Amicus Curiae Brief — Reves v. Ernst & Young
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No. 91-886 APR 9 1999
| oFFice OF THE CLERK
In The 7
Supreme Court Of The United States
OCTOBER TERM, 1991
BOB REVES, ROBERT H. GIBBS,
AND FRANCES GRAHAM, AS
REPRESENTATIVES OF A CLASS OF
NOTEHOLDERS,
Petitioners,
v.
ERNST & YOUNG
Respondent.
ON WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE EIGHTH CIRCUIT
BRIEF OF AMICUS CURIAE
TRIAL LAWYERS FOR PUBLIC JUSTICE, P.C.
IN SUPPORT OF PETITIONERS
G. Robert Blakey Priscilla R. Budeiri
Counsel of Record Arthur H. Bryant
Notre Dame Law School TRIAL LAWYERS FOR
Notre Dame, IN 46556 PUBLIC JUSTICE, P.C.
(219) 239-5717 1625 Massachusetts Ave., N.W. o*7
Suite 100
Washington, D.C. 20036
(202) 797-8600
Attorneys for Amicus Curiae
Trial Lawyers for
Public Justice, P.C.
rr
LAWYERS PRINTING COMPANY 7th & Franklin Bidg Richmond. Virginia 23219 (804) 648-3664
TABLE OF AUTHORITIES .......
INTEREST OF AMICUS CURIAE......
SUMMARY OF ARGUMENT .........
I. CONGRESS DELIBERATELY CRAFTED RICO
case 1 ae ee oF
RICO Provides a Critical
Remedial Framework For Victims
of Financial Fraud. .... 5
1. The Background of RICO. 5
2. Standards Of Unlawful
Conduct Under RICO. 12
Be Ge « © 6 © ec 13
b. Standards .... 13
The Eighth Circuit Adopted A
Restrictive Construction of
"Conduct" Under RICO That is
Inconsistent with RICO's Plain
Meaning, P.L. 91-452 as a
Whole, the Congressional
Mandate That RICO Be Liberally
Construed, and Congress' Own
Understanding of RICO. . 16
1. A Restrictive Construction
of "Conduct" Within RICO
Is Inconsistent With
RICO's Plain Meaning . 18
2. A Restrictive Construction
of "Conduct" Within RICO
Is Inconsistent With P.L.
91-452 As A Whole .. 26
3. A Restrictive Construction
of "Conduct" Within RICO
Is Inconsistent With The
Congressional Mandate That
RICO Be Liberally
Construed ......, 34
4. A Restrictive Construction
of “Conduct” Within RICO
Is Inconsistent With
Congress' Own
Understanding of RICO 40
II. A RESTRICTIVE CONSTRUCTION OF
“CONDUCT” WITHIN RICO WOULD
UNJUSTIFIABLY INSULATE FROM LEGAL
RESPONSIBILITY MANY PIVOTAL
PARTICIPANTS IN DEVASTATING SCHEMES
TO DEFRAUD . . «. © © © © e ew @ 44
CONCLUS ION . . . . . . . > . . . . . 6 2
ii
Page
CONSTITUTION:
ASCSGRO BEE, BoB. GammB. <« ce co coes 44
SUPREME COURT DECISIONS:
Agency Holding Corp. v. Malley-Duff
Assn., 483 U.S. 143 (1987) . 18, 19, 20
States, 257 U.S. 377 (1921) ..... 14
Andrus v. Shel] Oi] Co., 446 U.S.
er Tn aa es 6 6G 6 tet el 41
’ ’ ’ :
UES Se. gf. ree 44
, 462 U.S. 356
ne Go ee eo sn tte ee te 9
/ 2. B 2 pepe aeeeeeecmsmes _
487 U.S. 99
ews GE's baa es 6 ce ew eee 46
, 242 U.S
Sy "Gs cs th tte el el 9
, 491
ae Sy cw Choos ts 8 ec le 18, 20
, 451
a Sanne. 7 2°. Gc « oe e 13
, 447 U.S.
303 (1980) . . . . * * * * . . . * .
, 409 U.S.
239 (1972) >. * * * . * * * > . > . .
Fort Wayne Books, Inc. v. Indiana
gk Se 0 Ee aareaares
Galvan v. Press, 347 U.S. 522 (1954)
Garrett y. United States, 471 U.S.
773 (1985) > . > . > * >. * >.
Telephone Co., 492 U.S. 229
(1988) . . 8, 10, 18, 19, 20, 27, 38,
Herman & MacLean v. Huddleston, 459
U.S. 375 (1983) * * * * ° * e * . . .
Hoover y. Ramen, 466 U.S. 558
-.» 6.6 va ae « a
Iannelli v. United States,
420 U.S. 770 (1975), overruled on
other grounds, Brown v. Ohio |
&£ . e SS ee.»
, 460 U.S. 150
(29G3) cc eceevevevee ee eee e
, 382
Leh _v. General Petroleum Corp.
U.S. 54 (1965), cen'd denied, 382 U.S.
1001 (1966) ... be a
Minnesota Mining & Mfg. Co, v.
, 381 U.S.
311 (1965), al * * >. * * * * * * * .
iv
44
30
40
45
33
61
12
59
27
41
15
15
Se ee
Mobil Oil Exploration v. United
Distribution co, _ S. Ct. 615
(1991) ._ © * . _ * #© # © i ae 21
Patsy v. Board of Regents of State
of Florida, 457 U.S. 496 (1982)... 60
, Pennington v. Coxe, 6 U.S. (2 Cranch)
_ ¥ fe aEoE a_i a
Ferrin-y. United states. 444 U.S.
37 (1979) >. . . . *. . . . . . . 9
Pillow v. Roberts, 54 U.S. (13 How.)
Gye Guan cece ee 8 awed « >
, 442 U.S.
330 (1979) * . . * . . . . * . . . . 15
Richards v. United States, 369 U.S. 1
(1962) ij (i a ae — © fF © £&€ 6 € 19
Russello v. United States
ur 7y [= 3 6 gg fg pw ttle lt
se & BB Sey B62 90, B46, 28. 328- 20, 42
BEC vy. National Sac. inc., 390 U.S.
453 (1969) >. > *. > o >. > >. 12
, 437 U.S.
54 (1978) * . . * * * * * * . * . * . 29
Seatrain Shipbuilding Corp. v. Shell
Oil Co., 444 U.S. 572 (1980) .... 41
Sedima S.P.R.L. v. Imrex Co. Inc.
Vin 3 a «. |r Oey eet
18, 19, 20, 21, 26, 32, 38, 39, 42, 61
McMahon, 482 U.S. 220 (1987),
v
reh'g denied, 483 U.S. 1056 (1987) °
. 7 . . . . . . . . . 10, & FF 18, 19, 20
Sipe v. Holmes, No. 90-727, decided
Maroh 24, 1992 ..+e«e-«e 26, 20, 29
Sullivan v. Stroop, 110 S. Ct. 2499
(1990) . . . o . . . . . . . . . . . 21
Tafflin v. Levitt, 493 U.S. 455, reh'g
denied, 495 U.S. 915 (1990)
je ctuwseesce Ce ak OO
TVA v. Hill, 437 U.S. 153 (1978) .. 44
United States y.hatchelder, 442 U.S.
114 (1979) ... , : 39
United States v. Brown, 333 U.S. 18
(1948) . . -_ . . . . . — > >. . . .* . 37
(1978) . . . . 7 . . . °- . . . . . . . 9
United States v. Fabrizio, 385 U.S. 263
(1966) . . .* . . — 7 7 . >. . — . . >. >. a
United States y. Monsanto, 491 U.S. 600
ae) )". % >» 0 4. 38. 38, 38
United States v. One Assortment of 89
Firearms, 465 U.S. 354 (1984) .... 13
United States v. Ragen, 314 U.S. 513
(1942) 7 . . . * . . . . . . . . . . 40
United States v. Rodgers, 466 U.S. 475
as « «-s ae Saas
United States vy. Ryan, 284 U.S. 167
[eens se és Cae a a ce Tare. ae
vi
United States v. Stewart, 311 U.S. 60
(1940) . _ — _ .* —_ >. . . . . -_ . — . 30
United States v. Turkette, 452 U.S. 576
(1981) . — * .* * * . . * _ . 8, 10, Bae
13, 18, 19, 20, 32, 35, 37, 39, 45, 46
United States v. Wise, 370 U.S. 405
(1962) . . . _ . . — _ . >. . _ . _ - 41
United States_y. Wurzhach, 280 U.S. 396
(1930) 7 - . >. > . . . 22
”
Hoffman Estates. Inc., 455 U.S. 489
(1982) . >. > . >. . . . >. >. 39
FEDERAL CASES:
Alcorn County v. U.S. Interstate
Supplies, Ine., 731 F.2d 1160 — Cir.
1984) . >. . . . _ . . _ _ >. . 15
Bank of America Nat'] Trust & Saving
CC TT “Ws tar) 782 F.2d 966
(llth Cir. 1986) ... ag ed
Bennett v. Berg, 710 F.2d 1361 (8th Cir.)
(en banc), caxt. denied, 464 U.S. 1008
(1983) .. , gy a a
Blake v. Diedorff, 856 F.2d 1365 oda
cir. 1988) . . >. . >. . . > . . 18
Sommaxlers 201808 794 F.2d 1319 —
Cir. 1986) — _ . . *. * * * * . 25
Crawford v. LaBoucherie Bernard Ltd., No.
83-0780 (D.D.C. Aug 15, 1984), aff'd, 815
vii
F.2d 117 (D.C. Cir), cert. denied, 484
i F 943 (1987) >. . >. >. 7 . . . . . . 52
EDIC, v. Hardin, 608 F. Supp. 348 (B.D.
Tenn. 1985) .* > . . . >. *. >. . - 7 52
FSLIC V; Shearson-American Express Inc.,
658 F. Supp. 1331 (D.P.R. 1987) ... 52
Furman v. Cirrito, 741 F.2d 524 (2nd
Cir.), vacated in part on other grounds,
~ F 2 ff fe |
ional Bank _
Haroco, Inc, v. American Nat
& Trust Co. of Chicago, 747 F.2d 384
(7th Cir. '1984), aff'd, 473 U.S. 606
(1985) . . a . . - . >. .* . _ . >. Bae 38
In Re Billman, 915 F.2d 916
(4th Cir.), cert. denied, 111 S. Ct.
i ier > «Ginn & 6 6 « «6 0 « 38
Lincoln Savings & Loan Ass'n v. Wall,
743 F. Supp. 901 (D.D.c. 1990) ... 50
McCarthy v. Pacific Loan, Inc., 600 F.
