REVES v. ERNST & YOUNG

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Argument of Gary M. Elden

Chief Justice Rehnquist: We'll hear argument first today in No. 91-886, Bob Reves v. Ernst & Young.

Now Mr. Elden.

Mr. Elden: Thank you, Mr. Chief Justice, and may it please the Court:

This case involves RICO and, in particular, it involves what does it mean to participate in the conduct of the affairs of an enterprise.

The case is here on writ of certiorari from the Eighth Circuit which affirmed the summary judgment for an accounting firm on the ground that they did not participate in the conduct of the affairs of the Farmer's Co-op.

The only relevant fact the Court needs to know I think about the Farmer's Co-op is that it financed itself by selling demand notes to its members.

They... the Eighth Circuit held that the proper test was whether the accounting firm engaged in the operation or management of the co-op, but to understand the test I think it's necessary to keep three facts in mind.

There's an enormous number of facts.

I'm just going to stress three.

I think without it, it's not possible to fully appreciate how restricted the test is.

All courts agree... and I'm going to use the language of the courts.

So, this is not my version of things.

The courts who gave the summary judgment agreed that these facts a jury could have found: first, that Arthur Young "created" the financial statements of the co-op, not audited them... not audited them, but created them.

And the district court explained in detail what he meant.

Arthur Young invented the cost figures.

Arthur Young, according to the district court, engaged in a blatant fiction.

The records of the co-op showed that a sale had occurred.

A multi-million dollar transaction had occurred.

A self-dealing transaction that rendered the co-op insolvent was a sale.

All the records showed that: tax returns, minutes, court decrees.

They chose themselves, consulting no one, to ignore that fact, and numerous other points that the district court made.

They created the financial statements, and they created financial statements, basically on their own without consulting very much anyone else, which concealed the insolvency of the co-op and concealed the self-dealing and even crimes of the principals.

Second, the courts agreed that Arthur Young took the financial statements it had created and used those affirmatively to mislead the investors and the buyers of the demand notes.

They did this by participating... that's the court's word... participating in the creation of condensed financial statements, which everybody admits were fraudulent and misleading.

Even Arthur Young makes no attempt to defend those.

And they attended annual meetings where both courts, Eighth Circuit and the district court, agreed they lied in response to direct questions.

They deliberately concealed facts from the investors.

The jury found... there was not even appeal on the weight of the evidence.

So, it has become final... that they did this with the actual intent to mislead and deceive investors.

And the Eighth Circuit said that everybody knew that if the investors were not told of the insolvency, they'd continue to buy demand notes, and if they were told, there would have been a run on the co-op.

Unknown Speaker: Was this in cooperation with any particular officer of the company who was doing the same thing?

Mr. Elden: Your Honor, in this case, the principal wrongdoer was already in jail when this happened.

There were nine directors, five of whom remained in office and who were at least guilty of negligence if not collusion.

There were four reform directors who were trying to get to the bottom of things and tell the truth to people.

Unknown Speaker: You see, I'd find it easier to say that they participated In the conduct of the company's business if they were acting jointly with one of the managers or directors, or at least an employee of the company who was conducting the company's business.

Then I could say they participated in the conduct.

But as you describe it, anybody that they would have made common cause with was gone, and they were just acting on their own.

Mr. Elden: I would like to make it as easy as possible for Your Honor to agree with me, but the truth is that they basically did it... they did 95 percent of this themselves.

No one... there's no proof anyone even knew what they were doing.

They pulled off the fraud to cover up themselves, to protect their friends who were by then gone.

Now, Kirit Goradia did pull together some of the financial data.

I mean, there was a lot of financial data in the financial statements.

It wasn't all cooked.

Some of it was straight.

Kirit Goradia pulled that together.

But I think essentially the creation of the false financial statements was virtually totally the work of Arthur Young.

Unknown Speaker: But their friends stood to be harmed or to be hurt when the extent of their derelictions came out.

Is that fair to say?

So that there was a motive I guess is what I'm saying--

Mr. Elden: Correct.

Unknown Speaker: --for the accountant to do what it did even though it may not have been in a literal... jointly sense... literally jointly participating at the time it committed the acts that you complained of.

Mr. Elden: Correct.

Your Honor, our view that we presented to the jury was that the motive was to cover up what amounted to crimes not only by Jack White who was on his way to jail or in jail by then, but the lawyers for Jack White who had suborned perjury who had put this whole crooked deal together and could themselves been disbarred or who knows what.

Those were the people.

The people who needed the coverup were the people who changed orders to Arthur Young.

Nothing wrong with the old auditor.

He had done it the right... he had recorded it as not being owned by the co-op the previous year.

The people who needed the coverup brought in Arthur Young and they got it.

In terms of participation, if I could address Justice Scalia's point, because I would like to make it easy for everyone to agree with me, I think that there's a lot of things Arthur Young did not do.

They didn't sell the grain.

They didn't do the lease.

They didn't hire and fire employees.

They participated in the conduct of the affairs by participating in the conduct of the creation of the financial statements.

The third fact which I'll allude to only briefly is that everyone admits they used the financial--

Unknown Speaker: May I just ask on that question?

Mr. Elden: --Yes.

Unknown Speaker: Do you take the position that whenever an auditing firm creates financial statements, that it has engaged in the pattern of racketeering activity?

Mr. Elden: No.

In fact, I tried my best not... that... Arthur Young tries to portray our position as applying to the typical auditor.

It does not.

This was an extreme fact situation.

If an... there are two things an auditor can do that are perfectly proper.

One is it can audit books prepared by others.

If the others created a fraud and the auditor misses it, it may be negligence, but it's not RICO.

We never contended it was RICO.

Second thing, he can go farther.

He can help them.

He can help them put the books together.

You can out-source your accounting function.

You can hire Arthur Young to do all your accounting work.

There's nothing wrong with that, but once they've gone to a certain point of putting the books together, they can't audit themselves.

If they want a certified audit, they need to bring someone new in.

I'm in complete agreement that Arthur Young's statement of that in their briefs is the proper role of the auditor.

Arthur Young went far beyond the proper role of the auditor here.

Unknown Speaker: By creating the books.

Is that--

Mr. Elden: By creating the books, doing it fraudulently, and then auditing themselves, and not catching themselves.

Unknown Speaker: --Well, you say they can create the books so long as they don't then audit themselves.

Mr. Elden: Your Honor, I think it is--

Unknown Speaker: It's sort of retroactively taken out of RICO when somebody else later does an audit?

Mr. Elden: --Your Honor, I'm not actually speaking of a legal principle here.

I'm speaking of the accounting rules that the accountants set for themselves.

They allow themselves, to a small degree, to help the client put the books together even though they audit.

