Neither Fish Nor Fowl: RICO Claims Based on the Anti-Kickback Statute Fare Poorly

This might explain it.

Health insurers cannot use RICO's mail and wire fraud provisions to attack pharmaceutical kickback schemes without showing actual false statements. The First Circuit's rejection of Humana's "implied certification" theory shows the difficulty of mixing kickback allegations with fraud claims—and the danger of importing False Claims Act concepts into RICO litigation.

The platypus, it is said, looks “like God made it from spare parts”: duck bill, beaver tail, webbed feet, and poisonous spurs. When lawsuits try to mix kickback allegations with fraud claims, they often prove just as odd and unwieldy. And sometimes the judicial decisions they inspire do as well.  

The First Circuit’s recent decision in Humana v. Biogen, Case No. 24-1012 (Jan. 17, 2025), is just such a chimera. A health insurer sued a drug maker under RICO, claiming that the drug maker paid kickbacks to get patients to buys its drugs, then passed the costs onto the insurer without disclosing the kickbacks, and that this amounted to federal mail and wire fraud. The court rejected that theory, finding that the insurer had not described a false representation for purposes of the fraud statutes.

But while the court may well have reached the right conclusion, it took a strange route to get there, applying False Claims Act analysis and precedent to the mail and wire fraud statutes. It's almost as awkward as a mammal that lays eggs.

What Was Humana's RICO Theory Against Biogen?

Humana is a health insurer, Biogen a pharma company that makes multiple sclerosis drugs. Biogen sells its drugs to wholesalers, who sell them to pharmacies, who sell them to patients. Under Medicare Part D, patients pay a copay or deductible, and an insurer (such as Humana) pays for the rest of the drug cost.

Humana claimed that Biogen orchestrated a scheme in which Biogen provided the drugs free to uninsured patients, then “funneled” them into Humana Medicare plans, and then indirectly covered their co-pays through donations to certain non-profits. According to Humana, this violated the federal Anti-Kickback Statute and Medicare regulations. Humana ultimately paid for the resulting drug orders.

Humana sued Biogen under RICO, alleging that Biogen had engaged in a pattern of federal mail and wire fraud violations. Mail and wire fraud violations require, among other things, the making of false representations of material facts. A civil complaint alleging a RICO claim based on fraud must describe the false representations in detail, including explaining what the defendant said and why it was false.

Per Humana’s complaint, under Medicare regulations, “downstream” entities (like Biogen, the wholesalers, or the pharmacies) that contract to sell goods to Medicare Part D insurers (like Humana) must comply with federal laws and regulations and certify that certain claims data the suppliers provide is “true, accurate, and complete.” According to Humana, Biogen caused the pharmacies to submit claims for payment for the drugs along with a false “implied certification” that they were not tainted by kickbacks or other illegal conduct.

Why Did the First Circuit Reject the Fraud Claims?

The First Circuit rejected this theory, and found that Humana had not adequately alleged misrepresentations for purposes of the mail/wire fraud statutes and RICO. The court observed that the Supreme Court had recognized the “implied certification” theory as a basis for a claim under the False Claims Act in Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016).

But the First Circuit distinguished Escobar in two ways. In Escobar, the defendant had submitted a claim for payment directly to the payer (i.e., Medicare).  Also, in Escobar, the defendant had made certain specific representations to Medicare about the services provided, without disclosing other information that rendered those statements misleading “half-truths.” By contrast, Biogen had not submitted any claims directly to Humana, and there was no allegation of “half-truths,” but rather a pure omission. The First Circuit found that this was insufficient for a RICO claim.

How Do Mail/Wire Fraud Requirements Differ from False Claims Act?

I think the First Circuit may have missed the mark in its analysis, if not its conclusion. First, the FCA and the mail/wire fraud statutes are different laws. Escobar and the “implied certification” theory arise from the FCA and decisions interpreting it, not from mail and wire fraud jurisprudence. Whether or not a complaint has properly alleged an implied certification theory or any other basis for FCA liability is not the issue. Instead, the question is whether the defendant has caused the mail or interstate wires to be used in a scheme to deprive someone else of property through false representations.

In many circuits, pure omissions can support charges of mail or wire fraud in some circumstances, such as where a specific law creates a duty to disclose the relevant information. It is not clear whether Humana alleged that the Medicare regulations specifically required Biogen or others to disclose the alleged scheme to Humana. But the First Circuit does not seem to have analyzed that issue, as it focused on the Escobar/FCA test instead.

