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Article Excerpt
I. INTRODUCTION
[T]he interpretation of the conspiracy provision presents the recurring theme of RICO jurisprudence: to interpret the statute to its full breadth in order to encompass the congressional goal of convicting insulated ring leaders runs the risk of expanding the net so wide that unintended fringe actors are also brought within the purview of RICO. (1)
When the Supreme Court announced the "operation or management test" in Reves v. Ernst & Young (2) in 1993, requiring that individuals control or manage an enterprise in order to be liable under 18 U.S.C. [section] 1962(c), it represented a significant breakthrough in that it was the first time the Court instituted any broad-stroke restriction on the application of the Racketeer Influenced and Corrupt Organizations Act (RICO) since its 1970 inception. While many thought the decision heralded an end to the liability of so-called "outsiders," including lawyers, accountants, and various other professionals sometimes pulled into RICO suits, (3) many commentators argued that its effects would be narrow and would not extend beyond the specific facts of the particular case. (4)
Since the test was initially announced, questions concerning its proper application have persisted, and the Supreme Court has declined to clarify the intended reach or specifics of the standard. One particularly troubling question concerns the application of the Reves test when the charge is not directly under [section] 1962(c), but rather involves an allegation of conspiracy to violate [section] 1962(c), criminalized under [section] 1962(d), commonly known as RICO conspiracy.
Although many circuits have considered this question, most have failed to do so in a thorough or convincing way, preferring to repeat the shibboleths of conspiracy law rather than engage in a close and meaningful analysis of the text and legislative history of RICO. (5) Lower courts' confused efforts on this front have been further complicated by the Supreme Court's decision in Salinas v. United States, (6) which seemed to imply only the slightest limits on RICO conspiracy.
Contrary to the rulings of most circuit courts that consider this issue, and even in light of the Salinas decision, a searching analysis of RICO, the Reves standard, and traditional conspiracy law makes clear that the Reves "operation or management" test should be extended to apply to RICO conspiracy cases prosecuted under [section] 1962(d). This extension is necessary to effectuate the congressionally-intended limit on RICO liability explicated in Reves and to ensure that outsiders otherwise exempt from the statute are not simply swept back in by a broad construction of RICO conspiracy. In addition, such an extension best accords with the important criminal justice goals of RICO, while at the same time comporting with substantive and procedural fairness for potential defendants.
Section II of this Article will describe the history of RICO and the elements that constitute the statutory offense. Section III will relate the development of the "operation or management" test adopted by Reves, including its formulation in the lower courts and the eventual decision by the Supreme Court. Finally, Section IV will consider the interaction of Reves and [section] 1962(d), RICO conspiracy, both before and after the Supreme Court's seminal decision in Salinas v. United States, which interpreted the scope of RICO conspiracy. This section will argue that even in light of the broad standard of RICO conspiracy enunciated by Salinas, courts should require that defendants agree to operate or manage an enterprise in order to incur liability to effectuate the important aims of Reves and ensure that RICO conspiracy does not become merely an associational offense.
II. THE ORIGINS AND ELEMENTS OF RICO
A. THE HISTORY OF THE RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS ACT
Congress passed the Racketeer Influenced and Corrupt Organizations Act as Title IX of the 1970 Organized Crime Control Act. (7) The ostensible purpose of RICO was the eradication of organized crime. (8) The law evolved from recommendations to Congress by the 1967 President's Commission on Law Enforcement and Administration of Justice, also known as the Katzenbach Commission. (9) The Commission report evinced particular concern with traditional organized crime, including crime families like La Cosa Nostra, and their illegal activities, including gambling, loan sharking, and drug dealing. (10) Beyond wholly illegal activities, however, the Commission noted great concern with the infiltration of legitimate businesses by organized crime syndicates, (11) resulting in corruption across a diverse field of professions.
