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

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w No. 84-822

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1984

AMERICAN NATIONAL BANK AND TRUST

COMPANY OF CHICAGO, et al.,

Petitioner,

V.

HAROCO, INC., et al.,

Respondents.

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

MOTION OF THE INTERINSURANCE EXCHANGE OF

THE AUTOMOBILE CLUB OF SOUTHERN CALIFORNIA

FOR LEAVE TO FILE A BRIEF AS AMICUS CURIAE

IN SUPPORT OF RESPONDENTS

AND BRIEF AMICUS

GILBERT, KELLY, CROWLEY & JENNETT

JAMES M. FISCHER (Of Record)

PATRICK MESISCA, JR.

515 South Figueroa Street

16th Floor

Los Angeles, California 90071

Telephone: (213) 622-5200

Attorneys for Amicus Curiae

—

Westside Law Publishers Los Angeles, California (213) 477-0491 a £

No. 84-822

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1984

AMERICAN NATIONAL BANK AND TRUST

COMPANY OF CHICAGO, et al.,

Petitioner,

Vv.

HAROCO, INC., et al.,

Respondents.

MOTION OF THE INTERINSURANCE EXCHANGE OF

THE AUTOMOBILE CLUB OF SOUTHERN CALIFORNIA

FOR LEAVE TO FILE A BRIEF AS AMICUS CURIAE

IN SUPPORT OF RESPONDENTS

AND BRIEF AMICUS

a

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To the Honorable, the Chief Justice of the United

States and the Associate Justices of the Supreme Court

of the United States:

The Interinsurance Exchange of the Automobile Club

of Southern California respectfully moves, pursuant to

Rule 36 of the Rules of this Court, for leave to file

the attached brief as amicus curiae.

Respondent Haroco, Inc. has consented to the filing

of this Amicus Brief; Petitioner American National Bank

& Trust Company of Chicago has refused consent.

INTERESTS OF AMICUS CURIAE

This brief is submitted by the Interinsurance Exchange

of the Automobile Club of Southern California

[“EXCHANGE".

The EXCHANGE insures over one million automobiles

in the State of California through over 650 thousand

policies. The EXCHANGE is the 12th largest automobile

insurance carrier in the United States. Best's Aggregate

and Averages, Private Passenger Automobile Ranking

for 1983, 58 (1984 45th ed.). The EXCHANGE is the

plaintiff in a civil RICO action now pending in the United

States District Court for the Central District of

California, Interinsurance Exchange v. Delug, e¢ al., Civ.

No. 84-8651 (MAP) (filed November 8, 1984).

This case involves a claim that Petitioner Bank’s

practices of keying certain of its loans to the “prime

rate” constituted a violation of Title IX of the Organized

Crime Control Act of 1970 (RICO). Both Petitioner

and Amicus American Banking Association have

emphasized the inappropriateness of using civil RICO

to address what is characterized as an “ordinary, run

of the mill” business dispute.

Amicus is a member of an industry which has a vital

need to preserve civil RICO as a means to combat the

enormous and increasing costs imposed on society and

the insurance industry by insurance fraud. These costs,

frequently imposed by persons engaged in organized

criminal enterprises, are ultimately passed on to

consumers [insureds] in the form of higher premiums.

These insureds have no recourse against these illegitimate

ili

enterprises. Insurers, on behalf of their insureds, believe

that civil RICO is an effective remedy against these

illegitimate enterprises. Amicus requests permission to

present the arguments in the attached Brief, arguments

keyed to the needs of the insurance industry, arguments

in favor of preserving RICO as a viable civil remedy

which may be used to attack root and branch the cancer

of insurance fraud.

WHEREFORE, it is respectfully requested that the Court

grant leave to the Interinsurance Exchange of the

Automobile Club of Southern California to file the

attached Brief as Amicus Curiae.

Respectfully submitted,

JAMES M. FISCHER

Counsel of Record

PATRICK MESISCA, JR.

GILBERT, KELLY, CROWLEY & JENNETT

Attorneys for Amicus Curiae

INTERINSURANCE EXCHANGE OF THE

AUTOMOBILE CLUB OF SOUTHERN CALIFORNIA

515 South Figueroa Street, Suite 1600

Los Angeles, California 90071

(213) 622-5200

EE Ee

Vv

TOPICAL INDEX

Page

Interests Of Amicus Curiae ........................00000005. ll

Summary Of The Argument...........................000.. 3

A. A Person is Injured in his Business or Property

by Reason of a Violation of Section 1962

Whenever His Injury is Fairly Traceable to the

Conduct that Constitutes the Violation of

FRESE, EU REE, : U CER

1. Section 1964(c) Imposes a Simple Cause

Oe I icnccsescscasuenenecnacedocs

2. There Is No Basis For Limiting Civil

RICO Actions To Injuries Resulting

Exclusively From The Fact Of A

“Violation” Of Section 1962. ...................

3 Section 1964(c) Does Not Create a

Proximate Or Legal Cause Requirement

that Incorporates Section 1962(c)..............

