Retaliatory RICO and the Puzzle of Fraudulent Claiming

Nora Freeman Engstrom*

Over the past century, the allegation that the tort liability system incentivizes legal extortion and is chock-full of fraudulent claims has dominated public discussion and prompted lawmakers to ever-more-creatively curtail individuals’ incentives and opportunities to seek redress. Unsatisfied with these conventional efforts, in recent years, at least a dozen corporate defendants have “discovered” a new fraud-fighting tool. They’ve started filing retaliatory RICO suits against plaintiffs and their lawyers and experts, alleging that the initiation of certain non meritorious litigation constitutes racketeering activity— while tort reform advocates have applauded these efforts and exhorted more “courageous” companies to follow suit. Curiously, though, all of this has taken place against a virtual empirical void. Is the tort liability system actually brimming with fraudulent claims? No one knows. There has been no serious attempt to analyze when, how often, or under what conditions fraudulent claiming proliferates. Similarly, tort reformers support RICO’s use because, they say, conventional mechanisms to deter fraud fall short. But are conventional mechanisms insufficient? Hard to say, as there is no comprehensive inventory of the myriad formal and informal mechanisms already in use; nor do we have even a vague sense of how those mechanisms actually operate. Further, though courts have started to green-light retaliatory RICO actions, no one has carefully analyzed whether these suits are, on balance, beneficial. Indeed, few have so much as surfaced relevant risks. Addressing these questions, this Article attempts to bring overdue attention to a problem central to the tort system’s operation and integrity.

*Professor of Law, Associate Dean for Curriculum, and Deane F. Johnson Faculty Scholar, Stanford Law School. My thanks to Lester Brickman, Dick Craswell, Scott Cummings, Richard Epstein, John Freeman, David Freeman Engstrom, C. Scott Hemphill, Deborah Hensler, Daniel Ho, Ariel Porat, Robert Rabin, Deborah Rhode, Anthony Sebok, Shanin Specter, Robert Weisberg, John Witt, and Adam Zimmerman for helpful comments on previous drafts. I am also grateful to the participants of the Stanford Law School Faculty Workshop, the Columbia Law School Colloquium on Courts and the Legal Process, the Loyola Law School, Los Angeles, Faculty Workshop, the New York Torts Group at NYU School of Law, and the North American Workshop on Private Law Theory. Minh Nguyen-Dang, Michael Qian, and Rachael Samberg have my gratitude for exceptional research assistance.

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