CEDRIC KUSHNER PROMOTIONS v. KING
Cedric Kushner Promotions, Ltd., a corporate promoter of boxing matches, sued Don King, the president and sole shareholder of a rival corporation, alleging that King had conducted his corporation's affairs in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO). RICO makes it "unlawful for any person employed by or associated with any enterprise...to conduct or participate...in the conduct of such enterprise's affairs through a pattern of racketeering activity." The District Court dismissed the complaint. In affirming, the Court of Appeals held that RICO applies only where a plaintiff shows the existence of two separate entities, a "person" and a distinct "enterprise," the affairs of which that "person" improperly conducts. The court concluded that King was part of the corporation, not a "person," distinct from the "enterprise," who allegedly improperly conducted the "enterprise's affairs."
Are Don King and his corporation a distinct "person" and "enterprise," such that RICO applies?
Legal provision: Racketeer Influenced and Corrupt Organizations
Yes. In a unanimous opinion delivered by Justice Stephen G. Breyer, the Court held that "the need for two distinct entities is satisfied; hence, the RICO provision...applies when a corporate employee unlawfully conducts the affairs of the corporation of which he is the sole owner -- whether he conducts those affairs within the scope, or beyond the scope, of corporate authority." "The corporate owner/employee, a natural person, is distinct from the corporation itself, a legally different entity," wrote Justice Breyer. "A corporate employee who conducts the corporation's affairs through an unlawful RICO 'pattern...of activity,' uses that corporation as a 'vehicle' whether he is, or is not, its sole owner."
Argument of Richard A. Edlin
Chief Justice Rehnquist: We'll hear argument now in No. 00-549, Cedric Kushner v. Don King, et al.--
Mr. Edlin: Mr. Chief Justice, and may it please the Court--
The decision of the Second Circuit adopting a scope of employment test should be rejected and reversed for three principal reasons.
First, the scope of employment test cannot be reconciled with the plain language of the statute.
Second, the decision below runs contrary to this Court's decision in Reves, as well as in Turkette and as well as in Scheidler.
Finally, the decision below would unnecessarily eviscerate the ability of private litigants in the Government to bring 1962(c) actions.
Turning to the first point, on page one of--
Justice Breyer: Can you tell me something, before you get into this, I would appreciate your correcting the following misapprehension, if it is, or affirming it.
This is my question--
Mr. Edlin: --Yes, sir.
Justice Breyer: --Are we talking about only a really odd situation?
A situation where we're talking about one individual?
Because if there are several individuals in a corporation, there really is no problem that this Act clearly applies, but we're only talking about a circumstance where there's just like one person.
Is there a general aspect--
Mr. Edlin: Your Honor, the problem--
Justice Breyer: --of what we're talking about?
Mr. Edlin: --I think the problem with the Second Circuit's decisions is that it does reach the general problem.
Clearly if you have a corporation that has many employees, and one of the corporate employees is the person, and the rest of the corporation is the enterprise, I see no problem with that case.
I see no problem with this case.
This case is exactly the same, because the introduction of the corporate form changes things, and whether it's a one person corporation or a multiple person corporation, the issue is precisely the same.
Justice Kennedy: But... I just want follow up Justice Breyer's question, in the case of a large corporation, what would the Second Circuit say?
The same thing?
Mr. Edlin: I think the problem with the Second Circuit's decision is that it may well say the same thing.
Justice Breyer: Now, that's what I didn't see because it seemed to me in any real corporation it's not going to be following what the corporation wants to commit a crime, so it's not in the scope of your employment to commit a crime.
And so under the Second Circuit's rule, unless you're suddenly... unless we're talking about a corporation that wants to go off and commit crimes, the person's never going to be acting in the scope of his employment, so always he's caught within the statute.
If there's, you know, several people, certainly.
Am I right?
Can you explain that very clearly?
Mr. Edlin: The problem that we have with the Second Circuit's decision is that it is hard to rationalize with the meaning of the statute and with the Court's decision in Reves.
Reves clearly, for example, confers liability on all inside managers.
Whatever else it does, it certainly confers liability on all inside managers.
There's no question under Reves that Mr. King would be included within the operation and management test that this Court adopted there.
The Second Circuit's decision immunizes precisely the same group of people, or a single person, that Reves would impose liability upon.
And the Second Circuit's decision is not limited and does not distinguish between corporations in which there is one principal party or corporations in which there are many parties.
I agree with you the scope of management test doesn't really work, but it's because it doesn't work.
It's not because the Second Circuit has limited it to just this fact item.
Justice Souter: In any case, I was going to ask basically the same question.
It seems to me that if the scope of management test includes at least, as I assume it must, some reference to the purposes of the corporation, then no corporation, whether it's a regular corporation or a pure formality, can be organized as a matter of law to commit acts of racketeering.
So the odd thing to me about the Second Circuit's opinion is the notion that one would be within the scope of employment while engaging in the prohibited activities.
And I would have thought that that was a legal impossibility.
Am I missing something?
Mr. Edlin: Your Honor, I--
Justice Souter: I should ask your opponent that question, but just to stir him up--
Mr. Edlin: --If you're missing something, I am too, and I am eager to hear an answer from Mr. Fleming on that question.
But even beyond the corporation, certainly RICO reaches both legitimate and illegitimate enterprises and, in the context of the illegitimate enterprise, scope of employment analysis makes no sense at all.
