Justices Must Weigh Reach Of Civil RICO In Cannabis Case
On Oct. 15, the U.S. Supreme Court heard oral argument in Medical Marijuana Inc. v. Horn, a case addressing whether plaintiffs seeking to recover for economic harms resulting from personal injuries have standing to bring a civil claim under the Racketeer Influenced and Corrupt Organizations Act, or RICO.
The majority, which expressed concern about the potential to significantly expand the scope of the statute, appeared unlikely to side with the respondent by holding that harms resulting from personal injuries are within the scope of civil RICO claims. The court's justification for so limiting civil RICO claims remains to be seen, however, as several justices expressed skepticism about the petitioners' proposal.
Given that RICO claims can involve arson, extortion, human trafficking and other crimes that may cause personal as well as economic injuries, the court's ruling on the issue will affect the victims of such crimes and the civil remedies available to them. The RICO statute criminalizes a "pattern" of "racketeering activity," defined to include a variety of state and federal predicate crimes, also referred to as predicate acts.[1]
The civil remedy provision of RICO is available to a private plaintiff who has been "injured in his business or property by reason of" a defendant's violation of RICO.[2] A civil RICO plaintiff must prove: (1) a violation of RICO as defined under Title 18 of the U.S. Code, Section 1962; (2) injury to business or property; and (3) that the defendant's violation caused the injury.[3]
Because a civil RICO plaintiff may recover triple damages, as well as attorney fees and costs, RICO is a powerful tool for plaintiffs attorneys, and can expose defendants to significant liability, especially in the context of class actions.[4]
In Medical Marijuana Inc. v. Horn, the Supreme Court is asked to resolve a circuit split on the issue of whether economic harms resulting from personal injuries satisfy the "injured in his business or property" requirement. The respondent is Douglas Horn, a commercial truck driver, who used a cannabis-derived product manufactured and distributed by the petitioners for his chronic pain.
The product was advertised as containing no tetrahydrocannabinol, the main psychoactive compound in marijuana, and Horn confirmed that the product did not contain THC by contacting customer service. Horn lost his job after testing positive for THC in a routine drug test. He brought a federal civil RICO claim against the cannabis product manufacturers to recover lost wages.
The U.S. District Court for the Western District of New York dismissed Horn's civil RICO claim in 2021, concluding that he lacked standing because his lost wages resulted from unwanted exposure to THC, which was a personal injury.[5] On appeal, the U.S. Court of Appeals for the Second Circuit reversed in 2023, finding that Horn's loss of employment met the "injured in his business or property" requirement of Title 18 of the U.S. Code, Section 1964(c).[6]
In issuing its decision, the Second Circuit joined the U.S. Court of Appeals for the Ninth Circuit in concluding that economic damages resulting from personal injuries fall within the civil RICO statute. The Sixth, Seventh and Eleventh Circuits have concluded that the civil RICO statute does not extend to such harms. The Supreme Court granted certiorari in April of this year.[7]
While the federal appellate courts have uniformly held, and the respondent in this case does not dispute, that civil RICO excludes noneconomic damages such as pain and suffering or emotional distress, the courts have reached conflicting decisions as to whether the RICO statute also excludes economic damages that result from personal injury. This is the core issue on appeal.
A ruling for the respondent that economic harms resulting from personal injuries are injuries to business or property could dramatically expand the RICO landscape. A group of business organizations including the U.S. Chamber of Commerce argued as amici curiae that such an expansion would have "devastating consequences" for businesses through increased litigation exposure and risk.[8]
On the other hand, a decision in favor of the petitioners could prevent legitimate victims of racketeering activity from being able to seek redress under civil RICO because their harms include bodily injury.
The Human Trafficking Legal Center warned in their amicus brief that victims of human trafficking may be unjustly robbed of civil RICO standing under the petitioners' rule because they have suffered economic and noneconomic damages that are difficult to disaggregate.[9] The brief emphasized that this was contrary to Congress' intent, in light of Congress' addition of human trafficking offenses to the list of RICO predicate acts in 2003.[10]
At oral argument, the parties and the court focused on these competing interests, and the extent to which siding with the respondent would affect the civil RICO landscape. The petitioners warned that a finding in favor of the respondent would bring "99.99999 percent of all personal injury cases" into the realm of RICO.[11]
The respondent sought to persuade the court that this concern was overblown, because most personal injury claims do not satisfy the other elements necessary for a civil RICO claim, and because the claims would still need to satisfy demanding causation requirements.
Justice Brett Kavanaugh appeared to share the petitioners' concerns, commenting that a ruling in favor of the respondent would result in a "really radical shift" in tort litigation across the U.S., and expressing an unwillingness to sanction such an expansion without "clearer indication from Congress."[12] Chief Justice John Roberts also pressed the respondent on whether the respondent's position would render meaningless the "business or property" requirement.[13]
Justice Ketanji Brown Jackson, on the other hand, noted RICO's "liberal construction" clause, which provides that "provisions of this title … shall be liberally construed to effectuate its remedial purposes,"[14] and cautioned that the petitioners' reading of the statute could unduly restrict the "injured in his business or property" requirement beyond what was intended by Congress.[15]
Several justices also probed the petitioners' legal theory for excluding from civil RICO lost wages resulting from personal injury. The petitioners sought to distinguish injury from harm, arguing that harms that resulted from personal injury, such as lost wages and medical expenses, are not properly characterized as "injur[ies] in … business or property" under RICO.
