Petitioners Brief — American Nat. Bank & Trust Co. of Chicago v. Haroco, Inc.

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No. 84-822

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

AMERICAN NATIONAL BANK AND TRUST COMPANY OF

CHICAGO, A NATIONAL BANKING ASSOCIATION, WALTER E.

HELLER INTERNATIONAL CORPORATION AND RONALD J.

GRAYHECK,

». Petitioners,

HAROCO, INC., A CORPORATION, ROMAN CERAMICS, INC., A

CORPORATION, CALIFORNIA ORIGINALS, INC., A CORPORA-

TION, AND MIKE WAYNE DISTILLED PRODUCTS Co., A

CORPORATION,

Respondents.

BRIEF FOR PETITIONERS

Donald E. Egan

Michael Wm. Zavis

Francis X. Grossi, Jr.

Lee Ann Watson

Charles E. Ex

Katten, Muchin, Zavis,

Pearl & Galler

55 East Monroe Street

Chicago, Illinois 60603

312/346-7400

Attorneys for Petitioners

QUESTION PRESENTED FOR REVIEW

Whether a civil claimant seeking treble damages under

the Racketeer Influenced And Corrupt Organizations Act

(“RICO”) must suffer damages merely by reason of the

defendant’s commission of statutorily prescribed offenses,

without more, or rather by reason of the defendant’s acquir-

ing, maintaining control or an interest in, or conducting the

affairs of an “enterprise” through the commission of such

offenses.

PARTIES TO THE ACTION

Petitioners are American National Bank and Trust Com-

pany of Chicago, Walter E. Heller International Corporation,

now known as Amerifin Corporation, and Ronald J.

Grayheck. Petitioners’ corporate parents, subsidiaries and

affiliates are contained in the Appendix To Petition For Writ

Of Certiorari (App. A-70).!

Respondents are Haroco, Inc., Roman Ceramics, Inc.,

California Originals, Inc. and Mike Wayne Distilled Products

Co.

1. “App.” refers to the Appendix contained in Petitioners’ Petition

For Writ Of Certiorari.

iii

TABLE OF CONTENTS

QUESTION PRESENTED FOR REVIEW........ i

RE ED EE MT IMIES occ cece cccecess ii

sr iv

EEE ee 1

Ue ibe pecceesees 1

STATUTORY PROVISIONS INVOLVED ........ 2

STATEMENT OF THE CASE................. 4

A. Summary Of The Claim.................. 4

B. The Proceedings Below ..............-55. 5

I, cc ccc cece cece cecccs 5

2. The Court of Appeals ...........052008. 7

SUMMARY OF ARGUMENT ................. 9

IG eee aces cceecececseecss 12

Section 1964(c) Requires An Injury “By Reason

Of A Violation Of Section 1962” ........... 12

The Plain Meaning Of “A Violation Of Section

he bewdh oc essececces 13

Congress’ Intent Was Not Contrary To The

Plain Meaning Of Section 1962(c) .......... 18

RICO’s Liberal Construction Clause Is Not

Applicable To Section 1962 ............... 22

There Are No Policy Considerations Requiring

A Less Than Literal Reading Of Section

TT Se Uk ee cee kee ec ecesess 24

yo A we >

TABLE OF AUTHORITIES

Cases

Alexander Grant & Co. v. Tiffany

Industries, 742 F.2d 408 (8th Cir. 1984),

petition for cert. filed, 53 U.S.L.W. 3541

(U.S. Jan. 2, 1985) (No. 84-1084) .......

Associated General Contractors v.

California State Council of Carpenters,

r 4 Se 0 Reo Tree

Bankers Trust Co. v. Rhoades, 741 F.2d

511 (2d Cir. 1984), petition for cert. filed,

53 U.S.L.W. 3367 (U.S. Oct. 24, 1984) (No.

—' Peerrrrrr rr re rt ee

Bell v. United States, 349 U.S. 81 (1955) ..

Bennett v. Berg, 685 F.2d 1053 (8th Cir.

1982), modified en banc 710 F.2d 1361,

cert. denied, 104 S.Ct. 527 (1983) .......

Blue Chip Stamps v. Manor Drug Stores,

roi @ll @&, 7): | eee

Bread Political Action Committee v.

Federal Election Committee, 455 U.S. 577

RD oc cesecsencesseumenweweonse

Bunker Ramo Corp. v. United Business

Forms, Inc., 713 F.2d 1272 (7th Cir. 1983)

California Brewers Ass’n v. Bryant, 444

of & fo Ferri rr rey ee re

Callanan v. United States, 364 U.S. 587

Mt. .cevsnnsnStaeeneeeneasee as

I 66 04 x6 oeend se tak ee ewenee

Consumer Product Safety Commission v.

GTE Sylvania, Inc., 447 U.S. 102 (1980). .

Dunn v. United States, 442 U.S. 100 (1979)

PAGE

Federal Communications Commission v.

American Broadcasting Co., 347 U.S. 284

PEO TTI 24

Furman v. Cirrito, 741 F.2d 524 (2d Cir.

1984), petition for cert. filed, sub nom

Joel v. Cirrito, 53 U.S.L.W. 3343 (U.S.

Oct. 15, 1984) (No. 84-604)............ 7

Grayned v. City, 408 U.S. 104 (1972) ..... 23

In re Catanella & E.F. Hutton & Co.

Securities Litigation, 583 F. Supp. 1388

PE r ree eee ee 27

Jenkins v. McKeithen, 395 U.S. 411 (1969) 4

Laterza v. American Broadcasting Co., 581

F. Supp. 408 (S.D.N.Y. 1984) .......... 27

Miree v. DeKalb County, Ga., 433 U.S. 25

ERE rat irerry camara aye epee 4

Mohasco Corp. v. Silver, 447 U.S. 807

ee rr a eae eee 24

Philbrook v. Glodgett, 421 U.S. 707 (1975) . 14

Rae v. Union Bank, 725 F.2d 478 (9th Cir.

Ca seen Wane eae aes e408 7

Russello v. United States, __. U.S. ,

Fo. e Ff errr eee 18, 19, 23, 25

Schacht v. Brown, 711 F.2d 1343 (7th Cir.),

cert. denied, 104 S. Ct. 508 (1983) ...... 27, 28

Securities & Exchange Commission v.

Sloan, 436 U.S. 103 (1978) ............ 23

Sedima, S.P.R.L. v. Imrex Co., 741 F.2d

482 (2d Cir. 1984), cert. granted, 53

U.S.L.W. 3506 (Jan. 14, 1985) (No. 84-

Pre ye errs ees Pe eee 7, 28, 29

Slattery v. Costello, 586 F. Supp. 162

CE, CED cccbceecrertecuseauwns 27

Sutliff, Inc. vy. Donovan Cos., 727 F.2d 648

CRU Ge, TEs os cccccnedevecsedecs 12, 26, 28

Touche Ross & Co. v. Redington, 442 U.S.

— 0 error ry rr err er ee

United States v. Bornstei:., 423 U.S. 303

ED og cco nccae debs eel eeens 56048

United States v. Brown, 333 U.S. 18 (1948)

United States v. Computer Sciences Corp.,

689 F.2d 1181 (4th Cir. 1982), cert.

denied, 459 U.S. 1105 (1983) ..........

United States v. Hartley, 678 F.2d 961

COR Ge: TID os icv cee sascvcesecss

United States v. Rodgers, __. U.S. ___,

104 S. Ct. 1942 (1984) ......... ee eees

United States v. Turkette, 452 U.S. 576

RR aero ss es eee

Village of Hoffman Estates v. Flipside,

Hoffman Estates, Inc., 455 U.S. 489

A Sarr es ee

BS ULE. GES wc civccnccaressncness

18 UBC. SIGBL... ccc ccccccceseccses

18 U.S.C. 10GB... cc rc cccvcccvvces

18 U.S.C. S1GEB.. cc rcccvcccevcces

18 US.C. $1964... 0... ccc ccscevcccces

18 UB.C. GIGEB... cc ccscscccscccsen

Pub. L. No. 91-452, 84 Stat. 947 ........

