Amicus Curiae Brief — Sedima, S. P. R. L. v. Imrex Co.

D Office Supreme Court, UA

No. 84-648 FILED

FEB 28 198

IN THE

Supreme Court of the United

October Term, 1984

ANOER L. STEWAS:

SEDIMA, S.P.R.L.,

Petitioner,

Vv.

IMREX COMPANY, INC.,

Respondent.

On Writ of Certiorari to the United States

Court of Appeals for the Second Circuit

BRIEF FOR THE STATE OF NEW YORK

AS AMICUS CURIAE

AN SUPPORT OF REVERSAR_

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. Scotr GREATHEAD

First Assistant Attorney General

Susan BeELearD

Chief of Appeals and Civil Enforcement

Organized Crime Task Force

Of Counsel

a SS TE

TABLE OF CONTENTS

Table of Authorities __

Interest of Amicus Curiae

Statement

Summary of Argument .

Argument

I. RICO Is Unambiguous and Must Be Liberally

Construed ..... es pS Eat ADE nant con nit Meet

Il. Civil RICO Does Not Require Prior Criminal

Conviction ........ sates atlene: Bao ope ee n't

III. Civil RICO Does Not Require a ‘‘ Distinct’’ or

‘‘Different’’ Injury .. nia Et Sa

Conclusion .....................00..

Appendix

Racketeer Influenced and Corrupt Organizations Act,

18 U.S.C. §§ 1961-1964 (1978) (RICO) ...

PAGE

IT

TABLE OF AUTHORITIES

PAGE

Cases:

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

1984), petition for cert. filed, Oct. 24,1984 passim

Bennett v. Berg, 685 F.2d 1053 (8th Cir. 1981), cert.

denied sub nom., Prudential Ins. Co. v. Bennett,

104 S.Ct. 527 ( 1983) Reet 15

Brunswick Corp. v. Pueblo Bowl-0- Mat, Inc., 429

if Mh | ee 19

Bunker Ramo Corp. v. United Business Forms, Inc.,

pie e Bb yay, > Bee 15

City of Milwaukee v. Hansen, Civ. No. 77-246 (E.D.

Wie. BOGRD nncessccccuncceee witsoamaenne | 2

Diamond v. Chakrabarty, 477 U.S. 303 (1980) ane 6

Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976) 6

Furman v. Cirrito, 741 F.2d 524 (2d Cir. 1984), peti-

tion for cert. filed sub nom., Joel v. Cirrito, Oct.

| mere 7,13

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

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

granted, Jan. 14, 1985 .................... Pe 4

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

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

BOG BOR. BERD COED a acssindicsccr sce 15, 19

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

tractor, Inc., 727 F. 2d 540 (5th Cir. ‘ cert. denied,

105 S.Ct. 118 (1984). cea eau. ae

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

(1984) | ast 4, 6, 9

Itt

PAGE

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

nied sub nom., Arthur Anderson Co. v. Schacht,

_— U.S. — , 104 S.Ct. 508 (1983) 7

Seawell v. Miller Brewing Co., 576 F. Supp. 245

(M.D.N.C. 1981) ..... | 21

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

| TS ee ola sacercnesscanvpesani passim

State of Maryland v. Buzz Berg W recking Co., 496

F. Supp. 245 (D. Md. 1980) 2

Umstead v. Durham Hosiery Mills, Inc., 578 F. Supp.

342 (M.D.N.C. 1984) ...... whe 21

United States v. Naftalin, 441 U.S. 768 (1979) 9

United States v. One Assortment of 89 Firearms, ——

U.S. ——, 104 S.Ct. 1099 (1984) .. Ee 12

United States v. Turkette, 452 U.S. 576 (1981) 4,6,7

Wyandotte Co. v. United States, 389 U.S. 191 (1967) 19

Federal Statutes:

18 U.S.C. § 1961 et seq. 4

TRE, oc sccaceescsenesee 5, 9

i OS 5

18 US.C. § 1963 ..... Be aasessay 9

18 U.S.C. § 1964... passim

State Statutes:

N.Y. C.P.L. § 210.20 ..... 10

N.Y. C.P.L. § 210.25(2) a xa 11

N.Y. C.P.L. § 210.35 ....... Hence Beebe tases 10

N.Y. C.P.L. § 710.20 | | a, 11

Miscellaneous:

116 Cong. Rec. 35342 .. a 4

United States Attorneys’ Staff “Manual, Executive

Office of the United States Attorneys, RICO

Guidelines (Jan. 30, 1981) | 11

“yy

Interest of Amicus Curiae

The Attorney General of the State of New York submits

this amicus brief in support of the position advocated by

Petitioner Sedima, S.P.R.L. (‘‘Sedima’’) that this Court

adhere to the plain meaning and liberal construction man-

date of the federal Racketeer Influenced and Corrupt Or-

ganizations Act, 18 U.S.C. § 1961 et seq. (‘‘RICO’’). In

submitting this brief, New York State registers its concern

lest the scope and applicability of civil RICO, 18 U.S.C.

