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

AMERICAN NATIONAL BANK AND TRUST

COMPANY OF CHICAGO et al.,

Petitioners,

v.

HAROCO, INC. et al.,

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Seventh Circuit

— ——— —- ——-—

= ——_—-_—_---— —— ——- —

BRIEF FOR THE STATE OF NEW YORK

AS AMICUS CURIAE

—--— —_—

—. -——_- —

Rosert ABRAMS

Attorney General of the

State of New York

Attorney for Amicus Curiae

Two World Trade Center

New York, New York 10047

(212) 488-3323

Rosert HerMann

Solicitor General of the

State of New York

R. Scorr GrEaTHEAD

First Assistant Attorney General

Susan BeELGarD

Chief of Appeals and Civil Enforcement

Organized Crime Task Force

Of Counsel

TABLE OF CONTENTS

PAGE

Interest of Amicus Curiae 1

Statement , , 2

Summary of Argument 2

Argument

A. RICO Injury Is Injury Proximately Caused by

a Violation of §1962 4

B. Activity ‘‘Characteristic of Organized Crime’’

Is Incorporated in §1961 ieesnleliaieicda 15

C. The Person/Enterprise Distinction And Entity

Responsibility For Agents’ Acts 19

Conclusion } : | 23

If

TABLE OF AUTHORITIES

Cases: tae

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

1984), petition for cert. filed, Oct. 24,1984 .... 4,5

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

modified en banc, 710 F.2d 1361, cert. denied sub

nom., Prudential Ins. Co. v. Bennett, 104 S.Ct.

ers |e 8, 15

Bunker Ramo Corporation v. United Business Forms,

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

Commonwealth of Massachusetts v. Beneficial Fi-

nance Co., 360 Mass. 188, 275 N.E.2d 33 (1971)... 22

Copperweld Corp. v. Independence Tube Corp., 104

RGIS IRE TRIAS plait eS ee 21

First National Bank in Plant uity v. Dickinson, 396

I ew, 18

Haroco, Inc. v. American National Bank of Chicago,

747 F.2d 384 (7th Cir. 1984), petition for cert.

granted Jan. 14, 1985 on... Leceeeeee fASSIM

In re Olympia Brewing Co. Securities Litigation, (No.

77C 1206, N.D. Tll., Dee. 18, 1984). 22-23

Jacobellis v. Ohio, 378 U.S. 184 (1964). 18

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

1983), cert. denied sub nom., Moss v. Newman,

104 S.Ct. 1280 (1984) ................. 15

Owl Construction Co., Inc. v. Ronald Adams Contrac-

tor, Inc., 727 F.2d 540 (5th Cir), cert. denied,

105 S.Ct. 118 (1984) .. <a eR ce —

III

PAGE

Philbrook v. Glodgett, 421 U.S. 707 (1975) 2 8, 14

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

eae ipies occas sepnesesenbevcesavccnsene cenit 11, 12

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

(1984), petition for cert. rented, Jan. 15, 1985 4

State of Maryland v. Buzz Berg Wrecking Co., 496

F. Supp. 245 (D.Md. 1980) a 11

State of New York v. O’Hara, 595 F. “Supp. 1101

(W.D.N.Y. 1984) 14

United States v. Bright, 630 F.2d 804 (5th Cir. 1980) 10

United States v. Baker, 617 F.2d 1060 (4th Cir. 1980) 10

United States v. Cauble, 706 F.2d 1322 (5th Cir. 1983),

cert. denied, 104 S.Ct. 996 (1984) ....... a 10

United States v. Cincotta, 689 F.2d (1st Cir.), cert.

demied, 459 U.S. 991 (1982) ........... 22

United States v. Elliott, 571 F.2d 880, 903 (5th Cir. ),

cert. denied, 439 U.S. 953, 99 S.Ct. 349 (1978) . 10

United States v. Forsyth, 560 F.2d 880, 903 (5th Cir.),

cert. denied, 439 U.S. 953, 99 S.Ct. 349 (1978) 11

United States v. Frumento, 563 F.2d 1083 (3d Cir.

1977), cert. denied, 434 U.S. 1072 (1978) | 11

United States v. Herman, 589 F.2d 1191 (3d Cir.

1978) . rr ee Ae Le, 10

United States \ v. J anotti, 729 F.2d 213 (3d Cir. 1984) 10

United States v. Karas, 624 F.2d 500 (4th Cir. 1980) 10

United States v. Lavin, 504 F. Supp. 1356, 1359 (N.D.

aia cans binacththanevacennvttotiioste 11

United States 1 v. Lee Stoller Enterprises, 652 F.2d

TI MN MD isevcasesesassnesscnsevseroursecnssnunee 10

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

vacated in part, 602 F.2d 653 (en banc) reh’g de-

nied, 609 F.2d 1076 (1979), cert. denied, 445 U.S.

961, 100 S.Ct. 1647 (1980) re 9

IV

PAGE

United States v. Nerone, 563 F.2d 836 (7th Cir. 1977) .. 9

United States v. Turkette, 452 U.S. 576 (1981) ......... 11

United States v. Webster, 639 F.2d 174 (4th Cir. 1981)

I modified, 669 F.2d 185 (1982) 0. 9

United States v. Whitehead, 618 F.2d 523 (4th Cir

1980) EE IME 11 a

Federal Statutes:

15 U.S.C. $1 aa TEAS ae

18 U.S.C. 61961

EA IT 2

18 U.S.C. 61962 Sr Sete 8 pcm

ee oe ee ie

“i eae =

18 U.S.C. 61968 PP ee

Miscellaneous:

— py v. Berg: The RICO Civil Fraud Ac-

_ tion im ontext, 58 Notre Dame L. Rev. 237 (1982

Daily News, February 24, 1985, pa, ont, 8 ........... : - 7

McClellan, The Organized Crime Control Act or Its

Critics: Which Threatens Civil Liberties?, 46

Notre Dame L. Rev. 55 (1970). 26

Note, Developments in the Law: Corporate Crime—

ra HR Corporate Criminal Behavior through

remimal Sanctions, 92 Harvard L.

(1979) rineets wcinnae

16 Cong. Rec. at 18,940 0

ete yn Invisible Enterprise,’’ Forbes, September

OS aa me ee Meet SS 16, 17,1

Websters New World Dictionary (2d Coll. ed. 1980) ma ;

Interest of Amicus Curiae

The Attorney General of the State of New York submits

this amicus brief in support of Respondents Haroco, Inc.,

Roman Ceramics, Inc., California Originals, Inc. and Mike

Wayne Distilled Products Co. (together referred to as

‘‘Haroco’’). In submitting this brief, New York State

incorporates by reference the ‘‘Interest of Amicus Curiae’’

statement set forth in its brief in Sedima, S.P.R.L. v. Imrex

Company, Inc., No. 84-648, filed on February 28, 1989. In

asserting these interests, we again aver that curtailing the

scope and applicability of civil RICO, 18 U.S.C. §1964(c),

as suggested by petitioners and amicus, the American

Bankers Association (‘‘ABA’’), would seriously undermine

the ability of the State and its citizens to obtain full redress

for injury caused by RICO violations and would virtually

eliminate RICO’s effectiveness in rendering crime un-

profitable.

