of

Professor G. Robert Blakey

Notre Dame Law School

Senate Judiciary Committee

RICO and Tobacco

September 5, 2001

My name is G. Robert Blakey.
I am the William J. and Dorothy O'Neill Professor of Law at the Notre Dame Law School.
I understand that the Committee wants me to discuss the federal racketeering statute, 18 U.S.C. §1961 et. seq. ("RICO"), in the context of the Government's civil suit under RICO against the tobacco industry in United States v. Philip Morris, Inc.,, 116 F. Supp. 2d 131 (D.C. D.C. 2000) ( "Philip Morris"), litigation that I recommended 1999 to the Department that it undertake.
Candor requires that I acknowledge, before making this statement, that I represented Florida, Texas, and several other states, in their successful litigation against the industry; I represented several Taft-Harley Funds in their unsuccessful litigation against the industry;and, I represented the Government of the Republic of Guatemala in its unsuccessful suit against the industry.

Basic Facts of Fraud and Disease: A Primer
Cigarette smoking is the "most important preventable cause of...premature mortality in the United States...." "[T]obacco-related diseases are the most common disorders found among hospitalized populations and disproportionally affects low-income medically indigent [individuals]." Smoking related disease cost upward 50 billion dollars each year.
That this impact is brought about by a decades old illicit conspiracy, which was only recently unmasked, is intolerable.
It was intolerable when I recommended this litigation to the Department in 1999.
It is intolerable today.
After a meeting in the Plaza Hotel in New York City on December 15, 1953, called to develop a public relations response to a Sloan-Kettering Institute report that established cigarette smoke condensate as a cause of cancer in mice, the tobacco industry began its conspiracy to mislead, deceive, and confuse smokers, physicians, health care payers, and government officials about nicotine, its lethal and addictive properties.
The industry produces the only consumer product that injures or kills when used as directed.
The industry manipulates the nicotine content in cigarettes.
Despite its own scientific studies telling it otherwise for decades, the industry misrepresented, concealed, and suppressed information about the health consequences of smoking and the addictive character of nicotine.
During this period of time, the industry engaged in deceptive practices relating to "light" cigarettes, and it illicitly restrained the market in less dangerous cigarettes.
Even though it is illegal to sell cigarettes to children in fifty states, the industry targets children to replace smokers who die. The model who portrayed the "Marlboro Man" testified before Congress: "I was clearly told that young people were the market that we were going after."
Almost 3,000 children begin smoking each day, about 1 million a year. One out of three of these children will die of smoking related diseases.
More than 400,000 people die each year from smoking related diseases, more than auto accidents, AIDS, alcohol use, illicit drugs, homicides, suicides, and fires combined. Smoking related causes account for one out of five deaths each year. Second-hand smoke kills another 53,000 people. Approximately 85% of lung cancer is smoking related; it surpasses breast cancer for a cause of death among women; and it accounts for 30% of cancer deaths.
Repeatedly, company executives lied to Congress and the Executive Branch about tobacco. James W. Johnston, the chief executive officer of R.J.R Tobacco., for example, told Congress that "smoking is no more addictive than coffee, tea or Twinkies."
The cigarette industry is the most profitable in the United States; its profit margins run as high as 30%.
Internal reports in Philip Morris describe the delivery system of nicotine:
The cigarette should be conceived not as a product but a package. The product is nicotine....Think of the cigarette pack as a storage container for a day's supply of nicotine....Think of the cigarette as a dispenser of a dose unit of nicotine.

Approximately 82% of daily smokers in the United States began before the age of 18; 62% before 16, 38% before the age of 14. Approximately 46 million adults in the United States are current cigarette smokers. A person who does not begin smoking in childhood or adolescence is unlikely ever to begin. Approximately, 66% of teenagers who smoke say they want to quit; 51% who try and make a serious effort fail. Children and adolescents buy the most heavily advertised cigarettes. Adults tend to buy more generic or value-based cigarettes.
The illicit tobacco company conspiracy was designed, supervised and implemented by lawyers working in concert for the tobacco companies.
Tobacco may be a legal drug when it is sold to adults, but it is illegal, addictive, and lethal when it is pushed on children.
That this conduct continues is intolerable in a free society.
RICO:Introduction
In 1970, Congress enacted the Organized Crime Control Act, Title IX of which is known as "RICO." Title IX was drafted to deal with enterprise criminality, that is, "patterns" of violence, the provision of illegal goods and services, corruption in the labor or management relations, corruption in government, and criminal fraud by, through, or against various types of licit or illicit enterprises. Because Congress found that the sanctions and remedies available were unnecessarily limited in scope and impact, it enacted RICO to provide enhanced criminal and civil sanctions, including fines, imprisonment, forfeiture, injunctions, and treble damage relief for persons injured in their business or property by reason of a violation of the statute.
The legislative history of RICO clearly demonstrates that "it was intended to provide new weapons of unprecedented scope for an assault upon organized crime and its economic roots." Russello v. United States, 464 U.S. 16, 26 (1983). The major purpose of RICO was to address the "infiltration of legitimate business by organized crime," but the statute was designed to reach both "illegitimate" and "legitimate" enterprises. United States v. Turkette, 452 U.S. 576, 590-91 (1981). As the Supreme Court observes, the idea that RICO is limited to "organized crime"—however defined--- "finds no support in the Act's text, and is at odds with the tenor of its legislative history." H.J. Inc. v. Northwestern Bell Telephone Co. 492 U.S. 229, 244 (1988). Accordingly, RICO fits well into a pattern of legislation enacted by Congress over the years as general reform, aimed at a specific target, but not limited to the specific target.
I. Liberal Construction
Congress directed that RICO be liberally construed to effectuate its remedial purposes. If RICO's language is plain, it controls. NOW v. Scheidler, 510 U.S. 249, 261-62 (1994); Turkette, 452 U.S. at 587 n.10; Russello 464 U.S. at 29; Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 239 (1987); United States v. Monsanto, 491 U.S. 600, 606 (1989); H.J. Inc., 492 U.S. at 249. If its language, syntax, or context is ambiguous, the construction that would effectuate its remedial purposes by providing "enhanced sanctions and new remedies" is to be adopted. Turkette, 452 U.S. at 587-88, 593; Russello, 464 U.S. at 27; Sedima, 473 U.S. at 497-98; Monsanto, 491 U.S. at 609; Tafflin v. Levitt, 493 U.S. 455, 465 (1990). Its language is to be read in the same fashion, whatever the character of the suit. Sedima, 473 U.S. at 489; Shearson, 482 U.S. at 239 ("a ‘pattern' for civil purposes is a ‘pattern' for criminal purposes") (quoting Page v. Moseley, Hallgarten Estabrook & Weeden, Inc., 806 F.2d 291, 299 n.13 (1st Cir. 1986)); H.J. Inc., 492 U.S. at 236 (pattern) ("appl[ies] to criminal as well as civil applications of the Act").
II. Interpretation of RICO
Four basic assumptions are integral to any principled effort to interpret a statute:
(1) legislative supremacy within the constitutional framework;

(2) the use of the statutory vehicle to exercise that supremacy;

(3) reliance on accepted means of communication; and

(4) reasonable availability of the statutory vehicle to those to be governed by it, not only its text, but any other part of its legislative context that serves to give it meaning.

