Wednesday’s argument in Mohawk.
on Apr 27, 2006 at 1:52 pm
The following was prepared by Stanford Law Student Eric Tuttle.
On Wednesday, the Supreme Court heard argument in Mohawk Industries v. Williams, a case regarding the application of the Racketeer Influenced and Corrupt Organizations Act (RICO). The facts and basic questions of the case are described here.
Based on argument, it was difficult to tell where a majority of the Court will come out on the RICO issues presented by this case — namely, whether a corporation can ever be part of an association-in-fact enterprise and, if so, whether plaintiffs had alleged enough here to establish that the defendant corporation was participating in an enterprise with its outside recruiters when it hired illegal workers, rather than simply conducting its own affairs. Several of the Justices were clearly troubled that Mohawk had raised the first issue for the first time in its merits brief before the Court. And while some Justices were concerned that a broad reading of when a corporation could be part of an enterprise-in-fact would lead to total RICO-ization of corporate conspiracy law, they also worried that any categorical attempt to separate out a defendant’s affairs from those of the alleged enterprise would be unworkable.
Mohawk began by characterizing the case as one in which there were two obvious choices for the RICO enterprise: Mohawk (but then Mohawk couldn’t be sued as defendant ) or the outside recruiters (but Mohawk didn’t conduct or participate in their business). Because plaintiffs wanted to sue Mohawk, they’d stretched to construct a very artificial enterprise consisting of Mohawk plus the recruiters.
Justice Scalia immediately turned to the question of whether Mohawk’s first theory — that corporations can’t be part of an association-in-fact enterprise under the statute’s plain text — was properly before the Court. He’d love to reach the question, but he didn’t see how the Court could because the question on which the Court granted cert didn’t seem to encompass that theory. Plus, the Court likely wouldn’t have granted cert if Mohawk had presented the question, since there is no circuit split (every circuit to address the question has ruled against Mohawk’s theory). Justice Ginsburg found this especially problematic because there hadn’t yet been a final judgment in the case and the 11th Circuit had only considered the case on certification for interlocutory appeal. Justice Breyer added that Mohawk’s statements below seemed even to concede the point. Mohawk explained that it hadn’t argued the point below because the 11th Circuit rule was so settled, but that the issue was properly before the Court now because it was “fairly subsumed” in the question presented, in that it was a logically prior question. The question had also been fully briefed for the Court, and it would be very artificial to ignore it because deciding the second question would be pointless if corporations couldn’t be part of association-in-fact enterprises at all. He added that the uniform rule in the lower courts, while entrenched, had not been reached with much care.
Justice Breyer moved on to the merits of Mohawk’s first theory, questioning whether it made sense to exclude groups of entities other than individuals from RICO coverage. Mohawk explained that these groups would still be covered as RICO enterprises, they just couldn’t be defendants as part of a larger enterprise. In most cases, the wrongdoing could still be reached by repleading and going after individuals. Justice Alito asked why Congress would have used both “means” and “includes” when defining terms if “includes” was to be understood as introducing an exhaustive list as Mohawk contends. Mohawk responded that Congress must have thought the two words were synonymous in this context, as evidenced by its use of “includes” in other definitions that are clearly exhaustive and its use elsewhere of “includes, but is not limited to.” This was consistent with Congress’ intent not to create a general corporate conspiracy statute.
Mohawk then turned to its second theory: even if corporations could be part of an enterprise-in-fact, under Reves the plaintiff must show that the corporation participated in the enterprise’s affairs, not just its own. Here, plaintiffs only alleged that Mohawk had engaged in illegal hiring (even if it did so jointly with outside recruiters, with a common purpose), conduct that is purely its own affair. To say that the company’s hiring activities were part of the affairs of a separate enterprise would greatly expand RICO into a general conspiracy statute. Justice Souter disagreed on the facts, pointing to respondents’ allegation that Mohawk provided fake identification to the hires. That wasn’t something corporations do as part of their affairs. Mohawk conceded that this single allegation came the closest to establishing participation, but maintained that this was still something Mohawk did internally with its own workers; at an appropriate level of abstraction it was still about hiring. The fact that it was illegal did not take it outside of Mohawk’s own affairs, as established by Reves. And even if it were an activity outside of Mohawk’s normal affairs, that doesn’t it automatically make it the enterprise’s affair. Justice Souter was skeptical, asking if the ID allegation didn’t establish a joint scheme with the outside recruiters to recruit illegal workers, with each party contributing something to the scheme. Chief Justice Roberts then wanted to know what Mohawk could do that would be enough — what if it sold fake IDs to employees, is that outside its own affairs? Mohawk answered that in that case, like this one, Mohawk could be the enterprise. The problem here is that plaintiffs are making up an imaginary enterprise in order to go after Mohawk as a defendant.
Justice Scalia was inclined to agree with that characterization, but didn’t see how Mohawk’s standard was workable, and why the Court should get the lower courts into the messy business of deciding when a corporation had somehow gone beyond its own affairs. Mohawk answered that this is exactly what Reves says to do. Further, the proper focus is first on the putative enterprise: ask what are the enterprise’s functions, and then ask whether the defendant was doing those things. Justice Souter again thought Mohawk was doing what the enterprise does: provide cover for illegal workers in order to employ them.