We hereby adopt the reasoning and conclusions ad-

vanced in support of Respondents in the amicus brief sub-

mitted by the Attorney General of the State of Arizona

and thirty-two sister states and offer additional grounds

in support thereof.

Statement

We respectfully refer the Court to Respondent’s brief

for a statement of the factual background and legal pro-

ceedings below.

Petitioners American National Bank and Trust Com-

pany of Chicago, Walter E. Heller International Corp. and

Ronald J. Grayheck (‘‘ANB,’’ ‘‘Heller International’’ and

‘‘Grayheck’’) raise the question whether civil RICO plain-

tiffs may recover treble damages, pursuant to 18 U.S.C.

§1964(c), for injury caused only by the racketeering activity

specified in 18 U.S.C. §1961 or whether plaintiffs must also

demonstrate that such injury resulted from defendant’s

‘‘use’’ of and engagement in those racketeering activities

by acquiring, operating or maintaining an interest in, or

conducting, or participating in the conduct of, an inter-

state or international enterprise."

Summary of Argument

Petitioners correctly assert that a RICO injury re-

quires proof of a pattern of racketeering activity plus the

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

prise’s affairs. This formulation adheres to the plain

meaning of civil RICO, 18 U.S.C. §1964(c), and gives mean-

1. In its amicus brief, the American Bankers Association raises

a separate question, discussed by the court below, but not addressed

herein by petitioners, i.e., whether a single entity can be both the

“person” who commits the racketeering acts and the enterprise

which the person is “employed by” or “associated with” under

§1962. We respond to this issue in Part C of our brief. Amicus

suggests that RICO should be interpreted to apply to activities

—— of organized crime,” a contention we address in Part

erein.

ee 2 ey Ce ae ee Re

3

ing and effect to all of the statutory language. We submit

that the Seventh Circuit did, in fact, consider both these

parts of §1962 in its examination of RICO injury, and did

not base recovery under (1964(c) on injury from the

predicate acts alone.

The core of petitioners’ brief, however, addresses the

nature of the relationship intended by the phrases ‘‘em-

ployed by’’ and ‘‘associated with’’ in §1962(c). Petitioners

wrongly assert that §1962(c)' gives rise to civil liability

only where defendants dominate or manage the affairs of

the enterprise or where the proscribed pattern of rack-

eteering activity is an integral part of the enterprise’s

affairs. This interpretation of 41962(c) ignores the statu-

tory language rendering defendants answerable where they

‘‘eonduct, or participate, directly or mdirectly, in the con-

duct of [an] enterprise’s affairs through a pattern of

racketeering activity ...’’ and severely undercuts RICO’s

effectiveness.

In its amicus brief, the ABA goes astray by asserting

that the courts should focus not on the question of injury

but on whether the alleged misconduct is ‘‘characteristic

of organized crime’’—a determination already incorporated

in the statute by the very selection of the proscribed rack-

eteering activities set out in §1961. Amicus also errs in

its suggestion that parent and wholly-owned subsidiary

corporations cannot be held liable for §1964(c) injury be-

cause their unity of interest makes them both the ‘‘person”’

which commits the conduct proscribed by §1962(¢c) and the

‘‘enterprise’’ whose affairs are conducted thereby. We

submit that when enterprises such as corporations are the

instramentality of the pattern of racketeering, their agents

are the statutory persons, and the corporations may be

held liable under the doctrine of respondeat superior.

ARGUMENT

A. RICO Injury Is Injury Proximately

Caused by a Violation of §1962

Taking as axiomatic the precept that expansion or re-

striction of a_ statutory enactment is the province of

Congress, not the courts, petitioners assert that the type

of injury RICO was intended to redress may easily be

discerned from the plain meaning of 18 U.S.C. §1964(c)

(‘‘civil RICO’’). (Brief at 9) Section 1964(c) provides:

Any person injured in his business or property by

reason of a violation of section 1962 of this chapter

may sue therefor in any appropriate United States

district court and shall recover threefold the damages

he sustains and the cost of the suit, including a reason-

able attorney’s fees.

In its decision below, the Seventh Circuit held that ‘‘this

‘by reason of’ language . . . simply imposes a proximate

cause requirement on piaintiffs.’’ Haroco, Inc., v. Ameri-

can National Bank and Trust Co., 747 F.2d 384, 398 (1984).

Petitioners concurred with the Seventh Cireuit’s proximate

cause analysis (Brief at 12, 28-29)* and we agree that it is

2. Petitioners reject the Second Circuit’s analyses in Sedima,

S.P.R.L. v. Imrex Co., Inc., 741 F.2d 482, (1984), petition for cert.

granted, Jan. 15, 1985, and Bankers Trust Co. v. Rhoades, 741 F.2d

511 (1984), petition for cert. filed, Oct. 24, 1984, which requires a

“distinct” or “different” injury, stating

Section 1964 does not, however, necessarily demand that the

injury be different from an injury suffered by the underlying

predicate acts... . Thus, if the RICO violation is established

and it is determined that the plaintiff was injured by reason

of the violation, a court need not draw a finer line and differen-

tiate between the injuries caused by the underlying acts and

those caused by the Section 1962 violation.

(Brief at 29, footnote omitted)

5)

sound. But petitioners objected that ‘‘The [Seventh Cir-

cuit’s] analysis fell short . . . because it misapprehended

what constitutes ‘criminal conduct in violation of Section

1962’ (Brief at 12), pointing out that such violation re-

quires the commission of a pattern of racketeering activity

and ‘‘a particular use of the pattern in connection with

an enterprise.’’ (Jd. at 12-14). Petitioners contended that

the Seventh Circuit had dropped the ‘‘use’’ element from

its analysis, thereby reducing the §1962 violation to a

§1961 violation and equating injury from the $1962 viola-

tion to injury from the predicate acts alone.

We agree with petitioners that a §1962 violation is

committed by the proscribed racketeering activity and the

use of that activity as set out in §1962. Indeed, we assert

that the Seventh Circuit had articulated the very test pro-

pounded by petitioners in setting forth the elements of a

section 1962(c) violation. The Haroco court stated:

To allege a violation of section 1962(c), the plaintiff

must allege that the defendant (1) was employed by

or associated with (2) an enterprise engaged in, or the

activities of which affected, interstate, or foreign com-

merce, and (3) that the person conducted or partici-

pated in the conduct of the enterprise’s affairs (4)

through a pattern of racketeering activity.

747 F.2d at 387. Having established these factors as ele-

ments of a §1962 violation, the //aroco court then went on

to reject the argument in Bankers Trust Co. v. Rhoades,

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

24, 1984, that each element of the RICO violation must be

a ‘‘but-for’’ cause of a civil RICO plaintiff’s injury.