See Reed Dickerson, The Interpretation and Application of Statutes 7-12 (1975); United States v. Whitridge, 197 U.S. 135, 143 (1905) (Holmes, J.) ("[T]he general purpose is a more important aid to the meaning than any rule which grammar or formal logic may lay down.").
The Supreme Court's principal RICO decisions include: Turkette; Russello; Sedima; Agency Holding Corp. v. Malley-Duff & Assocs., Inc., 483 U.S. 143 (1987); Shearson; Caplin & Drysdale v. United States, 491 U.S. 617 (1989); Monsanto; Tafflin; Holmes v. Securities Investor Protection Corp., 491 U.S. 617 (1989); Reves v. Ernst & Young, 503 U.S. 258 (1992); NOW; Klehr v. A.O. Smith Corp., 507 U.S. 170 (1993); Salinas v. United States, 525 U.S. 299 (1999); Humana, Inc. v. Forsyth, 528 U.S. 494 (2000); Beck v. Prupis, 528 U.S. 549 (2000); Rotella v. Wood, 529 U.S. 494 (2001); and Cedric Kushner Promotions, Ltd. v. King 121 S. Ct. 2087 (2001). In these decisions, the Court acknowledges several general propositions of statutory construction and establishes the basic principles that govern the reading of RICO. The Court consistently applies these principles to the statute:
(1) read the language of the statute (Turkette, 452 U.S. at 580, 593; Russello, 464 U.S. 16, 20 (1983) (citing Turkette); Sedima, 473 U.S. at 495 n.13; Shearson/American Express , 482 U.S. at 227; Monsanto, 491 U.S. at 606 (citing Turkette); H.J. Inc., 492 U.S. at 237 (citing Russello)); Holmes, 503 U.S. at 265-66; Reves, 507 U.S. at 177 (citing Turkette and Russello)), Beck, 120 S. Ct. at 1613; Cedrick Kushner Promotions, Ltd., 121 S. Ct. 2090);

(2) language includes its structure (Turkette, 452 U.S. at 581, 587; Russello, 464 U.S. at 22-23; Sedima, 473 U.S. at 490 n.8, 496 n.14; Agency Holding Corp., 483 U.S. at 152);

(3) language should be read in its ordinary or plain meaning, but must be viewed in context (Turkette, 452 U.S. at 580, 583 n.5, 587; Russello, 464 U.S. at 20 (citing Turkette), 21-23, 25; Sedima, 473 U.S. at 495 n.13; H.J. Inc., 492 U.S. at 238 (citing Richards v. United States, 369 U.S. 1, 9 (1962); Reves, 507 U.S. at 178); Cedric Kushner Promotions, Ltd., 121 S. Ct. at 2090), and common law words must be given common law meanings (Salinas, 522 U.S. at 60 (criminal conspiracy) Beck, 120 S. Ct. at 1615) (civil conspiracy);

(4) similar language should be given a similar construction (Sedima, 473 U.S. at 489; Reves, 507 U.S. at 177);

(5) language should not be read differently in criminal and civil proceedings (Sedima, 473 U.S. at 489, 492; Shearson, 482 U.S. at 239-40); H.J. Inc., 492 U.S. at 236); but see Klehr v. A.O. Smith Corp., 521 U.S. 179, 188 (1997) (different considerations apply to civil and criminal statutes of limitations); Beck, 120 S. Ct. 1614 n.6 (application of conspiracy implicates both criminal ("violation") and civil ("conspiracy") principles);

(6) look to the legislative history of the statute (Turkette, 452 U.S. at 586, 589; Sedima, 473 U.S. at 486, 489; Shearson, 482 U.S. at 238-41; Agency Holding Corp., 483 U.S. at 151; Monsanto, 491 U.S. at 613; H.J. Inc., 492 U.S. at 236-39 (citing Sedima); Tafflin, 493 U.S. at 461; Holmes, 503 U.S. at 267; Reves, 507 U.S. at 179; Cedric Kushner Promotions, Ltd., 121 S. Ct. at 2092);

(7) if the statute is unambiguous, legislative history must be clear to warrant a different construction (NOW, 510 U.S. at 261 (citing Reves and Turkette));

(8) look to the policy of the statute (Turkette, 452 U.S. at 590; Russello, 464 U.S. at 24; Sedima, 473 U.S. at 493; Tafflin, 493 U.S. at 467; Cedric Kushner Promotions, Ltd., 121 S. Ct. at 2092);

(9) the statute was aimed at the infiltration of legitimate business by organized crime (Turkette, 452 U.S. at 591; Russello, 464 U.S. at 26, 28 (citing Turkette); Caplin & Drysdale, 491 U.S. at 630; H.J. Inc., 492 U.S. at 245 (citing Russello and Turkette); Cedric Kushner Promotions, Ltd., 121 S. Ct. at 2092);

(10) the statute was not limited to the infiltration of legitimate business by organized crime (Turkette, 452 U.S. at 590-91; Russello, 464 U.S. at 28; Sedima, 473 U.S. at 495, 499; H.J. Inc., 492 U.S. at 242-49 (citing Sedima); NOW, 510 U.S. at 260 (citing H.J. Inc.));

(11) the statute is to be broadly read and liberally construed (Turkette, 452 U.S. at 587, 593; Russello, 464 U.S. at 21; Sedima, 473 U.S. at 491 n.10, 497-98; Monsanto, 491 U.S. at 609 (citing Sedima); H.J. Inc., 492 U.S. at 237; Tafflin, 493 U.S. at 467 (citing Sedima)); Holmes, 503 U.S. at 274);

(12) liberal construction, while it seeks to ensure that an overly narrow construction is avoided, is not an invitation to apply RICO beyond the purposes that Congress intended (Reves, 507 U.S. at 183-84);

(13) where Congress rejects proposed limiting language in a bill, it may be presumed that the omission was intended (Russello, 464 U.S. at 23-24; Sedima, 473 U.S. at 498);

(14) where Congress includes or omits limiting language in a bill, it is presumed that it did so intentionally (Turkette, 452 U.S. at 581; Russello, 464 U.S. at 23-24); and

