PETITION FOR PANEL REHEARING AND PETITION FOR REHEARING EN BANC
March 5, 2005 5:18 am by Gene BorioEXCERPT
The effects of the majority’s holding are sweeping and threaten to cripple RICO’s remedial force. Under the broad language of the majority’s opinion, defendants argue that the district court is barred not only from ordering disgorgement, but also any “remedies that ‘cure ill effects of past unlawful conduct.” Defendants’ post-appeal mem. 3. The district court apparently agrees: “Judge Sentelle’s Opinion, as this Court reads it, simply does not permit non-disgorgement remedies to prevent and restrain the effects of past violations of RICO.” Order #886, at 5 (Feb. 28, 2005). The panel majority’s decision, so construed, would leave the district court virtually powerless to prevent these defendants from reaping, for years to come, the benefits from their fraudulent conduct or to remedy the enormous injury from the alleged fraud.
The majority’s holding that disgorgement is unavailable as a matter of law in actions under § 1964(a), even when necessary to prevent and restrain future RICO violations, presents an issue of exceptional importance in a compellingly important context. Review by the full Court is warranted.
END EXCERPT
[ORAL ARGUMENT HEARD ON NOVEMBER 17, 2004]
No. 04-5252
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IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
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UNITED STATES OF AMERICA,
Appellee,
V.
PHILIP MORRIS USA INC. et a!.,
f/k/a PHILIP MORRIS INCORPORATED,
Appellants,
PHARMACIA CORPORATION AND PFIZER INC.,
Appellees.
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ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
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PETITION FOR PANEL REHEARING AND PETITION FOR REHEARING EN BANC
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PETER D. KEISLER
Assistant Attorney General
MICHAEL R. DREEBEN
Deputy Solicitor General
SHARON Y. EUBANKS
Director Tobacco Litigation Team
STEPHEN D. BRODY
Deputy Director, Tobacco Litigation Team
FRANK J. MARINE
Senior Litigation Counsel
Organized Crime and Racketeering Section
MARK B. STERN
ALISA B. KLEIN
MARK R. FREEMAN
Attorneys Appellate Staff
Civil Division Room 7531
Department of Justice
950 Pennsylvania Ave., N.W
Washington D.C 20530
(202 514-5089
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TABLE OF CONTENTS
GLOSSARY Page
CONCISE STATEMENT OF THE ISSUE AND ITS IMPORTANCE . . . 1
STATEMENT . . . 3
ARGUMENT . . . 5
A. The Majority’s Cramped Reading Of Section 1964(a) Cannot Be Squared With Decisions Of The Supreme Court, This Court, And Other Courts Of Appeals Construing The Same And Similar Provisions . . . 5
B. The Majority’s Holding Severely Undermines Congress’s Purpose To “Divest” RICO Enterprises Of “Ill-Gotten Gains.” . . . 12
CONCLUSION . . . 15
CERTIFICATE OF SERVICE
ADDENDUM
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TABLE OF AUTHORITIES
Cases: Page
CFTC v. American Metals Exchange Corp., 991 F.2d 71 (3d Cir. 1993) . . . 11
CFTC v. British American Commodity Options Corp., 788 F.2d 92 (2d Cir. 1986) . . . 10
CFTC v. Co Petro Marketing Group, Inc., 680 F.2d 573 (9th Cir. 1982) . . . 11
CFTC v. Hunt, 591 F.2d 1211 (7th Cir. 1979) . . . 10
F. Hoffman-La Roche Ltd. v. Empagran S.A., 124 S. Ct. 2359 (2004) . . . 12
EL v. Gem Merchandising Corp., 87 F.3d 466 (11th Cir. 1996) . . . 10
ICC v. B & T Transportation Co., 613 F.2d 1182 (1st Cir. 1980) . . . 10
Meghrig v. KFC Western, Inc., 516 U.S. 479 (1996) . . . 11,12
* Mitchell v. Robert DeMario Jewelry. Inc., 361 U.S. 288 (1960) . . . 1, 6, 7, 8, 9, 10, 11
* Porter v. Warner Holding Co., 328 U.s. 395 (1946) . . . 1, 6, 7, 8, 9, 10, 11, 12
Richard v. Hoechst Celanese Chem. Group, Inc., 355 F.3d 345 (5th Cir. 2003) . . . 1, 5, 6
SEC v. Banner Fund Int’l., 211 F.3d 602 (D.C. Cir. 2000) . . . 10
SEC v. Bilzerian, 29 F.3d 689 (D.C. Cir. 1994) . . . 10
* SEC v. First City Financial, 890 F.2d 1215 (D.C. Cir. 1989) . . . 1,2,10,11
Schine Theaters v. United States. 334 U.S. 110 (1948) . . . 13
Tullv. United States, 481 U.S. 412 (1987) . . . 8
United States v. Carson, 52 F.3d 1173 (2d Cir. 1995) . . . 1,3,5,6
United States v. Gypsum Co., 340 U.S. 76 (1950) . . . 13
* United States v. Turkette, 452 U.S. 576 (1981) . . . 2, 12, 13
* Authorities chiefly relied upon are marked with asterisks.
