Petition for Writ of Certiorari — Yellow Bus Lines, Inc. v. Drivers, Chauffeurs & Helpers Local Union 639

Supreme Court brief1991

Ask Donna

What actually matters in this document.

Text

FILED

90-8 79 OC 3 1999

In The

Supreme Court Of The United States

October Term, 1990

YELLOW BUS LINES, INC.

Petitioner

Vv.

DRIVERS, CHAUFFEURS & HELPERS

Local Union 639, et. al.

Respondents

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT.

Thomas G. Corcoran, Jr.

Counsel of Record

Henry M. Lloyd

Berliner, Corcoran, & Rowe

1101 17th Street N.W.

Washington, D.C. 20036

(202) 293-5555

G. Robert Blakey

Notre Dame Law School

Notre Dame, Indiana 46556

(219) 239-5717

Attorneys for Petitioner

QUESTIONS PRESENTED

Yellow Bus, Inc., was struck by its

union employees in a violent recognition

strike sponsored by Teamsters Local No.

639. The company sued the union for

damages to its business and property during

the strike and thereafter under RICO, 18

U.S.C. § 1961 et. seq.

This litigation raises four critically

important issues under 18 U.S.C. § 1962(c):

(1) May a striking union be the

"person" sued by a struck company and, at

the same time, the "enterprise" whose

"affairs" are "conducted" by a "pattern of

racketeering activity", "arson" and

"extortion"?

(2) Alternatively, may a striking

union be "a person" "associated with" a

struck company, the “enterprise,” and, if

so, may the union "indirectly"

"participate" in the "conduct" of the

\ company's "affairs" by directing

“racketeering acts" of "arson" and

"extortion" against it?

(3) May “acts" of "racketeering

activity” not directed toward the struck

company be included in the "pattern of

racketeering activity” constituting the

"violation" based on which the _ struck

company sues the striking union?

(4) May construing the statute to

answer each of these questions in the

negative be squared with its liberal

construction directives?

The Court of Appeals for the District

of Columbia Circuit, in a panel opinion and

sitting en banc, answered these issues in

the negative.

This Petition seeks review of these

judgments.

List of Parties

The following parties, exclusive of amici,

appeared below:

Yellow Bus Lines, Inc.* (formerly a

school and charter bus company)

Maria Triggs

Paula Westgate

Peter McKinnon

Drivers, Chauffeurs & Helpers

Local 639, International Brotherhood

of Teamsters

James F. Woodward

Michael DiPalermo

District of Columbia

*Petitioner Yellow Bus has no parent

companies or subsidiaries to list pursuant

to Rule 29.1.

iii

TABLE OF CONTENTS

QUESTIONS PRESENTED ..... -

LIST OF PARTIES .....+ + « -»

TABLE OF CONTENTS ....- + «© «

TABLE OF AUTHORITIES .....

OPINIONS BELOW .....-.-. -»

JURISDICTION ... «© «© «© © © «

STATUTORY PROVISIONS INVOLVED .

STATEMENT OF THE CASE .....

SUMMARY OF REASONS FOR GRANTING

WRIT.

. 7 as ® . ° . . a 7 °

REASONS FOR GRANTING THE WRIT

This Court Must Review

and Reconcile

Conflicting Circuit

Court Decisions On The

Construction of RICO,

An Important Federal

Avenue of Relief For

Victims of Aggravated

Forms of Criminal

Conduct in the Areas

of Organized Crime,

Political Corruption,

White-Collar Crime,

Terrorism and Violent

Groups Generally .

y Yellcw Bus, Inc.'s

Petition Affords An

Excellent Vehicle to

Revi.ew Several

Conflicting Circuit

Court of Appeal

Decisions ese *«. 6 «@ . ae

oO PE SS er ee ee a a

tee Be: eA ee a)

TABLE OF AUTHORITIES

CASES

SUPREME COURT

Braswell v. United States,

487 U.S. 99 (1988) ..

Blue Chip Stamps v. Manor

PAGE

* . 14

Drug Store

421 U.S. 723 (1975) °

Fort Wayne Books, Inc. v.

o « « 2

Indiana,

109 S. Ct. 916 (1989) .

Gebardi v. United States,

287 U.S. 112 (1932) . .

Herman & McLean v. Huddleston,

455 U.S. 375 (1983)...

7 ae

i.e 0 oF

H. J. Inc. v. Northwestern Bell

Telephone Co.,

109 S. Ct. 2893 (1989)

Iannelli v. United States,

420 U.S. 770 (1985). .

New York Cent. & Hudson River

R.R. v. United States,

212 U.S. 481 (1909) . .

Russello Y. United States,

465 U.S. 576 (1983) .

Sanabria v. United States,

437 U.S. 54 (1978) ..

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

473 U.S. 479 (1985) ..

S.E.C. v. National Securities,

2 Be ae

sie Qty ae

ee Oy. ae

10, 21

11, 21,

27, 28

Co.,

393 U.S. 453 (1969) .

° 19

United States v. Batchelder,

U.S. 114 (1 seeee « 41, 24

United States v. Powell,

MICA PEGs, « ow wh Cl 28

United States vy. Ragen,

United States v. Turkette,

Gua Webs BPO taweap - - ---- 11, 19

Village of Hoffman Estates v.

Flipside Hoffman Estates, Inc.,

MES og 5g 5g ct tl tC C28

COURT OF APPEALS

Bank of America v. Touche

Ross & Co.

782 F.2d 966 (11th Cir. 1986) . . 25

Bennett v. Ber

~ 9710 F.2d 1361 (8th Cir.), cert

denied, 464 U.S. 1008 (1983) . . 16

B. F. Hirsch v. Enright Refining Co.,

751 F.2d 628 (3rd Cir. 1984) . . 15

Blake v. Dierdorff,

856 F.2d 1356 (9th Cir. 1988) . . 25

Haroco v. American Nat'l Banks &

Trust Co. of Chicago,

- 9747 F.2d 384 (7th Cir. 1984),

aff'd, 473 U.S. 606 (1985) .. 19, 21

Landry v. Airline Pilots

Association Int'l,

- 9O1 F.2d 404 (5th Cir. 1990) . . 27

Marshall & Ilsley Trust Co. v. Pate,

819 F.2d 806 (7th Cir. 1987) . . 27

vii

Schofield v. First Commodity Corp.

of Boston

783 F.2d 28 (list Cir. 1986) .. . 15

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

"9741 F.2d 482 (2nd Cir. 1984),

rev'd, 473 U.S. 479 (1985) .. . 4

Tarrant v. Ponte,

751 F.2d 459 (lst Cir. 1985) . . 21

Town of Kearny v. Hudson Meadows

Urban Renewal Corp., 829 F.2d

. 6 wo Fee | yd Py

United States v. Angiulo,

897 F.2d 1169 (ist Cir. 1990) . . 23

United States v. Hartley,

678 F.2d 961 (1ith Cir. 1982),

cert. denied, 459 U.S. 1170

(1983) ae |

United States v. Local 560,

780 F.2d 267 (3rd Cir. 1985),

cert. denied, 476 U.S. 1140

(1986) eee aves.» «- &&

United States v. Tillen,

906 F.2d 814 (2nd Cir. 1990) . . 16

FEDERAL STATUTES

ae Se rr |

P.L. 91-452, 84 Stat. 923 (1970) 9, 18

84 Stat. 947 (1970) {ere we

viii

LEGISLATIVE MATERIALS

Federal Government's Use Of The

RICO Statute

Other Efforts

a t aniz

Crime,

S. Rep. No. 101-407, 101st Cong.,

2nd Sess. (1990)

H. R. Rep. No. 1088,

2nd Sess. (1988)

ae R. Rep. No.

2nd Sess. (1970)

Oversight Civil RICO:

100th Cong.,

1549, 91st Cong.,

Hearings Sen.

Jud. Comm., 99th Cong.,

Sess. (1985)

Prosecuting Fraud in The Thrift

lst

Industry Hearing before The House

Justice,

(1989)

Subcomm. on Crim.

Cong., ist Sess.

101lst

S. Rep. No. 91-617, 91st Cong.,

lst Sess. (1969)

S. Rep. No. 101-269,

2nd Sess (1990)

MISCELLANEOUS

Blakey, Rico Civil Action in

101lst Cong.,

Context,

Rev. 245 (1982)

Blakey & Cessar, Equitable Relief

58 Notre Dame L.

Under Civil RICO, 62 Notre Dame

L. Rev. 526 (1987)

Blakey and Perry, An Analysis of

The Myths That Bolster Efforts To

Rewrite RICO and the Various

Proposals Per Reform: "Mother of

God--Is This The End of RICO?" .

Blakey, "Is Pattern Void For

Vagueness?", 5 Civil RICO Report 6

(Dec. 12, 1989) ne «6 6 6

6 Civil RICO Report 1

(Sept 25, 1990) _

Conyers, Corporate and White-Collar

Crime,

17 Am. Crim. L. Rev. 287 (1980)

R. Dickerson, Fundamentals of

Legal Drafting (1965) ......

W. Hurst, The Growth of American

Law (1950) e @. #-@

N. ¥Y. Times, Feb. 7, 1989, at

D8, col. 1 >. ‘

N. Y. Times, Oct. 22, 1990, p. 1

col. i oe a ee

N. ¥Y. Times, Nov. 15, 1990,

at Ci, Col. 6 . .

Note, Civil RICO: The Temptation

and Impropriety of Judicial

Restriction, 95 Harv. L. Rev.

(1982) Ao

10,

43 Vanderbilt L. Rev. 851 (1990).14, 24

es rR ART a a aE Nas HLS HL

Oa em BEY NS 8 ale En DH ta Aah sin nN Rien omni

bt nee es ee

Note, Innocence by Association:

Entities and The Person--

Enterprise Rule Under RICO,

63 Notre Dame L. Rev. 179

(1988) Pate 4eie’ « &

The Report of the Ad Hoc Civil RICO

Task Force of The A.B.A. Section of

Corporations, Banking and the

Business Law (1985) 7 = Sra ee” |

ee 6 « « « SS

Wall St. J., Nov. 2, 1990,

Pi. 3, COL. 6 sae bie « «© &e

Webster's Third New Int'l

Dictionary (1961) ae 6 6 eo ew ae

D. Wigdor, Roscoe Pound:

Philosopher of Law (1974) .... . 22

OE ete 0 Re wR

No.

IN THE SUPREME COURT OF THE UNITED STATES

October Term, 1990

YELLOW BUS LINES, INC.

Petitioner,

Vv.

DRIVERS, CHAUFFEURS, & HELPERS

LOCAL UNION 639, et.al.

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA

OPINIONS BELOW

The Court of Appeals opinions are

reported at 913 F.2d 848 and 883 F.2d 132.

They are reproduced at App. pp. 1-44, 45-

102. The District Court opinion is

reported at 686 F.Supp. 1, and reproduced

at App. pp. 103-121.

JURISDICTION

The en banc Court of Appeals judgment

was entered on September 4, 1990. This

eke ee

Petition is timely filed. Jurisdiction is

invoked under 28 U.S.C. § 1254(1) and Rule

10.1(a) of this Court.

STATUTORY PROVISION INVOLVED

Title 18, United States Code,

relevant part, provides:

§ 1961. Definitions.

As used in this chapter--

(1) “racketeering activity"

means...any act or threat

involving...arson [or]

extortion...;

XXX

(3) “person” includes any

individual or entity...;

(4) “enterprise” includes

any individual...or other legal

entity, and any union...;

(5) "pattern of

racketeering activity” requires

at least two acts of

racketeering activity...

§ 1962. Prohibited activities.

XX X

for any person employed by or

associated wich any

enterprise...to conduct or

participate, directly or

indirectly, in the conduct of

such enterprise's affairs

through a pattern of

racketeering activity....

§ 1964. Civil remedies.

XX X

oe adhe Ah

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.

84 Statutes at Large 947 provides:

Section 904 (a) The provisions

of this title shall be liberally

construed to effectuate its

remedial purposes. -

(b) Nothing in this title

shall supersede any provision of

Federal, State, or other law

imposing criminal penalties or

affording civil remedies in

addition to those provided for

in this title.

STATEMENT OF THE CASE

Yellow Bus Lines, Inc. ("Yellow Bus")

sought damages under 18 U.S.C.§1964(c)

("RICO") for its injury from a recognition

strike, characterized by violence and

intimidation that constituted arson and

extortion, including threats made to cut

brake lines on school buses, followed by

years of sabotage of its equipment and

operations, all of which forced it out of

business. The suit was brought as a

counter claim to a suit filed by James F.

Woodward, the business agent and trustee of

Drivers, Chauffeurs, and Helpers Local 639

(Local 639), who sued a police officer, the

District of Columbia, and officers of

Yellow bus, alleging false arrest, for an

incident during the strike in which

Woodward threatened to burn the company's

buses; Woodward was arrested; he was later

charged in a three count indictment for

threatening to damage the buses and to kill

three men at another strike site. The

District Court dismissed the RICO count

relying, in'part, on Sedima, S.P.R.L., v.

Imrex, 741 F.2d 482 (2nd Cir. 1984), rev'd.

473 U.S. 479 (1985), but retained malicious

destruction of property and intentional

interference with contractual relations

counts. After a nine day trial, the jury

awarded Yellow Bus $133,200 against

Woodward and Local 639. In turn, the

District Court set aside the verdict,

except for an award of $1,280 against

Woodward. 686 F.Supp.1. A panel of the

Circuit Court upheld the District Court's

decision, but reinstated the jury's verdict

against Local 639 for malicious destruction

of property, end, in reliance on Sedima,

473 U.S. 479, reinstated the RICO claim

against Woodward. The Panel agreed with

the District Court that Local 639 could not

be both a "person" and an "enterprise"

under 18 U.S.C.§1962(c), but held that

Yellow Bus should have been permitted to

amend to allege itself as the “enterprise.”

839 F.2d at 792-95. It also held that acts

not directed at Yellow Bus had to be

excluded from the "pattern" that Yellow Bus

alleged against Local 639. 839 F.2d at

789. This Court remanded the decision for

reconsideration in light of H.J.,Inc. yv.

Northwestern Bell Telephone Co., 109 S.Ct.

2893 (1989). 109 S.Ct. 3235. The Panel

reaffirmed its decision. 883 F.2d 132.

The Circuit Court granted en banc review,

and held that Local 639, a "person," did

not "participate" in the conduct of Yellow

Bus's affairs, the "enterprise," when it

engaged in arson and extortion; it

permitted the claim for relief to continue

against Woodward. 913 F.2d at 956. In

reaching its decision, the en banc Court

left “undisturbed” the reasoning of the

Panel on the "person-enterprise” issue, 913

F.2d at 951, and did not address the

"pattern" issue, 913 F.2d at 956 n.5.

Instead, it focused its "attention...f[on

the] motion by Yellow Bus to amend its

complaint to name itself...as the

enterprise with which Local 639 as

person...was associated, and in the conduct

of whose affairs...[{it] participated by a

pattern of racketeering activity.” 913

F.2d at 951.

Finding that "conduct" is Synonymous

with "management" or "direction", 913 F.2d

at 954 (citing Webster's Third New Int'l

Dictionary 473 (1961)), the Court held that

the Local 639 "through its organizationai

efforts and the activities allegedly

associated with its strike for recognition

did not conduct or participate in the

conduct of Yellow Bus's affairs." Id. at

956. Recognizing that its decision

confiicted with those of other circuits,

the Court, to justify its decision, cited

concerns of the "delicate balance between

labor and management interests" and the

need to construe "penal statutes"

"narrowly". Id. at 955. While recognizing

that the result was "as it ought to be,”

913 F.2d at 957, Judge Mikva, the author of

the Panel opinion, concurring, expressed

"misgivings" and recognized "bluntly,

[that] the appellate courts are all over

the lot." Id. For him, the Court's

decision, as a matter of law, not policy,

"“contravene[d] the very broad words of the

statute and the apparent intent of its

drafters” and the teachings of this Court

in H.J. Inc. and Sedima. Id.

SUMMARY OF REASONS FOR

GRANTING WRIT

This Court must review and correct the

Gecision of the Circuit, since it is

inconsistent with the text of _ RICO,

particularly its liberal construction

directive, the teachings of this Court, and

represents on each questioned holding

multiple conflicts with other circuits. It

also threatens the viability of RICO

criminally and civilly in the white-collar

crime area, in particular in the thrift

crisis.

REASONS FOR GRANTING THE WRIT

1. This Court Must Review and Reconcile

Conflicting Circuit Decisions on_ the

Construction of RICO, An Important Federal

Avenue of Relief For Victims of Aggravated

Forms of Criminal Conduct in the Areas of

Organized Crime, Political Corruption,

White-Collar Crime, Terrorism and Violent

Groups Generally.

Today, the construction of pivotal

terms and phrases--"person,”" "enterprise,"

"indirectly," "participate in the conduct

og," “affairs,” and "pattern”--in an

important federal statute authorizing

criminal and civil sanctions is the subject

of conflicting decisions of the circuit

courts of appeals.

In 1970, Congress enacted the

Organized Crime Control Act, Title IX of

which is known at "RICO". At first, the

Department of Justice and private litigants

moved slowly to use RICO criminally or

civilly. Today, it is the prosecutor's

tool of choice in organized crime, labor

racketeering, political corruption, white-

collar crime, terrorism, and violent white-

hate, black-hate or anti-Semitic group

prosecutions. Oversight Civil RICO:

Hearings Sen. Jud. Comm., 99th Cong., list

Sess. 106, 109-11 (1985) (testimony of Ass.

