Court Watch - Thursday, February 5, 2009 8:54 - 0 Comments

Recent Decision Makes Civil RICO Actions Viable Tool To Combat Fraud

The United States Supreme Court recently declared that if a person’s business or property is injured as a result of misrepresentations made using the mail or telephone, that person may have a civil RICO claim regardless of whether the fraudulent statements were made directly to the victim or whether the victim was the actual person relying on the statements. Justice Thomas handed down this landmark decision in June of 2008 in the case of Bridge v. Phoenix Bond & Indemnity Company.

The Racketeer Influenced and Corrupt Organizations Act or RICO was enacted by Congress in 1920 as a response to the then-growing influence of organized crime. Although RICO originally targeted the Mafia, it has expanded far beyond its original purpose and is frequently used by Plaintiffs who have suffered harm to their business or property as a result of fraud. The Court’s decision in Bridge, by eliminating the requirement that the fraudulent statement be made directly to the victim, makes civil RICO actions a much more viable mechanism for compensating the victims of fraud.

There are many areas of litigation already affected by the Supreme Court’s decision in Bridge. In Michigan for example, six men, all employees or former employees of the same transport company, were injured on the job but were denied workers’ compensation benefits. They alleged that that their employer deliberately selected and paid unqualified doctors to give fraudulent medical opinions supporting the denial of their benefits. The workers brought a civil RICO claim. Under the old law, the fraudulent statement had to be made to the victim in order to recover under civil RICO.

In this instance, because the doctors’ fraudulent statements that the workers were not injured were made to the transport company rather than the individual workers, the trial court dismissed the case, stating that under civil RICO, the fraudulent statements must have been made directly to the victims seeking recovery. However, following the Bridge decision, the Michigan court was required to reconsider the case because the workers did not have to prove that they personally relied on the false statement but only that the false and fraudulent statements damaged them.

A second example occurred in New York, where a federal court determined that the makers of the drug Zyprexa made fraudulent representations through the mail to doctors about the safety and effectiveness of the medication. Specifically, the drug company failed to warn doctors that ingesting Zyprexa increased the risk of weight gain and diabetes. The manufacturer also failed to disclose research studies showing that Zyprexa was no more effective than other similar, cheaper, and safer drugs. Doctors’ prescribing Zyprexa relied on the drug company’s false statements about Zyprexa’s effectiveness and safety and widely prescribed the drug, causing the price of the drug to be elevated.

The elevation in price resulted in many patients having to pay much more than they otherwise would have for their medications. The New York trial court certified a class of third party payers based on the Supreme Court’s decision in Bridge. The trial court found that even though the fraudulent statements were made to doctors and not the patients, the people paying for the medications were injured as a result of the elevated price of the drug and therefore, the payers should be able to pursue a civil RICO claim against the manufacturer.

It appears that the Supreme Court’s decision in Bridge will result in civil RICO claims being a much more effective tool to vindicate the rights of victims of fraud. That’s good news for persons who become victims of corporate abuse and wrongdoing.