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Statutes
Organized Crime Control Act of 1970, Pub. L. No. 91-452, § 904(a), 84 Stat. 947 . . . 9, 12
Racketeer Influenced and Corrupt Organizations Act (RICO):
18U.S.C.1963(a) . . . 4,5
* 18 U.S.C. § 1964(a) . . . 1,2,3,4,5,7,8,9,13
I8U.S.C.1964(c) . . . 4,5
15 U.S.C. 78i . . . 10
l5U.S.C.78r . . . 10
15 U.S.C. 78p(b) . . . 10
15U.S.C.78t . . . 10
15 U.S.C. 78ff . . . 10
28 U.S.C. § 1292(b) . . . 4, 4,5
29U.S.C.217 . . . 8
Legislative Materials:
S. Rep. No. 617, 91st Congress, 1st Sess. (1969) . . . 9,13
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GLOSSARY
App. United States’ Appendix, submitted to the panel in this case
CERCLA Comprehensive Environmental Response, Compensation, and Liability Act of 1980
Defendants’ post-appeal mem. Defendants’ Memorandum Regarding Non-Disgorgement Remedies Pursuant to Order #875 (filed Feb. 22, 2005)
EPCA Emergency Price Control Act
FLSA Fair Labor Standards Act
JA Defendants’ Appendix, submitted to the panel in this case
RCRA Resource Conservation and Recovery Act
RICO Racketeer Influenced and Corrupt Organizations Act
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CONCISE STATEMENT OF THE ISSUE AND ITS IMPORTANCE
The panel majority held that, as a matter of law, an equitable order directing racketeering defendants to disgorge their ill-gotten gains is never available in a civil action by the United States under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 1964(a). Majority 21. As the majority acknowledged (Id. at 20) that holding is in direct conflict with decisions of two other circuits on the precise issue presented. See Richard v. Hoechst Celanese Chem. Group Inc. 355 F.3d 345, 354-55 (5th Cir. 2003) (”disgorgement is generally available under § 1964″); United States v. Carson 52 F. 3d 1173, 1181 (2d Cir. 1995) (”disgorgement is among the equitable powers available to the district court by virtue of… § 1964″). Moreover, as the Dissent observed (Dissent 15), the majority’s holding contradicts the repeated recognition by the Supreme Court and this Court that a grant of equitable jurisdiction is presumed to encompass all forms of equitable relief, including the power to order disgorgement. See Mitchell v. Robert DeMario Jewelry, Inc. 361 U.S. 288, 29093 (1960) (authorization “to restrain violations” of the Fair Labor Standards Act encompasses power to order reimbursement ofwrongfully denied wages); Porter v. Warner Holding Co. 328 U.S. 395, 3 97-98 (1946) (grant of jurisdiction “to enjoin acts and practices made illegal by” the Emergency Price Control Act and “to enforce compliance with the Act” conferred power to enter a “decree compelling [defendant] to disgorge profits… acquired in violation” of the Act); SEC v. First City Financial, 890 F.2d 1215, 1229-30 (D.C. Cir. 1989) (authority “to enjoin” violations of the Securities Exchange Act of 1934 encompasses an order directing “disgorgement of profits”).
The majority’s categorical rule barring disgorgement is fundamentally flawed and threatens critical objectives Congress sought to achieve through RICO. That erroneous holding would warrant review by the en banc court in any case, but such review is especially merited here, in the largest civil RICO case ever brought by the government.
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The United States filed this action under RICO to obtain equitable relief against the defendant cigarette manufacturers and related entities, which are alleged to have engaged in a pattern of criminal activity spanning more than half a century. The defendants’ conduct exerts an ongoing hold on millions of Americans who have fallen prey to the defendants’ fraudulent practices and become addicted to defendants’ products. Because of the addictive character of defendants’ cigarettes (which defendants artificially enhance by manipulating ingredients while, at the same time, obscuring the truth through fraud), defendants stand to gain billions of dollars in future profits from their past criminal conduct, in addition to the billions already reaped. Pursuant to § 1964(a) of RICO, which authorizes the courts to issue appropriate orders “to prevent and restrain violations” of the Act, the government’s suit seeks equitable relief, including disgorgement of defendants’ illegal profits and injunctive relief designed to undo the effects of an alleged 50-year pattern of fraud.
