William H. Rehnquist: We'll hear argument first this morning in Number 98-1480, Robert A. Beck v. Ronald Prupis. Mr. Starkman.
Jay Starkman: Mr. Chief Justice, and may it please the Court: This case, like many cases previously before this Court, begins and ends with the language that Congress chose to use in RICO. Section 1964(c) does not provide a civil remedy only for predicate acts as defined in section 1961. Congress also did not draft section 1964(c) to provide civil remedies only for violations of 1962(a), (b), and (c), or, for that matter, only for violations of 1962(c). Congress drafted section 1964(c) in plain and unambiguous terms to provide a civil remedy for all four of the subsections of section 1962, and that includes 1962(d), conspiracies to violate RICO. The petitioner here, Robert Beck, was injured by reason of a violation of section 1962(b), a conspiracy to violate RICO, and under the plain and unambiguous terms of that statute, that is all that is required to provide him with a civil remedy.
Anthony M. Kennedy: Well, he wasn't injured by the formation of the agreement, and that was the conspiracy.
Jay Starkman: Yes, that's correct, he's not injured...
Anthony M. Kennedy: And that's all the conspiracy was.
Jay Starkman: The conspiracy itself, though, has several objects. l One of the objects...  well, the objects are obviously to violate the substantive sections of that statute, but overall the conspiracy was, let's shake down contractors, let's commit fraud, and let's hide it all, get money, invest it in the enterprise. As that conspiracy develops, though, as with all conspiracies, the object has to expand, and it has to include getting rid of Beck, who stood in the way of that conspiracy continually. He was a threat to the very existence of the conspiracy. He actually was more important than one of the victims of the 100 of predicate acts. I mean, one contractor who's shaken down, he could sue through RICO, but which is more vital to the continuance of the conspiracy, that person, or Beck, a person who could have brought the entire conspiracy down.
Anthony M. Kennedy: Well, let's say that we rule against you on this point. Predicate acts still are committed sometimes in concert with others, in joint participation. The standard law of torts would give recovery for that in most instances, so you wouldn't really need the conspiracy section for vicarious liability, or for joint liability.
Jay Starkman: But here, the way that the statute was drafted, Justice Kennedy, the statute itself created four separate causes of action, and this Court in Salinas defined the words, to conspire, which only appear in the statute once, as being this criminal animal.
William H. Rehnquist: Well, that was a criminal case, was it not, Salinas?
Jay Starkman: Yes, sir, but just because those words are defined in a criminal context, they shouldn't have a different meaning in another section when that other section refers to them.
Anthony M. Kennedy: Well, you say it creates four separate causes of action, but that's the issue, does it?
Jay Starkman: It is the...  well, it's the way the statute's written, though. The plain language of the statute provides a forbidden activities, or prohibited activities in (a), (b), (c), and (d), and all of these were new causes of action that had to be created. In Commonwealth, for example, there was no civil action for investment of proceeds from racketeering activity to acquire control in an entity.
Anthony M. Kennedy: Well, all of those were criminal acts. The question here is whether they were all causes of action.
Jay Starkman: The question here...
Anthony M. Kennedy: I mean, you're just stating the conclusion when you say that.
Jay Starkman: The question here, Justice Kennedy, is whether or not 1964(c) provides a civil remedy for each of those causes of action.
Antonin Scalia: Well, they could provide a remedy for (d) without necessarily providing a remedy that gives you recovery here. You use the word conspiracy as what is outlawed by 1962(d). The noun conspiracy really can have two different meanings. It can refer to the act of conspiring, or it could refer to the confederation formed by the act of conspiring, you see. You know, saying he's part of the conspiracy, the group of...  1962(d) does not use the noun conspiracy. It uses the verb, which really has only one meaning. It shall be unlawful for any person to conspire to violate, so the act of violating (d) is the act of conspiring.
Jay Starkman: Yes, sir.
Antonin Scalia: Now, how has your client been harmed by the act of conspiring, directly harmed by the act of conspiring?
Jay Starkman: Section 1964(c) requires an injury committed by reason of this section.
Antonin Scalia: By reason of a violation of 62.
Jay Starkman: Yes, and that violation, the conspiracy...
Antonin Scalia: You're using the noun again.
John Paul Stevens: Stick with the verb.
Antonin Scalia: How did the conspiring, the formation of that agreement harm your client?
Jay Starkman: There had to be overt acts that are performed as a result of that these people conspire in order to trigger 1964(c)'s injury requirement.
Antonin Scalia: That may well be, and he may have been injured by the overt act, but I don't see how he was injured by the violation of (d), which is the conspiring.
Jay Starkman: In order to have this conspiring of people, they have to have an object, which is the three subsections of...  the three prior subsections of 1962. That object expands. The conspiring has as one of its goals, let's get rid of this guy, who is in the way of this conspiracy. It is one of the agreements that they make. They put that agreement into action by getting rid of Beck, and once they do that...
Antonin Scalia: Well, that's further down the line, though. I mean, we're talking about directly injured, and you could say, sure, you know, the act of conspiring had as its object this, and in pursuing that object they injured your client, but that's further down the line.
Jay Starkman: No, it's directly down the line, Justice Scalia, from the decision that's made in the conspiracy that we have to continue with this conspiracy, and to do that we have to get rid of this person. In order to get rid of him, they have to terminate him, and wrongfully. Once they do that, he is injured by the act of conspiring, by the agreement that they have made to continue this pattern of criminal acts, the pattern of racketeering, to do all of the things that they were doing. This injury is directly related to the conspiracy. This is not some incidental bystander. For example, I think in the Seventh Circuit they use the example of somebody driving to rob a bank and hitting one of the...
Antonin Scalia: But it wasn't one of the predicate acts.
Jay Starkman: No.
Antonin Scalia: I mean, your argument for direct results of the conspiracy would be much stronger if, indeed, it was one of the predicate acts.
Jay Starkman: Yes, it would, Justice Scalia, but there's no basis to make a distinction between overt acts committed in furtherance of the conspiracy and predicate acts committed in furtherance of the conspiracy when we're under 1962(d).
Antonin Scalia: If we're under (d), right?
Jay Starkman: If we're under (d), and here that's all that we're under. Here, we are arguing whether or not the 1962(d) violation proximately caused injury to this individual, and under any of the definitions of proximate cause, whether it be direct, as was articulated in Holmes, or foreseeable consequences, intended consequences, lack of intervening causes, all of those tests are satisfied when the injury is directly related to the core, if you will, of this conspiracy.
Stephen G. Breyer: What do you say about, is the...  the language of 1964(c) is very similar to the private treble damage antitrust suit.
Jay Starkman: Yes, sir.
Stephen G. Breyer: And can a whistleblower bring an antitrust suit against a group of price fixers?
Jay Starkman: Probably not.
Stephen G. Breyer: Not, all right, so how...  what's the distinction?
Jay Starkman: The distinction is an antitrust. The rationale used by all of the lower courts that fits is that there is a requirement of antitrust injury in an antitrust action. Antitrust injury requires an analysis to make sure that the violation is being caused by that which the antitrust laws...
Stephen G. Breyer: So I thought perhaps this...  your opponents are basically saying...  it's the same concept that's here. It's not literally the same, but it's the same idea. It's really...  this statute's aimed at substantive violations, giving people treble damages for those, not for these other things.
Jay Starkman: That is what my opponents are saying in this case. However, that policy rationale that underlies the reasons for not allowing antitrust whistleblowers to sue doesn't apply in RICO. There is no countervailing policy to...
Ruth Bader Ginsburg: But Mr. Starkman, it does undercut your plain meaning. If it doesn't have a plain meaning in an antitrust concept, context, if there is the four antitrust injury explanation, then why can't there also be here a RICO-related interpretation? In other words, if we reject your plain meaning, isn't it appropriate for the Court to take into account the presumption that Congress does not mean to sweep too deeply into what is traditionally a domain of State law?
Jay Starkman: There are three answers to that, Justice Ginsburg. First, it was not Congress' desire to only eliminate predicate acts. Those were already illegal. Congress was going further, to supplement existing State remedies, and attacking organized crime. There was a need, Congress felt, to go beyond what was already existing, so it only federalized the RICO enterprise itself, and it used language that was broad but not ambiguous.
Antonin Scalia: I find it ironic that you're appealing to what Congress intended, and you tell us it intended to reach organized crime, which indeed I think it did, which...  you know, I view that as people in pin-striped suits carrying machine guns, and here you're going after people in doctor's robes carrying scalpels. I...  why should I interpret RICO any more broadly than I absolutely must, given the fact that it has misfired so much from what it was aimed at?
Jay Starkman: We only need to go so far as what the language itself says. This Court has repeatedly refused to write in requirements that don't exist in the statute in order to satisfy this concern that this statute is misfiring. For example, in National Organization of Women v. Scheidler, this Court refused to write in an economic motive requirement because the statute...  and the lower court did, because it was concerned for this very reason, that the statute was going too far. But the language of RICO didn't require that, and in Sedima this Court refused to put into RICO the requirement that we're talking about here, which is the racketeering injury.
Antonin Scalia: I don't think it reads in anything to say that you have not been hurt by the conspiring. I think it reads in something to say, well, you may not have been hurt by the conspiring, but the conspiring had as its purpose something else, and you have been hurt by the furtherance of that purpose. If I read it as narrowly as it must be read, it seems to me you haven't been hurt by the conspiring.
Jay Starkman: But the conspiring is not just the conspiring to commit the predicate acts that happens when they first sit down, Justice Scalia. The conspiring has to continue throughout the life of this conspiracy, and this person that is injured is injured directly by the conspiring. He is injured because the conspiring has had to make one its goals, we need to get rid of this guy, because if we don't, this conspiring is not going to be able to continue.
