Are You A Racketeer?

Congress passed the Racketeer Influenced and Corrupt Organizations Act in 1970 to give the victims of mob shakedowns a powerful tool for recovering their losses. But RICO soon became a tool for another type of shakedown: lawsuits against legitimate businesses over claims like false advertising and securities fraud.

Faced with the threat of treble damages and attorney fees, most companies settled. The problem got so bad that Congress amended the law in 1995 to eliminate RICO as a cause of action in securities fraud cases. But creative plaintiff lawyers kept expanding the boundaries, including recruiting health insurance plans to sue pharmaceutical manufacturers over “racketeering” by failing to disclose adverse drug side effects.

Side Effect Suits

“Not in a million years did Congress think it was passing a law to allow insurance companies to sue pharma companies over the alleged side effects of medications,” says Jonah Knobler, a partner with Patterson Belknap.

A recent U.S. Supreme Court decision, Medical Marijuana v. Horn, has raised fears of a torrent of new RICO suits based on plain-vanilla, personal injury claims. It’s not certain, since the majority opinion leaves many questions unanswered, including whether plaintiffs can actually sue over personal injuries. But the decision has business leaders calling once again for Congress to intervene before RICO transforms them all into mobsters straight out of The Sopranos.

Douglas Horn sued Medical Marijuana after failing a drug test he blamed on “Dixie C,” a tincture supposedly infused with harmless cannabidiol, or CBD. Horn said he believed advertising stating Dixie C had “0 percent THC.” After he was fired from his job as a truck driver, he hired a private lab and discovered it also contained mind-altering THC, which is still illegal under federal law.

Horn sued Medical Marijuana under RICO, claiming the firm was a “racketeering enterprise” engaging in fraud by selling mislabeled CBD products. A trial judge dismissed his case, but the Second Circuit Court of Appeals revived it. The law covers “any person injured in his business or property,” the court said, and “business” could include a job.

The Second Circuit’s decision ran counter to rulings in other circuits, so the Supreme Court accepted an appeal. Medical Marijuana—supported by the U.S. Chamber and other business groups—argued plaintiffs must prove racketeering directly caused damage to their business, such as when a mobster threatens to break a car-wash owner’s legs unless he buys overpriced services from the mob.

A Supreme Court majority led by Justice Amy Coney Barrett disagreed. Surely the car wash owner could sue under RICO after his legs were broken, she reasoned, claiming he bought overpriced services to avoid another beating. How much different was that than Horn claiming he lost his job after being defrauded by Medical Marijuana’s “racketeering” behavior?

RICO Rackets

Justice Brett Kavanaugh dissented, joined by Samuel Alito and John Roberts. “In Horn’s world, plaintiffs could routinely bring RICO claims for personal injuries from drug mislabeling, dangerous products, medical malpractice, car accidents and health consequences from pollution, to name a few,” Kavanaugh warned.

None of that may come true. The majority never said whether a job fits the definition of “business” under RICO, leaving that for lower courts to sort out. They also said plaintiffs must prove multiple racketeering acts, meaning “harm resulting from a single tort is not a ticket to federal court for treble damages.” But Knobler is still worried.

“There’s going to be a lot of mischief, plaintiff lawyers getting creative,” he says. This decision “stirred up a lot of trouble that didn’t exist previously.”