Source: http://www.law.cornell.edu/supremecourt/text/507/170
Timestamp: 2013-05-19 03:34:29
Document Index: 777910422

Matched Legal Cases: ['§ 1962', '§ 1962', '§ 3', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 2', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1961', '§ 1962', '§ 1962', '§ 904', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 110', '§ 1962', '§ 1962', '§ 1962', '§ 904', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962']

Bob REVES, et al., Petitioners v. ERNST & YOUNG. | Supreme Court | LII / Legal Information Institute
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507 U.S. 170 (113 S.Ct. 1163, 122 L.Ed.2d 525)
[HTML] dissent, SOUTER, WHITE
A provision of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 1962(c), makes it unlawful "for any person employed by or associated with an interstate enterprise . . . to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity. . . ." After respondent's predecessor, the accounting firm of Arthur Young and Company, engaged in certain activities relating to valuation of a gasohol plant on the yearly audits and financial statements of a farming cooperative, the cooperative filed for bankruptcy, and the bankruptcy trustee brought suit, alleging, inter alia, that the activities in question rendered Arthur Young civilly liable under § 1962(c) to petitioner holders of certain of the cooperative's notes. Among other things, the District Court applied Circuit precedent requiring, in order for such liability to attach, "some participation in the operation or management of the enterprise itself"; ruled that Arthur Young's activities failed to satisfy this test; and granted summary judgment in its favor on the RICO claim. Agreeing with the lower court's analysis, the Court of Appeals affirmed in this regard.
(c) RICO's "liberal construction" clausewhich specifies that the "provisions of this title shall be liberally construed to effectuate its remedial purposes"does not require rejection of the "operation or management" test. The clause obviously seeks to ensure that Congress' intent is not frustrated by an overly narrow reading of the statute, but it is not an invitation to apply RICO to new purposes that Congress never intended. It is clear from the statute's language and legislative history that Congress did not intend to extend § 1962(c) liability beyond those who participate in the operation or management of an enterprise through a pattern of racketeering activity. Pp. ____.
This case requires us once again to interpret the provisions of the Racketeer Influenced and Corrupt Organizations (RICO) chapter of the Organized Crime Control Act of 1970, Pub.L. 91-452, Title IX, 84 Stat. 941, as amended, 18 U.S.C. 1961-1968 (1988 ed. and Supp.II). Section 1962(c) makes it unlawful "for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity. . . ." The question presented is whether one must participate in the operation or management of the enterprise itself to be subject to liability under this provision.
White and Kuykendall were convicted of tax fraud in January 1981. See United States v. White, 671 F.2d 1126 (CA8 1982) (affirming their convictions). Harry Erwin, the managing partner of Russell Brown and Company, an Arkansas accounting firm, testified for White, and shortly thereafter the Co-op retained Russell Brown to perform its 1981 financial audit. Joe Drozal, a partner in the Brown firm, was put in charge of the audit and Joe Cabaniss was selected to assist him. On January 2, 1982, Russell Brown and Company merged with Arthur Young and Company, which later became respondent Ernst & Young.
The case went to trial on the state and federal securities fraud claims. The jury found that Arthur Young had committed both state and federal securities fraud and awarded approximately $6.1 million in damages. The Court of Appeals reversed, concluding that the demand notes were not securities under federal or state law. See Arthur Young & Co. v. Reves, 856 F.2d 52, 55 (1988). On writ of certiorari, this Court ruled that the notes were securities within the meaning of § 3(a)(10) of the Securities Exchange Act of 1934, 48 Stat. 882, as amended, 15 U.S.C. 78c(a)(10). Reves v. Ernst & Young, 494 U.S. 56, 70, 110 S.Ct. 945, 953, 108 L.Ed.2d 47 (1990).
The narrow question in this case is the meaning of the phrase "to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs." The word "conduct" is used twice, and it seems reasonable to give each use a similar construction. See Sorenson v. Secretary of the Treasury, 475 U.S. 851, 860, 106 S.Ct. 1600, 1606-1607, 89 L.Ed.2d 855 (1986). As a verb, "conduct" means to lead, run, manage, or direct. Webster's Third New International Dictionary 474 (1976). Petitioners urge us to read "conduct" as "carry on," Brief for Petitioners 23, so that almost any involvement in the affairs of an enterprise would satisfy the "conduct or participate" requirement. But context is important, and in the context of the phrase "to conduct . . . an enterprise's affairs," the word indicates some degree of direction.
