Civil Rico Practice Manual CH 2 The Statutory Background Basic Concepts

§ 2.01 BASICS OF A CIVIL RICO OFFENSE, Civ. RICO Prac. Manual s 2.
01
Civ. RICO Prac. Manual s 2.01

Aspen Publishers
Civil RICO Practice Manual
Paul Batista
Copyright © 2011 Aspen Publishers, Inc., a Wolters Kluwer business
Current through the 2011 Supplement

Chapter 2: The Statutory Background: Basic Concepts and the Enigmatic Legislative History
§ 2.01 BASICS OF A CIVIL RICO OFFENSE
Despite the colorful furor which has surrounded the use of RICO, the statutory language is as dull and stylized as that of
virtually every other law embedded in the United States Code. Yet the precise language of the statute, its structure, and its
place within the broader provisions of the Organized Crime Control Act of 1970 (OCCA) form an indispensable starting
point in the analysis of civil RICO issues. Also important, of course, in the evaluation of civil racketeering is the enigmatic
legislative history. This chapter contains a tour of the full statute, its structure, its language, and the elusive background
portrait provided by the legislative record. The chapter closes with the Supreme Court’s broad and often superficial
reconstruction of the legislative history--a largely lenient view, developed since 1985, which is at variance in some
meaningful respects with the actual legislative record surrounding RICO’s enactment.
End of Document © 2011 Thomson Reuters. No claim to original U.S. Government Works.
© 2011 Thomson Reuters. No claim to original U.S. Government Works.

§ 2.02 STATUTORY LANGUAGE: THE KEY CONCEPTS, Civ. RICO Prac. Manual s 2.02

Aspen Publishers
Paul Batista

§ 2.02 STATUTORY LANGUAGE: THE KEY CONCEPTS
From a structural standpoint, the provisions of RICO involve three main sections of the statute: § 1961 provides the
definitions, § 1962 describes the prohibited conduct, and § 1964 details the remedies.
[A] Definitions: The “Person”
Entitled simply “Definitions,” § 1961 is the first statutory segment of RICO. Containing approximately 10 definitions, the
section is not particularly expansive or illuminating. The majority of the definitions relate to subjects that are not genuinely
meaningful for civil racketeering purposes--for example, several of the definitions flesh out the meaning of terms such as
“documentary material”1 and “Attorney General.”2
Of special significance for civil RICO purposes are only four of the ten definitions. The most superficially simple of the four
basic definitions--but one which has come to involve several complex developments--is the definition of “person.” RICO §
1961(3) specifies that a “person includes any individual or entity capable of holding a legal or beneficial interest in property.”
That is the full statutory definition. The repercussions from that simple language reverberate throughout the arena of civil
racketeering litigation and the balance of this book in areas such as the dichotomy which a plaintiff must delineate between
the “person” who violates RICO and the RICO ““enterprise” through which that violation by a “person” takes place.
[B] “Racketeering Activity”
Another term in the quartet of significant definitions relates to “racketeering activity.” It is not so much a definition as a list
of other statutes, primarily federal criminal statutes, which, in addition to their status as violations in and of themselves, can
serve as “racketeering acts,” or ““predicate acts,” for purposes of RICO. Because of its overriding significance in every
actual civil RICO litigation, the flat, inelegant language of the section should be quoted in full:
“[R]acketeering activity” means (A) any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery,
extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical (as defined in § 102 of the
Controlled Substances Act), which is chargeable under State law and punishable by imprisonment for more than one year;
(B) any act which is indictable under any of the following provisions of title 18, United States Code: § 201 (relating to
bribery), § 224 (relating to sports bribery), §§ 471, 472, and 473 (relating to counterfeiting), § 659 (relating to theft from
interstate shipment) if the act indictable under § 659 is felonious, § 664 (relating to embezzlement from pension and welfare
funds), §§ 891-894 (relating to extortionate credit transactions), § 1029 (relating to fraud and related activity in connection
with access devices), § 1084 (relating to the transmission of gambling information), § 1341 (relating to mail fraud), § 1343
(relating to wire fraud), § 1344 (relating to financial institution fraud), §§ 1461-1465 (relating to obscene matter), § 1503
(relating to obstruction of justice), § 1510 (relating to obstruction of criminal investigations), § 1511 (relating to the
obstruction of State or local law enforcement), § 1512 (relating to tampering with a witness, victim, or an informant), § 1513
(relating to retaliating against a witness, victim, or an informant), § 1951 (relating to interference with commerce, robbery, or
extortion), § 1952 (relating to racketeering), § 1953 (relating to interstate transportation of wagering paraphernalia), § 1954
(relating to unlawful welfare fund payments), § 1955 (relating to the prohibition of illegal gambling businesses), § 1956
(relating to the laundering of monetary instruments), § 1957 (relating to engaging in monetary transactions in property
derived from specified unlawful activity), § 1958 (relating to use of interstate commerce facilities in the commission of
murder-for-hire), §§ 2251-2252 (relating to sexual exploitation of children), §§ 2312 and 2313 (relating to interstate

transportation of stolen motor vehicles), §§ 2314 and 2315 (relating to interstate transportation of stolen property), § 2321
(relating to trafficking in certain motor vehicles or motor vehicle parts), §§ 2341-2346 (relating to trafficking in contraband
cigarettes), §§ 2421-2424 (relating to white slave traffic)[;] (C) any act which is indictable under title 29, United States Code,
§ 186 (dealing with restrictions on payments and loans to labor organizations) or § 501(c) (relating to embezzlement from
union funds)[;] (D) any offense involving fraud connected with a case under title 11, fraud in the sale of securities, or the
felonious manufacture, importation, receiving, concealment, buying, selling, or otherwise dealing in a controlled substance or
listed chemical (as defined in § 102 of the Controlled Substances Act), punishable under any law of the United States[;] or
(E) any act which is indictable under the Currency and Foreign Transactions Reporting Act[;] or any act which is indictable
under the Immigration and Nationality Act, § 274 (relating to bringing in and harboring certain aliens if the act is indictable
under such section of such Act was committed for the purpose of financial gain). . . .
Although this list of offenses is extensive and contains some exotic elements--such as “white slave traffic”--only a few of the
specifically designated offenses have gained a dominant role in actual civil litigations: mail fraud, wire fraud, money
laundering, extortion, pornography, and the use of certain aliens for financial gain. With the enactment of the PSLRA in
December 1995, Congress for the first time limited the scope of civil RICO. It did this by amending § 1964(c)--the provision
of the statute which confers a private civil cause of action--to carve out from liability those civil actions grounded on “fraud
in the sale of securities” as a predicate act of racketeering, while allowing “fraud in the sale of securities” to continue as a
basis for a criminal prosecution under RICO.
More specifically, the PSLRA amended RICO § 1964(c) to provide that “no person may rely upon any conduct that would
have been actionable as fraud in the purchase or sale of securities to establish a violation of § 1962.” The crucial 1995
amendment provides that the general “exception” from civil liability for securities fraud “does not apply to an action against
any person that [sic] is criminally convicted in connection with the fraud, in which case the statute of limitations shall start to
run on the date on which the conviction becomes final.” As a result of the PSLRA, “fraud in the sale of securities” remains a
predicate act of racketeering activity for criminal prosecutions.3
[C] “Pattern of Racketeering Activity”
The words “racketeering activity” appear in two definitional subsections of § 1961, but with nuanced differences in their
meaning and role. In addition to the just-recited meaning of “racketeering activity,” the other provision of the statute
enigmatically refers to a “pattern of racketeering activity” as requiring “at least two acts of racketeering activity, one of
which occurred after the effective date of this chapter and the last of which occurred within 10 years (excluding any period of
imprisonment) after the commission of a prior act of racketeering activity.” 4 As time has passed, of course, the first date
identified in this definition has become extinct since “the effective date of this chapter” was October 15, 1970. What has
acquired immense significance, as later sections of this book will explain, is the variety of interpretations of the statutory
definition of a “pattern of racketeering activity.”
[D] The RICO “Enterprise”
Yet another integral part of the definitional quartet is the word “enterprise,” a term which “includes any individual,
partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although
not a legal entity.”5 Not another word is devoted by the statute to this terse definition of “enterprise.”
Taken together, these four ostensibly simple definitions--“enterprise,” ““pattern of racketeering activity,” “person,” and
“racketeering activity”-- have been the most rigorously scrutinized, and discordantly interpreted, of any set of statutory
definitions developed by Congress in the last four decades. The meaning of each of them has presented, and will continue to
present, vexing and even maddening issues for the courts and litigants who have become involved in RICO lawsuits.
[E] Prohibited Activities
Bluntly described, the real bullet of any federal legislation is the language that articulates the “thou-shalt-not” obligations.
Analogously, “murder” has many definitions under state and federal law, but the gravemen of the multiple linguistic
formulations of murder is, in effect: “Thou shalt not murder, and if you do so you expose yourself to death or life in jail.”
Plainly stated, the operative, liability-creating language, entitled ““Prohibited Activities,” is RICO § 1962, the vehicle that
declares and identifies the conduct which is illegal under RICO as a whole, both for criminal and civil purposes.
Section 1962 contains four brief subsections, each of which, in an almost Biblical refrain, begins with the ancient injunction
that “[i]t shall be unlawful.” Again, in view of the pervasive significance of the section, the statutory language should be

quoted in detail. Subsection (a) of § 1962, generally characterized as the aspect of RICO which prohibits a person from
““using or investing” tainted racketeering income in an enterprise, provides in relevant part:
It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering
activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of §
2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such
income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the
activities of which affect, interstate or foreign commerce. A purchase of securities on the open market for purposes of
investment, and without the intention of controlling or participating in the control of the issuer, or of assisting another to do
so, shall not be unlawful under this subsection if the securities of the issuer held by the purchaser, the members of his
immediate family, and his or their accomplices in any pattern of racketeering activity or the collection of an unlawful debt
after such purchase do not amount in the aggregate to one percent of the outstanding securities of any one class, and do not
confer, either in law or in fact, the power to elect one or more directors of the issuer.6
Like subsection (a), subsection (b) of § 1962 is not frequently invoked. Subsection (b) provides in full as follows:
It shall be unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to
acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of
which affect, interstate or foreign commerce. 7
This subsection, interdicting as it does a person’s “acquiring and maintaining” an interest in an enterprise through a pattern, is
obviously closely related to subsection (a) of RICO § 1962.
The next subsection--§ 1962(c)--is far more frequently invoked as a basis for liability than either subsection (a) or subsection
(b). Concentrating on the concept of “conducting” or participating in the conduct of an enterprise, subsection (c) of § 1962
provides:
It shall be unlawful for any person employed by or associated with any 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.8
Section 1962 ends with an attempt to cast the net of potential liability broadly enough to capture conspirators. Subsection (d)
reads in full as follows: “It shall be unlawful for any person to conspire to violate any of the provisions of subsections (a),
(b), or (c) of this section.”9
[F] Remedies: The Golden Triangle
Underscoring the conciseness of the statute is the fact that only one other provision of RICO has an immediate bearing on
private civil litigation. It is § 1964(c), which provides the golden reward for a plaintiff who has been able to plead and prove
(or litigate to a settlement) the elements of a substantive liability claim under §§ 1962(a), (b), (c), or (d). In deceptively and
sweetly simple language § 1964(c) states:
Any person injured in his business or property by reason of a violation of § 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, except that no person may rely upon any conduct that would have been actionable as fraud in the
purchase or sale of securities to establish a violation of § 1962. The exception contained in the preceding sentence does not
apply to an action against any person that [sic] is criminally convicted in connection with the fraud, in which case the statute
of limitations shall start to run on the date on which the conviction becomes final.10
Those few words have created the incentive which has long transformed the civil racketeering statute into a potent litigation
development. From a structural point of view, those words appear in the context of a section whose three other subdivisions
are devoted to (1) a description of the equitable remedies that a federal district court can impose for a violation of RICO; 11
(2) an express authorization to the United States government to file and pursue civil actions under RICO; 12 and (3) an
evidentiary entitlement, available only to the United States government as a civil litigant, to use a prior criminal conviction of
a defendant under RICO to “estop” him, her, or it “from denying the essential allegations of the criminal offense in any
subsequent civil proceeding. . . .”13
1 co_anchor_FN_B1_2. To avoid unnecessary suspense, it should be noted that the statute succinctly defines “documentary
material” as any “document.” 18 U.S.C. § 1961(9).
2 co_anchor_FN_B2_2. In similarly revealing language, the term “Attorney General” is defined as “the Attorney General of
the United States.” 18 U.S.C. § 1961(10).

3 co_anchor_FN_B3_2. Id. § 1964(c) (2006).
4 co_anchor_FN_B4_2. Id. § 1961(5).
5 co_anchor_FN_B5_2. Id. § 1961(4).
6 co_anchor_FN_B6_2. Id. § 1962(a).
7 co_anchor_FN_B7_2. Id. § 1962(b).
8 co_anchor_FN_B8_2. Id. § 1962(c).
9 co_anchor_FN_B9_2. Id. § 1962(d).
10 co_anchor_FN_B10_2. Id. § 1964(c). The exception language of this statute was added to § 1964(c) as part of the PSLRA
enacted in December 1995, marking the first and only time in approximately 35 years that Congress has imposed any substantive
restriction on RICO.
11 co_anchor_FN_B11_2. 18 U.S.C. § 1964(a) provides that a district court can “restrain” violations of § 1962 by “ordering
any person to divest himself of any interest . . . in any enterprise; imposing reasonable restrictions on the future activities or
investments of any person . . .; or ordering dissolution or reorganization of any enterprise. . . .”
12 co_anchor_FN_B12_2. 18 U.S.C. § 1964(b).
13 co_anchor_FN_B13_2. Id. § 1964(d). For the sake of a complete overview of the structure of RICO, it should be
emphasized that § 1963 deals exclusively with criminal penalties for violations of § 1962. The language of § 1962 therefore
delineates the violations that give rise to both criminal and civil liability. Although RICO is not unique among federal statutes in
using the same substantive language to create both criminal and civil liability, the fact that it does so has led some federal judges,
including Justice Antonin Scalia, to insist on a heightened intensity in analyzing the text of the statute. As Justice Scalia wrote, in
issuing his scathing opinion “concurring” in the result in H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 109 S. Ct. 2893,
2908-09, 106 L. Ed. 2d 195 (1989):
[I]t is not only true . . . that our interpretation of RICO has “quite simply revolutionize[d] private litigation” and “validate[d] the
federalization of broad areas of state common law of frauds” . . . [,] so that clarity and predictability are particularly important; but
it is also true that RICO, since it has criminal applications as well, must, even in its civil applications, possess the degree of
certainty required for criminal laws. . . .

§ 2.03 VENUE AND PROCESS FOR CIVIL RICO PURPOSES, Civ. RICO Prac. Manual...

Aspen Publishers
Paul Batista

§ 2.03 VENUE AND PROCESS FOR CIVIL RICO PURPOSES
Questions of venue and service of process are frequently important in the actual litigation of any civil case in the federal
courts. The general objective of a plaintiff is to secure the broadest possible venue and the easiest means of service. In
contrast, defendants generally argue for the narrowest range of venue and the most elaborate available service requirements.
Civil RICO, in specifically fashioning venue and service provisions for actions brought under the statute, serves the
plaintiff’s objectives on these issues. A civil action under RICO can be brought “against any person” in any federal district
court throughout the nation “in which such person resides, is found, has an agent, or transacts his affairs.” 14
Even more sweeping is a related provision of RICO permitting any district court, when “the ends of justice require,” to
summon any nonresident person--no matter where located--to appear as a defendant in a pending action. 15 This provision,
which can effectively compel a homebound individual who lives in Arizona to defend an action pending in Maine if “the
ends of justice require,” is a rare expansion of traditional concepts of venue and jurisdiction; its outer parameters have never
been meaningfully tested against the standards that ordinarily apply to the exercise of a federal court’s personal jurisdiction.
14 co_anchor_FN_B14_3. 18 U.S.C. § 1965(a).
15 co_anchor_FN_B15_3. Id. § 1965(b). See also H.R. Rep. No. 1549, 91st Cong., 2d Sess. (1970), reprinted in 1970
U.S.C.C.A.N. 4007, 4034 (“Subsection (b) [of § 1965] provides nationwide service of process on parties, if the ends of justice
require it, in actions under section 1964”); Bernstein v. IDT Corp., 582 F. Supp. 1079, 1087-88 (D. Del. 1984) (reaffirming that §
1965(b) is in fact a venue provision, not merely a provision authorizing nationwide service of process on parties).

§ 2.04 LEGISLATIVE HISTORY OF CIVIL RICO: FROM..., Civ. RICO Prac....

Aspen Publishers
Paul Batista

§ 2.04 LEGISLATIVE HISTORY OF CIVIL RICO: FROM THE KEFAUVER COMMITTEE TO THE
KATZENBACH COMMISSION, 1950-1969
The legislative history of RICO has provided fertile support for sharply conflicting interpretations of the scope of the statute’s
civil remedy provisions.16 For years, plaintiffs and defendants relied on essentially the same enigmatic language to advocate
flatly contradictory conclusions. It was not until July 1985, when the Supreme Court in its Sedima, S.P.R.L. v. Imrex Co.17
decision first placed a definitively plaintiff-oriented gloss on the legislative history, that some of the enigma of the
Congressional record was resolved. In several post-Sedima decisions, the Supreme Court’s liberal, liability-expanding
reconstruction of the legislative history has largely continued. 18
Even before the Supreme Court finally began its belated examination of RICO’s legislative history in its 1985 decision in
Sedima, a plaintiff advocating a broad interpretation of RICO had the benefit of substantially more helpful language than
defendants could cite--although the defense position has always been able to distill its own useful statements from the
congressional debates and reports of the 1950s and 1960s that ultimately resulted in RICO’s enactment in 1970. In a
provision frequently cited by plaintiffs in civil racketeering cases, the 1969 Senate Report accompanying the final version of
the legislation broadly stated that the act “has as its purpose the elimination of the infiltration of organized crime and
racketeering into legitimate organizations operating in interstate commerce,” 19 a sufficiently nebulous summary statement to
suggest that Congress, in 1969 and 1970, envisioned the extension of RICO to an indeterminate array of civil contexts but
refrained from attempting to formulate the precise settings in which the law would apply.
This broad statement of policy--emphasizing an inchoate concern about the role of “organized crime” in the United States’
economic system--also characterized the earliest congressional views of the perceived need for a federal statute to deal with
“organized” criminal conduct. In 1950 and 1951, the Kefauver Committee, the first modern group to study organized crime
in a systematic fashion, conceived of the precursor to RICO as a supplement to the federal antitrust laws and their long-
standing use of private civil remedies. 20 Asserting that criminal methods were widely used to infiltrate legitimate businesses
and to create monopolies and unfair competition, the Kefauver Committee proposed the use of civil sanctions analogous to
antitrust remedies as a means of achieving the Committee’s self-described purpose of preventing the establishment of
“monopolies” through organized criminal activities.21
More than 15 years after the Kefauver Committee made its recommendations--recommendations that were never directly
adopted by Congress-- another government committee issued a report in 1967 that ultimately served as the direct progenitor
of RICO. Memorably entitled The Challenge of Crime in a Free Society, the report was prepared by the President’s
Commission on Law Enforcement and Administration of Justice, widely known as the “Katzenbach Commission.” 22
Although the Commission Report does not have the weight of a Senate or House report, it remains important because it set
the stage for the debates in Congress, between 1967 and 1969, which finally resulted in RICO’s enactment.
Three aspects of the Katzenbach Commission Report remain relevant to RICO litigation four decades after it was published:
the Report’s definition of the concept of organized crime, its emphasis on the danger of organized crime’s perceived
infiltration of legitimate businesses, and its recommendations for dealing with the issues created by organized criminal
activity.
Since the Report’s treatment of these issues continues to play a role in present-day efforts to apply RICO to specific cases--
particularly for defendants as they attempt to counteract the Supreme Court’s largely pro-plaintiff, expansionist perception of
the legislative history in its decisions since Sedima--the Report’s core premises, findings, and recommendations are briefly

described in §§ 2.04[A] through [C].
[A] Katzenbach Commission’s Definition of Organized Crime
Like the Kefauver Committee, the Katzenbach Commission was fixated on the concept of “organized crime” and appeared to
accept as a given that “organized crime” was a single, coherent, nationwide crime syndicate. “Organized crime,” the
Katzenbach Commission asserted, “is a society that seeks to operate outside of the control of the American people and their
governments. It involves thousands of criminals, working within structures as complex as those of any large corporation,
subject to laws more rigidly enforced than those of legitimate governments.”23
Although the dominant approach of the Katzenbach Commission was to view organized crime as a highly structured,
separately identifiable organization dominated by men of Italian national descent, there were some suggestions in the 1967
Report of a less rigid view. For example, in describing organized crime’s perceived activities, the Commission alternatively
referred to ““[c]riminal groups”24 or to “organized criminal groups” 25 in a manner suggesting multiple local groups, not
necessarily organized under a unified, nationwide hierarchy dominated by Italian men. As the Katzenbach Commission
asserted in recounting the alleged national impact of organized crime, “[o]rganized criminal groups are known to operate in
all sections of the Nation.”26 The Report then cited a Commission-sponsored survey of police departments in which a large
proportion of departments in cities with populations of more than 100,000 reported that “organized criminal groups exist in
their cities.”27
Despite the Katzenbach Commission’s somewhat conflicted internal view of whether organized crime was a unified national
entity or a diverse set of unconnected regional criminal organizations, one central theme was clear: the Commission
envisioned that antiracketeering legislation should target groups of individuals organized as a single, largely invisible empire,
rather than assail particular types of “racketeering conduct” regardless of who engaged in it. For the Katzenbach
Commission, the objective in developing antiracketeering legislation was to deal with a unified but vast group consisting of
identifiable members, a defined hierarchy, and even an official name:
Today the core of organized crime in the United States consists of 24 groups operating as criminal cartels in large cities
across the Nation. Their membership is exclusively Italian, they are in frequent communication with each other, and their
smooth functioning is insured by a national body of overseers. . . . FBI [Federal Bureau of Investigation] intelligence
indicates that the organization as a whole has changed its name from the Mafia to La Cosa Nostra. 28
This tension between the two images of organized crime reflected in the Commission Report--the idea of a single Mafia or La
Cosa Nostra and that of diverse local groups--surfaced repeatedly in the drafting and interpretation of RICO itself, as §
2.04[G] explains in greater detail.
[B] Commission’s View of the “Activities” of Organized Crime
Another aspect of the Katzenbach Commission Report which still has importance more than four decades later is its
discussion of the kinds of activities that characterize organized crime. The specific types of conduct which the Commission
viewed as inherent to organized crime are obvious: gambling, termed by the Report as “the greatest source of revenue for
organized crime”;29 loan sharking; narcotics; and, to a “small and declining extent,” prostitution and bootlegging. 30
Beyond these obvious aspects of organized criminal activity was the more problematic one--organized crime’s alleged
infiltration of legitimate business. As the Report summarized:
The core of organized crime activity is the supplying of illegal goods and services--gambling, loan sharking, narcotics, and
other forms of vice--to countless numbers of citizen customers. But organized crime is also extensively and deeply involved
in legitimate business and in labor unions. Here it employs illegitimate methods--monopolization, terrorism, extortion, [and]
tax evasion-- to drive out of control lawful ownership and leadership and to exact illegal profits from the public. 31
After articulating this summary of its views, the Commission Report then more fully delved into the nature of the activities of
organized crime and its perceived involvement in legitimate businesses and labor unions. The Report sounded themes which
later dominated the debate over the enactment of RICO and the long subsequent effort to interpret it. For example, the Report
discussed the problem of infiltration in legitimate business in the following language: ““Criminal cartels can undermine free
competition” through unfair tactics such as price-cutting funded by tax evasion and cash reserves from illegal business, labor
corruption, and violent coercion of suppliers and customers. Moreover, according to the Katzenbach Commission, the
acquisition of legitimate enterprises gives organized criminals the opportunity to engage in new types of crime, “white collar”
crimes--such as bankruptcy fraud.32
Ultimately, the Katzenbach Commission’s analysis of the activities by which organized crime acquires legitimate business
interests would emerge as a critical element in the lengthy congressional formulation of RICO’s prohibitions, as described in

