H. J. INC. v. NORTHWESTERN BELL TELEPHONE CO.
Legal provision: Racketeer Influenced and Corrupt Organizations
ORAL ARGUMENT OF MARK REINHARDT ON BEHALF OF THE PETITIONERS
Chief Justice William H. Rehnquist: We'll hear argument next in No. 87-1252, H. J. Inc. v. Northwestern Bell Telephone Company.
Mr. Reinhardt, you may proceed whenever you're ready.
Mr. Reinhardt: Mr. Chief Justice, and may it please the Court:
This case is a review of the dismissal of Petitioners' complaint brought under 18 U.S.C. 1961 and 1968, commonly known as RICO.
The specific acts alleged in our complaint were a series of bribes carried out by Northwestern Bell Telephone Company affecting a number of different Northwestern Bell charges ranging from pay phone rates to the cost of buying home telephones.
These bribes, carried out over a period of years, involved various Bell officials, agents, passing over $140,000 to members of the Minnesota Public Utilities Commission.
The Public Utilities Commission is the rate setting, semi or quasi-judicial body in Minnesota that sets Bell's rates.
As pointed out in footnote 1 at page 4 of our brief, a later commission discovered this activity of Bell and reopened one of the many affected rates because of this undue influence.
They cut that tainted rate of $57 million by over $10 million.
This discussion should be broken into three parts: first, the Eighth Circuit's multiple scheme dismissal of this case should be reversed; second, what is a pattern of racketeering activity'; and third, a brief discussion of amici's organized crime connection argument which we submit should be rejected.
First, this Court should reject the Eighth Circuit's multiple scheme requirement.
Nowhere in the plain words of the statute, or indeed, in the legislative history, do we find the words "multiple schemes".
Pattern is defined in statute 1961 as two acts of racketeering activity, not two schemes, just two acts.
There's no multiplicity of schemes involved.
Indeed, a reading of 1962, the operative portion of the RICO statute, shows the impossibility of the Eighth Circuit's position.
1962 forbids a pattern of, forbids a person of acquiring an interest in an enterprise through a pattern of racketeering activity.
In other words, there is a pattern plus the goal of acquiring an interest in this enterprise.
These two together form a single scheme, as do all schemes.
You have a pattern--
Unidentified Justice: Mr. Reinhardt, at least you take the position that there have to be separate criminal transactions for the pattern.
Mr. Reinhardt: --Your Honor--
Unidentified Justice: If not schemes, at least separate transactions.
Mr. Reinhardt: --There has to be separate acts, a pattern of acts is the definition.
Those acts could, in certain limited situations, be part of one transaction, although the word "transaction" is hardly self-defining.
Unidentified Justice: Well, I'm not sure about that.
How do we, how do we give meaning to the continuity requirement that Congress clearly intended to have a role in the pattern inquiry?
Mr. Reinhardt: Your Honor, I think continuity can be thought of, of course, as a series, as you just pointed out, a number of transactions.
However, I believe it also has within it the threat of being a series, and a prime example is the Watchmaker case cited in our brief where some Hell's Angels shot some police officers in one incident.
There were two or perhaps three acts in that case.
There was no other acts or transactions that could be pointed to, but it was clear that through the Hell's Angels enterprise that these acts were committed so as to allow for the threat of continuity or for continuity.
So in certain very limited situations you can have two acts that do allow for a threat of continuity.
And if that answers your question--
Unidentified Justice: Why is it that we require continuity, in your view?
Mr. Reinhardt: --The Congress continually, in its debate and as pointed out in Sedima, said that a pattern is made up of both relatedness and continuity, that that is what a pattern is.
Unidentified Justice: Is not the reason that the concern of the statute is to prohibit activities that have an ongoing potential threat?
Mr. Reinhardt: Yes, Your Honor.
In fact, it is this criminal enterprise--
Unidentified Justice: Well, isn't the Ninth... the Eighth Circuit's scheme at least consistent with that?
It's not inconsistent with that, is it?
Mr. Reinhardt: --It is consistent with that, Your Honor, but it is unduly restrictive in--
Unidentified Justice: But it's consistent with that.
Mr. Reinhardt: --Correct.
However, as I pointed out, it would write out of the law or... well, let me point out, 1962(b) forbids always only a single scheme.
If we need multiple schemes, we would have written out of the law 1962(b), if we follow this multiple scheme restriction placed upon the word "pattern" by the Eighth Circuit.
Furthermore, even if multiple schemes were not a legal impossibility under 1962(b), there is little merit in the concept as, well, Respondent would argue it is a bright line test.
Rather, it becomes a semantical game: do we in this case have a series of bribes committed by different Bell employees against different commissioners affecting different rates, involving different methods, or do we have one scheme to fix rates?