As a result of the Commission's work and findings, in 1968, Senator Roman Hruska introduced two bills that would eventually evolve into RICO. (12) Although Congress took no immediate action on his proposed legislation, the following year, Senator John L. McClellan introduced another major bill seeking to act on the Commission's suggestions. (13) Just as the Commission had done, Senator McClellan emphasized the evils of organized crime and the dangers of their corrupting effects on legitimate businesses. (14) Senator Hruska, in turn, introduced a new bill tracking the initiative of his first two, entitled the "Criminal Activities Profits Act." (15) The bill was "aimed specifically at racketeer infiltration of legitimate business." (16) In response to Congressional hearings, debate, and analysis, Senators Hruska and McClellan next joined together and introduced a modified version of Hruska's new bill, entitled the "Corrupt Organizations Act of 1969." (17) With slight modification, this legislative plan was embodied in Senate Bill 1861, which was ultimately enacted as Title IX of the Organized Crime Control Act of 1970, RICO. (18)
The stated purpose of RICO is to combat "organized crime.., by strengthening the legal tools in the evidence-gathering process, by establishing new penal prohibitions, and by providing enhanced sanctions and new remedies to deal with the unlawful activities of those engaged in organized crime." (19) Thus, while general congressional priorities in enacting the legislation seem clear, there is some confusion about the specific intended breadth of RICO and the actual means by which RICO was meant to effectuate its ends. (20) Regardless, many commentators and judges alike agree that the application of RICO today has been stretched far beyond the specific considerations of the enacting Congress, especially where civil suits are involved. (21) Today, RICO reaches past the prosecution of organized crime to encompass what might otherwise be categorized as everyday business fraud, securities violations, political corruption, and various other white collar crimes. In fact, while organized crime, criminal infiltrations of legitimate businesses, and antitrust violations were clearly the focus of the congressional debate, the Supreme Court has bound RICO only by its expansive language, employing its broad terms and so-called liberal construction clause to continually knock down limiting constructions that lower courts have sought to impose on the statute. (22) Thus, the Reves "operation or management" test is particularly significant, because it marks one of the only limitations the Court has placed on a broad reading of the text, despite the repeated efforts of lower courts and litigants.
B. THE ELEMENTS OF A RICO OFFENSE
RICO comprises 18 U.S.C. [subsection] 1961-68. The substantive provisions of the statute, [subsection] 1962(a)-(c), criminalize conduct committed, in conjunction with an enterprise, that constitutes a pattern of racketeering activity. (23) Under the statute, then, the elements of a RICO violation include (1) the presence of a defendant "person," (2) an "enterprise," (3) and a "pattern" of (4) specifically defined predicate "racketeering" acts. (24)
First, "person" is defined as "any individual or entity capable of holding a legal or beneficial interest in property." (25) "Enterprise," in turn, is defined to include "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." (26) In United States v. Turkette, the Supreme Court explicitly ruled that this definition was intended to encompass wholly illegitimate enterprises, such as criminal gangs, along with more traditional organizations, such as businesses. (27)
Next, the term "pattern" is defined, in relevant part, as "at least two acts of racketeering activity.., the last of which occurred within ten years.., after the commission of a prior act of racketeering activity." (28) The Supreme Court elaborated on this definition in its seminal case, H.J. Inc. v. Northwestern Bell Telephone Co., describing both open and closed patterns of racketeering activity sufficient to satisfy the statute. (29)
Finally, predicate "racketeering activity" is defined to include a litany of generic state law crimes (such as murder, bribery, and extortion) and specifically enumerated federal law offenses (including, for example, mail and wire fraud). (30)
If each RICO element can be established, as defined above, an individual can be either criminally (31) or civilly (32) liable in four different ways. First, [section] 1962(a) bars a person from investing income obtained from a pattern of racketeering activity or collection of unlawful debt. (33) Second, [section] 1962(b) prohibits acquiring an interest in an enterprise through a pattern of racketeering activity. (34) Section 1962(c), the focus of this Article, prohibits a person from conducting an enterprise through a pattern of racketeering activity, stating in relevant part: "It shall be unlawful for any person employed by or associated with any enterprise.., to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt." (35) Finally, in addition to the substantive provisions of RICO, [section] 1962(d) states, "It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section." (36)
III. THE DEVELOPMENT OF THE REVES "OPERATION OR MANAGEMENT" TEST
As mentioned, despite the purportedly specific aims of Congress in enacting RICO, the Supreme Court has stubbornly resisted limitations imposed by lower courts on its expansive wording. (37) The most important and notable exception to this trend is the Court's recognition in Reves of an "operation or management" test for liability under [section] 1962(c). (38) In short, that decision reads the text and legislative history of [section] 1962(c) to require that an individual have "some part in directing [the enterprise's] affairs" to be culpable for a RICO violation under [section] 1962(c). (39) While this marked a monumental and important decision in placing some limit on RICO liability, the Court did not elaborate on the reach of its opinion. It gave lower courts little guidance as to how the Reves "operation or management" test was to be applied, leaving open the question of precisely what degree of involvement or participation was necessary to find liability. In addition, the Court failed to address the implications of this test for liability under [section] 1962(d), RICO conspiracy.
