No Scienter Necessary: The Fourth Circuit’s Landmark Ruling on Civil RICO “Unlawful-Debt” Claims in Williams v. Martorello

Introduction

Williams v. Martorello, decided on 16 July 2025 by the United States Court of Appeals for the Fourth Circuit, is the third appellate visit of a sprawling class-action fight over a high-interest, internet-based “rent-a-tribe” payday‐lending operation. Plaintiffs—Virginia borrowers—accused non-tribal mastermind Matt Martorello of violating the civil provisions of the Racketeer Influenced and Corrupt Organizations Act (RICO) by collecting “unlawful debt.” After a tortured procedural history (including two earlier published opinions: Williams I, 929 F.3d 170 (4th Cir. 2019) and Williams II, 59 F.4th 68 (4th Cir. 2023)), the district court entered $43.4 million in class damages. On appeal, Martorello attacked three core rulings:

Denial of his Rule 19 motion to dismiss for failure to join the Tribe and its business arms.
The district court’s choice of Virginia (rather than tribal) law to decide usury.
Rejection of his proposed “mistake-of-law” defense, i.e., that he lacked scienter regarding the debt’s illegality.

Judge Agee, writing for a unanimous panel (Chief Judge Diaz and Judge Gregory joining), affirmed in full, crystallising several key principles: (1) settling sovereign-immunity parties are not indispensable under Rule 19; (2) state usury law governs off-reservation, internet-based tribal lending; and (3) civil RICO “collection of unlawful debt” claims carry no independent scienter requirement—so a good-faith mistake of law is irrelevant. These holdings will reverberate across consumer-protection litigation, tribal immunity doctrine, and the rapidly evolving fintech lending sector.

Summary of the Judgment

Rule 19: The Lac Vieux Desert Band of Chippewa Indians, and its entities Big Picture Loans, LLC and Ascension Technologies, Inc., though “necessary” at most, were not “indispensable” because they had already entered into a comprehensive nationwide settlement that eliminated any potential prejudice. Dismissal would unfairly strip the certified class of its only remaining avenue for relief against Martorello.
Choice of Law: Applying Hengle v. Treppa, 19 F.4th 324 (4th Cir. 2021), the panel held the lending occurred off-reservation; therefore non-discriminatory state law (Virginia’s 12% usury cap) governs without triggering the Bracker balancing test.
Scienter & Mistake-of-Law: Civil RICO provisions (§§ 1962(c) & (d)) are silent on mens rea; courts do not read a scienter element into a civil statute absent express wording. Because Virginia usury law is strict-liability, Martorello’s alleged good-faith belief that tribal law applied is no defense.
Result: The Fourth Circuit affirmed the district court’s $43,401,817.47 judgment for the 491,018-member class.

Analysis

A. Precedents Cited and Their Influence

Temple v. Synthes Corp., 498 U.S. 5 (1990) – Established that joint tortfeasors are not automatically “necessary” parties under Rule 19. The panel borrowed this principle to reject Martorello’s indispensability theory.
Republic of Philippines v. Pimentel, 553 U.S. 851 (2008) – Recognised the weight of sovereign immunity in Rule 19(b). The court distinguished Pimentel: once the Tribe settled, no real prejudice remained.
White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980) & related Indian Commerce Clause cases (Mescalero Apache Tribe v. Jones, etc.) – Frame the pre-emption/infringement analysis for state regulation on reservations. The Fourth Circuit concluded Bracker is unnecessary where conduct is off-reservation.
Hengle v. Treppa, 19 F.4th 324 (4th Cir. 2021) – The key Fourth Circuit precedent holding that internet payday lending marketed to Virginians is off-reservation activity subject to state usury caps. Directly controlled the choice-of-law question.
United States v. Scotto, 641 F.2d 47 (2d Cir. 1980); United States v. Biasucci, 786 F.2d 504 (2d Cir. 1986); United States v. Pepe, 747 F.2d 632 (11th Cir. 1984) – Criminal RICO cases reading no additional mens rea into § 1962. Their reasoning underpinned the panel’s civil-context holding.
United States v. U.S. Gypsum Co., 438 U.S. 422 (1978) – Demonstrated that civil and criminal uses of the same statutory language may demand different mental states; cited to buttress the civil/criminal divide.

