Opinion ID: 219831
Heading Depth: 2
Heading Rank: 1

Heading: The Scope of Section 1962(a)

Text: In enacting RICO, Congress was concerned about, inter alia, damage to the nation's free enterprise system by persons or entities infiltrating or operating otherwise legitimate businesses by means of criminal activities. The statement of findings and purpose that prefaces the Organized Crime Control Act of 1970 (OCCA), of which RICO was Title IX, states, inter alia, that organized crime activities in the United States weaken the stability of the Nation's economic system, harm innocent investors and competing organizations, interfere with free competition, seriously burden interstate and foreign commerce, threaten the domestic security, and undermine the general welfare of the Nation and its citizens. Pub.L. 91-452, 84 Stat. 922-23 (1970) (emphasis added). RICO provisions such as § 1962(a) reflect Congress's concern about the control of otherwise legitimate business concerns acquired by the sub rosa investment of profits acquired from illegal ventures, S.Rep. No. 91-617, at 77 (1969); see id. (infiltration of organized crime into legitimate businesses portends the effective[] eliminat[ion] of [c]ompetitors). When organized crime infiltrates a legitimate business, its whole method of operation counters our theories of free competition and acts as an illegal restraint of trade. Whether a business is purchased from funds derived from its many unlawful activities, or whether it is acquired by extortion and violence, its aim is monopoly.... The vast economic power concentrated in this giant criminal conglomerate constitutes a dire threat to the proper functioning of our economic system. 116 Cong. Rec. 602 (1970) (statement of Sen. Hruska). See also S.Rep. No. 91-617, at 78 (The syndicate-owned business, financed by illegal revenues and operated outside the rules of fair competition of the American marketplace, cannot be tolerated in a system of free enterprise. (internal quotation marks omitted)); id. at 81 (describing civil remedies intended to attack, inter alia, corruption in the acquisition or operation of business). The prohibitions set out in RICO are not limited to the activities of organized crime but rather extend to any person or entity engaging in a pattern of racketeering activity as that term is defined in 18 U.S.C. § 1961(5). See, e.g., H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 238, 249, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989). To be sure, Congress focused on, and the examples used in the debates and reports to illustrate the Act's operation concern, the predations of mobsters. Organized crime was without a doubt Congress' major target.... Id. at 245, 109 S.Ct. 2893. But the capacious language Congress used in defining such terms as pattern of racketeering activity is not limited to conduct by entities having a nexus with organized crime, and the legislative history shows that Congress knew what it was doing when it adopted commodious language capable of extending beyond organized crime. Id. at 246, 109 S.Ct. 2893; see, e.g., id. at 247, 109 S.Ct. 2893 (`organized crime' simply `a shorthand method of referring to a large and varying group of individual criminal offenses committed in diverse circumstances,' not a precise concept (quoting 116 Cong. Rec. 35344 (1970) (statement of Rep. Poff))). Among its civil remedies, RICO provides a private right of action for treble damages for a person injured in his business or property by reason of a violation of section 1962. 18 U.S.C. § 1964(c). Subsection (a) of § 1962  the remaining federal-law focus of the present litigation  provides, in pertinent part, that [i]t shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity ... to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in ... the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. 18 U.S.C. § 1962(a) (emphases added). RICO defines enterprise to include[] any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity. Id. § 1961(4). For the sake of brevity, we will refer to an enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce, id. § 1962(a), as a commerce-affecting enterprise. Subsection (c) of § 1962, which was the principal focus of Ideal I, II, and III, makes it unlawful for any person employed by or associated with a commerce-affecting enterprise to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity. 18 U.S.C. § 1962(c). Thus, the compensable injury flowing from a violation of that provision `necessarily is the harm caused by predicate acts sufficiently related to constitute a pattern.' Ideal III, 547 U.S. at 457, 126 S.Ct. 1991 (quoting Sedima, 473 U.S. at 497, 105 S.Ct. 3275) (emphasis ours). Subsection (a), in contrast, focuses the inquiry on conduct different from the conduct constituting the pattern of racketeering activity. After there have been sufficient predicate acts to constitute such a pattern, what is forbidden by subsection (a) is the investment or use of the proceeds of that activity to establish or operate a commerce-affecting enterprise. Thus, the plaintiff asserting a civil RICO claim based on a violation of subsection (a) must show injury caused not by the pattern of racketeering activity itself, but rather by the use or investment of the proceeds of