Government Civil RICO actions and labor unions: Reorganization and innocent persons

John J. Flood Bio & Jim McGough (Biography)
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58 Geo. Wash. L. Rev. 125

November, 1989 / January, 1990

58 Geo. Wash. L. Rev. 125

NOTE: GOVERNMENTAL CIVIL RICO ACTIONS AND LABOR UNIONS: REORGANIZATION AND INNOCENT PERSONS. *

* This Note was developed by Michael C. Liebman.

SUMMARY:
... In 1970 Congress passed the Racketeer Influenced and Corrupt Organizations Act (RICO or the Act) in a bold attempt to strengthen the laws against organized crime. ... Subsection (b) makes it unlawful for a person through a pattern of racketeering activity or the collection of an unlawful debt to acquire or maintain an interest in such an enterprise. ... In Local 560 I the federal district court in New Jersey imposed sweeping relief on a Teamsters local in Union City, New Jersey. ... I. RICO and the Innocent Persons Clause ... A complaint that alleges a subsection (b) violation might allege that a racketeer-controlled business (the RICO person) has taken control of another business (the RICO enterprise) through various acts of extortion and bribery committed by the racketeers in their capacity as owners of the first business. ... An interpretation more compatible with the statutory language, but still acknowledging this concern, might go as follows: "Reorganization" means any injunctive relief, short of dissolution, working against the enterprise in its existence as an entity composed of RICO violators and innocent persons. ... This Note argues that a court cannot impose a judicial trusteeship on a labor union in order to remedy a RICO violation in a suit by the government. ...

TEXT:
Introduction

In 1970 Congress passed the Racketeer Influenced and Corrupt Organizations Act ¹ (RICO or the Act) in a bold attempt to strengthen the laws against organized crime. The statute defines new federal criminal and civil offenses and authorizes severe penalties and sweeping remedies. RICO section 1962 created four new crimes consisting of improper relationships between "persons" and "enterprises." The Act defines both terms broadly. ² Subsection (a) declares unlawful a person's investment of income derived from a "pattern of racketeering activity" ³ or through "collection of an unlawful debt," ⁴ or the profits from such income, for purposes of acquiring an interest in, establishing, or operating an enterprise affecting interstate or foreign commerce. ⁵ Subsection (b) makes it unlawful for a person through a pattern of racketeering activity or the collection of an unlawful debt to acquire or maintain an interest in such an enterprise. ⁶ Subsection (c) makes it unlawful for any person "associated with any enterprise" to conduct the enterprise, or to participate in its conduct, "through a pattern of racketeering activity or collection of an unlawful debt." ⁷ Finally, subsection (d) declares it unlawful to "conspire to violate" any of the substantive subsections. ⁸

Sections 1963 and 1964 set forth the penalties and remedies. Section 1963, the criminal provision, provides for a fine of up to $ 25,000; imprisonment of up to twenty years; and forfeiture by the convicted defendant of any interest "acquired or maintained" in violation of section 1962, any right of any kind with respect to an enterprise established, operated, controlled, or conducted in violation of section 1962, and any property or proceeds acquired through racketeering activity. ⁹ Section 1964 creates a private and a public cause of action. The former provides for treble damages, costs, and a reasonable attorney's fee. ¹⁰ The latter permits federal courts to

prevent and restrain violations of section 1962 . . . by issuing appropriate orders, including, but not limited to: ordering any person to divest himself of any interest, direct or indirect, in any enterprise; imposing reasonable restrictions on the future activities or investments of any person, including, but not limited to, prohibiting any person from engaging in the same type of endeavor as the enterprise engaged in, the activities of which affect interstate or foreign commerce; or ordering dissolution or reorganization of any enterprise, making due provision for the rights of innocent persons. ¹¹

In the last few years the federal government has used RICO's civil provision to "reorganize" various labor unions. The government's first victory in this area occurred in 1984 in United States v. Local 560, International Brotherhood of Teamsters (Local 560 I). ¹² In Local 560 I the federal district court in New Jersey imposed sweeping relief on a Teamsters local in Union City, New Jersey. The Local 560 I-court found, inter alia, that the members of the executive board of Teamsters Local 560 aided and abetted violations of RICO section 1962(b) by facilitating the unlawful acquisition and maintenance by others of an interest in the union. ¹³ More specifically, the court found that the union officers aided and abetted the extortion of the union membership's rights to union democracy under federal law by facilitating the use of actual or threatened force or violence, or fear of economic harm against the membership. ¹⁴ Invoking its power to prevent and restrain violations of RICO section 1962, the court removed the local's executive board in favor of a judicial trusteeship "for an appropriate period of time." ¹⁵

On appeal, a panel of the Court of Appeals for the Third Circuit affirmed, holding that the remedy imposed was a proper exercise of the district court's authority under RICO section 1964. ¹⁶ After denial of certiorari by the Supreme Court, ¹⁷ the district court appointed a trustee with broad powers to run the union's affairs. ¹⁸ Since Local 560 I, the government has brought RICO section 1964-suits against three other unions and has won similar relief through court-approved consent decrees or preliminary injunctions. ¹⁹

This Note argues that RICO section 1964(a) does not empower federal courts to reorganize unions in the manner of Local 560 I. The Local 560 I model violates the final clause of RICO section 1964(a), which requires that courts make "due provision for the rights of innocent persons." ²⁰ Part I of this Note examines the structure of RICO's remedial section and the "innocent persons clause." Part II draws an analogy between the argument of this Note and the limited enterprise immunity that has emerged in private and criminal RICO actions. Finally, Part III refutes three arguments against this Note's contention that the innocent persons clause limits the breadth of RICO's remedies. ²¹

I. RICO and the Innocent Persons Clause

RICO section 1962 requires a certain interaction between a "person" and an "enterprise" in order to establish a violation of the Act. ²² Although RICO defines the terms "person" and "enterprise" broadly enough so that both definitions may apply to a single entity, ²³ under section 1962 only "persons" can violate RICO; "enterprises" cannot directly violate the Act. In a criminal action under section 1963, or in a suit under section 1964, the government or the private plaintiff must take care to frame the indictment or complaint to allege a violation of the Act by a RICO "person." ²⁴

Thus, a complaint that alleges a violation of section 1962(a) might allege that an individual (the RICO person) has used racketeering profits to purchase a share of a legitimate business (the RICO enterprise). A complaint that alleges a subsection (b) violation might allege that a racketeer-controlled business (the RICO person) has taken control of another business (the RICO enterprise) through various acts of extortion and bribery committed by the racketeers in their capacity as owners of the first business. Finally, a complaint that alleges a subsection (c) violation might allege that a union officer (the RICO person) has conducted the union's (the RICO enterprise's) affairs in a pattern of fraudelent and extortionate activity.

Although only a RICO person can violate section 1962, the Act's criminal and civil provisions affect the RICO enterprise. Under RICO section 1963, the convicted RICO person must forfeit any "interest in[,] security of[,] claim against[,] or property or contractual right of any kind affording a source of influence over . . . any enterprise." ²⁵ And under RICO section 1964, a court may use its equitable powers to order "dissolution or reorganization" of the enterprise. ²⁶

This latter provision furnishes the basis for a court to impose a trusteeship upon a union. It is the only RICO provision that expressly authorizes a court to act directly upon the enterprise. ²⁷ Ironically, under this provision a court may impose civil liability, in the form of equitable relief, upon an entity that has not even been accused of any unlawful activity. ²⁸

This unique character of the dissolution and reorganization remedy explains the purpose of the innocent persons clause. Section 1964(a) sets forth three sets of possible remedies: "ordering any person to divest himself of any interest . . . in any enterprise; imposing reasonable restrictions on the future activities or investments of any person . . .; [and] ordering dissolution or reorganization of any enterprise," ²⁹ The first two sets of remedies authorize a court to act upon the RICO person. The last set authorizes a court to act upon the RICO enterprise, i.e., the entity that the RICO person has unlawfully acquired, maintained, established, operated, or conducted. The innocent persons clause is appended to, and affects only, this final set of remedies. It is here, of course, that it is clearly needed. Under the dissolution and reorganization remedy, a court exercises its authority upon an entity that has not been accused of unlawful activity. Typically, this entity is composed of numerous individuals who similarly have not been accused of unlawful activity, but who have important interests in the entity. ³⁰

II. Limited Immunity for the RICO Enterprise

Courts have not recognized the distinction between remedies imposed on the RICO person and those imposed on the RICO enterprise. A limited immunity for enterprises has developed, however, in the case law under private civil RICO. Although the language of section 1964(c) is unclear on this point, ³¹ the sounder rule is that only the RICO person is directly liable for RICO violations under section 1964(c). ³² Treble damage liability might attach to the enterprise, however, if the enterprise and the person are identical, ³³ or if the enterprise is derivatively liable. ³⁴ The general rule that has emerged is that the enterprise may not be liable under either theory absent some showing that the enterprise has benefited from the RICO person's racketeering activity. ³⁵ A parallel rule has emerged in criminal RICO cases and holds that the RICO enterprise must always be distinct from the RICO person. ³⁶ Courts have justified these rules by reasoning that certain RICO violations victimize the enterprise as much as the plaintiff. ³⁷

An example might be a RICO violation in which a chief executive officer (the RICO person) has embezzled funds (the pattern of racketeering activity) from his employer corporation (the RICO enterprise). Under such circumstances it would be anomalous to hold that a private plaintiff (a minority shareholder, perhaps) has a direct RICO action against the corporation or that the corporation is derivatively liable. It would similarly be anomalous to permit the government to prosecute the corporation directly for conducting its own affairs (through the acts of its officer) in a pattern of racketeering activity.

