# Amicus Curiae Brief — Mohawk Industries, Inc. v. Williams

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2006
- **Citation:** 547 U.S. 516

## Text

(i) , FILED
¢

FEB 2- 2006 =

No. 05-465 OFFICE OF THE CLERK ;

Jn The Supreme Court of the Anited States

MOH AWK INDUSTRIES, INC..,

‘ Petitioner,

SHIRLEY WILLIAMS, GALE PELFREY, BONNIE JONES, AND
LORA SISSON, INDIVIDUALLY AND ON BEHALF OF A CLASS,

Respondents.

ON WRIT OF CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

BRIEF OF THE NATIONAL ASSOCIATION OF
MANUFACTURERS, ASSOCIATED BUILDERS
AND CONTRACTORS, INC., THE CARPET AND
RUG INSTITUTE, AND AMERICAN STAFFING
ASSOCIATION AS AMICI CURIAE IN

SUPPORT OF PETITIONER

MICHAEL J. MUELLER JAN S. AMUNDSON
Counsel of Record QUENTIN RIEGEL
MICHAEL A. FITZPATRICK NATIONAL ASSOCIATION
THOMAS L. SIMEK Or MANUFACTURERS
JAMES E. SHERRY 1331 PENNSYLVANIA
AKIN GUMP STRAUSS HAUER AVENUE, NW

& FELD, LLP WASHINGTON, DC 20004
1333 New HAMPSHIRE Tet: (202) 637-3000

AVENUE, NW

WASHINGTON, DC 20036
“TEL: (202) 887-4000

Attorneys for Amici Curiae the National Association
of Manufacturers, Associated Builders and
Contractors, Inc., The Carpet and Rug Institute,
and American Staffing Association

AMERICAN FINANCIAL PRINTERS @ (202) 464-5500

TABLE OF CONTENTS

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6

address, there is simply no basis for distinguishing between
these two approaches to running a business.

A. The Eleventh Circuit’s Decision Rests Upon An
Arbitrary Distinction Between Corporations
That Contract With Third Parties For
Necessary Services And Corporations That
Perform All Such Functions “In House.” This
Distinction Is Contrary To RICO’s Plain
Purposes And Will Tend To _ Discourage
Economically Efficient Corporate Contracting
In Favor Of Inefficient Vertical Integration.

The courts of appeals universally have rejected attempts
to plead a RICO association-in-fact enterprise where the
alleged enterprise consists of the corporation together with
its employees, see, ¢e.g., Riverwoods Chapaqua Corp. v.
Marine Midland Bank, N.A., 30 F.3d 339, 344 (2d Cir.
1994), or the corporation with its subsidiaries, see, e.g.,
Bessette v. Avco Fin. Servs., Inc. 230 F.3d 439, 449 (lst Cir.
2000). The Second, Third, and Seventh Circuits have
reasonably extended this principle to cases involving
corporations and third-party service contractors, and have
rejected attempts to plead association-in-fact enterprises in
cases involving corporations contracting with third-party
agents to conduct routine business activity. See Baker v.
IBP, Inc., 357 F.3d 685, 691 (7th Cir. 2004); Fitzgerald v.
Chrysler Corp., 116 F.3d 225, 226-27 (7th Cir. 1997);
Discon, Inc. v. Nynex Corp., 93 F.3d 1055, 1064 (2d Cir.
1996); R.R. Brittingham v. Mobil Corp., 943 F.2d 297, 300-
02 (3d Cir. 1991). These courts have recognized that there is
no functional difference between a corporation that conducts
certain activities, such as_ recruiting employees or
distributing products, through tts own internal divisions or
subsidiaries and one that performs these functions through
the use of third-party agents. In both instances, the

7

corporation is simply conducting its own affairs, not the
affairs of a separate and distinct enterprise. See, e.g.,
Fitzgerald, 116 F.3d at 227 (“What we cannot imagine, and
what we do not find any support for in appellate case law, is
applying RICO to a free-standing corporation such as
Chrysler merely because Chrysler does business through
agents, as virtually every manufacturer does.”’); Brittingham,
943 F.2d at 301 (“We believe a § 1962(c) enterprise must be
more than an association of individuals or entities
conducting the normal affairs of a defendant corporation.”).