Without acknowledging the Supreme Court’s explicit recognition that the aim of RICO’s civil remedies “is to divest the [RICO enterprise] of the fruits of its ill-gotten gains,” United States v. Turkette, 452 U.S. 576, 585 (1981), the panel majority excluded disgorgement categorically from the arsenal of remedies under § 1964(a) precisely because disgorgernent is “aimed at separating the criminal from his prior ill-gotten gains.” Majority 18. The majority likewise ignored this Court’s holding in First City Financial that the authority “to enjoin” statutory violations encompasses an order “direct[ing] disgorgement of profits.” 890 F.2d at 1229-30.
The effects of the majority’s holding are sweeping and threaten to cripple RICO’s remedial force. Under the broad language of the majority’s opinion, defendants argue that the district court is barred not only from ordering disgorgement, but also any “remedies that ‘cure ill effects of past unlawful conduct.” Defendants’ post-appeal mem. 3. The district court apparently agrees: “Judge Sentelle’s Opinion, as this Court reads it, simply does not permit non-disgorgement remedies to
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prevent and restrain the effects of past violations of RICO.” Order #886, at 5 (Feb. 28, 2005). The panel majority’s decision, so construed, would leave the district court virtually powerless to prevent these defendants from reaping, for years to come, the benefits from their fraudulent conduct or to remedy the enormous injury from the alleged fraud.
The majority’s holding that disgorgement is unavailable as a matter of law in actions under § 1964(a), even when necessary to prevent and restrain future RICO violations, presents an issue of exceptional importance in a compellingly important context. Review by the full Court is warranted.
STATEMENT
A. The United States brought this suit in 1999 seeking, inter alia equitable relief pursuant to 18 U.S.C. 1964(a), which authorizes district courts “to prevent and restrain violations” of RICO by “issuing appropriate orders, including, but not limited to” ordering persons to divest themselves of interests in an enterprise, restricting future activities and investments, and “ordering dissolution or reorganization of any enterprise.” As part of its request for equitable relief, the government seeks equitable disgorgement of profits obtained as a result of defendants’ statutory violations.
Defendants moved to dismiss. In an opinion issued in September 2000, the district court denied defendants’ motion to dismiss the government’s RICO claims, rejecting the contention that disgorgement can never be appropriate relief in a civil RICO suit. Defendants did not seek leave to take an interlocutory appeal from that ruling.
B. After four years of discovery, defendants moved for partial summary judgment. Relying on the Second Circuit’s decision ill United States v. Carson 52 F.3d 1173 (2d Cir. 1995), defendants argued that the scope of any disgorgement award should be limited to those proceeds that either “are being used to fund or promote the illegal conduct, or constitute capital available for that purpose.” App. 49 (quoting Carson 52 F.3d at 1182). In defendants’ view, that requirement would limit
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disgorgement to the specific proceeds of their unlawful activities, and, therefore, disgorgement could be defeated by a showing that those proceeds had already been spent. App. 51. Defendants noted in a footnote their disagreement with the court’s prior rejection of their argument that disgorgement is totally unavailable under RICO, App. 35 n.4, but did not ask the court to reconsider that ruling.
In May 2004, the court denied defendants’ summary judgment motion. The court rejected the defendants’ contention that disgorgement under RICO is limited to ill-gotten proceeds presently available to fund further unlawful activities. JA 832. On defendants’ motion, however, the district court certified its summary judgment order for interlocutory appeal. JA 839, 841. The court did not revisit its 2000 ruling rejecting defendants’ argument that disgorgement is entirely unavailable in RICO actions as a matter of law, nor did the court certify that order for interlocutory review. The government opposed interlocutory review, urging that whether disgorgement was an appropriate remedy is a case-specific inquiry that did not satisfy 28 U.S.C. § 1292(b).
In their appellate briefs, defendants addressed the issue decided in the district court’s certified order only briefly, focusing instead on the proposition - decided in the district court’s uncertified 2000 order - that equitable disgorgement is never authorized under § 1964(a).