§ 1964(c), be unduly restricted. We adopt the reasoning

and conclusions of the amicus brief submitted by the

Attorney General of the State of Arizona and offer ad-

ditional grounds in support thereof.

New York State, like other states, struggles to provide

appropriate services to its citizens without imposing ex-

cessive tax burdens. Its financial resources are limited.

The State and its citizens can ill afford the loss of revenues

caused by the unlawful conduct RICO was designed to

redress.

The State and its citizens suffer serious injury when

funding for state programs is diverted, or costs thereunder

are inflated, by fraud, bid-rigging schemes, bribery, kick-

backs and other forms of official corruption. These losses

are multiplied by ancillary expenditures for, e.g., substan-

tial numbers of additional law enforcement personnel, fire-

fighters and emergency service employees and auditors, ac-

countants and analysts required to investigate and handle

incidents of arson, fraud and other forms of racketeering

activity. Civil RICO affords state and local governments

a valuable tool to recover these losses. Its treble damage

remedy also serves as a powerful deterrent by making the

expense of doing business through proscribed conduct

prohibitive.

»

a

The State also has an interest in seeing that its citizens

have the incentive and the means to seek redress when they

are injured by conduct that violates RICO. Private parties

injured by such conduct play an important role in the

administration of justice when they are able to supplement

the efforts of responsible officials by instituting appropriate

private actions. Their incentive to do so should not be

curtailed by decisions that vitiate their ability to recover

damages from racketeering activity.

RICO is uniformly recognized by state attorneys

general as a pre-eminent addition to existing legal sanc-

tions. State and local governments have made effective

use of civil RICO.’ The Second Circuit decision in Sedima,

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

with the opinion in Bankers Trust Co. v. Rhoades, 741

F.2d 511 (2d Cir. 1984), severely undercuts the ability of

state and local governments to use civil RICO as a means

of eliminating and deterring the pernicious consequences

of fraud, official corruption and other proscribed forms of

racketeering activity.

Statement

The Court is respectfully referred to the brief of Peti-

tioner Sedima for a statement of the factual background

and legal proceedings below.

The petition herein raises the following questions:

1) Is a criminal conviction requisite to a private civil

RICO action?

1. See, e.g., City of Milwaukee v. Hansen, Civ. No. 77-246 (E.D.

Wis. 1981) ; State of Maryland v. Buzz Berg Wrecking Co., 496 F.

Supp. 245 (D. Md. 1980).

° 3

2) Does RICO require *‘something more’’ than, ‘‘dif-

ferent’’ or ‘‘distinct’’ from injury caused by the

predicate acts and the unlawful engagement in an

enterprise?

In our view, issues of statutory construction are neces-

sarily implicated by the criminal conviction and distinct-

injury questions. For purposes of orderly presentation,

we will address that matter first and then respond to ihe

two questions presented.

Summary of Argument

RICO was intentionally drafted in broad terms and

with a mandate for liberal construction unique in federal

criminal statutes. The plain language of RICO applies to

a broad range of conduct, and is not susceptible to restric-

tive interpretations which avoid overinclusion yet preserve

its key purposes.

Criminal convictions are not a prerequisite to private

civil RICO suits and serve only an evidentiary function in

civil actions brought by the United States. Additionally,

by the plain meaning of RICO’s terms, treble damages are

recoverable for injury proximately caused by a confluence

of a pattern of racketeering activity and unlawful partici-

pation in an enterprise.

ARGUMENT

1. RICO Is Unambiguous and Must Be

Liberally Construed.

The Racketeer Influenced and Corrupt Organizations

Act, 18 U.S.C. § 1961 et seq. (‘‘RICO’’), was enacted in

1970 as Title IX of The Organized Crime Control Act. It

is apparently unique among federal criminal statutes in that

it contains an explicit directive that it be liberally construed.

Pub.L, 91-452, Section 904(a), 84 Stat. 947 (1970). Further,

it is accompanied by a congressional statement of findings

and purpose, 84 Stat. 923 (1970), which heralds the effec-

tiveness of RICO’s ‘‘enhanced sanctions and new weapons”’

in the fight against organized crime and the pervasiveness

of racketeering activity.

This Court has recognized the ‘‘significance of the state-

ment of findings and purpose[,] United States v. Turkette,

452 U.S. 576 [(1981)],”’ cited in Russello v. United States,

464 U.S. 16, 104 S.Ct. 296, 302 (1984), and that Congress

purposefully ‘‘utilized terms of breadth,’’ in drafting the

statute. Id. at 300. There are, indeed, no ‘‘textual pegs’’

on which to hang a restrictive reading. Haroco, Inc. v.

American National Bank & Trust Co. of Chicago, 747 F.2d

384, 392 (7th Cir. 1984), petition for cert. granted, 105 S.Ct.

902 (1985).*

Section 1964(c), commonly referred to as ‘‘eivil RICO,”’

provides:

Any person injured in his business or property by

reason of a violation of section 1962 of this chapter may

2. Sedima and Haroco are scheduled to be argued together before

this Court.

