United States v. Sam C. Martino, Joseph C. Russello and Rolando Gonzalez Rodriguez

POLITZ, Circuit Judge,

joined by ALVIN B. RUBIN, VANCE, TATE, THOMAS A. CLARK, JERRE S. WILLIAMS and GAR-WOOD, Circuit Judges, dissenting:

Respectfully, I dissent, regretting that I cannot join my colleagues in one of the last cases decided en banc by the Former Fifth Circuit. I am unable to concur in the holding that a payment made under a fire insurance policy necessarily constitutes a forfei-table “interest” under 18 U.S.C. § 1963 (a)(1), being of the opinion that the language, structure and purpose of the Racketeer Influenced and Corrupt Organization Act direct a different conclusion.

The issue posited by the court today is whether the term “interest,” as used in § 1963(a)(1), “includes income or profits derived from a pattern of racketeering activity.” That is the larger issue, but perhaps the more precise issue at bar is whether, under the RICO forfeiture provisions, a money judgment may be rendered against a defendant, in a sum equal to the amount paid under a fire insurance policy, for a loss occasioned by arson in a setting violative of RICO.

Just as nature abhors a vacuum, historically our society has abhorred forfeitures. As Judge Hill notes in footnote 23, the framers of the Constitution demonstrated their repudiation of the harsh English tradition of criminal forfeiture, and our very first Congress forbade the forfeiture of an estate because of a criminal conviction. Further, a forfeiture with an in personam application, as we have before us, is to be most charily assessed. It is from this perspective that I address the inquiry before the en banc court.

RICO is Title IX of the Organized Crime Control Act of 1970, Congress’s solar plexus blow to organized crime. The Act and its legislative history reflect Congress’s determination to counter the takeover of legitimate businesses, as well as to combat organized, illegal activities. In enacting RICO, Congress ordained a criminal statute of vast scope and stern consequences, aimed at punishing and deterring those who would wreak havoc in the social and economic fabric of our society.

The penalties to which Congress subjected a violator of RICO, as set forth in § 1963, include a fine of up to $25,000, imprisonment of up to 20 years, and the forfeiture to the United States of:

(1) any interest he has acquired or maintained in violation of section 1962, and (2) any interest in, security of, claim against, or property or contractual right of any kind affording a source of influence over, any enterprise which he has established, operated, controlled, conducted, or participated in the conduct of, in violation of section 1962.

18 U.S.C. § 1963 (a)(1) & (2).

The court today concludes that the word “interest,” as here used, includes income or profits derived from a pattern of racketeering activity. I do not share that conclusion, adhering to the view expressed in the panel opinion that the term “interest,” as used in § 1963(a)(1), applies only to an interest in the enterprises envisioned in §§ 1962(a), (b) and (c) and not to income derived from illegal activity. Whether this distinction is wise, prudent or appropriate is, as I perceive it, a matter best left to the legislative branch, for it represents a significant policy decision.

The interests to be forfeited under § 1963(a)(1) are those acquired or main- *963 tamed in violation of § 1962. Section 1962(a) prohibits acquiring, establishing or operating “an enterprise” with income derived “from a pattern of racketeering activity or through collection of an unlawful debt.” The exception contained in this section sharply focuses the pith of the entire section — money oozing from a pattern of racketeering activity, or resulting from collection of an unlawful debt, may not be used to infiltrate legitimate businesses unless the investment is made under certain limiting circumstances and constitutes less than 1% of the business’s outstanding securities. This section prohibits the investment of tainted funds in a legitimate enterprise. Congress determined to place the protective mantle of the federal criminal law around legitimate businesses, guarding them from the corruption inherent in soiled funds. Section 1962(b) proscribes the acquiring or maintaining of an interest in or control of an enterprise through racketeering activity or by collection of an unlawful debt. Subsection (c) proscribes the conduct of the affairs of an enterprise through racketeering activity or unlawful debt collection. Recently, the Supreme Court made clear that subsections (b) and (c) apply to both legitimate and illegitimate associations. United States v. Turkette, 452 U.S. 576 , 101 S.Ct. 2524 , 69 L.Ed.2d 246 (1981).

