Wednesday, December 23, 2009

Reliance Not Required for RICO Claim Predicated on Mail Fraud . . .

This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide.

A district court erred in holding that reliance was an element of a RICO claim predicated on mail fraud, the U.S. Court of Appeals in Richmond, Virginia, has ruled.

The lower court improperly limited the U.S. Supreme Court’s decision in Bridge v. Phoenix Bond & Indemnity Co. (CCH RICO Business Disputes Guide ¶11,500)—which states that reliance is not required in RICO mail fraud actions—to cases involving third-party reliance.

The Bridge Court held that a plaintiff asserting a RICO claim predicated on mail fraud “need not show, either as an element of its claim or as a prerequisite to establishing proximate causation, that it relied on the defendant's alleged misrepresentations.”

Although Bridge did, in fact, involve a plaintiff who had been harmed by a third party’s reliance on the defendant’s misrepresentations, the Court’s holding was not limited to circumstances involving third-party reliance.

“[U]sing the mail in furtherance of a scheme to defraud is a predicate act of racketeering under RICO, even if there is no reliance on the misrepresentation,” the appellate court explained.

Nevertheless, the district court’s grant of summary judgment was affirmed because the plaintiffs failed to demonstrate, or even allege, that they were misled about any fraudulent behavior.

The decision is Biggs v. Eaglewood Mortgage, LLC, CCH RICO Business Disputes Guide ¶11,775.

. . . But Failure to Plead Reliance Could Still Bar Claim

Health care and welfare funds that allegedly paid excessive prices for the prescription drug Lipitor lacked standing to pursue RICO claims against the drug’s manufacturer (Pfizer), the federal district court in New York City has ruled.

The plaintiffs (and other third-party payors) complained that Pfizer had allegedly made fraudulent misrepresentations to physicians and pharmacy benefit decision makers about Lipitor’s comparative efficacy and safety.

The plaintiffs did not, however, plead reliance on those misrepresentations, and thus failed to establish that their overpayments were proximately caused by Pfizer's misconduct.

In Bridge v. Phoenix Bond & Indemnity Co. (CCH RICO Business Disputes Guide ¶11,500), the U.S. Supreme Court noted that the complete absence of reliance could prevent a plaintiff from establishing proximate cause.

Although the plaintiffs pled reliance on Pfizer’s allegedly false claim that its marketing of Lipitor was lawful, that reliance was irrelevant, the appellate court explained, in light of the plaintiffs’ failure to allege that the physicians who prescribed the drug had relied on the drug maker’s misrepresentations.

The decision is Southern Illinois Laborers' and Employers' Health and Welfare Fund v. Pfizer Inc., SD N.Y., CCH RICO Business Disputes Guide ¶11,779.

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