Opposition Brief — Bankers Trust Co. v. Rhoades
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No. 84-657 #3 [064
OPEEMOET sie ag
CLERK
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IN THE
Supreme Court of the United States
OCTOBER TERM, 1984
>
BANKERS TRUST COMPANY,
Petitioner,
—_—vV et
DANIEL RHOADES, HERMAN SOIFER, MILTON BRATEN,
BROOKFIELD CLOTHES, INC., BROOKFIELD INDUSTRIES,
INC., BENNINGTON COURT LTD., BRAXTON LTD., AURA
By LAURIE LTD., ERWIN COMMERCIAL CORP., MICHAEL
B. MARKS, INC., TIMELY TEXTILES, INC., TODD EQUIP.
MENT LEASING CO., INC., CAPITAL AID CORPORATION
and “JOHN DOES Nos. 1-50”,
Respondents.
BRIEF OF RESPONDENT HERMAN SOIFER
IN OPPOSITION TO PETITION FOR
AWRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
JOEL W. STERNMAN
(Counsel of Record)
EUGENE A. GAER
DOROTHY HEYL
ROSENMAN COLIN FREUND LEWIS
& COHEN
575 Madison Avenue
New York, New York 10022
(212) 940-8800
Attorneys for Respondent
Herman Soifer
QUESTIONS PRESENTED FOR REVIEW
1. Should a petition for a writ of certiorari be denied where a
complaint for treble damages under the civil provisions of
RICO has been dismissed because plaintiff’s injury arose
from the underlying predicate acts rather than from the
prohibited pattern of racketeering?
2. Even if dismissal of a complaint seeking treble damages for
an injury from the underlying predicate acts should not
have been affirmed on the grounds stated in the decision
below, should a petition for a writ of certiorari nevertheless
be denied because, among other things,
(a) review of the RICO injury requirement at this
time would be premature;
(b) no relief is available under the civil provisions of
RICO for an injury deriving from a simple breach of
contract;
(c) the claim asserted can be pursued only in the
bankruptcy court; aid
(d) the applicable statute of limitations has expired?
ii
TABLE OF CONTENTS
PAGE
QUESTIONS PRESENTED FOR REVIEW .......... i
TABLE OF CASES AND AUTHORITIES ........... iv
COPE RP 6. i. 08 ssa veesaenbacmesneuewaws 2
COUNTERSTATEMENT OF THE CASE............ 2
SUMMARY OF ARGUMENT. ................0005. 4
REASONS FOR D&ENYING THE WRIT............. 5
I. THE COURT BELOW PROPERLY HELD
THAT § 1964(c) REQUIRES AN ALLEGATION
OF AN INJURY RESULTING FROM A PAT-
TERN OF RACKETEERING ACTIVITY ...... 5
A. The Language Of The Statute Clearly Re-
quires An Allegation Of An Injury Resulting
From A Pattern Of Racketeering Activity. ... 5
B. The Legislative History Of RICO Does Not
Support Bankers’ Interpretation Of The Stat-
Pe re er A a 9
C. The Purported Conflict In The Courts Of
Appeals Does Not Support A Grant Of Cer-
CURES EE eee kn ckcncnskenadinadeeess 15
1. The decision below is not in conflict with
Ges 3 6 cs Cares bac hee cae eee 15
2. The conflict with the Seventh Circuit does
not support a grant of certiorari in this
iii
Il. EVEN IF A DISTINCT RICO INJURY NEED
NOT BE ALLEGED, CERTIORARI SHOULD
NOT BE GRANTED .........ccecccccscssvees
A. Review Of The RICO Injury Requirement At
This Time Would Be Premature ............
B. Bankers’ Simple Breach Of Contract Claim
Cannot Support A RICO Action............
C. The Complaint Is Subject To Dismissal On
a Se ba vip hae e Fo ab 8 Ao
1. The bankruptcy court has exclusive juris-
NE Ra i One ae
2. Bankers’ claim is time barred...........
SE Ti ces es seu voresesbwersionveredsees
PAGE
20
20
22
23
24
24
28
iv
TABLE OF CASES AND AUTHORITIES
Cases PAGE
A.D.M. Corp. v. Sigma Instruments, Inc., 628 F.2d 753
Ce Sater err rere tee ee eee EEE SEV ET TEE 22
In re Action Industries Tender Offer, 572 F. Supp. 846
Se. WE Pe ca cnc bined ccs venasoccbabtenensts 13n.
Aetna Casualty and Surety Co. v. Liebowitz, 730 F.2d
SE ee FN oo v6 kaa ee ee cer deevi isis raves 14n.
Alcorn County v. U.S. Interstate Supplies, Inc., 731
a; fs fo @. APAer Tr erry ea erie eres 16
Alexander Grant & Co. v. Tiffany Industries, Inc., 742
& € 5 Ue A Feros a arr rarer eae 17
Apex Hosiery Co. v. Leader, 310 U.S. 469 (1940)...... 12
Armstrong v. McAlpin, 699 F.2d 79 (2d Cir. 1983) ...25n., 26
Associated General Contractors Inc. v. California State
Counci’ cf Carpenters, 459 U.S. 519 (1983)......... 22
Bankers Trust Co. v. Rhoades, 741 F.2d 511 (2d Cir.
1984), aff’g, 566 F. Supp. 1235 (S.D.N.Y. 1983),
petition for cert. filed, 53 U.S.L.W. 3367 (Oct. 24,
rer eye ree re Tee Te ee ey passim
Battlefield Builders, Inc. v. Swango, 743 F.2d 1060 (4th
rrr re rrr er ee errs eee 16n.
Bennett v. Berg, 685 F.2d 1053 (8th Cir. 1982), on reh.,
710 F.2d 1361 (8th Cir.) (en banc), cert. denied, 104
Sas Sener eer re ree 16-17
Board of Regents v. Tomanio, 446 U.S. 478 (1980) .... 25n.
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S.
ed lg SR rn ere ere ye 22
Cestaro v. Mackell, 425 F. Supp. 465 (E.D.N.Y.), aff'd,
pre B we Rr fe bo Re.) Pere rere 27n.
Chrysler Corp. v. Fedders Corp., 643 F.2d 1229 (6th
Cir.), cert. denied, 454 U.S. 893 (1981).............
Core ¥. hay Ses I soe dh nc cc kececows
Davis v. United States, 417 U.S. 333 (1974)...........
District of Columbia v. Sweeney, 310 U.S. 631 (1940) ..
Dolmetta v. Uintah National Corp., 712 F.2d 15 (2d Cir.
PON Kc te CARE M ECR bd bbe ee eRe
Durante Bros. and Sons, Inc. v. Flushing National
Bank, 571 F. Supp. 489 (E.D.N.Y. 1983) ...........
Estee Lauder, Inc. v. Harco Graphics, Inc., 82 Civ. 8188
(CBM) (S.D.N.Y. March 21, 1984).................
Federal Trade Commission v. Bunte Brothers, Inc., 312
Aid Oe CUE eV ce cadk sos cases Rade RET ENO RR ORE
Fields Productions, Inc. v. United Artists Corp., 318 F.
Supp. 87 (S.D.N.Y. 1969), aff’d, 432 F.2d 1010 (2d
Cir.), cert. denied, 401 U.S. 949 (1971).............
Friedlander v. Nims, 571 F. Supp. 1188 (N.D. Ga. 1983)
Furman vy. Cirrito, 741 F.2d 524 (2d Cir. 1984), petition
for cert. filed sub nom. Joel v. Cirrito, 53 U.S.L.W.
3343 (Oct. 15, 1984) (No. 84-604) .................
Gochenour v. Cleveland Terminals Bldg. Co., 118 F.2d
re Gey PD ai see nica ose k eek evewsant
Gochenour v. George & Frances Ball Foundation, 35 F.
Supp. 508 (S.D. Ind. 1940), aff’d, 117 F.2d 259 (7th
Cir.), cert. denied, 313 U.S. 566 (1941).............
Graybar Electric Co. v. Doley, 273 F.2d 284 (4th Cir.
Pee Te ee een
Haroco, Inc. v. American National Bank & Trust Co.,
No. 83-2529 (7th Cir. Oct. 19, 1984), rev’g, 577 F.
A, S55 Gee PEE i. 2s5ok Ras Uns Sewer eee
PAGE
19n.
21
25n.
25n.
12-13
23
7n.
19n.
24n.
24n.
