Today’s Argument in Mohawk Industries, Inc. v. Williams

On Wednesday, the Court will hear argument in a case that will clarify what kinds of arrangements involving corporations qualify as “enterprises” under the Racketeer Influenced and Corrupt Organizations Act (RICO). In particular, the question is whether a corporation acting in concert with outside recruiters and staffing agencies to hire illegal aliens can constitute an “enterprise-in-fact,” such that the corporation can be sued as a distinct member of the enterprise. The Eleventh Circuit held that petitioner Mohawk, which is accused of engaging in such a scheme, is subject to suit under RICO. Mohawk argues that such a rule transforms any contractual relationship involving a corporation into a RICO enterprise, thus federalizing the criminal law of conspiracy. The respondents — Mohawk employees who allege that Mohawk’s practices depressed their wages — argue that Mohawk is seeking to entirely immunize corporations from RICO claims. The United States, which frequently brings both civil and criminal RICO charges against corporations, filed an amicus brief supporting respondents.

Carter Phillips of Sidley Austin in Washington will argue for Mohawk. Howard W. Foster of Johnson & Bell in Chicago will argue for respondents. Malcolm Stewart, Assistant to the Solicitor General, will argue for the United States as amicus curiae supporting respondents.

The parties’ briefs can be found here.
The government’s amicus brief can be found here.

First, some quick background on RICO. That statute imposes strong criminal and civil (including treble damages and attorney’s fees) liability on “persons” who commit a pattern of certain specified “racketeering activity” in connection with an “enterprise.” Importantly, the statute 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.” The last (emphasized) part is known as an “association-in-fact” enterprise. The Court has previously held that the RICO defendant (the “person” under the statute) must be distinct from the enterprise, and must have participated in the conduct of the enterprise’s affairs, not simply its own affairs. In other words, if someone wants to sue a corporation as a RICO defendant, the theory can’t be that the corporation was the enterprise (if the corporation is the enterprise, individual officers could still be sued, but not the corporation itself). The plaintiff must instead allege that the corporation was part of another enterprise. That’s what respondents have done here — alleging that Mohawk formed an association-in-fact enterprise with outside recruiters and staffing firms.

Mohawk argues that such an arrangement cannot be an enterprise under RICO for two reasons.

First, Mohawk argues that under the plain text of the statute, corporations can never be part of an association-in-fact enterprise. It notes that the statutory definition of “enterprise” specifically includes “individual[s], partnership[s], corporation[s]” and other legal entities in the first part, but then lists only a “group of individuals” in the association-in-fact part of the definition. Unless the first part of the definition is mere surplusage or – contrary to canons of statutory interpretation – the term “individual[s]” must thus refer only to natural persons, not corporations. And so under the canon of expressio unius, the textual limitation of association-in-fact enterprises to “groups of individuals” is significant. Mohawk argues that this limitation makes sense because when Congress enacted RICO it was primarily concerned with organized crime, and in particular the mob’s infiltration of unions and legitimate businesses — i.e., situations where the corporation is the “enterprise” as the victim or the tool of the racketeering, not where the corporation is the defendant as the racketeer using an enterprise. Mohawk also relies on the rule of lenity — arguing that the statute is at least ambiguous and so as a criminal prohibition it should be read narrowly.

There are three main problems with this argument. First, Mohawk didn’t raise it below and appears even to have argued to the contrary. Second, the statutory definition begins with the language “‘enterprise’ includes any individual [or] partnership.” Mohawk argues that this is a context in which “includes” is meant to be comprehensive, pointing to the first part of the definition, the fact that several other definitions in RICO employ “includes” but are clearly comprehensive, and that Congress elsewhere used “includes but is not limited to” when it wanted an open definition. Respondents and the government place great emphasis on the word “includes” and point out that about half of the definitions in that section use “includes” while the other half use “means,” and that by using both Congress must have intended them to have different implications. Third, for decades, every circuit court to address this question has found the association-in-fact construct to encompass corporations. While the Court is of course not bound in any way by the lower courts, it may be hesitant to overturn uniform, settled law (especially if it had no idea the issue would be raised when it granted cert). The Court may also be persuaded by the reasoning of the lower court opinions, which rely on the fact that RICO has always been understood to be much broader than an anti-mob statute and contains a provision calling for liberal interpretation, and that it would be absurd to exclude the more complicated forms of enterprise (involving collections of incorporated entities) from the statute’s reach. Congress may also be seen to have ratified this understanding by amending RICO in light of the lower courts’ interpretation — for example it specifically added hiring undocumented workers as a predicate racketeering activity in 1996 and may have expected corporate employers to be the targets of suits in this vein.

Mohawk’s second argument is that even if corporations can be part of an enterprise-in-fact, a corporation does not become part of a distinct enterprise through arm’s length negotiations with third parties for essential business services, when it is simply acting “qua employer.” Mohawk emphasizes that the RICO “person” (defendant) must be distinct from the enterprise and must participate in the enterprise’s affairs, distinct from its own. It relies heavily on Reves v. Ernst & Young, in which the Court held that a defendant accounting firm did not participate in the affairs of its client (a note issuer), the enterprise. It also relies on the uniform holdings of lower courts that neither a corporation and its employees nor a corporation and its subsidiary organizations may form a distinct enterprise. The intuition is that a corporation’s exposure to RICO liability shouldn’t turn on whether it happens to perform certain functions (like accounting, legal services, or recruiting) in-house or instead contracts out; RICO shouldn’t provide an incentive for vertical integration.

Respondents suggest that these lower court opinions are incorrect in light of Cedric Kushner Promotions v. King (which held that a sole shareholder/officer/employee was sufficiently distinct to be the “person” involved in his corporate “enterprise”). The government agrees with the lower court opinions, but believes the distinction stems partly due from concern with pleading tactics and partly from the natural result of the Court’s precedents and the traditional understanding that criminal conspiracy between multiple parties is more dangerous than solo criminal activity. Respondents argue that Mohawk’s proposed standard is unworkable — a corporation would attempt to characterize any activity as essential to its business operations, and it shouldn’t be the case that the more control a corporation has or the more relevant the conspiracy to its business the harder it is to establish a RICO claim. RICO requires that enterprise participants share a sustained common purpose, but Mohawk’s standard would mean that too much of a common purpose would collapse the enterprise. Mohawk counters that under respondents’ and the government’s standard, any conspiracy involving a corporation would amount to a RICO enterprise, thus turning RICO into a general conspiracy statute which it was not intended to be.

The government also argues that Mohawk’s arguments would tremendously undercut its ability to enforce RICO against corporate misdeeds. It notes that it often brings cases against corporate defendants as members of a larger enterprise, because such conspiracies can be easier to prove and result in more equitable remedies. Mohawk replies that both the government and private plaintiffs have many other tools available to go after corporate misdeeds, and that many of the government’s concerns could be solved by simple repleading.