In contrast to these rulings, the decision below would
allow a plaintiff to plead a RICO claim against a corporate
defendant simply by alleging that the corporation contracted
with third-party service providers to accomplish an essential
corporate function, in this case hiring employees. The
Eleventh Circuit thus creates an arbitrary and oppressive
distinction between corporations that conduct their
operations through outside contractors and corporations that ©
conduct these operations internally or through wholly-owned
subsidiaries. If, in this case, the plaintiffs had pleaded that
Mohawk recruited its employees solely through an internal
department charged with identifying and hiring potential
employees, the plaintiffs would not have stated a claim under
the accepted principle that a corporation together with its
employees cannot constitute a RICO enterprise distinct from
the corporation itself. Only because Mohawk allegedly——— _
retained a third-party recruiter to accomplish this task has the
Eleventh Circuit permitted plaintiffs to proceed with their
RICO claim. Whether it had used outside recruiters or an
internal recruiting department, Mohawk has done nothing
more than conduct a routine and essential business task,
hiring employees. The Eleventh Circuit offered no reason
why Mohawk’s use of outside recruiters presented the
particular concerns RICO was designed to address.

8

This Court has identified two distinct purposes
underlying RICO. The first of these purposes is to protect
corporations from persons and entities that would use the
corporations for their own unlawful purposes. See Cedric
Kushner Promotions, Ltd. v. Don King, 533 U.S. 158, 162
(2001) (identifying as among RICO’s purposes “prevent[ing]
a person from victimizing, say, a small business” and
“prevent[ing| a person from using a corporation for criminal
purposes”). The second, distinct purpose of the RICO
Statute 1s to facilitate the prosecution of organized crime.
See United States v. Turkette, 452 U.S. 576, 584 (1981)
(observing that RICO addresses not only the misuse of
“legitimate businesses,” but also the operation of “wholly
illegitimate enterprises”). The statute accomplishes its first
purpose in part by making it unlawful to “conduct [an]
enterprise’s affairs through a pattern of racketeering
activity.” 18 U.S.C. § 1962(c) (2000). The statute
accomplishes its second purpose by defining “enterprise” to
include “group[s] of individuals associated in fact although
not a legal entity.” 18 U.S.C. § 1961(4) (2000). Consistent
with this statutory language and the decisions of this Court,
the courts of appeals have consistently identified RICO’s
twin purposes as the protection of legitimate businesses from
criminal misuse and the prosecution of organized crime.
See, e.g., Brittingham, 943 F.2d at 300; Sinclair v. Hawk,
314 F.3d 934, 943 (8th Cir. 2003); Aetna Cas. & Sur. Co. v.
P & B Autobody, 43 F.3d 1546, 1558 (ist Cir. 1994).

There is nothing, however, in the language, legislative
history, or judicial interpretations of RICO to support the
arbitrary and economically irrational penalization of
corporations that use third-party contractors to perform
functions that other corporations perform “in house.” Amici,
like Chief Judge Posner of the Seventh Circuit Court of
Appeals, “have never heard it suggested that RICO was
intended to encourage vertical integration... .” See

9

Fitzgerald, 116 F.3d at 227. To the contrary, it is plainly
offensive to RICO’s business-protective purposes to
transform the statute from a shield designed to protect
legitimate businesses from misuse into an arbitrary and
discriminatory weapon for suing businesses that rely on
third-party service providers. Just as the courts of appeals
have unanimously refused to subvert RICO’s business-
protective purposes by rejecting alleged association-in-fact
enterprises predicated on corporations acting through
employees and subsidiaries, so too should this Court refuse
to apply the statute to the materially identical circumstances
of corporations using third-party service contractors.

B. The Use Of Third-Party Service Contractors,
Including Recruiting Firms And _ Staffing
Agencies, Is A Ubiquitous Feature Of The
Modern American Economy.

The Eleventh Circuit’s decision has the potential to
expand dramatically the filing of civil RICO claims because
American businesses increasingly rely on independent agents
and contractors in carrying out routine commercial activities.
In particular, a growing number of American companics
from diverse industries use third-party recruiting firms to
hire permanent workers and third-party staffing agencies to
obtain temporary and contract employees.’ Recruiting firms
and staffing agencies perform vital functions for American
business, both by reducing the transaction costs involved in
matching skilled employees with employers and by enabling

> See JESSICA COHEN, WILLIAM T. DICKENS, & ADAM POSEN, HAVE NEW
HUMAN RESOURCE MANAGEMENT PRACTICES LOWERED THE SUSTAINABLE
UNEMPLOYMENT RATE? 8-10 (2001), available at
http://www. brookings.org/views/papers/dickens/-20010515.htm — (citing
various studies documenting the explosive growth of temporary and contract
labor in the 1980s and 1990s) (last visited Jan. 23, 2006).

10

employers to meet their labor demands during periods of
relative labor scarcity.’

