Opposition Brief — Big Apple Industrial Buildings, Inc. v. Procter & Gamble Co.

Nos. 89-692, 89-

IN THE

Supreme Court of the United St e5

o Supreme Court, U.S.

* FILED

NOV 29 88

JOSEPH F. SPANIOL, JR,

CLERK

OCTOBER TERM, 1989

-

BIG APPLE INDUSTRIAL BUILDINGS, INC., AROL I.

BUNTZMAN and MARTIN WILLIAM HALBFINGER, ESo.,

Petitioners.

—_—V.—

THE PROCTER & GAMBLE COMPANY and

RIVERVIEW PRODUCTIONS, INC.,

Responden ts

-

AMERICAN INTERNATIONAL CONTRACTORS, INC..,

Petitioner,

—_V—

THE PROCTER & GAMBLE COMPANY, ETAL.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

‘ RESPONDENTS’ BRIEF IN OPPOSITION

Harold P. Weinberger

(Counsel of Record)

David S. Frankel

KRAMER, LEVIN, NESSEN,

KAMIN & FRANKEL

919 Third Avenue

New York, New York 10022

(212) 715-9100

Attorneys for Respondents

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-

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MY: - eee

COUNTERSTATEMENT OF QUESTION PRESENTED

Should this Court invoke its certiorari jurisdiction to recon-

sider the precise issue it decided just several months ago in H.J.

Inc. v. Northwestern Bell Telephone Co., 109 S. Ct. 2893

(1989), where

(a) no reason is advanced for such an unusual exercise

of the Court’s discretion apart from petitioners’ general

disagreement with the result in H.J. Inc.;

(b) RICO is clearly constitutional as applied to petition-

ers’ alleged frauds, and petitioners do not and canno!

claim lack of fair notice that their conduct, as alleged in

the complaint, violated well established proscriptions of

the criminal law; and

(c) petitioners’ constitutional vagueness claim (which

was not raised in the District Court or the Court of

Appeals) was recently rejected by this Court in Fort

Wayne Books, Inc. v. Indiana, 109 S. Ct. 916 (1989), with

respect to a virtually identical state RICO statute?

TABLE OF CONTENTS

COUNTERSTATEMENT OF QUESTION

POT LEED) 63h 080s s cn sens ecneeee ent aeeeeee

REASONS FOR DENYING THE WRIT.............

1. The Court of Appeals decision formulates and

applies a definition of ‘‘pattern of racketeering’”’

consistent with this Court’s decision in H.J. Inc.

2. The ‘‘pattern of racketeering’’ allegations more

than amply satisfy the ‘‘continuity’’ component

of the test set forth im 4.5. TC... coi cicccccess

3. RICO’s ‘‘pattern of racketeering’’ requirement

is not unconstitutionally vague...............

COINCTAISIIN cocccvesvecécnsenses vasenmeweueeul

PAGE

10

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15

20

Pe i ee

ill

TABLE OF AUTHORITIES

Cases: PAGE

American Communications Association v. Douds, 339

Tes icy wavesecccesesccsess 16

Beauford v. Helmsley, 865 F.2d 1386 (2d Cir. 1989)

eee u was ecbeceecccccccccces 9,9n.8

Coates v. City of Cincinnati, 402 U.S. 611

ee ac acceaes sense ceeces 15 n.12, 15-17

Duignan v. United States, 274 U.S. 195 (1927) ....... 1S n.12

Fort Wayne Books, Inc. v. Indiana, 109 S. Ct. 916

eeu aauaewscvccsceccssccccsedy 15-19

Grayned v. City of Rockford, 408 U.S. 104

Cece ed cece ecercececs .16, 17, 17 0.13

H.J. Inc. v. Northwestern Bell Telephone Co., 109 S. Ct.

Ce sec eeeccesscevssecesss passim

Hishon v. King & Spalding, 467 U.S. 69 (1984)........ 3n.3

Lanzetta v. New Jersey, 306 U.S. 451 (1939)......... 17 n.13

United States v. Aleman, 609 F.2d 298 (7th Cir. 1979),

cert. denied, 445 U.S. 946 (1980) ...............-..- 19

United States v. Campanale, 518 F.2d 352 (9th Cir.

1975), cert. denied, 423 U.S. 1050 (1976) ........... 20

United States v. Hawes, 529 F.2d 472 (Sth Cir. 1976) .. 20

United States v. Herman, 589 F.2d 1191 (3d Cir. 1978),

ES ESE 0) 19-20

United States v. Indelicato, 865 F.2d 1370 (2d Cir. 1989)

ee ea sa Sen aacnevcceccvcceccess )

iv

PAGE

United States v. National Dairy Corp., 372 U.S. 29

TREE xi brew darad enka dwa ta kadnaanaate wriawesaes 15

United States v. Parness, 503 F.2d 430 (2d Cir. 1974),

cine. dame, 429 V.. EBs CHT ee 2 6 ea od dence evcces 20

United States v. Ragen, 314 U.S. 513 (1942) .......... 17-18

United States v. Raines, 362 U.S. 17 (1960)........... 15

United States v. Seregos, 655 F.2d 33 (2d Cir. 1981), cert.

Po eT Ot rere rere ere 17

United States v. Swiderski, 593 F.2d 1246 (D.C. Cir.),

Cont. Gane, GAL US. Fae CAPT e oc cc cecccweseusexs 19

Williams v. United States, 341 U.S. 97 (1951)......... 15

Other Authorities:

POG. ie: Cats Be RRs chev Cee ceecesasnceateurns 3 n.3, 10

BO. COD & Fe be ce cade ccceccvncetscccaneuee 18 n.15

tk ae Ud BMP TTT eee eee eee 15

ih es oe ey A PPT eETTTTT rire eee 15 n.11

BG UT 6 Se 6.06556 0606s40nedeereseneneeesenans 4n.5

IG USA BOs te 0 desctveciawees busca evandeeauteues 18 n.15

RULE 28.1 STATEMENT

D’Arcy Masius Benton & Bowles, Inc. is the parent Company

of respondent Riverview Productions, Inc.

