January 1, 1900

by Todd D. Greene

Mentioning the Racketeer Influenced and Corrupt Organizations Act ("RICO") conjures up images of organized crime figures and phony businesses used for money laundering. As the Act's name indicates, the legislative intent of RICO was to thwart organized crime. RICO, however, has recently been used as a means of combating attempts to minimize or escape child and spousal support obligations.

In Perlberger v. Perlberger, a case emanating from the U.S. District Court in Pennsylvania, a wife and daughter brought a civil RICO action against the former husband/father and his accountants. The allegations made in Ms. Perlberger's Complaint were that her husband and his accountants participated in a scheme to conceal the value of her husband's assets and income during their divorce proceedings.Thus, Mr. Perlberger's alimony and child support obligations were less than what should have been awarded.

Elements of RICO

In order to bring an action under RICO, a plaintiff must demonstrate (1) a violation of the RICO statute; (2) that caused an injury to the plaintiff; and that (3) the RICO violation was the proximate or legal cause of the plaintiff's injury. Thus, to recover under the statute, Ms. Perlberger had to prove that her exhusband and his accountants committed an act which violated RICO; that Ms. Perlberger suffered harm as a result of the RICO violation; and that Mr. Perlberger's and his accountants' actions were cause of Ms. Perlberger's damages.

To establish a violation of the RICO statute, Ms. Perlberger had to prove that her former husband and his accountants formed a "RICO enterprise." In addition, she had to prove that the enterprise engaged in a "pattern of racketeering activity" defined as the occurrence of at least two "predicate" acts of racketeering activity within a ten year period. Some examples of predicate acts include fraud, mail fraud and forgery. Furthermore, Ms. Perlberger had to demonstrate that her former husband and his accountants either directly or indirectly participated in the RICO enterprise.

Perlberger Meets Soprano

It is easy to understand the concept of a RICO enterprise and predicate acts if you think of the Sopranos. Tony and his partners in Badabing! have a RICO enterprise. Assuming that Tony uses Badabing! to launder money from his other "businesses," his fraudulent conduct would constitute the required predicate acts.

Applying the Sopranos analogy to the Perlberger case, Mr. Perlberger would be Tony and his accountants would be the equivalent of Tony's partners in Badabing! As for predicate acts, Ms. Perlberger alleged that her former husband and his accountants engaged in mail and wire fraud by hiding Mr. Perlberger's assets and income. According to Ms. Perlberger, the accountants prepared fraudulent financial statements which undervalued her former husband's law firm. In addition, they assisted Mr. Perlberger in transferring his assets to another individual. As a result, Ms. Perlberger asserted that, by minimizing the income reported during his divorce action, Mr. Perlberger was able to decrease his ultimate support obligations.

RICO's Applicability

Not surprisingly, one of the defendants' primary arguments to Ms. Perlberger's claims was that the RICO Act should not apply to cases involving family law matters. According to the defendants, RICO should be relegated to combating crimes usually associated with the activities of racketeers; the Act should not be used to assist individuals dissatisfied with divorce decrees. In support of their argument, the defendants asserted that no plaintiff in Pennsylvania has ever used RICO to attack a divorce decree, child support order or alimony award. The court likewise could not find any published judicial opinions from Pennsylvania applying RICO in this manner. It did, however, find a number of Federal cases where RICO claims relating to family law matters were heard and the Perlberger Court followed suit.

Although Ms. Perlberger's RICO action was permitted, the Court eventually ruled that she did not submit any evidence to establish that the accountants committed the alleged predicate acts. Rather, the accountants were found to have operated independently of Mr. Perlberger and could not have directly or indirectly participated in the alleged RICO enterprise. Since Ms. Perlberger did not provide the facts necessary to link the accountants to the RICO enterprise, she failed to establish an essential element of her RICO claim. As a result, her RICO case against the accountants was dismissed.

Perlberger and similar Federal cases represent a novel approach to the application of RICO and a new era in family law. While the plaintiff was not ultimately successful in her RICO claims, the Perlberger court's unwillingness to dismiss such claims out-of-hand supports the utilization of RICO in domestic relations matters. In addition, Perlberger is illustrative of how complex a RICO claim is to formulate. Therefore, it is essential that knowledgeable legal counsel be consulted to determine if a RICO violation can be asserted.

Todd D. Greene is an associate of Hill Wallack where he is a member of the Real Estate Division and the Creditors' Rights/Bankruptcy Practice Group.