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

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No. 84-822

In the

Supreme Court of the United States

OCTOBER TERM, 1984

AMERICAN NATIONAL BANK AND TRUST COMPANY

OF CHICAGO, ET AL

PETITIONERS,

HAROCO, INC., ET AL.,

RESPONDENTS.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SEVENTH CIRCUIT

Motion for Leave to File a Brief and

Brief of John Grado, on Behalf of Himself and

Technographics, Inc., in Support of Respondents

JAMES S. DITTMAR

Counsel of Record

ALLEN C. B. HORSLEY

GENE K. LANDY

CHRISTINE M. ROACH

WIDETT, SLATER & GOLDMAN, P.C.

60 State Street,

Boston, Massachusetts 02109.

(617) 227-7200

Attorneys for Amicus Curiae

John Grado, on Behalf of Himself and

Technographics, Inc.

March 29, 1985

BATEMAN & SLADE, INC. *

BEST AVAILABLE COP

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No. 84-822

In the

Supreme Court of the United States

OCTOBER TERM, 1984

AMERICAN NATIONAL BANK AND TRUST COMPANY

OF CHICAGO, ET AL.,

PETITIONERS,

HAROCO, INC., ET AL.,

RESPONDENTS.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SEVENTH CIRCUIT

Motion of John Grado on Behalf of Himself and

Technographics, Inc. for Leave to File a Brief as

AMICUS CURIAE in Support of Respondents

To the Honorable, the Chief Justice of the United States

and the Associate Justices of the Supreme Court of the United

States:

John Grado (“Grado”) respectfully moves, on behalf of him-

self and Technographics, Inc. , pursuant to Rule 36 of the Rules

of this Court, for leave to file the attached brief as amicus

curiae.

Respondents have consented to the filing of this brief.

Petitioners have refused to consent to the filing.

Interest of John Grado

Grado is President and Chief Executive Officer of Techno-

graphics, Inc. (“Technographics”), a major American man-

ufacturer of specialty paper products with industrial facilities

in seven states and three foreign countries. Grado owns approx-

imately 30.7 percent of the shares of Technographics.

Grado is the plaintiff, on behalf of himself and Techno-

graphics, in a derivative action, John Grado v. Henry Gross

et al., filed in the United States District Court for the District

of Massachusetts (Civil Action No. 84-1087-MA) (“Grado”).

The case arises under, inter alia, the Racketeer Influenced and

Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et

seq. The Grado complaint alleges that the defendants became

holders of 57.3 percent of Technographics stock by carrying

out various acts of mail, wire and securities fraud, by diverting

a major corporate opportunity of Technographics, by “launder-

ing” the proceeds through a Cayman Islands “shell” corporation

which they controlled, and by using those proceeds to acquire

majority control of Technographics. The District Court held

that the facts alleged by Grado state a claim under 18 U.S.C.

§§ 1962 (a), (b), (c) and (d) on behalf of the corporation. The

District Court specifically rejected the Grado defendants’ con-

tentions that a “racketeering injury” need be pleaded in order

to state a claim under civil RICO, as well as the requirement

set out by the Court of Appeals for the Second Circuit in

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

1984), cert. granted, __ U.S. —__, 105 S.Ct. 901 (1985)

(“Sedima”) that a civil RICO plaintiff plead prior criminal

convictions of defendants for RICO predicate acts.

—

Oo REE ee

Acting for himself, and on behalf of Technographics, Grado

has an interest appropriate to qualify him as an amicus curiae.

In the RICO cases currently before the Court, defendants are

advancing arguments that would substantially curtail RICO’s

power to deter and to redress crime. At least one amicus, the

American Bankers Association, has filed a brief in support of

RICO defendants American National Bank and Trust Com-

pany, et al. In order to appreciate fully the implications of the

proposed limitations on civil RICO, the Court should also hear

and consider the viewpoint of the victims of RICO violations

— victims whose rights Congress sought to vindicate with the

civil RICO cause of action.

An unduly restrictive decision by the Court on the scope of

civil RICO would be harmful to a large number of individual

and corporate victims of RICO violations who are similarly

situated to Grado and to Technographics. Grado and Techno-

graphics have suffered from precisely the sophisticated pattern

of criminal activity that RICO was designed to attack. They

properly may claim to represent the viewpoint of all such

victims, and may appropriately advocate that civil RICO be

preserved as an effective weapon against criminal acts in

American interstate and foreign commerce.

Respectfully submitted,

JAMES S. DITTMAR

Counsel of Record

ALLEN C.B. HORSLEY

GENE K. LANDY

CHRISTINE M. ROACH

WIDETT, SLATER & GOLDMAN, P.C.

60 State Street,

Boston, Massachusetts 02109.

(617) 227-7200

March 29, 1985

————

Table of Contents.

Interest of the Amicus Curiae

Issues Presented

Summary of Argument

Argument

I. The Purported “Racketeering Injury” Requirement

is but Another in a Series of Discredited Attempts

to Restrict Civil RICO

A. The Background of “Racketeering Injury”:

Earlier Attempts to Restrict Civil RICO

B. The Purported Racketeering Injury Require-

ment

il. The Language of the Act Provides No Support for

the Racketeering Injury Requirement

Ili. The Legislative History Does Not Support a

Restrictive Reading of Civil RICO

IV. RICO is Not Overbroad in Scope

V. This Court Should Preserve Civil RICO as an

Effective Weapon Against Crime

Conclusion

Table of Authorities Cited.

CASES.

Alexander Grant & Co. v. Tiffany Industries, 742 F.2d

aww =

25

27

408 (8th Cir. 1984) Tn, 8n, 9, 12

il TABLE OF AUTHORITIES CITED.

Bankers Trust Company v. Feldesman, 566 F.Supp.

1235 (S.D.N.Y. 1983) aff’d on other grounds sub.

nom. Bankers Trust Co. v. Rhoades, 741 F.2d 511

(2d Cir.) petition for cert. filed, No. 84-657, 53

U.S.L.W. 3367 (October 24, 1984) 8n, 10, 11,

12, 15 et seq.

Bennett v. Berg. 685 F.2d 1053 (8th Cir. 1982), aff’d

en banc., 710 F 2d 1361, cert. denied, U.S. , 104

S.Ct. 527 (1983) 6n, 7n, 8n

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429

U.S. 477 (1977) 19n, 20n

Crocker National Bank v. Rockwell International Corp.,

555 F. Supp. 47 (N.D. Calif. 1982) 18, 19

Eaby v. Richmond, 561 F. Supp. 131 (E.D. Pa. 1983) 7n

Econo-Car International, Inc. v. Agency Rent-A-Car,

Inc., 589 F. Supp. 1368 (D. Mass. 1984) 19n, 20n

Eisenberg v. Gagnon, 564 F. Supp. 1347 (E.D. Pa. 1983) 6n

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

cert. filed, No. 84-604, 53 U.S.L.W. 3343 (October

15, 1984) 7n, 8n, 11, 19n, 20n

Hanna Mining Co. v. Norcen Energy Resources, Ltd.,

[1982 Transfer Binder] Fed. Sec. L. Rep. (CCH) para.

98,742 at 93,737 (N.D. Ohio 1982) 8

Haroco, Inc. v. American National Bank & Trust Co.,

747 F.2d 384 (7th Cir. 1984) cert. granted, U.S.

, 105 S.Ct. 901 (1985) 7n, 8n, 10, 11, 12 et seq.