The gap between manufacturers’ need for skilled
workers and the decreasing number of workers available to
meet this demand 1s one of the most significant problems
facing American manufacturers today.° This dearth of
skilled labor frustrates manufacturers’ ability to achieve
optimal production levels, increase productivity, and meet
consumer demand.° In a recent study, eighty-one percent of
manufacturers surveyed stated that they were facing a
moderate to severe shortage of qualified workers.’ In
addition, fifty-three percent of survey respondents stated that
at least ten percent of their total positions currently remain
unfilled due to a lack of qualified candidates."

Faced with a shortage of permanent skilled labor,
manufacturers and employers in other industries rely heavily
on third-party recruiting firms to meet their demand for such
workers.’ Recruiting firms have the resources and expertise

4

See LAWRENCE F. KATZ & ALAN B. KRUEGER, THE HIGH PRESSURE
U.S. LABOR MARKET OF THE 1990s 40 (1999), available at
http://www. irs.princeton.edu/krueger/working_papers.html (stating that
staffing agencies that supply temporary and contingent workers help reduce
hiring costs and labor market bottlenecks and facilitate better matches
between employees and employers) (last visited Jan. 24, 2006).

> See DELOITTE CONSULTING & THE NATIONAL ASSOCIATION OF
MANUFACTURERS (NAM), 2005 SKILLS GAP REPORT — A SURVEY OF THE
AMERICAN MANUFACTURING WORKFORCE | (2005), available at
http://www.nam.org/s nam/bin.asp?C1ID=89& DID=235731&DOC=
FILE.PDF (last visited Jan. 23, 2006).

® See id. at i.

’ See id. at 4.

* See id.

* According to the American Staffing Association, independent recruiting
firms and staffing agencies are particularly important for companies in all
industries during periods of economic growth because companies face rising
demand for workers at a time when the labor market often is tightening.

necessary to identify potential employees and match them
with appropriate employment opportunities.'” In contrast,
employers often do not have the same ability to identify and
match skilled employees with employers’ needs. It ts often
more costly for employers to devote company time and
resources to locating and hiring skilled labor than to rely on
outside recruiting firms."'

In addition to using outside recruiters to satisfy their
demand for permanent workers, American companies are
increasingly dependent on outside staffing agencies to
provide them with temporary, contract, and other contingent
employees.'? The use of temporary and contract workers
supplied by outside staffing agencies has expanded
substantially since the mid-1990s.'’ By 2004, U.S. staffing

AMERICAN STAFFING ASSOCIATION (ASA), STAFFING INDUSTRY ECONOMIC
ANALYSIS, available at http://www.americanstaffing.net/stat-
istics/economic2005.cfm (last visited Jan. 23, 2006).

"For example, in confronting a surge in demand for big-screen

televisions in 2004, Sony hired 1,700 skilled contingent workers to meet its
production needs. Sony used an outside placement firm that had to sift
through 15,000 applications just to find the 1,700 employees that were
eventually hired. See Jim McKay, Sony ready to hire 1,000, PITTSBURGH
Post-GAZETTE, May 29, 2005, available at LEXIS, News Library, Kniritrb
File.

'' In tight labor markets, outside recruiting firms and staffing agencies

enjoy economies of scale in recruiting and screening workers, and thus can
increase the efficiency with which employees are matched with employers.
See Susan N. Houseman, Arne L. Kalleberg, & George A. Erickcek, The
Role of Temporary Agency Employment in Tight Labor Markets, 57 INDUS.
& LAB. Rev. Rev. 105, 125 (2003).

See COUEN FT AL., supra note 3, at 17-18, 27 (summarizing results of
interviews with human resource managers regarding the use of temporary
workers supplied by staffing agencies).

'’ The 1990s witnessed an upsurge in the use of contracting, outsourcing,
and temporary workers as firms, particularly in the manufacturing sector,
reorganized the structure of their hiring of labor in response to increased
competitive pressure and technical change. See COHEN ET AL., supra note
3, at 4-5.

12

agencies employed an average of 2.55 million temporary and
contract workers per day, and had hired a total of 11.7
million employees.'* American companies rely on outside
staffing agencies to provide a reliable source of temporary
and contract employees to meet their ever-changing short-
term labor needs. The increased use of contract and
temporary workers has been a key element of the
transformation of the American workplace over the last two
decades."°

The use of outside staffing agencies to provide
temporary and contract workers is particularly important in
the manufacturing sector." In the NAM’s 2005 Skills Gap
Report, prepared by Deloitte Consulting, one-third of the
manufacturing firms surveyed stated that in order to fill their
need for highly-skilled employees, they would increase their
use of temporary contract workers.'’ Moreover, as noted in a
study by the Employment Policies Institute, staffing agencies
that supply temporary and contingent workers help to
increase employment in the manufacturing sector by
providing U.S. companies with the flexibility to adjust their
workforces in response to uncertain and ever-changing labor
needs." This study found a significant upward trend in the
hiring of temporary and contingent workers in the 1990s."°

14

ASA, supra note 9.

