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School District May Not Be Sued Under Racketeering Law, Appeals Court Rules

Last month, when 11 Atlanta educators in that city's test-cheating scandal were convicted of racketeering, some observers questioned whether a state law originally aimed at organized crime was the appropriate legal tool for prosecutors in that case.

This week, the federal version of such a law, the Racketeer Influenced and Corrupt Organizations Act, or RICO, figured in another education case. A federal appeals court ruled on Monday that a school district was not a proper defendant in a civil RICO claim.

The decision by a three-judge panel of the U.S. Court of Appeals for the 5th Circuit, in New Orleans, came in a case involving alleged bribery in construction contracts of the Houston Independent School District.

One contractor alleges in its suit that it lost out on construction business in the 215,000-student district because it refused to participate in an alleged bribery and kickback scheme involving Larry Marshall, a former board of trustees member of the district. The suit said the contractor, the Gil Ramirez Group LLC, was punished for refusing to participate in a scheme allegedly organized by Marshall, a former administrator in the district who was elected a trustee in 1997.

An attorney for Marshall did not respond to a request for comment, but in a brief filed in the 5th Circuit, the former trustee denies wrongdoing. The Gil Ramirez Group "failed, as a matter of law, to establish the existence of a criminal enterprise or that Marshall participated in an enterprise by engaging in a pattern of racketeering activity," Marshall's brief says.

A federal district court threw out the Gil Ramirez Group's suit, which named Marshall as well as the HISD and other parties as defendants.

In its May 18 decision in The Gil Ramirez Group LLC v. Houston Independent School District, the 5th Circuit court panel unanimously revived the suit against the former trustee and certain other defendants. But it held the school district itself could not be sued under the RICO law.

The appeals court said it agreed with two key arguments of the school district. One is that a governmental entity cannot form the mental state demonstrating the intent to commit a criminal act as required by the RICO statute. The second is that municipal governments are immune from punitive damages, and the treble damages provided for in the RICO law would be at least partially punitive in nature.

"A particularly good reason for rejecting governmental RICO liability stems from judicial reluctance to impose punitive damages on the public fisc," the appeals court said.

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