B. Section 1962(c) Only Requires That The

Conduct That Constitutes the Predicate Acts

Be Related to the Activities of the RICO

SIE viiicivasaneaundsannsaawissamieaase ancien

6 Se ai he eat a 5 A nay oe OT in tek i cet sabe

8

12

TABLE OF AUTHORITIES CITED

Cases Page

American National Bank v. Haroco, No. 84-822 ...

SOPOT CEs AOE PEO on Se es MONRO eT 2,3

Banker’s Trust Co. v. Rhoades, 741 F.2d 511 (2d

Cir. 1984), pet. for cert. pending, 53 U.S.L.W.

SOT CEM, Be, GOD vccccneccccccvncecccccecscsces 6, 8,9

Bennett v. Berg, 710 F.2d 1361 (8th Cir.), cert.

denied, 104 S. Ct. 527 (1984) ....0..0.. 000. c ccc. 12

Duke Power Co. v. Carolina Environmental Study

Group, 438 U.S. 59 (1978)... 000.0. 6

Escondido Mutual Water Company v. La Jolla,

U.S. —_, 104 S. Ct. 2105 (1984)............ 8

Haroco v. American National Bank, No. 84-822 ...

cael ae nduldenubatisnduitaaebabedcaieeesorececcunatn ah ie

Haroco, Inc. v. American National Bank, 747 F.2d

PT, TD oe cc dak oc cosbecswcicnens 6

Perrin v. United States, 444 U.S. 37 (1979) ............. 7

Russello v. United States, _U.S._, 104 S. Ct. 296

RET Ee DO Ae eT es eT) ee ae 14

Sedima S.P.L.R. v. Imrex Co., Inc. 741 F.2d 482

IR Soe se 2, 3, 4,6

Tennessee Valley Auth. v. Hill, 437 U.S. 153 (1978)

SE es RP RS APE Tl Ee ae 4

United States v. Cauble, 706 F.2d 1322 (Sth Cir. °

1983), cert. denied, 104 S. Ct. 996 (1984)......... 16

United States v. Elliott, 571 F.2d 880 (Sth Cir.),

cert. denied sub nom., Delph v. United States,

I Py PID gv cbiicsinccvasiedcvecodoeedavaces 13, 14

United States v. Forsythe, 560 F.2d 1127 (3d ed.

SEER ITD er SO Eee eee eae 17

United States v. Mandel, 591 F.2d 1347 (4th Cir.

BEE Se eC EES eae 12, 13

vii

United States v. Mandell, 415 F.Supp. 997 (D. Md.

1976), aff'd by equally divided Court 602 F.2d

653 (4th Cir. 1979), cert. denied, 445 U.S. 961

(19BO)..................ceeeeeeees Rravadstnecdikese 16-17

United States v. Nerone, 563 F.2d 836 (7th Cir. ,

1977), cert. denied sub nom. Helfer v. United

States, 435 U.S. 951 (1978) «20.0000... ccec ee. 15

United States v. Provenzano, 688 F.2d 194 (3d Cir.),

cert. denied, 459 U.S. 1071 (1982).................. 17

United States v. Public Utilities Comm’n, 345 U.S.

RIMES TE Fiesty Wb 0c i 4

United States v. Raynor, 302 U.S. 540 (1938)......... 14

United States v. Scotto, 641 F.2d 47 (2d Cir. 1980),

(Oakes, J.), cert denied, 452 U.S. 961

I kc ecintitan cts tie on oP eit 13, 16

United States v. Stofsky, 409 F.Supp. 609 (S.D.N.Y.

1973), aff'd, 527 F.2d 237 (2d Cir. 1975), cert.

Gg FP BE II ao veisevececcccccccncccccsesc. 13

United States v. Turkette, 452 U.S. 576 (1982)......

jnidhdainbibhadccceseentuesaeremaiaretindinnsadcad 11, 14, 17, 18

Statutes

18 United States Code

ERT a es a Eien Ried eines 5, 6, 8, 12, 13, 16

cede baka AG ina'sds cits tigate passim

de ERIE EE Ce 4, 5,9, 10, 11, 18

Rules

Other Authorities

American Heritage Dictionary of the’ English

BRE eM a Pee Ra ere ee 7

Best's Aggregate and Averages, Private Passenger

Automobile Ranking for 1983, 58 (1984 45th

ME adahalanintbtntiancds bauialdentone uhh nuddidécecdes<iscen ll

oe PNT I

-

viii

Blakely, The RICO Civil Fraud Action in Context:

Reflections on Bennett v. Berg, 58 Notre Dame

I a ec i i da ea 2

Count» of Los Angeles, Blue Ribbon Commission

6.1 Automobile Insurance, 19 (Final Report

New York Times, July 6, 1980, at 27, Col. 1, at

28, Col. 4 (from G. Patrick Riggs of the

American Insurance Association) ................... 2

Oxford English Dictionary, p. 1231 (VII In Phrases) 7

Roget’s International Thesaurus, p. 429, 656.8 (3d

SO EE Ae 72 eC 7

Title IX the Organized Criminal Control Act of

RE a a oe passim

W. Prosser & W. Page Keeton, The Law of Torts,

EE ae ON DE 10, 1

Webster’s Third New International Dictionary, p.