IN THE

Supreme Court of the United States

OCTOBER TERM, 1989

Nos. 89-692, 89-805

=

BIG APPLE INDUSTRIAL BUILDINGS, INC., AROL I.

BUNTZMAN and MARTIN WILL'AM HALBFINGER, EsQ.,

. Petitioners,

THE PROCTER & GAMBLE COMPANY and

RIVERVIEW PRODUCTIONS, INC.,

Respondents.

thee

AMERICAN INTERNATIONAL CONTRACTORS, INC.,

Petitioner,

—V.—

THE PROCTER & GAMBLE COMPANY, ETAL.,

Respondents.

ON PETITION FOR A WRIT OF CERIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

>

RESPONDENTS’ BRIEF IN OPPOSITION

The petitions do not present any issue meriting review by this

Court.

The Court of Appeals, in reinstating respondents’ complaint,

employed a definition of RICO’s ‘‘pattern of racketeering

activity’’ element wholly consistent with this Court’s recent

decision in H.J. Inc. v. Northwestern Bell Telephone Co., 109

S. Ct. 2893 (1989). The ‘‘pattern’’ allegations here plainly sat-

i

2

isfy the pleading requirements of ‘‘continuity plus relation-

ship’’ as set forth by this Court in that case. Jd. at 2900.

Accordingly, the Second Circuit’s decision—adhered to by that

Court upon application for rehearing filed by petitioners after

the decision in H.J. Inc.—does not warrant further review.

Nor is the supposed constitutional vagueness of RICO a basis

for granting the petitions. The claim was not raised below and

no sufficient reason appears why it should be resolved in the

first instance by this Court. In any event, the RICO ‘“‘pattern of

racketeering’’ requirement is constitutional as applied to peti-

tioners’ conduct. The claim of lack of fair notice is also belied

by petitioners’ knowledge that the alleged conduct violated

some law, even if it were true that they could not have realized it

would be held to violate RICO; there is no argument that the

multiple underlying predicate acts of mail and wire fraud are

unconstitutionally vague. Finally, this Court’s recent decision

in Fort Wayne Books, Inc. v. Indiana, 109 S. Ct. 916 (1989)—

rejecting a constitutional vagueness challenge to virtually iden-

tical provisions of the Indiana state RICO statute—completely

disposes of petitioners’ constitutional claim.

For the most part, the petitions constitute an undisguised

request that this Court overrule its several months old decision

in H.J. Inc.—with no reason offered for such an extraordinary

step except the arguments contained in Justice Scalia’s concur-

rence but rejected by a majority of the Court.’ This Court has

repeatedly said that if RICO is being ‘‘abused’’ by application

l The only supposed distinction said to justify reconsideration of the

pattern of racketeering definition is the specious argument that H.J.

Inc. was somehow different because it involved ‘‘inherently criminal

conduct’’ whereas the criminal fraud allegations in this case relate to

‘‘an ordinary construction dispute arising out of a typical commercial

transaction.’’ (Petition of American International Contractors, Inc.

(‘‘Fuller Pet.’’) 6.) Otherwise, petitioner is frank to say it seeks review

on the ground that H.J/. Inc. was badly reasoned. (£.g., Fuller Pet. 5,

7-9.)

American International Contractors. Inc. was previously known as

the George A. Fuller Company and filed its petition under that name.

In conformity with the petition, American International Contractors,

Inc. is referred to in this brief in opposition as ‘‘Fuller.’’

to disputes not anticipated to be within its scope, then Congress

may rewrite the statute. E.g., H.J. Inc., 109 S. Ct. at 2905. Dis-

satisfaction with the statute does not, however, warrant review

by this Court of the manifestly correct decision of the Court of

Appeals in this case.

STATEMENT OF THE CASE

1. The Facts

The facts giving rise to this case are briefly recounted in the

opinion of the Court of Appeals. (App. A at pp. A-2 to A-5 and

A-12 to A-14.)? The petitions, however, do not fully or fairly

recite the material allegations of respondents’ complaint that

are pertinent to consideration of the Question Presented.

Accordingly, we summarize them here.’

This case arises out of the now dormant Riverview studios

project, a proposed complex of television studios and produc-

2 Citations to ‘‘App. A’’ are to the opinion of the Court of Appeals

reprinted as Appendix A to the Fuller petition. The opinion is reported

at 879 F.2d 10 (2d Cir. 1989).

3 Because petitioners seek review of a judgment dismissing the RICO

cause of action for failure to state a claim, Fed. R. Civ. P. 12(b)(6),

the alleged facts must be read in the light most favorable to respon-

dents. E.g., H.J. Inc., 109 S. Ct. at 2906; Hishon v. King & Spalding,

467 U.S. 69, 73 (1984). Petitioners disregard this requirement. Their

claim of ‘‘certworthiness’’ is wholly premised on dissenting Judge

Winter’s conclusory characterization of petitioners’ alleged frauds as

mere ‘‘acts directed at a small number of related commercial entities

capable of quickly learning the true facts.’’ (Petition of Big Apple

Industrial Buildings, Inc., Arol I. Buntzman and Martin William

Halbfinger, Esq. (‘‘Big Apple Pet.’’) 6.) As noted in the Court of

Appeals majority opinion, that assessment of the complaint

apparently ignores the fact that the instant litigation is only at the

pleadirg stage. Whether [petitioners’] actions are continuing in

nature or isolated or sporadic will be the subject of proof at trial.