The dissent agrees that, when "conduct" is used as a verb, "it is plausible to find in it a suggestion of control." Post, at ____. The dissent prefers to focus on "conduct" as a noun, as in the phrase "participate, directly or indirectly, in the conduct of an enterprise's affairs." But unless one reads "conduct" to include an element of direction when used as a noun in this phrase, the word becomes superfluous. Congress could easily have written "participate, directly or indirectly, in an enterprise's affairs," but it chose to repeat the word "conduct." We conclude, therefore, that as both a noun and a verb in this subsection "conduct" requires an element of direction.
The more difficult question is what to make of the word "participate." This Court previously has characterized this word as a "term . . . of breadth." Russello, 464 U.S., at 21-22, 104 S.Ct., at 299-300. Petitioners argue that Congress used "participate" as a synonym for "aid and abet." Brief for Petitioners 26. That would be a term of breadth indeed, for "aid and abet" "comprehends all assistance rendered by words, acts, encouragement, support, or presence." Black's Law Dictionary 68 (6th ed. 1990). But within the context of § 1962(c), "participate" appears to have a narrower meaning. We may mark the limits of what the term might mean by looking again at what Congress did not say. On the one hand, "to participate . . . in the conduct of . . . affairs" must be broader than "to conduct affairs" or the "participate" phrase would be superfluous. On the other hand, as we already have noted, "to participate . . . in the conduct of . . . affairs" must be narrower than "to participate in affairs" or Congress' repetition of the word "conduct" would serve no purpose. It seems that Congress chose a middle ground, consistent with a common understanding of the word "participate""to take part in." Webster's Third New International Dictionary 1646 (1976).
Once we understand the word "conduct" to require some degree of direction and the word "participate" to require some part in that direction, the meaning of § 1962(c) comes into focus. In order to "participate, directly or indirectly, in the conduct of such enterprise's affairs," one must have some part in directing those affairs. Of course, the word "participate" makes clear that RICO liability is not limited to those with primary responsibility for the enterprise's affairs, just as the phrase "directly or indirectly" makes clear that RICO liability is not limited to those with a formal position in the enterprise,
This test finds further support in the legislative history of § 1962. The basic structure of § 1962 took shape in the spring of 1969. On March 20 of that year, Senator Hruska introduced S. 1623, 91st Cong., 1st Sess., which combined his previous legislative proposals. See Lynch, RICO: The Crime of Being a Criminal, Parts I & II, 87 Colum.L.Rev. 661, 676 (1987); Blakey & Gettings, Racketeer Influenced and Corrupt Organizations (RICO): Basic ConceptsCriminal and Civil Remedies, 53 Temp.L.Q. 1009, 1017 (1980). S. 1623 was titled the "Criminal Activities Profits Act" and was directed solely at the investment of proceeds derived from criminal activity.
It was § 2(a) of this bill that ultimately became § 1962(a).
On April 18, Senators McClellan and Hruska introduced S. 1861, 91st Cong., 1st Sess., which recast S. 1623 and added provisions that became §§ 1962(b) and (c).
See Blakey, The RICO Civil Fraud Action in Context: Reflections on Bennett v. Berg, 58 Notre Dame L.Rev. 237, 264, n. 76 (1982). The first line of S. 1861 reflected its expanded purpose: "to prohibit the infiltration or management of legitimate organizations by racketeering activity or the proceeds of racketeering activity" (emphasis added).
"(1) making unlawful the receipt or use of income from 'racketeering activity' or its proceeds by a principal in commission of the activity to acquire an interest in or establish an enterprise engaged in interstate commerce; (2) prohibiting the acquisition of any enterprise engaged in interstate commerce through a 'pattern' of 'racketeering activity;' and (3) proscribing the operation of any enterprise engaged in interstate commerce through a 'pattern' of 'racketeering activity.' " H.R.Rep. No. 91-1549, p. 35 (1970); S.Rep. No. 91-617, p. 34 (1969) (emphasis added). U.S.Code Cong. & Admin.News pp. 4007, 4010.
Representative Cellar, who was Chairman of the House Judiciary Committee that voted RICO out in 1970, described § 1962(c) as proscribing the "conduct of the affairs of a business by a person acting in a managerial capacity, through racketeering activity." 116 Cong.Rec. 35196 (1970) (emphasis added).