So I just think that when you look at what the Second Circuit is doing, it can't be reconciled with what the words of the statute said.
The words of the statute are extraordinarily broad.
This Court has had many opportunities to look at this section of the statute, and when we look, for example, on page one of the blue brief, at the definitions, person includes any individual or entity, and an enterprise for this purpose includes any corporation.
And 1962(c) refers to any person employed by an enterprise.
Justice Kennedy: --On these facts, could you have alleged that King was the enterprise and the corporation was the person?
Mr. Edlin: On these facts, I think that that... you could allege that, Your Honor.
I think that that would be--
Justice Kennedy: So you could have count one, where one is the person, and count two, and it's the same?
That seems rather odd.
Mr. Edlin: --No, I don't think that you can do both.
I don't think you can set it up and try to have it both ways, but I think--
Justice Kennedy: But I thought you just indicated you could do that.
Mr. Edlin: --If you chose just one.
If you had... if you chose Don King Productions as the--
Justice Kennedy: Well, do you flip a coin to decide which way you're going to do the count?
Do the pleading?
Mr. Edlin: --Unfortunately, you know, you might have to do that in the Second Circuit.
I don't think that's the way that the statute is--
Justice Kennedy: No, but under your theory.
Under your theory you say that you can participate with your own corporation.
I said what's the difference between an enterprise and a person on the facts of this case?
It seems to me that they could have just been flipped around.
Mr. Edlin: --On the facts of this case, Your Honor, certainly the pleading that we have in this case satisfies the standards of the case.
There's an individual, he is conducting his affairs through a corporate enterprise and engaging in racketeering activities.
No question that that pleading is appropriate.
Now if you flip it and you had Don King Productions conducting the affairs of Don King, depending upon what the facts were, that would not violate the plain language of the statute.
There are contexts that one could probably come up with in which the facts would justify that sort of pleading.
In this case, I think we've pled it the right way.
Justice Ginsburg: But as far as pleading is concerned, the rules allow you to plead in the alternative, and you don't have to pick your theory at the pleading stage, so I guess your answer to Justice Kennedy means that in your complaint you could have alleged it both ways and then waited to pick until later on.
Mr. Edlin: I think that that's no doubt technically correct, but I don't think that's what we're trying to do just because you can plead in the alternative.
I don't think that pleading in the alternative means that you can plead wholly inconsistent theories of facts.
You can plead alternative results, but I don't think that a pleading in the alternative like this would pass a motion simply because I do think that in terms of the structure of the person and the enterprise, you do have to pick it.
Justice Ginsburg: Do you need a corporation on your theory?
I mean, I was reading your presentation and I had the notion that it wouldn't matter if it were a sole proprietorship.
At least if it had employees, the sole proprietorship could be the enterprise and King could be the person.
Is that correct?
Mr. Edlin: That's correct, Your Honor.
In that case, a sole proprietorship with employees would be an association in fact enterprise and, again, distinct from the person.
So as long as there is no complete overlap between the person and the association in fact, those pleadings which are again not at issue in this case have routinely been upheld as appropriate pleadings.
I think, Justice Ginsburg, that our circuit just got this one wrong, and I think that it's very simple to address it.
Moving past the language of the statute and on toward the Reves case, again as I mentioned just a moment ago, Reves carefully considered the appropriateness of imposing liability upon employees or others who were in operational and management control of the corporation.
There is no question that under that test Don King would qualify as someone in operational or management control of this enterprise, and that is the appropriate standard to use here.
It is not a scope of employment standard.
Reves is the appropriate standard, and under Reves Mr. King would have liability.
The Second Circuit's decision simply immunizes that.
The final vice with the Second Circuit's decision goes toward the evisceration of 1962(c) actions.
1962(c) actions, I believe... I haven't done the math, but I believe they are the wide majority of RICO claims that are brought.
There are many more cases there.
Now, whether you take the Government's example of a--
Justice Scalia: Any idea what percentage of them really pick up organized crime, which is supposedly the object of RICO?
Mr. Edlin: --I don't, Your Honor.
I don't know.
Justice Scalia: Yes.
That would be a more interesting statistic as far as whether your interpretation really fulfills the purpose of RICO.
Mr. Edlin: Your Honor, there is no doubt that the statute was targeted at organized crime, but there is also little doubt--
Justice Scalia: That's right.
And all your statistic may prove is that the statute is being used excessively for a purpose that it did not have in mind at all.
Mr. Edlin: --Your Honor, there is little question that what you're saying is true, except for the fact that this Court has read in Sedima into the statute the fact that it has an extremely broad sweep and it catches precisely this kind of activity.
Congress made a choice in unveiling the broadest possible statute, that it would err on the side of including these kinds of cases, possibly even shifting the burden to Federal courts to deal with these kinds of claims so that loopholes were not created for clever racketeers to slip through and avoid liability.
I believe that that demonstrates the breadth of the statute, and if that is a problem to be remedied as this Court has observed on many occasions, it lies with Congress.
The plain language of this statute has been amply satisfied by this pleading, and I believe that the... again, to my last point, the problem with the Second Circuit decision is that whether you take the Government's example of the corporate president who directs the company to bribe public municipalities, or whether you take our example of an organized crime family incorporating and appointing everybody an executive vice president, those two situations, under the Second Circuit standard, would not be caught within the scope of the statute, and--
Chief Justice Rehnquist: Mr. Edlin, you rely rather heavily on our decision in Reves, and I notice the court of appeals opinion didn't mention it at all.