C. A divided panel held that, as a matter of law, an order of disgorgement is outside RICO’s grant of authority to enter appropriate orders to “prevent and restrain” statutory violations. Judge Sentelle, writing for the majority, declared that “[t]his language indicates that the jurisdiction is limited to forward-looking remedies that are aimed at future violations,” whereas disgorgement “is a quintessentially backward-looking remedy focused on remedying the effects of past conduct to restore the status quo.” Majority 15. The majority noted that RICO’s criminal forfeiture provision, 18 U.S.C. 1963(a), and the private right of action for treble damages, 18 U.S.C. 1964(c), specifically address remedies for past conduct, and concluded from this fact that “[t]his ‘comprehensive and
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reticulated’ scheme, along with the plain meaning of the words themselves, serves to raise a ‘necessary and inescapable inference,’ . .. that Congress intended to limit relief under § 1964(a) to forward-looking orders, ruling out disgorgement.” Majority 18-19 (citation omitted).
Judge Tatel dissented. He concluded, first, that the case was inappropriate for interlocutory review and sharply criticized what he described as defendants’ “bait and switch” misuse of the § 1292(b) process, Dissent 7, declaring that “[t]his court should not be rewarding such tactics by exercising its discretion to hear this appeal,” id. at 13. On the merits, the dissent concluded that the panel’s approach was at odds with Supreme Court and circuit precedent, and rejected the proposition that disgorgement was, by its nature, “backward-looking.” Id. at 14-21, 28.
ARGUMENT
A. The Majority’s Cramped Reading Of Section 1964(a) Cannot Be Squared With Decisions Of The Supreme Court, This Court, And Other Courts Of Appeals Construing The Same And Similar Provisions.
1. The Second and Fifth Circuits in United States v. Carson 52 F.3d 1173 (2d Cir. 1995), and Richard v. Hoechst Celanese Chem. Group Inc. 355 F.3d 345 (5th Cir. 2003), have each recognized that disgorgement is available in an appropriate case under § 1964(a) of RICO. As the panel majority recognized (Majority 20), its holding that disgorgement is categorically excluded from the equitable remedies available to the courts under RICO creates a direct conflict with the Second and Fifth Circuits, and leaves this Court isolated as the _only_ court of appeals to reject disgorgement regardless of the facts. The majority’s holding is not, however, merely in conflict with the views of other courts of appeals. The majority’s decision also cannot be squared with the principles of statutory construction articulated by the Supreme Court concerning grants of equitable authority. Nor can it be reconciled with this Court’s own precedent applying those principles.
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2. Congress enacted RICO against the backdrop of Supreme Court decisions that made clear that a general grant of equitable authority, such as the power to “enjoin” or “restrain” statutory violations, encompasses all the traditional equitable powers of chancery, including the power to order disgorgement of ill-gotten profits. In Porter v. Warner Holding Co. 328 U.S. 395 (1946), the Court construed the Emergency Price Control Act of 1942 (EPCA), which authorized the courts to “enjoin[]” “acts or practices which constitute or will constitute a violation … of this Act” or to “enforc[e] compliance” with the Act. j. at 397 (quoting EPCA § 205(a)). The Court held that “[u]nless otherwise provided by statute, all the inherent equitable powers of the District Court are available for the proper and complete exercise of that jurisdiction.” Id. at 398. Thus, the Court held that EPCA’ s grant of equitable authority encompassed a “decree compelling one to disgorge profits.” Id. at 398. In Mitchell v. Robert DeMario Jewelry Inc. 361 U.S. 288 (1960), the Court similarly held that the statutory authorization “to restrain violations” of the Fair Labor Standards Act (FLSA) placed no restriction on the court’s inherent power to order reimbursement of wages lost because of an unlawful discharge. See j. at 290-93.
Porter and Mitchell are not fact-specific decisions construing particular statutory language. Rather, the Supreme Court quite specifically laid down general principles of statutory construction with respect to grants of equitable jurisdiction. In Porter the Court held that “[u]nless otherwise provided by statute, all the inherent equitable powers of the District Court are available for the proper and complete exercise” of the grant of equitable jurisdiction. 328 U.S. at 398. The Court emphasized that the “comprehensiveness of this equitable jurisdiction is not to be denied or limited in the absence of a clear and valid legislative command.” Ibid. Thus, “{u]nless a statute in so many words, or by a necessary and inescapable inference, restricts the court’s jurisdiction inequity, the full scope of that jurisdiction is to be recognized and applied.” Ibid. Moreover, when “the public interest
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is involved,” the court’s “equitable powers assume an even broader and more flexible character than when only a private controversy is at stake.” Ibid.