Unknown Speaker: Yes, but I don't think RICO was intended to codify general rules of accounting practice, was it?

Mr. Elden: No.

Unknown Speaker: I have no indication of that.

Mr. Elden: It plainly was not.

It plainly was not, Your Honor.

Unknown Speaker: I thought this provision here in particular was meant to prevent a company from becoming an evil mechanism, a company becoming a law-breaking company as an enterprise.

And when you're not working with someone in the company, you continue to work as an outside auditor, I don't see how that comes about.

Mr. Elden: Well, in terms of whether outsiders are covered, a point which Arthur Young has conceded... so have all the amicus... the proceeding language in section 1962(c) talks about people employed by or associated with.

The classic RICO case, numerous predicate acts, concerned bribers.

Bribers are normally outsiders who are influencing only some aspect of the business, not controlling the whole business.

Unknown Speaker: Well, that's true, but they are working with someone who is a manager of the business or an employee of the business with authority to conduct the business' affairs.

So, you can say it is the business that is corrupted.

Mr. Elden: Your Honor, in that case, I now have an answer to Your Honor's question.

Sorry I'm so slow.

The board of directors had to adopt the report of Arthur Young, and Arthur Young had to persuade them to do that at meetings by misleading them and not telling them the entire truth.

Arthur Young could not single-handedly have set up the meetings and promulgated a final report.

Unknown Speaker: Well, misleading them isn't the same thing as making common cause with them.

I mean, when you bribe one of them, the two of you make common cause to conduct the business in a... an evil, unlawful fashion.

Mr. Elden: That's true with bribery, but not with fraud.

With fraud, you might be deceiving them into doing.

If you're bribing them, you're persuading them to do what you want them to do.

Fraud you might be deceiving them into doing what you want them to do.

Unknown Speaker: Well, that's unlawful.

No doubt.

But I don't see why that becomes a RICO violation under this section of RICO anyway.

Mr. Elden: Well, the... taking 1962 as a whole, all three sections refer to pattern of racketeering acts.

That's the prohibited thing.

If you do the prohibited thing to invest in a company, that's A.

If you do it to control a company, that's B.

But if... but C covers merely participating in the conduct of the affairs or conducting the affairs.

Even if you conduct all the affairs, you're still covered under C.

Unknown Speaker: Well, Mr. Elden, in interpreting that language, would you think the night watchman might be covered or the elevator operator or anybody who committed a pattern of unlawful acts?

Mr. Elden: No.

No, Your Honor.

In fact, the word "participate", which has a half-century tradition behind it and which was a word well-known to Congress at the time they used it, plainly excludes people who are not materially involved in furthering something.

Participate has been used throughout all the... all 50 States.

Numerous Federal statutes have participants as people who materially aid or assist someone else who could be the primary wrongdoer or could just be equal with them in accomplishing something.

So, a participant is not someone who... just a person who goes out for coffee while they're committing the fraud is not a participant under the securities laws.

You don't even get to a predicate act that way.

It's only when you materially aid and assist.

Unknown Speaker: But it could be at any level of involvement, and you'd say that's involved in the conduct of the enterprise's affairs?

Mr. Elden: I would say not the very lowest level, but not necessarily confined to the highest level.

A person who effects a purchasing decision, bribes the purchasing agent, is covered even though he doesn't also handle marketing.

Unknown Speaker: Well, we're dealing with some pretty fuzzy language here I suppose, and the courts are all over the lot in giving meaning to it.

Let me ask you this.

Do you think that the rule of lenity should apply in our interpretation of the statute--

Mr. Elden: Your Honor, I--

Unknown Speaker: --and where it is fuzzy, maybe we should err on the side of being careful before we extend liability?

Mr. Elden: --Your Honor, the rule of lenity is to some extent at tension with the statutory command to give liberal construction.

I think the way I reconcile them is if by giving a liberal construction to certain words, a person is able to come to a sensible meaning of them, then it's not ambiguous and the rule of lenity... in other words, using Congress' guideline of liberality, if a person is able to understand the words, then the rule of lenity would not apply.

If it's still ambiguous, it would.

Unknown Speaker: Well, I'm not sure how anyone would understand these words just reading them.

Mr. Elden: Your Honor, I think unlike the pattern of racketeering concept, which is a novel concept in RICO and which is very difficult to understand, these words all have been interpreted by courts in the same way dictionaries interpret them, in the same way laymen use them, and they're used in many other statutes.

The concept of participating in the conduct of affairs is used in the FIRREA statute that was just adopted.

A similar concept has been used in the securities laws with no problems, no one claiming it's unconstitutional.

Participate in the conduct of the affairs is fairly straightforward English prose.

And I think that RICO as a whole is a very complicated statute because of the pattern of racketeering concept, and through the pattern to racketeering language, which fortunately I don't think is before the Court today... and I agree that that makes the entire sentence very complicated.

But assume for the moment we know... let's say it's stipulated that there's a pattern of racketeering acts.

Once that's stipulated, I think the rest of the sentence is not hard to parse relative to other Federal statutes.

Unknown Speaker: But doesn't the notion of participation require at some kind of minimum level an action with other members of the management?

And at the point that the accountants were doing things dirty, the other members of the management who would have been aware of this and whom they might have been acting with were gone.

So that weren't they in the position, as you describe the facts, not of acting with the management, but of duping the management, as well as borrowers and so on for the benefit of their friends who were in jail?

They weren't participating; they were deceiving both the management and the buyers of the notes.

Mr. Elden: Your Honor, I agree with the first comment Your Honor made, that at a certain very low level of participation, I would agree it is not covered, and I think that that is not simply a preference or... I think that is... in the word "participate", as it has been used for half a century, but it is sufficient.

It is sufficient.

To drive the getaway car is sufficient even if you drive the getaway car all by yourself and you're the only one who drives the getaway car.

If you--

Unknown Speaker: But you are also acting in concert with the people who have robbed the bank, and that analogy doesn't hold here because they're not acting in concert with the remaining members of the management.

They are, in fact, acting for the sake of helping members of the management who used to be there, but were gone by the time they can... gone by the time the auditors committed their wrongs.

Mr. Elden: --Your Honor, I think there's a distinction between conspiracy and participate in the conduct of the affairs.

Other people were also participating in the conduct of the affairs, the salesmen, the people who were making the demand notes available, the board of directors which was continuing to run the co-op, calling the meetings.

There was a lot of things going on at the co-op that Arthur Young had nothing to do with, and without the co-op being an ongoing enterprise... it was functioning in many other respects... Arthur Young's fraud would not have succeeded.

Unknown Speaker: Mr. Elden, let me give you a hypothetical which I think will highlight what's troubling Justice Souter and me as well.