Did you urge that case in the Second Circuit?
Mr. Edlin: --We urged it in the Second Circuit.
We argued it extensively in the Second Circuit, and what is interesting to me at least in the Second Circuit's decision... there are a couple of points of interest.
One, it did not discuss Reves.
Second, it was a panel of two judges in the Second Circuit, but also Judge Lloyd George of Nevada who, in addition to presumably knowing something about boxing, knows something about the laws outside the Second Circuit and how his circuit interprets this.
A per curiam decision which drops a very strong footnote in footnote 4 which... in which the Second Circuit owns up to the fact that its decision, it's intention, if not direct conflict, with the laws of every other circuit on this point, I think demonstrates in some way that the Second Circuit was inviting this certiori.
Chief Justice Rehnquist: Well, a visiting judge is expected to follow the precedent in the circuit which he visits.
Mr. Edlin: I'm simply observing that I found how the court issued its decision interesting, given the fact that it does not mention Reves.
It is very difficult to understand how this case, which is so close to Reves, is not even mentioned in this very short Second Circuit decision.
And I think the reason is obvious.
It can't be reconciled.
There is no way to take the facts of this case and support them under any reading of Reves.
Justice Breyer: I suppose that what they're worried about, if I'm trying to imaginatively put myself in their shoes, is that a person could claim the following.
Take any company whatsoever that does business in interstate commerce, and the plaintiff says there's... there's a manager in that company who, on a couple of occasions, at least two, told the salesmen to overstate or to lie about a characteristic of the product.
And now all of those become RICO violations because it is claimed that this person, you see, is engaging or participating in the affairs of American Express Company or any other large company, through a pattern of racketeering activity, i.e. two instances of mail fraud.
And that's so distant from the purposes of this statute that they're searching for ways to limit the scope.
Mr. Edlin: Justice Breyer, I agree with that.
However, this Court has rejected every instance in which a circuit court has sought to artificially restrict the language of the statute and has observed that the remedy is with Congress.
This statute was not passed without Congress observing that these exact criticisms were possible.
It was passed over opposition.
The answer to the opposition was simply that the protections of the statute did not take place in the definitional sections, it took place in the pattern and enterprise sections so that garden variety frauds are typically not committed with a pattern and continuity.
Justice Scalia: That's no... that's no protection in the hypothetical that Justice Breyer gave you.
I mean, you have one salesman who steps over the line a couple of times, and suddenly you're... you're... the corporation is into RICO.
I mean, that's totally absurd.
Mr. Edlin: Justice Scalia, whether it is or it isn't, it was considered by Congress at the time it was passed, and Congress made a decision that it would--
Justice Scalia: But don't tell me it's not absurd.
Say you know it's absurd, but that's what Congress provided.
I thought you were trying to say it's not absurd.
Mr. Edlin: --I'm trying carefully to say it's not absurd in that example, but apparently it's hard, and I won't continue to try to do it.
The fact is, though, that we do have a statute.
It's been read by this Court a number of times, it supports our interpretation of the statute.
The Second Circuit's decision should be reversed, and I would like to reserve whatever time I have remaining for rebuttal.
Argument of Austin C. Schlick
Chief Justice Rehnquist: Very well, Mr. Edlin.
Mr. Schlick, we'll hear from you.
Mr. Schlick: Mr. Chief Justice, and may it please the Court--
Section 1962(C) reaches racketeering activity by a defendant who is employed by the RICO enterprise, without regard to the scope of the defendant's employment.
That is clear from the text of Section 1962(c) which reaches racketeering activity by any person employed by or associated with any enterprise.
A scope of employment rule defies that plain language.
In addition, a scope of employment rule is inconsistent with the statutory scheme in three additional respects.
First, a scope of employment rule defies Congress's intent to reach criminals who infiltrate and corruptly run legitimate businesses.
It's important in that respect to address the question of whether a criminal or otherwise wrongful act can be within the scope of employment.
And the answer to that is yes, it can be.
Section 231 of the Restatement of Agency addresses that point, but consider the example of a corporation which instructs its employee to make a sale, knowing that the way that that sale was made traditionally is through bribery.
In that case, the bribery would be within the scope of employment, notwithstanding that it would be unlawful and, notwithstanding, there might not have been specifically urged by the corporation.
Because of that, when criminals take control of a business, they are able to bring illegal activity within the scope of that business.
And under the Second Circuit's scope of employment rule, that would immunize the racketeering activity.
Second, the scope of employment rule would create additional difficulties in applying Section 1962(c), because the test itself is contextual and subject to the case specific application.
This Court discussed that in Faragher v. City of Boca Raton.
The difficulties and the permutations of the rule.
Third, a scope of employment limitation is inconsistent with the Court's holding in Reves that a defendant, under Section 1962(c), must participate in the operation or management of the affairs of the business.
If participation and operation and management is necessary for there to be liability, then carrying out the affairs of the business cannot prevent liability.
An employee who controls a corporation would, under that rule, be immune from liability when he misuses his control of the corporation to involve the corporation in racketeering.
If the Court has no questions?
Justice O'Connor: Do you see any way to limit the application of RICO to the situations described by Justice Breyer?
It is a little far afield from its ostensible purpose.
Mr. Schlick: Yes, Justice O'Connor, the concern intuitively about Justice Breyer's hypothetical is the predicate act, which is mail fraud or wire fraud.
