Most of us can tell the difference between Ralston Purina Co. and the Mafia. Between Adolph Coors Co. and the Yakuza. Unfortunately for Purina and Coors, some lawyers can't tell the difference.
Purina and Coors—along with Mobil Corp., Perrier Group, Prudential Insurance Co., and a number of other national companies—have recently seen false-advertising claims grow into racketeering suits.
For plaintiffs' attorneys, a win under the federal racketeering statute (RICO) promises a more lucrative reward than standard false-advertising claims. RICO mandates treble damages plus attorney's fees. To turn a false-advertising claim into a RICO suit, plaintiffs usually contend that the company also violated federal wire and mail fraud statutes. Often the mere use of the mail or telephones to develop and sell fraudulent ads is considered a violation. But some judges are skeptical of such claims. In 1989, a Philadelphia federal judge dismissed the RICO charges in a false-advertising suit against Suzuki.
If a judge allows RICO actions to proceed, companies tend to settle out of court rather than risk conviction under RICO. "The word racketeering is an enormously serious stigma," says Dan Jaffe, executive vice president of the Association of National Advertisers.
Advertising Age reports that last year Ralston Purina agreed to a $680,000 settlement rather than risk a guilty verdict under RICO. In separate false advertising-based cases, Norelco settled for $2.5 million and Beech-Nut for $5 million rather than risk RICO.