Amicus Curiae Brief — Hj Inc. v. Northwestern Bell Telephone Co.
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a
No. 87-1252
IN THE
Supreme Court of the United
October Term, 1987
H.J., INC., a Minnesota corporation,
KIRK DAHL, LARRY KRUGEN and MARY KRUGEN,
individually and d/b/a PHOTO IMAGES, SUSAN DAVIS,
ROBERT NEAL, ISAAC F. WARD,
RICHARD L. ANDERSON, THOMAS J. MOTT,
and all others similarly situated,
Petitioners,
v.
NORTHWESTERN BELL TELEPHONE COMPANY,
a subsidiary of U.S. WEST, A. B. C.
individually and D. E. F. as corporations,
and other unnamed Co-conspirators,
Respondents.
On Writ of Certiorari
to the United States Court of Appeals
for the Eighth Circuit
BRIEF OF AMICUS CURILAE
TRIAL LAWYERS FOR PUBLIC JUSTICE
IN SUPPORT OF PETITIONERS
Robert M. Hausman
(Counsel of Record)
\rthur H. Bryant
Trial Lawyers for Public Justice
2000 P Street. NW. Surte 611
Washington, DC 20036
(202) 463-8600
\trornevs for Awncus C wre
al Le Ts Pub ust
Nay 14 145A Ir ] | mveT for Ih } j nh’
c ASILLAS PRESS. TN 1717 K STREET NW WASTING. |
in _— i - = eo
ee ee eS erm eer ee
(i)
TABLE OF CONTENTS
TABLE OF AUTHORITIES ..
INTEREST OF AMICUS CURIAE .......
SUMMARY OF ARGUMENT .......................
1. CONGRESS DELIBERATELY CRAFTED RICO AS A
BROAD REMEDY FOR VICTIMS OF CRIME ......
A. ee een eee Oe Nap aae eae
“Effectuate Its Remedial Purposes ice’
C. RICO Was Intended to Encourage Civil Litigants to
Enforce the Laws on Which RICO Is Predicated ....
D. Narrow Interpretations of RICO Have Repeatedly Been
Adopted by Lower Courts and Rejected on Appeal
E. The Legislative History of RICO Does Not Support a
Narrow Interpretation of Any of Its Provisions
F. The Text of RICO Does Not Support a Narrow
Interpretation of the Pattern Requirement
>}. Sedima’s Footnote 14 Does Not Support the Eighth
Coca» Nano Iterpretatn ofthe Pater
Requirement
ll. A NARROW CONSTRUCTION OF RICO’S PATTERN
REQUIREMENT WOULD DEPRIVE MANY CRIME
VICTIMS OF A POWERFUL REMEDY
CONCLUSION
ll
16
16
TABLE OF AUTHORITIES
Page
United States Supreme Court Cases:
Aaron v. SEC, 446 U.S. GBO (1980) - | ©. 6 oc cc w nee 14
Agency Holding Corp. v. Malley-Duff & Associates, Inc..
S69 BS Ca. SUBD SUBS GUD... cccccccccccesssseeueunneeen 7
American C. & L. Co. 2. United States.
S55R 0D. S50 GREED .. ccccccececceceensnsee sonia 8
Basic v. Levinson, 108 S. Ct. 978 (198B) ... «oo cen 2
Bell v. United States, 462 U.S. 356 (1983) ........ © 6 6 oo nee s
Blue Chip Stamps v. Manor Drug Stores.
Gan WD. GD GED... ccocccccecesecessnuneue ‘onda ae
Biwe Seid of Virgama «- McCready.
GBB UB. GHB, GED GED noc ccccccccceccesueeeueeeeeel 7
C.S. lannelhi o. United States.
420 U.S. 770, 789, 95 S.Ct. 1284, 1295,
GD 0.0, BB GRD GED cccccccccsceccossoseeunt reer. 17
Caminetti ». United States, 242 U.S. 470 (1917) ................ 9
Consumer Product Safety Commussion t patie Inc..
O60 WB. BER GERD .....ccccccoccececesceeeennneneeeee 11
Daamond v. Chakrabarty, 447 U.S. 303 (1980) ................ 17
Duriand v. United States, 161 U.S. 306, 314 (1896) .............5
Hoover «. Rome, 466 U.S. 558 (1984) 3
S v. Phinpathye, 464 U.S. 183 (1984) uN
(ili)
Page
Klor’s, Inc. v. Broadway-Hale Stores, Inc.,
EEE EE 6
Leh v. General Petroleum Corp., 382 U.S. 54, 59 (1965) ......... 7
Minnesota Mining & Manufactunng Co. v. New Jersey
Wood Finishing Co., 381 U.S. 311, 318 (1965) ............... 7
Patsy v. Board of Regents of State of Florida,
Ne eas i cc ccccccccccsesccccce. 26
Pernn v. United States, 444 U.S. 37 (1979) .........0 0.00.0... 8
Reiter v. Sonotone Corp., 442 U.S. 330, 344 (1979) ............. 7
Russello v. United States, 464 U.S. 16 (1983) ............ 3, 5, 16
SEC v. National Securities, Inc., 393 U.S. 453 (1969) .......... 14
Sedima, S.P.R.L. v. Imrex Co.,
473 U.S. 479, 497 (1985) ................... 3-7, 10, 16-17, 22
EY WS ME UOUD 2.5 ccc cece ccc cccecces 17
United States v. Rodgers, 446 U.S. 475 (1984) ................ 27
United States v. Culbert, 435 U.S. 371 (1978) .................. 8
United States v. Fabrizio, 385 U.S. 263 (1966) ................. 4
United States v. Ryan, 285 U.S. 167 (1931) ................... 18
United States v. Topco Associates,
IEEE 6
United States v. Turkette, 452 U.S. 576 (1981) ......... 3-4, 16, 18
(iv)
Other Federal Cases: Page
Alcorn County, Miss. v. U.S. Interstate Supplies,
731 F.2d 1160, 1169 (Sth Cir. 1984) ..... 2.0... cee e eee 5, 7-
Barr v. WUI/TAS, Inc.,
66 F.R.D. 109, 113 (S.D.N.Y. 1975) ... 2.060 oc ec ene
Bennett v. Berg, 685 F.2d 1053, 1058-59 (8th Cir. 1982),
aff'd on rehearing en banc, 710 F.2d 1361, cert.
denied, 464 U.S. 1008 (1983) ..... 2.66.6 ec eee 10
Dan River, Inc. v. Icahn, 701 F.2d 278 (4th Cir. 1983) ......... 14
FLIP Mortgage Co. v. McElhane,
841 F.2d 531, 538 (4th Cir. 1988) ... 2... cece eee nnes 15
Garbade v. Great Divide Mining & Milling Corp.,
831 F.2d 212 (10th Cir. 1987) .... 2... 6. 15
Haroco, Inc. v. American Nat'l Bank & Trust Co.,
747 F.2d 384, 399 n.16 (7th Cir. 1984), aff'd on
other grounds, 473 U.S. 606 (1985) ... 2.6.66.
HMK Corp. v. Walsey, F.2d 1071 (4th Cir. 1987),
cert. denied, 107 S. Ct. 706 (1988) ... 6.666
Landmark Savings and Loan v. Rhoades,
527 F. Supp. 206 (E.D. Mich. 1981) ....... 0.6... e eee eens
McCarthy v. Pacific Loan, Inc.,
600 F.Supp. 137 (D. Haw. 1984) .... 0.2... cece een ees 25
Morgan v. Bank of Waukegan,
804 F.2d 970 (7th Cir. 1986) ©... 66 eee nes
North Barrington Development, Inc. v. Fanslow,
547 F. Supp. 207 (N.D. Ill. 1980) ..... 2.0.66 eee eee
Owl Construction Co. v. Ronald Adams Contractor, Inc.,
727 F.2d 540 (Sth Cir. 1984) cert. demed,
cng epee csebbé reeds paneuszedsas
(v)
Page
Schacht v. Brown, 711 F.2d 1343, 1356-58 (7th Cir. 1983),
cert. demed 464 U.S. 1002 (1983) .......................... 10
Sun Savings & Loan Ass'n v. Dierdoff,
ee ee ee ee nee 16
United States v. Altomare,
a a i NO I nn coccvcescccuesececéneie 4
United States v. Cappetto, 502 F.2d 1351, 1357 (7th Cir.
