Civil Rico in Colorado: New Twists in the Road to Treble Damages
| Jurisdiction | United States,Federal,Colorado |
| Citation | Vol. 15 No. 1 Pg. 9 |
| Pages | 9 |
| Publication year | 1986 |
1986, January, Pg. 9. Civil RICO in Colorado: New Twists in the Road To Treble Damages
Civil cases brought under The Racketeer Influenced and Corrupt Organizations Act ("federal RICO") have increased exponentially in recent years.(fn1) Once recognition set in of the breadth of the statute's definition of racketeering and the absence of any express mobster or organized crime element, attorneys have sought to apply federal RICO to a wide variety of settings involving fraud, securities violations, commercial bribery or theft.
This proliferation of cases is not difficult to explain---federal RICO offers a treasure trove of attractive remedies, including treble damages and attorney's fees, and a number of potential procedural and tactical advantages.(fn2) The Colorado analogue of federal RICO, the Colorado Organized Crime Control Act ("Colorado RICO"), offers similar attractions.(fn3)
However, until recently, there has been uncertainty as to whether federal RICO actually applies to as broad a selection of civil cases as the statute's literal language appears to cover. Based upon Congress' declared purpose of seeking the "'eradication of organized crime'"(fn4) and the recognition that a "'slavish literalism would escort into federal courts through RICO what traditionally have been civil actions in state courts,'"(fn5) a number of courts construed federal RICO to impose requirements not apparent from the face of the statute.
Among these was the U.S. District Court for the District of Colorado ("Colorado federal court"), which required that "some connection with crime of an organized nature,"(fn6) and possibly some sort of special racketeering injury, be alleged to state a claim under federal RICO.(fn7) These requirements meant that federal RICO, and probably Colorado RICO, would have little application in civil litigation in Colorado.
The recent U.S. Supreme Court decision in Sedima, S.P.R.L. v. Imrex Co.(fn8) opened the way to renewed efforts by plaintiffs' attorneys to use federal RICO in Colorado. Sedima makes clear that a successful claim under federal RICO is not dependent upon a showing of an organized crime connection or a special racketeering injury. The majority acknowledged that private civil actions under the statute are being brought almost solely against respected and legitimate enterprises, "rather than against the archetypal, intimidating mobster," but asserted that "this defect---if defect it is---is inherent in the statute as written, and its correction must lie with Congress."(fn9)
A Colorado federal court decision subsequent to Sedima indicates that plaintiffs' counsel may continue to have a difficult time getting past the pleading stage of a RICO count, the new hurdle being the "pattern" requirement.(fn10) Nevertheless, in view of the expansive reach of federal and Colorado RICO, the very attractive remedies they provide and the new possibilities for successfully pleading a civil RICO claim, comprehensive advice regarding possible causes of action requires some familiarity with federal and Colorado RICO.
This article begins with an overview of a cause of action under the two statutes. It then discusses the defenses to RICO claims often pressed in dismissal motions and the implications these defenses raise for proper pleading. The article ends with a discussion of some of the tactical and procedural considerations to be taken into account in determining whether to pursue what appears to be a potentially viable RICO claim.
Federal RICO provides a civil cause of action for treble damages, costs and a reasonable attorney's fee to any person who has been "injured in his business or property by reason of a violation of section 1962...."(fn11)
Section 1962(fn12) sets forth four types of activity which constitute a statutory violation. Each type of activity consists of using a pattern of racketeering, or the income therefrom, to operate an enterprise or to obtain or maintain an interest in an enterprise.(fn13) Congress focused on racketeering activity involving an enterprise because its primary concern was to stop the infiltration of legitimate business by organized crime.(fn14)
Section 1962(a) targets "laundering," that is, the taking of tainted money derived from racketeering and using it to acquire or maintain an interest in an enterprise. The provision makes it unlawful for a person who has received income from a pattern of racketeering to use or invest that income in the acquisition of any interest in, or the establishment or operation of, an enterprise. The investment by a loan shark of the proceeds of a usurious loan in a new or existing company is an example of conduct prohibited by § 1962(a).
Section 1962(b) addresses the infiltration of an enterprise through direct acts of racketeering, as opposed to the use of proceeds from such acts targeted in subsection
Section 1962(c) focuses on the operation of an enterprise through racketeering. It prohibits a person employed by or associated with an enterprise from conducting or participating in the conduct of an enterprise's affairs through a pattern of racketeering activity. A bookie making illegal wagers on behalf of a bookmaking operation is a simple example of § 1962(c) activity.
Finally, § 1962(d) makes it unlawful to conspire to do any of the activities prohibited by §§ 1962(a)-(c).
The concept of an "enterprise" referred to in § 1962 is not limited to a formal organization; it incorporates informal joint efforts. The statute defines an "enterprise" to include "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity."(fn15) Thus, an enterprise can be, but does not have to be, a legal entity; it can also be an informal grouping of individuals, legal entities, or combinations thereof, associated in fact for some purpose. The term encompasses both legitimate and illegitimate enterprises.(fn16) However, a violation of § 1962 cannot occur unless the enterprise is one which is engaged in or whose activities affect interstate or foreign commerce.(fn17)
Each of the activities proscribed in § 1962 requires a showing of a "pattern of racketeering," which, according to the statutory definition:
requires at least two acts of racketeering activity, one of which occurred after [October 15, 1970] and the last of which occurred within ten years ... after the commission of a prior act of racketeering activity.(fn18)
From this language, it might be inferred that to satisfy the "pattern" requirement, essentially all counsel has to allege are two acts of racketeering which occurred within ten years of each other. However, as discussed below, two such acts are necessary to state a claim, but may not be sufficient.
When alleging a violation of § 1962(c), it will also be necessary to establish that a nexus existed between the pattern of racketeering and the enterprise. Section 1962(c) prohibits conducting an enterprise through a pattern of racketeering, and this language is construed as requiring a showing that the racketeering acts alleged related to the affairs of the enterprise.(fn19) To satisfy this requirement, it is not enough that the defendant worked for the enterprise and committed racketeering acts while on the business premises. The defendant's position in the enterprise must have facilitated the defendant's commission of the racketeering acts or those acts must have related to the activities of the enterprise.(fn20) Whether the enterprise or the defendant's position in the enterprise must have benefited, or at least must have been intended to be enhanced, by the racketeering remains an open question.(fn21)
The tremendous breadth of federal RICO and its potential use in a wide variety of civil matters stems from the statute's definition of "rackeeteering activity." The definition includes a lengthy list of acts chargeable as state criminal offenses or violative of numerous federal statutes.(fn22) From the civil litigator's perspective, the most significant portions of this definition are that racketeering activity is defined to mean any act which is indictable under the mail fraud statute and the wire fraud statute; any offense involving fraud connected with a case under the federal bankruptcy statutes or fraud in the sale of securities; and acts of bribery chargeable under state law and punishable by imprisonment for more than one year.(fn23) Prior criminal conviction of the defendant for the racketeering activity alleged is not a prerequisite to a civil action against the defendant under federal RICO.(fn24)
Under federal RICO, all sorts of securities violations are now subject to treble damage awards. In addition, fraudulent conduct previously only actionable under state law is now remediable by treble damages in federal court as a result of federal RICO's incorporation of mail and wire fraud in the definition of racketeering activity. This is a dramatic change because, prior to federal RICO, no private remedy existed for violations of the mail and wire fraud statutes.(fn25)
The federalization of common law fraud is quite expansive because the coverage of the mail and wire fraud statutes is extremely broad. The use of the mails or the wires needs...
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