The policy rationale for limited enterprise immunity was set forth succinctly in two private civil RICO cases. In Haroco, Inc. v. American National Bank & Trust Co., ³⁸ the first appellate decision that partially immunized enterprises in private civil RICO actions, a Seventh Circuit panel considered a plaintiff's appeal from a dismissal of a RICO complaint. ³⁹ Several businesses had sued the American National Bank and Trust Company of Chicago, its officer-director, and its parent corporation for allegedly defrauding the plaintiffs in the calculation of the variable interest rate applicable on loans made to them by the bank. ⁴⁰ The complaint alleged that the bank violated RICO section 1962(c) by conducting itself and its parent corporation through a pattern of racketeering activity and that the parent corporation and the individual defendant violated section 1962(c) by conducting the bank through a pattern of racketeering activity. ⁴¹ The court upheld the dismissal of the claim that the bank conducted itself through a pattern of racketeering activity. ⁴² The court held that this result was in accord with "the primary purpose of RICO" -- "to reach those who ultimately profit from racketeering, not those who are victimized by it." ⁴³

A Third Circuit panel used similar language in Hirsch v. Enright Refining Co. ⁴⁴ A jewelry manufacturing firm had successfully sued a gold refiner for allegedly retaining, without authorization, scrap gold the plaintiff had sent to be refined. ⁴⁵ The plaintiff had alleged that the defendant refining company violated RICO section 1962(c) by conducting its own affairs through a pattern of racketeering activity. ⁴⁶ The appellate court held such a claim to be improper because section 1962(c) is "orient[ed] . . . toward punishing the infiltrating criminals rather than the legitimate corporation which might be an innocent victim of the racketeering activity." ⁴⁷

This logic applies with equal force when the government brings RICO suits against labor unions under section 1964(a). In such suits the government typically alleges that a group of individuals, the RICO persons, has violated the Act by infiltrating or corruptly operating a labor union, the RICO enterprise. These cases never suggest that the union has benefited from the activities of the racketeers, a state of affairs that would preclude enterprise immunity in most private RICO actions. ⁴⁸ Rather, courts view the union members as suffering under the domination of the racketeers. ⁴⁹ Often, in fact, the acts making up the pattern of racketeering activity, known as the "predicate" acts, include denying union members their federal labor law rights ⁵⁰ or improperly using union funds. ⁵¹ If a private party, such as an aggrieved employer, could not recover against the union in a section 1964(c) suit, the government's ability to reach the union under section 1964(a) ought to be similarly restricted. The innocent persons clause provides statutory language to justify such a restriction.

There are, of course, limits to the analogy between private and public civil RICO actions. ⁵² If a plaintiff wins a private civil RICO suit against a legitimate enterprise, the enterprise must compensate the plaintiff for damages, costs, and attorney's fees, as well as face punishment through the treble damage mechanism. When the government sues under RICO and seeks to reach the enterprise, it seeks only to reorganize the enterprise if it has been infiltrated by racketeers, or to dissolve it if, perhaps, the enterprise's very existence is unlawful. In theory, no one is being punished; by reorganizing the enterprise, the government acts to vindicate the interests of those enterprise members who have not committed RICO violations. Thus, when a union is "reorganized," as in Local 560 I, the government purportedly returns control of the union to its law-abiding members.

Therefore, immunity under section 1964(c) might not justify immunity under section 1964(a). When a legitimate enterprise is victimized by racketeers, it is appropriate to immunize the enterprise from legal, i.e., monetary, liability. Nevertheless, the same victimization strengthens the argument that the enterprise ought to be subject to far-reaching reorganization under a court's equitable powers when the government sues; only in this manner can the enterprise be freed from racketeer domination.

In the appeal of Local 560 I, the appellate panel briefly discussed this issue. In United States v. Local 560 of the International Brotherhood of Teamsters (Local 560 II), ⁵³ the court rejected appellants' arguments that a trusteeship "force[s] the membership, which has not violated the RICO Act, to forfeit its interest in the union," and that "it is impermissible to punish a party under section 1964(a) if that party has not been found to have violated the Act." ⁵⁴ The court held that a trusteeship does not punish the Local 560 membership. Because the court was upholding the trial court's finding that the membership no longer controlled the union, the Local 560 II court reasoned that a temporary trusteeship protected, rather than "forfeited," the members' rights. ⁵⁵

The Local 560 II appellants might have merely overstated their case. Technically, a district court in a section 1964(a) case cannot impose a forfeiture on a civil RICO defendant, the RICO person, let alone the RICO enterprise. A forfeiture is punitive in nature and would require at least some of the protections the Constitution grants to criminal defendants. ⁵⁶ Congress, however, drafted civil RICO with the goal of avoiding these protections, ⁵⁷ and courts have held that they are not required. ⁵⁸ By stating that the trial court was not punishing the union membership, the Local 560 II court avoided the question of whether the trial court imposed civil liability on the membership, even though they had not been accused of misconduct.

An examination of the relief imposed by the Local 560 II court reveals that the members were indeed subject to the district court's broad injunction. ⁵⁹ The court instituted the Local 560 trusteeship on June 23, 1986. ⁶⁰ On May 12, 1987, the court specified that the trustee's powers included the power to "enter into negotiations, execute contracts, pursue grievances, conduct organizing campaigns, and otherwise direct and engage in all lawful activities of Local 560," and the power to "make all determinations with respect to the affairs of Local 560 in any and all aspects of its operations." ⁶¹ The trusteeship has lasted for over three years. ⁶² During this time the union members have been enjoined from exercising their rights under the Wagner Act ⁶³ to "bargain collectively through representatives of their own choosing." ⁶⁴ Thus, although the government's purpose in bringing the action was not to impose liability on the Local 560 membership, such liability was the practical effect of the relief the government requested.

If presented with this argument, the Local 560 I court likely would have responded that the trusteeship would only deny the membership's Wagner Act rights temporarily. Ultimately, the relief would fully restore the members' organizing rights and thus improve their situation from what existed prior to the government's suit. Nonetheless, the fact that after the relief is complete the members will have their rights restored does not satisfy the statute's mandate that the court provide for rights of innocent persons when the relief is imposed, i.e., during the period of reorganization. The broad relief imposed in Local 560 I did not make any such provisions.

Moreover, denying any sort of immunity to the enterprise in a section 1964(a) case would ignore the structure of the subsection. When Congress enacted RICO, it was aware that racketeers had infiltrated labor unions and other legitimate organizations. ⁶⁵ This awareness explains why section 1964(a) permits a court to exercise its remedial powers directly on the enterprise. ⁶⁶ Congress recognized, however, that many innocent persons would have vested interests in the enterprise and thus qualified a court's power in this regard.

Haroco and its progeny similarly recognize these interests by creating a limited immunity for enterprises. The Haroco line of cases does judicially in section 1964(c) what Congress did statutorily in section 1964(a): protect innocent members of legitimate enterprises. Haroco and other cases protect the investments of such people by limiting the situations in which a court may impose monetary liability on the enterprise. This Note's position would protect less tangible interests of innocent persons that may be threatened by the broad equitable relief available in section 1964(a).

III. Refuting the Arguments Against a Functional Interpretation of the Innocent Persons Clause

There are three possible arguments against this Note's interpretation of the innocent persons clause of section 1964(a). The first is based on principles of statutory construction and has two parts. The first part posits that the clause, like most of section 1964(a), is only suggestive because the list of remedies it follows is expressly nonexclusive. ⁶⁷ The second part argues that trusteeships can be considered as injunctions against the defendant union officers; under the language of section 1964(a), such injunctions are not governed by the innocent persons clause.