If you took the same hypothetical and substitute arson or murder or narcotics trafficking as the offense, I don't think that anyone would be shocked or surprised.
Justice Breyer: But that isn't the problem.
The question I think is... is there anything, any judicial interpretation, because mail fraud is one of the predicate acts, isn't it?
We're not a legislature.
I mean, so the question is, is there some area in this which would be an interpretation that brings it closer to the basic congressional intent which is just as you describe, to get organized crime people the bad things, but not sweep in so many things.
Or this simply a question of that's how the legislation was drafted, put up with it.
Mr. Schlick: This case goes to the interpretation of Section 1962, which applies to criminal as well as civil cases.
Courts have looked under Section 1964(c) to addressing particular abuses in the civil context, but what ever one thinks of the allegations in this particular complaint, the core fact pattern which is the running of a business in a pervasively corrupt manner is exactly what Congress intended to reach through RICO.
Justice Kennedy: Do you agree that this complaint could have been just as easily drafted, switching the enterprise and the participant?
Mr. Schlick: Justice Kennedy, it would be possible to frame a complaint either way, but the fact that--
Justice Kennedy: And I mean prove the case as well.
Mr. Schlick: --But to do that, you would be alleging two different fact patterns.
Suppose the corporation needed the personal assets of Mr. King to carry out its racketeering activity.
In that case, it might be possible to have the corporation named as the defendant or person, and Mr. King as the enterprise.
But that would be a different fact pattern than the one alleged here.
It would not be possible simply to flip the defendant and the enterprise at will.
Justice Kennedy: I'm not sure why not, under this fact pattern.
Mr. Schlick: Under this fact pattern, the allegation is that Mr. King has used not only his personal resources but also other agents, other employees, of DKP Corporation to carry out the racketeering activity, so it would be necessary to allege an enterprise that incorporates those persons or things that are used in the racketeering.
Argument of Peter Fleming, Jr.
Chief Justice Rehnquist: Thank you, Mr. Schlick.
Mr. Fleming, we'll hear from you.
Mr. Fleming: Mr. Chief Justice Rehnquist, and may it please this Court--
As usual, you depart from what you're prepared to say.
First, the application of 1962(c) to ordinary business, is absurd.
We do not rely upon that, although we do believe that if thinking along with us the Court concludes that the Second Circuit's reading of 1962(c) and its application is correct, the absurdity of the other reading would lead acceptance of its result.
Mr. Justice Breyer, our case is not limited to a single employee situation.
It would be... the Second Circuit's approach would be applicable if there were five or six employees or more.
Justice Breyer: Then that's their concern, because if that's right, then the one time when the interest of the employee committing the crime and the interest of the corporation are likely to be congruent is where you have an evil corporation, and that seems to be the one time that clearly the Second Circuit rule would exempt from the statute, and so oddly enough, insofar as it has an impact, its impact is bad in terms of the statutory purpose.
That's the argument of it.
Mr. Fleming: And exempt under (c), but would not exempt under--
Justice Breyer: I know, but insofar as the Second Circuit rule has real has real bite beyond a single person, its bite is biting the person... in other words, bite goes just in the wrong direction.
Mr. Fleming: --Our position would be, Justice Breyer, that (a) covers that situation, and it was Congress's intent that (a) cover that situation, where the same response to Justice Souter's question, and that has to do with whether any criminal act or predicate act or civil fraudulent act can be considered within the scope of employment.
Unfortunately, I think experience shows that those... that torts of that sort are conducted within the scope of employment.
Justice Souter: Well, that... that's an easy conclusion to draw if your sole test of scope of employment is intent to benefit the corporation, but the scope of employment inquiry is broader than that and, even apart from the fact that there's always a policy component to it, you've got to take into consideration in some way corporate purpose, and I take it we at least have common ground that there is no... there is not State corporation law that would charter a corporation to commit within the scope of its corporate authority an act of racketeering.
We agree on that, don't we?
Mr. Fleming: We do agree on that.
Justice Souter: Okay.
And if that has got to be considered then in determining what can fall within the scope of the employment of an employee or an officer, then it's hard for me to see how any act of the officer could, under State corporation law, be within the scope of his employment because it can't be within the scope of the corporate purpose.
Mr. Fleming: It could be... it could be to further the interests of the corporation.
Justice Souter: Right, but that's true only if that's your sole test of scope of employment, and if that's going to be the case, it would just, it seems to me, make for clearer thinking if we didn't talk about scope of employment and instead said, look, the test is whether it's to further the financial interest of the corporation.
Mr. Fleming: And what the court of appeals said... Second Circuit said in Riverwoods was in the course of their employment and on behalf of the corporation... and on behalf of the corporation.
Justice Souter: And I'm suggesting that you can't have both.
You might have a subjective purpose to bring lucre to the corporation, but I don't see how as a matter of law to be within the scope of employment, too.
Mr. Fleming: The Court would... what you're saying, Your Honor, is that if an employee commits a tort... commits a fraudulent act, it simply cannot be considered from the scope of employment.
I would disagree with that if, in fact, he was acting for the benefit of the corporation.
Justice Scalia: Yes, I think you have to disagree with that.
And I think you would say that a corporate charter cannot, certainly under any State law that I'm aware of, authorize the corporation to act negligently either.
Mr. Fleming: That's correct.