Antonin Scalia: Well, I think you're right, I think the strongest argument...  incidentally, I don't think it's your opponent who makes the argument about the conspiring. It's one of the amicus, as I recall.
Jay Starkman: Yes, sir, Washington Law Foundation.
Antonin Scalia: And the weakest point of that argument, it seems to me, which the amicus is willing to accept, is that if that argument is right, you would not only...  your client would not only be not able to recover for a...  an act that is in furtherance of the conspiracy but not one of the predicate acts...
Jay Starkman: Uh-huh.
Antonin Scalia: your client wouldn't even be able to recover for a predicate act.
Jay Starkman: Yes.
Antonin Scalia: And you say that deprives (d) of all of its meaning.
Jay Starkman: Which it does.
Antonin Scalia: But why does it deprive (d) of all of its meaning? I mean, it seems to me conspiracy law has two effects. Number 1, it makes the act of conspiring unlawful, so that you can prosecute even before there's been any crime. The act of conspiring becomes a crime. That's one effect. The second effect is that all of the people who are in the conspiracy can be held liable for the effects of the conspiracy. Now, why doesn't it give (d) enough of an effect to say that it continues to have in the civil context that second consequence?
Jay Starkman: Because, Justice Scalia, in order to do that, we have to take the words, to conspire, and give them two completely different meanings in two different sections. Those words, to conspire, are defined as being the first of the two situations that Your Honor described, the act of conspiring, this conspiracy animal, and what 1964(c) does is gives a civil remedy for that conspiracy that is pernicious and overrides the...
Antonin Scalia: But I'm not giving them two different meanings. I'm perfectly willing to say that it means the same thing. I am just responding to your argument that (d) has no effect, and I think you're right that one of the consequences of conspiracy law would have very little effect under (d). It would be very rare that the mere conspiring would harm anybody. I concede that. However, the other effect of (d) would still be considerable, namely, where there is an injury under (a), (b), and (c), it's not only the person who actually committed that injury who is held liable under RICO, but all of the co-conspirators. That seems to me to be quite an adequate scope of operation for (d).
Jay Starkman: It is a procedural device, then. We are then relegating 1962(d), rather than providing a civil remedy that expands plaintiffs' abilities to bring suits, we are changing it to be a procedural device that identifies defendants that can be named, and that is not what 1964(c) provides. 1964(c) by its title provides civil remedies, and identifies any person who is able to sue under its provisions, and here any...
Antonin Scalia: Although that is the usual consequence of conspiracy law in the civil context.
Jay Starkman: Yes.
Antonin Scalia: It renders more people liable. It doesn't render acts unlawful that are otherwise not unlawful.
Jay Starkman: Yes, Justice Scalia, but here, 1962(d) is identified as one of the prohibited conduct, areas of conduct, and in Salinas this Court defined what that was, and all 1964(c) says, its plain language is that we are going to recognize a civil remedy, a civil action for that criminal violation. That's the plain meaning of this statute. That is what it says. And in Holmes this Court restricted the reach of 1962(d), as well as all of RICO, by placing in the time-tested solution for this problem of endless ripples of civil liability, proximate cause. There is no need to make a distinction between predicate acts committed in furtherance of a conspiracy and overt acts committed in furtherance of a conspiracy.
John Paul Stevens: May I ask in that connection, how significant to your case is it that there may be a whistleblower involved? On your theory, does it matter whether he's a whistleblower or not?
Jay Starkman: I think it does, Justice Stevens, but it's not crucial. The crucial point is that he is a threat to the continuing viability of this conspiracy.
John Paul Stevens: Is that because he's a whistleblower, or independent of his possibility of doing any whistleblowing?
Jay Starkman: It's independent, because for example, if they were just retaliating, and this whistleblower...  for blowing the whistle, first it's not in furtherance of the conspiracy, but it's also not proximately caused by the conspiracy, so it's not the fundamental issue of whistleblowing. It is that this person has become a threat, and in order to deal with...
John Paul Stevens: What under the allegations of the complaint, what was the nature of his threat?
Jay Starkman: That he could cause the conspiracy to cease to exist. He stood in the way of predicate acts being committed. He stood in the way of the continuation of the conspiracy. The directors...
John Paul Stevens: Would you translate that to facts instead of sort of a general...  what did he do that prevented the conspiracy from being consummated?
Jay Starkman: Well, one thing he did was, report this to the regulators. Another thing he did...
John Paul Stevens: But if he's already done that...
Jay Starkman: He began to report it to the regulators. He had not finished reporting everything, and...
John Paul Stevens: And your notion is that by firing him they would prevent him from reporting facts to the regulators?
Jay Starkman: No. No, Justice Stevens. My notion is that what happened here, one of the key facts is that they wanted to start looting this company. They wanted to start taking money out, and Mr. Beck stood in the way of that. He said no, you can't do that, and I'm not going to let you, and what they did thereafter was get rid of him, and then right after they got rid of him, within months, they commit these very predicate acts that he was preventing before, this theft of money from the lower...  from the subsidiaries, this...  and they were then able to continue the things that he was starting...
John Paul Stevens: Would you say, in an analogy, as Justice Breyer suggested to the antitrust cases, is this like firing a salesman who refuses to go to price-fixing meetings?
Jay Starkman: No, it's not, because there you again have...  well, it is on some levels, but the analogy isn't apropos because you have the antitrust injury requirement, which this Court has rejected in the RICO context. The reason that that salesperson who doesn't go to the meetings doesn't have standing under the antitrust...
William H. Rehnquist: Well, you say that we've rejected the antitrust injury concept in RICO. Have we expressly rejected it?
Jay Starkman: Yes, sir.
William H. Rehnquist: In Sedima?
Jay Starkman: In Holmes.
Stephen G. Breyer: In Holmes?
Jay Starkman: It was actually stated in a footnote that...  and this is almost a literal quote...  the antitrust injury requirement has no analogue to the...  to RICO, and it was for this very reason that there is no underlying, or there's no countervailing policy to promote racketeering that would work in the RICO setting.
Antonin Scalia: So it's any injury that is a consequence of an act that's necessary for the completion of the conspiracy.
Jay Starkman: If that satisfies proximate cause.
Antonin Scalia: Yes, well, okay.
Jay Starkman: Because proximate cause can go further.
Antonin Scalia: Let's assume that in order to complete their scheme they have to close one factory and give the business of that factory to another factory, and they do it. They shut down the factory. I assume that everyone who loses a job in factory A has a RICO cause of action.
Jay Starkman: No.
Antonin Scalia: Why not?
Jay Starkman: Because they would not be direct victims.
Antonin Scalia: Why wouldn't they be direct victims?
Jay Starkman: Because...
Antonin Scalia: It is essential to the scheme that you close A, just as it was essential to their scheme here, according to your complaint, that they get rid of your client.
Jay Starkman: The factory is the nearest analogy to Beck. The employees at the factory are one step removed. They're incidental. They are not the direct victims, so if the factory...
Antonin Scalia: They hurt the factory?
Jay Starkman: Let's assume the factory was a separate subsidiary, because then I think it makes a little more sense. Otherwise, we get into these proximate cause problems. But what Your Honor is flushing out is whether or not the overt act has to be wrongful, if it is crucial...
Antonin Scalia: Take the factory out of the picture. In order to effectuate the scheme, they have to get rid of one group of executives and put the business in question with another group of executives, so they get rid of the first group of executives. All of those executives who were fired were fired by an act in furtherance of the conspiracy. They would all have a cause of action.
Jay Starkman: Yes, because they are proximately injured by the act of conspiring.
Antonin Scalia: But if they were executives of the factory...
Jay Starkman: If the...
Antonin Scalia: they wouldn't have a cause of action.
Jay Starkman: Assuming the factory is a separate animal, that it's a separate company, then the company would have that action. For example, let's assume in your hypothetical...
Antonin Scalia: I assume these were executives of a separate company.
Jay Starkman: No, because...
Antonin Scalia: Then they wouldn't have a cause of action.
Jay Starkman: No, I don't believe so, sir, because I don't think that their injury is direct. I believe at that point there are attenuating circumstances in the chain of causation, and that is the proper analysis. The distinction is not whether or not it's an overt act, or whether or not it's a predicate act. The distinction is whether or not their injury is proximately caused by the conspiracy.
David H. Souter: But I take it on Justice Scalia's hypothetical if you don't interpose the subsidiary structure, if they simply close the factory that's part of their operation, every employee in the factory would have the RICO cause, for the same reason that the executives would in the second hypo.
Jay Starkman: I think so, Justice Souter.
Anthony M. Kennedy: Yes.
Jay Starkman: I think so under the plain language of the statute. The statute provides that any person injured by reason of, which is proximately injured, by the violation, here the violation is the conspiracy, and the only analysis then, I think, under the plain meaning of the statute, is whether or not those people who lose their jobs proximately lost their jobs as a result of the conspiracy, not as a result of the overt act of closing the factory, because if that's the analysis, then everything would fall into this category. The question is whether or not it is proximately caused by the violation. Here, the violation is the act of conspiring.
Anthony M. Kennedy: I find it...
Antonin Scalia: I'm sorry. No, no, it's your question.
David H. Souter: As I understand it, when you say the conspiracy, you mean by conspiracy an agreement to do everything that is necessary, ultimately to effect a predicate act.
Jay Starkman: Ultimately to effect the objects of the conspiracy.
David H. Souter: Which is ultimately a predicate act.
Jay Starkman: Maybe, and maybe not.
David H. Souter: Well, it must include a predicate act.
Antonin Scalia: All right, I...  yes. Yes, I understand your point.
William H. Rehnquist: Yes.