The second argument is based on section 904(a) of the Organized Crime Control Act of 1970 ⁶⁸ (OCCA) and several Supreme Court RICO decisions. OCCA section 904(a), which is appended to RICO and known as the liberal construction clause, states that "[t]he provisions of . . . [OCCA title 9] shall be liberally construed to effectuate its remedial purposes." ⁶⁹ This argument posits that this Note's proposed interpretation of the innocent persons clause is at odds both with this provision and with rulings of the Supreme Court that require courts to read RICO broadly.

The final argument recognizes the significance of the innocent persons clause but asserts that it imposes no restrictions on courts other than those they impose on themselves. This final argument analogizes RICO to the federal antitrust laws, after which RICO was fashioned, and concludes that there are no limits on judicial relief under RICO other than that the relief must terminate the statutory violation.

This Note now addresses each of these arguments in turn.

A. The Argument of Statutory Construction

The first part of the argument of statutory construction is straightforward. All remedies in section 1964(a) are suggestive and are given only as examples. The preliminary clause of the provision, which introduces the remedies with "including, but not limited to," ⁷⁰ makes this fact clear. Therefore, the argument concludes, any limitation on one of the suggested remedies, such as the innocent persons clause, can be evaded by imposing an original remedy. The only statutory limit is that the remedy must be "appropriate"; ⁷¹ the only constitutional limit is that the remedy must not be punitive. ⁷²

This argument, however, does not comport with the interpretations of section 1964(a) offered by the congressional committees that considered the provision, as well as two federal courts. The House and Senate reports on OCCA both state that "the only limit on remedies [imposed under RICO section 1964(a)] is that they accomplish the aim set out of removing the corrupting influence and make due provision for the rights of innocent persons." ⁷³ In addition, Judge I. Leo Glasser of the Eastern District of New York has noted that "in fashioning equitable relief in RICO civil actions," "§ 1964(a) specifically requires that the courts make 'due provision for the rights of innocent persons.'" ⁷⁴ Finally, Judge David Edelstein of the Southern District of New York has stated that under section 1964(a) it is "the court's responsibility to fashion an equitable remedy . . . that makes 'due provision for the rights of innocent persons.'" ⁷⁵

The interpretation of these authorities admittedly ignores the specific language of section 1964(a), which does not expressly require courts to consider the rights of innocent persons in any and all remedies they might fashion. The innocent persons clause of the subsection modifies only the reorganization/dissolution remedy, and not the other two sets of remedies specifically listed. ⁷⁶ The interpretation does, however, indicate a concern both by Congress and the courts with the power that RICO vests in the judiciary. An interpretation more compatible with the statutory language, but still acknowledging this concern, might go as follows: "Reorganization" means any injunctive relief, short of dissolution, working against the enterprise in its existence as an entity composed of RICO violators and innocent persons. Thus, any judicial remedy capable of harming the interests of innocent persons within the enterprise is in fact a reorganization remedy subject to the limiting power of the innocent persons clause.

Aside from working within the section 1964(a)-language, this interpretation would prevent courts from ignoring the innocent persons clause merely by broadly defining the definitions of "divest" and "reasonable restrictions." ⁷⁷ These two remedies operate against the RICO person and are not affected by the innocent persons clause. This is the second branch of the statutory construction argument and is featured prominently in Local 560 II. In Local 560 II the court upheld the judicially imposed trusteeship as a valid exercise of the district court's power to order divestiture and to place restrictions on the activities of individuals. ⁷⁸ It is clear, however, that the district court was appointing a judicial officer to impose structural changes on the union in order to prevent the reemergence of racketeering influence. The lower court gave the trustee a broad mandate to bargain on behalf of the Local 560 members and to implement reforms to remove the union from racketeer control. ⁷⁹ Under the definition of reorganization proposed above, a trusteeship is clearly a reorganizational remedy because it reaches into the inner workings of the enterprise. Such a remedy is subject to the limitations of the innocent persons clause.

One might object that such an interpretation makes short shrift of the express language of section 1964(a), which provides that the list of remedies is not exclusive. This Note's interpretation, however, does not even theoretically affect a court's range of remedies available against RICO persons. Nor does it unduly restrict a court's use of its remedial powers against an enterprise. "Reorganization" is a term that can encompass a broad range of remedies.

For example, in United States v. Local 30, United Slate, Tile & Composition Roofers Association, ⁸⁰ the court exercised its power of "reorganization" to appoint a judicial officer to monitor collective bargaining sessions and to force a union to adopt a grievance/arbitration procedure. ⁸¹ The Local 30 court found that the defendant union officers had violated section 1962(d) and section 1962(c) by conspiring to conduct and conducting the union through a pattern of racketeering activity consisting of extortion, bribery, embezzlement, solicitation of kickbacks, and mail fraud. ⁸² The court considered but rejected the more drastic remedy of a trusteeship. ⁸³

More importantly, this Note's interpretation of section 1964(a) implements congressional intent to preserve the rights of racketeering victims who happen to have the misfortune to be members of the enterprise. The Senate Judiciary Committee specifically recommended the innocent persons clause as part of an amendment to RICO. ⁸⁴ This effort would have been wasted if a court could avoid the mandate of the clause merely by carefully characterizing its remedy.

B. RICO's Liberal Construction Clause and the Statute's Broad Remedial Purposes

The Supreme Court has invoked RICO's liberal construction clause, which mandates that the statute be "liberally construed to effectuate its remedial purposes," ⁸⁵ to justify a variety of RICO interpretations. In addition, the Court has observed that RICO should be interpreted broadly due to RICO's "expansive language" and Congress's "overall approach." ⁸⁶ In Sedima, S.P.R.L. v. Imrex Co., ⁸⁷ the Court relied on these two theories to hold that a private RICO plaintiff alleging a section 1962(c) violation need not show a "racketeering injury" -- a showing of injury flowing from the predicate acts alone is sufficient -- and that a prior conviction of the defendant, either for the predicate acts or under RICO section 1963, is not required. ⁸⁸ In Russello v. United States, ⁸⁹ the Court invoked the liberal construction clause to justify an expansive interpretation of criminal RICO's forfeiture provision. Russello held that insurance proceeds recovered by an arsonist are forfeitable even if they are not an interest in the enterprise alleged in the indictment. ⁹⁰ Finally, in United States v. Turkette, ⁹¹ the Court mentioned the clause when it held that RICO's enterprise definition covered "illegitimate" enterprises composed of groups of criminals, as well as legitimate organizations. ⁹² One could argue persuasively that this authority precludes the limitation on RICO proposed by this Note. ⁹³

Before considering whether this Note's proposal for a functional interpretation of the innocent persons clause can withstand the liberal construction clause and the Supreme Court's admonitions, it is necessary to determine whether there is an actual conflict. The liberal construction clause requires that RICO be "liberally construed to effectuate its remedial purposes." In addition, without relying on this provision, the Court has held quite simply that RICO "is to be read broadly." ⁹⁴ In giving life to the innocent persons clause, this Note literally follows the commands of these two authorities. Only by "liberally construing" and "broadly reading" section 1964(a) can courts be required to consider the rights of innocent parties in governmental RICO suits. In Sedima the majority chastised the dissent and the lower courts because their interpretation of section 1964(c), which would require allegations of some sort of "racketeering injury" on the part of private plaintiffs, "would in effect eliminate § 1964(c) from the statute." ⁹⁵ Rather than eliminating a RICO provision, adoption of this Note's proposal would actually recognize one that in the past has been ignored.

Similarly, to apply the innocent persons clause would advance the Act's remedial purposes. Civil RICO has two purposes: removal of organized crime from interstate commerce ⁹⁶ and protection or compensation of its victims. ⁹⁷ Application of the innocent persons clause promotes the latter purpose. RICO's legislative history, as well as case law, recognizes that victims of organized crime may be within the RICO enterprise. ⁹⁸ To apply RICO's reorganizational remedy only in conjunction with the innocent persons clause will prevent the former purpose of RICO from crowding out the latter.

Nevertheless, this Note will assume arguendo that a functional interpretation of the innocent persons clause is in tension with Supreme Court precedent and the liberal construction clause. This tension does not necessarily mean, however, that the innocent persons clause must be brushed aside. In spite of the formidable authority, on certain issues courts have restricted RICO's breadth. For instance, the liberal construction clause and the Turkette-Russello- Sedima line of cases have not halted the acceptance of a key restriction on the relief afforded private RICO plaintiffs. Most courts that have considered the issue have ruled that RICO does not afford private plaintiffs a right to equitable relief. ⁹⁹ This interpretation requires a narrow construction of two RICO provisions: section 1964(a), which grants courts jurisdiction to prevent and restrain RICO violations, and section 1964(c), which authorizes a private plaintiff to sue for treble damages, costs, and attorney's fees.

