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CIVIL CONSPIRACY AND CIVIL RICO IN DIVORCE ACTIONS
2000 National Legal Research Group, Inc.

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. App. Dec. 5, 1996) (wife awarded $9 million against husband for fraudulently procuring divorce and marital settlement agreement, and $450,000 against husband's attorney), aff'd over dissent in light of Schleuter v. Schleuter, 975 S.W.2d 584 (Tex. 1998), and Vickery v. Vickery, 999 S.W.2d 342 (Tex. 1999). See generally Robert G. Spector, Marital Torts: The Current Legal Landscape, 33 Fam. L.Q. 745, 757 (1999); Cary L. Cheifetz, The Future of Matrimonial Torts: The Unmapped Landscape, 15 Fair$hare 4 (Aug. 1995). The courts are especially harsh with spouses who are attorneys that commit fraud. 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 proceedings 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. Dist. Ct. App. 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 successful 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 conspire 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 spouses but also those who aided the offending spouses 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 (Tenn. Ct. App. Feb. 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 had 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 withheld from billing patients, withheld moneys 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. App. Dec. 5, 1996) (wife awarded $9 million against husband for fraudulently procuring divorce and marital settlement agreement, and $450,000 against husband's attorney), aff'd 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. 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 had 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. 1961-1964 (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. Feb. 24, 1998) (http://www.versuslaw.com). 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 extramarital affair for the purpose of shielding his assets and income from scrutiny during the 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 is 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 pattern of racketeering activity); Streck v. Peters, 855 F. Supp. 1156 (D. Haw. 1994). Fourth, the court can find that 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 court can find that the plaintiff failed to prove that the defendants conducted an enterprise. Reynolds v. Condon, 908 F. Supp. 1494 (N.D. Iowa 1995). Sixth, the court can find that the plaintiff failed to prove that he or she was injured in 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 was entered and property was divided); Capasso v. Cigna Insurance Co., 765 F. Supp. 839 (S.D.N.Y. 1991). Finally, the court can find that the action is 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 a 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 the spouse's interest in the injured business or property is not speculative and that an interest in that property would have been awarded.

Second, the plaintiff/spouse must show that the injury arose while the defendant/spouse was acting 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 that the defendants engaged in a pattern of racketeering activity, having engaged in enumerated predicated acts. 18 U.S.C. 1961(1). There must be either multiple violations of the same predicate act or 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 Rule 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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