PAGE

18, 19, 23

13, 14

passim

15, 22

vii

Legislative Materials

Hearings before the Subcomm. on Criminal

Law Procedures of the Senate on the

Judiciary, 91st Cong. Ist Sess. (1969) ....

S. 30, 91st Cong. 2d Sess. Cong. Rec.

ES errr ere ee

S. Rep. No. 617, 91st Cong. 1st. Sess.

RE eke cee eee and eee esse heels

115 Cong. Rec. (1969) .......-.--eeee-

116 Cong. Rec. (1970) .........-+ee0e-

Treatises

Sands, Sutherland Statutory Construction

' TT & |. Sewer err eee eee

Commentary

Blakey, The RICO Civil Fraud Action In

Context: Reflections on Bennett v. Berg,

OO DEED. Came. SET CRED nc ccc ccseces

Bradley, Racketeers, Congress, and the

Courts: An Analysis of RICO, 65 lowa L.

aS ( ees ee

Frankfurter, Some Reflections on the

Reading of Statutes, 47 Colum. L. Rev.

es cues bad ksed veh eeeee.s

McClellan, The Organized Crime Act (S.

30) or Its Critics: Which Threatens Civil

Liberties?, 46 N.D. Law. 55 (1970) ......

Tarlow, RICO: The New Darling of the

Prosecutor’s Nursery, 49 Fordham L. Rev.

BO PPP Tees Ter Tee Ee

Note, RICO And Securities Fraud: A

Workable Limitation, 83 Colum. L. Rev.

Ee ee ee ee

PAGE

19, 23

19, 20, 21

viii

Miscellaneous

American Heritage Dictionary (1969) .....

Sec. Reg. & L. Rep. (BNA) No. 16

(April 13, 1984) .

Fed. Sec. L. Rep. (CCH) No. 1109

(January 23, 1985) ......--- seer ee eee

Trade Reg. Rep. (CCH) 150,452

(September 6, 1983) ......---+++++5:

Webster’s Third New International

Dictionary (1971)

PAGE

No. 84-822

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHI.

CAGO, A NATIONAL BANKING ASSOCIATION, WALTER E. HEL-

LER INTERNATIONAL CORPORATION AND RONALD J.

GRAYHECK,

‘ Petitioners,

HAROCO, INC., A CORPORATION, ROMAN CERAMICS, INC., A

CORPORATION, CALIFORNIA ORIGINALS, INC., A CORPORA.

TION, AND MIKE WAYNE DISTILLED PRODUCTS Co., A

CORPORATION,

Respondents.

BRIEF FOR PETITIONERS

OPINIONS BELOW

The opinion of the Court of Appeals is reported at 747

F.2d 384 (7th Cir. 1984) and is reprinted in full in the Appen-

dix to the Petition (App. A-1 to A-42). The opinion of the

District Court is reported at 577 F. Supp. 111 (N.D. Ill. 1983).

JURISDICTION

The judgment of the Court of Appeals for the Seventh

Circuit was entered on October 19, 1984. The Petition For

Writ Of Certiorari was filed o1 November 21, 1984, and was

granted on January 14, 1985. The jurisdiction of this Court

rests on 28 U.S.C. §1254(1).

STATUTORY PROVISIONS INVOLVED

All of the provisions of the Racketeer Influet ced And

Corrupt Organizations Act (“RICO”), Title [X of t..e Organ-

ized Crime Control Act of 1970, as amended, 18 U.S.C.

§§1961-1968 are contained in the Appendix to the Petition

(App. A-43 to A-56). Sections 1962 and 1964(c) are particu-

larly germane.

Section 1962 provides:

(a) It shall be unlawful for any person who has received

any income derived, directly or indirectly, from a

pattern of racketeering activity or through collection

of an unlawful debt in which such person has partici-

pated as a principal within the meaning of section 2,

title 18, United States Code, to use or invest, directly

or indirectly, any part of such income, or the pro-

ceeds of such income, in acquisition of any interest

in, or the establishment or operation of, any enter-

prise which is engaged in, or the activities of which

affect, interstate or foreign commerce .. .

(b) It shall be uniawful for any person through a pattern

of racketeering activity or through collection of an

unlawful debt to acquire or maintain, directly or

indirectly, any interest in or control of any enter-

prise which is engaged in, or the activities of which

affect, interstate or foreign commerce.

associated with any enterprise engaged in, or the

activities of which affect, interstate or foreign com-

merce, to conduct or participate, directly or indi-

rectly, in the conduct of such enterprise’s affairs

through a pattern of racketeering activity or collec-

tion of unlawful debt.

(d) It shall be unlawful for any person to conspire to

violate any of the provisions of subsections (a), (b) or

i8 U.S.C. §1962.

Section 1964(c) provides:

Any person injured in his business or property by

reason of a violation of section 1962 of this chapter

may sue therefor in any appropriate United States

district cour. and shall recover threefold the dam-

ages he sustains and the cost of the suit, including a

reasonable attorney’s fee.

18 U.S.C. §1964(c).

STATEMENT OF THE CASE

A. Summary Of The Claim?

American National Bank and Trust Company of Chicago

(“ANB”) is a national bank located in Chicago, Illinois,

engaged in and whose activities affect interstate commerce.

(App. A-58, 113, 4). It is in the general banking business,

including the lending of money at contract interest rates.

(App. A-58, 13). ANB is a wholly owned subsidiary of Walter

E. Heller International Corporation (“Heller”), a publicly

held company principally engaged in commercial banking,

collateralized lending, mortgage banking, and a myriad of

other financial services. (App. A-58, 15). Ronald J. Grayheck

(“Grayheck’’) is one of ANB’s officers and directors. (App. A-

59, 16).

Respondents are related corporations which borrowed

substantial sums from ANB. (App. A-59 to A-60, 1910-14). In

connection with those loans Respondents executed

promissory notes, reciting that they agreed to pay ANB

interest at a rate stated as an increment over ANB’s prime

rate. (App. A-59 to A-60, 1910, 12, 14). The promissory notes

signed by the Respondents defined “prime rate” as:

The rate of interest charged by the bank to its

largest and most creditworthy commercial

borrowers for 90-day unsecured commercial loans.

(App. A-60, 114).

Respondents allege that ANB, acting through Grayheck

and other ANB officers and employees, charged Respondents,

and Respondents paid, interest rates in excess of what ANB

2. This summary is based on the Respondents’ Amended Complaint,

(App. A-57 to A-69) the factual allegations of which must be accepted as

true because this case reaches this Court on review of an order granting

Petitioners’ Motion To Dismiss pursuant to Rule 12 of the Federal Rules of

Civil Procedure. See Miree v. DeKalb County, Ga., 433 U.S. 25, 27 n.2

(1977); Jenkins v. McKeithen 395 U.S. 411, 421 (1969). This Court need

not, however, accept mere unsupported conclusions of fact or law.

. SD SSS

represented in the promissory notes that it would charge.

(App. A-60 to A-61, A-65, 1916, 27). In other words,

Respondents allege that ANB employed a method to

calculate prime rate in a manner different than that

contained in the promissory notes. (App. A-60 to A-61, 116).

B. The Proceedings Below

1. The District Court

In March of 1983, Respondents filed a complaint in the

District Court tur the Northern District of Illinois, seeking

damages individually and as purported class representatives °

of all others who borrowed from ANB pursuant to similar

loan agreements with interest rates tied to ANB’s prime rate.

(App. A-62 to A-64, 1121-23). The original complaint con-

tained four counts and named ANB as the sole defendant.

