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May 2002
Civil Conspiracy and
Civil RICO in Divorce Actions
Laura W. Morgan
I. Introduction
There is little question that fraud in procuring a settlement
agreement can justify setting aside the agreement and judgment.
E.g., In re Marriage of Modnick, 33 Cal.
3d 897, 191 Cal. Rptr. 629 (1983); Compton v. Compton,
101 Idaho 328, 612 P.2d 1175 (1980); Anderson v. Anderson,
399 N.E.2d 391 (Ind. Ct. App. 1979); Daffin v. Daffin,
567 S.W.2d 672 (Mo. 1978).
Fraud in procuring a settlement can also be the basis for
an independent tort action. Hall v. Hall, 455 So.
2d 813 (Ala. 1984); In re Benge, 151 Ariz. 219, 726
P.2d 1088 (Ct. App. 1986); Dale v. Dale, 66 Cal.
App. 4th 1172, 78 Cal. Rptr. 2d 513 (1998); Den
v. Den, 222 A.2d 647 (D.C. 1966); Oehme v. Oehme,
10 Kan. App. 2d 73, 691 P.2d 1325 (1984); Burris v. Burris,
904 S.W.2d 564 (Mo. 1995); Carney v. Wohl, 785 S.W.2d
630 (Mo. Ct. App. 1990); Hess v. Hess, 397 Pa. Super.
395, 580 A.2d 357 (1990). See also Vickery v.
Vickery, 1996 WL 255755 (Tex. Ct. App., December 5, 1996)
(wife awarded $9 million against husband for fraudulently
procuring divorce and marital settlement agreement, and $450,000
against husband’s attorney), affirmed over dissent
in light of Schleuter v. Schleuter, 975 S.W.2d 584 (Tex.
1998), Vickery v. Vickery, 999 S.W.2d 342 (Tex. 1999).
See generally, Robert G. Spector, Marital Torts:
The Current Legal Landscape, 33 Fam. L. Q. 745, 757 (1999);
Cary L. Cheifetz, The Future of Matrimonial Torts: The
Unmapped Landscape, 15 Fair$hare 4 (August 1995). The
courts are especially harsh with spouses that commit fraud
who are attorneys. Anderson v. Anderson, 399 N.E.2d
391 (Ind. Ct. App. 1979); Scholler v. Scholler, 10
Ohio St. 2d 98, 462 N.E.2d 158 (1984); Webb v. Webb,
16 Va. App. 486, 431 S.E.2d 55 (1993).
The concealment of marital assets during the divorce proceeding
has also given rise to tort actions. Swain v. Swain,
576 N.E.2d 1281 (Ind. Ct. App. 1991); Garrity v. Garrity,
399 Mass. 367, 504 N.E.2d 617 (1987). But see Beers
v. Beers, 724 So. 2d 109 (Fla. 5th DCA 1998);
Nederlander v. Nederlander, 205 Mich. App. 123, 517
N.W.2d 768 (1994); Smith v. Smith, 113 N.C. app.
410, 438 S.E.2d 457 (1994); Schleuter v. Schleuter,
975 S.W.2d 584 (Tex. 1998); Gardner v. Gardner, 175
Wis. 2d 420, 499 N.W.2d 266 (Ct. App. 1993).
Spouses have even been successfuly in asserting violations
of securities laws. Evans v. Dale, 896 F.2d 975 (5th
Cir. 1990). But see Head v. Head, 759 F.2d
1172 (4th Cir. 1985); McHugh v. McHugh,
676 F. Supp. 856 (N.D. Ill. 1988); d’Elia v. d’Elia,
58 Cal. App. 4th 415, 68 Cal. Rptr. 2d 324 (1997).
But what can a spouse do when a third party or parties conspires
with a spouse to hide marital assets? Is there a cause of
action against the third parties? Increasingly, some spouses
have been turning to civil conspiracy and Civil RICO.
II. Civil Conspiracy
As acceptance of economic torts becomes more prevalent, plaintiffs
have been casting the net wider to sue not only offending
spouse but also those who aided the offending spouse in the
fraud. One possible avenue of recovery is civil conspiracy.
