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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