The only federal claim charged that ANB had violated RICO.

ANB filed a Motion To Dismiss, contending, inter alia, that

ANB could not be both the “enterprise” and “person” under

Section 1962(c) of RICO.

In an attempt to cure the defects identified in Petition-

ers’ Motion To Dismiss, Respondents filed an Amended Com-

plaint. The Amended Complaint added Heller and Grayheck

as defendants and expanded the original four-count com-

plaint to five counts, including two alternative RICO counts,

one against ANB and one against Heller and Grayheck. Spe-

cifically, in Count I Respondents charge ANB with violating

RICO through multiple acts of mail fraud allegedly used to

conduct either: (1) ANB’s affairs; or (2) Heller’s affairs. Count

II alternatively charges Heller and Grayheck with violating

RICO through multiple acts of mail fraud used to conduct

ANB’s affairs. The “mail fraud” in both counts refers to

3. Although the Respondents assert that their claims are appropriate

for class certification pursuant to Rule 23(b)(3) of the Federal Rules of Civil

Procedure, they did not seek certification of the purported class prior to the

dismissal of their Amended Complaint.

ANB’s use of the United States Postal Service for: (1) deliv-

ery of notices to its borrowers of changes in interest rates; and

(2) receipt of borrowers’ interest payments. (App. A-61, 116).4

Petitioners filed another Motion To Dismiss on the

grounds that the Amended Complaint failed to state a claim

upon which relief could be granted because: (1) the RICO

counts failed to allege the required causal nexus between the

alleged injury and a violation of Section 1962; (2) the RICO

counts failed to appropriately allege the necessary “per-

son/enterprise” relationship; (3) the RICO count against Hel-

ler and Grayheck failed to allege with sufficient particularity

the claims of mail fraud in violation of Rule 9(b) of the Fed-

eral Ruies of Civil Procedure; and (4) the pendent state law

counts for breach of fiduciary duty and violation of the IIli-

nois Consumer Fraud and Deceptive Business Practices Act

failed to state legally sufficient claims under Illinois law.

On July 28, 1983, the District Court granted the Petition-

ers’ Motion to Dismiss, holding that the Respondents’ RICO

claims in the Amended Complaint were fatally defective

because “the only injuries the plaintiffs allege were direct

consequences of instances of mail fraud and were not pro-

duced ‘by reason of a violation of section 1962.’ ” 577 F. Supp.

at 114-115. As a result, it did not find it necessary to address

the remaining asserted deficiencies in the RICO claims. The

District Court also dismissed the state claims since jurisdic-

tion over those claims was based exclusively on their pen-

dency to the RICO claims. /d.

4. The remaining three counts assert state law claims, allegedly pen-

dent to the federal RICO claims. Count III alleges a breach of contract

because the agreed upon interest rates were not used. (App. A-65 to A-66,

1128-32). Count IV alleges that ANB’s method of calculating interest on its

loans violated the Illinois Consumer Fraud and Deceptive Business Prac-

tices Act, Ill. Rev. Stat. ch. 121 1/2, §262. (App. A-66 to A-67, 1133-36).

Count V alleges that ANB breached an asserted fiduciary duty owed to

Respondents. (App. A-67 to A-69, 1937-42).

2. The Court of Appeals

On October 19, 1984, the Court of Appeals for the Sev-

enth Circuit reversed the District Court’s decision on the

issue of the type of injury which a civil RICO claimant must

allege.’ The Court of Appeals held that “a civil RICO plaintiff

need not allege or prove an injury beyond any injury to busi-

ness or property resulting from the underlying acts of racke-

teering,” concluding that Respondents’ allegations of injury

from the allegedly excessive interest charges satisfy Section

1964(c). 747 F.2d at 398. (App. A-28).

In reaching its conclusion, the Seventh Circuit recog-

nized that the injury required under Section 1964(c) has been

one of the “most hotly disputed RICO issues” dividing the

district courts. 747 F.2d at 387. (App. A-6 to A-7). Indeed,

during the pendency of the appeal in this case, the Court of

Appeals for the Second Circuit issued three decisions con-

trary to the position taken by the Seventh Circuit in this case.

Sedima, S.P.R.L. v. Imrex Co., 741 F.2d 482 (2d Cir. 1984),

cert. granted, 53 U.S.L.W. 3506 (Jan. 14, 1985) (No. 84-648);

Bankers Trust Co. v. Rhoades, 741 F.2d 511 (2d Cir. 1984),

petition for cert. filed, 53 U.S.L.W. 3367 (U.S. Oct. 24, 1984)

(No. 84-657); Furman v. Cirrito, 741 F.2d 524 (2d Cir. 1984),

petition for cert. filed, sub nom. Joel v. Cirrito, 53 U.S.L.W.

3343 (U.S. Oct. 15, 1984) (No. 84-604) (commonly referred to

as the “Sedima trilogy”). Further, shortly after the Sedima

trilogy was decided and while the appeal in this case was still

pend’ng before the Seventh Circuit, the Eighth Circuit issued

5. The Court of Appeals affirmed the District Court’s judgment with

respect to the portion of Count I alleging that ANB conducted its own

affairs through a pattern of racketeering activity. (App. A-42). Hence, the

Seventh Circuit joined the Fourth and Ninth Circuits in holding that the

same entity cannot be both the liable “person” and the “enterprise” under

Section 1962(c). See Rae v. Union Bank, 725 F.2d 478 (9th Cir. 1984);

United States v. Computer Sciences Corp., 689 F.2d 1181 (4th Cir. 1982),

cert. denied, 459 U.S. 1105 (1983). Contra, United States v. Hartley, 678

F.2d 961 (11th Cir. 1982). Count I was sustained, however, on the alterna-

tive claim alleged that ANB conducted Heller’s affairs through a pattern of

racketeering activity.

an opinion addressing the requisite injury in civil RICO

claims. Alexander Grant & Co. v. Tiffany Industries, 742

F.2d 408 (8th Cir. 1984), petition for cert. filed, 53 U.S.L.W.

3541 (U.S. Jan. 2, 1985) (No. 84-1084).

In the final analysis, the Seventh Circuit concluded that,

to require a RICO injury to be anything other than that injury

which resulted from the underlying acts, would be an unjusti-

fied exercise in “aggressive jurisprudence.” (App. A-30). That

holding, however, effectively eliminated RICO’s requirement

that a civil claimant must have suffered an injury “by reason

of a violation of section 1962.” In its place the Seventh Circuit

has substituted the insular requirement that a civil RICO

claimant need only be injured by reason of one facet of the

violation of Section 1962—i.e., the commission of two under-

lying predicate acts enumerated in Section 1961.

SUMMARY OF ARGUMENT

It is axiomatic that it is not the role of the judiciary to -

either expand or narrow the scope of any statute including

civil RICO. Rather, that prerogative is a matter within the

sole province of Congress.* Courts must refrain from ventur-

ing into the realm of policymaking by rewriting or editing

statutes Congress has enacted, even if designed to improve

upon them. The task of the iudiciary is simply to construe

what Congress’ words mean.

That is not to say that statutory construction must occur

in a vacuum without regard to the consequences of that con-

struction. The difficulties in construing a statute, as Justice

Frankfurter observed, “are inherent not only in the nature of

words, of composition, and of legislation generally [but] are

often intensified by the subject matter of an enactment.’”

Without question, RICO’s subject matters—organized crime,

the mafia, treble damages, criminal and civil forfeit-

ures—have intensified lower courts’ difficulties in its con-

struction. Indeed, that task has evoked such an intense and

diverse body of opinions with respect to its scope that the

single common ingredient in the lower court opinions is the

consistent reluctance to follow the plain meaning of the

words. Instead, the decisions legislate by expanding or con-

tracting the statutory scheme created by Congress.

