Equitable Relief

In addition to monetary damages, RICO also confers standing on a civil plaintiff to obtain equitable relief. Section 1964(a) of the RICO Act states:

The district courts of the United States shall have jurisdiction to prevent and restrain violations of section 1962 of this chapter by issuing appropriate orders, including, but not limited to: ordering any person to divest himself of any interest, direct or indirect, in any enterprise; imposing reasonable restrictions on the future activities or investments of any person, including, but not limited to, prohibiting any person from engaging in the same type of endeavor as the enterprise engaged in, the activities of which affect interstate or foreign commerce; or ordering dissolution or reorganization of any enterprise, making due provisions for innocent persons.

Section 1964(a) received little attention until 2005 when the United States Department of Justice (“USDOJ”) brought a civil RICO suit seeking to disgorge the profits of the big tobacco companies. The USDOJ’s RICO case was similar to the claims earlier brought by the state attorneys general. In essence, big tobacco was accused of circulating fraudulent advertisements through the mails and wires, targeting cigarette sales to under-aged minors, and lying to government regulators. The state attorneys general sought monetary damages caused by the increased health care cost imposed upon the states by cigarette smokers. The state attorneys general RICO claims were, for the most part, dismissed by the district courts given the difficulty of establishing that the increased health care costs would not have occurred but for the defendants’ acts of racketeering. For instance, it would be nearly impossible for the state attorneys general to prove how many smokers smoked because of the fraudulent advertisements, as opposed to peer pressure, or to prove whether certain health problems were caused by smoking as opposed to genetic factors. The difficulty of proving that the smokers’ increased health care costs were caused “by reason of” the defendants’ acts of mail and wire fraud doomed the RICO claims of the state attorneys general under section 1964(c). See Steamfitters Local No. 420 Welfare Fund v. Philip Morris, Inc., 171 F.3d 912 (3d Cir. 1999), cert. denied, 528 U.S. 1105 (2000). The state attorneys general settled their claims against big tobacco for huge dollars, but RICO, and its threat of treble damages, weighed very little in the settlement deal.

The USDOJ saw section 1964(a)’s allowance of equitable relief as a way to avoid the proximate cause requirement imposed under section 1964(c)’s “by reason of” language. The equitable remedy of disgorgement allows the courts to take away any profit earned by the defendant through its wrongful behavior. Under 1964(a), the USDOJ sought to deprive big tobacco of the billions and billions of dollars it allegedly generated by false advertising, cigarette sales to minors, and misrepresentations to regulators.

The settlement between the state attorneys general and big tobacco, however, ultimately undermined the USDOJ’s effort to obtain disgorgement. Pursuant to the settlement with the state attorneys general, big tobacco was obligated to not engage in the offensive conduct alleged by the USDOJ. Therefore, regardless of big tobacco’s past falsehoods and “bad” business practices, the practices posed no threat to continue into the future. The D.C. Circuit Court of Appeals dismissed the USDOJ’s disgorgement claim:

Section 1964(a) provides jurisdiction to issue a variety of orders “to prevent and restrain” RICO violations. This language indicates that the jurisdiction is limited to forward-looking remedies that are aimed at future violations. . . . Disgorgement, on the other hand, is a quintessentially backward-looking remedy focused on remedying the effects of past conduct to restore the status quo.

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The language of the statute explicitly provides three alternative ways to deprive RICO defendants of control over the enterprise and protect against future violations: divestment, injunction, and dissolution. We need not twist the language to create a new remedy not contemplated by the statute. . . .

Because we hold that the District Court erred when it found that disgorgement was an available remedy under 18 U.S.C. s 1964(a), we reverse the District Corut and grant summary judgment in favor of [the big tobacco companies] as to the Government’s disgorgement claim.

United States v. Philip Morris USA, Inc., 396 F.3d 1190, 1198-1202 (D.C. Cir. 2005), agreeing with United States v. Carson, 52 F.3d 1173, 1182 (2d Cir. 1995). Accordingly, to the extent a plaintiff seeks equitable relief under section 1964(a), that relief must be designed to “prevent or restrain” an ongoing RICO violation or a RICO violation that may potentially resurface in the future. The weight of present authority indicates that equitable relief is not available if a RICO violation has ceased.

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