24n.
vi
PAGE
Harper v. New Japan Securities International, Inc., 545
BB Se, BORE GE SO Te 6 ia i's whew cee. 13n.
Hoff Research & Development Laboratories, Inc. v.
Philippine National Bank, 426 F.2d 1023 (2d Cir.
PEs bb dn sn04 eu sc aknkens tee eb ome Wekaee ene. 27n.
IIT v. Cornfeld, 619 F.2d 909 (2d Cir. 1980) .......... 25n.
Imperial Point Colonnades Condominium, Inc. v.
Mangurian, 549 F.2d 1029 (Sth Cir.), cert. denied, 434
TF eo ocak kx stew es cab eee ewes bieos 26n.
Kadar Corp. v. Milbury, 549 F.2d 230 (ist Cir. 1977)... 26n.
Korry v. International Telephone & Telegraph Corp.,
464 F. Supe. 193-G.D.N.Y. UFR) ow cc cc cc ccccewes 25n.
Maryland v. Baltimore Radio Show, Inc., 338 U.S. 912
CRE 6 v:e6 0460446445 eadnse we EReddetedaae kee ree 20
Mulvey v. Samuel Goldwyn Productions, 433 F.2d 1073
(9th Cir. 1970), cert. denied, 402 U.S. 923 (1971).... 23n.
Owl Construction Co., Inc. v. Ronald Adams Contrac-
tor, Inc., 727 F.2d 540 (Sth Cir.), cert. denied, 53
CP es OY ee GEAR: By PO a Seed Siewew dw eceyes 16n.
Prudential Lines, Inc. v. McKeon, 80 Civ. 5853 (MJL)
CBSPPG.E. MO BE, THD cc cccecvciossverscecaces 25n.
Rice v. Baron, 456 F. Supp. 1361 (S.D.N.Y. 1978) ...25, 26n.
Rickeil v. Levy, 370 F. Supp. 751 (E.D.N.Y. 1974)...... 27n.
Rothstein v. Seidman & Seidman, 410 F. Supp. 244
Cs Os SE LiKhs Riker dhn ddke deaveaneweuns 24n.
Rutkin v. Reinfeld, 229 F.2d 248 (2d Cir.), cert. denied,
Se eh I ca a caches cekakadntvsnwewncs 25n.
Sanks v. Georgia, 401 U.S. 144 (1971) ............... 21
Santa Fe Industries, Inc. v. Green, 430 U.S. 462 (1977) 12
ee en no ee eee
Vii
PAGE
Schacht v. Brown, 711 F.2d 1343 (7th Cir.), cert. denied,
A IIS 6 ura 5 0 Gc Sek ale aen kote hae 18n.
Sedima, S.PR.L. v. Imrex Co., 741 F.2d 482 (2d Cir.
1984), petition for cert. filed, 53 U.S.L.W. 3367 (Oct.
Se EN, SSS dt dacs cbvaceesdcwecceumwen passim
Seville Industrial Machine Corp. v. Southmost Ma-
chinery Corp., 742 F.2d 786 (3d Cir. 1984).......... 16n.
Sloan v. Clark, 18 N.Y.2d 570, 277 N.Y.S.2d 411, 223
SN He SIN sca ae perv eerie erereere er tet 24n.
Sayco, Inc. v. Penn Central Corp., 551 F. Supp. 949
Seas Wk: Swe elses cele cea vekeseees-dives 23
Sorrells v. United States, 287 U.S. 435 (1932)......... 13
Sporn v. MCA Records, Inc., 58 N.Y.2d 482, 462
N.Y.S.2d 413, 448 N.E.2d 1324 (1983) ............. 26n.
Stull v. Bayard, 561 F.2d 429 (2d Cir. 1977), cert. denied, _
SG a. ST ork 05 5 Fes es Ses ae eels Sebsaers 25
Sutliff, Inc. v. Donovan Companies, 727 F.2d 648 (7th
eB re re ea er re 18n.
Teltronics Services, Inc. v. Anaconda-Ericsson, Inc., 587
F. Supp. 724 (E.D.N.Y. 1984)........ 0.0.0.2... eee ee 25n.
United States v. Bass, 404 U.S. 336 (1971)............ 12
United States v. Turkette, 452 U.S. 576 (1981)....... 5, 13-14
Watson v. Buck, 313 U.S. 387 (1941) .............0.. 20-21
Woodbridge Plastics, Inc. v. Borden, Inc., 473 F. Supp.
218 (S.D.N.Y.), aff’d, 614 F.2d 1293 (2d Cir. 1979) .. 26n.
Statutes and Legislative Materials
Clayton Act, Section 4, 15 U.S.C. § 15 2... cecsceees 22
Organized Crime Control Act of 1970, Pub. L. 91-452,
84 Stat. 941, Title IX, codified as 18 U.S.C. §§ 1961 ef
RRS nee ee aM rr ere error eee passim
Vili
PAGE
Pub. L. 91-272 (1970), codified in 28 U.S.C. § 133 .... 14
Pe ee Ne cn py Ga e bn oh ORES eRe EROS 3n.
EE ce on sa icu Gavin we di e-w Mu eceakele Ge 3n.
es Baw Ws oa ck eke oh 00 doko dw aa eee bulentens 15n.
N.Y. Civ. Prac. Law and Rules § 203(f) (McKinney
NG es aisy scala code chine Dee cee k tees 26-27
N.Y. Civ. Prac. Law and Rules § 213(8) (McKinney
8 SE Cn Ip wae eRe eter ko as 25n., 27
H.R. Rep. No. 887, 91st Cong., 2d Sess. (1970), re-
printed in 1970 U.S. Code Cong. & Ad. News 3221.. 14
130 Cong. Rec. 13,350 (1984) (Remarks of Senator
ores 5 6-0k Ak Ae CARRERA eS 21
116 Cong. Rec. 35,295 (1970) (Remarks of Rep. Poff) 10
Statement, Antitrust Section of the American Bar Asso-
ciation, 115 Cong. Rec. 6995 (1969) ............... 11n.
Other Authorities
Department of Justice RICO Guidelines, United States
Attorneys’ Manual, Tit. 9, Ch. 110 (adopted Jan. 30,
1981), reprinted in ABA, Division of Professional
Education, RICO: The Ultimate Weapon in Business
and Commercial Litigation, Vol. 1, Tab D-1, Attach-
SOG TRUS inch ook nee wes 5 SE py ee 14n.
Stern & Gressman, Supreme Cour: Practice (Sth ed.
i: epg ARN Rae Pe REALL dog srs mm Om rate 15n.
No. 84-657
IN THE
Supreme Court of the United States
OCTOBER TERM, 1984
>
BANKERS TRUST COMPANY,
Petitioner,
—_—_vV.—
DANIEL RHOADES, HERMAN SOIFER, MILTON BRATEN,
BROOKFIELD CLOTHES, INC., BROOKFIELD INDUSTRIES,
INC., BENNINGTON COURT LTD., BRAXTON LTD., AURA
By LAURIE LTD., ERWIN COMMERCIAL CORP., MICHAEL
B. MARKS, INC., TIMELY TEXTILES, INC., TODD EQUIP-
MENT LEASING CO., INC., CAPITAL AID CORPORATION
and “JOHN DOES Nos. 1-50”,
Respondents.
—_——>
BRIEF OF RESPONDENT HERMAN SOIFER
IN OPPOSITION TO PETITION FOR
A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
Respondent Herman Soifer (“Soifer”) respectfully submits
this brief in opposition to the petition of Bankers Trust
Company (“Bankers”) for a writ of certiorari.
OPINIONS BELOW
The opinion below of the United States Court of Appeals for
the Second Circuit is reported at 741 F.2d 511 (1984) and is
reproduced in the Appendix to Bankers’ petition (“App.”) at.
3a-32a. That decision affirmed the judgment entered by the
United States District Court for the Southern District of New
York following its decision in Bankers Trust Co. v. Feldesman,
which is reported at 566 F. Supp. 1235 (1983) and is reproduced
in the Appendix at 33a-47a.
COUNTERSTATEMENT OF THE CASE
As the petition itself states (at 6), this action arises out of
Bankers’ frustration in collecting a debt. Bankers, one of many
creditors of Braten Apparel Corp. (“BAC”), seeks to pursue a
claim under the civil provisions of RICO.' In substantial part,
Bankers’ claim is that, as a result of various alleged wrongful
acts, the bankruptcy court confirmed a Chapter XI plan of
arrangement relieving BAC of more than $4.3 million in debt.
