Inventive Allegations of Racketeering on the Rise in Maritime Context

September 8, 2016
Eric Chang

Types : Alerts

Recently, shippers have been filing suit for cargo damage or loss under the umbrella of the federal Racketeering Influenced and Corrupt Organizations Act (RICO) statute. 18 U.S.C. § 1961, et seq. RICO was enacted in 1970 by the US Congress to eradicate organized crime. To ensure that all possible racketeering activity was captured under the RICO statute, the “acts of racketeering activity” are described in the statute in very broad terms and include wire fraud, theft from an interstate shipment, and interference with commerce by threats or violence; plus the usual criminal mainstays of murder, kidnapping, robbery, and arson. More importantly, from the perspective of a shipper who suffered a loss of or damage to cargo, RICO allows a successful claimant the right to collect attorneys’ fees and treble (i.e. triple) damages. This has motivated enterprising plaintiff’s lawyers into taking advantage of the broad statutory definitions of racketeering activity to fashion RICO claims from maritime commercial disputes that have nothing to do with organized crime.

In order to succeed on a RICO claim, a claimant must do more than merely allege some racketeering activity by the carrier. Rather, a prima facie RICO claim must allege a pattern of “at least two acts of racketeering activity” within ten years of one another. But, the RICO statute does not specify what else, if anything, a claimant is required to allege in addition to “at least” two acts. In H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229 (1989), the US Supreme Court clarified that a RICO claimant must also prove a pattern of racketeering activity by demonstrating a “specific threat of [racketeering] extending indefinitely into the future,” i.e., an open-ended pattern of criminal activity, or that the offenses “are a part of an ongoing entity’s way of doing business,” i.e., a close-ended pattern of criminal activity.

Both tests were recently examined in a cargo claim by a New York District Court in MAVL Capital, Inc. v. Marine Transport Logistics, Inc. In MAVL Capital, the plaintiff shippers disputed a NVOCC’s exercise of a lien on cargo for unpaid freight by alleging a myriad of tort and contract theories, including a claim under the RICO statute. After discovery, the NVOCC defendants filed a motion for judgment on the pleadings to dismiss plaintiffs’ RICO claims. The District Court granted defendants’ motion because, even assuming plaintiff’s allegations of an unlawful seizure of the cargo to be true, plaintiffs failed to allege either an open-ended or closed-ended pattern of racketeering activity.

The MAVL Capital court’s analysis is instructive, in particular, because the case involved facts typical of many cargo claims. First, the District Court found that, at most, any alleged RICO activity began and ended within a two month period from the date the carrier first exercised the lien – which the plaintiffs characterized as an act of “extortion” – to the date where defendants allegedly procured a fraudulent title for one of the vehicles involved in the shipment. The District Court held that a period of two months was insufficient to show a closed-ended pattern of criminal activity or show that such criminal activity is a part of the carrier’s regular way of doing business. In other words, the alleged racketeering activity that began and ended within a mere two month period was not the type of organized crime that the RICO statute was intended to thwart.

It should be noted that although there is no bright-line rule for determining a closed-ended duration, the Second Circuit has not found a closed-ended pattern of racketeering unless activities exceeded 24 months. DeFalco v. Bernas, 244 F.3d 286 (2d Cir. 2001). This requirement that any alleged racketeering extended activity extend for at least 24 months protects carriers,  even in suits involving multiple shipments, so as long as the shipments began and ended within 24 months.

Second, the District Court found that the defendant did not possess any more of the shipper’s cargo. This is a key fact in cargo claims where only a single shipment is involved.  If there is no further cargo to be seized or acted upon by the carrier, then there is no risk of a racketeering activity “extending indefinitely into the future” because the relationship has come to an end. Without proof of a continuing threat or ongoing racketeering, the plaintiff in MAVL Capital was unable to prove an open-ended pattern of criminal activity. Because the plaintiff shipper failed to allege either a closed-ended or open-ended pattern of racketeering, the RICO claims were dismissed.

Additionally, the recent US Supreme Court decision in RJR Nabisco, Inc. v. European Community provides another significant defense against questionable RICO claims. In RJR Nabisco, the Supreme Court held that the extraterritorial reach of RICO was limited to predicate offenses that Congress clearly intended to reach abroad (e.g. trafficking in counterfeit goods). The Supreme Court imposed an additional condition for civil RICO lawsuits: the existence of a domestic injury to business or property. For a plaintiff in a typical cargo claim, RJR Nabisco would require the plaintiff to show that any alleged RICO activity and resulting injury occurred domestically and would limit a plaintiff’s attempts to tie in foreign activity.  These additional conditions significantly limit a claimant’s ability to claim a violation of RICO when international shipments are involved.

In short, the allure of treble damages will likely continue to entice plaintiffs’ lawyers into bringing RICO claims against carriers, but forewarned is forearmed and carriers defending against these claims need to be aware of the challenges and defenses involved in defending against RICO allegations.


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