Fighting Fraudulent Lawsuits with RICO

By Howard Kaplan, Robert H. Brumell III – Originally published on

Businesses and insurers often deal with fraudulent lawsuits. Two recent lawsuits, aggressively using the Racketeer Influenced and Corrupt Organizations Act (RICO), may be the new model for fighting back.

In a recent op-ed written for the Pittsburgh Post-Gazette, American Tort Reform Association President Tiger Joyce states, “Many personal injury lawyers have come to believe that there is minimal risk in promulgating fraudulent lawsuits.” Citing a 2013 Wall Street Journal opinion article entitled, “The Economic Truth About Lying,” by author and attorney Matthew L. Lifflander, Joyce notes that “his interviews over several years with ‘personal-injury trial lawyers about their actual experience with perjury or fraudulent documents in litigation’ suggest that ‘at least 25 percent of cases’ may include elements of perjury or fraud.” Some, including Lifflander, have proposed forward-thinking reforms that contain a statutory civil tort for litigants damaged by the untruthful. Joyce points out that such reforms will require actions by politicians and judges.

Instead of looking to the future, CSX Transportation and Chevron have aggressively used existing RICO statutes to file lawsuits that punish attorneys and others for filing and prosecuting fraudulent lawsuits.

Using RICO

The RICO Act was originally enacted in 1970 as a powerful tool for criminal prosecutors to fight organized crime. Since then, the statute has evolved into a much broader remedy to address private civil wrongs. RICO can be an effective weapon for companies facing fraudulent litigation, since it gives them control of the means to penalize attorneys who are responsible for fraudulent lawsuits. The law permits private parties to sue someone for engaging in a racketeering enterprise in which wire fraud, mail fraud, or other illegal acts are involved.

CSX Transportation v. Peirce

In December 2005, freight railroad company CSX Transportation filed a complaint in the U.S. District Court for the Northern District of West Virginia against defendants Robert Peirce and Louis Raimond, their law firm, Peirce Raimond & Coulter PC, other firm members and employees, and individuals retained by the firm, including an investigator and a medical expert, radiologist Ray Harron. In its amended complaints, CSX alleged that the law firm “embarked upon a calculated and deliberate strategy to participate in and to conduct the affairs of the Peirce firm through a pattern and practice of unlawful conduct, including bribery, fraud, conspiracy, and racketeering,” by “orchestrating a scheme to inundate CSX and other entities with thousands of asbestos cases without regard to their merit.”

In order to perpetrate this scheme, CSX alleged that the defendants gained access to potential clients through unlawful means; procured medical diagnoses for those clients through intentionally unreliable mass screenings; used fraudulent tactics to prosecute client claims; fabricated and prosecuted asbestosis claims with no factual basis; and used mass lawsuits in overburdened courts in an effort to deprive access to meaningful discovery, conceal the fraudulent claims, and allow leverage for higher settlements based on the threat of mass trials.

During this case, the defendants made several attempts to dismiss the claims based on varying grounds. In an unpublished opinion by the U.S. Court of Appeals for the Fourth Circuit, the court allowed the claims to proceed to trial. In December 2012 the jury ruled in favor of CSX, finding that the defendants had promulgated fraudulent asbestos lawsuits against CSX. It awarded $429,240 in damages.

In September 2013, the trial judge tripled the original award to approximately $1.3 million. The trial court has not yet determined if the defendants will be required to pay some or all of the $10 million CSX has spent on legal fees and costs. This matter is currently on appeal.

Chevron Corporation v. Donziger

In 2011, an Ecuadorian court entered an $18.2 billion judgment against Chevron Corporation in an action brought by 47 individuals referred to as the Lago Agrio Plaintiffs (LAPs). In February 2011, Chevron filed an action in the U.S. District Court for the Southern District of New York against the LAPs, their lead U.S. attorney Steven Donziger, his firm, and others involved in the Agrio litigation. Chevron claimed that the judgment was the product of fraud and that acts associated with its procurement are significant parts of a pattern of racketeering activity in violation of RICO. The pattern included extortion, wire fraud, money laundering, and obstruction of justice.

The RICO and fraud claims rest on the allegations that Donziger and others substantially executed, funded, and directed a scheme to extort and defraud Chevron, which included fabricating evidence, corrupting and intimidating the Ecuadorian judiciary to obtain a tainted judgment, influencing U.S. public officials with false representations to cause them to investigate Chevron, making false statements to U.S. courts, and intimidating and tampering with witnesses in U.S. court proceedings to cover up their improper activities. Similar to the CSX litigation, the defendants filed motions to dismiss.

While some of Chevron’s claims were dismissed, the RICO claims were allowed to proceed. The trial of those claims began in October 2013 as a bench trial in front of Judge Lewis Kaplan and has not been concluded as of the writing of this article.

Regardless of the outcome in these cases, RICO allegations survived pre-trial motions for a determination on the merits of the case. Using RICO may not be the answer to every fraudulent suit that is filed, but at least two companies have successfully used RICO to fight back in significant cases involving fraud.

Howard Kaplan is a partner with Bernard, Cassisa, Elliott and Davis. He has been a CLM Member since 2010 and can be reached at moc.waldecb@nalpakh.

Robert H. Brumell III, CFE, FCI, is president and CEO of Brumell Investigations Inc. He has been a CLM Fellow since 2012 and can be reached at moc.snoitagitsevnillemurb@llemurbr.