Jay Starkman: Ultimately...
Stephen G. Breyer: Yes.
Jay Starkman: the object has to be to invest the proceeds, for example, of the predicate acts.
Ruth Bader Ginsburg: Yes.
Jay Starkman: Or to acquire control of the enterprise, or the situation which would come the closest here, 1962(c), which is the conducting of the affairs of the enterprise through a pattern. As long as those are the objects...  those have to be the objects.
Anthony M. Kennedy: Yes.
Jay Starkman: Then the overt acts, or...  that are taken, that are necessary, to use Your Honor's words, or the heart, or the goal, would...
David H. Souter: Reasonably necessary.
Jay Starkman: Reasonably.
Antonin Scalia: Yes.
Jay Starkman: But I don't want to get into a debate about what is the most efficient one. We're not rewarding efficiency here. We're just following the language of the statute.
Anthony M. Kennedy: Mm-hmm.
Antonin Scalia: Mr. Starkman, don't you see any inconsistency between your insistence upon absolute proximity of causation with respect to the issue we've just been talking about, who can sue because of a nonpredicate act, and your willingness to allow quite extensive causation, not at all proximate, on the very basic issue of whether (d) makes unlawful the consequences of a conspiracy, or just the conspiring?
Jay Starkman: No.
Antonin Scalia: I mean, on that issue, you know, when I put it to you that all it makes unlawful is the conspiring, you say, well, the conspiring, that automatically includes not only the predicate acts, but any acts that are ultimately necessary to conduct the conspiracy. I mean, that's really stretching out the causation from the mere language, to conspire.
Jay Starkman: No, I don't think it is, because we're not focusing then on the language, to conspire. We're focusing on the proximate cause of...
Stephen G. Breyer: I'm still curious, while you have a chance...
Jay Starkman: Yes, sir.
Stephen G. Breyer: why isn't it just like the antitrust laws?
Jay Starkman: Again...
Stephen G. Breyer: I mean, the policy of the antitrust laws are simply, treble damages is a very big gun...
Jay Starkman: Right.
Stephen G. Breyer: and since it's a huge gun, we're going to keep the court's attention fixed on the real harm that flows from this, not side issues, where there are other laws that can help the people. Why isn't that reasoning exactly the same here?
Jay Starkman: Because there's no countervailing policy...
Stephen G. Breyer: I just said what the policy was. The policy is to help people who are hurt by the racketeering, you know, directly. Racketeering is what's bad, the predicate acts, just as the antitrust thing is especially bad, the price-fixing, and side issues of whistleblowers and so forth are dealt by other laws. That would be the policy.
Jay Starkman: I don't think that's accurate, though, because the evil here that we're combatting is not the racketeering activity. That's not what Congress was targeting. Those were already unlawful. What Congress was doing was seeking to eradicate organized crime, and organized crime has no countervailing policy. If I could, I'd like to reserve the rest of my time for rebuttal.
David H. Souter: Mr. Starkman, I'm sorry, but I would like to ask you a question. Going back to your answer to Justice Scalia the last time, let me put it this way. The object of a proximate cause concept is, as you put it, to prevent the ripple effect of causation from going on infinitely, but it seems to me that what you are doing in your argument is avoiding the proximate cause requirement simply by expanding the concept of the conspiracy. We apply proximate cause between the appropriate act and the effect. You're saying, we're going to broaden the class of appropriate acts, and we're going to end up with the same kind, it seems to me, the same breadth of scope for subsection (d) that we would have if we didn't have the proximate cause requirement.
Jay Starkman: No, sir.
David H. Souter: Why isn't that what you're doing?
Jay Starkman: Because proximate cause is the limiting factor. It is not overt act versus predicate act.
David H. Souter: Yes, but I'm saying...  forget the labels, overt, predicate for a minute, just, act that causes injury which is actionable under the statute. I couldn't care less about proximate cause if I have carte blanche to expand the scope of the conspiracy to include all subsidiary acts which may be necessary. In other words, I'm...  you know, I'm getting at the front end what I would otherwise lose at the rear end.
Jay Starkman: It has to be at the heart of the conspiracy, though. It has to be necessary to effect the object, the object, again, being those three first subsections, and the object here was being prevented by Beck. Nobody should have more of an appropriate...  there's no more appropriate person to bring this suit than...
David H. Souter: You're saying, in effect, you...  when you conspire to rob a bank, you conspire to get by the guard, and you're saying, that's pretty darned close to the core of it. That's the nub of your argument.
Jay Starkman: Yes.
Ruth Bader Ginsburg: Yes.
Jay Starkman: That guard...  there's a question about whether the guard's incidental, but if the conspiracy was, we've got to get past that guard also, because he's stopped all of these things, and we're going to take care of him one way or another, then that would be act...
Ruth Bader Ginsburg: Suppose, as a matter of fact, Beck was not all that essential. It would be nice to get rid of him, but we can carry on this conspiracy even if he stays there, after all, look at all the years he was there and didn't even know what was going on, how harmful could he be.
Jay Starkman: Essentiality shouldn't really be the question here, because, for example, what if they could have just intercepted his mail to prevent it from going to the regulators. The test is, though, whether or not it was at the core of the conspiracy, and whether or not it was necessary to effect its object.
William H. Rehnquist: Thank you, Mr. Starkman. Mr. Rosenbaum, we'll hear from you.
Michael M. Rosenbaum: Mr. Chief Justice, if it please the Court: In response to a question posed to Mr. Starkman as to why there should not be RICO-type injury, just as there is in antitrust law, antitrust-type injury, he referred to the Holmes decision and suggested that the...  the Holmes decision, at least in a footnote, stands for the proposition that RICO injury is not necessary. What Mr. Starkman is referring to is...  excuse me...  footnote 15 in the Holmes case, which he misreads in its entirety. Footnote 15 to the Holmes case simply says, based upon Sedima, that we don't require...  the Court in that case said, we don't require the amorphous concept of racketeering-type injury, because that was the holding in Sedima. The holding in Sedima also was, however, pursuant to a 1962(c) substantive claim, that there must be, not racketeering injury, because the term is too amorphous. There must be predicate act injury. So when you read the footnote that Mr. Starkman is referring to in the context of the questions posed to him as to why there shouldn't have to be RICO-type injury, what comes from it, what flows from it is the necessity, at the very least, that there be predicate act injury.
Anthony M. Kennedy: Sedima did say, though, that Congress did not want to have the standing problems that antitrust cases had. Sedima did say that, did it not?
Michael M. Rosenbaum: In a way, Your Honor, but Sedima ultimately stands for the proposition that there must be predicate act-type injury as opposed to the more amorphous concept of racketeering injury.
Stephen G. Breyer: Correct.
Michael M. Rosenbaum: Holmes, which flows from Sedima, comes to a similar conclusion, comes to a...
Stephen G. Breyer: His better argument I think was that the essential nature of RICO is to talk about an enterprise, and the harm involved is a certain kind of a company. The harm involved in the antitrust area is a certain thing that happens in the world, and firing and hiring people is part of the operations of the company. Firing and hiring people is not part of the operations of the price fix insofar as it affects the world, and therefore there's no good analogy for purposes of his argument. I think that was basically his point.
Michael M. Rosenbaum: I think the analysis, the analogue to antitrust, applies even in the situation that you described, Your Honor. Congress delineated no fewer than 50 predicate acts. The obvious intent of Congress by virtue of the written word was to deter the commission of the predicate acts. Justice Scalia asked Mr. Starkman about the difference between the verb, to conspire, as opposed to the noun, the existence of the conspiracy. When you read 1962(d) in context, it simply says, it's unlawful to conspire to violate, in this instance 1962(c), by conducting the affairs of an enterprise through a pattern of racketeering conduct. Reading the two together, and I'll get to 1964(c) in a moment, I think it's clear that the purpose of the unlawful conspiracy must be to conduct the predicate acts in violation of 1962(c) that shaped, the civil remedy that flows from the conspiracy to violate is shaped by the language in 1964(c). That language says, anyone injured by reason of, in this instance a violation of 1962(d), has civil RICO standing. The words, by reason of, cry out for shaping, which is what the Court said in the analogous antitrust case of AGC, Associated General Contractors, which the Court also picked up on, obviously, in Holmes. Those words cry out for shaping, and the Court shaped those words in the antitrust context in Associated General Contractors. The Court thereafter shaped those words in the context of RICO by limiting standing to those proximately injured by the unlawful conduct. What the Court said in Holmes...
Antonin Scalia: But that was under a (c), that was under a (c) claim, right...
Michael M. Rosenbaum: That's correct.
Antonin Scalia: not under a (d) claim.
Michael M. Rosenbaum: That's correct, but the...
Antonin Scalia: I mean, you had to do it under (c). I mean...
Michael M. Rosenbaum: I think you also have to do it under (d), because 1964 (c) is equally as applicable to (d) as it is to (c). Therefore, when the Court decided Holmes, it was really deciding the extent, the limitations of the by-reason-of language in 1964(c), whether it's an (a), a (b), a (c), or a (d) violation.
David H. Souter: But his argument is that it makes no sense, as a practical matter, and hence should make no sense in construing the statute, to think of the...  to conceptualize the conspiracy to commit the predicate acts without including a conspiracy to do at least what is in some close sense necessary to effect those acts. I gave him...  it wasn't his analogy, but I said, you know, you rob the bank, you include in your conspiracy the knocking off the guard to get out, and he's saying that to construe a conspiracy as narrowly as you would have us do is simply unrealistic in the way people conspire to effect an object, and the statute should reflect that common sense. What's your answer to that?
