This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide.
A provider of rail-based transportation services (CSX Transportation, Inc.) sufficiently alleged RICO violations by three lawyers and a doctor, all of whom allegedly orchestrated a scheme to inundate CSX with thousands of asbestos-related occupational illness claims throughout the state of West Virginia, the federal district court in Wheeling, West Virginia, has ruled.
The complaint asserted more than abuse of process or malicious prosecution because the pleadings described a complex scheme involving activities that went beyond the filing of eleven fraudulent claims.
Mail and Wire Fraud
The predicate acts alleged by CSX involved mail and wire fraud, including the filing and service of mass lawsuits and all of the actions taken by the lawyer defendants to generate medical evidence in support of their fraudulent asbestosis claims. The lawyer defendants’ characterization of these filings and mailings as “routine litigation activity” was contrary to CSX’s allegations.
CSX alleged that the three lawyers: (1) gained access to potential clients through unlawful means; (2) retained clients and procured medical diagnoses for them through intentionally unreliable mass screenings; (3) prosecuted clients’ claims using dishonest, fraudulent, and deceptive tactics; and (4) fabricated and prosecuted asbestosis claims with no basis in fact, and did so using mass lawsuits in overburdened courts in an effort to deprive CSX of access to meaningful discovery, which in turn concealed the fraudulent claims and leveraged higher settlements based on the threat of mass trials.
The court concluded that these allegations were sufficient to support the inference that each of the lawyer defendants knew that the mails were being used to further their scheme.
Heightened Pleading Standard for Fraud
The predicate acts of mail and wire fraud were alleged with sufficient particularity under Rule 9(b) of the Federal Rules of Civil Procedure, which required fraud plaintiffs to identify the time, place, and contents of false representations, as well as the identity of the persons who made the misrepresentations and what they obtained thereby.
According to the court, CSX adequately identified: (1) the date when each fraudulent claim was filed and the court in which it was filed; (2) the person who signed each complaint and caused it to be filed; (3) the circumstances surrounding the service of each complaint on CSX; and (4) the relevant portions of each complaint that was fraudulently filed.
CSX sufficiently pled an injury to its business or property by reason of the defendants’ alleged racketeering activities, the court determined. The company alleged that it was forced to expend substantial sums of money and resources in order to process, defend, and settle “deliberately fabricated claims” that never should have been filed. Its complaint described a direct relationship between the lawyer defendants’ fraudulent claims and CSX’s need to “expend resources” to respond to those claims.
Accordingly, CSX properly alleged an injury as the direct result of the defendants’ fraudulent claims.
Pattern of Racketeering: Relatedness
For predicate acts to be related, they must have the same or similar purposes, results, participants, victims, or methods of commission, or must otherwise be interrelated by distinguishing characteristics. In this case, the predicate acts of mail and wire fraud involved the same participants (the lawyer and doctor defendants); the same victim (CSX); the same alleged purpose (to defraud CSX through the manufacturing, filing, and prosecution of fraudulent asbestosis claims); and similar methods of commission (the addition of fraudulent claims to mass lawsuits that were filed in the same overburdened court system and filed motions to compel the mandatory mass mediation of those claims).
The relatedness analysis in this case depended on whether the predicate acts were defined as the eleven fraudulent asbestosis claims that the lawyer defendants filed, or whether the mass suits themselves were considered predicate acts. Eleven fraudulent claims was a small percentage of the total number of claims that composed the mass lawsuits alleged in CSX’s complaint. The lawyer defendants argued that this isolated conduct—a mere 0.2% of the asbestosis claims filed by their law firm against CSX—did not create a pattern of racketeering activity.
The predicate acts alleged in CSX’s complaint, however, arguably encompassed more than just the eleven fraudulent claims. CSX asserted that the lawyer defendants “deliberately filed … mass lawsuits in overburdened courts to deprive CSX of access to meaningful discovery, which in turn concealed fraudulent claims and leveraged higher settlements based on the threat of mass trials.” The fact that only some of the lawsuits filed against CSX were fraudulent did not negate the argument that the mass lawsuits were filed as part of a larger plan to conceal the fraudulent claims, the court explained.
Pattern of Racketeering: Continuity
CSX alleged that “the predicate acts were continuous in that they occurred on a regular basis.” It also alleged facts indicating that the lawyer defendants continued to prosecute their fraudulent claims even after CSX had filed its original amended complaint in this case. The calculated and deliberate strategy of the lawyer defendants to participate in and conduct the affairs of the lawyers’ firm through a pattern and practice of unlawful conduct, as described in the complaint, indicated that the filing of fraudulent lawsuits was a part of the firm’s regular business practice, according to the court. Taken together, these facts, if proven, established a threat of continuing racketeering activity, and therefore open-ended continuity.
The decision is CSX Transportation, Inc. v. Gilkison, CCH RICO Business Disputes Guide ¶12,207.
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