In addition, the Supreme Court has recently held that proving the element of a "pattern of racketeering activity" requires more than merely two acts of racketeering activity. This result is based on a narrow interpretation of RICO's definition of "pattern of racketeering activity," which states that such a pattern "requires at least two acts of racketeering activity." ¹⁰⁰ In H.J., Inc. v. Northwestern Bell Telephone Co., ¹⁰¹ the Court interpreted the word "requires," which Congress chose instead of "means," as indicating that two or more acts of racketeering activity are necessary but not sufficient to constitute a pattern; a relationship between or among the acts alleged must be shown. ¹⁰² A "broader" reading of the definition would not impose such a requirement. ¹⁰³

It is unclear precisely what standard suffices for a court to interpret RICO restrictively in spite of the liberal construction clause and certain Supreme Court holdings. Three recent RICO opinions, however, do offer a little guidance. In Grider v. Texas Oil & Gas Corp., ¹⁰⁴ a Tenth Circuit panel considered an appeal of a dismissal of four RICO claims alleging violations of section 1962(a) and section 1962(d). ¹⁰⁵ The predicate acts alleged consisted of multiple instances of mail fraud. ¹⁰⁶ At issue was whether a RICO plaintiff who asserts a claim founded on section 1962(a) must allege injury flowing from the unlawful use or investment of racketeering income or merely from the commission of the predicate acts. The court noted that section 1962(a) states in pertinent part that it is unlawful "'to use or invest, directly or indirectly, any part of such [racketeering derived] income.' " ¹⁰⁷ Because section 1964(c) gives a remedy to only those persons injured "'by reason of a violation of section 1962,'" the court upheld the dismissal. ¹⁰⁸ The court interpreted Sedima's holding, with regard to the nature of the injury that a plaintiff must allege, as applying only to claims that allege section 1962(c) violations, and stated that "the general principle that RICO is to be accorded a liberal interpretation cannot justify expanding section 1962(a) beyond the limits of that subsection's own language." ¹⁰⁹

In the second case, Schofield v. First Commodity Corp., ¹¹⁰ a First Circuit panel considered an appeal from a dismissal of a RICO claim alleging a violation, in this case, of section 1962(c). ¹¹¹ The district court had dismissed the claim because the plaintiff had sought to impose liability on the enterprise itself, alternatively because of its identity with the RICO person or under principles of respondeat superior. ¹¹² The appellate court upheld the dismissal and stated that its holding was not "inconsistent with the remedial purposes of RICO" because the "enterprise may be held liable under [a claim alleging a violation of] . . . § 1962(a)." ¹¹³ The Schofield court made this argument in spite of its own admission that because of the necessity of tracing funds, a section 1962(a) violation is more difficult to prove than a section 1962(c) violation. ¹¹⁴

Finally, in P.M.F. Services, Inc. v. Grady, ¹¹⁵ a federal district court in Illinois considered motions to dismiss brought by two defendants in an action asserting RICO and various state law claims. ¹¹⁶ With regard to the RICO claim alleging a violation of section 1962(a), the court faced the same issue that the Grider court would consider in a few months. The P.M.F. Services court reached the same conclusion as the Tenth Circuit when it held that a plaintiff who alleges violations of section 1962(a) must show injury arising from the investment or use of racketeering funds. ¹¹⁷ The court stated that "there is no reason (including the existence of [s]ection 904 of the Organized Crime Control Act of 1970 . . . calling for liberal construction of the RICO title) to treat civil RICO as though it falls wholly outside the legal principles that normally apply to statutes and their application." ¹¹⁸ The court implied that a plaintiff might find subsections (b) or (c) of section 1962 more helpful, noting that "[s]ection 1962(a) . . . need not provide a universal remedy to serve the purposes, or to fit the mandate, of [s]ection 1964." ¹¹⁹

The lesson of these cases is threefold. First, the liberal construction clause and the requirement that RICO be broadly interpreted do not resolve every dispute with regard to RICO's interpretation. Specific statutory language must be allowed to have an effect. Second, a restrictive interpretation of a RICO provision is permitted when one or more other provisions can be utilized to accomplish the result prevented by the restrictive interpretation of the provision under consideration. Thus, under Schofield, if a plaintiff wants to sue the enterprise directly, it must allege a violation of section 1962(a), not section 1962(c). Under Grider and P.M.F. Services, if a plaintiff can show injury resulting from only the racketeering activities themselves, it must allege a violation of section 1962(c), not section 1962(a). Third, it does not matter that these judicial detours burden the plaintiff. Thus, Schofield is valid in spite of the fund-tracing requirement of section 1962(a) that is not present in section 1962(c). Grider and P.M.F. Services are valid in spite of the fact that under section 1962(c) the defendant must be employed by or associated with the enterprise -- a requirement not present under section 1962(a).

These principles can be applied to Local 560 I. Under the first principle, the court must give effect to specific statutory language in section 1964(a), in this case the innocent persons clause. The court would be required, at the very least, to permit the union members to bargain through representatives of their own choosing during the period of a trusteeship. ¹²⁰

The second principle further justifies this requirement if the goals of the plaintiff can be accomplished under other RICO provisions. In Local 560 I, the government and the court were concerned that without a trustee running the union for a sufficient "curative period," racketeers (other than those barred forever from contact with the union) would gradually regain control. ¹²¹ Nonetheless, through a more rigorous use of the RICO statute, the court and the government could have accomplished this goal without violating the union membership's statutory rights. As a start, the government could have sought, and the court could have granted, an injunction barring all the individual defendants from any further contact with the union. ¹²² Instead, somewhat inexplicably, the court granted such relief against only two of the nine individual defendants. The court ordered the other seven ousted from only their current Local 560 leadership positions. ¹²³ Because these seven defendants would likely remain influential among the Local 560 rank and file, the court deemed it necessary to postpone elections until their influence waned. ¹²⁴ Thus, by not forever barring these defendants from positions of union leadership, the court was forced to impose a trusteeship. ¹²⁵

Had the Court barred all nine defendants from any future influence in the union, the court could then have exercised its reorganizational powers consistently with the innocent persons clause. First, the court could have appointed a judicial officer to manage for a lengthy period the union's welfare and pension fund, the union's severance pay fund, and the union's severance pay plan. Second, the court could have ordered new elections held within thirty days, to be supervised by another judicial officer. For a certain period afterward, the court could have also required supervision for all union elections and referenda. Third, the court could have required that the new union leadership get judicial approval prior to placing any person in an appointed leadership position. Finally, the court could have required that all collective bargaining and arbitration sessions be judicially monitored.

The above plan would likely have cleansed the union of racketeering influence over a few years. Moreover, the members of Local 560 would have continued to elect their bargaining representatives, which they could not do under the trusteeship actually imposed. Admittedly, the process of returning control of the union to its members under this Note's plan might be more difficult than under the trusteeship. The third principle of Grider, Schofield, and P.M.F. Services indicates, however, that such difficulty is an allowable cost to bear in order to give effect to express statutory language. More important, the cost is not so prohibitive when one considers that the union members will be retaining their collective bargaining rights.

C. The Antitrust Analogy

The final argument against a functional interpretation of the innocent persons clause posits that the clause is merely a "reminder" for courts to observe those principles that they generally adhere to when fashioning equitable relief under the antitrust laws. According to the argument, these principles do not bar a Local 560-style trusteeship.

This final argument can point to RICO's legislative history for reinforcement. The Senate Report on the OCCA cites the Supreme Court's decision in United States v. E.I. du Pont de Nemours & Co. ¹²⁶ The report's discussion of RICO section 1964 specifically quotes from the section of the du Pont opinion responding to the charge that the remedy of divestiture is too harsh. It states that " 'courts are authorized, indeed required, to decree relief effective to redress the violations whatever the adverse effect on private interests.' " ¹²⁷ The conclusion one could draw from this history is that the suggested remedies of section 1964(a), along with the innocent persons clause, are no more restrictive than if they had been written into the original antitrust laws.