Michael M. Rosenbaum: My answer to that, Your Honor, is that on this record...  on this record, and I think my adversary essentially conceded away his argument when stating that if it is a conspiracy which is interfered with as a result of the termination, you should have standing, but if it's in retaliation for already having blown the whistle...  he made that response to one of the questions...  then obviously the retaliation is not in furtherance of the conspiracy. On this record, that's precisely what occurred here based upon the pleadings that the plaintiff, that the petitioner filed in the lower courts...
Antonin Scalia: Okay, but that's...
David H. Souter: That's your only response to that argument? That in effect is saying, even if he's right, I will still win, and my question is, why isn't he right in his claim that to conspire under (d) must be read as broadly as he says?
Michael M. Rosenbaum: Because, aside from the factual basis on which this case came to this Court, the injury sustained by the whistleblower, even if it was allegedly in furtherance of the conspiracy, are tangential to, are tangential to the principle goal of the conspiracy, which was to commit the predicate acts...
David H. Souter: Yes, but you're...  that...  it seems...  maybe I misunderstand you, but it seems to me that you're in effect just denying the predicate of his argument. You're saying, well, this would not fall within what is necessary to effect the conspiracy. This is too tangential to it. What about his argument that, in fact, the conspiracy has got to include something more than simply the agreement to commit a predicate act, and the more has got to be, whatever is in some close sense, narrow sense necessary to effectively, to commit the predicate acts. What's your answer to that?
Michael M. Rosenbaum: My answer to that lies in the Holmes analysis. While there may be injuries that flow from the conspiracy, and perhaps cause...
David H. Souter: Yes, but that's a proximate cause analysis, and you apply proximate cause analysis once you...  once you have identified the acts which are wrongful. He is saying, we are now at the stage when we're trying to identify the acts that are wrongful, we'll get to proximate cause later, and he's saying, wrongful acts must include those acts which in a narrow sense are necessary to commit the predicates.
Michael M. Rosenbaum: Every wrongful act under this statute does not necessarily result in standing. If I concede for the purposes of argument that the termination was unlawful and was in furtherance of the conspiracy, that does not necessarily lead to the conclusion that a whistleblower has RICO standing.
David H. Souter: Does it...  does your argument assume that there may be...  I think your argument, however, as you're making it now, assumes that there may be some nonpredicate acts which are within the concept of the conspiracy and, hence, actionable. You're saying not everything is. He would agree with you. How about some, and the some that he proposes to be within the concept of the conspiracy are those without which you can't effect your conspiracy.
Michael M. Rosenbaum: I tried to think of examples, prior to coming here today, of where some nonpredicate acts could be the basis of RICO standing, and I, at least within my own thinking, have been unable to come up with any, based upon the underlying theme in my argument that any act not a predicate act, even an act which may be necessary for...
Antonin Scalia: Well, take a simple...  no, you go. I think I know what your problem is, Mr. Rosenbaum. It's the statement you made earlier that these nonpredicate acts have nothing to do with the goal of the conspiracy, which is to commit the predicate acts. That's simply not true. The goal of the conspiracy is not necessarily to commit the predicate acts. Most of the predicate acts are simply means along the end to the goal. Some of the means along the end to that goal, killing the bank guard, happen to be unlawful acts covered by RICO, and therefore they become predicate acts, not because they are the goal of the conspiracy...  they didn't intend to kill...  the object wasn't to kill the guard. It was to get the money in the bank. So whether something is a predicate act or not a predicate act has nothing to do, whether it is central to the object of the conspiracy. Something can be just as central, in fact more central, more essential to the furtherance of the conspiracy than a predicate act is and not be a predicate act.
Michael M. Rosenbaum: That may be so, Justice Scalia, but the answer to the question that I think is being posed to me is whether or not that goal, albeit essential to the completion of the conspiracy, still provides a basis for RICO standing. You can draw inferences from the antitrust analogue that while there is an injury that is essential to the outcome of the conspiracy to violate in this instance, or in the antitrust instances antitrust law, that injury, so says this Court in several cases, is not necessarily compensable under the statutory scheme that the Court is being asked to consider. That was the result in Associated General Contractors, where the very goal of the conspiracy was to injure the labor union. This Court said that we don't look at the necessary intent of the respondents in that case, the defendants in that case, to injure the plaintiff. He may be injured, and he may have other remedies, but at least within the statutory scheme of antitrust law, which this Court essentially looked at in the Holmes case, he doesn't suffer the necessary type of injury, even in the existence of a conspiracy to make it actionable under the Federal statute.
Antonin Scalia: I don't see how you get there through the text, is my problem.
Michael M. Rosenbaum: I'm sorry, Justice...
Antonin Scalia: I don't see how you get there through the text. I mean, it may be a very nice disposition, but how do you get there through the text of 1964 and 1962?
Michael M. Rosenbaum: I get...
Antonin Scalia: 1964 makes a violation of (a), (b), (c), and (d) unlawful. (d), it shall be unlawful to conspire. Once you say that the...  that you have committed the unlawful act of conspiring, and once you acknowledge that the unlawful act of conspiring has as its direct consequence some predicate acts but also some nonpredicate acts, it seems to me you've been injured by a violation of (d).
Michael M. Rosenbaum: I get there this way. I distinguish, firstly, the difference between civil conspiracy, which is just the existence of the agreement which in and of itself is unlawful, whether or not it injures anyone, and a civil conspiracy which requires more than just the existence of a conspiracy, because nobody's injured just by virtue of the existence of the conspiracy. The law of civil conspiracy is that the act that becomes actionable must be a tortious act, and in cases from this Court going back to the late 1800's in the case of Adler, in the case of Nalle, this Court said that the act that gives standing must be the act that...  for which the conspiracy was formed. In an interesting opinion from the D.C. Circuit, Justice Scalia, that...  the Halberstam opinion, there was some interesting language. You were on the panel together with Judge Bork and Judge Wall to issue the opinion. That was the case where a prominent Washington physician was murdered during the course of a burglary. His estate brought suit against a coconspirator who did not participate in the burglary, the wife of the principal culprit.
Antonin Scalia: Cat burglar in suburban Virginia. It was a very prominent case around...
Michael M. Rosenbaum: I thought you might remember it. In any event, what the Court held in that case, similar to what...  to the language in the late 1800 cases, in Adler and Nalle, was that: one, the purpose of the conspiracy, to give standing to a civil plaintiff, that civil plaintiff must be injured essentially by the purpose of the conspiracy, and the Court said in that opinion that the conspiracy laws are essentially on the books, be it common law or statutory, for the purpose of creating vicarious liability Essentially, the statute, the common law said the Court there was for the purpose of assuring that all of those within the umbrella of the wrong, the wrong being the intent to commit the particular tortious act there, the burglary, ergo the murder, are held accountable. Not everybody in the conspiracy is held accountable for every single act done in furtherance of the conspiracy. It depends upon whether the act was foreseeable within the normal realm of what one might expect based upon the particular type of conspiracy. In the instance of a whistleblower, someone who allegedly threatens the viability of the conspiracy, I think that falls outside of that circle.
Antonin Scalia: Okay, but... Just foreseeability, I thought your point was that you're only liable for unlawful acts...
John Paul Stevens: Yes.
Michael M. Rosenbaum: That is my...
Antonin Scalia: that are done in furtherance of the conspiracy.
Michael M. Rosenbaum: That is my point.
Antonin Scalia: Not for foreseeable acts.
Michael M. Rosenbaum: That is my point, Justice...
Antonin Scalia: That does get you where you want to go. Well, I'm not sure it does.
David H. Souter: I mean, it may well be that we would still reverse the judgment below on the basis that Mr. Starkman claims, and you would go back to the court to argue whether in fact there was sufficient...  sufficiently tortious character in what was done here. You might...  he might win this battle, you might lose the war, but I don't think if we accept your view that necessarily disposes of the case at this point.
Stephen G. Breyer: I'm probably missing...  no, go ahead. Is there...  was...  did you answer that? I don't want to...
Michael M. Rosenbaum: No, I haven't. I haven't. The Court a moment ago asked me for a conceptual answer to that question. With the Court's permission, I'd like to answer the question based upon what happened in the Eleventh Circuit, and what happened prior to that based upon this record. I am dealing, obviously, on behalf of my client with respect to this record. There is no issue of Beck being a stop-gap, him being necessary, his elimination being necessary to allow the conspiracy to go forward. On this record, the Eleventh Circuit held that this was a retaliatory discharge. That wasn't its legal conclusion. The way the case was pleaded, if you look at the joint appendix, page 69, paragraphs 49 through roughly 51, that was the allegation of conspiracy. In that allegation of conspiracy, the plaintiff contended, Mr. Beck contended that after he notified the Florida Department of Insurance of alleged wrongdoing, he was discharged. That theme was the theme on the summary judgment motion, Your Honor. That theme was also the theme in the Eleventh Circuit opinion from which the writ of certiorari was granted, and the Eleventh Circuit said that there was a partial, using the Eleventh Circuit's language, there was a partial disclosure, the cat already being out of the bag. Ergo, under the facts as pleaded and as argued in the summary judgment motion, there could not be an act in furtherance, even if there was an unlawful conspiracy, and assuming that the purpose of the conspiracy was to continue undetected, because the detection had already occurred by virtue of Mr. Beck's conduct. He alerted the very agency that had sole jurisdiction over this company to investigate, and did investigate the company, and to determine whether or not there was any improper acts occurring. So on this record...  on this record, as Mr. Starkman said, if, in fact, the whistleblowing had occurred before the termination, which it did, then the act of termination couldn't be in furtherance of the alleged conspiracy. There's another reason, however, why whistleblowing of this sort cannot be and should not be the basis of RICO standing. In listing the predicate acts of 196...  sorry, 1961(1), several of the predicate acts include obstruction of justice. Listed as one of the predicate acts is a violation of 18 U.S.C. section 1513, which is a retaliatory aspect of the obstruction of justice statute. Congress limited conduct to be obstruction of justice, limited it to physical harm to one's person, or harm to tangible personal property. A precursor, a draft precursor of the statute included within it harm to a person's business, or harm to property nontangible in nature, wrongful discharge. That was eliminated from the final draft, which to me reflects the fact that Congress at least had in mind potential claims by whistleblowers who were making obstruction of justice a predicate act, and determined that there were too many difficulties...  too many difficulties in seeking to enforce that because of the multitude of motives that may exist when terminating somebody. Was someone terminated because he really was a threat to criminal proceeding, or the prosecution of a criminal proceeding, or the detection of a criminal proceeding, or was he terminated because of legitimate business reasons.