The panel majority’s opinion turns the governing presumption on its head. The majority reasoned that § 1964(a)’s scope should be restricted because the majority could not find “any necessary implication” in RICO that § 1964(a) includes disgorgernent. Majority 16. Porter however, establishes the opposite presumption; a grant of equitable jurisdiction must be interpreted to include “the full scope” of equitable powers, including disgorgement, “unless a statute … by a necessary and inescapable inference, restricts” that authority. 328 U.S. at 398 (emphasis added).
None of the majority’s purported bases for declining to follow Porter and Mitchell survives scrutiny. The majority attempts to confine Porter to the particular statute it construed by noting that, after it announced the controlling principles of construction, the Court’s analysis went on to “set forth two theories under which” the restitution order fit within the specific language of the statute. Majority 14. But, in Mitchell the Supreme Court rejected just such an attempt to limit Porter. The Court stated that “[t]he applicability of [Porter’s] principle is not to be denied.. . because, having set forth the governing inquiry, [Porter went on to find in the language of the statute affirmative confirmation of the power to order reimbursement” Mitchell 361 U.S. at 291. Rather, the Court clarified, Porter states anile of general applicability: “When Congress entrusts to an equity court the enforcement of prohibitions contained in a regulatory enactment, it must be taken to have acted cognizant of the historic power of equity to provide complete relief in light of the statutory purposes.” Mitchell 361 U.S. at 291-92.
The majority also states that Porter is distinguishable on the ground that the courts’ authority under RICO to “prevent and restrain” violations is uniquely forward-looking in a way that EPCA’s grant of jurisdiction to enter an order “enforcing compliance” with the statute is not. Majority 13-14.
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The delineation of a court’s power to “restrain” violations, however, must be informed by an understanding of the remedial powers of courts once they are vested with equity jurisdiction. Porter thus did not rely on the particular wording of EPCA, but on the more general point that the court’s jurisdiction under the EPCA “is an equitable one.” 328 U.S. at 398. It is undeniable that the jurisdiction conferred by § 1964(a) “is an equitable one.” And equity courts have long ordered disgorgement as a remedy to prevent unjust enrichment. See I v. United States 481 U.S. 412, 424 (1987). Moreover, Mitchell applied Porter’s principle of construction to the FLSA, which, like RICO, authorizes the courts to “restrain violations” of the act, a phrase that the Court equaled to “the enforcement of prohibitions contained in [the] enactment.” Mitchell 361 U.S. at 289, 291-92.
The majority’s attempt to distinguish Mitchell is equally unfounded. The majority asserts that RICO “grant[s] jurisdiction defined with the sort of limitations not present in the FLSA.” Majority 18. As the dissent observed, however, the majority could so conclude only by ignoring the relevant language of the FLSA. As the dissent noted, “[t]he only jurisdictional hook in the FLSA’s text… was its language: ‘the district courts are given jurisdiction … for cause shown, to restrain violations’ of the act, 29 U.S.C. § 217. If that language opens the door to all equitable relief, then RICO’s language -’the district courts… shall have jurisdiction to prevent and restrain violations’ - certainly does the same.” Dissent 20-21.
The majority’s additional contention that the other remedies provided in RICO constitute a “comprehensive and reticulated’ remedial scheme” that, by implication, excludes disgorgement from the equitable powers available under § 1964(a), Majority 18, cannot be reconciled with the fact that EPCA and FLSA provided similarly broad ranges of remedies. As the dissent observed, EPCA, which was at issue in Porter, “authorized a broad array of other remedies, both criminal and civil,” including a right for individual suits for treble damages and a provision that the Administrator could
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sue for the same remedy on behalf of the United States if the individual was not entitled to sue. Dissent 15. Similarly, contrary to the views of a dissenting justice, the Mitchell majority “thought it insignificant that because both the aggrieved employees and the Secretary could seek lost wages in actions at law under FLSA… duplicative recovery might occur,” Dissent 20 (citing 361 U.S. at 303 (Whittaker, J. dissenting)).
The majority also errs in suggesting that the “overlap” between disgorgement and criminal forfeiture would circumvent “the additional procedural safeguards that attend criminal charges.” Majority 19. Congress did not intend RICO’s criminal and civil remedies to be mutually exclusive. Rather, Congress understood RICO’s “enhanced sanctions and new remedies,” 84 Stat. 923, to give the government a full range of criminal and civil tools and the ability to choose whichever would be most effective. See S. Rep. No. 617, 91″ Congress, 1St Sess. 80 (1969) (observing that criminal prosecution is “a relatively ineffectual tool” for implementing RICO’s “economic policy”). Indeed, Congress recognized the potential “overlap” between RICO’s criminal and civil remedies, noting that a criminal influence “can be legally separated from the organization, either by the criminal law approach… or through a civil law approach of equitable relief.” j4. at 79. The majority’s analysis also fails to apprehend the crucial distinction between § 1964(a) and the provisions for damages and criminal forfeiture: any equitable relief under § 1964(a), including an award of disgorgement, is subject to the court’s sound discretion. $ Dissent 31. The equitable tools available to a court are broad and flexible, but the court must necessarily determine that issuance of a particular remedy is equitable under the circumstances and that it will further the purposes of the statute.