§§ 2.04[E] through [G].33
[C] Katzenbach Commission’s Recommendations
The Katzenbach Commission concluded its report with a variety of recommendations for dealing with organized crime. The
recommendations--a substantial number of which were enacted in 1969 and 1970 as various provisions of OCCA--generally
related to providing new or enhanced investigative tools for law enforcement, rather than to the reform of the substantive
criminal law or the creation of new criminal offenses.
For purposes of interpreting the legislative background of RICO, it is important to stress that the Katzenbach Commission did
not urge the enactment of a new racketeering statute. Instead, the recommendations advocated by the Commission centered
on novel enforcement mechanisms, such as the expanded use of grand juries in organized crime investigations, a witness
immunity program, the abolition of difficult rules of proof in perjury prosecutions, and the creation of a protection program
for informants. Each of these specific proposals ultimately became part of OCCA--the broader landmark legislation of which
RICO was only a part--when the statute became effective in 1970.
Significantly, although the Katzenbach Commission devoted substantial attention to the infiltration of legitimate business by
organized crime, its recommendations regarding that issue were tentative and cautious. For the Commission, the “infiltration”
problem was ultimately one that could be confronted most effectively through the enhanced enforcement of existing statutes
and regulations against the illegal tactics of organized criminals in operating legitimate businesses. 34
In summary, several essential points about the Katzenbach Commission and its report should be reemphasized because of
their continuing significance in current efforts to apply, as well as to limit, RICO. First, despite some suggestions that
organized crime was a diffuse, decentralized network, the Commission ultimately conceived of organized crime as a single
entity and directed its primary attention toward a single target--the allegedly “Italian” syndicate known as the Mafia or La
Cosa Nostra which, in the Katzenbach Commission’s view, controlled a coherent organized crime structure or syndicate
throughout the United States. Second, the Commission saw this syndicate as a threat because of its increasing tendency to
involve itself in otherwise legitimate business and union activities. Third, the Commission did not definitively propose new
substantive legislation similar to RICO; most of its recommendations were instead centered on developing, or enhancing,
enforcement techniques to implement then-existing substantive law.
[D] Congressional Responses to the Commission Report: 1967 Prototypes for RICO
Congress was relatively swift in drafting legislation in response to the 1967 recommendations of the Katzenbach
Commission. Of the comparative flood of prototype statutes for RICO, two bills, both introduced by Nebraska Senator
Roman Hruska in 1967, are direct ancestors of RICO. The first Hruska-initiated bill, S. 2048, was designed to amend the
federal antitrust laws to prohibit the investment or use in one business of deliberately unreported income from another line of
business.35 The other Hruska-proposed bill, S. 2049, would have created new civil and criminal penalties for the investment
of income derived from specified criminal activities stemming from business conduct. 36
Although neither of these bills was enacted, both included several features which became important in developing the
ultimate contours and content of RICO. Like the members of the Katzenbach Commission, Senator Hruska, in introducing
both S. 2048 and S. 2049, adhered to the view that organized crime in America was “a tightly knit and strictly disciplined
criminal cartel” named La Cosa Nostra,37 which the Senator (who was obviously not a master of novel analogies) described
as a “cancerous growth.”38
Despite Senator Hruska’s stated adherence to the monolithic view of organized crime, his two bills were in fact directed at
the control of activities, not at the control of pre-defined organizations or individuals. Neither Hruska bill purported to define
“organized crime” or to focus sanctions only on specific entities--such as the Mafia or La Cosa Nostra--or on individuals of a
single ethnic background. S. 2048 applied to any person or organization investing intentionally unreported income, regardless
of the income’s source or the status of the investor. Thus, under the proposed bill, a restaurant owner descended from the
Pilgrims who skimmed cash from the restaurant and invested the cash in a hotel venture would be as guilty as a Mafia don
who used his narcotics profits to invest in the same hotel venture. 39 Similarly, S. 2049--the other Hruska-initiated bill--would
have applied to anyone who invested income generated from certain criminal activities in a legitimate business, whether or
not the investor was a member or an affiliate of La Cosa Nostra.40
[E] 1969 Prototype for RICO
Although the two Hruska bills broadened the focus of concern from identifiable organizations and individuals to proscribed
conduct--in other words, altered the focus of the Katzenbach Commission from issues of status (such as membership by
Italian men in La Cosa Nostra) to issues of activity--it was not until the first session of the 91st Congress in 1969 that the

congressional focus began to crystallize. At an early point in that Congress, Senator John L. McClellan sponsored a bill that
followed many of the recommendations of the Katzenbach Commission. 41 In introducing the bill, S. 30, with a lengthy
speech about the evils of organized crime, Senator McClellan, like the Katzenbach Commission, viewed La Cosa Nostra as
the evil empire, because it ““epitomiz[es], if it does not exhaust, the concept of organized crime.” 42 Like the Katzenbach
Commission, Senator McClellan viewed the key to the control of organized crime as statutory changes which would simplify
the prosecution of already existing criminal laws.43
The McClellan proposal differed from the earlier bills introduced by Senator Hruska principally because the McClellan
approach was to intensify enforcement, while the Hruska approach was to create, in effect, a new set of substantive criminal
violations. In response to McClellan’s bill, Senator Hruska introduced on March 20, 1969 still additional proposed
legislation, S. 1623--captioned the “Criminal Activities Profits Act” 44--which synthesized his earlier proposals from the
previous Congress and which would have criminalized the investment of any income from any of several specifically
designated federal offenses, or any intentionally unreported income, in any legitimate or illegitimate business enterprise. 45
[F] S. 1861: The Bill That Became RICO
By 1969, Senators Hruska and McClellan decided to join forces and integrate their differing approaches by jointly
introducing a bill denominated the Corrupt Organizations Act of 1969 and numbered S. 1861. 46 This new bill was to undergo
numerous changes as it made its way through the Senate and House Judiciary Committees, but the essential characteristics of
the Corrupt Organizations Act of 1969 were virtually identical to the final version of S. 1861 that was ultimately enacted into
law as Title IX of the Organized Crime Control Act of 1970.
S. 1861 was introduced by Senator McClellan with a fairly succinct statement which made explicit the goals he and Senator
Hruska sought to achieve:
The problem, simply stated, is that organized crime is increasingly taking over organizations in our country, presenting an
intolerable increase in deterioration of our Nation’s standards. Efforts to dislodge them [sic] so far have been of little avail.
To aid in the pressing need to remove organized crime from legitimate organizations in our country, I have thus formulated
this bill [which] is designed to attack the infiltration of legitimate business. . . . 47
As expressed in the combined military and medical metaphors utilized by Senator McClellan, S. 1861 would remove the
“cancer” of organized crime’s penetration of the national economy “by direct attack, by forcible removal and prevention of
return.”48 For McClellan, the “most direct route to accomplish” the removal of “organized crime influences from legitimate
organizations” was the exclusion of the racketeer himself from the infiltrated enterprise: “If an organization is acquired or run
by the proscribed method, then the persons involved are removed from the organization.” 49 As the senator’s summary of his
central purpose in proposing S. 1861 explained, the bill was designed for the “protection of the public against parties
engaging in certain types of businesses after they have shown that they are likely to run the organization in a manner
detrimental to the public interest. In [this] spirit . . . this provision . . . is based upon the judgment that parties who conduct
organizations affecting interstate commerce through a pattern of criminal activity are acting contrary to the public interest. To
protect the public they must be prohibited from continuing to engage in this type of business in any capacity.” 50
Senator McClellan’s underlying emphasis, as articulated at the outset of the process by which S. 1861 eventually became
RICO, was echoed in the final Senate and House Committee Reports, both of which summarized RICO’s purpose as ““the
elimination of the infiltration of organized crime and racketeering into legitimate organizations operating in interstate
commerce.”51
[G] Emergence of the Expansionist View of RICO
Although Senators Hruska and McClellan were the key players in introducing antiracketeering and crime-control legislation
in the period 1967 through 1970, they were not the only legislators whose views shaped the final version of the statute.
Debates over the legislation in the Senate and the House were intense and detailed.52 Those debates also diluted the originally
clear focus of the statute’s purposes which McClellan and Hruska had articulated. In fact, the lengthy and confusing
congressional vetting of the issues raised by the proposed legislation--particularly in its civil applications--has made the
divining of congressional intent difficult. If the original Hruska-McClellan statement of purposes had not been subsequently
debated by other legislators, then it would be clear that RICO applied essentially only to men of Italian descent who gathered
in groups with names such as the Mafia and La Cosa Nostra. In other words, if the clarity (and bias) of the Hruska-McClellan
themes had prevailed, banks, securities firms, accountants, and the corporate managers of today’s world would never have
had any real concern about RICO.
As far as the civil applications of antiracketeering legislation were concerned, Congress consistently recognized that the
inclusion of civil remedies entailed an immense broadening of the scope of the proposed legislation. One representative--
obviously a master humorist with an ability for trenchant observation--noted in the House debate:
My objection to the bill in toto is that whatever its motives to begin with, we will end up with cases involving all kinds of

things not intended to be covered, and a potpourri of language by which you can parade all kinds of horribles of overreach. . .
. [Suppose] five or more of [my colleagues] engage in . . . a game of poker and it lasts past midnight . . . thus continuing for a
period of two days, then [they] have been running an organized gambling business and [they] can get 20 years and the federal
government can grab off the pot besides.53
Yet, despite the frequently articulated concerns about the potential breadth of the civil uses of the legislation, Congress did
not include provisions in the actual statute to address or curtail the predictable expansion of civil litigation associated with the
creation of a private treble-damages remedy, and RICO’s definition of racketeering activity was broadly worded and
deliberately eschewed any reference to the term “organized crime” or to the related concepts of crime families and criminal
syndicates, such as the Mafia or La Cosa Nostra.
Representative Mario Biaggi of New York expressed the view that flexibility in the application of the statute was essential,
asserting that a restrictive definition of organized crime would impose unnecessary limitations on the use of the law. 54 Not
surprisingly, Representative Biaggi also advanced the widely held view that a precise definition of organized crime,
particularly a definition identifying specific crime families by national origin, “would raise serious constitutional problems”
and that “to require a general showing that organized crime is involved as a predicate for the use of investigative techniques
would be to cripple those techniques.”55
Moreover, Representative William Poff, speaking late in the debates, doubted that a meaningful definition of “organized
crime” was even possible, emphasizing that the “concept of organized criminal activity is broader in scope than the concept
of organized crime; it is meant to include any criminal activity collectively undertaken.” 56
The expansive, and not coherently articulated, nature of the civil remedy provision was summarized in the House Report,
which stated in part:
Section 1964 provides civil remedies for the violation of § 1962. . . . Subsection (a) [of § 1964] contains broad provisions to
allow for reform of corrupted organizations. Although certain remedies are set out, the list is not meant to be exhaustive, and
the only limit on remedies is that they accomplish the aim set out of removing the corrupting influence. . . . 57
Congress viewed these sweeping remedial provisions as a means of ““striking a mortal blow against the property interests of
organized crime.”58 The House Committee on the Judiciary explicitly treated the civil remedy provision as a means of
intensifying, through the vehicle of a private remedy, the severity of the financial consequences which would flow from
racketeering activity of any type.59
As a 1969 Senate Report articulated:
What is needed here . . . are new approaches that will deal not only with individuals, but also with the economic base through
which those individuals constitute such a serious threat to the economic well-being of the nation. In short, an attack must be
made on their source of economic power itself, and the attack must take place on all available fronts. 60
Senator Scott spoke of “new legal weapons.” 61 As the floor manager of the legislation in the House, Representative Poff
advanced essentially the same observations as Senator Scott. 62 And Representative Rodino observed that “[d]rastic methods .
. . are essential, and we must develop law enforcement measures at least as efficient as those of organized crime.” 63
More important, if more generalized, than statements in committees and Senate and House Reports are the “findings”
articulated in the OCC statute, of which RICO is an integral part:
The Congress finds that (1) organized crime in the United States is a highly sophisticated, diversified, and widespread
activity that annually drains billions of dollars from America’s economy by unlawful conduct and the illegal use of force,
fraud and corruption; (2) organized crime derives a major portion of its power through money obtained from such illegal
endeavors as syndicated gambling, loan sharking, the theft and fencing of property . . . and other forms of social exploitation;
(3) this money and power are increasingly used to infiltrate and corrupt legitimate business and labor unions and to subvert
and corrupt our democratic processes; (4) organized crime activities in the United States weaken the stability of the Nation’s
economic system, harm innocent investors and competing organizations, interfere with free competition, seriously burden
interstate and foreign commerce, threaten the domestic security, and undermine the general welfare of the Nation and its
citizens; and (5) organized crime continues to grow . . . because the sanctions and remedies available to the Government are
unnecessarily limited in scope and impact.64
Taken as a whole, the long legislative history of RICO reveals conflicting currents and cross-currents, from the deterministic
simplicity of Senator McClellan’s approach to the nebulous views expressed in later statements by other legislators. What is
clear is that Congress deliberately refrained from anticipating the ultimate contours of the specific application of RICO’s civil
remedy provisions. Equally clear is that Congress envisioned the civil liability provision as an integral and potentially wide-
ranging feature of the statute. It is against the background of such broad statements of congressional intent and policy that the
cases ensuing from the statute have reached their conflicting results.
16 co_anchor_FN_B16_4. The legislative history of RICO includes Organized Crime Control: Hearings on S. 30 Before
Subcomm. No. 5 of the House Comm. on the Judiciary, 91st Cong., 2d Sess. (1970); Measures Relating to Organized Crime:
Hearings on S. 30, S. 974, S. 975, S. 976, S. 1623, S. 1624, S. 1861, S. 2022, S. 2122 and S. 2292 Before the Subcomm. on
Criminal Laws and Procedure of the Senate Comm. on the Judiciary, 91st Cong., 1st Sess. (1969); and excerpts from the

Congressional Record referring to organized crime control measures: 116 Cong. Rec. 575-607, 952-72, 18912-56, 34870-75,
35191-217, 25244-46, 35287-364, 36280-96 (1970); 115 Cong. Rec. 5872-86, 6992-98, 9566-71 (1969); 113 Cong. Rec. 17997-
18005 (1967).
17 co_anchor_FN_B17_4. 473 U.S. 479, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985).
18 co_anchor_FN_B18_4. See, e.g., H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 109 S. Ct. 2893, 106 L. Ed. 2d 195
(1989); Fort Wayne Books, Inc. v. Indiana, 489 U.S. 46, 109 S. Ct. 916, 103 L. Ed. 2d 34 (1989).
19 co_anchor_FN_B19_4. Organized Crime Control Act of 1969, Report of the Comm. on the Judiciary, S. Rep. No. 617,
91st Cong. 76, 1st Sess. (1969). In particular, Congress emphasized the advantages of the less stringent standard of proof involved
in private civil remedies and more flexible discovery procedures. Id. at 82-83.
20 co_anchor_FN_B20_4. S. Rep. No. 2370, 81st Cong. 16, 2d Sess. (1950).
21 co_anchor_FN_B21_4. Id.
22 co_anchor_FN_B22_4. The Katzenbach Commission was created by President Lyndon Johnson in 1965, Exec. Order No.
11,236 (July 23, 1965), and was named after its chair, former United States Attorney General Nicholas de B. Katzenbach. In the
balance of the text and footnotes in this book, The Challenge of Crime in a Free Society will be referred to as the Katzenbach
Commission Report or the Commission Report.
23 co_anchor_FN_B23_4. Commission Report at 187.
24 co_anchor_FN_B24_4. Id. at 188, 190.
25 co_anchor_FN_B25_4. Id. at 191.
28 co_anchor_FN_B28_4. Id. Whether this judgment was accurate or fair was and still is an open question. Interestingly, the
FBI and its long-time director, J. Edgar Hoover, had at one time downplayed the notion of a national crime syndicate. See Victor
S. Navasky, Kennedy Justice 8-9 (1971). However, by the time of the Katzenbach Commission’s inquiry, Hoover had apparently
seen the bureaucratic advantages for the FBI in emphasizing the asserted national scope of organized crime and was encouraging
the view that there was in fact a nationwide Mafia, or La Cosa Nostra, requiring a national investigative and enforcement effort to
control:
When [Robert F.] Kennedy arrived [as U.S. Attorney General in 1961], Hoover did not believe there was such a thing as a
national crime syndicate. In 1962 he stated that “no single individual or coalition of racketeers dominates organized crime across
the nation.” When Kennedy left [in 1964], Hoover was taking credit for the discovery of La Cosa Nostra.
Id. See also Lynch, RICO: The Crime of Being a Criminal, 87 Colum. L. Rev. 661, 668 n.34 (1987).

29 co_anchor_FN_B29_4. Commission Report at 188-89.
31 co_anchor_FN_B31_4. Id. at 187 (footnotes omitted).
33 co_anchor_FN_B33_4. “Control of business concerns has usually been acquired through one of four methods: (1)
investing concealed profits acquired from gambling and other illegal activities; (2) accepting business interests in payment of the
owner’s gambling debts; (3) foreclosing on usurious loans; and (4) using various forms of extortion.” Id.
34 co_anchor_FN_B34_4. Indicative of the Katzenbach Commission’s emphasis on more aggressive enforcement of existing
substantive statutes rather than the creation of new legislation was this recommendation:
State income tax enforcement could be directed at organized crime’s businesses. Food inspectors could uncover regulatory
violations in organized crime’s restaurant and food processing businesses. Liquor authorities could close premises of organized
crime-owned bars in which illicit activities constantly occur. Civil proceedings could stop unfair trade practices and antitrust
violations by organized crime businesses.
Commission Report at 208.
35 co_anchor_FN_B35_4. S. 2048, 90th Cong., 1st Sess. (1967); see also H.R. 11,266, 90th Cong., 1st Sess. (1967) (same bill
introduced in House).
36 co_anchor_FN_B36_4. S. 2049, 90th Cong., 1st Sess. (1967); see also H.R. 11,268, 90th Cong., 1st Sess. (1967) (virtually
identical bill introduced in House).
37 co_anchor_FN_B37_4. 113 Cong. Rec. 17998 (1967).
38 co_anchor_FN_B38_4. Id. at 17,997.
39 co_anchor_FN_B39_4. Id. at 17,999. Although the bill, if enacted, would have had this kind of neutrality, treating the
scion of the Pilgrims equally with the modern-day Mafia prince, Senator Hruska in his comments was explicit in noting that the
“evil to be curbed is the unfair competitive advantage in the large amount of illicit income available to organized crime.” Id.
40 co_anchor_FN_B40_4. S. 2049, 90th Cong., 1st Sess. § 3 (1967).
41 co_anchor_FN_B41_4. S. 30, 91st Cong., 1st Sess. (1969).

42 co_anchor_FN_B42_4. 115 Cong. Rec. 5872-85 (1969).
44 co_anchor_FN_B44_4. S. 1623, 91st Cong., 1st Sess. (1969). Presumably, an antiracketeering statute with the acronym
CAPA would have eased some of the storm stirred by the acronym RICO. The proposed legislation was directed solely at the
investment of proceeds derived from criminal activity and provided in relevant part:
Sec. 2. (a) Whoever, being a person who has received income derived directly or indirectly from any criminal activity in which
such person has participated as a principal within the meaning of section 2, title 18, United States Code [,] applies any part of such
income or the proceeds of any such income to the acquisition . . . of legal title to or any beneficial interest in any of the assets,
liabilities or capital of any business enterprise which is engaged in, or the activities of which affect, interstate or foreign
commerce[,] shall be guilty of a felony and shall be fined not more than $10,000 or imprisoned not more than ten years, or both.
51 co_anchor_FN_B51_4. Senate Comm. on the Judiciary, Report on Organized Crime Control Act of 1969, S. Rep. No. 617,
91st Cong., 1st Sess. 76 (1969). See also H.R. Rep. No. 1549, 91st Cong. 57, 2d Sess. (1970), reprinted in 2 U.S.C.C.A.N. 4007,
4033 (1970).
52 co_anchor_FN_B52_4. See Harper v. New Japan Sec. Int’l Inc., 545 F. Supp. 1002, 1105 (C.D. Cal. 1982), for a detailed
discussion on the efforts of the 90th and 91st sessions of Congress relating to RICO.

56 co_anchor_FN_B56_4. Id. at 35344, 35293.
57 co_anchor_FN_B57_4. H.R. Rep. No. 1549, 91st Cong. 1, 2d Sess. (1970), reprinted in 2 U.S.C.C.A.N. 4007, 4034.
58 co_anchor_FN_B58_4. 116 Cong. Rec. 602 (1970) (remarks of Sen. Hruska).
59 co_anchor_FN_B59_4. Organized Crime Control: Hearing on S. 30, and Related Proposals, Before Subcomm. of the
House Comm. on the Judiciary, 91st Cong. 543-44, 2d Sess. (1970) [hereinafter House Hearings].
60 co_anchor_FN_B60_4. S. Rep. No. 617, at 79 (1969).
64 co_anchor_FN_B64_4. 84 Stat. 922-23.

§ 2.05 THE SUPREME COURT’S RECONSTRUCTION OF..., Civ. RICO Prac....

Aspen Publishers
Paul Batista

§ 2.05 THE SUPREME COURT’S RECONSTRUCTION OF THE LEGISLATIVE HISTORY: THE VIEW FROM
SEDIMA
In the 15 years between RICO’s enactment in 1970 and the decision in Sedima in 1985, the Supreme Court said virtually
nothing about the purpose, scope, and meaning of RICO and its legislative history, particularly as far as its civil applications
are concerned. Then, in Sedima, the long silence was broken, and the Supreme Court came forward with an expansionist,
plaintiff-favorable review of the statute and its legislative history. The basic tenor of that approach has continued in
subsequent Supreme Court decisions although the full legislative background--as described in the preceding sections--is not
nearly as definitive as the Supreme Court’s reconstruction has portrayed.
The specific holdings of Sedima are now part of the historical record. The Supreme Court rejected, in clear-cut language, the
defense theories that (1) a private civil action can proceed only against a defendant who has previously been criminally
convicted of a predicate act or of a RICO violation, 65 and (2) a private plaintiff must establish a special “racketeering injury”
as opposed to an injury resulting from the predicate acts themselves. 66 It is not the specific holdings of the Supreme Court in
Sedima that have continuing significance; it is the recounting of the legislative record and the Supreme Court’s summary of
RICO’s purposes that have had long-term influence.
In rejecting a narrow approach to RICO’s scope, the majority opinion in Sedima stressed:
This less restrictive reading [of RICO’s scope] is amply supported by our prior cases and the general principles surrounding
this statute. RICO is to be read broadly. This is the lesson not only of Congress’ self-consciously expansive language and
overall approach, see United States v. Turkette, 452 U.S. 576, 586-587, 101 S. Ct. at 2524, 2530-2531, 69 L. Ed. 2d 246
(1981), but also of its express admonition that RICO is to “be liberally construed to effectuate its remedial purposes,” Pub. L.
91-452, § 904(a), 84 Stat. 947. The statute’s ““remedial purposes” are nowhere more evident than in the provision of a
private action for those injured by racketeering activity. . . . Far from effectuating these purposes, the narrow readings offered
by the dissenters and the court below would in effect eliminate § 1964(c) from the statute.67
As if this broad pronouncement were not clear enough, the Sedima majority continued by declaring that “RICO was an
aggressive initiative to supplement old remedies and develop new methods for fighting crime.” 68 Although few of the
legislative statements about novel remedies and “attacking crime on all fronts” 69 were specifically made in connection with
RICO’s private civil remedy provision, “it is in this spirit that all of the Act’s provisions should be read.” 70 As the Sedima
majority then stressed:
Those supporting § 1964(c) [the private remedy provision] hoped it would ““enhance the effectiveness of title IX’s
prohibitions,” House Hearings, at 520, and provide “a major new tool,” 116 Cong. Rec. 35227 (1970). See also id., at 25190;
115 Cong. Rec. 6993-6994 (1969). Its opponents, also recognizing the provision’s scope, complained that it provided too
easy a weapon against “innocent businessmen,” H.R. Rep. No. 91-1549, p. 187 (1970), and would be prone to abuse, 116
Cong. Rec. 35342 (1970). It is also significant that a previous proposal to add RICO-like provisions to the Sherman Act had
come to grief in part precisely because it “could create inappropriate and unnecessary obstacles in the way of . . . a private
litigant [who] would have to contend with a body of precedent-- appropriate in a purely antitrust context--setting strict
requirements on questions such as ‘standing to sue’ and ‘proximate cause.”D’ 115 Cong. Rec. 6995 (1969) (ABA comments
on S. 2048). . . . In borrowing its “racketeering injury” requirement from antitrust standing principles, the court below created
exactly the problems Congress sought to avoid.71
Moreover, the Sedima majority did not limit itself to comments on the legislative history. It also addressed policy arguments

that had been advanced against an expansive approach to RICO and rejected those policy arguments in language that
continues to have implications in the debate over RICO. As the highly conservative Justice White stressed in Sedima, the
lower court whose decision was under review had voiced its distress at the “extraordinary, if not outrageous,” 72 uses made of
civil RICO, asserting that the statute had become an inappropriate weapon utilized in garden-variety fraud cases brought
against “respected and legitimate ‘enterprises.”D’73 The Sedima majority attacked that policy argument in the following
words:
Yet Congress wanted to reach both “legitimate” and “illegitimate” enterprises. . . . The former enjoy neither an inherent
incapacity for criminal activity nor immunity from its consequences. The fact that § 1964(c) is used against respected
businesses allegedly engaged in a pattern of specifically identified criminal conduct is hardly a sufficient reason for assuming
that the provision is being misconstrued. Nor does it reveal the “ambiguity” discovered by the court below. “[T]he fact that
RICO has been applied in situations not expressly anticipated by Congress does not demonstrate ambiguity. It demonstrates
breadth.” Haroco, Inc. v. American National Bank & Trust Co. of Chicago [747 F.2d 384, 398 (7th Cir. 1984)].74
[A] More Reconstruction and More Expansion: The Supreme Court’s 1989 Decisions in H.J. Inc. and Fort Wayne
Books
Because of the Sedima majority’s explicit blessing on plaintiffs and their RICO claims, lobbying efforts to amend or
eliminate the civil provisions of the statute intensified yearly from 1985 until the Supreme Court’s next significant revisiting
of RICO in 1989 in H.J. Inc. v. Northwestern Bell Telephone Co.75 and Fort Wayne Books, Inc. v. Indiana.76 During the
same four-year period, a substantial number of lower federal courts--propelled by the same concerns motivating lobbyists and
those members of Congress who believed RICO required substantial limitations--also sought to place restrictions on the use
of RICO, relying primarily on the celebrated footnote 14 of the Sedima decision and that footnote’s enigmatic suggestion that
the statutory definition of a “pattern of racketeering activity” could provide a key to confining the scope of RICO,
particularly in its civil applications.77
The advocates of radical reform of RICO were, of course, intensely disappointed by the June 1989 opinion in H.J. Inc. As far
as its specific holdings are concerned, the majority opinion in H.J. Inc. took the same approach as the majority opinion in
Sedima four years earlier. H.J. Inc. summarily beheaded certain specific defensive positions, just as Sedima had dispatched
the earlier defense positions that only prior criminal convictions could form a basis for later civil liability and that a plaintiff
had to plead and prove a distinct ““racketeering injury.” In H.J. Inc., the majority dispensed with the defensive argument,
developed primarily between 1985 and 1989, that “predicate acts may form a pattern only when they are part of separate
illegal schemes.”78 Thus came to an end the so-called “multiple scheme” defense in vogue between 1985 and 1989.
As with Sedima, the far more important long-term aspect of H.J. Inc. was its treatment of the legislative history; that
treatment is what will principally survive from the opinion, rather than the opinion’s explicit rejection of the ““multiple
scheme” defense. In explaining why it was rejecting that defense, the H.J. Inc. majority observed, in referring to the Congress
which enacted RICO:
In our view, Congress had a more natural and common-sense approach to RICO’s pattern element in mind, intending a more
stringent requirement than proof simply of two predicates, but also envisioning a concept of sufficient breadth that it might
encompass multiple predicates within a single scheme that were related and that amounted to, or threatened the likelihood of,
continued criminal activity.79
The H.J. Inc. decision acknowledged that the analysis of any issue under RICO must “begin . . . with RICO’s text” 80 but
stressed that, for “any more specific guidance . . . we must look past the text to RICO’s legislative history, as we have done in
prior cases construing the Act.”81 Unfortunately for those urging a narrow view of Congress’s purpose in enacting RICO, the
H.J. Inc. opinion explicitly rejected the position that the intent of Congress was limited to the objective of “combatt[ing]
organized crime. . . .”82 According to H.J. Inc., “[we] cannot accept this argument for a narrowing construction of the Act’s
expansive terms.”83 In the Court’s view:
To be sure, Congress focused on, and the examples used in the debates and reports to illustrate the Act’s operation concern,
the predations of mobsters. Organized crime was without a doubt Congress’ major target. . . . But . . . the legislative history
shows that Congress knew what it was doing when it adopted commodious language capable of extending beyond organized
crime.84
In fact, the Court’s H.J. Inc. opinion contains a far more detailed description of the legislative history than does the Sedima
opinion, and H.J. Inc. emphasized more of the conflicting language of the congressional debates. Yet the greater focus on,
and the closer scrutiny of, the legislative history did not alter the Court’s ultimate message about the underlying principles to
guide RICO’s specific applications:

As this Court stressed in Sedima, in rejecting a pinched construction of RICO’s provision for a private civil action, adopted
by a lower court because it perceived that RICO’s use against non-organized-crime defendants was an “abuse” of the Act,
“Congress wanted to reach both ‘legitimate’ and ‘illegitimate’ enterprises.” 473 U.S., at 499, 105 S. Ct., at 3286. Legitimate
businesses ““enjoy neither an inherent incapacity for criminal activity nor immunity from its consequences”; and, as a result,
§ 1964(c)’s use “against respected businesses allegedly engaged in a pattern of specifically identified criminal conduct is
hardly a sufficient reason for assuming that the provision is being misconstrued.” Ibid. If plaintiffs’ ability to use RICO
against businesses engaged in a pattern of criminal acts is a defect . . . it is one “inherent in the statute as written,” and hence
beyond our power to correct. . . . There is no more room in RICO’s “self-consciously expansive language and overall
approach” for the imposition of an organized crime limitation than for the ““amorphous ‘racketeering injury’ requirement”
we rejected in Sedima. . . .We thus decline the invitation to invent a rule that RICO’s pattern of racketeering concept requires
an allegation and proof of an organized crime nexus.85
Similarly expansive in its interpretation of RICO’s purpose and scope was the Supreme Court’s other major 1989 decision on
the racketeering statute, Fort Wayne Books, Inc. v. Indiana.86 Although Fort Wayne Books involved the Indiana state statute
modeled on RICO, the Court drew on the text of the federal statute, and on federal precedent, to sustain the Indiana RICO
statute against a variety of constitutional and technical challenges.
At issue in Fort Wayne Books were a civil forfeiture action and a criminal prosecution brought by Indiana against two
booksellers allegedly involved in the sale of “obscene materials.” 87 Both the civil action and the criminal prosecution
involved pretrial seizures of the bookstores and their ““obscene” publications, which resulted in the pretrial appeal resolved
by the Supreme Court in Fort Wayne Books.88
The booksellers’ constitutional and more technical challenges to the Indiana RICO statute--a statute which, as the Supreme
Court repeatedly emphasized, was virtually identical to the federal racketeering statute since the “[f]ederal RICO statute also
permits prosecutions for a pattern of obscenity violations, in a manner quite similar to the Indiana law under review here” 89--
were unsuccessful. The reasons given by the Court in Fort Wayne Books for the failure of the challenges underscore the
expansive treatment of RICO by the Court.
The booksellers’ “broadest contention”90 was that the First Amendment forbade the use of alleged obscenity violations as
predicate acts for purposes of RICO. 91 The essence of the booksellers’ claim was that the Indiana statute was “vague” in its
use of “obscenity” as a predicate offense.
For the Supreme Court, this “void-for-vagueness” challenge to RICO had “no merit.” 92 The Fort Wayne Books Court found
nothing vague about Indiana’s underlying obscenity statute,93 which was “closely tailored” to conform to the standards for an
obscenity statute articulated in the Supreme Court’s major 1973 decision on obscenity, Miller v. California.94 Since RICO is,
in effect, a redundant statute, the conclusion that the underlying obscenity statute is not void-for-vagueness answers that issue
for RICO purposes as well. “Given that the RICO statute totally encompasses the obscenity law, if the latter is not
unconstitutionally vague, the former cannot be vague either.” 95 For the Supreme Court, that was the end of the void-for-
vagueness dimension of the case.
The next layer of the booksellers’ constitutional challenge was one that instinctively appeals to any defendant facing either
the threat of treble damages, in the civil context, or more severe sentences, in the criminal context: that RICO sanctions are
unconstitutional because they are too severe, too draconian, too harsh, and too disproportionate. This branch of the
booksellers’ challenge also fell on deaf ears with the Supreme Court, which, in a society as obsessed as this one is with
ratcheting up the level of punishment for offenses, routinely rejects arguments that a law’s sanctions provisions are too harsh:
Petitioner’s next contention rests on the difference between the sanctions imposed on obscenity law violators and those
imposed on convicted “racketeers”: the sanctions imposed on RICO violators are so “draconian” that they have an improper
chilling effect on First Amendment freedoms, petitioner contends. . . . The use of such “heavy artillery” from the “war on
crime” against obscenity is improper, petitioner argues, and therefore, obscenity offenses should not be permitted to be used
as predicate acts for RICO purposes.
It is true that the criminal penalties for a RICO violation under Indiana law, a Class C felony, are more severe than those
authorized for an obscenity offense, a Class A misdemeanor. Specifically, if petitioner is found guilty of the two RICO
counts against him, he faces a maximum sentence of 10 years in prison and a $20,000 fine; if petitioner were convicted
instead of only the six predicate obscenity offenses charged in the indictments, the maximum punishment he could face
would be six years in jail and $30,000 in fines. . . . While the RICO punishment is obviously greater than that for obscenity
violations, we do not perceive any constitutionally significant difference between the two potential punishments. Indeed, the
Indiana RICO provisions in this respect function quite similarly to an enhanced sentencing scheme for multiple obscenity
violations. As such, “[i]t is not for this Court . . . to limit the State in resorting to various weapons in the armory of the law.”
Kingsley Books, Inc. v. Brown, 354 U.S. 436, 441, 77 S. Ct. 1325, 1328, 1 L. Ed. 2d 1469 (1957).96
Moreover, the Supreme Court in Fort Wayne Books brushed aside as “not ripe”97 the booksellers’ related constitutional
challenge to the severity of the civil sanctions under Indiana’s version of RICO and, in effect, upheld both the criminal and
civil aspects of that statute by determining that it found “no constitutional bar to the State’s inclusion of substantive obscenity

violations among the predicate offenses under its RICO statute.”98
[B] Some Reversal of the Expansionist Tide: The Supreme Court’s 1992 Decision in Holmes
The Supreme Court revisited RICO’s purpose and its legislative history in 1992, three years after the decisions in H.J. Inc.
and Fort Wayne Books. In Holmes v. Securities Investor Protection Corp.,99 the Court focused on the meaning, purpose, and
scope of RICO § 1964(c)--the broad language that created the private RICO remedy 100--and, in doing so, for the first time
delivered an opinion that effectively restricted RICO’s scope.
Holmes was an action brought by the Securities Investor Protection Corporation (SIPC), a private non-profit corporation
established by Congress in 1970 for the purpose of reimbursing securities customers who sustain financial losses as a result
of fraudulent conduct, against Robert Holmes, Jr., and others. To understand the Court’s decision in Holmes, it is important
to emphasize that Holmes was not a securities broker/dealer or investment advisor; instead, he was an officer and major
stockholder of a publicly traded company, Aero Systems, Inc. (Aero). Holmes found himself named as a defendant by SIPC
on a claim that he was one of approximately 75 corporate and individual defendants who had conspired to manipulate trading
in the securities of six companies, including Aero, “by making unduly optimistic statements about their [the companies’]
prospects and by continually selling small numbers of shares to create the appearance of a liquid market. . . .” 101 The result of
these activities, according to SIPC’s complaint, was that the ultimate collapse of the price of the securities caused two broker-
dealer firms insured by SIPC to fail. The Holmes action was SIPC’s attempt to recover from people like Holmes the almost
$13 million SIPC advanced to cover customer claims lodged against the failed broker-dealer firms.
From a substantive standpoint, SIPC’s complaint against Holmes and others was based on RICO and on § 10(b) of the 1934
Act, as well as Rule 10b-5. Specifically, Holmes was alleged to be liable under these statutes and rules because he “made
false statements about the prospects of” Aero--the company of which he was an officer and shareholder--and “sold small
amounts of stock in one of the other six companies, the Bunnington Corporation, to simulate a liquid market.” 102
In his appeal to the Supreme Court, Holmes contended that SIPC did not have “a right to sue under RICO.” 103 Rather than
couch its conclusion in terms of denying SIPC a “right to sue,” the Supreme Court in Holmes reached a far broader result,
imposing a causation requirement under RICO which, in the years since Holmes was decided in 1992, has given the defense
position a strong weapon in contesting RICO litigation.
As the majority opinion in Holmes conceded, the “proximate cause” requirement does not appear in the text of the RICO
statute itself, since § 1964(c)--the provision which explicitly confers a private cause of action--can “of course be read to mean
that a plaintiff is injured ‘by reason of a RICO violation’, and therefore may recover, simply on showing that the defendant
violated § 1962(c). . . .”104
The fact that the statute could “be read to mean” that injury to a plaintiff flows from a violation of RICO § 1962 by a
defendant did not mean, for the Holmes Court, that “all factually injured plaintiffs” can recover. 105 The Court noted “the very
unlikelihood that Congress” intended this result when it enacted RICO. 106
Since a proximate cause requirement concededly was not set out in the statute itself, the Holmes Court found the requirement
in “some statutory history.”107 The 91st Congress, in enacting RICO in 1970, modeled § 1964(c) on the civil action provision
of the federal antitrust laws, § 4 of the Clayton Act, and according to the Supreme Court in Holmes, federal courts had long
held that a plaintiff’s right to sue for antitrust violations under § 4 of the Clayton Act required a showing that the defendant’s
violation was not only a “but for” cause of the plaintiff’s injury but the proximate cause as well.108
According to the Court in Holmes, it was reasonable to credit the 91st Congress, which enacted RICO, with knowledge of the
interpretation courts had long given to § 4 of the Clayton Act--where the proximate cause requirement for antitrust purposes
had been judicially engrafted on § 4’s creation of a private cause of action in antitrust cases--and to construe the 91st
Congress’ use of essentially the same words in RICO § 1964 as in § 4 of the Clayton Act as indicating that the Congress
which enacted RICO “intended [the words creating the private remedy] to have the same meaning that courts had already
given them.”109
Specifically what does “proximate cause” mean in the RICO setting? According to the Holmes Court, it is a demand for
“some direct relation between the injury asserted and the injurious conduct alleged.” 110 In an effort to give some content to
this verbal formulation, Justice Souter’s majority opinion in Holmes emphasized that this “directness of relationship”
between an act and its consequences 111 is important in a RICO case for a variety of reasons. First, the less direct an injury is,
the more difficult it is to determine the amount of a plaintiff’s damages attributable to the violation, as distinct from other
independent factors.112 Second, ““recognizing claims of the indirectly injured would force courts to adopt complicated rules
apportioning damages among plaintiffs removed at different levels of injury from the violative acts” in an effort to avoid the
risk of multiple recoveries. 113 Third, “the need to grapple with these problems is simply unjustified by the general interest in
deterring injurious conduct, since directly injured victims can generally be counted on to vindicate the law as private
attorneys general, without any of the problems attendant upon suits by plaintiffs injured more remotely.” 114
At a practical level, how did Holmes’ creation of a proximate cause requirement apply to SIPC’s RICO claim against Holmes
himself? What guidance, in other words, does Holmes itself give to the requirement the decision itself created? SIPC’s claim

to relief against Holmes was somewhat arcane: it alleged “common law rights of subrogation” for what it described as “its
money paid to customers for customer claims against third parties,” 115 apparently contending that it stood in the shoes of the
failed brokerage houses seeking to recover damages from Holmes, who had no connection to the brokerage houses, on a
theory that his alleged misstatements about the value of corporate securities somehow contributed to the failure of those
houses.
. . . Holmes was not liable to SIPC because the link is too remote between the stock manipulation alleged and the . . . harm [to
the customers of the brokerage firms], being purely contingent on the harm suffered by the broker-dealers. That is, the
conspirators [including Holmes] have allegedly injured these customers only insofar as the stock manipulation first injured
the broker-dealers and left them without the wherewithal to pay customers’ claims.116
The mere fact that the broker/dealers could not “pay their bills” did not, in Holmes, “connect[] the conspirators’ acts to the
losses suffered by the . . . customers and general creditors” of the brokerage firms.117
Ironically, the Holmes Court determined that the new proximate cause requirement would be fully consistent with the
congressional mandate that RICO be “liberally construed to effectuate its remedial purposes:” 118
There is . . . nothing illiberal in our construction: We hold not that RICO cannot serve to right the conspirators’ wrongs, but
merely that the nonpurchasing customers [i.e., the customers of the failed brokerage houses who did not purchase the
allegedly manipulated stocks], or SIPC in their stead, are not proper plaintiffs. Indeed, we fear that RICO’s remedial purposes
would more probably be hobbled than helped by SIPC’s version of liberal construction: Allowing suits by those injured only
indirectly would open the door to “massive and complex damages litigation[, which would] not only burde[n] the courts, but
[would] also undermin[e] the effectiveness of treble-damages suits.119
[C] More Cross-Currents in the Supreme Court’s Post-Sedima Decisions
Another of the Supreme Court’s opinions in the civil RICO arena, Reves v. Ernst & Young,120 is also one of the decisions
most favorable to the defense. It put into play a basis for defendants to argue, in virtually any case, that they did not exert
sufficient control over a RICO enterprise to be liable for RICO violations. The Reves decision also contains one of the
Court’s more extensive discussions of RICO’s legislative history, providing a rich oasis of RICO arguments for defendants
wandering through the desert.
At issue in Reves was the extent to which an outside accounting firm could be construed as conducting the “affairs” of a
client. The central facts in Reves took place in 1982 and 1983--a decade before the Supreme Court finally resolved the
litigation--when the Farmer’s Cooperative of Arkansas and Oklahoma, Inc. (Co-op) held its annual meetings in those years.
At the 1982 annual meeting, a partner of Arthur Young & Co., an accounting firm, distributed condensed financial statements
regarding the Co-op’s 1981 year to the Co-op’s shareholders and members. The condensed statements did not include ““Note
9” to the full 1981 audit report which had been submitted by Arthur Young to the Co-op’s Board of Directors. Significantly,
Note 9 disclosed that an important operating asset of the Co-op, identified as White Flame Fuels, Inc., a developer of
gasohol, was sustaining losses averaging $100,000 per month.
At the 1982 annual meeting, the Arthur Young partner, in addition to distributing the condensed financial statements, spoke
to the audience for five minutes advising the Co-op shareholders that the statements he had distributed were condensed and
that copies of the full audited statements were available at the Co-op’s office. In response to questions, the Arthur Young
partner also explained that the Co-op owned White Flame and that the plant had incurred approximately $1.2 million in
losses but he revealed no other information relevant to the Co-op’s true financial condition.
One year later, in March 1983, Arthur Young again presented condensed financial statements to the annual meeting of Co-op
shareholders and members. Those condensed statements did not contain information which was in Note 8 to the full financial
statements--specifically, Arthur Young’s expression of its doubt as to whether the Co-op’s investment in White Flame was
recoverable. The shareholders at the 1983 annual meeting were informed by Arthur Young that its full audit report for 1982
was available at the Co-op’s office, but the shareholders were not told of Arthur Young’s doubts about White Flame or the
fact that, if White Flame failed, the Co-op would be in financial difficulty.
By February 1984, the Co-op, apparently because of pressures associated with its White Flame venture, in fact experienced
financial difficulties and filed for bankruptcy. In the aftermath of that filing, the Co-op’s bankruptcy trustee sued 40
defendants, including Arthur Young, on behalf of the Co-op and its shareholders under RICO and under federal and state
securities laws. After years of litigation, the district court and the Eighth Circuit exonerated Arthur Young from RICO
liability, holding that Arthur Young’s conduct did not ““rise to the level of participation in the management or operation of
the Co-op.”121
The Supreme Court affirmed the Eighth Circuit’s exoneration of Arthur Young, 122 and, in doing so, concentrated on the word
“conduct,” both as a verb and as a noun, in the language of § 1962(c), which makes it unlawful ““for any person employed by
or associated with any enterprise . . . to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs
through a pattern of racketeering activity. . . .”123
Relying principally on a dictionary’s definition of the verb “conduct,” 124 the Reves Court determined that reading the word

“conduct” to mean merely to “participate” or to be involved with--as both the bankruptcy trustee on behalf of the Co-op
shareholders and the United States as amicus curiae 125 had urged--would have been plausible only if Congress had written
““‘participate, directly or indirectly, in [an] enterprise’s affairs.” D’ 126 But, according to the Reves majority, the use of
“conduct” as both a noun and a verb in the same sentence indicates that Congress intended the word ““conduct” to require
“an element of direction.”127
As the Reves majority recognized, the obvious use of the word “participate” in RICO § 1962(c) raises a “difficult
question.”128 For the Court, the word “participate” could not be synonymous with the words “aid and abet,” since the aiding
and abetting concept “‘comprehends all assistance rendered by words, acts, encouragement, support or presence.”D’ 129 Since
Congress did not say “participate in affairs” and did say “participate in the conduct of affairs,” the Reves majority concluded:
“[W]e understand the word ‘conduct’ to require some degree of direction and the word ‘participate’ to require some part in
that direction,”130 thus causing “the meaning of § 1962(c)” to ““come[] into focus.”131
Obviously concerned that it needed more than a dictionary’s definition of the word “conduct” in order to validate a novel and
plainly important interpretation of RICO, the Supreme Court in Reves looked again to the statute’s legislative history. In the
past, it had found in the legislative history, as in Sedima and H.J. Inc., a basis for a broad, expansive approach to the law; in
Reves, it discerned for the first time in the legislative history grounds for restricting the statute.
For the Court in Reves, the “operation and management” test “is easy to apply”132 and “finds support in the legislative history
of § 1962”:133
The basic structure of § 1962 took shape in the spring of 1969. On March 20 of that year, Senator Hruska introduced S. 1623,
. . . which combined his previous legislative proposals . . . S. 1623 was titled the “Criminal Activities Profits Act” and was
directed solely at the investment of proceeds. It was § 2(a) of this bill that ultimately became § 1962(a). 134
In retracing the legislative history, the Reves Court recited that, on April 18, 1969, Senators McClellan and Hruska had joined
forces and combined their previous proposals to introduce S. 1861, 91st Congress, 1st Session. The new McClellan-Hruska
amalgam--S. 1861--had recast S. 1623 and added provisions that ultimately became § 1962(b) and (c). The first line of S.
1861 reflected its expanded purposes: “[T]o prohibit the infiltration or management of legitimate organizations by
racketeering activity or the proceeds of racketeering activity. . . .”
It was on June 3, 1969, as the Reves Court noted, that an assistant attorney general in the Nixon administration presented the
views of the Department of Justice on a number of then-pending bills relating to organized crime, including S. 1623 and S.
1861, to the Subcommittee on Criminal Laws and Procedures of the Senate Committee on the Judiciary. The Department of
Justice criticized S. 1623 on the ground that “it is too narrow in that it merely prohibits the investment of prohibited funds in
a business, but fails to prohibit the control or operation of such a business by means of prohibited racketeering activities.” 135
Moreover, the Department of Justice praised S. 1861--the bill combining the prior Hruska and McClellan proposals-- because
the “criminal provisions of the bill . . . are broad enough to cover most of the methods by which ownership, control and
operation of business concerns are acquired.”136
According to the Reves Court, “members of Congress” in their comments on the floor in 1969 consistently referred to
subsection (c) [of RICO § 1962] as prohibiting the operation of an enterprise through a pattern of racketeering activity and to
subsections (a) and (b) as prohibiting the acquisition of an enterprise. Representative Cellar, who was Chairman of the House
Judiciary Committee that voted RICO out in 1970, described § 1962(c) as proscribing the ““conduct of the affairs of a
business by a person acting in a managerial capacity, through racketeering activity.”137
In summarizing and piecing together these not particularly coherent fragments of legislative history, the Court in Reves
asserted: “Thus, the legislative history confirms what we have already deduced from the language of § 1962(c)--that one is
not liable under that provision unless one has participated in the operation or management of the enterprise itself.” 138
Applying its newly found “operation or management” test to the facts at issue in Reves, the Supreme Court briefly noted that
it was undisputed that Arthur Young had relied upon existing Co-op records in preparing the 1981 and 1982 audit reports,
and that an auditor, under relevant professional standards, may draft financial statements in whole or in part based on
information from the management’s accounting system. In addition, it was undisputed, according to Reves, that Arthur
Young’s full audit reports revealed to the Co-op’s board that the value of the White Flame gasohol plant had been calculated
based on the Co-op’s investment in the plant:
Thus, we only could conclude that Arthur Young participated in the operation or management of the Co-op itself if Arthur
Young’s failure to tell the Co-op’s board that the plant should have been given its fair market value constituted such
participation. We think that Arthur Young’s failure in this respect is not sufficient to give rise to liability under § 1962(c). 139
[D] The Supreme Court’s More Recent Pronouncements on RICO
The conflict over abortion generated the first of several Supreme Court decisions in an action known as National
Organization for Women v. Scheidler.140 In a terse opinion by then-Chief Justice Rehnquist, the Supreme Court unanimously
concluded that a violation of RICO does not require a plaintiff to plead and prove that a defendant had “an economic
purpose” in engaging in the predicate acts.141

Briefly described, the underlying litigation in Scheidler involved a complaint by the National Organization for Women
(NOW) and abortion providers against abortion opponents, including Operation Rescue, Project Life, and Randall A. Terry.
According to the complaint, the predicate racketeering acts were acts of extortion under the federal Hobbs Act. 142 Subsection
(b)(2) of the Hobbs Act defines extortion as “the obtaining of property from another, with his consent, induced by wrongful
use of actual or threatened force, violence, or fear, or under color of official right.” 143 Operation Rescue and the other
defendants advanced the argument that, since their conduct lacked any economic motive, they did not violate the Hobbs Act’s
proscription of extortion or RICO’s interdiction of racketeering activity.144
In holding that “RICO contains no economic motive requirement,” 145 the Scheidler Court looked only to the text of the
statute itself, eschewing any reliance on the legislative history. “Both parties,” Chief Justice Rehnquist wrote, “rely on
legislative history. We believe the statutory language is unambiguous, and find in the parties’ submissions respecting
legislative history no such ‘clearly expressed legislative intent to the contrary’ that would warrant a different
construction.”146
The Scheidler Court found in the text of RICO no “indication that an economic motive is required.” 147 In rejecting Operation
Rescue’s claim that it and the other defendants had only a moral or religious purpose, not a financial one, Chief Justice
Rehnquist wrote that the defendants “overlook the fact that predicate acts, such as the alleged extortion, may not benefit the
protestors financially but still may drain money from the economy by harming businesses such as the clinics which are the
petitioners in this case.”148
[E] The Supreme Court Explains RICO’s Conspiracy Provision
The Supreme Court revisited RICO in late 1997 in a criminal action, Salinas v. United States.149 At issue in Salinas was a
bribery scheme operated by Brigido Marmolejo (Marmolejo), the Sheriff of Hidalgo County, Texas, and one of his principal
deputies, Mario Salinas (Salinas). The context from which the scheme evolved was a contract between the county and the
federal government under which the county took custody of federal prisoners in exchange for hundreds of thousands of
dollars in payments from the United States for prison services.
Homero Beltran-Aguirre (Beltran) was one of the federal prisoners housed in Hidalgo County jails. During the 15 months of
Beltran’s sojourn in county jails, he paid Marmolejo a series of bribes in exchange for contact visits in which he was allowed
to remain alone with his wife and, at other times, with his girlfriend. Salinas was the principal deputy tasked with managing
the jail and supervising custody of the prisoners. When Marmolejo was unavailable, Salinas arranged the contact visits for
Beltran and stood watch outside the room where the visits took place. In return for his services, Salinas received from Beltran
a pair of designer watches and a pickup truck.
Ultimately, Salinas and Marmolejo were indicted. Salinas was charged with one count of violating RICO § 1962(c)--one of
the three substantive provisions of the statute--together with one count of conspiracy to violate RICO § 1962(d) and two
counts of bribery in violation of 18 U.S.C. § 666(a)(1)(B). At trial, the jury acquitted Salinas on the substantive RICO count
but convicted him on the RICO conspiracy count and the bribery counts.
On appeal, Salinas stressed an argument often invoked by defendants in civil racketeering litigation: that there can be no
finding of a conspiracy to violate RICO unless there is also a determination that the defendant violated RICO’s substantive
provisions as well.150 In the process of reaching its conclusion that a RICO conspiracy conviction can stand even when there
is no substantive RICO liability, the Court in Salinas began with a summary of the substantive provision of RICO § 1962(c)
(see Appendix A) under which Salinas was indicted and acquitted:
The elements predominant in a subsection (c) violation are: (1) the conduct (2) of an enterprise (3) through a pattern of
racketeering activity. See Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S. Ct. 3275, 3285, 87 L. Ed. 2d 346 (1985).
“Pattern of racketeering activity” is a defined term and requires at least two acts of “racketeering activity,” the so-called
predicate acts central to our discussion. 18 U.S.C. § 1961(5). “Racketeering activity,” in turn, is defined to include “any act . .
. involving . . . bribery . . . which is chargeable under State law and punishable by imprisonment for more than one year.” §
1961(1)(A).
The Government’s theory was that Salinas himself committed a substantive § 1962(c) RICO violation by conducting the
enterprise’s affairs through a pattern of racketeering activity that included acceptance of two or more bribes, felonies
punishable in Texas by more than one year in prison. . . . The jury acquitted on the substantive count. Salinas was convicted
of conspiracy, however, and he challenged the conviction because the jury was not instructed that he must have committed or
agreed to commit two predicate acts himself. His interpretation of the conspiracy statute is wrong. 151
[F] The Broad Scope of a RICO Conspiracy: The Absence of an “Overt Act”
Why was Salinas wrong in urging, in effect, that he could have no conspiracy liability under RICO if he had no substantive
liability? The Court in Salinas began with a common starting point in its analysis of any legislation--the literal words of the
statute itself. In full, the RICO conspiracy statute--§ 1962(d)--has 21 words and 3 letters: “It shall be unlawful for any person