(15) RICO was modeled on the antitrust statutes, but it is not necessarily limited by antitrust doctrine (Sedima, 473 U.S. at 498; Shearson, 482 U.S. at 241; Agency Holding Corp., 483 U.S. at 150-51; Holmes, 503 U.S. at 269 n.15; Rottela, 120 S. Ct. 1082-83).
III. No Preemption
When Congress enacted RICO, an issue arose whether it should preempt other federal or state statutes or remedies when it entered RICO's "new domain." Turkette, 452 U.S. at 586. The question, however, was quickly resolved; Congress decided to save provisions of "federal, state, or other law imposing criminal penalties or affording civil remedies in addition to those provided for" in RICO. 892 Stat. 947 (1970); Haroco, Inc. v. American Nat'l Bank & Trust Co. of Chicago, 747 F.2d 384, 392 (7th Cir. 1984), aff'd, 473 U.S. 606 (1985) ("Congress enacted RICO in order to supplement, not supplant, the available remedies since it thought those remedies offered too little protection for the victims."). Such overlap between statutes "is neither unusual nor unfortunate." SEC v. National Secur., Inc., 393 U.S. 453, 468 (1969). The existence of cumulative remedies furthers remedial purposes. Herman & MacLean v. Huddleston, 459 U.S. 375, 386 (1983).
IV. Standards
RICO sets forth standards of "unlawful" conduct, which are enforced through criminal and civil sanctions. Section 1963 of Title 18 sets out the criminal remedies, while Section 1964 of Title 18 sets out the civil remedies. Since Section 1962 states what is "unlawful," not "criminal," RICO is not primarily a criminal statute; indeed, the civil scope of RICO is broader than its criminal scope. As such, RICO is not primarily criminal and punitive, but rather primarily civil and remedial. See Sedima, 473 U.S. 497-98 ("read broadly"to "effectuate its remedial purpose"); Turkette, 452 U.S. at 593 (RICO is "both preventive and remedial"); United States v. Corrado, 227 F.3d 543, 552-52 (6th Cir. 2000) (broadly interpreted to effectuate its remedial purpose) (citing Russello v. United States, 464 U.S. 16, 26-27 (1983)). Based on a showing of the preponderance of the evidence, RICO's civil remedies are available to the Government or other parties. United States v. Cappetto, 502 F.2d 1351, 1357 (7th Cir. 1974), cert. denied, 420 U.S. 925 (1975) (Government suit); Liquid Air Corp. v. Rogers, 834 F.2d 1297, 1303 (7th Cir. (1987) (private suit)), cert. denied, 492 U.S. 917 (1989). See generally Civil Fraud Action at 258 n.59 (legislative history, analogies, and economic analysis).
V. The Criminal Enforcement Mechanism
The criminal enforcement mechanism of RICO provides for imprisonment, fines and criminal forfeiture. RICO authorizes imprisonment of up to twenty years, or life, where the predicate offense authorizes life. See 18 U.S.C. § 1963(a) (1988); U.S.C. §2E1.1.
VI. The Civil Enforcement Mechanism
The civil enforcement mechanism of RICO provides for injunctions, treble damages, and counsel fees, 18 U.S.C. § 1964.
RICO authorizes United States Courts "to prevent and restrain" violations of the statute. 18 U.S.C. § 1964(a). The phrase is a "common law couplet" that carries with it the meaning all forms of equitable relief. DeBeers Consoliates Mines Ltd. v. United States, 325 U.S. 212, 218 (1945); Ernest Weekly, Cruelty To Words 43 (1931) (Anglo Saxon peasants could not understand French after conquest in 1066, so law was expressed in pairs of words, one Anglo-Saxon and one French). Neither inadequacy of the remedy at law nor irreparable injury need be shown. United States v. Cappetto, 502 F.2d 1351, 1358-59 (7th Cir. 1974), cert. denied, 420 U.S. 925 (1975).
18 U.S.C. § 1964(b) expressly authorizes the Government to seek equity relief under RICO. Significantly, equitable disgorgement of profits obtained from a RICO violation is a well-established RICO remedy. See, e.g., United States v. Private Sanitation Indus. Ass'n of Nassau/Suffolk, 44 F.3d 1082, 1084 (2nd Cir. 1995). It is also well-recognized in other areas of federal law. See, e.g., SEC v. First Jersey Sec. Inc., 101 F.3d 1450, 1474-77 (2nd Cir. 1996) (securities fraud) ("The primary purpose of the disgorgement as a remedy . . . is to deprive violators of their ill-gotten gains . . . thereby effecting . . . deterrence . . ."), cert. denied, 118 S. Ct. 57 (1997); Commodity Futures Trading comm v. British Am. Commodity Options Corp., 788 F.2d 92, 94 (2nd Cir.) (commodities fraud) ("to depriv[e] the wrongdoer of his ill-gotten gains and deter [...] violations of law"), cert. denied, 479 U.S. 853 (1986). Beyond equitable disgorgement, far-reaching other forms of equity relief may also be granted to reform and restructure corrupted entities. 18 U.S.C. § 1964(a).
Today, the Government is employing these powers almost exclusively in the effort to weed out mob influence in unions. See, e.g., United States v. Local 560 IBT, 780 F.2d 267 (3rd Cir.), cert. denied, 476 U.S. 1140 (1986); Oversight on Civil RICO Suits, Hearing Before the Senate Committee on the Judiciary, 99th Cong., 1st Sess., 109-11 (1986) (testimony of Assistant Attorney General Stephen Trot).
RICO's use, however, need not be so limited. The legislative history of RICO, § 1964 in particular, indicates that the "only limit on remedies is that they accomplish the aim set out of removing the corrupting influence and making due provision for the rights of innocent parties." S. Rep. No. 91-617, 91st Cong., 1st Sess. 160 (1969). In fact, the Senate Report includes an extensive and approving discussion of such federal antitrust decisions as those authorizing divestment, United States v. DuPont & Co., 366 U.S. 316, 326-27 (1961), and the prohibition of engaging in the future in certain fields of work, United States v. Grinnell Corp., 384 U.S. 563, 579 (1966). Id. at 79-83.
Private suits under 18 U.S.C. § 1964(c) "provide a significant supplement to the limited resources available to the Department of Justice" to enforce the law. Like the antitrust laws, RICO creates "a private enforcement mechanism that (1) deters violators, (2) deprives them of their illicit proceeds, and (3) provides ample compensation to the victims. Blue Shield of Va. v. McCready, 457 U.S. 465, 472 (1982). In fact, RICO and the antitrust statutes are well-integrated. Together, they legally promise a market that is economically free and characterized by integrity and the absence of patterns of violence.
VII. Summary Of Elements
The Second Circuit aptly summarized the substantive elements under 18 U.S.C. § 1962 of RICO:
(1) that the defendant (2) through the commission of two or more acts (3) constituting a "pattern" (4) of "racketeering activity" (5) directly or indirectly invests in, or maintains an interest in, or participates in (6) an "enterprise" (7) the activities of which affect interstate or foreign commerce.
Moss v. Morgan Stanley, Inc., 719 F.2d 5,17 (2d Cir. 1983), cert. denied, 465 U.S. 1025 (1984). See also St Paul Mercury Ins. Co. v. Williamson, 244 F.3d 524, 445 (5th Cir. 2000)(plain English restatement of RICO's elements).
VIII. Persons
"Persons" may violate the provisions of §1962 and sue under §1964 (c). The term is defined to include individuals and entities capable of holding a legal or beneficial interest in property. 18 U.S.C. §1961(3). Despite this all-inclusive language, the circuits exclude federal and local governmental agencies from those who may be sued, and the federal, but not foreign, state and local governments from those who may sue for damage relief. See, e.g., Berger v. Pierce, 933 F.2d 393, 397 (6th Cir. 1991) (Federal Insurance Administration not "person") ("[I]t is self-evident that a federal agency is not subject to state or federal criminal law."); Lancaster Community Hosp. v. Antelope Valley Hosp. Dist., 940 F.2d 397, 404-05 (9th Cir. 1991) (municipal entity incapable of criminal intent; "market share" not property within mail fraud), cert. denied, 502 U.S. 1094 (1992); Genty v. Resolution Trust Corp., 937 F.2d 899, 908-14 (3d Cir. 1991) (municipality not liable for racketeering activity of its officers or agents); United States v. Bonnano Organized Crime Family, 879 F.2d 20, 21-27 (2d Cir. 1989) (federal government not "person"), but see 18 U.S.C. § 1964(b) (attorney general may sue under "section"); Republic of Philippines v. Marcos, 862 F.2d 1355, 1358 (9th Cir. 1988) (en banc) (foreign government is a "person"), cert. denied, 490 U.S. 1035 (1989); Illinois Dep't of Revenue v. Phillips, 771 F.2d 312, 314-17 (7th Cir. 1985) (state); cf. County of Oakland v. City of Detroit, 866 F.2d 839, 845 (6th Cir. 1989) (county), cert. denied, 497 U.S. 1003 (1990). Fleischhauer v. Feltner, 879 F.2d 1290, 1299 (6th Cir. 1989), cert. denied, 493 U.S. 1074 (1990).
IX. Interstate and Foreign Commerce
Each section of § 1962 requires either interstate or foreign commerce or an effect on it. United States v. Robertson, 514 U.S. 669, 671-72 (1995). Local enterprises affect commerce if the pattern of racketeering activity affects commerce. See e.g., Bunker Ramo Corp. v. United Bus. Forms, Inc., 713 F.2d 1272, 1288-89 (7th Cir. 1983). "[E]ven a minimal effect on interstate commerce" is sufficient. United States v. Bagnariol, 665 F.2d 877, 892 (9th Cir. 1981) (purchase of natural gas from out of supplier), cert. denied, 456 U.S. 962 (1982).
X. Elements Of Section 1962(a)
The standards of 18 U.S.C. § 1962(a) embody four essential elements: (1) income derived from a "pattern" of racketeering or the collection of an unlawful debt (2) the use or investment" of the income in the acquisition, establishment, or operation by a defendant (3) of an "enterprise" (4) engaged or affecting interstate commerce. Pelletier v. Zweifel, 921 F.2d 1465, 1489-90, 1518-19 (11th Cir. 1991), cert. denied, 502 U.S. 855 (1991).
The investment of the illicit funds may be direct or indirect. Compare A.W. Hemmings v. Barian, 822 F.2d 688, 692 (7th Cir. 1987) (direct) with United States v. McNary, 620 F.2d 621, 628 (7th Cir. 1980) (indirect). The circuits are split on requiring an "investment or use"injury in civil suits under §1962(a). See Court Watch: A Circuit-by-Circuit Analysis of the Statute's Most Litigated Issues, Civil RICO Report (Special Report June 15, 2001) ( "Court Watch"). Other courts also require "acquisition" injury under §1962(b). Advocacy Org. for Patients & Providers v. Auto Club Ins. Ass'n, 176 F.3d 315, 329-31 (6th Cir. 1999), cert. denied, 528 U.S. 871 (1999); Discon, Inc. v. Nynex Corp., 93 F.3d 1055, 1062-63 (2d Cir. 1996) (cases collected on § 1962(a) and §1962(b)), vacated, 525 U.S. 128 (1998). While the collection of an unlawful debt need not be part of a pattern, it must be in connection with a business; an isolated transaction is not within the statute. See Wright v. Sheppard, 919 F.2d 665, 673 (11th Cir. 1990).
XII. Excursus: "Pattern" And "Enterprise"
The two basic elements of RICO that give litigants the most trouble are "pattern" and "enterprise." Each is unique. The Supreme Court clarified the "pattern" element in H.J. Inc., in which the Court developed a fairly precise six-step process that can be used for determining if a "pattern" is present within the meaning of RICO. Two goals must be realized: relationship and continuity (or its threat). 18 U.S.C. § 1961(5); H.J., Inc., 492 U.S. at 237 ("pattern" reflects relation and continuity); Western Assocs. Ltd. Partnership v. Market Square Assoc., 235 F.3d 629, 633-36 (D.C. Cir. 2001) (pattern includes relation and continuity; single scheme to achieve single real estate objective not pattern) (citing H.J. Inc., 492 U.S. at 239)); Ahmed v. Rosenblatt, 118 F. 3d 886, 889 (1st Cir. 1997) (purposes, participants and methods plus continued activity or its threat). Justice Scalia's call in dissent in H. J., Inc. for a reexamination of the constitutionality of RICO's "pattern" concept resulted in the statute being uniformly upheld in the circuits. Compare H.J., Inc., 492 U.S. at 239 with Court Watch; G. Robert Blakey, Is 'Pattern' Void for Vagueness?, Civil RICO Report at 6 (December 12, 1989) (arguing no).
To see if these two goals are met up to six questions must be asked:
(1) Are the acts in a series (at least two) related to one another, for example, are they part of a single scheme?
(2) If not, are they related to an external organizing principle, for example, to the affairs of the enterprise? H.J., Inc., 492 U.S. at 238; United States v. Elliot, 571 F.2d 880, 899 (5th Cir. 1978), cert. denied, 439 U.S. 953 (1978), and United States v. Sinito, 723 F.2d 1250, 1261 (6th Cir. 1983), cert. denied, 469 U.S. 817 (1984). See generally, John Robert Blakey, Could Prosecutors Convict John Gotti in the Fifth Circuit? A Criticism of Heller v. Grammco's Approach to the Relatedness Requirement, Civil RICO Report at 6 (April 17, 1996) (criticizing the restrictive approach of Heller Fin. Inc. v. Grammco Computer Sales, 71 F.3d 518 (5th Cir. 1996), and Vild v. Visconsi, 956 F.2d 560 (6th Cir. 1992), cert. denied, 506 U.S. 832 (1992)).
If both questions are answered in the negative, relationship is not present, one prong of the two-prong test is not met, and it is not necessary to proceed further. If either question is answered in the affirmative, up to three additional questions must be asked:
(3) Are the acts in the series open-ended, that is, do the acts have no obvious termination point? 492 U.S. at 241-43;
(4) If not, did the acts in the closed-ended series go on for a substantial period of time, that is, more than a few weeks or months? Id. at 242.
If either question is answered in the affirmative, continuity is present. If both questions are answered in the negative, up to two additional questions must be asked:
(5) May a threat of continuity be inferred from the character of the illegal enterprise? Id. at 242-43.
(6) If not, may a threat of continuity be inferred because the acts represent the regular way of doing business of a lawful enterprise? Id.
If either question is answered in the affirmative, a threat of continuity is present. See generally Court Watch.
As a rule of thumb, a closed-end scheme that does not extend beyond twelve months lacks continuity. Religious Tech. Ctr. v. Wollersheim, 971 F.2d 364, 367 (9th Cir. 1992); Hughes v. Consol-Pennsylvania Coal Co. 945 F.2d 594, 609-11 (3d Cir. 1991), cert. denied, 504 U.S. 955 (1992). But see Allwaste, Inc. v. Hecht, 65 F.3d 1523, 1528 (9th Cir. 1995) (refusing to adopt a per se rule). Continuity is assessed prospectively, not from hindsight, that is, after the pattern ends. United States v. Aulicino, 44 F.3d 1102, 1112 (2d Cir. 1995), cert. denied, 522 U.S. 1138 (1998). A threat of continuity may be shown by establishing that the conduct is a "regular way of doing business." See, e.g., Shields Enters., Inc. v. First Chicago Corp., 975 F.2d 1290, 1296-97 (7th Cir. 1992) (extortion to coerce shareholders).
The "pattern" must, of course, be in the affairs of the enterprise under § 1962(c). See, e.g., United States v. Miller, 116 F.3d 641, 676-67 (2d Cir. 1997) (related to activities, even if not in furtherance or if able to commit solely by virtue of position in enterprise), cert. denied, 524 U.S. 905 (1998); United States v. Starrett, 55 F.3d 1525, 1542 (11th Cir. 1995) (effect upon the common, everyday affairs of the enterprise or that the facilities or services of the enterprises were regularly and repeatedly utilized), cert. denied, 517 U.S. 1111 (1996). If not, liability will not obtain. Palmetto State Medical Ctr. v. Operation Lifeline, 117 F.3d 142, 149 (4th Cir. 1997) (no evidence conduct in affairs of enterprise).
The application of the "enterprise" concept to legitimate entities presents few problems. See, e.g., United States v. Beasley, 72 F.3d 1518, 1525 (11th Cir. 1996), cert. denied, 518 U.S. 1027 (1996); See 18 U.S.C. § 1961 (4) (enterprise definition is an ostensive or a partial denotative definition; it is not connotative; its list of "enterprises" is illustrative, not exhaustive); United States v. Masters, 924 F.2d 1362, 1366 (7th Cir. 1991) (includes a group of individuals, a law firm and two police departments), cert. denied, 500 U.S. 919 (1991). See Helvering v. Morgan's Inc., 293 U.S. 121, 125 n.1 (1934) ("means" and "includes" distinguished); Aetna Casualty Sur. Co. v. P & B Autobody, 43 F.3d 1546, 1557 (1st Cir. 1994) (insurance fraud). See NOW v. Scheidler, 510 U.S. 249, 259 n.5 (1994) (enterprise includes, of course, lawful entities that may be victimized; "prize," "instrument," "victim" and "perpetrator") (citing Civil Fraud Action at 307-25).
Its application to other RICO enterprises called "associations-in-fact," however, has its difficulties. The Supreme Court attempted to clarify the issue in Turkette, in which the Court observed:
An association in fact "is an entity, for present purposes a group of persons associated together for a common purpose of engaging in a course of conduct. ... The [enterprise] is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit."

