The Supreme Court granted
certiorari today in two cases of interest to the business
community:
Civil RICO--Whether reliance by the plaintiff is a required
element of a civil RICO claim. RICO, the Racketeer Influenced and
Corrupt Organizations Act, makes it a crime for "any person employed by or
associated with any enterprise engaged in * * * interstate or foreign commerce,
to conduct or participate * * * in the conduct of such enterprise's affairs
through a pattern of racketeering activity." 18 U.S.C. § 1962(c). "Racketeering
activity" is defined to include any act that would constitute federal mail or
wire fraud. Id. § 1961(1)(B). Under section 1964(c) of the Act, "[a]ny
person injured in his business or property by reason of a violation of section
1962" may bring a civil action under RICO. The Supreme Court granted certiorari
in Bridge v. Phoenix Bond & Indemnity Co., No. 07-210, to
determine whether reliance is a required element of a RICO claim predicated on
mail fraud and, if it is, whether that reliance must be by the
plaintiff.
This case will help
define the breadth of liability under civil RICO, and thus will have important
ramifications for many members of the business community. Plaintiffs hoping to
win treble damages routinely allege civil RICO violations based on alleged mail
and wire fraud. A holding that a RICO plaintiff must itself rely on the alleged
fraudulent behavior will likely decrease the frequency of civil RICO claims.
There is a clear circuit
split on the issue of whether a claimant must itself have relied on an alleged
misrepresentation to succeed in a civil RICO claim. Indeed, the Supreme Court
has twice in the last three years granted certiorari to address this issue--in
Anza v. Ideal Steel Supply Corp., No. 04-433, described in the
November 28, 2005 Docket Report, and in Bank of China
v. NBM LLC, No. 03-1559, described in the June 27, 2005 Docket Report --but for various reasons did
not reach the issue in either case.
In this case, the
parties are all entities that regularly participate in Cook County, Illinois's
tax lien auctions. Petitioners allegedly submitted false information to the
County in conjunction with those auctions--material that the respondents never
saw. According to the Seventh Circuit, "the direct victim [of a false
submission--here, the respondents] may recover through RICO whether or not it is
the direct recipient of the false statements." 477 F.3d 928, 932 (7th
Cir. 2007) (emphasis in original). By contrast, at least two other circuits have
held that plaintiffs must show that they "in fact relied upon [the defendant's]
material misrepresentation. Vandenbroeck v. CommonPoint Mortgage
Co., 210 F.3d 696, 701 (6th Cir. 2000); see also Sikes v.
Teleline, Inc., 281 F.3d 1350, 1360-1361 (11th Cir. 2002).
Amicus briefs in support
of petitioners will be due on February 21, 2008; amicus briefs in support of the
respondents will be due on March 19, 2008. Any questions about this case should
be directed to appellate@mayerbrown.com.
Article III Standing--Assignment of claim for purposes of
collection. Article III of the U.S. Constitution requires that all
federal lawsuits be initiated by a plaintiff who has "standing" to sue,
i.e., a plaintiff who has suffered an actual injury that is traceable to
the defendant's conduct and that would be redressed by a favorable decision. In
Sprint Communications Co. v. APCC Services, Inc., No. 07-552, the Supreme
Court granted certiorari to decide whether this bedrock constitutional
requirement is satisfied by a suit brought by a plaintiff who has not itself
suffered an actual injury but instead has been assigned a legal claim "for
purposes of collection" on behalf of the injured party.
This case raises a
significant issue about the extent to which parties can "contract into" Article
III standing. If the Supreme Court affirms the D.C. Circuit's ruling that a
contract can be sufficient to confer standing, it may signal a willingness to
broaden the concept of constitutional injury, allowing those who suffered an
actual injury, but may not have the time and resources to bring a claim on their
own, to assign their claims to third-parties who are better positioned to
litigate. This development would be particularly significant for the business
community because, as the petitioners point out, it may allow plaintiffs to
successfully pursue cases that are the functional equivalent of class actions,
but without the procedures that the class action rules provide for the
protection of defendants.
This case involves the
compensation that long-distance telephone companies owe to payphone owners for
certain calls made by payphone users. By contract, the payphone owners assigned
their claims to third-party "aggregators," who are tasked with collecting the
compensation and distributing it to the owners. The aggregators are paid a fee
for their services, which is based not on what they recover but instead on the
number of phone lines that the payphone owner operates. In this case, respondent
APCC, the nation's largest aggregator, sued petitioners Sprint and AT&T,
alleging that the compensation that those companies were paying was too low
under the relevant FCC rules. The suit was brought on behalf of hundreds of
payphone owners around the country.
Defendants moved to
dismiss for lack of standing. They argued that APCC had no real stake in the
outcome of the case because, under the terms of the assignment, any proceeds
from a favorable judgment or settlement would simply be returned to the payphone
companies. The district court ultimately held that APCC had standing. A divided
panel of the D.C. Circuit agreed, with the majority emphasizing that the
assignment transferred the "entire interest" of the payphone owners' legal
claims. The court of appeals concluded that, as a matter of law, the assignment
of a legal right to bring a claim gives the assignee a personal stake in the
litigation sufficient to confer standing under Article III. That is the basic
question that the Supreme Court has now agreed to review.
