Opinion ID: 1281532
Heading Depth: 1
Heading Rank: 3

Heading: RICO claim

Text: Respondents moved to dismiss the RICO claim on the grounds that appellants: failed to state sufficient facts to constitute a cause of action; failed to plead fraud with particularity; lacked standing because the injuries complained of were not proximately caused by any alleged RICO violation; and failed to plead the RICO claim with the particularity required pursuant to Rule 9(b), SCRCP. The circuit court dismissed the RICO cause of action on the ground that complaints alleging RICO violations are subject to the same stringent pleading requirements applicable to fraud claims. The circuit court also held appellants failed to plead the existence of two predicate acts that constitute a pattern of racketeering as required by RICO. [3]
The circuit court held that complaints alleging RICO violations are subject to the same stringent pleading requirements applicable to fraud claims pursuant to Rule 9(b), SCRCP. [4] We disagree. The circuit court cited three cases to support its conclusion that RICO actions are subject to the particularity pleading requirement of Rule 9(b). However, in each of these cases, the underlying predicate acts alleged in support of the RICO action were acts of fraud. Florida Dep't of Ins. v. Debenture Guar., 921 F.Supp. 750 (M.D.Fla.1996) (allegations of federal securities fraud); Grant v. Union Bank, 629 F.Supp. 570, 575 (D.Utah 1986) (allegations of mail and wire fraud); Crystal v. Foy, 562 F.Supp. 422 (S.D.N.Y.1983) (allegations of fraudulent conduct violating the Securities Exchange Act). Here, the underlying predicate acts alleged in support of the RICO cause of action are violations of S.C.Code Ann. § 12-21-2804(B) (Supp.1998) which prohibits the offering of special inducements [5] and S.C.Code Ann. § 12-21-2804(A) (Supp. 1998) which prohibits businesses from receiving primary or substantial gross proceeds from video gaming devices. Thus, the alleged underlying predicate acts are not based in fraud. [6] As respondents point out, some courts have specifically held that the same standard of particularity should be applied to all RICO claims. See, e.g. Plount v. American Home Assurance Co., 668 F.Supp. 204 (S.D.N.Y.1987); Schnitzer v. Oppenheimer & Co., 633 F.Supp. 92 (D.Or.1985); Taylor v. Bear Stearns & Co., 572 F.Supp. 667 (N.D.Ga.1983). However, contrary to the respondents' contention, the specificity requirement for pleading RICO claims is not well-settled. Many courts have not been persuaded by the reasoning of the courts that have applied Rule 9(b) to all RICO actions and have limited the application of Rule 9(b) to fraud-based RICO claims. See United States v. District Council of N.Y. City, 778 F.Supp. 738 (S.D.N.Y.1991); United States v. Bonanno Organized Crime Family, 683 F.Supp. 1411 (E.D.N.Y.1988); Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 792 n. 7 (3d Cir.1984), cert. denied, 469 U.S. 1211, 105 S.Ct. 1179, 84 L.Ed.2d 327 (1985). Logically it follows, at least in most circuits, that when predicate acts are not based on fraud, there is no pleading requirement of particularity. 2 James Wm. Moore, Moore's Federal Practice § 9.03(6)(b) (3rd ed. 1999). Fraud claims brought under the RICO Act are subject to the particularity requirements of Rule 9(b). 5 Wright & Miller, Federal Practice and Procedure 2d § 1251.1 (1988) (emphasis added). Furthermore, Rule 9(b) by its terms applies only to those cases in which fraud or mistake are averred. The particularity requirement is a means for courts to summarily dispose of frivolous lawsuits based on fraud. Courts applying the particularity requirement to all RICO allegations have reasoned that the purposes advanced by Rule 9(b) are equally served by applying the rule to non-fraud RICO claims. These courts have also concluded that RICO allegations are even more damaging to a defendant's reputation by labeling him with the stigma-laden term racketeer. See Plount (Yet all of the concerns that dictate that fraud be pleaded with particularity exist with even greater urgency in civil RICO actions.). But see Sedima v. Imrex Co., 473 U.S. 479, 492, 105 S.Ct. 3275, 3283, 87 L.Ed.2d 346 (1985) (As for stigma, a civil RICO proceeding leaves no greater stain than do a number of other civil proceedings); Rodonich v. House Wreckers Union Local 95, 627 F.Supp. 176, 178 (S.D.N.Y.1985) (questioning propriety of altering RICO's pleading burden). However, federal courts have a greater need to summarily treat frivolous RICO claims than fraud claims because the civil RICO treble damages clause provides a strong incentive for plaintiffs to convert the garden variety fraud cause of action into a racketeering action. We have considered the reasoning of the above cases and we agree with the cases that do not require pleading to comply with Rule 9 unless fraud is alleged as the predicate act. [7] There are many actions that could damage a person's reputation and particularity should not be required in each of these cases. This was simply not intended by the enactment of Rule 9. Since the rule is a special pleading requirement and contrary to the general approach of simplified pleading adopted by the federal rules, its scope of application should be construed narrowly and not extended to other legal theories or defenses. 5 Wright and Miller Federal Practice and Procedure 2d § 1297 (1990). Accordingly, the circuit court's holding that the particularity requirement of Rule 9(b) applies in this case is error. [8]