1974), cert. denied, 420 U.S. 925 (1975) ..................... 5
United States v. Grande, 620 F.2d 1026 (4th Cir.).
cert. denied, 449 U.S. 919 (1980) .......................... 4
United States v. Keresty, 465 F.2d 36, 43 (3d Cir.),
GUND, GEM, GD Ges Ge GD oo oc ccccccccccccccccccccces 8
United States v. Koehler, 544 F.2d 1326 (Sth Cir. 1977) ......... x
United States v. Local 560, International Brotherhood
of Teamsters, 581 F. Supp. 279 (D.N.J. 1984),
aff'd, 780 F.2d 267 (3rd Cir. 1985), cert. denied,
i. & 4 ££ area eS ac Re 4
United States v. Long, 651 F.2d 239, 241 (4th Cir.),
cert. demed, 454 U.S. 896 (1981) ............... Tee Ee 5
United States v. Schell, 692 F.2d 672 (10th Cir. 1982) ........... ic)
Umited States v. Schwanke, 598 F.2d 575 (10th Cir 1979) ........ 8
Umited States v. Walsh, 544 F.2d 156, 159 (4th Cir. 1976),
cert. denied, 419 U.S. 1093 (1977) .................... eer 8
State Cases:
In Re Rouse, 221 N.Y. 81, 91, 116 N.E. 782. 785 (1917) eo
(vi)
Federal Statutes and Regulations: Page
I Ts sew niuenoecnseusre 14
a i4
i 14
a a all a ln .
te RES Ts EGA ELI SER POD IE mo a 8
EE ER APPS OR Le SORE HESS .
EEE SEE SOTERA ERT ST .
2) 1S ca ccudemaeenninnenaas -
SEE OPE SER DOOTS MRCP) -
cs cap pauaweuiduns 8
18 U.S.C. § 1961(1)(D) (1982)... 0c cece eee 14
18 U.S.C. § 1961-1968 (1982) 0... 3
IT Lo addy dunwaunaneseunses 1
Te csuakehaguudennusedocawenss 9
LEE LL PONE TDP TSO TET 9
en vercauecuuasiuunssahnens 3, 17
SERRE NRL ES By AAAie HS Pen Se 9
I ee ern i 7 ee 18
PM v<- cece citdéceskebdbenouesebeense<4Nenesennaene 10
a a ae 15
EEE ECR A ON RE ROE PSS 5
(vii)
Securities Act of 1933 § 17(aX(1) .... 00...
Securities Act of 1933 § 17(aX(2) .. 2.0... 00...
Securities Act of 1933 § 17(aX(3) .. 2.0... 000... cece eee
Securities Act of 1933 § 24 000.000... ccc c cece cece.
Securities and Exchange Act of 1934 § 10(b) ............
Securities and Exchange Act of 1934 § 28 ...............
Securities and Exchange Act of 1934 § 32 ...............
Federal Legislative History:
Se HP ED ni csdeccccssccccscccceses
115 Cong. Rec. 9,568, 9,571 (1969) .... 6.06...
BED Comp. Gee. GRUP GS COGEeD 2... nce cceccccccccces
Se IED vv denccccccovecscessessecic
ED cw ecucckcceccccusesvundexeoas
See RE, WP OE ohn cnt ccnnticccucritvevoncess
116 Cong. Rec. 35,205 (1970) ................. sagewies
ee Sy Cy SED GED on ccc ce Desesescdesesccecs
Pen eee
116 Cong. Rec. 36,296 (1970) .... 0.6... hess
Arson-for-Hire: Hearings before the Perm. Subcomm.
on Investigations of the Senate Comm. on Government
Affaars, 95th Cong., 2d Sess. 7 (1978) ..............
(viii)
H.R. Rep. No. 1549, 91st Cong., Ist Sess. 81 (1970) ........... 5
H.R. Rep. No. 1549, 91st Cong., 2d Sess.
BED GRMN cccccccccccscccscntecsccccccccccccccccccecs 15
Heanngs on the Departments of Commerce, Justice,
and State, The Judsciary and Related Agencies:
Appropnatons for 1983, Before a Subcomm. of the
Comm. on Appropnations, House of Representatives,
97th Cong., 2nd Sess. 1078 (1982) .............- 6. ce ences 20
House Comm. on Government Operations, Federal Response
to Criminal Misconduct and Insider Abuse im the
Nation's Financial Institutions, H.R. Rep. No. 1137,
98th Cong. 2d Sess. 5 (1984) ..... 2.0 ence 21
Measures Relating to Orgamzed Crnme: Heanngs Before
the Subcomm. on the Judiciary, 91st Cong., ist Sess.
ns cnc caebbsentsheses beet desececece 13
Orgamized Crime Control: Hearings Before Subcomm. No. 5,
House Comm. on Judiciary, 91st Cong., 2d Sess.
I i le eee dedieewe bes 11, 15
Oversight on Civil RICO Suits: Hearings Before the
Senate Committee on the Judiciary, 99th Cong..
ce Se | St a ne 9, 25
S. 1623, Gist Cong., Ist Sess. (1969)... 2... 13
S. 2048, 90th Cong., Ist Sess. (1967)... 066 13
S. Rep. No. 617, 91st Cong., Ist Sess. 1, 21 (1969) ........... 14
S. Rep. No. 495, 97th Cong., 2d Sess. 10 (1983) .............. 24
S. Rep. No. 617, Gist Cong., Ist Sss. 81 (1969) ............... 7
Senate Comm. on Governmental Affairs, Commodity
Investment Fraud, S. Rep. No. 495, 97th Cong..
0 ee ree ek ee
(ix)
Page
Watertront Corruption: Hearings Betore the Perm.
Subcomm. on Investigations, Comm. on Governmental
Affairs, 97th Cong., Ist Sess. 18 (1981) .................... 23
Books and Other Sources:
2 Civil RICO Report No. 34 at 3 (Feb. 4, 1987) ........._..... 25
2 Organized Crime and Law Enforcement: Final Report
by and Model Acts Prepared For the ABA Commission
on Organized Crime 57-91 and 157-86 (1953) ............... ll
Annual Report of the Director of the Admumistrative
Office of the U.S. Courts (1985) .......... 2.0... 25
Annual Report of the U.S. Attorney General 42 (1985) ....___.. 19
Blakey & Cessar, Equitable Relief Under Civil RICO.
62 Notre Dame L. Rev. 526 (1987) ..__.. . 3, 5, 7, 10, 16, 25
Blake, & Gettings, Racketeer Influenced and Corrupt
Crgamzahons (RICO): Basw Concepts—Crminal
and Ciwil Remedies, 53 TEMPLE L. Q. 1009 (1980) _. 3. 4. 11. 13
Blakey, Editorial, 7 RICO Law REPTR No. 11 (lan. 1988) «sss. 7
Blakey, The RICO Ciwil Fraud Action in Context.
68 Notre Dame L. Rev 237 (1982) ............... 3-5, 11-14
Block, Nold & Sidale, The eierrent Effect of Antitrust
Enforcement, 89 J. Pow. ECON 429, 440 (1981... sssisi‘(aa 24
Bus WK.. Feb. 24, 1986, at 98. col 1... is 22
%§ 8 +3 Fee | 21
Cord RICO: Prnor Criminal Conriction and Burden
of Proof, 6) Norre Dame L. REV 560 (1985) 5
Edethertz. The Nature, Impact. and Prosecution of
Whete Collar Crime 6-7 (1970) 19. 23
(x) (xi)
Page Page
General Accounting Office, Federal Agencies Can and | Posner, Economw Analysis of Law, 462, 143, 272, 235
Should Do More to Combat Fraud in Government I a a eas
Programs i (197B) ......- <6 oer eee een w ewes 22
President's Commission on Law Enforcement and
General Accounting Office, Fraud in Government Administration of Justice: Challenge of Crime in a Free
Programs: How Extensive Is It?—How Can tt | Society: Fimal Report 208 (1967) ©. 00606 vere
be Controlled? (1GOD) .. o.oo ccc cece eee nnn nenenenes 22
President's Comm. on Law Enforcement & Admin. of
General Accounting Office, Statistics on SEC's Justice, Task Force Report: Crime and Its Impact—
Enforcement Program, March 25, 1985 ...-.-. 6-0-0 23 Pl IED 01. bn pcb pensnndesescédecadosccccoees
Goldsmith & Keith, Civil RICO Abuse: The Reconsideration of Pattern in Civil RICO Offenses,
Allegations in Context, 1986 B.Y.U. L.Rev. 62 Notre Dame L. Rev. 83, 93-96 (1986) ................
GE, BOB CODE 2... ccc reer cc ccccccccccccrescnceseseeores 25
age Ge is Geass oo ee
How Lawless Are Big Companies’, FORTUNE. Financial Reporting 4 (1987) ..................
Dec. 1, 1000 af S7 .. 1.66 een eee cece cece eee Jeccbveususes 22
Report of the Proceedings of the Judicial Conference of
Jackson, The Struggle for Judicial Supremacy the United Staes, Sept. 21-22, 183, at Hee,
152 (Vintage ed. 1941) 0. enn renee 23
Sullivan, Breaking up the Treble Play: Attacks on the
Kaysen & Turner, Amtifrust Policy 17 (1959)....---- 60-00 a Ce ae Sees Sian, Bs Saree
HALL L. Rev. 17, 19 (1983) . ee ee a
N.Y. Times, Jan. 22, 1987, at 45, col. 1 ocr ree 21
. 8 Y Fl
N.Y. Times, July 6, 1980, at 27, col. D6. n nee 20
U.S. Department of Justice, Source Book of Crominal
N.Y. Times, May 17, 1982, at 11, col. 2... - 6-6 - ener ree 22 Justice Statistics 431 (V9BL) cece
NEWSWEEK. May 26, 1986, at 44 © cerns 24 United States Chamber of Commerce, White Collar
Crme: Evervone’s Problem, Everyone's Loss (1974) _.