Of course, the fact that members of Congress understood § 1962(c) to prohibit the operation or management of an enterprise through a pattern of racketeering activity does not necessarily mean that they understood § 1962(c) to be limited to the operation or management of an enterprise. Cf. Turkette, 452 U.S., at 591, 101 S.Ct., at 2533 (references to the infiltration of legitimate organizations do not "require the negative inference that RICO did not reach the activities of enterprises organized and existing for criminal purposes"). It is clear from other remarks, however, that Congress did not intend RICO to extend beyond the acquisition or operation of an enterprise. While S. 30 was being considered, critics of the bill raised concerns that racketeering activity was defined so broadly that RICO would reach many crimes not necessarily typical of organized crime. See 116 Cong.Rec. 18912-18914, 18939-18940 (1970) (remarks of Sen. McClellan). Senator McClellan reassured the bill's critics that the critical limitation was not to be found in § 1961(1)'s list of predicate crimes but in the statute's other requirements, including those of § 1962:
"The danger that commission of such offenses by other individuals would subject them to proceedings under title IX RICO is even smaller than any such danger under title III of the 1968 Safe Streets Act, since commission of a crime listed under title IX provides only one element of title IX's prohibitions. Unless an individual not only commits such a crime but engages in a pattern of such violations, and uses that pattern to obtain or operate an interest in an interstate business, he is not made subject to proceedings under title IX." 116 Cong.Rec., at 18940.
Thus, the legislative history confirms what we have already deduced from the language of § 1962(c)that one is not liable under that provision unless one has participated in the operation or management of the enterprise itself.
RICO's "liberal construction" clause does not require rejection of the "operation or management" test. Congress directed, by § 904(a) of Pub.L. 91-452, 84 Stat. 947, see note following 18 U.S.C. 1961, p. 438, that the "provisions of this title shall be liberally construed to effectuate its remedial purposes." This clause obviously seeks to ensure that Congress' intent is not frustrated by an overly narrow reading of the statute, but it is not an invitation to apply RICO to new purposes that Congress never intended. Nor does the clause help us to determine what purposes Congress had in mind. Those must be gleaned from the statute through the normal means of interpretation. The clause " 'only serves as an aid for resolving an ambiguity; it is not to be used to beget one.' " Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 492, n. 10, 105 S.Ct. 3275, 3282, n. 10, 87 L.Ed.2d 346 (1985), quoting Callanan v. United States, 364 U.S. 587, 596, 81 S.Ct. 321, 327, 5 L.Ed.2d 312 (1961). In this case it is clear that Congress did not intend to extend RICO liability under § 1962(c) beyond those who participate in the operation or management of an enterprise through a pattern of racketeering activity.
Petitioners argue that the "operation or management" test is flawed because liability under § 1962(c) is not limited to upper management but may extend to "any person employed by or associated with the enterprise." Brief for Petitioners 37-40. We agree that liability under § 1962(c) is not limited to upper management, but we disagree that the "operation or management" test is inconsistent with this proposition. An enterprise is "operated" not just by upper management but also by lower-rung participants in the enterprise who are under the direction of upper management.
The United States also argues that the "operation or management" test is not consistent with § 1962(c) because it limits the liability of "outsiders" who have no official position within the enterprise. Brief for United States as Amicus Curiae 12 and 15. The United States correctly points out that RICO's major purpose was to attack the "infiltration of organized crime and racketeering into legitimate organizations," S.Rep. No. 91-617, at 76, but its argument fails on several counts. First, it ignores the fact that § 1962 has four subsections. Infiltration of legitimate organizations by "outsiders" is clearly addressed in subsections (a) and (b), and the "operation or management" test that applies under subsection (c) in no way limits the application of subsections (a) and (b) to "outsiders."
Second, § 1962(c) is limited to persons "employed by or associated with" an enterprise, suggesting a more limited reach than subsections (a) and (b), which do not contain such a restriction. Third, § 1962(c) cannot be interpreted to reach complete "outsiders" because liability depends on showing that the defendants conducted or participated in the conduct of the "enterprise's affairs," not just their own affairs. Of course, "outsiders" may be liable under § 1962(c) if they are "associated with" an enterprise and participate in the conduct of its affairs that is, participate in the operation or management of the enterprise itselfbut it would be consistent with neither the language nor the legislative history of § 1962(c) to interpret it as broadly as petitioners and the United States urge.
Both the District Court and the Court of Appeals applied the standard we adopt today to the facts of this case, and both found that respondent was entitled to summary judgment. Neither petitioners nor the United States have argued that these courts misapplied the "operation or management" test. The dissent argues that by creating the Co-op's financial statements Arthur Young participated in the management of the Co-op because " 'financial statements are management's responsibility.' " Post, at 5, quoting 1 CCH AICPA Professional Standards, SAS No. 1, § 110.02 (1982). Although the professional standards adopted by the accounting profession may be relevant, they do not define what constitutes management of an enterprise for the purposes of § 1962(c).