”

sue therefor in any appropriate United States district

court and shall recover threefold the damages he sus-

tains and the cost of the suit, including a reasonable at-

torney’s fee.’

(Emphasis added). Petitioner raised two principal ques-

tions: first, whether a criminal conviction for RICO pred-

3. Section 1961 defines the key elements under consideration

as follows:

(1) “racketeering activity” means .. . (B) any act which is

indictable under any of the following provisions of title 18.

United States Code: . .. section 1341 (relating to mail

| ee

(3) “person” includes any individual or entity capable of hold-

ing a legal or beneficial interest in property ;

(4) “enterprise” includes any individual, partnership, corpora-

tion, 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... .

Section 1962 provides in relevant part:

Prohibited activities.

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

income derived, directly or indirectly, from a pattern of racket-

eering 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 which is engaged in, or the activities

of which affect, interstate or foreign commerce. . . .

(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 con-

trol 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 activity or collection of unlawful debt.

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

of the provisions of subsection (a), (b) or (c) of this section.

a

6

icates, or for a RICO violation, is a prerequisite to a civil

RICO action and second, whether compensable RICO injury

must be ‘‘something more’’ than, ‘‘different’’ or ‘‘distinct”’

from injury caused solely by the predicate acts and the un-

lawful use of an enterprise.

The relevant principles of statutory construction cau-

tion that the language of the statute predominates:

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

its language. If the statutory language is unambig-

uous, in the absence of ‘a clearly expressed legislative

intent to the contrary, that language must ordinarily

be regarded as conclusive.’’’ United States v. Tur-

kette, 452 U.S. 576, 580, 101 S.Ct. 2524, 2527, 69 L.Ed.

2d 246 (1981), quoting from Consumer Product Safety

Comm’n v. GTE Sylvamia, Inc., 447 U.S. 102, 108, 100

S.Ct. 2051, 2056, 64 L.Ed.2d 766 (1980). See, also,

Dickerson v. New Banner Institute, Inc., —— U.S. .

—, 103 S.Ct. 986, 990, 74 L.Ed.2d 845; Lewis v.

United States, 445 U.S. 55, 60, 100 S.Ct. 915, 918, 63

L.Ed.2d 198 (1980).

Russello v. United States, 464 U.S. 16, 104 S.Ct. 296, 299

(1983). This Court has also noted that broad general lan-

guage of a statute is not ambiguous where congressional

objectives require broad terms. Diamond v. Chakrabarty,

447 U.S. 303 (1980).

The language of RICO is plain on its face; the issue is

not ambiguity but rather the extensiveness of the statute’s

applicability. We respectfully submit that proponents of

a restrictive reading do not find in the legislative history

the clear expression of contrary intent necessary to support

their position. They fail to distinguish between legislative

debate and legislative intent. See, Ernst & Ernst v. Hoch-

felder, 425 U.S. 185, 203 n.24 (1976).

=

i

Initially, the court below in Sedima did not point to any

actual statutory ambiguity,‘ but substituted a different

rationale to justify culling the legislative history, stating:

‘‘The law itself calls for reference to legislative intent since

the liberal construction clause states that the text should

be construed to ‘effectuate its remedial purpose.’’’ 741

F.2d at 488. Ironically, Sedima’s review accomplishes the

opposite result. In the absence of clearly expressed legis-

lative intent contrary to RICO’s plain meaning, Sedima

finds only ‘‘[t]he clanging silence of the legislative his-

tory,’’ id. at 492, to bolster its restrictive view, or relies on

specific positions advocated by individual legislators dur-

ing the course of lengthy congressional heerings. As Judge

Pratt stated in Furman v. Cirrito, 741 F.2d 524, 533 (2d

Cir. 1984), petition for cert. filed, October 1984:

The legislature having spoken, it is not our role to re-

assess the costs and benefits associated with the cre-

ation of a dramatically expansive, and perhaps insuf-

ficiently discriminate, tool for combatting organized

erime. United States v. Turkette, 452 U.S. at 586-87,

101 S.Ct. at 2530-31 (1981).

(quoting Schacht v. Brown, 711 F.2d 1343, 1361 (7th Cir.),

cert. denied, —— U.S. ——, 104 S.Ct. 508 (1984)). Partic-

ularly in light of the liberal construction mandate, this

Court cannot rely on legislative silence as evidence of Con-

gress’s intention to read civil RICO narrowly.’

4. In its discussion of the conviction requirement, Sedima sug-

gests that some of the statutory language is susceptible to a “plausible

alternative view.”” We submit that the court is incorrect and that

such “reading” of the statute is not the equivalent of statutory am-

biguity. See, discussion, infra, p. 9.

5. We submit that Sedima’s proposed principle of statutory con-

struction, i.e., “clanging legislative silence” in lieu of “clearly ex-

pressed legislative intent contrary” to a statute’s plain meaning, is a

(footnote continued on next page)

II. Civil RICO Does Not Require Prior

Criminal Conviction.

