by daniel j. popeo
Civil RICO: New Weapon Of
Editor's Note: This article is excerpted with permission from a
Working Paper published by the Washington Legal Foundation.
Florida's Medicaid reimbursement lawsuit against tobacco companies
was born in an unsavory sneak attack during the 1994 Legislative Session. Now, in the
courtroom, it is producing legal rulings that resonate far beyond the immediate damage
they are causing to the defendants' case. One ruling in late 1996 by Circuit Court Judge
Harold J. Cohen allowed four highly inventive but dubious claims, grounded in the Florida
Racketeer Influenced and Corrupt Organizations (RICO) Act, to proceed to trial.
Florida's RICO statute is based on the federal law. Although
Congress intended RICO as a weapon against the influence of organized crime, since the
law's passage, it has been used against the legitimate businesses it was meant to benefit.
The prospect of treble damages and the negative public stigma of being labeled a
"racketeer" made the law an attractive tool in civil litigation. With growth of
anti-business RICO actions in the 1980s, efforts were made in Congress and the federal
judiciary to stop the law's expansion. Now, however, its successful use in tobacco
litigation threatens to revitalize RICO as a viable and popular plaintiffs' lawyers' legal
There are a number of troubling aspects to the RICO claims in the
tobacco case. They were a late addition to the plaintiffs' complaint, and the defendants
were offered little opportunity to effectively respond. In addition, Judge Cohen allowed
these claims to proceed in an action that is, in essence, a personal injury suit, even
though RICO is meant to redress only business or property injury.
The court permitted RICO actions to proceed on claims of deceptive
advertising and let other claims against business associations go forward. These rulings,
because they allow racketeering charges to be brought against those exercising their First
Amendment rights to speak, represent, and advertise for legal businesses, provide perhaps
the most significant threat to the entire free enterprise system.
This ruling, and any precedents following it, could embolden
plaintiffs' lawyers and states to include RICO claims in any personal injury or
reimbursement action against producers, representatives, and advertisers of any product
that risks injuring private litigants or a state's Medicaid recipients.
The broader ramifications of these rulings for all business
defendants have been mostly ignored. A careful analysis of these rulings reveals that the
victory for the plaintiffs' lawyers poses a threat, not only to those who are regularly
subjected to their aggressive litigation tactics, but also to businesses that are not
FIRST AMENDMENT CONCERNS
A highly unusual aspect of the RICO claims in this case
must trouble any corporate officer engaged in proactive interaction of any kind within the
political system, or whose business activities have, or might, become the subject of
political debate or media scrutiny (e.g., oil spills, allegations of discrimination or
harassment, or price-fixing charges).
The reason? If the state's complaint sets a standard that is
followed in other states or in lawsuits involving other industries, then actions taken by
public relations and public affairs specialists may serve as the basis for RICO charges
that are filed many years in the future. For example, the complaint ensnares the Tobacco
Institute, an industry trade group, by virtue of its having engaged in "research,
litigation support, and lobbying in concert with the tobacco companies on behalf of the
Thus, the state alleges that appearances by a Tobacco Institute vice
president to discuss "the false controversy of smoking and disease," on several
highly regarded television programs, constituted use of wire communications in interstate
commerce in furtherance of a scheme to defraud.
The First Amendment implications of bringing civil RICO actions
against protest organizations have not gone unnoticed. When Congress first debated RICO
legislation, the American Civil Liberties Union (ACLU) expressed its concern that broad
statutory language might eventually be extended far beyond its intended target --
organized criminals -- and reach political protesters.
No one was so prescient as to imagine that public relations
activities on behalf of multibillion-dollar multinational corporations -- and involving no
physical violence whatsoever -- could possibly be swept within RICO's grasp. Even a
mere suggestion to that effect would likely have occasioned scorn and ridicule. Indeed,
the Senate committee report on the statute, typically a highly reliable indicator of
congressional intentions, "focused exclusively on organized crime and the effect that
it has on legitimate businesses, industries, and the economy of the entire nation."
Floor debates at the time of passage further support this interpretation of congressional
When courts allow continued expansion of civil RICO into the
constitutionally protected arenas of political and commercial speech and debate, the
perversion of the statute to a point almost beyond recognition is complete. The law of
unintended consequences once again triumphs.
If the theory advanced by Florida is successful, meaningful debate
on controversial public policy issues in which business corporations have a stake can be
expected to disappear from the airways. Why would the spokesman for a minority point of
view on a hotly contested issue risk being accused of having committed an act in
furtherance of a racketeering enterprise? Even assuming such a lawsuit would eventually be
thrown out of court, the spokesman/defendant would still incur the expense and
inconvenience of defending the action. Only if the plaintiff were shown to have acted
frivolously, and thus be liable for monetary sanctions, would the public relations
executive gain some measure of compensation for his troubles.
The ultimate example of Florida's venomous attitude in pursuing this
lawsuit can be found in paragraphs 78 and 79 of the complaint. According to the claims in
these paragraphs, certain actions by the defendants are defined as acts of "Deceit
and Fraud" actionable under RICO. What did the defendants do? They refused
"reasonably to settle claims"; they tried "to run up plaintiffs' attorneys'
fees in a war of attrition"; they established a special division "to promote and
develop research and expert witnesses needed for the defense of tort litigation"; and
they made various documents subject to review by legal departments and law firms.
In effect, the defendants are accused of mounting a vigorous
defense. These allegations have the effect of demonizing legitimate corporate behavior.
