One of the most significant developments affecting civil RICO law in years occurred in a 2020 U.S. Supreme Court case that wasn’t a RICO case. Kelly v. United States, 140 S.Ct. 1565 (2020). This is possible only because of the hybrid civil-criminal nature of civil RICO claims.
To prove a civil RICO claim, a plaintiff must prove, among other things, that the defendant committed a crime—the so-called “predicate act” element of a RICO claim. 18 U.S.C. § 1962(c). This requires the civil attorney to take a detour into the domain of criminal lawyers—albeit under a civil court’s lesser burden of proof—to prove the predicate act.
The RICO Act provides a long list of qualifying crimes, any one of which, if it was committed in a “pattern,” can be used as the basis for a civil RICO claim. As we’ve said before on this blog, by far the most common predicate acts used in civil RICO cases are mail fraud and wire fraud. Any case that changes how the federal mail and wire fraud statutes are interpreted will have a significant impact on civil RICO law. Enter the Supreme Court’s Kelly decision.
The Kelly case arose out of a political scandal known as “bridgegate.” As Justice Kagan summarized,
“For four days in September 2013, traffic ground to a halt in Fort Lee, New Jersey. The cause was an unannounced realignment of 12 toll lanes leading to the George Washington Bridge, an entryway into Manhattan administered by the Port Authority of New York and New Jersey. For decades, three of those access lanes had been reserved during morning rush hour for commuters coming from the streets of Fort Lee. But on these four days—with predictable consequences—only a single lane was set aside. The public officials who ordered that change claimed they were reducing the number of dedicated lanes to conduct a traffic study. In fact, they did so for a political reason—to punish the mayor of Fort Lee for refusing to support the New Jersey Governor’s reelection bid. ” Kelly, supra, at 1568.
Two of the officials involved in the scandal were convicted of wire fraud under 18 U.S.C. § 1343—the same statute commonly cited as a predicate act in civil RICO cases. Their convictions were upheld by the Third Circuit Court of Appeals, but overturned in May, 2020, by the Supreme Court.
The issue in the Supreme Court involved the wire fraud statute’s language barring fraudulent schemes “for obtaining money or property.” Id. (The mail fraud statute contains the same language. See, 18 U.S.C. § 1341.) The government first argued that the defendants had taken the Port Authority’s property by “commandeer[ing]” three lanes of traffic. The Court disagreed: “the two defendants did not ‘commandeer’ the Bridge’s access lanes (supposing that word bears its normal meaning). They (of course) did not walk away with the lanes; nor did they take the lanes from the Government by converting them to a non-public use.” Kelly, supra, at 1573.
The government next argued that the defendants had interfered with the Port Authority’s property by causing the Port Authority to pay additional employee compensation to execute the scheme. Again the Court disagreed: “But that property must play more than some bit part in the scheme: It must be an ‘object of the fraud.’ [citation omitted] Or put differently, a property fraud conviction cannot stand when the loss to the victim is only an incidental by-product of the scheme.” Id.
The Court explained that it is not enough that the scheme deprived the Port Authority of additional employee compensation because the additional compensation was not diverted to defendants. If defendants do not “obtain,” or try to obtain, the property of the victim, there is no wire fraud under the federal statute. Kelly, supra, at 1574.
The rule announced by the Court in Kelly, when applied to civil RICO cases, starts to seem very similar to the concept of proximate cause as outlined in the Anza and Bridge cases previously discussed here in prior blogs. It remains an open question how courts will reconcile Kelly with RICO proximate cause cases—perhaps they are already harmonious.
For plaintiffs’ attorneys thinking of adding a RICO claim to a civil complaint, the lesson is to think hard about how to define the object—the intent—of the RICO scheme and its damages. If there was no money or property (1) belonging originally to the plaintiffs, and (2) taken into the possession of the defendants as the primary goal of the scheme, there may not be a valid civil RICO claim.
For defense counsel the lesson is more simple: don’t overlook an attack on the elements of the predicate act itself. Look to criminal cases if necessary.
Anthony Lanza and Brodie Smith, litigation and trial attorneys, have developed focused practice areas both prosecuting and defending civil RICO lawsuits in federal courts. They have also been retained by other attorneys to consult on RICO claims in both pending and contemplated lawsuits. They can be contacted at (949) 221-0490.
The information in this blog post does not constitute legal advice, nor create and attorney-client relationship. Laws constantly change, and this information may become outdated; moreover, the information here is only a general overview and may omit some aspects of the law. It is provided for discussion purposes only; not to be relied upon by the reader in making any real-world decisions.