There are two problems with this interpretation. First, the language from the du Pont case inserted into the Senate report was lifted verbatim from earlier remarks by RICO's primary Senate sponsor, Senator John L. McClellan. McClellan made these remarks, ¹²⁸ however, prior to the drafting of the first RICO version containing the innocent persons clause. ¹²⁹ Thus, the relevance of the du Pont discussion in the report to the innocent persons clause is somewhat doubtful. Second, the discussion of du Pont in the Senate report occurs in the context of a discussion of the divestiture remedy. ¹³⁰ A Local 560-style trusteeship, however, is a reorganizational remedy. ¹³¹

This second point merits closer attention. Du Pont stands for the proposition that the remedy of divestiture for antitrust violations is not blocked by considerations of the remedy's effect on private interests. This Note does not quarrel with applying this principle to RICO. Thus, RICO violators must sell their interest in enterprises they have infiltrated if a court deems such a remedy appropriate. Such divestiture may be the only way to halt the RICO violation. This principle can also be applied to another section 1964 remedy: imposing reasonable restrictions on the activities of RICO persons. Thus, a court has discretion to forbid a RICO violator from having any contacts with the enterprise with which he or she has unlawfully associated. This prohibition may be the only way to prevent the RICO violator from reasserting unlawful influence over the enterprise.

The analogy fails, however, when the principle is applied to the reorganizational remedy. Assuming that the divestiture and reasonable-restriction remedies have been used to their fullest extent, the only justification to reorganize the enterprise is to strengthen its internal defenses against racketeering influence. There is no longer any ongoing violation to halt, and there is no longer a threat from the original RICO persons. A court is thus operating in a grey area, and its discretion should be restrained. That is the purpose of the innocent persons clause.

An examination of RICO's dissolution remedy will better illustrate this point. In many respects RICO's reorganizational remedy is a subpart of its dissolution remedy. The remedies are listed together as part of a single set under section 1964(a), and the innocent persons clause is attached to both of them. As he did for the divestiture remedy, Senator McClellan referred to antitrust case law for authority as to the propriety of a RICO dissolution remedy.

Senator McClellan cited International Boxing Club, Inc. v. United States ¹³² as his authority. ¹³³ In International Boxing Club, the Supreme Court upheld a district court order dissolving two corporations. ¹³⁴ The two corporations had been found to have been used by the individual defendants to monopolize championship boxing contests. ¹³⁵ According to the Court, because the corporations "were formed pursuant to and were the means used to effectuate the conspiracy," dissolution was an appropriate remedy. ¹³⁶

In a more recent case, the Court held in United States v. Grinnell Corp. ¹³⁷ that dissolution of an unlawful combination is the least that is required in order effectively to prevent and restrain an antitrust violation. ¹³⁸ In Grinnell the Court was faced with an appeal of a district court order in favor of the government in an action under Sherman Act section 2. ¹³⁹ The district court had found that Grinnell Corporation owned between seventy-six percent and one-hundred percent of the stock of three corporations that provided protection devices such as automatic burglar alarms. ¹⁴⁰ The Court found that Grinnell's holdings enabled it to exercise monopoly power and that the acquisition of these shares had been an unlawful and exclusionary practice. ¹⁴¹ The Court held that, at a minimum, this unlawful combination had to be dissolved by requiring Grinnell to divest itself of its interests in the three corporations. ¹⁴²

To analogize these principles to RICO, if an enterprise is formed to effectuate violations of the statute, or even its predicate acts, or if the enterprise's very existence constitutes a RICO violation, then dissolution is an appropriate remedy. As should be clear, dissolution is not so justified in the case of a labor union. Unions are not formed in order to enable racketeers to associate with them unlawfully, and racketeer infiltration and exploitation of an existing labor union do not make the union's very existence unlawful. Most likely, complete dissolution under RICO should be reserved for illegitimate enterprises, that is, criminal conspiracies. ¹⁴³ In such a situation, all members of the enterprise have been found to have violated RICO, or some other statute, and there are no innocent persons with which a court must be concerned.

But in the vast range of enterprises between a criminal organization and an enterprise unaffected by racketeering, once the RICO violators are removed and banished, the statutory violation ceases. The legitimacy of the enterprise is no longer in doubt, and thus the rationales of International Boxing Club and Grinnell are inapplicable. Nevertheless, RICO authorizes a court to intervene, and in this respect the Act goes beyond the reach of the antitrust laws. This "protective" aspect of RICO, enabling courts to reorganize a legitimate enterprise even after the statutory violation has been halted, is quite unique. The small restriction that Congress placed on this exercise of a court's jurisdiction in these cases is that due provision be made for the rights of innocent persons.

Conclusion

This Note argues that a court cannot impose a judicial trusteeship on a labor union in order to remedy a RICO violation in a suit by the government. By appointing a judicial officer to bargain for a union's rank and file, a court denies the union members their rights under federal labor laws. This denial is inconsistent with RICO's express admonition that courts must duly provide for the rights of innocent persons when fashioning injunctive RICO relief.

This Note shows that such a restriction on a court's equitable RICO powers conforms with the principle of limited enterprise immunity established under private and criminal RICO jurisprudence. Moreover, such a restriction is not barred by the statute's language, remedial purposes, or legislative history.

Applying the argument of this Note should not hinder the government's efforts to rid unions of the influence of organized crime. On the contrary, if union members are assured that they will not in the future be completely governed by a governmental agent, some may be more willing to cooperate with the government. Moreover, the flexibility of RICO permits courts to be quite innovative in fashioning injunctive relief. Nevertheless, if the government's efforts would be hindered by this Note's interpretation of RICO, such hindrance is a small price to pay in order to keep secure the rights of organized laborers and to give effect to a congressional mandate.

FOOTNOTES:

n1 Organized Crime Control Act of 1970, tit. IX, 84 Stat. 922, 941-47 (codified as amended at 18 U.S.C.A. ch. 96 (West 1985 & Supp. 1989)). The Racketeer Influenced and Corrupt Organizations Act (RICO or the Act) is actually a new chapter of the federal criminal code created by title 9 of the Organized Crime Control Act of 1970 (OCCA), Pub. L. No. 91-452, 84 Stat. 922 (codified as amended predominantly in scattered sections of 7, 15, 18 & 49 U.S.C.). This title added chapter 96 to title 18 of the U.S. Code, comprised of sections 1961 through 1968. Id., 84 Stat. at 941-47. This Note refers to specific sections in chapter 96 of U.S. Code title 18 as "RICO section ."

n2 RICO section 1961 defines a "'person'" as including "any individual or entity capable of holding a legal or beneficial interest in property." 18 U.S.C. § 1961(3) (1982). An "'enterprise'" is defined to include "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." Id. § 1961(4).

n3 A "'pattern of racketeering activity'" consists of "at least two acts of racketeering activity . . . the last of which occurred within ten years . . . after the commission of a prior act of racketeering activity." Id. § 1961(5). RICO section 1961(1) defines "'racketeering activity'" as any "act or threat" involving specified state-law crimes ranging from murder to mail fraud, any act indictable under specified federal statutes, and certain federal "offense[s]." 18 U.S.C.A. § 1961(1) (West 1985 & Supp. 1989).

n4 RICO defines "'unlawful debt'" as a debt

(A) incurred or contracted in gambling activity which was in violation of the law of the United States, a State or political subdivision thereof, or which is unenforceable under State or Federal law in whole or in part as to principal or interest because of the laws relating to usury, and (B) which was incurred in connection with the business of gambling in violation of the law of the United States, a State or political subdivision thereof, or the business of lending money or a thing of value at a rate usurious under State or Federal law, where the usurious rate is at least twice the enforceable rate.
18 U.S.C. § 1961(6) (1982).

n5 Id. § 1962(a).

n6 Id. § 1962(b).

n7 Id. § 1962(c).

n8 18 U.S.C.A. § 1962(d) (West 1985 & Supp. 1989).

n9 Id. § 1963(a).

n10 18 U.S.C. § 1964(c) (1982).

n11 Id. § 1964(a).

n12 581 F. Supp. 279 (D.N.J. 1984), aff'd, 780 F.2d 267 (3d Cir. 1985), cert. denied, 476 U.S. 1140 (1986).

n13 Id. at 335-36.

n14 Id. at 334-36. Federal law guarantees union members the right to vote for their officers, the right to exercise free speech at union functions, and the right to assemble freely with other union members. 29 U.S.C. § 411 (1982).

n15 Local 560 I, 581 F. Supp. at 337.

n16 United States v. Local 560, Int'l Bhd. of Teamsters (Local 560 II), 780 F.2d 267 (3d Cir. 1985), cert. denied, 476 U.S. 1140 (1986).

n17 Local 560, Int'l Bhd. of Teamsters v. United States, 476 U.S. 1140 (1986).

n18 See United States v. Local 560 (Local 560 III), 126 L.R.R.M. (BNA) 2190, 2190-91 (D.N.J. 1987).