Haroco rejected the Bankers Trust analysis because it

6

applied the but-for rule in a manner that eliminated re-

covery for injury caused by the predicate acts even where

the pattern of racketeering activity actually affected the

enterprise’s affairs and all other elements of $1962 were

met, and restored the primary purpose of the RICO statute

and of RICO treble damage recoveries, holding:

We conclude that a civil RICO plaintiff need not allege

or prove injury beyond any injury to business or

property resulting from the underlying acts of rack-

eteering. Plaintiff’s allegations of injury in this case

—excessive interest charges resulting from defend-

ants’ alleged fraudulent scheme to overstate the prime

rate—satisfy the requirements of 18 U.S.C. §1964(c).

This holding by no means renders superfluous the

requirement in section 1964(c) that the plaintiff be

enjured ‘‘by reason of’’ a violation of section 1962. As

we read this ‘‘by reason of’’ language, it simply im-

poses a proximate cause requirement on plaintiffs.

The criminal conduct in violation of section 1962 must,

directly or indirectly, have injured the plaintiff’s busi-

ness or property. ...

Id. at 398. (Emphasis added) Petitioners’ complaint

that Haroco required only injury by reason of the predi-

eate acts ignored Haroco’s clear statement of the §1962

violation and misperceived Haroco’s real concern—that

recovery for predicate act injury not be precluded by

Bankers Trust’s erroneous application of the but-for cau-

sation test.

In the guise of attacking Haroco for its purported fail-

ure to include the ‘‘use’’ aspect of §1962 in its proximate

cause analysis, petitioners slipped in an argument not

directly raised in their petition for certiorari, but of criti-

cal importance in RICO cases, viz., that §1962(c) is vio-

a

7

lated only where a defendant’s use of the pattern of racket-

eering activity amounts to control over the affairs of the

enterprise. We assert that this position flies in the face

| of the plain meaning of §1962(c), and that it fails to dis-

tinguish between concepts of enterprise corruption articu-

lated in (1962 and theories of enterprise liability developed

under the common law. (See Part C, mfra).

Section 1962(c) specifically speaks of the use of the

racketeering pattern directly or indirectly, and provides:

It shall be unlawful for any person employed by or

associated with any enterprise engaged in, or the ac-

tivities of which affect, interstate or fore:gn commerce,

to conduct or participate, directly or indirectly* m the

3. Although petitioners raise this argument in the context of

civil RICO, it obviously bears the same implications in finding

defendants criminally culpable.

4. The plain meanings of the pivotal terms used in §1962(c) are

as follows:

Conduct: 1. to show the way to; lead; guide;

2. to manage, control, or direct

Associate: 1. to join together; connect; combine ;

2. to bring (a person) into relationship with oneself or

another as companion, partner, friend etc.

Participate: to have or take a part or share in.

Directly: 1. in a direct way or line; straight;

2. without a person or thing coming between ; immediately

Indirect: a) not straight; deviating; roundabout ;

(b not straight to the point, or to the person or thing aimed

at [an indirect reply]; .. . @) not immediate. secondary

[indirect result]

Websters New World Dictionary (2d Coll. ed. 1980)

8

conduct of such enterprise’s affairs through a pattern

of racketeering activity or collection of unlawful debt.°

(Emphasis added). In their attempt to narrow civil RICO

by hobbling 41962, petitioners argue that the pattern of

racketeering activity must be an ‘‘integral part of the en-

terprise’s affairs’’ carried out by persons who ‘‘direct the

course of or manage the enterprise’s affairs”’ (Brief at

17-22).°

We submit that cases suggesting that §1962 persons

must manage or direct the affairs of an enterprise in-

volved situations where the enterprise had been used as

an instrumentality’ of the alleged §1962 violation and was,

5. This argument applies equally to §1962(a) and (b) which

provide in relevant part:

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

any income derived, directly or indirectly, from a pattern of

racketeering activity or through collection of an unlawful debt

in which such person has participated as a principal within the

meaning of section 2, title 18, United States Code, to use or

invest, directly or indirectly, any part of such income, or the

proceeds of such income, in acquisition of any interest in or the

establishment or operation of, any enterprise. . . .

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

of racketeering activity or through collection of an unlawful

debt to acquire or maintain, directly or indirectly, any interest

in or control of any enterprise... . ‘

6. Petitioners justify their two-prong test—predicate acts plus

unlawful use of the pattern—by citing Philbrook v. Glodgett, 421

U.S. 707, 713 (1975) for the proposition that “in expounding a

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

but by the entire provisions of the law,” (Brief at 14), but they

immediately abandon this admonition by pointedly ignoring the

statutory language proscribing the use of the pattern “to conduct, or

participate, directly or indirectly, in the conduct of” the enterprise’s

affairs.

7. In Bennett v. Berg, The RICO Civil Fraud Action in Coniext,

58 Notre Dame L. Rev. 237, 307-25 (1982), Prof. G. Robert Blakey

notes that a RICO enterprise may be a “victim, prize, instrument

or perpetrator.”

9

therefore, being sued as a defendant, see, €.9. Bennett v.

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

F.2d 1361, cert. denied sub nom., Prudential Ins. Co. v.

Bennett, 104 S.Ct. 527 (1983), or where an accused indi-

vidual contended that the affairs of the enterprise were

unaffected by the objectionable conduct, see, ¢.g., United

States v. Mandel, 591 F.2d 1347 (4th Cir.), vacated im part

on other grounds by an equally divided court, 602 F.2d

653 (4th Cir.) (en banc) (per curiam), reh’g denied, 609

F.2d 1076 (4th Cir. 1979), cert. denied, 445 U.S. 961 (1980).

We suggest that analysis of enterprise corruption under

§1962 involves totally separate concerns from analysis of

§1964(c) enterprise liability; that analysis of §1962 should

not be constrained by concern for inappropriate imposi-

tion of RICO sanctions or remedies; and that a finding of

enterprise corruption under $1962 does not necessarily re-

quire a finding of enterprise liability under §1964(c).

The distinction is most obvious where the charged en-

terprise is a victim and the pattern of racketeering activity

benefits the culpable persons to the detriment of the in-

fected enterprise. See United States v. Webster, 669 F.2d

185 (4th Cir. 1982), modifying 639 F.2d 174 (1981). (‘*The

proper question should have been whether the affairs of

the [charged enterprise] were conducted through the pat-

tern of racketeering activity, not whether [those affairs |

were benefitted or advanced or whether profit to the [en-

terprise] resulted.’’ 669 F.2d at 186-87).°

8 Where the affairs of the enterprise are not affected, or in any

way impacted by the pattern of racketeering, there is no §1962

violation. See United States v. Nerone, 563 F.2d 836 (7th Cir. 1977),

cert. denied, Helfer v. United States, 435 U.S. 951 (1978) (“The

Government’s case must fail because of a total want of proof of

the connection between the racketeering activities and the affairs of

Maple Manor Inc. [the enterprise]. Id. at 852.)

10

Had Congress wished to limit §1962 in the manner

petitioners suggest, it would simply have said ‘‘conduct,

manage or direct such enterprise’s affairs.’’ Instead Con-

gress used the phrase, ‘‘ participate, directly or indirectly.”’