Antonin Scalia: We really didn't take this case to determine whether, you know, whether Beck was terminated because what he...  of what he had already done, or what he would do. That's not why the case is up here, and I think the point you're now arguing is precluded by the question presented. I mean, the question presented is whether an employee who is terminated for both blowing the whistle on and refusing to participate in a pattern of predicate acts may assert a civil RICO conspiracy claim where he has been injured by an overt act in furtherance of the RICO conspiracy. What you're now arguing to us is that the act was not in furtherance of a RICO conspiracy. That's not why we took the case. Let's assume that it was in furtherance of the RICO conspiracy and get on with the argument on that point.
Michael M. Rosenbaum: I'm arguing, Justice Scalia, that even if it was in furtherance of, he doesn't have standing, a) because this is not, as I said before, a...
Antonin Scalia: Not in furtherance.
Michael M. Rosenbaum: Not...  no, this is not a whistleblower statute. There is no specific remedy in this statute for whistleblowers, as there are in other Federal statutes, environmental statutes, civil rights statutes...  had Congress intended to create that breadth of a remedy...
Antonin Scalia: I thought you were arguing they were punishing him for past conduct.
Michael M. Rosenbaum: From a factual standpoint, yes, but I'm trying to respond to Your Honor's question. Assuming that the facts were different, assuming that he was terminated because he threatened to blow the whistle and was terminated essentially to prevent him from doing so...  not the facts in this case, but I'll assume it for Your Honor's question.
Anthony M. Kennedy: That's fine.
Michael M. Rosenbaum: Even so, he lacks standing, a) because this is not a whistleblower statute...  Congress has enacted whistleblower statutes in other contexts when seeking to enforce violations of other...  other violations of other types of statutes, environmental statutes, civil rights statutes, so on and so forth, so had Congress intended to do that, it certainly knew how and could have.
Ruth Bader Ginsburg: Mr. Rosenbaum, you keep using the term standing, and I think Mr. Starkman did also, I thought what's presented here is did Congress create a civil right of action of this nature, where the act complained of is not a predicate act. That sounds to me like a 12(b)(6) question, is there a claim for relief that can be stated, but you keep using the word standing, and to that extent Mr. Starkman is in agreement with you. Isn't this a question of, did Congress create a private claim for relief?
Michael M. Rosenbaum: Yes, it is, Justice Ginsburg. I think the two go hand-in-glove. I think, as the Court indicated in Holmes, it used a proximate cause analysis to determine whether someone remotely down the linear chain in effect had standing to seek relief under RICO, so I think the two go together. It's a question of nomenclature. I don't think the answer to the question is essential to the outcome.
Sandra Day O'Connor: Mr. Rosenbaum, section 1962(d) I gather has been held to give rise to criminal liability as well as a civil cause of action.
Michael M. Rosenbaum: Absolutely, Justice O'Connor. Absolutely.
Sandra Day O'Connor: And could there be a criminal prosecution brought here without proof of any predicate act?
Michael M. Rosenbaum: Absolutely. Under the criminal concepts of conspiracy, or...
Sandra Day O'Connor: Or overt act...
Michael M. Rosenbaum: Yes.
Sandra Day O'Connor: Or an act...  proof of an overt act would not be required if it were a criminal prosecution.
Michael M. Rosenbaum: That's correct. All that's necessary for a criminal prosecution is proof of the unlawful agreement. However, in the criminal context, which distinguishes section (d), the interpretation of section (d) from the similar...  a similar interpretation in the civil context, the...  if there is an overt act, it may be a completely innocent overt act, but it's demonstrated to the court to show that the conspiracy is at work, so that in a criminal context, a completely innocent overt act...  if it's a mail fraud conspiracy I go out and buy stationery to facilitate the mail fraud.
William H. Rehnquist: But is an overt act required for liability in a criminal conspiracy?
Michael M. Rosenbaum: No.
William H. Rehnquist: An attempt, yes, but not a criminal conspiracy.
Michael M. Rosenbaum: It's not necessary to show, but it's certainly helpful in demonstrating that there is a conspiracy.
Sandra Day O'Connor: But the effect of this is that we have very different rules applicable in the civil action context...
Michael M. Rosenbaum: That's correct...
Sandra Day O'Connor: under the very same statute.
Michael M. Rosenbaum: That's correct, Justice O'Connor, for a very good reason. This is both a criminal and a civil statute. In order to have criminal liability, as I said before, all that's necessary is to show from a criminal standpoint the existence of the conspiracy, but that doesn't provide a civil cause of action, because the mere existence of a conspiracy absent some injury, some tortious conduct directed at someone as a result of the conspiracy doesn't create civil liability because, as this Court has said, as have other, lower courts have said, a conspiracy absent an injury does not provide a civil cause of action.
John Paul Stevens: May I ask one question at this point. You've explained...  say you've convinced me that this doesn't apply to whistleblowers. That's only half of the question presented by the cert petition, which is, he was terminated for both blowing the whistle and refusing to participate in the pattern of activity. And what if one could show that in order to close the factory, which is the object of the objective, you had to fire executive A, who would otherwise have had sufficient strength to prevent the closing of the factory. Why isn't that covered?
Michael M. Rosenbaum: I'm sorry, Justice, why isn't...
John Paul Stevens: Why isn't that covered with...  as an overt act in pursuance of the conspiracy, even if the statute has nothing to do with whistleblowers?
Michael M. Rosenbaum: For the same reason that it's not covered as a basis of whistleblower standing in antitrust cases, which...  in which the Clayton Act uses the same language as 1964(c). That issue has been presented to circuit courts throughout the country, and except for one circuit court, in an opinion which was later limited in the Ninth Circuit, in the Ostrofe case, all of the circuit courts say that the nature of the injury suffered by the whistleblower, even in the context that you gave me, is not compensable based on the statutory scheme, which requires, in an antitrust concept, antitrust injury. All of the courts have said...  all of the courts have said that even though there may be wrongful conduct in terminating the employee because of his threat, that isn't enough to give that person standing. By analogy, by analogy that logic seems applicable here. The only court that has held that such a whistleblower in that situation has standing is the Ninth Circuit, in which Justice Kennedy dissented, and that decision in Ostrofe, which was a Ninth Circuit decision, was then about a year or two later, severely limited to say that it was...  that the case was limited to its facts, and virtually all of the circuits deny standing in an antitrust concept based upon that.
Sandra Day O'Connor: You know, I thought we had gotten over the use of the standing point. Justice Ginsburg directed your attention to whether it's a violation of the statute. I don't see how we're getting into standing,...
Michael M. Rosenbaum: It's a violation of the statute, Justice O'Connor, to unlawfully conspire. In a civil context, absent injury, absent injury, the mere existence of the conspiracy does not provide a civil cause of action. The question therefore becomes, what type of injury must be sustained in order to have a claim under 1962(d). It's our position that the only type of injury that must be sustained where it's a 1962(d) claim related to a 1962(c) violation, the only type of injury is a predicate act injury, because the unlawful conspiracy is formed for the purpose of committing the predicate acts, that there may...
Anthony M. Kennedy: I disagree with that.
Antonin Scalia: That is simply wrong. It is not formed for the purpose of committing the predicate acts. Indeed, some predicate acts may not even be foreseen. It is formed for the purpose of robbing the bank, and the...  now, that larceny, it may be one of the predicate acts, but other predicate acts on the way to it, such as killing the bank guard who unexpectedly shows up to try to prevent...  that's not the object of the conspiracy at all. It's an overt act in furtherance of it, and it happens also to be a racketeering act, but there are other overt acts in furtherance of it which will not be racketeering acts, such as firing people.
Michael M. Rosenbaum: That's correct, Justice Scalia.
Stephen G. Breyer: If that's correct, then...  your language permits your interpretation and his, in my view. Absolutely ambiguous, same as the antitrust laws. Your...  I understood your argument all to the point, the reason is, I would have thought the reason is, it has to be matters of policy. Is it more like the antitrust laws, or isn't it, and he gave a reason why it wasn't, and you know, and what's your response to that?
Michael M. Rosenbaum: My...
Stephen G. Breyer: I can't get anywhere beyond the policy. It either is like the antitrust laws, or it isn't.
Michael M. Rosenbaum: It certainly is like the anti...
Stephen G. Breyer: Because?
Michael M. Rosenbaum: It certainly is like the antitrust laws, because section 4 of the Clayton Act, the language is...
Stephen G. Breyer: No, the language is identical. I just pointed out to you initially, he gave a reason of policy, why the policies would be different, and what I'm trying to get at is your response to his reason of policy.
Michael M. Rosenbaum: If the law is to protect those who are improperly terminated, there are more than adequate State law remedies to protect that. Virtually all, short of all of the States have wrongful discharge statutes, or have wrongful discharge common law that basically says that it's tortious to discharge someone for the type of conduct that's alleged here. To incorporate that State common law into the RICO statute would essentially be to federalize what are otherwise State law claims, so that's my direct answer to your question, Your Honor.