Hellenic Lines, Ltd. v . O’Hearn, 523 F. Supp. 244

(S.D.N.Y. 1981) 8, 10n, 26

In re Catanella and E.F. Hutton & Co., Inc. Securities

Litigation, 583 F. Supp. 1388 (E.D. Pa. 1984) 9, 23n

In re Longhorn Securities Litigation, 573 F. Supp. 255

(W.D. Okla. 1983) 6n

TABLE OF AUTHORITIES CITED. iil

Kimmel v. Peterson, 565 F. Supp. 476 (E.D. Pa. 1983) 7n, 8

Lehrman v. Gulf Oil Corp., 500 F.2d 659 (Sth Cir.

1974), reh’g denied, 503 F.2d 1403, cert. denied,

420 U.S. 929 (1975) 19n

Monell v. Department of Social Services, 436 U.S. 658

(1978) 22

Moss v. Morgan Stanley, Inc., 719 F.2d 5 (2d Cir.

1983), cert. denied, 104 S.Ct. 1280 (1984) 6n

North Barrington Development, Inc. v. Fanslow, 547

F. Supp. 207 (N.D. Ill. 1980) 8n

Russello v. United States, 464 U.S. 16, 104 S.Ct. 296,

78 L.Ed.2d 17 (1983) 6n, 7, 15n, 16, 26

Schacht v. Brown, 711 F.2d 1343 (7th Cir. 1983), cert.

denied, U.S. , 104 S.Ct. 508, 104 S.Ct. 509

(1984) 6n, 7n, 8n, 22

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

Cir. 1984), cert. granted, US. , 105 S.Ct.

901 (1985) 7n, 8n, 9, 10, 11, 15 et seq.

Spencer Cos., Inc. v. Agency Rent-A-Car, Inc., [1981-

1982 Transfer Binder] Fed. Sec. L. Rep. (CCH)

para. 98,361 at 92,214 (D. Mass. 1981) 6n

United States v. Aleman, 609 F.2d 298 (7th Cir. 1979),

cert. denied, 445 U.S. 946 (1980) 6n

United States v. Campanale, 518 F.2d 352 (9th Cir.

1975), cert. denied, 423 U.S. 1050 (1976) 6n

United States v. Forsythe, 560 F.2d 1127 (3d Cir. 1977) — 6n

United States v. Gibson, 486 F. Supp. 1230 (S.D.

Ohio 1980) 6n

United States v. Grande, 620 F.2d 1026 (4th Cir.), cert.

denied, 449 U.S. 830 (1980) 6n

iV TABLE OF AUTHORITIES CITED.

United States v. Morton, U:S. , 104 S.Ct.

2769, 81 L.Ed.2d 680 (1984) 15n

United States v. Turkette, 452 U.S. 576 (1981) 6, 7

9, 13, 18

United States v. Uni Oil, Inc., 646 F.2d 946 (Sth Cir.

1981), cert. denied, 455 U.S. 908 (1982) 6n

STATUTES.

Racketeer Influenced and Corrupt Organizations Act,

Public Law 91-452 (1970)

i8 U.S.C. § 1961 2, 22

18 U.S.C. § 1962 4, 5, 13, 14, 20 et seq.

18 U.S.C. § 1964(c) 3, 4, 8, 13, 14 et seq.

84 Stat. 922, § 904(a) (1970) 13

84 Stat. 922, § 904(b) (1970) 15

7 U.S.C. § 2305(c) 14n

12 U.S.C. § 1464(q)(3) 14n

12 U.S.C. § 1975 14n

15 U.S.C. § 15 14n, 19n

15 U.S.C. § 72 14n

15 U.S.C. § 2072 14n

29 U.S.C. § 187 14n

42 U.S.C. § 1983 22

45 U.S.C. § 51 14n

45 U.S.C. § 52 14n

46 U.S.C. § 1227 14n

Congressional Record:

115 Cong. Rec. 6995 (1969) 18n

115 Cong. Rec. 9567 (1969) 20n

TABLE OF AUTHORITIES CITED. Vv

116 Cong. Rec. 35,204 (1970) 17

i116 Cong. Rec. 35,295 (1970) 19n

116 Cong. Rec. 35,344 (1970) 17

Legislative Materials:

S. Rep. No. 91-617, 2d Sess. (1969) 26

SubComm. No. 5 of the House Comm. on the Judici-

ary, Hearings on S.30, and Related Proposals, Relat-

ing to the Control of Organized Crime in the United

States 91st Cong., 2d Sess. 689 (1970) 16n

H. R. Rep. No. 1549, 9ist Cong. 2d Sess., reprinted

in 1970 U.S. Code Cong. & Ad. News 4007 18

Other Authorities:

Blakey, The RICO Civil Fraud Action in Context: Re-

flections on Bennett v. Berg, 58 Notre Dame L. Rev.

237 (1982) 6

McClellan, The Organized Crime Act or its Critics:

Which Threatens Civil Liberties? 46 Notre Dame Law

Rev. 55 (1970) 17

Note, Civil RICO: The Temptation and Impropriety of

Judicial Restriction, 95 Harv. L. Rev. 1101 (1982) — 6n,

20, 21

Note, Civil RICO Comes of Age — Proposals for Re-

form, 35 Rutgers L. Rev. 285 (1983) 20

No. 84-822

In the

Supreme Court of the United States

OCTOBER TERM, 1984

AMERICAN NATIONAL BANK AND TRUST COMPANY

OF CHICAGO, ET AL.,

PETITIONERS,

HAROCO, INC., ET AL.,

RESPONDENTS.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SEVENTH CIRCUIT

Brief of John Grado, on Behalf of Himself and

Technographics, Inc., in Support of Respondents

Interest of the Amicus Curiae

Grado is President and Chief Executive Officer of Techno-

graphics, Inc. (“Technographics”), a major American man-

ufacturer of specialty paper products with industrial facilities

in seven states and three foreign countries. Grado owns approx-

imately 30.7 percent of the shares of Technographics.

Grado is the plaintiff, on behalf of himself and Techno-

graphics, in a derivative action, John Grado v. Henry Gross,

2

et al., filed in the United States District Court for the District

of Massachusetts (Civil Action No. 84-1087-MA) (“Grado’’).

The case arises under, inter alia, the Racketeer Influenced and

Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et

seq. The Grado complaint alleges that the defendants became

holders of 57.3 percent of Technographics stock by carrying

out various acts of mail, wire and securities fraud, by diverting

a major corporate opportunity of Technographics, by “launder-

ing” the proceeds through a Cayman Island “shell” corporation

which they controlled, and by using those proceeds to acquire

majority control of Technographics.

Acting for himself, and on behalf of Technographics, Grado

has an interest appropriate to qualify him as an amicus curiae.

In the RICO cases currently before the Court, defendants are

advancing arguments that would substantially curtail RICO’s

power to deter and to redress crime. At least one amicus, the

American Bankers Association, has filed a brief in support of

RICO defendants American National Bank and Trust Com-

pany, et al. In order to appreciate fully the implications of the

proposed limitations on civil RICO, the Court should also hear

and consider the viewpoint of the victims of RICO violations

— victims whose rights Congress sought to vindicate with the

civil RICO cause of action.