A.G. Trott).? RICO prosecutions are

running at the rate of approximately 110

per year, of which 48% are in the political

corruption and white-collar crime area, 39%

are in the organized crime and labor

racketeering area, and 13% are in other

areas.” In recent years, this Court

1 See also Federal Government's Use

of The RICO Statute and Other Efforts

Against Organized Crime, S. Rep No. 101-

ro , 1O1st Cong., 2nd Sess. 31-36 (1990)

("The successful prosecution of...

[organized crime] families...resulted

from innovat[ive]... use... of RICO

statute...."); N.Y. Times, Oct. 22, 1990,

p.1 col.1 (decline of Mafia attributed by

law enforcement officials to "developing

cases against the top leadership of

organized families and relying largely

on...RICO, as a court room tool.")

2 Blakey & Perry, An Analysis of the

Myths That Bolster Efforts to Rewrite

RICO and The Various Proposals For

Reform: "Mother of God--Is This The End

of RICO?,” 43 Vanderbilt L. Rev. 851,

1020 (1990) ("Myths"). —

turned aside efforts to construe RICO

narrowly in two criminal appeals. United

States v. Turkette, 452 U.S. 576 (1981);

Russello v. United States, 465 U.S. 576

(1983).

Private parties did not begin to bring

civil RICO suits until about 1975. Civil

suits are now running at the rate of

approximately 1,000 per year. Myths at

1018-19. This Court turned aside efforts

to construe RICO narrowly in two civil

appeals. H.J. Inc. v. Northwestern Bell

Telephone Co., 109 S&S. Ct. 2893 (1989);

Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479

(1985).

Congress, however, is moving to narrow

the scope of civil RICO. See S. Rep. No.

101-269, 10lst Cong., 2nd Sess. (1990)

(reporting S. 438); 6 Civil RICO Report 1

(Sept. 25, 1990) (noting reporting of H.R.

5111). Nevertheless, the pending

legislation does not deal with the issues

raised by this Petition.

The resolution of these issues by the

Circuit substantially narrows the reach of

criminal and civil RICO. Each of the

issues presented by this Petition reflects

fundamental and irreconcilable conflicts

with the teachings of this Court and among

the circuit courts of appeal.

2. Yellow Bus Inc.'s Petition Affords An

Excellent Vehicle to Review Several

Conflicting Circuit Courts of Appeal

Decisions.

The Yellow Bus litigation is fully

ripe. It was tried to a jury. It was

thoroughly analyzed by a panel opinion and

an en banc review. The issues raised have

been the subject of litigation in other

circuits and related commentary. It is not

likely that postponement of review will

contribute to the lower courts working out

their conflicts. Nor does it seem likely

that Congress will take up these pressing

issues. The basic arguments are well-

developed, the lines of differences drawn,

and the positions taken.

The "“person-enterprise” rule is the

subject of a conflict, as the Circuit

noted. 913 F.2d at 951 (citing United

States v. Hartley, 678 F.2d 961, 989-90

(llth Cir. 1982), cert. denied, 459 U.S.

1170 (1983). Hartley is, of course, a

"minority of one,” but it was correctly

decided, and it is in good company. See

_ The Report of the Ad Hoc Civil RICO Task

Force of the A.B.A. Section of Corporation,

Banking and Business Law 366-77 (1985)

("A.B.A.") (noting six reasons supporting

the Hartley result).?

The position adopted by the Circuit is

3 The development and rationale of

the rule is traced, analyzed, and soundly

criticized in Note, Innocence by

Association: Entities and the Person -

Enterprise Rule Under RICO, 63 Notre Dame

L. Rev. 179 (1988).

EE ™

not only in error, but it has spawned and

been accompanied by other rules “that

threaten to eviscerate the statute,

particularly as it applies to white-collar

crime." Myths at 863 n.29.‘ Such crime

is "'the most serious...crime problem in

America today.'" Braswell v. United

States, 487 U.S. 99, 115 n.9 (1988)

(quoting Conyers, Corporate and white

Collar Crime, 17 Am. Crim. L. Rev. 287, 288

(1980)).

Ostensibly, the "person-enterprise"

rule stems from two considerations, neither

of which support it. First, it is said to

be rooted in a belief that an enterprise

cannot, under the language cf the statute,

‘ The rules preclude the

application of principles of secondary

liability under Section 1962(c) and

impose a standing requirement (injury by

use or investment, not racketeering

activity) on clsims under Section

1962(a). See ABA at 370; Myths at 863

n.29; Blakey & Cessar, Equitable Relief

Under Civil RICO, 62 Notre Dame L. Rev.

526, 581 n.235 (1987).

els 45g es 40

-_— a ee”

_ ——

be “employed or associated with" itself.

See, @.g. Schofield v. First Commodity

Corp. of Boston, 793 F.2d 28 29-34 (1st

Cir. 1986). To be "self associated" may be

a strain on the normal use of words, but to

be “self employed” hardly departs from

standard usage. Second, the rule is said

to reflect an unease at the prospect of

holding an enterprise liable, when it is

the victim of the racketeering. See, e.g.

B.F. Hirsch v. Enright Refining Co., 751

F.2d 628, 633-34 (3rd Cir. 1984). "[T]Jhis

hardly seems a reason to fashion a general

rule that applies even when the enterprise

is not the victim, but is instead the

perpetrator." ABA at 374 n.607 (emphasis

in original). Here, too, Local 639 is the

perpetrator, not the victim. Moreover, the

intent to benefit rule, a prerequisite to

finding federal criminal respondeat

superior, New York Cent. & Hudson River

R.R. v__United States, 212 U.S. 48I, 495

(1909); United States v. Local 560, 780

F.2d 267, 284 (3rd Cir. 1985), cert.

denied, 476 U.S. 1140 (1986), and the

victim exclusion rule, Gebardi v. United

States, 287 U.S. 112, 117, 121-22 n.5

(1932); United States v. Tillen, 906 F.2d

814, 822-24 (2d Cir. 1990), work,

independent of any special RICO rule, to

preclude secondary liability for

enterprises, when they are victims or

merely a instruments. As such, the

"person-enterprise” rule is unnecessary.

Here, too, Local 639 was neither a victim

nor a passive instrument. Accordingly, the

"“person-enterprise” rule unjustifiably

circumscribes RICO's proper reach to hold

a perpetrator responsible for its conduct.

The construction of "participate in

the conduct of" adopted by the Circuit--

"operation or management”"--represents the

minority view among the circuits; it is

supported only by dictum in Bennett v.

Berg, 710 F.2d 1361, 1364 (8th Cir.) (en

banc), cert. denied, 464 U.S. 1008 (1983).

Candidly, the Circuit recognized that the

Eighth Circuit’s position was “the most

restrictive view." 913 F.2d at 953. It

sought to justify its adoption of the

narrow view by reference to dictionary

meaning. Id. at 954. But it ignored an

alternative--and more plausible--meaning

set out in the same source. See Webster's

Third New International Dictionary 473

(1961) ("behavior"). It also ignored this

Court's construction of the key word in a

parallel provision of the same Act.

Sanabria v. United States, 437 U.S. 54, 70

n.26 (1978) ("conduct” in Title VIII,

construed to mean "any degree of

participation"); see also H.R. Rep. No.

1549, 91st Cong., 2nd Sess. 52-54 (1970)

(commentary on Title VIII) ("both high

level bosses and street level employees”).

The Circuit sought to bolster its

dictionary meaning approach with policy

considerations: maintenance of the

delicate balance between labor and

management and the strict construction

rule. 913 F.2d at 955. Neither supports

the Circuit's position.

Congress knew, es Judge Mikva, a

Congressman when the 1970 statute passed

and its most eloquent critic, notes, that

RICO would, in fact, impact on labor

relations. 913 F.2d at 957 (legislative

history collected). See also P.L. 91-452,

84 Stat. 923 (1970) (findings and purpose)

("to infiltrate and corrupt...labor

unions” ); 18 U.S.C. § 1961 (4)

("“enterprise” define to include "any

union"); S.Rep. No. 91-617, 9lst Cong., lst

Sess. 78 (1969) ("organized

crime...move[...] into legitimate

unions...provides...opportunity

for...extortion through...threat of

economic pressure” [in t]rucking..."). It

is hard to see how Congress could have

expressed its intent more "clearly and

unequivocally.” 913 F.2d 955. In short,

"Congress was well aware that it was

entering into 2 new domain.” Turkette, 452

U.S. at 586. The issue was not

application, but preemption. Congress,

however, expressly saved "provision[s] of

Federal, State or other law imposing

criminal penalties or affording civil

remedies in addition to" RICO. 84 Stat.

947 (1970). "Congress enacted RICO in

order to supplement, not supplant, the

available remedies, since it thought those

remedies offered too little protection for

victims.” Haroco v. American Nat'l Bank &

Trust Co. of Chicago, 747 F.2d 384, 392

(7th Cir. 1984), aff'd, 473 U.S. 606

(1985). Such overlap between statutes "is

neither unusual nor unfortunate.” S.E.C.

v. National Securities, Co., 393 U.S. 453,

468 (1969). It furthers remedial purposes.

a Z P ——* ale :

wrasse eee we” ee lee oe Bed le

Herman & McLean v. Huddleston, 455 U.S.

375, 386 (1983). The Circuit's narrow

construction of the statute, therefore,

unjustifiably undermines the _ statute's

"carefully crafted” design. Iannelli v.

United States, 420 U.S. 770, 786-89 (1975).

Nor does the strict construction rule

dictate a different result. Here, the

Circuit conflated breadth, ambiguity, and

vagueness. As such, it confused that kind

of uncertainty of application that stems

from breadth of meaning caused by the use

of broad terms, that kind of uncertainty of

application that stems from multiplicity of

meaning caused by ambiguity, and that kind

of impossibility of application that stems

from vagueness caused by the use of terms

having no meaning. See R. Dickerson,

Fundamentals of Legal Drafting 22-33 (1965)

(analysis of "major diseases of language":

generality, ambiguity and vagueness);

Blakey, "Is Pattern Void for Vagueness?",5

—a 4 - ee ee ee ae, a

Civil Rico Report 6, 9 n.27 (Dec. 12,

1989). RICO is neither ambiguous nor vague;

it is broad. See Sedima, 473 U.S. at 499

(citing Haroco at 398) (RICO "demonstrates

breadth,” not “ambiguity."). See also H.J.

Inc., 109 S. Ct. at 2903-05 ("broad terms,"

"broad concepts"); Russello, 464 U.S. at 21

("“participate" described as a "term" of

"breadth" ).

The strict construction rule,

moreover, has no applications to RICO,

since Congress mandated that RICO be

"liberally construed." 84 Stat. 947

(1970). The strict construction rule is

merely "a principle of statutory

construction." United States Vv.

Batchelder, 442 U.S. 114, 121 (1979). It

is not a rule of constitutional dimension.

Tarrant v. Ponte, 751 F.2d 459, 466 (lst

Cir. 1985). As such, Congress may abrogate

its application, subject to the

constitutional doctrine of void-for-

vagueness.°

But a statute, including RICO, is not

5 A liberal construction clause is

wide-spread in state law. Judicial

hostility to change through legislation

was common in the 19th century.

{[W]here [judges] were not

ready boldly to declare [it]

unconstitutional, [they were

ready] to interpret it so

restrictly as to narrow its

effect.

These factors found

expression in the abstract

canons of [strict] statutory

interpretation....

The effect was to put a

primarily obstructive, if not

destructive connotation on the

process of statutory

interpretation.

W. Hurst, The Growth of American Law

(1950).

Legislatures reacted: "[I]t became

standard practice in drafting statutes to

insert a preamble stating broadly the

purpose of the act and to close with a

provision declaring that the statute

should be liberally construed." D.

Wigdor, Roscoe Pound: Philosopher of Law

174 (1974). In fact, a majority of

states have abolished the common law rule

of strict construction of penal statutes.

See generally Blakey, RICO Civil Action

in Context, 58 Notre Dame L. Rev. 245

n.25 (rule analyzed and statutes

collected), 288 n.150 (liberal

construction compared to strict

construction and void-for-vagueness

doctrine) (1982).

hei

vague, in the constitutional sense, merely

because it is difficult to determine if

“marginal” cases fall within it. United

States v. Powell, 423 U.S. 87, 93 (1975).

Vagueness is present only when the terms

| employed have "no core” meaning.” Village

of Hoffman Estates v. Flipside Hoffman

Estates, Inc., 455 U.S. 489, 495 n.7 (1982)

(emphasis in original). Absent first

amendment considerations, not here present,

the statute, too, must be judged as

applied, not on its face. Id. Here, those

individuals who engaged in the pattern of

arson and extortion, sponsored by Local

639, can hardly be heard to complain in

"surprised innocence” when their behavior

————_—_—-—-

is found unlawful. United States v. Ragen,

314 U.S. 513, 523-24 (1942); United States

v. Angiulo, 897 F.2d 1169, 1179 (lst Cir.

1990) ("pattern” as applied "not

even...close” to being vague). If the

predicate offenses are "not

unconstitutionally vague, {then RICO]

cannot be vague either.” Fort Wayne Books

Inc. v Indiana, 109 S.Ct. 916, 925 (1989);

S. Rep. No. 617, 9lst Cong. lst Sess. 158

(1969) ("no due process constitutional

barrier...[{because] any proscribed

act...must violate an independent

statute.”) See also Batchelder, 442 U.S.

at 124-25 (vagueness not present when two

statutes--each with a different penalty--

apply, since defendant knows the maximum,

and no more doubt is present than when a

statute permits alternative punishments).

Finally, the gloss put on "participate

in the conduct of" by the Circuit--

"operation or management"--must be rejected

because it threatens to undermine one of

the RICO's most promising, if

serendipitous, applications: to the thrift

crisis--and the developing similar crises

in bank, insurance company, and pension

plan insolvency. See Myths at 883-909

(review of facts and analysis of fraud as

contributing to crises). Not all of those

who have contributed to the thrift failures

are in management. See, @e.g., Hall of

Shame: Besides S & L Owners, Host of

Professionals Paved Way in Crisis, Wall St.

J., Nov. 2, 1990, p. 1, col. 6. Yet the

Circuit rejected Bank of America v. Touche

Ross & Co., 782 F.2d 966, 970 (llth Cir.

1986), a decision that holds out promise

that RICO may be properly applied to

professionals in bank fraud. See also

Blake v. Dierdorff, 856 F.2d 1356, 1371-72

(9th Cir. 1988) (lawyers in bank fraud).

Congress recognizes the role that criminal

misconduct plays in financial insolvency.

H.R. Rep. No. 1088, 100th Cong., 2nd Sess.

2-13 (1988) (one-third of commercial banks

and three-fourths of thrift failures

criminal misconduct major factor). The

President promises "every effort to recover

assets diverted from these institutions and

‘t +

Wwe

to place behind bars those who ...caused

losses through criminal behavior." N.Y.

Times, Feb. 7, 1989, at D8, col. 1.

Tragically, the Circuit's narrow rule

threatens substantially to curtail that

effort; it could not come at a more

inopportune time.°®

Finaily, the Circuit held that the

pattern of racketeering activity

constituting the violation that injured

Yellow Bus could not include racketeering

acts aimed at another. 883 F.2d 138. Only

one other Circuit follows a similarly

® See generally Prosecuting Fraud

in The Thrift Industry: Hearings before

the House Subcomm. on Crim. Justice,

10lst Cong., ist Sess. 73 (1989)

(testimony of Associate General Counsel

G.A.0O.: as of May 30, 1989, 16 of 26

failed thrifts studied, civil suits filed

against officers, directors, borrowers,

attorneys, and related persons, 6 of

which included civil RICO counts

requesting $638 million); N.Y. Times,

Nov. 15, 1990, at Cl, col. 6 (F.D.I.C.

and R.T.C. to file $6.8 billion in RICO

Claims against Drexel Burnham Lambert,

Inc.).

narrow rule. Landry v. Airline Pilots

Association Int'l, 901 F.2d 404, 1261 (5th

Cir. 1990). The Seventh and Third Circuits

are in conflict. Marshall & Ilsley Trust

Co. v_ Pate, 819 F.2d 806, 809 (7th Cir.

1987); Town of Kearny v. Hudson Meadows

Urban Renewal Corp., 829 F.2d 1263, 1268

(3rd Cir. 1987) The narrow rule of the

D.C. and Fifth Circuits cannot be squared

with this Court's teaching in H. J. Inc.,

109 Ss. Ct. at 2901-02 (multiple schemes

relevant; illustration of extortion scheme

involving multiple victims).

How these narrow rules can be squared

with Congress' mandate of liberal

construction is not apparent. Nor can they

be squared with the teaching of this Court.

See, ¢6.g., Sedima, 473 U.S. at 497-98

("RICO is to be read broadly.") Indeed,

each of the positions adopted by the

Circuit was the narrowest rule available.

