Schofield v. First Commodity Corp. of Boston

• Decision Date: 09 April 1986
• Docket Number: Nos. 85-1840,85-1848,s. 85-1840
• Citation: 793 F.2d 28
• Parties: RICO Bus.Disp.Guide 6271 Rebecca J. SCHOFIELD, Plaintiff, Appellant, v. FIRST COMMODITY CORPORATION OF BOSTON, Defendant, Appellee. Rebecca J. SCHOFIELD, Plaintiff, Appellee, v. FIRST COMMODITY CORPORATION OF BOSTON, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 28

793 F.2d 28

RICO Bus.Disp.Guide 6271

Rebecca J. SCHOFIELD, Plaintiff, Appellant, v. FIRST COMMODITY CORPORATION OF BOSTON, Defendant, Appellee.

Rebecca J. SCHOFIELD, Plaintiff, Appellee, v. FIRST COMMODITY CORPORATION OF BOSTON, Defendant, Appellant.

Nos. 85-1840, 85-1848.

United States Court of Appeals, First Circuit.

Heard April 9, 1986.

Decided June 10, 1986.

Glen DeValerio with whom Harry A. Garfield, II and Berman, DeValerio & Pease, Boston, Mass., were on brief, for Rebecca J. Schofield.

Jeffrey V. Boxer, Boston, Mass., with whom Raymond H. Edelman, Brighton, Mass., was on brief, for First Commodity Corp. of Boston.

Before CAMPBELL, Chief Judge, COFFIN and BOWNES, Circuit Judges.

COFFIN, Circuit Judge.

Appellant Rebecca Schofield claims that First Commodity Corporation of Boston (FCCB) fraudulently induced her and her husband to invest all of their liquid assets in trading commodity futures. Her complaint alleged violations of three federal statutes, but the district court held that she failed to state viable claims under two of them, including the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Sec. 1964(c). The case proceeded to trial on claims under section 4b(A) of the Commodity Exchange Act (CEA), 7 U.S.C. Sec. 6b(A) (1982), and a jury awarded appellant $30,000 in damages.

Appellant challenges dismissal of the RICO count, ¹ claiming that the district court erred in finding that a RICO "enterprise" may not be held liable for civil damages under section 1962(c) either directly or under principles of respondeat superior. In a cross-appeal, FCCB challenges jury instructions on the CEA claims, including the court's refusal to instruct on the theory of ratification. We affirm the district court on all issues.

I.

Section 1962(c) of RICO states:

"It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt."

Most courts, including the district court here, have construed the language of this subsection to require that the "person" who engages in the pattern of racketeering activity be an entity distinct from the "enterprise". See United States v. Benny, 786 F.2d 1410, 1415-16 (9th Cir.1986); Bennett v. United States Trust Co. of New York, 770 F.2d 308, 315 (2d Cir.1985), cert. denied, --- U.S. ----, 106 S.Ct. 800, 88 L.Ed.2d 776 (1986); B.F. Hirsch v. Enright Refining Co., 751 F.2d 628, 633-34 (3d Cir.1984); Haroco v. American National Bank and Trust Co. of Chicago, 747 F.2d 384, 401-02 (7th Cir.1984), aff'd on other grounds, --- U.S. ----, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985); Rae v. Union Bank, 725 F.2d 478, 480-81 (9th Cir.1984); Bennett v. Berg, 685 F.2d 1053, 1061-62 (8th Cir.1982), modified, 710 F.2d 1361 (en banc), cert. denied, 464 U.S. 1008, 104 S.Ct. 527, 78 L.Ed.2d 710 (1983); United States v. Computer Sciences Corp., 689 F.2d 1181, 1190 (4th Cir.1982), cert. denied, 459 U.S. 1105, 103 S.Ct. 729, 74 L.Ed.2d 953 (1983); Yancoski v. E.F. Hutton Co., 581 F.Supp. 88, 97 (E.D.Penn.1983); Van Schaick v. Church of Scientology, 535 F.Supp. 1125, 1135-36 (D.Mass.1982); Parnes v. Heinold Commodities, Inc., 548 F.Supp. 20, 23-24 (N.D.Ill.1982). Although a corporation may be a "person" under the statute, 18 U.S.C. Sec. 1961(3), (4), these courts hold that the statute envisions liability only when there is the specified interaction between two entities; thus, the same corporation may not serve in two roles at the same time. Only one circuit has rejected the separate person/enterprise distinction. United States v. Hartley, 678 F.2d 961, 988 (11th Cir.1982), cert. denied, 459 U.S. 1170, 1183, 103 S.Ct. 815, 834, 74 L.Ed.2d 1014, 1027 (1983). See also, e.g., Gerace v. Utica Veal Co., 580 F.Supp. 1465, 1469 n.4 (N.D.N.Y.1984); B.F. Hirsch v. Enright Refining Co., 577 F.Supp. 339, 347 (D.N.J.1983), rev'd (on this issue), 751 F.2d 628, 633-34 (3d Cir.1984).