Justice Scalia: Nonetheless, when a... or willfully negligent, either.
And nonetheless, when a corporate officer does that, he's deemed to be acting within the scope of his employment.
Mr. Fleming: And we all know what happens.
Justice Souter: But then scope of employment then turns--
Mr. Fleming: So long as he's acting for the benefit of the company.
Justice Souter: --Then scope of employment, in effect, is going to be limited in this context to serving a corporate purpose in the sense of trying to bring monetary gain to the corporation.
That is the sole test.
Mr. Fleming: That is correct, Your Honor.
Justice Scalia: No, you wouldn't say that's the sole test, Mr. Fleming.
Surely if somebody is a lineman for a telephone company and he does some act that, you know, that is an act only appropriate for the vice president, you wouldn't say he's acting within the scope of his employment.
It has to be somehow within the assigned job that the individual has been given, doesn't it?
Mr. Fleming: Yes, I think it does.
Justice Scalia: Of course it does.
Mr. Fleming: I'm sorry... I misunderstood.
I thought what Justice Souter was saying was that the person's acting in his job... he may be acting tortiously in his job, but he's acting for the benefit of the company, and I believe that occurs all of the time, unfortunately, and when it does occur, it is within the scope of his employment.
Justice Souter: But I think the... I don't want to take more of your time on this than this last question, but it seems to me that the way the circuit was referring to the test, it was confining the test to this one element.
Was it trying to further the financial interest of the corporation.
Whether we as lawyers or judges would come up with a different test for that phrase, I don't know.
But that seems to be the one criterion that the circuit was applying, and I thought that's what you were agreeing to.
Mr. Fleming: I am in agreement with that.
The Second Circuit's view is very clear.
They say, as all the circuits say, that under 1962(c) the RICO person must be distinct from the enterprise, whatever that enterprise may be.
They then say that so far as they are concerned, corporate employees working for the... on behalf of and for the benefit of the corporation, are not distinct from the corporation itself.
We think that's consistent with the traditional view of a corporation.
There's the argument--
Justice O'Connor: The thing that strikes me as a little bit odd about the scope of employment test is that the scope of employment in Reves is one we usually make as relevant to whether the employer is liable, and it's not the inquiry we make when we're looking to see if the employee is liable, and I just don't see how the test quite fits.
Mr. Fleming: --If understand what you said, Justice O'Connor.
You make exactly our point about RICO and why the Second Circuit is correct.
Justice O'Connor: I wouldn't think so.
I didn't make the point for that purpose.
Mr. Fleming: The common law provides, as the Court knows, that a corporation is liable certainly civilly and sometimes criminally for the conduct... for the wrongful conduct of its employees.
RICO exempts the enterprise from liability and points to the person only.
We think if you have to look at that issue, when you're asking yourself what Congress was looking for in 1962(c), we say that because the enterprise is exempt from liability for the wrongful conduct of the person, that can be consistent with common law principles only in that situation where the corporation is exempt by common law.
Chief Justice Rehnquist: Mr. Fleming, a moment ago you referred to the distinctness requirement, and you said all the circuits are in agreement on that.
Is that your considered opinion as opposed to the scope of employment requirement?
Mr. Fleming: All the circuits agree that under 1962(c), there must be the RICO person... it could be any person... the RICO person must be distinct from the enterprise.
All the circuits agree on that, and all the circuit... excuse me, Justice Ginsburg?
Justice Ginsburg: You could have a sole proprietorship that has some employees, and that would satisfy the distinctiveness requirement, would it not?
Because as long as it wasn't just the one person operation with no employees, so you don't have to have another form.
You could be operating a sole proprietorship and still meet the distinctiveness requirement, as I understand it.
Mr. Fleming: Not in... not in the... in the seventh circuit, yes.
And in another circuits, perhaps yes.
In the Second Circuit, no, if the predicate acts were performed for the benefit of the sole proprietorship.
But I agree, Justice Ginsburg, that a sole proprietorship with a few employees is subject to 1962(c) application.
The question is whether the Second Circuit's view of the application of 1962(c) should prevail, or whether the view of other circuits should prevail.
The Second Circuit is saying that corporate employees acting with the corporation and for the benefit of the corporation are really a part of the corporation and are not distinct from the corporation for the purposes of the distinctness required by RICO.
Justice Ginsburg: The United States is one example where the Second Circuit position would meet, and it says here's a corporation, tells its employees go out and bribe the local police, it will be able to do this, that, or the other thing, and they won't touch us.
Those employees who are giving the bribe then are acting in the scope of their employment for the benefit of the corporation, and under your theory, there would be no RICO claim.
Is that correct?
Mr. Fleming: Against the employees.
But I think there could be punishment of the corporation, and perhaps of the employees also, under Section A of 1962, in which the corporation is the beneficiary and can be punished.
When you look at the--
Justice Ginsburg: It would be, I suppose, could make a criminal bribery case, but as far as 1962(c), on your theory, such a pattern would not fit because it was within the scope of their employment to give out these sweeteners.
Mr. Fleming: --And for the purported benefit of the corporation.
Justice Ginsburg: Yes.
Mr. Fleming: But the conduct could be reached under RICO under Section (a), both as to the corpora... certainly as to the corporation, and we believe also as to the persons.
And when you look at the entire statutory scheme, you have a situation where under (a) the beneficiary corporation... what Mr. Blakey calls the perpetrator corporation... is subject to RICO liability.