Pt cdcbbintddwsisiinpccniabiibenokbiniantistadie 7, 14, 15

2A Sutherland Statutory Construction, Section

I Oe Pe iivadnnancusiuvenceseveacees 14-15

SA Words & Phrases, p. 824 (1968)................0...... 7

116 Cong. Rec., part 26, Oct. 7, 1970, p. 35344....... 16

No. 84-822

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1984

AMERICAN NATIONAL BANK AND TRUST

COMPANY OF CHICAGO, et al.,

Petitioner,

Vv.

HAROCO, INC., et al.,

Respondents.

MOTION OF THE INTERINSURANCE EXCHANGE OF

THE AUTOMOBILE CLUB OF SOUTHERN CALIFORNIA

FOR LEAVE TO FILE A BRIEF AS AMICUS CURIAE

IN SUPPORT OF RESPONDENTS

AND BRIEF AMICUS

This brief is submitted by the Interinsurance Exchange

of the Automobile Club of Southern California

("EXCHANGE").

Insurance fraud has been calculated to cost the

American public in excess of 11 billion dollars a year.

Insurance losses due to fraudulent claims are prolifer-

ating. Indeed, the American Insurance Association

7

“-

estimates that i5-20 percent of all insurance claims are

fraudulent.! Automobile insurance fraud alone is costing

American consumers 5 billion dollars annually, and over

1.5 billion dollars in California. County of Los Angeles,

Blue Ribbon Committee on Automobile Insurance 19

(Final Report 1984). Many of these fraudulent claims

contribute to caseload congestion that afflicts both state

and federal courts to the detriment of legitimate users

of the civil adjudicatory system.

With increasing frequency insurers are relying on the

civil remedies contained in Title IX of the Organized

Crime Control Act of 1970 (RICO) to attack insurance

fraud by focusing on those whose combined efforts result

in illegal insurance claims.

Amicus has a strong interest in assuring that the

decisions rendered by this Court in Sedima S.P.L.R.

v. Imrex Co., Inc., No. 84-648 and American National

Bank of Haroco, No. 84-822, be made with recognition

that a wide range of illegitimate conduct supports

recourse to RICO. Too much has been already made

by some courts of the perceived misuse(s) of RICO, based

in large part, on the identity of the defendants.? Amicus

'New York Times, July 6, 1980, at 27, col. 1, at 28, col. 4 (from

G. Patrick Riggs of the American Insurance Association). In Los

Angeles County, staged accidents alone are projected to be between

100-200 million dollars a year. County of Los Angeles, Blue Ribbon

Commission on Automobile Insurance, 19 (Final Report 1984).

See generally, Blakely, The RICO Civil Fraud Action in Context:

Reflections on Bennett v. Berg, 58 Notre Dame L.Rev. 237, 344-

45 (1982) (collecting statistics on damages resu!ting from fraud and

other offenses).

Thus, the circuit court in Sedima S.P.L.R. v. Imrex Co., Inc.

741 F.2d 482, 487 (2d Cir. 1984) stated:

Given the general purpose of the RICO legislation,

the uses to which private civil RICO has been put have

been extraordinary, if not outrageous. Section 1964(c)

respectfully submits that the correctness of the

application of a statute turns not on the name of the

defendant but on the determination of whether the

conduct complained of is addressable by the statutory

scheme.

No insurer willingly pays fraudulent claims. Existing

natterns of insurance fraud make detection difficult. The

combination of claimants, doctors, lawyers, and their

insiders helps to create a strong facade of respectibility

to the claims. And even when the facade is cracked in

individual cases, the dismissal or abandonment of the

fraudulent claim becomes simply a cost of doing business

to the enterprise. Civil RICO provides insurers with the

means to seek out and destroy these illegal enterprises.

SUMMARY OF THE ARGUMENT

The proper construction and application of the private

remedies contained in RICO have generated consider-

able opinion writing and disagreement among the

Circuits. The two cases now before this court, Haroco

v. American National Bank, No. 84-822, and Sedima

S.P.R.L. v. Imrex Co., No. 84-6483, exemplify this

disagreement and division.

has not proved particularly useful for generating treble

damage actions against mobsters by victimized business

people. It has, instead, led to claims against such

respected and legitimate “enterprises” as the American

Express Company, E.F. Hutton & Co., Lloyd’s of

London, Bear Stearns & Co., and Merrill Lynch

[footnote omitted], to name a few defendants labeled

as “racketeers” in civil RICO claims resulting in

published decisions.

3The conviction requirement suggested by the Second Circuit

in Sedima is not involved in the Haroco decision. Amicus supports

in full the arguments made by the States who joined in the Amicus

Brief in Support of Petitioner in Sedima S.P.L.R. v. Imgex Co.,

Inc., No. 84-648 (Brief filed Feb. 28, 1985).

Some courts, perhaps unhappy with the extension of

RICO’s private remedies to what those courts have

characterized as “garden variety fraud,” and concerned

with the prospect of perhaps an unwise use of RICO

in particular cases, have offered strained interpretations

of the language of RICO.‘ These courts have discarded

a contextually more likely interpretation for a less

plausible one which is more consistent with their view

of the benefits and wisdom of RICO. Such an attitude

characterizes the Sedima case now before this Court.

The Seventh Circuit on the other hand correctly

recognized its institutional responsibility, as stated by

this Court in Tennessee Valley Auth. v. Hill, 437 U.S.