What if the offense here were selling... fraudulently selling defective parts to a corporation which then sold a... an instrument that incorporated those defective parts to the public.

Would that be... which is the conduct of the corporation's business.

Would that be participating in the conduct of the affairs of the corporation?

Mr. Elden: I think... no.

I think a person who merely is engaged in transactions with the company is not conducting its affairs.

Unknown Speaker: Well, why is that any different from what we have here?

Mr. Elden: That person merely sells defective parts to the company.

That's all he does?

Unknown Speaker: Fraudulently.

Fraudulently.

Mr. Elden: Commits a fraud on the company.

Unknown Speaker: Yes.

Mr. Elden: That's all--

Unknown Speaker: Just as the accountant firm pawned off on the company a fraudulently defective financial statement, this person pawns off on the company fraudulently defective parts.

Mr. Elden: --As I read the word "conduct", it requires some carrying on of the actual business of the company, not merely selling it to them.

Unknown Speaker: Well, I don't see that in either case you have an actual carrying on of the business.

Mr. Elden: Thank you, Your Honor.

I would like to save the rest of my time for reply if I may.

Unknown Speaker: Very well, Mr. Elden.

Whoops, whoops.

Argument of Kathryn A. Oberly

Mr. Oberly: I'm sorry, Your Honor.

Unknown Speaker: We'll get to you in a minute, Ms. Oberly.

[Laughter]

You're eager.

Mr. Dreeben, we'll hear from you now.

Argument of Michael R. Dreeben

Mr. Dreeben: Thank you, Mr. Chief Justice, and may it please the Court:

Now, the issue before the Court today is whether the Eighth Circuit was correct in holding that the RICO statute requires that a defendant operate or manage the business in order to be held liable under section 1961(c).

That holding, we submit, is wrong for several reasons.

First, it departs from the text of the statute which does not use the words "operate" or "manage" to describe the requirements for liability.

Second... and I think this goes to Justice O'Connor's question about the application of the rule of lenity in this case... the Eighth Circuit's holding ignores that Congress used the words RICO and in other contemporaneous laws, and I will detail those laws in a minute.

When Congress wished to impose the requirements of operation or management for liability, it did so explicitly, not as the Eighth Circuit did through the back door by a gloss on words that do not contain that sense.

Unknown Speaker: To manage is one thing, but to act authoritatively on behalf of the company is something else, isn't it?

Couldn't we impose that minimal requirement and find that even that requirement was not met here?

You don't have to be top dog, but you have to be an agent who can act authoritatively on behalf of the company in order to conduct its business.

Mr. Dreeben: Well--

Unknown Speaker: And there's nobody here who meets that qualification, who was participated with by the accountants.

Mr. Dreeben: --Well, first, Justice Scalia, the statute covers two different ways of engaging the enterprise in this pattern of racketeering activity.

First, it covers people who conduct the enterprise's affairs.

Unknown Speaker: Right.

Mr. Dreeben: Second, it covers people who participate in the conduct of the affairs.

If, by hypothesis, the accounting firm had become, in effect, the chief financial officer for the company and was given by the board the authority to create its financial statements, which in effect happened in this case because there was no one within the company to do that, the accounting firm can be said to have conducted this limited aspect of the company's affairs.

Even if you turn to the second aspect of the statute--

Unknown Speaker: What aspect of the affairs did they conduct?

Mr. Dreeben: --They conducted, in essence, the--

Unknown Speaker: Not participated in the conduct, but they conducted.

Mr. Dreeben: --That's correct.

Unknown Speaker: Why?

Mr. Dreeben: I'm focusing now on their creation of the financial statements of the company in which they made fundamental accounting decisions about the valuation of assets and then gave those to the company.

Unknown Speaker: That's not the company's affairs any more than my keeping a diary could seriously be considered my affairs.

Unless that's presented to someone with the objective of raising money from that person or some other objective--

Mr. Dreeben: Well--

Unknown Speaker: --there are no... there's no business being conducted.

Mr. Dreeben: --Well, of course, in this case, the financial statements were integral to the money-raising functions that the co-op was carrying out, but--

Unknown Speaker: Exactly.

Now, who was cooperating with the accountant in raising that money, in conducting that affair of raising money?

Mr. Dreeben: --It is the co-op's affairs to present its financial data.

There's... this case doesn't involve the construction of the concept of the affairs of the enterprise.

It has been taken for granted not only in this case, but in all other cases that have considered this issue, that part of the affairs of a business enterprise consists of fairly presenting its financial data to people who rely on it, which would include in public companies the Securities and Exchange Commission and investors and in this case covers the farmers who invested in the demand notes.

And all of the--

Unknown Speaker: Just presenting it?

Just generally presenting it?

Gee, I--

Mr. Dreeben: --Well, it's--

Unknown Speaker: --Raising money is part of its affairs, but I don't think developing and writing out a financial statement--

Mr. Dreeben: --Well, I think that all companies which maintain accounting staffs and financial departments view it as part of their affairs.

This is not a narrow term in the RICO statute.

This is a statute that's designed to cover comprehensively enterprise criminality, and the concept of affairs has never been given a narrow reading.

Unknown Speaker: --May I ask you a question on this second category that you described?

Do you think the statute has a different meaning when it refers to conduct of such enterprise's affairs through, so forth, than if it simply said, participate in such enterprise's affairs?

Mr. Dreeben: Yes.

I think that is a narrower reading.

Unknown Speaker: It does require some level of seniority in the company.

Is that right?

Mr. Dreeben: No.

I'm not sure that seniority in the company is the issue.

I think what the issue is is that it has to be some direct participation in the conduct of the affairs, and I can give an example.

Unknown Speaker: Give me an example.

The difference between participation in the conduct of the affairs and, on the other hand, participation in the affairs.

Mr. Dreeben: Well, for example, we have a number of RICO cases that cover bribery of court officials to obtain official action.

That I believe is participating in the conduct of the affairs of the enterprise because it induces official action.

Merely filing a fraudulent pleading with a court, a false pleading that misrepresents facts, would be participating in the affairs of the court generally, but would not be participating in the conduct of the affairs.

Similarly, there are cases in which people have been conducting gambling enterprises on corporate property, not involving really the resources or any of the prestige of the company, but simply using it as a location for doing it.

Generally, that could be viewed as participating in the affairs of the company, but it's certainly not participating in the conduct of the affairs of the company.

Unknown Speaker: Yes, but if you apply that analogy here, what happened here is exactly what happened in your court case; that is to say, the company itself was misled just as the court was misled.

Mr. Dreeben: No.

I think the analogy to this case would be if somebody were drafting opinions for the court fraudulently and the court was then issuing them.