Sedima holds that prior criminal conviction is requisite

to civil RICO actions, a proposition which Haroco declined

to follow. We submit that this requirement does not, and

should not, exist.

First, the statutory language setting forth the civil rem-

edies nowhere requires criminal conviction as a precondi-

tion to a civil RICO action. Subsection 1964(a) provides

the district court with expanded equitable jurisdiction ; sub-

section 1964(b) authorizes United States civil suits and cer-

tain provisional remedies; and subsection 1964(c) author-

izes a private right of action, recovery of treble damages

and attorney’s fees. None of these subsections even refers

to criminal convictions. Most notably, 4 1964(c) explicitly

refers to injury caused by a RICO violation. Subsection

1964(d) does in fact make reference to criminal convictions,

there denominated ‘‘final judgment or decree,’’ not as a

requisite of a private civil suit, but as a method of proof in

civil cases brought by the United States. Section 1964(d)

provides:

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 offense in any subsequent civil proceeding

brought by the United States.

(footnote continued )

dangerous alternative. It gives courts carte blanche to rewrite leg-

islation whenever they deem the legislative history insufficiently ex-

tensive. This produces the absurd result of forcing Congress to

engage in lengthy debate in order to prevent judicial disregard for

the plain meaning of statutory terms. It produces the even more

absurd proposition that plain language does not control, silence does.

9

Contrary to Sedima’s contention that the legislature did

not consider the matter, Congress actually contemplated the

role of criminal convictions in civil RICO suits and spe-

cifically limited their use to an evidentiary function. In the

face of this explicit reference, we submit there is no ‘‘peg’’

upon which to hang a requirement that private civil actions

be based on criminal convictions.®

On this crucial issue, the Sedima court does not claim

there is statutory ambiguity but rather asserts its position

as a ‘‘plausible alternative view of the words ‘indictable’

and ‘chargeable’... .’’ (as used in the definitions of racket-

ering activities, 18 U.S.C. §1961(1)), 741 F.2d at 500.

(Emphasis added). This basis for substitution of judicial

interpretation for legislative intent is impermissible. As

Judge Cardamone suggested in his vigorous dissent, in

defining racketeering activity, Congress could simply have

‘‘used the phrase ‘for which an indictment or information

has been returned or filed’ ’’ and could likewise have said

‘¢ for which the defendant hes been criminally convicted.’ ’’

741 F.2d at 505. Simply put, ‘‘ ‘Congress did not write the

statute that way.’ ’’ Russello v. United States, 104 S.Ct. at

300, quoting United States v. Naftalin, 441 U.S. 768, 773-74

(1979).’

Sedima’s holding, if affirmed here, would have a seri-

ously deleterious effect on the criminal justice system.

6. Although Congressman Mikva observed during the course of

congressional hearings that “there need not be a conviction under

any of these laws for it to be racketeering,” 116 Cong. Rec. 35342

(1970), no member of Congress proposed an amendment which would

have required criminal conviction as a requisite to private civil

actions.

7. When Congress wanted to use the term “conviction,” it did.

See 18 U.S.C. § 1963(c) (“Upon conviction . . . under this section,

the court shall authorize the Attorney General to seize all property

or other interest .. . .”)

10

First, victims who had been injured by RICO violations

would have little recourse but to press prosecutors for con-

victions. Second, the conviction requirement would impose

extraordinary burdens on prosecutors precisely because

victims’ rights would depend on their decisions. For ex-

ample, convictions might be more difficult to obtain because

the complainant-victim’s credibility as a trial witness would

be subject to attack on the ground that his ability to recover

treble damages depended on conviction. Third, the victim

would be unfairly affected by a decision by the government

to terminate a prosecution in return for a grant of immu-

nity or where a defendant is willing to turn State’s evidence

and aid the prosecutor, perhaps on entirely unrelated mat-

ters. In such a case, a victim, however severe his injuries,

would remain uncompensated.

There are, moreover, many cases in which proceedings

end by virtue of a procedural defect or a failure of proof.

Such prosecutions might be reinstated, but the burden of

doing so would unduly tax, or upset the priorities of, lim-

ited prosecutorial resources already committed to other

matters. Typical examples include cases where

a) the evidence presented before the grand jury

was not legally sufficient. (N.Y. Crim. Proc. Law

§ 210.20).®

b) the grand jury proceedings were legally defec-

tive because a quorum was not present; less than twelve

jurors concurred in the findings of an indictment; de-

fendant was not accorded an opportunity to appear

before it; or because other reasons impaired the in-

tegrity thereof or prejudiced the defendant (N.Y.

Crim. Proce. Law § 210.35).

8. The Federal Rules of Criminal Procedure and most state laws

contain provisions which are identical or analogous to the New York

State Criminal Procedure Law provisions referred to in subpar-

agraphs a)-f).