153 (1978), to apply the statute as written and not engage

in judicial revisionism of legislative history to avoid plain

statutory language. 747 F.2d at 398-99. The polestar

of statutory construction is not judicial appreciation of

the wisdom or lack thereof in a statute, but rather the

language of the statute itself. As most eloquently

expressed by Justice Jackson, statutory construction

must proceed “by analysis of the statute instead of by

psychoanalysis of Congress.” United States v. Public

Utilities Comm'n, 345 U.S. 295, 319 (1953) (Jackson,

J., concurring).

It is evident that some lower courts, and the Second

Circuit in particular, have impiemented their concerns

over the wisdom and approrriateness of civil RICO via

a strained and unnatural construction of RICO’s

causation requirements. This strained construction has

been followed by petitioner by its treating as interchan-

geable the causation element in Section 1964(c) of RICO

and the language in Section 1962(c) which defines and

describes the substantive elements of a RICO cause of

action. It is Amicus’ contention that any construction

4These cases are collected in the Sedima and Haroco decisions

(passim).

of RICO must begin with the simple differentiation

between the causation requirement set forth in Section

1964(c) and the definition of RICO offenses in Section

1962. This distinction is not only consistent with the

stated goais and purposes of RICO, but will also avoid

the confusion that has been engendered by appellate

court decisions which seek to ascribe some mythology

and magic to the causation requirement contained in

Section 1964(c).

Amicus further disagrees with the contention that a

private civil RICO action requires pleading and proof

that an “integral relationship” exists between the pattern

of racketeering activity and the conduct of the

enterprise’s affairs. Petitioner’s Brief, p.17. The “integral

relationship” contention has not been used in criminal

RICO cases. Since Section 1962(c) is common to both

criminal and civil RICO prosecutions, adoption of the

“integral relationship” test would put at risk prior

criminal RICO convictions. The “integral relationship”

test would also reduce the scope and effectiveness of

RICO by limiting RICO’s application whenever the

central purpose of the enterprise was not wholly

illegitimate.

A. A Person is Injured in his Business or Property

by Reason of a Violation of Section 1962 Whenever

His Injury is Fairly Traceable to the Conduct that

Constitutes the Violation of Section 1962.

Much has been made of the use in Section 1964(c)

of the phrase “injury to business or property by reason

of a violation of Section 1962.” The lower courts have

read the “by reason of” language as requiring anything

from competitive injury to racketeering injury to simple

causation established by reference to the commission

of the underlying predicate acts.°

The issue before this Court is what type of causation

requirement is created by the phrase “by reason of a

violation of Section 1962.” Three positions are being

offered. First, Amicus contends that the natural reading

of that language only requires that the injury to business

or property be fairly traceable to the conduct of the

defendant that constitutes the activity proscribed by

Section 1962.6 Second, Petitioner contends that the “by

reason of” language gives rise to a proximate cause

requirement that in turn requires a showing that there

exists an “integral relationship” between the pattern of

racketeering activity and the conduct of the RICO

enterprise. Third, the Second Circuit in Banker's Trust

Co. v. Rhoades, 741 F.2d 511 (2d Cir. 1984), pet. for

cert. pending, 53 U.S.L.W. 3367 (Oct. 24, 1984)

articulated the requirement that the “by reason of”

language requires a showing that the RICO plaintiff's

injury was caused exclusively by the fact of a violation

of Section 1962; if any of the injury was a consequence

of the conduct leading to a violation of Section 1962,

no private action under RICO is made out.

1. Section 1964(c) Imposes a Simple Cause in

Fact Requirement.

The legal standard to be applied here was been

frequently stated by this Court. “A fundamental canon

of statutory construction is that, unless otherwise

defined, words will be interpreted as taking their

SSee Haroco, Inc. v. American National Bank, 747 F.2d 384,

387-89 (7th Cir. 1984) and Sedima S.P.L.R. v. Imrex Co., Inc.,

741 F.2d 482, 492-94 (2d Cir. 1984) (collecting cases).

‘This Court has frequently used the term “fairly traceable” when

defining the cause in fact requirement. See Duke Power Co. v.

Carolina Environmental Study Group, 438 U.S. 59, 72 (1978)

(standing).

ordinary, contemporary, common meaning.” Perrin v.

United States, 444 U.S. 37, 42 (1979). Construing “by

reason of” is not a Herculean task. There can be little

doubt but that the phrase “by reason of” simply imposes

a traditional cause in fact requirement on a civil RICO

plaintiff.

The phrase “by reason of” is a derivation of the term

“by” and synonymous with that term and such phrases

as “by means of.” See Oxford English Dictionary, p.

1231 (VII In Phrases). The legal interchangeability of

the term “by” and phrases “by reason of” and “by means

of” has been frequently noted. See SA Words & Phrases,

p. 824 (1968). Roget’s Thesaurus identifies “by reason

of” as a preposition whose linguistic idea is paralleled

by such terms as “by the act of”, “through the medium

of”, “by”, “through”. Roget’s International Thesaurus,

p. 429, 656.8 (3d ed. 1962). The phrase “by reason of”

plainly conveys the requirement of a causal link between

the language immediately before it “(injury to business

or property”) with the language immediately after it

(“violation of §1962”). This simple statutory cause in

fact requirement fulfills the statutory purpose of

identifying those persons who have been significantly

affected by the challenged conduct.