The issue before this Court illustrates that dichotomy

which pervades RICO decisions. On the one hand, the Sev-

enth Circuit has effectively extended civil RICO to circum-

stances which are clearly beyond the plain meaning of the

words of the statute and the intent of Congress. On the other

6. Senator Strom Thurmond, chairman of the Senate Judiciary Com-

mittee, has announced his intention to conduct hearings this year on the

“proliferation” of civil RICO suits. See Fed. Sec. L. Rep. (CCH) No. 1109

(January 23, 1985).

7. Frankfurter, Some Reflections On The Reading of Statutes, 47

Colum. L. Rev. 527, 528 (1947).

hand, in the Sedima trilogy, the Second Circuit has con-

cluded the statute is ambiguous and rewritten civil RICO

more restrictively than either the language or legislative his-

tory of the statute dictates.

In contrast to both, there is a middle ground which Peti-

tioners espouse that neither expands nor narrows the scheme

of RICO. That middle ground is totally consistent with both

the language and the purpose of the statute, and does not lead

to absurd judicial results. It is achieved by adhering to the

fundamental guidepost of statutory construction — constru-

ing the plain meaning of the words. Within the context of this

case, that meaning is readily discernible.

A claim for damages under RICO has two distinct ele-

ments. First, it must allege a violation of the substantive

RICO statute, Section 1962, commonly referred to as “crimi-

nal RICO.” Second, the civil plaintiff must allege the requi-

site injury under Section 1964(c), commonly called “RICO

injury.” The “RICO injury” requirement is satisfied only if

the plaintiff was “injured in his business or property by rea-

son of a violation of 1962.” Thus, by definition, the second

element can only be present if the plaintiff has adequately

established a violation of Section 1962 since a “RICO injury”

must flow from “a violation of section 1962”.

Section 1962, or crimina! RICO, has two separate and

distinct facets: (1) a pattern of racketeering activity; (2) the

use of that pattern to acquire, maintain or conduct an enter-

prise. Specifically, Respondents charge the Petitioners vio-

lated Section 1962(c) which prohibits the conduct of an

enterprise’s affairs through a pattern of racketeering activity.

The mere commission of a pattern of racketeering activity,

without the requisite use of that activity in relation to an

enterprise, and no more, does not violate Section 1962(c).

The Seventh Circuit, however, disregarded whether

Respondents, in fact, alleged conduct which constitutes a

violation of Section 1962(c), and thus totally ignored the stat-

utory mandate that the alleged injury result from “a violation

of section 1962.” If the Seventh Circuit had heeded the mean-

ing of Section 1962(c) and the conduct it prohibits, it would

have concluded‘ that the alleged wrongdoing here does not

constitute a violation of Section 1962(c) which requires more

than a simple breach of contract and mail fraud as Respon-

dents allege in this case.

In contrast to the Seventh Circuit’s approach, Petition-

ers’ construction of the plain meaning of Section 1962(c) by

using the statutory definitions and the usual and ordinary

meaning of the undefined terms, produces a logical coherent

result. A violation of Section 1962(c) occurs only when the

offender commits the underlying racketeering offenses in

connection with his managing or directing the course of the

enterprise’s affairs. Absent this critical nexus between the

commission of the underlying predicate offenses and the

management of the business, there is no violation of Section

1962(c).

The requirement of Section 1962(c) that the pattern of

racketeering activity be integrally linked with the manage-

ment and operation of the enterprise’s affairs totally fulfills

Congress’ objectives in enacting RICO. The legislative history

emphasizes, and this Court has previously recognized, that

the primary purpose of RICO is to eradicate organized crime,

by eliminating its economic power, especially through those

criminal elements which have infiltrated legitimate busi-

nesses. Admittedly, Congress drafted the statute with suffi-

cient breadth to encompass commercial fraud and include

within its reach persons other than those belonging to crimi-

nal syndicates. Section 1962(c) is not, however, boundless. It

was designed to address only circumstances in which the

alleged racketeering activity is the means by which a person is

conducting and directing the affairs of an enterprise, not to

federalize conduct for which civil and criminal remedies were

already available.

ARGUMENT

A. Section 1964(c) Requires An Injury “By Reason Of A

Violation Of Section 1962”

The Seventh Circuit correctly began its “treasure hunt’

in search of the RICO injury with the language of the statute.

Section 1964(c) expressly provides a private cause of action

to:

Any person injured in his business or property

by reason of a violation of section 1962 of this

chapter may sue therefor in any appropriate United

States district court and shall recover threefold the

damages he sustains and the cost of the suit,

including a reasonable attorney’s fee.

18 U.S.C. §1964(c) (emphasis added). The Seventh Circuit

aptly observed that, contrary to the position taken by the

Second Circuit in Sedima, this language is not ambiguous and

concluded that:

As we read this “by reason of” language, it

simply imposes a proximate cause requirement on

plaintiffs. The criminal conduct in violation of

Section 1962 must, directly or indirectly, have

injured the plaintiff's business or property.

747 F.2d at 398 (App. A-28). Petitioners do not quarrel with

this proximate cause analysis. The analysis fell short,

however, because it misapprehended what constitutes

“criminal conduct in violation of Section 1962.” Petitioners

submit that the injury must be causally related to the

violation of Section 1962. The Seventh Circuit, however, held

an injury related solely to the violation of the underlying

predicate offenses is sufficient.

The “judicial gloss” added by the Seventh Circuit to the

requisite causal nexus cannot be reconciled with the plain

8. 747 F.2d at 384 (App. A-4), quoting Sutliff, Inc. v. Donovan Cos.,

727 F.2d 648, 652 (7th Cir. 1984).

meaning of Section 1962 which unmistakably requires

something more than the commission of the underlying

predicate acts. The Seventh Circuit’s definition of a “RICO

injury” as an injury resulting “from the underlying acts of

racketeering” (App. A-28) rewrites Section 1964 to require an

injury “by reason of a violation of section 1961,” not Section

1962. Although it reached an opposite conclusion, the Second

Circuit’s construction of Section 1964 in Sedima comes no

closer to its plain meaning than that of the Seventh Circuit.

The Second Circuit concludes that “‘the ‘by reason of’

language in section 1964(c) is intended to limit standing to

those injured by a ‘racketeering injury,’ by an injury of the

type RICO was designed to prevent.” 741 F.2d at 495.

Looking only to the predicate acts in Section 1961 or to

the “types of injury which the statute was designed to

prevent,” will not resolve the issue of whether a plaintiff has

sustained a RICO injury. Rather, that question can only be

answered by resolving the initial and paramount question of

whether a violation of Section 1962 is alleged. When that task

is accomplished, the determination of whether the alleged

injury flowed from the violation is much less complex. Thus,

attempts by the lower courts to define a RICO injury without

first defining a “violation of section 1962” only beg the

question. The resolution must lie in the meaning of “a

violation of section 1962.”

B. The Plain Meaning Of “A Violation Of Section 1962”

Construing Section 1962 is no more laborious or chal-

lenging than the process of construing any other statute. Sub-

sections (a), (b) and (c) each require a “pattern of

racketeering activity,” further defined in the statute as man-

dating at least two acts of “racketeering agtivity.” 18 U.S.C.

§1961(5). “Racketeering activity”, often re to as the

predicate acts, is defined to include any of titude of

offenses enumerated in Section 1961(1). Mail fraud is among

those offenses and the offense which Respondents claim Peti-

tioners committed at least twice, and which constitutes a

“pattern of racketeering activity.” This, without more, is all

that the Seventh Circuit concluded is necessary to violate

Section 1962 at least as that phrase is used in Section 1964.

The pattern of racketeering activity is, however, not all

that Section 1962 proscribes. Each subsection makes unlaw-

ful a particular use of the pattern of racketeering in connec-

tion with an enterprise.’ In other words, criminal RICO is

violated only when the pattern of racketeering activity is used

in one of the ways prohibited by Section 1962(a), (b), or (c).