Turkette, 452 U.S. at 583 (enterprise not limited to licit entities). See also United States v. Arthur, 248 F.3d 11, 19 (1st Cir. 2001) (illegitimate drug ring is an enterprise); United States v. Phillips, 239 F.3d 829, 845-46 (7th Cir. 2001) (evidence supports gang as a RICO enterprise). Prior to Turkette – with the exceptions of the First and Eighth Circuits whose approach was rejected by the Supreme Court in Turkette – the decisions of the courts of appeals reflected little difficulty finding that associations-in-fact existed. See, e.g., United States v. Errico, 635 F.2d 152, 156 (2d Cir. 1980) ("community of interest and continuing core of personnel"), cert. denied, 453 U.S. 911 (1981); United States v. Elliott, 571 F.2d 880, 898 (5th Cir. 1978) (diversified criminal enterprise), cert. denied, 439 U.S. 953 (1978).
Since Turkette, the courts of appeals still reflected difficulty in implementing the approved perspective, but the focus of the difficulties is different. Nonetheless, a few enterprise rules have evolved:
(1) not only individuals, but also corporations may compose associations-in-fact. See (United States v. Perholtz, 842 F.2d 343, 353, 356-59 (D.C. Cir. 1988) (cases collected), cert. denied, 488 U.S. 821 (1988));