It's really all in the way that you look at it.
The Eighth Circuit, in fact, in the criminal case, Kragness, found multiple schemes where somebody sold two different drugs.
I submit that that easily could have been a scheme to sell drugs, and this is consequently of no real assistance in trying to find out what "pattern" means.
If pattern is--
Unidentified Justice: Are there certain crimes that are more susceptible of an inference of continuity and ongoing threat than others?
Mr. Reinhardt: --Yes, Your Honor.
Unidentified Justice: Say, extortion, blackmail, drug dealing?
Mr. Reinhardt: Your Honor, the, I believe acts listed, the 40 or 45 acts listed by Congress are those that they in fact believed carried with it that threat.
Unidentified Justice: Well, I'm not sure.
When we're talking about pattern, would it be feasible, do you think, for this Court to say that you have to show for a RICO civil act that the criminal activity has a threat of ongoing harm?
Mr. Reinhardt: Your Honor, I think there are two answers to that that occur to me.
The first is that Congress spoke of a pattern of activity.
It is that pattern of the two acts, pattern of activity, of racketeering activity, racketeering activity being the commission or two or more acts, or at least two acts, it is that pattern that we must look at to find continuity within it, not extraneous from it but within it.
Is the act, does it have continuity while the pattern is being committed?
All patterns, or many patterns end when they are discovered.
For example, a criminal enterprise, if you arrest everyone, you end the pattern.
Are they going to escape RICO now because they are all in jail?
I don't think that was the purpose of Congress.
It was to look at the pattern during the period of time.
Just as the word "pattern" has that element, we must limit it to the pattern.
And those two elements, relatedness and continuity, can be further defined, I believe.
Professor Michael Goldsmith, in a Cornell Law Review Journal to be published next month, distributed, I believe, to counsel and the Court, defined "pattern" as two or more predicate acts that are related to each other or to the enterprise, and secondly--
Unidentified Justice: This is a Law Review article to be published next month?
Mr. Reinhardt: --Yes, Your Honor.
We received it in the mail and--
Unidentified Justice: Well, what value is that to us?
Mr. Reinhardt: --Your Honor, the value I see in it is that it was a definition that is--
Unidentified Justice: Well, I'm not going to wait two months for it.
Mr. Reinhardt: --Excuse me?
Unidentified Justice: I'm not going to wait two months for it.
So what's the value of it?
Mr. Reinhardt: Well, Your Honor, that was my information.
It was supplied to me.
At any rate, the definition is a useful one, and I did want to give credit and not be accused of plagiarism, yes, Your Honor, thank you.
He said it was two or more predicate acts that are related to each other or the enterprise, and, Justice O'Connor, constitute the series, a threat of series of acts or a series of acts, and that is the continuity aspect.
This, by the way, would be, I believe, excellent jury instructions, a simple definition, one that is capable of being understood easily.
If the court wanted, it could toss in the... the charging court could use the illustration from Title X, which this Court used in Footnote 14 of Sedima, the illustration of various relationships and the fact that they can't be isolated.
This definition of Professor Goldsmith's has the dual purpose of being limiting, but it does not distort the clear, broad language of Congress and the instructions that the Act be interpreted liberally.
Unidentified Justice: Excuse me.
How does that definition or your proposal apply to a situation where, let's say, there is a kidnapping, and the kidnapper makes a number of phone calls offering to return the captive in exchange for money?
Is each one of those phone calls a separate act, and is that a pattern of racketeering activity?
Mr. Reinhardt: Your Honor, given those facts alone, I would answer no, that they do not.
There is no, within that, the facts that you gave me, I do not see a threat of seriality or a threat of continuity.
However, if the kidnapper was part of an enterprise that in the past had kidnapped other individuals, then perhaps it would.
You have to look not only at the relationship between the acts, but also to the relationship to the enterprise.
Unidentified Justice: Would each phone call in that situation be prosecutable and punishable by imprisonment for more than one year, each individual phone call?
Mr. Reinhardt: It perhaps would, Your Honor, yes, but pattern, Your Honor, carries with it not only the acts and the relatedness of those racketeering acts, but also the continuity, and I don't know if the continuity there would be present.
Unidentified Justice: Are you sure about, are you sure about the answer to that question?
I thought you would just prosecute somebody for the one kidnapping.
You mean every time they make a separate phone call you can get a different sentence for each?
Mr. Reinhardt: Your Honor, I am sorry, I was thinking if you were involved in mail fraud or attempting to get monies falsely through the--
Unidentified Justice: Right.
Mr. Reinhardt: --phone, is that your predicate?
Unidentified Justice: Well, you could change it to that situation, fraud through phone calls.
Is each phone call a separate offense?