Even laymen must question the propriety of pleadings that choose to characterize as
unlawful such well-established litigation strategies.
Having one's name cavalierly associated with racketeering may soon
be an intimidating obstacle that lawyers, public relations managers, and public affairs
specialists will be forced to confront as they articulate their clients' positions in
Central to the RICO complaint is a 10-page paragraph
setting out 26 examples of allegedly deceptive and misleading advertisements. The
first-cited ad appeared on Feb. 10, 1958, well before the Florida RICO statute was written
(1977) and at a time when the state of knowledge about the potential dangers of smoking
was only a fraction of its current level.
In the excerpts that are reproduced, none of the ads claim that
smoking is healthy, yet all are alleged to be untrue and misleading. In short, relatively
mundane and entirely unexceptional product advertising has been elevated to a major
element of the RICO complaint.
One can readily envision similar allegations at some future date in
which the words "drinking alcohol" or "eating high-fat meat (or dairy or
fast food) products" are substituted for "cigarette smoking." Such
possibilities are especially ripe in those states that are currently pursuing Medicaid
Undoubtedly, state governments have made substantial payments for
health care costs incurred on behalf of Medicaid recipients who are suffering from
diseases directly caused by ingesting alcoholic beverages and high-fat foods. Similarly,
purveyors of these products could be shown to have failed to reveal fully, in every
advertisement or other public communication, all possible health dangers known to them.
Medicaid recovery lawsuits, especially when they contain a RICO
component, only serve to up the ante for corporations already at risk of being sued over
their advertising. Indeed, Florida's lawsuit is far from the first case that has sought to
bootstrap a civil RICO claim out of allegations that mail and wire fraud violations were
committed when purportedly false and misleading advertising appeared. Commonly, in fact,
federal or state regulatory action has preceded these lawsuits.
In this respect, Florida's tobacco suit fits the profile. Charges
and allegations about the purported addictive nature of nicotine undergirding the Food and
Drug Administration's anti-smoking program are also central elements of the state's
One fast food restaurant recently launched a marketing campaign
designed to sell more french fries, a fast food item notoriously high in fat. Featuring
popular professional basketball players, none of the ads contains a health warning. The
only obvious difference between such products and cigarettes may well be that trial
lawyers have yet to turn their attention to the former, preferring instead to establish
favorable legal precedents in cases against the highly unpopular tobacco industry.
The temptation for business executives, who to date have somehow
managed to avoid the class-action litigation cesspool, is merely to plow forward,
confident in their "it-can't-happen-to-me" posture.
Indeed, far from being immune to assaults mounted by plaintiffs'
lawyers, top managers of highly successful corporations may have the most to fear from the
litigation juggernaut. Their enterprises have the deepest pockets and plenty of
opportunities both to make mistakes in producing or selling their products and to cause
injury to large numbers of people when they do.
Once that happens, count on the plaintiffs' trial bar to waste
little time in filing either a massive class action lawsuit, or a very large number of
individual actions as part of a mass tort strategy, or both. If the product in question
was extensively advertised, in all likelihood RICO allegations would be included.
Widespread media attention that complicates defense efforts to obtain a fair hearing can
be anticipated when the victims are particularly sympathetic (e.g., recipients of breast
implants or users of Norplant contraceptives); the injuries are regrettably severe (e.g.,
serious lung diseases contracted by workers exposed to asbestos); or the defendants are
deemed politically incorrect (e.g., cigarette manufacturers).
NO SAFE HARBOR
In 1995, Congress acted to carve out of federal civil
RICO those cases predicated on securities fraud. Legislative history for that amendment
quotes testimony by Securities and Exchange Commission Chairman Arthur Levitt to the
effect that "it is both unnecessary and unfair to expose defendants in securities
cases to the threat of treble damages and other extraordinary remedies provided by
RICO" because securities laws "provide adequate remedies for those injured by
If the adequacy of existing remedies is the standard to be applied,
then most commercial RICO claims would be dismissed outright. Where existing remedies are
deemed insufficient, the appropriate response would be for the Legislature to conduct a
reasoned inquiry into ways in which sanctions could be enhanced, and then to act
accordingly. Such a process allows those with an interest in the issue to come forward and
be heard. The legislative approach -- the essence of procedural due process in a political
context -- inevitably involves compromises, but theoretically it will produce an outcome
that reflects the popular will.
Instead, over the past decade, the courts have taken it upon
themselves to allow trial lawyers to stretch RICO actions to cover business situations far
removed from the egregious violations contemplated when the law was originally enacted.
Subsequent efforts by certain courts to reverse the trend through procedural tinkering are
commendable for their objectives, but ultimately only serve to create more uncertainty.
Defendants can never be sure when they enter the courtroom whether a
newly minted RICO theory will be accepted, or whether the court will accord the existing
statute a broad or a narrow reading.
While this is frequently the case regardless of the statute being
pleaded, the situation is especially troubling in RICO actions. At present, civil RICO is
a sledgehammer, often used to pound down opponents. Medicaid third-party recovery lawsuits
that are beginning to include RICO components may become the Asian flu bug of commercial
litigation, soon infecting other industries producing legal products. As with any plague,
its spread is random but relentless, and misery is guaranteed for all with whom it comes
Daniel Popeo is chairman and general counsel for the
Washington Legal Foundation, which he founded 20 years ago. He has served on the White
House legal staff, worked in the Attorney General's Office at the Department of Justice,
and practiced as a federal trial attorney with the Department of the Interior. He received
his undergraduate degree from Georgetown University as well as his JD from the
university's law center.