Note. Civil RICO: The Temptation and Impropnety of
Judicial Restriction, 9% Harv. L. Kev 1101 (1982) .. .. Wait St J., Feb. 17, 1987, at 27, col. 1...
Note. Ciel RICO: Pror Criminal Conmchon and Was Post. May 7, 1988, at Dil, col. 5
Burden of Proof, 6 Notre Dame L. Rev 560 (1985) 5
Note, Congress Responds to Sedima: Is There a Contract
Out on Civil RICO, 19 Lov. L.A. L. Rev. (1986) 27 |
Note. Treble Damages Under RICO: Charactenzation
and Computation, 61 Nove Dame L. Rey 526 (1986) s
a
IN THE
Supreme Court of the United States
OCTOBER TERM, 1987
No. 87-1252
H.J., INC., a Minnesota corporation,
KIRK DAHL, LARRY KRUGEN and MARY KRUGEN,
individually and d/b/a PHOTO IMAGES,
SUSAN DAVIS, ROBERT NEAL, ISAAC F. WARD,
RICHARD L. ANDERSON, THOMAS J. MOTT,
and all others similarly situated,
Petitioners,
Vv.
NORTHWESTERN BELL TELEPHONE COMPANY,
a subsidiary of U.S. WEST, A. B. C.
individually.and 1). E. F. as corporations,
and other unnamed Co-conspirators,
Respondents.
On Writ of Certiorari
to the United States Court of Appeals
for the Eighth Circuit
BRIEF OF AMICUS CURIAE
TRIAL LAWYERS FOR PUBLIC JUSTICE
IN SUPPORT OF PETITIONERS
INTEREST OF AMICUS CURIAE
This brief is submitted on behalf of Trial Lawyers for Public
justice, P.C. (TLPJ).* TLPJ is a public interest law firm
*The assistance in the preparation of this brief of law students
Joseph J. Karaszewski (Notre Dame 8) and Thomas J. Antonin
‘Notre Dame '88) is hereby acknowledged
devoted to representing victims of corporate or government
abuse in cases that have the potential for advancing the state
of the law, for educating the public, for modifying corporate
or government behavior, or for improving the access of vic-
the elderly, have to obtain adequate redress for being cheated
in the many criminal ways that the unscrupulous use. TLP]
wants to be sure that the access to justice and to compensa-
tion that Congress provided in the civil remedy provision of
RICO, 18U.S.C. § 1964, is neither narrowed nor foreclosed,
but rather is nurtured and interpreted in keeping with its
remedial purpose.
SUMMARY OF ARGUMENT
In 1970, Congress enacted the Organized Crime Control
Act. Title IX of which is known as “RICO.” Congress
deliberately ¢rafted a broad statute in an attempt to deal with
the pervasive problem of organized cnme. Congress, however,
consciously did not limit RICO to organized crime figures: it
made it applicable to all who violate its provisions. In enacting
RICO, Congress was concerned with a variety of forms of
3
criminal conduct, including fraud. Nothing that has happened
since undermines Congress’ 1970 judgment. Fraud costs the
nation bilhons of dollars annually. It victrmuzes small businesses.
savers, investors, homeowners, the elderly, consumers, and
federal, state, and local governments. Attempts to narrow
RICO because of a fear of a litigation explosion are misplaced
factually and are constitutionally inappropriate. This Court
ought to adopt a straightforward definition of ‘‘pattern’’ that
reflects RICO’s text, legislative history and policy. It should
be at least as broad as the definition in 18 U.S.C. § 3575¢e),
which this Court noted favorably in Sedima's footnote 14.
ARGUMENT
i. CONGRESS DELIBERATELY CRAFTED RICO
AS A BROAD REMEDY FOR VICTIMS OF CRIME
A. RICO Was Intended to Apply to Both
Legitimate and Illegitimate Enterprises.
In 1970, Congress enacted the Organized Crnme Control
Act, Title IX of which is known as RICO.' The “‘legisiative
history [of RICO} clearly demonstrates that . . . [it] was in-
tended to provide new weapons of unprecedented scope for
an assault upon organized crime and its economic roots.”
Russello v. U ited States, 464 U.S. 16, 26 (1983). ’’[T}he ma-
jor purpose of Title IX . . . [was] to address the infiltration
of legitimate business by organized crime ."’ Umted States v.
‘18 U.S.C. §§ 1961-1968 (1982). See generally, Blakey & Cessar.
Equitable Relief Under Civil RICO, Ga Novae Dawe L. Rev. 526
(1987) tcited as Equitable Reheft Blakey & Gettings. Racketeer
Influenced and Corrupt Organizations (RICOb Basic Concepts
Criminal and Civdl Remedies: 53 Tr wrte LQ 1009 (1980) cited
as Basic Concept % Blakey, The RICO Civil Fraud Action in Con
text. G8 Nerer Dawe Lo Rev. 297 (1982) teited as Chew Action
4
Turkette. 452 U.S. 576, 591 (1981). But “Congress wanted
to reach both ‘legitimate’ and ‘legitimate’ enterprises.” 452
U.S. at 590. ““[Rleyected [also has been the} notion [that RICO}
apples only to organized cnme in the ‘classic mobster’ sense.””
United States v. Grande, 620 F 2d 1026, 1030 (4th Cir.), cert.
denied. 449 U.S. 919 (1980). As this Court recognized n
Sedima. S.P.R.L. v. Imrex Co., 473 U.S. 479, 497 (1985):
for cnmanal activity nor immunity from its consequences.” /d.
In addition. “the courts [have been] all but unamumous in thei
refusal to read RICO as prohibiting only the infiltravon of
F.2d 5, 7 n. 7 (4th Cir. 1980) (emphasis added). See Sedma.
473 US. at 495: RICO “makes it unlawful for any person —
not just mobsters — to [violate its substantive provisions)
through a pattern of racketeering activity.""? “Pattern
of racketeering activity’ includes (1) violence, (2) provision
of illegal goods and services, (3) corruption in the labor move-
ment or among public officials, and (4) commercial and other
forms of fraud. Cinil Action at 300-06.
B. RICO Was Intended to Be Broadly Construed to
Effectuate Its Remedial Purposes.
18 U.S.C. § 1962(a(@ sets forth “standards” of
remedies. Section 1964 sets out the civil remedies.’ Section
1962 states what is ““unlawful,”’ not “‘criminal."’ Because the
‘See also Ow! Construction Co v. Ronald Adams Contractor.
Inc. T27 F.2d 540. 542 Sth Cir. 1984), cert. denied 469 U.S. 851
(1984)
‘See Sedima 473 U.S. at 491: Basic Concepts at 1027 271.
fied Action at 343 0.20
5
scope of civil RICO is broader than the scope of criminal RICO,
the statute is mot primarily criminal and punitive, but primari-
ly civil and remedial. Sedima, 473 U.S. at 496; Turkette, 452
U.S. at 593 (RICO is ‘‘both preventive and remedial’’); see
generally Civil Action at 243 n.20.4 RICO’s civil remedies,
based on a showing of the preponderance of the evidence, are
available to the government or to the victims of racketeering
activity themselves.°
Congress, moreover, directed that RICO ‘‘be liberally con-
strued to effectuate its remedial purposes.’’ 84 Stat. 947
(1970). See Sedima, 473 U.S. at 491 n.10, 497-98; Russello,
464 U.S. at 2.° The directive is a ‘‘mandate.’’ United States
v. Long, 651 F.2d 239, 241 (4th Cir.), cert. denied, 454 U.S.
896 (1981). This Court, too, has recognized Congress’ plain
‘See also 115 Cong. Rec. 6993 (1969) (statement of Sen. Hruska
regarding S. 1623, the immediate predecessor to S. 1861, from
which Title IX was drawn, “The criminal provisions are intended
primarily as an adjunct to the civil provisions, which I consider
as the more important feature of the bill.”); 116 Cong. Rec. 602
(1970) (statement of Sen. Hruska) (“principal value of . . . legisla-
tion is in its civil provisions”). Nevertheless, good faith commer-
cial disputes do not implicate RICO, since they do not equate to
criminal fraud. RICO does not involve strict liability, negligence.
or constructive fraud. Civil Action at 244 n.23, 306 n.172, 334
n.216. RICO, through its predicate offenses, requires a criminal
state of mind. See, e.g., Durland v. United States, 161 U.S. 306,
314 (1896) (good faith defense to mail fraud); Haroco, Inc.
