OCTOBER TERM, 1992
Syllabus
REVES ET AL.
v. ERNST & YOUNG
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH
CIRCUIT
No. 91-886. Argued October 13, 1992-Decided March 3, 1993
A provision of the Racketeer Influenced and Corrupt
Organizations Act (RICO), 18 U. S. C. § 1962(c), makes it unlawful
"for any person employed by or associated with [an interstate]
enterprise ... to conduct or participate, directly or indirectly,
in the conduct of such enterprise's affairs through a pattern of
racketeering activity .... " After respondent's predecessor, the
accounting firm of Arthur Young and Company, engaged in certain
activities relating to valuation of a gasohol plant on the yearly
audits and financial statements of a farming cooperative, the
cooperative filed for bankruptcy, and the bankruptcy trustee
brought suit, alleging,
inter alia, that the activities in
question rendered Arthur Young civilly liable under § 1962(c) to
petitioner holders of certain of the cooperative's notes. Among
other things, the District Court applied Circuit precedent
requiring, in order for such liability to attach, "some
participation in the operation or management of the enterprise
itself"; ruled that Arthur Young's activities failed to satisfy
this test; and granted summary judgment in its favor on the RICO
claim. Agreeing with the lower court's analysis, the Court of
Appeals affirmed in this regard.
Held: One must participate in the operation or management
of the enterprise itself in order to be subject to § 1962(c)
liability. Pp. 177-186.
(a) Examination of the statutory language in the light of
pertinent dictionary definitions and the context of § 1962(c)
brings the section's meaning unambiguously into focus. Once it is
understood that the word "conduct" requires some degree of
direction, and that the word "participate" requires some part in
that direction, it is clear that one must have
some part in
directing an enterprise's affairs in order to "participate,
directly or indirectly, in the conduct of such ... affairs." The
"operation or management" test expresses this requirement in a
formulation that is easy to apply. Pp.177-179.
(b) The "operation or management" test finds further support in
§ 1962's legislative history. Pp. 179-183.
(c) RICO's "liberal construction" clause-which specifies that
the "provisions of this title shall be liberally construed to
effectuate its remedial purposes"-does not require rejection of the
"operation or management" test. The clause obviously seeks to
ensure that Congress'
171
intent is not frustrated by an overly narrow reading of the
statute, but it is not an invitation to apply RICO to new purposes
that Congress never intended. It is clear from the statute's
language and legislative history that Congress did not intend to
extend § 1962(c) liability beyond those who participate in the
operation or management of an enterprise through a pattern of
racketeering activity. Pp. 183-184.
(d) The "operation or management" test is consistent with the
proposition that liability under § 1962(c) is not limited to upper
management. "Outsiders" having no official position with the
enterprise may be liable under § 1962(c) if they are "associated
with" the enterprise and participate in the operation or management
of the enterprise. Pp. 184-185.
(e) This Court will not overturn the lower courts' findings that
respondent was entitled to summary judgment upon application of the
"operation or management" test to the facts of this case. The
failure to tell the cooperative's board that the gasohol plant
should have been valued in a particular way is an insufficient
basis for concluding that Arthur Young participated in the
operation or management of the cooperative itself. pp. 185-186.
937 F.2d
1310, affirmed.
BLACKMUN, J., delivered the opinion of the Court, in which
REHNQUIST, C. J., and STEVENS, O'CONNOR, and KENNEDY, JJ., joined,
and in all but Part IV-A of which SCALIA and THOMAS, JJ., joined.
SOUTER, J., filed a dissenting opinion, in which WHITE, J., joined,
post, p. 186.
Gary M. Elden argued the cause for petitioners. With him on the
briefs were John R. McCambridge, Jay R. Hoffman, and Robert R.
Cloar.
Michael R. Dreeben argued the cause for the United States as
amicus curiae urging reversal. With him on the brief were Solicitor
General Starr, Assistant Attorney General Mueller, and Deputy
Solicitor General Bryson.
Kathryn A. Oberly argued the cause for respondent.
With her on the brief were Bruce M. Cormier, John Matson, Carl
D. Liggio, and Fred Lovitch. *
*Briefs of
amici curiae urging reversal were filed for
the National Association of Insurance Commissioners by
Ellen
G.
Robinson and C.
Philip Curley; for the National
Association of Securities and Commercial Law
172
JUSTICE BLACKMUN delivered the opinion of the Court.1 This case
requires us once again to interpret the provisions of the Racketeer
Influenced and Corrupt Organizations (RICO) chapter of the
Organized Crime Control Act of 1970, Pub. L. 91-452, Title IX, 84
Stat. 941, as amended, 18 U. S. C. §§ 1961-1968 (1988 ed. and Supp.
II). Section 1962(c) makes it 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
.... " The question presented is whether one must participate in
the operation or management of the enterprise itself to be subject
to liability under this provision.
I
The Farmer's Cooperative of Arkansas and Oklahoma, Inc. (Co-Op),
began operating in western Arkansas and eastern Oklahoma in 1946.
To raise money for operating expenses, the Co-Op sold promissory
notes payable to the holder on demand. Each year, Co-Op members
were elected to serve on its board. The board met monthly but
delegated actual management of the Co-Op to a general manager. In
1952, the board appointed Jack White as general manager.
In January 1980, White began taking loans from the Co-Op to
finance the construction of a gasohol plant by his company,
Attorneys by
Kevin P. Roddy and
William S.
Lerach; and for Trial Lawyers for Public Justice, P.
C., by G.
Robert Blakey and
Arthur H.
Bryant.
Laurence Gold, Robert Weinberg, Martin S.
Lederman,
Jed S.
Rakoff, and
Michael L. Waldman filed a
brief for the American Federation of Labor and Congress of
Industrial Organizations as
amicus curiae urging
affirmance.
Louis A. Craco filed a brief for the American Institute
of Certified Public Accountants as
amicus curiae.
IJUSTICE SCALIA and JUSTICE THOMAS do not join Part IV-A of this
opinion.