to conspire to violate any of the provisions of subsections (a), (b), or (c) of this section.” (For all provisions of the RICO, see
Appendix A.) In the Court’s view, this terse language contains no requirement of some “overt act” or “specific act.” 152 This
is a stark departure from 18 U.S.C. § 371, the general conspiracy provision applicable to federal crimes, which requires that
at least one of the conspirators have committed an “act to effect the object of the conspiracy,” as § 371 literally states. “The
RICO conspiracy provision, then,” the Salinas Court noted, “is even more comprehensive than the general conspiracy offense
in § 371.”153
The Salinas decision did not range far beyond an intense focus on the words of RICO § 1962(d), because the Court at the
outset invoked the “general rule” that “[w]hen Congress uses well-settled terminology of criminal law, its words are
presumed to have their ordinary meaning and definition.” 154 Because the central statutory phrase in § 1962(d) is “to
conspire,” the Court determined that the Congress that wrote RICO in 1969 and 1970 intended the phrase to be applied in its
“conventional sense.”155
In its “conventional” usage, a conspiracy may exist “even if a conspirator does not agree to commit or facilitate each and
every part of the substantive offense.” 156 Moreover, under traditional conspiracy principles, the partners in the criminal plan
must agree to pursue the same criminal objective and may allocate the work among themselves, “yet each is responsible for
the acts of each other.”157 If conspirators have a plan that calls for some conspirators to perpetrate the crime and others to
provide support, ““the supporters are as guilty as the perpetrators.” 158 Finally, the general dogma regarding conspiracy
includes the concept that a person “may be liable for conspiracy even though he [is] incapable of committing the substantive
offense.”159
Significantly, for purposes of the Supreme Court’s long-standing effort since the Sedima decision in 1985 to elucidate the
statutory history of RICO, Salinas again emphasized, as have virtually all of the Court’s decisions on the statute, a liberal,
expansive approach to the law and its legislative history:
Our recitation of conspiracy law comports with contemporary understanding. When Congress passed RICO in 1970, see Pub.
L. 91-452, § 901(a), 84 Stat. 941, the American Law Institute’s Model Penal Code permitted a person to be convicted of
conspiracy so long as he “agrees with such other person or persons that they or one or more of them will engage in conduct
that constitutes such crime.” American Law Institute, Model Penal Code § 5.03(1)(a) (1962). As the drafters emphasized, “so
long as the purpose of the agreement is to facilitate commission of a crime, the actor need not agree ‘to commit’ the crime.”
American Law Institute, Model Penal Code, Tent. Draft No. 10, p. 117 (1960). The Model Penal Code still uses this
formulation. See Model Penal Code § 5.03(1)(a), 10 U.L.A. 501 (1974).160
According to the Salinas decision, a conspirator need only “intend to further an endeavor which, if completed, would satisfy
all of the elements of a substantive criminal offense.” 161 Underscoring the diverse but minimal forms of conduct that can lead
to conspiracy liability, the Court in Salinas explained that a conspirator can “further” a criminal “endeavor”
in any number of ways short of agreeing to undertake all of the acts necessary for the crime’s completion. One can be a
conspirator by agreeing to facilitate only some of the acts leading to the substantive offense. It is elementary that a conspiracy
may exist and be punished whether or not the substantive crime ensues, for the conspiracy is a distinct evil, dangerous to the
public, and so punishable in itself.162
Against this background of conspiracy theory, the Court had no difficulty in concluding that Salinas could have conspiracy
liability under RICO § 1962(d) despite his acquittal on a substantive RICO charge under § 1962(c):
It makes no difference that the substantive offense under subsection (c) [of § 1962] requires two or more predicate acts. The
interplay between subsections (c) and (d) does not permit us to excuse from the reach of the conspiracy provision an actor
who does not himself commit or agree to commit the two or more predicate acts requisite to the underlying offense. True,
though an ““enterprise” under § 1962(c) can exist with only one actor to conduct it, in most instances it will be conducted by
more than one person or entity; and this in turn may make it somewhat difficult to determine just where the enterprise ends
and the conspiracy begins, or, on the other hand, whether the two crimes are coincident in their factual circumstances. In
some cases the connection the defendant had to the alleged enterprise or to the conspiracy to further it may be tenuous
enough so that his own commission of two predicate acts may become an important part of the Government’s case. Perhaps
these were the considerations leading some of the Circuits to require in conspiracy cases that each conspirator himself
commit or agree to commit two or more predicate acts. Nevertheless, that proposition cannot be sustained as a definition of
the conspiracy offense, for it is contrary to the principles we have discussed.163
In Salinas, the “principles” the Court “discussed” led to the terse conclusion that, “even if Salinas did not accept or agree to
accept two bribes, there was ample evidence that he conspired to violate subsection (c)” because that evidence revealed that
“Marmolejo committed at least two predicate acts of racketeering activity when he accepted numerous bribes” and that
Salinas knew about and agreed to facilitate the scheme. 164 “This,” the Supreme Court concluded, “is sufficient to support a
conviction under § 1962(d).”165
[G] The Supreme Court’s Resolution of the Preemption Debate
In 1999, the Supreme Court resolved the long-standing and arcane debate over the extent to which the McCarran-Ferguson

Act, 59 Stat. 33, as amended, 15 U.S.C. § 1011 et seq.--a statute which limits federal involvement in the regulation of
insurance by the states--precludes the application of RICO to litigation involving the insurance industry. Humana Inc. v.
Forsyth166 determined that, in situations where a private RICO action could advance a state’s “interest in combating
insurance fraud”,167 the McCarran-Ferguson Act does “not block” a plaintiff’s “recourse to RICO . . .”168
While the specific holding of Humana is somewhat limited and will not resolve all future disputes as to when state insurance
regulation preempts the use of RICO, the decision once again re-affirms the Court’s dominant theme since its first civil RICO
decision in 1985 in Sedima S.P.R.L. v. Imrex Co.169--RICO should be broadly and liberally applied, innovative defenses
should be curtailed, and any remedies for perceived abuses or misuses of the statute should come from Congress, not from
the courts.
Humana also contains a tantalizing suggestion that could resolve another long-standing debate under RICO: are treble
damages under RICO the same as punitive damages? Humana suggests that punitive damages are different from treble
damages,170 a suggestion that could have consequences in areas in which the lower courts have been divided for years, such
as the issue of the survival of RICO actions against individual defendants who die during the course of the litigation, and the
availability of coverage under insurance policies. (Most courts have held that, to the extent claims for treble damages are
treated as compensatory or remedial rather than punitive, RICO claims survive the death of an individual defendant and can
be pursued against her estate. 171 Conversely, claims for damages that are punitive in nature do not survive the death of the
individual defendant.172 As far as insurance coverage is concerned, a significant majority of courts has traditionally
determined that coverage does not extend to the “punitive” component of a damage award.
[H] The Competition Between RICO and the McCarran-Ferguson Act
The factual dispute in Humana highlighted the tensions between the McCarran-Ferguson Act, an old federal statute that
performs the relatively rare function of disclaiming federal jurisdiction, and RICO, a quintessential sponge statute absorbing
federal jurisdiction in situations where it had not previously existed. The plaintiffs in Humana were beneficiaries of group
health insurance policies issued by defendant Humana Insurance. For several years, the plaintiffs received medical care from
the Humana Hospital-Sunrise, an acute care facility owned by defendant Humana Inc. The insurance company agreed to pay
80 percent of the policy beneficiaries’ hospital charges over a designated deductible, while the beneficiaries had
responsibility for payment of the 20 percent balance.
According to the plaintiffs in Humana, this apparently straightforward insurance arrangement had a secret and illicit aspect:
without disclosing that it was doing so, the hospital awarded Humana Insurance large discounts on the insurer’s portion of the
hospital charges for care provided to the beneficiaries. As a consequence, Humana Insurance paid significantly less than the
80 percent of the hospital’s actual charges for the care that the beneficiaries received, and the beneficiaries in fact paid
materially more than 20 percent of those charges. 173
Alleging that the concealed discounts awarded to Humana Insurance constituted a pattern of racketeering activity involving
mail fraud, wire fraud, and “television fraud” 174 the policy beneficiaries sued Humana Insurance and Humana Inc. Both
defendants moved for summary judgment on the ground that § 2(b) of the McCarran-Ferguson Act precluded the RICO
action. The relevant section of the McCarran-Ferguson Act provides, in part, that:
No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of
regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to
the business of insurance.175
At the District Court level, the defendants found a receptive judge. According to the District Court, RICO’s private remedies,
including the all-important provision for treble damages, so far exceeded Nevada’s administrative penalties for insurance
fraud that applying RICO to the alleged conduct of Humana Insurance and Humana Inc. would be “tantamount to allowing
Congress to intercede in an area expressly left to the states under the McCarran-Ferguson Act.”176
The Ninth Circuit reversed. The decision in Merchants Home Delivery Serv., Inc. v. Frank B. Hall & Co., 177 adopted a
“direct conflict” test for determining when a federal law “invalidate[s], impair[s], or supersede[s]” a state law governing
insurance. The Ninth Circuit in Merchants Home declared that the McCarran-Ferguson Act does not preclude “application of
a federal statute prohibiting acts which are also prohibited under a state’s insurance laws.” 178 Given its holding and rationale
in Merchants Home, the Ninth Circuit concluded in its Humana decision that the McCarran-Ferguson Act did not bar a civil
racketeering action by the policy beneficiaries. 179 In granting certiorari in Humana, the Supreme Court sought to resolve the
long-standing conflict in the federal Circuits, as well as in the District Courts, as to the interplay of the McCarran-Ferguson
Act and RICO. The majority of Circuits had generally ruled in favor of the displacement of RICO by the McCarran-Ferguson
Act.180
[I] The Court’s Conclusions as to the Nature of RICO Remedies
In concluding that the McCarran-Ferguson Act did not displace or preempt RICO, the Humana Court first identified the

purpose of the McCarran-Ferguson Act, which was enacted in 1945 because of congressional concerns that then-recent
Supreme Court decisions,181 might undermine state regulation of the insurance industry. Thus, the 1945 statute operates to
preclude the application of a federal statute when faced with a state law “enacted . . . for the purpose of regulating the
business of insurance” if the federal law does not “specifically relat[e] to the business of insurance” and would “invalidate,
impair, or supersede” the state’s law.182
RICO, of course, is not a law that “specifically relates to the business of insurance.” nor does RICO explicitly mention
insurance or, for that matter, any other industry group. To what extent, then, would the application of RICO in the factual
setting at issue in Humana “invalidate, impair, or supersede” Nevada’s laws regulating insurance?
Given the ordinary meanings of the words “invalidate” and “supersede”--both of which contemplate rendering a statute
ineffective183--the focal point of the Court’s Humana decision was the extent to which litigating under RICO the scheme in
which the Humana defendants were alleged to have collaborated would “impair” Nevada law.
The insurance company defendants in Humana urged that the term “impair” in the McCarran-Ferguson Act was designed to
convey Congressional intent to withdraw all federal law from the field of insurance, absent an express Congressional
statement to the contrary. 184 Under the insurers’ reading, the word ““impair” would convey “a very broad proscription
against applying federal law where a state has regulated, or chosen not to regulate, in the insurance industry.”185
In the arena of legal argument, overstatement of a position is often a very dangerous trap, and the Supreme Court in Humana
immediately ensnared the insurance defendants in their overstatement:
We reject any suggestion that Congress intended to cede the field of insurance regulation to the States, saving only instances
in which Congress expressly orders otherwise. If Congress had meant generally to preempt the field for the States, Congress
could have said, as the Ninth Circuit noted: “No federal statute [that does not say so explicitly] shall be construed to apply to
the business of insurance.” Merchants Home, 50 F.3d, at 1492 (emphasis in original) (internal quotation marks omitted); see
Brief for United States as Amicus Curiae 24 (“The Act does not declare that ‘No Act of Congress shall apply to the business
of insurance unless such Act specifically relates thereto.”D’). Alternatively, Congress could have provided, as it did with
respect to the Sherman, Clayton, and Federal Trade Commission Acts, see 15 U.S.C. § 1012(b), that federal legislation
generally, or RICO in particular, would be “applicable to the business of insurance [only] to the extent that such business is
not regulated by State Law,” ibid. (emphasis added).186
Again underscoring the wisdom of avoiding overstatement when advocating a legal position, the Supreme Court also rejected
the “polar opposite” view that Congress intended a “green light” for federal intervention in insurance matters whenever
federal law “does not collide head on with state regulation.” 187 Instead, the Humana Court attempted to strike a median
balance, primarily by echoing its approval of the balancing test articulated in its 1969 decision in Securities and Exchange
Commission v. National Securities, Inc.:188
In that case, we upheld, in the face of a McCarran-Ferguson Act challenge, the Securities and Exchange Commission’s
authority to unwind an insurance company merger that the Arizona Director of Insurance had approved. Our opinion pointed
to the absence of any “direct conflict”: “Arizona has not commanded something which the Federal Government seeks to
prohibit. It has permitted respondents to consummate the merger; it did not order them to do so.” Id., at 463, 89 S. Ct. 564.
But that statement did not stand alone. We also observed that “any ‘impairment’ in [that] case [was] a most indirect one.”
Ibid. And we concluded: “The paramount federal interest in protecting shareholders [was] perfectly compatible with the
paramount state interest in protecting policyholders.” Ibid. There, as here, federal law did not “directly conflict with state
regulation,” application of federal law did not “frustrate any declared state policy,” nor did it “interfere with a State’s
administrative regime.”189
Given these normative, somewhat indeterminate standards, the Court in Humana concluded that litigation under civil RICO
against Humana Insurance and Humana Inc. by policy beneficiaries would not “impair” Nevada law and ““therefore is not
precluded by the McCarran-Ferguson Act.”190
Indeed, the Humana Court went so far as to conclude that “RICO advances the State’s interest in combating insurance
fraud.”191 This is so, according to the Court, because Nevada state law also enables “[v]ictims of insurance fraud . . . [to]
pursue private actions . . .”192 Nevada’s Unfair Insurance Practices Act authorizes a private right of action for violations of a
number of unfair insurance practices, including ““[m]isrepresenting to insureds or claimants pertinent facts or insurance
policy provisions relating to any coverage.”193
[J] Are RICO Treble Damages Punitive Damages?
Significantly, the Court in Humana, without any extended discussion, drew a clear distinction between treble damages under
RICO and state-law punitive damages, thus bypassing years of heated debate over whether RICO’s treble damages are the
equivalent of punitive damages. In further identifying the lack of inconsistency between RICO and Nevada’s statutory
controls of the insurance industry, the Humana Court emphasized:
[A]ggrieved injured parties may be awarded punitive damages if a jury finds clear and convincing evidence that the insurer is
guilty of “oppression, fraud or malice.” Nev. Rev. Stat. § 42.005(1)(1995). Nevada’s punitive damages statute places certain

limits on those damages--three times the amount of compensatory damages if they are more than $100,000, and $300,000 if
compensatories are less than $100,000. . . . But the same law adds that these limits do not apply to claims against “[a]n
insurer who acts in bad faith regarding its obligations to provide insurance coverage. . . .” Accordingly, plaintiffs seeking
relief under Nevada law may be eligible for damages exceeding the treble damages available under RICO. 194
With these few sentences, the Humana Court evidently took for granted a distinction between RICO’s treble damages and
Nevada’s punitive damages, although the Court declined to explain any of the conceptual differences between treble and
punitive damages warranting the distinction it had articulated.
[K] The Supreme Court’s New Century of RICO Interpretation: When Does a RICO Claim Accrue?
The Supreme Court opened the new century with its twelfth major RICO decision since first construing the statute in 1981 in
United States v. Turkette.195 In Rotella v. Wood,196 it addressed one of the most vexed, complicated, and unresolved subjects
raised by the statute: When does the four-year limitations period begin to run?
For those who love a world in which there are clear answers to clearly stated questions, the Supreme Court is not prepared to
provide any satisfaction, as the Court’s February 23, 2000 decision in Rotella illustrates. Just as the 1997 opinion in Klehr v.
A.O. Smith Corp.,197 eliminated the so-called “last predicate act” rule for determining when the four-year statute of
limitations started, so the Rotella decision eliminated the “injury and pattern discovery” rule. 198 Beyond performing that
essentially negative function, the Supreme Court in Rotella did not specify the requirements of the accrual rule, and the lower
courts will undoubtedly engage in more years of litigation before the time comes, if it ever does, when a uniform, nationally
applicable guideline emerges as to when a civil racketeering cause of action accrues for purposes of marking the starting
point of the four-year statute of limitations.
[L] The Competing Accrual Rules for Purposes of RICO’s Four-Year Statute of Limitations
The facts in Rotella provided a relatively convenient platform on which the Supreme Court could have constructed a
definitive accrual rule if it had elected to do so. In February 1985, Mark Rotella was admitted to Brookhaven Psychiatric
Pavilion with a diagnosis of major depression. He was discharged in 1986. Eight years later, in 1994, Brookhaven’s parent
company and one of its directors pleaded guilty to charges of criminal fraud based on improper relationships and illegal
agreements between the company and its doctors. Rotella learned of the criminal plea agreement that same year (1994) and,
in 1997, he filed a civil racketeering complaint against a group of doctors associated with Brookhaven and against
Brookhaven itself.199
Rotella’s essential claim was that the doctor-defendants and the related corporate entities had, in 1985 and 1986, “conspired
to admit, treat, and retain him at Brookhaven not for any medical reason but simply to maximize their profits.” 200 As injuries,
he alleged compensatory damages based on his confinement for an excessive period because of the doctors’ effort to draw
down on his insurance coverage, fraudulent charges for unnecessary treatment, and the loss of a number of personal items.
Predictably, the defendants moved for summary judgment on the basis that Rotella’s civil RICO claims were precluded by
the four-year statute of limitations established by the Supreme Court in 1987 in Agency Holding Corp. v. Malley-Duff &
Associates, Inc.201 Rotella conceded that he discovered the fact of his injury in 1986, when he was discharged from
Brookhaven, but he argued that the four year RICO limitations period did not begin to run until he also learned of the
defendants’ pattern of racketeering activity--something which he allegedly did not learn until the criminal pleas were entered
in 1994.
Both the district court and the Fifth Circuit ruled against Rotella, determining his claims to be time-barred. 202 Rotella must
have felt a surge of hope when the Supreme Court granted the legal equivalent of a place on the waiting list to Harvard’s
freshman class--“certiorari to address a split of authority among the Courts of Appeal on whether the limitation period is
triggered in accordance with the ‘injury and pattern discovery’ rule invoked by Rotella.” 203
[M] “How Long Is Too Long?” The Supreme Court’s Rationale for Determining Accrual
Unfortunately for Rotella, he may have reached Harvard’s waiting list, but never played touch football in Harvard Yard. The
Rotella Court rejected the ““injury and pattern discovery” rule on which he relied and which had been endorsed by several of
the circuits. According to Justice Souter, who wrote for a unanimous court, the putative “injury and discovery” rule was
“unsound for a number of reasons.”204
Remarkably--although the Court in its 1987 decision in Malley-Duff in selecting a four-year limitation period had relied on
antitrust analogies205--the Court in Rotella dwelt almost exclusively on medical malpractice analogies in rejecting the “injury
and pattern” formulation. “How long is too long is, of course, a matter of judgment based on experience,” the Rotella Court
observed,206 also stressing as a general policy matter that “it gives us great pause that the injury and pattern discovery rule is
an extension of the traditional federal accrual rule of injury discovery and unwarranted by the injury discovery rule’s

rationale.”207
Why did the Rotella Court consider the “injury and pattern discovery” rule unwarranted by the traditional rationale
supporting the federal accrual rule of “injury discovery?”
[Because] in applying a discovery accrual rule, we have been at pains to explain that discovery of the injury, not discovery of
the other elements of a claim, is what starts the clock. In the circumstances of medical malpractice, where the cry for a
discovery rule is the loudest, we have been emphatic that the justification for a discovery rule does not extend beyond the
injury. . . . A person suffering from inadequate treatment is thus responsible for determining within the limitations period
then running whether the inadequacy was malpractice.208
The analogies between a RICO plaintiff and a medical malpractice plaintiff drawn by the Court in Rotella were even more
pervasive. The Rotella Court imposed on the potential RICO plaintiff, as on the medical malpractice plaintiff, a duty of
heightened diligence--indeed, a duty to sue as soon as practicable, when a RICO action is just theoretically available, as long
as that can be done in a manner consistent with the strictures of Fed. R. Civ. P. 11 against frivolous pleading, a delicate
balancing task. The Rotella decision itself, albeit unintentionally, outlined the dilemma:
[I]t is true . . . that a pattern of predicate acts may well be complex, concealed, or fraudulent. But identifying professional
negligence may also be a matter of real complexity, and its discovery is not required before the statute starts running. . . .
Although we said that the potential malpractice plaintiff “need only ask” if he has been wronged by a doctor, considerable
inquiry and investigation may be necessary before he can make a responsible judgment about the actionability of the
unsuccessful treatment he received. The fact, then, that a considerable effort may be required before a RICO plaintiff can tell
whether a pattern of racketeering is demonstrable does not place him in a significantly different position from the malpractice
victim. A RICO plaintiff’s ability to investigate the cause of his injuries is no more impaired by his ignorance of the
underlying RICO pattern than a malpractice plaintiff is thwarted by ignorance of the details of treatment decisions or of
prevailing standards of medical practice. 209
Every other aspect of the policy discussion in Rotella emphasized the primacy of the swift, diligent RICO plaintiff. Indeed,
Justice Souter literally wrote in terms of “rewarding the swift” 210 when he stressed that a pattern discovery rule would allow
too long a period of time to pass before the four-year period began to run.
[N] The Future of the RICO Accrual Rule
In the thirteen years since the Court in 1987 established a four-year RICO statute of limitations in Malley-Duff but
deliberately left open the crucial issue of accrual, there has been a parlor-game quality to the accrual question. The decision
in Malley-Duff explicitly declined to resolve it in 1987. Ten years later, in 1997, the Court, in its Klehr decision, “cut the
possibilities by one” by “rejecting the last predicate act rule.” 211 Rotella itself eliminated one more card--the “injury and
pattern discovery” rule.212
And now what cards are left? “We do not . . . settle upon a final rule,” Justice Souter candidly wrote in Rotella.213 Only two
potential rules remain--the injury discovery rule and lesser-known “injury occurrence” rule created essentially from the ever-
nimble imagination of Justice Antonin Scalia in his concurring opinion in Klehr. The selection of either of these rules would
operate to start the clock running at early points--so early, in fact, that a racketeering claim might not even have become
complete at the time the four-year clock starts. Even the Supreme Court in Rotella recognized this disturbing possibility,
citing a “fear that when the injury precedes a second predicate act, the limitations period might otherwise expire before the
pattern is created.”214 The Court, however, was unimpressed with this possibility: “[D]oubt about whether a harm might be
actionable before a pattern is complete is a weak justification for the cost of a general pattern discovery rule.” 215
Another possible consequence of Rotella may be a relaxation of the pleading standards of Rule 9(b) of the Federal Rules of
Civil Procedure. That rule requires, in all federal litigation, that fraud claims must be pleaded with “particularity.” As this
book emphasizes, the elusive but potent particularity requirement of Rule 9(b) has served as a powerful defense weapon for
many years, and continues to do so.216
But the Supreme Court has suggested in Rotella that the rigors of Rule 9(b) could be relaxed in racketeering litigation based
on “the flexibility provided by Rule 11(b)(3), allowing pleadings based on evidence reasonably anticipated after further
investigation or discovery.”217
The Rotella Court also pointed RICO plaintiffs in the direction of another avenue for alleviating the harsh impact of the
decision. The traditional concept of “equitable tolling” applies in certain circumstances to suspend the running of the statute
of limitations where a plaintiff can plead and prove that the defendant fraudulently concealed her conduct. As the Rotella
Court noted without elaborating on the suggestion:
In rejecting pattern discovery as a basic rule, we do not unsettle the understanding that federal statutes of limitations are
generally subject to equitable principles of tolling, see Holmberg v. Ambrecht, 327 U.S. 392, 397, 66 S. Ct. 582, 90 L. Ed.
743 (1946), and where a pattern remains obscure in the face of a plaintiff’s diligence in seeking to identify it, equitable
tolling may be one answer to the plaintiff’s difficulty, complementing Fed. R. Civ. P. 11(b)(3).218