American Nat Bank & Trust Co., 747 F.2d 384, 399 n.16 (7th Cir.
1984) (criminal fraud under RICO must be distinguished from
civil fraud), affd on other grounds, 473 U.S. 606 (1985).
‘United States v. Cappetto, 502 F.2d 1351, 1357 (7th Cir. 1974)
(government suit), cert. denied, 420 U.S. 925 (1975); Alcorn Coun-
ty, Miss. v. U.S. Interstate Supplies, 731 F.2d 1160, 1169 (5th
Cir. 1984) (victim suit). Note, Civil RICO: Prior Criminal Convic-
tion and Burden of Proof, 60 Novne Dame L. Rev. 560 (1985).
*See generally Equitable Relief at 21; Civil Action at 245 n.25,
288 0.150.
6
intent. ‘‘RICO is to be read broadly,’’ and it “‘is to “be con-
strued to effectuate its remedial purposes .. .’ "’ Sedima, 473
U.S. at 497. ‘‘{RICO’s} ‘remedial purposes’ are nowhere more
evident than in the provision of a private action for those in-
jured by racketeering activity.’’ Jd. In short, ‘*RICO was an
aggressive initiative to supplement old remedies and develop
new methods for fighting crime . . . [and] it is in this spirit
that all of the Act’s provisions should be read." sd.
C. RICO Was Intended to Encourage Civil
Litigants to Enforce the Laws on Which
RICO Is Predicated.
The private enforcement provisions of RICO were model-
ed on, but are not identical to, the antitrust laws. S. Rep. No.
617, 91st Cong., 1st Sess. 81 (1969); H.R. Rep. No. 1549,
91st Cong., lst Sess. 81 (1970).” Appropriately, the antitrust
statutes have been termed the ‘‘Magna Charta of free enter-
prise."” United States v. Topco Associates, Inc., 405 U.S. 596,
610 (1972). The antitrust laws ‘‘are as important to the preser-
vation of economic freedom and our free enterprise system
as the Bill of Rights is to the protection of our fundamental
personal freedoms.’’ Jd. A private ‘‘treble-damages remedy
lis needed] . . . precisely for the purpose of encouraging private
’ Congress passed the Sherman Act in 1890, yet it was not until
recent times that the private enforcement mechanism of the an-
titrust statutes came into their own. The thrust of scholarly
analysis of the Act's history plared that disuse at the door of
“judicial hostility.” Sullivan, Breaking up the Treble Play: At
tacks on the Private Treble Damage Antitrust Action, 14 SETON
Hy L. Rev., 17, 19 (1983). Advances occurred after the New
Deal, but the private enforcement mechanism did not become an
effective legal tool until key decisons of this Court inf the 1950s
See, e.g., Klor’s, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207,
»1] (1959). The historical parallels becween the enforcement of
the antitrust laws and RICO are haunting.
7
challenges to antitrust violations.’’ Reiter v. Sonotone Corp.,
442 U.S. 330, 344 (1979) (emphasis in original). Such ‘private
antitrust litigation is one of the surest weapons for effective
enforcements of the antitrust laws.’’ Leh v. General Petroleum
Corp., 382 U.S. 54, 59 (1965) (quoting Minnesota Mining &
Manufacturing Co. v. New Jersey Wood Finishing Co., 381
U.S. 311, 318 (1965)). Private suits ‘‘provide a significant sup-
plement to the limited resources available to the Department
of Justice’’ to enforce the antitrust statutes. Reiter, 442 U.S.
at 344. See Agency Holding Corp. v. Malley-Duff & Associates,
Inc., 107 S. Ct. 2759, 2764 (1987) (‘bring to bear the pressure
of private attorneys general’’); Sedima, 473 U.S. at 493 (‘to
fill prosecutorial gaps’’).*
Like the antitrust laws, RICO creates ‘‘a private enforce-
ment mechanism that . . . deter{s] violators and provide|s|
ample compensation to the victims . . .'’ Blue Shield of Virgima
v. McCready, 457 U.S. 465, 472 (1982). See Sedima, 473 U.S.
at 495; Alcorn County, Miss. v. U.S. Interstate Supplies, Inc.,
*In fact, between 1960 and 1980, of the 22,585 civil and
criminal cases brought under the antitrust provisions by the
government or private parties, 85% were instituted by private
plaintiffs. U.S. Department of Justice, Source Book on Criminal
Justice Statistics 431 (1981). Professor (now Judge) Posner also
argues forcefully on economic grounds for private enforcement of
more than actual damages awards against all forms of deliberate
antisocial conduct, particularly where the factor of concealment
is present. Posner, Economic Analysis of Law 462 (private en-
forcement), 143, 272 (more than actual damage awards, for
deliberate conduct), 235 (concealment) (2d ed. 1977). On the
history and economic raiionale of treble damages, see Equitable
Relief at 530 n.17; Blakey, Editorial, RICO Law Rerrr. No. 1)
(Jan. 1988). Beside Posner's analysis, the framing of this sort of
equation has been entrusted by the constitution to the
Legislative Branch. Blue Chip Stamps v. Manor Drug Stores. 42)
U.S. 723, 748 (1975) (Rehnquist, J.) (“duty of the Judicial Branch
_. jis} to administer the law which Congress enact|s!)
8
731 F.2d 1160, 1165 (Sth Cir. 1984) (Congress intended
RICO’s treble damage action to ‘‘provide strong incentives
to civil litigants . . . in deterring racketeering . . .""). RICO’s
treble damage provisions were ‘‘intended by Congress . . .
to encourage private enforcement of laws on which RICO is
predicated.’’ /d.°
The Orgaiized Crime Control Act — including RICO — fits
easily into a consistent pattern of Federal legislation enacted
as general reform over the past half century or more aimed
at a specific target, but drafted without limiting it to a specific
target.!°
*RICO and the antitrust statutes, moreover, are well in-
tegrated. “There are three possible kinds of force which a firm can
resort to: violence (or threat of it), deception, or market power.”
Kaysen & Turner, Antitrust Policy 17 (1959). RICO focuses on
the first two; antitrust laws focus on the third. See also American
C. & L. Co. v. United States, 257 U.S. 377, 414 (1921) (Brandeis,
J., dissenting) (“Restraint may be exercised through force or
fraud or agreement.”). See generally, Note, Treble Damages
Under RICO: Characterization and Computation, 61 Notre
Dame L. Rev. 526, 533-43 (1986) (“(1) encourage private citizens
to bring RICO actions, (2) deter future violators, and (3) compen-
sate victims for all accumulative harm. These multiple and con-
vergent make the treble damage provision a powerful
mechanism in the effort to vindicate the interests of those vic-
timized by crime.”).
See, e.g., 18 U.S.C. § 224 (sports bribery) held not limited to
organized crime in United States v. Walsh, 544 F.2d 156, 159 (4th
Cir. 1976), cert. denied, 429 U.S. 1093 (1977); 18 U.S.C. §§ 841-48
(explosives) held not limited to organized crime in United States
v. Schwanke, 598 F.2d 575, 578 (10th Cir. 1979); 18 U.S.C. § 891
(loan sharking) held not limited to organized crime in United
States v. Keresty, 465 F.2d 36, 43(3d Cir.), cert. denied, 409 U.S.
991 (1972), 18 U.S.C. § 1510 (obstruction of criminal investiga
tion) held not limited to organized crime in United States v
Koehler. 544 F.2d 1326, 1330 n.6 (5th Cir. 1977), 18 USA
§ 1951 (extortion) held not limited to racketeering in United
States v Culbert, 435 U.S. 371, 373-74 (1@78); 18 U.S.C. § 1952
‘Travel Act) held not limited to organized crime bribery in Perr
» United States. 444 U.S. 37, 46 (1979); 18 U.S.C. § 1955 Ulottery
D. Narrow Interpretations of RICO Have
Repeatedly Been Adopted by Lower Courts and
Rejected on Appeal.
