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A N 8 8 D 8 B 1 AR SINCE www. NYLJ.com Volume 259—NO. 116 Monday, June 18, 2018

Second Circuit Review Expert Analysis Litigation Activity in a Single Lawsuit Is No Basis for Civil RICO Claim

or over 30 years, litigation activity categorically retaliatory civil RICO meritless. See id. at 104 (discuss- actions, often brought ing precedent). by disgruntled former RICO’s Statutory litigation adversaries, By And Framework Martin Brad S. allegingF predicate acts of fraudu- Flumenbaum Karp The Racketeer Influenced lent litigation activity, have been and Corrupt Organizations Act the object of public policy con- less lawsuit cannot constitute (RICO), 18 U.S.C. §§1961, et cern for the district courts of a viable RICO predicate act of seq., was enacted by Congress the Second Circuit. See, e.g., racketeering activity. Kim v. to counter the infiltration and von Bulow by Auersperg v. von Kimm, 884 F.3d 98 (2d Cir. 2018). corrupt influence of organized Bulow, 657 F. Supp. 1134, 1143 In so ruling, the Second Circuit crime. See U.S. Dep’t of Justice, (S.D.N.Y. 1987). In a matter of concurred with long-established “Criminal RICO: 18 U.S.C. §§1961- first impression likely to impact 1968, A Manual For Federal Pros- a litigant’s ability to successfully ecutors” 4–8 (6th rev. ed. 2016). Disgruntled former litigation plead certain civil RICO claims RICO, however, is not limited to adversaries often bring retalia- in the future, the U.S. Court of tory civil RICO actions alleging violent crimes and may attach to Appeals for the Second Circuit fraudulent activities in prior any act indictable under federal ruled that an alleged single lawsuits. criminal statutes including mail frivolous, fraudulent or base- and wire fraud. district court precedent and Moreover, Section 1964(c) of

Martin Flumenbaum and Brad S. Karp are four other courts of appeals the act creates “a private right litigation partners at Paul, Weiss, Rifkind, Whar- ton & Garrison, specializing in complex commer- on the issue, while simultane- of action to any person injured cial and white-collar defense litigation. Nairuby ously declining to declare all in its business or property by L. Beckles, a litigation associate at the firm, assisted in the preparation of this column. civil RICO actions based on reason of a violation of activities