Respondents began by emphasizing that even if Mohawk wanted to be the enterprise in this case and not the defendant, the plaintiff is master of its complaint. The Chief Justice, Justice Alito, Justice Scalia, and Justice Kennedy wanted to know how the text of the statute could permit corporations to be part of an enterprise-in-fact when the statutory definition of “enterprise†refers to “individuals†rather than “persons,†the term normally used to cover both individual people and corporations. Moreover, they suggested, the statutory definition appears to provide an exhaustive list in the first part of the where individuals were listed apart from corporations. Respondents tried a couple theories, including the presence of the word “union” in the definition, but the Justices were skeptical. Respondents then argued that by defining “enterprise†to “include†individuals, Congress did not mean to provide an exhaustive list in the definition, which could also include corporations. Respondents noted that the Court had relied on the difference between “requires” and “includes” in a previous case — Sedima. Justice Ginsburg then suggested the Court shouldn’t even be considering the issue because it was not properly before the Court because the question did not fall within the scope of the order permitting an interlocutory appeal, with which respondents agreed. Justice Kennedy, however, disputed that the interlocutory posture of the case changed anything, since appeals courts certify rulings and not questions like the Supreme Court does.
Chief Justice Roberts, eventually joined by Justices Souter and Scalia, wanted to understand why this was properly a RICO case and not simply a generic corporate conspiracy case to be handled under state law. Respondents emphasized that the relationship constituting the enterprise was long term and engaged in a pattern of racketeering acts. The Justices seem concerned that this simply meant that Mohawk had hired more than one person, and that any contractual relationship could trigger RICO, thus “RICO-izing” all of corporate conspiracy law. Respondents answered that the statute required at least 10 incidents per year for two years in the case of illegal hiring predicate activity.
Respondents then emphasized that Mohawk’s proposed test was unworkable, because corporations would always characterize their racketeering activity as part of their usual business affairs, at least at some level of abstraction. All corporations hire workers, so corporations would seem to be immune from any RICO claim alleging that an enterprise to which the corporation belonged was committing crimes involving hiring, even though Congress intended for illegal hiring to be covered by RICO. There will always be overlap between what the enterprise does and what the defendant corporation does, because under the Court’s ruling in Turkette, plaintiffs must show that members of the enterprise-in-fact have a common purpose. Thus, Mohawk’s rule would turn the Turkette requirement into an immunity.
The government argued next as amicus, supporting the respondents. The Assistant Solicitor General began by conceding that the list used to define enterprise did not include associations composed of corporations. But, he argued, the definition does exclude such enterprises either because by using “includes,” Congress meant the list only to be illustrative. Had Congress not defined enterprise, the term would clearly cover corporate associations-in-fact. So they are part of the background understanding, and the failure to list them in an illustrative list does not remove them from the definition.
Justice Alito asked if Congress hadn’t really been using “includes” to mean “means” throughout the statute, and Justice Scalia wanted to know why Congress also used “includes but not limited to.” The government answered that the Court has always assumed (and should continue to assume) that when Congress uses both “means” and “includes” in the same section, it does so advertently. Congress’ use of “includes but not limited to” elsewhere does not change this, because that was in a different section where “means” was not also used, so Congress wanted to be extra careful there.
Justice Breyer suggested that it might make sense for Congress to limit association-in-fact enterprises to individuals, because Congress was worried about organized crime families, who operated through loose arrangements of individuals and not as corporations. Having RICO apply more broadly to associations involving corporations would “RICO-ize†a lot of conspiracy law. Congress defined “enterprise†broadly in some respects, in order to effectively reach its target — the mafia. But it had no motivation to go further. Why read the statute to RICO-ize even more conspiracy law when there was no clear intent? The government conceded that Congress was thinking about the mob when it wrote the statute, and probably didn’t have corporations in mind. But it also clearly didn’t mean to exclude corporations, and so “enterprise” should be given its broad background meaning. Congressional Reports also indicate that Congress thought it would be reaching any informal group with the statute, although that doesn’t show specifically that it meant to reach collections of corporations.
Justice Scalia wondered if Mohawk hadn’t at least demonstrated that the statute was ambiguous on this point, and that the rule of lenity should then control. The government disagreed that the statute was ambiguous, because the “means”/”includes” dichotomy was so established in precedent and Congress should be able to rely on it. Justice Scalia suggested again that this was undercut by Congress’ use of “includes” in other plainly comprehensive definitions. The government conceded that some other definitions using “includes” might be “exclusive” in the sense that Congress had listed all plausible choices. But they were not “legally exclusive” in the sense that if courts came across another example that seemed to fit it would be forced to throw it out. For example, “racketeering activity” is defined to “mean” a specified list of crimes. Courts can’t add to that list any other crimes, even if they look like traditional mafia racketeering conduct. “Attorney general,” on the other hand, is defined to “include” pretty much every plausible interpretation of that designation — anyone who might make policy in the area for the US Attorney General. But that doesn’t mean that if another officeholder came along that seemed to fit the definition that courts should feel compelled to exclude him.
Justice Scalia then wanted to know the best lower court opinion extending enterprise-in-fact to corporations. The government agreed with Mohawk that those opinions lacked great analysis, and stated that it also wasn’t aware of any dissents on that issue.
Turning to the second issue, the government argued that there was no rule that a corporation couldn’t be conducting both its own business affairs and the enterprise’s affairs at the same time. For example, it cited HJ, Inc., in which a utility company bribed the utility commission to convince them to approve a rate increase. At a high enough level of abstraction, convincing the commission to approve a rate increase is the utility’s business affair.
In rebuttal, Mohawk pointed out that HJ preceded Reves, and then sharply disputed the government’s argument that there was some relevant, controlling “background” definition of “enterprise.” Enterprise, Mohawk argued, was the lynchpin of the statute, and Congress had carefully defined it. It is not for the Court to amend that definition, and to further expand RICO to swallow corporate conspiracy law.
