Amicus Curiae Brief — Bankers Trust Co. v. Rhoades

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3) (4) FIL. cn

No. 84-648 and No. 84-647

NOV 21 1994

IN THE ALEXANDER L. STEVaS,

SUPREME COURT OF THE UNITED STAT#SRK

October Term, 1984

No, 84-648

SEDIMA, S.P.R.L.,

Petitioner,

-V,@

IMREX COMPANY, INC.,, et al.,

Respondents.

No, 84-657

BANKERS TRUST COMPANY,

Petitioner,

-V->-

DANIEL RHOADES, et al.,

Respondents.

BRIEF OF AMICUS CURIAE

THE CITY OF NEW YORK

FREDERICK A.O. SCHWARZ, JR.,

Corporation Counsel of the

City of New York

100 Church Street

New York, New York 10007

(212) 566-4501 or 4338

LEONARD KOERNER,

MICHAEL D. YOUNG,

MARTIN C. ARONCHICK,

Of Counsel.

TABLE OF CONTENTS

Table Of Contents.......cccccccccccsccsscsscccscccscers

Table of Authorities.........ccccccccccccscscccsscsees

Interest of AMICUS CUTIAC..........cccccccccscscees

Reasons For Granting The WTits.......ccccccccsss

CORI cccacncdnntcocensenessecenwumecssesensenesecneee

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Page

12

TABLE OF AUTHORITIES

Cases: Page

Alcorn County v. U.S. Interstate

Supplies Inc., 73! F.2d 1160

5th Pel isieiteenesaccnasene eeeeseecoeeseoe 5

Bankers Trust Co. v. Rhoades,

741 F.2d 511 (2d Cir. Sic hiisteasadinene passim

City of Milwaukee v. Hansen,

Civ. No. 77-246 (E.D.Wis.

Jan. 13, Ree IR eeeeeeee eeeceoses 6,11

City of New York v. Arnmart

Wholesale Beer Distributors

Inc., 83 Civ. 9263 (S.D.N.Y.,

filed Dec.2 l, Ta a cicncneeonne 5,8

City of New York v. Bandolene

Fuels, Inc., 81 Civ. 1240

eo e e °9 filed

April UE Pintnieetasadccscoccscdcoccccccscoes 6

City of New York v. Sitzer,

81 Civ. 7116 (S.D.N.Y., filed

November 16,1981)...ccceee eeeee eeeescoeeoeese 6

County of Cook v. Lynch,

560 F. Supp. 136 (N.D.

DL. REED ee eeeeseeee 5

County of Suffolk v. wanehy

81 Civ. 0257 (E.D.N.Y.,

filed Jan. 27, EE een 5

Cases: ' | Page

Gerace v. Utica Veal Co.,

580 F. Supp. 1465

(N.D.N.Y. iain entecesuneen 5

Maryland v. Buzz Berg Wrecki

~ Co., 496 FT Supe 24s _

Md, I ciuiiianintentptiaees eeoese eseeeeeo eee 5

Moore v. Margiotta, 83 Civ. 2036

(E.D.N.Y., filed

May 19, EO 5

Municipality of Anchorage v.

Hitachi Cable, Ltd., 547 F.

upp. 63 A a ET 5

New York v. O'Hara,

83 Civ. 1440 (W.D.N.Y..,filed

December 21, CES 5

Sedima, S.P.R.L. v. Imrex Co.

741 F.2d 482 (2d Cir. 1984).......ccccccees passim

Statutes:

The Racketeer Influenced and

Corrupt Organizations Act,

18 U.S.C.§§ eee passim

New York City Charter,

Ch. 16, i Uliiikisiaapiahbiieeienineeihiteiidiremnieieaiiaiien 2

-iii-

Other Authorities:

Note, Government Corruption and

Civil RICO: Providi

Compensation for Intangible

Losses, 58 N.Y.U. L. ier

1530 (1983)... SSOSSSSSSESSSSSSSSSSESOSSESSSESOOEEOSD

Tannenbaum & Molo, State and

Local Governments’ Use of

the Treble Damages

Remedy Under Chil RICO:

A Means of Redressing The

Poonomts Effects of

onduct,

75 Bavlor * Rev. l (1983)... seeeeeeeseeeseeee

116 Cong. Rec. 35,343 a

116 Cong. Rec. 35,344 (a

Page

No. 84-648 and No. 84-657

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1984

No. 84-648

SEDIMA, S.P.R.L.,

Petitioner,

— Vv. —

IMREX COMPANY, INC.,, et al.,

Respondents.

No. 84-657

BANKERS TRUST COMPANY,

Petitioner,

_ Vv. —

DANIEL RHOADES, et al.,

Respondents,

BRIEF OF AMICUS CURIAE

THE CITY OF NEW YORK

INTEREST OF AMICUS CURIAE

The City of New York ("City") submits this

amicus curiae brief in support of the petitions for

writs of certiorari to the United States Court of

Appeals for the Second Circuit.* The decisions of

the Second Circuit in Sedima, S.P.R.L. v. Imrex Co.,

741 F.2d 482 (1984) and Bankers Trust Co. v.

Rhoades, 741 F.2d 511 (1984), threaten the vitality

and effectiveness of a statutory remedy used by the

City and other local or state governments to combat

systematic fraud and governmental corruption.