"RICO may be a poorly drafted statute, but

rewriting it is a job for Congress, if it

is so inclined, and not for" circuit

courts. B.J. Inc., 109 8. Ct. at. 2905;

Sedima, 473 U.S. at 500 ("a form of

statutory amendment [in] appropriately

undertaken by the courts"); Note, Civil

RICO: The Temptation and Impropriety of

Judicial Restriction, 95 Harv L. Rev. 1101

(1982). See also Blue Chip Stamps v. Manor

Drug Store, 421 U.S. 723, 748 (1975)

("{T)he Judiciary may not circumscribe a

right which Congress has conferred because

of any disagreement it might have with

Congress about the wisdom of creating so

expansive a liability.").

CONCLUSION

For these reasons, a Writ of

Certiorari should be issued to the Court of

Appeals for the District of Columbia.

Dated: November 30, 1990

Respectfully submitted,

YELLOW BUS LINES, INC.

ll At ge

By: af ec.

Thomag G. Corcoran Jr.

Counsél of Record

Henry M. Lloyd

Berliner, Corcoran,

& Rowe

1101 17th Street, N.W.

Washington, D.C. 20036

(202 )-293-5555

G. Robert Blakey

Notre Dame Law School

Notre Dame, Ind. 56556

(215) 239-5717

YELLOW BUS LINES, INC., Appellant,

Vv.

DRIVERS, CHAUFFEURS & HELPERS

LOCAL UNION 639, et al.

James F. WOODWARD

Vv.

Michael DiPALERMO, et al.

Maria Triggs, Secretary/Treasurer,

Yellow Bus Lines, et al.,

Appellants.

Nos. 86-5135, 86-5136

United States Court of Appeals,

District of Columbia Circuit.

Argued May 9, 1990

Decided Sept 4, 1990

Appeal from the United States District

Court for the District of Columbia (Civil

Action Nos. 82-03154, 83-01232).

Thomas G. Corcoran, Jr., with whom

Henry M. Lloyd, Washington, 6: . was on

brief, for appellants in No. 86-5135 and

86-5136.

John R. Mooney, with whom Hugh J.

Beins, Washington, D.C., was on brief, for

App. 1

eve HOLY:

appellees in both cases.

Robert M. Weinberg, Lawrence Gold,

Jack Levine and George Kaufmann,

Washington, D.C. were on brief, for amicus

curi3ze, urging that the panel's decision be

reversed and the District Court ruling be

reinstated and affirmed.

Before WALD, Chief Judge, and MIKVA,

EDWARDS, RUTH 8B. GINSBURG, SILBERMAN,

BUCKLEY, WILLIAMS, D.H. GINSBURG, SENTELLE,

and THOMAS, Circuit Judges.

Opinion for the Court filed by Circuit

Judge SENTELLE.

Concurring opinion filed by Circuit

Judge MIKVA.

SENTELLE, Circuit Judge:

{1) In 18 U.S.C. § 1962(c), the

Racketeer Influenced and Corrupt

Organizations Act ("RICO") makes it

"unlawful for any person employed by or

associated with any enterprise engaged in

--- interstate ... commerce, to conduct or

App. 2

i: eenen itgod nk eeatlegga

a 2oF SIS. -tstniey M t:uscoah

;

" i via - -

7 , i af ; Pe xe | f 4 YDS +

A °

ie f 7 « ii y } 7 Tir roaaw

By + t * : % . ts fori | ees»

. .

= * : f 4" ae ¢*)

iz v4 4 | an 26

b P

) ‘3: 4 j ad, q a

yy > . ¥

i ’ ; } -

4 } o. ee

- 4 5 * b

{

4 — * | ; .

. 7 4

: . .

1 ;

o “ ts a bi

Le 7 oo

-_-

x " .

4 : P —

' P . . ; : mor

4 A

& +9%4 B35

ot)

ay Pe

a rT,

participete, directly or indirectly, in the

conduct of such enterprise's affairs

through a pattern of racketeering

eetewitr.” In this case, the issue is:

Does a union merely by conducting a

recognition strike against an employer

"conduct or participate, directly or

indirectly, in the conduct of” the

employer's affairs within the meaning of

section 1962(c)? Our answer is that it

does not. In reaching that conclusion, we

examine the breadth of the "participation"

element of the statutory cause of action

under civil RICO.

I. BACKGROUND

A. The Statute

In 1970, Congress enacted RICO as

Title IX of the Organized Crime Control Act

of 1970, Pub.L. No. 91-452, 84 Stat. 941.

RICO is codified at 18 U.S.C. §§ 1961-68.

Although codified in Title 18, Crimes and

App. 3

fe)

Criminal Procedure, the RICO statute also

establishes civil remedies in section 1964.

That section provides in pertinent part

that

{ajJny 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.

18 U.S.C. § 1964(c).

Thus, although section 1964 creates

the civil remedy, it is to section 1962

that we must look for the substantive law

underlying the civil claim. In the present

action, the claim arises under subsection

It shall be unlawful for any person

employed by or associated with any

App. 4

a ee a en Sa Ea A Bele ae

CT ty ce La ATL. tg eter

enterprise engaged in, or the

activities of which affect,

interstate or foreign commerce, to

conduct or participate, directly or

indirectly, in the conduct of such

enterprise's affairs through a

pattern of racketeering activity or

collection of unlawful debt.

18 U.S.C. § 1962(c).*

[2] To make out a claim for relief "a

civil RICO claimant must prove (1) a

violation of the substantive RICO statute,

18 U.S.C. § 1962, and (2) an injury to the

plaintiff's ‘business or property by reason

of a violation of section 1962.'" Alcorn

County, Miss. v. U.S. Interstate Supplies,

Inc., 731 F.2d 1160, 1167 (5th Cir.1984).

1. Appellant also asserts a claim

under 18 U.S.C. § 1962(d). That section

simply makes it "unlawful ... to conspire

to violate ... subsection[s] (a), (b) or

(c)." As subsection (d) raises no

separate issue for analysis, our

discussion will focus on subsection (c).

App. 5

Thus, in addition to the element of injury,

a civil RICO plaintiff making a claim under

subsection (c) must prove:

(1) the existence of an enterprise

which affects interstate or foreign

commerce;

(2) that the defendant was "employed

by” or "associated with" the

enterprise;

(3) that the defendant participated

in the conduct of the enterprise's

affairs; and

(4) that the participation was

through a pattern of racketeering

activity....

Id. at 1168 (internal brackets omitted)

(citing United States v. Phillips, 664 F.2d

971, 1011 (5th Cir. Unit B 1981)).?

2, This formulation of the elements

does not differ substantively from the

authoritative outline of elements

prepared by the Supreme Court in Sedima,

S.P.R.L. v. Imrex Co., 473 U.S. 479, 105

S.Ct. 3275, 87 L.Ed.2d 346 (1985), which

App. 6

= de ee ene ee - a. Soaemtded ~ re — — 2

—— + sons he Pel ee ae A a. eg eee ose = Se eee =

In the present en_banc review, we

address the scope of the thgrd or

"participation in the conduct of affairs"

element.?

B. The Litigation

The factual background of this

litigation is set forth in some detail in

the two panel opinions previously issued in

the case. Yellow Bus Lines, Inc. v. Local

Union 639, 839 F.2d 782 (D.C. Cir. 1988),

treated injury as a standing requirement,

and outlined the elements as "(1) conduct

(2) of an enterprise (3) through a

pattern (4) of racketeering activity,"

473 U.S. at 496 (footnote omitted). The

Supreme Court in Sedima focused on

different questions than the one we

address today, and we find the Fifth

Circuit's outline more useful for our

present inquiry.

3, In the order providing for en

banc review in this case, we directed the

parties also to brief the second, or

"associational" element. Since both

parties, while briefing several other

issues not encompassed within the intent

of our en banc order, chose to ignore the

"associational" element, we leave any

review of that element by this Circuit

for some case in which the parties

properly frame the controversy.

App. 7

Vow

vacated, -- U.S. --, 109 S.Ct. 3235, 106

L.Ed.2d 583 (1989) (Panel Op. I); Yellow

Bus Lines, Inc. v. Local Union 639, 883

F.2d 132 (D.C.Cir.1989), reh'g granted

(Oct. 17, 1989) (Panel Op. II). We will

not detail those facts unrelated to the

issue before the en banc Court, but a brief

review is necessary to provide a context

for our decision.

This litigation arose out of events

surrounding a four-day strike for

recognition conducted by Local Union 639

("the Union") against Yellow Bus Lines,

Inc. ("Yellow Bus” or "the bus line") in

1981. Yellow Bus asserted a number of

claims, most of them nonfederal tort

matters. We do not address those

nonfederal causes of action as an en banc

Court, but leave intact the dispositions

entered by the panel opinions cited above.

In the claims we examine in the present

review, Yellow Bus alleged violations of

App. 8

SOOT EERE PE rere oo

iT hi

RICO, 18 U.S.C. §§ 1962(c) & (d), by the

Union and its business agent and trustee

James Woodward.

The bus line's original RICO complaint

alleged that defendants Union and Woodward

constituted "an enterprise" within the

meaning of section 1962. The District

Court, in an order of June 1, 1984,

supported by a memorandum of June 28, 1984,

dismissed the RICO action against the

Union. The District Court reasoned:

The language of § 1962 clearly

contemplates the interaction cf a

person and an enterprise, both

separately defined by the Act. RICO

prohibits any person employed by or

associated with an enterprise, from

participating in the conduct of such

enterprise through a pattern of

racketeering activity. RICO does not

hold the enterprise ... liable, but

only those persons who seek _ to

App. 9

participate in the affairs of the

enterprise through a pattern of

racketeering activity... The

language of RICO has been found to be

ambiguous on other issues, but we

find this language is clear and that

our interpretation is supported by

the case law.

Yellow Bus Lines, Inc. v. Local Union 639,

No. 83-1232, slip op. at 8, 1984 WL 2915

(D.D.C.June 28, 1984) ("Memorandum of June

28") (quoting Bays v. Hunter Savings

Assoc., 539 F.Supp. 1020, 1023-24 (S.D.Ohio

1982)).

Each of our panel opinions has

affirmed that decision of the District

Court, reasoning, inter alia:

Logic alone dictates that one entity

may not bats | és the enterprise and

the person associated with it

because, as Judge Posner of the

Seventh Circuit has stated, "you

App. 10

cannot associate with yourself.”

Panel Op. I, 839 F.2d. at 790 (quoting

McCullough v. Suter, 757 F.2d 142, 144 (7th

Cir.1985)); Panel Op. II, 833 F.2d at 139

(same). This nonidentity between the

"person" liable as a RICO defendant, and

the “enterprise” in whose affairs the

person has participated has been required

by a nearly unanimous majority of courts

that have considered the question (see

cases collected in Panel Op. I, 839 F.2d at

790, and Panel Op. II, 883 F.2d at 139),

although the Eleventh Circuit may

constitute a minority of one to the

contrary. See United States v. Hartley,

678 F.2d 961,989-90 (llth Cir. 1982), cert.

denied, 459 U.S. 1170, 103 S.Ct. 815, 74

L.Ed.2d 1014 (1983). As with the claims

decided under the District Court's pendent

jurisdiction, the en banc Court leaves the

panel reasoning undisturbed as to the

nonidentity requirement.

App. 1l

Although dismissing the RICO action

against the Union, the District Court

initially permitted the RICO action to

continue against Woodward. The court

reasoned that “the ‘enterprise’ ... is

properly viewed as Local 639," Memorandum

of June 28 at 10, and Woodward served as

the "person" or defendant who participated

in the enterprise's affairs under section

1962(c). Subsequently the District Court

allowed summary judgement in favor of

Woodward on the RICO claim on other grounds

explained in a memorandum of October 29,

1984. In that memorandum the District

Court followed the reasoning of the Second

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

741 F.2d 482 (2d Cir. 1984), rev'd, 473

U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346

(1985), that a distinct "RICO injury,"

different in kind from injury resulting in

normal course from predicate acts, was

required for a civil RICO action. Between

App. 12

the time of the District Court's entry of

summary judgment and our panel's review,

the Supreme Court handed down its decision

reversing the Second Circuit in Sedima.

Sedima S.P.R.L. v. Imrex Co., 473 U.S.

479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985).

Therefore, our panel reversed the District

Court's grant of summary judgment as to the

RICO claim against Woodward and remanded

the case for trial. Panel Op. I, 839 F.2d

at 789; Panel Op. II, 883 F.2d at 139.

Again we leave this portion of the panel's

decision undisturbed.

The question which does command the

attention of this en banc Court relates to

a motion by Yellow Bus to amend its

complaint to name itself, Yellow Bus Lines,

Inc., ae the enterprise with which Local

639 as person or defendant was associated,

and in the conduct of whose affairs that

defendant participated by a pattern of

racketeering activity. The District Court

App. 13

denied Yellow Bus's wotion, “-vasoning that

"the union's acts were not committed in the

conduct of Yellow Bus' affairs; Yellow Bus

was, if anything, merely the 'setting' for

the union's activities." Memorandum of

June 28 at 10 n. 5. On appeal, the panel

reversed this ruling, concluding that the

District Court erroneously applied an

"overly restrictive” interpretation of the

participation element. Panel Op. I, 839

F.2d at 792-94. The Union petitioned the

Supreme Court for certiorari on the RICO

issues. On July l, 1989, the Supreme Court

vacated the first panel opinion. and

remanded the case for further consideration

in light of H.J. Inc. v. Northwestern Bell

Telephone Co., -- U.S. --, 109 S.Ct. 2893,

106 L.Ed.2d 195 (1989). Local Union No.

639 v. Yellow Bus Lines, Inc., -- U.S. --,

109 S.Ct. 3235, 106 L.Ed.2d 583 (1989).

After reconsidering the matter in light of

the H.J. Inc. decision, the panel issued

App. 14

A tee a

its second opinion reiterating its original

conclusion in language identical in

pertinent part to its first opinion. Panel

Op. II, 883 F.2d at 141-44. It was on this

question that we ordered a rehearing en

banc.

II. ANALYSIS

Simply put, our task is to determine

the intent of Congress in using the phrase

"to conduct or participate, directly or

indirectly, in the conduct of [the]

enterprise's affairs," 18 U.S.C. § 1962(c).

That we may put the question with some

degree of simplicity does not mean that our

task is a simple one. The numerous courts

that have construed the participation

requirements of § 1962(c) have followed

divergent paths and have reached disparate

conclusions.

The Second Circuit--at least in dicta-

-has announced the broadest interpretation

App. 15

of the “participation in the conduct"

language. That circuit stated that

{o]Jne conducts the activities of an

enterprise through a pattern of

racketeering when (1) is enabled to

commit the predicate offenses solely

by virtue of [one's] position in the

enterprise or involvement in or

control over the affairs of the

enterprise, or (2) the predicate

offenses are related to the

activities of that enterprise.

United States v. Scotto, 641 F.2d 47, 54

(2d Cir. 1980), cert. “enied, 452 U.S. 961,

101_S.Ct. 3109, 69 L.Ed.2d 971 (1981).‘

The Scotto court acknowledged that simply

committing predicate acts which are

‘. The Ninth Circuit has adopted

the Scotto test, but has not fleshed out

the standard any more than the Second

Circuit did in Scotto. See, for example,

United States v. Yarbrough, 852 F.2d

1522, 1544 (9th Cir.), cert. denied, 488

U.S. 866, 109 S.Ct. 171, 102 L.Ed.2d 140

(1988).

App. 16

So ah gt a

PF dies

} me re ~~ <> at enpapensal tae a ne on Ny ay i eee ee ee Sa oT eee tt eee SD

SS ee ee eS na a ee : —— a : eee

Ps Pl set phi Dalai dN AM: he LNA A AUIS Die ae eee on Se Nee me ee em nN

7 sere SatapsoacusyrmseusiwaneP tener eat nant Setar Se ey mca nae ss = em ; : 5

unrelated to the enterprise or to one's

position in the enterprise is insufficient

to satisfy the participation requirement,

but stated:

Section 1962(c) nowhere requires

proof regarding the advancement of

the [enterprise's] affairs by the

defendant's activities, or proof that

the [enterprise] itself is corrupt,

or proof that the [enterprise]

authorized the defendant to do

whatever acts form the basis for the

charge.

Id. at 54, quoting United States v. Field,

432 F.Supp. 55, 58 (S.D.N.Y.1977), aff'd,

578 F.2d 1371 (2d Cir.), cert. dismissed,

439 U.S. 801, 99 S. Ct. 43, 58 L.Ed.2d 94

(1978). See also United States v. LeRoy,

687 F.2d 610, 616-17 (2d Cir. 1982), cert.

denied, 459 U.S. 1174, 103 S.Ct. 823, 74

L.Ed.2d 1019 (1983); United States v.

Provenzano, 688 F.2d 194, 200 (3d Cir.),

App. 17

sSoeecensnteesn== lem tp Sa Seni Soeur armed Speen pee Ne NNN Saw eee

cert. denied, 459 U.S. 1071, 103 S.Ct. 492,

74 L.Ed.2d 634 (1982).

We do not necessarily dispute the

Second Circuit's views about what section

1962(c) does not require. However, the

Scotto Court was far too lenient in its

test for what section 1962(c) does require.

If section 1962(c) can apply whatever

predicate offenses are merely related to

the activities of an enterprise, then the

"participation in the conduct" element of

that section practically drops out. Any

pattern of predicate acts remotely related

to an "enterprise," whether committed by a

mail clerk in the target enterprise or by

the C.E.0. of the enterprise's business

competitor, might give rise to RICO

‘lability under the Second Circuit's Scotto

test.

