Bridge v. Phoenix Bond and Indemnity Co.
filed June 9, 2008
Cite as 07-210

Court Upholds Fraud Liability Verdict, Denies Reliance as Element

Respondent Phoenix Bond and Indemnity Co. files a civil action for damages against petitioner ( Sabre Group, LLC through its principal Barrett Rochman and its tax-sale bidder John Bridge). The complaint alleged that the petitioner has violated the RICO statute based on the predicate acts on mail fraud that formed a pattern of racketeering activity, and that petitioners had suffered injury because of that violation.

Respondents alleged that the petitioner is engaged in a fraudulent scheme such as, violation of the single – bidder rule and creation of shell companies that bid at four consecutive auctions, is indictable under the fraudulent mail fraud statute. Respondent contends that the petitioner obtained auctioned liens, which could have been awarded to respondents.

Petitioner alleged that they could not be held liable for violation of RICO because the respondents failed to establish reliance.

Whether reliance is a required element of Racketeer Influence and Corrupt Organizations Act (RICO) claim predicated on mail fraud and, if it is, whether the reliance must be by the plaintiff.

According to 18 U.S.C 1964(c), a civil action RICO plaintiff may recover damages if it is injured in its business or property “by reason of” a RICO violation. The court construed section 1964© “by reason of” requirement and held that a civil RICO plaintiff must prove that a RICO violation proximately caused its injury.

As a general matter, a plaintiff alleging RICO violation based on mail fraud must show reliance on the defendant’s misrepresentation to establish that the RICO violation proximately caused its injury. It is a matter of basic logic that misrepresentation cannot cause much less proximately cause injury, unless someone (either the plaintiff or the third party) relies upon it.

It is undisputed that the federal mail fraud statute, 18 U.S.C 1341, does not require proof of any reliance nor does the text of the relevant RICO provisions. Mail fraud constitutes “racketeering activity” with the requisite relationship to an enterprise violates RICO, 18 U.S.C 1962. Nothing in the linkage of mail fraud to RICO’S liability provisions imports a reliance requirement that neither of those provision contains separately.

The judgment of the court is affirmed.