At first, the Department of Justice moved slowly to use
RICO criminally. Today, it is the prosecutor's tool of choice
rorism, and hate-group prosecutions. See Oversight on Civil
RICO Suits, Hearings Before the Senate Committee on the
Judiciary, 99th Cong., 1st Sess. 109-11 (1985) (testimony of
Assistant Attorney General Stephen S. Trott) (cited as
‘*Trott’’). The Department of Justice has also begun to im-
plement the civil provisions. See, e.g., United States v. Local
560, International Brotherhood of Teamsters, 581 F . Supp. 279
(D.N.J. 1984), aff'd, 780 F.2d 267 (3d Cir. 1985) (civil suit
against organized crime controlled union), cert. demed, 106
S. Ct. 2247 (1986); Trott at 116-17.
The private bar did not begin to bring civil RICO suits until
about 1975. When it did, the district courts reacted with ex-
treme hostility and undertook judicially to redraft the statute
in an effort to dismiss civil suits in all possible ways. The first
effort to redraft civil RICO involved reading into it an ‘‘organ-
ized crime"’ limitation. See, e.g., Barr v. WUI/TAS, Inc., 66
F.R.D. 109, 113 (S.D.N.Y. 1975). Because that limitation had
no support in the text of the statute — it was also specifically
voted down in the legislative debates — the 2nd, 5th, 7th and
8th Circuits quickly rejected it. Alcorn County, 731 F.2d at
1167 (cases cited).
tickets) held not limited to organized crime in L’nited States v
Fabrizio, 385 U.S. 263, 265-67 (1966), 18 U.S.C. § 21134(b) (bank
robbery) held not limited to gangsters in Bell v. United States
462 US. 356, 358-62 (1983): 18 U.S.C. § 2421 (white slave traffic)
held not limited to commercial prostitution in Camuinet:
l'nited States, 242 U.S. 470, 485-90 (11917h 18 USC. § 357°
isentencing? held not limited to or vyanized crime in (on i Stet
Schell, 692 F.2d 672, 674 (LOth Cir, 1982)
10
The next effort involved reading a ‘“‘competitive injury”
limitation into the statute. See, e.g., North Barnngton Develop-
ment, Inc. v. Fanslow, 547 F . Supp. 207, 211 (N.D. Ill. 1980).
The 7th and 8th Circuits quickly turned this effort aside.
Schacht v. Brown, 711 F.2d 1343, 1356-58 (7th Cir.), cert.
denied 464 U.S. 1002 (1983) (the organized crime limitation
‘‘revived under . . . [a new] guise’’); Bennett v. Berg, 685
F.2d 1053, 1058-59 (8th Cir. 1982), aff'd on rehearing en banc,
710 F.2d 1361, cert. denied, 464 U.S. 1008 (1983).
limitation. See, e.g., Landmark Savings and Loan v. Rhoades,
527 F. Supp. 206, 208-09 (E.D. Mich. 1981). It was, together
with the criminal conviction limitation, a companion effort to
circumscribe the plain text and the clear legislative history of
RICO. Both limitations, adopted by a sharply divided 2nd Cir-
cuit, were repudiated by this Court in Sedima.
Ignoring the general teaching of this Court in Sedma, in-
cluding that of footnote 14, lower federal courts have continued
to dismiss most civil RICO cases. They have not sought, as
this Court suggested, to develop a ‘‘meaningful"’ definition
of the concept of ‘‘pattern,’’ but to find an easy device to clear
their dockets. Equitable Relief at 620 (complaint dismissed in
51 % of post-Sedima reported decisions). Substitute *‘pattern’”
sions continue in their pre-Sedima direction. The course
threatens to frustrate Congress’ 1970 promise of ‘‘enhanced
This appeal, therefore, focuses on developing a meaningful
definition of ‘‘pattern’’ in the light of RICO’s legislative history,
text and purpose.
11
E. The Legislative History of RICO Does Not
Support a Narrow Interpretation of Any of Its
Provisions.
While the language of a statute must ‘ordinarily be regard-
ed as conclusive,” it can give way to a ‘‘clearly expressed
legislative intention” to the contrary found in the statute's
GTE Sylvania, Inc., 447 U.S. 102, 108 (1980). When RICO's
it confirms that “Congress meant what it said."’ JNS rv.
Phinpathya, 464 U.S. 183, 193 (1984). See Crvil Achon at 280.
Congress acted deliberately in its enactment of the Organ-
ized Crime Control Act — including civil RICO — and it had
in the hearings and reports of the Kefauver Committee, whose
focus included infiltration by organized cnminal elements into
legitimate businesses.'' The American Bar Association
(‘ABA’) formed its Organized Crime Commission and par-
sions. "2 In 1967. the President's Commission on Law Enforce-
ment and Administration of Justice made the key recommen-
dation that led to RICO, when it urged that Congress adopt
antitrust-type remedies to control underworld activities, pa-
'' See generally Basic Concepts at 1014: Civil Action at 249.
‘See, eg. 2 Organized Crime and Law Enforcement: Final
Report by and Mocol Acts Prepared For the ABA Commission
on Organized Crime 57-91 (syndicated gambling) and 157-86 (im-
munity) (1953): Organized Crime Control: Hearings Before Su’
comm. No. 5. House Comm. eon Judiciary, 91st Cong 2d Sess
579-85 (1970) (perjury) (hereinafter House Hearings)
12
ticularly in legitimate businesses.'* In response, Senator
Hruska and Congressman (now Judge) Poff introduced com-
panion legislation that included criminal and civil sanctions and
'S President's Commission on Law Enforcement and Adminis-
tration of Justice, The Challenge of Crime in a Free Society: Final
Report 208 (1967) (“techniques . . . especially valuable because
they require a less rigid standard of proof’).
The Commission also observed:
[W]hite-collar crime [is] — [a term] now commonly used
to designate those occupational crimes committed in
the course of their work by persons of high status and
social repute [that] . . . are only rarely dealt with
through the full force of criminal sanctions. . . .
Serious erosion of morals accompanies [the white collar
offender's] violation. [Those who so] flout the law set an
example for other business and influence individuals,
particularly young people, to commit other kinds of
crime on the ground that everybody is taking what he
can get. Jd. at 47-48.
It commented on fraud:
Fraud is especially vicious when it attacks, as it so
often does, the poor or those who live on the margin of
poverty. Expensive nostrums for incurable diseases,
home improvement frauds, frauds involving the sale or
repair of cars and other criminal schemes create losses
which are not only sizable in gross but are also signifi-
cant and possibly devastating for individual victims.
Id. at 33-34.
In addition, it noted the changes in social and economic condi-
tions within which the administration of justice had to be viewed:
During the last few centuries economic life has become
vastly more complex. Individual families or groups of
families are not self-sufficient; they rely for the basic
necessities of life on thousands or even millions of dif-
ferent people, each with a specialized function, many of
whom live hundreds or thousands of miles away. Jd. at
47-48.
See also Basic v. Levinson, 108 S. Ct. 978, 989-90 (1988) (“The
modern securities market ... differs from the face to face transac-
tions contemplated by early fraud cases... .”).
a
13
public and private enforcement mechanisms in both Houses
of Congress. See, e.g., S. 2048, 90th Cong., lst Sess. (1967);
113 Cong. Rec. 17,999 (1967). The ABA carefully studied the
bills and endorsed their concepts, including the private enforce-
ment mechanism, but recommended that Congress draft them
outside the antitrust statutes to give them a broader impact.
The ABA presented these recommendations to the House
and the Senate in 1969.'* Additionally, the National Commis-
sion on Reform of the Federal Criminal Law undertook similar
studies.!5 The Commission included Congressman Poff, its
vice-chairman, and Senators McClellan and Hruska, as well
as Congressman (now Judge) Mikva. Subsequently, Senator
Hruska and Congressman Poff drafted new legislation that took
the ABA at its word. They introduced the new legislation in
both Houses.!* The Senate held hearings at which the ABA
orally presented its favorable views. 17 The President also en-
dorsed the legislation while it was being processed in the
Senate and specifically called for antitrust-type remedies in
his ‘‘Message on Organized Crime."’ Senate Hearings at 449
(‘The injunction with its power of coutempt and seizure,
monetary fines and treble damages actions . . . suggest anew
panoply of weapons. . . .”’). As a result of these hearings,
Senators McClellan and Hruska, after consultation with Con-
gressman Poff, introduced S. 1861, which in its Statement of
Findings and Policy was termed ‘‘remedial,’’ and its “‘liberal
\4 Measures Relating to Organized Crime: Hearings Before the
Subcomm. on the Judiciary, 91st Cong., lst Sess. 259
(statement), 556 (report) (1969) (hereinafter Senate Hearings).
House Hearings at 537 (statement), 147 (report). See generally,
Basic Concepts at 1015; Civil Action at 254-56.
iS(¥pil Action at 253 n.47 and accompanying text.
6 See, e.g., S. 1623, 91st Cong., Ist Sess. (1969); 115 Cong. Rec.
6,995-96 (1969). |
‘Senate Hearings at 259 (testimony of Rufus King for the
ABA).
14
construction’ was mandated. 115 Cong. Rec. 9,568, 9,571
(1969).'® The Organized Crime Control Act, which included
S. 1861 in Title IX, then passed the Senate by a vote of 73
to 1. 116 Cong. Rec. 972 (1970).
While the legislation was pending in the House, the House
Judiciary Committee was well aware of its scope. Indeed, the
Association of the Bar of City of New York objected to its reach
beyond ‘‘organized crime,’’ including its application to ‘‘any
securities fraud case.’’! Yet the House Committee deliberate-
'* The statement of Finding and Policy did not mention “fraud.”