n19 See United States v. Local 30, United Slate, Tile & Composition Roofers Ass'n, 686 F. Supp. 1139, 1171 (E.D. Pa. 1988) (granting a preliminary injunction), aff'd, 871 F.2d 401 (3d Cir. 1989); United States v. Bonanno Organized Crime Family, 683 F. Supp. 1411, 1453-54 (E.D.N.Y. 1988) (issuing a consent judgment involving Teamsters Local 814); Galen, N.Y.-Based Union Agrees to Less-Radical Approach, Nat'l L.J., Aug. 31, 1987, at 30, col. 1 (reporting on a consent judgment involving Local 6A, Cement and Concrete Workers). The power of the court officers in Local 30, Bonnano Organized Crime Family and in the Local 6A suit is not as extensive as the Local 560 trustee's power. Compare Local 30, 686 F. Supp. at 1168, Bonanno Organized Crime Family, 683 F. Supp. at 1454 and Galen, supra, at 30 with Local 560 III, 126 L.R.R.M. at 2190-91.

n20 18 U.S.C. § 1964(a) (1982).

n21 This Note will refer to this interpretation as a "functional" interpretation of the innocent persons clause.

n22 See Liquid Air Corp. v. Rogers, 834 F.2d 1297, 1306 (7th Cir. 1987).

n23 See 18 U.S.C. § 1961(3), (4) (1982). For the definitions of "person" and "enterprise," see supra note 2.

n24 See Odishelidze v. Aetna Life & Casualty Co., 853 F.2d 21, 23-24 (1st Cir. 1988) (per curiam) ("[T]he 'person' alleged to be engaged in a racketeering activity (the defendant, that is) must be an entity distinct from the 'enterprise'. . . ."); cf. Bennett v. United States Trust Co., 770 F.2d 308, 315 n.2 (2d Cir. 1985) ("The complaint does not name the 'person' who conducted the affairs of [the enterprise] in the proscribed manner. However, because U.S. Trust Company is named as a defendant, we interpret the complaint to name U.S. Trust as the section 1962(c) 'person.'"), cert. denied, 474 U.S. 1058 (1986).

n25 18 U.S.C. § 1963(a) (Supp. V 1987).

n26 Id. § 1964(a) (1982).

n27 Section 1963 empowers a court to take any action necessary prior to conviction "to preserve" the property to be forfeited. Id. § 1963(d)(1) (Supp. V 1987). Following conviction a court may take any action necessary "to protect the interest of the United States in the property ordered forfeited." Id. § 1963(e). These provisions do not, however, impose criminal liability on the enterprise.

n28 The forfeiture provisions of section 1963 differ in this important respect. The provisions in section 1963 that affect the RICO enterprise do so indirectly and have as their purpose the punishment of the RICO person. The removal of criminal influence from the enterprise is a secondary benefit. The dissolution and reorganization provision of section 1964 has as its main purpose the reform of the enterprise.

The irony of section 1964 is exemplified by Local 560 I, in which the district court "exculpate[d]" the union and dismissed the government's case against it, but found it necessary to "maintain jurisdiction over Local 560 as a nominal defendant to effectuate the equitable relief." United States v. Local 560, Int'l Bhd. of Teamsters (Local 560 I), 581 F. Supp. 279, 337 (D.N.J. 1984), aff'd, 780 F.2d 267 (3d Cir. 1985), cert. denied, 476 U.S. 1140 (1986).

n29 18 U.S.C. § 1964(a) (1982) (emphasis added).

n30 In Ashland Oil, Inc. v. Gleave, 540 F. Supp. 81 (W.D.N.Y. 1982), Judge John Elfvin explained the concern of the innocent persons clause as "directed towards those individuals who become involved in business plans with 'racketeers' without suspecting the unlawful sources of funds provided by them." Id. at 85.

n31 RICO section 1963 attaches criminal liability to "whoever violates" section 1962, and refers to the violator as "the person." 18 U.S.C. § 1963(a) (Supp. V 1987) (emphasis added). Section 1964, on the other hand, merely states that one injured "by reason of a violation of section 1962 . . . may sue therefor . . . and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee." Id. § 1964(c) (1982). This provision does not explicitly require that the plaintiff must be injured by the RICO person.

n32 On this point Judge Milton Shadur's reasoning in Parnes v. Heinold Commodities, Inc., 548 F. Supp. 20 (N.D. Ill. 1982), is persuasive: "By elementary principles of statutory construction, the Section 1964(c) cause of action -- a suit for 'violation' of Section 1962 -- must be asserted against the violator under the latter section. That violator is the 'person' that has engaged in the 'unlawful' conduct." Id. at 23. Although some cases contain language to the contrary, see, e.g., D'Iorio v. Adonzio, 554 F. Supp. 222, 233 (M.D. Pa. 1982) ("[T]he business entities named may properly be named as defendants as well as jurisdiction-conferring enterprises."), this issue has largely been displaced by a discussion of whether the enterprise is liable due to its shared identity with the person or on a derivative basis. See infra notes 33-34 and accompanying text.

n33 A single entity may easily fall under both the "person" and "enterprise" definitions. See 18 U.S.C. § 1961(3), (4) (1982); supra note 2.

n34 The theories of derivative liability generally asserted are aiding and abetting liability and respondeat superior. See, e.g., Petro-Tech, Inc. v. Western Co. of N. Am., 824 F.2d 1349, 1356-62 (3d Cir. 1987) (involving actions alleging violations of subsections (a) and (c) of section 1962).

n35 See Liquid Air Corp. v. Rogers, 834 F.2d 1297, 1306-07 (7th Cir. 1987); Garbade v. Great Divide Mining & Milling Corp., 831 F.2d 212, 213-14 (10th Cir. 1987).

n36 United States v. DiCaro, 772 F.2d 1314, 1319-20 (7th Cir. 1985), cert. denied, 475 U.S. 1081 (1986); United States v. Computer Sciences Corp., 689 F.2d 1181, 1190 (4th Cir. 1982), cert. denied, 459 U.S. 1105 (1983); accord United States v. Benny, 786 F.2d 1410, 1414-16 (9th Cir.), cert. denied, 479 U.S. 1017 (1986). Contra United States v. Hartley, 678 F.2d 961, 988-90 (11th Cir. 1982), cert. denied, 459 U.S. 1170, 1183 (1983). Because the government has not tried to impose derivative criminal liability on an enterprise, the effect of this rule is to immunize completely the enterprise from criminal liability.

n37 See Haroco, Inc. v. American Nat'l Bank & Trust Co., 747 F.2d 384, 401 (7th Cir. 1984), aff'd per curiam on other grounds, 473 U.S. 606 (1985).

A corollary of this rule is that if the complaint alleges a violation of section 1962(c), the entity alleged to have violated the subsection, the RICO person, must be distinct from the entity alleged to have been conducted through a pattern of racketeering activity, the RICO enterprise. Thus, a plaintiff cannot allege that a corporation conducted its own affairs through a pattern of racketeering activity. Hirsch v. Enright Ref. Co., 751 F.2d 628, 633-34 (3d Cir. 1984); Rae v. Union Bank, 725 F.2d 478, 481 (9th Cir. 1984). Courts have effectively implied that a legitimate enterprise conducted "through a pattern of racketeering activity," 18 U.S.C. § 1962(c) (1982), never benefits from the RICO violation.

Creative plaintiffs, seeking to reach the deep-pocket defendant, have responded by alleging that the corporation-defendant (the RICO person) has unlawfully conducted the affairs of an enterprise consisting of the corporation and one or more of its officers. Technically, this is permissible under the broadly-defined enterprise term. To date, two circuits have held this type of complaint to be appropriate, even when the cause of action is founded on section 1962(c). See Petro-Tech, 824 F.2d at 1361-62; Cullen v. Margiotta, 811 F.2d 698, 729-30 (2d Cir.), cert. denied, 483 U.S. 1021 (1987). A panel of the District of Columbia Circuit, however, has characterized such a complaint as an "'end run' around the statutory requirements" and has refused to allow it when a section 1962(c) violation is alleged. Yellow Bus Lines, Inc. v. Drivers Local Union 639, 839 F.2d 782, 791-92 (D.C. Cir.), cert. denied, 109 S. Ct. 309 (1988); see also Atkinson v. Andarko Bank & Trust Co., 808 F.2d 438, 441 (5th Cir.) (per curiam) (upholding a judgment finding no RICO violation when the enterprise consisted of the defendant bank in association with its holding company and three bank employees), cert. denied, 483 U.S. 1032 (1987).

n38 747 F.2d 384 (7th Cir. 1984), aff'd per curiam on other grounds, 473 U.S. 606 (1985).

n39 Id. at 385.

n40 Id.

n41 Id. at 385-86.

n42 Id. at 399-402.

n43 Id. at 402.

n44 751 F.2d 628 (3d Cir. 1984).

n45 Id. at 629-30.

n46 Id. at 633.

n47 Id. at 634.

n48 See supra note 37.

n49 The Local 560 I court stated that the defendant union officers had "betrayed the membership of Local 560." United States v. Local 560, Int'l Bhd. of Teamsters (Local 560 I), 581 F. Supp. 279, 282 (D.N.J. 1984), aff'd, 780 F.2d 267 (3d Cir. 1985), cert. denied, 476 U.S. 1140 (1986). In Local 30 the court found that "[t]he individual defendants . . . have managed the assets and used the power of the Union over the past twenty years in such a way as to benefit themselves rather than the membership of the Union." United States v. Local 30, United Slate, Tile & Composition Roofers Ass'n, 686 F. Supp. 1139, 1157 (E.D. Pa. 1988), aff'd, 871 F.2d 401 (3d Cir. 1989).