Second, a RICO claim can be based on mail or wire fraud even where the false representations were not made directly to the plaintiff. In Bridge v. Phoenix Bond & Indemnity Co., 553 U.S. 639 (2008), the Supreme Court held that a company could bring a RICO claim against a competitor that made false representations to county officials in order to beat the plaintiff in an auction. Thus, the First Circuit’s emphasis on direct communications between the plaintiff and defendant, while perhaps relevant to an FCA analysis, are not necessarily appropriate in a fraud-based RICO case.

Can Kickback Schemes Ever Support RICO Claims?

It’s tricky to plead a RICO claim. It’s even trickier to plead one based on mail or wire fraud, where the fraud involves failure to disclose violations of a different law to someone other than the plaintiff. It may well be possible, but neither Humana’s complaint nor the First Circuit’s decision light the way.

*Like many, I had assumed that the plural of platypus is "platypi" or "platypae." Apparently, it is actually "platypuses" (or possibly "platypodes"), because the word derives from Greek, not Latin. This may be the most useful information in this post.

When Beef Goes Thermonuclear: Drake Tests Whether RICO Applies to Music Streaming Manipulation

Drake plans to sue Universal Music Group and Spotify under RICO for allegedly using bots and payola to inflate streams of Kendrick Lamar's diss track. While the alleged conduct may violate various laws, Drake faces significant hurdles: proving wire fraud, establishing standing, and showing how streaming manipulation amounts to criminal racketeering rather than aggressive marketing.

Some would say it’s not really a beef until the lawyers get involved. And these days, it’s not really a lawsuit unless someone claims a RICO violation.

At least that seems to be the view of one Aubrey Drake Graham, doing business as Drake, one of the top-selling musicians of all time and at the moment one of the most prominent plaintiffs in the country. On November 25, 2024, Drake’s company Frozen Moments filed a petition for pre-action disclosure in New York state court, seeking evidence to support a RICO lawsuit Drake plans to file against Universal Music Group, Spotify, and other unidentified defendants.

The subject of the planned lawsuit: Universal’s alleged scheming to inflate the reported popularity of Not Like Us, a “diss” track by rival rapper Kendrick Lamar that accuses Drake of pedophilia, among other things. The case has garnered massive attention online, which may be much of the point. It could also inspire copycat cases, and perhaps interest the FTC. But Drake may find that RICO litigation is not Child’s Play.

What Illegal Conduct Is Drake Alleging?

The RICO statute was enacted in 1970 to help take down the Italian mafia. It lists various types of state and federal crimes that count as “racketeering” offenses, and creates a new type of crime for operating an “enterprise” that engaged in a “pattern” of such racketeering. The sentence for a criminal RICO violation can be up to 20 years in prison. Separately, anyone whose “business or property” is harmed through a RICO violation can file a civil lawsuit against the members of the enterprise; if successful, the plaintiff can recover treble (triple) damages, plus attorney fees and costs.

Over the years since RICO took effect, it has been used as a “thermonuclear device” (in the words of one court) in business disputes, usually where one side is accusing the other of fraud. For example, in recent years, RICO claims have appeared in lawsuits by Elon Musk against OpenAI and its founders, by several artists against Chinese e-commerce giant Shein, and by Allstate insurance company against various New York-based pharmacies.

In Drake’s case, his company alleges that Universal, Spotify, and others engaged in a scheme to promote Not Like Us through several actions:

1.     License discount:  Drake claims that Universal has discounted its licensing fees to Spotify for the rights to Not Like Us by 30% from its standard rate, which he says amounts to paying Spotify to play the track.

2.     Bots:  Drake claims that Universal has used bots—software programs used to take actions online that imitate human behavior—to artificially increase the number of requests to stream Not Like Us on Spotify, thus artificially increasing its reported performance.

3.     Siri manipulation:  Drake claims that Universal paid Apple to cause the Siri digital assistant program on Apple devices to play Not Like Us when the user actually requested a different song (such as one of Drake’s).

4.     Radio station payola:  Drake claims that Universal secretly paid radio stations to play Not Like Us more frequently, an arrangement known as “payola.”

5.     Undisclosed influencer payments:  Drake claims that Universal secretly paid social media influencers and podcasters to promote Not Like Us.