173
White Flame Fuels, Inc. By the end of 1980, White's debts to the
Co-Op totaled approximately $4 million. In September of that year,
White and Gene Kuykendall, who served as the accountant for both
the Co-Op and White Flame, were indicted for federal tax fraud. At
a board meeting on November 12, 1980, White proposed that the Co-Op
purchase White Flame. The board agreed. One month later, however,
the Co-Op filed a declaratory action against White and White Flame
in Arkansas state court alleging that White actually had sold White
Flame to the Co-Op in February 1980. The complaint was drafted by
White's attorneys and led to a consent decree relieving White of
his debts and providing that the Co-Op had owned White Flame since
February 15, 1980.
White and Kuykendall were convicted of tax fraud in J anuary
1981. See
United States v.
White, 671 F.2d
1126 (CA8 1982) (affirming their convictions). Harry Erwin, the
managing partner of Russell Brown and Company, an Arkansas
accounting firm, testified for White, and shortly thereafter the
Co-Op retained Russell Brown to perform its 1981 financial audit.
Joe Drozal, a partner in the Brown firm, was put in charge of the
audit and Joe Cabaniss was selected to assist him. On January 2,
1982, Russell Brown and Company merged with Arthur Young and
Company, which later became respondent Ernst & Young.2
One of Drozal's first tasks in the audit was to determine White
Flame's fixed-asset value. After consulting with White and
reviewing White Flame's books (which Kuykendall had prepared),
Drozal concluded that the plant's value at the end of 1980 was
$4,393,242.66, the figure Kuykendall had employed. U sing this
figure as a base, Drozal factored in the 1981 construction costs
and capitalized expenses and concluded that White Flame's 1981
fixed-asset value was ap-
2 In order to be consistent with the terminology employed in
earlier judicial writings in this case, we hereinafter refer to the
respondent firm as "Arthur Young."
174
proximately $4.5 million. Drozal then had to determine how that
value should be treated for accounting purposes. If the Co-Op had
owned White Flame from the beginning of construction in 1979, White
Flame's value for accounting purposes would be its fixed-asset
value of $4.5 million. If, however, the Co-Op had purchased White
Flame from White, White Flame would have to be given its fair
market value at the time of purchase, which was somewhere between
$444,000 and $1.5 million. If White Flame were valued at less than
$1.5 million, the Co-Op was insolvent. Drozal concluded that the
Co-Op had owned White Flame from the start and that the plant
should be valued at $4.5 million on its books.
On April 22, 1982, Arthur Young presented its 1981 audit report
to the Co-Op's board. In that audit's Note 9, Arthur Young
expressed doubt whether the investment in White Flame could ever be
recovered. Note 9 also observed that White Flame was sustaining
operating losses averaging $100,000 per month. See
Arthur
Young &
Co. v.
Reves, 937 F. 2d 1310, 1318
(CA8 1991). Arthur Young did not tell the board of its conclusion
that the Co-Op always had owned White Flame or that without that
conclusion the Co-Op was insolvent.
On May 27, the Co-Op held its 1982 annual meeting. At that
meeting, the Co-Op, through Harry C. Erwin, a partner in Arthur
Young, distributed to the members condensed financial statements.
These included White Flame's $4.5 million asset value among its
total assets but omitted the information contained in the audit's
Note 9. See 937 F. 2d, at 1318-1319. Cabaniss was also present.
Erwin saw the condensed financial statement for the first time when
he arrived at the meeting. In a 5-minute presentation, he told his
audience that the statements were condensed and that copies of the
full audit were available at the Co-Op's office. In response to
questions, Erwin explained that the Co-Op owned White Flame and
that the plant had incurred approxi-
175
mately $1.2 million in losses but he revealed no other
information relevant to the Co-Op's true financial health.
The Co-Op hired Arthur Young also to perform its 1982 audit. The
1982 report, presented to the board on March 7, 1983, was similar
to the 1981 report and restated (this time in its Note 8) Arthur
Young's doubt whether the investment in White Flame was
recoverable. See 937 F. 2d, at 1320. The gasohol plant again was
valued at approximately $4.5 million and was responsible for the
Co-Op's showing a positive net worth. The condensed financial
statement distributed at the annual meeting on March 24, 1983,
omitted the information in Note 8. This time, Arthur Young reviewed
the condensed statement in advance but did not act to remove its
name from the statement. Cabaniss, in a 3-minute presentation at
the meeting, gave the financial report. He informed the members
that the full audit was available at the Co-Op's office but did not
tell them about Note 8 or that the Co-Op was in financial
difficulty if White Flame were written down to its fair market
value.
Ibid.
In February 1984, the Co-Op experienced a slight run on its
demand notes. On February 23, when it was unable to secure further
financing, the Co-Op filed for bankruptcy. As a result, the demand
notes were frozen in the bankruptcy estate and were no longer
redeemable at will by the note holders.
II
On February 14, 1985, the trustee in bankruptcy filed suit
against 40 individuals and entities, including Arthur Young, on
behalf of the Co-Op and certain noteholders. The District Court
certified a class of noteholders, petitioners here, consisting of
persons who had purchased demand notes between February 15, 1980,
and February 23, 1984. Petitioners settled with all defendants
except Arthur Young. The District Court determined before trial
that the demand notes were securities under both federal and state
law. See
Robertson v.
White, 635 F. Supp. 851, 865
(WD Ark. 1986).
176
The court then granted summary judgment in favor of Arthur Young
on the RICO claim. See
Robertson v.
White, Nos.
85-2044, 85-2096, 85-2155, and 85-2259 (WD Ark., Oct. 15, 1986),
App. 198-200. The District Court applied the test established by
the Eighth Circuit in
Bennett v.
Berg, 710 F. 2d
1361, 1364 (en bane), cert. denied
sub nom. Prudential Ins. Co.
of America v.
