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6 Franchise L.J. 1 (1986-1987)

handle is hein.journals/fchlj6 and id is 1 raw text is: The Current Status of Civil RICO and Franchising by W. Michael Garner* New York, New York One of the most controversial developments in civil litigation during recent years has been the emergence of the federal Racke- teer Influenced and Corrupt Or- ganizations Act (RICO)'-bas- ically a criminal statute aimed at organized crime-as the basis for a broad range of claims in com- mercial civil litigation. The appeal of RICO in civil litigation is two- fold: the grounds for liability may W. Michael Garner be very broad, and the successful claimant is entitled to tre- ble damages and attorneys fees. In franchise litigation, RICO claims have recently been made by both franchisees and franchisors in a wide range of situations.' As in other areas of civil RICO litigation, many franchise claims are directed not at conduct that is traditionally associated with crime, but at conduct that at best gives rise to civil liability, such as sales of nonconforming products or alleged wrong- ful terminations. The current state of RICO law is both complex and dif- ficult. Last year the Supreme Court upheld the use of civil RICO in cases of garden variety business fraud, thereby eliminating doubts that many courts had had over applica- tion of RICO in other civil cases.' Nonetheless, the Court's decision leaves open many unanswered questions and doubts persist. In light of these open questions and because of the burgeoning number of private civil actions, Congress is considering four proposals to narrow the scope of civil liability under the federal statute;' on the other hand, many states have enacted little RICO statutes which track the federal statute and preserve or expand upon the scope of civil remedies.I In two states, for example, violation of state franchise disclosure laws are express violations of state RICO laws.6 *Mr. Garner is a partner in the New York City office of Schnader, Har- rison, Segal & Lewis. This article will review the current state of RICO law in its application to franchise disputes. A brief discussion of the development of civil RICO law is followed by an expla- nation of the elements of the federal statute, especially as applied in franchise-related cases. This section is followed by a discussion of state RICO statutes. The article then dis- cusses major issues that RICO raises for franchisors and franchisees, reviews a number of practice issues for those concerned with RICO claims and concludes with a com- mentary on the current state of the law. Background RICO was enacted in 1970 as part of the Organized Crime Control Act,' the purpose of which was to seek the eradication of organized crime in the United States.I The provisions of RICO itself, found at 18 U.S.C. § 1961 through § 1968, originally were enacted solely as criminal statutes to eliminate the infiltration of organized crime and racketeering into legitimate organizations.' During (continued on page 13) Elsewhere In This Issue Canada's New Foreign Investment Legislation: The Door Opens to Franchisors .................. 3 Franchising Currents .................................. 7 (Including: A Rose by Any Other Name (Moore v. Tandy Corp., Radio Shack Division); Forum Selection Clause Held En- forceable; Intervening Bankruptcy Prevented Franchisor from Terminating Franchise Rela- tionship on the Basis of Franchisee's In- solvency; Liability of Franchisor to Franchi- see's Business Invitees; Attempt to Protect -tintry Cooking Trade Dress Gets Franchisor into Hot Water; and others.) II I I I ra c i*e1i o r

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