Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jennifer Riley and associate Kelly Bonner with their discussion of key rulings, settlements, and trends analyzed in the RICO class action space.
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Episode Transcript
Jennifer Riley: Thank you for being here again for the next episode of our podcast, the Class Action Weekly Wire. I’m Jen Riley, partner at Duane Morris, and joining me today is Kelly Bonner. Thank you for being on the podcast, Kelly.
Kelly Bonner: It’s great to be here, Jen.
Jennifer: Today we wanted to discuss trends and important developments in Racketeer Influenced and Corrupt Organizations Act, or RICO, class action litigation. RICO is a federal law that provides for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal enterprise. The Congress enacted the RICO in 1970 in an attempt to combat organized crime in the United States. The law has since been used to prosecute a variety of offenses, including securities fraud, money laundering, and even environmental crimes. Kelly, can you explain the burden on the plaintiff in a RICO action?
Kelly: Sure thing, Jen. RICO allows the government to prosecute individuals associated with criminal activities such as the leaders of crime organizations. Although there are criminal charges, today we’re going to focus on the burden for civil RICO claims. So, plaintiff must prove three elements: criminal activity, so that means the plaintiff must show that the defendant committed a RICO crime; a pattern of criminal activity, which means that the plaintiff must show that the defendant committed a pattern of at least two crimes – patterns can include everything from the same victim to the same methods used to commit the crimes, or that the crimes even happened within the same year; also the statute of limitations – in civil RICO cases, the statute of limitations is four years, and that runs from the time of discovery. Plaintiff must also prove the existence of an enterprise. So, civil RICO class actions are significant pieces of litigation, and due to the potential for exposure to treble damages – or, you know, three times the damages – such class actions can present extraordinary risks.
Jennifer: Thanks, Kelly, very different from the types of claims that we often discuss on the podcast. How often are RICO class actions granted class certification?
Kelly: So in 2023, the plaintiffs’ bar secured class certification at a rate of approximately 70%. Companies secured denials in 30% of the rulings – so plaintiffs were largely successful in certifying the class.
Jennifer: Can you discuss any key rulings from 2023?
Kelly: Sure. So, in several 2023 cases, courts granted class certification under Rule 23(b)(3). So this is where the court concluded that common questions of law, in fact, predominated over individual issues, and that a class method was superior to other available methods for fairly and efficiently adjudicating the controversy. So, for example, in Turrey, et al. v. Vervent, Inc., the court concluded that common questions were dominated over individualized issues where plaintiffs alleged that defendants violated RICO by offering high cost education programs and a sham private student loan program called the Program for Educational Access and Knowledge, or PEAKS. This program saddled students with significant debt and inferior credentials. Plaintiffs sought class certification on the basis that they identified several common questions that could be resolved on a class-wide basis: 1) whether defendants knew that PEAKS was a fraudulent scheme designed to defraud investors and the U.S. Department of Education; 2) whether loans lacked legally required information; 3) whether PEAKS operated as an association, in fact, enterprise; 4) whether PEAKS as an enterprise made fraudulent representations, and 5) finally, whether the PEAKS enterprise use the mail and interstate wire system for its activities. The court opined that all of the elements of a substantive RICO violation could be determined through evidence common to class members. The court also noted that expert testimony sufficiently established that defendants knowingly participated in fraudulent scheme, and that PEAKS was structured to further defend its fraudulent goals. The court also ruled that questions of causation and injury could be addressed on a class-wide basis, since the plaintiffs allege that defendants conduct was the actual approximate cause of their injuries, and that their harms were foreseeable. So, if the loans had not been made or serviced as they were, the borrowers would not have made the payments. Even though the exact amount of damages differed among individual borrowers, the court concluded that this issue did not preclude class certification.
Jennifer: There’s also an interesting ruling that I wanted to mention, that came out of the Fourth Circuit in a case called Albert, et al. v. Global Tel*Link Corp. In that case, the Fourth Circuit vacated and remanded a ruling by the district court dismissing the plaintiffs’ RICO claims based on a failure to establish proximate causation. The Fourth Circuit concluded that the plaintiffs’ alleged injuries were the direct result of defendants’ scheme, and thus sufficient to allege RICO violations. In that case, the plaintiffs were families of prison inmates. They filed a class action alleging that the defendants, a group of providers of inmate telephone services, violated the RICO by colluding to fix prices for single call offerings, as well as misleading the government about their pricing structures, and ultimately causing consumers to pay inflated prices. The district court had dismissed the plaintiffs’ RICO claims on the basis that the plaintiffs did not adequately allege that the defendants proximately caused their injuries, as their harm was contingent upon harm suffered by the contracting governments. On appeal though, the Fourth Circuit vacated and remanded, the Fourth Circuit concluded that even though the alleged conspiracy occurred before it impacted the plaintiffs, the government was not a more direct victim than the plaintiffs, and the plaintiffs’ injuries were not derivative of those suffered by the governments because they would have been charged inflated prices regardless of whether the governments were injured. The Fourth Circuit clarified that the plaintiffs need only alleged facts plausibly supporting a reasonable inference of causation, and that the plaintiffs’ complaint plausibly supports an inference that the governments would have demanded lower prices for consumers but for defendants’ misrepresentations. Because the Fourth Circuit concluded that the plaintiffs’ alleged injuries were the direct result of defendants’ scheme, and therefore sufficient to allege RICO violations, it vacated the district court’s ruling and remanded for further consideration.
Kelly, how did the plaintiffs do in securing major settlements in the RICO class action space over the past year?
Kelly: So, there were several settlements and judgments that were over a million dollars reached in RICO civil class actions in 2023. So I’m thinking of in Lincoln Adventures LLC, et al. v. Those Certain Underwriters at Lloyd’s London Members of Syndicates, the court granted final approval of a $7.9 million settlement to resolve claims that Lloyd’s Syndicates violated RICO with an illegal anticompetition agreement. A massive RICO default judgment of over $131 million was entered by the court in Gilead Sciences Inc., et al. v. AJC Medical Group Inc., based on allegations that dozens of companies and individuals were involved in parallel schemes run by two healthcare networks profiting from illegal resale of HIV treatment medications. And then finally, in Zwicky, et al. v. Diamond Resorts, which comes out of Arizona, the court granted file approval to a settlement of $13 million, resolving allegations under RICO that defendants misrepresented the required annual fees for timeshare interest they purchased.
Jennifer: Thanks so much, Kelly. I know that these are only some of the cases that had interesting rulings in 2023 and RICO class actions. 2024 is sure to give us some more insights into the ways that class actions will evolve or continue to evolve in the RICO space. Thanks to all of our listeners for joining us today, appreciate having you here for this episode of the Class Action Weekly Wire.
Kelly: Thanks so much. Bye-bye.