Section 1962 is simply incapable of any other interpretation if

each word and clause is to be given effect. See, e.g., Philbrook

v. Glodgett, 421 U.S. 707, 713 (1975) (in expounding a statute,

the court must not be guided by a single word or sentence, but

by the entire provisions of the law).

Confining a criminal RICO violation to nothing more

than the commission of the pattern of racketeering activity

cannot be reconciled with the congressional objectives which

unquestionably focused on organized crime’s infiltration of

legitimate business and on divesting organized crime of the

9. “Enterprise” is yet another statutory concept, defined as

“includ[ing] any individual, partnership, corporation, association, or other

legal entity, and any union or group of individuals associated in fact

although not a legal entity.” 18 U.S.C. §1961(4).

A th

fruits of its ill-gotten gains.'° Indeed, it would have made

little sense to redundantly make unlawful the commission of

two offenses, each of which was already unlawful under state

or federal law."!

Economic penetration or infiltration of business

achieved by criminal activities, then, is the crux of criminal

RICO and it is that infiltration element which the subsections

10. Congress’ focus on the economic impact of * ganized crime was

explicit in its statement of findings:

The Congress finds that (1) organized crime in the United States

is a highly sophisticated, diversified, and widespread activity that

annually drains billions of doliars from America’s economy by

unlawful conduct and the illegal use of force, fraud and corrup-

tion; (2) organized crime derives a major portion of its power

through money obtained from such illegal endeavors as syndi-

cated gambling, loan sharking, the theft and fencing of property,

the importation and distribution of narcotics and other dangerous

drugs, and other forms of social exploitations; (3) this money and

power are increasingly used to infiltrate and corrupt legitimate

business and labor unions and to subvert and corrupt our demo-

cratic processes; (4) organized crime activities in the United

States weaken the stability of the Nation’s economic system,

harm innocent investors and competing organizations, interfere

with free competition, seriously burden interstate and foreign

commerce, threaten the domestic security, and undermine the

general welfare of the Nation and its citizens; and (5) organized

crime continues to grow because of defects in the evidence-gather-

ing process of the law inhibiting the development of the legally

admissible evidence necessary to bring criminal and other sanc-

tions or remedies to bear on the unlawful activities of those

engaged in organized crime and because the sanctions and reme-

dies available to the Government are unnecessarily limited in

scope and impact.

Pub. L. No. 91-452, 84 Stat. 947 (1970) (emphasis added).

11. The Department of Justice Guidelines for R'CO recognizes that

RICO violations consist of more than just the underlying offenses, and

cautions government attorneys that “a RICO count which merely dupli-

cates the elements of proof of a traditional Hobbs Act, Travel Act, mail

fraud, wire fraud, gambling or controlled substances case, will not be added

to an indictment unless it serves some special RICO purpose . . . ” CCH

Trade Reg. Rep. 150,452 (Sept. 6, 1983).

of Section 1962 are designed to prevent. Each subsection

approaches the problem which Congress addressed from a

specific and discrete perspective.

Section 1962(a) is aimed at infiltration by prohibiting the

use of income derived from the racketeering activity or its

proceeds. Specifically, it prohibits using or investing that

income in: (1) the acquisition of an interest in an enterprise;

(2) the establishment of an enterprise; or (3) the operation of

an enterprise.

Section 1962(b) is aimed at infiltration by forbidding the

use of the racketeering activity, itself, as opposed to any

income received therefrom, to: (1) acquire any interest in or

control of an enterprise; or (2) maintain any interest in or

control of an enterprise.

Section 1962(c), the relevant section in this case, is like-

wise aimed at the unlawful use of a pattern of racketeering

activity in connection with the conduct of an enterprise’s

affairs, providing as follows:

It shall be unlawful for any person employed by

or associated with any enterprise engaged in, or the

activities of which affect, interstate or foreign com-

merce, to conduct or participate, directly or indi-

rectly, in the conduct of such enterprise’s affairs

through a pattern of racketeering activity or collec-

tion of unlawful debt.

The conduct proscribed by Section 1962(c), unlike that in

Sections 1962(a) and (b), requires that the enterprise’s actual

affairs to be conducted through ihe use of the underlying

criminal offenses. In contrast, the conduct proscribed by Sec-

tions 1962(a) and (b), does not require that the affairs of the

enterprise have any connection with the underlying criminal

offenses so long as they serve as a vehicle to acquire an owner-

ship interest or establish control in the enterprise.!?

An integral relationship between the pattern of racke-

teering activity and the conduct of the enterprise’s affairs,

therefore, is essential to plead and prove a violation of Sec-

tion 1962(c). The terms defining the prohibited relationship,

“conduct” and “through,” do not have statutory definitions.

Accordingly, their usual and ordinary dictionary meanings

must be used. See, e.g., United States v. Rodgers, ____. US.

, 104 S.Ct. 1942, 1946 (1984); Village of Hoffman Estates

v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 503 (1982);

California Brewers Ass’n. v. Bryant, 444 U.S. 598, 606 1980).

“Conduct” means “to lead”’, “to direct the course of, manage,

control” or “to have the direction of.” Webster’s Third New

International Dictionary 474 (1971); American Heritage Dic-

tionary 279 (1969). “Through” is defined as “by means of”, or

“from beginning to end; completely, thoroughly”. Webster’s

Third New International Dictionary 2384 (1971); American

Heritage Dictionary 1341 (1969). Using these definitions, Sec-

tion 1962(c) prohibits a person associated with an enterprise

to direct the course of or manage the affairs of the enterprise

by means of the pattern of racketeering activity. More simply

framed, a violation of Section 1962 occurs only when the

racketeering activity is being used as an integral part of the

enterprise’s affairs.

In this case, there is no allegation and, indeed, there

could not be, that Heller or Grayheck were directing or man-

aging ANB’s business through the overcharges of interest

rates tied to prime rates. Similarly, Respondents do not and

12. In fact, one of the Department of Justice’s criticisms of the origi-

nal bill, S. 1623, was that it was too narrow because it “merely prohibits the

investment of prohibited funds in business, but fails to prohibit the control

or operation of such a business by means of prohibited racketeering activi-

ties.” Hearings Before The Subcomm. On Criminal Laws & Procedures Of

The Senate Comm. On The Judiciary, 91st Cong. Ist Sess. 387 (1969). The

plain meaning of subsection (c), added in a subsequent bill, specifically

treats this criticism.

cannot allege that ANB manages Heller’s affairs by virtue of

its calculation of its prime rate. Rather, the alleged acts of

racketeering are merely incidental to ANB’s banking busi-

ness. They are likewise even more incidental to Heller’s own-

ership as a financial services company of its subsidiary ANB.

Finally, the alleged acts of racketeering are not even alleged

to be part of a scheme whereby Grayheck or Heller in the case

of ANB, or ANB in the case of Heller, is controlling or manag-

ing the business.

If, indeed, Congress had meant to prohibit the mere

occurrence of a pattern of racketeering activity within an

enterprise, it could have done so. Instead, in keeping with its

objective to eradicate the infiltration of legitimate business

by organized crime, it prohibited the “conduct” of an enter-

prise’s “affairs” “through” a pattern of racketeering activity.

If a violation of Section 1962(c) does not require the pattern

to be an inseparable part of the management of the business,

“conduct,” “affairs” and “through” are superfluous and the

congressionally mandated parallel nature of the subsections

of Section 1962 — each of which prohibits a particular use of

the pattern of racketeering activity — is destroyed.

C. Congress’ Intent Was Not Contrary To The Plain Meaning

of Section 1962(c)

In the absence of “a clearly expressed” contrary legisla-

tive intent, unambiguous statutory language is conclusive.