Here you have financial statements that were prepared fraudulently and issued by the company with the accounting firm serving as the creator and the explicator of the fraud.

All--

Unknown Speaker: And that's different from presenting facts to the court fraudulently which the court then adopts.

Mr. Dreeben: --Well, if the court then adopts them, then you have a different kind of question I believe.

Unknown Speaker: Oh, I see.

Mr. Dreeben: But if you have--

Unknown Speaker: If it's successful, it's covered by RICO.

If it's unsuccessful, it's not.

Mr. Dreeben: --Well, if the court, for example, invited the parties to prepare findings of fact and they were done with the knowledge that they would be used as the basis for the court's submissions, and they were done fraudulently, this would be a different case.

Of course, we're not talking here about examples that are actually covered by the RICO statute unless you have the requisite pattern of predicate crimes, and in this case, of course, we do have a pattern of predicate mail fraud and securities fraud crimes.

The Eighth Circuit's test is wrong most fundamentally because RICO itself uses the terms that the Eighth Circuit read into section 1962(c) in other places.

Section 1962(a) prohibits operation of the enterprise with racketeering proceeds.

Section 1962(b) prohibits acquiring control over the enterprise through racketeering acts.

The D.C. Circuit said that section 1962(c) requires control, but it's quite clear that Congress imposed that requirement on a different section of RICO, not on this section.

The gambling statute, 18 U.S.C., section 1955(a), applies to whoever conducts, finances, manages, supervises, directs, or owns an illegal gambling business, and that statute was passed as another title of the same act of which RICO was a title.

Using standard principles of statutory construction, it would be very difficult to say that Congress intended the same limitation in RICO that it explicitly passed in another title of the same act.

And 2 weeks after passing RICO, Congress enacted the continuing criminal enterprise statute which applies to a position... a person in the position of organizer, a supervisory position, or any other position of management in a group engaging in narcotics activities.

And against the background of those statutes, section 1962(c) must be read as Congress wrote it, to cover generally persons who participate through usurping the enterprise's activities, corrupting the enterprise's activities, or using the enterprise's activities to enhance their ability to commit criminal acts.

Unknown Speaker: Assume a construction company... is it your position that a worker, the lowest paid worker who digs ditches for this construction company... is he conducting the affairs of the company within the meaning of this statute?

Mr. Dreeben: No, he's not conducting the affairs.

Unknown Speaker: He's not.

Mr. Dreeben: He may very well be--

Unknown Speaker: So, there is some direction element to it, some--

Mr. Dreeben: --He may very well--

Unknown Speaker: --supervisory, some authoritative element somehow?

Mr. Dreeben: --I don't think there's an authoritative element, Justice Scalia.

It does speak to people who participate in the conduct of the affairs even indirectly, and although obviously the Government is not seeking to use RICO against ditch diggers or secretaries or people without some level of involvement in the enterprise so that they can inflict the sorts of harms that RICO is designed to cure, the statute as written refers to people who participate in carrying out the affairs of the enterprise.

And if they are able to do that--

Unknown Speaker: But that doesn't include ditch diggers--

Mr. Dreeben: --I think it--

Unknown Speaker: --or secretaries.

Mr. Dreeben: --I would not say as a matter of law that it excludes anybody--

Unknown Speaker: It does include ditch diggers.

Mr. Dreeben: --As a matter of law, the statute doesn't exclude them, no, but the statute--

Unknown Speaker: Which means it does include them.

Mr. Dreeben: --Yes, it does, Justice Scalia.

Thank you.

Unknown Speaker: Thank you, Mr. Dreeben.

Ms. Oberly, your turn has been reached.

[Laughter]

Rebuttal of Kathryn A. Oberly

Mr. Oberly: Thank you, Your Honor.

Thank you, Mr. Chief Justice, and may it please the Court:

The Court's task in this case is just... is, obviously, to decide what Congress meant when it included the conduct requirement in section 1962(c), and the Court needs to approach that task by choosing, from among all the possible meanings that are set forth in the briefs and the arguments, the one that most fits with a common sense, logical understanding of what Congress had in mind.

Our position is that the Eighth Circuit's operation or management test meets that requirement.

At least we seem to agree with the Government, that the place to start here is with the language of the statute itself, but in fact, the Government's approach and the petitioners' approach I think, as Justice Stevens points out, has the tendency to completely read out of the statute the conduct requirement altogether because it's very difficult for them to articulate a distinction between participate in the affairs, which is not what the statute says, and participate in the conduct of the enterprise's affairs, which is what the statute says.

Conduct is there for a reason.

This Court has already said in Sedima that conduct is one of the elements that a RICO plaintiff has to prove.

So, we're talking about words of limitation, and they mean that you can't prove a RICO violation simply by showing--

Unknown Speaker: Does a lawyer... is the outside general counsel to a concern... is it... whether that's an enterprise or not is beside the point, but would the lawyer be considered to be participating in the conduct of the business when he gives advice as to whether this conduct is legal or not?

Mr. Oberly: --Not in my opinion, Your Honor, when he gives advice, which when he gives advice, the company, the enterprise, is free to accept it or reject it.

The company is still making its business decisions about how to conduct--

Unknown Speaker: Is the inside general counsel in the same position?

Mr. Oberly: --If he gives... if the inside general counsel... if he or she gives advice to management, again it's advice which management can accept or reject.

If, on the other hand, management delegates to either inside or outside general counsel the power to make decisions and, for example, appoints the lawyer as agent to conduct the corporation's legal affairs, then that would be a different question.

Unknown Speaker: But it doesn't say conduct.

It says conduct or participate in the conduct.

What if an officer of the corporation comes to a lawyer and says, look it, we want to run this scam on the public?

I'd like your advice as to how it can be conducted in a way that is least likely to be detected by the bank auditors or whoever.

And the lawyer says, okay, this is how you do it.

Mr. Oberly: Ultimately, Your Honor, I--

Unknown Speaker: Wouldn't he be participating in the conduct of the affairs?

Mr. Oberly: --It depends I think, Your Honor, on whether that lawyer is given... if he doesn't have control himself, which I don't think he necessarily has to have, is he operating under the control of the CEO or someone who can direct the affairs of the enterprise?

Unknown Speaker: He's not controlled by him, but he's helping him.

He's participating with him in the scam.

Mr. Oberly: Then he's participating in the affairs of the enterprise, which is--

Unknown Speaker: But not in the conduct of the affairs--

Mr. Oberly: --Not in the conduct.

Unknown Speaker: --I don't see that.

Mr. Oberly: To me conduct imparts some notion which we get from the statute, its language, and its legislative history and RICO's purpose... conduct imparts some notion of management or direction of the affairs.

Participate--

Unknown Speaker: In helping somebody who manages, aren't you participating in the management by helping someone else who manages?