Supp. 136 (D. Haw. 1984) ..... . 60
Mosler v. S/P Enters., ince, 888 F.2d
1138 (7th Cir. 1989) .. , 55
North Carolina ex. rel. Long v. Alexander
& Alexander Servs., Inc., 680 F. —
746 (E.D.N.C. (1988) ..... 53
Reves v. Ernst & Young, 937 F.2d 1310
(8th Cir. 1991), cert. granted, 60
U.S.L.W. 3578 (U.S. Feb. 24, 1992) . 17
Schacht v. Brown, 711 F.2d 1343
(7th Cir.), cert. denied, 464 U.S.
viii
1002 (1983) ....
other grounds, In Re Data Access
Securities Litig., 843 F.2d 1537
(3rd Cir.
Tarrant v. Ponte, 751 F.2d 459 —
Cir. 1985
1988) ..
- « @ @ «
’
21,
649 F.2d
Sharp _v. Coopers & Lybrand
175 (3rd Cir. 1981), cert. denied,
455 U.S. 938 (1982), overruled on_
Thornton v. Evans, 692 F.2d 1064 » ee
Cir. 1982
aie £ ¢€
United States v. Amen, 831 F.2d 373
(2d Cir.
U.S. 1021
1987), cert. denied, 485
(1987) .
United States v. Angiulo, 897 F.2d
1169 (1st Cir.), cert. denied,
111 S. Ct.
U.S. 953
(1964) ..
130 (1990)
United States v. Brown,
(1948).
,
377
333 U.S.
United States v. Benjamin, 328 F.2d
854 (2d Cir.), cert. denied,
18
United States v. Cauble 706 F.2d 1322
1983), cert. denied, 465 ~
(5th Cir.
U.S. 1005
United States v. Elliott
880 (Sth Cir.), cert, denied, 439
U.S. 953
United States v. Frumento, 563 F.2d
1083 (3rd Cir. 1977), cert. denied,
434 U.S.
(1984) .
(1978) ..
1072 (1978)
ix
’
571 F.2d
21,
53
25
39
26
35
51
35
35
, 777 F.2d
United States v. Gaoud
1105 (6th Cir. 1985), cert. denied,
475 U.S. 1098 (1986) .....++.+-. 18
, 678 F.2d 84
United States v. Godoy
(9th Cir. 1982), cert. denied, 464
U.S. 959 (1983) ... . 35
United States v. Grzywacz, 603 F.2d
682 (7th Cir. 1979), cert. denied,
666. G0. Gee Gee ce cee eee ee CB
United States v. Hartley, 678 F.2d
961 (llth Cir. 1982), cert. denied,
459 U.S. 1170 and 1183 (1983) .... 35
United States v. Markowski, 772 F.2d
358 (7th Cir. 1985), cert. denied,
eg6 Ga, Bee Geese ltt tl etl eee tlCU
United States v. Martino, 648 F.2d 367
(Sth Cir. 1981), aff'd on other grounds,
FS Se Fo eorerare eee
United States v. Masters, 924 F.2d
1362 (7th Cir.), cert. denied, 111
5. Gis Bee Geese ctl tm tle el te ec ew CS
United States v. Mazzei, 700 F.2d 85
(2d Cir.), cert. denied, 461 U.S.
945 (1983) >. >. > >. > . . >. . >. >. > >. 35
United States v. Pino-Perez, 830 F.2d
1230 (9th Cir.) (en banc), cert. denied,
603 OU... GOR Cee ccc eee ees.
United States v. Perholtz, 842 F.2d 343
(D.C. Cir.), cert. denied, 488 U.S. 821
Pee eer ae er ee ee eee
688 F.2d 194
United States v. Provenzano
(3rd Cir.), cert. denied, 459 U.S. 1071
CO » « cs 2
, 946 F.2d 176
(2d Cir. 1991) . . . . . . . . . . . 34
United States v. Sutton, 642 F.2d 1001
(6th Cir. 1980), cert. denied, 453 U.S.
912 (1981) >. >. >. oO . >. . . . >. . . >. 35
United States v. Tucker, 638 F.2d 1292
(Sth Cir. 1981), cert. denied, 454 U.S.
833 (1981) . . . >. >. . > . . >. >. . >. 29
United States v. Webster, 639 F.2d 174
(4th Cir. 1981), modified on other
grounds, 669 F.2d 185 (4th Cir.), cert.
denied, 456 U.S. 935 (1982) ..... 18
United States v. Zannino, 895 F.2d 1
(lst Cir. 1990), cert. denied, 494 U.S.
1082 (1990)... . , 29
Yellow Bus Lines v. Drivers Chauffers _
& Helpers Local Union 639, 913 F.2d 948,
(D.C. Cir. 1990) (en banc), cert. denied,
111 S. Ct. 2839 (1991) eo eee e 17, 36
STATUTES:
P.L. 91-452, Organized Crime Control Act,
84 Stat. 922 (1970) (codified as amended
at 18 U.S.C. §§ 1961-68 (1988 & Supp. I
ae) 66 + 6S + «ae ae ee oe ee oe
12, 13, 14, 16, 20, 26, 27, 30, 34, 45
xi
Section 20 of the Securities Act of 1934,
48 Stat. 899 (codified as amended at 15
U.S.C. § 78 t fa} (1988)) ... 25
Section 28 (a) Securities Exchange Act
of 1934, 48 Stat. 881 (codified as
amended at 15 U.S.C. § 78 bb (a)
(1988)) .. - “at “Ge ‘a a ae 2 oe 11
18 U.S.C. § 1511 (1991) ....-s 27, 28
18 U.8.6G. § BOG8 CS0ear © © oe eo ee et 33
18 U.S.C. § 1955 (1991) ...-. - 27, 28
18 U.S.C. § 1956 (1991) .....+.. 34
18 U.S.C. § 38753 -« © © e© © © @ »« 27, 30
18 U.S.C. §@ 39377 +=«|«~© © © © © © @ 2 27, 31
21 U.S.C. § 848 (1991) oe e © © © 32
U.S.S.G. § 1B1.3 «© «© © © © © © © © »* 34
U.S8.8.G. § 4B1.3 « © © © © © © @ @ »® 34
CONGRESSIONAL MATERIALS:
115 Cong. Rec. 6993 (1969) a a ee 13
116 Cong. Rec. 602 (1970) ...+.s. . 13
134 Cong. Rec. E3720 (daily ed.
“SS — (err
xii
Federal Government's Use of the RICO
Statute and Other Efforts Against
, S. Rep. No. 101-407,
10lst Cong., 2d Sess. (1990) .... 26
H.R. Rep. No. 312, 102d Cong.,
lst Sess. (1991) . . —_ . . . . . . . 43
H.R. Rep. No. 1088, 100th Cong.,
2d Sess. (1988) >. o . 7 . o 7 . . . . 49
H.R. Rep. No. 1549, 91st Cong.,
2d Sess. (1970) . «. «© « « « « 14, 28, 31
Hearings on the Department of State,
Ft ic The Judici
Related Agencies: Appropriation for
Fiscal Year 1983, Before a Subcomm. of
the Comm. on Appropriations, House of
Representatives, 97th ee 2d Sess.
[ann i. =< EY ae , +s «
Vv : =}
99th Cong., 1st Sess. (1985) .. 42, 57
Prosecuting Fraud in the Thrift Industry: _
Hearings before the House Subcom. on
Crim. Justice, 10lst ers lst Sess.
(1989) >. o — . a. . . . o _ . . 52
RICO Reform Act of 1989, Hearing before
the Subcomm. on Crime of the House
Judiciary Comm., 101st Cong.,
lst Sess. (1989) ..++-e+«-+-+s+-ee « 42
S. Rep. No. 617, 91st Cong.,
lst Sess. (1969) ... . 14, 28, 31, 40
S. Rep. No. 495, 97th Cong.,
2G Sess. (1983) . «© «© © © © © © © © » 54
xiii
U.S. Government Efforts to Combat Fraud
‘
S. Rep. No. 102-262, 102d Cong., 2d Sess.
(1992) . . . 7 . * > . >. . . * . . >. 53
STATE CASES:
In Re Rouse, 221 N.Y. 81, 116 N.E.
782 (1917), cart. denied, 246 U.S.
661 (1918) . . . . . . . . . . . 45
Morehead v. State, 383 So. 2d 629
Dn. £6 6 « @ «¢ «6 s« ¢€ & « &
OTHER MATERIALS:
Annual Report of the U.S. Attorney
General (1985) 2s & 6 * “S @ 6 * 47
Black s_Law_pictionary — ed.
ae 66 : 22, 23, 24
G. Robert Blakey & Scott Cessar,
Equitable Relief Under Civil RICO,
62 Notre Dame L. Rev. 526
(1987) ee oe a ae ee a oe 6, 9, 16, 34
G. Robert Blakey, Definition of Organized
Crime in Statutes and Law Enforcement
Administration in President's Comm. on
Organized Crime, Report to the President
and The Attorney General--The Impact: _
Organized Crime Today (April 1986) .. 9
G. Robert Blakey, Foreword: Debunking
RICO's Myriad Myths, 64 St. John's Law
Rev. 701 (1990) . * . . . . . . . . . 39
xiv
G. Robert Blakey, The RICO Civil Fraud
Action in Context: Reflections on
Bennett v. Berg, 58 Notre Dame L. Rev.
ek. atc Se a Oe” ee |
G. Robert Blakey & Brian Gettings,
Racketeer Influenced and Corrupt
Organization (RICO): Basic Concepts--
Criminal and Civil Remedies, 53 Temple
L.Q. 1009 (1980) . . . . . . . . . . . 6
G. Robert Blakey & Thomas A. Perry, An
Analysis of the Myths That Bolster
Efforts to Rewrite RICO and the Various
Proposals for Reform, 43 Vand. L. Rev.
851 (1990) .... 5, 6, 49, 54, 58, 60
G. Robert Blakey, Js Pattern Void for
Vagueness?, 5 Civil RICO Report 6
(Dec. 12, 1989) ° . . . * . . . . . . 38
Michael K. Block, Roger G. Nold & Joseph
G. Sidk, The Deterrent Effect of Anti
Trust Enforcement, 89 J. Pol. Econ. 429
(1981) 7 . .* . >. > . . 7 . >. _ _ . _ 56
Carl Kaysen & Donald Turner, Anti Trust
Dene COeee « we ew ew ee ee kl ls 14
(1974) . * . . . . . . . . . . . * . 47
Hon. John Conyers, Jr., Corporate and
White-Collar Crime, 17 Am. Crim. L. Rev.
