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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petitioners Brief
- **Published:** January 1, 1985
- **Citation:** 473 U.S. 606

## Text

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

i
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.

il
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 >

iv
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

29

22

27

28

17

22

18

18
23

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

vi

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

17

25

13, 14
passim
19
passim
20

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
20
19, 20, 21

23

19

23

19

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

15

17

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).

2

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.

(c) 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.

3

(d) It shall be unlawful for any person to conspire to
violate any of the provisions of subsections (a), (b) or
(c) of this section.

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).

4

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

5

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.

6

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.

8

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.

9

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).

10

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

11

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.

12

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).

13

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

14

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

15

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).

16

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

17

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.

18

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

19

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).

20

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, °

21

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);

22

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

23

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’).

24

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

25

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.

26

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”).

27

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).

28

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

29

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).

30
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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0144%3A06. Public record. Not legal advice.