Petition at 5. According to Bankers, the creditors of BAC had
been induced to accept the plan by respondents’ concealment
of the fact that BAC owned a valuable asset, Brookfield
Clothes, Inc. (“Brookfield”). Bankers alleges that, as a result
of this concealment, BAC secured a discharge of indebtedness
to which it was not entitled when, in March 1976, the bank-
ruptcy court confirmed the BAC plan. Petition at 5.
Shortly thereafter, Bankers learned of the alleged conceal-
ment of the Brookfield asset. 741 F.2d at 513; App. 7a. As a
result Bankers, in September 1976, commenced a proceeding in
the bankruptcy court to revoke the confirmation of the BAC
plan. 741 F.2d at 513; App. 7a. In June 1982, the bankruptcy
court revoked that confirmation and ordered BAC to offer a
l “RICO”, an acronym for “racketeer influenced corrupt organiza-
tions,” refers to various criminal prohibitions and civil remedies set
forth in 18 U.S.C. §§ 1961 ef seq. The relevant statutory provisions are
reproduced in the Appendix at 128a-33a.
| |
modified plan, reflecting its ownership of Brookfield. 741 F.2d
at 513; Petition at 6; App. 8a.’
According to Bankers, it discovered that Brookfield was
insolvent following the revocation (Petition at 7) and, in
August 1982, on its own behalf, Bankers commenced the
present action—in the United States District Court and not in
the bankruptcy court. Soifer, who had been an officer of
Brookfield and a shareholder of BAC, was named as one of
many defendants.
In February 1983, Soifer moved to dismiss the complaint on
a number of grounds. As relevant here, he showed that
Bankers could not maintain a RICO action because
(a) the sole injury alleged—a shortfali on its debt
collection from BAC—was caused directly by the predi-
cate act of bankruptcy fraud;
(b) its claims derived from its status as a creditor of
BAC and could only be pursued in the pending bank-
ruptcy court proceeding involving BAC; and
(c) any right to relief was barred by the applicable
statute of limitations.’
2 The bankruptcy court proceeding involving BAC is still pending.
Although a modified plan has been proposed, no order has been
entered thereon. Nor, as of this date, has the proceeding been con-
verted to Chapter VII of the former Bankruptcy Act, under which a
trustee could be appointed to act on behalf of all of the creditors. This
Court may take judicial notice of these facts under Rule 201, Fed. R.
Evid.
3 In addition, because the complaint on its face was subject to
dismissal as against Soifer even if it stated a claim against the other
defendants, Soifer’s motion also showed that (i) only one predicate act
was alleged against him; and (ii) the claims asserted against him did not
satisfy Rule 9(b), Fed. R. Civ. P.
Surprisingly, Bankers does not include the complaint in its Appen-
dix, although it was reproduced at A27-A46 in Bankers’ appendix to
the Second Circuit. The only meaningful allegations in the complaint
relating to Soifer concern the alleged concealment of the Brookfield
asset. Allegations relating to subsequent actions, such as the so-called
bribery and the 1982 disappearance of Brookfield’s assets, were
directed specifically only at other defendants.
4
The District Court entéred a judgment dismissing the com-
plaint on the ground that it failed to state a claim, holding that
the civil provisions of RICO provide relief only for a “distinct
RICO injury” caused by a pattern of racketeering activity
rather than by the predicate acts that constitute the pattern. In
so doing, it did not address the other grounds urged by Soifer
in support of his motion. See 566 F. Supp. at 1242 n.10; App.
47a n.10.
The Second Circuit, in affirming the dismissal of the com-
plaint, substantially agreed with the District Court’s conclusion
with respect to the requirement of a distinct RICO injury; it
did not address the other arguments urged by Soifer.
SUMMARY OF ARGUMENT
The writ should be denied because the decision of the Second
Circuit was correct. By its terms, 18 U.S.C. § 1964(c) limits the
right to seek treble damages to situations where a plaintiff
alleges that his injury resulted from the conduct of an en-
terprise through a pattern of racketeering activity, as defined
and proscribed by § 1962. Because Bankers has not alleged an
injury of that nature it cannot maintain this action.
Furthermore, regardless of whether the Second Circuit was
correct on the issue of RICO injury, this is an inappropriate
case for review by this Court inasmuch as
(a) review of the RICO injury requirement at this time
would be premature;
(b) no relief is available under the civil provisions of
RICO for an injury deriving from a simple breach of
contract;
(c) the claim asserted can be pursued only in the bank- -
ruptcy court; and
(d) the applicable statute of limitations has expired.
REASONS FOR DENYING THE WRIT
THE COURT BELOW PROPERLY HELD THAT § 1964(c)
REQUIRES AN ALLEGATION OF AN INJURY RESULT-
ING FROM A PATTERN OF RACKETEERING ACTIVITY
The central issue raised by Bankers’ petition is whether the
Court below erred in a matter of statutory construction: Is a
private plaintiff seeking treble damages under § 1964(c) re-
quired to allege injury resulting from the acquisition, main-
tenance or conduct of an enterprise through a pattern of
racketeering activity? Or does such a plaintiff merely need to
allege injury from some of the predicate acts which may have
constituted underlying elements of that pattern?
The Court below held that the statute requires an allegation
of injury from the use of a pattern of racketeering activity in
connection with a RICO enterprise. The Court therefore af-
firmed dismissal of Bankers’ complaint because it alleged only
an injury caused by the predicate act of bankruptcy fraud.
In support of its petition, Bankers argues that injury from a
predicate act is sufficient. However, as will ba shown below,
Bankers’ theory is contrary to the language of the statute,
when read either in isolation from, or with reference to, its
legislative history. To the degree that Bankers’ petition rests on
the assertion of a conflict between the decision below and
decisions of other circuits, those conflicts are either illusory or
inappropriate for resolution on a writ of certiorari in the
present case.
A. The Language Of The Statute Cleariy Requires An Allega-
tion Of An Injury Resulting From A Patteri Of Rack-
eteering Activity
An understanding of the scope of RICO liability must begin
with examination of the structure and language of the statute
itself. United States v. Turkette, 452 U.S. 576, 580 (1981).
6
The provisions of RICO were enacted as Title IX of the
Organized Crime Control Act of 1970, Pub. L. 91-452, 84 Stat.
941. The statute as a whole was designed for use by federal law
enforcement agencies in fighting organized crime. However,
one section, 1964(c), authorizes civil actions for treble damages
at the instance of private parties.
That section provides:
“Any person injured in his business or property by reason
of a violation of section 1962 of this chapter may sue
therefor in any appropriate United States district court
and shall recover threefold the damages he sustains and
the cost of the suit, including a reasonable attorney’s
fee.” App. 133a.
The decision below (741 F.2d at 515-16; App. 12a-14a)
analyzed the italicized language by dividing it into three crucial
elements:
(i) the plaintiff’s injury must be of a proprietary
nature (“business or property”);
(ii) the plaintiff’s injury must be caused by the defen-
dant’s wrongful conduct (“by reason of”); and
(iii) the defendant’s conduct must constitute a “viola-
tion of section 1962.”
Only the third of these—what kind of conduct constitutes a
“violation of section 1962”—is at issue here.
Section 1962 is at the core of the criminal provisions of
RICO. Among other things, it declares unlawful (a) an invest-
ment of income derived from a “pattern of racketeering
activity” in any enterprise’ that is engaged in interstate com-
merce; (b) the acquisition of such an enterprise through a
pattern of racketeering activity; (c) the conduct of such an
enterprise’s affairs through a pattern of racketeering activity;
4 Under § 1961(4), the definition of an “ ‘enterprise’ includes any
individual, partnership, corporation, association, or other legal entity,
and any union or group of individuals associated in fact although not a
legal entity.” App. 129a.
7
or (d) the cqnspiracy to do any of the foregcing acts. See App.
130a-3 la.
“Racketeering activity” is defined in the statute as the
commission of certain federal or state offenses specified in
§ 1961(1). These are commonly referred to as “predicate acts.”
A “pattern of racketeering activity” is defined in § 1961(5) as
“requir[ing] at least two acts of racketeering activity” within a
ten-year period. App. 129a.°
When these definitions are read together, a “violation of
§ 1962(c)” means that there must have been both a pattern of
predicate acts and the use of that pattern to conduct the affairs
of an enterprise. To satisfy these statutory prerequisites, a
private plaintiff must allege the existence and use of such a
pattern, as well as an injury resulting therefrom.
