RICO: Not Just For Gangsters Anymore

The Racketeer Influenced and Corrupt Organizations Act (commonly known as “RICO“) became effective on October 15, 1970. It was originally intended primarily to assist in the prosecution of mafia leaders, as it permitted them to be tried for crimes they ordered others to do rather than committed themselves. Congress never intended to limit RICO to organized crime, however. G. Robert Blakey, the primary author of the statute, once told Time Magazine, “We don’t want one set of rules for people whose collars are blue or whose names end in vowels, and another set for those whose collars are white and have Ivy League diplomas.” The statute includes a civil provision, found at 18 USC § 1964(c), that has proven particularly popular in business litigation as it allows for the recovery of treble damages and attorneys fees.

RICO makes it unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt. (See 18 USC § 1962(c)). Key concepts in civil RICO cases typically include whether a true “enterprise” exists, whether the defendant has engaged in “racketeering activity,” and, if so, whether such activity constitutes a “pattern.”

The term “racketeering” is defined in the statute and applies to a long list of state and federal crimes, including homicide, kidnapping, extortion, and money laundering. In civil litigation, plaintiffs usually invoke the broad categories of mail fraud or wire fraud. “Wire fraud” refers to fraud committed or furthered through the interstate use of communication devices other than mail, such as telephone, television, radio, and email. The communication does not have to involve actual “wires” to fall within the scope of the statute. (See United States v. Foley, 683 F.2d 273, 280 (8th Cir. 1982)).

In RICO cases based on allegations of mail or wire fraud, the plaintiff must state with particularity the circumstances constituting the fraud. This generally means that a plaintiff must plead the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby. In addition, the complaint must identify with particularity each individual defendant’s culpable conduct; Virginia judges frown on the practice lock.jpgof “lumping” several defendants together without specifying which individual is guilty of which misrepresentation.

As in cases alleging ordinary fraud, the plaintiff must have reasonably relied to his detriment on the defendant’s material misrepresentations. To recover civil RICO damages, the plaintiff must allege that he was injured “by reason of” the pattern of racketeering activity. A civil RICO case will be dismissed if the plaintiff does not plausibly allege both that he detrimentally relied in some way on the fraudulent mail or wire communication and that the communication was a proximate cause of the alleged injury to his business or property. (See Am. Chiropractic Ass’n v. Trigon Healthcare, Inc., 367 F.3d 212, 233 (4th Cir. 2004)).

Although true that RICO provides for civil remedies in business litigation, it remains true that RICO treatment is reserved for conduct “whose scope and persistence pose a special threat to social well-being.” (See Menasco, Inc. v. Wasserman, 886 F.2d 681, 684 (4th Cir. 1989)). RICO does not cover all instances of wrongdoing; rather, it creates a unique cause of action concerned with eradicating organized, long-term, habitual criminal activity. In other words, it’s not limited to the mafia, but it is, in a sense, limited to “organized crime.”

The recent case of Baldino’s Lock & Key Service, Inc. v. Google, Inc. provides an example of an attempt to invoke RICO in civil litigation. According to the allegations in the complaint, Baldino’s is a licensed locksmith and security company operating in Maryland, Virginia, and the District of Columbia. It suffered a drastic decrease in revenue with the creation of the Internet, due primarily to the ability of unlicensed and illegal locksmiths to advertise on directories provided by sites like Google, Yellowbook, and Ziplocal. Baldino’s claimed that a recent Google search produced results for over 1,000 locksmiths in Virginia, when only 325 were actually licensed. Baldino’s brought a RICO claim against the online directories, claiming both mail fraud and wire fraud.

After ruling the the defendants were immune under Section 230 of the Communications Decency Act, the court went on to explain how the case did not present a valid RICO cause of action even disregarding the immunity.

First, Baldino’s lacked standing to bring the action because it did not allege that its business or property was injured by reason of the alleged fraud. A RICO plaintiff lacks standing without detrimental reliance, and Baldino’s own allegations made clear that it did not rely on the alleged misrepresentations because it professed to know they were false.

Second, Baldino’s allegations were insufficient to state a RICO claim, as it failed to allege an “enterprise,” failed to allege an underlying act of racketeering, and failed to allege a “pattern” of racketeering activity.

Proof of an “enterprise” requires demonstrating the existence of an ongoing organization, formal or informal, and by showing that the various associates function as a continuing unit with a common purpose. The complaint contained only speculation as to the existence of an enterprise, which the court found insufficient.

The allegations of racketeering were similarly deficient in that they did not contain specific facts showing a scheme disclosing intent to defraud and the use of the mails or interstate wires in furtherance of the scheme. Baldino’s made boilerplate recitation of the required elements but included no evidentiary support. The court found that the allegations amounted to an “unwarranted deduction of fact” and dismissed the claims.



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