An unduly restrictive decision by the Court on the scope of

civil RICO would be harmful to a large number of individual

and corporate victims of RICO violations who are similarly

situated to Grado and to Technographics. Grado and Techno-

graphics have suffered from precisely the sophisticated pattern

of criminal activity that RICO attacks. They properly may

claim to represent the viewpoint of all such victims, and may

appropriately advocate that civil RICO be preserved as an

effective weapon against criminal acts in American interstate

and foreign commerce.

3

Issues Presented

I. Should the Court impose a judicially-created requirement

that civil RICO plaintiffs plead a “racketeering injury”, when

the restriction is unsupported by the plain meaning of the words

of the statute?

II. Should the Court impose a “racketeering injury” require-

ment upon civil RICO plaintiffs, when to do so would be in

direct opposition to the intent of Congress that civil RICO

deter and remediate the conduct attacked by the statute?

III. Where control over an entity is exercised and used to

accomplish a pattern of racketeering activity , does such control

constitute “conduct” or “participat{ion] . . . in the conduct”

of an enterprise under 18 U.S.C. § 1962(c)?

IV. Where Petitioners, exercising control and direction of

an enterprise, caused injury through a pattern of racketeering

activity consisting of acts of mail and wire fraud, should the

acts of Petitioners be immune from remedy under civil RICO?

Summary of Argument

The intent of Congress in enacting the civil provisions of

RICO, 18 U.S.C. § 1964(c), was to provide a powerful new

weapon against criminal conduct, and to place that weapon in

the hands of private attorneys general. Neither the plain lan-

guage of the statute nor the legislative history of RICO justifies

the imposition of the highly restrictive limitations on civil

RICO proposed by the Petitioners.

First: The proposed “racketeering injury” requirement re-

jected by the Seventh Circuit is an attempt to revive discredited

prior efforts to limit civil RICO. Such proposed limitations

improperly disregard Congress’ intent that civil RICO act as

4

part of a broad attack on activity previously within the exclusive

domain of state law. As Congress acted within its constitutional

powers in creating civil RICO, the courts are without authority

to restrict its application.

Second: The statutory language cannot support a “racketeer-

ing injury” requirement. Under the statute, “any person injured

in his business or property by reason of a violation of § 1962”

is provided a civil remedy. Use of the “by reason of” language

of § 1964(c) to erect barriers to civil RICO plaintiffs mis-

construes what is no more than a simple proximate cause

requirement. The argument that a plaintiff's injury must flow

not from the predicate acts but from the “pattern of racketeering

activity” in order to be compensable distorts § 1964(c) beyond

recognition. Such a proposed restriction is inconsistent with

the specific statutory directive that RICO not supersede existing

remedies available to a plaintiff under federal or state law, but

rather afford additional remedies for injuries by violations of

RICO.

Third: The legislative history does not support restrictive

barriers to civil RICO actions. Underlying the statute was a

congressional intent to provide a powerful new weapon against

the proscribed activity. Congress was well aware that RICO

would federalize claims previously reserved for the states.

Congress consciously chose not to attempt to create status

legislation aimed at particular groups, but rather to enact a

statutory scheme directed at conduct. Congress specifically

rejected the technical types of “standing” and “proximate

cause” requirements developed under the antitrust laws, in

favor of legislation which would preclude easy loopholes for

RICO violators. Congress did, however, import into RICO

from the antitrust laws the concept of private attorneys general,

in order to strike at the economic roots of “organized” criminal

activity. The petitioners’ proposed limitation of civil RICO

would contravene directly the expressed legislative intent.

5

Fourth: This Court may properly disregard alarmist claims

that RICO is overbroad. Properly read, RICO contains suffi-

cient “built-in” limitations to avoid offending the national in-

terest. The requirement of 18 U.S.C. § 1962(c) that a defendant

must “conduct or participate . . . in the conduct” of an enterprise

through a pattern of racketeering activity limits liability of

corporations to instances where the persons who exercise con-

trol or direction or make official policy are responsible for the

acts complained of.

Fifth: Because Respondent alleges that both Walter E. Heller

International Corporation (“Heller”), as parent of American

National Bank and Trust Company of Chicago (“ANB”), and

Ronald J. Grayheck, a senior officer and director of ANB,

engaged in the pattern of mail and wire fraud proscribed by

the statute, the facts set forth in Respondents’ Complaint give

rise to a civil RICO claim under § 1962(c). In order to preserve

civil RICO as an effective weapon against criminal acts, the

order of the Court of Appeals for the Seventh Circuit (“Seventh

Circuit”) should be affirmed.

Argument

I. THE PURPORTED “RACKETEERING INJURY” REQUIREMENT

Is BUT ANOTHER IN A SERIES OF DISCREDITED ATTEMPTS

To Restrict Civit RICO.

A. The Background of “Racketeering Injury” : Earlier

Attempts to Restrict Civil RICO

The purported “racketeering injury” requirement rejected by

the Seventh Circuit below must be seen in context. It is but

the latest in a series of attempts by RICO defendants to restrict

6

the scope of civil RICO. Among the earliest lines of attack

was the claim that RICO required a demonstration that the

defendants belonged to “organized crime” (later, organized

crime or its “penumbra’’). This restriction has been roundly

and properly discredited. It is now generally acknowledged

that RICO applies to ali who violate its provisions.'

Civil defendants have also urged that literal application of

the civil RICO cause of action would unreasonably federalize

the common law relating to business fraud. See generally

Blakey, The Rico Civil Fraud Action in Context: Reflections

on Bennett v. Berg, 58 Notre Dame L. Rev. 237 (1982).? The

plain answer to this argument is that set forth by the Court in

its major decision on the scope of RICO, United States v.

Turkette, 452 U.S. 576, 586-87 (1981) (“Turkette’’):

‘Schacht v. Brown, 711 F.2d 1343, 1353 (7th Cir. 1983), cert. denied, 104

S.Ct. 508, 509 (1984); Moss v. Morgan Stanley, Inc., 719 F.2d 5, 21 (2d

Cir. 1983), cert. denied, 104 S.Ct. 1280 (1984); Bennett v. Berg, 685 F.2d

1053, 1063 (8th Cir. 1982), aff'd en banc 710 F.2d 1361, cert. denied, 104

S.Ct. 527 (1983); United States v. Uni Oil, Inc., 646 F.2d 946, 953 (Sth Cir.

1981), cert. denied, 455 U.S. 908 (1982); United States v. Grande, 620 F.2d

1026, 1030 (4th Cir.), cert. denied, 449 U.S. 830, 919 (1980); United States

v. Aleman, 609 F.2d 298, 303-04, 306 (7th Cir. 1979), cert. denied, 445 U.S.

946 (1980); In re Longhorn Sec. Litig., 573 F. Supp. 255, 269 (W.D. Okla.

1983); United States v. Forsythe, 560 F.2d 1127, 1136 (3d Cir. 1977); United

States v. Campanale , 518 F.2d 352, 363-64 (9th Cir. 1975), cert. denied, 423

U.S. 1050 (1976); Eisenberg v. Gagnon, 564 F. Supp. 1347, 1350-51 (E.D.

Pa. 1983); Spencer Cos., Inc. v. Agency Rent-A-Car, Inc., [1981-1982 Transfer

Binder] Fed. Sec. L. Rep. (CCH) para. 98,361 at 92,214 (D. Mass. 1981);

United States v. Gibson, 486 F. Supp. 1230, 1240-41 (S.D. Ohio 1980). See

Blakey, The RICO Civil Fraud Action in Context: Reflections on Bennett v.