The converse is equally true. If all that a private plaintiff
alleges is a direct injury from two or more predicate acts, and
not from the combination of those acts into a distinct pattern
of racketeering activity, then he has no basis under the statute
to recover treble damages. Section 1964(c) simply does not
grant relief to “any person injured by reason of two or more
offenses specified in § 1961(1).” It explicitly requires an allega-
tion of injury by reason of “a violation of § 1962,” i.e., by
reason of the use of the pattern of racketeering activity to
conduct the affairs of an enterprise.®
5 In Sedima, S.P-R.L. v. Imrex Co., 741 F.2d 482 (2d Cir. 1984) [App.
48a-106a], petition for cert. filed, 53 U.S.L.W. 3367 (Oct. 22, 1984)
(No. 84-648), another panel of the Second Circuit held, among other
things, that a criminal conviction must be alleged in an action by a
private party under the civil provisions of RICO. That issue was not
addressed by the panel below (741 F.2d at 516 n.5; App. 14a n.5) and is
not raised by the petition herein.
6 This point was well expressed in Friedlander v. Nims, 571 F. Supp.
1188, 1194 (N.D. Ga. 1983), where the Court dismissed a RICO claim
in a securities action:
“The plaintiff here alleges fraud. Fraud alone, and injury from it,
do not give rise to RICO liability.
RICO prohibits, broadly speaking, second stage criminal activity.
RICO does not punish or provide a remedy for murder, kidnapping,
8
As stated by the Court below:
“Section 1964(c) does not provide a private right of
recovery unless the conduct that caused the injury was ‘a
violation of section 1962.’ We must therefore ask what
conduct violates that section. Although, as detailed
above, § 1962 has a number of facets, it is clear that it
does not itself prohibit the predicate acts that constitute
racketeering activity. Commission of two or more predi-
cate acts is but an element of a § 1962 violation; those
acts do not themselves constitute the § 1962 violation.
Indeed, § 1962 does not even prohibit a pattern of rack-
eteering activity, without more. Rather, there is a violation
of § 1962 only if there are present both (1) the pattern of
racketeering activity, and (2) the use of that pattern to
invest in, control, or conduct, a RICO enterprise. It is this
confluence that constitutes the violation and, therefore,
the confluence that must cause the proprietary injury.
The import of this analysis is that if a complaint alleges
a proprietary injury that is caused by the defendant’s
predicate acts, rather than by its use of a pattern of
racketeering activity in connection with a RICO en-
terprise, the injury cannot be said to have been caused by
‘a violation of section 1962.’ See Sedima, S.PR.L. v.
Imrex Co. . . . Accordingly, we agree with the conclu-
sion of the district court that a civil RICO complaint must
allege ‘a distinct RICO injury,’ by which we mean that it
must allege a proprietary injury caused by a RICO viola-
tion, not just one caused by some of the essential elements
of a RICO violation.” 741 F.2d at 516; App. 13a-14a
(footnotes omitted).
The Court below thus read the requirement that the injury
stem from the pattern of racketeering activity as “the plain
arson, or fraud. It punishes, or provides a remedy for, the opera-
tion—acquisition, investment, maintenance, or conduct—of en-
terprises through racketeering activity or as a result of racketeering
activity. Nothing of the sort is alleged here.” (emphasis in original).
9
meaning of § 1964(c).” It therefore saw “no basis for inferring
that Congress did not intend what it plainly said” and rejected
Bankers’ argument that the statute’s legislative history justified
wiping away the clearly drawn lines between predicate acts and
the pattern of racketeering. 741 F.2d at 517; App. 15a.’
Applying that principle to the allegations of the complaint,
the Court below properly concluded that Bankers’ sole cogni-
zable injury flowed directly from an alleged act of bankruptcy
fraud in 1976 which prevented collection of an outstanding
debt. 741 F.2d at 517-18; App. 17a-18a. This was an individual
predicate act® for which Bankers already possessed a remedy
under federal law. As there was no “pattern” and no violation
of § 1962, dismissal of Bankers’ complaint was held to be
mandated by the language of the statute.
B. The Legislative History Of RICO Does Not Support
Bankers’ Interpretation Of The Statute
Although Bankers attempts to invoke the “plain meaning”
of the statute, the thrust of its argument is to seek support in
RICO’s “long and complex” legislative history. However, the
legislative history referred to (Petition at 15-17) relates primar-
ily to the criminal provisions of RICO and to remedies avail-
7 Sedima was in accord with the decision below in holding that
§ 1964(c) requires allegation of a distinct RICO injury. Sedima af-
firmed dismissal of the complaint because it failed to allege the kind of
injury at which the statute was directed, i.e., injury to “investors and
competitors” when “mobsters, either through the infiltration of legiti-
mate enterprises or through the activities of illegitimate enterprises,
cause systemic harm to competition and the market.” 741 F.2d at
495-96; App. 74a. The test in Sedima, if applied in this case, would
also support dismissal of Bankers’ complaint.
8 The Court below, noting the possibility that any alleged fraudulent
scheme could be fragmented so that different phases are characterized
as different statutory violations, commented that a determination of
the sufficiency of such fragmented allegations was “a matter best left,
in the first instance, to the discretion of the district judge.” 741 F.2d at
518 n.7; App. 17a n.7.
10
able to the government. Indeed, by repeatedly stressing
Congress’ intention of fighting “organized criminal activity,”
Bankers only highlights the inapplicability of the civil provi-
sions of RICO to an ordinary commercial dispute involving the
nonpayment of a bank loan.
In any event, the statute’s legislative history offers little
insight into the intention of Congress and provides no basis for
overturning the Second Circuit’s analysis of the statute’s
framework. To begin with, that history is extremely sparse. As
the decision below noted,
“the terms of § 1964(c) were not discussed at all in the
Senate, whose final RICO bill cid not contain a provision
for a private right of action, [while] the discussions in the
House of Representatives centered almost entirely on the
provision of civil remedies to be enforced by the govern-
ment rather than by private parties.” 741 F.2d at 517;
App. 15a.
The Court below (741 F.2d at 517; App. 16a) found that its
analysis cf the limited scope of § 1964(c) was consistent with
the sole explanation of that section presented on the floor of
either house:
“(The section] provide[s] that private persons injured by
reason of a violation of the title may recover treble
damages in Federal courts—another example of the anti-
trust remedy being adapted for use against organized
criminality.” 116 Cong. Rec. 35,295 (1970) (remarks of
Rep. Poff) (emphasis supplied).
In Sedima v. Imrex, supra n.5, another panel of the Second
Circuit engaged in a comprehensive exploration of the legisla-
tive background of § 1964(c). 741 F.2d at 488-92; App. 58a-
66a. It noted that Congress had debated several proposals for
civil weapons to fight organized crime and that virtually all of
these were to be employed by the government. The primary
issue relating to private civil actions which Congress considered
was how closely such actions should parallel private antitrust
11
suits.” No attention was given to the possibility, much less the
wisdom, of displacing existing common or statutory law, or of
authorizing a treble damages award for a wrong already
compensable by actual damages. Section 1964(c) itself was
added in the House, some time after the main outlines of the
bill—which contained no provision for private remedies—had
passed the Senate.
At the end of this discussion, Sedima stated:
“The most important and evident conclusion to be
drawn from the legislative history is that the Congress was
not aware of the possible implications of section 1964(c).
If Congress had intended to provide a federal forum for
plaintiffs for so many common law wrongs, it would at
least have discussed it. If Congress had intended to
provide an alternate and more attractive scheme for
private parties to remedy violations of the securities
laws—involving decades of statutes, regulations, com-
mentaries, and jurisprudence—it would at least have men-
tioned it. The House Judiciary Committee, which
authored the provision, would at least have mentioned the
amendment to the full House as a major change in its
report had there been any inkling of its possible implica-
tions.” 741 F.2d at 492; App. 66a.
As correctly noted in Sedima, the most striking aspect of the
legislative history of § 1964(c) is its “clanging silence.” Jd.
Brushing aside this scholarly inquiry into the statute’s ori-
gins, Bankers would invoke Congress’ “clanging silence” to
argue that the decision below should be reversed because the
9
No light is shed on the legislative history of § 1964(c) by the
statement of the Antitrust Section of the American Bar Association
(Petition at 16) concerning the interrelationship between existing anti-
trust and proposed anti-organized-crime legislation. The ABA state-
ment showed only that concepts of standing and causation applied in
antitrust cases might not be appropriate for statutes designed to fight
organized crime. The statement was not directed at the specific
language of § 1964(c) and does not support an unreasonably broad
application of that provision in the manner suggested by Bankers.