287 (1970) . > . = >. _ >. _ _ _ >. . . 46
Albert B. Crenshaw, Criminal Conduct Said
to P ay Role in 40% of S§ & L Failures,
Wash. Post, July 19, 1990, at El .. 50
xV
Alison Leigh Cowan, Big Law Firms and
Suit, N.Y. Times, Mar. 31, 1992, at 1,
col. 1 . . . . > . . . . . . . . . . 51
David Wigdor, Roscoe Pound: ‘Philosopher
of Law (1974)...
Edward J. Devitt & Charles B. Blackmar,
Federal Jury Practice & Instructions
(1990) . . . . . . . . . . . . . . . 33
Michael Goldsmith, Civil RICO Reform, 71
Minn. L. Rev. 827 (1987) --h-©@ @ @ « 12
Michael Goldsmith & Penrod W. Keith,
Civil RICO Abuse: The Allegations
in Context, 1986 B.Y.U. L. Rev. 55
(1984) . . . >. . . . . > . . . > 58, 59
James S. Granelli, Keating's Advisors
Under Fire: Attorneys, Accountants
Helped Massive Fraud Work Investors'
, L.A. Times, Mar. 14, 1992,
at Dl, col . 2 + . . . — . . . >. . . . 50
Herbert Edelhertz, The Nature Impact and
Prosecution of White-Collar Crime,
(1970) . . . . . . . . . . . . . 47, 52
Byron Harris,
Get Away, Wall St. J., Feb. 12, 1990,
A. 12, col. 3 . . . . . . . . . . . 50
James W. Hurst, The Growth of American
Law (1950) >. >. >. — > > . >. >. >. >. >. >. 34
xvi
Charlies McCoy, Richard B. Schmit & Jeff
Bailey, Hall of Shame: Besides S & L
in Crisis, Wall St. J., Nov. 2, 1990,
p.l, col. 6. . . * . . . . . . . . . 50
Wayne R. LaFave and Austin W. Scott, Jr.,
Criminal Law (2d ed. 1986) ..... 26
Note, Insider Abuse and Criminal
Misconduct in Financial Institutions: _
A Crisis? 64 Notre Dame L. Rev. 222
(1989) * — . >. * >. . >. >. >. . * . >. . 49
Note ’ Cc iv il RICO: The Temptation and
Impropriety of Judicial Restriction
, 95
Harv. L. Rev. 1101 (1982) ..... . 62
Note, Treble Damages Under RICO:
Characterization and Computation,
61 Notre Dame L. Rev. 526 (1986) .. 55
Note, Who Should Pay When Federally
Insured Pension Funds Go Broke? _
Wrongdoers, 65 Notre Dame L. Rev. 308
(1990) . . . * . . * >. . . >. >. . . 52
President's News Conference on Savings
Crisis and Nominees, N.Y. — Feb. 7,
1989, at D9, col. 1... =. 49
Michael Quint, New Estimate on Savings
Bailout Says Cost Could be $500 Billion
N.Y. Times, Apr. 7, 1990, at Al,
col. 1 >. >. . . hl >. . >. >. . . . . . >. 49
(1967) . . . . . . . . . . . + . . . 47
Reed Dickerson, Fundamentals of Legal
SISS<? ERE rE SS aa ee
Robert H. Jackson,
The Struggle For
Judicial Supremacy (Vintage ed. 1941) 54
Richard Posner, Economic Analysis of Law
(2d ed. 1977) . . . . . * . . . . . . 16
Roscoe Pound, Jurisprudence (1959) . 61
Report of the National Commission on
Fraudulent Financial Reporting (1987) 51
Report of the Proceedings of the Judicial
Conference of the United States,
September 21-22, 1983 ....+.+.s « 58
George Russell, All _ Eyes On Accountants:
A Once Comfortable Profession Undergoes
, Time, Sep. 21,
1986 at 61 . 7 ° . > . > . . . >. . . 51
Symposium: Reforming RICO: If, Why and
How?, 43 Vand. L. Rev. 621 (1990) .. 6
Symposium: The 20th Anniversary of the
Racketeer Influenced and Corrupt
Organizations Act (1970-1990), 64 St.
John's L. Rev. 701 (1990)... - 6
: , 65
Notre Dame L. Rev. 872 (1990) ..... 6
The Compact Edition of Oxford English
Dictionary (1971) ....+.++«-+«-++s-s. 23
United States Department of Justice,
Source Book on Criminal Justice
Dn UE «e.eeeeecee 86
——w Oe me ee 8 ote. Se,
Leslie Wayne, Where Were The
Accountants?, N.Y. Times, Mar. 12, 1989,
S 3 @B be, CBee B ec eo eo ee eo ee el 50
Webster's Third New International
Dietionary (1961) . «+ +«s«seeee-e 36
Webster's New Dictionary of Synonyms
(1971) » 35
Webster's Seventh New Collegiate
Dictionary (1970) .....++ «+e «© « « 23
xix
IN THE
SUPREME COURT OF THE UNITED STATES
October Term, 1991
No. 91-886
BOB REVES, ROBERT H. GIBBS,
and FRANCES GRAHAM, as
representatives of a class of
noteholders,
Petitioners,
Vv.
ERNST & YOUNG,
Respondent.
On Writ of Certiorari
to the United States Court of Appeals
for the Eighth Circuit
BRIEF OF AMICUS CURIAE
TRIAL LAWYERS FOR PUBLIC JUSTICE, P.C.
IN SUPPORT OF PETITIONERS
INTEREST OF AMICUS CURIAE
This brief is submitted on behalf of
frial Lawyers for Public Justice, P.c.
(TLPJ).” It is submitted with the
consent of both Petitioners and
Respondent. TLPJ is a public interest
law firm that represents victims of the
abuse of power in our society. TLPJ
selects its cases from among those that
will advance the cause of justice,
educate the public, modify corporate or
government behavior, or improve the
access of victims to the courts to remedy
injustice. Supported by over 1200
lawyers in the United States and the
world, it is the only public interest law
firm in this Country dedicated to using
civil remedies for the public good.
"The assistance in the preparation
of this brief of Notre Dame law students
Aileen M. Bigelow ('93), Edmond F. Foley
('92), David A. Haimes ('93), Mary c.
Kinsella ('92), Paul B. McCarthy ('93),
Andrew M. McIlvaine ('93) and Lynne M.
Pregenzer ('93) is hereby acknowledged.
2
Based on its experience with the
statutes, TLPJ firmly believes that the
Racketeer Influenced and Corrupt
Organizations Act (RICO) and its state
counterparts are among the few effective
remedies available to victims of crime to
obtain adequate legal redress,
particularly when they are cheated by
various forms of fraud. In this brief,
TLPJ advocates a construction of
"conduct" within federal RICO, not
limited to manage or operate, that will
maintain congressionally-mandated access
to the federal courts and the adequate
compensation provided to such victims in
the remedial provisions of RICO, 18
U.S.C. §1964.
;
SUMMARY OF ARGUMENT
In 1970, Congress enacted P.L. 91l-
3.
452, the Organized Crime Control Act,
Title IX of which is known as "RICO."
This Court ought to adopt a
straightforward definition of "conduct"
within RICO, not limited to manage or
operate, that reflects RICO's text,
legislative history and policy.
Professionals, including accountants and
lawyers, should not be insulated from
responsibility for their unlawful acts by
an artificially restrictive construction
of "conduct." In enacting RICO, Congress
was concerned with various forms of
criminal conduct, including fraud.
Nothing that has happened since then
undermines Congress' 1970 judgment.
Financial fraud, in which professionals
play a pivotal role, costs the Nation
billions of dollars annually. It
victimizes small businesses, savers,
investors, homeowners, the elderly,
4
ae tet et Oe
a
consumers, and federal, state, and local
governments. Because attempts to
restrict RICO judicially are rooted in
false myths and are constitutionally
improper, this Court should reject then.
Be CONGRESS DELIBERATELY CRAFTED
RICO AS A BROAD REMEDY FOR
VICTIMS OF PATTERNS OF CRIMINAL
CONDUCT INVOLVING ENTERPRISES.
A. RICO Provides a Critical .
Remedial Framework For Victims
of Financial Fraud.
1. The Background of RICO.
In 1970, Congress enacted P.L. 91-
452, the Organized Crime Control Act,
Title IX of which is known as RICO.’
. Pub. L. No. 91-452, 84 Stat.
922 (1970) (codified as amended at 18
U.S.C. §§ 1961-68 (1988 & Supp. I.
1989)). See generally G. Robert Blakey &
Thomas A. Perry, An Analysis of the Myths
that Bolster Efforts to Rewrite RICO and
, 43
Vand. L. Rev. 851 (1990) (hereinafter
"Myths"); G. Robert Blakey, The RICO
Civil Fraud Action in Context:
Reflections on Bennett v. Berg, 58 Notre
5
Title IX addresses "enterprise
criminality"* involving fraud.?
Dame L. Rev. 237 (1982) (hereinafter
"Civil Fraud Action"); G. Robert Blakey &
Scott Cessar, Equitable Relief Under
Civil RICO, 62 Notre Dame L. Rev. 526
(1987) (hereinafter "Equitable Relief") ;
G. Robert Blakey & Brian Gettings,
Racketeer Influenced and Corrupt
, 53 Temple
L.Q. 1009 (1980) (hereinafter "Basic
Concepts"). Three recent symposia are:
Organizations Act (1970-1990), 64 St.
John's L. Rev. 701 (1990); Symposium: |
Reforming RICO; If, Why, and How?, 43
Vand. L. Rev. 621 (1990); and Symposium:
Law and The Continuing Enterprise:
Perspectives on RICO, 65 Notre Dame L.
Rev. 872 (1990). Twenty-nine states have
RICO-type legislation. Myths at 988-
1011. See Morehead v. State, 383 So. 2d
629, 630-31 (Fla. 1980) (Florida RICO
read in light of federal RICO).
. United States v. Cauble, 706
F.2d 1322, 1330 (5th Cir. 1983)
("'‘enterprise criminality'” consists of
"all types of organized criminal behavior
'‘{ranging] from simple political
corruption to sophisticated white-collar
crime schemes to traditional Mafia-type
endeavors.'") (quoting Basic Concepts at
1013-14), cert. denied, 465 U.S. 1005
6
Congress, particularly concerned with
"“fraud,"* wanted to protect “innocent
investors." Because Congress found that
"the sanctions and remedies available"
were “unnecessarily limited in scope and
impact,"® Congress enacted RICO to
provide criminal and civil sanctions,
including imprisonment, forfeiture,
injunctions, and treble damage relief for
"person[(s]) injured" in their “business or
property” “by reason of" a violation of
the statute.’ "(T)he major purpose of
[RICO was) to address the infiltration of
(1984).
. Civil Fraud Action at 300-06
(analysis of RICO's various predicate
offenses)
: 84 Stat. 922 (1970).
. Id. at 923.
. Id.