Mr. Oberly: --If you're operating under their direction.

If you are just giving them advice, even if it's advice about how to commit an illegality, ultimately the decision making authority still resides with whoever it is that is running, operating, or managing the business.

You're an outside advisor.

You may be an inside advisor.

I don't think the outsider-insider distinction makes that much difference.

The question is who is calling the shots, and if you're doing... if you're acting for the company with authority to make those decisions, then you may be participating in the conduct of the affairs.

Unknown Speaker: What if it's... what if a certificate of counsel were required by law?

Mr. Oberly: Well--

Unknown Speaker: And... or what if they... what if a certified audit is required by law?

Mr. Oberly: --It is.

Unknown Speaker: And without it the business can't go forward.

Mr. Oberly: It is required by law for SEC traded companies, for example--

Unknown Speaker: Yes.

Mr. Oberly: --that you have an accountant's--

Unknown Speaker: Yes.

Mr. Oberly: --report every year, but that conduct of the business' affairs--

Unknown Speaker: You say that would not qualify either.

Mr. Oberly: --No, Your Honor, because what the outside accountant is doing is expressing a professional opinion on how the client conducted its financial affairs.

The outside auditor is not making business decisions for the client.

The outside auditor is not deciding whether to make particular investments.

The outside auditor isn't deciding whether this co-op should advance initially $4.1 million and later up to $5.8 million--

Unknown Speaker: Well, yes, but the--

Mr. Oberly: --to the gasohol plant.

What the outside auditor is doing is coming in and recording in financial statement form decisions already made--

Unknown Speaker: --Well, that may be so--

Mr. Oberly: --by the people running the enterprise.

Unknown Speaker: --of the honest... it may be so of the honest auditor.

But what if he's a crooked auditor and he wants to further the affairs of the business end.

Without a crooked, dishonest statement, the enterprise can't go forward.

Mr. Oberly: Your Honor, what you're suggesting I think is something akin to a bribery case where the company bribes the auditor and says we know we have no basis for--

Unknown Speaker: No, I didn't say that at all.

I just... the auditor is actirg in its self-interest.

He wants to keep a good client.

Mr. Oberly: --Well, let's take this case as an example, Your Honor.

That's the theory in this case, that the scheme was to keep the co-op afloat even though it was insolvent and that Arthur Young was somehow instrumental in that scheme.

Unknown Speaker: You don't think that's participating in the conduct of the business?

Mr. Oberly: No.

I think--

Unknown Speaker: Without it, the business wouldn't have been conducted.

Mr. Oberly: --Your Honor, with the opinions that Arthur Young issued in this case, which were qualified opinions on whether the co-op would ever be able to recover the money it had invested in the gasohol plant, which showed the co-op to be losing $100,000 a month, showed a 6 point... almost a $6 million advance to the co-op--

Unknown Speaker: So, you just want to... I suppose you want to win this case on any ground that you want to win on, but you want to win it... you submit that you want the general rule that no accountant who does no more than jigger with a financial statement... no accountant is participating in the conduct of the business.

Mr. Oberly: --When an accountant acts as auditor, I would say it is very rare that he is participating in the conduct of his client's affairs.

I can conceive of and will give you situations in which an accountant goes beyond that, although they're not this case.

But suppose that the accountant is not only auditing the client's financial statements, but is sitting on the client's board of directors, for example.

He is then conducting or participating with the other directors in the conduct of the--

Unknown Speaker: And so you... and you say even if the president of the company says, look, we're in trouble, can you jigger up the... our financial statements, your certificate, and the auditor says sure.

Mr. Oberly: --I think the auditor then clearly has committed the predicate acts of securities fraud, but is he conducting--

Unknown Speaker: Well--

Mr. Oberly: --is he conducting--

Unknown Speaker: --That isn't what the question is either.

Mr. Oberly: --Precisely.

He... the predicate acts alone are not enough to establish a RICO violation.

Unknown Speaker: Even if he acts, A, at the direction or at the request of.

Mr. Oberly: If he acts at the direction or at the request of, then I agree he's participating in the conduct, but that isn't--

Unknown Speaker: Well, that was my hypothetical.

Mr. Oberly: --Well, Your Honor, then I'm perfectly prepared to agree, that an auditor who acts at the direction of his client, as opposed to an independent outside auditor who makes mistakes who does even terribly substandard work, but is still doing his work, not the client's--

Unknown Speaker: What if--

--You said "or request" a minute ago.

Mr. Oberly: --Pardon?

Unknown Speaker: You said "or request" a minute ago.

Just direction or is it direction or request?

That was my--

Mr. Oberly: A request that the auditor can't refuse basically is--

[Laughter]

Unknown Speaker: --He can't refuse without losing a client.

Mr. Oberly: It's... the way I would characterize the test, the operation or management test, is control or under the control of, and if the president of the company either gives a directive to the auditors or makes a "request" in a way that the auditor can't exercise independent judgment, then he may well be participating in the conduct of the client's affairs.

Unknown Speaker: Well, you mean he can't exercise his independent judgment without losing the client.

Is that what the test is?

Mr. Oberly: Pardon?

No.

I think he--

Unknown Speaker: Because that I'm sure happens once in a while.

Mr. Oberly: --That... Your Honor, I think you could easily have what the accounting profession calls an independence violation, which is a violation of professional standards without necessarily having a RICO violation.

You can have situations where the auditor, for whatever reason, any number of reasons, gets too close to the situation, but is still not conducting his client's affairs.

He may be violating his own professional standards.

He may be committing predicate acts, but he's not managing or operating the business.

Unknown Speaker: Of course, in any event, if I understand your opponent's position, that's not this case because the wrong here is that the auditors acted too independently.

They created everything, if I understand their theory, rather than did something at the direction of somebody in management.

Mr. Oberly: As I understand it this morning, virtually the entire theory here of what Arthur Young supposedly did wrong... we have a concession I think that normal auditing does not implicate RICO, and this case seems from petitioners' point of view to turn on whether on the facts of this case, which by the way is not even a question they presented to you or on which the Court granted cert, they asked you to decide the legal test.

They didn't ask you to apply it.

I'm not saying the Court can't consider the facts.

I'm just saying it suggests that perhaps when two lower courts have already looked at these facts and found no RICO issue, that it maybe doesn't warrant reexamination by this Court.

But still, focusing on the creation of the factual... of the financial statements is what they say Arthur Young did wrong.

What Arthur Young did here was take the client, the co-op's books and records, turn those numbers that reflected completed transactions that the client had already decided to engage, and to turn those numbers into financial statement form.

Let's talk about the gasohol plant for a minute.