Mr. Reinhardt: Yes, Your Honor.
Unidentified Justice: When only you are asking for... all that you're asking for is one payment?
Mr. Reinhardt: I believe that each phone call could be prosecuted separately, Your Honor.
Unidentified Justice: Does the government generally do that, do you know?
Mr. Reinhardt: No, they do not, Your Honor, and perhaps that's because there is no threat of continuity there, although--
Unidentified Justice: And you think that what the act refers to, it seems to read that way, is what the government could bring, not what the government normally does bring.
Mr. Reinhardt: --Well, Your Honor, that is what they speak of when they speak of racketeering acts, but we must... we are speaking of a pattern of racketeering acts, and it's the pattern that places the limitation on the misuse of the statute.
You must have the continuity, as pointed out by Justice O'Connor.
Unidentified Justice: Well, why isn't that continuity?
I made a series of phone calls?
Mr. Reinhardt: It's all surrounding one act.
There's no series, in my mind, Your Honor, there's no series of activity.
Unidentified Justice: --It depends on what you consider the act.
If you consider the act the phone call, there's a series of them.
If you consider the act the kidnapping, there's only one.
Mr. Reinhardt: Your Honor, I am considering the act the kidnapping, I guess, and the surrounding elements of it.
Unidentified Justice: But where you are, I take it, is that you concede or you propose that there has to be under the statute by its own terms the existence of repeated criminal activity, not just repeated acts.
Mr. Reinhardt: --Your Honor, yes--
Unidentified Justice: Because the statute uses the terms differently.
Mr. Reinhardt: --If you consider that Watchmaker example as if two officers were slain, that that was two activities.
You have to remember that there's also the threat of continuity in certain limited situations.
Continuity has with it not only seeing the repetition but the knowledge that there would be a repetition or the belief that there would be a repetition.
Unidentified Justice: Does there have to be, then, some sort of different criminal episodes or transactions rather than just isolated acts?
Mr. Reinhardt: Your Honor, again that turns to if there is no separate continuity that one can find through the enterprise, then I would say yes, you need separate criminal activity.
I hesitate to use the word "episode" because it's been used in many different cases in different ways.
But generally speaking you would have separate activity.
You would have, in our case, we don't have one bribe with different payments, we have different people affected by different bribes, et cetera.
Those would be different activities.
Whether because of lower court desire to--
Unidentified Justice: Hasn't the American Bar Association endorsed the separate criminal episode or transaction approach?
Mr. Reinhardt: --Your Honor, I believe the American Bar Association has accepted or proposed a separate activity... I'm not sure whether they call it a transaction or not... or the threat of that activity.
I would include the threat of that activity.
Otherwise we would be eliminating situations such as Watchmaker which clearly should be within the statute.
Whether because of lower court desire to judicially amend the statute or confusion, some courts, including the Eighth Circuit, have ignored the fact recognized by this Court in Sedima that Congress used plain, broad and clear language to express its intent.
Footnote 14 was a simple and clear direction on two elements, the two elements of pattern: continuity and relationship.
There is no wording in there if multiple schemes test or schemes test, even.
Sedima followed the plain words of the statute, and I submit that this Court has an opportunity to direct lower courts to do likewise.
Thirdly, there was argument presented by the amici in this case attempting to support an organized crime connection requirement, that you have to be typical of organized crime, or the person has to be characteristic of organized crime in order to violate the statute.
1961 defines the defendant in this case as the person, and that person is any individual or entity capable of holding a legal or beneficial interest in property.
There is no additional limitation to be a member of organized crime.
There is no additional limitation to having earned most of his income from crime.
It is a simple statute without those limitations.
Unidentified Justice: Excuse me.
What about the word "racketeering activity"?
Is it your position that the definition in [= 1961(5)] of pattern of racketeering activity is exclusive?
It says pattern of racketeering activity requires.
Now, that means you need at least two acts.
It doesn't say that that alone is enough.
Mr. Reinhardt: That is correct, Your Honor.
Unidentified Justice: Couldn't one say that what you need in addition is activity that can reasonably be characterized as racketeering activity; that is to say, the kind of activity that would normally be conducted by organized crime?
Mr. Reinhardt: Well, Your Honor, in a way that is what Congress said.
They defined racketeering activity in (1), and they did not add, though, when committed by organized crime.
They said these acts.
It is defined here.
There's no further definitional requirement needed.
The person likewise is defined, and throughout this statute you will see no limitation to organized crime.
This... and in fact, the person... this argument, trying to limit the person defendant has been rejected, and now the amici are trying to work it in through the word "pattern", through the action word in the statute, not though the subject word.
But Footnote 14 in Sedima has already recognized that Congress, and indeed this Court, finds two elements in pattern: relationship, relatedness and continuity.
