Tuesday, August 19, 2008

PAC, Nonprofit Violated Oregon RICO Law Through Forgery, Falsification of Reports

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

A political action committee (PAC) and a nonprofit corporation were liable for violating Oregon's Racketeer Influenced and Corrupt Organization Act (ORICO) because their racketeering activities—forging signatures on statements of sponsorship for two ballot initiatives and making false statements on financial reports—had injured two labor organizations by causing them to spend money to oppose the initiatives, the Oregon Supreme Court has ruled.

The labor organizations—representing Oregon teachers and other public school employees—alleged that the PAC and nonprofit corporation participated in racketeering activities by violating several criminal statutes in attempting to place initiatives on the ballot for the 2000 general election.

According to the labor organization, two of those initiatives “would have severely restricted, or prohibited, the ability of school districts and other employers to implement ‘check offs’ for payroll deductions for union dues when some part of those dues were used for political purposes.”

At trial, a jury found for the labor organizations on two counts, and the court entered judgment in the amount of $2.5 million.


On appeal, the PAC and nonprofit argued that the trial court's damage award was improper because the labor organizations were not injured "by reason of" the defendant's racketeering activities. According to the defendants, an ORICO provision that allowed recovery for injuries incurred "by reason of" a defendant's violations should have been interpreted to require a showing of proximate cause.

Although the U.S. Supreme Court required private plaintiffs to show that their injuries were proximately caused by a violation of the federal RICO statute, the facts under review in this case did not require the court to articulate a precise standard of causation for ORICO.

Whether the statute required proximate causation, as the defendants contended, or some lesser standard, as the plaintiffs contended, ORICO "unquestionably" permitted recovery for injuries that were the "intended consequence" of the RICO violation, according to the Supreme Court.

“Simple and Direct” Connection

In this case, the causal connection between the defendants' conduct and the plaintiffs' injuries (the money spent to oppose the initiative) was "simple and direct," the Court explained. More specifically, "plaintiffs were the very targets of defendants' illegal conduct, and the injuries that plaintiffs suffered were the very injuries that defendants intended to cause."

Moreover, the plaintiffs adequately alleged—and provided sufficient evidence to prove—that the defendants' conduct was a substantial factor in causing the plaintiffs' injuries, despite the existence of "several intervening causal factors."

Because the plaintiffs properly alleged that they had been injured "by reason of" the defendants' racketeering activities, and because the evidence was sufficient to permit a reasonable jury to conclude that the plaintiffs had been injured "by reason of" the defendants' ORICO violations, the causation element of the plaintiffs' RICO claim was satisfied.

Unsworn Falsification

Falsifying information on a financial reporting document (the "CT-12" form that charitable organizations must file with Oregon's attorney general) constituted a predicate act under ORICO, the court held. A jury found that the nonprofit corporation had falsified its CT-12 form in an effort to conceal its financial support of the political action committee. The jury also found that the false statements violated a state law prohibiting "unsworn falsification" in connection with an application for government "benefits."

Although the nonprofit organization contended that its CT-12 submissions did not constitute an application for a government "benefit," information in the report was used to procure the "benefit" of being permitted to solicit tax-exempt donations. Consequently, the jury's determination that the nonprofit organization had committed the crime of unsworn falsification, a predicate offense under ORICO, was permissible.

The decision—American Federation of Teachers—Oregon, AFT, AFL-CIO v. Oregon Taxpayers United PAC—appears at CCH RICO Business Disputes Guide ¶11,520.

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