The New York City Charter charges the

City with the responsibility of representing and

protecting the public interest and the rights of its

citizens. New York City Charter, Ch. 16, § 394.

The City is also charged with the institutional

responsibility of protecting its capability for

delivering honest, efficient, impartial and effective

governmental services to all its citizens. Id,

*A third, recently-filed petition for a writ of

certiorari to the Second Circuit, Joel, et al. v.

Cirrito, et al., No. 84-604, raises some of the same

issues aS thoseherein. The City supports the

issuance of a writ in that case for the same reasons

stated herein.

44

In fulfilling its obligations, the City, as

well as other localities, must confront the persistent

challenges and dangers, as well as the corrupting

influence posed by systematic criminal frauds. Tax

evasion or public contractor frauds cause massive

economic loss to the City. Bribery and kickback

schemes injure the public fisc and impair the

integrity of government. Public benefits programs

are repeatedly targeted by malefactors who defraud

the government and the intended beneficiaries.

Organized drug trafficking and arson for profit

schemes create extraordinary demands on police and

other governmental services and diminish the

quality of life in the City.

These criminal activities are often

accomplished through sophisticated means, ° by

criminal enterprises which systematically commit

multiple criminal acts. Ordinary civil and criminal

remedies available to penalize specific criminal acts

and offer recompense to the City are insufficient to

eradicate the widespread problems caused by the

systematic misconduct of criminal enterprises.

Extraordinary remedies are needed to eradicate

these widespread problems.

The City has found that the civil remedy

provision in the Racketeer Influenced and Corrupt

Organizations Act, 18 U.S.C. §§ 1961-1968 ("RICO")

is an effective weapon for combatting these various

criminal schemes and protecting the public interest,

the public fisec and the institutions of local

government.* Specifically, the City has employed

the civil remedy provision in RICO to attack

fraudulent tax evasion and illegal bidding

*The City's view is shared by commentators. See

Note, Government Corruption and Civil RICO:

Providing Compensation for. Intangible Losses, 58

-X.U. Le Rev. 15 9 annenbaum & Molo,

State and Local ration sk Use of the Treble

Da es Remedy Under Civil RICO: A Means of

Recressing ine Economic Effects of Unlawful

et, ylor L. Rev. I (1983).

-4-

schemes.* In City of New York v. Arnmart

Wholesale Beer Distributors, Inc., 83 Civ. 9263

(S.D.N.Y., filed Dec. 21, 1983) the City sued eleven

beer distributors and their principal officers for

*Civil RICO actions have also been employed by or

on behalf of state or other local governments to

recover the loss flowing from complex and far-

reaching frauds, often accompanied by bribery or

some other form of corruption. See New York v.

O'Hara, 83 Civ. 1440 (W.D.N.Y., filed December 21,

1983) (bribery and overcharges in connection with

toxic waste disposal contract); county of Suffolk v.

Walsh, 81 Civ. 0257 (E.D.N.Y., an. 27, 19

bribery and bid rigging in connection with sewer

construction project); Moore v. Margiotta, 83 Civ.

2036 (E.D.N.Y., filed May 19, 1983) aloavere’ civil

RICO action arising from political slush fund

payoffs, kickbacks, and money laundering scheme);

Alcorn soe, v. U.S. Interstate Supplies Inc., 731

° 0 6 ir. bribery raudulent

billing by office supply company); Gerace v. Utica

Veal Co., 580 F. Supp. 1465 (N.D.N.Y. 1984)

(fraudulent underreporting by stockyard of weight

and grade of ranchers' livestock, causing higher

reimbursement payments to ranchers by state);

County of Cook v. Lynch, 560 F. Supp. 136 (N.D. Il,

8 bribery in return for real estate tax

assessment reductions); Municipality of Anchorage

v. Hitachi Cable, Ltd., 547 F. Boe 633 (D. Alaska

1982) (bribery and bid rigging in connection with

telephone cable contracts); Maryland v. Buzz Be

Wr Co., 496 F. Supp. 245 (D.Md. 1980) in

Hesiag end Eripery in connection with demolition

work for urban renewal project).

-5-

their perpetration of an elaborate series of schemes

— described in greater detail, infra — to evade the

City's beer excise and general corporation taxes. In

City of New York v. Sitzer, 81 Civ. 7116 (S.D.N.Y.,

filed November 16, 1981), the City sued the

operators of a group of massage parlors who

systematically laundered their revenues, committed

bribery and evaded City taxes. In City of New York

v. Bandolene Fuels, Inc., 81 Civ. 1240 (E.D.N.Y.,

filed April 24, 1981) the City sued a fuel oil

company and its principal officer for the damages

flowing from a fraudulent bidding and overbilling

scheme, In addition, the City has explored the

possibility of a civil RICO action to recover the

losses arising from extraordinary demands on local

governmental services and diminution of the quality

of life caused by the systematic misconduct of

criminal enterprises. *

*Compare City of Milwaukee v. Hansen, Civ. No.