Bennett, 464 U. S. 1008 (1983), that §
1962(c) requires "some participation in the operation or management
of the enterprise itself." App. 198. The court ruled: "Plaintiffs
have failed to show anything more than that the accountants
reviewed a series of completed transactions, and certified the
Co-Op's records as fairly portraying its financial status as of a
date three or four months preceding the meetings of the directors
and the shareholders at which they presented their reports. We do
not hesitate to declare that such activities fail to satisfy the
degree of management required by
Bennett v. Berg." Id., at
199-200.
The case went to trial on the state and federal securities fraud
claims. The jury found that Arthur Young had committed both state
and federal securities fraud and awarded approximately $6.1 million
in damages. The Court of Appeals reversed, concluding that the
demand notes were not securities under federal or state law. See
Arthur Young &
Co. v.
Reves, 856 F.2d
52, 55 (CA8 1988). On writ of certiorari, this Court ruled that
the notes were securities within the meaning of § 3(a)(10) of the
Securities Exchange Act of 1934, 48 Stat. 882, as amended, 15 U. S.
C. § 78c(a)(10).
Reves v.
Ernst &
Young,
494 U. S. 56, 70
(1990).
On remand, the Court of Appeals affirmed the judgment of the
District Court in all major respects except the damages award,
which it reversed and remanded for a new trial. See 937 F. 2d, at
1339-1340. The only part of the Court of Appeals' decision that is
at issue here is its affirmance of summary judgment in favor of
Arthur Young on the RICO claim. Like the District Court, the Court
of Appeals applied the "operation or management" test articulated
in
Ben-
177
nett v.
Berg and held that Arthur Young's conduct
did not "rise to the level of participation in the management or
operation of the Co-op." See 937 F. 2d, at 1324. The Court of
Appeals for the District of Columbia Circuit also has adopted an
"operation or management" test. See
Yellow Bus Lines, Inc.
v.
Drivers, Chauffeurs &
Helpers Local Union 639,
286 U. S. App. D. C. 182, 188,
913 F.2d
948, 954 (1990) (en bane), cert. denied, 501 U. S. 1222 (1991).
We granted certiorari, 502 U. S. 1090 (1992), to resolve the
conflict between these cases and
Bank of America National
Trust &
Savings Assn. v.
Touche Ross &
Co., 782 F.2d
966, 970 (CA111986) (rejecting requirement that a defendant
participate in the operation or management of an enterprise).
III
"In determining the scope of a statute, we look first to its
language. If the statutory language is unambiguous, in the absence
of 'a clearly expressed legislative intent to the contrary, that
language must ordinarily be regarded as conclusive.'"
United
States v.
Turkette, 452 U. S. 576, 580
(1981), quoting
Consumer Product Safety Comm'n v.
GTE
Sylvania, Inc., 447 U. S. 102, 108
(1980). See also
Russello v.
United States, 464 U. S. 16, 20 (1983).
Section 1962(c) makes it unlawful "for any person employed by or
associated with any enterprise ... to conduct or participate,
directly or indirectly, in the conduct of such enterprise's affairs
through a pattern of racketeering activity .... "
The narrow question in this case is the meaning of the phrase
"to conduct or participate, directly or indirectly, in the conduct
of such enterprise's affairs." The word "conduct" is used twice,
and it seems reasonable to give each use a similar construction.
See
Sorenson v.
Secretary of Treasury, 475 U. S. 851, 860
(1986). As a verb, "conduct" means to lead, run, manage, or direct.
Webster's Third New International Dictionary 474 (1976).
Petitioners urge us to read "conduct" as "carryon," Brief for
Petitioners 23, so that al-
178
most any involvement in the affairs of an enterprise would
satisfy the "conduct or participate" requirement. But context is
important, and in the context of the phrase "to conduct ... [an]
enterprise's affairs," the word indicates some degree of
direction.3
The dissent agrees that, when "conduct" is used as a verb, "it
is plausible to find in it a suggestion of control."
Post,
at 187. The dissent prefers to focus on "conduct" as a noun, as in
the phrase "participate, directly or indirectly, in the conduct of
[an] enterprise's affairs." But unless one reads "conduct" to
include an element of direction when used as a noun in this phrase,
the word becomes superfluous. Congress could easily have written
"participate, directly or indirectly, in [an] enterprise's
affairs," but it chose to repeat the word "conduct." We conclude,
therefore, that as both a noun and a verb in this subsection
"conduct" requires an element of direction.
The more difficult question is what to make of the word
"participate." This Court previously has characterized this word as
a "ter[m] ... of breadth."
Russello, 464 U. S., at 21-22.
Petitioners argue that Congress used "participate" as a synonym for
"aid and abet." Brief for Petitioners 26. That would be a term of
breadth indeed, for "aid and abet" "comprehends all assistance
rendered by words, acts, encouragement, support, or presence."
Black's Law Dictionary 68 (6th ed. 1990). But within the context of
§ 1962(c), "participate" appears to have a narrower meaning. We may
mark
3 The United States calls our attention to the use of the word
"conduct" in 18 U. S. C. § 1955(a), which penalizes anyone who
"conducts, finances, manages, supervises, directs, or owns all or
part of an illegal gambling business." See Brief for United States
as
Amicus Curiae 13, n. 11; Tr. of Oral Arg. 24-25. This
Court previously has noted that the Courts of Appeals have
interpreted this statute to proscribe "any degree of participation
in an illegal gambling business, except participation as a mere
bettor."
Sanabria v.
United States, 437 U. S. 54, 70-71, n. 26
(1978). We may assume, however, that "conducts" has been given a
broad reading in this context to distinguish it from "manages,
supervises, [or] directs."
179
the limits of what the term might mean by looking again at what
Congress did not say. On the one hand, "to participate ... in the
conduct of ... affairs" must be broader than "to conduct affairs"
or the "participate" phrase would be superfluous. On the other
hand, as we already have noted, "to participate ... in the conduct
of ... affairs" must be narrower than "to participate in affairs"
or Congress' repetition of the word "conduct" would serve no
purpose. It seems that Congress chose a middle ground, consistent
with a common understanding of the word "participate"-"to take part
in." Webster's Third New International Dictionary 1646 (1976).