That consideration was added when the bill was reported out
after the inclusion in the bill by the Senate Committeee of various
additional predicate offenses, including mail and wire fraud and
securities fraud. S. Rep. No. 617, 91st Cong., Ist Sess. 1, 21
(1969).
'*House Hearings, at 294 (“sweep far beyond the field of
organized crime”); 329 (“any securities fraud case”); see generally,
Civil Action at 272-73.
An impression is apparently widespread in the securities in-
uustry that RICO “overlaps” all securities fraud. This impression
is mistaken. RICO says “offenses” involving “fraud in the sale of
securities” are “punishable under any law of the United States.”
18 U.S.C. § 1961(1)(D) (1982). “Offense” means a breach of the
criminal laws. Dan River, Inc. v. Icahn, 701 F.2d 278, 291 (4th
Cir. 1983) (“Criminal intent is . . . necessary to either mail fraud or
securities fraud {under RICO]"). Accordingly, only the securities
acts’ criminal fraud provisions fall within RICO. See, e.g.,
Securities Act of 1933 § 24, 15 U.S.C. § 77x (1982) (“willfully”);
Securities and Exchange Act of 1934 § 32, 15 U.S.C. § 78ff
(“willfully”). Merely negligent or strict liability conduct does not
fall within RICO. See Aaron v. SEC, 446 U.S. 680, 701-02 (1980)
(intent to defraud rather than negligence in violations of § 17(a)(1)
of the 1933 Act, § 10(b) of the 1934 Act, but not when engaging in
untrue statements or omissions or transactions that operate as a
fraud under § 17(a)(2) and § 17(a\(3) of the 1933 Act). Some
overlap between statutes “is neither unusual nor unfortunate.”
SEC v. National Securities, Inc., 393 U.S. 453, 468 (1969). Indeed.
the securities acts envision it. See, e.g., Section 28(a) of the
Securities and Exchange Act of 1934 § 28, 15 U.S.C. § 78bb(a)
(“rights and remedies” “in addition” to “any and all other rights”
lo
ly reported the RICO bill in its enacted language, which ap-
plied to ‘‘fraud’’ and included the treble damage enforcement
mechanism. H.R. Rep. No. 1549, 91st Cong., 2d Sess. 56-58
(1970). Dissenting Committee members, including } Con-
gressman Mikva, specifically objected to the private civil pro-
visions’ breadth. The dissenting members noted that the pro-
visions were ‘‘a tool to be employed for all.’’ Jd. at 187. They
also stressed the burden that their breadth might place on the
courts, federalism, and legitimate businesses. /d. (courts) 116
Cong. Rec. 35,205 (1970) (statement of Cong. Mikva)
(federalism); id. at 35,332 (statement of Cong. Mikva)
(legitimate businesses). Despite these objections, the legisla-
tion passed the House by a vote of 341 to 26. 116 Cong. Rec.
35,363 (1970). After the Senate reconsidered it,”° the
t might exist). So, too, does RICO. 84 Stat. 942 (1970) (not
pi. Federal or State criminal or civil sanctions). Accor-
dingly, there should be no concern about overlap with other
remedies (as there was in FLIP Mortgage Co. v. McElhane, 841
F.2d 531, 538 (4th Cir. 1988) (narrow construction of “pattern to
avoid impact o1 state remedies).
20 Significantly, when the Senate reconsidered the House:
passed bill, Senator Dole illustrated the importance of civil RICO
by describing a pattern of arson-murder visited on the A & P Tea
Co. in an unsuccessful effort to sell it detergent. Senator Dole
stated that the statute would impose “heavy” economic sanctions
on such conduct, and it would serve as an “effective deterrent.
116 Cong. Rec. 36,296 (1970). Obviously, RICO would do neither
to this classic effort to infiltrate ) legitimate businesses by
organized crime if the 8th Circuit's “single scheme” limitation
were read into “pattern,” since the effort to sell the detergent was,
in fact, a “single scheme.” it is doubtful, too, that this single
arson-murder scheme would pass muster under either the juris-
prudence of the 10th or the 4th Circuits. See, e.g., Garbade v.
Great Divide Mining & Milling Corp., 831 F.2d 212, 214 (10th
Cir. 1987) (single discrete scheme not “pattern’); FLIP Mortgage
Corp. v. McEthane, 841 F.2d at 538 (single business scheme not
“pattern”); HMK Corp. v. Walsey, 828 F.2d 1071, 1073-74 (4th
Cir. 1987) (single development scheme not “pattern ) cert. denied.
107 S. Ct. 706 (1988). Such a result is both “absurd” and “surpris-
16
President signed the Bill, as was expected in light of his earlier
endorsement of its basic concepts.
Fk. The Text of RICO Does Not Support a Narrow
Interpretation of the Pattern Requirement.
RICO does not define ‘‘pattern.’’ Thus, ‘‘pattern’’ ought
to be read in its plain or ordinary meaning, and interpreted
in the context of the entire statute. Sedima, 473 U.S. at 495
n.13; Russello, 464 U.S. at 20, 21; Turkette, 452 U.S. at 580,
583 n.5 587. See, Equitable Relief at 535 n.37 (analyzing text
of statute and lower court jurisprudence); note, Reconsidera-
tion of Pattern in Civil RICO Offenses, 62 NOTRE DAME L.
REV. 83, 93-96 (1986) (cited with approval in Sun Savings &
Loan Ass'n v. Dierdorff, 825 F.2d 187, 192 (9th Cir. 1987).
Nothing in the text, legislative history or policy of the statute
warrants the adoption of the sort of multiple scheme limita-
tion read into the statute by the 8th Circuit.
G. Sedima’s Footnote 14 Does Not Support the
Eighth Circuit’s Narrow Interpretation of the
Pattern Requirement.
Apart from its observation that two acts may not be suffi-
cient to form a ‘‘pattern,’’ Sedima’s footnote 14 is inclusive
and not limiting. After an inconclusive survey of the relevant
legislative history, this court said:
Significantly, in defining ‘‘pattern’’ in a later pro-
vision of this same bill, Congress was more
enlightening: ‘‘Criminal conduct forms a pattern if
it embraces criminal acts that have the same or
ing.” Turkette, 452 U.S. at 587. Obviously, it is not what Con-
gress — or Senaior Dole had in mind in 1970. See also 116
Cong. Rec. 607 (1970) (statement of Sen. Byrd) (arson-murder at-
tempt to force A & P Tea Co. to buy detergent).
17
similar purposes, results, participants, victims, or
methods of commission, or otherwise are inter-
related by distinguishing characteristics and are not
isolated events.’’ 18 U.S.C. § 3575(e). This lang-
uage may be useful in interpreting other sections of
the act. C.S. lannelli v. United States, 420 U.S. 770,
789, 95 S.Ct. 1284, 1295, 43 L.Ed. 2d 616 (1975).
The above definition clearly is the definition of ‘‘pattern’’ that
this Court favored in Sedima. The court says explicitly that
Congress’ action in adopting that definition was significant, and
that that definition may be useful ‘‘in interpreting other sec-
tions of the act,” including the pattern requirement of \ 1962.
Using the disjunctive ‘‘or,’’ this court, in footnote 14, allow-
ed at least six separate and independent grounds for finding
a ‘‘pattern.’’ That is consistent with the liberal, remedial
understanding of the RICO statute presented by the court in
Sedima. It would be anomalous for the court to have suggested
a restrictive interpretation of ‘‘pattern’’ in a footnote when
the spirit of the decision is remedial and broad.
i. A NARROW CONSTRUCTION OF RICO'S
PATTERN REQUIREMENT WOULD DEPRIVE
MANY CRIME VICTIMS OF A POWERFUL
REMEDY
Article Il of the Constitution does not grant a court power
to redraft legislation because of its ‘‘appraisal of the wisdom
and unwisdom of a particular [legislative] course . . . .”” Dia
mond v. Chakrabarty, 447 U.S. 303, 318 (1980) (quoting TVA
v. Hill, 437 U.S. 153, 194 (1978)).
Nevertheless, an examination of the policy considerations
implicated by Congress’ chosen course of action in 1970 ts
required by this Court's jurisprudence indicating that plain
18
meaning may be departed from to avoid absurd or surprising
results. See, e.g., United States v. Ryan, 284 U.S. 167, 175-76
(1931) (civil forfeiture provision narrowed to give it ‘‘a sensi-
ble construction’). The language chosen by Congress in RICO
is ‘neither absurd nor surprising.’’ Turkette, 452 U.S. at 587.
See also In Re Rouse, 221 N.Y. 81, 91, 116 N.E. 782, 785
(1917) (Cardozo, J.) (‘‘consequences cannot alter statutes but
may help to fix their meaning.’’)
