This month, Judge Gonzalo P. Curiel of the Southern District of California issued a decision that bodes well for consumers seeking relief under the Rackateer Influenced and Corrupt Organizations Act’s (“RICO”) civil action provision. See Cohen v. Donald J. Trump, No. 3:13-cv-02519 (S.D. Cal. Aug. 2, 2016) (slip op. available here). The consumer class action, brought by former attendees of Donald Trump’s “Trump University,” gained national attention after Trump questioned the court’s impartiality given Judge Curiel’s Mexican heritage. Notwithstanding the hype, Judge Curiel’s order denying Trump’s Motion for Summary Judgment offers consumer plaintiffs a roadmap in the sometimes murky landscape surrounding RICO-based class actions.
RICO, enacted in 1970, contains a civil provision providing for treble damages and a private right of action, against certain fraudulent conduct. 18 U.S.C. § 1964(c). Liability under § 1962(c) requires (1) the conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985). “Racketeering activity” can include fraud with intent, including misrepresentations and material omissions, made over the mails or “wires.” Slip op. at 7.
The class, certified in 2014, alleged that Trump had violated RICO’s civil provision by portraying Trump University (“TU”) as a “university,” with instructors personally “handpicked” by Donald Trump himself. Slip op. at 2. TU sent consumers “Special Invitation[s] from Donald J. Trump” stating, “[m]y handpicked instructors and mentors will show you how to use real estate strategies,” and that “I can turn anyone into a successful real estate investor, including you.” Id. Discovery revealed an internal TU’s policy encouraging TU employees to “[t]hink of Trump University as a real University, with a real admissions process” and encouraging TU employees to “[u]se terminology such as ‘Enroll,’ ‘Register,’ and ‘Apply.’” Id. at 3.
In its motion, Trump argued that the plaintiffs sought “an unprecedented expansion of RICO law” by allowing civil RICO to become “a federal cause of action and treble damages” for every plaintiff in “garden-variety business disputes.” Slip op. at 7. Trump also argued policy dictated against applying civil RICO to consumer class action cases (a false advertising class action, Low, et al. v. Trump University, LLC, et al., No. 3:10-cv-00940, had already been filed; this Cohen RICO action was separately filed and litigated to address different harms). Id. at 10. Judge Curiel noted that while courts have often struggled with the scope of RICO’s civil provision, the U.S. Supreme Court in 1985 noted that Congress stated RICO should be “liberally construed,” and the policy implications of the statute’s breadth were issues for Congress, not the courts, to address. See Sedima, 473 U.S. at 481. The court also rejected the defendant’s argument that several courts have declined to apply RICO to “routine commercial relationships,” finding that in such cases, the plaintiffs had failed to establish an underlying element, such as knowing participation, financial loss, or the existence of an “enterprise.” See slip op. at 9-10.
The defendant further argued the plaintiffs could not show Mr. Trump “conducted the affairs of TU.” Slip op. at 10. Civil RICO requires the defendant to have “participated in the operation or management of the enterprise itself.” Id. (quoting Reves v. Ernst & Young, 507 U.S. 170, 183 (1993)). Mr. Trump argued his role was limited that of an investor and executive. The court noted that the statute’s use of the word “participated” makes clear that RICO liability is not limited to an individual or exclusive director or manager—it is enough for a defendant to play “some part” in directing the enterprise’s affairs. Id. at 12. Further, the court found persuasive the testimony of TU’s Chief Marketing Operator, who stated that, following the publication of TU’s first advertisement, Mr. Trump had asked why the advertisement had been placed on an even numbered page, when odd numbered pages are more visible to readers, calling Mr. Trump “very hands on.” Id. at 10-11 n5. The court found the plaintiffs had made a prima facie showing Mr. Trump had failed to rebut.
The court also rejected Trump’s arguments that the alleged omissions and misrepresentations were not material, finding that the plaintiffs’ evidence, including internal TU policies encouraging employees to use “real university” terminology such as “apply,” and “enroll,” and mailers addressed from Mr. Trump himself stating he had “handpicked” instructors, raised a genuine issue of material fact. Id. at 13-14. Lastly, the court rejected Mr. Trump’s argument that the plaintiffs had failed to show the requisite knowledge and intent, noting that “direct proof of knowledge and fraudulent intent—of what a person is thinking—is almost never available.” Id. at 16.
The court previously vacated pre-trial deadlines while the Motion for Summary Judgment was under submission. With the court’s recent order denying the motion in its entirety, trial dates will likely be reset.
Cody Padgett, Associate
CAPSTONE LAW APC