InsideCounsel » June 2008
Court Cites Discovery Costs in Dismissing RICO Case
In-house counsel tired of settling meritless lawsuits out of fear of huge discovery costs can find hope in a recent ruling from the 7th Circuit.
On April 1, Judge Richard Posner sided with a lower court’s ruling in Limestone Development Corp. v. Village of Lemont, Ill., dismissing the case for failure to state a claim and taking the opportunity to make a point about
discovery related to merit challenges.
Limestone, which owned 55 acres of land in the Chicago suburb, filed suit against the Village of Lemont, alleging it and other public bodies—in cahoots with the mayor—constituted an enterprise that conducted affairs through a pattern of racketeering activity in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO).
In the suit, filed in August 2005, Limestone claimed the enterprise worked together to prevent Limestone from building on its land, eventually driving down its price and causing Limestone to sell it at a loss.
In January 2007 the U.S. District Court for the Northern District of Illinois granted the defendants’ motions to dismiss, finding the plaintiffs failed to state a claim because the four-year statute of limitations on RICO had run out and because the plaintiffs failed to identify an enterprise or pattern of racketeering, both of which are needed to have a valid RICO claim. Posner upheld the ruling, writing, “If discovery is likely to be more than usually costly, the complaint must include as much factual detail and argument as may be required to show that the plaintiff has a plausible claim.”
Although the RICO claims were the heart of the case, Posner’s comments on discovery attracted attention from defense attorneys.
“What this reinforces is that discovery is not automatic,” says Ned Isokawa, litigation chair in the San Francisco office of Paul, Hastings, Janofsky & Walker. He says the more complicated the case, the more details required in stating the claims. Failure to include enough facts will open the door for defense attorneys to argue for limiting discovery. “[This decision] reflects the Supreme Court’s recognition that the costs of defending a complicated commercial case are exacting and that courts are empowered, and encouraged, to prevent unsupported claims from going to costly discovery.”
Discovery Dilemma
While the court never really addressed the substance of Limestone because the statute of limitations had run out, legal departments should pay attention to Posner’s points on discovery.
“What’s interesting is that Judge Posner grounds his limitation-of-
discovery reasoning in Limestone, a RICO case, in the Supreme Court’s recent similar reasoning in Bell Atlantic v. Twombly, an antitrust case,” Isokawa says.
In Limestone, Posner wrote that Twombly teaches “a defendant should not be forced to undergo costly discovery unless the complaint contains enough detail, factual or argumentative, to indicate that the plaintiff has a substantial case.” Limestone failed to provide enough information to show a RICO violation, and the District and Circuit courts dismissed the case for
failure to state a claim. Posner’s comments signal defendants can be more confident in filing for a stay of discovery.