Moreover, Congress chose very broad terms to describe the

relationship between the ‘‘person’’ and the ‘‘enterprise.’’

Those relational terms—‘‘employed by or associated with’”

9. In the seminal case of United States v. Elliott, 571 F.2d 880,

903 (5th Cir.) cert. denied, 439 U.S. 953 (1978), the court explicitly

stated :

The substantive proscriptions of the RICO statute apply to

insiders and outsiders—those merely “associated with” an enter-

prise—who participate directly and indirectly in the enterprise’s

affairs through a pattern of racketeering activity. 18 U.S.C.

§1962(c). Cf. United States v. Forsyth, 560 F.2d 1127, 1135-36

(3d Cir. 1977). Thus, the RICO net is woven tightly to trap

even the smallest fish, those peripherally involved with the

enterprise.

In United States v. Cauble, 706 F.2d 1322 (5th Cir. 1983), cert.

denied, 104 S.Ct. 996 (1984), the court simply asked whether “the

predicate acts had some affect on the lawful enterprise.” Cases

broadly interpreting “associated with” include: United States v.

Janotti, 729 F.2d 213 (3d Cir.), cert. denied, 105 S.Ct. 243 (1984)

(City Councilman who introduced fictitious shiek to law firm as a

potential client was sufficiently “associated with” that firm) ; United

States v. Whitehead, 618 F.2d 523 (4th Cir. 1980) (prosecuting at-

torney was sufficiently associated with prostitution ring to which he

offered protection) ; United States v. Bright, 630 F.2d 804 (Sth Cir.

1980) (“The final element of a RICO violation is proof that the de-

fendant participated in the enterprise through a pattern of racketeering

activity. Bright’s [owner of a bail bonding agency] sole participation

in the enterprise took the form of bribery of [Sheriff] Hamilton. . . .

There was sufficient evidence by which a jury could find that Bright

participated in the affairs of the Sheriff's office by bribing the Sheriff.”

Id. at 830) ; United States v. Karas, 624 F.2d 500 (4th Cir. 1980),

cert. denied, 449 U.S. 1078 (1981) (outsiders convicted of bribing

county law officers) ; United States v. Lee Stoller Enterprises, 652

F.2d 1313 (7th Cir.), cert. denied, 454 U.S. 1082 (1981) (individual

and corporate defendants convicted under 1962(c) scheme of kick-

backs to sheriff’s office) ; United States v. Baker, 617 F.2d 1060 (4th

Cir. 1980) (outsider convicted of | payment of bribes to

sheriff’s office) ; United States v. Herman, 589 F.2d 1191 (3d Cir.

(footnote continued on next page)

11

—cannot reasonably be interpreted to refer only to persons

who direct an enterprise’s affairs.

Moreover, in arguing for a narrow construction of

§1962, petitioners ignore Congress’ explicit mandate that

‘the provisions of this title shall be liberally construed to

effectuate its remedial purposes,’’ §904(a), Pub. L. 91-452,

84 Stat. 947, acknowledged and adhered to in United States

v. Turkette, 452 U.S. 576 (1981). As this Court explicitly

recognized in construing criminal RICO’s forfeiture pro-

visions, 18 U.S.C. §1963, Congress deliberately employed

general terms in that portion of the statute ‘‘apparently

because it was fully consistent with the pattern of the RICO

statute in utilizing terms and concepts of breadth,’’ Rus-

sello v. United States, 464 U.S. 16, 104 S.Ct. 296, 300 (1983),

specificaly pointing to ‘‘ ‘enterprise’ in §1961(4) ; ‘racket-

eering activity’ in §1961(1) (1976 ed. Supp. V); and

‘participate’ in §1962(c).’’ Id. (Emphasis added)

In attempting to avoid the breadth of “<participate,”’

expanded by the phrase, ‘‘directly or indirectly,’’ petition-

ers argue that the liberal construction provision applies

only to the actual ‘‘remedies’’ of RICO, §§1964 and 1968;

that this mandate does not apply to §1962 itself; and that

1978), cert. denied, 441 U.S. 913 (1979) (upholding conviction of

former state court magistrate for bribe receiving from bail agency/en-

terprise) ; U ‘ited States v. Frumento, 563 F.2d 1083, 1090-91 (3d

Cir. 1977), cc. t. denied, 434 U.S. 1072 (1978) (affirming RICO con-

viction of individual in charge of patronage for a Democratic Com-

mittee—enterprise was Pennsylvania’s Department of Revenue’s

Bureau of Cigarette and Beverage Tax.) ; United States v. Lavin,

504 F.Supp. 1356, 1359 (N.D. Til. 1981) (“even those defendants not

directly employed by the Board of Appeals (the RICO enterprise)

are within the statute since by solociting and accepting property assess-

ment complaints they were ‘associated with’ this enterprise”) ; State

of Maryland v. Buzz Berg Wrecking Co., 496 F.Supp. 245 (D. Md.

1980) (defendants included corporations and individuals who allegedly

bribed director of construction for a city housing department).

12

such ‘‘statutory rules of construction’’ as RICQ’s liberal-

construction directive ‘‘have no relevance when the statu-

tory language is clear.’’ These assertions are meritless.

First, by its express terms, the liberal-construction clause

applies to all the provisions of Title IX. That §1962 de-

fines criminal RICO does not prevent liberal interpretation

of its terms.”® This Court noted, without any reservation

as to its appropriateness, that ‘‘[s]o far as [it had] been

made aware, this is the only substantive federal criminal

statute that contains such a directive. ...’’ Russello v.

United States, 104 S.Ct. at 302." Secondly, we submit that

clear legislative mandates stand on different footing from

judicially created rules of statutory construction and re-

quire adherence irrespective of the presence of ambiguity

or other triggers for statutory construction.

The rule petitioners propose would eliminate recovery

except in instances where defendants had achieved sub-

stantial domination and control over an enterprise. Until

defendants gained that degree of involvement, they could

10. This statutorily mandated liberality need not extend to the

racketeering activities themselves, which are made criminal by other

statutory provisions.

11. Petitioners apparently misapprehend the “rule of lenity”

and incorrectly confuse it with the concept of liberal construction.

“The rule of lenity [or “leniency” as petitioners phrase it] which

this Court has recognized in certain situations of statutory ambiguity

. ‘comes into operation at the end of the process of construing

what Congress has expressed, not at the beginning as an overriding

consideration of being lenient to wrong-doers.’” Russello, 104 S.Ct.

at 303. (Emphasis added). It is intended to relieve defendants of

an unfair result where some statutory ambiguity provides a less

onerous alternative interpretation. (Petitioners concede, that RICO’s

provisions are not ambiguous. Brief at 10, 12). By contrast, an

explicit congressional directive to interpret a statute liberally re-

quires that the court take that approach from the beginning to the

end of its analysis.