How Can Streaming Manipulation Constitute Criminal Racketeering? 

A RICO violation requires a pattern of committing not just any crime, but one of a specified list of felonies under federal or state law, found at 18 U.S.C. § 1961(1). For example, payola—undisclosed payments to a broadcaster in return for playing particular music—is illegal under Section 507 of the Communications Act. But the crime is only a misdemeanor, and it is not listed as one of the types of “racketeering” crimes in the RICO statute. Thus, Drake could not bring a RICO lawsuit just by alleging violated that law.

Instead, as in most civil RICO lawsuits, Drake’s petition alleges that Universal and others committed federal mail or wire fraud under 18 U.S.C. §§ 1341 and 1343. To violate those statutes, one must engage in a “scheme or artifice” to defraud someone through deception—false statements or material omissions—in order to deprive them of money or property. In some jurisdictions, such as the Ninth Circuit, a mail or wire fraud claim cannot be based on a mere omission—a failure to provide information—unless the defendant had a special "relationship of trust" with the victim that required the defendant to disclose the information.

So what are the false or misleading statements here? One may be the claim that Universal’s alleged use of bots to request Not Like Us amounted to a false representation to Spotify that the requests were from actual, human users, thus causing Spotify to pay extra licensing fees. But if Drake is suing Spotify as well, it would be odd to describe Spotify as a victim of the scheme.

More likely, Drake would argue that the various actions misled consumers into believing the track was more popular than it is. The other potential claims mentioned in his petition are deceptive business practices and false advertising, and the petition discusses federal and state policies against payola as causing harm to consumers.

Why Drake's Wire Fraud Theory May Fail

But there is a problem with this theory. As the Supreme Court has made clear in several recent decisions, to commit mail or wire fraud, one must have as the “primary object” of one’s fraud scheme the deprivation of property from the relevant victim (Kelly v. United States). Also, the thing to be taken must entail traditionally-recognized property rights (Ciminelli v. United States). Simply depriving someone of economically-valuable information is not enough.

It isn’t clear whose property Drake thinks Universal and Spotify have taken through fraud. Again, if Spotify were the victim rather than an alleged co-schemer, the theory might make sense, because Spotify has paid Universal money to stream the track. But claiming that Spotify users have been deprived of money or other recognized property rights seems like a stretch. The idea that Spotify users’ subscription decisions would be based on how much of the popularity of Not Like Us was organic seems hard to believe, and in any case may not qualify as a recognized property right under Ciminelli. The same would be true of any theory that Apple users were tricked into paying for their own devices or subscriptions.

The petition also alleges that Drake’s company lost money as a result of the scheme, because Spotify users who would otherwise have streamed his song instead chose to use their limited free time on Not Like Us. But Drake does not claim that he or his company were misled, or that the misleading communications were directed to them. Thus, a mail or wire fraud theory with Drake or his company as the “victim” would not work.

Can Drake's RICO Claim Be Based on Bribery?

Drake’s petition also says that the racketeering activity involved “bribery.” Commercial bribery under state law is a type of racketeering under RICO, and usually involves paying or promising to pay an agent or employee, without the consent of the principal or employer, and with the intent to influence the agent/employee’s actions relating to their employment. Drake likely plans to argue that Universal’s alleged payments to Spotify, or to Apple, or to bot suppliers, radio stations, or influencers amount to commercial bribery.

But if so, it is not clear which “principals” or “employers” have been cheated. Consumers, the alleged victims in the scheme, have no employment or fiduciary relationship with any of the companies involved.

Does Drake Have Standing to Sue Under RICO?

Another problem for Drake is standing. Only a plaintiff that has suffered harm to its “business or property” as a result of the illegal racketeering can sue under RICO. The harm must involve a “concrete financial loss.” Again, Drake claims that his company lost money because the increase in streaming of Not Like Us meant less streaming of Drake’s tracks, and thus fewer licensing fees.

But a court may have trouble with Drake’s “zero sum” theory—one might find it equally plausible that the increased attention created by the diss track would drive more listeners to Drake’s songs, just as boxing promoters often seek to stir up interest in fights by playing up personal drama between the fighters.