Moreover, in these suits the government typically alleges violations of section 1962(c). E.g., Local 30, 686 F. Supp. at 1165; United States v. Bonanno Organized Crime Family, 683 F. Supp. 1411, 1419 (E.D.N.Y. 1988); Local 560 I, 581 F. Supp. at 283. The Haroco line of cases establishes that a private plaintiff cannot reach the legitimate enterprise in actions alleging section 1962(c) violations, i.e., a legitimate enterprise never benefits when its affairs are conducted corruptly. See supra note 37.

Although in Local 560 I the government alleged section 1962(b) violations, there was never any suggestion that the union was benefiting from the racketeering activity. Although two circuits have held that a section 1962(b)-based suit does not automatically immunize the enterprise, Liquid Air Corp. v. Rogers, 834 F.2d 1297, 1306-07 (7th Cir. 1987), cert. denied, 109 S. Ct. 3241 (1989); Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1398 (9th Cir. 1986), the plaintiff still must show a benefit to the enterprise before a court will impose liability on it. Liquid Air, 834 F.2d at 1307; Schreiber, 806 F.2d at 1398. This requirement exists even in section 1962(a)-based suits, D & S Auto Parts, Inc. v. Schwartz, 838 F.2d 964, 966-68 (7th Cir.), cert. denied, 108 S. Ct. 2833 (1988); Garbade v. Great Divide Mining & Milling Corp., 831 F.2d 212, 213-14 (10th Cir. 1987), which Haroco itself stated would enable the RICO plaintiff to reach the enterprise. Haroco, Inc. v. American Nat'l Bank & Trust Co., 747 F.2d 384, 401-02 (7th Cir. 1984) (dictum) (adopted as law in the Seventh Circuit in Masi v. Ford City Bank & Trust Co., 779 F.2d 397, 401-02 (7th Cir. 1985)), aff'd per curiam on other grounds, 473 U.S. 606 (1985).

n50 Bonanno Organized Crime Family, 683 F. Supp. at 1433; Local 560 I, 581 F. Supp. at 284. The complaint in Local 560 I characterized the denial of these rights as extortion, which is included in the definition of racketeering activity. 18 U.S.C. § 1961(1)(A), (C) (Supp. V 1987).

n51 Local 30, 686 F. Supp. at 1165; Bonanno Organized Crime Family, 683 F. Supp. at 1433; Local 560 I, 581 F. Supp. at 285. RICO specifically includes within the definition of racketeering activity unlawful union welfare fund payments, 18 U.S.C. § 1954 (1982), and embezzlement from union funds, 29 U.S.C. § 501(c) (1982). 18 U.S.C. § 1961(1)(B), (C) (Supp. V 1987).

n52 See, e.g., United States v. Local 30, United Slate, Tile & Composition Roofers Ass'n, 871 F.2d 401, 405-06 (3d Cir. 1989) (rejecting the union's reliance on Petro-Tech to immunize the enterprise because Petro-Tech involved a private RICO action).

n53 780 F.2d 267 (3d Cir. 1985), cert. denied, 476 U.S. 1140 (1986).

n54 Id. at 296 n.39. Apparently, the Local 560 II appellants did not invoke the innocent persons clause.

n55 Id.

n56 Boyd v. United States, 116 U.S. 616, 633-35 (1886); see U.S. CONST. amends. V, VI.

n57 See, e.g., S. REP. NO. 617, 91st Cong., 1st Sess. 81 (1969) [hereinafter SENATE REPORT] (stating that under section 1964 "there is no intent to visit punishment on any individual; the purpose is civil" (footnote omitted)).

n58 E.g., United States v. Cappetto, 502 F.2d 1351, 1357, 1359 (7th Cir.) (upholding a lower standard of proof than beyond-a-reasonable-doubt and permitting the trier of fact to draw an inference unfavorable to the defendant from his refusal to testify), cert. denied, 420 U.S. 925 (1975); accord United States v. Local 560, Int'l Bhd. of Teamsters (Local 560 II), 780 F.2d 267, 279 n.12 (3d Cir. 1985), cert. denied, 476 U.S. 1140 (1986).

n59 It is interesting that a different Third Circuit panel has recently implied that the trusteeship remedy in Local 560 I violated the innocent persons clause. In United States v. Local 30, United Slate, Tile & Composition Roofers Ass'n, 471 F.2d 401 (3d Cir. 1989), the court, in upholding a limited reorganizational decree of a union following a successful governmental RICO action, held that the decree adequately protected the rights of innocent persons because, inter alia, it "d[id] not provide for the more drastic remedy of dissolving the Union or placing it in trusteeship." Id. at 408.

n60 See United States v. Local 560 (Local 560 III), 126 L.R.R.M. (BNA) 2190, 2190-91 (D.N.J. 1987).

n61 Id. at 2192.

n62 Telephone Interview with Al Laurie, Office Manager, Teamsters Local 560 (Sept. 6, 1989).

n63 29 U.S.C. §§ 151-158, 159-166 (1982 & Supp. V 1987).

n64 Id. § 157 (1982). Almost a year after the court imposed the trusteeship, the court appointed an associate trustee with a mandate to "take all necessary and appropriate actions to promote and enhance the spirit of participation in trade union affairs among the entire membership of Local 560." Local 560 III, 126 L.R.R.M. at 2191. In a later opinion a new court noted somewhat ambiguously that the trustee had developed "[p]rocedures . . . for contract negotiations which included participation by representatives of the bargaining unit." United States v. Local 560, Int'l Bhd. of Teamsters (Local 560 (I.B.T.)), 694 F. Supp. 1158, 1184 (D.N.J. 1988), aff'd, 865 F.2d 253 (3d Cir.), cert. denied, 109 S. Ct. 1345 (1989). This assertion does not, however, change the fact that during the trusteeship a court officer has been the union membership's principal bargaining agent.

Because the relief imposed in Local 560 I did not allow the union members to exercise their Wagner Act rights, it is ironic that the government alleged in its complaint that the defendants' racketeering activity consisted, in part, of extortion of these rights. United States v. Local 560, Int'l Bhd. of Teamsters, 550 F. Supp. 511, 513 (D.N.J. 1982).

n65 See, e.g., SENATE REPORT, supra note 57, at 76-78.

n66 See supra text accompanying notes 26-28.

n67 See 18 U.S.C. § 1964(a) (1982).

n68 Pub. L. No. 91-452, § 904(a), 84 Stat. 922, 947 (1970).

n69 Id.

n70 18 U.S.C. § 1964(a) (1982) (emphasis added).

n71 Id.

n72 See supra note 56 and accompanying text.

n73 H.R. REP. NO. 1549, 91st Cong., 2d Sess. 57 (1970), reprinted in 1970 U.S. CODE CONG. & ADMIN. NEWS 4007, 4034; SENATE REPORT, supra note 57, at 160.

n74 United States v. Bonanno Organized Crime Family, 683 F. Supp. 1411, 1453 (E.D.N.Y. 1988) (dictum) (emphasis added) (quoting 18 U.S.C. § 1964(a) (1982)).

n75 United States v. International Bhd. of Teamsters, 708 F. Supp. 1388, 1402 (S.D.N.Y. 1989) (emphasis added) (quoting 18 U.S.C. § 1964(a) (1982)).

n76 See supra text accompanying note 11.