11

c) some evidence was suppressed and witnesses

who might testify to facts relating to suppressed evi-

dence were outside the jurisdiction. (N.Y. Crim. Proc.

Law § 710.20).

d) a mistrial had been declared.

e) defendant’s statement was deemed ‘‘involun-

tary,’’ and the prosecution decided it could not, or for

some reason would not, prosecute.

f) the court lacked jurisdiction over the matter

(N.Y. Crim. Proc. Law § 210.25(2)) and it had to be

turned over to another prosecutor.

In all of these examples, persons injured by defendants’

conduct would be entirely blameless but would be unable to

alter the fact of non-conviction, irrespective of whether it

resulted from prosecutorial errors or appropriate prose-

cutorial decisions. The connection between conviction and

civil recovery should not sensibly hinge on such factors.°®

9. Sedima supports this conviction requirement on yet another

ground, citing the post-enactment adoption by the Department of

Justice of guidelines regulating the criminal use of RICO. See United

States Attorneys’ Staff Manual, Executive Office of the United States

Attorneys, RICO Guidelines (Jan. 30, 1981) (“Guidelines”). in-

sofar as Sedima contends that the conviction requirement would re-

flect those Guidelines, its reasoning is fallacious. The Justice De-

partment Guidelines apply only to federal prosecutors and only

concern the question whether they bring criminal RICO actions.

They do not limit prosecutions for the underlying predicate acts and

state prosecutors are not affected by the Guidelines.

The reference to the Guidelines raises another point. The ap-

parent purpose of the conviction requirement is to guarantee that

there are some operative guidelines for civil actions. Assuming

arguendo that prosecutorial discretion is an appropriate criterion for

limiting civil actions, the requirement of a conviction is overly re-

strictive. The Guidelines speak to the issue of initiating criminal

RICO suits, an arguably more relevant inquiry, because it focuses

on the proper exercise of prosecutorial discretion. A prosecution

may have been properly initiated within the Guidelines, but might not

have gone to conviction on innumerable grounds. See discussion,

pp. 10-11. Because actual convictions reflect only a small number of

cases in which prosecutorial discretion has been exercised in favor of

the institution of criminal proceedings, it is the wrong trigger for

civil actions.

12

The structure of RICO purposely provides alternative

civil and criminal remedies for RICO violations in recog-

nition of the differing but equally valuable results that each

may provide. In some instances, ruinous treble damage

recoveries aimed at making crime unprofitable may well be

more effective than incarceration in curtailing racketeering

activity. The linkage between conviction and civil recov-

ery advocated by Sedima eliminates e'l possibility of utiliz-

ing § 1964 monetary sanctions where criminal proceedings

end in anything less than conviction. This result cuts the

heart out of the statute.

There is no indication that Congress, in forging new and

powerful weapons in its attack on racketeering activity, in-

tended to make victim recovery dependent on the vagaries

of criminal proceedings. Weighed against the total ab-

sence of any congressional intent to require criminal con-

viction as an antecedent to civil RICO must be the problems

posed by such requirement, which simply put, are devas-

tating. In the absence of constitutional infirmity’® and of

clearly expressed legislative intent contrary to the plain

meaning of the statute, this Court should reject criminal

conviction as a requisite of civil actions.

10. In United States v. One Assortment of 89 Firearms, ——

US. , 104 S.Ct. 1099 (1984) this Court has sustained the consti-

tutionality of “impos[ing| both a criminal and civil sanction in respect

to the same act or omission,” Sedima, 741 F.2d at 507 (Cardamone,

J., dissenting), in the face of double jeopardy (and collateral estoppel)

claims after defendant was acquitted.

13

Ill. Civil RICO Does Not Require a “Distinct”

or “Different” Injury.

The other issue raised by Sedima concerns the nature

of compensable injury under civil RICO, 1.e., the import and

scope of the phrase ‘‘injured in his business or property by

reason of a violation of section 1962....’’ We submit that

through a process of sophisticated, albeit misdirected,

analysis, the Second Circuit has turned a simple statement

of proximate cause into an unsupportable limitation on

civil RICO recovery. In our view, § 1964(c) means just

what it says and requires that plaintiff show it was prox-

imately injured by a confluence of the predicate acts and

the other elements of a RICO violation. This proposed

formulation, articulated but not followed in Bankers Trust,

741 F.2d at 516, answers the key objection raised by peti-

tioners in Haroco without precluding recovery by primary,

1.e., direct, victims.

Historically, RICO treble damages were modeled on the

treble damage provisions of the antitrust laws, but Con-

gress did not incorporate the civil RICO provisions in those

laws because of the different purposes of the two acts and

the restrictive standing requirements of antitrust cases.

‘*{Those] concepts that were borrowed from the Clayton

Act, treble damages and injunctive relief, pertain to rem-

edies rather than what is necessary to establish a claim

under RICO.’’ Furman vy. Cirrito, 741 F.2d at 531." Con-

gress borrowed the concepts but not the structure nor, as

11. Cirrito was the third of the so-called “trilogy” of civil RICO

cases decided by the Second Circuit on successive days. It was pre-

ceded on July 24, 1984 by Sedima and on July 25, 1984 by Bankers

Trust.

