Duane Morris Takeaway: This week's episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley and special counsel Justin Donoho with their analysis of key developments in RICO class actions, including a key ruling from the Ninth Circuit on class certification in the RICO context.
Episode Transcript
Jennifer Riley: Thank you for being here again for the next episode of our weekly podcast, the Class Action Weekly Wire. I'm Jennifer Riley and joining me today is Justin Donoho. Thank you for being on the podcast, Justin. Today, we wanted to dive into the RICO Act. It's a law that comes up a lot, but a lot of people probably don't fully understand what it is. Justin, could you start by explaining to our listeners what RICO means?
Justin Donoho: Absolutely, Jen, and thank you for having me on the podcast today. The RICO Act, short for the Racketeer Influenced and Corrupt Organizations Act, is a federal law passed in 1970. It was originally aimed at tackling organized crime in the U.S., but over time it's been applied to a much broader range of criminal activity. Essentially, it allows for extended criminal penalties, and even civil lawsuits, against individuals or groups involved in ongoing criminal enterprises.
Jennifer: So, you're saying that RICO goes beyond just criminal prosecutions?
Justin: Exactly. It has both criminal and civil components. On the criminal side, someone found guilty under RICO can face up to 20 years in prison and fines up to $250,000. And on the civil side, it's quite powerful, too – victims can recover treble damages, meaning three times the amount of actual damages, plus attorneys' fees and the cost of the lawsuit.
Jennifer: Interesting. So, who can bring a civil RICO claim?
Justin: They can be brought by private individuals who've been harmed in their business or property as a result of a RICO violation. But they must meet certain requirements – often referred to as RICO's statutory standing requirements. In other words, you have to prove causation and injury.
Jennifer: Interesting. So, what do plaintiffs have to prove to demonstrate a RICO violation?
Justin: So, there are three main elements. First, they have to prove racketeering activity. This includes a long list of criminal acts, everything from murder and kidnapping to mail fraud, wire fraud is a big one, we see a lot money laundering and securities fraud.
Jennifer: Wow, that's quite a range.
Justin: Yeah, it really is. And that's why RICO can be applied to so many different types of cases, especially fraud-related ones across various industries. Second, there must be a pattern of racketeering activity – at least two criminal acts – and they need to be related in some way, whether by method, victim, or timeframe.
Jennifer: Got it. What's the third?
Justin: The third is the existence of an enterprise. Broadly, that includes individuals, partnerships, corporations, associations, or even groups that aren't legally recognized as entities. What's key here is the relationship between the defendant and the enterprise. The defendant can't be the enterprise. Instead, they must be shown to have conducted the affairs of the enterprise through a pattern of racketeering activity.
Jennifer: Got it, that makes sense. So, what is the statute of limitations applicable to a RICO claim?
Justin: It's four years from the date of discovery of the injury caused by the RICO violation.
Jennifer: So, now I understand that RICO class actions have become more significant recently, can you tell us about some of the key rulings from the past year?
Justin: Yes, the past year was a big one for RICO class actions. Courts granted class certification in about 33% of cases in 2024, while denying it in 67%. These decisions can have massive implications, especially because treble damages in class actions can pose serious risks for defendants.
Jennifer: Can you give us an example of a case where class certification was granted and the class was certified?
Justin: Sure, so one notable one was Sihler v. Global E-Trading, LLC. It involved alleged fraudulent charges for diet pills. The so-called "Keto Racket." The court found that common legal and factual issues, like the alleged conspiracy to mislead consumers and artificially suppress chargebacks, outweighed individual differences. That was enough to certify a nationwide class under RICO. In that case, the court emphasized that the harm stemmed from the overall conduct of the enterprise. They also dismissed the idea that plaintiffs had to prove reliance in these RICO claims.
Jennifer: Do you have any examples where class certification was denied in the RICO context?
Justin: Yes. So, the Ninth Circuit in White, et al. v. Symetra Assigned Benefits Services reversed the district court's order granting class certification in a RICO lawsuit. The plaintiffs were approximately 2,000 individuals who had received structured settlement annuities, or SSAs, to resolve personal injury claims who thereafter entered into factoring transactions exchanging their future annuity payments for immediate but discounted lump sums. The plaintiffs alleged that the defendants, the issuer and obligor of the SSAs, wrongfully induced them into these factoring agreements through misleading representations, unfair business practices, and hidden conflicts of interest in violation of the RICO. The district court granted the plaintiffs' motion for class certification. On appeal, though, the Ninth Circuit found that "individual issues of causation will predominate over common ones when evaluating whether defendants' acts and omissions caused the plaintiffs to enter factoring transactions and to incur their alleged injuries." The Ninth Circuit held that the "defendants' allegedly uniform course of conduct was not as uniform as plaintiffs suggest," including because although the defendants' "initial communications were standardized, the process became more individualized to the annuitant as it went along." Further, the Ninth Circuit held that "even assuming defendants engaged in uniform conduct, plaintiffs have not shown there is a common question of whether such conduct improperly induced plaintiffs to enter into factoring agreements to their detriment. Here, resolving the critical element of causation will require consideration of individualized issues that swamp the assertedly common ones." Thus, the Ninth Circuit ruled that "any assessment of whether the defendants' alleged acts and omissions caused the plaintiffs to enter the factoring transactions, or led them into accepting inferior factoring deals than they otherwise would have absent the alleged misconduct, would require an analysis of each plaintiff's individual circumstances – including their understanding of the transaction and motivations. The result would be 2,000 mini-trials on causation." Given the variety in interactions and state court processes, the Ninth Circuit concluded that individualized issues of causation would predominate, making class certification improper. For these reasons, the Ninth Circuit reversed the district court's ruling granting the plaintiffs' motion for class certification.
Jennifer: Got it. Thanks for that overview, Justin, what about settlements in these types of cases? Are they common in the RICO context?
Justin: Large settlements are not exceedingly common, however, there were several in 2024 that crossed that $1 million mark. The biggest one we saw was In Re Juul Labs, Inc., Marketing, Sales Practices, And Products Liability Litigation, in which the court granted final approval to a settlement of $45 million to resolve claims with defendant Altria Group alleging that the company created, marketed, and sold tobacco products by misleading the public about the addictiveness and risks of the product, and by trying to expand the market by capturing and addicting individuals who had not previously used tobacco or e-cigarette products, including in violation of the RICO.
Jennifer: Well, Justin, this has been incredibly informative. Thanks so much for breaking down such a complex topic in an understandable way for our listeners and thank you to our listeners for tuning in today.
Justin: My pleasure, Jen. Always happy to talk legal strategy, especially about class actions. Thanks to all the listeners.
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