It doesn't make any sense.
When you get to 1962(c), there should be a quasi redundancy, and that's why the--
Justice Breyer: I thought that (a) is about... is investing racketeering proceeds in an enterprise, and (b) is about obtaining control, and (c) is about managing the enterprise or participating in its affairs through a pattern of racketeering activity.
They seem different.
So I thought that... imagine the case where you have a group of racketeers... I mean, let's call them really bad people, all right?
The really bad people in fact created or are found in positions of responsibility in an enterprise, and what they do is they have a series of really bad acts.
So we get that out of it.
Unknown Speaker: Now, where the really bad people are in an enterprise and they're running it through really bad acts, your interpretation, according to the other side, will basically in the worse case bring them out of section (c).
Justice Breyer: Because these are really bad people, they have a lot of really bad acts, so they're just the people that (c) wants, and you write them out, because after all they are not going against, they are even furthering what the enterprise is there for.
Now, that's what they say.
Now, you say, which may be true, if their interpretation is right and the legal distinctness consists of either (a) legal distinctness, or (b) factual distinctness, the distinctness requirement is always satisfied but for the fact that where there is a single person, and he doesn't even work through a corporation.
So you say that meets it meaningless.
Now, they say between the two, theirs is better.
So what's your reply to that, because they say that there should be limitations?
There are other words in the statute to do it, not this one.
Mr. Fleming: --Our reply, Your Honor, is that between one or the other, ours is better.
The Second Circuit--
Justice Breyer: I know that's what you think, but at the moment I would say given the fact that your interpretation takes it out of the heartland where it should apply, why isn't theirs better?
Mr. Fleming: --Because I believe the conduct that the Court describes can be reached, even under RICO, under other the sections of RICO.
Justice Breyer: Well, do you get it under (a), because I thought (a) was about investing in an enterprise, and I'm assuming--
Mr. Fleming: The... the... (a) is reprinted in gray brief, the amicus brief, at page 4(a).
Justice Breyer: --Well, it talks about investing the income or part of the proceeds.
Mr. Fleming: If I could, Your Honor, it shall be unlawful for any person, so it should be unlawful for any corporation which has received any income derived from a pattern of racketeering to employ that in the operation of the enterprise.
In the Herako case, the Herako case, it's exactly how Judge Cutahy harmonized Professor Blakey's argument about perpetrator corporations.
Justice Scalia: What you're saying it's... it's using the income in the operation of its own enterprise?
Mr. Fleming: Yes.
Justice Scalia: But I thought you say that person and enterprise have to be distinct.
Mr. Fleming: Person and enterprise have to be distinct under 1962(c).
Justice Scalia: Oh.
You say for (a) they can be the same.
Mr. Fleming: The courts say that they can be the same, but courts say that (a) is a corporate beneficiary RICO statute; the perpetrator corporations--
Justice Scalia: So you can get the corporation because it makes the income and invests it in its own operations.
Mr. Fleming: --Exactly.
Justice Scalia: What about the individuals?
Mr. Fleming: I believe you can get the individuals under (a) also, Your Honor.
Justice Scalia: Well, how?
They're not getting the income.
Mr. Fleming: Well, it's a question of booking, I suppose.
The difficult word there is received which after concede, but if the venal people that Justice Breyer is describing are engaging in all sorts of activity which is bringing income into the organization or the enterprise, I believe they can be captured under (a) also.
The real risk here--
Justice Stevens: May I just ask quickly for you to comment on the plain language argument of the opponent--
Mr. Fleming: --Yes.
Justice Stevens: --because the language does seem to read rather plainly in his favor.
Mr. Fleming: I have two points if I could, Justice Stevens.
One is any person, which is what I believe it says, is plain language, but plain language which has not made sense in the application of a statute has been disregarded by this Court where appropriate.
It was just--
Justice Stevens: Well, why doesn't it make sense?
Any person... so you get an enterprise that's violate... you know, meets all the definitions, and this statute says any person who participated as an associate or employee, and that work is covered.
Why doesn't it make sense?
It says that not only the corporation's liable, but the individuals who perform these foul deeds are equally liable.
Mr. Fleming: --It can... it can be read as literally meaning that, but there is an inherent ambiguity when you look at the interpretation of 1962(c).
The courts have not only required distinctness--
Justice Stevens: Well, it had to be distinct.
I mean, obviously it's, one of them is General Motors, the other is the President of General Motors.
They're distinct people.
Why... why doesn't the plain language just apply?
I don't get it.
Mr. Fleming: --Because the courts have also held that the enterprise shall not be liable, so--
Justice Stevens: But this statute of this section doesn't purport to impose liability on the enterprise--
Mr. Fleming: --Exactly.
Justice Stevens: --but to impose liability on people who work for it.
Mr. Fleming: That's my point, if Your Honor please, and if you think about the common law principles in this Court in Proup has said common law does implicate the interpreta... or is implicating the interpretation of RICO, the only time a corporation is not financially liable for the wrongdoing of its employees is when the employee is acting for the employee's benefit and not for the benefit of the corporation, and that is exactly... that is the ambiguity in this statute which we think takes away from applying meaning.
This statute says, as interpreted, says any person... but it also says the enterprise shall not be liable for that person's conduct, and we believe the only fair inference from that, which is also consistent with what Congress was talking about overall and its dominant purpose of RICO, the only inference which can be taken from that is that Congress intended the persons to be liable when they acted within a corporation for their own personal benefit.