(2) an association-in-fact is not a conspiracy; it may include the victim. (Aetna Cas.y Sur. Co. v. P. & G. Auto Body, 43 F.3d 1546, 1557 (1st Cir. 1994) (not conspiracy); United States v. Feldman, 853 F.2d 648, 655-57 (9th Cir. 1988) (not conspiracy), cert. denied, 489 U.S. 1030 (1989); United Energy Owners Comm., Inc. v. United States Energy Mgmt. Sys., 837 F.2d 356, 362-64 (9th Cir. 1988) (include victim); see also Jacobson v. Cooper, 882 F.2d 717, 720 (2d Cir. 1989) (similar)); and

(3) while an association-in-fact must have more structure than a mere conspiracy, it need not be much. (United States v. Korando, 29 F.3d 1114, 1117-19 (7th Cir. 1994), cert. denied, 513 U.S. 993 (1994)(continuity and differentiation of roles provides structure); see generally St. Paul Mercury Ins. Co. v. Williamson, 224 F.3d 425, 440-41 (5th Cir. 2000) (association-in-fact requires evidence of an ongoing organization, formal and informal, that functions as a continuing unit over time through a hierarchical or consensual decision-making structure); see also United States v. Davidson, 122 F. 3d 531, 534-35 (8th Cir. 1997), cert. denied, 522 U.S. 1034 (1997)("small but prolific crime ring" will suffice)).
Under § 1962(c), the "person" and "enterprise" must be separate. Cedric Kushner Promotions, Ltd., 121 S. Ct. at 2090 (must prove a "person" and an "enterprise" that are separate; employees separate from corporation; collecting decision from 12 circuits); Bessette v. AVCO Fin. Servs., Inc., 230 F.3d 439, 448-49 (1st Cir. 2000) (subsidiary not "person" distinct from parent company "enterprise"), cert. denied, 121 S. Ct. 2016 (2001); Begala v. PNC Bank, Ohio, N.A., 214 F.3d 776, 781 (6th Cir. 2000) (corporation cannot be both a "person" and an "enterprise"), cert. denied, 121 S. Ct. 1082 (2001).
The person-enterprise rule is generally not held to apply to § 1962(a) and § 1962(b). See, e.g., United Energy Owners Committee, Inc., 837 F.2d at 364.
The rule may not be circumvented by pleading respondent superior, aiding and abetting, or conspiracy. See Cox v. Adm'r United States Steel & Carnegie, 17 F.3d 1386, 1403-06 (11th Cir. 1994), modified, 30 F.3d 1347 (11th Cir. 1994) (en banc) (cases collected), cert. denied, 513 U.S. 1110 (1995).
Secondary liability is appropriate where the entity is a "person", but not an enterprise, under § 1962(c). See, e.g., Davis v. Mut. Life Ins. Co. of N.Y., 6 F.3d 367, 379 (6th Cir. 1993) (Schofield distinguished), cert. denied, 510 U.S. 1193 (1994).
The rule does not apply to associations-in-fact, unless they are composed of only two entities, one of which is the putative defendant, as "sufficient" separation would not then be present. Crowe v. Henry, 43 F.3d 198, 206 (4th Cir. 1995). Accordingly, an association-in-fact may not be composed of simply a corporation, its officers, employees and agents. See e.g., Khurana v. Innovative Health Care Sys., Inc., 130 F.3d 143, 154-56 (5th Cir. 1997) (enterprise and person must be distinct; employees and agents not distinct from corporation, but may be individually named; parent and subsidiary not distinct), vacated as moot, 525 U.S. 979 (1998); United States v. Robinson, 8 F.3d 398, 406-07 (7th Cir. 1993); Feldman, 853 F.2d at 656-59(containing an excellent discussion of associations-in-fact composed of entities).
The "enterprise" must be separate from the "pattern of racketeering activity." Turkette, 452 U.S. at 583 (RICO requires "separate elements," though proof may "coalesce"). The Eighth Circuit initiated a split in the circuit courts when it added gloss to Turkette in United States v. Bledsoe, 674 F.2d 647, 664-65 (8th Cir. 1982) (association-in-fact requires: (1) common purpose, (2) ongoing organization with members functioning as continuing unit, and (3) an ascertainable structure distinct from that inherent in pattern of racketeering activity) ("the command system of a Mafia family is an example of this type of structure"), cert. denied, 459 U.S. 1040 (1982). Accord Chang v. Chen, 80 F.3d 1293, 1297-1301 (9th Cir. 1996) (reviewing decisions and adopting structure approach, which must be plead). See Handeen v. Lemaire, 112 F.3d 1339,1351-53 (8th Cir. 1997); United States v. Kragness, 830 F.2d 842, 854-60 (8th Cir. 1987); see State v. Ball, 268 N.J. Super. 72, 87, 632 A.2d 1222, 1237 (N.J. Super. Ct. App. Div. 1993) (federal and state cases collected; majority rule requiring "structure" rejected under N.J. statute), aff'd, 141 N.J. 142, 661 A.2d 251 (1995), cert. denied, 516 U.S. 1075 (1996).
Under the Bledsoe rule, the easiest way to show separateness is to show that the enterprise is a legal entity or possess functions other than racketeering. See, e.g., Bennett v. Berg, 685 F.2d 1053, 1060 n.9 (8th Cir. 1982) (legal entity), aff'd in part and reversed in part, 710 F.2d 1361 (8th Cir. 1983) (en banc), cert. denied, 464 U.S. 1008 (1983); United States v. Blinder, 10 F.3d 1468, 1473-75 (9th Cir. 1993) (other activities). It is not, however, necessary, even in those circuits following Bledsoe, to show that the association-in-fact engaged in lawful conduct beyond the pattern or even engaged in more than one kind of illegal conduct. Webster v. Omnitrition Int'l Inc., 79 F.3d 776, 786-87 (9th Cir. 1996) (corporation set up to perform only unlawful activities nonetheless enterprise separate from illegal activities), cert. denied, 519 U.S. 865 (1996). Compare United States v. Pelullo, 964 F.2d 193, 210-12 (3d Cir. 1992) (organization may be inferred from pattern; need not engage in conduct beyond pattern) (citing Perholtz, 842 F.2d at 363), with United States v. Console, 13 F.3d 641, 649-52 (3d Cir. 1993) (mail fraud RICO), cert. denied, 511 U.S. 1076 (1994). See generally, Reflections at 1646-56.
XII. Elements Of Section 1962(b)
The standards of 18 U.S.C. § 1962(b) embody three essential elements: (1) the acquisition or maintenance through a "pattern" of racketeering activity or the collection of an unlawful debt by a defendant (2) of an interest in or control of an "enterprise" (3) engaged in or affecting interstate commerce. Pelletier, 921 F.2d at 1490, 1518-19. The circuits are split on requiring an "acquisition or maintenance" injury in civil suits under 18 U.S.C. § 1962(b). See Court Watch.
XIII. Elements Of Section 1962(c)
The standards of 18 U.S.C. § 1962(c) embody four essential elements: (1) employment by or association of a defendant with (2) an "enterprise" (3) engaged in or affecting interstate commerce (4) the affairs of which are "conducted by or participated in" by a defendant through a "pattern" of racketeering activity or the collection of an unlawful debt. Sedima, 473 U.S. at 496 ("A violation of § 1962(c)...requires (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.").
In Reves v. Ernst & Young, 507 U.S. 170, 179 (1993), the Supreme Court resolved a split in the circuits and held that under § 1962(c) "conduct or participate" requires "some part in directing those affairs" through "operation or management." 507 U.S. at 177-86. The Reves test is used to include and exclude defendants. Compare Slaney v. Int'l Amateur Athletic Fed'n, 244 F.3d 580, 598 (7th Cir. 2001) (person charged with violating RICO must have participated in the operation or management of the enterprise and must have asserted some control over the enterprise); United States v. Viola, 35 F.3d 37, 43 (2d Cir. 1994) (unwitting janitor and handyman excluded), cert. denied, 513 U.S. 1198 (1995), with Aetna Casualty Sur. Co. v. P. & B. Autobody, 43 F.3d 1546, 1559 (1st Cir. 1994) (causing insurance payments to be made included in "operation"). See generally G. Robert Blakey and Marc Haefner, Did Reves Give Professionals A Safe-Harbor Under RICO?, Civil RICO Report (August 11, 1993) (arguing that Reves did not alter aiding and abetting or conspiracy liability).
That a particular defendant does not fall within the class that can violate a substantive offense, however, is no defense to aiding and abetting if the person he aids or abets falls within the class. Coffin v. United States, 156 U.S. 432, 447 (1895); In Re Nofziger, 956 F.2d 287, 290 (D.C. Cir. 1992). RICO jurisprudence reflects this general principle. See United States v. Rastelli, 870 F.2d 822, 831-32 (2d Cir. 1989), cert. denied, 493 U.S. 982 (1984); United States v. Margiotta, 688 F.2d 108, 131-33 (2d Cir. 1982), cert. denied, 461 U.S. 913 (1983).
Defense attorneys are also seeking under Reves to avoid the impact of § 1962(d) (conspiracy); they are having little success. See, e.g., Smith v. Berg, 247 F.3d 532, 536-37 (3d Cir. 2001) (no need to actually operate corrupt enterprise, so long as defendant facilitates scheme, including RICO enterprise) (Reves does not apply to § 1962(d) in light of Salinas v. United States, 522 U.S. 52 (1997)), cert denied, 526 U.S. 1031 (1999); United States v. Starrett, 55 F.3d 1525, 1542 (11th Cir. 1995) (Reves applies to criminal RICO, but operation or management rule does not apply to conspiracy under § 1962(d)), cert denied, 517 U.S. 1111 (1996); Viola, 35 F.3d at 43 (need not be within prohibited class to conspire; knowledge required, but not shown); United States v. Quintanilla, 2 F.3d 1469, 1484-85 (7th Cir. 1993) (Reves "did not address the principle of conspiracy law undergirding § 1962(d)"); United States v. Norton, 867 F.2d 1354, 1358-59 (11th Cir. 1989) (pre-Reves RICO conspiracy conviction upheld, although the defendant was not an officer of a union under 18 U.S.C. § 1954, the predicate offense), cert. denied, 491 U.S. 907 (1989). See generally Reflections (scope of Reves).
XIV. Elements Of Section 1962(d)
Section 1962(d) makes it unlawful for any person to conspire to violate subsections (a), (b) or (c). See United States v. Gonzalez, 921 F.2d 1530, 1539-40 (11th Cir. 1991) ("That the many defendants and predicate crimes were different, or even unrelated, ...[is] irrelevant, so long as it...[can] be reasonably inferred that each crime was intended to further the enterprise.") personal acts not required unless single objective conspiracy (citations omitted), cert. denied, 502 U.S. 827 (1991); United States v. Friedman, 854 F.2d 535, 562 (2d Cir. 1988) (A RICO conspiracy is "by definition broader than an ordinary conspiracy to commit a discrete crime..."), cert. denied, 490 U.S. 1004 (1989); United States v. Valera, 845 F.2d 923, 930 (11th Cir. 1988) ("Under RICO Act . . . a series of agreement, which, pre-RICO, would constitute multiple conspiracies, can form, under RICO, a single 'enterprise' conspiracy"), cert. denied, 490 U.S. 1046 (1989); United States v. Rosenthal, 793 F.2d 1214, 1228 (11th Cir. 1986) ("Congress intended to authorize the single prosecution of a multifaceted, diversified conspiracy . . . . The RICO statutes permit the joinder into a single RICO count or counts several diverse predicate acts . . . ."), modified on other grounds, 801 F.2d 378 (11th Cir. 1986) (en banc), cert. denied, 480 U.S. 919 (1987); Nancy A. Ickler, Note, Conspiracy To Violate RICO: Expanding Traditional Conspiracy Law, 58 Notre Dame L. Rev. 587 (1983). The traditional law of conspiracy is followed. United States v. Neapolitan, 791 F.2d 489, 494-97 (7th Cir. 1985) ("a conspiracy to violate RICO should not require anything beyond that required for a conspiracy to violate any other statute"), cert. denied, 479 U.S. 939 (1986).
XV. Application Of RICO To The Tobacco Industry
On the application of RICO to a suit brought by Blue Cross against the tobacco industry, United States District Judge Jack Weinstein aptly concluded:
Application of RICO to the facts alleged in the complaint is entirely consonant with the statute's stated aims and purpose. The alleged injury to the Blues' business and property has undermined the financial health and stability of a critical industry in this nation's economy. This country is currently said to be facing a crisis of health care finance. * * * If the allegations are true, the well orchestrated racketeering on the part of the defendants has played a major role in precipitating this crisis and inflating this nation's health care costs to their current levels. The Blues provide medical care and coverage to almost 70 million Americans.