The phrase “by reason of” is not generally separately defined

in dictionary texts. The parallel term “by” and the parallel phrase

“by means of” are defined. The term “by,” as used in Section 1962(c)

is a term which when used as a preposition is followed by a word

or phrase naming the causative agent, means, or instrumentality.

Webster's Third New International Dictionary, p. 307; American

Heritage Dictionary of the English Language, p. 182. A similar

definition is provided for the phrase “by means of.” Webster's Third

New International Dictionary, p. 307 (“By means of” is a preposition

which means “through the agency or instrumentality of.”)

2. There Is No Basis For Limiting Civil RICO

Actions To Injuries Resulting Exclusively

From The Fact Of A “Violation” Of Section

1962.

The position that a causal link must exist between

the injury and the fact of “violation” of Section 1962

is addressed in Bankers Trust Co. v. Rhoades, 741 F.2d

511 (2d Cir. 1984), pert. for cert. pending, 53 U.S.L.W.

3367 (Oct. 24, 1984). The essence of the circuit court’s

decision in Bankers Trust Co. is that a civil RICO action

cannot be stated unless the “injury to business or

property” is caused exclusively by the fact of a “violation

of §1962”. Id. at 517.

This Court, in evaluating the “by reason of a violation”

language must recognize that conduct and not the

violation of a statute causes injury. The finding that

a statutory violation has occurred is a legal conclusion

applied to underlying conduct. The conduct not the

violation gives rise to the injury sustained by the plaintiff.

There is no reason to believe that Congress intended

that the causation element require proof of injury

traceable to the abstraction known as a violation of a

statute rather than proof of injury traceable to the

conduct which itself constitutes the violation. As noted

by Justice White last term in Escondido Mutual Water

Company v. La Jolla, —_ U.S. —, 104 S. Ct. 2105, 2110

(1984):

[I]t should be generally assumed that Congress

expresses its purposes through the ordinary

meaning of the words it uses... .

If this Court holds that plaintiff must establish a cause

in fact linkage between the injury to business or property

and the fact of a violation, it would be impossible for

any civil RICO plaintiff to prevail absent the most absurd

and unusual circumstances. For example, where the

claim arises from a staged accident or the claim is wholly

fictitious, the injury to the insurer is direct and results

from investigation or payment, or both, of the claim.

In neither case is it realistic to say that the injury is

the exclusive result of the abstraction known as a

violation of Section 1962(c). Thus, under Banker's Trust

Co., such injuries would not be compensated under civil

RICO because while the injuries are the direct result

of the conduct proscribed by §1962(c), that consideration

is irrelevant under the theory of liability espoused. Under

Banker’s Trust Co., the only potentially qualifying injury

would be if the costs of fraud investigation and payments

lead to an increase in rates, leading to a decrease in

customers, leading to a loss of profits (See examples

noted at 741 F.2d at 517.) To contemplate that Congress

intended civil RICO would reach only such indirect and

remote injuries puts a whole new tilt to the concept

of causation. It can hardly be accepted that Congress

explicitly adopted a private right of action, a right of

action which forms an integral part of the overall attack

on organized criminal activity set forth by Title IX of

the Organized Crime Control Act of 1970, and limited

its reach only to remote injuries attributable to RICO

offenses, such as those described here and in Bankers

Trust Co.

3. Section 1964(c) Does Not Create a Proximate

Or Legal Cause Requirement that Incorpo-

rates Section 1962(c).

Petitioner recognizes the bankruptcy of the argument

sounded in Bankers Trust Co. (see Petitioner’s Brief,

pp. 12-13). It argues that Section 1964(c) creates a

proximate or legal cause requirement satisfied by

petitioner’s construction of §1962(c) that a civil RICO

plaintiff establish that the RICO defendants controlled,

directed or managed the RICO enterprise, or put another

10

way, that the pattern of racketeering activity be integrally

linked with the management and operation of the

enterprise’s affairs.*

The difficulty with this argument is that it converts

the simple cause in fact requirement of Section 1964(c)

into an amorphous and intrusive proximate cause

requirement. The proximate or legal cause concept is

a policy-based concept that operates to impose limits

on the scope of liability short of that which would be

allowed were simple cause in fact the sole criterion. This

point is clearly made by Prosser & Keeton:

The term “proximate cause” is applied by

the courts to those more or less undefined

considerations which limit liability even where

the fact of causation is clearly established.

W. Prosser & W. Page Keeton, The Law of Torts, 273

(Sth ed. 1984).

The proximate cause argument put forward by

petitioner? rests on a strained, unnatural construction

8Petitioner’s Brief, p. 11.

‘The term “proximate cause” was used by the court in Haroco.

Amicus suggests that the result in Haroco was correct and the

court did use a cause in fact approach notwithstanding the use

of the term “proximate cause”:

This holding by no means renders superfluous the

requirement in §1964(c) that the plaintiff be injured “by

reason of” a violation of Section 1962. 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. . . . This

causation requirement might not be subtle, elegant or

imaginative, but we believe it is based on a straight-

forward reading of the statute as Congress intended it

to be read.