In the word "conduct," the Court today finds a clear congressional mandate to limit RICO liability under 18 U.S.C. 1962(c) to participants in the "operation or management" of a RICO enterprise. Ante, at ____. What strikes the Court as clear, however, looks at the very least hazy to me, and I accordingly find the statute's "liberal construction" provision not irrelevant, but dispositive. But even if I were to assume, with the majority, that the word "conduct" clearly imports some degree of direction or control into § 1962(c), I would have to say that the majority misapplies its own "operation or management" test to the facts presented here. I therefore respectfully dissent.
"It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt." 18 U.S.C. 1962(c). Although the Court is surely correct that the cognates should receive consistent readings, see ante, at ____, and correct again that "context is important" in coming to understand the sense of the terms intended by Congress, ibid., the majority goes astray in quoting only the verb form of "conduct" in its statement of the context for divining a meaning that must fit the noun usage as well. Thus, the majority reaches its pivotal conclusion that "in the context of the phrase 'to conduct . . . an enterprise's affairs,' the word indicates some degree of direction." Ibid. (footnote omitted). To be sure, if the statutory setting is so abbreviated as to limit consideration to the word as a verb, it is plausible to find in it a suggestion of control, as in the phrase "to conduct an orchestra." (Even so, the suggestion is less than emphatic, since even when "conduct" is used as a verb, "the notion of direction or leadership is often obscured or lost; e.g. an investigation is conducted by all those who take part in it." 3 Oxford English Dictionary 691 (2d ed. 1989) (emphasis in original).)
In any event, the context is not so limited, and several features of the full subsection at issue support a more inclusive construction of "conduct." The term, when used as a noun, is defined by the majority's chosen dictionary as, for example, "carrying forward" or "carrying out," Webster's Third New International Dictionary 473 (1976), phrases without any implication of direction or control. The suggestion of control is diminished further by the fact that § 1962(c) covers not just those "employed by" an enterprise, but those merely "associated with" it, as well. And associates (like employees) are prohibited not merely from conducting the affairs of an enterprise through a pattern of racketeering, not merely from participating directly in such unlawful conduct, but even from indirect participation in the conduct of an enterprise's affairs in such a manner. The very breadth of this prohibition renders the majority's reading of "conduct" rather awkward, for it is hard to imagine how the "operation or management" test would leave the statute with the capacity to reach the indirect participation of someone merely associated with an enterprise. I think, then, that this contextual examination shows "conduct" to have a long arm, unlimited by any requirement to prove that the activity includes an element of direction. But at the very least, the full context is enough to defeat the majority's conviction that the more restrictive interpretation of the word "conduct" is clearly the one intended.
What, then, if we call it a tie on the contextual analysis? The answer is that Congress has given courts faced with uncertain meaning a clear tie-breaker in RICO's "liberal construction" clause, which directs that the "provisions of this title shall be liberally construed to effectuate its remedial purposes." Pub.L. 91-452, § 904(a), 84 Stat. 947, note following 18 U.S.C. 1961. We have relied before on this "express admonition" to read RICO provisions broadly, see Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497-498, 105 S.Ct. 3275, 3285-3286, 87 L.Ed.2d 346 (1985), and in this instance, the "liberal construction" clause plays its intended part, directing us to recognize the more inclusive definition of the word "conduct," free of any restricting element of direction or control.
Even if I were to adopt the majority's view of § 1962(c), however, I still could not join the judgment, which seems to me unsupportable under the very "operation or management" test the Court announces. If Arthur Young had confined itself in this case to the role traditionally performed by an outside auditor, I could agree with the majority that Arthur Young took no part in the management or operation of the Co-op. But the record on summary judgment, viewed most favorably to Reves,
shows that Arthur Young created the very financial statements it was hired, and purported, to audit. Most importantly, Reves adduced evidence that Arthur Young took on management responsibilities by deciding, in the first instance, what value to assign to the Co-op's most important fixed asset, the White Flame gasohol plant, and Arthur Young itself conceded below that the alleged activity went beyond traditional auditing. Because I find, then, that even under the majority's "operation or management" test the Court of Appeals erroneously affirmed the summary judgment for Arthur Young, I would (again) reverse.