Just as the legislative history of RICO forewarned, the defendants' racketeering has allegedly "drained billions from the American economy." It is difficult to imagine a sector in the economy, a portion of the nation's resources, or an aspect of its economic life, which has not been severely affected by the defendants' alleged racketeering. For example, the nation's employers have found it increasingly expensive and difficult to fund health care coverage for their own employees * * * In order to stay competitive, businesses have been forced to devote larger and larger portions of their resources to providing health care or have reduced benefits to their workers, forcing taxpayers, the Blues, and premium payers to subsidize the medical treatment of those who can no longer afford insurance. Research or treatment which would have been supported by resources of the health care industry have, it is contended, been neglected as a result of the defendants' alleged pattern of racketeering.

In sum, the allegations in the complaint describe precisely the type of far-reaching, economic dislocation which RICO was intended to combat. The Blues represent the kind of business which RICO is designed to protect from racketeering. It may be reasonable to conclude that Congress assumed plaintiffs with personal injury claims would avail themselves of existing remedies under state law. It is not reasonable to believe that the systemic, economic injuries allegedly sustained by the plaintiffs in the instant case were beyond the designed scope of RICO when Congress explicitly provided that "any person injured in his business or property" shall have a cause of action under the statute.

Any doubts concerning the applicability of the statute should be resolved in favor of the vigorous enforcement of RICO's remedies. Congress specifically instructed the courts to interpret the statute broadly. It provides, "the provisions of this title shall be liberally construed to effectuate its remedial purposes." * * * In Sedima, S.P.R.L. v. Imrex Co. .... the Supreme Court firmly rejected the attempt by the court of appeals for the Second Circuit to narrow the reach of RICO's civil provisions, pointing out, "RICO is to be read broadly....This is the lesson not only of Congress' self-consciously expansive language and overall approach but also of its express admonition...." (citation omitted). Enforcement of RICO to compensate for economic and business injuries such as those claimed by plaintiffs is entirely consistent with the statute's meaning and purpose.