747 F.2d at 398.

Pi

1]

of the phrase “by reason of.” Section 1962(c) describes

the relationship that must exist between the RICO

defendant(s) and the enterprise. Section 1964(c) confers

standing on persons to sue for covered injuries. The

appropriate construction of Section 1962(c) is not linked

to the issue of causation derived from §1964(c). While

causation is an element of liability, it does not define

liability. This Court should not repeat the mistake noted

by Prosser by transmutting the expressed cause in fact

requirement of §1964(c) into the amorphous legal cause

requirement. W. Prosser & W. Page Keeton. The Lew

of Torts, 272 (Sth ed. 1984).

The suggestion that some ill defined proximate cause

requirement exists as a brooding omnipresence over civil

RICO actions creates the opportunity for much mischief.

The doctrine of proximate or legal cause is sensibly

applied where liability has been created by the common

law process of reasoned elaboration. Courts, having

recognized a right of action, legitimately have a role

in defining the scope and extent of that right. That

argument is not available where, as here, the right of

action is created by Congress. It is Congress’ perogative

to define the scope and extent of the right of action

it has created.!° Lower courts might see this Court’s

acknowledgment that the proximate cause doctrine

exists as an appendage to RICO as providing those lower

courts with a license to engage in a free-wheeling

\lronically, the proximate cause requirement is not generally

considered to be applicable to fraud cases. See W. Prosser & W.

Page Keeton, The Law of Torts, p. 728 (5th ed. 1984) (stating

elements of prima facie case). Since fraudulent conduct permeates

so many of the RICO predicate offenses, inclusion of a proximate

cause requirement suggests a statutory remedy that would be less

advantageous than the common law remedy of fraud. Such a

suggestion is not consistent with this Court's decision in Turkette,

452 U.S. 576, 585 (1982).

12

construction of Section 1962. Seen in this light, the

proximate cause issue adds nothing to the analysis of

a civil RICO cause of action.

B. Section 1962(c) Only Requires That The Conduct

That Constitutes the Predicate Acts Be Related to

the Activities of the RICO Enterprise.

Section 1962 is the core of civil RICO defining the

types of conduct that create liability. Section 1962(c)

requires:

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 commerce, to conduct or participate,

directly or indirectly, in the conduct of such

enterprise’s affairs through a pattern of

racketeering activity or collection of unlawful

debt.

Petitioner asserts that §1962(c) requires a showing of

an “integral relationship between the pattern of

racketeering activity and the conduct of the enterprise’s

affairs... .” Petitioner’s Brief, p. 17. Neither the

language of Section 1962(c) nor the consistent,

overwhelming case law construing Section 1962(c)

support Petitioner’s assertion.'!

'\One circuit court has agreed with the approach suggested by

Petitioner. See Bennett v. Berg, 710 F.2d 1361, 1364 (8th Cir.)

(en banc), cert. denied, 104 S. Ct. 527 (1984). The Bennett decision

is not persuasive. First, it fails to appreciate that its approach is

inconsistent with every circuit court that has considered the scope

of Section 1962(c). Second, the Bennett court's reliance on the panel

decision in United States v. Mandel, 591 F.2d 1347 (4th Cir. 1979)

fails to note that the Fourth Circuit (en banc) ultimately affirmed

the conviction of former Governor Mandel by an equally divided

court. 602 F.2d 653 (4th Cir. 1979). A majority of the Fourth Circuit

members of the en banc court would have affirmed the judgments

of conviction against all contentions, except the jury charge which

13

Section 1962 does not discriminate against particular

types of interaction by “distinguishing between predicate

acts which play a major or a minor role, or any role

at all, in what may be seen as the usual operations of

the enterprise; nor does it require that such acts be in

furtherance of the enterprise... .” United States v.

Stofsky, 409 F.Supp. 609, 613 (S.D.N.Y. 1973), aff‘d,

527 F.2d 237 (2d Cir. 1975), cert. den., 429 U.S. 819

(1976). RICO does not discriminate between near and

remote actors or those merely associated with the

enterprise. See United States v. Elliott, £71 F.2d 880,

903 (Sth Cir.), cert. denied sub nom., Delph v. United

States, 439 U.S. 953 (1978). The RICO net is woven

tightly to trap the smallest fish, even those peripherally

involved with the enterprise.

Indeed, in United States v. Scotto, 641 F.2d 47 (2d

Cir. 1980), (Oakes, J.), cert. denied, 452 U.S. 961 (1981),

the court specifically rejected an “integral relationship”

test. The court noted that Section 1962 “declines to define

in qualitative terms the degree of interrelationship

between the pattern of racketeering and the conduct of

the enterprise’s affairs.” Jd. at 54. Petitioner’s suggested

construction of Section 1962(c) stands in sharp contrast

to the uniform, consistent construction Section 1962(c)

has received in criminal RICO cases.

Concededly, there is breadth to Section 1962(c);

nonetheless, the provision is straightforward: A person

may not conduct or participate, directly or indirectly,

in the conduct of the affairs of the enterprise through

a pattern of racketeering. 18 U.S.C. Section 1962(c).

