Supreme Court Evaluates Civil RICO's Scope

If you ask Carter Phillips how his client, Mohawk Industries, ended up before the U.S. Supreme Court arguing over the civil RICO statute, he shakes his head in wonder. "It's overkill," he says. "It's right up there with getting a sledgehammer out to kill a gnat."

The Supreme Court heard oral arguments April 26 in Mohawk Industries Inc. v. Williams, a case that could expand the reach of civil RICO to companies that knowingly employ illegal immigrants. The Court remanded the case to the 11th Circuit for further consideration June 5 after deciding a related civil RICO case, Ideal Steel v. Anza. Mohawk could deliver a significant jolt if it broadens the scope of how courts apply RICO to corporations alleged to have engaged in illegal conduct with another party.

Several former employees of Georgia-based Mohawk Industries sued the carpet manufacturer under RICO, claiming that its knowing recruitment of illegal immigrants constitutes a pattern of racketeering activity that depresses wages in the state.

The 11th Circuit Court of Appeals' June 2005 decision allowed the RICO claim to go forward. Specifically in question is whether the defendant falls under

RICO's definition of an "enterprise." The 11th Circuit held that it did because Mohawk worked with recruiters to hire undocumented workers.

Phillips believes this case could roil corporate waters far beyond what the current immigration debate is doing across the country. A win for the plaintiff in this case would expand the province of RICO--a statute originally enacted to address organized crime--and would expose employers to treble damages and criminal penalties for violations of immigration laws, and possibly for other laws they break in the course of conducting business.

"[RICO] is meant to deal with gangs and families of racketeers, not corporations doing business with other corporations," says Phillips, managing partner of Sidley Austin's Washington, D.C., office. "Why an ordinary employment dispute between a group of workers and an employer should be a matter of federal moment is completely unclear to me."

Interpreting 'Enterprise'

The ambiguity of the word "enterprise" fuels the RICO debate. As defined in section 1961(4) of the statute, "enterprise" includes, "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 11th Circuit held that "Mohawk and the third-party recruiters are distinct entities that ?? 1/2 are engaged in a conspiracy to bring illegal workers into this country for Mohawk's benefit. As such, the complaint sufficiently alleges an 'enterprise' under RICO."

The plaintiff's counsel, Howard Foster, a shareholder at Johnson & Bell, told the Supreme Court there is "a pattern of racketeering activity" at Mohawk due to a "joint venture of entities operating over a long period of time." That, Foster says, constitutes an enterprise.

Phillips disagrees. "There is plenty of language in the statute that would allow the court, certainly on a plain interpretation of it, to say association-in-fact enterprises do not include corporations," he says. "All [the plaintiffs] do is suggest we've engaged in wrongdoing, that our third party-recruiters engaged in wrongdoing and that we're a conspiracy. There's nothing in there that remotely suggests that there is an existing enterprise."

Roma Theus, vice chair of the Defense Research Institute's committee on white-collar crime and corporate integrity, says, "As interpreted up to now, 'enterprise' does include, according to the 11th Circuit, corporations and individuals that may have combined and conspired with each other."

He notes that RICO has been amended many times since its enactment in 1970. To clarify the meaning of enterprise, Theus suggests it "may just be a matter that requires an amendment to 1961(4) to provide that enterprise includes any union or group of persons associated-in-fact, just to give it the greater breath."

Slippery Footing

As it stands, Phillips says the statute is a trap for unwary employers. He draws the scenario of a corporation conducting business as usual, until a mid-level manager engages in activity that violates the law and which involves a third-party vendor whose services the corporation has retained. If by the nature of that interaction the manager and vendor have created an enterprise, as the courts currently define it, the corporation could be subjected to RICO liability.

"If you're doing business with another entity, such as a law firm or an accounting firm, there are going to be risks in both directions, in terms of creating an enterprise out of that relationship, if there's any involvement in that relationship in two-predicate acts," Phillips says. "That's going to be really tricky."

Although corporations could find themselves on slippery footing if the 11th Circuit's interpretation of "enterprise" stands, Theus says this is not necessarily a situation of "doom and gloom" for Mohawk. Even if the company is found to have engaged in an enterprise under RICO, the plaintiffs will still have to prove their claims at trial.

Further, the Supreme Court's June 5 decision in Ideal Steel v. Anza may allow Mohawk to avoid the question of "enterprise" all together. In that case, the High Court instructed lower courts to look more closely at whether alleged RICO violations are the proximate cause of the plaintiffs' injuries in civil RICO suits brought by private individuals.

That decision indicates that the Supreme Court wants to narrow the ways in which plaintiffs may use the civil RICO statute.

"I could count at least six justices who seemed genuinely concerned about the sweep of RICO in this context," Phillips says. "I would think those are going to be six justices looking for a way to narrow the statute."

Staff Writer

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