18 U.S.C. §§ 1963, 1964(c).
7
legitimate business by organized crime," well into a traditional pattern of
but RICO was designed to reach both federal legislation enacted as general
"illegitimate" and "legitimate" reform, aimed at a specific target, but
12
enterprises.* “(T)he notion that RICO is not limited to the specific target.
limited to organized crime [, however, }
finds no support in the Act's text, and Congress directed that RICO "be
is at odds with the tenor of its liberally construed to effectuate its
| Te A OS ———
13
legislative history...."° "Congress remedial purposes." If RICO's language
drafted RICO broadly enough to encompass
a wide range of criminal activity....""°
as See, @.g., United States v.
Culbert, 435 U.S. 371, 373-74 (1978);
"(Legitimate business persons) enjoy )
:
neither an inherent incapacity for ; Perrin v. United States, 444 U.S. 37, 46
(1979); United States v. Fabrizio, 385
criminal activity nor immunity from its U.S. 263, 265-67 (1966); Bell_v. United
States, 462 U.S. 356, 358-62 (1983);
consequences.""' Accordingly, RICO fits Caminetti v. United States, 242 U.S. 470,
485-90 (1917). See generally Equitable
Relief at 529 n.13 (other cases
collected); id, at 568 n.189 (similar
a drafting of Klu Klux Klan Act of 1871 and
United States v. Turkette, 452 | Sherman Antitrust Act of 1890); G. Robert
U.S. 576, 590-91 (1981). | Blakey, Definition of Organized Crime in
Statutes and Law Enforcement
’ Administration, in President's Comm. on
Organized Crime, Report to The President
Telephone Co., 492 U.S. 229, 244-48
(1988).
| 511-80 (April
10 | Organized Crime Today ~ r
1
Sedima, S.P.R.L. v. Imrex Co., 13
Inc., 473 U.S. 479, 499 (1985). | 84 Stat. 922, 947 (1970).
is plain, it controls.“ If its
language, syntax, or context is
ambiguous, the construction that would
“effectuate its remedial purposes" "by
providing enhanced sanctions and new
remedies" is to be adopted.” Its
language is to be read in the same
fashion, whatever the character of the
suit."
"Congress [in enacting RICO) was
6 Turkette, 452 U.S. at 587 n.10;
, 464 U.S. 16,
29 (1983);
, 482 U.S. 220, 239, reh'g
Inc. v. McMahon
denied, 483 U.S. 1056 (1987); United
, 491 U.S. 600, 606
States v. Monsanto
(1989); HJ. Inc., 492 U.S. at 249.
's 84 Stat. 922, 947 (1970);
Turkette, 452 U.S. at 487-88, 593;
Russello, 464 U.S. at 27; Sedima, 473
U.S. at 497-98; Monsanto, 491 U.S. at
609; Tafflin v. Levitt, 493 U.S. 455,
467, reh'g denied, 495 U.S. 915 (1990).
6 Sedima, 473 U.S. at 489;
Shearson, 482 U.S. at 239.
10
i =
well aware that it was entering a new
domain."'? An issue was whether RICO
should preempt other remedies. Congress,
however, saved "“provision(s]) of federal,
state, or other law imposing criminal
penalties or affording civil remedies in
addition to those provided for" in
Rico."
"Congress enacted RICO in order to
supplement, not supplant, the available
remedies since it thought those remedies
offered too little protection for the
7 Qurkette, 452 U.S. at 586.
84 Stat. 922, 947 (1970). Such
clauses are a common feature of federal
statutes. See, e.g., Securities Exchange
Act of 1934, ch. 404, § 28(a), 48 Stat.
881, 903 ( 15
U.S.C. §78bb(a) (1988)) (“rights and
remedies" “in addition” to “any and all
other rights" that exist).
11
victims."'? Such overlap between
statutes “is neither unusual nor
unfortunate." The existence of
cumulative remedies furthers remedial
purposes. ?*'
2. Standards Of Unlawful Conduct
Under RICO.
Title 18, United States Code,
Section 1962, sets forth standards of
"unlawful" conduct. Section 1963 sets
out criminal penalties, and Section 1964
sets out civil remedies. RICO is not
primarily criminal and punitive, but
19 '
Bank & Trust Co. of Chicago, 747 F.2d
384, 392 (7th Cir. 1984), aff'd, 473 U.S.
606 (1985). See Michael Goldsmith, civil
, 71 Minn. L. Rev. 827, 840-48
(1987).
#0 —s« GEG vv. National Sec., Inc., 390
U.S. 453, 468 (1969).
21
459 U.S. 375, 386 (1983).
12
ae
a Te
civil and remedial.”
a. Person.
Title 18, United States Code,
Section 1961(3), in relevant part,
provides:
(3) 'person' includes any
individual or entity capable of
holding a legal or beneficial
interest in property....
b. Standards.
Title 18, United States Code,
2 Turkette, 452 U.S. at 592-93;
Sedima, 473 U.S. at 497-98; Shearson, 482
U.S. at 238-42; Tafflin, 493 U.S. at 467
(citing Sedima). Statutory
classifications control over federal
common law classifications. City of
Milwaukee v. Illinois, 451 U.S. 304, 312-
15 (1982). Such statutory
classifications are entitled to great
deference.
, 465 U.S. 354,
365 (1984). See algo 115 Cong. Rec. 6993
(1969) (Stat. of Sen. Hruska) ("(T)he
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) (Stat. of Sen.
Hruska) ("the principal value of this
legislation may well be found to exist in
its civil provisions").
13
Section 1962(c), in relevant part,
provides:
(c) It shall be unlawful for
any person employed by or
associated with any enterprise
engaged in ... interstate ...
commerce, to conduct or
participate, directly or
indirectly, in the conduct of
such enterprise's affairs
through a pattern of
racketeering activity ...
(emphasis added).
Like the antitrust statutes,
RICO's civil provisions "create a private
enforcement mechanism that...deter{[s]
violators....{and]) provide[{s] ample
e S. Rep. No. 617, 91st Cong.,
lst Sess. 81, 157-61 (1969); H.R. Rep.
No. 1549, 91st Corig., 2d Sess. 56-60
(1970). RICO and the antitrust statutes
are well integrated. "There are three
possible kinds of force which a firm can
resort to: violence (or threat of it),
deception, or market power." Carl Kaysen
& Donald Turner, Antitrust Policy 17
(1959). RICO focuses on the first two;
antitrust laws focus on the third. See
also American Column Lumber Co. v.
United States, 257 U.S. 377, 414 (1921)
(Brandeis, J., dissenting) ("Restraint
may be exerted through force or fraud or
agreement.").
14
compensation to the victims." RICO's
treble damage provisions “provide strong
incentives to civil litigants and are
integral to the effort of Congress to
enlist the aid of civil claimants in
deterring" violations of RICO.” Such
"private...litigation is one of the
surest weapons for effective
enforcement" of the law; it "provide[s]
a significant supplement to the limited
resources available to [the
government). "27
24 :
McCready, 457 U.S. 465, 472 (1982).
25
, 731 F.2d 1160,
1165 (5th Cir. 1984). ,
26
Leh v. Genera] Petroleum Corp.,
382 U.S. 54, 59 (1965) (quoting Minnesota
Mining & Mfg. Co. v. New Jersey Wood
Finishing Co., 381 U.S. 311, 318 (1965)),
reh'g denied, 382 U.S. 1001 (1966).
27s Reiter v. Sonotone Corp., 442
U.S. 330, 344 (1979). In fact, between
1960 and 1980, of the 22,585 civil and
15
B. The Eighth Circuit Adopted A
Restrictive Construction of "Conduct"
Under RICO That is Inconsistent with
RICO's Plain Meaning, P.L. 91-452 as a
Whole, the Congressional Mandate That
RICO Be Liberally Construed, and
Congress’ Own Understanding of RICO.
oe
Following the dictum in its prior
decision in Bennett v. Berg,” the Eighth
Circuit held in the instant litigation
Me ttm
that "conduct" within RICO "ordinarily
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.
Richard Posner,
462 (private enforcement), 143, 272 (more
than actual damage awards, for deliberate |
conduct), 235 (concealment) (2d ed.
1977). On the history and economic
rationale of treble damages, see
Equitable Relief at 530 n.17.
26 710 F.2d 1361, 1364 (8th Cir.)
(en banc), cert. denied, 464 U.S. 1008
(1983).
16
will require some participation in the
operation or management of the enterprise
itself." 937 F.2d 1310, 1324, cert.
granted, 60 U.S.L.W. 3578 (U.S. Feb. 24,
1992) (No. 91-886). Auditing, meeting
with a board of directors to explain the
audits, and presentations at annual
meetings, does not, the Court held,
constitute such operation or management.
937 F.2d at 1324. As such, the Eighth
Circuit--consistent with the D.C. Circuit
and earlier, but no longer controlling,
Fourth Circuit precedent, and in
opposition to precedent in the Second,
Third, Fourth, Fifth, Sixth, Seventh,
Ninth, and Eleventh Circuits--continued
to follow its own "restrictive view."”
“9s See Yellow Bus Lines v.
639, 913 F.2d 948, 952-95 (D.C. Cir.
1990) (en banc) ("most restrictive")
(review of 2d, 4th, 5th, 7th and 11th
Cir. precedent), cert. denied, 111 S. ct.
17
a. A Restrictive Construction of
"Conduct" Is Inconsistent With RICO's
Plain Meaning.
While the interpretation of RICO
begins with the plain language of its
text, structure, legislative history, and
congressional policy are also
important.” "person," which defines who
2839 (1991); United States v. Provenzano,
688 F.2d 194, 200 (3d Cir.), cert.
denied, 459 U.S. 1071 (1982); United
, 639 F.2d 174, 185 (4th
Cir. 1981) (earlier manage or operate
test no longer controlling), modified on
other grounds, 669 F.2d 185 (4th Cir.),
cert. denied, 456 U.S. 935 (1982); United
States v. Gaoud, 777 F.2d 1105, 1116 (6th
Cir. 1985), cert. denied, 475 U.S. 1098
(1986); Blake v. Diedorff, 856 F.2d 1365,
1372 (9th Cir. 1988).
30 This Court in Turkette,
Russello, Sedima,
~ , 483 U.S. 143 (1987)
Shearson,
States, 491 U.S. 617 (1989), Monsanto,
Tafflin, HJ. Inc. and SIPC v. Holmes,
No. 90-727 decided March 24, 1992,
established the basic principles that
govern RICO:
(1) read the language of the
statute (Turkette, 452 U.S. at 580,
593; Russello, 464 U.S. at 20
(citing Turkette); Sedima, 473 U.S.