14

Sedima concedes, 741 F.2d at 503, the restrictions of the an-

titrust civil remedies.

In interpreting the relevant language of § 1964(c), ‘‘in-

jured in his business or property by reason of a violation

of section 1962,’’ Sedima, Bankers Trust and Haroco posit

three different tests by which a RICO plaintiff must meas-

ure whether it can claim a ‘‘RICO’’ injury. Sedima and

Bankers Trust have enumerated tests which require ‘‘some-

thing more’’ than, ‘‘distinet’”’ or ‘‘different’’ from injury

from the predicate acts alone (the ‘‘distinet injury require-

ment’’), whereas Haroco argues for a test which only re-

quires injury from the predicate acts (‘‘predicate act

injury’’).

Sedima imposes

the obligation that the plaintiff show injury different

in kind from that occurring as a result of the predicate

acts themselves, or not simply caused by the predicate

acts, but also caused by an act which RICO was de-

signed to deter.

741 F.2d at 496. (Emphasis added). This formulation ap-

pears to be internally inconsistent by requiring injury dif-

ferent in kind from predicate act injury yet caused by

an act which RICO was designed to deter. It would elim-

inate recovery in a situation where, for example, a defend-

ant hired two brothers to cross state lines and set fire to

several buildings owned by a single individual, and where

the buildings were burned to the ground. In such a ease,

all the elements of a RICO violation are present,’ yet the

victim cannot recover treble damages because the injury is

12. See note 15, pp. 19-20.

15

the injury caused by the predicate acts. Congress cannot

have intended to prevent civil RICO recovery under those

facts.

Sedima further explains that the ‘pe of harm it be-

lieves the statute covers occurs only when ‘‘mobsters’’ do

business through racketeering activities:

RICO was not enacted merely because criminals break

laws, but because mobsters, either through the infiltra-

tion of legitimate enterprises or through the activities

of illegitimate enterprises, cause systemic harm to com-

petition and the market, and thereby injure investors

and competitors .... It is only when injury caused

by this kind of harm can be shown, therefore, that we

believe Congress intended that standing to sue civilly

should be granted.

741 F.2d at 495-96. We submit that the ‘‘mobster’’-type in-

jury is simply an attempt to revive the ‘‘organized crime’

requirement rejected by the Second, Fifth, Seventh and

Eighth Cireuit Courts.”

Sedima’s formulation fails for additional reasons, which

are more easily described in conjunction with an analysis

of the Bankers Trust decision. In Bankers Trust, plaintiff

loaned money to defendants, who then engaged in a series

of bankruptcy frauds and frivolous suits as a result of

which Bankers was not repaid. In describing RICO injury,

the Second Circuit stated:

A civil RICO complaint must allege ‘‘a distinct RICO

injury’’ by which we mean that it must allege a pro-

13. 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.

1982) ; Bennett v. Berg, 685 F.2d 1053 (8th Cir. 1981), cert. denied

sub nom., Prudential Ins. Co. v. Bennett, 104 S.Ct. 527 (1983).

16

prietary injury caused by a RICO violation, not just

one caused by some of the essential elements of a RICO

violation.

741 F.2d at 516. The court’s analysis began with an articu-

lation of three elements: ‘‘injury to the plaintiff, causation

of that injury and the conduct that caused the injury.’’ Id.

at 515. Noting that the plaintiff’s monetary loss consti-

tuted ‘‘ ‘injur[y] in [its] business or property,’ ... of the

type contemplated by § 1964(c),’’ 7d. at 516, and that ‘‘de-

fendant’s violation’’ had caused plaintiff’s injury within

contemplation of the phrase ‘‘by reason of,’’ id., Bankers

Trust then opined that ‘‘the difficulty lies in the nature of

the conduct that caused Bankers’s injury.’’ Jd. Address-

ing this question, the court stated:

Section 1964(c) does not provide a private right of

recovery unless the conduct that caused the injury was

‘*a violation of section 1962.’’ We must therefore ask

what conduct violates that section. Although, as de-

tailed above, 4 1962 has a number of facets, it is clear

that it does not itself prohibit the predicate acts that

constitute racketeering activity. Commission of two

or more predicate acts is but an element of a § 1962

violation. Indeed, § 1962 does not even prohibit a pat-

tern of racketeering activity, without more. Rather,

there is a violation of 4 1962 only if there are present

both (1) the pattern of racketeering activity, and (2)

the use of that pattern to invest in, control, or conduct,

a RICO enterprise. It is this confluence that consti-

tutes the violation and, therefore, the confluence that

must cause the proprietary injury.