(a) The Pattern Of Racketeering Activity
Unquestionably, the industry's conduct since the 1950s constitutes a "pattern." H.J. Inc., 492 U.S. at 238-43 (relationship and continuity).
That conduct also constitutes a "scheme to defraud" under 18 U.S.C. §§ 1341 (mail fraud), 1343 (wire fraud).
The focus of the concept of "scheme to defraud" is on "dishonest methods or schemes and [it] usually signif[ies] the deprivation of something of value by trick, deceit, chicane or overreaching." Carpenter v. United States, 484 U.S. 19, 27 (1987). The Fifth Circuit originated the Gregory standard, the broadest understanding of "scheme to defraud" in the circuits: Gregory v. United States, 253 F.2d 104, 109 (5th Cir. 1958) ("moral uprightness, or fundamental honesty, fair play and right dealing in the general and business life of members of society"). It is properly followed in most circuits. Reflections at 1586.
Proof of "intent to defraud" is usually accomplished by showing the conduct of the defendant from which his state of mind is inferred. See generally, Reflections at 1591-94. Here that conduct includes:
(1) the intentional sale of a defective product that is both addictive and lethal;

(2) the targeting and sale of the product to children in violation of the law and ethical standards adopted by the industry itself;

(3) the failure to market ab available safer product;

(4) the suppression of a less hazardous product;

(5) the covert manipulation of an addictive drug (nicotine);

(6) the unethical generation of a false scientific "controversy" surrounding the health effects of tobacco;

(7) the creation of bogus doubts about the addictive quality of nicotine and its dangers to the life and health of those who use it;

(8) the suppression of unfavorable" useful data on their product; the public discrediting of "favorable" useful data on their product;

(9) false statements to the public and to governmental bodies' concealing relevant information from public and governmental bodies that had requested the information and had a right to obtain it from the industry; and

(10) the illegal and unethical abuse of the attorney client privilege.

(b). Defenses
The industry's record of fighting smoker litigation is nothing short of extraordinary.
Until the state attorneys general started to bring their litigation, a pack of cigarettes could hardly be purchased with what the industry had paid out in damages.
That success is attributable in part to rhetorical fallacies. Judge Jerome Frank once observed: "It would be time-saving if [courts] had a descriptive catalogue of recurrent types of fallacies encountered in arguments addressed to [them]. United Shipyards v. Hoey, 131 F.2d 525, 526 (2nd Cir. 1942), cert. denied, 318 U.S. 791 (1943). The field of public debate is no different. One source of that success is the "mini-skirt" fallacy, which focuses litigation against the industry on the conduct of the "victim" and away from the conduct of the industry. See generally, Note, Plaintiff's Conduct as a Defense to Claims Against Cigarette Manufacturers, 99 Harv. L. Rev. 809 (1986).
Another source of that success is the "twinkie" fallacy. You are going after tobacco today. Will you be going after sugar tomorrow? Or alcohol, fat, caffeine, lead ,or another noxious substance? Jeremy Bentham, The Handbook of Political Fallacies 93-99, 136-38, (Harper Torchbooks 1962) variously called this fallacy the "Hobgoblin Argument" or "Fallacy of Artful Diversion."
Bentham observed:
"Here it comes!" exclaims the barbarous or unthinking servant in the hearing of the a frightened child, when, to rid herself of the burden of attendance, such servant does not scruple to employ an instrument of terror. . ..

Or:

The Device Here in Question may be explained by the following directions or recipe for its manufacture and application: When a measure is proposed which on any account whatever it suits your interest or your humor to oppose at the same time that, because of its undeniable utility, you find it inadvisable to condemn directly, hold up some other measure which will present itself to the minds of your hearers. . . .
As a product openly sold to consumers, tobacco is, in fact, unique, no matter how the industry might want to divert our attention with a supposed parade of horribles. When the case that is made today against tobacco can be made against another substance, and its illicit marketing, if ever, it will be time enough then to consider those other products and ways to remedy their abuse. Our attention should be focused today on tobacco.
It is difficult enough to get one thing at a time done.
Fortunately, Government litigation outflanks those defenses. We may expect that, though, that the industry will make every effort at trial and on appeal—and in the court of public opinion—to assert against the Government any defense that it can imagine.
Those efforts should fail.
Only a few defenses can be plausibly asserted affirmatively against the Government in civil RICO, and even had individuals brought this litigation, the standard sort of defenses that the industry relies on would not be applicable in cicil RICO litigation.
(i) Time Bars
Traditionally, statutes of limitations or laches do not bar the Government from seeking equity relief. United States v. Beebe, 127 U.S. 338, 344 (1888) (cited with approval in S. Rep. No. 91-452, 91st Cong., 1st Sess. at 160 (1969)). Accord Chesapeake & Delaware Canal Co. v. United States, 250 U.S. 123, 125 (1919) (citing United States v. Kirkpatrick, 22 U.S. (9 Wheat) 720, 735 (1824) (Story, J.).
Similarly, the failure to enforce a statute does not make it unenforceable. District of Columbia v. John R. Thompson Co., Inc., 346 U.S. 100, 113-143 (1953) (civil rights); Times-Picayune Publishing co. v. United States, 345 U.S. 549, 623-24 (1953) (antitrust); United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 225-27 (1940) (antitrust).
(ii) Conduct of the Victim
The common law knew two possible defenses of "unclean hands." Criminally, it was known as particeps crimis. It was not recognized as a defense to a crime. See, e.g., State v. Wellenberger, 95 P.2d 709, 710-20 (Ore. 1939) (leading decision; obtaining money by false pretenses; other decisions reviewed). Civilly, it was known as in pari delicto. JOSEPH STORY, Equity Jurisprudence 304-05 (13th ed. 1886) ("equal fault").
Common law defenses do not, however, generally limit statutory provisions enacted in the public interest. See, e.g., Perma Life Muffler, Inc. v. Int'l Parts Corp., 392 U.S. 134, 138 (1968) (securities; private enforcement); see also Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, 340 U.S. 211, 214 (1951) (antitrust) ("unclean hands"), but see Pinter v. Dahl, 486 U.S. 622, 634 (1988) (equal involvement defense limit on private securities enforcement); Eichler v. Berner, 472 U.S. 299, 306-19 (1984) (same).
Similarly, consent of the victim, unless it negates an element of the offense (e.g., rape), is not a defense to a crime, nor is contributory negligence nor condonation. See, e.g., Martin v. Commonwealth, 184 Va. 1009, 37 S.E. 2d 43 (1946) (leading decision; victim hearing of defendants' homicidal intentions gave perpetrator gun and ammunition; no defense); Levin v. United States, 119 U.S. App. D.C. 156, 338 F.2d 265 (1964) (larceny by trick established by inducing victim to part with embezzled funds; no defense); State v. Moore, 129 Iowa 514, 106 N.W. 16 (1906) (leading decision; contributory negligence not defense to crimes); State v. Craig, 124 Kan. 340, 259 P.802 (1927) (mother forgave son's burning barn; no defense to arson, even though beforehand would have negated liability).
Since RICO civil liability is premised on the "violation" of its criminal provisions, these general principles of criminal responsibility ought to negate any "victim defenses" by the tobacco industry in the civil context as well.
(c) Remedies: Disgorgement
Disgorgement is a familiar equitable remedy. "[I]t is simple equity that a wrongdoer should disgorge his fraudulent enrichment." Janigan v. Taylor, 344 F.2d 781, 786 (1st Cir.), cert. denied, 382 U.S. 879 (1965). See also FTC v. Gem Merchandising Corp., 87 F.3d 466, 469 (11th Cir. 1996) ("Among the equitable powers of a court is the power to grant restitution and disgorgement."); SEC v. AMX, 7 F.3d 71, 76 n.8 (5th Cir. 1993) ("a disgorgement order is considered to be in the form of a continuing injunction in the public interest"); Sec. Exch. Comm'n v. Huffman, 996 F.2d 800, 803 (5th Cir. 1993) ("disgorgement is more like a continuing injunction in the public interest than a debt"); Sec. Exch. Comm'n v. Blatt, 583 F.2d 1325, 1335 (5th Cir. 1978) (purpose of disgorgement is to "deprive the wrongdoer of his ill-gotten gains and deter[] violations of the law"); United States v. Furlett, 781 F. Supp./ 536, 544 n.5 (N.D. Ill. 1991) ("disgorgement is a remedial rather than punitive measure").
In Porter v. Warner Holding Co., 328 U.S. 395 (1946), a landmark decision, the Supreme Court confirmed that equitable jurisdiction was present to disgorge rents collected from Minneapolis tenants in violation of federal price controls. Id. at 396. The statute provided for "a permanent or temporary injunction, restraining order, or other order," but it did not mention restitution of profits or disgorgement. Id. at 397. Nevertheless, the Court concluded that it was "readily apparent" that once a trial court's equitable jurisdiction was invoked, "a decree compelling one to disgorge profits, rents or property acquired in violation" of the statute was proper. Id. at 398-99 (emphasis added). The Court explained:
Unless otherwise provided by statute, all the inherent equitable powers of the District Court are available for the proper and complete exercise of that jurisdiction. And since the public interest is involved in a proceeding of this nature, those equitable powers assume an even broader and more flexible character than when only a private controversy is at stake. Power is thereby resident in the District court, in exercising this jurisdiction, "to do equity and to mold each decree to the necessities of the particular case." . . . . Unless a statute in so many words, or by a necessary and inescapable inference, restricts the court's jurisdiction in equity, the full scope of that jurisdiction is to be recognized and applied.