Key to this cause of action is a defendant’s substantial
assistance in a plan to defraud, with the knowledge that such
assistance is contributing to a common tortious plan. Thus,
the doctrine is reserved for application to facts which manifest
a common plan to commit a tortious act where the participants
know of the plan and its purpose and take affirmative steps
to encourage the achievement of the result.
The most recent case to allow a claim against an ex-spouse
and a third party for fraud is Brown v. Managed Care,
Inc., No. M1999-02551-COA-R3-CV (Tennessee Court of Appeals,
February 1, 2000) (unreported). In this case, the divorced
mother of a minor child claimed that her former husband and
his employer conspired to fraudulently understate the husband’s
income, in order to defeat her attempts to have his child
support obligation increased to an appropriate amount. The
trial court granted summary judgment to the defendants, and
the appellate court reversed. The court first reiterated the
elements of conspiracy:
Our courts have recognized a cause of action for
a civil conspiracy to defraud. The Court described the elements
of the tort and what it takes to prove it in the following
manner: “A ‘conspiracy to defraud’ on the part
of two or more persons means a common purpose, supported by
a concerted action to defraud, that each has the intent to
do it, and that it is common to each of them, and that each
has the understanding that the other has that purpose. The
agreement need not be formal, the understanding may be a tacit
one, and it is not essential that each conspirator have knowledge
of the details of the conspiracy.
(Citations omitted.) See also Restatement (Second)
of Torts § 876(b) (1977) (a person may be liable
in tort if he “knows that the ... conduct [of another
person] constitutes a breach of duty and gives substantial
assistance or encouragement to the other so to conduct himself.”).
The court then concluded that the divorced mother stated
a cause of action:
If we take the allegations of the plaintiffs to
be true (as we are obligated to do when reviewing a summary
judgment motion), then the defendants conspired to understate
Mr. Barenkamp’s income from the very moment his employment
with Birman & Associates began. The acts performed in
furtherance of the conspiracy included the issuance of payroll
checks to Kathy Barenkamp and of bonus checks to William Barenkamp,
as well as attempts to throw Charlotte Brown off the track
when she called Birman & Associates to confirm the circumstances
of William Barenkamp’s employment. But all these acts
would be of no avail if Mr. Barenkamp had testified truthfully
as to his income. We are unwilling to hold that the very act
required to consummate the fraud also had the effect of immunizing
the defendants from liability for it.
Thus, where a spouse and another person act in concert for
the common purpose of defrauding the other spouse, an action
for conspiracy will lie.
Conspiracy was also accepted in Dale v. Dale, 66
Cal. App. 4th 1172, 78 Cal. Rptr. 2d 513 (1998),
where the wife sued for breach of fiduciary duty, fraud, constructive
fraud, intentional and negligent misrepresentation, conversion,
conspiracy, fraudulent conveyance, constructive trust, and
declaratory relief. In this case, the wife claimed that after
the husband was served with divorce papers, he and his bookkeeper
withhold from billing patients, withheld monies received as
payments to the accounts receivable, falsified ledgers, financial
statements, and income tax returns, and otherwise acted in
concert to artificially reduce the value of the husband’s
medical practice. The California appellate court upheld the
wife’s claims. Accord Liles v. Liles,
289 Ark. 159, 711 S.W.2d 447 (1986) (wife awarded damages
for husband’s attorney’s fraud and misrepresentation
in wife’s suit to set aside property settlement agreement);
Carney v. Wohl, 785 S.W.2d 630 (Mo. Ct. App. 1990)
(upholding wife’s claim of fraudulent misrepresentation
against husband and husband’s father); Vickery v.
Vickery, 1996 WL 255755 (Tex. Ct. App., December 5, 1996)
(wife awarded $9 million against husband for fraudulently
procuring divorce and marital settlement agreement, and $450,000
against husband’s attorney), affirmed over dissent,
Vickery v. Vickery, 999 S.W.2d 342 (Tex. 1999).
