Antitrust Law Daily Wrap Up, RICO NEWS: Supreme Court asked to overturn RICO award in action alleging securities fraud, (Jan 27, 2014)

By John W. Arden, J.D., LL.M.

The U.S. Supreme Court has been asked to overturn a $12.9 million award in an action that claimed both federal RICO and securities fraud on the ground that the Private Securities Litigation Reform Act (PSLRA) barred civil RICO claims based on predicate acts of securities fraud. The petition, docketed on January 23, 2014, challenges an Eighth Circuit decision, declining to consider the argument that the PSLRA barred the civil RICO claim on the ground that it was first raised on appeal (Bogart v. Olivier Family Interests, Dkt. 13-878).

Michael Bogart and Doris Wright appealed the judgment of the federal district court in Springfield, Missouri, which awarded damages of $12.9 million in accordance with a jury verdict on state law claims of misrepresentation and breach of fiduciary duty and federal law claims of violations of the Racketeer Influenced Corrupt Organization Act (RICO). Bogart and Wright claimed that the PSLRA barred the finding of a RICO violation based on securities fraud. The Eighth Circuit upheld the district court decision, refusing to consider the argument because it was newly raised on appeal, and noting that appellate courts consider arguments first raised on appeal only if the question is purely legal and requires no additional factual development or if manifest injustice would otherwise result.

“The possible application of the PSLRA to this case is not a purely legal question, and appellants have not established that a manifest injustice would result if this court does not consider its applicability in the first instance,” the court observed. As for the RICO verdict, the Eighth Circuit concluded that evidence was adequate to support the jury’s finding that (1) appellants committed racketeering activity or predicate acts consisting of a scheme to defraud through wire fraud, as well as misrepresentation; (2) appellants committed a pattern of racketeering activity that spanned a substantial period of time or was ongoing; and (3) plaintiffs’ injuries were proximately caused by appellants’ fraudulent activity.

Petitioners presented three questions: (1) Can a civil judgment stand if it was entered on a non-existent cause of action simply as a result of trial counsel’s failure to alert the tribunal as to the fact that the cause of action is not one cognizable under federal law?; (2) Is a RICO judgment grounded in the type of conduct that the statute specifically excluded from the list of eligible predicates immune from changes on appeal by the mere virtue of trial counsel’s failure to preserve an objection?; and (3) Does the constraint that PSLRA imposed on civil RICO with respect to prohibiting claims based on securities fraud constitute a limitation on the federal court’s jurisdiction under Section 1964(c)?

Attorneys: Alexey V. Tarasov for Michael Bogart.

Companies: Olivier Family Interests

News: RICO