[O] The Supreme Court’s Imposition of Restrictions on RICO Conspiracy Liability
In April 2000--soon after issuing its important decision in Rotella--the Supreme Court confronted the civil racketeering
statute in Beck v. Prupis.219 On this revisit, the Court limited the scope of civil liability on conspiracy claims under
subsection (d) of RICO § 1962 by determining that a plaintiff who has not been injured by an overt act of racketeering “does
not have a cause of action” for civil racketeering.220
In light of the Supreme Court’s 1997 decision in Salinas v. United States221--the opinion which held that a person could be
liable under the RICO conspiracy provision of § 1962(d) even if he did not have liability for substantive RICO violations
under subsections (a), (b), and (c) of § 1962--the result in Beck is somewhat surprising and, as the dissent in Beck
emphasized, ““contrad[ictory].”222
[P] An Overt Racketeering Act Must Cause Injury: The Emergence of New Restrictions on RICO Conspiracy Claims
In his first decade on the Supreme Court, Justice Clarence Thomas did not write a single opinion on the racketeering statute.
His debut majority opinion on civil racketeering issues, in Beck, was predictably conservative, in the sense of adopting the
narrowest view of the statute’s scope, and could signal an effort by the Court to limit the civil applications of RICO after
years of expansively interpreting the statute, beginning with Sedima in 1985 and continuing to Salinas in 1997.
On his way to enunciating the “overt-act-must-injure” rule, Justice Thomas in Beck began with broad aspects of the
legislative history of RICO before describing the literal language of the statute, an interesting reversal of the usual
conservative methodology. According to Beck’s introductory observations:
Congress enacted RICO as Title IX of the Organized Crime Control Act of 1970, Pub. L. 91-452, 84 Stat. 922, for the
purpose of “seeking the eradication of organized crime in the United States,” id. at 1923. Congress found that ““organized
crime in the United States [had become] a highly sophisticated, diversified, and widespread activity that annually drained
billions of dollars from America’s economy by unlawful conduct and the illegal use of force, fraud and corruption.” Id. at
922. The result was to “weaken the stability of the Nation’s economic system, harm innocent investors and competing
organizations, interfere with free competition, seriously burden interstate and foreign commerce, threaten the domestic
security, and undermine the general welfare of the Nation and its citizens.”223
After this opening summary of portions of RICO’s legislative history from 1968 to 1970, Justice Thomas turned to specific
quotations from the text of RICO §§ 1962(a), 1962(b), 1962(c), and 1962(d), 224 and then directly to the factual context of the
Beck action itself. Briefly described, the litigation arose from the activities of several officers of Southeastern Insurance
Group (SIG), a Florida insurance holding company with three operating subsidiaries, each of which was engaged in the
business of writing surety bonds for construction contractors.
According to the complaint, the SIG officers allegedly engaged in racketeering by creating an entity known as Construction
Performance Corporation, which demanded illegal fees from contractors in exchange for qualifying them for SIG surety
bonds. The SIG officers and directors involved in the scheme also allegedly diverted corporate funds to personal uses and
submitted false financial statements to regulators, shareholders, and creditors.
When Robert A. Beck, SIG’s Chief Executive Officer, discovered the scheme in which his subordinates were engaged, he
reacted by contacting state insurance regulators. In turn, Beck’s subordinates attempted to counteract Beck’s overtures to the
state regulators by orchestrating his removal from office at SIG. The effort to remove Beck succeeded, as a result of the
defendants’ hiring of an insurance consultant who prepared a false report alleging that Beck had failed adequately to perform
his duties as SIG’s Chief Executive Officer. When this report was presented to SIG’s directors, Beck was fired. 225
[Q] The Nature of the RICO Claims in Beck
Beck responded to his firing by filing a civil racketeering action against the SIG officers involved in the scheme which Beck
had reported to the regulators. The complaint asserted violations of each of the three substantive elements of RICO § 1962, as
well as a claim under § 1962(d), RICO’s conspiracy provision. ““With respect to this last claim,” Justice Thomas wrote in
Beck, “petitioner’s theory was that his injury was proximately caused by an overt act--namely, the termination of his
employment--done in furtherance of respondents’ conspiracy, and that § 1964(c) therefore provided a cause of action.” 226
In substance, then, Beck’s RICO conspiracy claim was that his injury arose from his termination, which in turn was allegedly
caused by his “whistle-blowing” activities designed to uncover and correct illegal activities by the SIG officers. In
articulating this type of claim, Beck was relying on various precedents which have “allowed RICO conspiracy claims where
the overt act was . . . merely the termination of employment, and was not, therefore, racketeering activity.” 227 Other appellate
decisions had reached different results, concluding that a plaintiff in analogous contexts injured by an overt act in furtherance
of a conspiracy could not assert a violation of § 1962(d) where the overt act--such as the firing of a whistle-blower--did not
itself involve “racketeering activity.”228

[R] The New Meaning of RICO Civil Conspiracy
In adopting the more restrictive approach to RICO’s civil conspiracy provision, the Supreme Court in Beck immediately
turned to a segment of RICO’s legislative history. “By the time of RICO’s enactment in 1970, it was widely accepted that a
plaintiff could bring suit for civil conspiracy only if he had been injured by an act that was itself tortious.” 229 The Beck
decision followed this assertion of the state of civil conspiracy law in 1970, when RICO was enacted, with citations to
approximately 12 decisions--several of them rendered after 1970--whose language allegedly corroborated this summary. 230
The Beck Court summarized its view of the meaning of RICO’s civil conspiracy:
The principle that a civil conspiracy plaintiff must claim injury from an act of a tortious character was so widely accepted at
the time of RICO’s adoption as to be incorporated in the common understanding of “civil conspiracy.” See Ballentine’s Law
Dictionary 252 (3d ed. 1969) (“It is the civil wrong resulting in damage, and not the conspiracy which constitutes the cause
of action.”); Black’s Law Dictionary 383 (4th ed. 1968) (“[W]here, in carrying out the design of the conspirators, overt acts
are done causing legal damage, the person injured has a right of action” (emphasis added)). We presume, therefore, that when
Congress established in RICO a civil cause of action for a person ““injured . . . by reason of” a “conspir[acy],” it meant to
adopt these well-established common-law civil conspiracy principles. 231
Against this background--and over an intellectually scathing dissent by Justice Stevens--the Court in Beck “conclud[ed] that
injury caused by an overt act that is not an act of racketeering or otherwise wrongful under RICO . . . is not sufficient to give
rise to a cause of action under § 1964(c) for a violation of § 1962(d). As at common law, a civil conspiracy plaintiff cannot
bring suit under RICO based on injury caused by any act in furtherance of a conspiracy that might have caused the plaintiff
injury. Rather . . . a RICO conspiracy plaintiff [must] allege injury from an act that is analogous to an “ac[t] of tortious
character,’ see 4 Restatement (Second) of Torts § 876, Comment b, meaning an act that is independently wrongful under
RICO.”232
[S] Applications of the New “Overt-Act-Injury” Rule
As applied to the facts in the Beck litigation itself, the Court’s decision resulted in the dismissal of the plaintiff’s RICO
conspiracy allegations because the “overt act in furtherance of [defendants’] conspiracy is not independently wrongful under
any substantive provision” of RICO.233
In the aftermath of Beck, little, if anything, remains of RICO conspiracy claims as an independent cause of action. In other
words, plaintiffs bringing a RICO action are confined to substantive claims under subsections (a), (b), and (c) of § 1962; they
may allege a § 1962(d) racketeering conspiracy only as an adjunct of the underlying substantive claims.
In the event all the substantive RICO claims fail, then the § 1962(d) conspiracy contention in all likelihood will collapse as
well, for it should be relatively easy to persuade a court that the “overt act” that caused the plaintiff financial injury was not a
substantive predicate act in a case in which all the substantive claims have been eliminated.
One final point in connection with the Beck majority opinion merits some emphasis: Justice Thomas referred at the end of the
decision to the plaintiff’s argument “under the longstanding canon of statutory construction that terms in a statute should not
be construed so as to render any provision of that statute meaningless or superfluous.” 234 Specifically, the plaintiff in Beck
contended that any person who had a claim for a violation of §§ 1962(a), 1962(b), or 1962(c) would also have a claim under
subsection (d), the conspiracy section of the statute. This, according to the Beck plaintiff, impermissibly rendered subsection
(d) superfluous.
Justice Thomas, in the majority opinion in Beck, rejected this contention on the grounds that “a plaintiff could, through a §
1964(c) suit for a violation of § 1962(d), sue co-conspirators who might not themselves have violated one of the substantive
provisions of § 1962.”235
Finally, it should be emphasized that the Beck opinion made virtually no credible effort to distinguish the Court’s 1997
decision in Salinas, which held that, in a criminal RICO prosecution, a defendant who had been acquitted of all substantive
offenses under subsections (a), (b), and (c) of § 1962 could nevertheless be liable for conspiracy to violate the substantive
subsections. Justice Thomas confined himself to a footnote in Beck to resolve the apparent inconsistency between using
“common law criminal” conspiracy standards, as in Salinas, and “common law civil” conspiracy standards, as in Beck, to
interpret the same statutory provision--§ 1962(d). “We have turned to the common law of criminal conspiracy,” Justice
Thomas wrote in Beck, “to define what constitutes a violation of § 1962(d), see Salinas v. United States, 522 U.S. 52, 63-65
(1997), a mere violation being all that is necessary for criminal liability.” 236 In conclusory language, Justice Thomas then
asserted that “our task is to interpret §§ 1964(c) and 1962(d) in conjunction, rather than § 1962 standing alone. The obvious
source in the common law for the combined meaning of these provisions is the law of civil conspiracy.” 237
[T] The Supreme Court Again Expansively Treats RICO: Reversal of the Person/Enterprise Dichotomy
Historically, one of the most fascinating aspects of the use of RICO has been the contrast between the Supreme Court’s

generally expansive and liberal interpretation of the civil applications of RICO and the lower courts’ consistent efforts to
develop narrow applications of the statute.
This significant discontinuity between liberality at the top of the federal hierarchy and conservatism among the lower
echelons of the federal judiciary was highlighted yet again--on June 11, 2001--by the Supreme Court’s unanimous decision in
Cedric Kushner Promotions, Ltd. v. King.238 In effect, the decision narrowed one of the leading restrictive doctrines
developed over 15 years by the lower federal courts--the concept that the RICO “person” had to be clearly and completely
differentiated from the RICO “enterprise.” Literally hundreds, if not thousands, of civil racketeering claims had been
dismissed, either in the context of an early motion to dismiss under Fed. R. Civ. P. 12(b)(6) or a motion for summary
judgment under Fed. R. Civ. P. 56, on the defensive RICO argument that the complaint failed adequately to separate the
enterprise from the RICO person.239
[U] Narrowing the Person/Enterprise Defense
At issue in Cedric Kushner was a prototypical claim--plaintiff Cedric Kushner Promotions, Ltd. (Kushner), a firm engaged in
the business of promoting boxing matches, alleged that the controversial sports promoter Don King (King) had conducted the
boxing-related affairs of Don King Productions (DKP) through a pattern of racketeering activity. King, the “person” who was
the RICO defendant, was the president and sole shareholder of DKP, the alleged RICO enterprise.
For anyone familiar with the rules of play in the RICO context in the Second Circuit and other circuits, the plaintiff in Cedric
Kushner had little or no chance of surviving a motion to dismiss, given the way the complaint was framed. Predictably, the
district court dismissed the complaint and the Second Circuit 240 affirmed the dismissal.
In unanimously reversing the decision of the Second Circuit, which had concluded that a violation of RICO § 1962(c)
required plaintiff to demonstrate the existence of two separate entities--a “person” and a distinct ““enterprise”--the Supreme
Court determined that an individual who owns a corporation “is distinct from the corporation itself.” 241 Applying traditional
analysis of the long-standing legal fiction that a corporation is an entity different from its owners, the Court noted:
The corporate owner/employee, a natural person, is distinct from the corporation itself, a legally different entity with different
rights and responsibilities due to its different legal status. And we can find nothing in the statute that requires more
separateness than that.242
For the Supreme Court, the sole owner of a corporation is also an employee of, and thus a separate person from, the company
that he or she owns. ““After all,” the Court stressed, “incorporation’s basic purpose is to create a distinct legal entity, with
legal rights, obligations, powers and privileges different from those of the natural individuals who created it, who own it, or
whom it employs.”243
More important than the specific issue resolved in Cedric Kushner--although the limitation on the person/enterprise defense
set by the decision is itself very significant--is the Supreme Court’s renewed endorsement of the broad application of Civil
RICO:
Further, to apply the RICO statute in present circumstances is consistent with the statute’s basic purposes as this Court has
defined them. The Court has held that RICO both protects a legitimate “enterprise” from those who would use unlawful acts
to victimize it, United States v. Turkette, 452 U.S. 576, 591 (1981), and also protects the public from those who would
unlawfully use an ““enterprise” (whether legitimate or illegitimate) as a “vehicle” through which ““unlawful . . . activity is
committed,” National Organization for Women, Inc. [v. Scheidler, 510 U.S. 249, 259, 114 S. Ct. 798, 127 L. Ed. 2d 99
(1994)]. A corporate employee who conducts the corporation’s affairs through an unlawful RICO “pattern . . . of activity,” §
1962(c), uses that corporation as a ““vehicle” whether he is, or is not, its sole owner.
Conversely, the appellate court’s critical legal distinction--between employees acting within the scope of corporate authority
and those acting outside that authority--is inconsistent with a basic statutory purpose. . . . It would immunize from RICO
liability many of those at whom this Court has said RICO directly aims--e.g., high-ranking individuals in an illegitimate
criminal enterprise, who, seeking to further the purposes of that enterprise, act within the scope of their authority. Cf.
Turkette, at 581, 101 S. Ct. 2524 (Congress “did nothing to indicate that an enterprise consisting of a group of individuals
was not covered by RICO if the purpose of the enterprise was exclusively criminal”).
Finally, we have found nothing in the statute’s history that significantly favors an alternative interpretation. That history not
only refers frequently to the importance of undermining organized crime’s influence upon legitimate businesses but also
refers to the need to protect the public from those [who] would run “organization[s] in a manner detrimental to the public
interest.” S. Rep. No. 91-617, at 82. This latter purpose, as we have said, invites the legal principle we endorse, namely, that
in present circumstances the statute requires no more than the formal legal distinction between “person” and ““enterprise”
(namely, incorporation) that is present here. 244
[V] The Supreme Court Speaks on the RICO Enterprise
Although delivered in a criminal context, the decision in Boyle v. United States244.1 applies in civil cases as well and provides

still another example of the expansive application of RICO.

At issue in Boyle was the “enterprise” element of the statute. The concept of ““enterprise” is critical to RICO’s key liability-
creating provision. § 1962(c) makes it “unlawful for any person employed by or associated with any 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) (emphasis added).
The defendant in Boyle was a crook by anyone’s standards. He and others committed a series of bank thefts in New York,
New Jersey, Ohio, and Wisconsin over a period of several years. The old-fashioned, Jimmy-Cagney-style gang of which
Boyle was a member targeted cash-laden night-deposit boxes found in shopping malls and other retail areas. Boyle and his
cohorts generally met before each theft for planning purposes. They gathered tools such as crowbars and communications
equipment and assigned roles among themselves. 244.2 Despite the planning of each theft, the “group was loosely and
informally organized. It [did not] have . . . a leader or hierarchy; nor does it appear that the participants ever formulated any
long-term master plan or agreement.”244.3
Since Boyle will inevitably become an often-cited decision, this description of the looseness and informality of the gang, as
well as the absence of a “leader or hierarchy” and a “long-term master plan” 244.4 will play a significant role in future cases
under RICO. This is because Boyle makes it easier to plead and prove the enterprise element.
[1] The Nature of a RICO Enterprise
Attempts to formulate a meaning for the concept of “enterprise” have been pursued since the enactment of the statute in
1970. Indeed, the Supreme Court’s first detailed decision on any aspect of RICO involved the “enterprise” element. 244.5 In its
1981 decision in Turkette, the Court noted that ““an enterprise includes any union or group of individuals associated in fact”
and that RICO reaches “a group of persons associated together for a common purpose of engaging in a course of
conduct.”244.6 As the Court emphasized, these statutory words are “obviously broad,” 244.7 encompassing “any” group of
“individuals” associated “in fact.”244.8 According to Boyle, “the very concept of an association in fact is expansive.” 244.9
Under Turkette, a RICO enterprise “is proved by evidence of an ongoing organization, formal or informal, and by evidence
that the various associates function as a continuing unit.” 244.10 In its many decisions on RICO in the years after 1981,
Turkette has set the framework for an expansive treatment of “enterprise,” as well as other provisions of the statute. 244.11
Despite Turkette’s mandate to the lower federal courts, the district courts and appellate courts have consistently crafted more
restrictive approaches since the rendition of the decision in 1981. In the context of the “enterprise” element, they developed
what became known as the requirement of a “business-like” structure for an enterprise. 244.12
As with so many other restrictive doctrines--such as the doctrine rejected by Sedima that a criminal conviction was required
to state a civil RICO claim--the Supreme Court in Boyle delivered the death-blow to the ““business-like” doctrine. There is
“no basis,” the Supreme Court ruled in Boyle, “to impose an extratextual requirement” that an enterprise resemble a
““business-like” entity.244.13
[2] The “Structure” Aspect of “Enterprise”
Although rejecting the theory that a RICO enterprise have the characteristics of a “business-like entity,” the Supreme Court
in Boyle confirmed that a RICO enterprise must have a “structure.” But what is a “structure?” The Boyle decision resorted to
a dictionary definition of the term: a structure denotes ““[t]he way in which parts are arranged or put together to form a
whole” and the “interrelation or arrangement of parts in a complex entity.” 244.14 Drawing on this definition and the language
of RICO itself, Boyle in addition stressed that “structure” involves (i) a purpose for the enterprise, (ii) relationships among
those associated with the enterprise, and (iii) “longevity” sufficient to permit the associates to pursue the enterprise’s
purpose.244.15
As far as the “purpose” factor is concerned, Boyle tersely noted that it “is apparent” that the term “enterprise” itself
necessarily implicates “purpose” in the “ordinary usage” of that word. In a somewhat opaque formulation, Justice Alito in
Boyle wrote that a “venture,” “undertaking,” or “project” all inherently involve a “purpose.”244.16
With respect to the “longevity” factor, Justice Alito was likewise terse, commenting only that the “concept of ‘association’
requires both defines “enterprise”D’); Russello v. United States, 464 U.S. 16, 21, 104 S. Ct. 296, 78 L. Ed. 2d 17 (1983)
(noting “the pattern of the RICO statute in utilizing terms and concepts of breadths”). interpersonal relationships and a
common interest.”244.17 Interpersonal relationships evolve over time, thus acquiring “longevity.” Moreover, § 1962(c)
reinforces that longevity is a requirement because the offense proscribed by § 1962(c) demands proof that the enterprise had
“affairs” of “sufficient duration to permit an associate to “participate’ in those affairs through ‘a pattern of racketeering
activity.”D’244.18
“Structure” also requires that a plaintiff (or the Government in the case of a criminal prosecution) must plead and prove that
the enterprise has characteristics “beyond that inherent” in the pattern of racketeering activity. Stated differently, as it was in

Turkette, the existence of the enterprise is an element distinct from the pattern of racketeering activity and “proof of one does
not necessarily establish the other.”244.19
Turkette also teaches, as the Court emphasized again in Boyle, that the same proof that establishes a pattern of racketeering
can also be used to establish an enterprise. The evidence of a pattern and an enterprise “may in particular cases
coalesce.”244.20
[W] The Supreme Court’s Narrowing of the Scope of Extortion for RICO Purposes
The decision in Scheidler v. National Organization for Women, Inc.245 reflected the second time that the complex, emotional,
and controversial litigation between abortion protestors and abortion providers reached the Supreme Court. The original 1994
decision in National Organization for Women, Inc. v. Scheidler 246 generated substantial notoriety because it allowed the
abortion providers’ lawsuit against Operation Rescue and other protestors to proceed to trial and also appeared to settle what
had been an important and unresolved issue--specifically, whether a defendant who lacked an economic motive for her
conduct could be liable under RICO. The first Scheidler decision seemed to answer that question with the clear conclusion
that the absence of economic motivation was not relevant, so long as a defendant’s conduct had an impact on the business or
property interests of the plaintiff. As a result, it was reasonably apparent, or so it seemed until the Scheidler decision in 2003,
that someone who committed racketeering acts for no apparent economic reason--such as an abortion protestor--could face
RICO liability and damages if the victim’s business or property interests were damaged, as would happen if an abortion
clinic’s operations were impaired by the protestors.
Although the second Scheidler decision did not explicitly overrule the original Scheidler opinion, it is inevitable that the more
recent decision will serve as a basis for years to come to restrict RICO’s application in civil cases alleging extortion as one of
the predicate acts, as well as in criminal actions brought by the Justice Department for extortion or RICO violations based on
extortion.
[1] The Facts at Issue in Scheidler
At issue in Scheidler was an easily summarized, and relatively notorious, set of facts. In 1986, NOW and two health care
centers that perform abortion services sued a coalition of antiabortion groups operating under the umbrella of the Pro-Life
Action Network (PLAN) and a variety of other protestors and protest organizations, including Operation Rescue. The
plaintiff’s essential claim was that the antiabortionists were associated with PLAN, the racketeering enterprise, and that they
conducted the affairs of PLAN though a pattern of racketeering activity. This was a fairly elegant and straightforward theory
that appeared to fit easily into the mold of the requirements of RICO § 1962(c).
As it ultimately developed, however, the fatal and latent flaw of NOW’s theory was that it cited violations of the Hobbs Act--
the federal extortion statute-- as a predicate offense. NOW claimed that the antiabortionists engaged in repeated acts of
extortion to achieve their objective of a nationwide shutdown of abortion clinics.
[2] The Checkered Procedural History of the Scheidler Litigation
Litigations are often like baseball games, with leads changing from inning to inning and fiercely contested games frequently
going into extra innings. So it was with the Scheidler action. In 1991, five years after the case was filed, the District Court
dismissed it on the ground that the complaint failed to allege that the predicate acts of racketeering of the PLAN enterprise
were economically motivated247 The trial court’s decision was affirmed by the Seventh Circuit in National Organization for
Women, Inc., v. Scheidler,248 and it was that decision in turn which was reversed by the Court in the 1994 Scheidler opinion.
As the Court itself summarized, the 1994 opinion concluded “that RICO does not require proof that either the racketeering
enterprise or the predicate acts of racketeering were motivated by an economic purpose.” 249 It is always useful, and
sometimes revealing of the Court’s own sleight-of-hand, to have a later Supreme Court decision explicitly summarize the
holding of an earlier case.
NOW and the other plaintiffs enjoyed a remarkable and highly publicized race to success after the remand. At the end of a
seven-week trial, the jury returned a verdict finding that Operation Rescue and its co-defendants had engaged in a pattern of
racketeering activity that included 21 violations of the federal extortion statute, 25 violations of the applicable Illinois
extortion statute, 25 instances of attempting or conspiring to commit either federal or state extortion, and numerous violations
of the federal Travel Act, 18 U.S.C. § 1952. The jury awarded approximately $31,000 to NOW and $54,000 to an abortion
clinic; these amounts were automatically trebled. Moreover, because only a judge can order injunctive and equitable relief,
the district court entered a permanent nationwide injunction prohibiting the protest groups from interfering in any abortion
clinic activity. (Incidentally, even in the wake of the decision in Scheidler, it remains unsettled as to whether a district court,
in an action brought by a private party as distinct from the federal government, can enter injunctive or other forms of
equitable relief.)