The theory is not, however, universally accepted. In Belz
v. Belz, 667 S.W.2d 240 (Tex. Civ. App. 1984), the wife
sued her husband and his brothers for conspiracy to defraud
her out of community property. The court of appeals held that
because she failed to prove a necessary element of her case,
damages, she could not prevail in her action. See also
Schleuter v. Schleuter, 975 S.W.2d 584 (Tex. 1998)
(there is no separate tort action for divorcing husband’s
surreptitious transfer of assets to his father immediately
prior to filing for divorce, thereby knocking out wife’s
claim for fraud, breach of fiduciary duty, and conspiracy).
III. Civil RICO
Another possible avenue for recovery against a spouse and
a third party for economic fraud is the Racketeer Influenced
and Corrupt Organizations Act (RICO), 18 U.S.C. §§
1961-64 (Supp. 1999). Claims under RICO in the divorce context
are also scarce, but not unheard of.
The strongest RICO case is Perlberger v. Perlberger,
1998 WL 76310, 1998.EPA.1313 (E.D. Pa. February 24, 1998).
In this case, a woman filed a civil RICO claim against her
ex-husband, his law practice associates, and his accountants
for allegedly participating in a fraudulent scheme to conceal
his true income during the divorce action. According to the
wife, the fraudulent scheme began in 1986 when the husband
decided to divorce the wife. He devised a scheme whereby he
would initiate an extra-marital affair for the purpose of
shielding his assets and income from scrutiny during divorce.
The husband, an attorney, began an affair with a client, and
purchased a home in her name. He then left his law firm and
instead of using his own assets (a capital account the former
firm owed him), he used his girlfriend’s assets to establish
a credit line for a new firm. He was then able to argue that
his new firm was not a marital asset. He also paid his girlfriend
an inflated salary, and had another attorney, Rothenberg,
hold all the assets to the new firm. The court stated:
Here, Plaintiff’s RICO claim is based on Defendants’
alleged mail and wire fraud. Although the alleged fraudulent
scheme perpetrated by the Defendants may be accurately described
as “garden variety” fraud, such a characterization
is not fatal to Plaintiff’s RICO claim under the current
state of the law.
Defendants next argue that they have not found any cases
in Pennsylvania in which civil RICO has been used to attack
a divorce decree, child support order, or alimony award.
(Accountant Defs.’ Mot. at 3.) Although the Court also
has not found any such Pennsylvania cases, the Court has
found a number of Federal cases where courts have entertained
civil RICO claims relating to family law matters. E.g.,
Grimmett v. Brown, 75 F.3d 506 (9th Cir. 1996); Calcasieu
Marine Nat. Bank v. Grant, 943 F.2d 1453 (5th Cir. 1991).
With Tabas as guidance and with the decisions of other courts
in mind, the Court will not dismiss Plaintiff’s RICO
claim on policy grounds.
Perlberger represents a small but growing handful
of cases where a spouse asserts civil RICO in the divorce
context. See Smith v. Johnson, 173 F.3d
430 (6th Cir. 1999) (unpublished table decision);
DeMauro v. DeMauro, 115 F.3d 94 (1st Cir.
1997); Grimmett v. Brown, 75 F.3d 506 (9th
Cir. 1996); Calcasieu Marine National Bank v. Grant,
943 F.2d 1453 (5th Cir. 1991); Evans v. Dale,
896 F.2d 975 (5th Cir. 1990); DuBroff v. DuBroff,
833 F.2d 557 (5th Cir. 1987); Dibbs v. Gonsalves,
921 F. Supp. 44 (D.P.R. 1996); Reynolds v. Condon,
908 F. Supp. 1494 (N.D. Iowa 1995); Streck v. Peters,
855 F. Supp. 1156 (D. Haw. 1994); Hibbard v. Benjamin,
No. 90-1-361-WF, 1992 WL 300838 (D. Mass. Sept. 21, 1992);
Capasso v. Cigna Insurance Co., 765 F. Supp. 839
(S.D.N.Y. 1991).