Justice Scalia: Where does it say that the corporation shall not be liable for that person's conduct?
Mr. Fleming: Said judicially.
I can only say that, Judge Scalia.
All of the circuits in connection with the distinctness rule have felt that the corporation shall not be... there is no respondeat superior in RICO.
And that's how we look at it--
Justice Stevens: Going through Section (c), it doesn't impose any liability on the corporation.
Mr. Fleming: --Excuse me?
Justice Stevens: And certainly you're dead right that Section (c) does not impose liability on the enterprise.
It's focused on the persons.
Mr. Fleming: And we think that you have to look... we think you have to look at that when you're trying to say what did Congress mean here?
You have an (a) section which we believe implicates the renegade corporation and its renegade people.
You have association in fact which was created for the purpose of getting the renegade organization.
You now have (c).
I think everyone agrees that (c) is absurd when it exposes all commercial America to the threat of RICO.
We don't rely on that.
We don't think the Second Circuit relied on that.
I think the Secretary was saying a very simple thing.
They were saying when employees and officers are working together for the benefit of the company, they happen to commit acts of alleged fraud, they are not distinct from the company.
They are the enterprise, and there is no RICO person.
Now, I answer the plain language argument in two ways, The Sherman Act said every person who contracts and combines, and the single actor model is imposed upon that quite correctly.
I look not only at that, but I also look at what I've just described, and that is the absence of derivative liability.
You cannot properly interpret this statute and its application without considering why Congress targets a person employed but eliminates respondeat superior.
The only time at common law where that occurs, we think you have to presume that Congress acts with a view toward the common law is when the person acting--
Justice Stevens: I don't think you can really say it eliminates respondeat superior.
It simply didn't apply respondeat superior to the activities of these individuals who are themselves violating the statute because they're assisting in enterprise doing, engaged in a pattern of racketeering activity.
Mr. Fleming: --Our position... we believe the Second Circuit's position is that the individual who's targeted under 1962(c) is like the infiltrator.
He happens to be in the corporation, and he acts for his own benefit.
And we think that's totally consistent... I really, you now, I read the book and said never ask the Court a question so I will not, but I think we have to consider this... is it conceivable... is it conceivable that Congress intended the absurdity that I think this Court has recognized with regard to the application of--
Justice Breyer: Well, you have the same doctrine in (a).
I mean, on your reading of (a), whatever we do about (c), exactly the same thing would happen.
My example... why wouldn't it?
Mr. Fleming: --Because there the corporation is corrupt.
Justice Breyer: No, no, no.
No, going back to the first example of the bank that has the supervisor with the two... I mean, by innocent example.
The innocent example, you get... there... you see, there were two instances of exaggerating or lying about the qualities of our vacuum cleaner.
We said it picked up mice and it doesn't.
Thy don't fit through the hole.
Mr. Fleming: All right.
Justice Breyer: So... so now twice they've said that, and it was planned, and of course they sold two vacuum cleaners as a result, and they obtained a thousand dollars for that, and the money was thereby obtained through a pattern of racketeering activity, and they used that thousand dollars to pay expenses of the corporation, etcetera, and therefore it was used in the operation of the enterprise.
So all the absurdities are just as great in (a) as they are in (c).
Now, am I right or not?
Mr. Fleming: No, I think probably not.
Justice Breyer: I'm not?
Mr. Fleming: I think not.
Justice Breyer: Because?
Mr. Fleming: I think (a) looks more at the corrupt enterprise, and I think we will all accept the idea that corrupt enterprise is a potential RICO target.
You know, we're not talking about a no liability situation when we eliminate some... when you protect... when there is some protection afforded under 1962(c).
If there is anything to Mr. Kushner's claims, he has single damage remedy against not only Mr. King individually, but Don King Productions.
It also, you know, when I, you know, I think we have to ask this question, Unless the individual... the person who is the target of 1962(c) is a person who has been acting for his own personal benefit and not for the benefit of the corporation, unless he's that person, why should that person be subjected to treble damages for his conduct?
Put it another way, if that person engaging in tortious conduct on behalf of his company... on behalf of his company... why should that person be target for treble damage liability when the company's liability... the beneficiary... is limited to single?
Justice Stevens: Well, the answer to that is very simple.
The statute says so.
That's exactly what the statute says.
It's true of collection of an unlawful debt.
If he collects the debt... we're interested in the individuals who do these wrongful things.
That's what the statute says.
Mr. Fleming: Mr. Justice Stevens, I don't believe that--
Justice Stevens: I don't think it's absurd at all.
Mr. Fleming: --We've been sitting around here for a month, and we've asked ourselves what happens if we are asked doesn't the statute say exactly that?
And we say in a sense... in a sense--
Justice Stevens: --rule of reason in is... could be a rule of reason under this statute.
Mr. Fleming: --In a sense it does, but we believe that the exemption from corporate liability introduced an ambiguity which does not allow a plain language reading.
Second, you know, this Court... this Court in Copperweld said every person does not mean every person.
In Pierson it said any person except a judge because it implicated the common law.
In the Bach Laundry case, defendant was defined as any party.
I think Justice Scalia defined it as a criminal defendant in a concurring opinion.
In 42 U.S.C. 1985, which is conspiracy to violate civil rights, a number of dist... a number of circuit courts and district courts have held that two or more persons does not mean two or more persons if they're employed by the corporation.