There was no discussion of and being a member of organized crime or earning your money through organized crime.
Indeed, Justice Scalia, the Congress did know well the principle of including substantial income from crime or expert criminality because they did it in Title X, the next title of this act, where they said if you have a pattern and you have substantial income and you are an expert criminal, then you get enhanced punishment.
Clearly those were not included within pattern, at least as they saw pattern.
Congress well knew that the purview of RICO was beyond organized crime.
The Sedima decision is replete with examples from the congressional debate, and it's well laid out there.
The New York City Bar strenuously objected to the statute.
The two sponsors, Congressman Poff and Senator McClellan, both explicitly stated that it extends beyond organized crime.
The predicate acts, as pointed out in Sedima, give the breadth to the statute because they include acts that are not normally committed by organized crime.
The organized crime connection requirement has been virtually uniformly rejected by lower courts.
Respondent did not argue this to the Eighth Circuit.
It was first raised here by amici, and of course, this is because, ironically, the Eighth Circuit was one of the first circuits in the country to reject the organized crime connection in the case of Bennett v. Berg.
I submit that Respondent and amici miss the point when they argue that legitimate businesses are being pulled within the purview of RICO.
Only those who commit not one but a pattern of racketeering activity are within RICO.
Such businesses forfeit the right to call themselves legitimate.
The Eighth Circuit's attempt to restrict the statute should be reversed, this case should be remanded, and amici's attempt to rewrite RICO to include an organized crime connection requirement should be rejected.
As this Court said in Sedima, legitimate business enjoys no immunity from the consequences of criminal activity.
I would like to reserve the remainder of my time for rebuttal.
Unidentified Justice: Thank you, Mr. Reinhardt.
Mr. French, we'll hear now from you.
ORAL ARGUMENT OF JOHN D. FRENCH ON BEHALF OF RESPONDENTS
Mr. French: Mr. Chief Justice, may it please the Court:
I think in order for this argument to make any sense, it has to be put into a context, and I think the context is this Court's decision in Sedima v. Imrex.
I know there are three opinions written in that case, and the three opinions come to quite different conclusions about the issues of the case, but there is a single theme running through all three opinions, and that is concern about the disquieting problem that civil RICO is running far beyond the intent of the Congress to attack organized crime and to prevent its infiltration into legitimate business.
Justice Powell in his opinion observed that if Congress had intended to provide a federal forum for plaintiffs for so many common law wrongs, it would at least have discussed it.
Justice Marshall's dissenting opinion for himself and Justices Brennan, Blackmun and Powell, observed that in criminal application, prosecutorial discretion has had a desirable restraining influence in bringing RICO actions, but in the civil application, that desirable restraining influence is absent, and indeed, the reverse is true, the lure of treble damages and reasonable attorneys' fees is bringing about a situation in which we are on the verge of federalizing what has heretofore been state criminal and state common law problem.
Justice White's opinion for the Court expressly raised the need for imposing reasonable limits on the scope of RICO by reference to the definition of pattern of racketeering activity.
In what has now become certainly one of the most celebrated footnotes in recent judicial history, Footnote 14, Justice White pointed out that a pattern--
Unidentified Justice: And that was a Court ruling there.
Mr. French: --Justice White for the Court pointed out that a pattern requires at least two acts of racketeering activity but does not mean two acts, and also that there are two factors, continuity and relationship, that have to combine to produce a pattern.
In a somewhat less celebrated footnote, Footnote 10, that I think is important here, the Court also observed that while the remedial provisions of Section 1964 of the statute may be liberally construed, at the same time the substantive provisions of 1961 and [= 1962] may legitimately be strictly construed.
The opinion for the Court observed that we have come to a point in which private civil RICO actions are being brought almost solely against legitimate businesses rather than organized crime operations, and it concluded this way.
We nonetheless recognize that in its private, civil version, RICO is evolving into something quite different from the original conception of its enactors.
The extraordinary wishes... pardon me... the extraordinary uses to which civil RICO has been put appear to be primarily the result of the breadth of the predicate offenses, in particular, the inclusion of wire, mail and securities fraud, and the--
Unidentified Justice: xxx problem with the law that Congress passed.
Mr. French: --I think there's a serious problem with it, Your Honor, but I can't do anything about that here.
The remainder, the remainder of the Court's remarks relate to something that I think can be dealt with here, and that is the failure of the courts to develop a meaningful concept of pattern.
Now, that is what has happened.
Following Sedima, the courts have tried, most of the courts have tried to react to the opinions, all three opinions written in Sedima, and what they have done is take the invitation in the opinion of the Court to try to develop a meaningful concept of pattern.
As Footnote 14 remarks, in common parlance, two of anything do not generally form a pattern.