The accepted-as-true allegations in the complaint refute the view

that [petitioners’) fraudulent actions towards [respondents] were

unreiated or disconnected. Hence, the spectre of continuity of crim-

inal offenses in the pattern of activity is sufficiently pleaded to

withstand dismissal at this stage of the litigation.

(App. A at A-14.)

ee ne ae

4

tion facilities in New York City. The complex was intended to

be used for the production of three soap opera serials owned by

a subsidiary of respondent The Procter & Gamble Company

(‘‘Procter & Gamble’’). Respondent Riverview Productions,

Inc. (‘‘Riverview’’), the lessee of the studios, was a subsidiary

of the advertising agency D’Arcy Masius Benton & Bowles,

Inc., and was involved in production of the shows. Petitioner

Big Apple Industrial Buildings, Inc. (‘‘Big Apple’’) was the

owner and developer of the project site. Petitioner Arol Buntz-

man was Big Apple’s President, and petitioner Martin William

Halbfinger was their lawyer. Petitioner Fuller served as general

contractor in connection with construction of the project.

(App. E at A-29 to A-32.)*

For a period of more than two years, continuing until discov-

ery of the frauds by respondents and the filing of the complaint

in this action, petitioners are alleged to have engaged in a pat-

tern of racketeering activity consisting of at least five separate

but related fraudulent schemes. The complaint alleges that

petitioners first defrauded Riverview into signing and Procter &

Gamble into guaranteeing a lease for three as yet unbuilt televi-

sion studios, which called for the payment of rent based on the

actual costs of constructing the project. In furtherance of this

initial fraudulent scheme, numerous representations were made

to respondents with respect to the alleged expertise of petition-

ers Buntzman and Big Apple and the projected costs of the stu-

dios. For example, Buntzman claimed that he had ‘‘developed

the Bronx Terminal Market into the largest cash-and-carry

wholesale shopping center in the world;’’ that he had been

instrumental in the development of other major projects; and

that he had been involved in other studio ventures. All of these

representations were false. As respondents were later to dis-

4 Citations to ‘‘App. E’’ are to respondents’ complaint in this action,

reprinted as Appendix E to the Fuller petition.

wv

Specifically, petitioners are alleged to have conducted and partici-

pated in the conduct of, and to have acquired and maintained an inter-

esi in, the affairs of an association in fact enterprise consisting of

Buntzman and Halbfinger, and to have conspired to do so, through a

pattern of racketeering activity, all in violation of 18 U.S.C. § 1962(b),

(c) and (d). (App. E at A-67 to A-69.)

ss slaiamadeiniamiaammmnaaiuase academia

cover, Buntzman had no experience in major development or

studio operation and the Bronx Terminal Market had involved

only minor construction by Buntzman and was riddled with

financial, legal and other problems. (App. E at A-34 to A-37.)

Buntzman also represented, both orally and in writing, that

the total cost of the three television studios to be occupied by

Riverview would not exceed $25 million. In part by using an

estimate prepared and mailed by Fuller, Buntzman stated that

the ‘‘hard’’ construction costs would not be in excess of $18

million and would more likely be in the range of $14 million.

These representations were also false. Petitioners knew full well

that these cost estimates were wholly unrealistic and they sup-

pressed more accurate data when it was obtained. (App. E at

A-37 to A-40.)

In January 1985, based on these misrepresentations, River-

view entered into a lease with Big Apple for the three as yet to

be constructed studios for a term of ten years, with a ten year

option term (‘‘the Lease’’), and Procter & Gamble issued its

guarantee of Riverview’s rental and other obligations under the

Lease (‘‘the Lease Guarantee’’). As all parties well knew, the

issue of projected construction cost was critical because, even

though Big Apple was to build the studios for Riverview,

annual rent under the Lease was to be the sum of $1.2 million,

plus Big Apple’s annual debt service, including amortization

over a ten year period, of a permanent loan for the entire actual

construction cost of the project. (App. E at A-39 to A-40.)

As the transaction was originally structured by the parties,

Procter & Gamble and Riverview were to have no role in the

financing of construction. Big Apple was to secure the neces-

sary construction loan based on Procter & Gamble’s Lease

Guarantee. But once preliminary architectural and construction

work began, with Fuller acting as general contractor, Big Apple

discovered that it was unable to arrange favorable financing

solely on the strength of the Lease Guarantee. Faced with the

possibility that it would not be able to construct the studios and

that the project would thereby be aborted, Big Apple embarked

on a second fraudulent scheme, to induce Procter & Gamble to

6

agree to obtain and guarantee a construction loan. (App. E at

A-40 to A-45.)

The most prominent feature of this scheme related to an esti-

mate of hard construction costs, which was prepared by Fuller

and was to have been shared with all parties and used as a basis

for arriving at an estimated construction cost for purposes of

certain provisions in the Lease. When Fuller’s analysis showed

that Fuller believed the true hard costs would be more than

twice what had previously been represented, petitioners sup-

pressed it. They then hired other estimators, to whom they gave

inaccurate and incomplete information so as to ensure that the

estimate would be closer to the earlier figures, allaying respon-

dents’ concerns. (App. E at A-41 to A-43.)°

The result of this second scheme was an agreemeni by Procter

& Gamble to become involved with the financing of the

project—a need that petitioners had not anticipated when they

commenced their earlier fraudulent scheme to induce agreement

on the Lease, and, correspondingly, an obligation that respon-

dent Procter & Gamble had not previously assumed. In a docu-

ment known as the Tri-Party Agreement, executed six months

after the Lease, Procter & Gamble agreed to guarantee up to

$25 million of construction financing to be provided by Citi-

bank. If, despite Big Apple’s satisfaction of certain ‘‘Requisi-

tion Requirements,’’ Citibank or any other construction lender

failed to fund a requisition for ‘‘Actual Construction Costs,”’

Procter & Gamble agreed to do so itself, subject to the same $25

million limit. (App. E at A-44.)