This started off as a $4.1 million--

Unknown Speaker: Well, they just didn't do it on their own.

They were the accountants for the firm?

Mr. Oberly: --No, Your Honor.

They were the auditors for the firm.

Unknown Speaker: All right, for... the auditors for the firm.

And they just didn't do it... they just wouldn't do it for nothing.

They must have been hired.

Mr. Oberly: They were hired.

Unknown Speaker: They were retained as auditors?

Mr. Oberly: They were retained as auditors.

Unknown Speaker: And then so they're... please do our books.

Mr. Oberly: No.

Excuse me, Your Honor.

But auditors--

Unknown Speaker: I mean, please do our... please audit our books.

Mr. Oberly: --That's a critical--

Unknown Speaker: Please audit... now, there's a request.

Mr. Oberly: --That is a critical distinction.

Unknown Speaker: There's a request.

Mr. Oberly: That's a... and it says to the auditor please come in and conduct your affairs, which is auditing.

We, the co-op, the client, have already made decisions about our business affairs and our financial affairs, and we want you to come in and look at our books and records, put them in financial statement form for us, because that's not something we're very good at.

Unknown Speaker: Well, what... suppose the... I don't suppose Arthur Young did what it did without some kind of a motive.

Mr. Oberly: The suggestion here... the motive is supposed to be keep a client on whom Arthur Young is losing money because we're having to spend far more time than our fees will ever compensate us for.

That's part of the motive.

The second part of the motive suggested is help Jack White.

Unknown Speaker: You'll soon be out of business if that's the way you do business.

Mr. Oberly: This turned out to be an audit that took a whole lot more time that... the firm, nevertheless, went ahead and put in the time necessary to complete it.

But the notion that we were doing this to keep a client is at odds with the facts.

Unknown Speaker: Well, then what--

Mr. Oberly: The other--

Unknown Speaker: --Why did they do it?

Why did they do it?

Mr. Oberly: --I don't think they did it in the sense you're talking about.

Unknown Speaker: I guess it isn't in the--

Mr. Oberly: But the other motive attributed to Arthur Young by the petitioners is that Jack White, the convicted felon, prior general manager of the co-op, was Arthur Young's friend, that we were trying to protect him, that we were trying to keep... and the ultimate motive is that we were trying to keep our client, the co-op, appear solvent when, in fact, we knew it wasn't solvent.

If you look, Your Honor, at again... at our report which was qualified to say that we cannot tell either the board of directors or any members of the public, who might want to look at these financial statements, whether the co-op will ever recover its investment in this gasohol plant... what we can tell you is that you've already sunk nearly $6 million in it.

You may never see it again.

You're losing $100,000 a month as you continue to operate this plant.

And frankly, Your Honor, had anyone cared to read those financial statements, they would have known that the co-op was hemorrhaging red ink all over the place based on the report we did issue.

Their complaint is we should have said more.

Maybe we should have.

Maybe that's an auditing mistake that we should have said even more, but there's enough in there to--

Unknown Speaker: --But do you think that Arthur Young was attempting to... perhaps attempting to keep... by its financial... by its auditing report attempting to keep the company afloat?

Mr. Oberly: --If we were trying to do that, we failed miserably at it.

Unknown Speaker: Well, I know, but... you... were they trying to do that?

Mr. Oberly: No, Your Honor.

But there's no support for that notion.

When we issue a qualified opinion--

Unknown Speaker: Well, what if they were trying to keep it afloat and without it, without this effort, it would have been really a dead fish--

Mr. Oberly: --Let's change the enterprise for a minute because there could be--

Unknown Speaker: --Well, let's don't change the enterprise.

Just how about my question?

Mr. Oberly: --Okay.

I think the answer to your question is no.

That doesn't mean that I think auditors are always off the hook.

I think that it's very possible to suggest that auditors are, under the situation you posed, conducting their own affairs, in other words, the affairs of Arthur Young--

Unknown Speaker: Well, there's no doubt about that, but how about the... also the affairs of the company?

Mr. Oberly: --When they don't make the business decisions for the client, when those decisions are already made before the auditors arrive on the scene and whether they're good decisions or bad decisions, fraudulent decisions or not, the auditors come in.

And the most that you can say about the auditors' conduct is that it's substandard, and it may be so substandard as to amount to securities fraud.

That still does not turn it into conducting the client's affairs.

You have to draw a distinction.

Unknown Speaker: Ms. Oberly, I have trouble going along with the notion that you have to be subject to the direction of somebody in the corporation as opposed to merely acting pursuant to request by or in cooperation with.

The beginning of this provision is so broad.

It says it shall be unlawful for any person employed by or associated with an enterprise.

Now, what time is it up there?

If that language... if what was intended is what you suggested, it seems to me that they would not have said something as broad as "or associated with".

They would have just simply said any person employed by or directed by.

Mr. Oberly: I agree with you that associated with is quite broad, and it brings in outsiders--

Unknown Speaker: Does it mean people who are directed, who are subject to direction?

Mr. Oberly: --No.

Your Honor, I don't think that's the function of associated by.

I think the function of associated by brings in people who are not employees of the enterprise that they are... they may be independent contractors.

They may be lawyers who are outside the enterprise.

And I think the statute does apply to outsiders as well as to insiders.

But I think our focus here today is what did Congress mean on the one word of limitation it put in there, not the broad words, but the word of limitation, which is you have to participate in the conduct.

Unknown Speaker: And you say what they meant by it was to cancel out associated with.

Mr. Oberly: No.

I think associated with, as I said, would bring in an outsider who, if you just had employed, no matter what the lawyer or the accountant or the outsider did, it wouldn't be covered if you just... if it were just limited to employees.

So, associated--

Unknown Speaker: xxx strange to use for someone who is subject to direction.

He is someone associated with the enterprise.

You would say employed by or directed by or something other than associated with.

That's a very loose connection.

Mr. Oberly: --I think... I agree with you.

I can only repeat that I agree with you that associated is broad enough and serves a broad function of bringing into the statute's coverage people who are not necessarily within the enterprise.

But I think all of those broad words in the statutes, "associated with", "participated indirectly", all of the broad words, are still modifiers of conduct, and our focus here has to be on what does conduct mean.

And the difference between this case and the Court's prior RICO cases is you had parties before you urging restrictive interpretations of RICO based on language that wasn't there.

Unknown Speaker: What would be your position if an in-house accountant, a full-time employee of the company, did everything Arthur Young did here?

Now the hypothetical gets a little strange because he has to say I certify as the company accountant that or I advise you, but he did no more.

But he was an... let's say that he was an officer of the company, but that's all he did.

Same result?

Mr. Oberly: No, Your Honor.

He... as you point out, he can't do that.