12
legislative history of § 1964(c) contains “nothing that suggests”
a limitation on the type of injury required to sustain a civil
RICO claim. Petition at 15. However, such an argument rests
on a faulty understanding of the courts’ proper role in apply-
ing new statutes. As the Second Circuit correctly perceived
when it refused to extend the reach of § 1964(c), courts should
not depart from established rules of law without an express
statement of legislative intent. The Court below interpreted the
civil provisions of RICO in a manner consistent with related
laws, both federal and state, heeding the admonition that when
a Statute is not clear, it should be construed “with an eye to the
surrounding statutory landscape and an ear for harmonizing
potentially discordant provisions.” United States v. Bass, 404
U.S. 336, 344 (1971).
Bankers would read the legislative silence as justifying a
radical shift in the traditional allocation of jurisdiction be-
tween state and federal courts. To the contrary, this Court has
frequently stated that the sensitive balance in our federal
system is not to be upset unless expressly authorized by
Congress. Thus, for example, in securities law cases this Court
has, at times, declined to recognize federal causes of action:
“Absent a clear indication of congressional intent, we are
reluctant to federalize [a] substantial portion of the law of
corporations.” Santa Fe Industries, Inc. v. Green, 430 U.S.
462, 479 (1977). Accord: Cort v. Ash, 422 U.S. 66, 84 (1975).
This Court has also been wary of disturbing the federal-state
balance in the antitrust context:
“The maintenance in our federal system of a proper
distribution between state and national governments of
police authority and of remedies private and public for
public wrongs is of far-reaching importance. An intention
to disturb the balance is not lightly to be imputed to
Congress.” Apex Hosiery Co. v. Leader, 310 U.S. 469,
513 (1940).
Or, as this Court explained in Federal Trade Commission v.
Bunte Brothers, Inc., 312 U.S. 349, 351 (1941), “in ascertain-
ing the scope of congressional legislation a due regard for a
+e
13
proper adjustment of the local and national interests in our
federal scheme must always be in the background.”
Furthermore, this Court has warned that “absurd results are
to be avoided.” United States v. Turkette, supra, 452 U.S. at
580. As this Court observed in Sorrells v. United States, 287
U.S. 435, 450 (1932):
“To construe statutes so as to avoid absurd or glaringly
unjust results, foreign to the legislative purpose, is, as we
have seen, a traditional and appropriate function of the
courts. . . . The Congress by legislation can always, if it
desires, alter the effect of judicial construction of stat-
utes.”
Thus, the Court below was properly sensitive to its judicial
obligation to interpret a statute in the face of the “clanging
silence” of the legislature. It fulfilled that obligation by look-
ing to the policy of the statute as a whole in order to preserve
and maintain legal harmony.’ If, in fact, Congress concludes
that civil provisions with the far-reaching and disruptive conse-
quences Bankers advocates are desirable, it can, by legislation,
alter the effect of the decision below.
Bankers invokes United Siates v. Turkette, supra, as author-
ity for the proposition that, in enacting RICO, Congress
intended to federalize large bodies of state common law.
Petition at 15. A fair reading of Turkette shows, however, that
it considered only the Congressional intent to “alter somewhat
10 See also In re Action Industries Tender Offer, 572 F. Supp. 846, 850
(E.D. Va. 1983) (“Congress did not intend for RICO to be used by
private plaintiffs to claim treble damages for ordinary violations of
criminal and tort laws. The fact that the statute specifically requires a
violation of Section 1962 and not just a violation of two or more
predicate acts (listed in Section 1961) demonstrates that alleging
predicate acts alone is not sufficient to maintain a civil RICO claim”);
Harper v. New Japan Securities International, Inc. , 545 F. Supp. 1002,
1007-08 (C.D. Cal. 1982) (“Congress could not have intended to
provide treble damages causes of action to persons whose only injury
stems directly from the predicate acts alone. It is simply incomprehen-
sible that a plaintiff suing under the securities laws would receive
one-third the damages of a plaintiff suing under RICO for the same
injury”).
14
the role of the Federal Govetnment in the war against or-
ganized crime.” 452 U.S. at 589. Nothing can be inferred from
Turkette about the scope or purpose of private civil RICO. !!
There is a further reason to conclude that Congress did not
intend the massive expansion of civil litigation in the federal
courts that would result from Bankers’ expansive reading of
§ 1964(c). A few months before the enactment of RICO, a bill
was passed that created 58 new federal district judgeships. As
the House Report to Senate Bill 952 (Pub. L. 91-272, codified
in 28 U.S.C. § 133) makes plain, Congress was fully aware in
1970 of “the delay and confusion” in the district courts. The
House Report noted with concern the “record backlogs”
caused by the “sharp” increase from the preceding year of both
civil and criminal filings. 1970 U.S. Code Cong. & Ad. News
3221, 3224.
11 Bankers cannot draw any support from Congress’ direction that
RICO “shall be liberally construed to effectuate its remedial pur-
poses.” Organized Crime Control Act, § 904(a). Petition at 9. That
direction does not absolve the courts of their obligation to look at
“Congress’ intent when it passed the legislation [rather than to make]
unverifiable guesses as to what its intent would be” in procedural and
factual contexts not contemplated by the statute. Aetna Casualty and
Surety Co. v. Liebowitz, 730 F.2d 905, 908-09 (2d Cir. 1984).
It is notable that, in enforcing the criminal provisions of RICO, the
Department of Justice has admonished prosecutors not to commence
prosecutions “which are far afield from [its] Congressional purpose”
because “the RICO statute, more so than most other Federal criminal
sanctions, requires particularly careful and reasoned application.”
Department of Justice RICO Guidelines, United States Attorneys’
Manual, Tit. 9, Ch. 110 (adopted Jan. 30, 1981), reprinted in ABA,
Division of Professional Education, RICO: The Ultimate Weapon in
Business and Commercial Litigation, Vol. I, Tab D-1, Attachment B
(1983).
Among other things, these Guidelines discourage RICO indictments
“which merely duplicate[] the elements of proof of a traditional Hobbs
Act,\ Travel Act, mail fraud [or] wire fraud” case. At the same time
they require centralized authorization by Department officers before a
RICO criminal case can proceed. The impact of the decision below will
siinilarly inhibit the inappropriate or duplicative use of the civil
provisions of RICO.
15
It would be illogical to assume that a legislature actively
seeking to solve the problem of severely overcrowded dockets
would, without comment or explanation, simultaneously enact
legislation dramatically expanding the civil jurisdiction of the
federal courts to encompass cases normally (and competently)
handled by state courts and bankruptcy courts.
C. The Purported Conflict In The Courts Of Appeals Does
Not Support A Grant Of Certiorari In This Case
Bankers also argues (Petition at 18-22) that certiorari should
be granted on the ground that the decision below conflicts with
decisions in three other circuits.'* The decision below does not,
however, conflict with the holdings of either the Fifth or
Eighth Circuits cited by Bankers. Although there is a direct
conflict with the Seventh Circuit, that conflict is not such as to
warrant a grant of certiorari in this case.
1. The decision below is not in conflict with the holdings of
the Fifth and Eighth Circuits.
Bankers cites three decisions of the Fifth and Eighth Cir
cuits, none of which held that a private RICO plaintiff has
standing to sue for treble damages purely on the basis of injury
caused by individual predicate acts. Either the courts cofstrued
the complaints before them as alleging an injury arising as a
result of a pattern of racketeering activity or they declined to
address the question.'? Analysis of these decisions renders
12 ‘In support of its “conflict” argument Bankers cites a number of
district court decisions as well. These add no weight to its petition. As
a general matter, conflicts between decisions of a court of appeals and
of a district court are not a sufficient basis for petitioning for
certiorari. See Stern & Gressman, Supreme Court Practice (Sth ed.
1978) at 278-79; Rule 19(1)(b) of this Court. Moreover, a substantial
number of district courts have independently construed § 1964(c) in a
manner consistent with the decision below. See Sedima, supra, 741
F.2d at 493 n.34; App. 68a n.34.
13 Following the filing of the decision below, two other Circuits, the
Third and the Fourth, issued decisions relating to civil claims under
RICO, but neither referred to the decision below or dealt with the
16
questionable Bankers’ contention that “[t]he other Circuits
that have considered this issue would uphold Bankers’ right to
sue.” Petition at 19.
