Maker of CBD products asks court to decide whether lawsuit under criminal racketeering law can go forward

Maker of CBD products asks court to decide whether lawsuit under criminal racketeering law can go forward

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The Petitions of the Week column highlights a selection of cert petitions recently filed in the Supreme Court. A list of all petitions we’re watching is available here.

Organized crime, from the mafia to small-time money laundering schemes, often evades criminal prosecution. To bolster efforts to fight organized crime, Congress passed the Racketeer Influenced and Corrupt Organizations Act, known as RICO, more than 50 years ago. In addition to the criminal penalties for violating RICO, the law also authorizes private individuals to bring civil lawsuits for an injury to their “business or property” as a result of the defendant’s “racketeering activity,” which the law defines broadly to include a wide range of criminal offenses. This week, we highlight petitions that ask the court to consider, among other things, whether someone can sue under RICO to recover lost earnings.

Marketed as “a revolution in medicinal hemp-powered wellness,” Dixie X is a CBD supplement that claims to offer a variety of health benefits. After learning about Dixie X in a magazine, Douglas Horn began using the supplement in 2012 to soothe pain and inflammation from a car accident. Although the ad claimed that the supplement does not contain any THC (the active ingredient in marijuana), is derived from foreign hemp obtained under an “FDA import license,” and was produced after “meticulously review[ing] state and federal statutes,” as a commercial truck driver Horn was subject to random drug testing and did not want to risk losing his job. Before purchasing Dixie X, Horn therefore reviewed the product’s FAQ page and called a customer-service hotline to confirm that it was truly THC-free.

Satisfied, Horn began using Dixie X. Shortly after, he failed a random drug test at work and was fired. Suspecting the supplement, Horn sent a batch to an independent lab, which found that the product contained THC.

Horn went to federal court in New York, arguing that the company that sold Dixie X, Medical Marijuana, Inc. – which, despite its name, deals only in hemp-based CBD products – was responsible for his termination. Part of his lawsuit alleged violations of state law, including a claim that he was fraudulently induced to purchase the supplement while unaware of its risks. But Horn also argued that the company injured his “business or property” under RICO by conspiring to commit federal mail and wire fraud that resulted in the loss of his salary.

The company argued that Horn could not recover his lost earnings under either RICO or his state-law claim. The district court ruled for the company on Horn’s RICO claim. Because RICO authorizes lawsuits only for injury to business or property, the district court held, it does not extend to harm from a personal injury like being misled into purchasing an alternative health supplement.

On appeal, the U.S. Court of Appeals for the 2nd Circuit disagreed. The court reasoned that the purpose of RICO is to address economic harm from corrupt activity, and that the term “business” is commonly understood to include employment. Although the text of the law implicitly excludes personal-injury claims, the 2nd Circuit concluded, there is no reason to think that Congress also intended it to disregard the loss of one’s job, salary, and pension due to conspiracy to commit fraud merely because that harm flows from a personal injury.

In Medical Marijuana, Inc. v. Horn, the maker of Dixie X asks the justices to grant review and reverse the 2nd Circuit’s ruling. The company argues that economic harm stemming from a personal injury has no business, so to speak, under RICO. “If quintessential personal injuries count as injuries to ‘business or property’ just because economic damage inevitably results,” the company writes, “Congress’ careful limitation on civil RICO claims would be toothless.”

A list of this week’s featured petitions is below:

Yim v. City of Seattle, Washington
23-329
Issue: Whether Seattle’s restriction on private owners’ right to exclude potentially dangerous tenants from their property violates the 14th Amendment’s due process clause.

Amer v. New Jersey
23-351
Issues: (1) Whether a defendant is always “unable to stand trial” under Article VI(a) of the Interstate Agreement on Detainers while a pretrial motion is pending; and (2) whether a defendant has been “brought to trial” within 180 days of his request for final disposition of charges under Article III(a) of the agreement at the point when jury selection begins.

Medical Marijuana, Inc. v. Horn
23-365
Issue: Whether economic harms resulting from personal injuries are injuries to “business or property by reason of” the defendant’s acts for purposes of a civil treble-damages action under the Racketeer Influenced and Corrupt Organizations Act.

Bhattacharya v. State Bank of India
23-390
Issue: Whether, to establish a “direct effect in the United States” under 28 U.S.C. § 1605(a)(2), a plaintiff must make an extratextual showing that either the sovereign engaged in a U.S.-based “legally significant act,” or that the U.S. effects were “legally significant” in addition to being direct.

The post Maker of CBD products asks court to decide whether lawsuit under criminal racketeering law can go forward appeared first on SCOTUSblog.

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