The in-house accountant who attempts to audit the company's own financial statements is I think participating in the conduct of the company's affairs.

The outside advisor--

Unknown Speaker: Well, but suppose he says as in-house accountant I have attempted an audit of the company's affairs, and my results are as follows?

And he does exactly what Arthur Young did here.

Mr. Oberly: --I would say he is participating in the conduct of the company's affairs, but I would say the distinction... and I'm not ever saying in this argument that outsiders are automatically exempt just because they're outsiders, but the inherent role of the outside accountant, the outside auditor, is to come in and conduct the auditor's affairs expressing a professional opinion on how the client conducted the client's financial affairs.

And your internal accountant is conducting the client's internal financial affairs.

The outside auditor, on the other hand, comes in several steps removed, looks at transactions the client has already done, whether they're good transactions, bad transactions that happened.

They're a done deal before the auditor gets there.

Unknown Speaker: But in a very real sense, the outside auditor lends more credence, more weight, to the disclosures and to the statements than would the in-house accountant in my hypothetical example--

Mr. Oberly: Well, certainly, Your Honor--

Unknown Speaker: --and, therefore, even... and, therefore, furthers the enterprise in a greater degree.

Mr. Oberly: --Furthers the enterprise I don't think is the test for conduct of the enterprise's affairs.

Unknown Speaker: Well, it seems to me relevant in deciding what conduct is.

Mr. Oberly: I... what Congress was concerned about, as the Court has noted over and over again in its RICO opinions, was the infiltration of legitimate businesses by organized crime or by people committing patterns of racketeering activity.

When you're talking about the outsider who is brought in to express a professional opinion on what the client has already done and who has no power to direct or control or run those decisions by the client, the danger of infiltration by the outsider is just simply not there.

Now, that's not to say all outsiders aren't covered.

The bribery cases that the Government discusses at length in its brief... I agree outsiders can in... by paying a bribe, in effect, take over the decision making authority of the enterprise by paying the bribe, and now the people who are supposed to be making the decisions inside the enterprise aren't.

They're ceding their authority to the outside briber.

I'm not saying outsiders are out of the statute.

Unknown Speaker: Which way does the... in your... which way does the bribe run between the outsider--

Mr. Oberly: From... in this example from the outsider to someone in the enterprise who would normally be conducting its affairs, but who has now effectively ceded his decision making authority to the briber.

Unknown Speaker: --And so, your position would remain the same if the company actually paid a bribe, I mean, more than what the auditor would usually charge, to falsify the books.

Mr. Oberly: I think it probably would, Your Honor, although it might then be--

Unknown Speaker: Probably would what?

You--

Mr. Oberly: --My position would remain the same, although it might be that I would look at it as a different enterprise.

I would then look at the accounting firm as the potential enterprise.

Unknown Speaker: --And you take the position the in-house counsel would be liable, bribe or no.

Mr. Oberly: Yes, because he either controls the legal affairs of the company.

You said counsel.

Unknown Speaker: No.

The hypothetical is all he has done is exactly what the accountants did here and no more.

Mr. Oberly: But he controls the financial affairs of the company or he operates under the direction of the board of directors--

Unknown Speaker: Well, why does he do it any more than Arthur Young did?

Mr. Oberly: --Pardon?

Unknown Speaker: Why does he do it any more than the accountants did?

Mr. Oberly: The outside auditor has no authority to come in and tell the client what to do.

The outside auditor comes in and makes recommendations about how the client's financial affairs look, how they should be presented on financial statements, but the client is free to accept or reject those... the advice of the outside auditor.

The decisions cannot be made and are not made by the outside auditor.

I know we have a fact dispute here where petitioners contend that the decisions were made by the outside auditors, but we've got--

Unknown Speaker: Well, I suppose in the my hypothetical the directors could have rejected what the in-house accountant said.

Mr. Oberly: --That's correct, and in that event they would have taken away from the in-house accountant the ability to make decisions in the financial sphere of the enterprise's affairs.

In this case the board of directors actually affirmatively adopted the financial statements that Mr. Elden makes the centerpiece of his argument about what Arthur Young did that constituted conducting the co-op's affairs.

It's true.

We drafted those financial statements.

That is common professional practice for auditors, but after drafting them, we sat down with the board of directors and met at length, went over the financial statements with the board, and at the end of that meeting, the... several meetings, the board members had no further questions.

And the testimony in the record is that they then voted to adopt those financial statements as their own.

What we did was an express... express an opinion on their financial statements, which is conducting our affairs, but which is not conducting the client's affairs.

I'd like to note on the legislative history and what is it that Congress had in mind here on the use of the word "conduct" that the... every synonym that Congress ever used for the word "conduct" in the legislative history is operate, manage, or run.

It's... they're all Eighth Circuit synonyms.

There is absolutely nothing in the legislative history to suggest that Congress meant the conduct requirement to be something less than operation or management, to be just mere participation in the affairs, as Justice Stevens asked a little while earlier.

In the Senate and House report both, Congress described 1962(c) as prescribing the operation of a business through a pattern of racketeering activity.

I'd also like to note that using the Eighth Circuit's operation or management test, there has been no explanation really from the Government about why the catalog of RICO cases that they give us in their brief would not fit... every single one of them would not fit... under the Eighth Circuit's operation or management test.

We've already talked about the bribers.

Whether they're insiders or outsiders, I think they definitely would be covered by the Eighth Circuit's test because they are either operating or managing the business or operating under the control of a higher-up who tells them what to do.

The Government is also concerned about the low level defendants, although Mr. Dreeben acknowledges that the Justice Department doesn't bring RICO prosecutions at some de minimis level, but they have nevertheless expressed concern about the small fry as the case is referred to in criminal enterprises.

But there's no reason that those defendants as well would not be covered by the Eighth Circuit's operation or management test because even if they are not themselves operating or managing or conducting because they're not at the top of the hierarchy or anywhere near the top of the hierarchy, they are operating under the direction of the people who do run the enterprise, and they therefore participate indirectly in the conduct of the enterprise's affairs.

And as I said, the Government really has not given us any examples of RICO prosecutions that they bring or that they even want to bring that would not be covered by the Eighth Circuit's operation or management test.

Earlier it was questioned whether the rule of lenity ought to be applied in this case.

It's clear I think to everybody that the statute is not a model of clarity.

If there's any doubt about the Eighth Circuit's test, then I do suggest that the rule of lenity is the appropriate way to resolve that ambiguity in favor of the Eighth Circuit's test.

This case is very similar to what the Court did last term in Thompson Center Arms, construing a civil tax case that had criminal implications, couldn't find a way to resolve the ambiguity from either the legislative history or the statutory language, and it used the rule of lenity as a tie-breaker.

The situation is the same here.