Recognizing the overbreadth of the

Second Circuit's language in Scotto, the

Fifth Circuit modified the Scotto standard

App. 18

2 at te,

camneny ts ree Se ot aoe eetatenaietiod helenae — renee ot

eer tn enn op one

ae oe aes ape beatae

sania re ee

prea! greneee ea Pera :

to establish a more restrictive test.

United States v. Cauble, 706 F.2d 1322 (Sth

Cir. 1983), cert. denied, 465 U.S. 1005,

104 S.Ct. 996, 79 L.Ed.2d 229 (1984). The

court explained that "[t]he mere fact that

a defendant works for a legitimate

enterprise and commits racketeering acts

while on the business premises does not

establish that the affairs of the

enterprise have been conducted ‘through’ a

pattern of racketeering activity." Id. at

1332. The court thus modified the Scotto

standard by joining the two parts of the

Scotto test with an "and" rather than an

"or." Id. at 1333. Under the Cauble

court's rule, the predicate racketeering

acts must have some effect on the lawful

enterprise and the defendant's position in

the enterprise must facilitate the

defendant's comission of those

racketeering acts.

The Eighth Circuit, en banc,

App. 19

7 Ly y

to >

> ae *

oo & i

teak eal . ‘

Pus Je ¥

~ «aS ~

" at

- + Bi

fa! Ld

. 2

it.

;

“

‘

«*

‘

;

4 -

neque —— -

— es Si ee es SS jolts Sees

ee re Ceanctan ib acionnenteasiaptacaplierleiiiet anh aicdieeet seiond

~ ar eats renemapoestrvearupeeranmny A i ae en eae: a eee eens

paren e~ eee esis ee ee ee

aoe

articulated probably the most restrictive

view of the scope of the "participation in

the conduct" requirement. Offering a

district court guidance for evaluating a

Plaintiff's complaint on remand, that

circuit wrote:

Mere participation in the predicate

offenses listed in RICO, even in

conjunction with a RICO enterprise,

may be insufficient to support a RICO

cause of action. A defendant's

participation must be in the conduct

of the affairs of a RICO enterprise,

which ordinarily will require some

participation in the operation or

management of the enterprise itself.

Bennett v. Berg, 710 F.2d 1361, 1364 (8th

Cir.), cert. denied sub nom. Prudential

Ins. Co. v. Bennett, 464 U.S. 1008, 104

S.Ct. 527, 78 L.Ed.2D 710 (1983) (emphasis

supplied) (citation omitted).

The Eleventh Circuit rejected such an

App. 20

v/a 4

a AE r "

SE 2 i i Aa Ae A A es a ce ge nA =

"operation or management" test, expressly

stating, "It is not necessary that a RICO

defendant participate in the management or

operation of the. enterprise." Bank of

America v. Touche Ross & Co., 782 F.2d 966,

970 (llth Cir.1986). The Touche Ross court

rejected the defendants' argument "that

Congress intended to limit the reach of a

civil RICO action by imposing a ‘'conduct'

requirement, i.e., that defendant conducted

or participated in the conduct of a RICO

enterprise in a significant manner." Id.

In the Eleventh Circuit's view, "This

argument ignores the ‘directly or

indirectly’ language of § 1962(c)." Id.

The court emphasized:

The substantive proscriptions of the

RICO statute apply to insiders and

outsiders--those merely ‘associated

with' an enterprise--who participats

Girectly and indirectly ir the

enterprise's affairs through a

App. 21

art

pattern of racketeering activity...

The RICO net is woven tightly to trap

even the smallest fish, those

peripherally involved.

Id. (quoting United States v. Watchmaker,

761 F.2d 1459, 1476 (llth Cir.1985), cert.

denied sub nom. Harrell v. United States,

474 U.S. 1100, 106 S.Ct 879, 88 L.Ed.2d 917 .

(1986). The Eleventh Circuit concluded

that the word "conduct” in section 1962(c)

"simply means the performance of activities

necessary or helpful to the operation of

the enterprise.” Id. (citations omitted).

Several circuits have rejected the

Eleventh Circuit's conclusion that conduct

of an enterprise's affairs means activity

that denefits the enterprise. For example,

the Fourth Circuit explicitly modified a

previous decision that had arguably

established a strict benefits’ test,

explaining that a defendant's efforts need

not produce financial profit for the

App. 22

enterprise to qualify the defendant as a

participant. United States v. Webster, 669

F.2d 185, 186-87 (4th Cir.), cert. denied,

456 U.S. 935, 102 S.Ct 1991, 72 L.Ed.2d 455

(1982). The court stated that the

important question is whether the affairs

of an enterprise are conducted through a

pattern of racketeering activity, but the

court did not define "conducted" more

specifically. Id. The Seventh Circuit

also explicitly rejected the benefits test,

quoting Webster. United States v. Kovic,

684 F.2d 512, 516 (7th Cir.), cert. denied,

459 U.S. 972, 103 S.Ct. 304, 74 L.Ed.2d 284

(1982).

As did these other circuits, we find

the Eleventh Circuit's approach

problematic. While that circuit viewed the

Eighth Circuit's "operation and management"

standard as ignoring the “directly or

indirectly" language of section 1962(c),

and thereby precluding section 1962(c)'s

App. 23

applicability to outsiders, this does not

appear to be the case. The “operation and

management" standard requirement can as

easily be applied to--for example--an

organized crime boss who pulls the strings

of a corporation through a puppet president

as it can to the corporation president

himself. We see no inconsistency between

the Eighth Circuit's "operation oor

management" standard and the language of

the statute. Rather, it appears that the

view expressed by the Eleventh Circuit in

Touche Ross ignores the language of the

statute by eliminating the impact of the

"conduct" requirement. Indeed, the

Eleventh Circuit omitted the word "conduct"

in its statement of section 1962(c)

requirements. See Touche Ross, 782 F.2d at

970 (section 1962(c) applies to those "who

participate ... in the enterprise's affairs

through a pattern of racketeering

activity") (quoting United States v.

App. 24

Ahem

Poe De

So 3

ew rate

eet eee

jeep aes ee pers

ne I i:

“

Pee ee ee — — : =

Watchmaker, 761 F.2d 1459, 1476 (11th Cir.

1985), cert. denied sub nom. Harrell v.

United States, 474 U.S. 1100, 106 S.Ct.

879, 88 L.Ed.2d 917 (1986)). Congress, we

stress, did not proscribe mere

participation in the enterprise's affairs

through a pattern of racketeering activity,

but rather, subjected participation in the

conduct of an enterprise's affairs to RICO

liability. 18 U.S.C. § 1962(c).

[3] "Conduct" is synonymous with

"management" or "direction." Webster's

Third New International Dictionary 473

(1961). The “conduct of [the enterprise's]

affairs" thus connotes more than just some

relationship to the enterprise's activity;

the phase refers to the guidance,

management, direction or other exercise of

control over the course of the enterprise's

activities. In order to participate in the

conduct of an enterprise's affairs, then,

a person must participate, to some extent,

App. 25

Lewes OS

in "running the show."

[4] Because "conducting" connotes

more than merely "participating in"

affairs, we conclude that the Eighth

Circuit hit closest to the mark when it

construed the "participation in the

conduct" requirement in its Bennett v. Berg

decision. 710 F.2d at 1364. Section

1962(c) applies when a defendant, through

a pattern of racketeering activity,

exercises significant control over or

within an enterprise, participating not

merely in the enterprise's affairs, but in

the conduct of the enterprise's affairs.

Most often the participation requirement

will be satisfied when a defendant either

participates in directing the enterprise

toward its preexisting goals or

participates in exercising control over an

enterprise so as to reset its goals. As

the Eighth Circuit observed, most of the

time this requirement will only . be

App. 26

dey

| lg

“

r ?

TT a

bh ALS 6.

eee |

4 :

3 ;

= : |

f ;

: Lm.

oS A A win A

satisfied when the defendant, either

directly or indirectly, exercises control

over the management or operation of the

enterprise. Id. We note that our

construction of the statute does allow for

participation in the conduct of an

enterprise's affairs by "outsiders" as well

as "insiders." Section 1962(c) provides

that participation may be indirect as well

as direct, 18 U.S.C. § 1962(c), and nothing

in our interpretation of the participation

requirement precludes liability on the part

of outsiders. The crucial question is not

whether a person is an insider or an

outsider, but whether and to what extent

that person controls the course of the

enterprise's business.

This construction of the statute is

not only faithful to the language of the

statute; it is the interpretation

consistent with the statute's goals. The

purpose of RICO is to eliminate "the

App. 27

Fr. - eee ee

alata ia a

a 3G aot +

i a a OE hd on SS er

jae Sen

infiltration of organized crime and

racketeering into legitimate organizations

operating in interstate commerce." S.Rep.

No. 617, 91st Cong., lst Sess. 76 (1969)

Sil, tainataas Report"). The Senate Report

discugses at length the threat to the

American economic system posed by the

acquisition of control over legitimate

businesses, entire industries, and unions

by organized crime. The statute was not

designed to reach every act of corruption

or petty crime committed in a business

setting, but was passed in order to attack

"the yse of force, threats of force,

enforcement of illegal debts, and

corruption in the acquisition or operation

of business. " Id. at 81 (emphasis

supplied). Sections 1962(a), (b), and (c)

work Pv oe to proscribe the various

different means by which such illegitimate

acquisitiion or operation of business can

occur. See also H.Rep. No. 1549, 91st

App. 28

Cong., lst Sess. 27 (1970), reprinted in

1970 U.S. Code Cong. & Admin. News 4007,

4033 ("Section 1962 establishes a threefold

prohibition aimed at stopping the

infiltration of racketeers into legitimate

organizations.").

[5] Congress, in enacting the RICO

statute, did not purport to outlaw the

commission of the predicate acts. It

sought rather to outlaw the commission of

the predicate acts only when those acts

were the vehicle through which a defendant

"conduct[{ed] or participat[ed] ... in the

conduct of [the] enterprise's affairs."

Section 1962(c). A simple example

illustrates this important distinction. A

terrorist who hijacked an airliner to

extort acney fron an airline has committed

an act that legally constitutes

"racketeering activity” in terms of the

RICO definitional section--1961(1)

("extortion"). And certainly this act

App. 29

would meet the literal terms of the Second

Circuit's broad "conduct or participation"

test--treating the threatened airline as

the enterprise--since the seizure of its

airplane is related to its activities of

flying, carrying passengers, and engaging

in air commerce. Nonetheless, this hardly

seems to be what Congress had in mind in

enacting RICO. If, on the other hand, a

potential RICO defendant hijacks not the

airliner but the airline, as for example by

either directly or indirectly taking

control of its executive management

positions, this would seem to be what

Congress in fact had in mind in the

enactment of the RICO statute.

A broader reading of section 1962(c)

would not only fly in the face of the

statute's language and purpose, but would

work a major restructuring of our legal

landscape. For instance, as the present

case illustrates, an elaborate web of

App. 30

statutes and regulations governs labor

management relations. If appellant is

correct that by conducting the strike and

organizational effort the Union

participated in the conduct of the affairs

of Yellow Bus, Panel Op. II, 883 F.2d at

144, then, provided the requisite pattern

of racketeering activity could be shown,

RICO might apply in the context of

innumerable labor-management clashes.

Judge Edwards noted in his concurrence to

the panel's opinion, "This result seems

strangely at odds with certain fundamental

precepts of labor law and collective

bargaining.” Id. at 145. We agree.

Federal labor law has been crafted to

strike a delicate balance between labor and

management interests. The Supreme Court

has stated, for instance, "Accommodation

between employees’ § 7 rights and

employers’ property rights ... ‘must be

obtained with as-little destruction of one

App. 31

ENLeVOe . wroltalupas bra

vs Be Lae > EA enodtsies tnuemepenan

: ‘ ee SSIS. vd ged? doerses

| 5 4 . ‘ o.

; .8 -Bcotlesioapre

| 7 it wiz heveci-r LS 36c

“ hehe? Cae le ee

. “oy, gee

vf Se os .

as is consistent with the maintenance of

the other.'" Hudgens v. NLRB, 424 U.S.

507, 521, 96 S.Ct. 1029, 1037, 47 L.Ed.2d

196 (1976) (quoting NLRB v. Babcock &

Wilcox Co., 351 U.S. 105, 112, 76 S.Ct.

679, 684, 100 L.Ed. 975 (1956)). By giving

management a potentially powerful weapon to

wield against striking workers, the result

the bus line urges would reset the labor

management balance. Congress is certainly

free to lay an extensive RICO blanket over

entire areas of federal regulation, making

attorneys fees and treble damages available

in areas such as federal labor law.

However, we are confident that if Congress

had intended to so dramatically alter our

legal terrain, it would have done so

clearly and unequivocally.

The problems arising from the bus

line's proposed interpretation are of

course not limited to labor law. We see no

logical reason why a union attempting to

App. 32

gain recognition from a company is any more

participating in the conduct of the

company's affairs than is any other

external entity attempting to contract with

the putative enterprise. To adopt the

broad interpretation of the participation

requirement urged by Yellow Bus would

federalize broad areas of state common law

of contracts, and "RICOize" broad areas of

labor law and other federal laws governing

relationships not readily identifiable as

being within the enacting intent of

Congress.

[6, 7] While not essential to our

decision, we note that our construction of

the statute is consistent with the general

rule that ambiguous penal statutes ought to

be construed narrowly against the accused.

Busic v. United States, 446 U.S. 398, 406,

100 $s.Ct. 1747, 1752, 64 L.Ed.2da 381

(1980). Although arguably a broad reading

of section 1962(c) would be consistent with

App. 33

Congress's express intention that RICO be

liberally construed in order to effectuate

its remedial purposes, Panel Op. II, 833

F.2d at 143, violations of section 1962(c)

can lead to criminal as well as civil

penalties. See 18 U.S.C. § 1963. In

interpreting section 1962(c) we must bear

in mind that “ambiguity concerning the

ambit of criminal statutes should be

resolved in favor of lenity." Busic, 446

U.S. at 406, 100 S.Ct. at 1752 (internal

citations omitted). If the scope of

section 1962(c) is not clear from its plain

language, this rule of lenity counsels in.

favor of a narrow reading of the statute's

reach. RICO, because it has criminal as

well as civil applications, must "possess

the degree of certainty required for

criminal laws." H.J. Inc. v. Northwestern

Bell Telephone Co., -- U.S. --, 109 S.Ct.

2893, 2909, 106 L.Ed.2d 195 (1989) (Scalia,

J., concurring). For this reason, we

App. 34

| ae eee

oh te ee ee

Ye,

a? fie ial halt

—

ter

ye.

bole

a eng

cannot endor the broad and boundless

reading of section 1962(c) urged by Yellow

Bus.

We senate, then, that the proper

standard for ereiveting the participation

element, required by the language and

purpose of section 1962(c), is one which

distinguishes between participation in the

atfairs of an enterprise and participation

in the conduct of an enterprise's affairs,

which can lead to the hijacking of

legitimate businesses through illegal

activities. When it passed RICO, Congress

targeted only this latter sort of

participation.

Applying this standard to the facts

before us, we conclude that the Union,

through its organizational efforts and the

activities allegedly associated with its

strike for recognition, did not conduct or

participate in the conduct of Yellow Bus'‘s

affairs. Rather, the Union, acting as a

App. 35

party with interests adversw to those of

Yellow Bus, conducted only its own affairs

as an enterprise. The Union's aileged

activities do not constitute the sort of

hijacking of Yellow Bus, in the form of

acquiring and exercising centrol over

Yellow Bus's affairs, that the RICO statute

was designed to combat. The District Court

thus properly declined to permit Yellow Bus

to amend its pleadings to nare itself as

the section 1962(c) enterprise.

We note that our decision does not

preclude the application of RICO in labor

relations contexts. If, for instance,

Yellow Bus could show that some person had,

through a pattern of racketeering

activities, in effect taken control of the

Union and caused it to engage in the

alleged racketeering activities, then

section 1962(c) might reach that person.

The Union, rather than Yellow Bus, would be

the section 1962(c) enterprise in that

App. 36

case. Indeed, as we noted above, the

present action can continue against

Woodward on just such allegations. Our

hoiding thus does not rule out the

possibility of RICO liability in such

situations, but merely requires that the

named enterprise be the enterprise ectually

corrupted by the racketeering acts, not

some other enterprise incidentally affected

by the alleged racketeering activity. The

fact that the surviving claim against

Woodward in his individual capacity, in

which the Union is the named enterprise, is

not precluded by our decision here

underlines the fact that our reading of

RICO does not weed out RICO claims that

Congress intended sec .on 1962({c) to reach.

Because we conclude that the Union

could not be deemed to have conducted or

participated in the conduct of Yellow Bus's

affairs through the alleged pattern of

racketeering activities associated with the

App. 37

Savon eawiet Jbsebarl .#e8e

miszago nosy Heldoa~ taeeesza

J Ts encolisupetiisz ‘case | OS f nh PeasbocH

1 Fi J > Ed ”

| BS C JiLidieasse

4 ~ ace > my ‘ pa)

ri b ‘ 7) é o4

, f > £ ris ie or

a“

14 ’ } ort : rv.

MS) ; m ;

| : .