15

not be made to respond to civil RICO remedies, thus pro-

tracting the period during which defendants could victim-

ize enterprises, with impunity. This result is absurd. RICO

was designed to ruin defendants, not plaintiffs. Moreover,

one of its central purposes was to prevent infiltration of

legitimate businesses by criminal elements. To require

plaintiffs to wait until such infiltration is virtually com-

plete simply make no sense. We submit that a pattern of

racketeering activity which corrupts or defrauds an enter-

prise constitutes the requisite direct or indirect participa-

tion in the conduct of that enterprise’s affairs, as pro-

scribed by §1962. Defendants should be held liable for

RICO treble damages in such _—— irrespective of

their stake in the management of the enterprises affairs."

Because governmental entities provide most of their

services to citizens through contractual arrangements with

‘‘outside’’ firms and individuals, adherence to the plain

12. Moreover, we submit that there is an important distinction

between the concept of domination or management of an enterprise’s

affairs and the pattern of racketeering activity as an integral part

of the enterprise’s affairs. Obviously in cases of fraud, the business

of the enterprise can be infected although its owners, directors and

managers are uninvolved. Its affairs may nonetheless be subjected

to fraudulent schemes, and fraud perpetrated by outsiders without

the cooperation of insiders may go undeiected for years.

Examining the facts of Haroco, however, we fail to understand

how the conduct of the ANB defendants, in setting interest rates,

did not and “could not” form the basis of allegations that those

defendants were “directing or managing ANB’s business through the

overcharges of interest rates tied to prime rates.” (Brief at 17)

Banks are in the business of making loans and their gross earnings

on those loans derive from the difference between the amount they

charge customers as interest and the amount they paid for the funds

they lend. The Haroco complaint appears to allege that an “integral

part” of the enterprise’s affairs was directly affected, an allegation

involving far more than the minimal, indirect affect on the enter-

prise’s affairs required by §1962.

14

meaning of the statute is of paramount importance.* There

is nothing ‘‘incidental’’ about the pernicious effect that

racketeering activity has on governmental enterprises and

the citizens they serve and there is no sound policy reason

to engraft onto §1964(c) a requirement that restricts RICO

recovery to advanced cases of infiltration or corruption. In

any event, whether public or private interests are involved,

the plain language of $1962, including key terms such as

‘‘employed by,’’ ‘‘associated with,’’ ‘‘participate’’ and

‘directly or indirectly’’ must be given meaning and effect.

Philbrook v. Glodgett. Petitioners’ interpretation of these

terms limits RICO’s effectiveness to instances where de-

fendants thoroughly ensnare an enterprise, sterilize its

management, and, in some instances, artificially prolong the

life of a company while stripping its assets. This ‘‘domina-

tion’’ theory gives racketeers license to do business through

predicate offenses, unless and until they succeed in taking

over management.

RICO does not require that the proscribed conduct per-

meate or be an integral part of the enterprise before its

remedies can be utilized. This Court should not impose

such a limitation.

13. In State of New York v. O’Hara, Civ. No. 83-1440C (W.D.

N.Y. 1983), plaintiff sued the former city manager of the City of

Niagara Falls, alleging that he had accepted a promise of employment

with and other benefits from the company which was then negotiating

with the City on a cleanup contract to clean up Love Canal. The

contract ultimately cost the City in excess of $6,000,000 (plus

$1,528,000 for insurance premiums), of which approximately

$1,624,000 were “disallowed” against the terms of the contract under

a New York State audit. Plaintiff alleges, inter alia, that the contract

terms improperly favored the contractor as a result of the City

Manager’s unlawful conduct and the corporate defendant’s fraud,

and that the defendants should be held liable for RICO treble

damages. This cas@ was dismissed on the authority of Sedima and

Bankers Trust Co., 595 F.Supp. 1102 (1984).

15

B. Activity “Characteristic of Organized

Crime” Is Incorporated in §1961

In its amicus brief, the American Bankers Association

raises two points; first, that the courts should analyze

RICO injury by determining whether the underlying crimi-

nal activity is ‘‘characteristic of organized crime’”’ (Amicus

Brief at p. 8) and second, that the ‘‘nerson’’ and ‘‘enter-

prise’’ cannot be identical under §1962(c). We address

these issues, although they do not appear to be raised by

the petition herein, because they figure prominantly in

RICO litigation and the courts are divided as to their reso-

lution.

The first argument propounded by the ABA tracks

Sedima’s suggestion that RICO was intended to proscribe

‘‘mobster’’-type activity, 741 F.2d 495-96, and is simply a

variation of the ‘‘organized crime’’ requisite which has

been rejected by all of the circuit courts which have consid-

ered it.* More importantly, RICO was structured to incor-

porate this concept by adopting as §1961 predicate offenses

those activities which mobsters typically used. During the

course of legislative debates, Senator McClellan observed

that the predicate offenses ‘‘are characteristic of organized

crime. [They] lend themselves to organized commercial

exploitation. . . .’’ 16 Cong. Rec. at 18,940. As he ex-

plained in a subsequent article, ‘‘the Senate report does

14. Owl Construction Co. v. Ronald Adams Contractor, Inc., 727

F.2d 540 (Sth Cir.), cert. denied, 105 S.Ct. 118 (1984) ; Moss v.

Morgan Stanley, Inc., 719 F.2d 5, 21 (2d Cir. 1983), cert. denied sub

nom., Moss v. Newman, 104 S.Ct. 1280 (1984) ; Bunker Ramo Corp.

v. United States Business Forms, Inc., 713 F.2d 1272 (7th Cir. 1983) :

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

710 F.2d 1361, cert. denied sub nom., Prudential Ins. Co. v. Bennett,

104. S.Ct. 527 (1983).

16

not claim ... that the listed offenses are committed pri-

marily by members of organized crime, only that these

offenses are characteristic of organized crime.’’ McClellan,

The Organized Crime Control Act or Its Critics: Which

Threatens Civil Liberties?, 46 Notre Dame L. Rev. 55, 142

(1970). The selection principle espoused by the ABA

(Amicus Brief at 8-9) has, therefore, already been drafted

into the statute.

Moreover, the view that ‘‘organized crime’’ accom-

plishes its goals through ‘‘characteristic,’’ and often vio-

lent, behavior is outdated. ‘‘Organized crime’’ has been

called ‘‘America’s biggest business,’’ Cook, The Invis-

ible Enterprise, Forbes, September 1980, p. 60, and its

impact on the economy operates through sophisticated,

often covert business transactions rather than obvious and

violent criminal conduct. ‘‘ ‘The millions of dollars [or-

ganized crime] can throw into the legitimate economic

system,’ the | President’s Commission on Law Enforcement

and Administration of Justice] observed, ‘give it the power

to manipulate the price of shares on the stock market, to

raise or lower the price of retail merchandise, to determine

whether entire industries are union or nonunion, to make

it easier for businessmen to continue in business.’ That

was thirteen years ago, and nothing has changed since.’’