Consumer Product Safety Commission v. GTE Sylvania,

Inc., 447 U.S. 102, 108 (1980). See Russello v. United States,

__ US. ___, 104 S.Ct. 296 (1983); United States v.

Turkette, 452 U.S. 576, 580 (1981). Accord Frankfurter, Some

Reflections On The Reading Of Statutes, 47 Colum. L. Rev.

527, 538 (1947), quoting Justice Holmes (“When Counsel

talked of the intention of a legislature, I was discreet enough

to say I don’t care what their intention was. I only want to

know what the words mean.”). See also Commissioner v.

Gordon, 391 U.S. 83, 93 (1968) (“a court is not free to disre-

gard requirements simply because it considers them redun-

dant or unsuited to achieving the general purpose in a

particular case.”). Whether language is “ambiguous” can, of

course, also be the subject of controversy. But regardless of

whether Section 1962(c)’s language is ambiguous or unambig-

uous, the conclusion as to its meaning remains unchanged

since it is totally consistent with the legislative history.

The purpose Congress sought to achieve when it enacted

RICO has already been considered by this Court. Russello v.

United States, __. U.S. ____., 104 S.Ct. 296, 303 (1983);

United States v. Turkette, 452 U.S. 576, 591 (1981). There is

also a wealth of legal literature on the subject.!* While differ-

ences of opinion may exist with respect to the precise scope of

the statute, there is no disagreement that the primary pur-

pose of RICO was to eliminate and prevent the “infiltration of

organized crime and racketeering into legitimate organiza-

tions operating in interstate commerce.” S. Rep. No. 617, 91st

Cong. 1st Sess. 76 (1969). Accord United States v. Turkette,

452 U.S. 576, 591 (1981); Russello v. United States, U.S.

, 104 S.Ct. 296, 303 (1983). Similarly, although one can

select isolated excerpts from the Congressional Record and

the Senate and House Hearings and Reports to support a

contrary position, an objective review of the legislative his-

tory demonstrates that Congress understood that RICO’s

reach extended beyond traditional criminal acts into the

commercial arena. See, e.g., 116 Cong. Rec. 35,205 (1970)

(remarks of Congressman Mikva).

The legislative history is, however, almost barren with

respect to the civil private cause of action Congress created.

Moreover, it is totally void in regard to the requisite injury a

civil claimant must have suffered as a prerequisite to invoking

the treble damage provision. Virtually all of the debates and

discussion relating to the civil aspect centered on the civil

13. See, e.g., Blakey, The RICO Civil Fraud Action In Context:

Reflections on Bennett v. Berg, 58 N.D. Law. 237 (1982); Bradley, Racke-

teers, Congress, and the Courts: An Analysis of RICO, 65 lowa L. Rev. 837

(1980); McClellan, The Organized Crime Act (S.30) or Its Critics: Which

Threatens Civil Liberties? 46 N.D. Law. 55 (1970); Note, RICO And Secur-

ities Fraud: A Workable Limitation, 83 Colum. L. Rev 1513 (1983).

injunctive and forfeiture remedies and civil investigative

demands available to the Attorney General. 18 U.S.C. §§1963,

1968.'4 The paucity of comment is a function of the fact that

the original bill was introduced and passed by the Senate with

no provision for a private right of action. Hearings Before

The Subcomm. on Criminal Laws & Procedures of the Sen-

ate Comm. on the Judiciary, 91st Cong. 1st Sess. 4-104

(1969). Only after the American Bar Association urged it to

do so did the House Judiciary Committee add the private

right of action. That did not occur until August of 1970. S.30,

9ist Cong. 2d Sess., 116 Cong. Rec. 35,295-96 (1970). But even

with the ABA amendment to include what is now Section

1964(c), there was no specific debate or discussion articulat-

ing the scope of the private civil action. In fact, the speed with

which Congress moved to enact the bill following the final

amendment, apparently due to the 1970 election, was criti-

cized. See 116 Cong. Rec. 35,210 (remarks of Congressman

Conyers).

Notwithstanding the barren legislative slate on which

this Court must write, the few comments directed to Section

1962(c) are totally compatible with the construction that

adheres to the plain meaning of the words as Petitioners urge.

For example, the provisions of the final version of the bill

were characterized on the House floor as follows:

The title prohibits the investment of funds

derived from a pattern of racketeering activity or

from the collection of an unlawful debt, where the

investor participated as a principal, in a business

engaged in interstate commerce. It also proscribes

the acquisition, maintenance or control of any inter-

est in a business engaged in commerce through a

pattern of racketeering activity or the collection of

14. See, e.g., 115 Cong. Rec. 6,993 (1969) (reraarks of Senator Hruska

who introduced S.1623, the predecessor to the bill which ultimately became

RICO) (“{T]}he criminal provisions are intended primarily as an adjunct to

the civil provisions which I consider as the more important feature of the

ae, °

unlawful debts. The conduct of the affairs of a busi-

ness by a person acting in a managerial capacity,

through racketeering activity is also proscribed.

Conspiracies to violate any of the provisions of the

title also are made punishable.

116 Cong. Rec. 35,196 (Congressman Celler) (emphasis

added).

The only other comments specifically addressed to the

private treble damage remedy were those of Congressman

Steiger who reported on his proposal to include certain proce-

dural provisions for the civil cause of action:

Authorization in title IX of the entire range of

civil as well as criminal remedies, private as well as

public, is very important to the effectiveness of the

title. The value of private treble damage and equita-

ble suits has been amply demonstrated in the anti-

trust field, where they have been extremely effective

in preventing and rectifying economic harm to indi-

viduals and companies, and in furthering the public

purpose of preventing improper commercial prac-

tices. That entire gamut of civil remedies is still

more important to title 1X where corrupt and vio-

lent means are used to take over legitimate busi-

nesses, than in the antitrust laws, where the

unlawful means used are less reprehensive and sel-

dom violent. There can be no reason not to provide

the individuals harmed by title [X violations, as well

as the general public, with the additional protection

those further remedies would provide.

116 Cong. Rec. 35,227 (emphasis added).

Thus, what little legislative history that exists supports

the construction asserted by Petitioners. The absence of a

more definitive legislative history, moreover, does not relieve

this Court of its judicial duty to accurately interpret the lan-

guage of Congress in light of the evident legislative purpose.

See, e.g., United States v. Bornstein, 423 U.S. 303 (1976);

Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723

(1975).

As noted, the one consistent theme that emerges from its

legislative history confirms that RICO’s private cause of

action was aimed at eliminating the use of criminal conduct to

infiltrate, take over, or manage business concerns — a pur-

pose fully vindicated by the plain meaning of Section 1962(c).

Congress expressly provided that RICO was not intended to

usurp other available remedies for the commission of the

underlying offenses. Those offenses represent only a part of a

RICO violation. As Congress stated:

{N]othing in this title shall supersede any provi-

sion of Federal or State law imposing criminal penal-

ties or affording civil remedies in addition to those

provided for in this title . . .

Pub. L. No. 91-452, 84 Stat. 947 (1970).

To construe the statute as criminalizing acts which are

only incidental to an enterprise’s affairs, and which are

‘already unlawful under other federal and state statutes,

dilutes the effect of what Congress was trying to achieve by

enacting RICO.

