations. The more defendants in civil suits are tarnished with serious charges as racketeering criminals the more it stiffens their indignant resistance, extending the duration and thus the private and public costs of litigation, and contributing to plaintiffs' counterproductive outcomes. In significant part, the public outlays incurred accrue in the form of time and other resources courts devote to adjudicating significant numbers of meritless RICO claims that, as the numbers bear out, should never have been seriously litigated in the first place.

As this Court reads RICO's text and legislative history, as elaborated below, the act sought to strike at criminal conduct characterized by at least two consequential dimensions. The offenses must be of a degree sufficiently serious not only to inflict injury upon its immediate private victims, but also to cause harm to significant public processes or institutions, or otherwise pose threats to larger societal interests worthy of the severe punitive and deterrent purposes embodied in the statute. These aims and structure are somewhat akin to those reflected in the Clayton Act, 150 U.S.C. § 15, after which RICO civil remedies were patterned. See Agency Holding, 483 U.S. at 151 (describing the similarity of RICO and the Clayton Act, the Supreme Court noted that both "are designed to remedy economic injury by providing for the recovery of treble damages, costs, and attorney's fees. Both statutes bring to bear the pressure of 'private attorneys general' on a serious national problem for which public prosecutorial resources are deemed inadequate"); see also Sedima, 473 U.S. at 489; Genty v. Resolution Trust Co., 937 F.2d 899, 912 (3d Cir. 1991) ("Congress obviously had much more in mind than merely providing compensation for individual RICO victims when it authorized RICO civil actions. Indeed, the harm of racketeering is dispersed among the public at large, including draining resources from the economy, subverting the democratic process and undermining the general welfare.")

This construction accords with the legislative intent of RICO. As explained by the Supreme Court, the purpose of the Act was to address a problem which Congress perceived "was of national dimensions." Turkette, 452 U.S. at 586. Specifically, in the Statement of Findings and Purpose of the Organized Crime Control Act of 1970, Title IX of which encompassed RICO, Congress declared that the activities of organized crime that prompted the legislation "weaken the stability of the Nation's economic system, harm innocent investors and competing organizations, interfere with free competition, seriously burden interstate and foreign commence, threaten the domestic security, and undermine the general welfare of the Nation and its citizens." Statement of Findings and Purpose, Organized Crime Control Act of 1970, Pub. L. No. 91-452, 84 Stat. 922, 923 (1970).

Branding defendants in civil actions with searing accusations of racketeering activities and thus prolonging ill-considered litigation to promote the private interests of only one or a few victims, and in lawsuits arising from alleged fraudulent schemes limited to localized impacts and wrongful conduct far afield from the dimensions and degree of serious criminal offenses Congress had in mind as RICO violations, is bound to engender disfavor from courts and juries alike. In such circumstances, the courts' responses to litigants' efforts to stretch the contours of the law beyond reasonable bounds "emerges from a desire to make the statute make sense and have some limits." Fitzgerald v. Chrysler Corp. , 116 F.3d 225, 226 (7th Cir. 1997).

Moreover, in some cases involving related state law causes of action, improper invocation of RICO implicates a question of federalism. By filing actions in federal courts that fall short of RICO's substantive threshold, plaintiffs often seek the courts' exercise of federal jurisdiction over litigation that more properly falls within the province of state law remedies. Exercise of federal court jurisdiction in such cases, especially those that rely on nothing more than incidental use of the mails or wires in furtherance of a simple fraudulent scheme with few victims and narrow impacts, would threaten to federalize garden-variety state common law claims, and offer a remedy grossly out of proportion to any public harm or larger societal interests associated with localized wrongful conduct ordinarily involved in such actions. Moreover, insofar as RICO plaintiffs consistently lose in federal court and may later be foreclosed by statutes of limitations or preclusion rules from pursuing common law causes of action, they diminish the ability of state courts to redress what might otherwise represent viable state law claims. With regard to these considerations, as the Seventh Circuit has noted, "When a statute is broadly worded in order to prevent loopholes from being drilled in it by ingenious lawyers, there is a danger of its being applied to situations absurdly remote from the concerns of the statute's framers." Id. In sum, the combination of these circumstances translates into the RICO plaintiffs' woeful failure rate. The boundaries of RICO simply do not encompass the oversize capacity or elasticity to accommodate the many ill-fitting suits with which plaintiffs seek to outfit the statute. As a consequence, in the inordinate lawyerly tailoring that has ensued, even if artful, it is the plaintiffs who end up bare.

*** Judicial decisions generally serve several informative ends. They apprise the parties, counsel, appellate courts and the interested public about the law as interpreted and applied by the trial judge. They open a window into the court's method, bringing to view the judicial considerations that map out and illuminate the judge's reasoned pathway to the law of the case. And they instruct the parties in the immediate action as well as in future litigation about the legal concepts one court applied in adjudicating a given dispute, by means of such precedents providing guidance that could inform the substantive and procedural course of subsequent litigation. In calling attention to the decisive issues and considerations that resulted in the dismissal of this action, the Court envisions that the lessons drawn from the experience might be instructive at least in these ways, and that this teaching might propagate, by encouraging Plaintiffs here as well as other parties contemplating RICO suits to give more sober assessment to their factual allegations and their prospects, and thus potentially deter wasteful litigation of fundamentally deficient, futile or even frivolous claims. Admittedly, by indulging above in a dark analysis, here laced with this silver lining, the Court recognizes that its aspiration might reflect just self-beguilement, that on this occasion, once again, hope trumps experience.


1. Pattern of Racketeering

*** To state a plausible civil claim for violation of RICO § 1962(c), Plaintiffs' pleadings must demonstrate, as to each defendant, that while employed by or associated with an enterprise engaged in interstate or foreign commerce, and through the commission of at least two predicate acts constituting a "pattern of racketeering," the defendant directly or indirectly conducted or participated in the conduct of the affairs of such enterprise. 28 U.S.C. § 1962(c); see Spool v. World Child Int'l Adoption Ag., 520 F.3d 178, 183 (2d Cir. 2009) (citing Cofacredit, S.A. v. Windsor Plumbing Supply Co., 187 F.3d 229, 242 (2d Cir. 1999)); see generally Gregory P. Joseph, Civil RICO: A Definitive Guide (2d ed. 2000).

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