An “integral relationship” is not compelled by the term

“conduct” or the phrase “participate, directly or

indirectly, in the conduct.” The term “conduct” has a

was the point of equal division. The discussion of Section 1962(c)

in Mandel did not involve the jury charge. 591 F.2d at 1374-75.

14

range of meanings: a strong meaning which includes

the concept of management and direction,'? and a weak

meaning which includes the notion of execution or

carrying out of tasks. Webster’s Third New International

Dictionary, p. 473. This Court should give effect to all

meanings of the term “conduct.”

Section 1962(c) does not use the term “manage” or

“direct” or “control.” Congress thus eschewed more

specific terms in favor of a generalized term that

encompasses a range of meanings. There is no basis for

this Court transforming Congress’ general term into the

limited term petitioner espouses. This Court shouid

follow the policy adopted in its previous RICO decisions

in Turkette (452 U.S. 576 (1981) and Russello (104 S.

Ct. 296 (1983)) of giving RICO terms the broad

construction to which they are susceptible, rather than

picking out, from the range of meanings, a narrow,

restrictive construction.

Even if Congress intended that RICO would be

primarily directed toward situations where there was an

“integral relationship” between the racketeering activity

and the enterprise, it is not a proper judicial function

to limit the plain language of a statute to only that

primary activity. See U.S. v. Elliott, 571 F.2d 880, 897

n.17 (Sth Cir. 1978). A comprehensive statute should

not be gelded under the guise of construction. United

States v. Raynor, 302 U.S. 540, 552 (1938) (no rule of

construction requires that statute be given the “narrowest

meaning”).

First, a general rule of stautory construction is to

interpret the whole statute and not just the particular

word or phrase under scrutiny. 2A Sutherland Statutory

'2Petitioner relies on these strong meanings of the word control

to support its contention that there must be an “integral

relationship” between the racketeering activity and the enterprise.

Petitioner's Brief, p. 17.

15

Construction, Section 46.05, p. 90 (4th ed.) In this regard,

attention should be directed to the language in §1962(c)

that extends liability to those who “participate, directly

or indirectly, in the conduct. . . .” The term “participate”

suggests that the term “conduct” should not be limited

to a strong meaning for “participate” suggests “sharing,”

not control. Webster’s Third New International

Dictionary, p. 1646. Congress’ adoption of a generalized

or weak sense of the term “conduct” is also suggested

by the qualifiers to the term “participate.” To state that

a person may participate, “directly or indirectly,” in the

conduct of the enterprise suggest a level of involvement

not necessarily requiring management or control or

direction of the enterprise.

The use of the term “through” in Section 1962(c) does

not, as petitioner’s claim, support the argument that the

term “conduct” is used exclusively for its strong meaning.

Petitioner’s Brief, p. 17. As construed by petitioner, the

terms “conduct” and “through” become duplicative and

redundant. If the term “conduct” is used in its strong

sense, there is no need for the term “through” as that

latter term is construed by petitioner. When the terms

“conduct” and “through” are used in their more

customary, general sense, a more natural reading of

Section 1962(c) appears. Under this reading, the term

“through” is given its normal meaning as a causal term

rather than a qualitative term. See United States v.

Nerone, 563 F.2d 836, 851 (7th Cir. 1977), cert. denied

sub nom. Helfer v. United States, 435 U.S. 951 (1978);

Webster’s Third New International Dictionary, p. 2384

(1 through). This functional meaning is particularly

called for where, as in Section 1962(c), the term

“through” is used as a preposition, whereas, the meaning

urged by petitioner is more appropriate where the term

through is used as an adverb. Weoster’s Third New

International Dictionary, p. 2384 (2 through).

16

Second, the consistent judicial interpretation of

Section 1962(c) does nut support limiting the term

“conduct” to the strong meaning urged by petitioner.

United States v. Scotto, 641 F.2d 47 (2d Cir. 1980)

(Oakes, Jr.), cert. denied, 452 U.S. 961 (1981) (one

“conducts” for purposes of Section 1962(c) when the

predicate offenses are related to the activities of the

enterprise.)!3

Third, the breadth Amicus ascribes to the term

“conduct” is more consistent with the overall statutory

scheme. Section 1962 defines that conduct which

determines whether there is substantive liability under

the statute. This liability provision is common to both

criminal and civil prosecutions. Requiring proof of an

“integral relationship” would engender confusion and

complexity in RICO prosecutions by deflecting attention

away from how the enterprise was operated or

manipulated to facilitate racketeering activity toward an

inquiry into the structure of the enterprise. RICO

prosecutions would be dependent on demonstrating that

the RICO defendants had the power, formal or informal,

to manage, direct or control the enterprise to accomplish

the racketeering activity. Such a construction would not

only run counter to the intent of Congress that RICO

punish behavior not status (see 116 Cong. Rec., part

26, Oct. 7, 1970, p. 35344 (Remarks of Mr. Poff); United

States v. Mandell, 415 F. Supp. 997, 1018-19 (D. Md.