David H. Souter: But that answer leaves open, it seems to me, the basic policy, the broader policy question that Justice Breyer's question to you raises. Let's say in this particular instance you're right, there is no policy reason, perfectly adequate State law. That leaves open the question whether, on the broader sense, the...  we should construe (d) to include nothing but predicate acts, and there may be lots of instances in which the conduct isn't adequately dealt with at State law.
Michael M. Rosenbaum: May I respond to your question? The red light...
William H. Rehnquist: Yes, shortly.
Michael M. Rosenbaum: I think the answer to that question, the policy reasons lies in this Court's opinion in Holmes. Determining whether or not there is injury by reason of, you look at the notions of what's judicially or administratively convenient. Using that test, the Court, as you know, then basically said that there must be direct injury.
William H. Rehnquist: Thank you.
Michael M. Rosenbaum: Thank you, Your Honor.
William H. Rehnquist: Thank you, Mr. Rosenbaum. The case is submitted.


Earl Warren: Number 63, Eugene C. James, Petitioner, versus United States. Mr. Gorman, you may proceed.
Richard E. Gorman: I am Your Honor. Mr. Chief Justice and members of the Court. This prosecution was commenced on December the 13th, 1957 by the return of an indictment in four counts. These counts charged a violation of the Internal Revenue statutes for the years of 1951, 1952 and 1953 under the old Section 145 (b) and in 1954 under the applicable Section number 7201 of the Internal Revenue Code of 1954. The matter was tried to a court on the waiver of a jury. The amounts which were involved totaled approximately $700,000. There was a finding of guilty by the Court and special findings of fact pursuant to the provisions of Rule 23 of the Federal Rules of Criminal Procedure were entered. These findings of fact were most detailed and fulsome and appear in both the brief of the United States and of the brief of the petitioner. In summary, it might be said that the petitioner, Eugene C. James was an official of the International Laundry Workers Union and also was the Secretary Treasurer of Local 46 of the International Laundry Workers Union in Chicago, Illinois. The funds which were the subject matter of this embezzlement which was so found especially by the Court to be an embezzlement were funds which were contributed to a welfare -- a health and welfare organization within the international and within the local union. These funds were especially contributed by management of the various members of the union or for the benefit of the various members of the union and were then contributed to a special fund which was set up in Indianapolis, Indiana for the purpose of purchasing this health and welfare plan for the members of the union. The Mr. James was a Secretary Treasurer of the International Union as well as being a Secretary Treasurer of the Laundry Workers local number 46. The funds were diverted by Mr. James and one Mr. Saperstein who was an agent of the insurance company which was underwriting these health and welfare plan. The moneys were diverted to James and were set up in a special bank account in Chicago, Illinois and then were removed from that bank account by him, by the checks drawn to cash and in some instances checks drawn from his own name. And they, in the bulk, set up the funds which, as I said, were the subject matter of this embezzlement. The Court in its findings of fact held that this money was embezzled money and it was upon this finding of fact that appeal was taken to the Court of Appeals for the Seventh Circuit. In its conclusions of law, the Court held that the lawyers -- that the financial or monitory gains to a taxpayer was a lawfully or unlawfully acquired, constitutes taxable income to the taxpayer in the year in which he had such control over it. That is a practical matter he derived readily realizable economic value from it. It is immaterial whether the receipt of funds by a taxpayer without results from misappropriation, embezzlement, or other lawful or unlawful acts. It is with the Court's opinion that the embezzled funds in this case constituted a gain, which was such a gain that it could be -- it could be considered subject to income tax that we take exception in this petition here. This matter was first before this Court in the case of Internal Revenue Commissioner versus Wilcox, and it is interesting to note that in that case in Judge -- Justice Murphy's decision, in his opinion, he started out with these words, “The sole issue here is whether embezzled money constitutes taxable income to the embezzler under Section 22 (a) of the Internal Revenue Code.” That is the exact same question that we appear before this Court for its decisions here today. And it is also interesting to note that in that case practically the same argument was made by the Government as has been submitted to this Court in the briefs which are submitted here. Since the time of the Wilcox case, no other decision has treated that case as being overruled and, except the decision in this case in the Seventh Circuit, there have been numerous decisions by courts, various circuit courts across the land, in which the decision in the Wilcox case has been distinguished but there is no case except the case in which we appear before Your Honors today in which it has been held that the Wilcox case is no longer controlling in cases concerning embezzled funds. We wish to point out to this Court in answer to the assertions in the Government's brief that there has been no intension and there is no intension on our part to make an argument as to the illegality of the receipt of the funds. Our contention is strictly this; that embezzled funds do not constitute a gain, a taxable gain, to the embezzler, and therefore, they have been held not to be income -- not to be subject to the income tax laws. The difficulty that seems to have arisen in connection with the cases which have been held or heard since the Wilcox decision is been the dicta which has been put forward by the various courts of appeal that is to the effect that the Rutkin case, a case subsequent to Wilcox, which was decided by this Court in 1954, pardon me in 1952, in some way overruled the Wilcox case. To this argument, we can see no basis, because in the Rutkin case itself, in the opinion in the Rutkin case, this Court specifically stated that the Wilcox case was a case of embezzlement and that this Court left that case on its own facts and that the Rutkin case was a case of extortion. Therefore, it would appear that there was a limitation which exists since the time of the Rutkin case but the Rutkin case in no way has extended the doctrine that was set forth in the Wilcox case that embezzled funds are not subject to income tax liability. The James case since the Wilcox case, in our opinion, is the closest situation factually that we have since that case was decided. In both the James case and then the Wilcox case, there was an actual embezzlement. In both the James case and then the Wilcox case, there was an active pursuit of the embezzler by local authorities. In the Wilcox case, the embezzler was pursuit by the local state authorities and was convicted of embezzlement and served time in the penitentiary. And I might say in passing here that in the James case, the same situation exists. There was returned in the State of New Jersey, a indictment charging both James and Saperstein with conspiracy to embezzle that indictment was in effect during the time of the existence of dependency of this case and it is only in this week that as a result of a plea of guilty before the Courts of the State of New Jersey, that the petitioner James here was sentenced to term of one to two years in the penitentiary on the conspiracy to embezzle indictment. All of the lower court decisions, which have been cited by the Government and which have been discussed by the various courts of appeals are in our opinion distinguishable. It might -- they are a fourth set out in our brief in detail and I will not burden the Court with a recitation of the facts in each one of those cases, but it is apparent in each one of those cases that there was an attempt made to come within the doctrine of the Wilcox case, but that that attempt was more of a legal stratagem than something that existed in reality. And in all of those cases, the courts were able to distinguish the Wilcox case from the presentation of facts in those cases and it was held that they were not within the doctrine of the Wilcox case, because they were not in fact embezzlers but they were perpetrators of many other types of offences. It's interesting if one of those cases, however, to point out that in the Prokop case, which was decided in the Seventh Circuit, that the Government itself in its brief, and this is pointed out in our brief on page 41, adopted the distinction and argued the distinction before the Court of Appeals between the Wilcox case and the Rutkin case and pointed out there that the Rutkin case was a case of extortion and that so was the Prokop case, a case of extortion, and that therefore Mrs. Prokop, who also happened to be a union official, could not bring herself within the doctrine of the Wilcox case because she just was in fact plainly not an embezzler.
Earl Warren: Well, in principal, what is the difference between embezzlement and extortion so far in this context?
Richard E. Gorman: The – the -- difference is in the type of the events as we see it and as I think the courts have pointed out. The embezzler, and this Court has recognized and almost all courts have recognized in approximate maybe 90% of the cases, is always detected. The embezzler in many cases is a person who takes funds with the intent to restore them. The embezzler in most every case, when he is caught up with so to speak, restitution has been a part of the penalty that attaches to the crime. Whereas, with extortion we have the -- as the Court said itself, the unlikely act of repudiation of the Act. The extorter takes the money with a clear claim to that money so far as he is concerned as against the whole world and it is unlikely that the extortee would ever pursue him. In embezzlement cases, we almost always have a pursuit; we almost always have a definite and an unconditional obligation to repay, which as this Court pointed out subsequent to the Rutkin decision, in the Alison decision of this Court was a very lively, was a very lively contingency, because in the Alison case this Court pointed out that a great deal of the money, which was embezzled from the Alisons was recovered by them and although that would be --
Earl Warren: Do you think that any court had two cases, one of embezzlement and one of extortion would, under the same circumstances, order restitution from the embezzler and not from the extortionist?
Richard E. Gorman: Oh that well maybe, but the distinction which this Court made, if Your Honor please, was that the likelihood of their being any chance that the extorter would be called to test if that that is very unlikely.
Earl Warren: Well does that change the principle?
Richard E. Gorman: It doesn't change -- it doesn't the principle except that this Court has held that in embezzlement cases there is no taxable gain to the embezzler.
Earl Warren: Well, I understood. You don't think that -- you don't think that Rutkin and Wilcox are in conflict with each other?
Richard E. Gorman: Not at all, and this Court has so stated.
Earl Warren: That they are consistent?
Richard E. Gorman: That they are consistent. Yes sir.
Hugo L. Black: Has there been any efforts made so far as you know that Congress changed at all in this respect?
Richard E. Gorman: There has been, if Your Honor please. And if Your Honor will refer to our brief on page 51, we set forth a bill which has been proposed in Congress to amend the Internal Revenue Code of 1954 to provide that the proceeds of certain crimes shall be included as gross income and it is --
Hugo L. Black: When was that proposed? Who proposed it? Do you know? The treasurer, did the treasurer offer it?
