Retaliatory RICO and the puzzle of fraudulent claiming.

AuthorEngstrom, Nora Freeman

Over the past century, the allegation that the tort liability system incentivizes legal extortion and is chock-full of fraudulent claims has dominated public discussion and prompted lawmakers to ever-more-creatively curtail individuals' incentives and opportunities to seek redress. Unsatisfied with these conventional efforts, in recent years, at least a dozen corporate defendants have "discovered" a new fraud-fighting tool. They've started filing retaliatory RICO suits against plaintiffs and their lawyers and experts, alleging that the initiation of certain nonmeritorious litigation constitutes racketeering activity--while tort reform advocates have applauded these efforts and exhorted more "courageous" companies to follow suit.

Curiously, though, all of this has taken place against a virtual empirical void. Is the tort liability system actually brimming with fraudulent claims? No one knows. There has been no serious attempt to analyze when, how often, or under what conditions fraudulent claiming proliferates. Similarly, tort reformers support RICO's use because, they say, conventional mechanisms to deter fraud fall short. But are conventional mechanisms insufficient? Hard to say, as there is no comprehensive inventory of the myriad formal and informal mechanisms already in use; nor do we have even a vague sense of how those mechanisms actually operate. Further, though courts have started to green-light retaliatory RICO actions, no one has carefully analyzed whether these suits are, on balance, beneficial. Indeed, few have so much as surfaced relevant risks. Addressing these questions, this Article attempts to bring overdue attention to a problem central to the tort system's operation and integrity.

TABLE OF CONTENTS INTRODUCTION I. DEFINING THE "FRAUDULENT CLAIM" A. Bounding the Concept: Distinguishing "Fraud" from "Frivolity" B. Categorizing Fraud: A Typology of Fraud's Five Types C. Mapping: Where Fraudulent Claims Are Apt to Be Found II. RICO'S RISE, RETRENCHMENT, AND RECENT USE AS A RETALIATORY TOOL A. Background on Civil RICO B. The Controversial Rise of Civil RICO C. RICO as a Retaliatory Tool 1. Feld Entertainment, Inc. v. ASPCA 2. CSX Transportation v. Peirce III. CONVENTIONAL FRAUD-FIGHTING MECHANISMS A. Ex Ante Mechanisms B. Extinguishing Dubious Suits Early On C. Ex Post Remedial Mechanisms 1. Rule 11 2. Rule 60 3. 28 U.S.C. [section] 1927 4. Inherent Authority 5. Malicious Prosecution 6. Bar Disciplinary Activity 7. Criminal Prosecution D. Concluding Thoughts on Conventional Mechanisms IV. PROBLEMS WITH RICO'S RISE A. Distortion of Existing Remedies B. Overdeterrence C. Additional Costs 1. Satellite Litigation 2. Undermine Attorney Civility 3. Erode the Finality of Judgments V. A PATH FORWARD: RESTRAINT AND EQUALITY A. Restraint B. Equality CONCLUSION INTRODUCTION

Plaintiffs' lawyers have long been assailed for bringing spurious suits. In the late nineteenth century, railroad executives complained about bogus claims for railway injuries, ginned up, they said, by "[disreputable lawyers," alongside their "rascally confederates in the medical profession." (1) In the 1950s, a prominent physician complained in the Saturday Evening Post that all medical malpractice suits amounted to "legalized blackmail" and insisted that the prime objective of plaintiffs' attorneys in such cases was to "aid in the holdup and run with the loot." (2) And, in the early 1990s, Peter Huber penned a popular book lamenting the "legions of case-hardened lawyers" intent on asserting patently false claims. (3)

There is at least a grain of truth to some of these dark assertions. To be sure, the doctor above was wrong--if you're looking for fraudulent claims, medical malpractice litigation is probably the last place to look. (4) And, it is also true, and bears emphasis, that evidence suggests most suits within the tort liability system are genuine and meritorious. (5) Yet, it's just as true that the tort system, writ large, has more than its share of specious activity. Various headline-grabbing mass torts--including cases such as fen-phen, asbestos, silica, and the Deepwater Horizon oil spill--have drawn many with dodgy entitlements to relief. And the auto accident system--responsible for the majority of all tort claims and three-quarters of all injury damage payouts--is, in certain segments, awash with those whose claims are feigned or built. (6)

These bogus claims are costly. They account for billions of dollars of losses per year. (7) They clog courts, making it harder for those with meritorious claims to obtain justice in a timely manner. They increase insurance premiums, and these hikes ultimately induce some individuals and entities to go "bare." (8) And, they drain the coffers of corporate and individual defendants, diverting funds from those with valid entitlements and pressing financial need. (9)