By early 1986, the $25 million limit was reached. On a requi-

sition by requisition basis, Procter & Gamble extended its guar-

antee and Citibank increased the amount of the construction

loan. During this period of time, as costs continued to escalate,

petitioners continued to mislead Procter & Gamble and River-

6 Fuller seeks to minimize its role in the alleged misconduct. (Fuller

Pet. 3, 15.) In fact, as more fully developed below, Fuller's participa-

tion in this fraud relating to suppression of its cost estimate, beginning

in early 1985, was only the first of numerous acts of mail and wire

fraud more than sufficient to demonstrate a threat of continuing crimi-

nal behavior. See pp. 11-14 infra.

ee :

7

view as to the anticipated cost and continued to hide the Fuller

estimate. (App. E at A-44 to A-45.)

A total of $32 million in hard and soft costs was advanced by

Citibank and guaranteed by Procter & Gamble. These funds

were disbursed to Big Apple from June 1985 to April 1986,

upon presentation by Big Apple of eleven separate requisitions

to Citibank. Each requisition was accompanied by certifica-

tions made by petitioners that the sums requisitioned repre-

sented ‘‘Actual Construction Costs,’’ as defined in the Lease.

In fact, as Procter & Gamble and Riverview later learned, the

requisitions and related documents were part of still further

frauds, the object of which was to misappropriate and divert

construction loan funds, which would ultimately burden Proc-

ter & Gamble and Riverview through ten years of rentai pay-

ments. (App. E at A-45 to A-51.)

As alleged in the complaint, among the millions of dollars

improperly requisitioned by petitioner Big Apple over this

period of nearly a year were legal fees and disbursements of

$657,000 to petitioner Halbfinger, purportedly representing

**Actual Construction Costs;’’ $625,000 in fees to Big Apple's

*‘construction manager,’’ even though it failed to perform the

functions for which it was hired; duplicative insurance costs of

at least $3 million; excessive mark-ups by petitioner Fuller;

Christmas bonuses for Fuller payroll employees; unnecessary

brokerage fees for so-called ‘‘risk management’”’ services; win-

terization charges already included in subcontractors’ bids; and

charges attributable to portions of the project other than those

covered by the Riverview Lease. (App. E at A-46 to A-51.)

Apart from lining their own pockets, petitioners fraudulently

employed the requisition procedure as a means to protect them-

selves against the possibility that their misbehavior would be

discovered and respondents would refuse to fund the project

any further. Thus, funds were requisitioned into escrow

accounts, purportedly to cover ‘‘long lead items,”’ but in actu-

ality intended to allow construction to proceed if petitioners’

frauds were detected. For the most part, these accounts appear

not to have been true escrow accounts but were controlled

8

entirely by Big Apple, with Halbfinger as the escrow agent.

Petitioners also embarked on a scheme to falsely blame con-

struction delays on respondents and thereby to create a record

for charging Riverview ‘‘interim rent’’—potentially amounting

to millions of dollars of further padding for their financial

cushion. (App. E at A-51 to A-58.)

By April 1986, respondents had begun to discover, through

various meetings and by auditing of documents reluctantly pro-

vided by petitioners, the extent to which they had been

defrauded and the construction loan funds had been improperly

requisitioned and applied. The result of these frauds was that,

although $32 million had already been poured into the

project—that is, more than had been represented as sufficient

to finish it—the project was approximately one-third complete,

with a potential total cost in excess of $100 million and no com-

pletion date in sight. (App. E at A-59 to A-62.)

2. The District Court Decision

The District Court dismissed respondents’ RICO cause of

action (and, because this claim was the sole basis of federal

jurisdiction, the entire complaint) in a decision dated March 13,

1987.’ The court concluded that the alleged pattern of racke-

teering did not possess sufficient ‘‘continuity’’ to fit within the

statute. (App. B at A-21.)

The District Court did not address respondents’ contention

that petitioners had engaged in a number of continuing separate

criminal schemes over a period of years, sufficient to satisfy

even the ‘‘multiple scheme’’ requirement which had been

iinposed by some courts at that time. The district judge instead

simply recast the complaint, contrary to a fair reading of its

allegations, as charging a single scheme, implemented by

7 The decision of the District Court is reprinted as Appendix B to the

Fuller petition, at pages A-17 te A-24. The opinion is reported at 655

F. Supp. 1179 (S.D.N.Y. 1987).

9

‘‘repeated fraudulent assertions.’’ On this basis, the District

Court dismissed the complaint. (App. B at A-20 to A-22.)°

3. The Court of Appeals Decision

Following its en banc decisions in United States v. Indelicato,

865 F.2d 1370 (2d Cir. 1989) (en banc) and Beauford v.

Helmsley, 865 F.2d 1386 (2d Cir. 1989) (en banc)—decided

after the District Court’s ruling in this case—and correctly

anticipating this Court’s decision in H.J. Inc., the Court of

Appeals rejected any attempt to impose a multiple scheme

requirement. (App. A at A-9 to A-10.) Instead, recognizing that

the facts demonstrating continuity (or the threat of continuity)

‘‘will vary in each case,’’ the Second Circuit concluded simply

that a plaintiff must ‘‘plead a basis from which it could be

inferred that the acts. . . were neither isolated nor sporadic.”’