18
at 495 n.13; Shearson, 482 U.S. at
227; Monsanto, 491 U.S. at 606
(citing Turkette); H.J. Inc., 492
U.S. at 237 (citing Russello));
(2) language includes its
structure (Turkette, 452 U.S. at
582, 587; Russello, 464 U.S. at 22-
23; Sedima, 473 U.S. at 490 n.8, 496
n.14; Agency Holding Corp., 483 U.S.
at 152);
(3) language should be read in
its ordinary or plain meaning, but
must be viewed in context (Turkette,
452 U.S. at 580, 583 n.5, 587;
Russello, 464 U.S. at 20 (citing
Turkette), 21-23, 25; Sedima, 473
U.S. at 495 n.13; HJ. Inc., 492
U.S. at 238 (citing Richards v.
United States, 369 U.S. 1, 9
(1962)):
(4) language should not be read
differently in criminal and civil
proceedings (Sedima, 473 U.S. at
489, 492; Shearson, 482 U.S. at 239-
40) (citing Sedima) );
(5) look to the legislative
history of the statute (Turkette,
452 U.S. at 586, 589; Sedima, 473
U.S. at 486, 489; Shearson, 482 U.S.
at 238-41; Agency Holding Corp., 483
U.S. at 151; Monsanto, 491 U.S. at
613; HJ. Inc., 492 U.S. at 236-39
(citing Sedima); Tafflin, 493 U.S.
at 464);
(6) look to the policy of the
statute (Turkette, 452 U.S. at 590;
Russejijo, 464 U.S. at 24; Sedima,
473 U.S. at 493; Tafflin, 493 U.S.
at 467);
19
may violate RICO, includes "any
individual or entity." 18 U.S.C. §
1961(3). “Any”™ means "all", not “some,
(7) the statute was aimed at
the infiltration of legitimate
business by organized crime
(Turkette, 452 U.S. at 591;
Russello, 464 U.S. at 27, 28 (citing
Turkette); Caplin & Drysdale, 491
U.S. at 630; H.J. Inc., 492 U.S. at
245 (citing Russello and Turkette)) ;
(8) the statute was not limited
to the infiltration of legitimate
business by organized crime
(Turkette, 452 U.S. at 590-91;
Russello, 464 U.S. at 28; Sedima,
473 U.S. at 495, 499; H.J. Inc., 492
U.S. at 242-49 (citing Sedima));
(9) the statute is to be
broadly read and liberally construed
(Turkette, 452 U.S. at 587, 593;
Russello, 464 U.S. at 21; Sedima,
473 U.S. at 491-92 n.10, 497-98;
Monsanto, 491 U.S. at 609 (citing
Sedima); H.J. Inc., 492 U.S. at 237;
Tafflin, 493 U.S. at 467 (citing
Sedima)); and
(10) the civil enforcement
mechanism of the statute was modeled
on the similar provision of the
antitrust laws (Sedima 473 U.S. at
489; Shearson 482 U.S. at 241;
Agency Holding Corp., 483 U.S. at
150-51; SIPC, slip opinion at 7).
20
but not others."*' No distinction is
made between "insiders" or "outsiders."
Inculpation under RICO is not limited to
"mobsters." Sedima, 473 U.S. at 495
("not just mobster"). White-collar
professionals, too, are not to be
automatically exculpated.™
31 :
Distribution Co., 111 S. Ct. 615, 623
(1991) (since "'any' encompasses
‘'all'"...the statute is clear and
unambiguous [and] that is the end of the
matter...") (citing Sullivan v. Stroop,
110 S. Ct. 2499, 2502 (1990) (quoting K-
, 486 U.S.
281, 291 (1988)).
32 See, @.9., Schacht v. Brown,
711 F.2d 1343, 1360 (7th Cir.) ("the RICO
net is woven tightly to trap even the
smallest fish") (quoting United States
v. Elliot, 571 F.2d 880, 903 (5th Cir.),
cert. denied, 439 U.S. 953 (1978))
(accountants liable in insurance fraud),
cert. denied 464 U.S. 1002 (1983).
33 See, @.g., Furman v. Cirrito,
741 F.2d 524, 529 (2nd Cir.) (RICO
includes "no exception for businessmen,
for white-collar workers, for bankers, or
for stockbrokers") (Pratt, J.), vacated
in part on other grounds, 473 U.S. 922
(1985).
21
The language “to conduct or
participate, directly or indirectly, in
the conduct of...[{an] enterprise's
affairs" is easily understood as a matter
of plain meaning. As ouch, "(tj)here is
no warrant for seeking refined arguments
to show that the statute does not mean
what it says." United States v.
Wurzbach, 280 U.S. 396, 398 (1930)
(Holmes, J.). The key distinction is in
the use of "conduct" in the relevant
language as a verb ("to conduct") and as
a noun ("conduct"). Conduct as a verb is
defined as "[t])o manage; direct; lead;
have direction, carry on; regulate; do
business." Black's Law Dictionary 367
(4th ed. 1957). Conduct as a noun,
however, is defined as "(p)ersonal
behavior; deportment; mode of action; any
22
positive or negative act." Id.“ In the
relevant language, "to conduct" is then
stated in the disjunctive ("or") with
"participate," which is, in turn, defined
as "to receive or have a part or share
of; to partake of; experience in common
with others; to have or enjoy a part or
share in common with others; partake; as
to 'participate' in a discussion. To
take a part in; as to participate in joy
- See also
508 (1971)
("The notion of direction or leadership
is often obscured or lost; e.g., an
investigation is conducted by all those
who take part in it");
173 ey (=2.
management... 3....personal behavior") ;
Webster's New Dictionary of Synonyms 174
(1971) ("conduct may imply the act of an
agent who is both the leader and the
person responsible for the acts and
achievements of a group...but often the
idea of leadership is lost or obscured
and the stress is placed on a carrying on
by all or by many of the
participants....").
23
or sorrows." Id. at 1275.5
As such, while "conduct" as a verb
("to conduct") may mean management,
direction, etc., Congress manifestly
intended to cast a wider net, since it
added to "to conduct" in the disjunctive
("or") “[(to) participate directly or
indirectly." See Russello, 464 U.S. at
21 ("RICO...utilize[{s]) terms and concepts
of breadth [,including) ‘'participate'").
Clearly, too, "conduct" in the relevant
language (“the conduct of") is used as a
noun. As such, it means "behavior,
deportment, mode of action, etc." If it
is read to mean "management," its
placement in the sentence becomes
superfluous. The sentence would read "to
35 See also “particeps criminis,"
which is Latin for “participant ina
crime; an accomplice." Black's Law
Dictionary 1274 (4th ed. 1957).
24
~
manage...in the management of." While if
it means “behavior,” the sentence would--
more plausibly--read “to manage...in the
behavior, deportment, or mode of action
of." Plain meaning, therefore, belies
the Eighth Circuit's construction of
RICO. As such, its restrictive--and
superfluous--reading ought not be adopted
by this Court.*
ad It is not the law in comparable
provisions. "Conduct" and “control” are
synonyms. Webster's New Dictionary of
Synonyms 174 (1971). Section 20 of the
Securities Exchange Act of 1934, 48 Stat.
881, 899 (codified as amended at 15
U.S.C. § 78 t{a] (1988)) (“directly or
indirectly controls"), however, extends
to accountants. Sharp v. Coopers &
Lybrand, 649 F.2d 175, 185 (3d Cir.
1981), cert. denied, 455 U.S. 938 (1982),
overruled on other grounds; In Re Data
Access Securities Litig., 843 F.2d 1537
(3d Cir. 1988). See also
Olson, 794 F.2d 1319, 1322 (8th Cir.
1986) (Sharp followed).
If “conduct” within RICO were
restricted to manage or operate, it
could, moreover, lead to a management
only rule. Compare United States v.
Pino-Perez, 830 F.2d 1230, 1237 (7th
Cir.) (en banc) (principal in the second
25
5. A Restrictive Construction of
"Conduct" Within RICO Is
Inconsistent with P.L. 91-452
As A Whole.
Repeatedly, this Court has read P.L.
91-452 as a whole. TJannelli v. United
States,*” (Title VIII (gambling) read in
light of Title X (dangerous special
degree liability possible under 21 U.S.C.
§ 848 (CCE or Drug Kingpin statute)),
cert. denied, 493 U.S. 901 (1989) with
, 831 F.2d 373, 381-
82 (2nd Cir. 1987) (liability under § 848
limited to principal in the first
degree), cert. denied, 485 U.S. 1021
(1987). RICO then would be eviscerated
as an effective weapon against criminal
groups, for unlike CCE, RICO's predicates
include state offenses; a failure to
convict under RICO might well lead to a
failure to convict at all. RICO ought
not to be so hobbled. See generally
Federal Government's Use of The RICO
Statute and Other Efforts Against
Organized Crime, S. Rep. No. 101-407,
101ist Cong., 2nd Sess. 31-36 (1990) (RICO
effective against organized crime); Wayne
R. LaFave and Austin W. Scott, Jr.
Criminal Law § 6.8(c) (2d ed. 1986)
(person who may not directly commit an
offense may be convicted as accomplice).
37 420 U.S. 770, 786-91 (1975),
Ohio, 432 U.S. 161 (1977).
26
offender)); Sedima, 473 U.S. at 489 n.7.
(Title IX RICO read in light of Title X
(dangerous special offender)); H.J.
Inc., 492 U.S. at 239-40 (Title IX (RICO)
read in light of Title X (dangerous
special offender)) ("(Wje may take
guidance from a provision elsewhere
in...P.L. 91-452"). As P.L. 91-452 is
"a carefully crafted piece of
legislation," ZTannelli, 420 U.S. at 789,
here, too, this Court's task is made
easier if it looks to Title VIII (18
U.S.C. §§ 1511, 1955) and Title X (18
U.S.C. §§ 3575, 3577). These other
provisions enacted by P.L. 91-452 show
Congress' intent in Title Ix.
18 U.S.C. § 1511(a), in relevant
part, provides:
It shall be unlawful...to
conspire to obstruct the
enforcement of the criminal
laws of a State...with the
27
intent to facilitate an illegal
gambling business if--
(3) one or more of such persons
conducts, finances, manages,
supervises, directs, or owns
all or part of an illegal
gambling business (emphasis
added).
18 U.S.C. § 1955(a), in relevant
part, provides:
Whoever conducts, finances,
manages, supervises, directs,
or owns all or part of an
illegal gambling business shall
be....(emphasis added) .*
This Court--and the prevailing view
among the circuits--holds that "conduct"
in 18 U.S.C. §§ 1511 and 1955 is to be
38 See S. Rep. No. 617, 91st
Cong., list Sess. 155 (1969) (“officials
covered by (Senate passed text of §§
1511, 1955) are not to be artificially
limited, and participation...is to be
understood comprehensively"); H. Rep. No.