3. This is not the first time this Court has been called upon to interpret Porter and Mitchell In SEC v. First City Financial 890 F.2d 1215 (D.C. Cir. 1989), this Court applied Porter and Mitchell to a provision of the Securities Exchange Act of 1934, which at that time authorized the
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district courts “to enjoin” future violations of the Act. The Court recognized that “[d]isgorgement is an equitable remedy designed to deprive a wrongdoer of his unjust enrichment and to deter others from violating” federal law. Id. at 1230. The Court further noted that, under Porter, “[u]nless otherwise provided by statute, all equitable powers of the District Court are available for the proper and complete exercise of that jurisdiction.” Ibid. (quoting Porter 328 U.S. at 398). On that basis - notwithstanding that the Securities Exchange Act itself contains a comprehensive scheme of remedies, see 15 U. S.C.78i, 78r 78p(b), 78t, 78ff- the Court held that the district court had authority to order disgorgement “simply because the relevant provisions of the Securities Exchange Act of 1934.. . vest jurisdiction in the federal courts.” Ibid. See also SEC v. Banner Fund Int’l. 211 F.3d 602, 617 (D.C. Cir. 2000); SEC v. Bilzerian 29 F.3d 689, 695-96 (D.C. Cir. 1994).
The majority’s method of analysis cannot be squared with the Court’s approach in First City Financial which the majority opinion does not even address, much less distinguish. Nor does the majority acknowledge the decisions of numerous other courts of appeals holding that similarly phrased grants of authority do not restrict a district court’s inherent power to order disgorgement or restitution. See, FTC v. Gem Merchandising Corp. 87 F.3d 466, 469 (11th Cir. 1996) (authorization “to enjoin” violations of the Federal Trade Commission Act does not restrict the power to order disgorgement); ICC v. B &T Transportation Co. 613 F.2d 1182, 1183, 1184-85 (1St Cir. 1980) (provision of Motor Carrier Act empowering ICC “to seek only prospective injunctions to restrain future conduct,” encompassed authority to seek restitution); CFTC v. Hunt, 591 F.2d 1211, 1223 (7th Cir. 1979) (in the absence of an express restriction, the Commodity Exchange Act authorized an order compelling disgorgement of illegally obtained profits); CFTC v. British American Commodity Options Corp. 788 F.2d 92, 94 (2d Cir. 1986) (following Hunt); CFTC v.
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American Metals Exchange Corp. 991 F2d 71, 76 & n.9 (3d Cir. 1993) (same); CFTC v. Cc Petro
Marketing Group Inc. 680 F.2d 573, 583-84 (9th Cir. 1982) (same).
4. The majority’s heavy reliance upon the Supreme Court’s decision in Meghrig v. KFC Western Inc. 516 U.S. 479 (1996), is misplaced. In Meghrig the Court held that § 6972(a) of the Resource Conservation and Recovery Act (RCRA), which authorizes district courts ‘to restrain any person [responsible for toxic waste], to order such person to take such other action as may he necessary, or both,” did not authorize a private party suing under § 6972(a)(1)(B) (which provides for suits concerning hazardous wastes posing an imminent and substantial endangerment) to seek recovery of already expended cleanup costs. Id. at 484.