D. RICO’s Liberal Construction Clause

Is Not Applicable To Section 1962

Mindful of the novelty of some of RICO’s remedial provi-

sions, notably those permitting civil forfeiture, Congress sug-

gested a reading of the statute so that the “provisions of this

title shall be liberally construed to effectuate its remedial

purposes.” 84 Stat. 947. This interpretative guideline does

not, however, permit a court to sweep aside the plain meaning

of the statute. Rather, such statutory rules of construction

serve only to resolve ambiguities and have no relevance where

the statutory language is clear. See, e.g., Callanan v. United

States, 364 U.S. 587, 596 (1961); United States v. Brown, 333

U.S. 18, 25-26 (1948). See also 2A, 3 Sands, Sutherland Stat-

utory Construction, §§58.05, 60.01 (4th ed. 1974) (“a legisla-

tive mandate to apply a liberal construction to an act will not

justify the judicial creation of right or liabilities under the

guise of ‘construction.’ ”’). Indeed, this Court in Turkette and

Russello refused to consider the rule of “leniency” in constru-

ing provisions of RICO because the statute’s language was

clear. 452 U.S. at 587 n. 10; 104 S.Ct. at 297.

Even if Section 1962(c) were ambiguous, the liberal con-

struction clause is not applicable to it. By its own terms, the

clause dictates liberal construction only to “effectuate reme-

dial purposes.” It does not mandate that the substantive por-

tion of RICO be liberally construed to determine what

conduct constitutes a violation of Section 1962.'5 The “reme-

dial purposes” of RICO consist of Sections 1964 and 1968,

providing for civil injunctions, divestiture, private rights of

action, and civil investigative demands, respectively.'®

Section 1962, in contrast, is the controlling substantive

provision of RICO, applicable to both the criminal and civil

aspects. Thus, the limitation imposed by the Act on the lib-

eral construction clause — “to effectuate its remedial pur-

poses” — was obviously designed to avoid the serious

constitutions! questions posed if the liberal construction

clause were applied to the criminal aspects of RICO.!’ This

Court has repeatedly held that persons should not have to

15. See generally, Tarlow, RICO: The New Darling of the Prosecu-

tor’s Nursery, 49 Fordham L. Rev. 165, 178 (1980).

16. Moreover, this Court has repeatedly stressed that the invocation

of the “remedial purpose” of a statute will not justify construing a provision

“more broadly than its language and the statutory scheme reasonably

permit.” Touche Ross & Co. v. Redington, 442 U.S. 560, 576 (1979); Securi-

ties & Exchange Commission v. Sivun, 436 U.S. 103, 116 (1978).

17. S. Rep. No. 617, 91st Cong. 1st Sess. 81 (1969) (““Nevertheless, it

must be emphasized that these [civil] remedies are not exclusive, and that

Title IX seeks essentially an economic, not a punitive goal. However reme-

dies may be fashioned, it is necessary to free the channels of commerce from

predatory activities, but there is no intent to visit punishment on any

individual; the purpose is civil’).

speculate as to what conduct is prohibited. See, e.g., Dunn v.

United States, 442 U.S. 100, 112 (1979); Bell v. United

States, 349 U.S. 81, 83 (1955); Grayned v. City, 408 U.S. 104,

108 (1972).

While this case like most civil RICO cases is not also an

actual criminal case, the same words in Section 1962 cannot

mean one thing for private litigants and another for federal

prosecutors. See Federal Communications Commission v.

American Broadcasting Co., 347 U.S. 284, 296 (1954) (held

that Section 1304 of the Communications Act would not be

construed broadly for purposes of civil sanctions by the FCC

since such a construction would also apply in criminal cases).

Any hesitancy in construing a violation of Section 1962(c) to

require a person to use the pattern of racketeering activity in

connection with hi; management of the enterprise’s affairs, as

opposed to an incidental use, gives way to the Court’s own

doctrine which dictates a construction in favor of leniency to

potential offenders. To find without more that the mere

occurrence of two acts constituting defined offenses by a per-

son associated with an enterprise violates Section 1962(c)

deprives potential offenders of due process since they would

be subject to the vagaries of a liberal construction.

E. There Are No Policy Considerations Requiring A Less

Than Literal Reading Of Section 1962(c)

Although public policy reasons may occasionally stimu-

late the expansion of the plain meaning of a statute, see

Mohasco Corp. v. Silver, 447 U.S. 807, 815, 833 (1980), none

require more than a literal construction here. The Seventh

Circuit’s reading of RICO’s terms more broadly than the lan-

guage of the statute mandates is especially unsound since

RICO was not created as a nostrum for every offense which

might cause injury. Indeed, a host of remedies are available to

persons injured by the underlying racketeering acts enumer-

ated in RICO.'8

In effect, the Seventh Circuit decision authorizes a fed-

eral claim for treble damages in any private business dispute

which involves two interstate telephone calls or two pieces of

mail. If Congress had intended to sweep so broadly, it would

have said so. See, e.g., Russello v. United States, US.

, 104 S.Ct. 296, 302 (1983). Similarly, the Seventh Cir-

cuit’s comment that the interpretation of Section 1962(c) as

urged by the Petitioners is “aggressive jurisprudence” which

could only be justified “[i]f the safety or stability of the

Republic demanded” 747 F.2d at 399. (App. A-30) ignores the

devastating impact civil RICO cases have had on the federal

courts’ dockets. !9

Petitioners do not suggest that the current and predict-

able flood of future civil RICO cases, which will clog currently

overburdened district and even appellate federal courts with

“garden-variety” fraud actions, is a sufficient reason to

reverse the decision below. Nevertheless, the fact that Con-

gress did not intend to federalize all disputes in which two

writings were delivered by the mailman offers an additional

18. In fact, a telling distinction in the language of Section 1964 com-

pared to the language of Section 4 of the Clayton Act underscores the

limited purpose of RICO. Section 4 of the Clayton Act provides that:

Any person who shall be injured in his business or property by

reason of anything forbidden in the antitrust laws may sue

therefor .. .

15 U.S.C. §15 (emphasis added). Section 1964, although patterned on Sec-

tion 4 of the Clayton Act, does not provide a private right of action for

“anything forbidden” in RICO which would arguably include the predicate

offenses listed in Section 1961 alone. Rather, it restricts the private action

to only those injured by reason of a violation of Section 1962, not the

catalogue of offenses recited in Section 1961.

19. See Sec. Reg. & L. Rep. (BNA) No. 16, at 539 (April 13, 1984).

Although there are no precise statistics quantifying the flood of litigation

that RICO has already created in the federal courts which would otherwise

have been filed in the state courts, it will surely increase if RICO is

expanded to include all common law fraud actions and many breach of

contract claims such as in this case.

reason to adhere to the plain meaning of Section 1962(c).

Moreover, adopting the plain meaning of Section 1962(c)

does not reduce “RICO’s civil provisions to a trivial remedy,

available in only a tiny fraction of RICO violations” as the

Seventh Circuit conjectured. 747 F.2d at 398. (App. A-27).”°

Similarly, Petitioners do not adopt the position

expressed in the Sedima trilogy. The Second Circuit’s restric-

tion of the statute to “an activity which RICO was designed to

deter,” further described in terms that require criminal con-

victions and links to “mobsters” or “organized crime,” nar-

rows as much as the Seventh Circuit expands. 741 F.2d at

495-496.

Rather, Petitioners submit that the approach which

should be adopted in construing Sections 1964 and 1962(c) is

to plumb their plain meaning. This approach fosters the goals

Congress sought to achieve without needlessly burdening the

federal courts and without imposing the harsh sanctions of

RICO by applying it to activities it was never intended to

encompass. The construction posited by the Petitioners,

therefore, recognizes that Congress wanted to weave the

“RICO net” with holes small enough to keep the “minions of

organized crime’?! from escaping, but not so small that even

the minnows are caught. The best gauge of the mesh Congress

intended comports with the plain meaning of the statute

which should not be haphazardly enlarged or reduced by

courts.

RICO injuries are recognizable in violations of Sec-

tion 1962(c) if that provision is held to the plain meaning of

20. See discussion of cases where actual RICO injuries were present

infra at pages 27 to 29.