Id. at 61." The racketeer as businessman has become part

15. The article continues:

| M]oney is money, and the mob doesn’t care where it makes

it. New York’s Johnny Dioguardi had a kosher-meat business,

a business novelty company and a record store. California’s

Louis Tom Dragna runs a strictly legitimate gourmet business

(Roberta Fashions). . . . Onetime Cleveland mobster Morris

B. Dalitz used to run a string of laundries in the Midwest, main-

(footnote continued on next page)

ii

17

of the popular culture. A newspaper article entitled Mob

Crowds Legit Biz began: ‘‘In a dramatic scene from

the Godfather II, young Michael Corleone tells associates

that in a few years the mob will be totally involved in

legitimate business.’’ Daily News, February 24, 1985, p.3,

col. 1.

Although there is a wealth of commentary critizing the

broad applicability of civil RICO, no one has suggested a

device capable of distinguishing those activities ‘‘char-

acteristic of organized crime’’ more accurately than Con-

gress did in setting forth the proscribed racketeering ac-

tivities in §1961.° Amicus suggests none, relying instead

tained a sizable investment portfolio in companies like Detroit

Steel and the Rock Island Railroad, and now runs Rancho La

Costa, the posh Teamster-financed residential resort on the Pa-

cific. ... In the East whole towns have been mob controlled

for years—Long Branch, NJ was once one of the notable ex-

amples .... The energy crisis has brought the mob out in full

force. We now have coal equipment theft, tax-shelter schemes,

schemes for shortweighting customers or beating environmental

control law. *** In the New York City area, 200,000 gallons

of gasoline are disappearing every week. *** Organized crime

may let the outsider, legitimate or otherwise, find out where the

growth areas are, but it moves in when the potential is proved.

That’s what it did with pornography and the stolen auto-parts

business and cigarette bootlegging. It’s moving now into elec-

tronic games... .

West Coast organized crime has been moving into auto

dealerships, into seafood distribution, into trucking, meatpacking,

and the garment business. In Houston and elsewhere, they're

showing up in the nursing home industry. They are innovative,

opportunistic and as fast-moving as any hotshot acquisitions man.

Forbes, p. 62.

16. The ABA’s argument in favor of activity “characteristic of

organized crime” proceeds on the theory that while the §1961(5)

definition of “pattern” only requires proot of two racketeering activi-

ties, it leaves room for courts to require more, thus giving the

judiciary some basis upon which to differentiate conduct committed in

a “fashion one would expect of true racketeers” in contrast to conduct

which “show[s] little more than a garden variety misstatement of

(footnote continued on next page)

18

on a paraphrase of ‘‘ Justice Stewart’s famous comment on

the problem of defining ‘hard core pornography,’ ”’ Jaco-

bellis v. Ohio, 378 U.S. 184, 197 (1964) (concurring opinion)

‘“‘that ‘{e]ourts recognize a racketeering enterprise when

they see it,’ ’’ and suggesting that the finder of fact should

likewise be able to determine whether the acts alleged ‘‘ were

of such a nature as to be characteristic of organized

ecrime.’’? (Amicus Brief at 11-12)'7 In communities or

industries where racketeering activity is the norm, see e.g.,

The Invisible Enterprise, relying on ‘‘contemporary com-

munity standards’? would simply insulate perpetrators.

The more egregious and pervasive the conduct, the less the

chance of recovery.

fact communicated through th, mails in the course of an ordinary

business transaction.” (Brief # 9, fostnote omitted) Unfortunately,

as the Forbes article indicates, “true racketeers” often engage in

practices which are not easily differentiated from “garden-variety

fraud” which term includes bribery, coercion, extortion and con-

spiracy, the mainstays of “white collar crime.” Moreover, ABA’s

argument that §1961 defines the “minimum” proscribed conduct

relies on an inapt analogy. The ABA argues that a similar defini-

tional problem arose in limiting the ability of national banks to estab-

lish branches where 12 U.S.C. §36(f) provided “that the term

‘branch’ ‘shall be held to include any . . . branch place of . . . business

at which deposits are received, or checks paid, or money lent. . . .

This Court . . . has held that the performance of the three listed

functions, or any of them,’ was the ‘minimum content of the term

“branch” .... {I]t may include more.’ First National Bank in

Plant City [v. Dickinson], 396 U.S. 122, 135 (1969) (emphasis sup-

plied).” This argument cuts against ABA’s position by suggesting

not that the statutory provisions alone are insufficient but that conduct

not explicitly proscribed by §$1961(1) may constitute racketeering

activity.

17. “We already expect fact finders to determine what are

contemporary community standards, and what is patently

offensive under those standards. It cannot be any less rea-

sonable to ask that a fact finder determine whether a partic-

ular activity so far exceeds the community norm for doing

business as to be classified as a racketeering activity rather

than as a simple garden variety fraud.”

Amicus Brief at 12-13.

19

C. The Person/Enterprise Distinction And

Entity Responsibility For Agents’ Acts

Amicus next attempts to deal with the relationship be-

tween the defendant accused of engaging in a pattern of

racketeering activity (the ‘‘statutory person’’ under $1962)

and the ‘‘enterprise’’ whose affairs that person conducts

or participates in, directly or indirectly, 18 U.S.C. §1962(c),

and with the implications this distinction has on issues of

liability. Amicus argues that §1962(c) requires separate

entities and that under a configuration where the ‘‘statu-

tory person’’ and the ‘‘statutory enterprise’’ are a single

entity, the ‘‘statutory ‘enterprise’... cannot be sued for

damages.’’ (Amicus Brief at 15). As previously noted,

this statement confuses the person/enterprise problem with

the issue of liability of the responsible party. (See pp.

8-12, supra)

Amicus posits its view on a model wherein the wrong-

doer, ‘‘the statutory ‘person|,|’ is the analogue of orga-

nized crime, while the statutory ‘enterprise’ is the infil-

trated business, victimized by . . . the ‘person’ whose

activities Congress was aiming to deter and punish,”’

(Amicus Brief at 16). This model, however, does not

present any problem of statutory analysis because the vie-

tim enterprise and the ‘‘statutory person’’ are different

entities. Under such facts, the enterprise would normally

be the plaintiff seeking money damages, and not a party-

defendant in a civil RICO action (unless it declined to sue

and was, therefore, brought in by other injured parties as

a nominal defendant in an appropriate case).

20

The separate-entity problem arises where the enterprise

is the instrumentality or perpetrator and therefore the

statutory person which has engaged in the pattern of

racketeering activity. In that case, the person accused of

committing the predicate offenses is the enterprise, and

the argument is that the enterprise cannot ‘temploy’’ or

‘Sassociate with’ itself. Amicus’ analysis appears to throw

into question whether, under this configuration, a perpetra-

tor enterprise can be made to respond in RICO damages.

In Haroco, the Seventh Cireuit sustained the complaint

against defendant Helier International, ANB’s holding com-

pany, reasoning that:

plaintiffs here and the court in [United States v.

Hartley, 678 F.2d 961, 987-90 (11th Cir. 1982), cert.

denied, 459 U.S. 1170 (1983)] are correct when they

argue that the corporate enterprise should be liable

where it is the perpetrator, or the central figure in

the criminal scheme. In that situation, the corporate

deep pocket should certainly be subject to RICO lia-

bility. At the same time, the defendants here and

Judge Shadur in Parnes [v. Heinhold Conmodities

Inc., 548 F. Supp. 20, 23-24 (N.D. ll. 1982)] are surely

correct in saying that the corporate enterprise should

not be liable when the corporation is itself the victim or

target, or merely the passive instrument for the wrong-

doing of others.