Meghrig does not justify the majority’s refusal to follow Porter Mitchell and First City Financial here. Meghrig did not purport to overrule Porter and Mitchell but, rather, rejected the creation of a private right for monetary relief based on features unique to RCRA. The Court contrasted the limited remedies available under RCRA with cost recovery provisions expressly provided in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), under which the government may institute a cost-recovery action and private individuals may seek contribution from those liable for cleanup costs. 516 U.S. at 485. In light of that contrast between parallel statutes addressed to the same subject matter -as well as the text of § 6972(a)(1)(B) that focused on elimination of imminent and substantial endangerment and thus on prospective relief — the Court concluded that “Congress did not intend for a private citizen to be able to undertake a cleanup and then proceed to recover its costs under RCRA” for past changes. Id. at 487 (emphasis added). Indeed, after reviewing other details of RCRA’s enforcement scheme, the Court stressed that “if RCRA were designed to compensate private parties for their past cleanup efforts, it would be a wholly irrational mechanism for doing so.” j. at 486 (emphasis added). The Court noted, for
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instance, that RCRA “contains no statute of limitations,” “does not require a showing that response costs being sought are reasonable,” and, notably, requires that a private individual give the EPA 90days notice and prohibits the private individual from bringing suit if EPA initiates its own enforcement action. Ibid. Finally, the relief that the plaintiffs sought under RCRA in Meghrig did not involve di sgorgement of defendant’s ill-gotten gains, but compensation of monies plaintiffs themselves had expended, regardless of any likelihood of future violations or continuing effects of defendants’ past misconduct. Thus, the remedy sought more closely resembled a private right of action for damages than an equitable action to enforce the public interest. Cf. Porter, 328 U.S. at 398 (noting that greater equitable flexibility is appropriate when “the public interest is involved”); F Hoffman-La Roche Ltd v. Empagran S.A. 124 S. Ct. 2359, 2370 (2004) (government entitled to broader antitrust relief than private plaintiffs).
B. The Majority’s Holding Severely Undermines Congress’s Purpose To ‘Divest” RICO Enterprises Of “Ill-Gotten Gains.”
While the numerous conflicts identified above would warrant en banc review in any case, review by the full Court is particularly called for here, in light of the fact that the statute involved is the government’s most potent weapon for combating organized crime and the issue arises in the biggest civil RICO action the government has ever brought. The majority’s holding threatens to severely undermine Congress’s purpose in RICO’s civil remedies to “divest the association of the fruits of its ill-gotten gains.” United States v. Turkette 452 U.S. 576, 585 (1981).
1. Congress explicitly provided that RICO “shall be liberally construed to effectuate its remedial purposes.” Organized Crime Control Act of 1970, Pub. L. No. 91-452, § 904(a), 84 Stat. 947. The statute’s remedial purpose is to “deal.. . with the economic base” of violators and “free the channels of commerce from all illicit activity,” and Congress provided the courts with authority to craft “equitable relief broad enough to do all that is necessary” to accomplish that end. S. Rep.
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No. 617, supra at 79. Thus, “[a]lthough certain [equitable] remedies are set out, the list is not exhaustive.” Id. at 160.
After surveying RICO’s legislative history, the Supreme Court recognized that one of the ills Congress intended to address was organized crime’s prospective use of “revenue and power” derived from past illegal conduct and that RICO was designed as “an attack.. . on [that] source of economic power itself.” Turkette 452 U.S. at 591-92 (quoting, with emphasis, S. Rep. No. 617, at 79). The aim of RICO’s civil remedies, including Section 1964(a), the Court summarized, is “to divest the association of the fruits of its ill-gotten gains.” I. at 585 (emphasis added). Yet, the panel majority held that disgorgement is categorically excluded from § 1964(a) precisely because it is “aimed at separating the criminal from his prior ill-gotten gains.” Majority 18. The panel’s holding thus frustrates one of the chief aims of RICO’s civil remedies. And accomplishment of that purpose is especially important in the context of this case, because the addictive nature of the products sold through defendants’ pattern of fraud ensured that their conduct would have a lasting effect, in its impact on victims and in generating profits for defendants, that continues to this day and beyond.
It is particularly anomalous to strip from courts under Section 1964(a) the power to deprive defendants of the fruits of past violations, because the statute on which RICO’s remedial provisions are most closely modeled - the antitrust laws - have long been understood to authorize relief that removes the fruits of illegal conduct from the wrongdoer’s hands. Section 4 of the Sherman Act, which uses the identical phrase “prevent and restrain violations,” was said by the Supreme Court to empower trial courts to, “so far as practicable, cure the ill effects of the illegal conduct, . . assure the public freedom from its continuance,” and “den[y] [the conspirators] future benefits from their forbidden conduct.” United States v. Gypsum Co. 340 U.S. 76, 88-89 (1950); see also Schine Theaters v. United States 334 U.S. 110, 128 (1948) (divestiture, among other its purposes, “deprives
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the antitrust defendants of the benefits of their conspiracy”). RICO’s equitable remedies should receive at least equal scope, particularly since a central purpose of the statute is to strike at the economic base of unlawful enterprises.