'S See COHEN ET AL., supra note 3, at 2-4.

“ See id. at 10 (reciting several studies showing the growth in the use of
temporary workers in the manufacturing sector).

"See DELOITTE CONSULTING & NAM, supra note 5, at 8.

MARCELLO EsTEVAO & SAUL LACH, EMPLOYMENT POLICIES
INSTITUTE, MPASURING TEMPORARY LABOR OUTSOURCING IN U.S.
MANUFACTURING I1-12 (2001), available at
hitp://www.cpionline.org/studies/estevao 12-2001 pdf (last visited Jan. 25,
2006); see also COMLN, ET AL., supra note 3, at 18.

" EstevAo & LACH, supra note 18, at 11.

13

Outside staffing agencies also play a vital role in the
construction industry, an industry that employs 5.6 percent
of this country’s entire private workforce.” While the
construction industry as a whole has a relatively steady
demand for workers, turnover often is high at individual
companies because construction projects are typically of
short duration. According to the U.S. Bureau of Labor
Statistics, monthly worker turnover in the construction
industry can vary between 4.2 and 6.9 percent.*' This high
turnover rate often produces labor shortages, despite the
widespread availability of potential employces, due to the
high transaction costs of matching available cmployees to
specific employment opportunities. Independent staffing
agencies can ameliorate this problem by providing a steady
supply of construction workers to construction firms in
response to the firms’ short-term labor demands. By
working with independent staffing agencies, construction
firms can avoid the cost of retaining permanent employees in
the face of ever-fluctuating demand for construction
services, while guaranteeing a pool of available labor that
will enable them to respond rapidly to new business
opportunities.

*’ U.S. SMALL BUSINESS ADMINISTRATION, OFFICE OF ECONOMIC

RESEARCH, MAJOR INDUSTRIES BY NAIC’S CODES: PRIVATE EMPLOYER
FIRMS, ESTABLISHMENTS, EMPLOYMENT AND ANNUAL PAYROLL BY FIRM
SIZE, 1998-2002 (2002), available at http://www.sba.gov/advo/research/
us tot mi_na.pdf (last visited Jan. 24, 2006).

U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS, JOB
OPENINGS AND LABOR TURNOVER SURVEY (2005), available at
http://data bls. zov/cgi-bin/surveymost?jt (last visited Jan. 24, 2006).

14

C. The Eleventh Circuit’s Decision Threatens To
Undermine The Stability Of Necessary And
Advantageous Business Relationships Between
Corporations And Third-Party Contractors By
Allowing Such Relationships To Be The Basis
For Lengthy And Expensive RICO Suits.

In light of these developments in the business
environment, particularly in the manufacturing and
construction sectors, the Eleventh Circuit's decision will
have a number of pernicious consequences. Because more
and more corporations rely on outside recruiting firms and
staffing agencies to supply necessary labor, a rule that
enables plaintiffs to plead an association-in-fact enterprise
solely because a defendant corporation contracted with an
independent service agent will result in an increase in the
number of businesses exposed to RICO liability. The
Eleventh Circuit’s unjustifiably relaxed pleading standard
for an association-in-fact enterprise may deter corporations
from using outside contractors and agents precisely when the
use of such agents is becoming increasingly widespread and
important to competitive survival. This expansion ts
unjustified, as it allows plaintiffs to use a statutory tool
designed to prevent the misuse of organizations and
eradicate organized crime against corporations that have
simply adapted to the economic realities of doing business in
the Twenty-First Century global economy. There is simply
no reason to think that corporations that-conduct their hiring
activities with the assistance of third-party recruiting firnis
or staffing agencies pose the threats RICO was designed to
combat any more than corporations that conduct these
operations “in house.”