n77 18 U.S.C. § 1964(a). The interpretation in the authorities cited supra notes 73-76 would prevent the government from avoiding the innocent persons clause by naming the union as the RICO person. Cf. Yellow Bus Lines, Inc. v. Drivers Local Union 639, 839 F.2d 782, 792-94 (D.C. Cir.) (indicating that a complaint in a private RICO action alleging a union to be the RICO person would be proper), cert. denied, 109 S. Ct. 309 (1988). The interpretation of these authorities suggests that civil RICO relief imposed on the RICO person, i.e., the defendant union, must still satisfy the clause. As stated in the text, this interpretation is broader than that argued by this Note, and it would appear to be difficult to justify in the face of statutory language that makes the innocent persons clause applicable only to remedies imposed on the RICO enterprise. Any restrictions on equitable relief in a RICO action of this type would have to be justified on grounds other than the innocent persons clause. In any event, in such an action the government could not rely on the power civil RICO grants to reorganize or to dissolve an entity that is accused of no wrongdoing; the government would be entitled to no more relief than the relief that ceases the statutory violation. See infra text accompanying notes 131-43.

n78 United States v. Local 560, Int'l Bhd. of Teamsters (Local 560 II), 780 F.2d 267, 295 (3d Cir. 1985), cert. denied, 476 U.S. 1140 (1986).

n79 See supra text accompanying notes 60-62.

n80 686 F. Supp. 1139 (E.D. Pa. 1988), aff'd, 871 F.2d 401 (3d Cir. 1989).

n81 Id. at 1163-64, 1172-73.

n82 Id. at 1165.

n83 Id. at 1167.

n84 The legislative history is silent as to exactly when the innocent persons clause was recommended. Nonetheless, contrasting the version of RICO that was referred to the Senate Judiciary Committee with the one that the Committee reported indicates that it was the work of that panel. Compare S. 1861, 91st Cong., 1st Sess. § 2(a), 115 CONG. REC. 9568, 9568-71 (1969) (the original RICO bill) with S. 30, 91st Cong., 2d Sess. § 901(a), 116 CONG. REC. 575, 581-83 (1970) (the Organized Crime Control bill, containing RICO, as reported by the Senate Judiciary Committee).

n85 Organized Crime Control Act of 1970, Pub. L. No. 91-452, § 904(a), 84 Stat. 922, 947, reprinted in 1970 U.S. CODE CONG. & ADMIN. NEWS 1073, 1104.

n86 Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 498 (1985).

n87 473 U.S. 479 (1985).

n88 Id. at 488-500.

n89 464 U.S. 16 (1983).

n90 Id. at 20-24.

n91 452 U.S. 576 (1981).

n92 Id. at 587.

n93 See also American Nat'l Bank & Trust Co. v. Haroco, Inc., 473 U.S. 606, 609 (1985) (per curiam) (relying on Sedima to reject petitioners' argument that a private RICO plaintiff's injury must flow from the predicate acts as they were performed in the conduct of an enterprise).

n94 Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497 (1985).

n95 Id. at 498.

n96 SENATE REPORT, supra note 57, at 81.

n97 See Noland v. Gurley, 566 F. Supp. 210, 218 (D. Colo. 1983); Van Schaick v. Church of Scientology, Inc., 535 F. Supp. 1125, 1137 (D. Mass. 1982).

n98 See Organized Crime Control: Hearings Before Subcomm. No. 5 of the House Comm. on the Judiciary, 91st Cong., 2d Sess. 89, reprinted in 116 CONG. REC. 591 (1970) (statement of Sen. McClellan); supra notes 43, 47.

n99 In re Fredeman Litig., 843 F.2d 821, 828-30 (5th Cir. 1988); Religious Technology Center v. Wollersheim, 796 F.2d 1076, 1088 (9th Cir. 1986), cert. denied, 479 U.S. 1103 (1987); Trane Co. v. O'Connor Sec., 718 F.2d 26, 28-29 (2d Cir. 1983) (dictum); Dan River, Inc. v. Icahn, 701 F.2d 278, 290-91 (4th Cir. 1983) (dictum); Kaushal v. State Bank of India, 556 F. Supp. 576, 581-84 (N.D. Ill. 1983). Contra Chambers Dev. Co. v. Browning-Ferris Indus., 590 F. Supp. 1528, 1541 (W.D. Pa. 1984); cf. Aetna Casualty & Sur. Co. v. Liebowitz, 570 F. Supp. 908 (E.D.N.Y. 1983) (stating that the availability of equitable relief to a private party is "an open question"), aff'd on other grounds, 730 F.2d 905 (2d Cir. 1984).

n100 18 U.S.C. § 1961(5) (1982).

n101 109 S. Ct. 2893 (1989).

n102 Id. at 2899.

n103 See, e.g., United States v. Jennings, 842 F.2d 159, 163 (6th Cir. 1988) (finding RICO's pattern requirement satisfied by focusing only on the number of acts alleged without any discussion of their relationship).

n104 868 F.2d 1147 (10th Cir. 1989).

n105 Id. at 1148-49.

n106 Id. at 1149.

n107 Id. (quoting 18 U.S.C. § 1962(a) (1982) (emphasis supplied by court) (alteration supplied by the author of this Note)).

n108 Id. at 1149-51 (quoting 18 U.S.C. § 1964(c) (1982)).

n109 Id. at 1150.

n110 793 F.2d 28 (1st Cir. 1986).

n111 Id. at 29.

n112 Id.

n113 Id. at 31. For more discussion on this point, see supra notes 31-52 and accompanying text.

n114 Schofield, 793 F.2d at 31 n.2. The court did not address the fact that a plaintiff seeking to reach the enterprise in a section 1962(a)-based suit must also show that the enterprise has benefited from the RICO person's racketeering activity. See supra text accompanying note 35.

n115 681 F. Supp. 549 (N.D. Ill. 1988).

n116 Id. at 550-52.

n117 Id. at 555-56.

n118 Id. at 555 (citation omitted).

n119 Id. at 556.

n120 See supra notes 59-64 and accompanying text.

n121 United States v. Local 560, Int'l Bhd. of Teamsters (Local 560 I), 581 F. Supp. 279, 326 (D.N.J. 1984), aff'd, 780 F.2d 267 (3d Cir. 1985), cert. denied, 476 U.S. 1140 (1986).

n122 The court had such power because all the individual defendants were found to have aided and abetted RICO violations. See id. at 335.

n123 Local 560 I, 581 F. Supp. at 283. Before trial the government entered into consent agreements barring three defendants from contact with the union. United States v. Local 560, Int'l Bhd. of Teamsters (Local 560 II), 780 F.2d 267, 272 (3d Cir. 1985), cert. denied, 476 U.S. 1140 (1986). One of the defendants the government sought merely to remove from office was later convicted of defrauding the union welfare benefit fund and receiving kickbacks. See United States v. Local 560, Int'l Bhd. of Teamsters (Local 560 (I.B.T.)), 694 F. Supp. 1158, 1160 (D.N.J. 1988), aff'd, 865 F.2d 253 (3d Cir.), cert. denied, 109 S. Ct. 1345 (1989). This defendant, Salvatore Provenzano, is thus barred from a position of union leadership for 13 years following his release from prison. See 29 U.S.C.A. § 504 (West 1985 & Supp. V 1989).

n124 See Local 560 I, 581 F. Supp. at 326.

n125 In 1988 the government was still concerned that two of these defendants would win in Local 560's elections, and it went back to court to modify the terms of the original decree. Local 560 (I.B.T.), 694 F. Supp. at 1161. These two defendants, Michael Sciarra and Joseph Sheridan, are now permanently enjoined from contact with Local 560. Id. at 1192.

n126 366 U.S. 316 (1961).

n127 SENATE REPORT, supra note 57, at 81 (quoting du Pont, 366 U.S. at 326).

n128 115 CONG. REC. 9567 (1969).

n129 Senator McClellan referred to the du Pont case on the Senate floor on April 18, 1969, upon the introduction of the original RICO bill. See supra note 84 and accompanying text.

n130 SENATE REPORT, supra note 57, at 81.

n131 See supra text accompanying notes 78-81.

n132 358 U.S. 242 (1959). For purposes of this argument, this Note ignores the fact that Senator McClellan made this reference prior to the drafting of the innocent persons clause.

n133 115 CONG. REC. 9568 (1969).

n134 International Boxing Club, 358 U.S. at 253-63.

n135 Id. at 245-52.

n136 Id. at 259.

n137 384 U.S. 563 (1966).

n138 Id. at 577.

n139 15 U.S.C. § 2 (1982).

n140 Grinnell, 384 U.S. at 566-67.

n141 Id. at 576.

n142 Id. at 577.

n143 See United States v. Turkette, 452 U.S. 576, 585 (1981).