Tellingly, defendants have seized upon the panel majority’s rewriting of the statute as authorizing only orders “to prevent or restrain future violations,” Majority 14 (emphasis added), and are now urging the district court that the panel’s decision precludes not only disgorgement, but more broadly “prohibits remedies that ‘cure ill effects of past unlawful conduct,” including: (i) a “smoking cessation program… aimed at ameliorating… the addiction of smokers.. . deceived by fraudulent conduct”; (b) “monitoring [of] smokers for the onset of smoking-related diseases”; or (c) a “public education campaign and.. . youth smoking prevention campaign” that would “protect the public from being negatively impacted by Defendants’ violations.” Defendants’ post-appeal mem. 3, 9, 10, 11. The district court, while not definitively ruling on the scope of relief that might be warranted, has stated unequivocally that the majority’s opinion “simply does not permit nondisgorgement remedies to prevent and restrain the effects of past violations of RICO.” Order #886, at 5 (Feb. 28, 2005). The apparent lesson to be drawn from the majority’s holding is that violators of RICO are free to retain their unjust gains from, and cannot be required to undo the effects of, their past statutory violations, no matter how lucrative or destructive, so long as they can persuade a court that they have mended their ways. The majority’s message -that RICO’s potent equitable remedies are in fact a paper tiger - is precisely the opposite of the message Congress intended RICO to send.
2. Even if RICO’s equitable remedies were construed as limited to orders designed to prevent and restrain future violations, it is impossible to make a categorical determination, as the majority did, that an order of disgorgernent will never be necessary to deter a criminal enterprise from further violations. In this case, as the Dissent recognized, the government’s expert evidence
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shows, as a factual matter, “that disgorgement will in fact ‘prevent and restrain’ defendants from committing future RICO violations.” Dissent 33. As the government’s expert testified, disgorgement will “deter future misconduct” by “strengthen[ing] the credibility of existing laws.” App. 814. Disgorgement also “prevents and restrains” future violations by “altering the defendants’ expectations about the returns they might receive from future misconduct” (J.A. 704, 813)- a critical consideration when well-established criminal laws failed to prevent an alleged decades-long fraud. Where, as here, the defendants’ conduct has yielded hundreds of billions of dollars in allegedly illgotten profits from sales to persons who became addicted as youths due to defendants’ violations, and their continued participation in the same industry holds out the ever-present temptation to engage in more deception to lure more youths into addiction, a disgorgemcnt order designed to bring home the message that fraud does not pay may be the only way to “prevent and restrain” future violations.
As the dissent observed, the ultimate vice of the majority’s decision is its categorical nature. The majority should not have reached out to resolve this question as a matter of law because, as the dissent explained, “in equity, as nowhere else, courts [should] eschew rigid absolutes,’ . . . and precisely what remedy or combination of remedies, within the bounds of… equitable doctrines…, will serve to prevent and restrain defendants from committing RICO violations, is an issue of fact, not statutory interpretation.” Id. at 33 (citation omitted). Rather, as the dissent suggested, the Court should “rely in the first instance not on what we appellate judges can or cannot imagine will ‘prevent or restrain,’ but on tried and true methods of fact-finding before district courts including crossexamination and presentation of contrary evidence.” Ibid. Governing precedent leaves no doubt that the panel erred in foreclosing the court’s exercise of equitable discretion.
CONCLUSION
For the foregoing reasons, the case should be reheard en banc.
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Respectfully submitted,
PETER D. KEISLER
Assistant Attorney General
MICHAEL R. DREEBEN
Deputy Solicitor General
SHARON Y. EUBANKS
Director Tobacco Litigation Team
STEPHEN D. BRODY
Deputy Director Tobacco Litigation Team
FRANK J. MARINE
Senior Litigation Counsel
Organized Crime and Racketeering Section
MARK B. STERN
MARK R. FREEMAN
Attorneys Appellate Staff
Civil Division Room 7531
Department of Justice
950 Pennsylvania Ave. N.W
Washington D.C 20530
(202 514-5089
MARCH 2005
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CERTIFICATE OF SERVICE
I hereby certify that on this 4th day of March, 2005, I caused copies of the foregoing petition to be filed with the Court and served upon the following counsel by hand delivery and caused copies of the brief to be served upon the following counsel by electronic mail:
Robert F. McDermott, Jr., Esq. JONES DAY
51 Louisiana Avenue, N.W.
Washington, D.C. 20001-2113 (202) 879-3939
jredgrave / jonesday.com [email altered to prevent spam]
trgeremia / jonesday.com [email altered to prevent spam]
macarvin / jonesday.com [email altered to prevent spam]
Beth S. Brinkmann, Esq.
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W. Washington, D.C. 20006-1888
(202) 887-1500
bbrinkmann / mofo.com [email altered to prevent spam]
Mark R. Freeman