1549, 91st Cong., 2d Sess. 53 (1970)
("The term 'conducts' [in the enacted
texts of §§ 1511, 1955] refers both to
high level bosses and street level
employees.").
28
read without an artificial restriction.
See, e.g., Sanabria v. United States, 437
U.S. 54, 70 n.26 (1978) ("conduct"
proscribes “any degree of participation
in an illegal gambling business"); United
States v. Zannino, 895 F.2d 1, 10 (lst
Cir.), cert. denied, 494 U.S. 1082
(1990).°* Similarly worded statutes in
pari materia should receive a similar
” Significantly, when the Fifth
Circuit in Bank of America Nat'] Trust &
Sav. Ass'n v. Touche Ross & Co., 782 F.2d
966, 970 (llth Cir. 1986) rejected, in
civil litigation under RICO, the manage
or operate test for "conduct," it
properly relied on its prior decision in
, 648 F.2d 367,
382 (Sth Cir. 1981), .
grounds, 464 U.S. 16 (1983), a criminal
prosecution, which, in turn, relied upon
, 638 F.2d 1292,
1295-96 (5th Cir.) (waitress who serves
drinks conducts illegal gambling business
under 18 U.S.C. § 1955, since her
services are “necessary or helpful" to
the operation of the enterprise), cert.
denied, 454 U.S. 833 (1981). The Fifth
Circuit's reading of “conduct"™ in RICO in
light of "conduct" in § 1955 was
principled. This Court should do no
less.
29
construction. SIPC, slip opinion at 8-9
("by reason of" in Section 1964(C) read
in light of "by reason of" in §4 of the
Clayton Act) .*
18 U.S.C. § 3575(c), in relevant
part, as enacted in 1970 as part of Title
X of P.L. 91-452, but now repealed, then
provided:
A defendant is a special -
offender...if--
(1) xxx (recidivist provisions)
(2) the defendant committed
such felony as part of a
pattern of conduct...in which
he manifested special skill or
expertise; or
(3) such felony was, or the
defendant committed such felony
in furtherance of, a
conspiracy...to engage in a
pattern of conduct...,and the
“0s See also Erlenbaugh v. United
States, 409 U.S. 239, 243 (1972); United
States v. Stewart, 311 U.S. 60, 64-65
(1940).
30
defendant did, or agreed that
he would, initiate, organize,
plan, finance, direct, manage,
or supervise all or part of
such conspiracy or conduct, or
give or receive a bribe or use
force as all or part of such
conduct (emphasis added) .*'
18 U.S.C. § 3577, as enacted in 1970
as part of Title X of P.L. 91-452, but
now repealed, then provided:
No limitation shall be
placed on the information
. See S. Rep. No. 617, 91st
Cong., lst Sess. 164-65 (1969)
("Paragraph (2)...is designed to deal
with the professional offender, who may
neither be a recidivist nor play a
leadership role.... The circumstance of
the conduct itself must demonstrate that
the offender is a professional possessing
special skill or expertise.... The
phrase ‘skill or expertise’ is meant
broadly....xxx Paragraph (3)...is
designed to deal...with...[{t]hose who
personally play or are to play leadership
roles....); H.R. Rep. No. 1549, 9lst
Cong., 2d Sess. 61-62 (1970) (“Paragraph
(2)...-is designed to deal with the
professional offender, who may neither be
a convicted recidivist nor play a
leadership role....xxx Paragraph (3)...is
designed to deal primarily with...[({t]hose
who personally play...leadership
roles....").
31
concerning the background,
character, and conduct of a
person convicted of an offense
which a court of the United
States may receive and consider
for the purpose of imposing an
appropriate sentence (emphasis
added).
Chief Justice John Marshall made the
point more than one hundred years ago:
"TA) law is the best expositor of
itself."** Clearly, Congress used
"conduct" primarily in the sense of
"behavior" in the provisions it added to
Title 18 by P.L. 91-452. When it wanted
to restrict its focus to particular
aspects of participation in such
behavior, it chose appropriate language.
Had Congress intended "manage or operate"
each time it used “conduct” in the
statute, it would have said it. Sedima,
473 U.S. at 489; Russello, 464 U.S. at
‘2 «Pennington v. Coxe, 6 U.S. (2
Cranch) 34, 52 (1804).
32
3; Turkette, 452 U.S. at 581."
“ Throughout the United States
Code, when Congress creates criminal or
civil liability for those who hold
positions of management, it consistently
uses a form of the word "manage." See,
@e.g., 21 U.S.C. §848 (1991) (CCE) ("a
person is engaged in «4 continuing
criminal enterprise if...such person
occupies a position of organizer, a
supervisory position, or other position
of management") (emphasis added); Garrett
v. United States, 471 U.S. 773, 781
(1985) ("This language is designed to
reach the ‘top brass' in the drug rings,
not the lieutenants and foot soldiers.")
See also Edward J. Devitt & Charles B.
Blackmar, Federal Jury Practice &
Instructions §55.07 (1990) ("The term
‘organizer' and the terms ‘supervisory
position' and ‘position of management’
are to be given their usual and ordinary
meanings. These words imply the exercise
of power or authority by a person who
occupies some position of management or
supervision.") See also 18 U.S.C. §1952
(1991) ("Whoever travels in interstate
commerce with intent to...otherwise
promote, manage, establish, carry on, or
facilitate the promotion, management,
establishment, or carrying on, of any
unlawful activity...") (emphasis added).
Despite the specific use of the word
"manage" in §1952, courts, however,
consistently interpret the phrase
"promote, manage, establish, carry on, or
facilitate" to mean "any act that would
cause the ‘unlawful activity' described
in the indictment to be accomplished or
33
Be A Restrictive Construction of
Conduct Within RICO Is
Inconsistent With The
Congressional Mandate That RICO
Be Liberally Construed.
RICO must be "liberally construed to
effectuate its remedial purposes."™
to assist the ‘unlawful activity' in any
way." See, @.g., U.S. v. Markowski, 772
F.2d 358, 364 (7th Cir. 1985), cert.
denied, 475 U.S. 1018 (1986). See also
Devitt & Blackma®, supra at §46.05.
Other Title 18 offenses are construed
Similarly. See, e.g., 18 U.S.C. §1956
(1991) ("conduct...financial
transactions"); United States v. Skinner,
946 F.2d 176, 178 (2d Cir. 1991) (broad
construction). A similar use of
"conduct" is made in the Sentencing
Guidelines. See, e.g., U.S.S.G. §1B1.3
("relevant conduct" means “acts or
omissions"); U.S.S.G. §4B1.3 ("pattern of
criminal conduct" means "planned criminal
acts occurring over a substantial period
of time. Such acts may involve a single
course of conduct or independent
offenses.") Restricting "conduct" within
RICO would be inconsistent, therefore,
with "conduct" usage throughout the Code.
Ironically, these other statutes are not
necessarily supposed to be liberally
construed.
“ 84 Stat. 922, 947 (1970). See
at 532 n.21 (origin of
clause traced to work of Edward
Livingston between 1820 and 1825).
34
Turkette, 452 U.S. at 593 ("both
preventive and remedial")“* The Eighth
Judicial hostility to change through
legislation was common in the nineteenth
century. James W. Hurst,
American Law 186 (1950). It became
standard practice in drafting statutes to
insert a preamble stating broadly the
purpose of the act and to close with a
provision declaring that the statute
should be liberally construed. David
Wigdor, :
174 (1974). In fact, a majority of
states have abolished the common law rule
of strict construction. Civil Fraud
Action at 245 n.25. See also id. at 288
n.150 (analysis of relation between rules
of construction, including rule of
lenity, and Liberal Construction Clause).
“s Circuit courts faithfully
follow the liberal construction mandate
in criminal litigation. See, e.g.,
, 897 F.2d 1169,
United States v. Angiulo
1216 (lst Cir.), cert. denied, 1115S. ct.
130 (1990); United States v. Mazzei, 700
F.2d 85, 89-90 (2d Cir.), cert. denied,
461 U.S. 945 (1983); United States v.
Frumento, 563 F.2d 1083, 1090-91 (3d Cir.
1977), cert. denied, 434 U.S. 1072
(1978); In re Billman, 915 F.2d 916, 921
(4th Cir.), cert. denied, 111 S. Ct. 2258
(1991); United States v. Elliott, 571 |
F.2d 880, 897-98 (5th Cir.), cert.
denied, 439 U.S. 953 (1978); United
, 642 F.2d 1001, 1003
States v. Sutton
(6th Cir. 1980), cert. denied, 453 U.S.
912 (1981); United States v. Grzywacz,
35
Circuit did not seek to justify its
adoption of the manage or operate test in
the teeth of RICO's Liberal Construction
Clause. Candidly, the D.c. Circuit in
Yellow Bus recognized that the Eighth
Circuit's position was "the most
restrictive view." 913 F.2d at 953. The
D.c. Circuit then sought to justify its
adoption of the illiberal view, however,
by reference to dictionary meaning (id.
at 954) and strict construction (jd. at
955). Neither supports its position.
When it cited the dictionary, the
D.c. Circuit unjustifiably ignored an
603 F.2d 682, 685-86 (7th Cir. 1979),
cert. denied, 446 U.S. 935 (1980); United
States v. Godoy, 678 F.2d 84, 86-87 (9th
Cir. 1982), cert. denied, 464 U.S. 959
(1983); United States v. Hartley, 678
F.2d 961, 988 (l1ith Cir. 1982), cert.
denied, 459 U.S. 1170 (1983); and United
, 842 F.2d 343, 353
States v. Perholtz
(D.c. Cir.), cert. denied, 488 U.S. 821
(1988). This Court should do no less.
36
alternative--and more plausible--meaning
set out in the same source. See
Webster's Third New International
Dictionary 473 (1961) ("behavior"). The
rule of strict construction, too, did not
warrant the D.C. Circuit's adoption of
the “narrowest meaning.” Turkette, 452
U.S. at 587-88 n.10 ("not an inexorable
command to override common sense and
evident statutory purpose. xxx [Strict
construction] is satisfied if the words
are given their fair meaning in accord
with the manifest intent of the
lawmakers.") (quoting United States v.
Brown, 333 U.S. 18, 25-26 (1948)). The
D. C. Circuit, in short, conflated
breadth, ambiguity, and vagueness. As
such, it confused the kind of uncertainty
of application that stems from breadth of
meaning caused by the use of broad terms,
the kind of uncertainty of application
37
that stems from multiplicity of meaning
caused by ambiguity, and the kind of
impossibility of application that stems
from vagueness caused by the use of terms
having no meaning.“
RICO is neither ambiguous nor vague;
it is broad. Sedima, 473 U.S. at 499
(citing Hareco at 398) (RICO
"demonstrates breadth," not
“ambiguity."). See also HJ. Inmc., 492
U.S. at 237 ("terms and concept of
breadth") (citing Russello, 464 U.S. at
21).