In determining the reach and application of Reves--and in support of the ultimate conclusion that Reves was intended to extend to RICO conspiracy--it is useful to track its development in the lower courts, to gain a better understanding of the context and history of the ruling.
A. BENNETT V. BERG: THE EIGHTH CIRCUIT'S PIONEERING STANDARD
The so-called "operation or management" test ultimately adopted by the Supreme Court in Reves was first enunciated by the Eighth Circuit in Bennett v. Berg. (40) The case involved a civil RICO suit, predicated on allegations of mail fraud, brought by former residents of the John Knox Village Retirement Community against the founder of the community, the not-for-profit organization that owned the community, related corporations, certain officers and directors therein, and former attorneys and accountants of the parties. (41) Sitting en banc, the Eighth Circuit adopted an earlier panel's partial reversal of the district court's dismissal for failure to state a claim under Rule 12(b)(6). (42) The en banc court generally endorsed the earlier panel's decision, but made special note of their concerns regarding the sufficiency of the [section] 1962(c) RICO claim. (43) Drawing on a Fourth Circuit decision, United States v. Mandel, (44) the court noted that the plaintiff's complaint might be defective for failing to allege the necessary degree of participation on the part of certain defendants to sustain [section] 1962(c) liability. (45) According to the court:
Mere participation in the predicate offenses listed in RICO, even in conjunction with a RICO enterprise, may be insufficient to support a RICO cause of action. A defendant's participation must be in the conduct of the affairs of a RICO enterprise, which ordinarily will require some participation in the operation or management of the enterprise itself. (46)
The opinion seemingly rested on a close analysis of [section] 1962(c)'s language. (47) Notably, the court also expanded its test beyond [section] 1962(c) to questions of liability under RICO conspiracy, reiterating that "a RICO conspiracy charge alleges agreement to participate in conducting the affairs of an enterprise through the commission of ... predicate acts." (48) While not conclusive, this implies that the court that first clearly enunciated the "operation or management" test assumed that it would extend to questions of RICO conspiracy liability predicated on [section] 1962(c) claims.
B. YELLOW BUS AND THE D.C. CIRCUIT'S "SIGNIFICANT" LIMITATION ON LIABILITY
Although occasion to apply the "operation or management" standard did not arise frequently in the Eighth Circuit, its analysis was incorporated and expanded upon by the D.C. Circuit in Yellow Bus Lines, Inc. v. Drivers, Chauffeurs & Helpers Local Union. (49) The court's opinion, which adopted an even narrower view of liability under [section] 1962(c) than that taken by the Eighth Circuit, stems from both the D.C. Circuit's in-depth analysis of the language and legislative history of RICO, and the particular facts of the case. In the case, Yellow Bus Line, Inc. alleged RICO violations against a striking union and its trustee, James Woodward, committed in conjunction with the union (the specified "enterprise" in the case). (50) Because the circuit's law proscribed liability under [section] 1962(c) where the RICO defendant "persons" (here, the union and the trustee) and the enterprise (the union) were actually the same entity, the court dismissed Yellow Bus's suit directly against the union. (51) In response, Yellow Bus amended its complaint to name itself, Yellow Bus Lines, Inc., as the enterprise through which the defendants allegedly conducted their racketeering. (52) The claim was that by going on strike against the company, the union had committed acts of racketeering through conduct of or participation in the company itself, in violation of [section] 1962(c). (53) The D.C. Circuit was thus called upon to determine whether Yellow Bus's innovative construction of [section] 1962(c) was countenanced by the language of RICO. As the court stated, the question "[s]imply put.., is to determine the intent of Congress in using the phrase 'to conduct or participate, directly or indirectly, in the conduct of [the] enterprise's affairs.'" (54)