747 F.2d at 401. While the Seventh Cireuit attempted to

resolve the person/enterprise issue by noting that §1962(a)

did not bear the same linguistic constraints as §1962(c), it

also noted the availability of pleading alternatives which

satisfy the separate entity requirement of §1962(c) and

hold a perpetrator enterprise liable. Specifically, the

Seventh Cireuit noted; ‘‘Count I... . alleges that ANB

21

violated section 1962(¢c) by conducting through a pattern

of racketeering activity the affairs of its parent corpora-

tion, Heller International,’ id. at 402, and that it was

‘‘virtually self-evident that a subsidiary acts on behalf, and

thus conducts the affairs, of its parent corporation.’’ 747

F.2d at 402-403. (footnote omitted) Amicus first argues

that the parent-subsidiary relationship is a neutral fact, and

that a court should not hold the parent for acts of the sub-

sidiary unless the evidence showed ‘‘some meaningful dom-

ination by one of those entities [the ‘‘person’’] over the

affairs of the other [the ‘‘enterprise’’] in such a way as to

cause the other to commit illegal activity.’’ Without noting

the logical conflict, amicus then shifts gears and attempts to

apply this Court’s analysis in Copperweld Corp. v. Inde-

pendence Tube Corp., 104 S.Ct. 2731 (1984), holding parents

and subsidiaries incapable of conspiring with one another

for purposes of Section 1 of the Sherman Act, 15 U.S.C.

§1, to the issue of corporate responsibility for the acts of

its agents. Amicus correctly cites Copperweld for the

proposition that

[a] parent and its wholly owned subsidiary have

a complete unity of interest. Their objectives are

common, not disparate; their general corporate actions

are guided or determined not by two separate corporate

consciousnesses, but one [,]

104 S.Ct. at 2742, but draws the wrong conclusion, suggest-

ing that because of the unity of interest between the corpo-

ration and its subsidiaries, their relationship cannot satisfy

the person/enterprise distinction. Copperweld proceeded

on the theory that intracorporate conspiracy could not be

made out under Sherman 1 because the statute required

‘‘two or more entities that previously pursued their own

99

interests separately ... combining to act as one for their

common benefit[,]’’ id. at 2741, which the common interests

of parent-subsidiaries defeated. As Haroco noted, this ac-

commodation of divergent interests has no relevance to

RICO concerns. ‘‘{T]he Sherman Act is premised, as

RICO is not, on the ‘basic distinction between concerted and

independent action.’ ’’ 747 F.2d at 403, 1.22, citing Copper-

weld, 104 S.Ct. at 2740. Whether persons and enterprises

had independent or identical goals before they engaged in

conduct constituting RICO violations has no bearing in de-

termining RICO culpability.

We submit that the unity of interest between a corpo-

ration and its subsidiaries bolsters rather than undermines

the relationship expressed by the terms ‘‘employed by’’ or

‘*associated with’’ and serves as the very basis for liability.

Differently expressed, corporations are liable for the

wrongful conduct of their agents, whether those agents are

individuals employed by the parent or subsidiary entities,

under the doctrine of respondeat superior."®

A corporation may be convicted for the criminal

acts of its agents, under a theory of respondeat su-

perior. But criminal liability may be imposed on the

corporation only where the agent is acting within the

scope of employment. That, in turn, requires that

the agent be performing acts of the kind which he is

authorized to perform, and those acts must be moti-

vated—at least in part—by an intent to benefit the

corporation.

Umited States v. Cincotta, 689 F.2d 238, 241-42 (1st Cir.),

cert. denied, 459 U.S. 991 (1982), cited in In re Olympia

18. See Note, Developments in the Law: Corporate Crime—

Regulating Corporate Criminal Behavior through Criminal Sanctions,

92 Harvard L. Rev. 1227 (1979) ; Commonwealth of Massachusetts

v. Beneficial Finance Co., 360 Mass. 188, 275 N.E.2d 33 (1971).

TS ea

~t?

,

Brewing Co. Securities Litigation, (No. 77 C 1206 N.D.

Ill. Dee. 18, 1984), slip op. at 29-30. There is no

reason why federal law of corporate criminal liability

... should not also apply to liability under RICO... .

When the racketeering activity constitutes a fraud on

or otherwise injures the corporation sought to be held

liable, .. . an intent to benefit the master . . . would be

wholly lacking in a case where the agent is stealing or

otherwise hurting the master.

Id. at 31. Accord, Haroco, 747 F.2d at 401, citing Blakey,

Bennett v. Berg: The RICO Civil Fraud Action in Contect,

supra, 58 Notre Dame L. Rev. at 307-25, for his discussion

of RICO enterprise as ‘‘victim, prize, instrument or per-

petrator.’’ Under the doctrine of respondeat superior, in

cases involving an enterprise perpetrator, it would appear

appropriate to allege that individuals who act as the en-

terprise’s agents are statutory persons, that such enter-

prise is the statutory enterprise and to name both the

individuals and the enterprise as defendants. This analysis

is not complicated by the parent-subsidiary relationship,

which is simply a form of associated entities, all of which

act only through individuals. When properly distin-

guished, concepts of §1962 enterprise corruption may be

liberally construed without improperly imposing enter-

prise liability or creating loopholes through which culpable

parties avoid imposition of RICO remedies.

Conclusion

RICO is a potent weapon in the fight against criminal

infiltration of the economy. The breadth of its provisions

should be honored by this Court. Attempts to narrow

RICO’s scope in a manner that would exclude recovery in

+

proper cases should not be adopted on the ground that a

broader interpretation also permits recovery in arguably

questionable cases. This Court should affirm the holding

below.

Respectfully submitted,

Rosert ABRAMS

Attorney General of the

State of New York

Attorney for Amicus Curiae

Two World Trade Center

New York, New York 10047

(212) 488-3323

Rosert HERMANN

Solicitor General of the

State of New York

R. Scorr GrEaTHEAD

First Assistant Attorney General

Susan BeELGARD

Chief of Appeals and Civil Enforcement

Organized Crime Task Force

Of Counsel

APPENDIX

la

RACKETEER INFLUENCED AND CORRUPT

ORGANIZATIONS ACT, 18 U.S.C.