The current controversy over RICO has not centered on
its criminal provisions or its possible civil application in the
areas of violence, the provision of illicit goods and services,
or the corruption of unions and governmental entities. Instead,
the controversy has focused almost exclusively on the com-
mercial fraud area. In 1970, however, Congress focused RICO
on “‘fraud.’’ 84 Stat. 922. It found that traditional ‘‘sanctions
and remedies’’ were ‘‘unnecessarily limited in scope and im-
pact.’’ Id. at 923. It was well aware, in short, that ‘‘existing
law, state and federal, was not adequate. . . .’’ Turkette, 452
U.S. at 586. Although almost two decades have passed since
RICO became law, the task remains a formidable one.
In 1974, the Chamber of Commerce of the United States
published a comprehensive study of fraud. The Chamber
estimated the direct economic cost of fraud as follows:
Billions of Dollars
1. Bankruptcy Fraud .08
2. Bribery, Kickbacks & Payoffs 3.00
3. Consumer Fraud 21.00
4. Embezzlement 7.00
5. Insurance Fraud 2.00
6. Receiving Stolen Property 3.50
7. Securities Theft and Frauds 4.00
19
The total figure, including credit card and theft fraud ($1.10
billion) and computer-related crime ($.10 billion), was
estimated at $41.78 billion annually .2' Given the inflation rate
since the 1974 study, fraud likely costs society a figure more
than four times that high today.??
In addition, the Chamber of Commerce study did not ac-
count for the entire scope of the impact of fraud on the
economy. By interacting with society’s other problems, such
as poverty and discrimination, white-collar crime has a ‘‘serious
influence on the social fabric, and on the freedom of commer-
cial and interpersonal transactions.’’? Because white-collar
offenders often occupy positions of trust, the effects of their
misdeeds extend beyond their immediate impact, which often
falls most harshly on the poor, aged and uneducated, as noted
by the Crime Commission in 1967. Former FBI Director
William H. Webster aptly commented in 1982: *’[T]hrough use
of their positions of trust, cunning and guile, white collar
criminals undermine professional and government integrity to
the dismay of all, and ultimately are responsible for the loss
2! United States Chamber of Commerce, White Collar Crime:
Everyone's Problem, Everyone's Loss (1974) (cited as White Col-
lar Crime). Obviously, these estimates can only be “ballpark”
figures, for the typical perpetrator of a fraud does not file an
honest “annual report.” It has been accurately noted that “there is
little systematic data available regarding the incidence of white
collar crime,” and two estimates of its cost have been cited: loss of
texes on $25 to $40 billion of unreported income annually and
$500 million to $1 billion annually in securities fraud. President's
Comm. on Law Enforcement & Admin. of Justice Task Force
Report: Crime and Its Impact — An Assessment 103 (1967).
2 Annual Report of the U.S. Attorney General 42 (1985) ($200
billion).
23See generally Edelhertz, The Nature, Impact, and Prosecu-
tion of White Collar Crime 6-7 (1970) (cited as Edelhertz).
20
of billions of dollars annually from the nation’s economy.’’”4
Consumers, savers, investors, legitimate businesspeople and
governments are the victims of fraud.
For instance, an estimated 15 to 20 percent of all insurance
claims are fraudulent for a total loss of over $11 billion an-
nually.2° Because an insurance company must generate
approximately $1.25 in premiums for every $1 it pays in claims,
policy holders are paying an extra $13.75 billion in premiums
annually because of fraud.
Arson-for-profit is a particularly costly part of the insurance
fraud problem. In 1978, it was estimated that arson fraud
caused losses of up to $2 billion a year and that 25% of each
person’s insurance bill goes to cover these losses.?6 More
significantly, in 1975 alone, 1,000 deaths, including 45 fire-
fighters, resulted from arson-for-profit schemes.’
Commodities and securities markets are tainted by fraud.
It is estimated that $200 million is lost each year through com-
modity investment fraud.28 Widespread reports of msider
trading on Wall Street, too, have only recently highlighted a
problem that costs investors, stockholders, and employees
dearly, especially where corporate takeovers are involved.
24 Hearings on the Department of Commerce, Justice, and State,
The Judiciary and Related Agencies: Appropriations for 1983,
Before a Subcomm. of the Comm. on Appropriations, House of
Representatives, 97th Cong., 2nd Sess. 1078 (1982).
25N.Y. Times, July 6, 1980, at 27, col. 1. These individual
figures, too, are considerably higher than the 1974 general
estimate of the Chamber of Commerce. See supra n.22.
26 Arson-for-Hire, Hearings before the Perm. Subcomm. on In-
vestigations of the Senate Comm. on Government Affairs, 95th
Cong., 2d Sess. 7 (1978) (statement of Sen. John Glenn).
27 Id.
28 See Senate Comm. on Governmental Affairs, Commodity In-
vestment Fraud, S. Rep. No. 495, 97th Cong., 2d Sess. V (1982).
21
Such abuse of insider information may well taint many of the
3000 takeover transactions that occurred in 1986 alone, in-
volving $175 billion.2 The continuing federal investigation
most likely ‘‘will vastly understate the total losses incurred
by stock market investors, as well as many target companies
that no longer exist and their acquirers who doubtless paid
too dearly for them.’’%°
A nationwide problem of bank failures caused by criminal
conduct is also of ‘‘epidemic proportions.’’*! From 1980 to
1981, 105 banks and savings and loan associations failed,
costing taxpayers $1 billion. Subsequent failures are estimated
to have added another $1 billion to the total.*? A record 145
banks failed in 1986, and the figure was expected to increase
by 25% for 1987. At least one half of bank failures and one
quarter of thrift failures involve criminal activity by insiders.**
Fraudulent financial reporting is a serious national problem.
Since 1980, major accounting firms have had to pay more than
$180 million to settle liability suits.*° When fraudulent financial
reporting occurs, widespread consequences result, ‘‘with a
sometimes devastating ripple effect.’’**
22Wa ut St. J., Feb. 17, 1987, at 27, col. 1. See generally Bus.
Wk.. Mar. 3, 1987, at 28; Newsweek, May 26, 1986, at 44.
Wax Sr. J., Feb. 17, 1987, at 27, col. 1.
31N.Y. Times, Jan. 22, 1987, at 45, col. 1.
32 House Comm. on Government Operations, Federal Response
to Criminal Misconduct and Insider Abuse in the Nation's Finan-
cial Institutions, H.R. Rep. No. 1137, 98th Cong. 2d Sess. 5
(1984) (cited as Insider Abuse).
39N_Y. Times, Jan. 22, 1987 at 45, col. 1.
34 Insider Abuse at 5.
Time, Sep. 21, 1986, at 61.
6 Report of the National Commission on Fraudulent Financiai
Reporting 4 (1987).
22
Fraud against the government, not included in the Chamber of
Commerce’s study, costs anywhere from $2.5 to $25 billion.%”
In 1978, the Comptroller General reported that the oppor-
tunities for defrauding the government were ‘“‘virtually unlim-
ited.’’38 A 1980 update concluded that the problem remained
widespread. *9
Ironically, the second circuit in Sedima, S.P.R.L. v. Imrex
Co., Inc., 741 F. 2d 482 (1984), rev'd 473 U.S. 479 (1985),
declaring the ‘‘extraordinary, if not outrageous’’ ‘‘uses to
which private civil RICO has been put,’’ cited E.F. Hutton
& Co. among the ‘‘respected and legitimate’’ companies that
have been sued. In 1986, Hutton pleaded guilty to 2,000 counts
of mail fraud in a multi-million dollar bank scam. See, e.g., BUS.
WK., February 24, 1986, at 98, col. 1. In May 1988, Hutton
agreed to plead guilty to two felony counts of money launder-
ing and one of conspiracy. WASH. POST, May 7, 1988, at D11,
col. 5. There is a substantial body of literature on white-collar
crime by so-called respected business. See, e.g., “‘How
Lawless Are Big Companies?’’, FORTUNE, December 1,
1980, at 57 (1,043 major corporations between 1970 and 1980:
117 convictions or consent decrees on 98 antitrust violations;
18 kickbacks, briberies or illegal rebates; 21 illegal political
contributions; 11 frauds; and five tax evasions).
| The fraud problem facing the nation is overwhelming, but
it is not unsolvable. If RICO is used with other law enforce-
ment tools, it can emerge, as Congress intended, as an effec-
37N.Y. Times, May 17, 1982, at 11, col. 2 (“Fraud in Govern-
ment benefit programs is now widely viewed to be a serious na-
tional problem . . . cost{ing] the public anywhere from $2.5 to $25
billion per year.”).
36 General Accounting Office, Federal Agencies Can and Should
Do More to Combat Fraud in Government Programs i (1978).
’°General Accounting Office, Fraud in Government Programs:
How Extensive Is It? — How Can it be Controlled? (1980).