The D.C. Circuit began its analysis with a summary of how other circuits had interpreted the language of this clause. (55) While the court outlined the discussion of the Eighth Circuit in Bennett v. Berg, it noted that most other circuits had opted for a broader reading of the statute. (56) Specifically, the Second Circuit had adopted a broad view of RICO liability, stating in United States v. Scotto that [section] 1962(c) required only that the defendant be enabled to commit the predicate offenses by virtue of his involvement in the affairs of the enterprise or that the predicate acts committed by the defendant were related to the activities of the enterprise. (57) The Ninth Circuit also had adopted this test, without elaboration. (58)
Like the Second Circuit, the Eleventh Circuit had rejected the Eighth Circuit's limited view of liability, giving [section] 1962(c) a significantly broader reading. (59) According to the Eleventh Circuit, "[t]he word 'conduct' in
[section] 1962(c) simply means the performance of activities necessary or helpful to the operation of the enterprise." (60) The court had opined,
The substantive proscriptions of the RICO statute apply to insiders and outsiders--those merely "associated with" an enterprise--who participate directly and indirectly in the enterprise's affairs through a pattern of racketeering activity.... The RICO net is woven tightly to trap even the smallest fish, those peripherally involved. (61)
The Fourth and Seventh Circuits had specifically rejected the Eleventh Circuit's standard, but had not clearly established their own requirements under [section] 1962(c). (62) The Fifth Circuit, in turn, had taken a slightly more restrained view than either the Second or Eleventh Circuits, modifying the standard announced in United States v. Scotto. Under the Fifth Circuit's enunciation of the test, in order to be liable under [section] 1962(c), the racketeering acts must be related to the enterprise, and the defendant's position in the enterprise must facilitate their commission. (63)
Turning to its own analysis of the text and legislative history of RICO, the D.C. Circuit ruled the Eighth Circuit's construction of the statute the most sensible, rejecting the broad readings of both the Second and Eleventh Circuits. (64) The court in Yellow Bus emphasized that the language of RICO seemed to limit liability to those with some ability to manage or control the enterprise: "Congress, we stress, did not proscribe mere participation in the enterprise's affairs.., but rather, subjected participation in the conduct of an enterprise's affairs to RICO liability.... 'Conduct' is synonymous with 'management' or 'direction.'" (65)
With this in mind, both the Second and Eleventh Circuit readings were problematic because they effectively read the word "conduct" (which appears twice) out of the statute by allowing liability for activities that represented nothing beyond "participation" in an enterprise. The court emphasized that "conduct" was the crucial term in the statute because "conduct" meant that guidance, management, or some control over the enterprise was required for liability. (66)
Furthermore, as the D.C. Circuit noted, the Eleventh Circuit's analysis of this issue was not particularly compelling. (67) Although the decision in Bank of America National Trust & Savings Ass'n v. Touche Ross & Co. (68) clearly sought to ground itself in the language of the statute, the opinion lacks any real, searching review of the text. While the Eleventh Circuit dismissed the Eighth Circuit's formulation as neglecting the "directly or indirectly" language and therefore overly narrowing liability, the Eleventh Circuit's construction is flawed in that it reads "conduct" out of the statute entirely by permitting mere participation in the affairs of a given enterprise to carry liability. (69) The D.C. Circuit specifically emphasized that its construction, which tracked that of the Eighth Circuit, best fit the language of the statute, rendering no term superfluous. (70) Though the D.C. Circuit did require "significant" participation in the management or control of an enterprise to fall under [section] 1962(c), it clarified that this requirement did not prevent "outsider" liability or ignore the phrase "directly or indirectly," as the Eleventh Circuit supposed. (71) To elaborate, the court gave the example of an organized crime boss who "pulls the strings of a corporation through a puppet president" as one who might indirectly conduct the affairs of an enterprise, incurring liability under their reading of the statute. (72)
The D.C. Circuit went on to explain how its newly adopted standard was faithful to the goals of RICO, as illuminated by the legislative history. (73) Congress, the court opined, was not concerned with every petty predicate crime, but rather with the infiltration and...
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