If the Court is unable to conclude from the language, purpose, legislative history of RICO, then the rule of lenity ought to still lead to the same result as the Eighth Circuit applied here.

Unknown Speaker: Don't you think that the provision of the statute requiring a liberal construction trumps the rule of lenity?

Mr. Oberly: No, Your Honor.

Unknown Speaker: If it doesn't, what does it mean?

Mr. Oberly: I think the Court addressed that in a footnote in Sedima where it said that you can harmonize strict and liberal construction in... even within the context of RICO by applying strict construction to sections 1961 and 1962, which are the statutes... the sections that have criminal applications, and liberal construction to section 1964, which is RICO's civil remedies provision.

And this, of course, is a case involving section 1962.

I think if you--

Unknown Speaker: You have different results that the same transaction can be a civil violation and not a criminal--

Mr. Oberly: --No, no.

I'm not saying that.

I'm saying the provision we're construing here has both criminal and civil applications.

Unknown Speaker: --Right.

Mr. Oberly: Therefore, the rule of lenity is applicable.

Where liberal construction would apply is, for example, in Sedima where you were construing 1964 itself, RICO's civil remedies provision.

You weren't construing the criminal applications of the same provision.

Here we're construing a statute that has both criminal and civil applications which calls for the rule of lenity.

Unknown Speaker: Ms. Oberly, what if Congress passed a strictly criminal statute and said it shall be liberally construed?

Mr. Oberly: At some point, Your Honor, I think the Court runs into constitutional problems of vagueness and due process concerns because if you... if the Court is unable to--

Unknown Speaker: Yes, but the rule of lenity--

Mr. Oberly: --give the statute a construction that people can understand, the potential criminal defendants can understand, then I don't think liberal construction can be used to save a construction that defendants don't know how to conform their conduct to.

Unknown Speaker: --But the rule of lenity has been thought to extend further than just a constitutional prohibition against vague criminal statutes.

Mr. Oberly: That's right, but in answer to Justice Scalia's question about how do you reconcile what Congress put in here about construing RICO liberally, reconcile it by... you can... you'll do that as far as you can, but at some point if you reach an ambiguity that's going to put criminal defendants in a position of not knowing what their conduct should be in order to escape criminal prosecution, then that rule of liberal construction is going to have to give way to giving criminal defendants clear and understandable notice of how to conform their conduct.

Unknown Speaker: No, but you don't... you wouldn't disagree with the proposition that Congress could say in a statute the rule of lenity shall not apply to this statute even though it's a criminal statute.

Mr. Oberly: No, I wouldn't disagree with that, but I would still think it's important.

Unknown Speaker: The question then is whether the general comment on liberal construction is equivalent to that or is limited to the civil context.

Mr. Oberly: I--

Unknown Speaker: Limited to the provisions that are entirely civil in their application.

Mr. Oberly: --I think the sensible way to interpret is limited to civil, but even if you gave it the broader interpretation, then I think the Court has to still ask itself are we giving this statute a construction that potential criminal defendants can understand.

And we can't invoke liberal construction and remedial construction principles to come up with an interpretation that potential defendants can't conform their conduct.

Unknown Speaker: Well, I assume we should apply the rule of lenity to this provision instructing us not to apply the rule of lenity.

[Laughter]

And if we apply the rule of lenity to that, we would come out applying it to the civil provisions and not to the criminal provisions.

Mr. Oberly: Thank you, Your Honor.

Unknown Speaker: Thank you, Ms. Oberly.

Mr. Elden, you have 3 minutes remaining.

Rebuttal of Gary M. Elden

Mr. Elden: Thank you, Your Honor.

I'm going to limit myself to answering questions posed by Justice White and Justice Scalia.

That's all I have to add.

Justice White asked about whether there was evidence of keeping it afloat by fraud.

The point is because of the novel way this case proceeded, we have a final jury verdict that they originated the fraud... that's right from the jury instructions... with an actual intent to defraud, that they deliberately concocted phony statements with no actual belief in their truth.

Arthur Young did not appeal that on the weight of the evidence.

They conceded.

Motive, intent, all those things are established conclusively at this point.

Unknown Speaker: So?

Mr. Elden: So, the question that Your Honor put... Ms. Oberly responded by going into what happened at the board meeting, all sorts of factual things.

The point is that is all over.

We know that Arthur Young deliberately set out to mislead people and created the financial statements to do so.

That is taken as given at this point in the case.

Unknown Speaker: Well, why is that participating in the conduct of the business?

Mr. Elden: It's not... it does not necessarily dispose of the entire case, Your Honor, but I thought it was responsive to Your Honor's question.

If I'm wrong, I'm sorry.

Unknown Speaker: May I ask this one question just... was this motion for summary judgment granted before or after the jury trial?

Mr. Elden: The... it was granted before.

It was renewed at the close of all the evidence.

The judge agreed to reconsider, and then reaffirmed his previous decision.

Unknown Speaker: So, the record that we look at is the entire record or the record at the time of the original motion?

Mr. Elden: Frankly, Your Honor, the records are essentially the same, but we have cited to the trial record for convenience all throughout the case, and we did it again in this brief.

It's a... it's certainly proper to confine the Court's attention, as far as I'm concerned, to just the trial record.

It's also proper to consider just the pretrial record.

They're essentially the same.

Unknown Speaker: Okay.

Mr. Elden: I'd like to answer Justice Scalia's very first question.

Should we limit RICO's scope to people who can act authoritatively on behalf of the company?

I think there's three reasons why we can't.

The predicate acts, bribers and extortionists ordinarily do not act authoritatively on the company.

Justice Scalia in a later question pointed out people can merely be associated with the company.

They can be outsiders.

That's conceded.

And we have the word RICO, for a change, is a word with well-settled, very precise meanings, fully covered in the securities laws and aiding and abetting law.

And it means it gets us off the ditch digger problem.

Ditch diggers aren't covered by the securities laws either.

No one has had problems in a half century of construing these statutes.

Very low level, ministerial people, file clerks, receptionists, are not considered participants.

They're not considered aider and abetters.

A person must do something, must materially aid, must materially assist, must engage in some significant act, but does not have to be running the show, does not have to be the primary wrongdoer, does not have to do everything.

Unknown Speaker: Well, that's fine when you're talking about securities fraud, but RICO doesn't just apply to securities fraud.

It applies to all sorts of misdoings by corporations, breaking people's legs, a lot of things.

A ditch digger could be involved in some of those things.

Mr. Elden: Your Honor, I'm focusing on the fact that Congress chose a word 1970 had such a well-settled meaning as striking a middle road.

Thank you, Your Honor.

Chief Justice Rehnquist: Thank you, Mr. Elden.

The case is submitted.