Id. at 398 (emphasis added) (citations omitted).
A possible limit on the extent of disgorgement is the Second Circuit's sadly mistaken and misguided decision in United States v. Carson, 52 F.3d 1173 (2d Cir. 1995), cert. denied, 517 U.S. 1210 (1996), which reversed a RICO disgorgement order requiring a former union official to return $76,000 in ill-gotten gains. Carson accepted kickbacks from 1972 to 1988 and then retired. The Second Circuit confirmed that, "[a]s a general rule, disgorgement is among the equitable powers available to the district court by virtue of 18 U.S.C. § 1964." Id. at 1181. Disgorgement "serve[s] the goal of foreclosing future violations." Id. at 1182. The Court, however, held that the test for determining whether disgorgements are permissible is "whether the disgorgements . . . are designed to ‘prevent and restrain' future conduct"; "disgorgement of gains ill-gotten long ago" could not be justified. Id.
Categorical disgorgement of all ill-gotten gains may not be justified simply on the ground that whatever hurts a civil RICO violator necessarily serves to "prevent and restrain" future RICO violations. If this were adequate justification, the phrase "prevent and restrain" would read "prevent, restrain and discourage" . . . .
Id.
The Court suggested that disgorgement even of "gains ill-gotten long in the past" would be permissible if "there is a finding that the gains are being used to find or promote the illegal conduct, or constitute capital available for that purpose." Id. "The disgorgement of gains ill-gotten relatively recently is more easily justifiable on the basis of the same analysis." Id. See also SEC v. First Jersey Secs., Inc., 101 F.3d 1450, 1475 (2d Cir. 1996) ("a divestiture order under RICO must be designed to prevent future conduct rather than to remedy past wrongdoing").
Even if correctly decided, which it is not, Carson is distinguishable here. Carson involved a retiree who was not in a position to commit any more RICO predicate offenses. In the tobacco context, however, the predicate offenses and the RICO enterprise are still ongoing. Recently earned tobacco profits that are poured back into industry marketing efforts are used to fund additional acts of mail and wire fraud as part of its "schemes to defraud." In fact, despite a national agreement not to target children, the industry continues its reprehensible practice. See, Alex Kuczynski, Tobacco Companies Accused of Still Aiming At Youths, N.Y. Times, Aug. 15, 2001, col. 2., p.1.
A substantial portion of those sums would, even under Carson, be subject to disgorgement, if they are being used to fund an ongoing "scheme to defraud." Not all tobacco profits are, of course, used to fund wrongdoing: many are paid to shareholders and others are used for legitimate corporate purposes. Nonetheless, a significant amount of disgorgement should be available. The precise amount would depend on the companies' financial statements and expert accounting testimony. But the sum would likely prove to be large.
Carson, moreover, is poorly reasoned; and it is, in fact, wrongly decided. Disgorgement is a well-settled remedy of traditional equitable powers. The legislative history of RICO indicates that its authors intended to grant courts at least as much authority as they possessed under the antitrust statutes. See, e.g., 115 Cong. Rec. 9567 (1969) (statement of Sen. McClellan) ("Nor do I mean to limit the remedies available to those which have already been established."); id. at 69993-94 (statement of Sen. Hruska) ("The bill is innovative . . . . Hopefully, experts on organized crime will be able to conceive of additional applications of the law. The potential is great.").
While § 1964(a) contains the phrase "prevent and restrain," the legislative history indicates that this language was not intended to confine the courts to purely forward-looking remedies. The list is "illustrative, not exhaustive." S. Rep. No. 91-617 at 160 ("the list is not exhaustive").
Tobacco profits are, like illicit drug profits, subject to forfeiture criminally and disgorgement civilly.
That the product may be "legal" under certain circumstances is no defense when it is, in fact, marketed illegally. Disgorgement is ordered, for example, in cases involving the sales of securities, United States v. DuPont & Co.; SEC v. First Jersey Secs., Inc., 101 F.3d 1450, 1474-75 (2d Cir. 1996), security alarm services, United States v. Grinnell Corp., sanitation services, United States v. Private Sanitation Industry Ass'n, 44 F.3d 1082, 1084 (2d Cir. 1995), and union activities, as noted above.
The Government also sometimes seeks equitable relief in civil RICO actions involving "legitimate" business activities. For example, in United States v. Ianniello, 824 F.2d 203, 206-07 (2d Cir. 1987), the Second Circuit affirmed a district court order granting an application by the Government for the appointment of a receiver pendente lite to run a restaurant; in United States v. Local 6A, Cement and Concrete Workers, 663 F. Supp. 192 (S.D. N.Y. 1986), the Government brought an action under 18 U.S.C. § 1964 requesting the appointment of trustees to conduct the business of Local 6A. In United States v. Local 359, 87 Civ. 7351 (S.D.N.Y., filed Oct. 15, 1987), the Government sought to seize control of the Fulton Fish Market in lower Manhattan — in effect requesting that an entire commercial center be placed under court supervision. Thereafter, pursuant to default and consent judgments entered against the Genovese crime family and individuals named as defendants in the lawsuit, an administrator for the Fulton Fish Market was appointed by the district court to ensure compliance with the judgments, including prohibitions against the defendants' having dealings with Local 359 or with the Fish Market. The District Court rejected the Government's efforts to take control of Local 359 itself, but this aspect of the District Court's judgment was, in fact, later vacated by the Second Circuit. United States v. Local 359, 705 F. Supp. 984 (S.D.N.Y. 1989), vacated in part, 889 F.2d 1232, 1235 (2d Cir. 1989).
No legal obstacle stands in the way of the success of the Government's case against the industry, least of all the successful state suits.
Conclusion
While criminal and civil RICO is controversial, the statute's two track system of public and private enforcement is operating today largely as it was written. Its impact on organized crime, for example, is unparalleled in the history of criminal law enforcement. See President's Commission on Organized Crime, Report to the President and the Attorney General - Impact: Organized Crime Today, at 133-34 (1986)(concluding that RICO is one of the most powerful and effective weapons in existence for fighting organized crime); Selwyn Raab, A Battered And Ailing Mafia Is Losing Its Grip On America, N.Y. Times, Oct. 22, 1990, p. A12, Col. 1.
At one time, legitimate businesses shunned the civil provision of the statute, feeling that to use it would legitimate a litigation technique that in the early days of its implementation was widely felt to be illegitimate. That day is no more. See, e.g., Saul Hansell, Bankers Trust Settles Suite With P. & G., N.Y. Times, May 10, 1996, P.1., Col. 5 (reporting the settlement of a civil RICO suit between two major corporations over an investment fraud).
The Government is now properly using RICO, not only criminally, but civilly.
RICO's civil application in the Government's civil suit against a corrupt and unreformed industry that addicts children with a drug that horribly kills them as adults is an outlaw industry whose illicit conduct must be brought under control.