B. Court’s Legal Reasoning

Rule 19 Framework:
- Step 1 (“necessary”) – Even if the Tribe/entities had interests, joint tortfeasor status alone is insufficient.
- Step 2 (“indispensable”) – Weighing prejudice, adequacy of judgment, and alternative remedies. Settlement agreement wiped out prejudice; dismissal would deny plaintiffs any remedy. Therefore the case could “in equity and good conscience” proceed.
State-Law Applicability:
- Lending was conducted via nationwide web portals and ACH debits to Virginia borrowers—classic off-reservation contact.
- No federal statute pre-empted Virginia’s usury cap, and applying that cap does not infringe tribal sovereignty when commerce leaves the reservation.
- Hence no Bracker test; Virginia’s 12% ceiling applies, rendering 600-800% APR loans “unlawful debt.”
Civil RICO Mens Rea:
- Textual Silence – § 1962(c)/(d) lack explicit mens-rea language; Congress uses “willful,” “knowingly,” or similar when it wishes to require scienter.
- Presumption Against Implied Mens Rea in Civil Statutes – Unlike criminal law’s “culpable mind” presumption, civil liability may rest on strict liability unless Congress says otherwise.
- Predicate-Act Approach – Any mental-state requirement flows only from the underlying unlawful-debt definition (Virginia usury law is strict liability).
- Consequently, mistake-of-law evidence is irrelevant; defendant only had to “collect” the debt.

C. Potential Impact of the Decision

Consumer-Protection Litigants: Plaintiffs in other jurisdictions can invoke this precedent to defeat “good-faith” defenses in civil RICO cases grounded in usury or other strict-liability predicates.
Payday & Fintech Lending: The opinion reinforces that “rent-a-tribe” structures will not shield non-tribal actors from state usury laws or federal civil RICO exposure, especially once tribal entities settle.
Rule 19 Strategy: Defendants can no longer reflexively invoke tribal sovereign immunity to force dismissal if the sovereign or its arms have settled. Courts will scrutinize real-world prejudice, not nominal interests.
Tribal Sovereignty Jurisprudence: Confirms a clear jurisdictional line—online lending to non-members off-reservation is subject to state regulation without a full Bracker inquiry.
Civil/Criminal RICO Doctrine: Establishes within the Fourth Circuit that civil RICO claims for “collection of unlawful debt” are strict liability as to knowledge of illegality; only the act of collection and the debt’s unlawfulness matter.

Complex Concepts Simplified

RICO (Racketeer Influenced and Corrupt Organizations Act): A federal law allowing civil or criminal liability for engaging in certain enumerated misconduct—here, collecting “unlawful debt.” Civil plaintiffs can obtain treble damages.
“Unlawful Debt”: Debt unenforceable under state or federal usury laws, and at least twice the legal interest rate.
Rule 19 (Necessary & Indispensable Parties): Court rule governing dismissal if key parties cannot be joined. “Necessary” means their interests could be affected; “indispensable” means the case cannot proceed without them.
Tribal Sovereign Immunity: Federally-recognised tribes cannot be sued without consent or Congressional waiver. Business entities can share immunity if they are “arms of the tribe.”
Rent-a-Tribe Scheme: Non-Indian lenders partner with tribes to exploit immunity, offering ultra-high-interest loans online purportedly governed by tribal law.
Indian Commerce Clause & Bracker Balancing: Constitutional allocation of commerce power with tribes to Congress. Bracker requires weighing federal, tribal and state interests when states regulate on-reservation activity.
Scienter: Legal term for the mental state accompanying a wrongful act; here, the issue is whether RICO demands knowledge that the debt is unlawful.
Mistake-of-Law Defense: Claim that a defendant acted under a good-faith, but wrong, understanding of the law; usually ineffective in civil strict-liability contexts.
Usury: Charging interest above the legal maximum. Virginia’s ceiling is 12% unless a statute authorises otherwise.

Conclusion

The Fourth Circuit’s published opinion in Williams v. Martorello delivers three decisive messages:

Settlements with sovereign-immunity parties substantially neutralise Rule 19 objections—cases will not be derailed merely because a tribe is absent.
When tribal enterprises transact with non-members off-reservation (including via the internet), ordinary state laws, not tribal ordinances, control.
Civil RICO liability for collecting unlawful debt is a strict-liability regime; defendants cannot evade damages by professing legal ignorance.

Together these holdings fortify state consumer-protection frameworks, close a common payday-lending loophole, and clarify the evidentiary burdens in civil RICO litigation. For practitioners, the case is a touchstone on three intersecting doctrinal fronts—class-action procedure, tribal immunity, and federal racketeering law—and a stern warning to would-be architects of immunity-shielded high-cost lending schemes.