77-246, slip op. at 3-4 (E.D.Wis. Jan. 13, 1981)

(arsonists liable for treble the cost of fighting fires).

-§-

REASONS FOR GRANTING THE WRITS

The Second Circuit's decisions in Sedima,

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

Bankers Trust Co. v. Rhoades, 741 F.2d 511 (1984)

destroy the efficacy of the civil remedy provision in

RICO and consequently the ability of local and state

governments to vindicate the public interest by

means of that statute.

The prior conviction requirement created

in Sedima, supra, 741 F.2d at 496-504 -- which has

absolutely no basis in the statute —- makes local and

state government civil RICO suits subject both to a

prosecutor's prior exercise of discretion to

commence a criminal action, and to the prosecutor's

prior success in the criminal action. Thus, the prior

conviction requirement strips local and state

governments of independent use of an effective

weapon against corruption, large-scale frauds and

other broad-based criminal schemes.

The prior conviction requirement will bar

many actions clearly contemplated by Congress

when it enacted the civil remedy provision in RICO.

For example, in City of New York v. Arnmart

Wholesale Beer Distributors, Inc., supra, eleven beer

distributing companies evaded excise taxes on

wholesale beer purchases in New York City by

fraudulently representing sales of beer to be sales of

soda; laundering beer sales through fictitious

purchasers residing outside the City; engaging in

off-the-books cash transactions; filing fraudulent

tax returns; and failing to file tax returns. This is

the kind of systematic criminal scheme which RICO

was designed to eliminate. The City decided to

bring a civil RICO treble damages action since

treble damages would be most effective as a

deterrent and as a means of recovering idsses.*

*Referring a case to a criminal prosecutor does not

guarantee that there will be a criminal prosecution,

since the decision to do so is then within the

prosecutor's discretion. Prosecutorial priorities may

differ from the City's priorities, and prosecutorial

resources are limited.

Because there were no prior convictions, the

perpetrators of these schemes will totally escape

civil liability under RICO -if the prior conviction

requirement created in Sedima is not overruled.

The differing "racketeering injury"

requirements in, respectively, Sedima and Bankers

Trust, similarly eviscerate the utility of the civil

remedy provision in RICO. The "mobster"

requirement created in Sedima, supra, 741 F.2d at

494-96 is either so vague or so limited as to impose

an insuperable obstacle to success in a civil RICO

suit. It is contrary to the express intent of

Congress, which feared that such a requirement

would create an unconstitutional "status" offense.

116 Cong. Rec. 35,343 (1970). It is also contrary to

the spirit, structure and language of the statute,

which defined prohibited racketeering activity in

terms of conduct rather than association. See 116

Cong. Rec. 35,344 (1970); see generally 18 U.S.C.

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§§ 1961-1968. The "distinct RICO injury"

requirement created in Bankers Trust, supra, 741

F.2d at 515-18, similarly debilitates the civil

remedy provision in RICO, by illogically requiring a

differentiation between the injury caused by any one

predicate act and the injury caused by the RICO

offense.

The Second Circuit's analysis in Bankers

Trust of how the civil remedy provision in RICO

would apply in a case of arson for profit

demonstrates that the “distinct RICO injury"

requirement deprives the civil remedy provision in

RICO of any practical significance. In Bankers

Trust, supra, 741 F.2d at 517, the Second Circuit

stated that an example of a "distinct RICO injury"

could be found where a victim of multiple arsons

was denied fire insurance and thereafter was unable

to obtain reimbursement for innocent fire damage

(e.g., destruction caused by lightning). In contrast,

the Second Circuit seemed to indicate that the

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victim of repeated arscns could not sue the arsonist

for fire damage directly resulting from fires set by

the arsonist. Plainly, such analysis destroys the

effectiveness of the civil remedy provision in RICO

as a method for combatting crime, and erodes the

doctrine established in City of Milwaukee v. Hansen,

supra, that the damage directly resulting from

arson - in that case, municipal fire-fighting costs -

is compensable in a civil RICO suit. Plainly, such

analysis undermines the purposes of the civil remedy

provision in RICO — augmented compensation to the

victim for all of its losses resulting from the

criminal scheme, and the economic destruction of

the criminal enterprise.

CONCLUSION

For the reasons set forth herein, amicus

curiae, The City of New York respectfully urges

that the Court grant the petitions for writs of

certiorari to review the decisions of the Second

Circuit Court of Appeals,

November 21, 1984.

Respectfully submitted,

FREDERICK A. O. SCHWARZ, JR.

Corporation Counsel of the

City of New York,

LEONARD KOERNER,

MICHAEL D. YOUNG,

MARTIN C. ARONCHICK,

Of Counsel.