In Alcorn County v. U.S. Interstate Supplies, Inc., 731 F.2d
1160 (Sth Cir. 1984), a supplier was accused of selling goods at
inflated prices, of bribing the purchaser’s employee and of
receiving payments for materials never delivered. In reviewing
a decision rendered following a trial, the Fifth Circuit did not
decide whether commission of predicate acts alone could con-
stitute a “violation of § 1962”; instead it assumed that the
bribery constituted the predicate act and that the fraudulent
billing (“procured by bribery and threats” [731 F.2d at 1169])
was a compensable injury. No inference can be drawn as to
how that Court would approach the present case.’
In Bennett v. Berg, 685 F.2d 1053 (8th Cir. 1982), on reh.,
710 F.2d 1361 (8th Cir.) (en banc), cert. denied, 104 S.Ct. 527
(1983), plaintiffs, elderly residents of a retirement community,
alleged that the community had been financially mismanaged
and subjected to corruption in consequence of which plaintiffs
were in danger of losing the “life-care” which they had been
promised. The Eignth Circuit focused primarily on the defini-
tion of a RICO “enterprise.” However, in reversing dismissal
of the RICO count, it noted that plaintiffs adequately alleged
the conduct of the affairs of an enterprise distinct from a
pattern of racketeering so as to support their claim that the
cause of their injury was not merely attributable to the individ-
ual acts of mail or wire fraud alleged. 685 F.2d at 1059 n.5.
issues raised herein. Seville Industrial Machine Corp. v. Southmost
Machinery Corp., 742 F.2d 786 (3d Cir. 1984) and Battlefield Builders,
Inc. v. Swango, 743 F.2d 1060 (4th Cir. 1984).
14 Nor can any inference be drawn from the Fifth Circuit’s prior
decision, Owl Construction Co. v. Ronald Adams Coniractor, Inc.,
727 F.2d 540 (Sth Cir.), cert. denied, 53 U.S.L.W. 3237 (Oct. 1, 1984),
which considered only whether organized crime ellegations were re-
quired.
Le
:
|
|
17
The Court further held that the alleged injury rose to a level
beyond that flowing from the isolated wrongful acts of the
defendants, carefully distinguishing predicate acts of rack-
eteering from a violation of § 1962(c). 685 F.2d at 1060-61.
In Alexander Grant & Co. v. Tiffany Industries, Inc., 742
F.2d 408 (8th Cir. 1984), the Court held sufficient a complaint
by an accounting firm alleging that it was damaged by a
scheme involving predicate acts of mail and wire fraud which
misled it into rendering a favorable audit. The injury was
“theft of services,” i.e., the uncompensated excessive work
that the plaintiff had to perform because of the fraud, together
with legal expenses in an SEC investigation and loss of reputa-
tion.
Significantly, the Eighth Circuit recognized that a complaint
seeking to recover merely for predicate-act injury was insuffi-
cient; however, it held that plaintiff had met its pleading
burden:
“{I]t is clear that Grant’s complaint does not simply allege
injury from the underlying predicate acts. It contends that
Tiffany was conducted through a pattern of mail and wire
fraud that enabled it to remain in business. As a result of
this extended life, Grant continued to provide its account-
ing services to Tiffany for a time greater than it would
have had the fraud not occurred. This also increased the
harm resulting to Grant’s business reputation. We con-
clude that these allegations sufficiently plead an injury ‘by
reason of’ a RICO violation.” 742 F.2d at 413.
While noting that the interpretation of the applicable provi-
sions of RICO in the Bankers Trust decision was “far nar-
rower” than its own, Grant explicitly recognized that the two
decisions were consistent. 742 F.2d at 413.'° Bankers thus has
no basis for alleging a conflict with the Eighth Circuit.
15 Grant rejected the ‘‘mobster’’ injury requirement of Sedima (742
F.2d at 413); see n. 7, supra.
18
2. The conflict with the Seventh Circuit does not support a
grant of certiorari in this case.
The Seventh Circuit’s decision in Haroco, Inc. v. American
National Bank & Trust Co., No. 83-2529 (7th Cir. Oct. 19,
1984), does conflict with the decision below. However that
decision incorrectly analyzes the applicable law and does not
support Bankers’ petition for a writ in the present case.
Haroco involved miscalculation of interest by a bank. The
complaint alleged a RICO violation on the ground that the
bank had committed mail fraud by charging plaintiff corpora-
tions interest in excess of “one per cent over the bank’s prime
rate,” the rate specified in a loan agreement. Slip op. at 2.
The District Court held that plaintiffs had alleged an injury
arising only from the predicate acts of mail fraud; it dismissed
the complaint as failing to state a RICO violation. 577 F. Supp. -
111 (N.D. Ill. 1983). Although the Seventh Circuit recognized
that “it does not seem at all likely that Congress anticipated the
application of civil RICO to improperly calculated interest
charges by a commercial bank,” it nonetheless reinstated the
complaint because “Congress appears to have preferred a
broad statute, even if overinclusion might result.” Slip op. at
29.!
16 Although sustaining the complaint, Haroco expressed doubt that
Congress had actually intended that RICO apply to the fact-pattern
before it. Similar doubts previously had been expressed by other
Seventh Circuit panels. Thus, in Schacht v. Brown, 711 F.2d 1343,
1361 (7th Cir.), cert. denied, 104 S.Ct. 508 (1983), the Court wrote:
‘‘Congress, by granting both plaintiff and defendant status to
‘any person’ who possesses the rudimentary connection with the
operation of an enterprise through predicate offenses or who
suffers injury therefrom, may well have created a runaway treble
damage bonanza for the already excessively litigious. . . . The
legislature having spoken, it is not our role to reassess the costs and
benefits associated with the creation of a dramatically expansive,
and perhaps insufficiently discriminate, tool for combating or-
ganized crime.”’
Similarly in Sutliff, Inc. v. Donovan Companies, 727 F.2d 648, 654
(7th Cir. 1984), the Court wrote:
“Congress deliberately cast the net of liability wide, being more
concerned to avoid opening loopholes through which the minions of
19
In reaching this conclusion Haroco incorrectly rejected,
without any reasoned explanation, both the analysis of RICO’s
legislative history in Sedima and the statutory analysis in the
Bankers Trust decision. Under Haroco, virtually any plaintiff,
by adding allegations of “mail fraud” or “wire fraud,” can
convert a common law action into a federal action for treble
damages. As previously shown, there is no basis in the legisla-
tive history to support such a radical shift in the traditional
allocation of jurisdiction between the state and federal courts.
In summary, the decision below does not conflict with the
holdings of the Fifth and Eighth Circuits. Because the conflict
with Haroco reflects a misreading by the Seventh Circuit of the
Statute’s text and legislative purpose, that conflict does not
support a grant of certiorari in this case."’
organized crime might crawl to freedom than to avoid making
garden-variety frauds actionable in federal treble-damage proceed-
ings—the price of eliminating all possible loopholes. [citations
omitted]. We must abide by Congress’s decision, made at a time of
less sensitivity than today to the workload pressures on the federal
courts and to the desirability of maintaining a reasonable balance
between state and federal courts, however much we may regret not
only the burdens that the decision has cast on the federal courts but
also the displacement of state tort law into the federal courts that it
has brought about.”’
The Seventh Circuit’s method of statutory interpretation lacks per-
suasiveness. Its approach indicates an inability to recognize the signifi-
cance of the ‘‘clanging silence’’ of Congress as to the civil provisions
of RICO. The Seventh Circuit’s rationale may not, in the circum-
stances, be viewed as an appropriate exercise of deference to legislative
judgment. By drawing carefully restrained inferences from the stat-
ute’s language, purpose and legislative history, the Second Circuit, it is
submitted, reached the proper conclusion as to the requirement of a
RICO injury.
17. Bankers also makes a tentative attempt (Petition at 9-10, 21-22) to
argue for a grant of certiorari on the basis of an alleged conflict within
the Second Circuit involving the decision below, Sedima and Furman
v. Cirrito, 741 F.2d 524 (2d Cir. 1984) [App. 107a-z7a], petition for
cert. filed sub nom. Joel v. Cirrito, 53 U.S.L.W. 3343 (Oct. 15, 1984)
(No. 84-604). This argument is devoid of merit. Any conflict within the
Second Circuit would be a matter for the Second Circuit, not this
Court, to resolve. See Davis v. United States, 417 U.S. 333, 340 (1974).