Berg, 58 Notre Dame L. Rev. 237 (1982) (hereinafter “Blakey”), at 264-65

n.78, 270 and nn.94-95, 273 and n.112, 273-74 n.113, 275-76 n.116, 279;

Note, Civil RICO: The Temptation and Impropriety of Judicial Restriction, 95

Harv. L. Rev. 110!, at 1106-09 (1982).

> Professor Blakey's article, which urges a liberal interpretation of civil

RICO, was cited by the Court with approval in Russello v. United States, 464

U.S. 16, 104 S.Ct. 296, 78 L.Ed.2d 17, 27 (1983), as a guide to the legislative

history of RICO.

7

[T}he language of the statute and its legislative history

indicate that Congress was well aware that it was entering

a new domain of federal involvement through the enact-

ment of [RICO]. . . . That Congress included within the

definition of racketeering activities a number of state

crimes strongly indicates that RICO criminalized conduct

that was also criminal under state law, at least when the

requisite elements of a RICO offense are present. . . .

There is no argument that Congress acted beyond its power

in so doing. That being the case, the courts are without

authority to restrict the application of the statute.

These observations were repeated with at least equal force in

Russello v. United States, 464 U.S. 16, 104 S.Ct. 296, 78

L.Ed.2d 17 (1983) (“Russello”).*

Resistance to the application of the plain language of civil

RICO in the context of commercial fraud cases was reduced,

but not quelled, by Turkette and continued in the guise of a

purported requirement of “competitive injury” as a prerequisite

‘Notwithstanding the position taken by the Second Circuit in Sedima,

S.P.R.L. v. Imrex Co. Inc., 741 F.2d 482, 493-94 (2d Cir. 1984), cert.

granted, __ U.S. __, 105 S.Ct. 901 (1985), the Court’s interpretation in

Turkette of Congress’ intent as to the scope of RICO is properly controlling

in the civil context. The statutory language for RICO criminal and civil liability

is identical, and both provisions were drafted to serve the same anti-crime

goals. For examples of reliance upon Turkette to interpret the scope of civil

RICO, see, Haroco, Inc. v. American National Bank & Trust Co., 747 F.2d

384, 390 (7th Cir. 1984), cert. granted, _. U.S. __, 105 S.Ct. 901 (1985);

Alexander Grant & Co. v. Tiffany Industries, Inc., 742 F.2d 408, 412 (8th

Cir. 1984); Furman vy. Cirrito, 741 F.2d 524, 527-28 (2d Cir.), petition for

cert. filed, No. 84-604, 53 U.S.L.W. 3343 (October 15, 1984); Schacht, 711

F.2d at 1353; Bennett, 685 F.2d at 1060; Kimmel v. Peterson, 565 F. Supp.

476, 491 n.7 (E.D. Pa. 1983); Eaby v. Richmond, 561 F. Supp. 131, 134

(E.D. Pa. 1983).

8

to suit.* The majority of courts, including each Court of Ap-

peals which has considered the issue,’ has rejected this ill-

defined limitation. In two well-reasoned decisions on this issue,

United States District Court Judge Giles has pointed out the

weaknesses of the “competitive injury” doctrine:

[Rjeading a competitive injury requirement into section

1964(c) would create an insurmountable practical problem

.... As the Court in Hanna Mining [Co. v. Norcen

Energy Resources, Ltd. , {1982 Transfer Binder] Fed. Sec.

L. Rep. (CCH) para. 98,742 at 93, 737 (N.D. Ohio 1982) |

noted, . . . [this requirement] . . . would leave undisturbed

racketeers whose activity does not infringe on their com-

petitor’s markets. It is untenable to suggest that Congress

intended such a result”. [citation omitted] Accord, Hel-

lenic Lines, Ltd. v. O’Hearn, 523 F. Supp. 244, 248

(S.D.N.Y. 1981).

Kimmel v. Peterson, 565 F. Supp. 476, 495 (E.D. Pa. 1983).

The legislative history of RICO evidences an intent to

escape the restrictive antitrust standing principles. Sec.

1964(c) was added to battle organized criminal activity

on a new front — its pocketbook. Since a competitive

injury requirement would interfere with that goal and

create cracks through which targeted behavior will slip,

it must be rejected.

*See, e.g., Bankers Trust Company v. Feldesman, 566 F. Supp. 1235,

1240-41 (S.D.N.Y. 1983), aff'd. on other grounds sub nom. Bankers Trust

Co. v. Rhoades, 741 F.2d 511 (2d Cir.), petition for cert. filed No. 84-657,

53 U.S.L.W. 3367 (October 24, 1984); North Barrington Development, Inc.

v. Fanslow, 547 F. Supp. 207, 211 (N.D. Ill. 1980).

* Haroco, 747 F.2d at 391; Alexander Grant, 742 F.2d at 413; Furman; 741

F.2d at 530-32 (2d Cir. 1984) (rejecting antitrust analogy); Bankers Trust, 741

F.2d at 516 n.6; Sedima, 741 F.2d at 496; Schacht, 711 F.2d at 1358; Bennett,

685 F.2d at 1958-59 and n.5.

9

In re Catanella and E.F . Hutton & Co., Inc. Securities Litiga-

tion, 583 F. Supp. 1388, 1434 (E.D.Pa. 1984).

Though the “competitive injury” requirement has now gen-

erally been abandoned, several courts have attempted to impose

limitations on RICO through the so-called “racketeering injury”

requirement. This theory asserts that, despite the plain language

of the statute stating no such requirement, the legislative history

demanding broad weapons against crime, and the strength of

this Court’s language in Turkette, RICO pleading somehow

requires “something more” to state a civil claim.

B. The Purported Racketeering Injury Requirement

In Alexander Grant & Co. v. Tiffany Industries, Inc., 742

F.2d 408 (8th Cir. 1984) (“Alexander Grant’), the Eighth

Circuit noted that “a racketeering enterprise injury is a slippery

concept whose definition has eluded even those courts profes-

sing to recognize it.” 742 F.2d at 413. The three decisions at

the Circuit Court level that have purported to adopt some

variant of this “something more” requirement appear to have

three very different concepts in mind.

The decision of the Court of Appeals for the Second Circuit

(“Second Circuit”) in Sedima, §.P.R.L. v. Imrex Co., Inc.,

741 F.2d 482 (2d Cir. 1984), cert. granted, __ U.S. __, 105

S.Ct. 901 (1985) (“Sedima”), referred to the “racketeering

injury” requirement as a matter of “standing to sue”. 741 F.2d

at 494. Such standing is achieved whenever there is either

infiltration of legitimate business or injury to competition.

741 F.2d at 495-96. Because the rule in Sedima is one of

“standing,” it appears that the Sedima panel would allow re-

mediation under RICO for the full injury caused by the entire

10

criminal scheme, once standing to sue is found.* However,

because Sedima attempts to exclude categories of criminal

behavior from RICO, the case has been properly criticized as

a revival of the “organized crime” ai.1 “competitive injury”

tests under a new name. Haroco, Inc. v. American National

Bank & Trust Co., 747 F.2d 384, 394-95 (7th Cir. 1984),

cert. granted, __ U.S. __, 105 S.Ct. 901 (1985) (“Haroco’’).

The Second Circvit’s opinion in Bankers Trust Co. v.

