Sedima, S.P.R.L. v. Imrex Co., Inc., et al.
473 U.S. 479 (1985)
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Rule of Law:
A private civil action under the Racketeer Influenced and Corrupt Organizations Act (RICO) does not require a prior criminal conviction of the defendant for the underlying predicate acts. Furthermore, a plaintiff is not required to allege a distinct 'racketeering injury' separate from the harm caused by the commission of the predicate criminal acts.
Facts:
- Sedima, a Belgian corporation, entered into a joint venture with Imrex Co., an American corporation, to supply electronic components to a firm in Belgium.
- Under their agreement, Sedima would secure the orders, Imrex would procure the parts in the United States and ship them, and the two companies would split the net proceeds.
- Over the course of their venture, Imrex filled approximately $8 million in orders that Sedima had placed with it.
- Sedima became convinced that Imrex was systematically cheating it out of its share of the proceeds by presenting inflated bills that included charges for nonexistent expenses.
- Sedima calculated that this alleged overbilling scheme caused it to suffer a financial loss of at least $175,000.
Procedural Posture:
- Sedima, S.P.R.L. filed suit against Imrex Co. in the U.S. District Court for the Eastern District of New York, asserting RICO claims alongside common law claims.
- The District Court dismissed the RICO counts for failure to state a claim, holding that the complaint did not allege a distinct 'RICO-type injury' separate from the harm of the underlying predicate acts.
- Sedima (appellant) appealed the dismissal to the U.S. Court of Appeals for the Second Circuit.
- A divided panel of the Second Circuit affirmed the trial court's dismissal, holding that a civil RICO claim requires allegations of both a distinct 'racketeering injury' and a prior criminal conviction for the predicate offenses.
- The U.S. Supreme Court granted certiorari to resolve a circuit split on these issues.
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Issue:
Does a private civil action under the Racketeer Influenced and Corrupt Organizations Act (RICO) require a prior criminal conviction and an allegation of a distinct 'racketeering injury' separate from the harm caused by the predicate criminal acts?
Opinions:
Majority - Justice White
No. A private civil action under RICO requires neither a prior criminal conviction nor an allegation of a special 'racketeering injury.' The plain language of the statute, 18 U.S.C. § 1964(c), provides a cause of action to any person injured in their business or property 'by reason of a violation of section 1962.' The statute's text does not contain the word 'conviction'; rather, it defines racketeering activity as conduct that is 'chargeable,' 'indictable,' or 'punishable,' indicating that the conduct itself, not its prior adjudication, is the trigger for liability. Similarly, there is no room in the statutory language for an additional, amorphous 'racketeering injury' requirement. If a plaintiff is injured in their business or property by the predicate acts that constitute the § 1962 violation, they have a claim under § 1964(c). The Court recognized that RICO was being used in ways its enactors may not have anticipated, but concluded that this 'defect' is inherent in the broad language of the statute and that its correction must lie with Congress, not the judiciary.
Dissenting - Justice Marshall
Yes. The Court’s broad interpretation revolutionizes private litigation by federalizing vast areas of state common law fraud and displacing established federal remedies without clear congressional intent. The statutory language requires an injury 'by reason of a violation of § 1962,' not merely by reason of the predicate acts listed in § 1961. The legislative history demonstrates that Congress's primary target was the unique economic power of organized crime and the competitive or infiltration injury it inflicts upon legitimate businesses. The statute was not intended to provide a treble-damages remedy for the direct victims of predicate acts, who were already protected by state laws. Therefore, a plaintiff should be required to plead and prove a distinct 'RICO injury'—an injury to their competitive, investment, or other business interests resulting from the defendant's conduct of an enterprise through a pattern of racketeering.
Dissenting - Justice Powell
Yes. The Court's reading of the statute validates uses that Congress never intended, applying a law aimed at organized crime to respected businesses in ordinary commercial disputes. The statute is susceptible to a narrower reading that aligns with congressional intent. Specifically, the requirement of a 'pattern' of racketeering activity could be interpreted to require more than just two isolated predicate acts; it should require 'continuity plus relationship' to limit the statute's application to the planned, ongoing criminal conduct characteristic of organized crime. By reading the entire statute so broadly, the Court makes it difficult for lower courts to develop a meaningful concept of 'pattern' and confines RICO to its intended target.
Analysis:
This decision dramatically expanded the scope of civil RICO litigation by removing two significant hurdles—the prior conviction and racketeering injury requirements—that lower courts had attempted to erect. By holding that the direct financial harm from predicate acts like mail and wire fraud was sufficient to state a claim, the Court opened the federal courts to a flood of litigation involving what were essentially common law business torts. The ruling transformed civil RICO into a powerful and controversial tool in ordinary commercial disputes, frequently used against 'legitimate' enterprises far removed from the statute's original target of organized crime. The decision effectively federalized large portions of commercial fraud law and placed the onus on Congress to narrow the statute's reach if it disagreed with this broad application.
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