} 7 F > Py i«

: ‘ o ay :

. *; G 6 F ‘ $ : - ©

a 4

et 3

oe a | ‘

iP . "

pac

Union's organizational activities and

recognitionel strike, we hold that the

District Court properly declined to allow

Yellow Bus to amend its complaint to name

itself as the section 1962(c) enterprise.°®

III. CONCLUSION

For the foregoing reasons, we conclude

that the District Court properly dismissed

Yellow Bus's RICO claims against the Union

and properly declined to permit Yellow Bus

to amend its pleadings to name itself as

the RICO enterprise.

MIKVA, Circuit Judge, concurring in

5. Because we hold that the

District Court properly dismissed Yellow

Bus's complaint on the basis of its

failurs to allege the requisite

participation, we need not address the

constitutional issues raised by the Union

nor the questions raised by both parties

concerning the District Court's and

panel's treatment of the "pattern

element” of section 1962(c). We also

note that those claims were not raised

until the en banc briefs, and were not

invited in our order setting the case for

en banc review.

App. 38

the judgment:

I concur in the judgement of the

court. I am constrained, however, to

express some misgivings about the way we

arrive at what is clearly a rational

result.

The court thoroughly canvasses the

decisions of other circuit courts

interpreting the RICO phrase, "to conduct

or participate, directly or indirectly, in

the conduct of [the] enterprise's affairs.”

18 U.S.C. § 1962(c). It euphemistically

' describes the results of that canvass by

suggesting that the courts “have followed

divergent paths and have reached disparate

conclusions." To put it bluntly, the

appellate courts are all over the lot, as

we have been on many other interpretations

of this nettlesome statute. Today's

opinicn, for example, marks this court's

third effort to review the trial court's

judgment in what could be called a garden-

App. 39

variety labor dispute: the first judgment

was vacated and remanded by the Supreme

Court, and the second judgment is reversed

today by this en banc court.

Since logic was not the coin of the

realm when Congress drafted and debated

RICO, see 116 Cong.Rec. 35196 (1970)

(remarks of Rep. Celler) ("I am free to

confess that emotion and passion inspired

the bill...."), logic has not proven to be

a very useful tool in interpreting the

statute. For example, the opinion cites

the general rule that “ambiguous penal

statutes ought to be construed narrowly

against the accused.” But the court

acknowledges, as it must, Congress'

specific instruction that RICO be liberally

construed in order to effectuate its

remedial purposes. Pub.L No. 91-452, §

904(a), 84 Stat. 947 (1970). It is

particularly discomfiting to downplay the

legislative rule and cite the lenity rule

App. 40

when the case before us is a civil matter,

to which the lenity rule is normally

inapplicable.

The court appropriately recites the

deleterious impact the application of RICO

in the present context could have on "the

delicate balance" that Congress' has

elsewhere struck between labor and

management interests. Yet the legislative

history of RICO is replete with references

to labor union corruption that Congress

intended the statute to reach. See, e.g.,

116 Cong. Rec. 35199 (1970) (remarks of

Rep. Rodino) (noting that organized crime

has the power to "determine whether entire

industries are union or nonunion"); id. at

35201 (remarks of Rep. Poff) (discussing

workers who are "the victims of sweetheart

labor contracts”); and id. at 35216

(remarks of Rep. Donohue) (noting that

organized crime's "money and power are

increasingly used to infiltrate and corrupt

App. 41

SL a an

wes labor unions"). Limiting the

application of RICO to those instances

where the "delicate balance” will not be

disturbed--as the court attempts in this

case--contravenes the very broad words of

the statute and the apparent intent of its

drafters. |

My concern is not only with the text

of RICO and its legislative history. The

Supreme Court has previously cautioned us

against restrictive interpretations of the

statute that might frustrate Congress'

remedial purposes. See, for example, H.J.

Inc. v. Northwestern Bell Telephone Co., --

U.S. --, 109 S.Ct. 2893, 2898, 106 L.Ed.2d

195 (1989), citing Sedima, S.P.R.L. v.

Imrex Co., 473 U.S. 479, 499-500, 105 S.Ct.

3275, 3286-87, 87 L.Ed.2d 346 (1985). It

is true, as the court today notes, that a

broad interpretation of the "participation"

requirement would federalize many areas of

state contract law and "RICOize" many areas

App. 42

of labor law--but no more so than the

Supreme Court's broad interpretation of the

“pattern” requirement in Sedima has already

federalized many aspects of state fraud

law. See Sedima, 473 U.S. at 501, 105

S.Ct. at 3287 (Marshall, J., dissenting).

Hence, my misgivings stem from the vagaries

of the line we draw today. Why is one

element of the statute properly deemed

broad while another read narrowly? Are the

current contours of labor law more to be

respected than those of state fraud law?

And where labor and fraud issues are

implicated in a single question--contract

law, for example--must we apply different

interpretive principles to each?

For all of these misgivings, I

nevertheless concur in the judgment of the

court because it resolves this dispute as

it ought to be resolved. But it is iong

past time for Congress to adcress

ambiguities in the statute that courts have

App. 43

wrestled with over the past twenty years.

We would be comforted to hear that Congress

intended RICO neither to trump the federal

courts’ ordinary restraint in preempting

state fraud law, nor to overwhelm the

traditional federal labor law balance. It

would be good for Congress, now that

passions have cooled and courts have

struggled, to apply logic and order to the

statute called RICO.

App. 44

YELLOW BUS LINES, INC., Appellant

Vv.

DRIVERS, CHAUFFEURS & HELPERS

LOCAL UNION 639, et al.

James F. WOODWARD

Vv.

Michael DiPALMERMO, et al. Maria

Triggs, Secretary/Treasurer,

Yellow Bus Lines, et al., Appellants.

Nos. 86-5135, 86-5136

United States Court of Appeals,

District of Columbia Circuit

Aug. 22, 1989.

On Remand from the United States

Supreme Court.

Before WALD, Chief Judge, MIKVA and

EDWARDS, Circuit Judges.

Opinion for the Court filed by Circuit

Judge MIKVA.

Concurring statement filed by Circuit

Judge HARRY T. EDWARDS.

App. 45

MIKVA, Circuit Judge:

This litigation arises from events

surrounding a four day strike by employees

of Yellow Bus Lines, Inc. for recognition

by the company of a union local, Drivers,

Chauffeurs, and Helpers Local 639 ("Local

639" or "the Local"), as their collective

burgaining representative. Believing that

the union had engaged in a campaign of

violence to sabotage the company and obtain

labor concessions, Yellow Bus and three of

its officers ("Yellow Bus” or "appellants" )

filed claims and counterclaims in these

consolidated cases against the Local and

its business agent and trustee James

Woodward, accusing them of engaging in a

"pattern of racketeering activity" in

violation of section 1962(c) and (d) of the

Racketeer Influenced and Corrupt

Organizations Act (RICO), 18 U.S.C.

sections 1961 et. seq. (1982) and alleging

violations of tort law.

App. 46

After the judge dismissed the RICO

charges, the remaining counts were tried

before a jury. The jury awarded damages

against the Local and Woodward on three

tort claims. Yellow Bus appeals from the

Gistrict court judge's partial grant of

appellees' motion for judgment

notwithstanding the verdict (JNOV) setting

aside each verdict except that against

Woodward for malicious destruction of

property. Appellants also challenge

various pre-trial orders, including denial

of leave to amend the RICO complaint and

dismissal of the RICO counts.

On June 27, 1989, the Supreme Court

vacated an earlier opinion of this court in

this matter and remanded the case for our

consideration in light of the court's

teaching in H.J. Inc. v. Northwestern Bell

Telephone Company, -- U.S. --, 109 S. Ct.

2893, 106 L.Ed.2d 195 (1989). The decision

in Northwestern only impacted this court's

App. 47

opinion on the RICO issues. Having

considered the Court's teaching, we iterate

our finding that the dismissal of the RICO

counts by the district court and the denial

of leave to amend were error. Accordingly,

we reverse and remand on that ground. For

reasons set forth below (and unaffected by

the Court's decision in Northwestern) we

also vacate the judgment notwithstanding

the verdict against the Locai on malicious

destruction of property. In all other

respects, we affirm the judgment of the

district court.

I. BACKGROUND

In 1979, appellants Maria fTriggs,

Paula Westgate, and her brother Peter

McKinnon created Yellow Bus Lines, Inc., a

Virginia corporation located and operated

in the District of Columbia. In October

1981, a number of Yellow Bus employees met

with Local 639 business director Woodward

for the purpose of organizing the company

App. 48

employees. After Yellow Bus refused to

recognize and bargain with the union, a

strike was called on November 9, 1981.

According to Yellow Bus, the strike

was marred by threats and violence against

company property by Woodward and other

strikers. As a result of one incident in

which Woodward allegedly threatened to

"burn the company buses," Ms. Triggs called

the police. Woodward was briefly arrested

and charged in ae three-count' felony

indictment for threatening to damage the

buses.

Proceedings in the court below were

initiated one year after the strike, when

Woodward filed suit on November 4, 1982

against District of Columbia police officer

Michael DiPalermo, the city, and three

officers of Yellow Bus alleging abuse of

process and false arrest. The defendants

in that action, Woodward v. DiPalermo, et.

al., Civ. No. 82-3145, then counterclaimed,

App. 49

berutet ey@. wolleY sef#2A .aseyoigee

stow ed? atiw ategzed (as -exkrposes

? yedmevoK 60 belies eew salee

r “urea wolte7y af valbioocéA

: oe’ *, J2aqoig YReqros

* 1% ~ f ‘i * a Fy C Tr &

< Se ei | ¥v > ’ Ls ci

P G 716 : 4 BO. IOY Offs

, 4 no .4 Cos

e ' ]

4, 6. 5 z Gs ol 5 o

* i

€ oo

. ¢ 5

4 J = «4 “

) wr Fe 7 ecnrr-s

= a

: : : roftiey io e#7ec 376

Pies 6tt4 818) bone #e05Cc7G

ie@20 .% Saayboo’ (noltoe tent. 14

bens sicsetoune nedd: ,th42-S8) 08. wD use

ae saat

alleging malicious destruction of property

and intentional interference with contract

as well as intentional infliction of

emotional distress. They also charged

Woodward and the Local with abuse of

process, claiming that Woodward filed his

false arrest claim to discover information

essential to his criminal defense and to

induce Yellow Bus to agree to the Local's

proposed contract terms. In April 1983,

Yellow Bus filed additional charges against

Woodward and the Local alleging violations

of RICO, 18 U.S.C. sections 1962(c) and

(ad). By October 1984, the district court

hed dismissed all the federal claims, but

elected to retain jurisdiction over the

tort claims. In May 1984, Woodward's false

arrest claim was dismissed after Woodward

reached a settlement with the District of

Columbia. The trial on the remaining

counts began in February 1985, and the jury

returned a verdict in favor of appellants

App. 50

—_— -

‘7

» ae +.

’ ora

‘

. '

P .

‘ ee e om |

‘4 ‘one - Ce

‘

“ m

U , i a

g ha

, . -

‘ .

‘ eo

. r. wt

« ¢ ~ .

a -

‘ ’ t 4

Z = ¢ 4 - * Tt .

on three counts, awarding a total of

$133,200. Yellow Bus was awarded $1,280

against Woodward and $1,920 against Local

639 for malicious destruction of property,

and $40,000 against Woodward and $60,000

against the Local for intentional

interference with contractual relations.

The jury also awarded the company and its

three officers $15,000 against Woodward and

$15,000 against the Local for abuse of

process. In March 1985, the court entered

judgment for these amounts. In January

1986, the court partially granted

appellees’ JNOV motion and set aside all

except the $1,280 judgment against Woodward

for malicious destruction of property. 686

F. Supp. 1

II. JNOV.ON MALICIOUS

DESTRUCTION OF PROPERTY

In support of its claim of malicious

destruction, Yellow Bus introduced

testimony of damage to vehicles observed by

App. 51

eae 7” oe

- ee ’ Ph al . 7“ =

‘ + ’

. ab

| > i : ,s

-_ ~ . 7 at

’

‘

employees at the strike site. Although no

employee saw Woodward participate directly

in vandalism, the court found that

"circumstantial" evidence linking Woodward

to property damage, coupled with threats

made by Woodward and other strikers, was

sufficient to support the jury

determination that Woodward was liable for

the property damage. The court decided,

however, that the evidence against the

Local was insufficient to support liability

under section 6 of the Norris-LaGuardia

Act, which requires clear proof of union

responsibility for the acts of its agents.

{1, 2] Section 6 of the Norris-

LaGuardia Act states that

No officer or members of any

essceietion or organization, and no

association or organization

participating or interested in a.

labor dispute shall be held

responsible or liable in any court of

App. 52

= ~ — s

* &- - 2 et a ™ >

~~ we — :

B —" _,,

— a a +

: = _ om ne 8 se —

the United States for the unlawful

acts of individual officers, members,

or agents, except upon clear proof of

actual participation in, or actual

authorization of, such acts, or of

ratification of such acts after

actual knowledge thereof.

29 U.S.C. section 106 (1982). Section 6

applies in "federal court adjudications of

state tort claims arising out of labor

disputes.” United Mine Workers v. Gibbs,

383 U.S. 715, 737, 86 S. Ct. 1130, 1144, 16

L.Ed.2d 218 (1966); see also Ramsey v.

United Mine Workers, 401 U.S. 302, 310, 91

S. Ct. 658, 663, 28 L.Ed.2d 64 (1970). In

order to support a grant of the motion for

JNOV, the trial judge could not have found

"clear proof” of the union's participation

or authorization. See Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505,

2512-13, 91 L.Ed.2d 202 (1986). After

reviewing the record and taking all

App. 53

justifiable inferences in favor of

appellants, we conclude that 4a reasonable

jury could have found "clear proof” of

union ratification or authorization of

Woodward's actions, and that the damage

award against the Local on this count

should not have been set aside.

In evaluating whether Local 639

"ratified" the destructive acts ascribed to

Woodward "after actual knowledge” of their

perpetration, the district court failed to

take into account a crucial piece of

evidence concerning the Local's awareness

of the events which transpired during the

Yellow Bus strike. At trial, counsel for

Yellow Bus introduced without objection a

letter sent to Yellow Bus and received by

Mr. George, President of Teamster Local

639, om November 10, 1981. This letter

described with particularity “numerous

incidents of threats, violence, property

damage, and verbal abuse” by Woodward and

App. 54

other strike participants. Following this

communication, the record shows that

business continued as usual at the Yellow

Bus strike and Mr. Woodwari remained on-

site as the Local's man in charge. There

is nothing in the record to indicate that

the union took action to investigate the

allegation or to curb any excesses of

Woodward or the strikers.

{[3, 4] In the circumstances of this

case, the combination of the Local's

notification of events early in the strike,

coupled with the complete failure to act on

that knowledge, fulfills the requirement of

"proof, either that the union approved the

violence which occurred, or that it

participated actively or by knowing

tolerance in further acts which were

themselves actionable under state law.”

Gibbs, 383 U.S. at 739, 86 S. Ct. at 1146.

A union may “ratify” or “authorize” without

going so far as to openly encourage or

App. 55

ea — ee a ee

embrace the tactics of its official

representative. Section 6 does not impose

a requirement of such formal authorization

by the union. See James R. Snyder Co. v.

Edward Rose & Sons, Inc., 546 F.2d 206 (6th

Cir. 1976). Rather "proof of authorization

or ratification can be based upon

circumstantial evidence, but that proof,

although circumstantial, must nevertheless

be clear.” Id. at 209. From the Local's

apparent lack of concern with the violence

brought to its attention, the jury

plausibly could conclude that the Local

"knowingly tolerated" this state of

affairs. No more is required to support a

finding of ratification. In short, there

was clear proof that the other officials at

the Local ratified by knowing tolerance

those acts of violence in which Woodward

was shown to have participated.

(5) Moreover, specific proof of

"knowing tolerance” by other union

App. 56

officials was not required in order to hold

the Local directly responsible for

Woodward's actions because Woodward was

clothed with plenary authority to direct

the strike on behalf of the union. Section

6 was meant to "change[] the substantive

law of agency," Brotherhood of Carpenters

v. United States, 330 U.S. 395, 403, 67

S.Ct. 775, 780 91 L.Ed. 973 (1947), by

nullifying the doctrine of respondeat

superior in those cases where a unicn

member or official has not been charged

with directing union activities. That

provision does not serve to absolve a union

of ordinary responsibility for actions

undertaken by officers exercising

authoritative responsibility. For example,

in Charles D. Bonanno Linen Service, Inc.

v. McCarthy, 708 F.2d 1, 11 (lst Cir.),

cert. denied, 464 U.S. 936, 104 S. Ct. 346,

78 L.Ed.2d 312 (1983), evidence that a

union representative "with the power and

App. 57

authority” to orchestrate a strike and

discipline participants took no action to

curb strike violence was held sufficient to

establish liability of a union local. As

the Bonanno court observed, "the Supreme

Court has held that the union need do no

more than authorize an agent's general

activity.” Id. at 12 (citing Brotherhood

of Carpenters v. United States, 330 U.S. at

410, 67 S.Ct. at 783 ("The grant of

authority to an officer of a union to

negotiate agreements with employers * * *

may well be sufficient to make the union

liable.”)).

As to the union's authorized

representative, Woodward was empowered to

conduct the union's business at Yellow Bus.