Appellant does not attack head-on the precedent holding that section 1962(c) requires that the person and the enterprise be two separate entities. Instead, she argues that a corporation may be held liable either directly as the section 1962(c) enterprise, or vicariously under principles of respondeat superior. We shall address first the theory of direct liability.

Appellant's argument regarding direct liability is as follows. The section 1962(c) "persons" are the FCCB account representatives with whom appellant directly transacted business, and the "enterprise" is FCCB. Thus, the requirement of two separate entities is met. Under the usual construction of section 1962(c), the brokers would be held liable if they conducted FCCB's affairs through a pattern of racketeering. Appellant argues that FCCB, the enterprise, also should be liable if the brokers' actions represented FCCB policy. In other words, in a case in which the enterprise is not a victim, but is an active participant in the racketeering, it also should be subject to liability. Appellant points out that the language in section 1962(c)--"It shall be unlawful"--is impersonal in form, and she suggests that this sentence structure means that the wrongdoing may be committed by the enterprise as well as by the person conducting the enterprise. In addition, she emphasizes Congressional intent that RICO be liberally construed, and the common sense notion that a culpable corporation should not be able to evade liability when its policies are at the heart of the wrongdoing.

Notwithstanding the appeal of appellant's argument as a matter of policy, we must reject it as a matter of law. Appellant is correct that Congress envisioned a broad reading of RICO, Sedima, S.P.R.L. v. Imrex Co., --- U.S. ----, 105 S.Ct. 3275, 3286, 87 L.Ed.2d 346 (1985). Yet the Supreme Court in interpreting RICO also has made it clear that the words of the statute must be the starting point for any statutory construction. United States v. Turkette, 452 U.S. 576, 580, 101 S.Ct. 2524, 2527, 69 L.Ed.2d 246 (1981). It is only by straining the language that we could read section 1962(c) as imposing liability on even a culpable enterprise as well as on the person. Stripped to its essentials, section 1962(c) states that it is unlawful for any person associated with an enterprise to conduct that enterprise through racketeering. The enterprise is mentioned in the section only as the instrument of the person doing the racketeering, and there is no suggestion that the enterprise also may be liable, even if it is a wholly illegitimate operation.

"[The express language of section 1962(c) ] quite clearly envisions a relationship between a 'person' and an 'enterprise' as an element of the offense which 1962(c) proscribes and for which 1964(c) would subject the 'person' to treble damages....

"... It is only a person, or one associated with an enterprise, not the enterprise itself, who can violate the provisions of the section." Van Schaick v. Church of Scientology of California, 535 F.Supp. 1125, 1136 (D.Mass.1982).

The legislative history surrounding RICO adds to our conviction that section 1962(c) does not extend liability to the enterprise. "[T]he legislative history forcefully supports the view that the major purpose of Title IX [including section 1962(c) ] is to address the infiltration of legitimate business by organized crime." United States v. Turkette, 452 U.S. at 591, 101 S.Ct. at 2532. If the primary purpose of RICO is "to cope with the infiltration of legitimate businesses", id., it is logical that Congress would have designed section 1962(c) so that it reached the criminal but protected the victimized enterprise from liability.

Moreover, an interpretation that insulates the enterprise from liability under section 1962(c) is not, as appellant asserts, inconsistent with the remedial purposes of RICO. Cf. United States v. Turkette, 452 U.S. at 589-90, 101 S.Ct. at 2531-32. On this point, we agree with the analysis of the Seventh Circuit in Haroco v. American National Bank and Trust Co. of Chicago, 747 F.2d at 401-02, which found that a culpable enterprise may be held liable under another section of RICO, Sec. 1962(a). That section states, in relevant part:

"It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal ... to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce."

The language in section 1962(a) does not require a relationship between the person and the enterprise as does section 1962(c), and so it does not require the involvement of two separate entities. Applied to the facts of this case, section 1962(a) would prohibit FCCB, the person, from using ill-gotten gains in FCCB, the enterprise. In contrast, section 1962(c) requires that the culpable person be "employed by or associated with" an enterprise; we think it stretches the language too far to suggest that a corporation can be employed by or associated with itself. This approach to the two subsections

"thus makes the corporation-enterprise liable under RICO when the corporation is actually the direct or indirect beneficiary of the pattern of racketeering activity, but not when it is merely the victim, prize, or passive instrument of racketeering. This result is in accord with the primary purpose of RICO, which, after all, is to reach those who ultimately profit from racketeering, not those who are victimized by it." Haroco, 747 F.2d at 402.

See also Masi v. Ford City Bank and...