Commercial Litigation and Arbitration

Governmental Entity (Municipal Corporation) Cannot Be Sued under RICO Because Treble Damage Remedy Is Primarily Punitive

Tengood v. City of Philadelphia, 2013 U.S. App. LEXIS 12151 (3d Cir. June 17, 2013):

Appellant challenges the district court's entry of summary judgment in favor of the City on Counts 1 and 2 of the Complaint, alleging it was error to conclude that the City cannot be subject to RICO liability. This argument is foreclosed by our decision in Genty v. Resolution Trust Corp., 937 F.2d 899 (3d Cir. 1991), in which we held that a civil RICO claim "cannot be maintained against a municipal corporation" because its mandatory award of treble damages is primarily punitive in nature. Id. at 914.

Footnote 4. Appellant's argument that Genty has been abrogated by the Supreme Court's decision in PacifiCare Health Systems, Inc. v. Book, 538 U.S. 401 (2003) is unavailing. PacifiCare did not address the issue before us -- that is, whether RICO claims can be brought against a municipality. Instead, it held that it was ambiguous whether a provision in an arbitration agreement precluding recovery of punitive damages should be interpreted to bar recovery of treble damages under RICO, given RICO's remedial and punitive nature and "the uncertainty surrounding the parties' intent with respect to the contractual term 'punitive.'" Id. at 406-07. The Supreme Court remanded for arbitration on whether treble damages for a RICO violation were available under the agreement. Id. at 407. Although Appellant is correct that language in PacifiCare explains that RICO's mandatory treble damages award is both compensatory and punitive in nature, this fact was recognized in Genty, and did not affect our holding in that case. See Genty, 937 F.2d at 910. PacifiCare thus does not abrogate our decision in Genty.

Dismissal of Counts 1 and 2 of the Complaint was proper.

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