1976), aff'd by equally divided Court 602 F.2d 653 (4th

Cir. 1979), cert. denied, 445 U.S. 961 (1980)) but also

'3Even the Fifth Circuit which had a slightly different standard

for demonstrating the requisite nexus does not come close to the

rigor demanded by petitioner. See United States v. Cauble, 706

F.2d 1322, 1333, 1343 (Sth Cir. 1983), cert. denied, 104 S. Ct. 996

(1984) (RICO defendant's position in enterprise must facilitate his

commission of the racketeering acts and the enterprise must be

affected by the racketeering activity).

17

invite RICO participants to create enterprises of

byzantine complexity to frustrate and avoid prosecution.

Such a construction is not consistent with the

acknowledged goals and purposes of RICO “to divest

the association of the fruits of its ill-gotten gains. United

States v. Turkette, 452 U.S. 576, 585 (1980).

Adoption of an “integral relationship” requirement

would enable persons who heretofore had been subject

to RICO to escape liability. Thus, the union official

or public officer who uses his office to facilitate

racketeering activity has to date been subject to RICO

(see, e.g., United States v. Provenzano, 688 F.2d 194,

199-200 (3d Cir.), cert. denied, 459 U.S. 1071 (1982)

(union official); United States v. Forsythe, 560 F.2d 1127,

1135-37 (3d ed Cir. 1977) (public officers)), but could

escape liability under petitioner’s construction since the

racketeering activity was not “integral” to the union or

government office. Similarly, in insurance fraud cases

that are of concern to Amicus, an “integral relationship”

requirement might insulate from liability participants

in the scheme who derive a portion of their income from

the racketeering activity, but who otherwise carry on

a legitimate practice. These participants might not

engage in racketeering activity that is “integral” to the

enterprise. In large scale insurance fraud rings many

of the participants may be remote, though repeat actors,

who could not be said to have a management or

controlling role. Under petitioner’s construction, these

persons would profit from their participation in the

racketeering activity, but might escape liability under

RICO. Petitioner’s construction would resurrect the

same end this Court declared “unacceptable” in

Turkette: “Whole areas of “organized criminal activity”

would be placed beyond the substantive reach of

18

[RICO].” 452 U.S. at 589. This Court’s comments in

Turkette are particularly important for they emphasize

that it is organized criminal activity, not just “organized

crime” of the popular stereotype, that is the object of

RICO. United States v. Turkette, 452 U.S. 576, 591

(1981). It is the person’s affiliation with the enterprise,

like a person’s involvement in a conspiracy, that raises

the greater concern resulting in RICO’s sanction. This

Court should no more require “integral” involvement

in the RICO enterprise that it would require “integral”

involvement in a conspiracy.

CONCLUSION

It must be borne in mind that the critical issue

addressed by the Seventh Circuit in Haroco is that of

~ causation in fact. It is respectfully submitted by Amicus

that on that issue the Seventh Circuit ruled correctly—

a plaintiff need only show under Section 1964(c) a cause

in fact link between injury to his business or property

and the conduct that constitutes a violation of Section

1962. It is unnecessary and unwise to confuse this simple

issue of cause in fact with the policy issues necessarily

implicit in the concept of proximate cause.

it still remains the obligation of every civil RICO

plaintiff asserting that a violation of Section 1962(c) has

occurred to demonstrate by the requisite burden of proof

the correctness of that position. The construction of

Section 1962(c) argued for by petitioner, however, is

not a correct construction of that provision. Section

1962(c) only requires that the predicate offenses relate

to the activities of the enterprise. Any other construction

is not only inconsistent with the plain meaning of Section

1962(c), but would jeopardize each criminal conviction

19

that has previously been secured under the existing

construction of Section 1962(c).

Respectfully submitted,

JAMES M. FISCHER

Counsel of Record

PATRICK MESISCA, JR.

GILBERT, KELLY, CROWLEY & JENNETT

Attorneys for Amicus Curiae

INTERINSURANCE EXCHANGE OF THE

AUTOMOBILE CLUB OF SOUTHERN CALIFORNIA

515 South Figueroa Street, Suite 1600

Los Angeles, California 90071

(213) 622-5200

PROOF OF SERVICE BY MAIL

State of California

SS.

County of Los Angeles

I, the undersigned, say: I am and was at all times herein

mentioned, a citizen of the United States and a resident of the

County of Los Angeles, over the age of eighteen (18) years and

not a party to the within action or proceeding; that my business

address is 11333 lowa Avenue, Los Angeles, California 90025;

that on March 27, 1985, I served the within Motion for Leave

to File a Brief as Amicus Curiae and Brief Amicus in said action

or proceeding by depositing true copies thereof, enclosed in a

sealed envelope with postage thereon fully prepaid, in the United

States mail at Los Angeles, California, addressed as follows:

Clerk, United States Supreme Court Petitioner American National Bank

| First Street, N.E. & Trust Company

Washington, D.C. 20543 Counsel of Record: Donald E. Egan

(Original and 40 copies) Katten, Muchin, Zafis, Pearl

& Galler

55 East Monroe Street

Chicago, Illinois 60603

Respondent Haroco, Inc.

Counsel of Record: Aram Hartunian

Hartunian, Futterman & Howard, Chtd.

Suite 4005

55 East Monroe Street

Chicago, Illinois 60603

I declare under penalty of perjury that the foregoing is true

and correct. Executed on March 27, 1985, at Los Angeles,

California.

Joy Rivelli Miller

(Original signed)