(App. A at A-10 (citation omitted).)’

Applying this standard to respondents’ complaint, the Court

of Appeals had little difficulty finding a sufficient pattern of

racketeering allegation. The Court noted that petitioners are

charged with at least five separate fraudulent schemes ‘‘on a

number of fronts,’’ involving written and oral misrepresenta-

8 The District Court also ruled against respondents in part on the

ground that the frauds alleged in the complaint, though continuing,

were “‘finite.’’ (App. B at A-22 to A-23.) That supposed component of

the continuity requirement—that the alleged scheme or schemes must

have no demonstrable ending point—was rejected both by the en banc

Second Circuit in Beauford v. Helmsley, 865 F.2d 1386, 1391 (2d Cir.

1989) (en banc), and by this Court in H.J. Inc., see 109 S. Ct. at 2902.

These holdings thus completely refute petitioners’ claim that certiorari

review is required in light of the district court’s ‘‘determination of a

lack of continuity,’ and in light of Judge Winter’s conclusion that the

alleged fraudulent behavior is ‘‘inherently self-limiting.’’ (Big Apple

Pet. 6; Fuller Pet. 16.) Both judges were employing an improper defi-

nition of pattern.

9 Petitioners Big Apple, Buntzman and Halbfinger challenge only the

continuity prong of the continuity plus relationship test. (Big Apple

Pet. 6, 8-9.) Petitioner Fuller purports to find fault with the entire HJ.

Inc. definition of pattern of racketeering, but its only specific chal-

lenge in the context of this case is similarly to the continuity require-

ment. (Fuller Pet. 15-16.)

10

tions as to petitioners’ development experience and expertise

and as to construction costs, along with false and excessive

invoices and certifications, all occurring over a two year period.

Accepting these allegations as true upon motion to dismiss

under Fed. R. Civ. P. 12(b)(6)—and noting that the evidence at

trial might or might not suffice to persuade a jury that petition-

ers ‘‘actions are continuing in nature [rather than] isolated or

sporadic’’—the Court of Appeals held that ‘‘the spectre of con-

tinuity of criminal offenses in the pattern of activity is suffi-

ciently pleaded to withstand dismissal at this stage of the

litigation.’’ (App. A at A-13 to A-14.)

REASONS FOR DENYING THE WRIT

1. The Court of Appeals decision formulates and applies a def-

inition of ‘‘pattern of racketeering’’ consistent with this

Court's decision in H.J. Inc.

The Court of Appeals adopted a flexible definition of the

continuity component of a RICO pattern of racketeering:

For the purposes of RICO, ‘‘continuity’’ means that

separate events occur over time and perhaps threaten to

oe

(App. A at A-11.) Rather than rigidly limiting the manner in

which continuity may be proved (by, for example, imposing a

‘*multiple scheme’’ requirement not warranted by the language

or legislative history of RICO), the Court of Appeals provided

several differing examples of proof of continuity. The nature of

the enterprise itself (for example, an organized crime group

whose very business is racketeering activity) may automatically

carry with it the threat of continued racketeering activity. Alter-

natively, the existence of multiple schemes or a great number of

predicate acts, carried out over a lengthy period of time, may

provide sufficient indicia of continuity or threat of continuity.

(App. A at A-10.) What matters is that there be some ‘‘basis

from which it could be inferred that the acts . . . were neither

isolated nor sporadic.’’ (App. A at A-10 (citation omitted).)

1]

This was precisely the approach followed in H.J/. Inc. After

rejecting the multiple scheme test in language mirroring that of

the Second Circuit, this Court defined the continuity require-

ment as follows:

We adopt a less inflexible approach that seems to us to

derive from a common-sense, everyday understanding of

RICO’s language and Congress’ gloss on it. What a plain-

tiff or a prosecutor must prove is continuity of racketeer-

ing activity, or its threat, simpliciter.

109 S. Ct. at 2901. The Court then offered examples. Continu-

ity may be established, as the Second Circuit had previously

concluded, by the sheer number of racketeering acts, ‘‘extend-

ing over a substantial period of time.’’ Jd. at 2902. Alterna-

tively, a sufficient threat of continuity may be proved by

showing that predicate acts are part of an ongoing criminal enti-

ty’s way of doing business, or are a regular way of conducting

an otherwise legitimate business or other RICO enterprise. Ulti-

mately, whatever may be the manner and items of proof in a

particular case, the plaintiff must establish that the predicate

acts are not ‘‘sporadic activity,’’ but instead ‘‘themselves

amount to, or. . . otherwise constitute a threat of, continuing

racketeering activity.‘‘ Jd. at 2900-01.

In sum, the first question posed by the petitions—what con-

stitutes a RICO pattern of racketeering—was answered by this

Court just five months ago, and was answered identically by the

Court of Appeals in this case. The asserted need for further

review is thus nonexistent.

2. The “‘pattern of racketeering’’ allegations more than amply

satisfy the ‘“‘continuity’’ component of the test set forth in

H.J. Inc.

