Civil Appellate Services in Colorado

What You Should Consider Before Filing a RICO Claim

Do I have a RICO claim?  What you should consider before filing a RICO claim.

When you’re the victim of a scam, you have many legal options you can pursue.  Each option has its own positives and negatives.

Many instances of fraud—where a person or business uses false or misleading information to scam a person out of money, goods, or services—are resolved through state law.  All litigation involves expense and delay.  However, filing a claim in Colorado state court is likely to resolve your case faster and cost less than filing a matter in federal court, as discussed below.

If you had a contract with the person who defrauded you, that contract might require arbitration.  Arbitration is a less formal, “private” court—operated not by the state or federal government, but by a private organization.  The arbitrator acts like a judge—hearing the facts and applying the law to determine who is right and what that person should receive.

In many situations, arbitration is a great way to achieve a resolution faster.  Arbitration is also likely to prevent access to a jury; damages for extreme misconduct may be less with an arbitrator than from a jury.  Usually, arbitration occurs because the parties signed a contract that included an arbitration clause—a paragraph that states both parties will not file a lawsuit in court, but arbitrate instead.  However, even if you signed a contract requiring you to engage in arbitration (and giving up your right to a jury), the fraudulent conduct of the other party may invalidate the contract—allowing you to file your matter in court.

In addition to resolution through state court proceedings or arbitration, some victims of fraud pursue litigation in federal court under RICO.  RICO is a federal law aimed at “fraudulent enterprises”—i.e. organized groups of individuals engaging in an on-going, fraudulent scheme. For a discussion of what constitutes RICO see my post: What is RICO and How to Defend Against It.

RICO claims are tempting because that law allows triple damages—meaning if you were scammed out of $500,000, you could recover $1,500,000 through RICO.  RICO also allows the court to award a victim attorney’s fees—meaning upon a victim winning the case, the defendant has to pay for the victim’s attorney.

These strong financial incentives lead many victims to file RICO claims.  However, before you decide to file a RICO claim, you should also understand the disadvantages of pursing a RICO claim in federal court.

First, generally, litigation in federal court is more formal, with stricter rules than state court.  As a result, there are more hoops to jump through and more ways in which unwary counsel could make mistakes that negatively affect your case.  If you decide to pursue federal litigation, make sure you choose an attorney experienced in federal court.

Because federal courts are run more formally, your attorney is likely to need to spend more time on your case.  This increases the cost of the litigation to you.  Although you may recover those attorney’s fees if you win, there are no guarantees in litigation.  RICO is a complicated set of requirements, as discussed below, and victory in litigation is never certain.

Second, federal litigation usually takes significantly longer.  Federal courts are busy and the more formal procedures result in longer periods before trial and greater delays in the court ruling on matters before it.  You could be stuck waiting 6 to 8 months, or more, waiting for a federal judge to rule on a motion that might decide your entire case.  The delays waiting for trial are even longer.  Overall, you might be spending an extra year waiting for the federal court to resolve your case, where you would already be finished litigating in state court.

Third, regardless of how despicable the person’s behavior was that ripped you off, RICO requires very specific things to have occurred.  These are not a matter of how flagrant the fraud was, but rather how it occurred.  RICO requires proof of multiple instances of fraud, over a period of time, committed as part of an on-going scheme, by a criminal enterprise.  Basically, the fraud needs to be part of an organized group of people engaged in on-going fraud against you and others.  This is a very specific type of conduct.

Proving each step of RICO results in higher legal fees at every stage of litigation.  Discovery (the period where you and your attorney obtain evidence and formally interview people to prove your case and prepare for trial) is much more complicated under RICO, which requires proof far beyond a simple, state-law fraud claim.

The many requirements under RICO give defendants the opportunity to argue you have not proven each requirement.  Arguing to the court you have and obtaining the evidence needed to prove that increases the time and money involved in your RICO claims.  Even if you prevail at trial, defendants might seek to appeal your victory on any number of legal grounds.

Fourth, more money can bring more problems in a variety of ways.  If you’re seeking more money from someone, that person has a strong incentive to fight harder.  In litigation, this leads to a defendant filing more motions to attempt to get rid of the case before trial.  It also means, even if you prevail at trial, it is more likely the defendant will appeal the outcome to a higher court (causing substantial delays, considerable expenses, and the risk in defending your victory before a three-judge appellate panel).  The possibility of triple damages and attorney’s fees does not come without a price.

Finally, if you are suing someone with limited financial resources, longer, more expensive litigation runs the risk of the defendant either spending its money on attorneys (instead of paying you) or spending its money on other matters—including defending itself against lawsuits from other victims—while the litigation is pending.  Triple damages and attorney’s fees are of little use unpaid.

Ultimately, RICO is one option of many in pursuing some fraud claims.  Before you commit to years of expensive, federal litigation, consult an attorney experienced in federal court litigation and RICO claims to evaluate what approach is best for you.

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