The strict construction rule,
“6 See Reed Dickerson
; 22-33
1965) (analysis of "major diseases of
fe generality, ambiguity and
ss); G. Robert Blakey,
void fe ; , 5 Civil RICO Report
6, 9n.27 (Dec. 12, 1989).
38
moreover, has no proper application to
RICO in light of the Liberal Construction
Clause. The rule is merely "a principle
of statutory construction."*? It is not
a constitutional requirement.“ As such,
subject to the constitutional void-for-
vagueness doctrine, Congress may abrogate
it.“ Absent first amendment
considerations, not present in this
litigation, a statute--RICO included--
must be judged, as applied, not on its
47
442 U.S. 114, 121 (1979). See also
Turkette, 452 U.S. at 588; Russello, 464
U.S. at 29 (citing Turkette); Sedima, 473
U.S. at 492 n.10.
6 see, @.g.,
751 F.2d 459, 466 (1st Cir. 1985).
’
49
See generally Civil Fraud
Action at 245 n.25 (rule analyzed and
statutes collected); 288 n.150 (liberal
and strict construction compared with
void-for-vagueness doctrine); G. Robert
Blakey, : :
, 64 St. John's L. Rev. 701,
718-19 (1990) (collection of void-for-
vagueness precedents).
39
face.’ Here, the accountants, who
engaged in "a number of reprehensible
acts," 937 F.2d at 1324, can hardly be
heard to complain in "surprised
innocence" when their behavior is found
to violate RICO.”
4. A Restrictive Construction of
Conduct Within RICO Is Inconsistent With
Congress' Own Understanding of RICO.
The “views of a subsequent Congress
so See, @.c., Village of Hoffman
Inc., 455 U.S. 489, 495 n.7 (1982).
‘1s United States v. Ragen, 314
U.S. 513, 523-24 (1942) (“surprised
innocence"). If the predicate offenses,
are "not unconstitutionally vague, [then
RICO]}...cannot be vague either.” Fort
, 489 U.S.
46, 65-58 (1989); United States v.
, 924 F.2d 1362, 1367 (7th Cir.)
(RICO constitutional as applied)
(violation of RICO rather than predicate
offense “a detail"), cert. denied, 111 S.
Ct. 2019 (1991); S. Rep. No. 617, 91st
Cong., 1st Sess. 158 (1969) (notice stems
from predicate acts).
40
— a
SE ee
form a hazardous basis for inferring the
intent of an earlier one." "/s)tatutes
are construed by the courts with
reference to the circumstances existing
at the time of the passage."™
Nevertheless, subsequent legislative
developments, which "confirm"™ a
construction of "conduct" in RICO that is
not limited to manage or operate and
which would not exclude professionals,
are entitled to "significant weight."
Efforts to "reform" RICO after
32 sd RBussello, 464 U.S. at 26
(quoting
'
460 U.S. 150, 165
n.17 (1983)). j ;
53
405, 411 (1962).
, 370 U.S.
* See
446 U.S. 657, 666 n.8 (1980).
Seatrain Shipbuilding Corp. v.
Shell Oil] Co,, 444 U.S. 572, 596 (1980).
41
Sedima properly focused on Congress.”
Bar associations” and the accounting
profession™ played leading roles. A
major effort was made to exempt
professionals.” Writing special rules
for one group, however, is
% = See, e@.g., Oversight on Civil
, 99th Cong., lst
Sess. (1985) (hereinafter "1985
Hearings.").
7 See, @.9., id, at 579
(testimony of Arthur F. Mathews in behalf
of Ad Hoc Civil RICO Task Force of An.
Bar Ass'n) (high-level managerial agent
limitation should be adopted).
38 See, @.0., id. at 243
(testimony of Ray J. Groves in behalf of
American Institute of Certified Public
Accountants).
399 = See, @.9., RICO Reform Act of
1989: Hearings before the Subcomm on
, i10lst
Cong., lst Sess. 455 (1989) (testimony of
Robert L. Chiesa on behalf of Am. Bar
Ass'n) ("conduct" should require "policy
making power" to “insulate accountants").
42
|
|
controversial.” The proposed reform now
pending in Congress does not provide
special rules for special groups.*’ The
accounting profession ought not now
obtain, therefore, in this judicial
forum, a limitation on RICO that it was
not successful in obtaining in the
political forum.
“ See, @.9., 134 Cong. Rec. E3720
(daily ed. Oct. 21, 1988) (Stat. of Rep.
John Conyers, Jr.) ("I see no reason to
give the likes of Boesky or Butcher in
their stock fraud or bank fraud
activities a special bill of relief.").
o H.R. Rep. No. 312, 102d Cong.,
lst Sess. 7, 15 (1991) (reporting H.R.
1717) (Prior legislation rejected because
it "would go too far in certain respects
and give the appearance of favoring
certain industries, such as the
commodities, securities and savings and
loan industries which are currently the
subject of major fraud investigations; no
limit on “conduct" adopted; "major
participant" screen for "gatekeeper"
approach “creates no special protection
for any group....[{A]ccountants, lawyers
and investment bankers....will still be
liable....™).
43
II. A RESTRICTIVE CONSTRUCTION OF
CONDUCT WITHIN RICO WOULD
UNJUSTIFIABLY INSULATE FROM LEGAL
RESPONSIBILITY MANY PIVOTAL
PARTICIPANTS IN DEVASTATING SCHEMES
TO DEFRAUD.
Article III 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...."
Nevertheless, an examination of the
considerations implicated by Congress'
action in 1970 is required by this
Court's jurisprudence that plain meaning
may be departed from to avoid absurd or
surprising results.“ The broad language
62 = Diamond v. Chakrabarty, 447
U.S. 303, 318 (1980) (quoting TVA v.
Hill, 437 U.S. 153, 194 (1978)). See
' '
also
Q'Neill, 111 S. Ct. 1127, 1135 (1991).
See, e.9., United States v.
Ryan, 284 U.S. 167, 175-76 (1931) (civil
forfeiture provision narrowed to give it
44
chosen by Congress in RICO, however, is
"neither absurd nor surprising."™
The controversy over RICO does not
primarily center 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, it
focuses almost exclusively on the
commercial fraud area. In 1970, however,
Congress focused RICO on "fraud." 384
"a sensible construction").
“ 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"), cert.
denied, 246 U.S. 661 (1918). RICO
sponsors, too, had professionals in mind.
See Civil Fraud Action at 254 nn. 48 & 50
and 270 n.98. Such comments are a
“weighty gloss." Galvan v. Press 347
U.S. 522, 527 (1954).
45
Stat. 922. It found that traditional
“sanctions and remedies" were
"unnecessarily limited in scope and
impact." Jd, at 923. It was well aware,
in short, that “existing law, state and
federal, was not adequate...." Turkette,
452 U.S. at 586. While almost two
decades have passed since RICO became
law, the task of controlling fraud
remains formidable. "White-collar crime
is 'the most serious and all-pervasive
crime problem in America today.'"®
Although this statement was made in 1980,
there is no reason to think the problem
has diminished in the meantime.
In 1974, the Chamber of Commerce
6 Braswell _v. United States, 487
U.S. 99, 115 n.9 (1988) (quoting Hon.
John Conyers, Jr., Corporate and White-
, 17 Am. Crim. L. Rev. 287,
288 (1980)).
46
estimated the direct economic cost of
fraud as $41.78 billion annually.®
Given the inflation rate since the 1974
study, fraud likely costs society a
figure more than four times that amount
today.*’ The Chamber of Commerce study,
moreover, did not account for the entire
impact of fraud. White-collar crime has
a “serious influence on the social
fabric, and on the freedom of commercial
Less 6 (1974). Obviously, these
estimates can only be "ballpark" figures,
for the typical perpetrator of a fraud
does not file an honest “annual report."
See ;
& Admin. of Justice, Task Force Report:
Crime and Its Impact--An Assessment 103
(1967).
67
42 (1985 200
billion). oe
47
and interpersonal transactions."®
Because white-collar offenders often
occupy positions of trust, their misdeeds
impact beyond their immediate target.
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 ... integrity ... and ...
are responsible for the loss of billions
of dollars annually...."” Consumers,
savers, investors, legitimate
businesspeople and governments are the
victims of such fraud.
66 =s See generally Herbert
Edelhertz, The Nature. Impact. and
(1970) (hereinafter "Edelhertz").
6-7
97th Cong., 2nd Sess. 144 (1982).
48
A nationwide problem of thrift and
bank failures, for example, is of
epidemic proportions.” The President
told the Nation in 1989 that
"unconscionable risk-taking, fraud and
outright criminality [were] factors"”
that led to this crisis, which is now
expected to cost at least $500 billion
over thirty years.” Congressional
studies agree with the President: At
least one half of bank failures and one
quarter of thrift failures involve
70
oo >
Note, I zae-spnereley Myths at 882-86;
Crisis?, 64 Notre Dame L. Rev
(1989). =e
71
President's News Conference on
N.Y. Times,
Feb. 7, 1989, at D9, col. 1. "
_ Michael Quint, New Estimate on
Billion, N.¥. Times, Apr. 7, 1990, at Al,
col. 1 (reporting General Accounting
Office estimate).
49
criminal activity by insiders.”
Professionals played key roles in many of
these failures.”
" H.R. Rep. No. 1088, 100th
Cong., 2d Sess. 2-13 (1988).
” See James S. Granelli,
: Attorneys
Investors Lawyers Say, L.A. Times, Mar.
14, 1992, at Dl, col. 2; Byron Harris,
, Wall
St. J. Feb. 12, 1990, Al2, col. 33
Charles McCoy, Richard B. Schmit & Jeff
Bailey, :
in Crisis, Wall St. J. Nov. 2, 1990, p.1,
col. 6; Albert B. Crenshaw, Criminal
Failures, Wash. Post, July 19, 1990, at
El (twenty percent of the failures had
accountants, lawyers, brokers and other
professionals at ony: responsible for
alpractice); Leslie Wayne, Where Were
The Accountants?, N.Y. Times, Mar. 12,
989 3 atl, col. 2. See
Saal , ' . 743 F.
Supp. 901, 920 (D.D.C. 1990) (Sporkin,
J.) ("What is difficult to understand is
that with all the professional talent
involved (both accounting and legal), why
at least one professional would not have
blown the whistle to stop the
overreaching that took place in this
case.").
50
Fraudulent financial reporting is a
serious national problem. When
fraudulent financial reporting occurs,
widespread consequences result "with a
sometimes devastating ripple effect."