[3] The Significance of the Result in the Scheidler Decision
Relying on the 1994 Scheidler decision, the Seventh Circuit affirmed. It rejected the protest groups’ key argument that they
had not obtained “property” within the meaning of RICO. As the Seventh Circuit put it: “‘[A]s a legal matter, an extortionist
can violate the Hobbs Act without either seeking or receiving money or anything else. A loss to, or interference with the
rights of, the victim is all that is required.”D’250
It was, of course, precisely this ruling by the Seventh Circuit that the Supreme Court rejected in the Scheidler opinion. In a
remarkable restriction of long-held views regarding the scope of the Hobbs Act--which defines extortion as “the obtaining of
property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under
cover of official right” (18 U.S.C. § 1951 (b)(2))--the Court declared that NOW and the clinics could not satisfy the
“obtaining of property” requirement under the theory that the protestors sought “to get control of the use and disposition of
[the clinics’] property.”251
What was the flaw in NOW’s theory and in the Seventh Circuit’s application of traditional standards on the scope of the
Hobbs Act? The Court in Scheidler reached back deeply into the English common law meaning of extortion, citing
Blackstone’s 1765 Commentaries on the Laws of England for the proposition that extortion was originally a property offense
committed by a public official who took “any money or thing of value” to which he was not entitled on the pretense that he
had a right to collect the property by virtue of his office. 252
The Hobbs Act, enacted in 1946, “expanded the common-law definition of extortion to include acts of private
individuals.”253 Other antique sources to which the Supreme Court resorted in Scheidler included the Field Code, a
nineteenth-century model penal code. The Field Code’s 1865 definition of extortion was “the obtaining of property from
another without his consent, induced by a wrongful use of force or fear. . . .”254
Relying on these ancient concepts, the Scheidler opinion determined, in language that will frequently be cited in future legal
briefs of defendants:
There is no dispute in these cases that petitioners [Operation Rescue and the other defendants] interfered with, disrupted, and
in some instances completely deprived respondents [the abortion clinics] of their ability to exercise their property rights . . .
But even when their acts of interference and disruption achieved their ultimate goal of “shutting down” a clinic that
performed abortions, such acts did not constitute extortion because petitioners did not “obtain” respondents’ property.
Petitioners may have deprived . . . respondents of their alleged property right to their exclusive control of their business
assets, but they did not acquire any such property. Petitioners neither pursued nor received “something of value from”
respondents that they could exercise, transfer or sell. . . . To conclude that such actions constituted extortion would
effectively discard the statutory requirement that property must be obtained from another, replacing it instead with the notion
that merely interfering with or depriving someone of property is sufficient to constitute extortion. 255
Like Dracula, some racketeering cases appear to last forever, no matter how many stakes are driven into their hearts. The
never-ending lawsuit between abortion opponents and NOW, together with abortion providers allied with NOW, began in
1991, the year in which the first federal District Court decision, National Organization for Women, Inc. v. Scheidler,256 was
issued.
Like Dracula as well, the Scheidler lawsuit has risen and fallen. For example, the 1991 decision in Scheidler I rejected the
litigation on the notion--which was evolving in district courts hostile to RICO in the late 1980s and early 1990s--that RICO
defendants can be exposed to liability only if they have an ““economic motive,” a view embraced in 1992 by the United
States Court of Appeals for the Seventh Circuit in National Organization for Women, Inc. v. Scheidler (Scheidler II).257
In 1994, in one of its classic decisions on civil RICO since Sedima was rendered in 1985, the Supreme Court reversed
Scheidler II. In National Organization for Women, Inc. v. Scheidler (Scheilder III),258 the Supreme Court, once again
expanding the scope of civil racketeering litigation, rejected the shibboleth that a RICO defendant requires an “economic
motive” for his or her conduct before RICO liability can be imposed.
After the Supreme Court’s historic 1994 reversal in Scheidler III, the lawsuit returned to the trial court. More passionate
procedural skirmishes were waged in the lower federal courts between 1994 and 2003, when the racketeering/abortion
clashes again resulted in a Supreme Court decision, Scheidler v. National Organization for Women, Inc. (Scheidler IV).259
The Scheidler IV decision did not leave the litigation in its grave, although it made important, somewhat constricting rulings
on the meaning of extortion under 18 U.S.C. § 1951, one of the RICO predicate acts.
Even Dracula has rights to appeal, and to do so again and again until some legal principle results in finality. Confronted with
their string of losses, the Scheidler defendants found their way to the United States Supreme Court yet again. And, as recently
as February 2006, the abortion opponents snatched victory from the jaws of defeat (to coin a phrase) when the Supreme
Court, in Scheidler v. National Organization for Women, Inc. (Scheidler V),260 nullified NOW’s victory and appears to have
driven the final stake into Dracula’s heart.
[X] The Supreme Court’s Reasons for Reversal of the Racketeering Findings

In the 2006 unanimous opinion in Scheidler V, the Supreme Court focused its attention on the role of the Hobbs Act, 18
U.S.C. § 1951, the federal extortion statute and also one of the relatively few federal criminal laws specifically designated in
the text of RICO as a predicate act of racketeering activity.
The Court’s 2006 decision in Scheidler V reads more like an abstract essay than a judicial opinion. Distilled to its essence,
Scheidler V means in practical terms that those RICO lawsuits that rely, even in part, on alleged Hobbs Act violations face
very substantial obstacles.
Justice Breyer, writing for the full Court in Scheidler V, attempted to summarize the questions raised and the Court’s ruling in
the first--and somewhat opaque--opening paragraph of the opinion:
A section of Title 18 of the United States Code (called the Hobbs Act) says that an individual commits a federal crime if he
or she “obstructs, delays, or affects commerce” by (1) “robbery,” (2) “extortion,” or (3) “commit[ing] or threaten[ing]
physical violence to any person or property in furtherance of a plan or purpose to do anything in violation of this section .” §
1951(a) (emphasis added). The dispute in these cases concerns the meaning of the underscored words, in particular the
words, “in furtherance of a plan or purpose to do anything in violation of this section.” Does this phrase refer to (violence
committed pursuant to) those plans or purposes that affect interstate commerce through robbery or extortion? Or does it refer
to (violence committed pursuant to) those plans or purposes that affect interstate commerce, plain and simple? If the former,
the statute governs only a limited subset of violent behavior, namely, behavior connected with robbery and extortion. If the
latter, the statute governs a far broader range of human activity, namely, all violent actions (against person or property) that
affect interstate commerce. In our view, the former, more restrictive reading of the Act is the correct interpretation. 261
Justice Breyer, as the voice of an unanimous Court, had to explain this somewhat opaque, academic-resonant opening
paragraph to the opinion in the much vexed, long-lived litigation. The opinion in Scheidler V immediately moved to an
overview of the apparently interminable origin and course of the case. As is now well-known through the media, the
defendants in Scheidler were people and organizations dedicated to active “pro-life, antiabortion activities.” 262 Arrayed on
the opposite side of this widely publicized conflict were NOW and other pro-choice organizations and abortion-providers, as
well as women desiring abortions and those who supported the availability of abortions.
According to the unanimous opinion in Scheidler V, it was in 1986--two decades ago--that “(pro-choice) respondents,
believing, that through violence and various other unlawful means, (pro-life) petitioners had tried to disrupt activities at
health care clinics that perform abortions brought their legal action, which sought damages and an injunction forbidding
[antiabortionists] from engaging in such activities anywhere in the nation.” 263
Of course, pro-abortion plaintiffs grounded their initial suits and their continued the legal campaign on civil RICO, citing
primarily the extortion provisions of the Hobbs Act, a RICO predicate. The proabortionists consistently claimed that their
opponents’ “clinic-related activities amounted in context to extortion. They added that these extortionate acts created a
“pattern of racketeering activity’--a pattern that RICO defines in terms of certain predicate acts that include acts of
extortion. . . . And they sought a permanent injunction, which they believed RICO authorized.” 264
Primarily because Scheidler V’s recitation of the procedural history of the case omits at least one of the significant aspects of
the jury trial held several years earlier in the same litigation--a finding that in fact the antiabortionists had caused financial
injury to plaintiff-clinics that were prevented from earning money as a result of the antiabortionist protests 265--it is, from a
strictly historical aspect, vital to set forth Scheidler V’s somewhat truncated and incomplete version of the history of the
litigation. Selectively summarizing that long history, Justice Beyer wrote:
Initially, the District Court dismissed [the] complaint. It concluded that RICO requires proof that the alleged criminal acts
were motivated by an economic purpose--a purpose that is lacking here. National Organization for Women, Inc. v. Scheidler,
765 F.Supp. 937 (N.D. Ill. 1991). The Court of Appeals for the Seventh Circuit affirmed. National Organization for Women,
Inc. v. Scheidler, 968 F.2d 612 (1992). But this Court held that the statute “requires no such economic motive,” and therefore
reversed the Court of Appeals and remanded the case for further proceedings. National Organization for Women, Inc. v.
Scheidler, 510 U.S. 249, 252, 114 S. Ct. 798, 127 L. Ed. 2d 99 (1994).
After trial, the jury found that the [anti-abortionists] had engaged in a host of extortionate, or extortion-related acts. It
awarded treble damages to two of the respondents (a matter not at issue here) and the district court entered a nationwide
injunction. See §§ 1964(a), (c). The Court of Appeals affirmed. (267 F.3d 687 (2001).)
This Court again reversed. Scheidler v. National Organization for Women, Inc., 537 U.S. 393, 123 S. Ct. 1057, 154 L. Ed. 2d
(2003). . . . We noted that the Hobbs Act defines “extortion” as necessarily including the improper “‘obtaining of property
from another.”D’ Id., at 400, 123 S. Ct. 1057 (quoting § 1951(b)(2)). We pointed out that the claimed “property” consisted of
“a woman’s right to seek medical services from a clinic, the right of the doctors, nurses or other clinic source to perform their
jobs and the right of the clinics to provide medical services free from wrongful threats, 537 U.S., at 400-401, 123 S. Ct. 1057
(internal quotation marks omitted). We decided that “[w]hatever the outer boundaries may be, the effort to characterize
petitioners’ actions here as an ‘obtaining of property from respondents is well beyond them.”D’ Id., at 402, 123 S. Ct.
1057. . . .266
[Y] Scheidler V Rules Extortion Out of Abortion Cases

The Supreme Court in Scheidler V finally drove the definitive stake into Dracula’s heart in abortion-related litigation. In
legalistic but not less subtle terms, the Court in Scheidler V determined: “We hold that physical violence unrelated to robbery
or extortion falls outside of the scope of the Hobbs Act.”267 Or, as stated somewhat differently by Scheidler V in the closing
paragraph of the opinion:
We conclude that Congress did not intend to create a freestanding physical offense in the Hobbs Act. It did intend to forbid
acts or threats of violence in furtherance of a plan or purpose to engage in what the statute refers to as robbery or extortion. . .
.268
[Z] The Supreme Court: 2006 Decision in Anza and Its Likely Impact
The Supreme Court’s June 2006 opinion in Anza v. Ideal Steel Supply Corp.,269 issued in the final weeks of the first term of
the “Roberts Court,” will in all likelihood have a deeper impact than the Roberts Court’s February 2006 decision in
Scheidler. Put simplistically, both decisions are good news for defendants, with Anza particularly so since it heightens the
proximate cause requirements first delineated by the Supreme Court 14 years earlier in Holmes v. Securities Investor
Protection Corp.270
At the outset, the best approach to understanding Anza’s impact and potential importance is to emphasize its facts, which are
remarkable essentially for their mundane typicality. The plaintiff in Anza, Ideal Steel Supply Corporation (Ideal), sold steel
mill products and related supplies and services. Significantly, Ideal operated only two stores in New York City, one in the
Bronx and the other in Queens.
Ideal’s principal competitor, National Steel Supply Company (National), was also based in New York City, in Queens and
the Bronx as well. Ideal’s racketeering claims against National were that National “gain[ed] sales and marketing share” at
Ideal’s expense by National’s failing to charge the requisite New York State-mandated sales tax to cash-paying customers of
National, “even when conducting transactions that were not exempt from sales tax under state law.” 271 According to Ideal’s
racketeering complaint, this practice of sales tax avoidance allowed National, as the defendant, to reduce its prices to
customers without affecting National’s profit-margin. Moreover, National allegedly compounded its chicanery by submitting
fraudulent sales tax returns to the New York State Department of Taxation in an effort to conceal the tax-evasion scheme. 272
[1] The Exact Nature of the Claims in Anza
Not surprisingly, the plaintiff in Anza selected RICO § 1962(c) as the primary alleged ground of liability. Subsection (c) of §
1962 makes it unlawful for ““any person employed by or associated with any 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.”
Another, separate racketeering cause of action in Anza was predicated on the less frequently invoked subsection (a) of RICO
§ 1962. Subsection (a) criminalizes--and provides a potential civil cause of action for--the receipt by a person of income from
a “pattern of racketeering” if that income is “us [ed] or invest[ed] . . . in the acquisition of any interest in, or the establishment
or operation of,” an enterprise engaged in or affecting interstate or foreign commerce. In more practical terms, Ideal accused
National of utilizing funds generated by its fraudulent state tax avoidance scheme to open National’s Bronx location. The
logic of Ideal’s grievance was that the new Bronx facility caused Ideal to lose significant business and market share.
[2] The First Stage: The RICO Claims Stumble in the District Court
The trial court had no hesitation in dismissing the complaint, ruling that, since Ideal’s claims were based on the mail and wire
fraud criminal statutes, it could never demonstrate that it relied on National’s false representations to the state government
regarding National’s false sales tax practices and its fraudulent sales tax returns filed with the state government.
Ideal enjoyed great success on its appeal to the Second Circuit. In reversing the district court, the Second Circuit determined
that when a complaint alleges a pattern of racketeering activity “that was intended to and did give the defendant a competitive
advantage over the plaintiff, the complaint adequately pleads proximate cause, and the plaintiff has standing to pursue a civil
RICO claim.”273 This is so “even where the scheme depended on fraudulent communications directed to and relied on by a
third party rather than the plaintiff.”274
Somewhat surprisingly, the Second Circuit’s largesse in Anza extended even to the claims under the rarely used subsection
(a) of RICO § 1962. The appellate court reasoned that Ideal adequately pleaded its claim by alleging that National’s use and
investment of racketeering proceeds, “as distinct from injury traceable simply to predicate acts of racketeering alone or to the
conduct of the business of the enterprise,”275 could give rise to a violation of § 1962(a).
[AA] The Supreme Court’s Heightening of Holmes’ Proximate Cause Requirement
The Supreme Court used the vehicle of the Anza case to swing a powerful wrecking ball through the theoretical
underpinnings of the litigation and the results in the Second Circuit. As Justice Kennedy wrote in Anza, ““[o]ur analysis
begins--and--largely ends” with the -then 14-year-old opinion in Holmes v. Securities Protection Corp.276 According to
Anza, the Holmes opinion turned on a complaint filed by a government agency, the Securities Investor Protection Corporation
(SIPC), against private defendants accured of fraudulent securities activity. When the public market detected the fraud, the
share prices collapsed, a “decline [that] caused [two] broker-dealers’ financial difficulties resulting in their eventual
liquidation and the SIPC’s advance of nearly $13 million to cover the customer claims.”277
In the ensuing litigation, SIPC accused the defendants--all of whom were registered broker-dealers--of the conduct of an
enterprise’s affairs through a pattern of racketeering activity in violation of RICO § 1962(c).
In its 1994 decision in Holmes, the Supreme Court drew a faint, shifting line in the dirt with its emphasis on “proximate
causation” as an ingredient in any and all RICO civil claims. Holmes determined that SIPC could not maintain its claims
against a broker-dealer for his alleged role in the scheme. The Holmes decision relied on an interpretation of RICO § 1964(c)
providing a civil cause of action to persons injured “by reason of” a defendant’s RICO violation. Holmes acknowledged,
because of linguistic necessity, that “the phrase ‘by reason of’ could be read broadly to require merely that the claimed
violation was a ‘but for’ cause of the plaintiff’s injury.”278
The Supreme Court in Holmes engaged in the conservatively discredited exercise of imputing intentions to Congress not
expressly articulated in the text of the statute or, where that text is obscure, opaque, or ambiguous, in the statute’s legislative
history. In this instance, the Holmes decision eschewed the “but for” language of § 1964 by claiming the “unlikelihood that
Congress meant all factually injured plaintiffs to recover.” 279
Since Congress could not have meant all factually injured plaintiffs to recover, common-law principles worthy of Oliver
Wendell Holmes (note the symmetry of the 1994 case name and the legendary judge), led the court in Holmes to the
principles reflected in the “common-law foundations of the proximate cause requirement.” 280 Even if SIPC were subrogated
to the rights of aggrieved customers, the RICO claims could not satisfy this requirement of directness. According to Holmes,
“the link is too remote between the stock manipulation alleged and the customers’ harm, being purely contingent on the harm
suffered by the broker-dealers.”281
As in Holmes, so in Anza. To paraphrase an earlier political mantra, “where is the proximate cause?” Ideal’s theory was that
the Anzas--the controlling people of National--harmed Ideal by defrauding New York State tax authorities and using
proceeds of the fraud to offer lower prices designed to attract more customers. The RICO violation alleged by Ideal was that
the Anzas conducted National’s affairs through a pattern of mail fraud and wire fraud. The direct victim of this conduct was
the State of New York, not Ideal. It was the State that was being defrauded and the State that lost tax revenue.
Of course a person’s misconduct can have more that one victim, but in Anza the scope of harm did not extend to Ideal. As
Anza explained, in language defense lawyers will often necessarily cite in a variety of contexts:
The proper referent of the proximate cause analysis is an alleged practice of conducting National’s business through a pattern
of defrauding the State. To be sure, Ideal asserts it suffered its own harms when the Anzas failed to charge customers for the
applicable sales tax. The cause of Ideal’s asserted harms, however, is a set of actions ([National’s] offering lower prices)
entirely distinct from the alleged RICO violation (defrauding the State).
The attenuation between the plaintiff’s harms and the claimed RICO violation arises from a different source in this case than
in Holmes. . . . Nevertheless, the absence of proximate causation is equally clear in both cases. 282
In a fascinating twist, the “equal clarity” of the lack of proximate cause in Holmes and Anza was not at all clear to the eyes of
Justice Clarence Thomas. In stunning language, Justice Thomas has predicted the demise of civil RICO, given Anza’s
interpretation of proximate cause:
As a result, after today, civil RICO plaintiffs that suffer precisely the kind of injury that motivated the adoption of the civil
RICO provision will be unable to obtain relief. If this result was compelled by the text of the statute, interference with
Congressional intent would be unavoidable. Given that the language is not even fairly susceptible of such a reading, however,
I cannot agree with this frustration of congressional intent.283
[BB] The Supreme Court’s Rejection of “First-Party Reliance”
After a two-year hiatus, the Supreme Court recently revisited RICO and, in doing so, reiterated the long-standing thrust of its
broad, plaintiff-favorable interpretation of the statute.
As it has often done in the past--beginning, in fact, with its first major civil RICO decision in 1985 in Sedima, S.P.R.L. v.
Imrex Co.284--the Supreme Court in John Bridge v. Phoenix Bond & Indemnity Co.285 rejected the frequently invoked
defense that a plaintiff pleading a civil RICO case grounded on allegations of mail fraud under 18 U.S.C. § 1341 and wire
fraud under § 1343 must plead and prove that she directly relied on the defendant’s alleged misrepresentations.
[CC] The Facts Supporting RICO Liability
In a stark illustration of the economic downfall of 2008-2009, the Bridge decision had its origin in the sale of property tax

liens by the Cook County, Illinois, Treasurer’s Office arising from homeowners’ defaults on property taxes. In the arcane
procedure of local Illinois law, prospective buyers of the liens placed bids for them, “but not in cash amounts.” 286 Instead,
the bids for the liens were submitted as a percentage of penalties a delinquent property owner would be required to pay the
winning bidder in order to clear the lien. It was the bidder willing to accept the lowest penalty who won the auction and
secured the right to purchase the lien in exchange for paying the outstanding taxes on the property. If she could, the
defaulting property owner could then “redeem”--that is, keep--the property by paying the winning bidder the delinquent
taxes, plus the penalty established at the auction and an additional 12 percent penalty on any taxes subsequently paid by the
winning bidder in his role as the “lienholder.” 287 Further underscoring the casino nature of the arrangement, the lienholder
obtained a tax deed for the property in the event the property owner did “not redeem . . . within the statutory redemption
period.”288 The result of this game was that the lienholder who was awarded the tax deed in effect purchased the property for
the value of the delinquent taxes, and the obvious economic consequence to the property owner was that she received
nothing.
Given the way in which this process was structured, “the auctions [were] marked by stiff competition,” 289 since the property
acquired by the winning bidder is “often . . . sold at a significant profit over the amount paid for the lien.” 290 Id. Without any
comment on the fairness of this system, Justice Thomas, writing for the Court in its unanimous decision in Bridge, described
the process:
[M]ost parcels attract multiple bidders willing to accept the lowest penalty permissible--0%, that is to say, no penalty at all. . .
. The lower limit of 0% creates a problem: Who wins when the bidding results in a tie? The county’s solution is to allocate
parcels “on a rotational basis” in order to ensure that liens are apportioned fairly among 0% bidders. . . .
But this creates a perverse incentive of its own: Bidders who, in addition to bidding themselves, send agents to bid on their
behalf will obtain a disproportionate share of liens. To prevent this kind of manipulation, the County adopted the “Single,
Simultaneous Bidder Rule,” which requires each “tax buying entity” to submit bids in its own name and prohibits it from
using ““apparent agents, employees, or related entities” to submit simultaneous bids for the same parcel. . . . Upon registering
for an auction, each bidder must submit a sworn affidavit affirming that it complies with the Single, Simultaneous Bidder
Rule.291
The plaintiffs in Bridge were regular participants in Cook County’s tax sales. So were the defendants. The parties were, in
effect, competitors in this bizarre, government-sanctioned process. According to the complaint, defendants Sabre Group,
LLC (Sabre Group) and its principal Barrett Rochman fraudulently obtained a disproportionate share of the liens by
arranging for related firms to bid on liens and directing them to file false affidavits of compliance with the Single,
Simultaneous Bidder Rule. Given the fraudulently obtained opportunity to participate in an auction, Sabre Group and its
related firms collusively bid on the same properties at a 0% rate. As a result, when Cook County allocated liens on a rotating
basis, it treated the related firms as independent entities. This resulted in the defendants’ acquisition of a greater number of
liens than a single bidder acting alone would have received.
[DD] The Specific RICO Claims
The core of the plaintiffs’ complaint in Bridge was that the Sabre Group and the other defendants engaged in a mail fraud
scheme that entailed “‘hundreds of mailings’ . . . when they sent property owners various notices required by Illinois law.” 292
Significantly, none of the challenged mailings was sent to any of the plaintiffs.
At the trial court level, the RICO claim did not survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6). In a ruling that
reflects the widespread reluctance of the lower federal courts to permit civil RICO claims--a long-term tendency of federal
district and appellate courts to find ways of deflecting the Supreme Court’s generally liberal, plaintiff-favorable approach in
its RICO decisions--the District Court in Bridge determined that the plaintiffs lacked standing, because they were not in the
class of individuals protected by the mail fraud statute, and therefore not within the “zone of interests” that the RICO statute
protects, because they were not recipients of the mailings made by the defendants, to property owners. 293
Although the Seventh Circuit is generally hostile to civil racketeering claims, it reversed the District Court’s dismissal of the
complaint.294 First, it concluded, that “[s]tanding is not a problem in this suit” because plaintiffs sustained a “real injury”
when they lost the valuable chance to acquire more liens, an “injury that can be redressed by damages.” 295 Second, the Court
of Appeals determined that the plaintiffs had sufficiently alleged proximate cause under Holmes v. Securities Investor
Protection Corp.296 and Anza v. Ideal Steel Supply Corp.,297 because they and other losing bidders were “immediately
injured” by the defendants’ scheme. 298 Third--and most important because it presaged the Supreme Court’s opinion in
Bridge--the Seventh Circuit rejected the defense argument that the plaintiffs were not entitled to relief under RICO because
they did not receive, and thus did not rely on, any false statements: “A scheme that injures D by making false statements
through the mail to E is mail fraud, and actionable by D through RICO if the injury is not derivative of someone else’s.’D’ 299
It was this holding by the Seventh Circuit regarding mail fraud that was endorsed by the Supreme Court, resolving a long-
standing split among the federal circuit courts. As the Seventh Circuit itself acknowledged in Bridge, ““[t]hree other circuits
that have considered this question agree . . . that the direct victim may recover through RICO whether or not it is the direct

recipient of the false statements.”300
[EE] “First Party Reliance” Is Not Required
In reaching its holding that “first party reliance” is not an element of a civil racketeering action predicated on mail and wire
fraud, the Supreme Court in Bridge began, as it typically does, with the statutory text. The private cause of action provision
of § 1964(c) states that “[a]ny 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.”301 As the Court summarized in Bridge:
The upshot is that RICO provides a private right of action for treble damages to any person injured in his business or property
by reason of the conduct of a qualifying enterprise’s affairs though a pattern of acts indictable as mail fraud. Mail fraud, in
turn, occurs whenever a person, ““having devised or intending to devise any scheme or artifice to defraud,” uses the mail “for
the purpose of executing such scheme or artifice or attempting so to do.” § 1341. The gravamen of the offense is the scheme
to defraud, and any ““mailing that is incident to an essential part of the scheme satisfies the mailing element,” Schmuck v.
United States, 489 U.S. 705, 712, 109 S. Ct. 1443, 103 L. Ed. 2d 734 (1989) (citation and internal quotation marks omitted),
even if the mailing itself “contain[s] no false information,” id., at 715, 109 S. Ct. 1443. [Bridge, 128 S. Ct. at 2138.]
Against this statutory background, the Supreme Court in Bridge found the plaintiffs’ core theory of the case straightforward.
In effect, the plaintiffs asserted that the Sabre Group and the other defendants created a scheme to defraud when they agreed
to submit to Cook County false affidavits of compliance with the simultaneous bidder rule. As part of that scheme,
defendants mailed notices to property owners. The notices to property owners did not themselves contain false or misleading
information. According to the Bridge decision, “[e]ach of these mailings was an ‘act indictable’ as mail fraud, and together
they constituted a ‘pattern of racketeering activity.’ By conducting the affairs of their enterprise through this pattern of
racketeering activity, [defendants] violated § 1962(c). As a result, [plaintiffs] lost the opportunity to acquire valuable
liens . . . [and] were injured in their business or property by reason of [defendants’] violation of § 1962(c).”302 In this context,
“RICO’s plain terms give them a private right of action for treble damages.” 303
[FF] The Supreme Court’s Summary of RICO’s Scope and Purpose
Bridge is certainly important for its specific holding--the Court’s rejection of the often-repeated defense shibboleth that there
can be no mail or wire fraud, and thus no RICO liability, unless the lawsuit is brought by a plaintiff to whom the fraudulent
representations were directly made. This defense, now defunct because of Bridge, even had a name--the first-party reliance
rule. Writing for the Court in Bridge, Justice Thomas delivered a memorable observation: “If [defendants’] proposed
requirement of first-party reliance seems to come out of nowhere, there is a reason: Nothing on the face of the relevant
statutory provisions imposes such a requirement.” 304 So much for a favorite defensive strategy, dispatched summarily by
Bridge into the graveyard of other once-prevalent defense strategies that met swift extinction when the Court finally ruled on
them, such as the supposed requirement, rejected by Sedima, that there had to be a prior criminal conviction before there
could be a finding of civil liability under RICO.
Although the specific holding of Bridge is important, the decision’s future significance lies in the broad comments the Court
articulated about the scope of RICO. The Court in Bridge again made clear, as it has in the past, that efforts to limit RICO
based on policy considerations--such as business groups’ assertions that the Congress that enacted RICO never intended that
the statute apply to legitimate businesses--simply hold no water. “Whatever the merits of [defendants’] arguments as a policy
matter,” Justice Thomas commented, “we are not at liberty to rewrite RICO to reflect their--or our--views of good policy. We
have repeatedly refused to adopt narrowing constructions of RICO in order to make it conform to a pre-conceived notion of
what Congress intended to proscribe.”305
Significantly, Bridge addressed the recurring and related questions of ““causation,” “proximate cause,” and “standing” that
have figured in so many RICO cases since the decision in Holmes. Bridge reached the causation cluster of issues because the
artful defendants in Bridge had argued that, even if Congress did not make first-party reliance an element of a RICO claim
predicated on mail fraud, a plaintiff must nevertheless show that she relied on the defendant’s misrepresentations in order to
establish the requisite element of causation.
The Bridge decision, rejecting the defendants’ argument on causation, usefully surveyed the state of RICO jurisprudence
since 1992. In that year’s decision in Holmes, the Supreme Court recognized that § 1964(c)’s “language can, of course, be
read to mean that a plaintiff is injured ‘by reason’ of a RICO violation, and therefore may recover, simply on showing that
the defendant violated § 1962, the plaintiff was injured, and the defendant’s violation was a “but for’ cause of plaintiff’s
injury.”306
Despite the breadth of this core emphasis in Holmes, the Court also stressed that not “all factually injured plaintiffs” may
recover under § 1964(c).307 Because Congress modeled § 1964(c) on provisions of the antitrust laws that had been
interpreted to “require a showing that the defendant’s violation not only was a ‘but for’ cause of his injury, but was the

