RICO case against former East Chicago mayor nets $108M in damages

A federal judge has ordered an ex-mayor and top allies to pay more than $108 million in damages for a voting scandal a decade ago, but in doing so he's rejected the Indiana Attorney General's most novel and far-reaching legal arguments in a landmark civil racketeering case centered on public corruption in East Chicago.

In issuing his 53-page decision in State of Indiana and City of East Chicago v. Robert A. Pastrick, et al., No. 3:04-CV-506, March 11, U.S. District Court Senior Judge James Moody criticized the state's top attorney for failing to flush out legal arguments or provide enough rationale, trying to basically bypass due process in targeting non-parties, and going beyond the scope of federal and state law regarding civil racketeering offenses.

But attorney experts specializing in racketeering law say that the recent ruling is one of first impression that's clearly a victory for the state and East Chicago, and it will be imitated nationally in cases targeting public corruption.

"We now know how much the corrupt administration cost the city, and I am confident that the litigation will be a precedent for other suits by other AG's," said G. Robert Blakely, a Notre Dame Law School professor who was an attorney on this case based on his experience as the nation's foremost expert on the Racketeer Influenced Corrupt Organizations Act. "To my knowledge, no other AG anywhere has successfully used federal RICO and his state RICO to sue a corrupt city administration and corrupt businesses to recover for the damages inflicted on the city."

The ruling comes in a 6-year-old case involving the decade-old "sidewalks-for-votes" scandal that helped end a Lake County titan's 33-year political career. The civil racketeering case went after the former mayor Robert Pastrick and his top aides for misusing $24 million in public money to pave sidewalks and driveways to gain votes in the 1999 Democratic primary.

While criminal cases ensnared most involved, former Attorney General Steve Carter in 2004 sued Pastrick and allies using the federal and state RICO statutes. Most defendants eventually settled, except for Pastrick, former aide James Fife III, and the now missing former city councilman Frank Kollintzas who almost pushed the matter to trial last year. But in days before that trial was to happen, Pastrick and Fife waived that right and the court entered a default judgment against them for running a corrupt enterprise in East Chicago. Judge Moody held a damages hearing in June, and he's been considering the damages amount and remedy since then.

In assessing the damages, Judge Moody counted the $27.3 million originally totaled from the sidewalks-for-votes scheme – $24 million plus legal fees and other financial costs – and added $8.7 million in prejudgment interest, which is four years worth at an 8 percent interest rate. With treble damages that he determined was allowed through his interpretation of state and federal law, the total came to $108,007,584.33. The judge also found that six corporations, all found liable for the sidewalk scheme in a separate decision by U.S. District Court Judge Allen Sharp, are now jointly liable with Pastrick and his aides for chunks of the $108 million.

But as current AG Greg Zoeller has publicly explained in the past, this case wasn't as much about money as it was about weeding out public corruption and finding a remedy to provide transparency and confidence for those in East Chicago. On that front, the AG's Office didn't get the judge's support.

In the legal points the AG made beyond the misused public money, Judge Moody rejected those proposed remedies and essentially told the state agency it was overstepping its authority. Most of the second-half of his order focuses on this, pointing out in multiple spots that the AG has failed to offer authority or missed the point of caselaw.

Judge Moody determined that the city couldn't recover salary or compensation from Pastrick or those aides because that isn't allowed by the civil RICO statute, that plaintiffs couldn't recover money paid to Fife's consulting firms, and that the court wouldn't issue an injunction banning the defendants from holding any public office anywhere in the U.S. He also admonished the AG for trying to open up the finances of for-profit and non-profit organizations – non-parties – that received casino money and provided some of that for local development projects. The AG had offered possible remedies the court might impose, such as civil forfeiture, a state-ordered "forensic audit" of non-party organizations, and having the court serve as a receiver if any money might be recouped from them.

"The obvious and most critical problem with plaintiffs' request is that it cannot be reconciled with principles of due process," Judge Moody wrote, relating to one of the AG's proposed remedies about a forensic audit. "These core, intertwined due process issues prevent the court from ordering the remedy plaintiffs seek in this case."

Chicago attorney Howard Foster, who runs a two-person firm specializing in civil RICO cases, said the 7th Circuit Court of Appeals hasn't set precedent on various aspects of RICO law raised by the Indiana AG and so the judge's rulings were consistent with what other District Courts have done. He described this as an impressive victory for Indiana, and this was how both the federal and state RICO statutes were meant to be used.

In the days following the decision, the Attorney General's Office was still reviewing the judge's ruling and declined to comment about specifics or whether it might be appealed on any points, spokesman Bryan Corbin said. But Zoeller described the decision as a victory for the state.

"I am enormously pleased that the federal judge awarded triple damages against former Mayor Pastrick and the other remaining defendants as a symbol of how brazen and shameless the public corruption was in the municipal government of East Chicago during the Pastrick regime," he said in a statement.

The state will now focus on collecting that judgment, which defense attorney Michael Bosch described as being mostly uncollectable – last year he'd dismissed the state's damages request and mocked the AG about treble damages, saying the judge should award $1 in damages and triple that amount.

Corbin said a bill of costs will be filed this month, which will include the $581,038 total invoiced by Chicago law firm Perkins Coie that represented the state; attorney Patrick Collins there served as a special deputy attorney general on this case. The AG now can file its brief outlining attorney fees and costs associated with the case.