Richard E. Gorman: No. This is a -- this is a bill which was proposed by an individual Congressman, if Your Honor please. I don't have the reference to the Congressman himself here but the number of the bill and it set forth in total appears on page 51 of our brief.
Hugo L. Black: When was Wilcox decided?
Richard E. Gorman: Wilcox was decided in 1946. The Rutkin case was decided in 1952, and the Congress, if we are going to argue that the Congress intended that this particular source of funds is to be considered a taxable gain, that Congress have in its power in 1954 when there was a broad revision of the Internal Revenue Code, the opportunity to insert this which wasn't done. There is no congressional intent present as we can see to alter the Internal Revenue Code and it would appear so far as we are concerned that the Congress accepted the authority of this Court's decision in the Wilcox case. The -- the nub of the whole case comes down to just one question insofar as we are concerned and that is what tax -- what constitutes a taxable gain and this Court has held that the proceeds of embezzlement do not constitute a taxable gain. We are not belaboring the fact that it might be a source of funds from an illegal source. The Government spends a great deal of time in arguing that. We don't contend that. Our sole contention is that the Wilcox case is still in full force in effect that the effect of the Wilcox case is to a whole that embezzled funds are not taxable. I would like to reserve the rest of my time for reply.
Earl Warren: You may. Mr. Heffron.
Howard A. Heffron: Mr. Chief Justice, please the Court. As we understand the petitioner's position here, it comes down to an assertion that unlawful gains of every character are taxable because the Rutkin case, in effect, held them to be taxable the bribes, the graft paid, the kickbacks, the gambling gains, the proceeds from illicit liquor, the whole long catalog of illicit games which have been held taxable, petitioner has no quarrel with, but he says that somehow this Court has carve or should carve in this case a privilege sanctuary for the embezzler. The embezzler should be free from tax while all the other recipients of their illicit gains must pay the income tax.
William O. Douglas: One of the things that bothers me about this particular case is how a person, who makes a tax return on the basis on which this Court has said the return is proper, can be convicted willful default, willful evasion, willful avoidance, because if that Wilcox case have never been overruled, it was distinguished whether right or wrong it still there as subsisting authority and man follows it, why would a man who follows it -- how he could end up in prison, I don't understand that?
Howard A. Heffron: There is no contention along those lines made here by the petitioner. He does not forward that argument.
William O. Douglas: I didn't find it in this brief but I'm asking you.
Howard A. Heffron: Well, there is nothing in the record to show that he filed his returns on the basis of the Wilcox case. There was no evidence offered below and none appears to show any kind of reliance upon that decision. And so there was no issue tendered for the District Court to reach on that point. No evidence at all was offered dealing with it, no showing at all was made of reliance. If that showing had been made, we might have a different question.
William O. Douglas: Well, but if there -- that this particular -- Wilcox isn't cloudy it's a decision it's there and it's been -- it's been propped up as others decisions have combined. I can see how you could say on an assessment to well, this is -- I think it should be overruled, we are going to get it, but how you can send that man to prison for making a return basis of which we have sustained in our decision as still beyond, I don't care whether the point is raised or not.
Howard A. Heffron: Well, not only is the point not raised, there's no showing that these tax returns were filed and prepared on the basis of the Wilcox decision, as a matter of fact three of the returns for the four years in issue were filed subsequent to this Court's decision in the Rutkin case.
Hugo L. Black: I presume though you were saying the Government on that side that he is supposed to know the law. He is supposed to know I guess the Wilcox case that was here before 14 years the Court had it up several times and left it alone.
Howard A. Heffron: Well, we would say that on the evidence that District Court properly found that he intended to deprive -- to fraud the Government here. He intended to evade the tax. If the tax was due, he intended to evade it when he filed his return. The District Court had ample evidence to render that finding more than adequate evidence of the type referred to by this Court in the Spies case.
Hugo L. Black: Well, undoubtedly they had enough evidence, I suppose, to show that he embezzled this and had not reported this embezzlement funds, but there would also but behind that, at least were usually accepted the Congress changes it, he didn't have to report it 14 years ago.
Howard A. Heffron: Well, our position would be on that that even if he had shown at the trial, and again I want to emphasize, he offered no evidence whatever dealing with reliance under Wilcox decision and in fact three of the tax returns here were filed post Rutkin, but in any event even he had shown --
Hugo L. Black: But Rutkin didn't -- did Rutkin overrule that?
Howard A. Heffron: In our view it did.
Hugo L. Black: Did it say so?
Howard A. Heffron: It did not say so explicitly, but in our view, it's an inescapable conclusion that we derived from the reasoning of the Rutkin decision. The Rutkin case could not have been decided the way it was decided had the Wilcox criteria for taxable gains been applied.
Hugo L. Black: But I think I argued that.
Felix Frankfurter: (Inaudible) suggestion, five people escaped what you said couldn't be escaped?
Howard A. Heffron: Well, I think the Court in the Rutkin case resorted to the technique of overruling a decision by distinguishing it and we say here that the Wilcox rule has with it a way that the Rutkin decision administered the mortal wound and since then the lower courts have chipped away at it and that really there is nothing left of the Wilcox rule at all, and we're here asking this Court to declare explicitly that which has been implicit and in fact applied by the lower courts, ever since the Rutkin case and the rule applied by the Rutkin case itself.
William O. Douglas: You want us to do it retroactively not respectively.
John M. Harlan II: Is that a suggestion that was drawn by (Inaudible) --
Howard A. Heffron: Well, --
John M. Harlan II: -- (Inaudible)?
Howard A. Heffron: Well, the way it has turn out it means Mr. Wilcox specifically.
Potter Stewart: How do you mean the way it's turned out, where?
Howard A. Heffron: Well, we say this first that the legal criteria for the determination of taxable income which were set forth by the Court in the Rutkin case were really an embodiment of the basic principles of determining gross income which this Court has declared in many of the earlier income tax cases, Corliss and Bowers, Helvering and Hallock, the Horst case, Lucas and Earl, the basic principles for the determination of gross income. In our view, Rutkin simply reiterated them and applied them in the context of unlawful gains there, but the basic principle which the Rutkin decision applied admits of no exception for embezzlement or for any other illicit gains providing the -- those criteria are met, that is the economic benefit.
Potter Stewart: Plenary right and so on.
Howard A. Heffron: The basis for taxation exists and the lower courts have so construed it ever since --
Potter Stewart: Well, it's not universally true, is it, the Dix case in the Second Circuit?
Howard A. Heffron: Well, I was going to say where the exception of the Dix case, as a matter of fact Chief Judge Clark who participated in Bruswitz case but not the Dix case stated that in his view Rutkin was diametrically opposed to the Wilcox case and that the circuit courts who had -- which had been distinguishing Wilcox were calling at the process of distinguishing it out of deference to this Court but that in fact they had concluded as they logically they could conclude that the Rutkin case had overruled Wilcox. In our view, there is and can be no distinction between embezzlement and extortion.
Hugo L. Black: But the court proved it. Here's what the court said, “We do not reach in this case the factual situation involved in Commissioner versus Wilcox. There embezzled funds were held not to constitute taxable income to the embezzler under 22 (a). The issue here is whether money extorted from a victim with his consent induced solely by harassing demands and threats of violence is included in the definition of gross income.” Now the name is different. The names -- and the other one was Wilcox and the name here is James but they are both embezzler.
Howard A. Heffron: They are both --
Hugo L. Black: Perhaps it seems to me like it's treating the opinion of the Court was to get respect if I may say so?
Howard A. Heffron: Well, we say --
Hugo L. Black: The court intended thereby to leave -- overrule Wilcox case.
Howard A. Heffron: We say that the legal criteria in Wilcox and Rutkin cannot be reconciled.
Hugo L. Black: You say they should've overruled.
Howard A. Heffron: No, we say that the court, in effect, overruled it. The court distinguished Wilcox and at the same time adopted legal criteria which resulted and in effect overruling the Wilcox case, because if the criteria of the Rutkin case were to be applied to an embezzlement situation, the conclusion would be what we submit the conclusion must be here that is that it is taxable income.
Hugo L. Black: You're adopting my argument in dissentient in part, are you not? I think I said so.
Howard A. Heffron: I was about to quote –-
Hugo L. Black: I think I said so.
Howard A. Heffron: --that reference to Your Honor. Your Honor has sentenced in the --
Hugo L. Black: (Inaudible) that close the case.
Howard A. Heffron: Well, I think that's right. The dissenters in the Rutkin case recognized explicitly that the court in its majority opinion was rejecting the reasoning of the Wilcox decision. Now, that process has continued in the lower courts, the rule of Rutkin which in our view is no more than an affirmation of the basic principles of income taxation in the earlier cases referred to in our brief. The lower courts have continued in that screamed of authority.
Speaker: (Inaudible)
Howard A. Heffron: Well, there been a host of a --
Speaker: (Inaudible)
Howard A. Heffron: There have been -- since Rutkin there have been many cases involving situations which, in our view, Wilcox with the law the result would -- the conclusion would follow that there was no income. In all of those cases the Government urged that under Rutkin, the proceeds were income in most of those cases the taxpayers asserted that this was embezzlement situation and under Wilcox they would go free or that they did not require to report those proceeds. Government, in the trade, uniformly took the position that Rutkin was the law and that under Rutkin criteria the proceeds in question, whether they are from embezzlement, from kickbacks, from commercial bribes or from any source, whatever, that under the Rutkin criteria the conclusion must follow that taxable income existed.
Speaker: What factors propose to develop that (Inaudible)?