The complaint in this case meets the threshold pleading

requirement set forth by this Court in H.J. Inc. As alleged with

great particularity in the complaint, petitioners engaged in a

series of related schemes in connection with the leasing, financ-

ing, construction and operation of the Riverview studio comp-

lex, continuing over a period of more than two years—although

12

contemplated by petitioners to last longer—and halted only by

respondents’ discovery of the frauds. Specifically, the com-

plaint alleges:

¢ A scheme fraudulently to induce execution of the

Lease, Lease Guarantee and related documents, carried

out by misrepresentations as to Buntzman’s and Big

Apple’s experience and expertise in custom construction

and renovation work and by misrepresentations as to con-

struction costs. This scheme began as early as April 1984

and culminated in execution of the Lease by Riverview and

the Lease Guarantee by Procter & Gamble in January

1985. The consequences of this fraud would have contin-

ued throughout the ten year term of the Lease and beyond

if the option term had been exercised. (App. A at A-34 to

A-40.)

e A scheme—hatched upon petitioners’ discovery that

they would encounter difficulty in getting favorable

financing without Procter & Gamble’s backing—

fraudulently to induce respondents to continue with the

project and Procter and Gamble to guarantee financing,

involving further misrepresentations and omissions as to

construction costs, as well as concealment of cost esti-

mates which would have revealed the true construction

cost. (App. A at A-40 to A-45.)

e A scheme fraudulently to divert construction funds

and charge grossly excessive professional and other fees,

effected by misrepresentations as to the need for and

extent of construction costs and professional and other

fees. (App. A at A-45 to A-51.)

e A fraudulent scheme with the purpose and effect of

building a financial ‘‘cushion’’ against the day respon-

dents discovered the frauds and refused to guarantee or

advance further funds, implemented by misrepresenta-

tions as to the extent of funds required to be held in escrow

as assurance of payment to subcontractors. (App. A at

A-51 to A-55.)

a

13

e¢ A scheme with the twin purposes of enabling petition-

ers (a) to evade responsibility for construction delays prop-

erly attributable to them, and (b) fraudulently to collect

‘interim rent’’ under the Lease.

These frauds plainly amount to ‘‘a series of related predicates

extending over a substantial period of time.’’ H.J. Inc., 109 S.

Ct. at 2902. Moreover, the complaint contains numerous fac-

tual allegations demonstrating a threat of continuing criminal

behavior extending beyond the ‘‘closed period’”’ of time framed

by the complaint, which was terminated only by respondents’

discovery of petitioners’ frauds. See id.

At every turn, petitioners reacted to unexpected develop-

ments, or to the possible unravelling of their schemes, by perpe-

trating new ones. Thus, having succeeded by their numerous

misrepresentations in inducing respondents to do business with

them (with the signing of the Lease and Lease Guarantee in Jan-

uary 1985), and thereafter having been confronted with their

likely inability to raise funds on their own, petitioners engaged

in a second fraudulent scheme to obtain Procter & Gamble’s

participation in securing financing for the project. This scheme

involved the active complicity of Fuller, which participated in

concealing the results of its cost estimate so as not to betray the

falsity of petitioners’ repeated earlier cost projections. °

This willingness to meet unanticipated difficulties in carrying

out the first fraud by launching a second one, in the process

saddling respondent Procter & Gamble with substantial new

obligations, surely demonstrates the sort of ongoing, non-

aberrational behavior that RICO was designed to cover. So do

10 ~=Fuller’s active participation in this early fraud—and its subsequent

participation in other frauds, including its submission of false requisi-

tions for construction funds and false certifications relating to the

escrow accounts—completely belies its claim that the Court of Appeals

improperly sustained the complaint as to Fuller solely on the basis of

‘** ‘false and excessive invoices over a period of nearly two years’, by

defendants other than (Fuller|.’’ (Fuller Pet. 15 (emphasis in original).)

) As pleaded in the complaint, Fuller’s participation in the alleged

RICO, beginning in early 1985, was pervasive.

14

petitioners’ repeated efforts to save their scheme from discov-

ery by failing to provide requested back-up and other informa-

tion, playing on respondents’ then critical need to occupy the

studios with the plea not to let paperwork slow down the proj-

ect while promising to provide, but never producing, the docu-

ments. So do petitioners’ additional misrepresentations as to

the costs to complete the project, in order to induce funding of

construction beyond the original $25 million limit. So does the

repeated misuse of the requisition process—beginning with the

very first requisition in January 1985 and continuing each and

every month for over a year—with ail requisitions apparently

containing improper and excessive charges, including charges

for work on aspects of the construction not properly allocable

to the Riverview studios. In the words of this Court’s recent

formulation, ‘‘the[se] predicate acts or offenses are part of an

ongoing entity’s regular way of doing business.’’ H.J. Inc., 109

S. Ct. at 2902.

Other alleged misbehavior establishes the requisite threat of

continuity in similar fashion. So, for example, requisitioning

substantial sums for supposed ‘‘soft’’ costs such as petitioner

Halbfinger’s grossly excessive legal fees, and falsely charging

respondents with construction delays so as to be able to collect

interim rent, were separate frauds related to the construction

project but not directly necessary to its accomplishment. When

petitioners were presented with these additional opportunities

to personally enrich themselves and to bilk Procter & Gamble

and Riverview, they took them. These predicate acts are thus

further evidence that petitioners ‘‘regular way of doing busi-

ness’’ is through a pattern of criminal frauds.

Only by joining with Judge Winter in conclusorily deeming

these frauds ‘‘easily discoverable’’—a determination which

respondents vigorously contest, and in any event one properly

for the ultimate factfinder at the close of a trial—can petition-

ers make the claim that the complaint does not adequately plead

a RICO pattern of racketeering. That approach was rejected in

H.J. Inc. and should be rejected here.

15

3. RICO’s ‘‘pattern of racketeering’’ requirement is not uncon-

stitutionally vague.

In an effort to manufacture a ‘‘special and important rea-

son’’ for grant of the writ,'' petitioners claim that RICO’s

‘*pattern of racketeering activity’’ element is so vague as to vio-

late the notice requirement that the Due Process Clause imposes

on criminal statutes. (Big Apple Pet. 6-9; Fuller Pet. 11-16.)

This contention, never presented to the Court of Appeals, is

unworthy of review.”

