In their never-ending zeal to deny claims, insurance companies often file a civil RICO case against physicians who treat auto accident victims and accept payment via an assignment of their patients’ no fault insurance benefits. Such suits generally allege fraud on the part of the physicians; for instance, that they unlawfully incorporated their professional medical corporation by violating the New York law prohibiting non-physicians from controlling and/or sharing ownership in these types of corporations. In other words, the insurance company’s basic allegation often is that the physician doesn’t really own and control his or her own medical practice.
As set forth by the Legal Information Institute, the Racketeer Influenced and Corrupt Organizations Act (RICO) is a federal statute originally aimed at stopping the Mafia and other organized crime entities. It does, however, contain a provision under which a private party can file a civil suit in federal court against a person, corporation, business, political group, etc. alleged to have violated one or more RICO prohibitions.
Given that insurance companies can recover triple damages, costs and attorneys’ fees if they are successful in their civil RICO actions, it is not difficult to see why these cases are so popular. However, they also are highly complex and require that plaintiffs adhere to strict rules, including what they must allege in their initial pleadings and what they must actually prove in court. Nevertheless, being named as a defendant in a civil RICO case can have a very stigmatizing effect on the physicians being sued.
Civil RICO Elements
As explained by Law360.com, courts are quick to dismiss frivolous RICO allegations at an early stage of the litigation. A civil RICO plaintiff cannot simply allege garden-variety fraud. It must allege the following three things:
- The defendant committed a substantive RICO violation per 18 USC Section 1962.
- The plaintiff’s business was injured.
- The injury occurred by reason of the defendant’s substantive RICO violation.
In terms of the RICO violation, the plaintiff must allege that the defendant
- participated in conduct
- of an enterprise
- via a pattern
- of racketeering activity
A RICO enterprise may be an individual, corporation, partnership or any other legal entity. In addition, it can be group of individuals who are associated, but not bound together in a legal entity. Such informal associations are called “associations in fact.” However, the association must have an ongoing purpose, relationships between and among the individuals associated with it, and have existed for a sufficient period of time for the individuals to have pursued the association’s common purpose(s). Put another way, the defendants must have worked together for a common illegal interest.
In addition to alleging that the defendant is part of a qualified existing enterprise, a plaintiff also must allege and ultimately prove that the defendant has an actual management role in its operation, controlling or substantially influencing the way in which the enterprise conducts business. Being a lower level employee under the supervision of higher ranking supervisors or officers is not sufficient. Nor is being someone who has a business relationship with the enterprise, such as a vendor who provides equipment or supplies or an attorney or accountant who provides services, even if the supplier or provider knows or suspects that the enterprise has an illicit purpose.
Federal courts have commented that relevant questions to be answered when seeking to determine a defendant’s prohibited conduct are:
- Did the defendant occupy a position in the enterprise’s chain of command?
- Did he or she knowingly implement enterprise decisions?
- Was he or she indispensable to achieving the enterprise’s goal?
Pattern of racketeering activity
A racketeering activity is one that is prohibited by the RICO statute. In a criminal RICO prosecution, the State must prove beyond a reasonable doubt that the defendant committed such an act. In a civil RICO case, however, the plaintiff must prove only by a preponderance of the evidence that the defendant committed the act.
Under the RICO statute’s plain language, a pattern of racketeering activity is defined as two or more prohibited acts, called predicate acts, that occurred within 10 years of each other. This is often called the “closed-end” approach to alleging and proving a pattern.
Often a civil RICO plaintiff cannot prove a “closed-end” pattern. Many courts have held that even if the plaintiff can prove such a pattern, this alone is insufficient to prevail in the lawsuit. The plaintiff also must allege and ultimately prove that however many predicate acts the defendant committed, they were continuous and interrelated. This is often called the “open-ended” pattern approach.
In terms of interrelatedness, the prohibited acts must not have been isolated events. Instead, they must have had similar purposes, methods of commission, results, etc.
Proving continuation is even more complicated. In the 1989 case of H.J. Inc. v. NW. Bell Tel. Co., the U.S. Supreme Court interpreted continuity as both open- and closed-ended, “referring either to a closed period of repeated conduct or to past conduct that by its nature projects into the future with a threat of repetition.” The Court went on to say that to be successful with regard to open-ended continuity, a plaintiff must plead facts that “give rise to a reasonable expectation that the racketeering activity will extend indefinitely into the future.”