Rhoades, 741 F.2d 511 (2d Cir.), cert. granted, __ U.S. __,

105 S.Ct. 901 (1985) (“Bankers Trust”), by contrast, fashioned

a “racketeering injury” requirement by means of a radical,

indeed almost total, curtailment of the injury for which any

civil remedy may be had under RICO. Under the Bankers

Trust analysis, RICO provides no remedy for any damage

caused by all the crimes or predicate acts which make up the

RICO violation. Rather, RICO’s treble damage remedy is said

to apply only to “distinct” injury which is separate from and

in addition to all the injury flowing from the predicate acts

and is, moreover, proximately caused by the “confluence” of

the pattern of crime and the use of the pattern to “invest in,

control, or conduct, a RICO enterprise.” 741 F.2d at 516. The

Court explained its concept as follows:

If a plaintiff's injury is that caused by the predicate acts

themselves, he is injured regardless of whether or not

there is a pattern; hence he cannot be said to be injured

* Significantly, footnote 41 of the Sedima opinion approves the result in

Hellenic Lines, Lid. vy. O’ Hearn, 523 F. Supp. 244 (S.D.N.Y. 1981), which

upheld a company’s claim under civil RICO to recover kickbacks it was forced

to pay. There was no suggestion in that case that the company suffered separate

and distinct damage from the kickbacks. The measure of damages would plainly

be based on the amount of the kickbacks, which is to say the injury caused

by the predicate acts.

11

by the pattern, and the pattern cannot be said to be the

but-for cause of the injury.

Id. at 517 [emphasis in original].

There are logical problems with the Bankers Trust analysis,

illustrated by the far-fetched examples of “racketeering injury”

given in the opinion itself. Jd. As the dissent in that case points

out, in each example, whether compensable injury occurs de-

pends either upon the conduct of the victim after the crime,

or upon the fortuitous conduct of a non-party — a most unusual

result. 741 F.2d at 522 n.1. As the opinion in Haroco correctly

remarks, these examples given in Bankers Trust do not meet

even the case’s own criteria for “racketeering injury”. Haroco,

747 F.2d at 394.

Such difficulties are inherent in the Bankers Trust test. Only

a metaphysician can find a clear distinction between damage

to victims caused by a series of related crimes and damage

caused by the pattern of such crimes. As Judge Pratt noted in

Furman vy. Cirrito, 741 F.2d 524 (2d Cir.), petition for cert.

filed, No. 84-604, 53 U.S.L.W. 3343 (October 15, 1984),

injury from a RICO violation “in most cases will flow from

the predicate acts”, and the effect of the Bankers Trust rule is

therefore to “sterilize civil RICO.” 741 F.2d at 529. It is surely

most illogical to suggest that Congress created a treble damage

action which provides no remedy for most, if not all, of the

criminal conduct which Congress intended to deter.’

’ A similar criticism applies to the holding in Sedima that civil RICO liability

can occur only when the defendants have been convicted of criminal violations.

That ruling has no support in the language of the statute or in the legislative

history. The treble damage concept of civil RICO is in fact based on a private

enforcement model derived from antitrust treble damage actions. See discussion

infra at notes 11 and 13 and accompanying text.

12

In its recent decision in Alexander Grant, the Eighth Circuit

departed from the Second Circuit to fashion a less restrictive

limitation on RICO. While requiring that a civil RICO plaintiff

plead “something more” than the predicate acts themselves,

the Eighth Circuit found the Bankers Trust test to be “far

narrower” than its own. 742 F.2d at 413. In holding that the

plaintiff's allegations were sufficient to state a RICO claim,

the Eighth Circuit appeared to enunciate a rule that whenever

the pattern of criminal acitivity in violation of RICO “ena-

ble[s]” the defendants to injure the plaintiff, a civil RICO

action will lie. /d.

The Seventh Circuit in its recent Haroco decision, however,

rejected all of these restrictions. The Court there stated:

Even if Congress did not anticipate all of the conse-

quences of RICO, the breadth of the statute, including

the civil provisions, was the result of deliberate policy

choices on the part of Congress. In these circumstances,

to impose special standing and injury requirements cannot

in our view be defended as efforts to improve or polish

a statute which was carelessly or inartfully drafted. RICO

may be very broad, but there was nothing careless about

its drafting.

747 F.2d at 398-99.

All the rules which would require a civil RICO plaintiff to

plead “something more” than injury by the conduct that violates

RICO are inconsistent with the plain language of RICO, and

all would negate Congress’ intent to attack those criminal

endeavors. The Haroco court properly read the statute, and

its order should be affirmed.

13

Il. THE LANGUAGE OF THE ACT PROVIDES No SUPPORT

FOR THE RACKETEERING INJURY REQUIREMENT.

As the Court noted in Turkette:

In determining the scope of a statute, we look first to its

language. If the statutory language is unambiguous, in

the absence of “a clearly expressed legislative intent to

the contrary, that language must ordinarily be regarded

as conclusive”’.

452 U.S. at 580. Any construction of the statute must begin,

moreover, with its unique clause requiring explicitly that the

Act be “liberally construed to effectuate its remedial purposes”,

Pub. L. 91-452, 84 Stat. 922, § 904(a) (1970), reprinted in

U.S. Code Cong. & Ad. News, 91st Cong. , 2d Sess. (1970).

In Turkette , this Court rejected the First Circuit’s suggestion

that RICO did not reach the predicate acts committed in the

context of wholly criminal enterprises. In so deciding, this

Court placed great weight on the broad language of the statute

and noted pointedly:

Had Congress not intended to reach criminal associations,

it could easily have narrowed the sweep of the definition

by inserting a single word, “legitimate”.

452 U.S. at 581.

The same logic applies to civil RICO. Section 1964(c) sets

forth the civil RICO cause of action in words which are clear

and plain: any person “injured by reason of” a violation of

§ 1962 may sue therefor. If Congress had meant to provide a

remedy only for injury “other and different” than that caused

14

by the conduct which violates RICO, it could, and presumably

would, have said so. Had Congress intended civil RICO liabil-

ity to attach only when the defendants had been convicted,

again, it could easily have said so. There is no special “stand-

ing” requirement stated in the language of the statute. No such

restrictions apply to RICO, because none were intended.

Those courts which have sought to impose a “racketeering

injury” requirement have relied upon the language of § 1964(c)

requiring that the plaintiff be injured “by reason of” a violation

of § 1962. These words, it is claimed, require that all the harm

done by predicate acts receive no civil remedy under RICO.

Common sense dictates, however, that the words “by reason

of” are meant simply to state a proximate cause requirement.

There is no suggstion in the language of the Act itself, or in

its legislative history, that these mundane words were meant

to erect a barrier that would effectively eliminate most or all

RICO civil damage claims.

In enacting § 1964(c), Congress employed conventional

words common to several statutory private rights of action,“

words which say no more than that a plaintiff's injuries must

be caused by the defendants’ unlawful acts. It makes no sense to

“Examples of federal statutes employing identical “injured by reason of”

language include: The Agricultural Fair Practices Act, at 7 U.S.C. § 2305(c)

(providing cause of action for coercive, anti-cooperative tactics of produce

buyers); the Garn-St. Germain Depository Institutions Act of 1982, at 12

U.S.C. § 1464(q)(3) (providing cause of action for tieing arrangements by

thrift institutions) and 12 U.S.C. § 1975 (providing cause of action for tieing

arrangements by banks); the Clayton Act at 15 U.S.C. § 15 (providing private

right of action); 15 U.S.C. § 72 (providing damage action for injury by import

“dumping”); the Consumer Product Safety Act, as amended, at 15 U.S.C.