Once we understand the word "conduct" to require some degree of
direction and the word "participate" to require some part in that
direction, the meaning of § 1962(c) comes into focus. In order to
"participate, directly or indirectly, in the conduct of such
enterprise's affairs," one must have some part in directing those
affairs. Of course, the word "participate" makes clear that RICO
liability is not limited to those with primary responsibility for
the enterprise's affairs, just as the phrase "directly or
indirectly" makes clear that RICO liability is not limited to those
with a formal position in the enterprise,4 but
some part in
directing the enterprise's affairs is required. The "operation or
management" test expresses this requirement in a formulation that
is easy to apply.
IV A
This test finds further support in the legislative history of §
1962. The basic structure of § 1962 took shape in the spring of
1969. On March 20 of that year, Senator Hruska
4 For these reasons, we disagree with the suggestion of the
Court of Appeals for the District of Columbia Circuit that §
1962(c) requires
"significant control over or within an
enterprise."
Yellow Bus Lines, Inc. v.
Drivers,
Chauffeurs &
Helpers Local Union 639, 286 U. S. App.
D. C. 182, 188,
913 F.2d
948, 954 (1990) (en banc) (emphasis added), cert. denied, 501
U. S. 1222 (1991).
180
introduced S. 1623, 91st Cong., 1st Sess., which combined his
previous legislative proposals. See Lynch, RICO: The Crime of Being
a Criminal, Parts I & II, 87 Colum. L. Rev. 661,676 (1987);
Blakey & Gettings, Racketeer Influenced and Corrupt
Organizations (RICO): Basic Concepts-Criminal and Civil Remedies,
53 Temp. L. Q. 1009, 1017 (1980). Senate bill 1623 was titled the
"Criminal Activities Profits Act" and was directed solely at the
investment of proceeds derived from criminal activity.5 It was §
2(a) of this bill that ultimately became § 1962(a).
On April 18, Senators McClellan and Hruska introduced S. 1861,
91st Cong., 1st Sess., which recast S. 1623 and added provisions
that became §§ 1962(b) and (C).6 See Blakey, The
5 Senate bill 1623 provided in relevant part:
"SEC. 2. (a) Whoever, being a person who has received any income
derived directly or indirectly from any criminal activity in which
such person has participated as a principal within the meaning of
section 2, title 18, United States Code applies any part of such
income or the proceeds of any such income to the acquisition by or
on behalf of such person of legal title to or any beneficial
interest in any of the assets, liabilities, or capital of any
business enterprise which is engaged in, or the activities of which
affect, interstate or foreign commerce shall be guilty of a felony
and shall be fined not more than $10,000, or imprisoned not more
than ten years, or both."
6 Senate bill 1861 provided in relevant part: "§ 1962.
Prohibited racketeering activities
"(a) It shall be unlawful for any person who has knowingly
received any income derived, directly orindirectly, from a pattern
by [sic] racketeering activity 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.
"(b) It shall be unlawful for any person to acquire or maintain,
directly or indirectly, any interest in or control of any
enterprise which is engaged in, or the activities of which affect,
interstate or foreign commerce, through a pattern of racketeering
activity or through collection of unlawful debt.
"(c) It shall be unlawful for any person employed by or
associated with any enterprise engaged in, or the activities of
which affect, interstate or
181
RICO Civil Fraud Action in Context: Reflections on
Bennett v.
Berg, 58 Notre Dame L. Rev. 237, 264, n. 76 (1982). The first
line of S. 1861 reflected its expanded purpose: "to prohibit the
infiltration
or management of legitimate organizations by
racketeering activity or the proceeds of racketeering activity"
(emphasis added).
On June 3, Assistant Attorney General Will Wilson presented the
views of the Department of Justice on a number of bills relating to
organized crime, including S. 1623 and S. 1861, to the Subcommittee
on Criminal Laws and Procedures of the Senate Committee on the
Judiciary. Wilson criticized S. 1623 on the ground that "it is too
narrow in that it merely prohibits the investment of prohibited
funds in a business, but fails to prohibit the control
or
operation of such a business by means of prohibited
racketeering activities." Measures Related to Organized Crime:
Hearings before the Subcommittee on Criminal Laws and Procedures of
the Senate Committee on the Judiciary, 91st Cong., 1st Sess., 387
(1969) (emphasis added). He praised S. 1861 because the "criminal
provisions of the bill contained in Section 1962 are broad enough
to cover most of the methods by which ownership, control
and
operation of business concerns are acquired."
Ibid.
(emphasis added). See Blakey,
supra, at 258, n. 59.
With alterations not relevant here, S. 1861 became Title IX of
S. 30. The House and Senate Reports that accompanied S. 30
described the three-part structure of § 1962:
"(1) making unlawful the receipt or use of income from
'racketeering activity' or its proceeds by a principal in
commission of the activity to acquire an interest in or establish
an enterprise engaged in interstate commerce; (2) prohibiting the
acquisition of any enterprise engaged in interstate commerce
through a 'pattern' of 'racketeer-
foreign commerce, to conduct or participate, directly or
indirectly, in the conduct of such enterprise's affairs through a
pattern of racketeering activity."
182
ing activity;' and (3) proscribing the operation of any
enterprise engaged in interstate commerce through a 'pattern'
of 'racketeering activity.'" H. R. Rep. No. 911549, p. 35 (1970);
S. Rep. No. 91-617, p. 34 (1969) (emphasis added).
In their comments on the floor, Members of Congress consistently
referred to subsection (c) as prohibiting the
operation of
an enterprise through a pattern of racketeering activity and to
subsections (a) and (b) as prohibiting the
acquisition of an
enterprise.7 Representative Cellar, who was chairman of the House
Judiciary Committee that voted RICO out in 1970, described §
1962(c) as proscribing the "conduct of the affairs of a business by
a person acting in a
managerial capacity, through
racketeering activity." 116 Congo Rec. 35196 (1970) (emphasis
added).