Aside from these practical considerations, fraudulent claiming imposes other costs, too. Suspicion of fraud sows distrust between plaintiffs and their institutional adversaries--almost certainly inducing some to "fight fire with fire." (10) Misdiagnoses, often at the heart of fraudulent filings, sometimes dupe innocent plaintiffs, causing some to think, erroneously, that they are terribly sick. (11) Finally and perhaps worst of all, fraudulent claims--and persistent beliefs about the prevalence of such claims--color the public's perception of civil litigation. (12) This, in turn, causes judges and jurors to view future plaintiffs skeptically, tarnishes the reputation of the plaintiffs' bar, and reduces injury victims' interest in, and willingness to enter, the legal fray. (13)

Moreover, when it comes to the operation, integrity, and stability of the tort liability system, responses to the fraud problem are similarly consequential, with implications that are, if anything, more profound. Like the angry doctor above, defendants have long used the specter of fraudulent filings to justify broad efforts to clamp down on litigation more generally. Persuaded by this advocacy, judges and policymakers have radically overhauled the civil justice system--to erect heightened pleading standards, impose certificate-of-merit requirements, create professional screening panels, curtail the admission of expert testimony, liberalize restrictions on removal, impose medical-criteria controls, limit class actions, and enhance Rule 11--all, in part, under the guise of smoking out fraudulent suits. (14)

Now, with potentially far-reaching implications, corporate heavyweights are sharpening a new tool to tamp down on fraudulent claiming: what I call "retaliatory RICO." In recent years, more than a dozen corporate defendants have filed such actions against plaintiffs, their lawyers, and their experts to retaliate for the initiation of a wide range of allegedly bogus litigation, concerning matters as varied as asbestos injury, environmental devastation, workplace accidents, car wrecks, a motel fire, and elephant abuse. (15) Embracing this development, Tiger Joyce, the president of the American Tort Reform Association (ATRA)--and arguably the tort reform movement's most visible champion--has prominently called for further use of this fraud-fighting tool: "Only when fraudsters face significant risk and multimillion-dollar consequences for their actions," he has warned, "will their costly abuse of our civil justice system diminish." (16)

This is all more than a passing curiosity. For one, RICO itself is a heavyweight--in the words of one court, "the litigation equivalent of a thermonuclear device." (17) Enacted in 1970 to combat organized crime, it grants plaintiffs unobstructed access to federal courts and provides for treble damages, attorneys' fees, and, perhaps most tantalizing of all, the ability to brand the defendant a racketeer. (18) (Penalties under the much-ballyhooed Rule 11 seem almost quaint by comparison.) Corporate defendants' use of RICO also comes with sizable risks: retaliatory RICO suits threaten to upset the delicate federal-state balance, limit court access, squander scarce judicial resources, exacerbate courthouse incivility, erode the finality of judgments, and ultimately, skew the civil justice system further in favor of well-heeled players. (19)

Beyond that, retaliatory RICO's rise offers an occasion to assess carefully and systematically the fraud problem that plagues the tort liability system, perhaps for the first time. The problem of fraud is undeniably significant. And there's no question that fraudulent claiming (alongside its close cousin, "frivolous claiming") has been relentlessly trotted out to justify broad-brush attacks on the tort system's core. Yet, we know astonishingly little about the problem we're all seemingly so eager to address. (20) We lack an agreed-upon vocabulary to describe the conduct at issue. We do not know, even vaguely, where, when, how often, or under what conditions, such conduct proliferates. (21) Further, though tort reform advocates have embraced RICO because, they say, conventional fraud deterrence mechanisms are insufficient, we do not have anything approaching a comprehensive inventory of the formal and informal mechanisms that already exist in a fraud-fighter's arsenal, descriptions of how those mechanisms operate, or even a rudimentary sense of how those mechanisms fare. (22) Lastly, though a few courts have started to green light retaliatory RICO actions, there has yet to be sustained scholarly analysis addressing whether use of this new mechanism is on balance beneficial-or even surfacing relevant risks. (23)

To bridge these gaps, this Article unfolds in five parts. Part I begins the inquiry by bounding, categorizing, and mapping the fraud concept. As such, it defines what constitutes a fraudulent claim and distinguishes between "fraudulent" and "frivolous" litigation. It then offers a typology of five distinct types of fraudulent-claiming behavior and, drawing on that...

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