The Lawsuit May Be a Publicity Tactic

Even if everything Drake alleges is true, it is not clear that he has a viable RICO claim, or a viable petition for pre-suit discovery. But that may not be the main point. The publicly-filed petition, which has been widely-publicized, lays out in detail Drake’s theory that the popularity of Lamar and his diss track are not what they seem to be. Directing attention to this theory could be part of a broader public relations strategy, aimed at undercutting the popular narrative that Lamar “won” the face-off with Drake by outselling him. Or it may be an attempt to influence future negotiations with Universal, which is the record label of both Drake and Lamar. Or it could just be a way to keep Drake in the headlines, as free marketing.

Whether such a strategy pans out, or instead backfires and undermines Drake’s image and credibility, remains to be seen. The RICO claims, on the other hand, are likely to face a rough road ahead.

Bad Boys and Tough Talk: When Do Demand Letters Become Criminal Extortion?

Plaintiff lawyers can't be sued for extortion over typical demand letters due to California's litigation privilege—unless they cross the Flatley line by threatening to expose unrelated crimes or information beyond their client's claims. A new lawsuit against attorney Tony Buzbee tests these boundaries in the context of celebrity sexual assault cases.

Litigation can be an ugly business. Some of the darkest corners often involve the opening stages of a dispute, when the plaintiffs or their counsel first make their accusations and warn the defendant of the potential consequences if satisfactory accommodations cannot be made. The conversations sometimes carry the faint whiff of the underworld, as if the plaintiff’s demand letter were scented with cigar smoke and opened with the phrase “It’d be a real shame if . . .”

Sometimes the whiff is not so faint.

The latest celebrity sexual assault scandal, this time a federal criminal case against Sean Combs, has brought on a cottage industry of follow-on civil litigation, much of it led by a single plaintiff’s lawyer with a taste for publicity and an aggressive approach to negotiation.

It has also inspired one putative defendant to preemptively strike back with a lawsuit for extortion, which provides another opportunity to explore the outer boundaries of what is permitted in a litigation demand letter.

Diddy, Buzbee, and Doe

As anyone with a passing awareness of pop culture since the mid-1990s knows, Combs (aka Diddy, née Puffy, née Puff Daddy, née P. Diddy) is a rapper / producer / executive / menswear designer with an impressive record of hits and a rotating collection of names. He is also an inmate at the Metropolitan Detention Center in New York, detained without bail on federal RICO and human-trafficking charges, based on allegations involving sex trafficking, forced labor, kidnapping, arson, bribery, obstruction of justice, and something called "freak offs" (if you don't know, don't ask).

Tony Buzbee is a Texan plaintiff's lawyer who has specialized in suing celebrities for sexual assault, and has filed more than a dozen such cases against Combs, to much media fanfare. He has also publicly promised to sue an array of other unnamed, high-profile figures who allegedly participated in Combs's criminal exploits.

According to the new lawsuit, filed in Los Angeles state court, plaintiff John Doe is a self-described “celebrity and public figure,” and the recipient of a demand letter from Buzbee, which Doe alleges crossed the line into illegal extortion. Specifically, Doe claims that after making various public pronouncements about his intentions to sue a long list of Diddy's alleged accomplices and to refer them to the FBI for criminal investigation, Buzbee contacted Doe and demanded a settlement payment—or else . . .

We thus enter the murky and nefarious realm of California extortion law, as applied to plaintiff demand letters.

What Makes a Demand Letter Extortionate Under California Law?

Under California Penal Code §§ 518(a) and 519, extortion is "obtaining of property . . . from another by a wrongful use of force or fear." Wrongful use of force or fear includes a threat to accuse someone of a crime, to "expose, or to impute . . . a deformity, disgrace or crime," or to "expose a secret affecting" the victim. It is a felony punishable by up to four years in prison, and can be the basis of a private lawsuit for damages.

This would seem to present an obstacle to plaintiff lawyers, whose business largely consists of accusing others of, if not crime, then at least "disgrace," often exposing secrets in the process. Before filing the lawsuits that contain these allegations, the lawyers typically send letters demanding that the prospective defendant enter into a confidential monetary settlement in order to avoid the litigation and the ignominy it may bring.

How Does the Litigation Privilege Protect Plaintiff Lawyers?

So why are plaintiff lawyers not all behind bars? (Yes, yes, hilarious.) And why are they not getting sued into oblivion? Largely because of the litigation privilege.