Of course, the fact that Members of Congress understood §
1962(c) to prohibit the operation or management of an enterprise
through a pattern of racketeering activity does not necessarily
mean that they understood § 1962(c) to be limited to the operation
or management of an enterprise. Cf. Tur
kette, 452 U. S., at
591 (references to the infiltration of legitimate organizations do
not "requir[e] the negative inference that [RICO] did not reach the
activities of enterprises organized and existing for criminal
purposes"). It is clear from other remarks, however, that Congress
did not intend RICO to extend beyond the acquisition or operation
of an enter-
7 See,
e. g., 116 Congo Rec. 607 (1970) (remarks of Sen.
Byrd of West Virginia) ("to acquire an interest in businesses ... ,
or to acquire or operate such businesses by racketeering methods");
id., at 36294 (remarks of Sen. McClellan) ("to acquire an interest
in a business ... , to use racketeering activities as a means of
acquiring such a business, or to operate such a business by
racketeering methods"); id., at 36296 (remarks of Sen. Dole)
("using the proceeds of racketeering activity to acquire an
interest in businesses engaged in interstate commerce, or to
acquire or operate such businesses by racketeering methods"); id.,
at 35227 (remarks of Rep. Steiger) ("the use of specified
racketeering methods to acquire or operate commercial
organizations").
183
prise. While S. 30 was being considered, critics of the bill
raised concerns that racketeering activity was defined so broadly
that RICO would reach many crimes not necessarily typical of
organized crime. See 116 Congo Rec. 18912-18914, 18939-18940 (1970)
(remarks of Sen. McClellan). Senator McClellan reassured the bill's
critics that the criticallimitation was not to be found in §
1961(1)'s list of predicate crimes but in the statute's other
requirements, including those of § 1962:
"The danger that commission of such offenses by other
individuals would subject them to proceedings under title IX [RICO]
is even smaller than any such danger under title III of the 1968
[Safe Streets] [A]ct, since commission of a crime listed under
title IX provides only one element of title IX's prohibitions.
Unless an individual not only commits such a crime but engages in a
pattern of such violations, and uses that pattern to obtain or
operate an interest in an interstate business, he is not made
subject to proceedings under title IX." 116 Congo Rec., at
18940.
Thus, the legislative history confirms what we have already
deduced from the language of § 1962(c)-that one is not liable under
that provision unless one has participated in the operation or
management of the enterprise itself.
B
RICO's "liberal construction" clause does not require rejection
of the "operation or management" test. Congress directed, by §
904(a) of Pub. L. 91-452, 84 Stat. 947, see note following 18 U. S.
C. § 1961, p. 438, that the "provisions of this title shall be
liberally construed to effectuate its remedial purposes." This
clause obviously seeks to ensure that Congress' intent is not
frustrated by an overly narrow reading of the statute, but it is
not an invitation to apply RICO to new purposes that Congress never
intended. Nor does the
184
clause help us to determine what purposes Congress had in mind.
Those must be gleaned from the statute through the normal means of
interpretation. The clause "'only serves as an aid for resolving an
ambiguity; it is not to be used to beget one.'"
Sedima, S.
P. R. L. v.
Imrex Co., 473 U. S. 479, 492, n. 10
(1985), quoting
Callanan v.
United States, 364 U. S. 587, 596
(1961). In this case it is clear that Congress did not intend to
extend RICO liability under § 1962(c) beyond those who participate
in the operation or management of an enterprise through a pattern
of racketeering activity.8
V
Petitioners argue that the "operation or management" test is
flawed because liability under § 1962(c) is not limited to upper
management but may extend to "any person employed by or associated
with [the] enterprise." Brief for Petitioners 37-40. We agree that
liability under § 1962(c) is not limited to upper management, but
we disagree that the "operation or management" test is inconsistent
with this proposition. An enterprise is "operated" not just by
upper management but also by lower rung participants in the
enterprise who are under the direction of upper management.9 An
enterprise also might be "operated" or "managed" by others
"associated with" the enterprise who exert control over it as, for
example, by bribery.
The United States also argues that the "operation or management"
test is not consistent with § 1962(c) because it lim-
8 Because the meaning of the statute is clear from its language
and legislative history, we have no occasion to consider the
application of the rule of lenity. We note, however, that the rule
of lenity would also favor the narrower "operation or management"
test that we adopt.
9 At oral argument, there was some discussion about whether
low-level employees could be considered to have participated in the
conduct of an enterprise's affairs. See Tr. of Oral Arg. 12, 25-27.
We need not decide in this case how far § 1962(c) extends down the
ladder of operation because it is clear that Arthur Young was not
acting under the direction of the CoOp's officers or board.
185
its the liability of "outsiders" who have no official position
within the enterprise. Brief for United States as
Amicus
Curiae 12 and 15. The United States correctly points out that
RICO's major purpose was to attack the "infiltration of organized
crime and racketeering into legitimate organizations," S. Rep. No.
91-617, at 76, but its argument fails on several counts. First, it
ignores the fact that § 1962 has four subsections. Infiltration of
legitimate organizations by "outsiders" is clearly addressed in
subsections (a) and (b), and the "operation or management" test
that applies under subsection (c) in no way limits the application
of subsections (a) and (b) to "outsiders." 10 Second, § 1962(c) is
limited to persons "employed by or associated with" an enterprise,
suggesting a more limited reach than subsections (a) and (b), which
do not contain such a restriction. Third, § 1962(c) cannot be
interpreted to reach complete "outsiders" because liability depends
on showing that the defendants conducted or participated in the
conduct of the
"enterprise's affairs," not just their
own affairs. Of course, "outsiders" may be liable under §
1962(c) if they are "associated with" an enterprise and participate
in the conduct of
its affairs-that is, participate in the
operation or management of the enterprise itself-but it would be
consistent with neither the language nor the legislative history of
§ 1962(c) to interpret it as broadly as petitioners and the United
States urge.
In sum, we hold that "to conduct or participate, directly or
indirectly, in the conduct of such enterprise's affairs," §
1962(c), one must participate in the operation or management of the
enterprise itself.
VI
Both the District Court and the Court of Appeals applied the
standard we adopt today to the facts of this case, and both found
that respondent was entitled to summary judg-
10 Subsection (d) makes it unlawful to conspire to violate any
of the other three subsections.