§ 2072 (providing cause of action for violation of product safety rules); the

Griffin-Landrum Labor Reform Act, at 29 U.S.C. § 187 (providing cause of

action for unfair labor practices by unions); the Employers’ Liability Acts, at

45 U.S.C. §§ 51 and 52 (providing cause of action to employee); and the

Merchant Marine Act of 1936, at 46 U.S.C. § 1227 (providing cause of action

for discriminatory agreements between carriers).

15

infer that Congress meant to impose radical constraints when

it used these unremarkable words in RICO.

It is a fundamental axiom that judicial interpretation of a

statutory provision must harmonize with the whole statute.’ In

this regard, the Court must interpret § 1964(c) in light of the

particular language of the Act which states:

Nothing in this title shall supersede any provision of Fed-

eral, State or other law imposing criminal penalties or

affording civil remedies in addition to those provided for

in this title.

Pub. L. 91-452, 84 Stat. 922, § 904(b) (1970) reprinted in

U.S. Code Cong. & Ad. News, 91st Cong., 2d Sess. (1970)

{Emphasis supplied]. In taking such care not to supersede

existing remedies, Congress unambiguously stated that RICO

was intended to provide further and more powerful civil rem-

edies “in addition to” remedies already existing for the pro-

scribed conduct under state and federal law. The plain languaye

of this specific legislative directive that RICO provide addi-

tional remedies for such predicate acts is clearly contrary to

the Bankers Trust holding that any injury caused by the predi-

cate acts must be outside civil RICO.

Ill. THE LEGISLATIVE History Does Not SUPPORT

A RESTRICTIVE READING OF CiviL RICO.

The statutory history demonstrates Congress’ rejection of

technical limitations such as the purported “racketeering in-

jury” requirement or the prior conviction rule of Sedima.

* United States v. Morton, __ U.S. __, 104 S.Ct. 2769, 81 L.Ed. 2d 680,

688 (1984): see also Russello, 78 L.Ed. 2d at 23-24.

16

In Russello v. United States, the Court stated:

The legislative history clearly demonstrates that the

RICO statute was intended to provide new weapons of

unprecedented scope for an assault upon organized crime

and its economic roots. Congress’ statement of findings

and purpose in enacting Pub. L. 91-452, 84 Stat. 922

(1970), is set forth in its Sec. 1. This statement dramat-

ically describes the problem presented by organized

crime. Congress declared, id., at 923: “It is the purpose

of this Act to seek the eradication of organized crime in

the United States . . . by providing enhanced sanctions

and new remedies to deal with the unlawful activities of

those engaged in organized crime.”

78 L.Ed. 2d at 26 [Emphasis supplied].

Organized crime was the prime target of RICO. However,

Congress’ concept of organized crime was broad and included

the type of deception alleged in the present case. Congress —

viewed the concept of “organized criminals” as including far

more than stereotypical Mafia enforcers.’ Criminals in busi-

ness suits were equally a target of the Act. See Bankers Trust,

741 F.2d at 521 (dissent of Cardamone, J., reviewing legisla-

tive history). Congressman Poff, a sponsor of the bill, re-

marked:

‘°“Organized criminals who injure business today do not look like stereotyped

criminals. They are executives and technicians. Their forte is manipulation of

computer information, tampering with accounting procedures, theft of trade

secrets and invasion of confidential company files.” Hearings Before Subcom-

mittee No. 5 of the House Committee on the Judiciary, on S. 30 and Related

Proposals, Relating to the Control of Organized Crime in the United States,

91st Cong., 2d Sess. 689 (1970) (“House Committee”).

17

The curious objection has been raised to [RICO’s provi-

sions] that they are not somehow limited to organized

crime — as if organized crime were a precise and operative

legal concept, like murder, rape or robbery. Actually, of

course, it is a functional concept like white-collar or street

crime serving simply as a shorthand method of referring

to a large and varying group of individual criminal of-

fenses committed in diverse circumstances.

116 Cong. Rec. at 35,344 (1970).

Congress was, moreover, aware that a bill which included

a definition of “organized crime” would be objectionable

“status based” legislation. 116 Cong. Rec. 35,204 (1970) (re-

marks of Congressman Poff). Congress therefore determined

to create stiff penalties and powerful civil remedies to deter

the conduct and practices typically employed by organized

crime. Senator McClellan, a proponent of the tough approach

which Congress endorsed, remarked that “the Senate report

does not claim . . . that the listed offenses are committed

primarily by members of organized crime, only that these

offenses are characteristic of organized crime.” McClellan,

The Organized Crime Act or its Critics: Which Threatens Civil

Liberties? 46 Notre Dame Law Rev. 55, 142 (1970) [Emphasis

in original}. “Congress determined therefore not to attack a

group of persons or any single organization, but to proscribe

broadly those kinds of activities which are at the root of busi-

ness crime.” Bankers Trust, 741 F.2d at 521 (dissent of Car-

damone, J.). The civil RICO cause of action was intended to

be a powerful weapon in the attack on such criminal conduct."'

'' The section of the Act which contains the private RICO cause of action

was added by Congress upon the recommendation of the American Bar Associ-

ation (“ABA”). Significantly, the ABA’s report argued against an earlier pro-

18

Congress was well aware of the inclusive nature of RICO’s

language. Indeed, during the Congressional debate, RICO’s

opponents argued that RICO was “pregnant with the potential

for abuse.” H.R. Rep. No. 1549, 91st Cong., 2d Sess., re-

printed in 1970 U.S. Code Cong. & Ad. News 4007, 4081

(views of dissenting Representatives). In drawing its conclu-

sions in Turkette as to the breadth of RICO, the Court cited

a variety of warnings by civil libertarian opponents to RICO

concerning the purported overbreadth of the Act. 452 U.S. at

586-587.'? None of RICO’s proponents argued that RICO was

narrow; rather, they argued that it was necessary. As one

District Court stated in Crocker National Bank v. Rockwell

International Corp., 555 F. Supp. 47 (N.D. Calif. 1982):

[T]he key purpose of RICO’s civil remedy is to “divest

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

States v. Turkette, 452 U.S. 576, 585, 101 S.Ct. 2524,

2530, 69 L.Ed.2d 246, 249 (1981). This purpose would

be severely undermined if persons who suffered direct

harm from racketeering activity as defined by the statute

could not recover in the absence of a showing of some

“special” harm . . . Such a rule would leave money derived

from the actions prohibited by RICO precisely where Con-

gress did not intend it to remain, in the hands of RICO

violators.

posal to fashion RICO as an amendment to the Sherman Act. The report noted

that such an approach would “create inappropriate and unnecessary obstacles

in the way of persons injured by organized crime who might seek treble damage

recovery.” The Report noted pointedly that “strict” antitrust requirements on

matters such as “standing” and “proximate cause” were inappropriate for RICO.

115 Cong. Rec. 6995 (1969). Of course, the ABA recommendation to separate

RICO from the Sherman Act was followed.

'? In so concluding, the Court relied particularly upon Rep. Eckhardt’s warn-

ing that RICO would “‘mov{e] large substantive areas formerly totally within

the police power of the State into the Federal realm’. Turkette, 452 U.S. at

586-87.

19

Id. at 49-50 [Emphasis supplied]. Nowhere in the legislative

history is there any statement, or even a hint, that Congress

sought to impose a special standing requirement, “something

more” injury rules, or a prior conviction requirement.