The import of this analysis is that if a complaint

alleges a proprietary injury that is caused by the de-

fendant’s predicate acts, rather than by its use of a

pattern of racketeering activity in connection with a

17

RICO enterprise, the injury cannot be said to have

been caused by ‘‘a violation of Section 1962.’’ See

Sedima, S.P.R.L. v. Imrex Co., 741 F.2d 482 at 494 (2d

Cir. 1984).... [A] civil RICO plaintiff must allege

‘a distinct RICO injury,’’ by which we mean that it

must allege a proprietary injury caused by a RICO

violation not just one caused by some of the essential

elements of a RICO violation.

Id. (Emphasis added, footnotes omitted) Up to this point,

the court had simply articulated RICO injury, not injury

different from that caused by the predicate acts and unlaw-

ful involvement in an enterprise. But the court then went

astray, building on Sedima’s analysis, in articulating a dis-

tinction without a difference:

Bankers argues that it is conceptually impossible

to make any distinction between injury flowing from

the predicate acts and injury flowing from a pattern of

racketeering activity because a plaintiff injured by the

predicate acts is ipso facto injured by the pattern. We

disagree. If a plaintiff’s injury is caused by the pred-

icate acts themselves, he is injured regardless of

whether or not there is a pattern; hence he cannot be

said to be injured by the pattern, and the pattern can-

not be the but-for cause of the injury.

741 F.2d at 517. (Emphasis in original).

This argument builds into the law niceties surely no leg-

islator intended, and it is unsound. There is simply no re-

quirement in the statute that injury caused by the pattern

exclude or differ from injury caused by the predicate acts.

The rationale for the requirement of a pattern was simply

that repeated racketeering activity’* as opposed to a single

14. Except for collection of an unlawful debt, which requires a

single occurrence for RICO culpability.

18

instance thereof, alone suffices for imposition of concededly

strong RICO remedies. The pattern element should not be

used to prevent recovery where injury from the predicate

acts and injury from the pattern coalesce, so long as the

other elements of a RICO violation are present.

Moreover, this argument is reductio ad absurdum. The

plain language of the statute requires a showing of injury

by reason of the § 1962 violation and not merely by reason

of the pattern of racketeering activity. However, following

Bankers Trust’s logic, if plaintiff is injured by the pattern,

he is ‘‘injured regardless of whether or not there is a

[< 1962 violation] hence he cannot be injured by the [4 1962

violation] and the [§ 1962 violation] cannot be the but-for

cause of the injury.’’ 741 F.2d at 517. This formulation

of ‘‘but-for’’ causation theory produces the absurd result

of removing from the civil protection of the statute those

very persons whose injuries the law was enacted to prevent.

While it is conceptually possible, in some factual cir-

cumstances, to distinguish injury from the predicate acts

and injury from the pattern, it is objectionable to do so

where the plain meaning of the statute does not support it

and where it eliminates redress for injury caused by RICO

violations. The types of injury Bankers Trust suggests as

injury contemplated by § 1964(c) illustrate the folly of this

distinction.

Having adopted Sedima’s but-for formulation, Bankers

Trust then sets forth examples which, in fact, depart from

the rationale of its own rule. It proposes ‘‘a number of

circumstances in which injury could be attributable to a

pattern but not to the individual predicate acts.’’ Id. at

19

517. (Emphasis added). The first example involved can-

cellation of a fire insurance policy after repeated arsons and

subsequent uncompensated accidental fire damage. The

second example involved predicate acts that resv ‘ed in in-

terruption of sales, causing plcintiff to b: row additional

funds or to take on an unwanted business partner. either

of the underscored events reflects injury attributable only

to the pattern and not ‘‘to the individual predicate acts.’’

The additional facts reflect instead injury caused by for-

tuitous events over which defendant had no control or oc-

easioned by the vulnerable condition of the plaintiff. Had

the fortuitous event never occurred, or had plaintiff been

financially sound enough to continue without taking loans

or adding partners, defendant would have escaped treble

damage liability. This analysis precludes suits by primary

victims, even conceding that a RICO violation has occurred,

and prevents recovery for the very type of injury ‘‘ ‘the

statute was intended to forestall,’’’ Brunswick Corp. v.

Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 487-88 (1977) quot-

ing Wyandotte Co. v. United States, 389 U.S. 191, 202

(1967), absent other circumstances which do not themselves

constitute RICO elements.

We assert that the correct interpretation of the ‘‘by

reason of’’ language requires simply that (a) plaintiff plead

and prove a RICO violation and (b) plaintiff plead and

prove injury proximately caused by a confluence of the ele-

ments of a RICO violation, not merely by reason of the

predicate acts.” This reading sufficiently answers the ob-

15. In this regard, Moss v. Morgan Stanley, Inc., 719 F.2d at 17,

provides analytical guidance, stating :

To state a claim for damages under RICO a plaintiff has two

pleadirg burdens. First, he must allege that the defendant has

violated the substantive RICO statute, 18 U.S.C. § 1962 (1976),

commonly known as “criminal RICO.” In doing so, he must

allege the existence of seven constituent elements: (1) that the

(footnote continued on next page)

20

jection that injury must be caused by violation of § 1962 and

not merely by the predicate acts set out in § 1961,** without

thereby going beyond the purposes of RICO to require

‘‘something more,’’ ‘‘different’’ or ‘‘distinct.’’ This last

requirement, often necessarily dependent on some for-

tuitous or unforeseeable event or circumstance, counter-

mands established notions of proximate cause, and, iron-

ically renders compensable some injuries which ordinary

tort law would deem too remote by virtue of their foresee-

ability.