Reaction to Footnote 14 in Sedima and the text of Sedima is plainly what led the Eighth Circuit to the test that it is now using.
The Eighth Circuit has said that on three or four occasions, including in this particular case, and the test that the Eighth Circuit has adopted is that in order to deal with both relationship and continuity, which have to mean two separate things or you wouldn't use two separate words, there has to be evidence or allegations that the defendant has engaged in like activities in the past or other criminal activities elsewhere.
I think this is a reasonable attempt to fathom what RICO, particularly in the light of Sedima.
Unidentified Justice: Well, but, the Eighth Circuit has focused on separate schemes, and that... it seems to be almost alone in doing that.
Other circuits have talked about separate criminal transactions but not schemes.
I think it's a little hard to justify the Eighth Circuit's separate schemes approach, and are you going to address that?
Mr. French: I am, Your Honor, and I will do that now.
Let me divide your question in half, if I may, Justice O'Connor.
Contrary to the argument put forward by the Petitioners, the Eighth Circuit is not alone.
The Tenth Circuit and the Fourth Circuits each expressly use the word "schemes".
Also, even though the Second and Seventh Circuits do not use the word "schemes", in their recent decisions they are using reasoning and reaching results comparable to the Eighth Circuit.
So the Eighth Circuit is not off on a frolic of its own, and it is not true that this case would have been decided differently in any other circuit in America.
Unidentified Justice: You don't think that this, the facts in this case would meet the Seventh Circuit test for separate transactions on the allegations?
Mr. French: I think, Your Honor, that they would not.
The Seventh Circuit talks about continuity plus relationship and talks about the predicate acts... I'm reading from page 26 of Respondents' brief, Your Honor, and I'm reading from Medical Emergency Service Associates v. Foulke, which we quote...
"in order for the predicate acts to be sufficiently continuous to amount to a pattern of racketeering activity, the predicate acts must be ongoing over an identified period of time so that they can fairly be viewed as constituting separate transactions, i.e., transactions somewhat separated by time and place. "
And I believe "transaction", as used by that court, is the same as "scheme" in the Eighth Circuit or "episode" as used by some other court.
I agree with Mr. Reinhardt that we oughtn't to get bogged down in the semantics of the particular word, but separate in time and separate in space seems to be what most of the circuits are trying to comprehend here.
Unidentified Justice: Well, doesn't the Eighth Circuit two-scheme rule run headlong into 1962 subpart (b) which says it shall be unlawful for any person through a pattern of racketeering to acquire any interest in the control of an enterprise?
That sounds to me like one scheme, and it's right there in the statute.
Mr. French: I keep reading commentators saying that, Your Honor, but I disagree, and I think it's wrong.
I think it's wrong for two reasons.
Let me take an example, Your Honor.
Here I am, John French, age 55, no prior criminal record.
I decide instead of continuing to practice law as I have been in Minneapolis, I see an opportunity to steal money from a client or to take over a business.
I commit one act of mail fraud, one act of wire fraud, one act of securities fraud, and I have accomplished my objective.
I then retreat once again into the quiet practice of law in Minneapolis.
I don't believe that the Congress meant to get at me with RICO if that's all I've done.
I mean, after all, I can be prosecuted under the mail fraud statute, under the wire fraud statute, under the securities fraud statute, and the person whom I have cheated can sue me civilly for fraud and for unjust enrichment.
Unidentified Justice: Well, that may be, and your example happens to fit the two-scheme rationale, but that doesn't answer the question that the two-scheme rationale doesn't fit the statute.
It seems to me that if we agree with you that in the hypothetical you pose there should be no liability, we need something other than the two-scheme rationale to do it.
Mr. French: Well, I don't think you do, Your Honor.
I can continue my hypothetical.
Supposed instead of sitting back happily with my ill-gotten gains and resuming honest activity in Minneapolis, I say that worked pretty well.
I'm going to try it again.
And I do.
I'm going to try it again, and I do.
I have now committed three separate clusters of illegal activities, and I believe I can be prosecuted for all three, going all the way back to the first one, because it is now evident that it is part of a pattern of racketeering activity.
Moreover, Your Honor, I think if I can deal with your specific, if you're still concerned about that one opportunity that I took to commit illegal acts, it seems to me that if I could do it with one act of mail fraud, one of wire fraud and one of securities fraud, it's not under RICO for the reasons I stated.
But if I have to get complicated about it, if I have to commit an illegal set of acts in Nebraska and another set of illegal acts in Iowa and another set of illegal acts in Minnesota, all of which have to come together in order to produce the illegal result, I may very well, as this Court might conclude, have engaged in a pattern of racketeering activity.
But there has to be some way--
Unidentified Justice: But how does that fit the two-scheme rule?
