Causation and Civil RICO Standing: When Is a Plaintiff Injured "By Reason of " a RICO Violation? By Laura Ginger

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Causation and Civil RICO Standing: When Is a Plaintiff Injured “By Reason of ” a RICO Violation? By Laura Ginger

Causation and Civil RICO Standing: When Is a Plaintiff Injured “By Reason of ” a RICO Violation? By Laura Ginger

CAUSATION AND CIVIL
RICO STANDING:
WHEN IS A PLAINTIFF INJURED “BY
REASON OF” A RICO VIOLATION?

LAURA GINGER*

* Associate Professor of Business Law, Indiana University School of Business. B.A.
1976; DePauw University, J.D. 1979, The University of Chicago Law School.

INTRODUCTION

Among the remedies included by Congress in the Racketeer
Influenced and Corrupt Organizations Act (“RICO”),’ is a private
right of action for treble damages available to “[a]ny person injured
in his business or property by reason of a violation of section
1962 “2 of the Act. Thus, to have standing to sue under civil RICO,
a private plaintiff must prove injury to business or property “by
reason of” a RICO violation. This requirement poses a question of
causation: what nexus between the plaintiff’s injury and the defendant’s
RICO violation must exist before one can say that the
injury occurred “by reason of” the violation? 3

The meaning of the phrase “by reason of” in this context, has
proved problematic. The statute provides no guidance as to its
proper interpretation, and the courts have been unable to fashion a
uniform or comprehensible definition. The United States Supreme
Court’s decision in Sedima, S.P.R.L. v. Imrex Co.,4 which dealt in
part with civil RICO standing requirements, did not clearly identify
the subsections of section 1962 to which its holding applied; it
therefore left unanswered many important questions regarding
standing.5 Moreover, the Court’s recent denial of certiorari in a
case presenting that precise issue avoided an opportunity to clarify
the Sedima decision.’

Left to their own devices, the lower federal courts have differed
as to the type of causal nexus between a plaintiff’s injury and
a defendant’s racketeering activities which is required for civil
RICO standing. Some courts have fashioned causation rules which
apply generally to private civil RICO actions,7 while others have
developed rules which apply only to certain classes of plaintiffs8 or
to particular subsections of section 1962.9 As a result, the current
state of the law in this area remains in an extreme state of chaos.

These conflicting lower court decisions have, in effect, restricted
the class of private plaintiffs entitled to recover under
RICO. This restriction neither comports with the language in
Sedima’° nor satisfies those who would prefer to see civil RICO’s
current strength and availability preserved. However, other courts
and commentators applaud the limitation of private civil RICO
suits.’: As a result, each of the conflicting approaches, if formally
implemented, would have a significant, if differing, impact on the
Act’s standing requirements. Although few RICO reformers directly
consider the requisite type of causation, various proposals
have been made elsewhere to amend the Act’s standing
requirements. 2

This Article will explore the issue of causation and civil RICO
standing from several perspectives. In examining the various judicial
interpretations of the statutory language, this Article will give
particular attention to the Supreme Court’s discussion in the
Sedima case, as well as to the varying rules developed by the lower
courts. Moreover, this Article will provide an analysis of current
reform proposals and advocate that the RICO statute be amended
to implement a definite and clear standing rule.

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