Since Woodward was the designated union

presence on the site authorized to run the

strike, his acts can be considered the

union's acts for which the union is

responsible. See United Mine Workers of

App. 58

America v. Meadow Creek Coal Co., 263 F.2d

52, 63 (6th Cir.), cert. denied, 359 U.S.

1013, 79 S.Ct, 1149, 3 L.Ed.2d 1038 (1959)

(high union official in charge of a strike

and directly involved in its unlawful

activity "was high enough in the hierarchy

* * * to render [the] organization liable

for the consequences of conduct of its

members under his general leadership”); see

also Kayser~-Roth Corp. v. Textile Workers

Union of America, 479 F.2d 524, 527-28 (6th

Cir.) cert. denied, 414 U.S. 976, 94 S.Ct.

292, 38 L.Ed.2d 219 (1973) (acts of high

officials in violation of state law deemed

"participation" for purposes of union

liability under section 6).

ie 2 In sum, "{i]Jf a _ union

delegates to an agent unrestricted

authority going beyond the norms of union

conduct, section 6 does not immunize it

from liability for his illegal acts.

Similarly, if it continues him in a

App. 59

Bl cE te aa r FeO kee CON Tah

previous position of high responsibility

after knowledge of his illegal activities,

section 6 affcrds no shelter." Harlem

River Consumers Coop, Inc. v. Associated

Grocers of Harlem, Inc. 450 F.2d 271, 273-

74 (2d Cir. 1971) (citing Carpenters, 330

U.S. at 409-10, 67 S.Ct. at 783). The

record supports that Local 639 both

knowingly tolerated Woodward's acts and

fully authorized Woodward to act. In

either case, the jury verdict against the

union comports with statutory requirements

and should be upheld.

Iil. JNOV ON ABUSES OF PROCESS AND

INTENTIONAL INTERFERENCE WITH CONTRACT

[8] The jury awarded a total of

$100,000 against Woodward and the Local for

intentional interference with a contract

between Yellow Bus and the Charles Smith

Jewish Day School ("JDS"). The district

court set aside this verdict, finding that

App. 60

ee ee Oe ie ee a a ee ere. a, . ee te

entsitesinnintien

Yellow Bus had failed to offer proof,

"clear or otherwise," of casual connection

between appellees' alleged conduct and the

decision by JDS to terminate the contract.

See Tuxedo Contractors, inc. v. Swindell-

Dressler Co., 613 F.2d 1159, 1160 (D.C.Cir.

1979) (complainant must prove "contract,

knowledge of contract, intentional

procurement of its breach by defendant, and

damages resulting from breach"). We agree

with the district court and uphold its

judgment notwithstanding the verdict.

‘Pirst, Yellow Bus offered no evidence

whatsoever of the Local's intent to procure

a breach of this particular contract.

Additionally, Yellow Bus completely failed

to establish any link between the damage

suffered during the strike aand_ the

subsequent cancellation of the JDS contract

over one year later. The two factors

precipitating the cancellation by JDS--

Yellow Bus' tax liabilities and inadequate

App. 61

service--had nothing to do with appellees'

activities. Yellow Bus' difficulties with

the IRS predated the Local's involvement

with the company. Abundant testimony

linked the company's poor performance to

lax employee discipline and the rapid

deterioration of the company's stock of

antiquated buses after the departure of its

only skilled mechanic in the fall of 1982.

A number of Yellow Bus" own witnesses

admitted that these difficulties were not

traceable to appellees' efforts or action.

Since appellants failed to offer the most

elementary evidence of any casual

connection between the cancellation and the

appellees’ malefaction, the motion for a

judgment notwithstanding the verdict was

appropriately granted.

[9, 10] Appellants' objection to the

grant of JNOV on abuse of process also has

no merit. To prevail on abuse of process,

a plaintiff must demonstrate that process

App. 62

is being used "to compel the party affected

by it to do some collateral th’ \g which he

could not legally and regularly be

compelled to do." Hall v. Hollywood Credit

Clothing Co., 147 A.2d 866, 868 (D.C.App.

1959); see also Jacobson v. Thrifty Papwr

Boxes, Inc., 230 A.2d 710, 711

(D.C.App.1967) (citing 1 Am.Jur.2d Abuse of

Process § 4 (1962)). Plaintiff must

demonstrate not only ulterior motive, but

success in achieving illegitimate ends with

resulting injury. Morowitz v. Marvel, 423

A.2G 196, 198 (D.C.App.1980) ("[I]n

addition to ulterior motive, one must

allege and prove that there has been a

perversion of the judicial process and

achievement of some end not contemplated in

the regular prosecution of the charge.");

see also Hall v. Hollywood Credit Clothing

Co... 147 A.2d at 868; McCarthy §v.

Kleindienst, 741 F.2d 1406, 1414

(D.C.Cir.1984).

App. 63

i ee ee

ae ne

EG eS et

Appellants’ abuse of process claim

fails because one of the alleged ulterior

aims is implausible, and the other was not

achieved. The appellants claimed that

Woodward sought to discover information

vital to his criminal defense and to coerce

the company to make labor concessions.

However, the fact that Woodward's lawyer

did not commence discovery until after

Woodward's criminal charges were dropped

conclusively discredits discovery as an

"ulterior motive.” As for the coercive

contract claim, Woodward responded to the

company's resistance by abandoning the

"collateral" demand that Yellow Bus agree

to sign a collective bargaining agreement

as a condition of settlement of Woodward's

lawsuit. He eventually agreed to drop the

action in exchange for $3,300. However,

even if Woodward had initially commenced

legal action to induce Yellow Bus to

acquiesce in his labor demands, appellants

App. 64

suffered no actionable injury because

Woodward did not accomplish - this

impermissible purpose. See Morowitz v.

Marvel, 423 A.2d at 198 "{W]jithout more,

[the] proffer that [defendant] filed [a

Claim] with the ulterior motive of coercing

settlement is deficient"). Moreover, the

procurement of an "ordinary" settlement

will not ground abuse of process; the

settlement must accomplish some outrageous

end and represent a "perversion" of the

judicial process. See _ Id. In sum,

plaintiffs have failed to make out

essential elements of their abduse of

process claim. The district court's

Gecision to set aside the jury award for

abuse of process was appropriate.

IV. RICO COMPLAINT

[11] In its original complaint,

Yellow Bus alleged the conduct of Woodward

and the Local violated 18 U.S.C. §§ 1962(c)

App. 65

and (d) of the Racketeer Influenced and

Corrupt Organizations Act and requested

treble damages under 18 y.S.c. § 1964(c).

Section 1962(c) makes it "unlawful for any

person employed by or associated with any

enterprise engaged in * * * interstate

commerce, to conduct or participate,

directly or indirectly, in the conduct of

such enterprise's affairs through a pattern

of racketeering activity." Section 1962(d)

prohibits any conspiracy to violate

subsection (c). Section 1961(1) and (5) of

the statute defines "racketeering activity”

to include acts or threats involving

murder, arson, and extortion punishable

under state law. A “pattern” of such

activity requires at least wo acts

occurring within ten years. 18 U.S.C. §

1961(5). The predicate acts which combine

to produce the pattern of illegal activity

must be marked by the factors of

"continuity plus relationship." S.Rep.No.

App. 66

617, 91st Cong. lst Sess. 158 (1969), U.S.

Code Cong. & Admin.News 1970, p.4007. See

also Sedima, S.P.R.L. v. Imrex Co., 473

U.S. 479, 496 n.14, 105 S.Ct. 3275, 3295 n.

14, 87 L.Ed.2d 346 (1985).

Yellow Bus listed ten predicate acts

allegedly performed by the Local and

Woodward in violation of D.C. and Maryland

laws punishing extortion, including threats

against property and threats of bodily

harm. A careful examination of the

pleadings reveals that five of the counts

involve violence against property or

persons unconnected with Yellow Bus or its

labor organizing effort. These allegations

are not properly part of Yellow Bus’ §

1962(c) RICO claim against appellees. Of

the snsninane counts, four allege direct

threée*<s to Yellow Bus property or employees

which qualify as offenses listed in the §

1961(1) definition of racketeering

activity. Additionally, these predicate

App. 67

acts appear to fulfill the requirement for

a “pattern"--"continuity plus relationship"

--as stated in the Senate Report. The

definition of "pattern" of conduct,

provided by Congress later in the same

bill, indicates that this term embraces

“criminal acts that have the same or

similar purposes, results, participants,

victims, or methods of commission * * * and

are not isolated events.” 18 U.S.C. §

3575(e) (1982); see also Sedima, 473 U.S.

at 496 n. 14, 105 S.Ct. at 3285 n. 14.

Here appellees are accused of engaging in

acts of vandalism and intimidation during

a specific time period in pursuit of a

unitary goal. We believe this scenario

meets the statutory requirements for a

“pattern of racketeering activity."

Nevertheless, the district court, in

two separate orders, dismissed the RICO

complaints against appellees. The count

against the Local was dismissed because it

App. 68

designated the Local as both the RICO

“person” and the RICO "enterprise,"

violating the requirement that these be

separate and distinct entities under §

1962(c). The court refused to allow the

appellants to cure this deficiency by

amending the complaint to name Yellow Bus

as the “enterprise,” reasoning that the

amended complaint would not state a valid

RICO claim because the Local did not

fulfill the statutory requirement of

participetion in the conduct of Yellow Bus'

affairs. The court also indicated that the

motion had "come too late." In a second

order dismissing the RICO complaint against

Woodward, the court relied on the now

repudiated requirement of demonstrating a

distinct "RICO injury"--injury different in

kind from that occurring as a result of the

predicate acts themselves. See Sedima,

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

Cir.1984), rev'd, 473 U.S. 479, 105 S.Ct.

App. 69

3275, 87 L.Ed.2d 346 (1985).

While the trial in this case was

proceeding, the Supreme Court reversed the

Court of Appeals decision in Sedima by

holding that RICO required no allegation of

a separate "racketeering injury." See

Sedima, 473 U.S. at 493-500, 105 S.Ct. at

3284-87. On the basis of this

Clarification, we conclude that the

district court erred in dismissing the RICO

cause of action against Woodward.

Our conclusion that the dismissal of

the RICO count against the Local was error

requires more extensive analysis. At the

outset, we agree with the district court

that the designation of the Local as both

the “enterprise” and the defendant "person"

does not comport with statutory language or

design. In refusing to permit amendment of

the complaint because of the timing of the

request, however, the court abused its

discretion. A complaint amended to name

App. 70

ee ee

LE Wh me MT RR

Yellow Bus as the RICO “enterprise” would

state a cognizable claim under § 1962(c)

and that amendment should be permitted.

A. The "person" and the "enterprise"

under § 1962(c)

Section 1962(c) is directed at "any

person employed by or associated with any

enterprise” who participates in the

enterprise's affairs by racketeering.

(emphasis added). All but one of the

courts of Appeals considering the question

have required that the "person" and

“enterprise” be different entities under

this section. See, @.g., Schofield v.

First Commodity Corp., 793 F.2d 28, 30-31

(lst Cir.1986); Bennett v. U.S. Trust Co.,

770 F.2d 308, 315 (2nd Cir.185), cert

Genied, 474 U.S. 1058, 106 S.Ct. 800, 88

L.Ed.2d 776 (1986); Haroco, Inc. YV.-

American Nat'l Bank & Trust Co., 747 F.2d

384, 399-402 (7th Cir.1984). But see

App. 71

United States v. Hartley, 678 F.2d 961,

989-90 (llth Cir.1982); Bergen iv.

Rothschild, 684 F.Supp. 582, 589

(D.D.C.1986) (allowing identity of person

and enterprise partnership). See

generally Enterprise: Relation of Liable

Person, 5 RICO L.Rep. 364-65 (1987).

In perceiving and justifying this

requirement, the courts rely on both the

language of the provision and the policy

behind the act. Logic alone dictates that

one entity may not serve as the enterprise

and the person associated with it because,

as Judge Posner of the Seventh Circuit has

stated, "you cannot associate with

yourself.” McCullough v. Suter, 757 F.2d

142, 144 (7th Cir.1985). The majority rule

also reflects Congress’ apparent decision

in § 1962(c) to target criminal activity of

a particular kind--the exploitation and

appropriation of legitimate business by

corrupt individuals. Congress was aware

App. 72

that organized crime operates by

infiltration of legitimate enterprises

through a pattern of racketeering activity.

See S.Rep. No. 617, 9lst.Cong., list Sess.

76-78 (1969), U.S.Code Cong. & Admin.News

1970, p.4007. In considering the intention

of the provisions’ drafters, courts have

reasoned that section 1962(c) was intended

to punish the person who conducts the

affairs of the otherwise legitimate

business in an illegal manner. "Such a

distinction focuses the section on the

culpable party and recognizes that the

enterprise itself is often a passive

instrument or victim of the racketeering

activity.” Bennett v. U.S. Trust Co., 770

F.2d at 315. Allowing identity of person

and enterprise would permit punishment of

the exploited “victim” enterprise as well

as the infiltrator person or entity. This

consequence is both unintended and

undesirable.

App. 73

Under the rule requiring district

entities, however, § 1962(c) liability

usually cannot be imposed on those

organizations created solely for illegal

purposes and operated to the detriment of

third parties by corrupt directors or

controlling partners. Consequently, an

exception to the non-identity rule has at

times been made for the institution that

functions as both "perpetrator" and

"victim." See, @.g., United States v.

Hartley, 678 F.2d at 989 (because plaintiff

could have named culpable corporate

directors as defendant "“association-in-

fact" distinct from corporate enterprise,

court "pierced the corporate veil” to allow

corporation to be named as both defendant

and enterprise).

It is important to realize, however,

that corrupt organizations which conduct

their own affairs by illegal means may

often be subject to direct liability under

App. 74

another section of RICO. Section 1962(a)

prohibits the receipt and a subsequent

investment of racketeering proceeds into an

"enterprise." Under this section--which

does not contain the language of subsection

must be distinct--a number of courts have

rejected a non-identity requirement. At

least three Courts of Appeals have

concluded that "a corporation-enterprise

may be held liable under subsection (a)

where the corporation is also a

perpetrator" and not merely a passive

instrument of the racketeering activity.

See Haroco, 747 F.2d at 402 (7th Cir.);

Schofield, 793 F.2d at 31 (list Cir.); see

also Schreiber Distributing Co. v. Serve-

Well Furniture Co., 806 F.2d 1393, 1398

(9th Cir.1986) (allowing corporation that

is the "direct or indirect beneficiary" of

pattern of racketeering activity to be both

"person" and “enterprise” under 1962(a)).

App. 75

When interpreted in this way, section

1962(a) provides one mechanism to punish

such corrupt organizations by depriving

them of their ill-gotten gains.

[12] It is thus apparent that the

language of each section contemplates a

qaifferent role the enterprise may play in

a variety of corrupt schemes. See Haroco,

747 F.2d at 401. (Under the respective

subsections of 1962, "the enterprise may

play the various roles of victim, prize,

instrument or perpetrator. The RICO

liability of the enterprise should depend

on the role played."). Through section

(a), Congress provided for punishment of

organizations which in fact gain from their

wrong-doing by focusing on profits gleaned

from illegal activities, thus "sparing"

organizations that do not so profit.

Section (c) likewise immunizes

organizations which are merely "victims,"

but this result depends on the requirement

App. 76

of non-identity of person and enterprise

which also places some corrupt

organizations beyond reach. The use of (c)

to impose liability on some types of

organizations covered by (a) carries the

danger of exposing innocent organizations

to prosection. Absent the non-identity

requirement, respondeat superior could

operate to impose § 1962(c) liability on a

corporation that is unaware of the

racketeering activities of its agents and

has not been enriched by those activities.

Since we agree with the court in Schofield,

793 F.2d at 32, that “the concept of

vicarious liability is directly at odds"

with the Congressional intent behind §

1962(c), we think it wise not to risk this

consequence by disturbing Congress'

carefully crafted scheme. We therefore

hold with those courts that forbid identity

of person and enterprise under § 1962(c)

and conclude that the original complaint

App. 77

naming the Local as person and enterprise

was properly dismissed.

Yellow Bus attempt to avoid this legal

result by depicting the RICO enterprise as

"association-in-fact" comprised of the

Local and Woodward, an entity distinct from

each of these named defendants. This

attempt is unavailing. It is cone that

under the expansive § 1961 definition of

"enterprise," some courts have permitted

the enterprise to be defined as an

association composed of some number of the

distinct individual defendants or defendant

corporations. See Cullen v. Margiotta, 811

F.2d 698, 729-30 (2d Cir.), cert. denied

sub nom. Nassau County Republican Committee

v. Cullen, 483 U.S. 1021, 107 S.Ct. 3266,

97 L.Ed.2d 764 (1987)("(W]Je see no reason

why a single entity could not be both the

RICO ‘person’ and one of a number of

members of the RICO ‘'enterprise.'"); Fustok

v. Conti-commodity Services, Inc., 618

App. 78

F.Supp. 1074, 1076 (S.D.N.¥.1985) (group of

individual corporate defendants may qualify

as "association-in-fact”" enterprise); see

also United States v. Perholtz, 657 F.Supp.

603, 605 (D.D.C. 1986). But cf. Beck v.

Cantor Fitzgerald & Co., 621 F.Supp. 1547,

1563 (N.D. 111.1985) (association of

defendants may constitute an "enterprise"

only if that enterprise has a "separate and

sufficiently lasting identity apart from

the ‘person’ or ‘'persons' * * * who are

smployed [by] or associated with it.").