Howard A. Heffron: Well, in our view he's been entitled to a deduction. He should be given no more benefit in that regard than this Court has already declared for the honest taxpayer. When the honest taxpayer receives salable gains, he must report them in income when he receives them. He is thereafter, if then determined that he must repay them, entitled to a deduction. We say here that the embezzler is entitled to no better treatment from this Court that he must report to proceeds when he receives them, when and if he pays them back and I might add parenthetically that there are all the three quarters of a million dollars embezzled here of the taxpayer settled for $13,000, he repaid 13 somewhat thousand dollars what became of over $700,000 and nobody --
Hugo L. Black: Does that have anything do to the tax question?
Howard A. Heffron: It has to do with the tax question and that is our basic position that the man who receives illicit gain should be treated and precisely the same way as the man who receives gains from an honest source.
Hugo L. Black: Some several years ago, we had a question of base law in (Inaudible). The Government at that time insisted that while the reasoning – the reasoning just didn't justify the distinction. The Government I think took a little different position in connection with that case, isn't it, than you are taking in this one?
Howard A. Heffron: Well, I'm not familiar with the details of that litigation Your Honor. We say here that the Wilcox rule is a judicially declared rule.
Hugo L. Black: So, what was the other?
Howard A. Heffron: And we are here --
Hugo L. Black: In reference to the exemption of baseball from the antitrust laws.
Howard A. Heffron: There is no -- in our view there is no basis in the bare statutory language here to distinguish licit and illicit gains to the --
Speaker: (Inaudible)
Howard A. Heffron: Well, I think without a specific factual example I would have difficulty responding in the generality of cases I would --
Speaker: But the point (Inaudible) in the general concept.
Howard A. Heffron: I would say that if the -- is that which is acquired is treated by the taxpayer as his own so that he can -- he has such control all over it that he derived as the readily realizable economic benefit that he would receive a gain within the meaning of the Code.
William O. Douglas: Suppose the man borrows $5,000 with fraudulent purpose of not ever repaying it. Is that a gain?
Howard A. Heffron: I wouldn't think that would be a gain because under those circumstances, he's treating the proceeds as his own and he has that control and dominion from which he derives the economic benefit. He has an accession to wealth. This Court in Glenshaw Glass case when it was faced with the argument that the proceeds there the windfall didn't derive from conventional labor or capital, and therefore, could not constitute income. And this Court said, we're not -- the question of income is not controlled by labels or by sources, it is a question of economic benefit, if the taxpayer has an accession to wealth. As we say the embezzler clearly has -- he has income.
Hugo L. Black: (Inaudible)
Howard A. Heffron: He has income.
Speaker: (Inaudible) wouldn't we have to show (Inaudible) on the other, indeed.
Howard A. Heffron: If Your Honor is referring to case of the embezzler, it's our position essentially the embezzler does not keep books.
Speaker: No, but I say in this the question is he owes as the money that is embezzled, (Inaudible) he has obtained it by extortion, isn't that right?
Howard A. Heffron: He owes it --
Felix Frankfurter: He doesn't (Inaudible).
Howard A. Heffron: He -- he owes it in a different way if Your Honor please, he owes it by operation of law. He owes it by the imposition of a legal -- of an obligation by law which he does not acknowledge to which he does not agree. It's not a consensual transaction. We would draw the same distinction this Court ruled in the Healy case where it was faced with an argument by a taxpayer that because the taxpayer held the funds on a constructive trust and there he had received them by a conveyance and fraud of predators, because he held the funds on a constructive trust, he should be treated as an express trustee and clearly an express trustee does not realized personal income when he receives trust proceeds. Well, this Court held in the unanimous opinion the case of the constructive trustee is clearly different from the case of the express trustee. The express trustee does not retain the proceeds for his own use and benefit. He does not realize the accession to wealth. On the other hand the constructive trustee simply asserts that the property is his own, he realizes the benefit, he claims the control. The constructive just a legal fiction, which cannot control the economic basis for the finding of gain under the Internal Revenue Code.
Speaker: (Inaudible) and I think the customers whether or not (Inaudible) gain more profits or income. Now under the rule of the just and generous whether it is not have to be read as gain, profits, or other income, something that was him and he had a right, entitled to and the right to keep.
Howard A. Heffron: No. This Court has held in many of the earlier cases that the common law concepts of title and the technicalities of common law property concepts do not control. Taxpayers have been held to have realized income for proceeds which never came into their hands where they are assigned them in anticipation of ever receiving them. Taxpayers have been held to realize income where they turnover funds in trust and where they could receive no income from the trust, nevertheless that those payments paid out of the trust have been held to be income to the taxpayer. We say those are all in the general line of the cases which hold that the question of gains or income is a practical one based upon economic benefit to the taxpayer. The code itself --
Potter Stewart: Mr. Heffron, you stated told us earlier I think that if this man were to make a restitution that you can see he'd be entitled to a deduction in the year that he made restitution on, and what section of the Code would that be?
Howard A. Heffron: Well, --
Potter Stewart: Well, I don't care about the section but I just want to --
Howard A. Heffron: It is a general principle that amounts which have been included in income when they -- thereafter restored, one is entitled to an offsetting deduction. This Court so held in the Lewis case where a man received salary payments which were erroneously computed. He received too much. He was held there that he must nevertheless return those excessive payments as income in the year of receipt and that when he returns those funds, he was entitled to a deduction in the year of repayment.
Hugo L. Black: (Inaudible).
Howard A. Heffron: We would say in that case, there was an offsetting transaction. I mean the annual account -- assuming that this was with the same annual accounting period, it would be an offsetting transaction. There would be no net income realized in that transaction. He would not have an accession to wealth which is the basic formulation that we rely upon here.
Hugo L. Black: Do you mean that the man can get a deduction for a receipt, because he was forced to pay back the money he stole?
Howard A. Heffron: He can be granted such a deduction since we're requiring reported an income we feel that he's entitled to a --
Hugo L. Black: What statute -- well, I know how you feel but what statute? What rules have there been here before to set the man to take the deduction on account law break?
Howard A. Heffron: I think that is this Court has held and the lower courts have held that moral turpitude is not a touchstone of taxability.
Hugo L. Black: You're talking about deduction. I'm not sure, maybe it has been done but I was asking to know if it could be done.
Howard A. Heffron: Well, this Court decided the Sullivan case whereas my recollection is it was rents paid in connection with an illegal gambling enterprise. This Court held those rents were deductible.
Felix Frankfurter: Mr. Heffron, I'm curious does it help either side or it doesn't even help me, but I'm curious to know whether you think that Wilcox was decided (Inaudible) sense later, but we saw under the powerful impact of the moral displeasure of having Uncle Sam profits through a crime, but that's – the high standard morality wore off by the (Inaudible).
Howard A. Heffron: Your Honor, by the time of Rutkin?
Felix Frankfurter: Rutkin, yes. In Wilcox and Rutkin, do you think there was a crime in our moral sense of admit?
Howard A. Heffron: No, if Your Honor please, we think that the Wilcox case was a departure from established fundamental principle from that --
Felix Frankfurter: But I want to know why? I looked up with the briefs and I recall counsel, do you think we were seduced by the moral impact that the man made a promise and that wore off by the time of Rutkin later on?
Howard A. Heffron: I just -- I'm not familiar with the arguments which were made to the Court in those cases. Our position has been the Court in the Wilcox case entered upon a legal standard which represented a departure from these fundamental principles and that when the matter came before the Court again in Rutkin, it recognized that.
Felix Frankfurter: So there's nothing to do with morality. That is taxation really, the profiteers, squimishers, if I may, (Inaudible).
Howard A. Heffron: That is our position here. This is a self reassessment system and we think that all taxpayers are entitled to know that they are being treated similarly across the broad to the man in the street, Mr. James who has over $700,000 unaccounted for realized income or gain in the very practical sense he realized that in the popular sense which Mr. Justice Homes had said these words should be construed. He realized income and it's our position that across the board when the basic tasks of economic benefit are met that the result is taxable income.
Hugo L. Black: Mr. Heffron, I want to ask you. Has the treasury made any comfort at all if the Wilcox case is changed?
Howard A. Heffron: The treasury has -- through the process --
Hugo L. Black: I'm not -- I'm not talking has it gone to lower courts to do, has it gone to Congress which had power to you.
Howard A. Heffron: No, the treasury has not gone to Congress. It has chosen the litigation route, and after the Rutkin case the treasury believed that in fact it had succeeded and is now asking the Court to declare and make explicit what we believe has been in fact the case ever since the Rutkin decision that is that Wilcox is no longer law and that embezzled funds are income just as any of the unlawful gains or honest gains.
Potter Stewart: Mr. Heffron, you don't think that the facts in this case are distinguishable in the Wilcox manner?
Howard A. Heffron: No, there's a finding of embezzlement here. We think the case squarely present issue.
Potter Stewart: This isn't Wilcox at all.
Earl Warren: Mr. Gorman.
Richard E. Gorman: Just a couple of brief in my -- if Your Honors please. As been pointed out, I don't think and I know that this Court won't take into consideration the amounts of money that are concerned here. It's certainly, if I shot the conscience of some people that $700,000 is involved here, but the question is here, it has been pointed out by the Court, what is the law and what was the law at the time that these tax returns were filed. The question of willfulness as that has been pointed out here doesn't have to be pleaded. We don't have to do anything in the defense of a case such as this but accept the law as the law is. I must take exception to one other statement of counsel that many cases have held have overruled the Wilcox case. Those cases have distinguished the Wilcox case not overruled the Wilcox case.
Potter Stewart: They generally held that the facts didn't show embezzlement?
Richard E. Gorman: That is correct Your Honor please. There is no case except the case that is presently before this Court so far as we know that it held that embezzled funds as such are taxable. And with that, we leave it to the Court. Thank you.