WASHINGTON – The Supreme Court this week let stand a lower court ruling that Potomac Electric Power Co. can use the Racketeer-Influenced and Corrupt Organizations Act to sue an electric motor company for faulty repairs.
The court Monday refused to hear an appeal from Electric Motor & Supply Inc., which said Pepco should have to prove actual damages in order to make a claim under RICO, a federal statute originally aimed at organized crime.
EMS said that proof of damages is the standard in every other circuit in the country except the 4th U.S. Circuit Court of Appeals, which has ruled that proof of a fraudulent act is sufficient to allow a RICO claim to proceed.
But an attorney for Pepco said that “as long as funds are going back into an enterprise that’s operation is corrupt, that’s all that matters.”
Pepco attorney James Gillece Jr. said that in order to pursue its RICO claim, the power company will only have to prove “that EMS fraudulently repaired the Pepco motors, claiming they were performing repairs under Pepco’s specification but, in fact, did not . . . and falsified information claiming they had.”
But EMS denies the charge that it did not do the work.
“We will prove we didn’t use substandard material, we did abide by their specifications and they got a great product at a great price,” said James Ulwick, an attorney for EMS.
The case goes to trial May 28 in U.S. District Court in Baltimore.
The case began in 1998 when Pepco sued, claiming that EMS collected $1 million for motor repairs that were not done, or were done improperly, and that it falsified documents to cover up the scheme.
Both parties concede the motors were repaired to working condition. However, Pepco claims they were not repaired properly.
“You can’t say what the life span of the motors would be had they been repaired properly,” Gillece said.
The U.S. District Court in Baltimore dismissed the case because Pepco could not quantify the damages lost from the faulty repairs.
But the 4th Circuit reversed the district court last August, noting that EMS could have earned a profit at Pepco’s expense by repairing the motors with substandard materials and charging for full repairs.
Congress enacted RICO in 1961 to prevent the Mafia from investing racketeering proceeds — from drugs, prostitution or other illegal activities — in legitimate businesses such as Las Vegas casinos, Ulwick said.
RICO boundaries have expanded constantly through the years, according to an American University business professor.
“RICO is an uncertain terrain,” David Jacobs said. “It had been used in everything from traditional racketeering . . . to those who have tried to prevent women from having abortions in abortion clinics.”
A professor at the University of Baltimore School of Law said the case is still likely to end up in the Supreme Court, since the 4th Circuit is the only circuit court with a different RICO ruling. Andrew Ratting said the Supreme Court often uses disparities between circuits as a basis to hear a case.
“Down the road, if the losing party appeals on that issue, they will raise in their briefs that this is an issue of a split among the circuits,” Ratting said.