According to the petitioners, "injury" means the loss of a legal right, and in the civil RICO context the relevant right is the "right to carry on business."[16] However, the petitioners conceded in response to Justice Clarence Thomas' questioning that the loss of employment can constitute an injury in business.[17]
The respondent accepted the petitioners' definition of injury as the loss of a legal right, but argued that the relevant right is the right not to be harmed by RICO predicate acts.[18] Justices Amy Coney Barrett and Samuel Alito asked how the relevant legal right should be identified, and which legal authorities would guide that determination, and the petitioners cited general tort principles.[19]
This response did appear to resonate with Justice Barrett. When the respondent commented that the state tort claim underlying Horn's case — fraudulent misrepresentation –—results in an economic injury satisfying RICO standing,[20] Justice Barrett remarked that she shared the respondent's "confusion" regarding the practical application of the petitioners' definition, and noted that the petitioners' theory of the case is "novel."[21]
Justices Elena Kagan, Sonia Sotomayor and Jackson appeared more concerned with proximate causation than the nature of Horn's injury. Justice Kagan noted that the petitioners' counsel may have an "intuition that [their] client should win and [the respondent] should lose… but the intuition works because there's no proximate cause" and not "because he hasn't satisfied the business or property requirement."[22]
Justice Jackson questioned whether Horn had even suffered a "personal injury" when the harm — the loss of his employment — did not result from the bodily invasion, but rather from the petitioners' alleged misrepresentation about the presence of THC in their product.[23]
Overall, several of the conservative justices seemed unpersuaded by the respondent's efforts to alleviate concerns about a potential sea change in civil RICO litigation, which may mean that Horn and others who suffer similar injuries are unable to sue under RICO. However, the reasoning that the court would use to reach that conclusion is difficult to predict after the oral argument.
The majority of the court appears to agree that Horn's RICO claim is problematic. However, as Justice Kagan noted, the "intuition" that Horn should lose may not necessarily mean that the petitioners' proposed definition of "injury" should prevail.[24]
The tough questioning from some of the justices suggests that the majority may be hesitant to adopt petitioners' "novel" theory of the case.[25] And while the damages at issue in Horn's case are lost wages, the court's ruling may preclude recovery for other damages arising in personal injury actions, such as medical expenses.
The exclusion of lost wages and medical expenses from civil RICO would be welcome news for defendants facing triple damages. On the other hand, such an exclusion would require plaintiffs attorneys to be careful to isolate business or property injuries from personal injuries in order to maintain RICO standing, and to carefully consider whether civil RICO presents the best opportunity for recovery for their clients.
Even where a RICO claim is not available or not pursued, plaintiffs may still bring traditional tort claims — which may allow for sizeable punitive damages awards.
Chiara Spector-Naranjo is a partner and Joy Lee is an associate at Lewis Baach Kaufmann Middlemiss PLLC.
This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] 18 U.S.C. §§ 1961-1968.
[2] 18 U.S.C. § 1964(c).
[3] Villoldo v. BNP Paribas SA , 648 Fed.Appx. 53, 55 (2d Cir. 2016).
[4] Id.
[5] Horn v. Medical Marijuana Inc., 2021 WL 4173195 (W.D.N.Y. Sep. 14, 2021).
[6] Horn v. Medical Marijuana Inc., 80 F.4th 130 (2d Cir. 2023).
[7] Notably, a narrower question on the "business or property" requirement was also presented in a separate petition for writ of certiorari this term, with a college athlete asking the court to overturn the U.S. Court of Appeals for the Fourth Circuit's ruling that his loss of NCAA eligibility and other harms from an alleged criminal bribery scheme did not constitute injuries to "business or property" under civil RICO because he was not a professional athlete. Petition for a Writ of Certiorari, Bowen v. Adidas America Inc., No. 23-920 (U.S. Sup. Ct. Feb. 20, 2024) (pet. denied).
[8] Brief of Chamber of Commerce of the United States of America, Product Liability Advisory Council and American Tort Reform Association as amici curiae Supporting Petitioners at 4, Medical Marijuana Inc. v. Horn, No. 23-365 (U.S. Sup. Ct. July 16, 2024).
[9] Brief of amicus curiae Human Trafficking Legal Center in Support of Respondent, Medical Marijuana Inc. v. Horn, No. 23-365 (U.S. Sup. Ct. Sept. 4, 2024).
[10] Id. at 3.
[11] Transcript of Oral Argument at 84:13-21, Medical Marijuana Inc. v. Horn, No. 23-365 (U.S. Sup. Ct. Oct. 15, 2024).
[12] Id. at 48:23-49:8.
[13] Id. at 52:24-53:4.
[14] Id. at 48:23-49:8.
[15] Id. at 82:7-13.
[16] Id. at 5:4-13.
[17] Id. at 6:1-17.
[18] Id. at 55:24-57:2.
[19] Id. at 35:2-36:4.
[20] Id. at 66:22-67:1.
[21] Id. at 65:21-67:6.
[22] Id. at 24:17-25:6.
[23] Id. at 18:19-23:10.
[24] Id. at 24:17-25:6.
[25] Id. at 66:6-67:6.
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