So this single actor... this unity of conduct which the Second Circuit focused upon... is not foreign to the jurisprudence of this Court, and we believe it is the only appropriate way to harmonize the absurdity of this statute applied on a plain language basis, and RICO's purpose of punishing the... call them racketeer... person engaging in racketeering and, in this case, the quasi infiltrator, the employee who goes bad and uses his job as a means of feathering his nest.
The department talks about... Solicitor General, I'm sorry.
I'm always used to saying the department.
The Solicitor General says they need RICO to get unions... to bring injunctive action against unions.
Think of that.
What they are trying to do is to get rid of the union officers who, at the expense of the corporation, are feathering... stuffing their own pockets, feathering their own nests.
We think that's what Congress was looking at when it's talking about 1962(c), and the one thing we surely think Congress was not looking at was IBM against IBM, which is the effect of the any person analysis.
A question was asked about the use of it; I think in the Sedima case, we do not have the appropriate, we did not get the up to day statistics.
In the Sedima case, the ABA reportedly cited that said that nine percent... nine percent of the civil 1962(c) lawsuits were... had to do... had anything to do with organized crime, and the other ninety one percent were commercial disputes.
I go back to Justice Marshall's dissent in Sedima, as I go back to Justice Marshall in the Second Circuit.
I think there is another consideration which he posed.
The broad application of 1962(c) for which they contend is based principally, if not entirely, upon a quote, unquote, plain language, with all respect, Justice Stevens, with no real analysis and no answer to all to our point with regard to the absence of true liability.
No answer at all.
The application of their quote, unquote, plain language approach in essence does turn federal jurisdiction on its head because not only do you have people being threatened with treble damage liability where that should not exist, but you have federal jurisdiction being obtained where everything else lacking, you're in State court in a common law fraud case, or in this case in a supposed tortious interference with--
Justice Stevens: The problem with that argument is that I was involved in some of these decisions, we thought, well, if we really read it finely, Congress will straighten it out because they couldn't have meant this vast extent.
But Congress has let it sit there.
Mr. Fleming: --Am I allowed to... am I allowed to comment on what Congress will straighten out?
Justice Stevens: Sure, yeah.
Mr. Fleming: They took out securities fraud, and I assume that's because there is a strong securities fraud lobby.
Mail and wire fraud will never disappear from this statute, never.
First of all, it's needed for criminal purposes, so it will never disappear as a predicate act.
Chief Justice Rehnquist: Thank you, Mr. Fleming.
Mr. Fleming: I saw it.
Rebuttal of Richard A. Edlin
Chief Justice Rehnquist: Mr. Edlin, you have four minutes remaining.
Mr. Edlin: Mr. Chief Justice, unless there are any questions, we are prepared to waive rebuttal.
Chief Justice Rehnquist: Thank you, Mr. Edlin.
The case is submitted.
Argument of Justice Breyer
Mr. Breyer: Now the second case, Kushner Promotions v. King, involves RICO, the Racketeer Influenced and Corrupt Organizations Act.
Now, this provision here makes it “unlawful for a person” who is employed, by or and associated with an “enterprise” to use the enterprise to commit what RICO calls a pattern of racketeering activity.
In this case, one boxing promoter, Cedric Kushner Promotions sued a different boxing promoter, Don King claiming that King was the person who used an enterprise namely his company called Don King Productions to engage in a pattern of racketeering activity.
Without deciding whether the allegations were true or not true, the lower court dismissed the complaint because King as President and sole shareholder of Don King Productions was not in its view separate enough from the corporation which was the enterprise.
It pointed out that lower courts have required that there would be some distinctness between the person and the enterprise when a plaintiff brings an action under this provision of RICO.
Now, in this case we consequently have to decide two questions: one, whether this RICO provision does require two separate entities, a person and a distinct enterprise, and two, if so, whether there is enough distinctness in this case given the closed relationship between Don King and his enterprise Don King Productions.
The lower courts held that there was a distinctness requirement.
We agree with that, in fact, every Appellate Court that has considered this question, agrees with that.
We explain it some length in our opinion that both the language of the provision and its basic purpose support our interpretation.
The harder question is whether the RICO enterprise and RICO person are here distinct.
We find contrary to what the Court of Appeals held but they are sufficiently distinct.
As we have noted, King is the President and sole shareholder of Don King Productions.
The plaintiff says that while working as the president of that company, he engaged in the unlawful pattern.
The Court of Appeals focused on the fact that the allegations related to actions taken by King were within the scope of his corporate employment.
In this situation, according to that court, the employee and the employer are essentially the same not distinct.
In law of course, a corporate owner, a corporate employee; a natural person is distinct from the corporation itself which is a legally different entity with different rights and responsibilities.
We can find nothing in the statute that requires any more separateness than that.
Linguistically speaking an employee like King who conducts the affairs of the corporation through illegal acts comes within the terms of the statute that forbids any person unlawfully to conduct an enterprise particularly given the acts expensive definitions of person and enterprise.
We also find that the application of RICO in these circumstances is perfectly consistent with the statute’s basic purposes as we have previously defined them namely preventing the victimization of legitimate organizations and protecting the public from persons who would use an enterprise as a vehicle for unlawful activity.
The Court of Appeals formulation we fear would contravene statute’s basic purposes.
We therefore reverse and remand for further proceedings.
Our decision is unanimous.