Additionally, it does not resolve the core complaint

raised by Sedima—that taking RICO at face value results

in unjustifiable federalization of ‘‘garden-variety’’ fraud

and other state claims. Nor does it provide a line of de-

(footnote continued )

defendant (2) through the commission of two or more acts (3)

constituting a “pattern” (+4) of “racketeering activity” (5) di-

rectly or indirectly invests in, or maintains an interest in, or par-

ticipates in (6) an “enterprise” (7) the activities of which affect

interstate or foreign commerce. 18 U.S.C. § 1962(a)-(c)

(1976). Plaintiff must allege adequately defendant’s violation

of section 1962 before turning to the second burden—i.e., invok-

ing RICO’s civil remedies of treble damages, attorneys fees and

costs. See Bays v. Hunter Savings Association, 539 F.Supp.

1020, 1023 (S.D. Ohio 1982). To satisfy this latter burden,

plaintiff must allege that he was “injured in his business or prop-

erty by reason of a violation of section 1962.” 18 U.S.C. § 1964

(c) (1976) (emphasis added).

Thus, a RICO plaintiff must first allege, and ultimately prove, all

seven elements of a § 1962 violation, i.e., must sufficiently prove a

claim under RICO. Pilaintiff’s next burden is to prove injury “by

reason of” ‘hat violation.

Ob-vivusly, plaintiff may fail to establish any of those elements

aud never reach the issue of injury. For example, in fraud cases,

plaintiff may be unable to prove the criminal intent necessary for

suits under the mail or wire fraud statutes, 18 U.S.C. §§ 1341 and

1343, thus failing to prove racketeering activity. In Moss, plain-

tiffs failed to prove that the objectionable conduct relating to the un-

derlying securities transactions was fraudulent. Jd. at 16.

16. In this regard, we submit that Haroco does not go far ——

because it does not require injury from all of the elements of a RICO

violation, as set out in Moss.

>

21

marcation which is any more meaningful or any more

capable of discriminating between ‘‘garden-variety’’ and

other forms of fraud than the statute itself. Rather, the

distinct injury rule virtually guarantees that plaintiffs will

drift even further from the purpose of RICO and engage

in ever more imaginative pleading in the search for ‘‘some-

thing more,”’ ‘‘different,’’ or ‘‘distinet’’ to qualify for civil

RICO recovery.

Moreover, as a practical matter, the distinct-injury

requisite raises additional issues regarding a civil RICO

statute of limitations. By requiring circumstances or

events other than injury from the predicate acts, the dis-

tinct-injury requirement eliminates any reasoned approach

to statute of limitations concerns, already an area rife with

controversy," and raises the spectre that any RICO offense

may be turned into a continuing violation. Were the

Bankers Trust examples followed, defendants would for-

ever be subject to RICO claims based on fortuitous, often

innocuou_ events which they had not set in motion and over

which they exercised no control.

In sum, the distinct-injury requisite creates far more

problems than it purports to resolve while eviscerating the

salutary purposes for which the statute was enacted. It

supplants the plain and accepted meaning of ‘‘by reason

of’’ as a statement of causality, destroys rational expecta-

tions of recovery, and requires the subsequent occurrence of

17. Compare, e.g., Seawell vy. Miller Brewing Co., 576 F. Supp.

424 (M.D.N.C. 1981) (applying state three-year limitations period

for violation based upon a liability created by statute) with, e.g., Um-

stead v. Durham Hosiery Mills, Inc., 578 F. Supp. 342 (M.D.N.C.

1984) (RICO action by dissenting shareholders » red mail fraud,

wire fraud and fraud in the sale of securities governed by the two-year

securities fraud limitation period or the three-year period for fraud).

22

unforeseeable events during some open-ended period before

primary injury can be redressed—all without the merest

shred of statutory or legislative support. This Court

should decline to endorse a reading of this statute which so

evidently creates such untoward results.

Conclusion

For the foregoing reasons, it is respectfully submitted

that this Court should grant the relief requested in the pe-

tition of Sedima, 8.P.R.L. and reverse the ruling of the

court 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 Be.carp

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, av {1 473 (relating to counterfeiting), section 659

(relating to theft from in state 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 1955 (relating to the prohibition of il-

2n

legal gambling businesses), sections 2314 and 2315 (relating

to interstate transportation of stolen property), sections

2341-2546 (relating to trafficking in contrahand 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

3a

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-

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

ing activity of 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-

ta

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 shall 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

da

subject to forfeiture under this section, as it shall deem

proper.

(c) 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 deem

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 provisions 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,

making 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,

6u

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.