I am persuaded that the forfeiture sanction intended by § 1963(a)(1) relates to interests in a business acquired with tainted money (§ 1962(a)), and interests in any enterprise acquired or maintained by racketeering activity or unlawful debt collection, (§ 1962(b)). I am further persuaded that § 1963(a)(2) relates primarily to an interest in an enterprise which is involved in conduct violative of § 1962(c). To me, the text of these sections clearly reflects that Congress made interests in enterprises the grist of forfeiture. The sections seek to prevent the use of ill-gotten gains to corrupt businesses, to prevent the acquiring and maintaining of an interest in an enterprise through illegal activities, and to prevent the involvement of enterprises in illegal activities.

There are other reasons to believe that Congress did not intend “income” to be synonymous with “interest” for the purposes of forfeiture under § 1963. Although the definitional section, § 1961, does not include the specific meaning to be ascribed to “interest” or “income,” the term “any interest” and the word “interest” appear in several places throughout the statute. Section 1961(3) refers to a “legal or beneficial interest in property.” Section 1962(a) refers to “any interest in .. . any enterprise.” Section 1962(b) repeats the words “any interest in ... any enterprise.” Further, § 1964(a), the civil remedies section, prescribes that the court may order a person “to divest himself of any interest, direct or indirect, in any enterprise.” In each instance the meaning is clear — an “interest” is an interest in an enterprise.

The panel found persuasive the analysis of our colleagues of the Ninth Circuit in United States v. Marubeni America Corp., 611 F.2d 763 (9th Cir. 1980), who concluded that the forfeiture in RICO extends only to interests in an enterprise and does not include income or proceeds from a pattern of racketeering activity. I continue to be of that view and also find persuasive the discussion in United States v. Thevis, 474 F.Supp. 134 (N.D.Ga.1979) and United States v. Meyers, 432 F.Supp. 456 (S.D.Pa.1977).

The majority concludes that “reading an enterprise limitation into § 1963(a)(1) renders that section surplusage.” I disagree. One example underscores the error in this suggestion. Hypothesize that an individual uses income from racketeering activity to purchase 2% of the stock of a corporation listed on the stock exchange. The investment is totally passive; no element of control or influence envisioned by § 1963(a)(2) is involved. This interest would not be forfeitable under § 1963(a)(2), but it would be forfeitable under § 1963(a)(1) since the acquisition violates § 1962(a). The recognition of an enterprise limitation in § 1963(a)(1) does not, therefore, render that section surplusage.

The court today is not impressed with a portion of the legislative history cited by the panel, specifically the August 1969 letter from Deputy Attorney General Richard P. Kleindienst, in part because the letter specifically addressed another pending RICO proposal, S. 1861. Although acknowledging that the Kleindienst letter is cited in the Senate Report on S. 30, the enacted bill, the opinion maintains that the letter provides little meaningful guidance on the scope of the legislation as finally adopted. I disagree.

*964 Although the Kleindienst letter refers to S. 1861, the Senate Report on S. 30 cites the letter as an accurate interpretation of the forfeiture clause. S.Rep.No.91-617, 91st Cong., 1st Sess., 78-80 (1969). That report, in explaining the forfeiture provision, notes:

Section 1963 provides criminal penalties for the violation of section 1962, above. Subsection (a) provides the remedy of criminal forfeiture .... The language is designed to accomplish a forfeiture of any “interest” of any type in the enterprise acquired by the defendant or in which the defendant has participated in violation of section 1962.

(Emphasis added.) Id. at 160. Accord, id. at 34.

We find similar language in the House Report which speaks to forfeiture of interest “in an enterprise.” H.R.Rep.No.91-1549, 91st Cong., 1st Sess. 35 and 57 (1970), reprinted in 1970 U.S.Code Cong. & Admin. News, 4007, 4010.