186
ment. Neither petitioners nor the United States have argued that
these courts misapplied the "operation or management" test. The
dissent argues that by creating the Co-Op's financial statements
Arthur Young participated in the management of the Co-Op because
"'financial statements are management's responsibility.'"
Post, at 190, quoting 1 CCH AICPA Professional Standards,
SAS No.1, § 110.02 (1982). Although the professional standards
adopted by the accounting profession may be relevant, they do not
define what constitutes management of an enterprise for the
purposes of § 1962(c).
In this case, it is undisputed that Arthur Young relied upon
existing Co-Op records in preparing the 1981 and 1982 audit
reports. The AICPA's professional standards state that an auditor
may draft financial statements in whole or in part based on
information from management's accounting system. See
ibid.
It is also undisputed that Arthur Young's audit reports revealed to
the Co-Op's board that the value of the gasohol plant had been
calculated based on the Co-Op's investment in the plant. See App.
in No. 87-1726 (CA8), pp. 250-251, 272-273. Thus, we only could
conclude that Arthur Young participated in the operation or
management of the Co-Op itself if Arthur Young's failure to tell
the Co-Op's board that the plant should have been given its fair
market value constituted such participation. We think that Arthur
Young's failure in this respect is not sufficient to give rise to
liability under § 1962(c).
The judgment of the Court of Appeals is affirmed.
It is so ordered.
JUSTICE SOUTER, with whom JUSTICE WHITE joins, dissenting.
In the word "conduct," the Court today finds a clear
congressional mandate to limit RICO liability under 18 U. S. C. §
1962(c) to participants in the "operation or management"
187
of a RICO enterprise.
Ante, at 177-179. What strikes the
Court as clear, however, looks at the very least hazy to me, and I
accordingly find the statute's "liberal construction" provision not
irrelevant, but dispositive. But even if I were to assume, with the
majority, that the word "conduct" clearly imports some degree of
direction or control into § 1962(c), I would have to say that the
majority misapplies its own "operation or management" test to the
facts presented here. I therefore respectfully dissent.
The word "conduct" occurs twice in § 1962(c), first as a
verb, then as a noun.
"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."
18 U. s. C. § 1962(c).
Although the Court is surely correct that the cognates should
receive consistent readings, see
ante, at 177, and correct
again that "context is important" in coming to understand the sense
of the terms intended by Congress,
ante, at 178, the
majority goes astray in quoting only the verb form of "conduct" in
its statement of the context for divining a meaning that must fit
the noun usage as well. Thus, the majority reaches its pivotal
conclusion that "in the context of the phrase 'to conduct ... [an]
enterprise's affairs,' the word indicates some degree of
direction."
Ibid. (footnote omitted). To be sure, if the
statutory setting is so abbreviated as to limit consideration to
the word as a verb, it is plausible to find in it a suggestion of
control, as in the phrase "to conduct an orchestra." (Even so, the
suggestion is less than emphatic, since even when "conduct" is used
as a verb, "[t]he notion of direction or leadership is often
obscured or lost; e. g. an investigation is
conducted by all
those who take
188
part in it." 3 Oxford English Dictionary 691 (2d ed. 1989)
(emphasis in original).)
In any event, the context is not so limited, and several
features of the full subsection at issue support a more inclusive
construction of "conduct." The term, when used as a noun, is
defined by the majority's chosen dictionary as, for example,
"carrying forward" or "carrying out," Webster's Third New
International Dictionary 473 (1976), phrases without any
implication of direction or control. The suggestion of control is
diminished further by the fact that § 1962(c) covers not just those
"employed by" an enterprise, but those merely "associated with" it,
as well. And associates (like employees) are prohibited not merely
from conducting the affairs of an enterprise through a pattern of
racketeering, not merely from participating directly in such
unlawful conduct, but even from indirect participation in the
conduct of an enterprise's affairs in such a manner. The very
breadth of this prohibition renders the majority's reading of
"conduct" rather awkward, for it is hard to imagine how the
"operation or management" test would leave the statute with the
capacity to reach the indirect participation of someone merely
associated with an enterprise. I think, then, that this contextual
examination shows "conduct" to have a long arm, unlimited by any
requirement to prove that the activity includes an element of
direction. But at the very least, the full context is enough to
defeat the majority's conviction that the more restrictive
interpretation of the word "conduct" is clearly the one
intended.1
1 The Court attempts to shore up its interpretation with an
examination of relevant legislative materials. See
ante, at
179-183. The legislative history demonstrates only that when
Members of Congress needed a shorthand method of referring to §
1962(c), they spoke of prohibiting "the operation" of an enterprise
through a pattern of racketeering activity. As Arthur Young points
out, "operation" is essentially interchangeable with "conduct";
each term can include a sense of direction, but each is also
definable as "carrying on" or "carrying out." Brief for
Respondent
189
What, then, if we call it a tie on the contextual analysis?
The answer is that Congress has given courts faced with
uncertain meaning a clear tiebreaker in RICO's "liberal
construction" clause, which directs that the "provisions of this
title shall be liberally construed to effectuate its remedial
purposes." Pub. L. 91-452, § 904(a), 84 Stat. 947, note following
18 U. S. C. § 1961. We have relied before on this "express
admonition" to read RICO provisions broadly, see
Sedima, S.
P. R. L. v.
Imrex Co., 473 U. S. 479, 497-498
(1985), and in this instance, the "liberal construction" clause
plays its intended part, directing us to recognize the more
inclusive definition of the word "conduct," free of any restricting
element of direction or control.2 Because the Court of Appeals
employed a narrower reading, I would reverse.