see Arthur Young & Co. v. Reves, 937 F.2d 1310, 1316-1317 (CA8 1991), and an internal memo that appears in the record shows that Arthur Young had a number of serious questions about White Flame's cost figures for the plant. See App. in No. 87-1726 (CA8), pp. 1189-1191. Nonetheless, Arthur Young "essentially invented" a cost figure that matched, to the penny, the phoney figure that Kuykendall, White Flame's convicted accountant, had created. App. 138-140. With this "invented" cost figure in hand, Arthur Young then proceeded to decide, again without consulting management, when the Co-op had acquired White Flame. Although the Co-op's 1980 financial statement indicated an acquisition of White Flame in February 1980, as did a local court decree, see App. in No. 87-1726 (CA8), pp. 295, 1212-1214, Arthur Young "adopted a blatant fictionthat the Co-op had owned the entire plant at its inception in May, 1979in order to justify carrying the asset on the Co-op's books at its total cost, as if the Co-op had built it from scratch." App. 137. Apparently, the idea that the Co-op had owned the gasohol plant since 1979 was reflected nowhere in the Co-op's books, and Arthur Young was solely responsible for the Co-op's decision to treat the transaction in this manner.
let alone the membership, Arthur Young prepared the Co-op's 1981 financial statement and listed a fixed asset value of more than $4.5 million for the gasohol plant. App. in No. 87-1726 (CA8), p. 238. Arthur Young listed a similar value for White Flame in the Co-op's financial statement for 1982. Id., at 261. By these actions, Arthur Young took on management responsibilities, for it thereby made assertions about the fixed asset value of White Flame that were derived, not from information or any figure provided by the Co-op's management, but from its own financial analysis.
But petitioners' evidence and respondent's concessions of activity going beyond outside auditing can neither be ignored nor declared irrelevant. As the Court explains today, " 'outsiders' may be liable under § 1962(c) if they are 'associated with' an enterprise and participate in the conduct of its affairsthat is, participate in the operation or management of the enterprise itself. . . ." Ante, at ____ (emphasis in original). Thus, the question here is whether Arthur Young, which was "associated with" the Co-op, "participated" in the Co-op's operation or management. As the Court has noted, "participate" should be read broadly in this context, see ante, at ____ (citing Russello v. United States, 464 U.S. 16, 21-22, 104 S.Ct. 296, 299-300, 78 L.Ed.2d 17 (1983)), since Congress has provided that even "indirect" participation will suffice. Cf. Sedima, S.P.R.L. v. Imrex Co., 473 U.S., at 497-498, 105 S.Ct. at 3285-3286 ("Congress' self-consciously expansive language" supports the conclusion that "RICO is to be read broadly").
The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Lumber Co.,
Justice SCALIA and Justice THOMAS do not join Part IV-A of this opinion.
The United States calls our attention to the use of the word "conduct" in 18 U.S.C. 1955(a), which penalizes anyone who "conducts, finances, manages, supervises, directs, or owns all or part of an illegal gambling business." See Brief for United States as Amicus Curiae 13, n. 11; Tr. of Oral Arg. 24-25. This Court previously has noted that the Courts of Appeals have interpreted this statute to proscribe "any degree of participation in an illegal gambling business, except participation as a mere bettor." Sanabria v. United States, 437 U.S. 54, 70-71, n. 26, 98 S.Ct. 2170, 2182, n. 26, 57 L.Ed.2d 43 (1978). We may assume, however, that "conducts" has been given a broad reading in this context to distinguish it from "manages, supervises, [or] directs."
For these reasons, we disagree with the suggestion of the Court of Appeals for the District of Columbia Circuit that § 1962(c) requires "significant control over or within an enterprise." Yellow Bus Lines, Inc. v. Drivers, Chauffeurs & Helpers Local Union 639, 286 U.S.App.D.C. 182, 188, 913 F.2d 948, 954 (1990) (en banc) (emphasis added), cert. denied, 501 U.S. ----, 111 S.Ct. 2839, 115 L.Ed.2d 1007 (1991).
S. 1623 provided in relevant part:
S. 1861 provided in relevant part:
See, e.g., 116 Cong.Rec. 607 (1970) (remarks of Sen. Byrd of West Virginia) ("to acquire an interest in businesses . . ., or to acquire or operate such businesses by racketeering methods"); id., at 36294 (remarks of Sen. McClellan) ("to acquire an interest in a business . . ., to use racketeering activities as a means of acquiring such a business, or to operate such a business by racketeering methods"); id., at 36296 (remarks of Sen. Dole) ("using the proceeds of racketeering activity to acquire an interest in businesses engaged in interstate commerce, or to acquire or operate such businesses by racketeering methods"); id., at 35227 (remarks of Rep. Steiger) ("the use of specified racketeering methods to acquire or operate commercial organizations").