The essence of the forfeiture grounds a further reason for my disagreement with the en banc court’s conclusion that § 1963 allows for forfeiture of monies received as insurance proceeds. Although general forfeitures are historically disfavored, Congress has frequently used the onus of specific forfeitures in combating illegal activities. See, e.g., 15 U.S.C. § 11 (forfeiture of property acquired in violation of anti-trust laws); 15 U.S.C. § 1177 (forfeiture of property used in connection with illegal gambling); 16 U.S.C. §§ 65 , 117(d), 128, 171, 256c, 4081 (forfeiture of guns and other equipment used unlawfully in national parks); 18 U.S.C. § 924 (forfeiture of firearms used illegally); 18 U.S.C. § 1082 (forfeiture of property used in connection with illegal gambling); 18 U.S.C. § 3612 (forfeiture of bribe monies illegally received by public officials); 18 U.S.C. § 3615 (forfeiture of property used in connection with liquor violations); 18 U.S.C. § 3617 (d) (forfeiture of vehicles and aircraft seized for a violation of liquor laws); 18 U.S.C. §§ 3618 & 3619 (forfeiture of conveyances used to introduce intoxicants into Indian territories); 19 U.S.C. § 1306 (forfeiture of unwholesome imported meat); 19 U.S.C. §§ 1453 & 1492 (forfeiture of property seized in violation of customs laws); 21 U.S.C. § 334 (forfeiture of adulterated food); 31 U.S.C. § 490 (forfeiture of funds illegally withheld by public official); 49 U.S.C. §§ 781 & 782 (forfeiture of vessels, vehicles and aircraft used to transport contraband). In each of these instances, the forfeiture statutes provided for in rem actions against things put to illegal use. Although RICO prescribed an in personam forfeiture, it does not provide an unlimited sanction but is, I believe, restricted to the forfeiture of a specific interest in an enterprise which was acquired, or over which the defendant exercised control, contrary to § 1962. If Congress had intended otherwise, I am convinced it would have said so clearly and unequivocally.

No strangers to forfeitures generally, Congress is also no stranger to forfeitures of fruits and profits. If Congress meant to impose a forfeiture of income and proceeds in RICO, I suggest Congress could and would have done so in unmistakeable language. Congress knows how to decisively direct the forfeiture of profits. The same Congress which adopted RICO, in a matter of days adopted the Comprehensive Drug Abuse Prevention and Control Act of 1970. 21 U.S.C. § 848 (a)(2) states: “Any person who is convicted under paragraph (1) of engaging in a continuing criminal enterprise shall forfeit to the United States — (A) the profits obtained by him in such enterprise .... ” (emphasis added). That is the kind of specification one would expect Congress to use when creating our first in personam forfeiture statute.

The court today would distinguish this variance in Congressional approach by observing that narcotics trafficking typically involves cash transactions while RICO violations result in interests which take a variety of forms. I disagree with so light a rejection of what I see as a meaningful, instructive variant.

Based on the foregoing, I am of the view that Congress did not intend to include in *965 the § 1963(a)(1) forfeiture provision, fire insurance proceeds or other fruits and profits obtained from RICO proscribed activities, other than those which are manifested as interests in one of the enterprises described in § 1962. I am cognizant that this conclusion occasions problems with respect to associations in which one cannot own a legal interest, as in the case sub judice. This limitation was recognized by the Justice Department in its comments on the legislation, when it observed that “there is often nothing to forfeit ... in the case of individuals associated in fact.” Forfeiture under 18 U.S.C. § 1963 — RICO’s Most Powerful Weapon, 17 Am.Crim.L.Rev. 379, 391 (1980) (quoting U.S. Department of Justice, Explanation of the Racketeer Influenced and Corrupt Organization Statute 2 (4th ed.)). Under my analysis, the kind of enterprise necessarily would be critical in the determination of forfeitable interests. That this poses an enforcement burden or hurdle is, again, a legislative consideration.

Finally, accepting the proposition that insurance proceeds are forfeitable, I question whether the forfeiture sanction is applicable to Russello and Rodriguez. These two defendants owned and insured buildings before the advent of the RICO arson ring. They later participated and feloniously burned their properties. The insurance proceeds may be taken as a different manifestation of a pre-RICO violation asset. If so, are the insurance payments truly income, fruits, revenue or profits of racketeering activities?

Regardless, these proceeds, based on arson and the payments of which were induced by fraud, are very likely to be defea-sible. One would expect that under the insurance contract, and controlling state law, the insurer would be entitled to recapture the payments. In that event, what happens to the forfeiture decrees which are non-asset oriented money judgments, collectible from the defendants and their estates? Assuming recapture by the insurer, or diversion of all or a portion to an innocent third party such as a mortgage holder, will the United States still have an enforceable money judgment against the defendant and his estate? Presumably so, and if that presumption is correct, what about the concept of divestiture of ill-gotten gains and the separation of the convictéd defendant from the fruits of his illegal labors? Will this matter not in fact resolve into the forfeiture becoming an additional fine? Did Congress really intend to establish a latent fine with a potential for exceeding the maximum statutorily stated fine tenfold, twenty-fold or one hundred-fold?

I suggest that this type of difficulty is inherent in today’s decision and is a direct concomitant of our holding that the forfei-table interest under § 1963(a)(1) extends beyond a present, discernible interest in an existing enterprise.

I respectfully dissent.