proximate cause as well,” Holmes concluded that RICO § 1964(c) likewise requires the plaintiff to establish proximate cause
in order to show injury “by reason of” a RICO violation.308
It was Holmes’ use of the ancient concept of proximate cause that has given defendants and the lower federal courts the
opportunity to reject many civil racketeering lawsuits, a trend that may come to a halt in the aftermath of Bridge. As the
Court recently summarized in Bridge:
Proximate cause, we explained, is a flexible concept that does not lend itself to a “‘black-letter rule that will dictate the result
in every case.”D’ [Holmes, 503 U.S. at 272; quoting Associated General Contractors of Cal., Inc. v. Carpenters, 459 U.S.
519, 536, 103 S.Ct. 897, 74 L.Ed. 2d 723 (1983)]. Instead, we “used ‘proximate cause’ to label generically the judicial tools
used to limit a person’s responsibility for the consequences of that person’s own acts,” Holmes, 503 U.S., at 268, 112 S.Ct.
1311, with a particular emphasis on the “demand for some direct relation between the injury asserted and the injurious
conduct alleged,” ibid.; see also Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 461 126 S.Ct. 1991, 164 L. Ed. 2d 720
(2006) (“When a court evaluates a RICO claim for proximate causation, the central question it must ask is whether the
alleged violation led directly to the plaintiff’s injuries”). The direct-relation requirement avoids the difficulties associated
with attempting “to ascertain the amount of a plaintiff’s damages attributable to the violation, as distinct from other,
independent, factors.” Holmes, 503 U.S. at 269, 112 S.Ct. 1311; prevents courts from having “to adopt complicated rules of
apportioning damages among plaintiffs at different levels of injury from the violative acts, to obviate the risk of multiple
recoveries,” ibid.; and recognizes the fact that “diretly injured victims can generally be counted on to vindicate the law as
private attorneys general, without any of the problems attendant upon suits by plaintiffs injured more remotely,” id., at 269-
270, 112 S.Ct. 1311.309
The Court explained how these elaborate and inherently vague proximate cause considerations applied in Bridge so as to
sustain, not defeat, the civil racketeering claims advanced by the disappointed bidders. The Bridge plaintiffs’ loss of valuable
liens was their “injury”310 and that injury was the “direct result of [defendants’] fraud.” 311 Moreover, ““[i]t was a foreseeable
and natural consequence of [defendants’] scheme to obtain more liens for themselves that other bidders would obtain fewer
liens.”312
As to the other factors that surface in the proximate cause analysis outlined in Holmes, the complaint in Bridge did not entail
independent factors that accounted for the plaintiffs’ injuries. There was in addition no risk of duplicative recoveries by
plaintiffs removed at different levels of injury from the violation, and there were no more immediate victims better situated to
sue.313
65 . Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S. Ct. 3275, 3283, 87 L. Ed. 2d 346 (1985).
66 . 105 S. Ct. at 3287.
67 . Id. at 3285-86.
68 . Id. at 3286.
69 . Id
70 . Id.
71 . Id.
72 . Sedima, S.P.R.L. v. Imrex Co., 741 F.2d 482, 487 (2d Cir. 1984).
73 . Id.
74 . 105 S. Ct. 3275, 3286. One of life’s small ironies is that in 1970, during the final stages of the legislative process that gave birth

to RICO, the American Bar Association (ABA) vigorously supported the inclusion of the private treble-damage provision,
arguing that the statute should be “based upon the concept of section 4 of the Clayton Act [providing a private remedy and treble
damages].” House Hearings at 543-44, 548, 559. Fifteen years later, in 1985, in a complete reversal of field without even
acknowledging its role in the 1970 legislative process, the ABA, through its RICO Ad Hoc Task Force, became a vigorous
exponent of proposed amendments which, if enacted, would have substantially curtailed private remedies and damages under
RICO.
75 . 492 U.S. 229, 109 S. Ct. 2893, 106 L. Ed. 2d 195 (1989).
76 . 489 U.S. 46, 109 S. Ct. 916, 103 L. Ed. 2d 34 (1989). Lobbying and congressional efforts since 1985 to amend RICO in order to
limit or void its civil provisions all ended in failure until December 1995, when a little-noticed provision of the PSLRA--
legislation intended principally to cure perceived abuses in federal class action securities litigation--amended RICO by
eliminating securities fraud as a predicate act for purposes of the civil use of RICO. No other substantive provision has ever been
enacted to limit RICO’s scope. The impetus for a change of the statute by legislative means and through the political process
gained force after Sedima, which made it clear that the Supreme Court would continue to apply the statute broadly and would
defer to Congress for amendments. “It is true,” the Sedima majority conceded,
that private civil actions under the statute are being brought almost solely against such defendants [ostensibly routine businesses
and business people], rather than against the archetypal, intimidating mobster. Yet this defect--if defect it is--is inherent in the
statute as written, and its correction must lie with Congress. It is not for the judiciary to eliminate the private action in situations
where Congress has provided it simply because plaintiffs are taking advantage of it in its more difficult applications.
105 S. Ct. 3275, 3286-87. The failed attempts at what is frequently termed ““RICO reform” include H.R. 5111, 101st Congress,
2d Sess. (1990), a bill which, if enacted, would have effectively precluded the private, nongovernmental use of RICO in civil
litigation.
77 . Literally hundreds--if not several thousand--reported federal decisions considered Sedima’s footnote 14 and its terse discussion
of the definition of a “pattern of racketeering activity.” Because H.J. Inc., decided in June 1989, attempted finally to resolve the
“pattern” issues tantalizingly suggested in Sedima’s footnote 14, the footnote is largely of historical interest now. The language of
the footnote is, nevertheless, worth quoting, if only to illustrate how elusive the search for the meaning of RICO’s key provisions
has been and to demonstrate that, just as a face can launch a thousand ships, a footnote can launch a thousand opinions:
As many commentators have pointed out, the definition of a “pattern of racketeering activity” differs from the other provisions of
§ 1961 in that it states that a pattern “requires at least two acts of racketeering activity,” § 1961(5) (emphasis added), not that it
“means” two such acts. The implication is that while two acts are necessary, they may not be sufficient. Indeed, in common
parlance two of anything generally do not form a “pattern.” The legislative history supports the view that two isolated acts of
racketeering activity do not constitute a pattern. As the Senate Report explained: “The target of [RICO] is thus not sporadic
activity. The infiltration of legitimate business normally requires more than one ‘racketeering activity’ and the threat of
continuing activity to be effective. It is this factor of continuity plus relationship which combines to produce a pattern.” S. Rep.
No. 91-617, p. 158 (1969) (emphasis added). Similarly, the sponsor of the Senate Bill, after quoting this portion of the Report,
pointed out to his colleagues that “[t]he term ‘pattern’ itself requires the showing of a relationship. . . . So, therefore, proof of two
acts of racketeering activity, without more, does not establish a pattern . . .” 116 Cong. Rec. 18940 (1970) (statement of Sen.
McClellan). See also id., at 35193 (statement of Rep. Poff) (RICO “not aimed at the isolated offender”); House Hearings, at 665.
Significantly, in defining ““pattern” in a later provision of the same bill, Congress was more enlightening: “[C]riminal conduct
forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of
commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.” 18 U.S.C. § 3575(e). This
language may be useful in interpreting other sections of the Act. Cf. Iannelli v. United States, 420 U.S. 770, 789, 95 S. Ct. 1284,
1295, 43 L. Ed. 2d 616 (1975).
105 S. Ct. at 3285 n.14.
78 . 109 S. Ct. 2893, 2899.
79 . Id.
80 . Id.

81 . Id. at 2900.
82 . Id. at 2903.
83 . Id. at 2904.
84 . 109 S. Ct. 2893, 2903-04.
85 . Id. at 2905-06.
86 . 489 U.S. 46, 109 S. Ct. 916, 103 L. Ed. 2d 34 (1989).
87 . 109 S. Ct. at 920.
88 . Since neither of the orders in the two Indiana state proceedings was final, there was an issue as to the availability of Supreme
Court review. The Court’s jurisdiction is limited, under 28 U.S.C. § 1257, to review of “[f]inal judgments or decrees” of the state
courts in civil matters, and, in the criminal context, to the judgment of conviction and the imposition of sentence. Both appeals in
Fort Wayne Books, however, were found to qualify for ““exceptions to the general rule” of finality of underlying state
proceedings. 109 S. Ct. 916, 923. In Cox Broad. Corp. v. Cohn, 420 U.S. 469, 95 S. Ct. 1029, 43 L. Ed. 2d 328 (1975), the Court
identified four categories in which a state judgment is deemed final despite the fact that further proceedings are pending in the
state court. For purposes of the Fort Wayne Books appeal, the fourth exception category--relating to instances in which a “federal
issue has been finally decided in the state courts” (95 S. Ct. 1040)--was found to apply.
89 . 109 S. Ct. 916, 923 n.5 (citation omitted). At the federal level, RICO did not originally include any obscenity offenses as
predicate acts. It was in 1984-14 years after RICO’s enactment-that the inimitable Senator Jesse Helms sponsored the enactment
of the amendment which added obscenity offenses as RICO predicate acts. See Act of Oct. 12, 1984, Pub. L. No. 98-473, 98 Stat.
2143 (codified at 18 U.S.C. § 1961(1)). In proposing the amendment, Senator Helms argued:
[W]e are experiencing today an explosion in the volume and availability of pornography in our society. Today it is almost
impossible to open mail, turn on the television, or walk in the downtown areas of our cities, or even in some suburban areas,
without being accosted by pornographic materials. The sheer volume and pervasiveness of pornography in our society tends to
make adults less sensitive to the traditional values of chaste conduct and leads children to abandon the moral values their parents
have tried so hard to instill in them. Surely it is not coincidential [sic] that, as [sic] a time in our history when pornography and
obscene materials are rampant, we are also experiencing record levels of promiscuity, veneral [ sic] disease, herpes, acquired
immune deficiency syndrome (AIDS), abortion, divorce, family breakdown, and related problems. At a minimum, pornography
lowers the general moral tone of society and contributes to social problems that were minimal or nonexistent in earlier periods of
our history.
130 Cong. Rec. 844 (1984). Senator Helms, a conservative, did not explain how the expansion of RICO to encompass obscenity
offenses as predicate acts would serve the goal of cleansing U.S. society of the effects of pornography as he perceived them.
90 . 109 S. Ct. 916, 924.
91 . Although rarely used in the federal setting, acts which constitute violations of federal obscenity statutes have been predicate acts
for RICO purposes since 1984, 18 U.S.C. § 1961(1), and “several States have followed Congress’ lead and have added obscenity-
related offenses to the list of predicate offenses that can give rise to violations of their state RICO laws.” Fort Wayne Books, Inc.
v. Indiana, 109 S. Ct. 916, 924 n.5 (1989).
92 . 109 S. Ct. at 925.

93 . Ind. Code §§ 35-49-1-1 et seq. (1988).
94 . 413 U.S. 15, 93 S. Ct. 2607, 37 L. Ed. 2d 419 (1973).
95 . Fort Wayne Books, 109 S. Ct. 916, 925.
96 . Id. at 925.
97 . Id. at 926.
98 . Id. In addition to its focus on the constitutional challenges to RICO, the Supreme Court in Fort Wayne Books made an
interesting, and possibly inadvertent, comment on the standard of proof in RICO cases: “As long as the standard of proof is the
proper one with respect to all of the elements of the RICO allegations--including proof, beyond a reasonable doubt, of the
requisite number of constitutionally proscribable predicate acts--all of the relevant constitutional requirements have been met.” Id.
at 926. The Supreme Court has not spoken definitively about the important issue of the standard of proof in RICO litigation and,
although this comment was likely intended to deal with the obvious need to prove the essential components of a RICO violation
beyond a reasonable doubt in the criminal context, the comment, standing alone, could also reasonably be read to require that
level of proof in the civil RICO context as well.
99 . 503 U.S. 258, 112 S. Ct. 1311, 117 L. Ed. 2d 532 (1992).
100 . Section 1964(c) creates a private cause of action for the following: “[A]ny person injured in his business or property by reason
of a violation of § 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold
the damages he sustains. . . .”
101 . 112 S. Ct. 1311, 1315.
102 . Id.
103 . Id. at 1316.
104 . Id.
105 . Id.
106 . Id.
107 . Id. at 1317.
108 . The concept of “proximate cause” requires that a plaintiff show a direct linkage between a wrongful act done by a defendant and

the injury the plaintiff has sustained. The Holmes Court cited the following language as conveying the heightened requirement
that the concept of proximate cause is intended to convey:
In a philosophical sense, the consequences of an act go forward to eternity, and the causes of an event go back to the dawn of
human events, and beyond. But any attempt to impose responsibility upon such a basis would result in infinite liability for all
wrongful acts, and would “set society on edge and fill the courts with endless litigation.” W. Keeton, D. Dobbs, R. Keeton, & D.
Owen, Prosser and Keeton on Law of Torts § 41, p. 264 (5th ed. 1984) (quoting North v. Johnson, 58 Minn. 242, 59 N.W. 1012
(1894)).
112 S. Ct. 1311, 1316 n.10. In a related context, an “antitrust violation may be expected to cause ripples of harm to flow through
the Nation’s economy; but despite the broad wording of § 4 [of the Clayton Act, 15 U.S.C. § 15] there is a point beyond which the
wrongdoer should not be held liable.” Blue Shield v. McCready, 457 U.S. 465, 476-77, 102 S. Ct. 2540, 2546-2547, 73 L. Ed. 2d
149 (1982) (internal quotation marks and citation omitted).
109 . 112 S. Ct. 1311, 1318.
110 . Id.
111 . Id.
112 . Id.
113 . Id.
114 . Id. at 1318-19.
115 . Id. at 1315.
116 . Id. at 1319.
117 . Id.
118 . § 904(a), 84 Stat. 947.
119 . Holmes, 112 S. Ct. 1311, 1321 (quoting Associated Gen. Contractors of Cal., Inc. v. Carpenters, 459 U.S. 519, 545, 103 S. Ct.
897, 912, 74 L. Ed. 2d 723 (1983)).
120 . 507 U.S. 170, 113 S. Ct. 1163, 122 L. Ed. 2d 525 (1993).
121 . 113 S. Ct. at 1169 (quoting Arthur Young & Co. v. Reves, 937 F.2d 1310, 1324 (8th Cir. 1991)).
122 . Id. at 1174. The majority of the Supreme Court decisions in the civil RICO setting has resulted in the reversal of appellate court
decisions which had sought to restrict RICO’s scope. See, e.g., Sedima, 473 U.S. 479, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985),
rev’g 741 F.2d 482 (2d Cir. 1984).

123 . 113 S. Ct. 1169.
124 . Specifically, Webster’s Third New International Dictionary 474 (1976) (defining conduct as meaning to lead, run, manage, or
direct).
125 . 113 S. Ct. 1163, 1169 n.3.
126 . Id. at 1169.
127 . Id. Justice Souter, in his dissenting opinion, characterized as ““hazy” the majority’s finding of “a clear congressional mandate to
limit RICO liability . . . to participants in the ‘operation or management’ of a RICO enterprise.” Id. at 1174.
128 . Id. at 1170.
129 . Id. (citing Black’s Law Dictionary 68 (6th ed. 1990)).
130 . Id. at 1170.
131 . Id.
132 . Id. The dubious concept that this test “is easy to apply” is inadvertently contradicted by the statement in Reves itself that the
Court ““disagree[d] with the suggestion of the Court of Appeals for the District of Columbia Circuit that § 1962(c) requires
‘significant control over or within an enterprise.’ Yellow Bus Lines, Inc. v. Drivers, Chauffeurs & Helpers Local Union 639, 286
U.S. App. D.C. 182, 913 F.2d 948, 954 (D.C. Cir. 1990) (en bane).” Id. at 1170 n.4. Apparently, the “easy” test of “operation or
management” identified in Reves does not require “significant control.” How is the concept of “operation or management”
different from “significant control”? Can a person “operate or manage” an enterprise but not have “significant control” over it?.
133 . Reves v. Ernst & Young, 113 S. Ct. 1163, 1170 n.4.
134 . Id. at 1170.
135 . Measures Related to Organized Crime: Hearings before the Subcomm. on Criminal Laws and Procedures of the Senate Comm.
on the Judiciary, 91st Cong., 1st Sess. 387 (1969).
136 . Id.
137 . 113 S. Ct. 1163, 1171-72 (footnote omitted) (emphasis in original) (citing 116 Cong. Rec. 35196 (1970)). Other cognate
statements from the floor debate include the following: “to acquire an interest in businesses. . . . or to acquire or operate such
businesses by racketeering methods . . .,” 116 Cong. Rec. 607 (1970) (remarks of Sen. Byrd of West Virginia); “to acquire an
interest in a business . . ., to use racketeering activities as a means of acquiring such a business, or to operate such a business by
racketeering methods . . .,” 116 Cong. Rec. 36294 (remarks of Sen. McClellan); “using the proceeds of racketeering activity to
acquire an interest in businesses engaged in interstate commerce, or to acquire or operate such businesses by racketeering methods
. . .,” 116 Cong. Rec. 36296 (1970) (remarks of Sen. Dole).

138 . Reves v. Ernst & Young, 113 S. Ct. 1163, 1172. The dissent in Reves was pointedly critical of the Reves majority’s use of the
legislative history:
The Court attempts to shore up its interpretation with an examination of relevant legislative materials. . . . The legislative history
demonstrates only that when members of Congress needed a shorthand method of referring to § 1962(c), they spoke of prohibiting
“the operation” of an enterprise through a pattern of racketeering activity. As Arthur Young points out, “operation” is essentially
interchangeable with “conduct”; each term can include a sense of direction, but each is also definable as “carrying on” or
“carrying out.”
Id. at 1175 n.1 (Souter, J., dissenting).
139 . Id. at 1174.
140 . 114 S. Ct. 798, 127 L. Ed. 2d 99 (1994).
141 . Id. at 801. Although Chief Justice Rehnquist wrote the Supreme Court’s opinion in Scheidler, he was no fan of RICO. See
Rehnquist, Get RICO Cases Out of My Courtroom, Wall St. J., May 19, 1989, at A14 (“I think that the time has arrived for
Congress to enact amendments to civil RICO to limit its scope to the sort of wrongs that are connected to organized crime, or
have some other reason for being in federal court.”).
142 . 18 U.S.C. § 1951 (1994).
143 . Under the Hobbs Act, a person who

in any way or degree obstructs, delays or affects commerce or the movement of any article or commodity in commerce . . . by
extortion or attempts or conspires so to do, or commits or threatens physical violence to any person or property in furtherance of a
plan or purpose to do anything in violation of this section shall be fined under this title or imprisoned not more than twenty years,
or both.
18 U.S.C. § 1951(a) (1994). Although the Hobbs Act was amended in 1994 to increase the severity of its criminal penalties, its
definition of “extortion” has remained essentially unchanged since 1948. Extortion “means the obtaining of property from
another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right.”
Id. § 1951(b).
144 . Operation Rescue’s “no economic motive” defense was rooted in the then-existing precedent of several federal appellate courts.
See, e.g., United States v. Flynn, 852 F.2d 1045,1052 (8th Cir. 1988) (“[f]or purposes of RICO, an enterprise must be directed
toward an economic goal”); United States v. Ivic, 700 F.2d 51 (2d Cir. 1983) (finding an “economic motive” requirement implicit
in the “enterprise” element of the offense). Other circuits rejected the “economic motive” rationale and accurately foresaw the
result the Supreme Court would reach in Scheidler in 1994. See, e.g., Northeast Woman’s Ctr., Inc. v. McMonagle, 868 F.2d 1342
(3d Cir. 1989).
145 . 114 S. Ct. 798, 806.
146 . Id. (quoting Reves v. Ernst & Young, 113 S. Ct. 1163, 122 L. Ed. 2d 525 (1993)).
147 . Id. at 804.
148 . Id. at 805. Although the late Chief Justice Rehnquist made no secret of his personal desire to see the civil aspects of RICO
repealed or severely restricted, he did cite the following observations from the decision in H.J. Inc. on the application of RICO, as
written, to a broad array of contexts:
As we said in H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 248, 109 S. Ct. 2893, 2905, 106 L. Ed. 2d 195 (1989) ,

“[t]he occasion for Congress’ action was the perceived need to combat organized crime. But Congress for cogent reasons chose to
enact a more general statute, one which although it had organized crime as its focus, was not limited in application to organized
crime.”
Id.
149 . 118 S. Ct. 469 (1997).
150 . See, e.g., Bowman v. Western Auto Supply Co., 985 F.2d 383 (8th Cir. 1993); Miranda v. Ponce Federal Bank, 948 F.2d 41 (1st
Cir. 1991); Reddy v. Litton Industries Inc., 912 F.2d 291 (9th Cir. 1990); Hecht v. Commerce Clearing House, Inc., 897 F.2d 21
(2d Cir. 1990).
151 . Salinas, 118 S. Ct. 476.
152 . Id.
153 . Id.
154 . Id.
155 . Id. at 477.
156 . Id.
157 . Id.
158 . Id.
159 . Id.
160 . Id. at 477.
161 . Id.
162 . Id.
163 . Id. at 478.
164 . Id.
165 . Id.

166 . 525 U.S. 299, 119 S. Ct. 710, 142 L. Ed. 2d 753 (1999).
167 . 119 S. Ct. at 719.
168 . Id.
169 . 473 U.S. 479, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985).
170 . 119 S. Ct. at 719 n. 12.
171 . See, e.g., Faircloth v. Finesod, 938 F.2d 513 (4th Cir. 1991).
172 . See, e.g., Washburn v. Brown, 1988 WL 130021 (N.D. Ill. 1988).
173 . Humana, 119 S. Ct. at 714.
174 . Incidentally, it is unclear what “television fraud” is, and it is not mentioned in RICO § 1961(1)’s list of predicate acts of
racketeering activity.
175 . See 15 U.S.C. § 1012 (b).
176 . Forsyth v. Humana Inc., 827 F. Supp. 1498, 1521-1522 (D. Nev. 1993).
177 . 50 F.3d 1486 (9th Cir. 1995).
178 . Id. at 1492.
179 . See Forsyth v. Humana Inc., 114 F.3d 1467, 1480-82 (9th Cir. 1997).
180 . Compare Doe. v. Norwest Bank of Minnesota, N.A., 107 F.3d 1297, 1307 (8th Cir. 1997) (“[T]he intrusion of RICO’s
substantial damage provisions into a state’s insurance regulatory program may so impair the state law as to bar application of
RICO”) and Kenty v. Bank One, Columbus, N.A., 92 F.3d 384, 392 (6th Cir. 1996) (“The different liability under Ohio law for
violations, as well as different standards of proof necessary to demonstrate misrepresentations, means that RICO does impair the
ability of Ohio to regulate [unfair and deceptive acts]”) with Merchants Home Delivery Serv., Inc. v. Frank B. Hall & Co., supra,
50 F.3d 1486, 1492 (9th Cir. 1995), and NAACP v. American Family Mutual Ins. Co., 978 F.2d 287, 297 (7th Cir. 1992) (“[S]tate
and federal rules that are substantively identical but differ in penalty do not conflict with or displace each other”).
181 . See, e.g., United States v. South-Eastern Underwriters Ass’n, 322 U.S. 533, 64 S. Ct. 1162, 88 L. Ed. 1440 (1944).

182 . See Department of Treasury v. Fabe, 508 U.S. 491, 501, 113 S. Ct. 2202, 124 L. Ed. 2d 449 (1993).
183 . See Humana, 119 S. Ct. at 716.
184 . Id. at 717.
185 . Merchants Home, 50 F.3d at 1491 (emphasis in original).
186 . Humana, 119 S. Ct. at 717.
187 . Id.
188 . 393 U.S. 453, 89 S. Ct. 564, 21 L. Ed. 2d 668 (1969).
189 . Humana, 119 S. Ct. at 718.
190 . Id.
191 . Id. at 719.
192 . Id. at 718.
193 . Nev. Rev. Stat. § 686A.310(1)(a) (1996).
194 . Humana, 119 S. Ct. at 719. See also Weiss v. First Union Life Ins. Co., 482 F. 3d 254 (3d Cir. 2007).
195 . 452 U.S. 576, 101 S. Ct. 2523, 69 L. Ed. 2d 246 (1981).
196 . 120 S. Ct. 1075 (2000).
197 . 521 U.S. 179, 117 S. Ct. 1984, 138 L. Ed. 2d 373 (1997).
198 . See Rotella, 120 S. Ct. at 1080.
199 . Rotella, 120 S. Ct. at 1079.
200 . Id.