Under Civil Code § 47, statements made in or directly connected to a judicial proceeding are privileged, and a person generally cannot be sued or prosecuted for making them. The privilege extends to plaintiffs’ demand letters.

When Does the Flatley Exception Apply?

But there is a limited exception to the privilege, named after the famous case—Flatley v. Mauro—in which it was established. In a nutshell, Flatley was a famous dancer, and Mauro was a lawyer who sent Flatley a letter accusing Flatley of raping Mauro’s client. Mauro warned that if Flatley did not pay a seven-figure settlement, then Mauro would publicize the allegations in the media and “expose” information about Flatley’s supposed, unrelated tax and immigration issues. Flatley sued Mauro for extortion, and Mauro invoked the litigation privilege.

The California Supreme Court held that the litigation privilege did not apply because Mauro’s conduct amounted to extortion under California law. The first part of the court’s analysis focused on Mauro’s threats to disclose “criminal activity entirely unrelated to any alleged injury suffered by Mauro’s client”—the tax and immigration issues—which “exceeded the limitations of [Mauro’s] representation of his client.”

In later cases, courts have distinguished the Flatley demand letter from others that threatened only to publicize allegations that were part of legal claims to be filed by the plaintiff. For example, in Malin v. Singer, the court held that an aggressive demand letter threatening to publicly sue the recipient for embezzlement was not extortion, and thus was protected by the litigation privilege, because the allegation was “inextricably tied to” the plaintiff’s proposed legal complaint.

Can Buzbee's Demand Letters Qualify as Extortion?

Mr. Doe’s complaint against Buzbee attaches several exhibits, but Buzbee’s demand letters are not among them. Thus, we are left to rely on the complaint’s partial description of the letters (at paragraphs 51-63), at least unless Buzbee attaches the letters to his response.

 The complaint does not assert that the demand letters threaten to refer Doe to law enforcement authorities. Nor does it say that the letters threaten to publicize any misconduct other than what would be the basis for the complaint itself—that is, Doe’s alleged sexual assault. Per the complaint, the letters specifically threaten to “immediately file” a “public lawsuit” alleging sexual assault, and to seek other victims to bring similar lawsuits against Doe.

Under Malin and other cases applying the Flatley test, Buzbee’s demand letters don’t appear to qualify as extortionate. Their only clear threats involve taking actions that are “inextricably tied” to the potential legal case Buzbee would bring, alleging claims for sexual assault, similar to others he has filed. While the complaint discusses at length the elaborate media campaign Buzbee has launched to publicize his various Diddy-based lawsuits, that conduct does not support an extortion claim under existing authority.  

At one point, the complaint states that the demand letters threatened to “take a different course” if Doe did not agree to discuss settlement. The complaint alleges “on information and belief” that this was “a reference to the threats [Buzbee] made in statements to the media, including that he would report [Doe] to the FBI,” among other things. Perhaps a court extend the Flatley doctrine to consider plaintiff counsel’s outside conduct and statements as part of the implied threats in the demand letter. But I’m not aware of any precedent for that. 

If Not the Battle, then the War?

Expect Buzbee to file an anti-SLAPP motion to strike the complaint, arguing that the demand letters are “protected conduct” under California Code of Civil Procedure § 425.16, and Doe cannot prevail because of the litigation privilege. If that motion succeeds, Doe would have to pay Buzbee’s attorney fees incurred in filing the motion.

But Doe and his counsel may have a broader strategy in mind with their complaint. Buzbee’s leverage over high-profile targets like Doe depends largely on the court of public opinion—the negative publicity the allegations themselves would bring, even if the lawsuits never succeed. One responsive tactic is to strike first, immunizing the media landscape against the reputational harm of the assault claims by preemptively casting them as illegitimate and abusive, and posing Doe as the true victim. Separately, Doe may want to signal that if Buzbee does file such a suit without a proper investigation or good-faith basis, he and his client could face sanctions, or even a retaliatory lawsuit for malicious prosecution. The benefit to Doe may be worth the risk of an anti-SLPP motion.

Doe may also be seeking to undermine Buzbee’s own reputation and ability to target other prominent figures in the future. Most of the complaint focuses on Buzbee’s own background of allegedly extortionate conduct, as well as his purportedly dubious relationship with disgraced former federal judge Samuel Kent. On their face, many of those allegations have nothing to do with Doe’s own case, but they may well be fodder the same audiences that are currently gawking at Diddy’s predicament.