The problem posed by the Eleventh Circuit's decision
lies in its low threshold for pleading an association-in-fact
RICO theory. The decision makes clear that very little is

15

required at the pleading stage, even if “the plaintiffs may be
unable to prove such allegations at trial... .”. Mohawk, 411
F.3d at 1258-60. This poses serious consequences even for
sizeable corporate defendants. RICO litigation is complex,
lengthy, and expensive. Thus, in Holmes v. Securities
Investor Protection Corp., this Court adopted a narrower
construction of RICO than that advanced by the plaintiff,
noting that a contrary approach “would open the door-te
‘massive and complex damages litigation[, which would] not
only burde[n] the courts, but also underminfe] the
effectiveness of treble-damages suits."”*” 503 U.S. 258, 274
(1992) (quoting Associated Gen. Contractors of Cal., Inc. v.
Carpenters, 459 U.S. 519, 545 (1983)) (brackets in original);
accord Tafflin v. Levitt, 493 U.S. 455, 465 (1990) (noting
“the complexities of civil RICO actions”); HJ. Inc. v.
Northwestern. Bell Tel. Co., 492 U.S. 229, 251 (1989)
(Scalia, J., concurring) (criticizing this Court’s ruling in
Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479 (1985), for

* Despite this Court’s rulings narrowing the construction of RICO, the
potential for treble damages and fee shifting have continued to make it
popular with private plaintiffs. According to the Administrative Office of
the U.S. Courts, 840 civil RICO actions were filed in the year ending March
31, 2005 (of which cight were filed by the United States); 695 in the year
ending March 31, 2004 (of which four were filed by the United States); 845
in the year ending March 31, 2003 (of which ten were filed by the United
States), 707 in the year ending March 31, 2002 (of which seven were filed
by the United States); and 791 in the year ending March 31, 2001 (of which
four were filed by the United States). See Federal Judicial Caseload
Statistics, Table C-2 (U.S. District Courts—Civil Cases Commenced, by
Basis of Jurisdiction and Nature of Suit) for each respective year, available
at http://www.uscourts. gov/library/statisticsalreports. html (last visited Jan.
22, 2006). Although the Administrative Office does not keep track of
which RICO cases involve corporate defendants, it is the experience of
amici that the vast majority of these cases have been filed against
corporations. Furthermore, because the corporate defendant must be
“distinct” from the enterprise under Cedric Kushner Promotions, Ltd. v.
King, 533 U.S. 158 (2001), a large number of these cases involve creative
allegations that the corporation is one member of an association-in-fact
enterprise that includes additional entities or natural persons.

16

creating “years” of litigation and “countless millions in
damages and attorney’s fees’’).

These cautionary observations have been borne out by
another civil RICO case to come before the Court. National
Organization for Women, Inc. v. Scheidler was filed in 1986,
and this Court first considered it on review of an order
granting a motion to dismiss. See 510 U.S. 249 (1994)
(NOW 1). After this Court reinstated the complaint, the
parties engaged in years of discovery and other proceedings
before the case came to this Court a second time. See
Scheidler v. Nat'l Org. for Women, Inc., 537 U.S. 393 (2003)
(NOW II). Twenty years after it commenced, the case is now
before the Court for a third decision. See Nos. 04-1244 and
04-1352.

il. THE COURT SHOULD ADOPT A BRIGHT-LINE
RULE THAT A CORPORATION CANNOT BE A
MEMBER OF A RICO ASSOCIATION-IN-FACT
ENTERPRISE OR, ALTERNATIVELY, THAT
SUCH AN ENTERPRISE CANNOT CONSIST OF
A CORPORATION AND THE THIRD-PARTY
SERVICE PROVIDERS IT USES TO CARRY OUT
ITS NORMAL BUSINESS FUNCTIONS.

The “test” provided by the Eleventh Circuit’s decision
provides little, if any, guidance to businesses about how to
structure their affairs to minimize exposure to civil RICO
claims. The Eleventh Circuit’s decision permits a civil
RICO plaintiff to cobble together an alleged association-in-
fact enterprise comprising a corporation and other “distinct
entities,” no matter how “loose or informa!” is_ the
association among them. See Mohawk, 411 F.3d at 1258.
This is hardly a standard and, indeed, it demonstrates the
unduly broad range of conjured enterprises that plaintiffs
may plead under 7urkette and still survive a motion to

17

dismiss. The confusion on this point explains the split in the
Circuits on the issue raised by Petitioner, and also the
uncertain exposure of American companies depending upon
the Circuit in which they do business. Amici therefore urge
this Court to adopt a bright-line rule that enables businesses
to plan efficiently while protecting them from meritless
RICO strike suits.”

A. Bright-Line Rules Should Be Preferred In
Cases Affecting Significant Commercial
Interests, Because Efficient Business Planning
Requires Plain And Predictable Statements Of
Legal Rights And Obligations.