Mr. French: --Well, I think it would--
Unidentified Justice: That you're defending.
Mr. French: --Well, I think it would probably be three schemes, Your Honor.
Moreover, I want to say again, I am perfectly happy to take the words used by other courts, I am perfectly happy to talk about transactions or episodes or to get entirely out of the commentators and the cases and talk about groups or clusters of activity.
"Relationship" means a few predicate acts leading to a result.
"Continuity" has to mean something else, and I say it has to mean transactions or episodes or clusters of activity.
And there is not pleaded in this particular complaint, and the Plaintiff, alas for the Plaintiff, is stuck with this complaint just as I am as the Defendant.
It is the only record here.
All that's pled here in Paragraphs 32 to 41 is a series of alleged bribes, culminating in one and only one allegedly illegal outcome.
That appears in paragraph 75, page 81 of the Joint Appendix.
As a result of this series of what I call predicate acts and what Judge MacLaughlin thought were predicate acts, the compensation that Northwestern Bell was allowed to receive by the PUC was in excess of what would be fair and reasonable charges to Plaintiffs and members of the class.
Unidentified Justice: Several people were bribed, weren't they?
Mr. French: It says several people were bribed.
I take that to be not any different from my hypothetical which included one act of mail fraud, one act of wire fraud and one act of securities fraud.
Several people were bribed.
I committed several frauds in my hypothetical.
Unidentified Justice: But may I ask you, if there were two, a series of bribes and a rate increase, another series of bribes and a second rate increase, if that would satisfy your test?
Mr. French: I believe that my test would be... I will give you a hypothetical that I think would satisfy my test, but it is not pleaded here.
If I committed a series of bribes in 1980 and obtained a rate increase, and I did it again in 1983 and obtained a different kind of rate increase or other benefit from the commission, and I did it in 1986, and I obtained another rate increase or benefit from the commission, I think it is possible within a scheme test or a transaction or episode test that I would have brought myself under civil RICO.
Unidentified Justice: Not just possible; that would clearly come within it under your explanation as I understand it.
Mr. French: I believe it would, Your Honor.
Unidentified Justice: Yes.
Why... you say it's a minimum of three?
Mr. French: I don't... I can't say at a minimum three because the Congress said two, and we're stuck with that also.
Unidentified Justice: Then we'll have two.
Mr. French: But as the opinion for the Court said, two in common parlance don't ordinarily add up to any kind of a pattern.
So I would think it would be the very rare case.
Perhaps two coupled with the threat of continuing illegal activity which you might infer if you were dealing with an illegal enterprise like La Costa Nostra instead of a public utility that's been serving customers in Minnesota for 75 years, perhaps in that limited situation two would be enough.
I would think it would be rare.
Your Honor, I--
Unidentified Justice: Suppose that four or five members of the Costa Nostra take over a very legitimate company and over three or four years engage in a series of acts of bribes to achieve one rate increase.
I submit that that's precisely what Congress sought to avoid.
Mr. French: --I submit that that is, too, Your Honor.
Unidentified Justice: But it doesn't fit your test.
Mr. French: I think it fits my test because I can... what I see as La Cosa Nostra engaging in illegal conduct, which allows them to take over Northwestern Bell Telephone Company, for example, and then once they've got control of Northwestern Bell Telephone Company, engaging in a series of bribes or other corrupt acts which allows them to obtain more money than they should have received from the Public Utilities Commission, and then moving on to other criminal activity.
As I was preparing for this argument, Your Honor, a question such as yours was put to me by one of my co-counsel, and I think the answer is that your hypothetical doesn't reflect the real world.
I know I am not supposed to fight a judge's hypothetical, but I have to fight it a little here.
I know what can be pleaded in a criminal indictment against real criminals.
Yesterday while I was preparing to come here, I read the indictment in United States v. Ferdinand and Imelda Marcos.
The charge having to do with pattern of racketeering activities runs for 32 pages and sets forth ten clusters of activities that would satisfy any judge on the Eighth Circuit that each of them was a separate scheme or transaction or episode.
Now, that is what I believe the United States Justice Department is capable of doing any time it is confronted with true organized crime, and it is not remotely what these Plaintiffs have done in this private civil litigation.
Our view is that there's nothing wrong with the Eighth--
Unidentified Justice: The people in... Mr. French.
Mr. French: --Yes, Mr. Chief Justice.
Unidentified Justice: The people in Sedima weren't connected with organized crime either, were they?
Mr. French: They were not, Mr. Chief Justice, and the Court... several of the opinions expressly recognized the Court wasn't faced with pattern of racketeering activity in Sedima.
It was faced with two other questions: do we have to find prior convictions, and do we have to find something special called racketeering injury?
