Banks May Face Rash of Triple Damage Suits: High Court Upholds Using Anti-Mob Law against Firms

By Naylor, Bartlett | American Banker, July 2, 1985 | Go to article overview

Banks May Face Rash of Triple Damage Suits: High Court Upholds Using Anti-Mob Law against Firms


Naylor, Bartlett, American Banker


WASHINGTON -- Bankers may face a rash of racketeering lawsuits following a Supreme Court decision Monday that upheld the use of a federal anti-mobster law as a vehicle for civil suits seeking triple damages.

In a 5-to-4 vote, the justices ruled in Sedima, S.P.R.L. v. Imrex Co., et al., that the Racketeer-Influenced and Corrupt Organizations Act can be applied to legitimate businesses.

Passed by Congress in 1970, the act, known as RICO, was intended as a weapon against crime syndicates. One provision allows individuals to use the RICO law to collect triple damages from a civil lawsuit.

The civil provisions of RICO went little-noticed for a decade after the law was enacted. But since 1980, aggressive lawyers frequently have used the law's extraordinary broad language to seek triple damages from legitimate businesses. And banks number prominently among the targets. Of the 300 civil cases filed under the act since 1982, about a third have been aimed at financial institutions.

Attempting to put a cap on these RICO cases, the U.S. Court of Appeals for the Second Circuit ruled last year that banks and other businesses must be convicted of criminal charges before a RICO civil suit could be brought.

It was this opinion that the Supreme Court struck down on Monday. Arguing for the majority, Justice Byron White wrote, "While we understand the [circuit] court's concern over the consequences of an unbridled reading of the statute, we reject [its decision]."

In a separate opinion Monday in the case of American National Bank and Trust Co. of Chicago, et al., v. Haroco Inc. the high court applied its Sedima ruling.

Congressional Response

"Obviously we're disappointed in the decision itself," said John Gill, general counsel of the American Bankers Association. "At the same time, we continue to pursue our efforts to push for amendments in the RICO statute."

The decision came as a personal victory for Jackie Kleiner, a professor at Georgia Institute of technology, who as an attorney brought the first RICO case against a legitimate business. That was in 1980 against the First National Bank of Atlanta.

"I didn't expect so full and complete a victory," Mr. Kleiner said, reached at his summer residence in Chevy Chase, Md. Mr. Kleiner also represented Haroco in its case against American National.

Nevertheless, Mr. Kleiner joined others in predicting the effect of the Supreme Court decision will be to prod Congress to rewrite the RICO statute. In attempting to "get at organized crime," Mr. Kleiner said, Congress "couldn't just say the law was intended for anyone whose name ended in a vowel. They had to use a broad brush. Now it's up to Congress to think of a change."

"There is no question the statute is being abused," said Irving Nathan, an attorney with the Washington firm of Arnold & Porter. "They will have to modify the language."

On Capitol Hill, Senate Judiciary Committee Chairman Strom Thurmond already has promised to rewrite the RICO statute. During a hearing in May, Sen. Thurmond said "some changes" must be made to prevent litigation excesses. A second committee hearing on the statute is scheduled for July 30, though a witness list has not been determined.

Interestingly, Monday's Supreme Court opinion drew heavily on an interpretation of what Congress intended when it wrote the RICO statute in 1970.

Holding to the letter of the law, Justice White wrote that "the language of RICO gives no obvious indication that a civil action can proceed only after a criminal conviction. …

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