Even if I were to adopt the majority's view of § 1962(c),
however, I still could not join the judgment, which seems to me
unsupportable under the very "operation or management" test the
Court announces. If Arthur Young had confined itself in this case
to the role traditionally performed by an outside auditor, I could
agree with the majority that Arthur Young took no part in the
management or operation of the Farmer's Cooperative of Arkansas and
Oklahoma, Inc. (Co-op). But the record on summary judgment,
viewed
22. There is no indication that the congressional shorthand was
meant to attend to the statutory nuance at issue here. As the Court
concedes, "[T]he fact that Members of Congress understood § 1962(c)
to prohibit the operation or management of an enterprise through a
pattern of racketeering activity does not necessarily mean that
they understood § 1962(c) to be limited to the operation or
management of an enterprise."
Ante, at 182.
2 The majority claims that without an element of direction, the
word "conduct," when it appears as a noun, becomes superfluous.
Ante, at 178. Given the redundant language Congress has
chosen for § 1962(c), however, any consistent reading of "conduct"
will tend to make one of its two appearances superfluous.
190
most favorably to Reves,3 shows that Arthur Young created the
very financial statements it was hired, and purported, to audit.
Most importantly, Reves adduced evidence that Arthur Young took on
management responsibilities by deciding, in the first instance,
what value to assign to the Co-op's most important fixed asset, the
White Flame gasohol plant, and Arthur Young itself conceded below
that the alleged activity went beyond traditional auditing. Because
I find, then, that even under the majority's "operation or
management" test the Court of Appeals erroneously affirmed the
summary judgment for Arthur Young, I would (again) reverse.
For our purposes, the line between managing and auditing is
fairly clear. In describing the "respective responsibilities of
management and auditor," Arthur Young points to the Code of
Professional Conduct developed by the American Institute of
Certified Public Accountants (AICPA). Brief for Respondent 31. This
auditors' code points up management's ultimate responsibility for
the content of financial statements:
"The financial statements are management's responsibility. The
auditor's responsibility is to express an opinion on the financial
statements. Management is responsible for adopting sound accounting
policies and for establishing and maintaining an internal control
structure that will, among other things, record, process,
summarize, and report financial data that is consistent with
management's assertions embodied in the financial statements ....
The independent auditor may make
3 In ruling on a motion for summary judgment, "[t]he evidence of
the nonmovant is to be believed, and all justifiable inferences are
to be drawn in his favor."
Anderson v.
Liberty Lobby,
Inc., 477 U. S.
242, 255 (1986). My description of the facts, based primarily
on the District Court's view of the evidence at summary judgment,
conforms to this standard.
191
suggestions about the form or content of the financial
statements or draft them, in whole or in part, based on information
from management's accounting system." 1 CCH AICPA Professional
Standards, SAS No.1, § 110.02 (1982).
In short, management chooses the assertions to appear in
financial statements; the auditor "simply expresses an opinion on
the client's financial statements." Brief for Respondent 30. These
standards leave no doubt that an accountant can in no sense
independently audit financial records when he has selected their
substance himself. See
In re Thomas P. Reynolds Securities,
Ltd., Exchange Act Release No. 29689, 1991 SEC LEXIS 1855,
*6-*7 (Sept. 16, 1991) ("A company may, of course, rely on an
outside firm to prepare its books of account and financial
statements. However, once an accounting firm performs those
functions, it has become identified with management and may not
perform an audit").
The evidence on summary judgment, read favorably to Reves,
indicates that Arthur Young did indeed step out of its auditing
shoes and into those of management, in creating the financial
record on which the Co-op's solvency was erroneously predicated.
The Co-op's 1980 financial statement gave no fixed-asset value for
the White Flame gasohol plant (although the statement did say that
the Co-op had advanced the plant $4.1 million during 1980, App. in
No. 87-1726 (CA8), pp. 291, 295), and there is no indication that a
valuation statement occurred anywhere else in the Co-op's records
at that time. When Arthur Young accepted the job of preparing the
Co-op's financial statement for 1981, the value to be given the
plant was a matter of obvious moment. Instead of declaring the
plant's valuation to be the Co-op's responsibility, and instead
even of turning to management for more reliable information about
the plant's value, Arthur Young basically set out to answer its own
questions and to come up with its own figure for White Flame's
fixed-asset value. In doing so,
192
it repeatedly made choices calling for the exercise of a
judgment that belonged to the Co-op's management in the first
instance.
Arthur Young realized it could not rely on White Flame's 1980
financial statement, which had been prepared by a convicted felon
(who also happened to be the Co-op's former accountant),4 see
Arthur Young &
Co. v.
Reves, 937 F.2d
1310, 1316-1317 (CA8 1991), and an internal memo that appears
in the record shows that Arthur Young had a number of serious
questions about White Flame's cost figures for the plant. See App.
in No. 87-1726,
supra, at 1189-1191. Nonetheless, Arthur
Young "essentially invented" a cost figure that matched, to the
penny, the phoney figure that Kuykendall, White Flame's convicted
accountant, had created. App. 138-140. With this "invented" cost
figure in hand, Arthur Young then proceeded to decide, again
without consulting management, when the Co-op had acquired White
Flame. Although the Co-op's 1980 financial statement indicated an
acquisition of White Flame in February 1980, as did a local court
decree, see App. in No. 87-1726,
supra, at 295, 12121214,
Arthur Young "adopted a blatant fiction-that the Co-op [had] owned
the entire plant at its inception in May, 1979-in order to justify
carrying the asset on [the Co-op's] books at its total cost, as if
the Co-op had built it from scratch." App. 137. Apparently, the
idea that the Co-op had owned the gasohol plant since 1979 was
reflected nowhere in the Co-op's books, and Arthur Young was
solely
4 Gene Kuykendall, the Co-op's previous "independent auditor,"
was involved in keeping the Co-op's books in addition to preparing
and "auditing" financial statements for White Flame. See
Arthur
Young &
Co. v.
Reves, 937
F.2d 1310, 1316-1317
(CA8 1991);
United States v.
White, 671 F. 2d 1126
(CA8 1982);
Robertson v.
White, 633 F. Supp. 954 (WD Ark. 1986). Thus, the Co-op had
a history of relying on "outside" auditors for such services.