that activity, see, e.g., Ouaknine v. MacFarlane, 897 F.2d 75, 82-83 (2d Cir.1990). Further, the numerous disjuncts in § 1962(a) create a broad prohibition. Assuming a pattern of racketeering activity and a commerce-affecting enterprise, both the funds derived directly or indirectly from such activity and the proceeds of such income are tainted: no part of the income, or the proceeds of such income may lawfully be use[d] or invest[ed], whether directly or indirectly, in the establishment or operation of that enterprise. Thus, although the injury alleged to result from the violation of subsection (a)  as from the violation of any other subsection of § 1962  must be sufficiently directly related to the violation to meet the legal standard of proximate cause implied in § 1964(c), the many disjuncts in § 1962(a) mean that any of dozens of combinations or permutations will constitute a violation of that section. And RICO is to be read broadly. This is the lesson not only of Congress' self-consciously expansive language and overall approach, see United States v. Turkette, 452 U.S. 576, 586-587 [101 S.Ct. 2524, 69 L.Ed.2d 246] (1981), but also of its express admonition that RICO is to be liberally construed to effectuate its remedial purposes, Pub.L. 91-452, § 904(a), 84 Stat. 947. The statute's remedial purposes are nowhere more evident than in the provision of a private action for those injured by racketeering activity. Sedima, 473 U.S. at 497-98, 105 S.Ct. 3275 (emphases added); see id. at 491 n. 10, 105 S.Ct. 3275 ([I]f Congress' liberal-construction mandate is to be applied anywhere, it is in § 1964, where RICO's remedial purposes are most evident.) Given the breadth with which RICO is to be interpreted, we reject for two reasons defendants' contention that § 1962(a)'s prohibition against the use or investment of racketeering activity proceeds is inapplicable to their alleged use of pattern-of-racketeering-activity proceeds to open National's Bronx facility on the theory that that section does not apply when such proceeds are simply used or reinvested in the same entity that engaged in the racketeering activity. First, defendants' factual premise is flawed; they did not merely reinvest in the same entity, Rather, the Anzas created a new company, Easton Corporation, to purchase the Bronx property for the new National store. Second, even if Congress did not intend subsection (a)'s prohibition to reach the use of RICO tainted funds by the RICO violator in its own ongoing operation, the legislative history does not permit the inference that Congress meant to allow such entities, with impunity, to use those funds to branch out to new locations. Finally, in keeping with the proper recognition of RICO's breadth, we note that income as used in § 1962(a) was doubtless not intended by Congress to be interpreted restrictively to exclude moneys unlawfully retained by means of racketeering activity. In describing the RICO sections of the bill that became the OCCA, the report of the Judiciary Committee of the House of Representatives stated that [s]ubsection (a) makes it unlawful to invest funds derived from a pattern of racketeering activity, as defined in section 1961(1), H.R.Rep. No. 91-1549, at 57, reprinted in 1970 U.S.Code Cong. & Admin. News 4007, 4033 (emphasis added). We can discern no meaningful distinction, for RICO purposes, between income fraudulently acquired and income fraudulently retained; both result in funds not otherwise available but for the fraud. Thus we view moneys unlawfully saved or withheld by means of a pattern of mail and wire frauds, as is alleged in the present case, as falling within the meaning of § 1962(a)'s reference to income. Nor have defendants urged a narrower interpretation. In sum, with respect to Ideal's claim under § 1962(c), [t]he proper referent of the proximate-cause analysis [was the] alleged practice of conducting National's business through a pattern of mail and wire fraud in connection with its tax obligations, defrauding the State. Ideal III, 547 U.S. at 458, 126 S.Ct. 1991. Given this frame of reference, Ideal's injury, i.e., loss of sales to National, was attenuated, Id. at 459, 126 S.Ct. 1991, because the direct victim of that activity was the State of New York. But [p]roximate cause requires only `some direct relation between the injury asserted and the injurious conduct alleged,' and excludes only those `link[s] that are too remote, purely contingent, or indirect.' Staub v. Proctor Hospital, ___ U.S. ___, 131 S.Ct. 1186, 1192, 179 L.Ed.2d 144 (2011) (quoting Hemi Group, LLC v. City of New York, ___ U.S. ___, 130 S.Ct. 983, 989, 175 L.Ed.2d 943 (2010) ( Hemi )). With respect to the claim under § 1962(a), the proper referent in the proximate-cause analysis is defendants' use or invest[ment] of the funds, derived directly or indirectly from the alleged pattern of racketeering activity, to establish or operate the National facility in the Bronx. With these principles in mind, we turn to the matter of whether Ideal's Complaint was properly dismissed on the ground that it failed to plead, or that Ideal failed to adduce evidence, that defendants' investment or use of funds derived from the pattern of mail and wire frauds was a proximate cause of Ideal's alleged injury at its Bronx store.