Ml sateen
23
tive means for combatting fraud as well as other forms of
sophisticated crime. For “‘[ilf substantial progress can be made
in the prevention, deterrence and successful prosecution of
_ . . [white collar] crimes, we may reasonably anticipate
substantial benefits to the material and qualitative aspects of
our national life.’’*°
Narrowing RICO would substantially cripple the statute’s
ability to achieve its remedial purposes. Congress recog-
nized when it passed RICO in 1970 that existing jurispru-
dence was inadequate to deal with organized crime activities,
including fraud. Society cannot rely, for example, upon public
enforcement to bear the entire burden of policing fraud. Justice
Jackson observed over 45 years ago that ‘‘[t]he criminal law
has long proved futile to reach the subtle kinds of fraud at all,
and able to reach grosser fraud, only rarely.’’4! Public
agencies charged with regulating fraud wil! never be funded
or staffed at adequate levels.*? Civil RICO’s private enforce-
40Edelhertz at 11.
‘| Jackson, The Struggle for Judicial Supremacy 152 (Vintage
ed. 1941). Fraudulent activities have increased dramatically since
Justice Jackson's observation, and resources available for the in-
vestigation and prosecution of white collar crime remain scarce.
Former FBI Director William Webster aptly commented in 1981
that “you speak to a thirsty man in the desert when you ask...
{about resources]. Of course we need more resources consistent
with the economy’s ability to supply it and the willingness of the
American people to dedicate it.” Waterfront Corruption: Hear-
ings Before the Perm. Subcomm. on Investigations, Comm. on
Governmental Affairs, 97th Cong., 1st Sess. 18 (1981).
«2 While the funding of the Securities and Exchange Commis-
sion has increased since 1979, its staffing has decreased and
pending investigations are down. The number of shares traded on
the New York Stock Exchange, however, has increased 300%
since 1977. See generally General Accounting Office, Statistics
on SEC's Enforcement Program, March 25, 1985.
Similarly, the 139.9 million futures contracts traded in 1983 is
15 times greater than the number traded in 1968. The resources
of the Commodity Futures Trading Commission have nonethe-
24
ment mechanisms, therefore, play an essential role in reaching
the fraud and other forms of criminal conduct that escape the
criminal justice system. Accordingly, the statute's private civil
provisions are necessary if the nation is successfully to com-
bat and deter fraudulent activities. Private lawsuits with the
threat of treble damages may, in fact, be more effective in
combatting fraud than the threat of criminal penalties. Em-
pirical studies, for example, show that it is the threat of tre-
ble damages, not criminal prosecution, that is the backbone
of the antitrust statutes.4* Testimony presented to Congress
by the Department of Justice indicated:
[C)ivil RICO’s utility against continuous large-scale
criminality not involving traditional organized crime
elements should be kept in mind. These considera-
tions suggest that private civil RICO enforcement
in areas of organized criminality may have had a
greater deterrent effect than is commonly recog-
nized, and that both the threat and the actuality of
private civil enforcement might be expected to pro-
duce even greater deterrence in the future. [Trott
at 140-41 (emphasis added).]
Narrowing civil RICO would, therefore, deprive many fraud
victims of a potent weapon for use against those who have
wronged them. Courts ought not rewrite RICO and frustrate
this remedial purpose.
less remained relatively constant. The Commission is “thor-
oughly outgunned in the ongoing battle against commodity
fraud.” S. Rep. No. 495, 97th Cong., 2d Sess. 10 (1983).
‘3“Neither imprisonment nor monetary penalties pose... a
credible threat to colluding firms . . .[t}he deterrent effect .. .
[comes] from . . . the likelihood of an award of private treble
damages ... .” Block, Nold & Sidale, The Deterrent Effect of An-
titrust Enforcement, 89 J. Pov. Econ. 429, 440 (1981).
ee ee eens aa)
25
Nor is the potential for litigation abuse an acceptable reason
for narrowing the scope of civil RICO.* Allegations of civil
RICO abuse should be dealt with by enforcing vigorously the
existing remedies for general litigation abuse. RICO abuse will
not be a problem so long as attorneys and the courts
‘‘recognize the utility of existing remedial procedures.’’*® The
courts, too, should also be alert to the fact that ‘‘abuse
arguments are more likely motivated by hostility to the RICO
remedy’ ’#6 than by the character of the suit. As Justice Stevens
observed in the context of the antitrust laws, ‘*(F]rivolous
cases should be treated as exactly that, and not as occasions
for fundamental shifts in legal doctrine.’ Hoover v. Ronwin,
466 U.S. 558, 601 (1984) (Stevens, J., dissenting). He
continued:
Our legal system has developed procedures for
speedily disposing of unfound claims; if they are in-
adequate to protect [individuals] from vexatious
44Those who express this concern have the burden of proving:
1) that a substantial number of frivolous RICO suits
are being filed, .
2) that existing safeguards against such suits are
not adequate to remedy them, .
3) that new safeguards against such suits that are
adequate cannot be designed, and!
4) that the detriment from these suits outweighs the
benefit from legitimate suits.
None of these burdens has been met. | }
Goldsmith & Keith, Civil RICO Abuse: The Allegations in
Context, 1986 B.Y.U. L. Rev. 55, 103 (1984). (cited as RICO
Abuse). The 1983 meeting of the United States Judicial Con-
ference concluded that “the existing tools [to addre=s frivolous
litigation] are sufficient, but perhaps not fully understood or
utilized.” Report of the Proceedings of the Judicial Conference of
the United States, September 21-22, 1983, at 56.
“RICO Abuse at 104.
26
litigation, then there is something wrong with those
procedures, not with the law... . Jd.
Finally, lower courts have frankly acknowledged that their
narrow reading of RICO is motivated in part by a fear of a
“flood of litigation.”’ See, e.g., McCarthy v. Pacific Loan, Inc.,
600 F.Supp. 137, 139 (D. Haw. 1984). Such fears are mis-
placed factually and are constitutionally inappropriate.
The perceived problem of the civil RICO case load is exag-
gerated.‘’ Of the approximately 160,000 private civil suits
filed in federal courts each year, considerably fewer than 5,000
are even potential RICO cases.** This potential figure would
represent, if fully realized, less than 3% of all federal filings.
Moreover, over 58% of the reported civil RICO cases filed
between January 1, 1985 and December 31, 1986 had an in-
dependent basis for federal jurisdiction.*® Thus, many civil
RICO cases would have found their way to the federal court-
house in any event.
But more importantly, the possibility that litigation might
be a burden on courts is ‘‘not sufficient to justify a judicial deci-
sion to alter [a] congressionally [drafted remedial scheme].’’
Patsy v. Board of Regents of State of Florida, 457 U.S. 496,
912 n.13 (1982). It is a legislative function to resolve ‘‘the
*’See 2 Civil RICO Report No. 34 at 3. (Feb. 4, 1987) (remarks
of Judge Pamela A. Rymer).
**See Annual Report of the Director of the Administrative Of-
fice of the U.S. Courts (1985). Securities, commodities and ex-
change related findings include 3,200 civil cases. Jd. at A-13 &
A-46. Fraud-related litigation accounts for 1,700 civil filings. /d.
ai A-12. If all these securities and fraud cases were also RICO
cases, RICO filings would not exceed 5,000. In fact, Ad-
ministrative Office data indicate that RICO filings are only run-
ning from 85 to 90 per month. Equitable Relief at 622.
** Equitable Relief at 619.
27
pros and cons of whether a statute should sweep broadly or
narrowly.’’ United States v. Redgers, 466 U.S. 475, 484 (1984).
Congress resolved those ‘‘pros and cons”’ when it stated
unambiguously that RICO is to be construed broadly. While
‘‘It]he sweep of RICO is admittedly broad . . . [a court’s] func-
tion is to apply the language of the statute as drafted in Con-
gress, not to rewrite the statute as [the court] might prefer
it to be.’ Morgan v. Bank of Waukegan, 804 F.2d 970, 974
(7th Cir. 1986). A court may not restrict the scope of civil
RICO simply because it may dislike the statute's ‘‘extraor-
dinary breadth.”’ Jd. at 977.°° In short, if RICO is to be nar-
rowed, it should be narrowed by Congress, not the judiciary.°!
CONCLUSION
Congress directed in 1970 that RICO be liberally construed
to effectuate its remedial purposes. One of RICO’s remedial
purposes is to provide fraud victims with a private cause of
action. Civil RICO’s private enforcement mechanisms are
necessary if victims of fraud are to be compensated for crimes
perpetrated against them. This Court should, therefore, resist
the efforts of the lower courts to construe civil RICO narrowly
and follow Congress's liberal construction mandate.
Respectfully submitted,
Robert M. Hausman
(Counsel of Record)
Arthur H. Bryant
See generally, Note, Civil RICO: The Temptation and Im-
propriety of Judicial Restriction, 95 Harv. L. Rev. 1101 (1982).
*! Congrecs is processing legislation. See generally, Note, Con-
gress Responds to Sedima: Is There a Contract Out on Civil
RICO. 19Loy. L.A. L. Rev. (1986) for a review of the various pro-
posals.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.