Several courts, however, have disallowed a

§ 1962(c) claim where the relationship

among the members of the enterprise

association is the relationship of parts to

awhole. That is, while the corporate or

organizational defendant may itself be a

member of the enterprise association, the

member of the enterprise association may

not simply be subdivisions, agents, or

members of the defendant organization. See

App. 79

Hanline v. Sinclair Global Brokerage Corp.,

652 F.Supp. 1457, 1462 (W.D.Mo. 1987)

(enterprise association of corporation with

its employees not distinct from corporation

defendant); see also Atkinson v. Anadarko

Bank & Trust Co., 808 F.2d 438, 441 (5th

Cir.), cert. denied, 483 U.S. 1032, 107

S.Ct. 3276, 97 L.Ed.2d 780 (1987) (bank,

holding company, and three employees have

no distinct existence apart from defendant

bank); Tarasi v. Dravo Corp., 613 F.Supp.

1235, 1236-37 (W.D.Pa.1985) (corporate

defendant may not be associated with its

agent to form 1962(c) enterprise).

[13] In short, an organization cannot

join with its own members to do that which

it normally does and thereby form an

enterprise separate and apart from itself.

Where, as here, the organization is named

as defendant, and the organization

associates with its member to form the

enterprise "associzetcion-in-fact, " the

App. 80

PY ee ae ee | eee

requisite distinctness does not obtain. As

the district court pointed out, there is no

difference between the union as an entity

including Woodward as officer, and the

union plus Woodward, since “the whole is no

different than the sum of its parts in this

context.” Furthermore, allowing plaintiffs

to generate such "contrived partnerships"

consisting of an umbrella organization and

its subsidiary parts, would render the non-

identity requirement of section 1962(c)

meaningless. We decline to permit such an

"end run” around the statutory

requirements.

B. "Participate in the Conduct of the

Affairs”

The district court rejected Yellow

Bus’ attempt to charge the Local as a RICO

defendant under § 1962(c) by amending the

complaint to name itself as the

“enterprise.” In addition to objecting to

the timing of the request, the court

App. 61

‘

. ‘

: '

7 ’

‘

“-o

2 Demag ont -

Oe > shox sik een Cente —_ z ai e '

ar ; : Sse - ¥ =

a ee eee in ee le pe re > - = a ne ., n ed * a! ‘ “=

: : one WE oag ee oie : ~

ee oe. ~ EEO aor

concluded that the amended complaint would

fail to state a proper RICO claim because

the union's acts were not committed in the

conduct of Yellow Bus' affairs; rather,

Yellow Bus was merely the "setting" for the

union's activities. We disagree with the

district court's assessment of the

relationship between the bus company and

the Local's alleged conduct, and reject as

overly restrictive any interpretation of

the languages of § 1962{c) which would

necessitate a dismissal of the RICO claim

against the Local in this case.

Unlike "enterprise” and "pattern," the

terms "conduct, " "participate" and

"through” do not have statutory

definitions. The Act has been challenged

as unconstitutionally vague for this

reason. See United States v. Stofsky, 409

F.Supp. 609 (S.D.N.Y¥.1973). In rejecting

the vagueness argument the court in Stofsky

explained:

App. 82

es Pa le wr —— ss pes ett ee 6s dhe te bl san os 0 hit 4 3 ctert bees be TS Awe, Le 6 cb, et ae | tein | Mle P As ah FF | rw. i. 7” -_—_— ae A a a

[T]he statute does not define [the]

connection by distinguishing between

predicate acts which play a major

role or a minor role, or any role at

all in what might be seen as the

usual operation of the enterprise;

nor does it require tnat such acts be

in furtherance of the enterprise, as

defendants suggest it must.

In this Court's view, the statute

fails to state these requirements

because Congress did not intend to

require them in these terms. The

perversion of legitimate business may

take many forms. The goals of the

enterprise may themselves be

perverted. Or the legitimate goals

may be continued as a front for

unrelated criminal activity. Or the

criminal activity may be pursued by

some persons in direct conflict with

the legitimate goals, pursued by

App. 83

others. Or the criminal activity

may, indeed, be utilized to further

otherwise legitimate goals. No good

reason suggests itself as to why

Congress should want to cover some,

but not all of these forms; nor is

there any good reason why this court

should construe the statute to do so.

It plainly says that it places

criminal responsibility on both those

who conduct and those who

participate, directly or indirectly,

in the conduct of the affairs of the

enterprise, without regard to what

the enterprise was or was not about

at the time in question. This may be

broad, but it is not vague.

Id. at 613. Thus in Stofsky's view, the

"requisite nexus" between unlawful acts and.

enterprise activities was left undefined

"for the simple reason that no particular

degree of interrelationship is required."

App. 84

United States v. Field, 432 F. Supp. 55, 58

(S.D.N.¥.1977) (citing Stofsky).

Notwithstanding Stofsky's refusal to

Clarify the reach of § 1962(c), courts have

struggled to define the scope of behavior

chargeable under that section. Attempts

have been made to formalize the intuition

that § 1962(c) was not meant to punish

predicate activity which forms no part of

the ordinary affairs of the enterprise, and

is only incidentally related to its day-to-

day business. See, e.g., United States v.

Yonan, 623 F.Supp. 881, 883 (N.D.III.1985),

aff'd in part and rev'd in part, 800 F.2d

164 (7th Cir.1986) (seeking a test for

"association" and “participation” to

Gisqualify, for example, "robbing a bank

twice”). Some federal courts have required

that the defendant participate in the

"direction" or "management" of the

organization, or have fashioned other rules

to restrict the universe of relationships

App. 85

subject to 1962(c) liability. See, e.g.

Bennett v. Berg, 710 F.2d 1361, 1364 (8th

Cir.), cert. denied sub nom. Prudential

Ins. Co. v. Bennett, 464 U.S. 1008, 104

S.Ct. 527, 78 L.Ed.2d 710 (1983) ("[{SJome

participation in the operation or

management of the enterprise itself” is

ordinarily required); Bank of America v.

Touche Ross & Co., 782 F.2d 966, 970 (llth

Cir. 1986) (chargeable predicate acts must

be "helpful or necessary” to the operation

of the enterprise); United States v.

Ladmer, 429 F.Supp. 1231, 1244 (E.D.N.Y.

1977) (dismissing a RICO charge based on

unauthorized expenditure of union funds for

personal travel expenses because unrelated

to the enterprise's "“essent al” or “core”

function).

Other federal courts, however, merely

impose an open-ended requirement that the

predicate acts relate to, or have some

effect upon, the affairs of the enterprise.

App. 86

See, @.g., United States v. Welch, 656 F.2d

1039, 1060-62 (5th Cir. 1981, cert. denied

sub nom. Cashell v. United States, 456

U.S. 915, 102 S.Ct. 1767, 72 L.Ed.2d 173

(1982) .(holding that 1962(c} requires a

"sufficient nexus between the racketeering

activities and the affairs of the

enterprise” and rejecting the requirement

of “benefit” to the enterprise); United

States v. Carter, 721 F.2d 1514, 1525-27

(llth Cir.) cert. denied sub nom. Morris

v. United States, 469 U.S. 819, 105 S.Ct.

89, 83 L.Ed.2d 36 (1984) (allowing "proof

of effect on the common everyday affairs of

the enterprise”). In United States v.

Scotto, 641 F.2d 47, 54-55 (2d Cir.1980),

cert. denied, 452 U.S.961, 101 S.Ct. 3109,

69 L.Ed.2d 971 (1981), union officials were

accused of forgiving contract requirements

and steering business in exchange for

illegal payoffs. The court refused to

embrace the "core functions” formula of

App. 87

Ladmer, or the Berg requirement that the

conduct relate to the operation or

management of the enterprise. Citing with

approval to the district court decision in

United States v. Stofsky, the Scotto court

fashioned a two part test for “conducting

the activities of an enterprise,” holding

that the proper connection is established

when "l)one is enabled to commit the

predicate offenses solely by virtue of

[one's] position in the enterprise or

involvement in or control over the affairs

of the enterprise, or 2) the predicate

offenses are related to the activities of

that enterprise.” Id. at 54. The court

went on to note that "[sjimply committing

predicate acts which are unrelated to the

enterprise or one's position within it

would be insufficient.” Id. Another Court

of Appeals restated the Scotto test in

United States v. Cauble, 706 F.2d 1322 (5th

Cir. 1983), cert. denied, 465 U.S. 1005,

App. 88

104 S.Ct. 996, 79 L.Ed.2d 229 (1984),

finding the demands of § 1962(c) satisfied

when “the defendant's position in the

enterprise facilitated his commission of

the racketeering acts” and "the predicate

acts had some effect on the lawful

enterprise.” Id. at 1333; see also United

States v. Provenzano, 688 F.2d 194, 200 (3d

Cir.), cert. denied, 459 U.S. 1071, 103

S.Ct 492, 74 L.Ed.2d 634 (1982) (following

Scotto).

We decline to adopt a more restrictive

standard than that enunciated in Cauble and

Scotto. Section 1962(c) of RICO refers to

@irect as well as indirect participation in

the enterprise's affairs, and imposes no

requirement that participation be at the

management level oor relate to "core

functions." Moreover, Congress has

expressed its intention that RICO be

"liberally construed to effectuate its

remedial purposes.” Pub.L. No. 91-452 §

App. 89

904(a), 84 Stat. 947 (1969). The

inappropriateness of artificially

restricting the types of relationships

satisfying § 1962(c) is especially apparent

in cases of predicate acts committed by

enterprise "outsiders" rather than

"insiders". In such instance, a stringent

test threatens to frustrate RICO's broad

remedial purpose. See United States v.

Elliott, 571 F.2d 880, 903 (5th Cir.),

cert. denied sub nom. Delph v. United

States, 439 U.S. 953, 99 S.Ct. 349, 58

L.Ed.2d 344 (1978) ("The substantive

proscriptions of the RICO statute apply to

insiders and outsiders--those merely

‘associated with' an enterprise--who

participate directly and indirectly in the

enterprise's affairs. [Citations omitted. ]

Thus the RICO net is woven tightly to catch

even the smallest fish, those peripherally

involved with the enterprise.”).

Mindful of these flexible terms, a

App. 90

number of courts have permitted RICO

actions in bribery cases against those

seeking to influence organizations in which

they hold no official position of

authority. See, e.g. United States v.

Forsythe, 560 F.2d 1127, 1136 (3d Cir.1977)

(reversing a lower court holding that a

magistrate who accepts bribes from a

bonding company is not’ sufficiently

"associated with" the bonding company

enterprise's affairs); see also United

States v. Bright, 630 F.2d 804, 830 (5th

Cir. 1980) (holding that bribing and

influencing a sheriff qualified as

participation in the affairs of the

sheriff's office); United States v. Lee

Stoller Enterprises, 652 F.2d 1313, 1320-21

(7th Cir.), cert. denied, 454 U.S. 1082,

102 $.Ct. 6%, 70 L.Ed.2a@ 615 (1981)

(businessman paying kickbacks to sheriff in

exchange for lucrative contracts held to

participate in sheriff's office affairs);

App. 91

United States v. Blackwood, 768 F.2d 131,

137-38 (7th Cir.), cert. denied 474 U.S.

1020, 106 S.Ct. 569, 88 L.Ed.2d 554 (1985)

(applying Cauble to allow § 1962(c) RICO

charge against a police officer charged

with soliciting bribes to influence county

court case disposition); United States v.

Yonan, 800 F.2d 164, 167 (7th Cir. 1986)

cert. denied, 479 U.S. 1055, 107 S.Ct. 930,

93 L.Ed.2d 981 (1987) (reversing the

dismissal of a RICO count against a

criminal defense attorney charged with

bribing a state district attorney).

The Yonan court stressed that

Gefendant need not have a stake or ongoing

interest in the enterprise, nor any direct

contact with managers of the enterprise, as

long as predicate acts formed part of a

"business relationship.” Id. at 168. In

a context not involving official

corruption, the court in State of New York

v. O'Hara, 652 F.Supp. 1049, 1053-54

App. 92

(W.D.N.Y¥.1987), applied the analysis in

Yonan to uphold a RICO claim against a

private contractor who allegedly submitted

fraudulent bids on a municipal waste clean-

up contract. The court held that this

activity fulfilled the statutory

requirement of association with the city of

Niagara Falls through indirect

participation in its affairs. See also

United States v. Starnes, 644 F.2d 673, 679

(7th Cir.), cert. denied, 454 U.S. 826, 102

S.Ct. 116, 70 L.Ed.2d 101 (1981) (arsonist

hired by company official to “torch” its

headquarters "associates with" and

"participates" in the company's affairs

under § 1962(c)).

[14] The alleged relationship between

the Local and Yellow Bus falls well within

the scope of activity contemplated by the

words of the statute, and meets’ the

appropriately minimal requirements set out

in Scotto, Cauble, and Yonan and their

App. 93

progeny. As in Yonan, Yellow Bus and the

union had a full-fledged "business

relationship"--Yellow Bus was not merely a

“setting” for crimes otherwise unrelated to

the company's affairs. As we have shown,

it matters not that Woodward and the Local

did not direct or manage the "core" day-to-

day transportation activities of Yellow

Bus, or that the union initially exerted

its influence over the conduct of

employees, rather than management. A

strike for recognition of the union as a

collective bargaining representative is an

activity sufficiently related to the

company's ongoing role as a business

enterprise and employer to establish the

requisite nexus. Although the Local and

the bus company were associated for a

limited period, their relationship had

vital significance for the economic destiny

of Yellow Bus. The elaborate iegal

structure which governs all aspects of

App. 94

management-labor interaction only serves to

emphasize that a strike by a union seeking

to bargain with an employer is an important

"affair" of the employer company. More

often than not, it is a momentous event in

the life of that enterprise.

Having established that the strike and

organizational effort were "affairs" of

Yellow Bus, we must decide whether

appellees’ actions, if proved, would amount

to participation in the conduct of those

affairs “through a pattern of racketeering

activity.” Yellow Bus alleges that the

violence was committed with the intent to

influence the company's conduct.

Allegations of a requisite number of

intentional destructive acts or threats

Guring the strike would alone satisfy the

participation requirement for the purpose

of stating a RICO claim. Any further

showing of success in influencing concrete

company choices through violent extortion

App. 95

is unnecessary. In contending that

appellees chose to avail themselves of

violent tactics as one way of conducting

the strike, Yellow Bus charges that

appellees participated in the conduct of

the company's affairs for the duration of

the strike by means of these activities,

among others. This clearly serves to

fulfill the requirement of participation in

the affairs of the company.

In Northwestern, the Court reaffirmed

its postulate that RICO could not be given

@ narrow construction in light of the

language and legislative history of the

Act, Sedima, S.P.R.L. v. Imrex Co., 473

U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346

(1985), and then addressed the nettlesome

problems of "developing a meaningful

concept of ‘pattern’ within the existing

statutory framework...." -- U.S. at --, 109

S.Ct. at 2899. the Court emphasized that

RICO does not require separate illegal

App. 96

==: -. ="

’ Ive oe eee

schemes to constitute a "pattern"; nor is

the statutory requirement established

"merely by providing two predicate

acts...." Id. Instead, the Court recalled

the legislative history that it had noted

in Sedima, and concluded that "'[i]t is

this pattern of continuity plus

relationship which combines to produce a

pattern.'" Id. -- U.S. at --, 109 S.Ct. at

2900 (quoting S.Rep. No. 617, 91st Cong.,

lst Sess. 158 (1969), U.S. Code Cong. &

Admin. News 1970, p.4007 (emphasis added).

The Court determined that, in summary,

"RICO's legislative history reveals

Congress' intent that to prove a pattern of

racketeering activity a plaintiff ... must

show that the racketeering predicates are

related, and that they amount to or pose a

threat of continued criminal activity."

Northwestern, -- U.S. at --, 109 S.Ct. at

2899.

As previously stated, there is little

App. 97

te be urged against the “relatedness” of

the predicate acts alleged by appellant.

While the “continuity” of the alleged

predicate acts is a closer question because

of the relatively short duration of the

strike, these acts could, if proved,

establish “a distinct threat of long term

racketeering activity, either explicit or

implicit. od Id. --U.S. at--, 109 S.Ct. at

2902. In any event, the cause cannot be

pretermitted at the stage that the District

Court determined. At least until

appellants have an opportunity to amend and

are put to proof, the RICO count cannot be

terminated.

V. RULE 15(A) LEAVE TO AMEND

[15] ‘Finally, we hold that the

district court abused its discretion to the

extent that it relied on lack of timeliness

to justify its refusal to grant leave to

amend. Fed.R. Civ.P. 15(a) declares that

leave to amend "shall be freely given when

App. 98

justice so requires.” As the Supreme Court

forcefully states in Foman v. Davis, 371

U.S. 178, 182, 83 S.ct. 227, 230, 9 L.Ed.2d

222 (1962), “this mandate is to be heeded.”

These pleading rules were designed to

facilitate a proper decision on the merits,

and the opportunity to test the merits

should ordinarily be accommodated if

injustice will not otherwise result. See

generally 6 C. Wright & A. Miller, Federal

Practice and Procedure § 1484 (1971).