201 . 483 U.S. 143, 156, 107 S. Ct. 2759, 97 L. Ed. 2d 121 (1987).
202 . See Rotella v. Wood, 147 F.3d 438 (5th Cir. 1998).
203 . 120 S. Ct. at 1079. Compare Grimmett v. Brown, 75 F.3d 506, 511 (9th Cir. 1996) (applying the “injury discovery accrual rule”
under which the clock starts when the plaintiff knew or should have known of his injury); McCool v. Strata Oil Co., 972 F.2d
1452, 1464-65 (7th Cir. 1992) (same); Rodriquez v. Banco Central Corp., 917 F.2d 664, 665-66 (1st Cir. 1990) (same); Bankers
Trust Co. v. Rhoades, 859 F.2d 1096, 1102 (2d Cir. 1988) (same); Pocahontas Supreme Coal Co. v. Bethlehem Steel Corp., 828
F.2d 211, 220 (4th Cir. 1987) (same); with Caproni v. Prudential Securities, Inc., 15 F.3d 614, 619-20 (6th Cir. 1994) (applying
the “injury and pattern discovery” rule under which the clock starts only when the claimant both discovers her injury and the
defendant’s pattern of racketeering activity); Granite Falls v. Henrikson, 924 F.2d 150, 154 (8th Cir. 1991) (same); Bath v.
Bushkin, Gaims, Gaines & Jonas, 913 F.2d 817, 820-21 (10th Cir. 1990) (same); Bivens Gardens Office Building, Inc. v. Barnett
Bank, 906 F.2d 1546, 1554-55 (11th Cir. 1990) (same).
204 . Rotella, 120 S. Ct. at 1080.
205 . See Malley-Duff, 483 U.S. at 156, 107 S. Ct. at 2767.
206 . 120 S. Ct. at 1080.
207 . Id. at 1081.
208 . Id. (internal quotation and citation omitted).
209 . Rotella, 120 S. Ct. at 1081-82.
210 . Id. at 1083.
211 . Id. at 1080.
212 . Id.
213 . Id. at 1080 n.2.
214 . Id. at 1082 n.4.
215 . Id.
216 . See §§ 4.19A-4.19D, infra.
217 . 120 S. Ct. at 1083. See also Corley v. Rosewood Care Center, Inc. of Peoria, 142 F.3d 1041, 1050-51 (7th Cir. 1998) (relaxing

particularity requirement of Rule 9(b) where RICO plaintiff lacks access to all facts necessary to detail claim).
218 . Rotella, 120 S. Ct. at 1084.
219 . 120 S. Ct. 1608 (2000).
220 . Beck, 120 S. Ct. at 1611.
221 . 522 U.S. 52, 118 S. Ct. 469, 139 L. Ed. 2d 352 (1997).
222 . See Beck, 120 S. Ct. at 1619 (Stevens, J., dissenting).
223 . Id. at 923; see Beck, 120 S. Ct. at 1611.
224 . See Beck, 120 S. Ct. at 1611-12.
225 . Id. at 1612.
226 . Id.
227 . Id. at 1614. See, e.g., Khurana v. Innovative Health Care Systems, Inc., 130 F.3d 143, 153-54 (5th Cir. 1997), vacated sub nom.
Teel v. Khurana, 525 U.S. 979 (1998); Schiffels v. Kemper Financial Services, Inc., 978 F.2d 344, 348-49 (7th Cir. 1992);
Shearin v. E.F. Hutton Group, Inc., 885 F.2d 1162, 1168-69 (3d Cir. 1989).
228 . See, e.g., Bowman v. Western Auto Supply Co., 985 F.2d 383, 388 (8th Cir. 1993), cert. denied, 508 U.S. 957 (1993); Miranda
v. Ponce Fed. Bank, 948 F.2d 41, 48 (1st Cir. 1991); Reddy v. Litton Indus., Inc., 912 F.2d 291, 294-95 (9th Cir. 1990), cert.
denied, 502 U.S. 921 (1991); Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 25 (2d Cir. 1990).
229 . Beck, 120 S. Ct. at 1614.
230 . See, e.g., Satin v. Satin, 69 A.D.2d 761,762, 414 N.Y.S.2d 570 (App. Div. 1979). (“There is no tort of civil conspiracy in and of
itself”); Cohen v. Bowdoin, 288 A.2d 106, 110 (Me. 1972) (“‘Conspiracy’ fails as the basis for the imposition of civil liability
absent the actual commission of some independently recognized tort; and when such separate tort has been committed, it is that
tort, and not the fact of combination, which is the foundation of the civil liability”) (emphasis omitted); Mills v. Hansell, 378 F.2d
53 (5th Cir. 1967).
231 . Beck, 120 S. Ct. at 1615.
232 . Id. at 1617 (emphasis in original).
233 . Id.

234 . Id. at 1615.
235 . Id. at 1617.
236 . Id. at 1614, n.6.
237 . Id.
238 . 533 U.S. 158, 121 S. Ct. 2087, 150 L. Ed. 2d 198 (2001).
239 . See, e.g., Begala v. PNC Bank, 214 F.3d 776, 781 (6th Cir. 2000); St. Paul Mercury Ins. Co. v. Williamson, 224 F.3d 425, 445
(5th Cir. 2000); United States v. Goldin Industries, Inc., 219 F.3d 1268, 1270 (11th Cir. 2000) (en banc); Anatian v. Coutts Bank
(Switzerland) Ltd., 193 F.3d 85, 89 (2d Cir. 1999); Doyle v. Hasbro, Inc., 103 F.3d 186, 190 (1st Cir. 1996); Richmond v.
Nationwide Cassel L.P., 52 F.3d 640 (7th Cir. 1995); Gasoline Sales, Inc. v. Aero Oil Co., 39 F.3d 70, 72-73 (3d Cir. 1994);
Riverwoods Chappaqua Corp. v. Marine Midland Bank, 30 F.3d 339, 344 (2d Cir. 1994); Confederate Memorial Assn., Inc. v.
Hines, 995 F.2d 295, 299-300 (D.C. Cir. 1993); Board of County Comm’rs v. Liberty Group, 965 F.2d 879, 885 (10th Cir. 1992);
River City Markets, Inc. v. Fleming Foods West, Inc., 960 F.2d 1458, 1461 (9th Cir. 1992); Busby v. Crown Supply, Inc., 896
F.2d 833, 840 (4th Cir. 1990); Atlas Pile Driving Co. v. DiCon Financial Co., 886 F.2d 986, 995 (8th Cir. 1989); Bennett v.
United States Trust Co., 770 F.2d 308, 315 at n.2 (2d Cir. 1985).
240 . See Cedric Kushner Promotions, Ltd. v. King, 219 F.3d 115 (2d Cir. 2000) (per curiam).
241 . Cedric Kushner, 121 S. Ct. at 2091.
242 . Id.
243 . Id.
244 . Id. at 2091-92.
244 . U.S., 129 S. Ct. 2237, 173 L. Ed. 2d 1265 (2009).

.1
244 . Boyle, 129 S. Ct. at 2241.

.2
244 . Id.
.3
244 . Id.
.4
244 . United States v. Turkette, 452 U.S. 576, 101 S. Ct. 2524, 69 L. Ed. 2d 246 (1981).
.5

244 . Turkette, 452 U.S. at 580, 101 S. Ct. 2524.

.6
244 . Boyle, 129 S. Ct. at 2243.

.7
244 . Id.
.8
244 . Id.
.9
244 . 452 U.S. at 583, 101 S. Ct. 2425.

.10
244 . See Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985) (“RICO is to be read broadly”);
.11 National Org. for Women, Inc. v. Scheidler, 510 U.S. 249, 257, 114 S. Ct. 798, 127 L. Ed. 2d 99 (1994) (“RICO broadly
244 . See, e.g., Limestone Dev. Corp. v. Lemont, 520 F.3d 797, 804-05 (7th Cir. 2008).
.12
244 . Boyle, 129 S. Ct. at 2243.

.13
244 . American Heritage Dictionary, 1718 (4th ed. 2000).

.14
244 . Boyle, 129 S. Ct. at 2244.

.15
244 . Id.
.16
244 . Id.
.17
244 . Id.
.18
244 . Turkette, 452 U.S. at 583, 101 S. Ct. 2524.

.19
244 . Id.
.20
245 . 537 U.S. 393, 123 S. Ct. 1057, 154 L. Ed. 2d 991 (2003).
246 . 510 U.S. 249, 114 S. Ct. 798, 127 L. Ed. 2d 99 (1994).
247 . National Organization for Women, Inc. v. Scheidler, 765 F. Supp. 937 (N.D. Ill. 1991).
248 . 968 F.2d 612 (7th Cir. 1992).

249 . Scheidler, 123 S. Ct. at 1062.
250 . 267 F.3d at 709 (quoting United States v. Stillo, 57 F.3d 553, 559 (7th Cir. 1995)).
251 . Scheidler, 123 S. Ct. at 1063.
252 . Id. at 1064, citing 4 William Blackstone, Commentaries on the Laws of England 141 (1765).
253 . Evans v. United States, 504 U.S. 255, 261, 112 S. Ct. 1881, 119 L. Ed. 2d 57 (1992).
254 . 4 Report of the Commissioners of the Code, Proposed Penal Code of the State of New York § 613 (1865).
255 . Scheidler, 123 S. Ct. at 1066.
256 . 765 F. Supp. 937 (N.D. Ill. 1991) (Scheidler I).
257 . 968 F.2d 612 (7th Cir. 1992) (Scheidler II).
258 . 510 U.S. 249, 252, 114 S. Ct 798, 127 L. Ed. 2d 99 (1994) (Scheidler III).
259 . 537 U.S. 393, 123 S. Ct. 1057, 154 L. Ed. 2d 991 (2003) (Scheidler IV).
260 . 547 U.S. 9, 126 S. Ct. 1264, L. Ed. 2d (2006) (Scheidler V).
261 . Scheidler V, 126 S. Ct. at 1268 (emphasis in original).
262 . Id. at 1269.
263 . Id.
264 . Id.
265 . See National Organization for Women, Inc. v. Scheidler, 267 F.3d 687 (2001).
266 . Scheidler V, 126 S. Ct. 1269.

267 . Id. at 1270.
268 . Id. at 1274.
269 . ___ U.S. ___, 126 S. Ct. 1991, 164 L. Ed. 2d 720 (2006).
270 . 503 U.S. 258, 268, 112 S. Ct. 1311, 117 L. Ed. 2d 532 (1992).
271 . Anza, 547 U.S. 451, 126 S. Ct. at 1996.
272 . Id.
273 . 373 F.3d at 263.
274 . Id.
275 . Id. at 264.
276 . 503 U.S. 258, 268, 112 S. Ct. 1311, 117 L. Ed. 2d (1992).
277 . 503 U.S. at 262-63, 112 U.S. 1311.
278 . Holmes, 503 U.S. at 265-66, 112 S. Ct. 1311.
279 . Id. at 266.
280 . Id. at 268.
281 . Id. at 271.
282 . Anza, 126 S. Ct. at 1997.
283 . Id. at 2006.
284 . 473 U.S. 479 (1985).
285 . 553 U.S. 639, 128 S. Ct. 2131, 170 L. Ed. 2d 1012 (2008).

286 . Bridge, 128 S. Ct. at 2135.
287 . Id.
288 . Id.
289 . Id.
290 . Id.
291 . Bridge, 128 S. Ct. at 2135.
292 . Id.
293 . Bridge, 128 S. Ct at 2136.
294 . Bridge v. Phoenix Bond & Indemnity Co., 477 F.3d 928 (7th Cir. 2007).
295 . 477 F.3d at 930.
296 . 503 U.S. 258, 112 S. Ct. 1311, 117 L. Ed. 2d 532, (1992).
297 . 547 U.S. 451, 126 S. Ct. 1991, 164 L. Ed. 2d 720 (2006).
298 . 477 F.3d at 930-32.
299 . Id. at 932.
300 . 477 F.3d at 932 (emphasis in original). Compare Mid Atlantic Telecom, Inc. v. Long Distance Servs., Inc., 18 F.3d 260, 263-64
(4th Cir. 1994) (victim of mail fraud, not just recipient of false mailing, can sue under RICO); Systems Management, Inc. v.
Loiselle, 303 F.3d 100, 103-04 (1st Cir. 2002) (same); Ideal Steel Supply Corp. v. Anza, 373 F.3d 251, 263 (2d Cir. 2004) (same)
with VanDenBroeck v. CommonPoint Mortgage Co., 210 F.3d 696, 701 (6th Cir. 2000); Sikes v. Teleline, Inc., 281 F.3d 1350,
1360-61 (11th Cir. 2002).
301 . 18 U.S.C. § 1964(c).
302 . Bridge at 2138.
303 . Id.

304 . Id.
305 . Id. at 2145.
306 . Holmes, 503 U.S. at 265-66, 112 S. Ct. 1311 (footnotes omitted).
307 . Id. at 266, 112 S. Ct. 1311.
308 . Id. at 268, 112 S. Ct. 1311.
309 . Bridge, 128 S. Ct. at 2142.
310 . Id. at 2144.
311 . Id.
312 . Id.
313 . Id.

§ 2.06 THE SUPREME COURT’S NEW DEFINITION OF..., Civ. RICO Prac....

Aspen Publishers
Paul Batista

§ 2.06 THE SUPREME COURT’S NEW DEFINITION OF CAUSATION
Causation for RICO purposes continues to be a major focus of the Supreme Court. In January 2010, the Supreme Court
issued its most recent major decision on RICO, Hemi Group, LLC v. City of New York.314 Hemi is important because it is one
of the few Supreme Court opinions which have limited, rather than expanded, the scope of liability under civil RICO.
Although the majority of the thousands of the district court and courts of appeals decisions regarding RICO in the last 40
years have had outcomes favorable to defendants, the fact remains that the Supreme Court has consistently enjoined the
lower courts to treat RICO broadly, and the lower courts have consistently resisted that mandate. Hemi may provide a
liability-limiting counterweight to the Court’s traditional, and pro-plaintiff, treatment of civil RICO.
[A] New Rules on Causation
Hemi revisited the vitally important issue of causation under RICO. That issue was previously explored in the Supreme
Court’s decisions in Holmes v. Securities Investor Protection Corp.,315 Anza v. Ideal Steel Supply Corp.,316 and Bridge v.
Phoenix Bond & Indemnity Co.317
Although acknowledging that it “has interpreted RICO broadly,” 318 the Supreme Court in Hemi stressed that the “reach” of
the statute in its civil applications is “limited to the ‘requirement of a direct causal connection’ between the predicate wrong
and the harm.”319 The central claim in Hemi was an allegation by the City of New York that the Hemi Group, LLC (Hemi), a
New Mexico-based company that sold cigarettes online to City residents, had an obligation to charge, collect, and remit taxes
on cigarettes. Federal law requires out-of-state vendors such as Hemi to submit customer information to the states into which
they ship cigarettes.320
Charging that Hemi violated RICO, the City of New York asserted that the company’s failure to collect taxes, as well as its
failure to submit the federally required customer information, violated the mail fraud and wire fraud statutes, both of which
are predicate acts under RICO.
The holding in Hemi is easy to describe: the loss of tax revenue to the City because of Hemi’s failure to pay taxes on cigarette
sales was not caused “by reason of” the alleged RICO violation. 321 Given the failure to establish “causation,” the complaint
in Hemi was dismissed.
By what path did the Court reach its holding in Hemi? There were several signposts on that path, primarily the 1992 decision
in Holmes and the 2006 decision in Anza:
• Holmes: The Securities Investor Protection Corporation (SIPC) has a duty to reimburse customers of securities firms when
they are unable to meet their financial obligations. In Holmes, two broker-dealers failed when stock prices they had
manipulated collapsed. SIPC, as the insurer against the losses, paid approximately $13 million to cover the customers’ losses.
Seeking to recover its insurance payments to customers, SIPC sued the broker-dealers under RICO. The Court in Holmes
denied recovery to SIPC because its losses were not “by reason of” the alleged fraud. As formulated in Holmes, a plaintiff in
a civil racketeering action must show that a RICO predicate offense “not only was a ‘but for’ cause of his injury, but was the
proximate cause as well.”322 In turn, proximate cause should be “evaluated in light of its common law foundations.” 323
Proximate cause thus requires ““some direct relation between the injury asserted and the injurious conduct alleged.” 324
Holmes set down guidelines that are suggestive, but not specific, instinctual but not inherently clear. A “link” between
conduct and injury that is “too remote,” “purely contingent,” or indirect does not constitute proximate cause. 325 In effect,

causation under RICO is in the eye of the beholder.
• Anza: In its 2006 decision in Anza, the Court evaluated a civil racketeering claim brought by Ideal Steel Company (Ideal)
against a competitor, National Steel Supply Company (National), alleging that National had defrauded New York State by
failing to charge its customers sales taxes that should have been remitted to the state. According to Ideal’s complaint,
National was thus able to undercut Ideal’s prices.
Anza concluded that the link between the alleged fraudulent conduct and any injury suffered by Ideal was so “attenuated” that
Ideal’s RICO claim was not viable.326 Why was that so? “The direct victim of this conduct,” the Court ruled, “was the State
of New York, not Ideal.”327 It was New York State that “was . . . defrauded and the State that lost tax revenue as a result.”328
Viewed in practical terms, National’s conduct--which enhanced its competitive advantage over Ideal because National was
able to lower its costs by defrauding New York State of the same type of taxes that Ideal paid--could certainly be viewed a
leading to economic injury to Ideal. But the Court determined in Anza that the cause of Ideal’s harm was “a set of actions
(offering lower prices) entirely distinct from the alleged RICO violation (defrauding the State).” 329
[B] The “Attenuated Link” Analysis for Causation
Holmes and Anza set the standards by which the result in Hemi was reached. In the Court’s view, the City of New York
sustained harm because customers failed to pay the taxes applicable to the purchase of cigarettes. According to the Court,
Hemi may have violated a federal statute, known as the Jenkins Act, that requires out-of-state cigarette sellers to register and
to file reports identifying the name, address, and quantities of cigarettes purchased by state residents, 330 but that violation did
not cause financial damage to the City.
For the Supreme Court in Hemi, there was a distinct “disconnect between the asserted injury and the alleged fraud.” 331 The
disconnect in Hemi was ““even sharper than in Anza.”332 The Anza defendant had both engaged in the harmful conduct and
committed the fraudulent act. “Here [in Hemi], the City’s theory of liability rests not just on separate actions, but separate
actions carried out by separate parties.”333 As Chief Justice Roberts expressed it in Hemi:
The City’s theory thus requires that we extend RICO liability to situations where the defendant’s fraud on the third party (the
State) has made it easier for a fourth party (the taxpayer) to cause harm to the plaintiff (the City). Indeed, the fourth-party
taxpayers here only caused harm to the City in the first place if they decided not to pay taxes they were legally obligated to
pay. Put simply, Hemi’s obligation was to file the Jenkins Act reports with the State, not the City, and the City’s harm was
directly caused by the customers, not Hemi. We have never before stretched the causal chain of a RICO violation so far, and
we decline to do so today.334
Other than an instinctual “feel” for what constitutes proximate cause, Hemi provides only scant guidelines for identifying
what is, and what is not, proximate cause. Certainly it is true that in Hemi, as in Holmes and Anza, the perception was that
there was something too remote--too “attenuated” or ““contingent” 335--about the allegedly illegal act of the defendant and
the injury the plaintiff sustained.
Another factor on which the Court has relied in Holmes, Anza, and Hemi is the concept that standing under RICO should turn
in part on which of several potential plaintiffs has a greater incentive to sue. 336 In the Court’s view, New York State was
better situated than the City to seek recovery from Hemi and the State had an incentive to sue, because it, too, imposes a sales
tax on cigarette sales. One obvious real-world flaw in this view is the fact that the State had not sued. Indeed, the Hemi
decision even noted that the Court was not “opin[ing] on whether the State could bring a RICO action for any lost tax
revenue.”337
[C] What Constitutes Causation?
As the Court itself acknowledged, there is a tension between the Holmes-Anza-Hemi string of cases and the treatment of
causation in its 2008 decision in Bridge. The defendants in Bridge directed agents to misrepresent to an Illinois county that
they qualified as independent bidders at a county-run property auction. The phantom bidders created by the defendants
participated in the auction and the plaintiffs, facing additional putative bidders, lost some of the property they otherwise
would have won. The financial harm to the plaintiffs in Bridge was not only foreseeable but it was intended by the defendants
and was precisely the kind of harm the county’s bidding rules were designed to prevent.
In Bridge as in Hemi the defendants asserted that any fraudulent statements were filed with the government, not with the
plaintiffs. Why did that argument succeed in Hemi and not in Bridge?
The answer lies in the fluid concept of remoteness, an analysis that in some ways sounds like the legal equivalent of the
relationships in Six Degrees of Separation. According the Supreme Court in Hemi:

[Bridge] involved competing bidders at a county tax-lien auction. Because the liens were profitable even at the lowest
profitable bid, multiple bidders offered that low bid. (The bidding took the form of the percentage tax penalty the bidder
would require the property owner to pay, so the lowest possible bid was 0%). To decide which bidder would be awarded the
lien, the county devised a plan to allocate the liens “on a rotational basis.” . . . . But as we noted in that case, this created a
“perverse incentive”: “Bidders who, in addition to bidding themselves, sen[t] agents to bid on their behalf [would] obtain a
disproportionate share of liens.” . . . . The county therefore prohibited bidders from using such agents.
A losing bidder alleged that a competitor had defrauded the county by employing shadow bidders to secure a greater
proportion of liens than it was due. We held that the bidder-plaintiff had met RICO’s causation requirement. . . . [T]he
plaintiff’s theory of causation in Bridge was “straightforward”: Because of the zero-sum nature of the auction, and because
the county awarded bids on a rational basis, each time a fraud-induced bid was awarded, a particular legitimate bidder was
necessarily passed over . . . . The losing bidders, moreover, “were the only parties injured by petitioners’ misrepresentations.”
. . . . Ibid. The county was not; it received the same revenue regardless of which bidder prevailed. 338
For the Supreme Court, the key difference between Hemi and Bridge was that the City’s theory in Hemi was “anything but
straightforward” because “multiple steps . . . separate the alleged fraud from the asserted injury.” 339 The lesson to be drawn
from Hemi and its treatment of the earlier decisions on causation is that a plaintiff’s theory of causation has to be
““straightforward,” not multi-layered or circuitous. Obviously a rule of law that turns on the “straightforwardness” of
causation creates only an ad hoc basis for evaluating a civil racketeering complaint’s “causation” and ““standing” allegations.
314 . ___ U.S. ___, 130 S. Ct. 983, L. Ed. 2d (2010).
315 . 503 U.S. 258, 112 S. Ct. 1311, 117 L. Ed. 2d 532 (1992).
316 . 547 U.S. 451, 126 S. Ct. 1991, 164 L. Ed. 2d 720 (2006).
317 . 553 U.S. 639, 128 S. Ct. 2131, 170 L. Ed. 2d 1012 (2008).
318 . Hemi, 130 S. Ct. at 994.
319 . Hemi, 130 S. Ct. at 994, quoting Anza, 547 U.S. at 460, 126 S. Ct. 1991.
320 . Hemi, 130 S.Ct. at 986.
321 . See RICO ¶1964(c).
322 . Holmes, 503 U.S. at 268.
323 . Hemi, 130 S. Ct. at 989.
324 . Holmes, 504 U.S. at 268.
325 . Id. at 261, 274.
326 . Anza, 547 U.S. at 459, 126 S. Ct. 1991.

327 . Id. at 458.
328 . Id.
329 . Id.
330 . 15 U.S.C. §§ 375-78.
331 . Hemi, 130 S. Ct. at 990.
332 . Id.
333 . Anza, 130 S. Ct. at 990 (emphasis in original).
334 . Hemi, 130 S. Ct. at 990 (emphasis in original).
335 . See Hemi, 130 S. Ct at 988.
336 . See Holmes, supra, 504 U.S. at 269-70, 112 S. Ct. 1311.
337 . Hemi, 130 S. Ct. at 991.
338 . Hemi, 130 S. Ct. at 992 (emphasis in original).
339 . Hemi, 130 S. Ct. at 992.

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§ 2.01 BASICS OF A CIVIL RICO OFFENSE, Civ. RICO Prac. Manual s 2.

Civ. RICO Prac. Manual s 2.01

Copyright © 2011 Aspen Publishers, Inc., a Wolters Kluwer business

Current through the 2011 Supplement

§ 2.01 BASICS OF A CIVIL RICO OFFENSE

© 2011 Thomson Reuters. No claim to original U.S. Government Works.

Civ. RICO Prac. Manual s 2.02

Copyright © 2011 Aspen Publishers, Inc., a Wolters Kluwer business

Current through the 2011 Supplement

§ 2.02 STATUTORY LANGUAGE: THE KEY CONCEPTS

[A] Definitions: The “Person”

[B] “Racketeering Activity”

© 2011 Thomson Reuters. No claim to original U.S. Government Works.

[C] “Pattern of Racketeering Activity”

[D] The RICO “Enterprise”

[E] Prohibited Activities

© 2011 Thomson Reuters. No claim to original U.S. Government Works.

[F] Remedies: The Golden Triangle

© 2011 Thomson Reuters. No claim to original U.S. Government Works.

3 co_anchor_FN_B3_2. Id. § 1964(c) (2006).

4 co_anchor_FN_B4_2. Id. § 1961(5).

5 co_anchor_FN_B5_2. Id. § 1961(4).

6 co_anchor_FN_B6_2. Id. § 1962(a).

7 co_anchor_FN_B7_2. Id. § 1962(b).

8 co_anchor_FN_B8_2. Id. § 1962(c).

9 co_anchor_FN_B9_2. Id. § 1962(d).

12 co_anchor_FN_B12_2. 18 U.S.C. § 1964(b).

© 2011 Thomson Reuters. No claim to original U.S. Government Works.

Civ. RICO Prac. Manual s 2.03

Copyright © 2011 Aspen Publishers, Inc., a Wolters Kluwer business

Current through the 2011 Supplement

§ 2.03 VENUE AND PROCESS FOR CIVIL RICO PURPOSES

© 2011 Thomson Reuters. No claim to original U.S. Government Works.

Civ. RICO Prac. Manual s 2.04

Copyright © 2011 Aspen Publishers, Inc., a Wolters Kluwer business

Current through the 2011 Supplement

© 2011 Thomson Reuters. No claim to original U.S. Government Works.

described in §§ 2.04[A] through [C].

[A] Katzenbach Commission’s Definition of Organized Crime

[B] Commission’s View of the “Activities” of Organized Crime

© 2011 Thomson Reuters. No claim to original U.S. Government Works.

§§ 2.04[E] through [G].33

[C] Katzenbach Commission’s Recommendations

[E] 1969 Prototype for RICO

© 2011 Thomson Reuters. No claim to original U.S. Government Works.

[F] S. 1861: The Bill That Became RICO

[G] Emergence of the Expansionist View of RICO

© 2011 Thomson Reuters. No claim to original U.S. Government Works.

© 2011 Thomson Reuters. No claim to original U.S. Government Works.

20 co_anchor_FN_B20_4. S. Rep. No. 2370, 81st Cong. 16, 2d Sess. (1950).

23 co_anchor_FN_B23_4. Commission Report at 187.

24 co_anchor_FN_B24_4. Id. at 188, 190.

25 co_anchor_FN_B25_4. Id. at 191.

27 co_anchor_FN_B27_4. Id. at 192.

© 2011 Thomson Reuters. No claim to original U.S. Government Works.

29 co_anchor_FN_B29_4. Commission Report at 188-89.

31 co_anchor_FN_B31_4. Id. at 187 (footnotes omitted).

32 co_anchor_FN_B32_4. Id. at 190.

37 co_anchor_FN_B37_4. 113 Cong. Rec. 17998 (1967).

38 co_anchor_FN_B38_4. Id. at 17,997.

40 co_anchor_FN_B40_4. S. 2049, 90th Cong., 1st Sess. § 3 (1967).

41 co_anchor_FN_B41_4. S. 30, 91st Cong., 1st Sess. (1969).

© 2011 Thomson Reuters. No claim to original U.S. Government Works.