Mayer Brown's


1998 Term, Number 13 / June 7, 1999

Today the Supreme Court granted certiorari in one case of potential interest to the business community. Amicus briefs in support of the petitioner are due on July 22, 1999, and amicus briefs in support of the respondents are due on August 23, 1999 (because August 21 is a Saturday). Any questions about this case should be directed to Alan Untereiner (202-263-3241) or Donald Falk (202-263-3245) in our Washington office.

RICO — Conspiracy — Standing To Bring Civil Action. The Court granted certiorari today in Beck v. Prupis, No. 98-1480, to clarify the standing of private plaintiffs in conspiracy actions under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. Specifically, the Court will decide whether a plaintiff who alleges a RICO conspiracy (id. § 1962(d)) must show that his injury was proximately caused by a predicate act of racketeering. See id. § 1961(1).

Petitioner Robert Beck was president (and a director) of Southeastern Insurance Group ("SIG"), a holding company for three issuers of construction surety bonds. He alleges that other directors of SIG defrauded the company and its shareholders in several ways, and that SIG discharged him after he informed insurance regulators of improprieties in SIG's financial statements.

The directors' alleged misconduct eventually resulted in a lawsuit by the Florida Department of Insurance and a shareholders' derivative action, and the company filed for bankruptcy. Beck, who was a defendant in the latter case, filed cross-claims against the directors of SIG allegedly involved in the misconduct. Among other things, Beck asserted that the directors' conduct included mail fraud and wire fraud (each of which is a racketeering act under 18 U.S.C. § 1961(1)), and amounted to a RICO conspiracy. Beck claimed that he was fired in retaliation for refusing to participate in the RICO conspiracy and for reporting the misconduct to insurance regulators, and that his termination constituted an overt act in furtherance of the conspiracy. In an unreported decision, the district court granted summary judgment against Beck, holding that he lacked standing to assert a conspiracy claim under RICO.

The Eleventh Circuit affirmed. 162 F.3d 1090 (1998). In the court of appeals' view, "RICO was enacted with an express target — racketeering activity — and only those injuries that are proximately caused by racketeering activity should be actionable under the statute." Id. at 1098. Thus, Beck could not bring a civil RICO action because his injury did not result from a racketeering act (in this case, from mail fraud or wire fraud), even though his discharge may have been in furtherance of a RICO conspiracy. Ibid.

A plaintiff who alleges only a substantive RICO violation (rather than a conspiracy under 18 U.S.C. § 1962(d)) must prove that his injuries were proximately caused by predicate acts of racketeering. See Holmes v. SIPC, 503 U.S. 258 (1992). The Eleventh Circuit joined four other circuits in holding that a plaintiff cannot bring a civil RICO conspiracy claim unless he was injured by a predicate act of racketeering. See Bowman v. Western Auto Supply Co., 985 F.2d 383, 385-386 (8th Cir. 1992); Miranda v. Ponce Federal Bank, 948 F.2d 41, 47 (1st Cir. 1991); Reddy v. Litton Industries, Inc., 912 F.2d 291, 295 (9th Cir. 1990); Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 25 (2d Cir. 1990). By contrast, three circuits have ruled that any plaintiff injured by an overt act may bring a RICO conspiracy claim, whether or not the overt act also is a racketeering act. See Khurana v. Innovative Health Care Systems, Inc., 130 F.3d 143, 152 (5th Cir. 1997), cert. granted and vacated as moot, 119 S. Ct. 442 (1998); Schiffels v. Kemper Financial Services, 978 F.2d 344, 348 (7th Cir. 1992); Shearin v. E.F. Hutton Group, Inc., 885 F.2d 1162, 1168-1169 (3d Cir. 1989).

The treble damages and attorneys' fees available under RICO make any broadening of the class of potential plaintiffs problematic. This case is of substantial interest to any business (including many entities in the financial sector) that may be subject to civil conspiracy claims under RICO. The case is of particular importance to businesses within that category that may be vulnerable to lawsuits by discharged employees who claim to have been fired because they were whistleblowers.

Roy T. Englert, Jr. Wins One Supreme Court Case, Argues Another Within A Week

On April 28, Roy T. Englert, Jr., a partner in our Washington office, argued Sutton v. United Air Lines, Inc., an important case arising under the Americans with Disabilities Act. Mayer, Brown & Platt represents United Air Lines. The question presented is whether the petitioners, near-sighted individuals who would like to be pilots for United but who do not meet its standards for uncorrected vision, are disabled or "regarded as" disabled.

Five days later, on May 3, the Supreme Court ruled in favor of our client Bank of America National Trust and Savings Association by an 8-1 vote in a bankruptcy dispute with 203 North LaSalle Street Partnership. The Court held that a plan of reorganization cannot be confirmed if the unsecured creditors are not paid in full and the pre-bankruptcy equity holders are given the exclusive opportunity to receive or retain an interest in the reorganized debtor in exchange for a contribution of "new value." Roy argued that case last fall; Tom Kiriakos and Jim Schroeder of our Chicago office assisted on the briefs and have been involved in the case throughout its litigation in the lower courts. Attached to this docket report is a more detailed description of this important bankruptcy decision reprinted from the Mayer, Brown & Platt Lenders' Update.

This Mayer, Brown, Rowe & Maw Supreme Court Docket Report provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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