Risk Management

High Court Limits Private Use of RICO

In one case, a company had blown the whistle on a rival for competing unfairly by skirting taxes; in another, workers had sued because their employ...
Stephen TaubJune 6, 2006

Two Supreme Court cases have limited the use of civil anti-racketeering laws by companies against their competitors, and by individuals against their employers.

The Racketeer Influenced and Corrupt Organizations Act, or RICO, was enacted in 1970 to provide tough penalties when federal prosecutors could prove that illegal acts had been performed as part of an “ongoing enterprise.” Organized crime was the ostensible target; the Department of Justice has invoked the act to recover money from crooked unions and pension funds, the Associated Press observed.

Companies, too, have employed RICO to seek redress for allegedly illegal acts by their competitors, and it is these uses that were dealt two big blows by the Supreme Court.

The high court reversed an appeals court decision that allowed Ideal Steel Supply to sue its biggest rival, National Steel Supply Inc., according to the AP. Ideal claimed that National Steel defrauded New York State tax authorities by offering lower prices, minus taxes, to customers who paid in cash. Writing the 8-1 decision for the court, Justice Anthony M. Kennedy reportedly wrote that the victim of racketeering must suffer “direct” injury from illegal acts, but that in this instance the direct victim of the fraud was New York, not Ideal.

The court also declined to decide on a case for which they heard arguments in April. Employees of Mohawk Industries had sued the floor-covering company, alleging that Mohawk held down wages by hiring illegal workers, according to the report. During oral arguments, justices had reportedly voiced skepticism over whether Mohawk could be sued under anti-racketeering laws for allegedly using recruiters to hire illegal immigrants.

Both cases were returned to appeals courts for the resolution of technical issues, the AP reported.