§§ 1961-1964 (1978) (RICO)

(relevant portions reprinted herein )

§ 1961. Definitions

As used in this chapter—

(1) ‘‘racketeering activity’’ means (A) any act or

threat involving murder, kidnapping, gambling, arson, rob-

bery, bribery, extortion, or dealing in narcotic or other dan-

gerous drugs, which is chargeable under State law and pun-

ishable by imprisonment for more than one year; (B) any

act which is indictable under any of the following provisions

of title 18, United States Code: Section 201 (relating to

bribery), section 224 (relating to sports bribery), sections

471, 472, and 473 (relating to counterfeiting), section 659

(relating to theft from interstate shipment) if the act in-

dictable under section 659 is felonious, section 664 (relating

to embezzlement from pension and welfare funds), sections

891-894 (relating to extortionate credit transactions), sec-

tion 1084 (relating to the transmission of gambling infor-

mation), section 1341 (relating to mail fraud), section 1343

(relating to wire fraud), section 1503 (relating to obstruc-

tion of justice), section 1510 (relating to obstruction of

criminal investigations), section 1511 (relating to the ob-

struction of State or local law enforcement), section 1951

(relating to interference with commerce, robbery, or extor-

tion), section 1952 (relating to racketeering), section 1953

(relating to interstate transportation of wagering para-

phernalia), section 1954 (relating to unlawful welfare fund

payments), section 1950 (relating to the prohibition of il-

Jn

legal gambling businesses), sections 2314 and 2315 (relating

to interstate transportation of stolen property), sections

2341-2346 (relating to trafficking in contraband cigarettes),

sections 2421-24 (relating to white slave traffic), (C) any

act which is indictable under title 29, United States Code,

section 186 (dealing with restrictions on payments and loans

to labor organizations) or section 501(c) (relating to em-

bezzlement from union funds), or (D) any offense involving

fraud connected with a case under title 11, fraud in the sale

of securities, or the felonious manufacture, importation, re-

ceiving concealment, buying, selling, or otherwise dealing

in narcotic or other dangerous drugs, punishable under any

law of the United States;

(3) ‘‘person’’ includes any individual or entity capable

of holding a legal or beneficial interest in property :

(4) ‘‘enterprise’’ includes any individual, partnership,

corporation, association, or other legal entity, and any union

or group of individuals associated in fact although not a

legal entity ;

(5) ‘‘pattern of racketeering activity’’ requires at least

two acts of racketeering activity, one of which occurred

after the effective date of this chapter and the last of which

occurred within ten years (excluding any period of im-

prisonment) after the commission of a prior act of racket-

eering activity;

(6) ‘‘unlawful debt’’ means a debt (A) incurred or con-

tracted in gambling activity which was in violation of the

law of the United States, a State or political subdivision

thereof, or which is unenforceable under State or Federal

3u

law in whole or in part as to principal or interest because

of the laws relating to usury, and (B) which was incurred

in connection with the business of gambling in violation of

the law of the United States, a State or political subdivision

thereof, or the business of lending money or a thing of value

at a rate usurious under State or Federal law, where the

usurious rate is at least twice the enforceable rate....

§ 1962. Prohibited activities

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

any income derived, directly or indirectly, from a pattern

of racketeering activity or through collection of an unlaw-

ful debt in which such person has participated as a principal

within the meaning of section 2, title 18, United States Code,

to use or invest, directly or indirectly, any part of such in-

come, or the proceeds of such income, in acquisition of any

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

prise which is engaged in, or the activities of which affect,

interstate or foreign commerce. A purchase of securities on

the open market for purposes of investment, and without

the intention of controlling or participating in the control

of the issuer, or of assisting another to do so, shall not be

unlawful under this subsection if the securities of the issuer

held by the purchaser, the members of his immediate fam-

ilv, and his or their accomplices in any pattern or racketeer-

ing activity or the collection of an unlawful debt after such

purchase do not amount in the aggregate to one percent of

the outstanding securities of any one class, and do not

confer, either in law or in fact, the power to elect one or

more directors of the issuer.

(b) It shall be unlawful for any person through a pat-

tern of racketeering activity or through collection of an un-

4a

lawful debt to acquire or maintain, directly or indirectly,

any interest in or control of any enterprise which is engaged

in, or the activities of which affect. interstate or foreign

commerce.

(c) It shall be unlawful for any person employed by or

associated with any enterprise engaged in, or the activities

of which affect, interstate or foreign commerce, to conduct

or participate, directly or indirectly, in the conduct of such

enterprise’s affairs through a pattern of racketeering ac-

tivity or collection of unlawful debt.

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

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

of this section.

§ 1963. Criminal penalties

(a) Whoever violates any provision of section 1962 of

this chapter shall be fined not more than £25,000 or impris-

oned not more than twenty years, or both, and shail forfeit

to the United States (1) any interest he has acquired or

maintained in violation of section 1962, and (2) any inter-

est in, security of, claim against, or property or contractual

right of any kind affording a source of influence over, any

enterprise which he has established, operated, controlled,

conducted, or participated in the conduct of, in violation of

section 1962.

(b) In any action brought by the United States under

this section, the district courts of the United States shall

have jurisdiction to enter such restraining orders or pro-

hibitions, or to take such other actions, including, but not

limited to, the acceptance of satisfactory performance

bonds, in connection with any property or other interest

Dat

subject to forfeiture under this section, as it shall deem

proper.

(ec) Upon conviction of a person under this section, the

court shall authorize the Attorney General to seize all

property or other interest declared forfeited under this sec-

tion upon such terms and conditions as the court shall deen

proper. If a property right or other interest is not ex-

ercisable or transferable for value by the United States, it

shall expire, and shall not revert to the convicted person.

All provisious of law relating to the disposition of property,

or the proceeds from the sale thereof, or the remission or

mitigation of forfeitures for violation of the customs laws,

and the compromise of claims and the award of compensa-

tion to informers in respect of such forfeitures shall apply

to forfeitures incurred, or alleged to have been incurred,

under the provisions of this section, insofar as applicable

and not inconsistent with the provisions hereof. Such

duties as are imposed upon the collector of customs or any

other person with respect to the disposition of property

under the customs laws shall be performed under this chap-

ter by the Attorney General. The United States shall dis-

pose of all such property as soon as commercially feasible,

naking due provision for the rights of innocent persons.

§ 1964. Civil remedies

(a) The district courts of the United States shall have

jurisdiction to prevent and restrain violations of section

1962 of this chapter by issuing appropriate orders, includ-

ing, but not limited to: ordering any person to divest him-

self of any interest, direct or indirect, in any enterprise;

imposing reasonable restrictions on the future activities

or investments of any person, including, but not limited to,

6a

prohibiting any person from engaging in the same type of

endeavor as the enterprise engaged in, the activities of

which affect interestate or foreign commerce; or ordering

dissolution or reorganization of any enterprise, making

due provision for the rights of innocent persons.

(b) The Attorney General may institute proceedings

under this section. In any action brought by the United

States under this section. the court shall proceed as soon

as practicable to the hearing and determination thereof.

Pending final determination thereof, the court may at any

time enter such restraining orders or prohibitions, or take

such other actions, including the acceptance of satisfactory

performance bonds, as it shall deem proper.

(c) Any person injured in his business or property by

reason of a violation of section 1962 of this chapter may

sue therefor in any appropriate United States district court

and shall recover threefold the damages he sustains and

the cost of the suit, including a reasonable attorney’s fee.

(d) A final judgment or decree rendered in favor of the

United States in any criminal proceeding brought by the

United States under this chapter shall estop the defendant

from denying the essential allegations of the criminal of-

fense in any subsequent civil proceeding brought by the

United States.