A chance to fill some RICO gaps

On Monday, the Supreme Court decided two of its pending cases without deciding issues that those cases raised — important issues under the RICO anti-racketeering law that have divided the lower courts. Now, it has the option of taking up both bypassed questions in a single new case, one scheduled for consideration at this week’s Conference on Thursday, according to the Court’s electronic docket. It is the case of DuPont Co. v. Living Designs, Inc. (05-1136). The petition and lower court ruling can be found here.

In one of Monday’s cases, Mohawk Industries v. Williams, et al. (05-465), the Court had agreed in December to provide guidance on the concept of “enterprise” under RICO. Since a company sued under RICO must take part in a larger enterprise, the issue is whether a company conducting its own affairs is an enterprise when it does so in joint activities with agents that assist it but are separate from it. In the Mohawk case, the agents working with the carpet manufacturer were separate, outside recruiting agencies. The claim was that the company and the recruiters together arranged to hire illegal alien workers, thus allowing it to depress wages for its legal hourly employees. When the Court decided that case on Monday, however, it passed up the “enterprise” question, and instead sent the case back to the Eleventh Circuit to consider whether the hiring practices actually were the identifiable cause of injury to the complaining hourly employees — incidentally, a question the Court had not agreed to review.

In the new DuPont case, the issue is whether a company and the lawyers representing it in litigation can, together, make up a RICO enterprise. DuPont, the chemical company, had been sued by farmers and operators of agricultural nurseries, claiming that the company engaged in fraud by trying to induce settlement of earlier product liability lawsuits involving a DuPont fungicide. The challengers contended that DuPont and its lawyers in those earlier lawsuits engaged in litigation misconduct, including discovery fraud, with the result that those cases were settled for less value than they otherwise would have garnered. Lower courts found that this joint activity did amount to a RICO “enterprise.” It is apparent that the Court had been holding the DuPont case, awaiting the outcome of Mohawk. Thus, the “enteprise” issue is before the Court anew in DuPont.

In the case of Anza v. Ideal Steel Supply Corp. (04-433), the Court had agreed last November to decide whether a company seeking damages under RICO for alleged mail or wire fraud had to prove that it directly relied on the fraudulent conduct, and that this reliance resulted in injury. The Court had shown an interest in that issue earlier, in Bank of China v. NBM (03-1559), but had dismissed that case after it was settled out of court. In Anza, the issue arose in a dispute between suppliers of steel products, with one claiming that the other gained an unfair competitive advantage because it failed to collect sales taxes from its cash-paying customers, thus enabling it to keep its prices lower. In resolving that case, however, the Court did not decide the “reliance” issue directly. Instead, it found that the suing company could not show the tax scheme had resulted in its injuries — the so-called “proximate cause” issue.

In the new DuPont case, the reliance issue is posed again, and it is apparent that the case was being held by the Court in part part because the Anza case was pending on that issue. In DuPont, the Ninth Circuit had ruled that proof of reliance was not necessarily required. The DuPont appeal argued that, if the Court did not decide that issue in Anza, “this case presents an ideal vehicle to address” it. The petition noted that the Court not only had now agreed twice to confront that issue, but also that it had asked the Solicitor General for the government’s views on that issue in the Bank of China case.

Of course, the mere fact that a new case poses unanswered questions is not a guarantee that the Court will accept that next dispute for review. But, in view of the lack of guidance in Monday’s decisions on either of the two RICO issues, and in view of the continuing Circuit Court split, the chances of review would appear to be greater. If the case were to be sent back to lower courts on the basis of Monday’s outcome in either Mohawk or Anza, it is not entirely clear what guidance those rulings would provide for the remand.