Appropriately, since 1980, the major
accounting firms at fault have had to pay
millions of dollars to settle liability
suits.” Little can be said for a
Report of the National
Reporting 4 (1987). See
, 328 F.2d 854, 863 (2d Cir.)
(Friendly, J.) ("In our complex society,
the accountant's certificate and the
lawyer's opinion can be instruments for
inflicting pecuniary loss more potent
than the chisel or the crowbar."), cert.
denied, 377 U.S. 953 (1964).
George Russell, All Eves On
Accountants: A Once Comfortable
Profession Undergoes Unprecedented
Scrutiny, Time, Apr. 21, 1986, at 61.
See also Alison Leigh Cowan, Big Law and
Suit, N.¥. Times, Mar. 31, 1992, at 1,
col. i (Ernst & Young and Jones, Day,
Reavis & Pogue settle Keating
litigation).
51
construction of "conduct" within RICO
that would give these white-collar
offenders a safe-harbor from their just
deserts.
The fraud problem facing the Nation
seems overwhelming, but it is not
unsolvable. If RICO--federal and state--
is used with other law enforcement tools,
it can emerge, as Congress and the state
legislatures intended, as an effective
means for combatting fraud in the thrift
and banking industries,” the pension
7 Both the RTC and FDIC use RICO.
See, @.¢-,
Express. Inc., 658 F. Supp. 1331 (D.P.R.
1987); FDIC vy. Hardin, 608 F. Supp. 348
(E.D. Tenn. 1985). See generally
Hearings before the House Subcomm. on
Crim. Justice, 101lst Cong., ist Sess.
(1989).
52
fiela™ and the insurance industry.”
For "(i)f substantial progress can be
made in the prevention, deterrence and
See, @.9.,
692 F.2d 1064, 1065 (7th Cir. 1982)
(pension plan fraud) ("Evidence...traces
a pattern which seems distressingly
prevalent today: the savings of working
men and women are pilfered, embezzled,
parlayed, mismanaged and outright stolen
by unscrupulous persons occupying
positions of trust and confidence.").
RICO is being used successfully on behalf
of plan beneficiaries. See, e.g.,
,
Crawford v, LaBoucherie Bernard Ltd., No.
83-0780 (D.D.C. Aug. 15, 1984), aff'd,
815 F.2d 117 (D.C. Cir), cert. denied,
484 U.S. 943 (1987); Note, Who Should Pay
When Federally Insured Pension Funds Go
Wrongdoers, 65 Notre Dame L. Rev. 308
(1990).
oe Stace insurance commissioners
are using RICO to vindicate the interests
of the companies that have been
defrauded. See, @.g., Schacht, 711 F.2d
at 1356-58; North Carolina ex. rel. Long
v. Alexander & Alexander Servs.. Inc.,
680 F. Supp. 746, 749-51 (E.D.N.C. 1988).
See generally U. S. Government Efforts to
Combat Fraud and Abuse in the Insurance
Industry, S. Rep. No. 102-262, 102nd
Cong., 2d Sess. 17 (1992) ("unless ...
forceful action is taken ... tragedies
will continue....").
53
successful prosecution of...({white-
collar) crime, we may reasonably
anticipate substantial benefits to the
material and qualitative aspects of our
national life."™
Restricting RICO will substantially
cripple the federal courts' ability to
apply RICO to achieve its remedial
purposes. In 1970, Congress recognized
that existing jurisprudence was
inadequate to deal with patterns of
criminal behavior, including fraud. The
Nation cannot solely rely, moreover, upon
public enforcement to bear the burden of
policing fraud. Over forty-five years
ago Justice Jackson rightly observed that
"(tjhe criminal law...{has] long proved
futile to reach the subtle kinds of fraud
~—s Eehertz at 11.
54
at all, and able to reach grosser fraud,
only rarely."*' Public agencies charged
with policing fraud will never be funded
or staffed at adequate levels.” civil
RICO's treble damage mechanisn,
therefore, plays an essential role.™
o Robert H. Jackson,
152 (Vintage ed.
1941).
s@ ss See, @.g., Myths at 912-16
(analysis of underfunding of SEC and
CFTC). The Commodity Futures Trading
Commission has been for some time
"thoroughly outgunned in the ongoing
battle against commodity fraud." S. Rep.
No. 495, 97th Cong., 2d Sess. 10 (1983).
Mosler v. S/P Enters.,
inc., 888 F.2d 1138, 1143-44 (7th Cir.
1989) (RICO fraud) (Easterbrook, J.):
Because (such) frauds are
concealable, trebling is
important to produce proper
incentives. (citations
omitted). If perpetrators pay
what they took when they get
caught, and keep the proceeds
the rest of the time, then
fraud is profitable. If
victims recoup only what they
lost, and face the burdens and
uncertainties of the legal
process plus the costs of their
Accordingly, the statute's civil
provisions are necessary if the Nation is
to combat and deter fraudulent activities
successfully . Private lawsuits with the
threat of treble damages may, in fact, be
more effective in combatting fraud than
the threat of criminal penalties.™
own counsel, then victory will
not make them whole, and the
shortfall may mean that victims
will not vigorously investigate
and litigate. Trebling [under
RICO] addresses both halves of
this equation.
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) compensate victims for all
accumulative harm. These multiple and
convergent purposes make the treble
damage provision a powerful mechanism in
the effort to vindicate the interests of
those victimized by crime.").
a Empirical studies, for
example, show that the threat of treble
damages, not criminal prosecution, is the
backbone of the antitrust statutes.
"Neither imprisonment nor monetary
penalties pose...a credible threat to
colluding firms....[{T])he deterrent
56
Testimony presented to Congress in 1985
by the Department of Justice indicated:
(Cjivil RICO's utility
against continuous large-scale
criminality not involving
traditional organized crime
elements should be kept in
mind. These considerations
suggest that private civil RICO
enforcement in area(s] of
organized criminality may have
had a greater deterrent impact
than is commonly recognized,
and that both the threat and
the actuality of private civil
enforcement might be expected
to produce even greater
deterrence in the future.®
A restrictive construction of "conduct"
within RICO, limiting it to manage or
operate, would, therefore, deprive many
effect...{comes] from...the likelihood of
an award of private treble damages....".
Michael K. Block, Roger G. Nold & Joseph
G. Sidk, The Deterrent Effect of
Antitrust Enforcement
, 89 J. Pol. Econ.
429, 440 (1981).
_ ‘© 41985 Hearings at 140-41
(testimony of Assistant Attorney General
Stephen Trott).
57
fraud victims of access to a potent
weapon in federal courts, as Congress
designed it.
Nor is the potential for litigation
abuse an acceptable reason for
restricting the scope of civil riIco.™
Allegations of civil RICO abuse should be
dealt with by vigorously enforcing the
existing remedies for general litigation
abuse. RICO abuse will not be a problem
so long as attorneys and the courts
os Those 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
Ws . eee
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. See
Myths at 877-80:
58
"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." 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."”
val Michael Goldsmith & Penrod Ww.
Keith, :
in Context, 1986 B.Y.U. L. Rev. 55, 103
(1984). (hereinafter "RICO Abuse"). The
1983 meeting of the United States
Judicial Conference concluded that "the
existing tools [to address frivolous
litigation] are sufficient, but perhaps
not fully understood or utilized."
Report of the Proceedings of the Judicial
Conference of the United States
, Sept.
21-22, 1983, at 56.
s —« RICO Abuse at 104.
9 Hoover v. Ronwin, 466 U.s. 558,
601 (1984) (Stevens, J., dissenting). He
continued:
Our legal system has developed
59
Finally, lower courts have frankly
acknowledged that their restrictive
reading of RICO is motivated by a fear of
a "flood of litigation. "™ Such fears
are misplaced factually” and are a
constitutionally impermissible factor to
employ in construing a statute. This
Court teaches that the fact that
litigation might be a burden on courts is
"not sufficient to justify a judicial
decision to alter [a] congressionally
procedures for speedily
disposing of unfound Claims; if
they are inadequate to protect
(individuais] from vexatious
litigation, then there is
something wrong with those
procedures, not with the
law....Id. .
——— is. *
600 F. Supp.
91 -
Myths at 869-73
civil filing data). —
60
(drafted remedial scheme}."" It is a
legislative function to resolve "the pros
and cons of whether a statute should
sweep broadly or narrowly."™" Congress
resolved those “pros and cons” when it
stated unambiguously that RICO is to be
construed broadly. "(Rjewriting [RICO]
is {, therefore,] a job for Congress, if
it is so inclined." H.J. Inc., 492 U.S.
. at 249 (quoting Sedima, 473 U.S. at 495).
As such, the accounting profession urges
a constitutionally-suspect course of
action when it asks this Court to rewrite
RICO on its own. This Court should have
no part of it.™ ar
Patsy v. Board of Regents of
State of Florida, 457 U.S. 496, 512 n.13
(1982).
% United states v. Rodgers, 466
U.S. 475, 484 (1984).
= More than one hundred years
ago, this Court noted that "(ijt is easy,
by very ingenious and astute
61
CONCLUSION necessary if victims of fraud are to be
In 1970, Congress directed that RICO adequately compensated. This Court
be liberally construed to effectuate its should resist efforts to rewrite RICO
remedial purposes. Excluding restrictively. The Eighth Circuit's
professionals from "conduct" within RICO decision should, therefore, be reversed.
would be an illiberal construction of the
statute. It would hobble criminal
enforcement of the statute. Civil RICO's
private enforcement mechanism, too, is
construction, to evade the force of
almost any statute, where a court is so
disposed....[{By] such a construction [it
is possible to) annul [the statute] and
(render) it superfluous and useless."
, 54 U.S. (13 How.) 472,
476 (1851) (Grier, J.). Dean Roscoe
Pound concluded that such "ingenious and
astute" constructions (1) "tend[{ed] to
bring law into disrespect;
(2)...subject(ed] the courts to political
pressure; [and] (3)...invite[({d] an
arbitrary personal element in judicial
administration." Roscoe Pound, III,
Jurisprudence 488 (1959). It threatened,
he found, to make "“laws...worth little"
and to “break down" the "legal order"
itself. Id, at 490. See generally,
Note,
, 95
Harv. L. Rev. 1101 (1982).
62
Respectfully submitted,
G. Robert Blakey
(Counsel of Record)
Notre Dame Law School
Notre Dame, IN 46556
(219) 239-5717
Priscilla R. Budeiri
Arthur H. Bryant
Trial Lawyers For
Public. Justice, P.c.
1625 Massachusetts Ave., N.W.
Suite 100
Washington, D.C. 20036
(202) 797-8600
Attorneys For Amicus curiae
Trial Lawyers For
Public Justice, P.c.
63
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