Congress borrowed from the antitrust laws the general con-

cept of “private attorneys general” .'* Congress plainly intended

that private parties be stimulated by the treble damage remedies

and attorneys’ fees provisions of civil RICO to act against

criminal conduct through civil suit.'* It would make no conceiv-

able sense to combine such a scheme with a rule that makes

the damage from the criminal acts specifically targeted by

RICO immune from suit.'* Only if civil RICO is given its

intended effect will its usefulness be realized.

'‘The ABA recommended the inclusion of a private remedy “based upon

the concept of § 4 of the Clayton Act [which provides] any person. . . injured

in his business or property by reason of anything forbidden in the antitrust

laws may sue therefor... . [15 U.S.C. § 15]. House Committee at 538, 543-44

(1970), quoted in Econo-Car International v. Agency Rent-A-Car, 589 F.Supp.

1368, 1375 (D.Mass. 1984). In addition, Rep. Poff noted that the provision

was “another example of the antitrust remedy being adopted for use against

organized criminality.” 116 Cong. Rec. 35,295.

‘Lehrman v. Gulf Oil Corp., 500 F.2d 659, 667 (Sth Cir. 1974) reh'g

denied, 503 F.2d 1403, cert denied, 420 U.S. 929 (1975) (articulating policy

behind antitrust treble damage actions). Given the fact that prosecutorial re-

sources are already limited, Congress rationally chose to supplement criminal

RICO enforcement with private civil enforcement.

'* The Second Circuit suggested in Sedima, 741 F.2d at 494-96 that a preclu-

sive standing requirement for RICO plaintiffs is supported by an “analogous”

requirement established for antitrust plaintiffs in Brunswick Corp. v. Pueblo

Bowl-O-Mat, Inc., 429 U.S. 477 (1977) (“Brunswick”).

The amicus respectfully disputes this argument. First, as set forth incisively

in Haroco, 747 F.2d at 391 and Furman, 741 F.2d at 530-32, the Court's

holding in Brunswick rejected the request for damages caused by an increase

in competition, because antitrust law promotes competition. RICO was intended

to destroy racketeers and their enterprises. A proper analogy to Brunswick

20

IV. RICO Is Not OVERBROAD IN SCOPE.

With RICO, both civil and criminal, Congress enacted a

concerted, sustained offensive against criminal activity affect-

ing interstate commerce and legitimate business and expanded

the role of the federal courts in that offensive. Individual jud-

icial expressions of concern with altering the balance of federal

and state police powers are, perhaps, a euphemism for an

unwarranted fear that a multitude of business fraud cases will

appear on the federal docket, and that aggressive plaintiffs

may wield the treble damage weapon too freely. These fears

are overstated. Important limitations on RICO do in fact exist.

They arise from the substantive language of § 1962, which

was meant to define what is and is not a RICO violation. See

generally, Note, Civil RICO Comes of Age — Proposals for

Reform, 35 Rutgers L. Rev. 285, 327-40 (1983); Note, Civil

Brunswick hardly supports a rule that “sterilizes” the civil RICO cause of action.

Secondly, it is clear from the legislative history that while Congress may

have borrowed the powerful tools of the treble damage action and attorneys’

fees from the antitrust laws, it explicitly did not intend to bring “the great

complexity of antitrust law enforcement” into RICO. See 115 Cong. Rec. 9567

(1969) (quoted in Furman at 531). See also Econo-Car International Inc. , 589

F. Supp. at 1375-76.

Thirdly, antitrust law is in fact replete with examples of actions or occurrences

which operate as “predicate acts” to an antitrust claim. For example, violent

coercion of competitiors, bid rigging, fraud on the patent office, and other

types of criminal conduct can subject the perpetrator to antitrust liability. When

an antitrust plaintiff proves these acts, treble damage recovery is allowed for

the entire injury caused by the course of anticompetitive conduct, including

the “predicate acts”.

Finally, it must be noted that RICO, for all its breadth, is a statute which

defines specifically the types of activities which constitute the predicate acts.

Courts must act at least as scrupulously in giving full effect to the detailed

language of §§ 1961 and 1962 as they have in construing antitrust law, with

its general prohibition against “combinations . . . in restraint of trade.”

21

RICO: The Temptation and Impropriety of Judicial Restriction,

95 Harv. L. Rev. 1101 (1982).

Section 1962(a) applies only when the proceeds of crime

are used to invest, or acquire an interest, in an enterprise —

surely not an every-day occurrence. Section 1962(b) applies

only when a criminal achieves or maintains an interest in, or

control of, an enterprise by his criminal acts — that is, there

must be a causal nexus between the criminal activity and the

fact of maintaining interest or control. Both of these “anti-in-

filtration” sections are plainly of narrow applicability. The

categorical rules in Bankers Trust and Sedima indiscriminately

destroy the effect of even these very narrowly focused sections

of RICO.

Section 1962(c) is admittedly broader, but reaches only those

who actually “conduct” or “participate . . . in the conduct” of

the affairs of an enterprise through a pattern of racketeering

activity.'° Claims by RICO opponents to the contrary not-

withstanding, major financial institutions will not be found

liable under § 1962(c), unless corporate officers with substan-

tial control over the enterprise have caused it to participate in

the business fraud involved. “[DJefendants, in raising the

spectre of the opening of the litigation floodgates, overlook

the fact that neither common law fraud nor securities law

violates [sic] will, by themselves, be automatically eligible for

redress through a civil RICO action; there is the additional

requirement under sec. 1964(c) . . . that an interstate enter-

'* In this proceeding, the Petitioners have seemingly abandoned their position,

asserted below and adopted by Sedima and Bankers Trust, that the “by reason

of” language of § 1964 should be used to narrow RICO. Rather Petitioners

have placed primary reliance upon their construction of the words in § 1962(c):

“conduct or participate . . . in the conduct of [the] enterprise”. While properly

protesting the propriety of raising this new argument on appeal, Respondents

have also addressed these contentions. On the assumption that the Court will

speak to this important issue, it is discussed here.

22

prise be conducted ‘through’ a pattern of such activity.”

Schacht v. Brown, 711 F.2d 1343, 1355 (7th Cir. 1983), cert.

denied 104 S.Ct. 508, 105 S.Ct. 509 (1984).

When it is alleged that a pattern of racketeering activity has

been “conducted” within the meaning of § 1962(c) by the

owners, officers, employees or agents of a large institution,

as is the case before this Court, two quite distinct questions

arise: First, are the employees liable? And second, is the institu-

tion liable? The two questions are analytically distinct.

Plainly, under the definition of “enterprise” set out at § 1961

of the statute, the group of employees that carries out the

criminal acts may itself constitute a RICO “enterprise”, and

the employees’ conduct of such an “enterprise” may subject

them to liability without regard to the role played by the institu-

tion that employs them.

The liability of the institution, however, turns on whether

the acts complained of may fairly be said to be those of the

institution itself, rather than simply the unauthorized acts of

individual employees. One possible test would be analogous

to that which the Court imposed in the area of municipal

liability under 42 U.S.C. § 1983 in the case of Monell v.

Department of Social Services, 436 U.S. 658 (1978). There

this Court held:

[A] local government may not be sued under § 1983 for

an injury inflicted solely by its employees or agents. In-

stead, it is when execution of a government’s policy or

custom, whether made by its lawmakers or by those whose

edicts or acts may fairly be said to represent official policy,

inflicts the injury that the government as an entity is

responsible under section 1983. . . . [T]his case unques-

tionably involves official policy as the moving force of

the . . . violation.