In the first place, petitioners’ challenge must fail because the

statute is clearly constitutional as applied to them. See United

States v. National Dairy Corp., 372 U.S. 29, 33 (1963) (‘‘In

determining the sufficiency of the notice a statute must of

necessity be examined in light of the conduct with which a

defendant is charged.’’). When a criminal charge is based on

actions constitutionally subject to prohibition and themselves

clearly forbidden by a statute, it is no defense that the statute

would be unconstitutionally vague if applied to other conduct.

United States v. Raines, 362 U.S. 17, 21 (1960); Williams v.

United States, 341 U.S. 97, 101-02 (1951). While there may be

some difficulty in determining whether certain marginal con-

duct comes within RICO, there can be no question that the

ongoing series of fraudulent schemes alleged here constitutes a

‘*pattern’’ of misbehavior by any reasonable understanding of

that term.

A defendant is constitutionally entitled to no more. This

— Court has repeatedly recognized that statutory proscriptions

11 U.S. Sup. Ct. R. 17.1.

12.‘ This failure to raise the issue below is alone sufficient basis for deny-

ing review. See, e.g., Duignan v. United States, 274 U.S. 195 (1927)

(noting that ‘‘only in exceptional cases’’ will this Court pass upon

questions not considered below, and refusing to hear a constitutional

due process challenge to a forfeiture statute not raised in the Court of

Appeals, even though the issue was ruled on by the trial court). More-

over, contrary to Fuller’s contention, petitioners’ as applied constitu-

tional challenge to RICO is not a pure question of law. See, e.z.,

Coates v. City of Cincinnaii, 402 U.S. 611, 618 (1971) (White, J., dis-

senting) (‘‘ruling on . . . a [vagueness] challenge obviously requires

knowledge of the conduct with which a defendant is charged’’).

16

cannot be expressed with mathematical precision, and that no

statute can be ‘‘defined’’_to include a description of every

future case that might fit within it. E.g., Grayned v. City of

Rockford, 408 U.S. 104, 110 (1972); American Communica-

tions Association v. Douds, 339 U.S. 382, 412 (1950). Instead,

all that is required is a law ‘‘directed with reasonable specificity

toward the conduct to be prohibited.’’ Coates v. City of Cincin-

nati, 402 U.S. 611, 614 (1971). In Coates, this Court struck

down an anti-loitering ordinance prohibiting ‘‘annoying’’

behavior because

[c]onduct that annoys some people does not annoy others.

Thus, the ordinance is vague, not in the sense that it

requires a person to conform his conduct to an imprecise

but comprehensible normative standard, but rather in the

sense that no standard is specified at all.

Id.

The RICO pattern of racketeering element does contain such

standards. To begin with, a pattern is defined to require at least

two predicate acts of racketeering, here alleged to be a series of

numerous mail and wire frauds. The statute thus plainly com-

municates that under some circumstances as few as two predi-

cate acts of mail or wire fraud will suffice to make out a

pattern. There is nothing vague or unclear about those statutes

and no claim is made that petitioners’ misbehavior does not

properly come within them. Further, unlike the wholly subjec-

~tive concept of ‘‘annoyance,’’ the term ‘‘pattern’’ has an objec-

tive core definition accepted in one formulation or another by

every court to have considered this issue. That is, a pattern is an

arrangement or ordering of things, going beyond mere multi-

plicity and having some organizing principle. See H.J. Inc. , 109

S. Ct. at 2900-01. The legislative history of RICO has always

been clear in elucidating just what that organizing principle is:

RICO does not apply to predicate acts of racketeering that are

isolated or sporadic, but only to multiple predicate acts charac-

terized by relatedness and continuity, both of which are them-

selves terms with ‘‘imprecise but comprehensible normative’’

17

meaning, all that is constitutionally required. Coates v. City of

Cincinnati, 402 U.S. 611, 614 (1971).

As described in detail above, petitioners’ multiple fraudulent

schemes plainly meet the test of relatedness and continuity, and

thus comprise a pattern under a constitutionally sufficient defi-

nition known to petitioners since passage of the statute."’

Moreover, petitioners’ fair notice claim rings hollow in the

absence of any constitutional or other challenge to the underly-

ing mail and wire fraud allegations. Vague laws transgress the

fair notice component of the Due Process Clause because they

deprive a law abiding citizen of choosing how to conduct his

affairs. ‘‘{[B]ecause we assume that man is free to steer between

lawful and unlawful conduct, we insist that laws give the person

of ordinary intelligence a reasonable opportunity to know what

is prohibited, so that he may act accordingly.’’ Grayned v. City

of Rockford, 408 U.S. 104, 108 (1972). Consistent with that

purpose and rationale, fair notice challenges have been rejected

where the presence of some other statute cr parallel enforce-

ment scheme unequivocally marked the defendant's conduct as

wrongful, so that there was no doubt he had made a conscious

decision to violate some law. E.g., United States v. Seregos, 655

F.2d 33, 36 (2d Cir. 1981), cert. denied, 455 U.S. 940 (1982); cf.

United States v. Ragen, 314 U.S. 513, 524 (1942) (defendant

13 Petitioners attack the RICO pattern of racketeering component as if

a defendant were required to look no further than the language of the

statute. (E’g., Fuller Pet. 13.) But the data available to a putative

defendant in assessing whether his contemplated conduct wil! be

deemed illegal is not so limited. As repeatedly defined by this Court,

the issue is whether, viewing the statute and all! other relevant legal

materials objectively, a prospective criminal defendant has been given

fair notice that his conduct violated the law. See, e.g., Grayned v. City

of Rockford, 408 U.S. 104, 111 (1972) (upholding otherwise vague

ordinance on strength of prior state judicial opinion limiting applica-

tion of different but similarly worded ordinance); Lanzetta v. New Jer-

sey, 306 U.S. 451, 453-57 (1939) (declining to uphold anti-gang statute

because judicial opinion narrowing otherwise vague statutory term

post-dated the convictions in that case). The legislative history

of RICO, including explication of the pattern requirement, was the

subject of discussion in numerous judicial opinions availiable to

petitioners.