The issue was not before the Court.
I can remember Justice Powell's opinion saying I have to agree with the Court that the issue is not here.
I wish it were.
Now, perhaps if Sedima came back, the Court would find no pattern of racketeering activity there, but I'm not able to opine on that.
With respect to the present case, there are, I think, two possibilities, and that is that the Court can agree that some variation of scheme or episode or transaction is a correct test, and that as a result, the judgment below should be affirmed.
It is also possible that the Court could conclude that one of the other circuits that has suggested a multiple factors test... and I know I don't have to labor the Court with multiple factors.
It appears in many cases.
We've collected a number of them at page 23 of our memorandum, and to my delight, the Petitioner has cited an excellent multiple factors case that I would be happy to live with in its memorandum.
It's the Morgan v. Bank of Waukegan case in the Petitioners' memorandum at page 28.
I believe the Court could say that under a multiple factors test, it can also affirm, and the reason I feel so strongly about that is that that's exactly what Judge MacLaughlin did in this case in the district court in Minnesota.
When the case was first argued to Judge MacLaughlin, I argued for dismissal under the Eighth Circuit test, and Judge MacLaughlin so ruled.
Petitioners then asked Judge MacLaughlin on rehearing to reconsider what test he would apply, and having knowledge that he was bound by the Eighth Circuit test, he went on to say, nonetheless, I recognize a multiple factors test is being applied in other circuits, and I will apply it here and see what I conclude.
And as Judge MacLaughlin's second opinion in the Joint Appendix notes, he looked at the duration of criminal activity, the threat of ongoing criminal activity, the presence of single or multiple victims, the independent harmful significance of the alleged predicate acts, and whether the alleged conduct is a regular part of Defendant's business.
And having done all of that, he nonetheless found that the complaint failed to state a claim under RICO.
Relating this case, if the Court please, back to the concerns expressed in Sedima, I was impressed yesterday again in my reading to read the testimony of Senator McClellan before the House when S. 30 went over for consideration there, and he talked about organized crime quietly sneaking into a business, infiltrating it, using it for corrupt purposes, bilking it of its funds, letting it fall into bankruptcy and dissolving away into the night.
I believe that is the kind of criminal activity that both the House and Senate were seeking to prevent--
Unidentified Justice: None of that would be unlawful; I mean, letting it decline into bankruptcy and all of that, I presume, if they want a business that they have acquired to go to seed, I suppose that's all right, but it was the unlawful acquiring that Congress was addressed to, and that brings us back to Judge Kennedy's question which I'm not sure you've answered very satisfactorily.
If you take over an enterprise in the fashion you've just described, you're saying it has to be done not by just one criminal enterprise or transaction or grouping or whatever you want to call it, but you need three different ones, or at least two different ones.
Mr. French: --I'm saying exactly that because if I don't say that--
Unidentified Justice: You lose this case.
Mr. French: --the continuity vanishes from our lexicon here, Your Honor.
The relationship is enough.
If my hypothetical... let's say that in my hypothetical, instead of cheating a client, I took control of a business.
If one act of mail fraud, one act of wire fraud and one act of securities fraud which allows me to acquire a business brings what I have done under RICO, then all of the fraud committed in America is under RICO.
Instead of having a thousand civil cases a year under RICO, you will have 10,000 civil cases a year under RICO.
It simply must be that the Congress wanted to encompass something more than that via RICO, and that's what makes sense because, as I said earlier, in this particular case, for example, the Ramsey County attorney has convened a grand jury which didn't indict.
The Minnesota Public Utilities Commission has reopened the rate proceeding and reconsidered the rate to be applied.
The Attorney General of Minnesota has an action going against the company right now relating to past rates.
It is simply not true that civil RICO is needed in the instance of a 75 year old public utility that has an office building in downtown Minneapolis that occupies a city block and that has engaged in a sequence of activities that are readily open to public scrutiny by reason of the fact that the entity is so thoroughly regulated.
I do not believe RICO applies in my hypothetical, Justice Scalia.
The Court has before it here a situation in which there is no threat of organized crime infiltrating legitimate business, and there is no threat of racketeering activity being conducted in a manner that cannot be reached by officials of the state.
I think it is important either under the Eighth Circuit test or a multiple factors test that applies in these circumstances for the Court to affirm the judgment below.
If a complaint as insubstantial as the complaint pleaded here today is allowed to stand, then everything in America in which a victim claims injury by reason of a fraud or one of the other predicate acts set forth in the statute, becomes civil RICO, and state common law has been federalized with a treble damages remedy.
I do not believe that is what Congress intended, and I do not believe that that is what this Court should allow.
Thank you very much.
Unidentified Justice: Thank you, Mr. French.