In the contest between bright-line rules and imprecise
standards, it is generally recognized that rules have to
recommend them their clarity, uniformity, predictability, and
ease of application. See Cass R. Sunstein, Probigms with
Rules, 83 Cal. L. Rev. 953, 971-78 (1995); Louis Kaplow,
Rules Versus Standards: An Economic Analysis, 42 Duke

** lt might be argued that the Eleventh Circuit's “distinct entities” test
already constitutes a bright-line rule. However, as noted in Part I, this Court
should reject the Eleventh Circuit's analysis because it is inconsistent with
RICO’s purposes and ignores the reality that corporations always must
conduct their business through agents, often including third partics.
Moreover, the Eleventh Circuit's opinion does not actually set forth a
bright-line rule. Although the opinion states that the members of an
association-in-fact enterprise must be “individual entities,” see 411 F.3d at
1258 (quotation omitted), and also must be “distinct,” see id., there is no -
explanation of what renders one entity “individual” or “distinct” from
another. Thus, at the pleading stage, the Eleventh Circuit's opinion amounts
to no more than a “wait and see” approach, and not a bright-line rule. As
amici argue in the main text, this Court should issue a clear pronouncement
that corporations do not even qualify as “individuals” under RICO's
definition of an association-in-fact enterprise. Alternatively, the Court
' should adopt the same clear rule of limitation applied by the Second, Third,
and Seventh Circuits that corporations are never “distinct” from the agents
they rely on to conduct norma! business activities.

18

LJ. 557, 571-624 (1992); Antonin Scalia, The Rule of Law
as a Law of Rules, 56 U. Chi. L. Rev. 1175, 1178-81 (1989);
Pierre Schlag, Rules and Standards, 33 UCLA L. Rev. 379,
384-90 (1985). These considerations are especially
important in cases affecting significant commercial interests
and commonplace business practices, because efficient
business planning requires plain and predictable statements
of legal rights and obligations. See Sunstein, supra, at 976.

The ability of persons and businesses to understand and
exercise their legal rights, and to fulfill their legal
obligations, is a matter not only of fundamental fairness, but
also of economic efficiency. See Scalia, supra, at 1179
(“Rudimentary justice requires that those subject to the law
must have the means of knowing what it prescribes.”);
Kaplow, supra, at 621 (“[MJany individuals contemplating
behavior that may be subject to the law will find it more
costly to comply with standards [than with rules], because it
generally is more difficult to predict the outcome of a future
inquiry . . . than to examine the result of a past inquiry.”).
Indeed, clarity and predictability are of such importance to
business planning that it has become commonplace to
observe that a clear rule, even a “bad” one, is better than an
unclear rule or no rule at all. See Sunstein, supra, at 976
(“{1]t may be more important to know what the law is than to
have a law of any particular kind.”); Jonathan R. Macey, The
Internal and External Costs and Benefits of Stare Decisis, 65
Chi.-Kent L. Rev. 93, 109 (1989) (“{PJarticularly in
corporate and contractual settings, it is quite easy for parties
to contract around whatever liability rule is imposed by
courts. In these settings, it doesn’t matter what the particular
default legal rule happens to be, so long as it’s sufficiently
clear that parties don’t waste resources engaging in needless
negotiations.”’).

19

This Court has recognized that clear statements of legal
norms are particularly important where the norms affect
commonplace business transactions. In the area of state use
and sales taxes, for instance, this Court has observed:

Th{e] artificiality [of a bright-line rule],
however, 1s more than offset by the benefits
of a clear rule. Such a rule firmly establishes
the boundaries of legitimate state authority to
impose a duty to collect sales and use taxes,
and = reduces__siitigation == concerning

those taxes .... Moreover, a bright-line rule
in the area of sales and use taxes also
encourages settled expectations, and in doing
so, fosters investment by businesses.

Quill Corp. v. North Dakota, 504 U.S. 298, 315-16 (1992).
As the Court recognized in Quill Corp., the importance of a
clear rule to business planning is necessarily accentuated
where the rule affects routine business transactions, because
the costs of repeated inefficient transactions, economically
distorted business practices, and foregone commercial
opportunities can accumulate rapidly. See Kaplow, supra, at
621 (“The central factor influencing the desirability of rules
and standards is the frequency with which a law will govern
conduct. If conduct will be frequent, the additional costs of
designing rules—which are borne once-—-are likely to be
exceeded by the savings realized each time the rule is
applied .... Thus, when behavior subject to the relevant
law is frequent, standards tend to be more costly and result in
behavior that conforms less well to underlying norms.”).

The importance of clarity and predictability increases in
direct proportion to the severity of the consequences for
noncompliance. A concurrence by four Justices of this Court
accordingly recognized that “clarity and predictability in

20

RICO’s civil applications are particularly important” and
that “RICO, since it has criminal applications as well, must,
even in its civil applications, possess the degree of certainty
required for criminal laws.” HJ. Inc., 492 U.S. at 255
(Scalia, J., concurring) (joined by Chief Justice Rehnquist
and Justices O’Connor and Kennedy).