Id. at 694.

23

Likewise, where the criminal activity complained of is or

has become a de facto custom or official policy of the institu-

tion, either by virtue of the affirmative acts of individuals who

direct and control, or whose acts may fairly be said to represent,

the official acts of the institution, or by virtue of the knowing

acquiescence of such individuals, the institution should indeed

be held accountable under RICO."

The Amended Complaint of the Respondents plainly passes

muster under this test. It alleges that Heller owns ANB and

that Heller intentionally conducted mail and wire fraud through

ANB (Amended Complaint, paras. 15-20). The allegations

refer to the corporation as the actor that conducted the fraud;

it is a fair inference that these acts represent the official acts

and policies of Heller. A parent corporation is manifestly in

a position to control and direct the acts of its subsidiary, and

Heller is alleged to have conducted the affairs of ANB by a

pattern of racketeering activity. It is further aileged that in so

doing Heller acted together with defendant Ronald J. Grayheck

(“Grayheck”), an ANB officer and director (and therefore,

impliedly at least, a policymaker). Given the “notice pleading”

policy of Fed. R. Civ. P. Rule 8, the Amended Complaint

adequately alleges that Heiler, ANB, and Grayheck violated

civil RICO. Both Respondents and Petitioners will have the

opportunity to test through discovery whether there is sufficient

'’ See also Bankers Trust, 741 F.2d at 524, where Judge Cardamone’s dissent

states that the “required nexus” for stating a § 1962(c) claim exists only when

one is able to commit predicate acts solely by virtue of his position with the

enterprise, or where the predicate acts are related to the activities of the enter-

prise. See, for example, /n re Catanella and E.F . Hutton & Co., Inc. Securities

Litigation, 583 F. Supp. 1388 (E.D. Pa. 1984), where a 1962(c) claim was

properly pleaded against Hutton, where Hutton had ignored a broker’s prior

violations of the Securities Acts, actively promoted him as a successful broker,

and named him Portfolio Manager, a member of its Director’s Advisory Coun-

cil, and Vice President of the Company. To the extent that Catanella suggests

that Hutton would be liable under RICO for mere negligence, rather than

affirmative misconduct, it may be wrongly decided.

24

evidence of the involvement of those who direct, control, or

make policy at Heller and ANB to prove these allegations of

RICO liability.

In contrast, the test offered by Petitioners would virtually

eliminate the attack on organized criminal behavior ac-

complished by § 1962(c). Petitioners would require that in

order to state a claim under § 1962(c), a plaintiff must allege

that the pattern of racketeering activity was “an integral part

of the enterprise’s affairs”. (Brief for Petitioners at 17). As

with the purported requirement of “racketeering injury” offered

by Petitioners below, the test is vague and ill-defined, and

Petitioners offer no examples of their concept. Presumably

Petitoners would require a RICO plaintiff to allege that the

RICO violation at issue was an essential or necessary part of

the enterprise. Because § 1962(c) defines both civil and crim-

inal violations, the petitioners’ proposed limitation would pre-

sent a barrier for federal prosecutors to overcome as well.

The practical difficulties in applying the petitioners’ pro-

posed test are illustrated in the case at bar. Petitioners of course

claim that the conduct alleged in this case would fail the “in-

tegral relationship” test. Yet setting a “prime rate” and com-

municating with one’s customers about it is an integral part

of the banking business, and violating RICO in the course of

such activity would indeed be a violation within the petitioners’

own test.

To read the words “conduct or participate . . . in the conduct”

to mean “participate as an integral part of the enterprise's

affairs” is only, once again, to seek to graft onto RICO concepts

and meanings which nowhere appear in the statute. These

qualifying words are not included in the statute for good reason

— Congress fully intended to cast the RICO net over criminal

conduct in any and all enterprises operated through a pattern

of racketeering activity. No immunity has been granted to

first-time offenders. There is no reason to believe that Congress

ee a ee

25

intended to allow a claim of “good behavior most of the time”

to be a defense in a case of intentional criminal activity that

has damaged a RICO plaintiff.

This class of potential institutional RICO violators is admit-

tedly broader than the class of institutions for whom racketeer-

ing is the main business of the enterprise. But Petitioners have

failed to point out any policy or practical reason why otherwise

legitimate enterprises that stoop to commit a pattern of racke-

teering activity should be immune from civil RICO.

The test proposed by Petitioners would in fact greatly weaken

RICO as an instrument against organized crime. Sophisticated

criminals who operate enterprises with crime as a dominant

part of their business will surely take great pains to hide the

fact. Under the petitioners’ proposal, violators who hide most

of their crimes would be protected from RICO claims or pros-

ecution for those crimes which are discovered. The proposed

“integral relationship” test is not supported by the language of

the statute, by the legislative history, or by good sense. It

should not be adopted.

In contrast, the “official act” test proposed by the amicus

herein adequately strikes a balance between the need to stop

organized criminal behavior and the need to impose RICO

liability only on those corporatons which can fairly be deemed

responsible for RICO violations. Under that test, the decision

of the Court of Appeals for the Seventh Circuit should be

affirmed.

V. THis CourRT SHOULD PRESERVE Civi_ RICO as AN

EFFECTIVE WEAPON AGAINST CRIME.

RICO case law to date has produced numerous examples of

egregious criminal behavior of the type that civil RICO was

indubitably designed to combat. Examples familiar to the Court

are the facts of Sedima and Bankers Trust, and the kick-

26

back scheme properly held to violate RICO in Hellenic Lines,

Ltd. v. O’ Hearn, 523 F. Supp. 244(S.D.N.Y. 1981). A further

example is the Grado case described above. In such cases,

there is a plain and manifest national interest to be served by

civil RICO in helping to free American interstate and foreign

commerce from criminal conduct. In Russello the Court relied

upon the following legislative history:

What is needed here . . . are new approaches that will

deal not only with individuals, but also with the economic

base through which those individuals constitute such a

serious threat to the economic well-being of the Nation.

In short, an attack must be made on their source of

economic power itself, and the attack must take place on

all available fronts.

78 L.Ed.2d at 26 (quoting S.Rep.No. 91-617 at 79 (1969) )

(Emphasis supplied). Civil RICO must, at the very least, be

preserved in a manner which deters and remediates these eg-

regious violations of law.

The facts of the instant case, while perhaps less suggestive

of stereotypical “racketeering”, are no less within the plain

language of the statute and unambiguously constitute an inten-

tional pattern of fraudulent and criminal acts which caused

extensive economic harm. It follows that the Respondents’

Amended Complaint pleads a civil RICO claim, that the deci-

sion of the Court of Appeals for the Seventh Circuit was correct

on the merits, and that it should be affirmed.

It would, therefore, be inappropriate for the Court to curb

civil RICO. The Court should reject attempts to break the

sword that Congress forged.

Oe ee >

27

Conclusion.

For the foregoing reasons, the order of the Court of Appeals

for the Seventh Circuit should be affirmed.

Respectfully submitted,

JAMES S. DITTMAR

Counsel of Record

ALLEN C. B. HORSLEY

GENE K. LANDY

CHRISTINE M. ROACH

WIDETT, SLATER & GOLDMAN, P.C.

60 State Street,

Boston, Massachusetts 02109.

(617) 227-7200

March 29, 1985