The reason recognized as justifying

Genial of motion to amend--"undue delay,

bad faith or dilatory motive * * *,

repeated failure to cure deficiencies * *

*, undue prejudice to the opposing party *

* *, futility of the amendment,” 371 U.S.

at 182, 83, S.Ct. at 230--are not

applicable here. Only two months elapsed

between the March 31, 1984 hearing at which

the court first expressed doubts about the

deficiencies of the original pleading and

App. 99

elena

Lal

es pet,

que edi? aA * eerivper oe eoltert

emot nt entesé yiluseonro?

; Pe 'y a ae , F

»*) : TAs z 3 3, : . ¢ * J

4 al ~~? % 4

c s 22 ~( +O% SN

- ‘ Z - ‘ ¥ Ge #| 952 ¢ id

: 7+ ) ¢ yt Ty et

— i.

_ * ¢ ats q ¢ +

a : - £

‘ “4 7

oe ‘ -

id -

2. > -

= .

° r

« o

z “ye Bs sk

f | 1 4 “a

r > * '7 —s *

@ 4

t ~ ; e@géi tee ole ui

’

Yellow Bus’ request to amend those

Pleadings. When the court ruled in late

June on the Local's April 13 motion to

Gismiss the original RICO claim against the

union, commencement of trial was still over

eight months away. Consideration of this

timetable indicates that Yellow Bus moved

with more than reasonable alacrity to

correct its pleadings, and that ample time

was available to defendants for trial

preparation. Amendment of the complaint,

in any event, would not have imposed any

additional burdens on the Local because the

restated RICO claim required consideration

of no new facts and arguments. Since there

was no evidence of prejudice to appellees

or of deliberate delay or bad faith, leave

to amend was appropriate and should have

been granted.

CONCLUSION

We remand to the district court for a

trial on the RICO charges after Yellow Bus

App. 100

Se tlt ll Mi cl dle le ai i ea eee a ke. se hae » 4 ee ee hs ee * “- OE 20 OO ea ee sae ee

has had the opportunity to lodge revised

pleadings. We also reinstate the judgment

against the Local for malicious destruction

of property. After considering the

remaining contentions on appeal, we find

them to be without merit. Accordingly, the

judgment of the district court is affirmed

in part and reversed in part, and the case

is remanded to the district court for

further proceedings.

HARRY T. EDWARDS, Circuit Judge,

concurring:

I have nagging doubts about our

holding that "the strike and organizational

effort were ‘affairs' of Yellow bus,” maj.

op. at 144, and that, consequently,

plaintiff might be able to state a cause of

action under section 1962(c) of RICO. This

result seems strangely at odds with certain

fundamental precepts of labor law and

collective bargaining. However, I

recognize that this holding finds support

App. 101

in the case law, and that it is not

inconsistent with RICO's broad remedial

purpose. I therefore concur, albeit with

pause.

App. 102

Ss et a!

Veit fk

7 —oe es ee ne ve

eS fe ne ens Tee? ~v"

James F. WOODWARD, Plaintiff,

Michael DIPALERMO, et al.,

Defendants.

YELLOW BUS LINES, INC., et

al., Plaintiffs,

DRIVERS, CHAUFFEURS &

HELPERS, LOCAL UNION

639, ET AL., Defendants.

Civ. A. Nos. 82-3154, 83-1232.

United States District Court

District of Columbia

Jan. 16, 1986.

Thomas G. Corcoran, Jr., Washington,

D.C., for Plaintiff.

Hugh J. Beins, John R. Mooney, Beins,

Axelrod and Osborne, Washington, D.C., for

defendants.

MEMORANDUM

FLANNERY, District Judge.

In this case, a jury returned a

App. 103

’

| =

“S as

: : |

. « ,

P .

4 R

;

. ’

\aa

‘s

ieee

‘ ate ; sala She S = aes

' >. a Pet Pie eee, So ‘Sie : r =

o * een Eth. dw 4 sf es oe. —_—- et = a eee te 5 .

= ——— = Rear se -—— eae mn Sm ae ome :

verdict in favor of plaintiffs on three

counts: malicious destruction of property,

intentional interference with contractual

relations, and abuse of process. In

response to a special verdict form, the

jury awarded damages of approximately

$56,000 against defendant James Woodward

and approximately $77,000 against defendant

union. This matter now comes before the

court on defendants’ motion for judgment

notwithstanding the verdict, or

alternatively, for modification of the

judgment or a new trial. Because the

verdicts are obviously against the clear

weight of the evidence on the counts

alleging irtentional interference with

contractual relations and abuse of process,

the court will set aside the jury verdicts

in favor of plaintiffs on those counts, and

enter judgments notwithstanding the

verdicts in favor of the defendants. On

the count alleging malicious destruction of

App. 104

property, the court will modify the

verdict.

I. Background

Plaintiff Yellow Bus Lines Inc.

("Yellow Bus") was a Virginia corporation

located in the District of Columbia and

engaged in providing bus service for

schools. In November of 1981, some eight

employees of Yellow Bus’ struck for

recognition of defendant Drivers,

Chauffeurs & Helpers Local Union 639

("Local 639"). Defendant Woodward was the

Local 639 representative who sought to

organize the employees and to establish

Local 639 as their collective bargaining

representative.

Though the company continued to

operate throughout a four-day strike in

' November of 1981, plaintiffs contended that

Local 639 and Woodward engaged in a

systematic campaign to undermine’ the

company. This was allegedly done dur’ng

App. 105

the strike by encouraging employees to

commit various acts of vandalism and after

the strike by instructing the employees to

damage property and be late or absent.

Plaintiffs alleged that Woodward threatened

Yellow Bus managers that if Yellow Bus

resisted unionization, then litigation and

other tactics would be used to hurt Yellow

Bus. The labor dispute continued after the

strike, and in the summer of 1983, Yellow

Bus discontinued most of its operations,

alleging that defendants’ activities caused

its demise.

Proceedings in this court’ were

initiated on November 4, 1982, when

Woodward filed a suit alleging false arrest

against D.C. police officer Michael

Dipalermo, the District of Columbia, and

Yellow Bus. Plaintiffs counterclaimed with

federal and state claims in April of 1983

against Woodward and Local 639. By October

1984, this court had dismissed all of the

App. 106

ee ee se ee es oe eT eee eS

federal claims, but elected to retain

jurisdiction over the state claims. In May

of 1984, Woodward's claim for false arrest

was settled with the District of Columbia

and was dismissed against Yellow Bus on

Woodward's motion to dismiss.

On February 18, 1985, trial commenced

on the remaining claims. On March 8, 1985,

a verdict was returned in favor of

plaintiffs on three counts. Defendants now

contend that notwithstanding the jury's

verdict, judgment should be _ granted

defendants because there was insufficient

proof on each count.

Judgment notwithstanding the verdict

should be entered when "the evidence,

together with all inferences that can

reasonably be drawn therefrom, is so one-

sided that reasonable men could not

Gisagree on the verdict.” Coburn v. Pan

American World Airways, Inc., 711 F.2d 339,

342 (D.C.Cir.1983). Of course, only when

App. 107

the probative facts are undisputed and

reasonable minds can draw but one inference

does the question become one of law for the

court. Aylor v. Intercounty Constr. Corp.,

381 F.2d 930, 934 (U.S.App.D.C. 1967). An

additional element in the standard of

review exists in this case: by federal

law, no union, agent or member of a union

shall be heid liable in any court for the

unlawful acts of individual officers or

members except upon “clear proof of actuai

participation in, or actual authorization

of, such acts...." 29 U.S.C. § 106 (1982).

The counts and the evidence supporting

them are each discussed separately.

II. Interference with Business Contract

{1} The largest portion of the jury's

award (cumulatively $100,000) was based on

a finding that defendants intentionally

interfered with the 1982-83 contract

between Yellow Bus and the Charies Smith

Jewish Day School ("JDS"). In order to

App. 108

prevail on this claim, there must be clear

proof of a specific intent to procure the

breach of a specific contract thereby

causing a specific and ascertainable

injury. Tuxedo Contractors, Inc. v.

Swindell-Dressler Co., 613 F.2d 1159

(D.C.Cir.1979).

[2] The only specific contract

mentioned at trial was between Yellow Bus

and JDS, which was entered into in October

of 1982. The Chairman of the JDS

Transportation Committee, Howard Wilchins,

testified without impeachment that JDS'‘s

difficulties with Yellow Bus occurred

almost one year after the strike, after the

contract was negotiated in October of 1982.

Transcript, at 1507, 1508. It was in

January of 1983 that JDS took action to

curtail the contract because of Yellow Bus'

poor service. Transcript, at 1509. But

even then the contract continued. It was

only when the president and route manager

App. 109

of Yellow Bus, Paula Westgate, informed JDS

of Yellow Bus' financial problems with the

IRS that Wilchins terminated the contract.

Transcript, at 1511; Defendants’ Exhibit

22.

This court finds that there is no

proof, clear or otherwise, of a causal

connection between defendants alleged

conduct and the termination of the

contract. The two reasons for termination

of the contract were Yellow Bus' poor

performance and its difficulty with the

IRS. Transcript, at 921, 1513. Neither cf

these arose from defendants' activities.

The plaintiffs also had to prove that

defendants intentionally produced a breach

of the contract, yet there was no evidence

supporting this element.

While driver attendance may have been

a problem, Paula Westgate admitted at trial

that defendants were not responsible for

the problems of an overwhelming majority of

App. 110

drivers. In fact, all of plaintiffs'

witnesses admitted that they had no proof

of defendants' responsibility for any of

the drivers' absenteeism, tardiness, or

maintenance problems. Rather, the evidence

showed that the company had significant

drug and alcohol problems, and had internal

problems among the three owners: Paula

Westgate, Maria Triggs (secretary-treasurer

and office manager), and Peter McKinnon

(vice president and company mechanic). In

fact, McKinnon at one point attempted to

Gestroy the company, declared he was

Christ, and threatened to murder Westgate,

his sister. Moreover, no evidence was

introduced at trial that any of the

vandalism occurred after the allegedly

affected contract was executed.

There was also no evidence that

defendants were responsible for the

company's tax liabilities. Maria Triggs

testified that the company had difficulty

App. 111

paying its taxes from its inceptior.. The

obligations stemmed from the company's

withholding FICA and social security

deductions from employees, but then not

remitting the deducted amounts to the

federal government. This practice began

June of 1981, before the union ever started

negotiating with Yellow Bus.

The evidence pointed to a different

cause for Yellow Bus' poor performance

after the execution of the 1982-83 contract

with JDS: the deterioration of the buses.

Transcript, at 1110-1111, 1°99. That

deterioration came about from the age of

the buses: Yellow Bus never bought a new

bus and every model was a 1971 or earlier

model. Transcript at 578-579, 586-587. By

January 1983, half of the buses owned by

Yellow Bus were inoperable. Transcript, at

361. After McKinnon departed in the fall

of 1982 there was no one skilled ehough to

keep the buses running. Transcript, at

App. 112

1111. This was when JDS sent several

complaints to Yellow Bus. Transcript, at

234. In January of 1983, the school

reduced the number of Yellow Bus routes,

Transcript, at 1508-09, but the school

intended to continue its contractual

relationship with Yellow Bus. Transcript,

at 1510. Only when JDS learned of Yellow

Bus' tax liability to the IRS did JDS

terminate the Yellow Bus’ contract.

Transcript, at 1511-13, 1137, and 938.

Finally, there was no clear proof of

the damages suffered as a consequence of

the alleged interference. The award of

$100,000 is not supported by any specific

evidence in the record; this’ single

contract could not have generated such

profits. First, it only generated

approximately $2,232 of gross income per

day for a term of 183 school days per year.

Second, the contract was totally performed

for the first five months and there was 80%

App. 113

3 ts be

ee ea ee ee! Vee ee eA ee ee. a

performance for the next two months.

Defendants’ Exhibit 21. This only leaves

lost profits from two routes for two months

(grossing approximately $10,400) and all

routes for two months (grossing

approximately $49,250). After subtracting

cost of performance, this leaves a figure

nowhere near $100,000.

Plaintiffs respond that Triggs and

Westgate's testimony, supported by the

company's tax returns, showed that the

company's profits went from approximately

$3,000 the first year to approximately

$20,000 the second year. Though the buses

were old, the company almost tripled its

business from 1979 to 1981. After the

strike, absenteeism increased due to the

union activity. Plaintiffs' Exhibit 19(a).

That increase led to losses of $128,517.

Plaintiffs' Exhibits 17 and 19(d). Even if

this were so, such damages are not tied to

the contract in issue for 1982-83, and

App. 114

therefore cannot be used to determine

compensation on that count.

Thus, plaintiffs have failed to show

intentional procurement of a breach since

they failed to demonstrate that defendants'

actions contributed in any way to JDS's

decision to terminate the contract.

Further, plaintiff's evidence provided an

inadequate showing of damages from the

breach. Therefore, this court must set

aside the verdict on this count and grant

judgment to defendants.

III. Abuse of Process

[3] To prove abuse of process,

plaintiffs had to show: (1) the issuance

of legal process; (2) an ulterior purpose;

(3) an improper act in the use of process;

and (4) actual injury. Jacobson v. Thrifty

Paper Boxes, Inc., 230 A.2d 710, 711

(D.C.App.1967).

[4] Element (1) was not in dispute.

With regard to elements (2) and (3),

App. 115

plaintiffs alleged that Woodward filed his

lawsuit to gain information pertaining to

his impending criminal trial and that

Woodward offered to withdraw the suit if

the company would pay its drivers five

dollars per hour. In this’ action,

plaintiffs' burden was to show by clear

proof that Woodward's suit against

plaintiffs resulted in a perversion of the

judicial process and achieved some end not

regularly contemplated by the law.

Morowitz v. Marvel, 423 A.2d 196, 198

(D.C.1980). Such perversion requires a

gross deviation from what is considered

acceptable by the community. Epps v.

Vogel, 454 A.2d 320, 324 (D.C.App. 1982).

[5] This court finds that no

reasonavlle trier could find on this

evidence that an abuse of process occurred.

Woodward testified without contradiction

that his attorney alone made the decisions

as to when and how to pursue discovery in

App. 116

Woodward's case. The discovery never

actually occurred, at plaintiffs' request,

until after the criminal case was

dismissed. Sufficient evidence came out at

trial regarding the peculiarities of

Woodward's arrest which refute any finding

of “perversion” in the filing of his suit.

In Woodward's civil suit for false arrest,

co-defendants with Yellow Bus settled the

case for more than three thousand dollars

($3,000). This is further proof that there

was no basis for a jury finding that

Woodward's filing of his civil suit

resulted in a perversion of the judicial

process.

IV. Malicious Destruction of Property

{6] To find malicious destruction of

property, the jury had to find clear proof

-that: (1) it was defendants that destroyed

the property; (2) it was not the property

of the defendants; (3) defendants destroyed

the property maiiciously; and (4) the

App. 117

property destroyed had some value. Nichols

v. United States, 343 A.2d 336, 341

(D.C.App. 1975).

{[7, 8] The jury found that these

elements had been met and so awarded to

Yellow Bus $1,280 against Woodward and

$1,920 against Local 639. During the four-

day strike in November of 1981, there was

sufficient evidence to find defendant

Woodward liable for damages sustained

during that four-day period. There was

circumstantial evidence linking Woodward to

the various items introduced into evidence,

such as rocks, strips of wood and a curtain

rod both with nails protruding, and a beer

can with nails in it. These items of

physical evidence coupled with the threats

by Woodward and other strikers made in

Woodward's presence provide a sufficient

evidentiary basis for the jury to hold

Woodward responsible for the damages

sustained during the period of the four-day

App. 118

strike. The plaintiffs failed, however to

provide clear proof that Local 639 was

implicated in any way in the destruction of

the property or that it ratified Woodward's

actions in any manner. Therefore, the

judgement against Local 639 must be set

aside. Defendant Woodward's motion to set

aside the verdict against Woodward on the

count will be denied.

Judgement will be entered in

accordance with the foregoing.

JUDGMENT

After consideration of defendants'

motion for judgment notwithstanding the

verdict, or alternatively, for modification

of the judgment or for a new trial, the

opposition thereto, and the entire record

herein, it is, by the court, this 16th day

of January, 1986,

ORDERED, ADJUDGED, and DECREED that

the motion for judgment notwithstanding the

verdict is granted with regard to defendant

App. 119

Se te he ite

hee ee Me AE ee A ORs eet Os

Drivers, Chauffeurs & Helpers Local Union

639 and judgment is entered in favor of

defendant Drivers, Chauffeurs & Helpers

Local Union 639 on all counts; and it is

further

ORDERED, ADJUDGED, and DECREED that

the motion for judgment notwithstanding the

verdict is granted with regard to defendant

James Woodward on the counts of tortious

interference with contractual relations and

abuse of process, and judgment is entered

in favor of James Woodward on those counts;

and it is further

ORDERED, ADJUDGED, and DECREED that

the motion for judgment notwithstanding the

verdict is denied with regard to defendant

James Woodward on the count of malicious

destruction of property, as is defendants'

alternative motion for modification of the

judgment or for a new trial; and it is

further

ORDERED, ADJUDGED and DECREED that

App. 120

REE LO SkE LT, Vee a ii

judgment be entered in favor of Yellow Bus

Lines, Inc. against James Woodward in the

amount of $1,280.00.

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.