Against the clarity, uniformity, and predictability of
bright-line rules this Court must, of course, balance the
possibility of imperfect outcomes in marginal cases. See
Scalia, supra, at 1178. This Court has recognized, however,
that the disutility of imperfect results in unusual cases may
be vastly outweighed by the benefits of a well-crafted rule of _
general suitability: “Our cases provide support for the
proposition that categorical decisions may be appropriate
and individual circumstances disregarded when a case fits
into a genus in which the balance characteristically tips in
one direction.” United States Dept. of Justice v. Reporters
Comm. for Freedom of the Press, 489 U.S. 749, 776 (1989).

B. This Case Calls For A_ Bright-Line Rule
Excluding Corporations From RICO Asso-
ciation-in-Fact Enterprises Or, Alternatively, A
Holding That Such An _ Enterprise Cannot
Consist Of A Corporation And The Third-Party
Contractors It Uses To Carry Out Its Normal
Business Functions.

It is critical for businesses to have clarity and
predictability with regard to the legal liability they may face
for their commercial decisions. ‘This includes decisions
about how to structure their organizations and with whom to
conduct business. If the law creates potential liability for
contracting or affiliating with others when there would be no
exposure for the same commercial conduct if undertaken
unilaterally, that legal liability is a factor that a company

21

must consider. If, on the other hand, no additional legal
exposure is created by hiring third parties to engage in that
conduct on behalf of the business, then such a decision will
be made based on the merits, including such factors as the
quality of the contractor’s results and economic efficiency.

Under the Eleventh Circuit’s view, a court is required to
allow a RICO suit to progress to discovery so long as a
plaintiff alleges that a corporate defendant associated itself
with some “distinct entity” with which it shared a “common
purpose,” which could include a goal as pedestrian as
“making money.” Mohawk, 411 F.3d at 1258. This goal ts
so universal to the notion of business ventures that, if RICO
liability could be grounded on this claim, every corporation
that maintains contractual and agency relationships could be
exposed to treble damages litigation based on an
“association-in-fact” theory. The “only effect” of such a
RICO rule would be “to encourage vertical integration.” See
Fitzgerald, 116 F.3d at 227. Businesses would seek to shield
themselves from the possibility of RICO suits by avoiding
economically efficient and mutually beneficial contracts
with third-party service providers. In attempting to avoid
potential RICO exposure by taking work “in house,”
businesses would incur significant additional legal and
transactional expenses. The cumulative costs of these
inefficiencies can reasonably be expected to be enormous.
Cf Kaplow, supra, at 621. Because such costs would be
motivated by a desire to avoid legal liability rather than a
desire to achieve economic efficiencies, such a rule would
also harm consumers. See Frank H. Easterbrook, The Limits
of Antitrust, 63 Tex. L. Rev. 1, 21 (1984) (“If judges tolerate
inefficient practices, the wrongly-tolerated practices will
disappear under the onslaught of competition. The costs of
judicial error are borne by consumers, who lose the efficient
practices and get nothing in return.”). Service providers too
would be injured, because such a rule would create a smaller

22

market for their services. This in turn could have deleterious
consequences for employees, particularly entry-level job
applicants who depend upon recruiting firms and staffing
agencies to match their skills with employers’ needs.

A bright-line holding is appropriate here because this
case “fits into a genus in which the balance characteristically
tips in one direction.” Reporters Comm., 489 U.S. at 776.
The Eleventh Circuit’s decision exposes Mohawk to massive
civil RICO claims based on its alleged use of employment
agencies and recruiters to help locate the employees it
ultimately hired. This is a _ routine—indeed,
ubiquitous—corporate practice in today’s economy. More
generally, as the courts of appeals have consistently
recognized, the use of agents and employees to accomplish
corporate ends is not merely a commonplace practice, it 1s a
necessity arising from the incorporeal nature of the corporate
entity. See Fitzgerald, 116 F.3d at 227; Riverwoods, 30 F.3d
at 344; Brittingham, 943 F.2d at 301. To base RICO liability
on this fact would render RICO’s “association-in-fact”
provision a meaningless one in cases against corporate
defendants, for corporate defendants could a/ways be made
to fit this Procrustean bed.