At oral argument, there was some discussion about whether low-level employees could be considered to have participated in the conduct of an enterprise's affairs. See Tr. of Oral Arg. 12, 25-27. We need not decide in this case how far § 1962(c) extends down the ladder of operation because it is clear that Arthur Young was not acting under the direction of the Co-op's officers or board.
The Court attempts to shore up its interpretation with an examination of relevant legislative materials. See ante, at ____. The legislative history demonstrates only that when members of Congress needed a shorthand method of referring to § 1962(c), they spoke of prohibiting "the operation" of an enterprise through a pattern of racketeering activity. As Arthur Young points out, "operation" is essentially interchangeable with "conduct"; each term can include a sense of direction, but each is also definable as "carrying on" or "carrying out." Brief for Respondent 22. There is no indication that the congressional shorthand was meant to attend to the statutory nuance at issue here. As the Court concedes, "[T]he fact that members of Congress understood § 1962(c) to prohibit the operation or management of an enterprise through a pattern of racketeering activity does not necessarily mean that they understood § 1962(c) to be limited to the operation or management of an enterprise." Ante, at ____.
The majority claims that without an element of direction, the word "conduct," when it appears as a noun, becomes superfluous. Ante, at ____. Given the redundant language Congress has chosen for § 1962(c), however, any consistent reading of "conduct" will tend to make one of its two appearances superfluous.
In ruling on a motion for summary judgment, "[t]he evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2514, 91 L.Ed.2d 202 (1986). My description of the facts, based primarily on the District Court's view of the evidence at summary judgment, conforms to this standard.
Gene Kuykendall, the Co-op's previous "independent auditor," was involved in keeping the Co-op's books in addition to preparing and "auditing" financial statements for White Flame. See Arthur Young & Co. v. Reves, 937 F.2d 1310, 1316-1317 (CA8 1991); United States v. White, 671 F.2d 1126 (CA8 1982); Robertson v. White, 633 F.Supp. 954 (WD Ark.1986). Thus, the Co-op had a history of relying on "outside" auditors for such services.
If Arthur Young had decided otherwise, the value of White Flame on the Co-op's books would have been its fair market value at the time of salethree to four million dollars less. See ante, at ____. The "blatant fiction" created by Arthur Young maintained the Co-op's appearance of solvency and made Jack White's management "look better." App. 137-138. The District Court noted some plausible motives for Arthur Young's conduct, including a desire to keep the Co-op's business and the accountants' need "to cover themselves for having testified on behalf of White and Kuykendall in [their] 1981 criminal trial." App. 136.
The majority asserts, as an "undisputed" fact, "that Arthur Young relied upon existing Co-op records in preparing the 1981 and 1982 audit reports." Ante, at ____. In fact, however, the District Court found that Reves had presented evidence sufficient to show that Arthur Young "essentially invented" a cost figure for White Flame (after examining White Flame records created by Kuykendall). See App. 138-140. Since the Co-op's 1980 financial statement indicated that the Co-op had advanced White Flame only $4.1 million through the end of 1980, see supra, at ____, Arthur Young could not have relied on the Co-op's records in concluding that the plant's value was nearly $4.4 million at the end of 1980. See 937 F.2d, at 1317. The District Court also found sufficient evidence in the record to support the conclusion that Arthur Young had created the "blatant fiction" that the Co-op had owned White Flame from its inception, despite overwhelming evidence to the contrary in the Co-op's records. See App. 137-138; see also 937 F.2d, at 1317 ("In concluding that the Co-op had always owned White Flame, [Arthur Young] ignored a great deal of information suggesting exactly the opposite"). The evidence indicates that it was creative accounting, not reliance on the Co-op's books, that led Arthur Young to treat the Co-op as the plant's owner from the time of its construction in 1979 (a conclusion necessary to support Arthur Young's decision to value the plant at total cost). Not even the decree procured in the friendly lawsuit engineered by White and his lawyers treated the Co-op as building the plant, or as owning it before February 1980. See ante, at ____.
See 937 F.2d, at 1318. In fact, Note 9 to the 1981 financial statement continued to indicat
e that the Co-op "acquired legal ownership" of White Flame in February 1980. App. in No. 87-1726 (CA8), p. 250.