Mr. Reinhardt, you have ten minutes remaining.
REBUTTAL ARGUMENT OF MARK REINHARDT ON BEHALF OF PETITIONERS
Mr. Reinhardt: Thank you, Your Honor.
Your Honor, in response to Mr. French's argument that the floodgates of litigation are opened on RICO, I'd like to point out to the Court that there are but 85 RICO cases per month out of 23,000 federal cases being pled today, and that has been double for approximately two years.
I would also like to point out that the Court's decision in Shearson American Express where they subjected RICO to arbitration surely will have a further limitation upon that.
This floodgates argument is an argument that you frequently hear bantered about, but I submit that it simply hasn't come to pass.
Secondly, I submit that we will not have every fraud case in America being brought before the federal judiciary.
This case involved bribery over a period of five years, in 1983, offering employment to a commissioner while still sitting, before a major vote; in 1985, making employment arrangements with a commissioner, passing $30,000 after the commissioner left the court, to an attorney who then deposited it into his account.
It was listed as attorneys' fees.
That attorney then wrote separate checks to the commissioner.
The commissioner then got back on the commission and, interestingly enough, neglected to mention when required to do so by Minnesota ethical requirements as part of his income, neglected to mention this $30,000 he had just received.
I submit this is not a mere business oversight; this is, as alleged in the complaint, out and out bribery.
There are... we state in our complaint that it affected Bell charges.
We don't say it affected one charge.
It went on for a period of years.
In fact, there are probably 40 or 50 rate hearings a year.
The particular activity centered around particular rates.
However, Your Honor, we must remember that we have not even been allowed to conduct discovery yet in this case.
The facts that we have are the mere bones of the complaint, and I allege that what we have submitted to you shows a clear, ongoing course of activity.
As this Court recognized, RICO applies to illegitimate as well as legitimate businesses.
Unidentified Justice: It is your contention that under paragraph 75 of the complaint, more than one rate proceeding could be referred to?
I think that was the section that Mr. French called our attention to.
Mr. Reinhardt: Yes, fair and reasonable charges, yes, that there were many charges, that they received in excess of the fair and reasonable charges to which they would have been allowed.
Unidentified Justice: Many different rate proceedings were involved.
Mr. Reinhardt: Yes, there were many rate proceedings over this period of time, Your Honor, and in fact, submitted with memorandum to the trial court was much material relating to different rate hearings.
Another instance here used by Mr. French as one of... well, before, I believe, in response to Justice Kennedy, I mentioned that the continuity has to be within the pattern.
We cannot look to whether this individual has a life of crime outside the pattern.
That's not what Congress was addressing.
They weren't addressing the individual, they were addressing the pattern.
Is there a pattern of racketeering activity, two acts, or at least two acts... it could be more acts, many acts, but within those acts, is there a relationship and an illustration of continuity, a serialness?
Surely there is in the instant case.
Unidentified Justice: Seriality.
Mr. Reinhardt: As Justice Kennedy--
Unidentified Justice: Well, would this case... this case wouldn't turn out any differently if we held there had to be continuity with reference to the criminal enterprise, would it?
Mr. Reinhardt: --Your Honor, many courts have said that where you have a legitimate enterprise you never have a problem of continuity because obviously the continuity is ongoing.
I think that really addresses an illegitimate enterprise.
However, again, even there, I think you have to look during the existence of the acts, the Barticheck case, which we cite in our brief, points this out very well.
If you catch the people, they are not doing it anymore.
It's senseless to look at it afterwards or elsewhere or before.
If we had pled, we had pled perhaps five or six acts of racketeering, if we had pled two, do we satisfy Mr. French's definition then that before or after the pattern we plead there were acts?
It becomes a very semantical game.
You have to look for the continuity within the actual pattern.
Again, as Justice Stevens stated, if racketeer... if the Mafia had done this we would not be here today.
There's little question that no court would say that this activity should be forbidden.
Yet that is exactly what Congress dealt with.
It dealt with activity, not with a status offense.
RICO is not a person-oriented status offense.
It is an offense that Congress, as Senator McClellan said, the occasion for our writing this law is being confused with the results of our investigation.
They found activity repugnant, and that activity was activity which they believed was committed by organized crime, and indeed, was.
But it is the activity that's repugnant.
If anybody commits that repugnant activity, they should be condemned.
It is not a status offense to be committed only by some, only by a few.
This is an offense which lays out forbidden activity, and that activity, if committed by anyone, deserves the punishment that RICO calls for.
And our complaint should be reinstated for those reasons.
Chief Justice William H. Rehnquist: Thank you, Mr. Reinhardt.
The case is submitted.
Unidentified Justice: The honorable Court is now adjourned until Monday next at 10 o'clock.