Antitrust Law Daily Wrap Up, RICO NEWS: Petition to review damages and fraud proof in RICO action against food distributor denied, (Apr 28, 2014)

By Linda O’Brien, J.D., LL.M.

The U.S. Supreme Court will not review a decision by the U.S. Court of Appeals in New York City that allowed class members to seek contract-expectation damages against the food distributor rather than their out-of-pocket losses, and found that individual class members would not be required to show fraud by the food distributor was the cause-in-fact of their claimed injury under RICO. Today, the Court denied the food distributor’s petition for certiorari. The petition was docketed on January 21, 2014 (U.S. Foods, Inc. v. Catholic Healthcare West, Dkt. 13-873).

Catholic Healthcare West, Cason, Inc., and Frankie’s Franchise Systems Inc. were customers of U.S. Foods, Inc. (formerly known as U.S. Foodservice, Inc.), the second-largest food distributor in the United States. The customers alleged that U.S. Foods artificially inflated a component of its cost-plus billing and disguised the proceeds through the use of purported promotional allowances. Six Value Added Service Providers (VASPs) were allegedly shell companies established and controlled by U.S. Foods for the purpose of fraudulently inflating its costs to customers in violation of the Racketeer Influenced Corrupt Organization Act (RICO). The Second Circuit affirmed the district court’s class certification with respect to all claims. The court also found that the class could pursue contract-expectation damages and no individual class member would be required to show the alleged fraud by U.S. Foods was the cause-in-fact of the claimed RICO injury.

In the petition, the food distributor contended that the Second Circuit placed itself in conflict with the approaches of numerous other circuits by permitting recovery of contract-expectation damages as a permissible remedy in a civil RICO action based on alleged fraud rather than limiting damages to out-of-pocket losses. The petitioner also contended that the Second Circuit placed itself in conflict with other circuits by holding that the but-for causation in a civil RICO class action may be satisfied without any individualized proof that any member of the class actually relied on that conduct.

Attorneys: Glenn M. Kurtz (White & Case LLP) and Kathleen M. Sullivan (Quinn Emanuel Urquhart & Sullivan LLP) for U.S. Foods, Inc.

Companies: U.S. Foods, Inc.; Catholic Healthcare West; Cason, Inc.; Frankie’s Franchise Systems Inc.

News: RICO