This Court’s RICO jurisprudence is consistent with the
bright-line advocated by amici. As this Court observed the
first time it construed RICO’s “enterprise” element, “absurd
results are to be avoided... .”. Turkette, 452 at 580; accord
Fitzgerald, 116 F.3d at 226-27 (in deciding whether a
corporation can be part of an association-in-fact enterprise,
the court noted “a desire to make the statute make sense and
have some limits” and to “avoid absurd applications”). This
Court again expressed its skepticism of unusual readings of
the RICO statute in its most recent pronouncement on the
enterprise issue. Although the Court did not rule on the
merits of the issue, it noted in Cedric Kushner that it would

23

be “less natural to speak of a corporation” as being
associated with its own employees and agents—an “oddly
constructed entity.” Cedric Kushner, 533 U.S. at 164.

Admittedly, in two cases this Court has favored a
broader construction of RICO’s “enterprise” requirement
over a narrower construction. See Turkette, 452 U.S. 576;
NOW I, 510 U.S. at 260-61. In Turkette, the Court
concluded that the term “enterprise” included illegitimate
enterprises along with legitimate enterprises, noting that
Congress easily could have narrowed the sweep of the term
“enterprise” by adding the limiting word “legitimate” to the
definition in Section 1961(4). See 452 U.S. at 581. In NOW
/, the Court engaged in “parallel” reasoning, noting that
Congress had not defined “enterprise” to be limited to
groups having an economic motive. See 510 U.S. at 260-61.

This case, however, requires a different outcome so as
to avoid an absurd result at odds with the statute. Whereas
the absence of limiting language in Section 1961(4)
commanded a broader construction of the term “enterprise”
in Turkette and NOW J, here the presence of limiting
language commands a narrower construction of the term
“enterprise.” Congress has circumscribed the sweep of
association-in-fact enterprises by using the limiting word
“individuals” in defining the associations that are cognizable
under the statute. See 18 U.S.C. 1961(4) (“‘enterprise’
includes any individual, partnership, corporation,
association, or other legal entity, and any wnion or group of
individuals associated in fact although not a legal entity’)
(emphasis added). The “very common” meaning of the word
“individual” is “a private or natural person as distinguished
from a partnership, corporation, or association ... .” Black’s
Law Dictionary 773 (6th ed. 1990); The New Fowler’s
Modern English Usage 391-92 (3d ed. 1996) (“The Oxford
Advanced Learner's Dictionary of Current English (4th ed.

24

1989) defines the noun as follows: | a single human being

..’). Thus, it is clear from the face of the statute that
Congress did not intend for association-in-fact enterprises to
include corporations associated with others. Cf Holmes,
503 U.S. at 269 n.15 (noting that RICO’s statutory language
“drowned out” an alternative construction advanced by a
civil RICO plaintiff); Reves v. Ernst & Young, 507 U.S. 170,
183 (1993) (noting that RICO’s liberal construction clause
“is not an invitation to apply RICO to new purposes that
Congress never intended”).

Amici are confident that the rule they have proposed
would sufficiently clarify and limit RICO’s scope to permit
efficient business planning and protect necessary and
economically advantageous contractual rclationships from
meritless RICO attack. Should the Court decline to adopt
the proposed bright-line, however, amici urge the Court to
resolve the split among the circuit courts by making it clear
that a RICO enterprise cannot consist merely of a
corporation and the third-party service providers it uses in
the course of carrying out its normal business operations.
See, e.g., Brittingham, 943 F.2d at 300-02; Baker, 357 F.3d
at 691; Fitzgerald, 116 F.3d at 226-27; Discon, 93 F.3d at
1064. If this Court were to adopt the Eleventh Circuit’s
loose definition of association-in-fact enterprise, American
businesses will face the needless transactional and litigation
costs, incentives for distorted business planning, and
foregone commercial opportunities discussed above.

25
CONCLUSION

For the foregoing reasons, the judgment of the Eleventh
Circuit should be reversed.

Respectfully submitted,

MICHAEL J. MUELLER JAN S. AMUNDSON
Counsel of Record QUENTIN RIEGEL
MICHAEL A. FITZPATRICK NTIONAL ASSOCIATION
THOMAS L. SIMEK OF MANUFACTURERS
JAMES E. SHERRY 1331 PENNSYLVANIA
AKIN GUMP STRAUSS HAUER AVENUE, NW
& FeLp, LLP WASHINGTON, DC 20004
1333 NEW HAMPSHIRE TEL: (202) 637-3000
AVENUE, NW
WASHINGTON, DC 20036

TEL: (202) 887-4000

Attorneys for Amici Curiae the National Association
of Manufacturers, Associated Builders and
Contractors, Inc., The Carpet and Rug Institute,
and American Staffing Association

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0224%3A10. Public record. Not legal advice.