In some jurisdictions, this reprint may be considered attorney advertising. Past representations are no guarantee of future outcomes. Monday, June 18, 2018 prohibited by section 1962.” To Rothman, 1 F. App’x 7 (2d Cir. the declarations were false. successfully bring a civil RICO 2001). Kim is one such case. Kim asserted that the fraudu- action, a plaintiff must estab- lent litigation activity consti- RICO Allegations in ‘Kim’ lish: (1) a violation of section tuted obstruction of justice, mail 1962 (criminal RICO); (2) an Kim involved an earlier, and fraud, and wire fraud pursuant injury to business or proper- rather protracted, litigation to Section 1962 of the RICO Act, ty; and (3) that the injury was between restaurateurs over and were the required multiple caused by the violation of sec- the use of a Korean barbecue predicate acts to show a pattern tion 1962. To adequately allege restaurant trademark pursuant of racketeering activity. a violation of section 1962, a to a trademark licensing agree- Defendants moved to dismiss plaintiff must show: (1) conduct ment. In an unpublished opin- the action on numerous grounds (2) of an enterprise (3) through ion, the district court granted including failure to plead the a pattern (4) of racketeering partial summary judgment in required predicate acts for a activity. “Racketeering activity” favor of then-defendant Dan- RICO claim. is defined as any “act” indict- iel Kim on plaintiffs’ claims for District Court’s “Thorough able under federal criminal breach of contract, fraudulent And Well-Reasoned Analysis” statutes, including the mail and trademark registration, and wire fraud statutes (18 U.S.C. trademark infringement. The The district court found that §§1341, 1343), and the obstruc- remaining claims were volun- “the majority of predicate acts tion of justice statute (18 U.S.C. tarily dismissed by the parties. alleged [by Kim] concern[ed] §1503). 18 U.S.C. §1961(1). A Kim, an attorney representing actions … taken by defendants “pattern of racketeering activ- himself pro se, then brought a in the course of the [trademark ity” is defined by the statute as civil RICO action alleging that, infringement] litigation.” Citing “at least two acts of racketeer- among other things, all the par- a “growing body of persuasive ing activity” within a 10-year ticipants in the earlier lawsuit authority from this and other period. 18 U.S.C. §1961(5). including the restaurateur, his jurisdictions,” the court con- Within this statutory frame- wife and business partner, their cluded that “[w]ell-established work, disgruntled former liti- two attorneys, and an accoun- precedent and sound public gation adversaries often bring tant (collectively, “Defendants”) policy preclude[d] such litiga- retaliatory civil RICO actions engaged in a scheme to fraud- tion activities from forming the alleging, among other things, ulently sue Kim for trademark basis for predicate acts under that certain litigation activities infringement. Section 1962(c).” Op. and Order in prior lawsuits were fraud- Kim alleged that, during the at 8, Kim v. Kimm, No. 15-CV- ulent. See, e.g., Kashelkar v. trademark infringement suit, 04784 (E.D.N.Y. Aug. 9, 2016). Rubin & Rothman, 97 F. Supp. at least three defendants pre- The court explained that “this 2d 383, 385 (S.D.N.Y. 2000), aff’d pared, signed, and filed four rule … evolved in response to sub nom. Kashelkar v. Ruben & sworn declarations knowing overreaching plaintiffs who Monday, June 18, 2018 have sought to use RICO against agreed that “permitting such body of district court precedent. former litigation adversaries claims would erode the principles By narrowing the ruling to instead of[,] or in addition to[,] undergirding the doctrines of res claims based on a single law- state law causes of action such as judicata and collateral estop- suit, however, the Second Cir- abuse of process and malicious pel, as such claims frequently cuit leaves the door open for prosecution.” Notably, the court call into question the validity courts to consider those civil pointed out that the rule “does of documents presented in the RICO claims alleging predicate not leave parties facing fraudu- underlying litigation as well as acts that “amount[] to far more lent litigation without recourse.” the judicial decisions that relied than mere ‘litigation activities,’ Parties may still seek redress in a upon them.” Third, the Second and … [involve] extensive and tort lawsuit for malicious abuse Circuit concluded that “endors- broader schemes to defraud” or of process or malicious prose- ing [an alternative] interpretation that involve a fraudulent crimi- cution, and by pursuing Rule 11 of RICO would chill litigants and nal scheme “entirely external sanctions. Id. at 8–9, 12. lawyers and frustrate the well- to, and independent of, any of established public policy goal of the particular disputes between District Court Precedent and maintaining open access to the the litigants in the civil actions Public Policy Grounds Affirmed courts because any litigant’s or that were improperly filed and The Second Circuit affirmed attorney’s pleading and corre- litigated by the … defendants in an opinion written by Judge spondence in an unsuccessful in execution of their scheme” Sack, joined by Circuit Judges lawsuit could lead to drastic consistent with United States Jacobs and Parker. The court RICO liability.” v. Eisen, 974 F.2d 246 (2d Cir. stated its “agree[ment] with Curtailing the scope of its deci- 1992). See Curtis & Assocs. v. the district court’s thorough sion, the Second Circuit stopped Law Offices of David M. Bush- and well-reasoned analysis” and short of declaring all civil RICO man, 758 F. Supp. 2d 153, 176 adopted the three “compelling actions based on litigation activ- (E.D.N.Y. 2010), aff’d sub nom. policy arguments” outlined by ity categorically meritless. “We Curtis v. Law Offices of David the district court for supporting conclude only that where, as M. Bushman, 443 F. App’x 582 this new rule. here, a plaintiff alleges that a (2d Cir. 2011) (quoting Nakahara First, the Second Circuit defendant engaged in a single v. Bal, No. 97 CIV. 2027 , 1998 explained that “[i]f litigation frivolous, fraudulent, or baseless WL 35123, at *9 (S.D.N.Y. Jan. activity were adequate to state lawsuit, such litigation activity 30, 1998)). a claim under RICO, every unsuc- alone cannot constitute a viable cessful lawsuit could spawn a RICO predicate act.” retaliatory action, which would Conclusion inundate the federal courts with

Reprinted with permission from the June 18, 2018 edition of the NEW YORK procedurally complex RICO The ruling in Kim solidifies a LAW JOURNAL © 2018 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact pleadings.” Second, the court pre-existing and well-established 877-257-3382 or [email protected]. # 070-06-18-22