21. Sutliff, Inc. v. Donovan Cos, 727 F.2d 648, 654 (7th Cir. 1984)

(“Congress deliberately cast the net of liability wide, being more concerned

to avoid opening loopholes through which the minions of organized crime

might crawl to freedom than to avoid making garden-variety frauds action-

able in federal treble damage proceedings”).

its terms.”*In fact, there have been several cases which the

Seventh Circuit implicitly recognized Section 1962(c) viola-

tions arising from a pattern of racketeering activity integrally

permeating to the management of the enterprise’s affairs.”°

For instance, in Schacht v. Brown, 711 F.2d 1343 (7th Cir.),

cert. denied, 104 S.Ct. 508 (1983), defendants were charged

with orchestrating a scheme to defraud the Director of Insur-

ance through the operation of an insurance holding company

by covering up the insolvency of one of its subsidiary compa-

nies. Consequently, the pattern of racketeering activity

which included deliberate overstatements of reserves, falsifi-

cation of financial statements, fake reinsurance, and illegal

dividends, provided the means by which the defendants

directed the holding company-enterprise’s affairs. Accord-

ingly, the Schacht court aptly noted that:

[I]t is ARC’s operation in such a manner as to

artificially prolong the operation of Reserve, not the

mail fraud itself, which is separately underscored by

the Director as the gravamen of the complaint . . .

Thus, we find that the causal nexus as alleged easily

satisfied the requirements of §1964(c).

711 F.2d at 1352.

22. One of the most frequently voiced criticisms of courts and com-

mentators opposed to requiring a “RICO injury” is that a RICO injury is

not easily defined. See, e.g., Laterza v. American Broadcasting Co., 581 F.

Supp. 408, 414 (S.D. N.Y. 1984); In re Catanella & E.F. Hutton & Co.

Securities Litigation, 583 F. Supp. 1388, 1437 (E.D. Pa. 1984); Slattery v

Costello, 586, F. Supp. 162, 167 (D.D.C. 1983).

a 23. It is therefore ironic that the court below questioned Petitioners’

ability to offer a simple definition of “RICO injury” even though it candidly

admitted that “it does not seem at all likely that Congress anticipated the

application of civil RICO to improperly calculated interest rates by a com-

mercial bank” 747 F.2d at 399. (App. A-29). The Seventh Circuit’s attempt

to shift the burden to Petitioners to define a RICO injury puts the shoe on

the wrong foot. The burden of establishing that a statute’s language should

be construed to mean something other than the usual and plain meaning of

the words used is on the party urging the adoption of an interpretation

contrary to the plain meaning of its language. Cf. Bread Political Action

Committee v. Federal Election Committee, 455 U.S. 577, 581 (1982).

Similarly, Sutliff, Inc. v. Donovan Cos., 727 F.2d 648 (7th

Cir. 1984) and Bunker Ramo Corp. v. United Business

Forms, Inc., 713 F.2d 1272 (7th Cir. 1983), involved pervasive

fraudulent schemes which entailed each defendant’s use of

the underlying predicate acts of racketeering as an integral

part of the enterprise’s affairs. For example, in Sutliff, the

fraud involved infiltrating the enterprise by stripping it of its

funds and leaving its creditors with uncollectible accounts —

i.e., a Classic “bust-out.” 727 F.2d at 651. Likewise, in Bunker

Ramo the defendants created and managed an elaborate

enterprise engaged in falsifying orders, invoices and delivery

receipts, bribery and payment of goods never received. 713

F.2d at 1285-1286. The acts of racketeering were once again

central to the operation of the enterprise. /d.

Significantly, Sedima has characteristics akin to those in

Sutliff and Bunker Ramo — i.e., a mail fraud, which involved

sending inflated costs and fraudulent invoices, was an indis-

pensable factor in the defendant’s management of the enter-

prise’s affairs. In contrast, ANB’s purported mail fraud, the

mailing of notices of the changes in its announced prime rate,

is neither central nor significant to the management of the

bank’s business.

“RICO injuries” therefore do emerge from the plain

meaning of Section 1962 as illustrated by the injuries which

were proximately caused by the violations of Section 1962 in

Schacht, Sutliff and Bunker Ramo. In fact, in each of those

cases, the Seventh Circuit without saying so endorsed the

RICO injury test espoused here—an injury proximately

caused by a violation of 1962.24 The flaw in the Seventh Cir-

cuit’s analysis is this case occurred because it attempted to

define the requisite RICO injury, as such, instead of the

actual RICO violation. Moreover, the Seventh Circuit fell

into the trap laid by the Second Circuit in assuming that a

“meaningful distinction between injury from the predicate

acts and injury from the pattern of racketeering activity” will

always exist. 747 F.2d at 396-97.25 (App. A-24).

Section 1964 does not, however, necessarily demand that

the injury be different from an injury suffered by the underly-

ing predicate acts. What it requires is an injury caused by a

“violation of section 1962.” Thus, if the RICO violation is

established and it is determined that the plaintiff was injured

by reason of the violation, a court need not draw a finer line

and differentiate between the injuries caused by the underly-

ing acts and those caused by the Section 1962 violation.”

24. RICO injuries are, of course, not unique to the Seventh Circuit.

See, e.g., Alexander Grant & Co. v. Tiffany Industries, 742 F.2d 408 (8th

Cir. 1984), petition for cert. filed, 53 U.S.L.W. 3541 (U.S. Jan. 2, 1985) (No.

84-1084) (enterprise was conducted through a pervasive scheme of mail and

wire fraud enabling it to remain in business and injure plaintiff which

provided accounting services for a greater time than if the fraud had not

occurred); Bankers Trust Co. v. Rhoades, 741 F.2d 511 (2d Cir. 1984),

petition for cert. filed, 53 U.S.L.W. 3367 (U.S. Oct. 24, 1984) (No. 84-657)

(over a nine year period enterprise conducted through bankruptcy fraud,

frivolous litigation, bribery and corruption of state court judges); Bennett

v. Berg, 685 F.2d 1053 (8th Cir. 1982), modified en banc, 710 F.2d 1361,

cert. denied, 104 S.Ct. 527 (1983) (defendants’ retirement community was

fraudulently promoted with material misrepresentations and managed

through the defendants’ breaches of fiduciary duty and self-dealing).

25. Sedima, 741 F.2d at 496 (“plaintiff must always “show injury

different in kind from that occurring as a result of the predicate acts

themselves”) (emphasis added). See also Bankers Trust, 741 F.2d at 516.

26. Indeed, this Court has recognized the elusiveness of the proxi-

mate cause test, stating that it is:

virtually impossible to announce a black letter rule that will dictate

the result in every case. Instead, previously decided cases identify

factors that circumscribe and guide the exercise of judgment in decid-

ing whether the law affords a remedy in specific circumstances.

Associated General Contractors v. California Council of Carpenters,

US , 103 S. Ct. 897, 908 (1983).

CONCLUSION

There is no single definition of “RICO injuries.” They are

as numerous and as varied as the myriad predicate acts of

Section 1961 and their requisite integration into violations of

Section 1962. The absence of predictable harm, however, does

not mean that a RICO injury is not required. If such a viola-

tion of Section 1962 is alleged, the requisite injury is present

when and only if the plaintiff's injury was proximately caused

by the violation, not the predicate acts which are but one

component of the violation.

In this case Respondents have failed to allege anything

more than predicate acts of mail fraud because ANB allegedly

misrepresented its prime rate. Accordingly, the order of the

Court of Appeals for the Seventh Circuit should be reversed

and the District Court’s order affirmed, dismissing the

Respondent’s Amended Complaint for failure to state a claim

upon which relief can be granted.

Donald E. Egan

Michael Wm. Zavis

Francis X. Grossi, Jr.

Lee Ann Watson

Charles E. Ex

Katten, Muchin, Zavis,

Pearl & Galler

55 East Monroe Street

Chicago, Illinois 60603

(312) 346-7400

Attorneys for Petitioners

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.