Unfortunately, while the assertion of a cause of action for
civil RICO in a divorce case has withstood a motion to dismiss
for failure to state a claim or for summary judgment, to date,
no plaintiff has been successful on the merits of the civil
RICO action. The cases have failed for seven reasons.
First, a court can find that abstention is appropriate in
the circumstances. DuBroff v. DuBroff, 833 F.2d 557
(5th Cir. 1987) (there is no state administrative
scheme in which federal court intrusions are less appropriate
than domestic relations law; abstention appropriate because
of the novel and dubious questions of state family law); Dibbs
v. Gonsalves, 921 F. Supp. 44 (D.P.R. 1996) (in dicta,
court noted that if the case were successful on the merits,
abstention would be appropriate). Second, the court can find
that the prior divorce proceedings are res judicata to any
RICO recovery. Evans v. Dale, 896 F.2d 975 (5th
Cir. 1990) (allegations of fraud were precluded by res judicata
to divorce proceedings). Third, the court can find that the
plaintiff has simply failed to plead facts sufficient to show
a pattern of racketeering activity. Hibbard v. Benjamin,
No. 90-1-361-WF, 1992 WL 300838 (D. Mass. Sept. 21, 1992)
(alleged illicit scheme during divorce that resulted in lessened
alimony and child support did not show patter of racketeering
activity); Streck v. Peters, 855 F. Supp. 1156 (D.
Haw. 1994). Fourth, the court can find the plaintiff failed
to plead facts sufficient to illustrate the necessary predicate
acts. Streck v. Peters, 855 F. Supp. 1156 (D. Haw.
1994) (allegations of perjury and fraud did not constitute
predicate acts under RICO); Smith v. Johnson, 173
F.3d 430 (6th Cir. 1999) (unpublished table decision).
Fifth, the can find the plaintiff failed to prove the defendants
conducted an enterprise. Reynolds v. Condon, 908
F. Supp. 1494 (N.D. Iowa 1995). Sixth, the court can find
the plaintiff failed to prove they were injured in their business
or property. DeMauro v. DeMauro, 115 F.3d 94 (1st
Cir. 1997) (where wife filed RICO action during hotly contested
divorce proceedings, court held that wife’s interest
in property was speculative because property belonged to husband
until divorce entered and property divided); Capasso v.
Cigna Insurance Co., 765 F. Supp. 839 (S.D.N.Y. 1991).
Finally, the court can find the action was barred by the statute
of limitations. Grimmett v. Brown, 75 F.3d 506 (9th
Cir. 1996).
What, then, is needed to assert a successful civil RICO claim
in a divorce or proceeding relating to the divorce? First,
the plaintiff/spouse must prove that divorce proceedings were
undertaken in a manner that injured either the plaintiff/spouse’s
business or property. IN the divorce context, this can be
accomplished by proving that the defendant/spouse conducted
a fraudulent scheme that decreased the divorce settlement.
Here, it is important to show that spouse’s interest
in the business or property injured is not speculative, that
an interest in that property would have been awarded.
Second, the plaintiff/spouse must show that the injury arise
while the defendant/spouse acted as part of an enterprise.
In the divorce context, the plaintiff/spouse will want to
allege that the enterprise consisted of the defendant and
his/her lawyer, law firm, new lover, or some other party.
Third, the plaintiff/spouse must show the defendants engaged
in a pattern of racketeering activity, having engaged in an
enumerated predicated acts. 18 U.S.C. § 1961(1). There
must be either multiple violations of the same predicate act,
or the violation of more than one predicate act. In the divorce
context, multiple instances of mail fraud will suffice, so
long as the plaintiff pleads facts sufficient to support the
allegations.
Fourth, to overcome claims of abstention, the plaintiff/spouse
should point to recent cases wherein the Supreme Court has
cautioned against abstention. E.g., Ankenbrandt
v. Richards, 504 U.S. 689 (1990); New Orleans Public
Services v. City of New Orleans, 491 U.S. 350 (1989).
In sum, when a 60(b) state court proceeding is not available
because of the passage of time, civil RICO should provide
a viable alternative.
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