193
responsible for the Co-op's decision to treat the transaction in
this manner. 5
Relying on this fiction, the unreality of which it never shared
with the Co-op's board of directors,6 let alone the
5 If Arthur Young had decided otherwise, the value of White
Flame on the Co-op's books would have been its fair market value at
the time of sale-three to four million dollars less. See
ante, at 174. The "blatant fiction" created by Arthur Young
maintained the Co-op's appearance of solvency and made Jack White's
management "look better." App. 137138. The District Court noted
some plausible motives for Arthur Young's conduct, including a
desire to keep the Co-op's business and the accountants' need "to
cover themselves for having testified on behalf of White and
Kuykendall in [their] 1981 criminal trial." App. 136.
The majority asserts, as an "undisputed" fact, "that Arthur
Young relied upon existing Co-Op records in preparing the 1981 and
1982 audit reports."
Ante, at 186. In fact, however, the
District Court found that Reves had presented evidence sufficient
to show that Arthur Young "essentially invented" a cost figure for
White Flame (after examining White Flame records created by
Kuykendall). See App. 138-140. Since the Coop's 1980 financial
statement indicated that the Co-op had advanced White Flame only
$4.1 million through the end of 1980, see supra, at 191, Arthur
Young could not have relied on the Co-op's records in concluding
that the plant's value was nearly $4.4 million at the end of 1980.
See 937 F. 2d, at 1317. The District Court also found sufficient
evidence in the record to support the conclusion that Arthur Young
had created the "blatant fiction" that the Co-op had owned White
Flame from its inception, despite overwhelming evidence to the
contrary in the Co-op's records. See App. 137138; see also 937 F.
2d, at 1317 ("In concluding that the Co-op had always owned White
Flame, [Arthur Young] ignored a great deal of information
suggesting exactly the opposite"). The evidence indicates that it
was creative accounting, not reliance on the Co-op's books, that
led Arthur Young to treat the Co-op as the plant's owner from the
time of its construction in 1979 (a conclusion necessary to support
Arthur Young's decision to value the plant at total cost). Not even
the decree procured in the friendly lawsuit engineered by White and
his lawyers treated the Co-op as building the plant, or as owning
it before February 1980. See
ante, at 173.
6 See 937 F. 2d, at 1318. In fact, Note 9 to the 1981 financial
statement continued to indicate that the Co-op "acquired legal
ownership" of White Flame in February 1980. App. in No. 87-1726
(CA8), p. 250.
194
membership, Arthur Young prepared the Co-op's 1981 financial
statement and listed a fixed-asset value of more than $4.5 million
for the gasohol plant. App. in No. 87-1726 (CA8), p. 238. Arthur
Young listed a similar value for White Flame in the Co-op's
financial statement for 1982.
Id., at 261. By these actions,
Arthur Young took on management responsibilities, for it thereby
made assertions about the fixed-asset value of White Flame that
were derived, not from information or any figure provided by the
Co-op's management, but from its own financial analysis.
Thus, the District Court, after reviewing this evidence,
concluded that petitioners could show from the record that Arthur
Young had "created the Co-op's financial statements." App. 199. The
court also took note of evidence supporting petitioners' allegation
that Arthur Young had "participated in the creation of condensed
financial statements" that were handed out each year at the annual
meeting of the Co-op.
Ibid. Before the Court of Appeals,
although Arthur Young disputed petitioners' claim that it had been
functioning as the Co-op's
de facto chief financial officer,
Supplemental Reply Brief on Remand for Appellant in No. 87-1726
(CA8), p. 2, it did not dispute the District Court's conclusion
that Reves had presented evidence showing that Arthur Young had
created the Co-op's financial statements and had participated in
the creation of condensed financial statements. Supplemental Brief
on Remand for Appellant in No. 87-1726 (CA8), p. 20. Instead,
Arthur Young argued that "[e]ven if, as here, the alleged activity
goes beyond traditional auditing, it was neither an
integral
part of the management of the Co-op's affairs nor part of a
dominant, active ownership or managerial role."
Id.,
at 21 (emphasis added).
It was only by ignoring these crucial concessions, and the
evidence that obviously prompted them, that the Court of Appeals
could describe Arthur Young's involvement with the
195
Co-op as "limited to the audits, meetings with the Board of
Directors to explain the audits, and presentations at the annual
meetings." 937 F. 2d, at 1324. And only then could the court have
ruled that, "as a matter of law, Arthur Young's involvement with
the Co-op did not rise to the level required for a RICO violation,"
which it described (quoting
Bennett v.
Berg,
710 F.2d
1361 (CA8 1983)) as requiring only "some participation in the
operation or management of the enterprise itself." 937 F. 2d, at
1324 (internal quotation marks omitted).
But petitioners' evidence and respondent's concessions of
activity going beyond outside auditing can neither be ignored nor
declared irrelevant. As the Court explains today, "'outsiders' may
be liable under § 1962(c) if they are 'associated with' an
enterprise and participate in the conduct of
its
affairs-that is, participate in the operation or management of the
enterprise itself .... "
Ante, at 185 (emphasis in
original). Thus, the question here is whether Arthur Young, which
was "associated with" the Co-op, "participated" in the Co-op's
operation or management. As the Court has noted, "participate"
should be read broadly in this context, see
ante, at 178
(citing
Russello v.
United States, 464 U. S. 16, 21-22
(1983)), since Congress has provided that even "indirect"
participation will suffice. Cf.
Sedima, S.
P. R. L.
v.
Imrex Co., 473 U. S., at 497-498 ("Congress'
self-consciously expansive language" supports the conclusion that
"RICO is to be read broadly").
The evidence petitioners presented in opposing the motion for
summary judgment demonstrated Arthur Young's "participation" in
this broad sense. By assuming the authority to make key decisions
in stating the Co-op's own valuation of its major fixed asset, and
by creating financial statements that were the responsibility of
the Co-op's management, Arthur Young crossed the line separating
"outside" auditors from "inside" financial managers. Because the
majority, like
196
the Court of Appeals, affirms the grant of summary judgment in
spite of this evidence, I believe that it misapplies its own
"operation or management" test, and I therefore respectfully
dissent.
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