The United States Supreme Court has just decided a case that may have significant impact on mass tort defendants. In Bridge v. Phoenix Bond & Indem. Co., 2008 WL 2329761 (U.S. June 9, 2008), the Court held that a plaintiff asserting a Racketeer Influenced and Corrupt Organizations Act (RICO) claim predicated on mail fraud need not show, either as an element of his claim or as a prerequisite to establishing proximate causation, that he relied on the defendant’s alleged misrepresentations.

Why should readers of MassTortDefense care about RICO cases? Traditional claims such as strict liability and negligence still serve as the foundation of many mass torts. Increasingly, however, plaintiffs are looking for opportunities to bring novel and non-traditional claims as well, or instead of the traditional theories. Medical monitoring expands the pool of potential plaintiffs to those exposed to, but not yet injured by, a hazardous product. Consumer fraud claims may involve those with no personal injuries but only economic losses, and are, in the view of plaintiffs’ attorneys, theoretically easier to certify as class actions than traditional personal injury claims. A recent survey indicates that securities fraud cases filed against life sciences companies were up significantly in 2007 from the year before, often as plaintiffs try to turn a failure to warn claim into a securities class action. (When the market reacts to negative press about a product, the stock of a company could drop, opening it up to such claims.) And then there are civil RICO claims.

The Bridge case arose from the annual Cook County Treasurer’s Office public auction to sell its tax liens on delinquent taxpayers’ property. To prevent any one buyer from obtaining a disproportionate share of the liens, the county adopted the “Single, Simultaneous Bidder Rule,” which requires each buyer to submit bids in its own name, prohibits a buyer from using agents, employees, or related entities to submit simultaneous bids for the same parcel, and requires a registered bidder to submit a sworn affidavit affirming its compliance with the Rule. Respondents filed suit, alleging that petitioners (defendants below) fraudulently obtained a disproportionate share of liens by filing false documents, allegedly violating RICO through a pattern of racketeering activity involving mail fraud.

Defendants/petitioners argued that when basing a civil RICO claim on fraud, it is not sufficient for a plaintiff to show merely that some violation of a federal fraud statute has occurred. Rather, the plaintiff must show, like any other fraud plaintiff, that the plaintiff itself was defrauded. There is no indication that Congress, in authorizing a civil RICO action based on fraud, intended to permit such actions by persons who were not themselves defrauded. Here, because the alleged pattern of racketeering activity is predicated on mail fraud, respondents must show that they relied on petitioners’ fraudulent misrepresentations, which they cannot do because the misrepresentations were made to the county. They argued that a proximate cause requirement inherent in the “by reason of” language of the statute demands that a civil RICO plaintiff asserting a claim based on fraud establish his reliance on a misrepresentation by the defendant. In the context of a civil RICO claim predicated on fraud, the required causal link demands a showing that the plaintiff relied on an alleged misrepresentation made to the plaintiff by the defendant. Otherwise, the causal relationship between the alleged injury and the alleged fraud is too attenuated.

The Court disagreed, finding that nothing on the statute’s face imposes such a requirement. Using the mail to execute or attempt to execute a scheme to defraud is indictable as mail fraud, and hence a predicate racketeering act under RICO, even if no one relied on any misrepresentation. The Court rejected petitioners’ arguments that under the “common-law meaning” rule, Congress should be presumed to have made reliance an element of a civil RICO claim predicated on a violation of the mail fraud statute. And rejected the argument that a plaintiff bringing a RICO claim based on mail fraud must show reliance on the defendant’s misrepresentations in order to establish proximate cause. The Court felt it had no ability to respond to the policy argument that RICO should be interpreted to require first-party reliance for fraud-based claims in order to avoid the “overfederalization” of traditional state-law claims.

The Court noted that there is no general common-law principle holding that a fraudulent misrepresentation can cause legal injury only to those who rely on it. Of course, misrepresentation can cause harm only if a recipient of the misrepresentation relies on it. And a RICO plaintiff who alleges injury by reason of a pattern of mail fraud cannot prevail without showing that someone relied on the defendant’s misrepresentations. But that does not mean that the only injuries proximately caused by the misrepresentation are those suffered by the recipient. There is a proximate cause element, and it requires a sufficiently direct relationship between the defendant’s wrongful conduct and the plaintiff’s injury. But here plaintiffs’ alleged injury –the loss of valuable liens– is the direct result of petitioners’ alleged fraud. It was a foreseeable and natural consequence of petitioners’ scheme to obtain more liens for themselves, and that is sufficient.

The Court’s decision on reliance was based on statutory interpretation, rather than logic or common sense. It seems likely that it will create additional litigation in the lower courts over the meaning of the proximate cause element of a civil RICO claim. But the absence of a clear reliance requirement may in fact make this type of claim even more popular with mass tort plaintiffs. Product sellers, and especially those involved in RICO litigation already, will need to comb the opinion for ammunition to support their causation arguments.