Legal Intelligencer: Civil RICO’s Expanding Reach: From Foreign Schemes to Lost Employment

The racketeer influenced and corrupt organizations (RICO) statute has seen a surge in prominence in recent years, valued by plaintiffs for its ability to allow for access to the federal court system, address patterns of illicit conduct, and award treble damages and attorney fees. Originally intended by Congress to dismantle organized crime, civil RICO’s appeal has broadened as the federal courts witnessed an increase in the use of civil RICO against business enterprises. In response to its increased use, courts have attempted to limit the reach of civil RICO. However, some recent cases, such as Yegiazaryan v. Smagin and Medical Marijuana v. Horn, show that the courts are grappling with the statute’s injury requirement and might expand the sense of hope for plaintiffs.

The Core Issue in ‘Medical Marijuana v. Horn’

In Medical Marijuana v. Horn, the U.S. Supreme Court faces the question of whether economic losses tied to personal injuries, such as lost wages, can constitute an injury to “business or property” actionable under RICO. The case revolves around a former truck driver who consumed a CBD product marketed by the CBD companies as free of THC but lost his job after a failed drug test. In 2015, a federal district court dismissed the driver’s RICO claim, holding that he lacked RICO standing because his loss of earnings was derivative of an antecedent personal injury. The U.S. Court of Appeals for the Second Circuit reversed the ruling and reinstated the RICO claim, and the petitioners CBD companies appealed to the Supreme Court.

At oral argument, advocates tried to delineate the boundaries of a RICO injury. The petitioners argued that the “harm” caused by the ingestion of the CBD product was a personal injury claim outside civil RICO. Conversely, the respondent argued that ingestion is not particularly critical in his case and that the right not to be harmed by the predicate acts, in this case, the alleged fraudulent inducements of the CBD companies, is protected by civil RICO.

This pending case will resolve a split among federal circuits on whether civil RICO allows plaintiffs to seek damages for economic losses tied to personal injuries. The Second and Ninth Circuits have permitted such claims, while several other circuits have ruled that the “business or property” requirement in RICO excludes harms linked to personal injuries. See, e.g., Jackson v. Sedgwick Claims Management Services, 731 F.3d 556 (6th Cir. 2013); Keller v. Strauss, 480 Fed. Appx. 552 (11th Cir. 2012); Evans v. City of Chicago, 434 F.3d 916 (7th Cir. 2006).

Horn’s case is not the first time the Supreme Court has dealt with questions regarding the scope of RICO injury. Past decisions have provided guidance on what qualifies as an injury to “business or property.” In Sedima, S.P.R.L. v. Imrex, 473 U.S. 479 (1985), a Belgian corporation sued its business partner, an American corporation, claiming that the partner engaged in mail and wire fraud, which effectively restricted its profits. Overturning the lower court’s ruling that the plaintiff did not have standing because it failed to present a “racketeering injury” distinct from the injury resulting from the predicate acts, the court explained that “the compensable injury necessarily is the harm caused by predicate acts sufficiently related to constitute a pattern, for the essence of the RICO violation is the commission of those acts in connection with the conduct of an enterprise.” The respondent in Horn relied on this case to argue that his economic injury due to lost employment is redressable under RICO. On the other hand, cases like Anza v. Ideal Steel Supply, 547 U.S. 451 (2006) reiterated that for a civil RICO plaintiff to have standing, the injury must have a direct causal connection to the defendant’s racketeering activities. The petitioners in Horn argue that Horn’s lost wages are too indirect, as they flow from and are derivative of his personal injury.

The proponents for a broad interpretation of an injury to “business or property” also find support in RICO statute’s legislative history. The civil RICO damages language in subsection 1964(c), which allows treble damages to “any person injured in his business or property by reason of a violation of section 1962,” is closely modeled after Section 4 of the Clayton Act, which provides for treble damages to “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws.” Moreover, the chief discussion in the legislative history of civil RICO damages includes a characterization of subsection 1964(c) as “another example of the antitrust remedy being adopted for use against organized criminality.” Under the Clayton Act, courts construe “business or property” broadly and inclusively. See Reiter v. Sonotone, 442 U.S. 330 (1979). Therefore, if the courts apply a Clayton Act measure of damages in civil RICO cases, an injury to “business or property” should be construed very broadly.

The Future of RICO

A critical piece of the puzzle comes from the recent Supreme Court decision in Yegiazaryan v. Smagin, 599 US 533 (2023). This case expanded the scope of civil RICO, holding that a context-specific inquiry should be used to determine whether harm qualifies as a domestic injury. In Yegiazaryan, the court found that because the majority of the alleged racketeering activities deployed by the defendant to obstruct the enforcement of a U.S. judgment happened in the U.S., there could be a RICO injury, even though the parties involved were foreign. By holding that foreign plaintiffs can pursue civil RICO claims, the court rejected the rigid “residency test” for domestic injury claims.