But there is no conflict. The holdings of all three cases were consistent.
Although the Furman panel expressed its disagreement with the other
20
EVEN IF A DISTINCT RICO INJURY NEED NOT BE
ALLEGED, CERTIORARI SHOULD NOT BE GRANTED
Whether or not the Second Circuit was correct in its reading
of the RICO injury requirement, sound reasons of judicial
economy favor the denial of Bankers’ petition:
(a) review is premature until the civil provisions of
RICO receive further interpretation by the lower federal
courts or until Congress is given an opportunity to act;
(b) even if the RICO injury requirement set forth in the
decision below reflects an erroneous reading of the stat-
ute, the simple breach of contract claim alleged by
Bankers cannot support its civil RICO claim; and
(c) if this case were remanded, Bankers’ complaint
would have to be dismissed on grounds unrelated to
RICO, i.e., its claims are within the exclusive jurisdiction
of the bankruptcy court and are barred by the statute of
limitations.
A. Review Of The RICO Injury Requirement At This Time
Would Be Premature
In reviewing petitions for certiorari this Court has consid-
ered, among other things, whether a grant of the petition
would be either premature, because the legal context for
applying the statute remains unclear, or futile, because the
statutory provision at issue may soon be modified. Both of
these tests apply to this case.
Thus, it has been stated that certiorari will be denied where it
“may be desirable to have different aspects of an issue further
illuminated by the lower courts.” Maryland v. Baltimore Radio
Show, Inc., 338 U.S. 912, 918 (1950) (Frankfurter, J.). This
Court has also recognized that it may at times be unwise to
two decisions, it recognized that those decisions had to be followed.
Furman should be viewed as essentially a dissenting opinion, not a
manifestation of intracircuit conflict.
21
pass “upon the possible significance of the manifold provisions
of a broad statute in advance of efforts to apply the separate
provisions.” Watson v. Buck, 313 U.S. 387, 402 (1941).
In the present case these principles militate strongly against
granting the writ. Although RICO was enacted in 1970, its
employment in private treble-damage actions is a very recent
phenomenon. The overwhelming majority of the decisions in
the lower courts have concerned matters of pleading, with little
scrutiny of the facts. It is therefore appropriate for this Court
to allow a further development of decisional law in the lower
courts to enable the identification of significant issues of scope
and applicability.
The other reason why granting the petition would be prema-
ture is that the statute may soon be modified. This Court has,
at times, declined to accept cases where the likelihood that a
statute will soon be modified either makes review unnecessary
Or minimizes the future importance of the question presented.
See Sanks v. Georgia, 401 U.S. 144, 149-53 (1971); District of
Columbia v. Sweeney, 310 U.S. 631 (1940).
Whatever the obscurities in the statute’s previous history,
Congress is now aware of the problems and complexities
surrounding civil RICO. On October 5, 1984, the chairman of
the Senate Judiciary Committee stated:
“[W]hen we acted on this RICO statute as part of the
Organized Crime Control Act of 1970, I think it is fair to
observe that we might not have envisioned the full use of
the statute by private civil litigants to include a civil RICO
count in their ordinary business litigation alleging mis-
statements and fraud.
* * *
4
It is, therefore, imperative that the Congress hold
hearings as soon as possible on this issue to determine if
the intention of the Congress in enacting RICO is being
carried out, and, if not, what legislative changes are
necessary to bring that about. It is my intention to hold
such hearings as soon as possible next year after the
Congress convenes.” 130 Cong. Rec. 13,350 (remarks of
Sen. Thurmond).
22
In view of the distinct possibility that Congress might act
soon to amend the statute, a decision at this time in the present
case might be of little lasting significance.
B. Bankers’ Simple Breach Of Contract Claim Cannot Sup-
port A RICO Action
Review of the need for a distinct RICO injury is not
appropriate in this case because Bankers’ alleged injury does
not fall even within a broad reading of RICO. Bankers’ alleged
injury arises from a simple breach of contract as to which no
fraud in the inducement is alleged; thus, the later independent
acts of respondents cannot provide the required connection to
a violation of RICO.
Cases decided under the antitrust laws demonstrate that
traditional tort or contract claims may not be converted into
violations of federal law so as to support federal jurisdiction or
treble damages. Relief under the antitrust laws is available only
for injuries that flow “from that which makes defendants’ acts
unlawful.” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429
U.S. 477, 489 (1977). In Associated General Contractors, Inc.
v. California State Council of Carpenters, 459 U.S. 519 (1983),
this Court stated that to assert a claim under the antitrust laws
a plaintiff must allege a “causal connection” between the
antitrust violation and the harm he has suffered. Typically,
courts rest their causal analysis on the requirement in section 4
of the Clayton Act, 15 U.S.C. § 15, that the injury be “by
reason of” an antitrust violation, a verbal formula that also
appears in § 1964(c).
When, as in Bankers’ case, the alleged injury resulted solely
from a tort or a breach of contract, courts routinely hold that
no antitrust claim is stated. Thus, in A.D.M. Corp. v. Sigma
Instruments, Inc., 628 F.2d 753, 754 (ist Cir. 1980), the Court
declined to find that “ ‘mere’ unfair business practices or
business torts” (such as disloyal acts by corporate officials)
were federal antitrust violations. An “essential connection”
with the antitrust laws also was found lacking in a claim arising
from a breach of a contract, allegedly for anti-competitive
spe aa aac
23
reasons, on the ground that the contract itself was not violative
of those laws. Chrysler Corp. v. Fedders Corp., 643 F.2d 1229
(6th Cir.), cert. denied, 454 U.S. 893 (1981). See also Snyco,
Inc. v. Penn Central Corp., 551 F. Supp. 949 (E.D. Pa. 1982).
Similarly, in Fields Productions, Inc. v. United Artists
Corp., 318 F. Supp. 87 (S.D.N.Y. 1969), aff’d, 432 F.2d 1010
(2d Cir.) (per curiam), cert. denied, 401 U.S. 949 (1971), it was
heid that the cause of the plaintiff’s injury was not an antitrust
violation, but an improper allocation of profits derived from
block booking of motion pictures. The District Court ex-
plained:
“(I]t is difficult to see how the block booking could have
caused injury to [the] plaintiff, incidental or not... .
| This may be a breach of contract, but it is not a violation
of the antitrust laws. Plaintiff is already suing defendant
for breach of contract. . . . That would seem to be
plaintiff’s proper remedy.”"®
Thus even if, in the abstract, the question of a distinct RICO
: injury requirement presented an appropriate issue for review at
this time, Bankers’ petition should nevertheless be denied.
Regardless of the correctness of the statutory interpretation
below, Bankers’ injury flows not from any violation of RICO
but from a simple breach of contract. Accordingly, whether or
not Haroco is correct, certiorari should be denied here.
C. The Complaint Is Subject To Dismissal On Other Grounds
A final reason for denying certiorari is that Bankers’ com-
plaint would still be subject to dismissal even if no distinct
18 = Cf. Mulvey v. Samuel Goldwyn Productions, 433 F.2d 1073 (9th
Cir. 1970), cert. denied, 402 U.S. 923 (1971). Significantly, within a
single term, this Court denied certiorari to both Mulvey and Fields, in
the face of the express statement in Mu/vey that ‘‘[w]e disagree with
the contrary conclusion on the standing issue reached by the Second
Circuit, per curiam. . . .’’ 433 F.2d at 1076 n.4. Thus, contrary to
Bankers’ apparent belief, the mere existence of a direct conflict
between t ircuits does not, in itself, provide a sufficient basis for
the issuance of a writ of certiorari.
24
RICO injury allegation were required because: (i) the bank-
ruptcy court has exclusive jurisdiction of the claim asserted;
and (ii) Bankers’ claim is barred by the statute of limitations.
1. The bankruptcy court has exclusive jurisdiction.
Any cause of action for damages arising from the alleged
concealment of the Brookfield asset belongs to BAC, not
Bankers, and arises exclusively from matters within the pur-
view of ithe pending BAC bankruptcy proceeding.'? Only BAC
or, if an order for relief is entered, its trustee, has standing to
assert such a claim. Moreover, the determination as to whether
it should be pursued must, in the first instance, be presented to
the bankruptcy court. Bankers may not treat BAC’s claim as
its own and bypass BAC’s pending bankruptcy proceeding (see
note 2, supra) to pursue independently any alleged rights of
BAC’s creditors under RICO.
