Direct Causation, Derivative Causation, and Civil Rico Law

Poole Huffman, LLC

When you’re confronted by a complaint alleging civil RICO violations, it’s reasonable to be trepidatious. After all, a plaintiff’s success in a RICO case has the potential to trigger triple damages. Take heart, though, as there are also numerous opportunities for you to defeat that RICO claim before it even gets to trial. Whether it’s continuity, causation, the pattern of racketeering activity, or some other required element of RICO pleading, RICO law has many requirements where the price for failing to plead properly is dismissal. If your business has encountered such a complaint, look to an experienced Atlanta civil RICO lawyer to help you achieve your best possible result.

In this post, we’ll focus on one requirement in particular — causation — and one recent RICO case where that was the crux to the defense’s success.

The parties were a startup company that manufactured pallets and one of the startup’s lenders. After the startup defaulted, the lender sued in both state and federal courts. In the federal lawsuit, the lender alleged that a group that included two of the startup’s shareholders, plus two of the startup’s employees, in addition to another of the startup’s lenders and that company’s principals engaged in a RICO conspiracy.

The lender’s case, however, contained a major hole that prevented the defendants from facing potential RICO liability.

In most RICO cases, the law requires a plaintiff to establish — not just that it suffered harm — but that it suffered harm that was a direct result of the illegal conduct that violated the RICO statute. If the plaintiffs’ injury was what the law deems “derivative,” then that usually is not enough to satisfy the causation requirement. When “a creditor suffers [harm] due to a corporation’s default caused by another party’s actions,” as the lender in this case alleged, that’s a derivative injury and insufficient for proximate cause under RICO.

Proximate Cause and RICO Law in the 11th Circuit

This recent case came from the federal Sixth Circuit Court of Appeals, whose ruling directly impact federal lawsuits in Michigan, Ohio, and Kentucky. The federal appeals court whose rulings directly affect federal RICO cases filed here in Georgia — the 11th Circuit court — has issued its own set of ruling on proximate cause in RICO cases.

Back in 2006, the court stated that “a plaintiff has standing to sue only if his injury flowed directly from the commission of the predicate acts.” The law doesn’t require that the injury a plaintiff uses to establish causation be the only one the plaintiff suffered, but the 11th Circuit court has clearly stated that “there must be ‘some direct relation’ between the conduct and the injury to sustain a claim” under RICO. A plaintiff that establishes only that the alleged injury was foreseeable but doesn’t also demonstrate that it was direct is a plaintiff that falls short of the requirements of causation in a RICO claim.

If you’re potentially involved in a civil RICO case, whether you’re on the plaintiffs’ side or the defendants’ side, it pays to have legal counsel that is experienced and well-versed in all the details and nuances of this law. The knowledgeable Atlanta civil RICO attorneys at Poole Huffman, LLC are here to help with in-depth experience in all aspects of civil RICO law. Contact our attorneys online or by calling 404-373-4008 to schedule your confidential consultation today.

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