18

claimed income tax evasion statute did not provide fair notice

because it required the jury to determine whether certain sala-

ries paid to employees were ‘‘reasonable’’ compensation prop-

erly deductible or were, instead, nondeductible dividend

payments falsely denominated as compensation to those

employees: this Court rejected that vagueness claim, noting that

“‘{a] mind intent on willful evasion is inconsistent with sur-

prised innocence’’).

Finally, petitioners’ attack on the RICO statute ignores this

Court’s recent decision in Fort Wayne Books, Inc. v. Indiana,

109 S. Ct. 916 (1989), upholding the Indiana state RICO statute

in response to an identical void for vagueness challenge.’

Because the Indiana statute tracks in pertinent part the lan-

guage of the federal RICO statute, prohibiting a ‘‘pattern’’ of

multiple violations of certain enumerated substantive crimes,

the decision in that case is squarely on point.’*

In Fort Wayne Books, the defendant was charged with RICO

offenses under the Indiana statute where the underlying acts

were violations of the state’s cdscenity statutes. On appeal he

challenged the use of state obscenity statutes as a basis for a

RICO prosecution, and also challenged the state RICO statute

itself on vagueness grounds. In rejecting these challenges, this

Court stated unequivocally:

Given that the RICO statute totally encompasses the

obscenity law, if the latter is not unconstitutionally vague,

14 Chief Justice Rehnquist and Justices White, Blackmun, Scalia and

Kennedy joined in the portion of the Court’s opinion in Fort Wayne

Books upholding the Indiana RICO.

1S The only difference is the presence in the Indiana statute of language

requiring that the underlying racketeering acts ‘‘have the same or simi-

lar intent, result, accomplice, victim, or method of commission, or

that [they be] otherwise interrelated by distinguishing characteristics

that are not isolated incidents.’’ Ind. Code § 35-45-6-1(2). That addi-

tional language is almost identical to the language defining ‘‘pattern’’

in the Dangerous Special Offender Sentencing Act, 18 U.S.C.

§ 3575(e), which this Court has said is to be used in assessing the relat-

edness of the predicate acts under federal RICO. Thus, the statutes are

effectively identical.

19

the former cannot be vague either. At petitioner’s forth-

coming trial, the prosecution will have to prove beyond a

reasonable doubt each element of the alleged RICO

offense, including the allegation that petitioner violated

(or attempted or conspired to violate) the Indiana obscen-

ity law. . . . Thus, petitioner cannot be convicted of vio-

lating the RICO law without first being ‘‘found guilty’’ of

two counts of distributing (or attempting to, or conspiring

to, distribute) obscene materials.

Id. at 925.

In fact, this Court concluded that the RICO law—by virtue

of the pattern requirement—was necessarily /ess vague than any

of the underlying offenses might be standing alone:

[B]ecause the scope of the Indiana RICO law is more lim-

ited than the scope of the State’s obscenity statute—with

obscenity-related RICO prosecutions possible only where

one is guilty of a ‘‘pattern’’ of obscenity violations—it

would seem that the RICO statute is inherently /ess vague

than any state obscenity law: a prosecution under the

RICO law will be possible only where all the elements of

an obscenity offense are present, and then some.

Id. at 925 n.?.

Accordingly, here, as in Fort Wayne Books, because the

underlying substantive violation is not unconstitutionally

vague, a RICO prosecution based on a pattern of such conduct

cannot be challenged on void for vagueness grounds.

The holding of Fort Wayne Books is in keeping with a series

of decisions in the iower federal courts, over a period of more

than fifteen years beginning shortly after passage of RICO,

finding the statute not unconstitutionally vague. United States

v. Aleman, 609 F.2d 298, 305 (7th Cir. 1979), cert. denied, 445

U.S. 946 (1980) (term ‘‘enterprise’’ broad but not vague);

United States v. Swiderski, 593 F.2d 1246, 1249 (D.C. Cir.),

cert. denied, 441 U.S. 933 (1979) (§ 1962(c), including term

‘‘pattern of racketeering,’’ is not vague); United States v. Her-

man, 589 F.2d 1191, 1198 (3d Cir. 1978), cert. denied, 441 U.S.

20

913 (1979) (same); United States v. Hawes, 529 F.2d 472, 478-

79 (Sth Cir. 1976) (‘‘enterprise’’ broad but not vague); United

States v. Campanale, 518 F.2d 352, 364 (9th Cir. 1975), cert.

denied, 423 U.S. 1050 (1976) (§ 1962 as a whole not vague and

terms ‘‘enterprise’’ and ‘‘person’’ not vague in particular);

United States v. Parness, 503 F.2d 430, 440-42 (2d Cir. 1974),

cert. denied, 419 U.S. 1105 (1975) (rejecting contention that

“*pattern of racketeering activity’’ is void for vagueness).

For all these reasons, the constitutional vagueness claim, like

petitioners’ other arguments, provides no basis for review.

CONCLUSION

The petitions should be denied.

- Respectfully submitted,

Harold P. Weinberger

(Counsel of Record)

David S. Frankel

KRAMER, LEVIN, NESSEN,

KAMIN & FRANKEL

919 Third Avenue

New York, New York 10022

(212) 715-9221

Attorneys for Respondents

November 28, 1989