2. Bankers’ claim is time barred.
Because Congress did not provide an express statute of
limitations for RICO, the state limitations period governing
19 See Gochenour v. George & Frances Ball Foundation, 35 F. Supp.
508 (S.D. Ind. 1940), affirmed as ‘‘sound’’ and opinion adopted by
reference as the opinion of the Court of Appeals, 117 F.2d 259 (7th
Cir.) (per curiam), cert. denied, 313 U.S. 566 (1941), a class action by
creditors commenced while a bankruptcy proceeding was pending. In
Gochenour, the complaint charged that defendants had realized im-
proper profits by conspiring to acquire the debtor’s assets at an
inadequate price. The District Court (35 F. Supp. at 515) held that the
cause of action was an asset within the jurisdiction of the bankruptcy
court and that the debtor in possession, which owned such asset, had
the exclusive right to maintain the action.
See also Gochenour v. Cleveland Terminals Bldg. Co., 118 F.2d 89,
93 (6th Cir. 1941) (creditors’ claims were claims of the debtor in
possession over which the bankruptcy court had exclusive jurisdiction);
Graybar Electric Co. v. Doley, 273 F.2d 284, 292 (4th Cir. 1959);
Rothstein v. Seidman & Seidman, 410 F. Supp. 244, 250 (S.D.N.Y.
1976); and Sloan v. Clark, 18 N.Y.2d 570, 575, 277 N.Y.S.2d 411, 223
N.E.2d 893 (1966).
25
analogous actions is applied.”” Under New York law, which is
controlling here, the longest limitations period arguably avail-
able is six years.”
A claim such as Bankers’ accrues “when plaintiff first
suffered a loss as a result of defendant’s fraudulent conduct.”
Rice v. Baron, 456 F. Supp. 1361, 1368 (S.D.N.Y. 1978).
Accord: Stull v. Bayard, supra, 561 F.2d at 432. As previously
noted, the plan of arrangement which, according to Bankers,
improperly relieved BAC of $4.3 million in debt, was approved
by the bankruptcy court in March 1976. 741 F.2d at 513; App.
7a. Thus, any injury arising from the alleged fraudulent
discharge of BAC accrued no later than March 1976.
The alleged “consummation” of the concealment scheme
several months later—when Brookfield was supposedly re-
turned to BAC—is irrelevant for limitations purposes. A party
injured by a continuing course of conduct “may bring suit as
soon as the damage to him is inflicted; he obviously need not
wait until the termination of the conspiracy which caused it
. and the statute therefore begins to run at the moment
such injury occurs.”
20 See, e.g., Board of Regents v. Tomanio, 446 U.S. 478, 483-84
(1980); Armstrong v. McAlpin, 699 F.2d 79 (2d Cir. 1983); IIT v.
Cornfeld, 619 F.2d 909, 928 (2d Cir. 1980); Stull v. Bayard, 561 F.2d
429, 431 (2d Cir. 1977), cert. denied, 434 U.S. 1035 (1978).
21 Section 213(&), N.Y. Civil Practice Law and Rules (McKinney ed.
1972). See Estee Lauder, inc. v. Harco Graphics, Inc., 82 Civ. 8188
(CBM) (S.D.N.Y. March 21, 1984); Prudential Lines, Inc. v. McKeon,
80 Civ. 5853 (MJL) (S.D.N.Y. April 21, 1982); contra, Teltronics
Services, Inc. v. Anaconda-Ericsson, Inc. , 587 F. Supp. 724 (E.D.N.Y.
1984) (three-year statute); cf. Durante Bros. and Sons, Inc. v. Flushing
National Bank, 571 F. Supp. 489 (E.D.N.Y. 1983).
22 Rutkin v. Reinfeld, 229 F.2d 248, 252 (2d Cir.), cert. denied, 352
U.S. 844 (1956). Accord: Korry v. International Telephone & Tele-
graph Corp., 444 F. Supp. 193, 195 (S.D.N.Y. 1978). See also Dolmetta
v. Uintah National Corp., 712 F.2d 15 (2d Cir. 1983), holding that New
York’s six-year fraud statute began to run when the plaintiff bank
“suffered some loss as a result of defendants’ fraudulent acts”. The
Court rejected as “artificial and unconvincing” plaintiffs’ attempt to
26
Only if subsequent acts causing injury take place within the
statutory period inay a new claim be asserted, and even that
claim must be limited to the additional damage allegedly
inflicted. Thus, the repetition of a particular wrong does not
revive a time-barred claim; it merely provides the basis for a
new claim if the repetition itself causes further damage.”
Bankers also may not claim the benefit of the doctrine of
fraudulent concealment. Not only did its complaint fail to
comply with the requirements for pleading that doctrine (see,
e.g., Armstrong v. McAlpin, supra, 699 F.2d at 88-89) but,
more significantly, even if the doctrine of fraudulent conceal-
ment were sufficiently alleged, Bankers’ claims still would be
barred. Under N.Y. Civil Practice Law and Rules § 203(f)
(McKinney ed. 1972), claims alleging fraudulent concealment
as a basis to toll an otherwise expired statute of limitations
avoid this conclusion by characterizing a subsequent transfer of assets
acquired with funds embezzled from plaintiffs as a fraud “separate
and distinct” from the original embezzlement, It stated:
“The [subsequent] transfer did not represent a new and separate
loss to the Bank. Rather, the conveyance was at most a post-fraud
secretion designed to preserve the success of a fraud that had
occurred long since.” 712 F.2d at 19.
See also Woodbridge Plastics, Inc. v. Borden, Inc., 473 F. Supp. 218,
221 (S.D.N.Y.), aff'd, 614 F.2d 1293 (2d Cir, 1979), citing /mperial
Point Colonnades Condominium, Inc, v. Mangurian, 549 F.2d 1029,
1035 (Sth Cir.), cert, denied, 434 U.S, 859 (1977) and Rice v. Baron,
supra, 456 F. Supp. at 1368.
Nor may Bankers successfully claim that respondents’ conduct
constituted a “continuing wrong” as to which the statute did not begin
until the conduct terminated, See, e.g., Korry v. International Tele-
phone & Telegraph Corp., supra (the statute of limitations begins to
run at the moment injury occurs) and Sporn v, MCA Records, Inc,, 58
N. Y.2d 482, 462 N.Y.S.2d 413, 448 N.B.2d 1324 (1983),
23. In Kadar Corp. v. Milbury, $49 F.2d 230, 234 (Ist Cir, 1977),
plaintiffs argued that their claims accrued on the date of the last overt
act committed in furtherance of a civil conspiracy, pointing to pur-
ported overt acts of certain defendants in 1973-75 to hold open claims
arising from acts committed in 1971-72, The Court rejected this
contention and dismissed the claims.
27
must be asserted within two years from the time the wrongdo-
ing was, or with reasonable diligence should have been, discov-
ered,
Here, Bankers’ claim accrued in March 1976 and, as is clear
from its commencement of a proceeding to revoke confirma-
tion of the BAC plan in September 1976, Bankers had discov-
ered the alleged wrongdoing by that date. Thus, under the
controlling authorities,“ the right to pursue a claim for relief
based upon the alleged concealment of the Brookfield asset
expired no later than March 1982—six years from the accrual
of the claim in March 1976 (CPLR § 213[8])—since such date
was later than September 1978—two years from discovery of
the alleged wrong (CPLR § 203[{f]), Because Bankers’ claim
was not asserted within the applicable period, it is time barred;
the fact that it was asserted within six years of discovery is of
no legal consequence,
Thus, even if a distinct RICO injury were not required, the
fact that the decision below would be affirmed on other
grounds argues strongly against granting Bankers’ petition.
24 Hoff Research & Development Laboratories, Inc. v. Philippine
National Bank, 426 F.2d 1023, 1025-27 (2d Cir, 1970); Cestaro vy.
Mackell, 429 F, Supp. 465 (E.D.N.Y.), aff'd, $73 F.2d 1288 (2d Cir.
1977); Rickel v, Levy, 370 F. Supp. 751, 755-56 (B.D.N.Y, 1974).
a iieeeinineille
28
CONCLUSION
The petition for a writ of certiorari should be denied,
November 21, 1984
Respectfully submitted,
JOEL W. STERNMAN
(Counsel of Record)
EUGENE A, GAER
DOROTHY HEYL
ROSENMAN COLIN FREUND LEWIS
& COHEN
575 Madison Avenue
New York, New York 10022
(212) 940-8800
Attorneys for Respondent
Herman Soifer
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.