H.J. Inc. v. Northwestern Bell Telephone

The H.J.  v. Northwest Bell Telephone case is provided for Birdsong’s White Collar Crime students  as part of their required reading during week 8 of the course when we begin our study of the RICO law.

H.J. Inc. v. Northwestern Bell Telephone Co.
492 U.S. 229, 109 S.Ct. 2893
U.S.Minn.,1989.
June 26, 1989

Justice BRENNAN delivered the opinion of the Court.

We are called upon in this civil case to consider what conduct meets RICO’s pattern requirement.

I 

Petitioners, customers of respondent Northwestern Bell Telephone Co., filed this putative class action in 1986 in the District Court for the District of Minnesota. Petitioners alleged violations of §§ 1962(a), (b), (c), and (d) by Northwestern Bell and the other respondents-some of the telephone company’s officers and employees, various members of the Minnesota Public Utilities Commission (MPUC), and other unnamed individuals and corporations-and sought an injunction and treble damages under RICO’s civil liability provisions, §§ 1964(a) and (c).

The MPUC is the state body responsible for determining the rates that Northwestern Bell may charge. Petitioners’ five-count complaint alleged that between 1980 and 1986 Northwestern Bell sought to influence members of the MPUC in the performance of their duties-and in fact caused them to approve rates for the company in excess of a fair and reasonable amount-by making cash payments to commissioners, negotiating with them regarding future employment, and paying for parties and meals, for tickets to sporting events and the like, and for airline tickets. Based upon these factual allegations, petitioners alleged in their first count a pendent state-law claim, asserting that Northwestern Bell violated the Minnesota bribery statute, Minn.Stat. § 609.42 (1988), as well as state common law prohibiting bribery. They also raised four separate claims **2898 under § 1962 of RICO. Count II alleged that, in violation of § 1962(a), Northwestern Bell derived income from a pattern of racketeering activity involving predicate acts of bribery and used *234 this income to engage in its business as an interstate “enterprise.” Count III claimed a violation of § 1962(b), in that, through this same pattern of racketeering activity, respondents acquired an interest in or control of the MPUC, which was also an interstate “enterprise.” In Count IV, petitioners asserted that respondents participated in the conduct and affairs of the MPUC through this pattern of racketeering activity, contrary to § 1962(c). Finally, Count V alleged that respondents conspired together to violate §§ 1962(a), (b), and (c), thereby contravening § 1962(d).
The District Court granted respondents’ Federal Rule of Civil Procedure 12(b)(6) motion, dismissing the complaint for failure to state a claim upon which relief could be granted. 648 F.Supp. 419 (Minn.1986). The court found that “[e]ach of the fraudulent acts alleged by [petitioners] was committed in furtherance of a single scheme to influence MPUC commissioners to the detriment of Northwestern Bell’s ratepayers.” Id., at 425. It held that dismissal was therefore mandated by the Court of Appeals for the Eighth Circuit’s decision in Superior Oil Co. v. Fulmer, 785 F.2d 252 (1986), which the District Court interpreted as adopting an “extremely restrictive” test for a pattern of racketeering activity that required proof of “multiple illegal schemes.” 648 F.Supp., at 425.^FN1 The Court of Appeals for the Eighth Circuit affirmed the dismissal of petitioners’ complaint, confirming that under Eighth Circuit precedent “[a] single fraudulent effort or scheme is insufficient” to establish a pattern of racketeering*235 activity, 829 F.2d 648, 650 (1987), and agreeing with the District Court that petitioners’ complaint alleged only a single scheme, ibid. Two members of the panel suggested in separate concurrences, however, that the Court of Appeals should reconsider its test for a RICO pattern. Id., at 650 (McMillian, J.); id., at 651 (J. Gibson, J.). Most Courts of Appeals have rejected the Eighth Circuit’s interpretation of RICO’s pattern concept to require an allegation and proof of multiple schemes,^FN2 and we granted certiorari to resolve**2899 this conflict. 485 U.S. 958, 108 S.Ct. 1219, 99 L.Ed.2d 420 (1988). We now reverse.

*236 II

[1] [2] It is, nevertheless, a task we must undertake in order to decide this case. Our guides in the endeavor must be the text of the statute and its legislative history. We find no support in those sources for the proposition, espoused by the Court of Appeals for the Eighth Circuit in this case, that predicate acts of racketeering may form a pattern only when they are part of separate illegal schemes. Nor can we agree with those courts that have suggested that a pattern is established merely by proving two predicate acts, see, e.g., United States v. Jennings, 842 F.2d 159, 163 (CA6 1988), or with amici in this case who argue that the word “pattern” refers*237 only to predicates that are indicative of a perpetrator involved in organized crime or its functional equivalent. In our view, Congress had a more natural and commonsense approach to RICO’s pattern element in mind, intending a more stringent requirement than proof simply of two predicates, but also envisioning a concept of sufficient breadth that it might encompass multiple predicates within a single scheme that were related and that amounted to, or threatened the likelihood of, continued criminal activity.

A

[3] We begin, of course, with RICO’s text, in which Congress followed a “pattern [of] utilizing terms and concepts of breadth.” Russello v. United States, 464 U.S. 16, 21, 104 S.Ct. 296, 299, 78 L.Ed.2d 17 (1983). As we remarked in Sedima, supra, 473 U.S., at 496, n. 14, 105 S.Ct., at 3285, n. 14, the section of the statute headed “definitions,” 18 U.S.C. § 1961 (1982 ed. and Supp. V), does not so much define a pattern of racketeering activity as state a minimum necessary condition for the existence of such a pattern. Unlike other provisions in § 1961 that tell us what various concepts used in the Act “mean,” 18 U.S.C. § 1961(5) says of the phrase “pattern of racketeering activity” only that it “requires at least two acts of racketeering activity, one of which occurred after [October 15, 1970,] and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity.” It thus places an outer limit on the concept of a pattern of racketeering activity that is broad indeed.

Section 1961(5) does indicate that Congress envisioned circumstances in which no more than two predicates would be necessary to establish a pattern of racketeering**2900 -otherwise it would have drawn a narrower boundary to RICO liability, requiring proof of a greater number of predicates. But, at the same time, the statement that a pattern “requires at least” two predicates implies “that while two acts are necessary, they may not be sufficient.” *238 Sedima, 473 U.S., at 496, n. 14, 105 S.Ct., at 3285, n. 14; id., at 527, 105 S.Ct., 3289 (Powell, J., dissenting). Section 1961(5) concerns only the minimum number of predicates necessary to establish a pattern; and it assumes that there is something to a RICO pattern beyond simply the number of predicate acts involved. The legislative history bears out this interpretation, for the principal sponsor of the Senate bill expressly indicated that “proof of two acts of racketeering activity, without more, does not establish a pattern.” 116 Cong.Rec. 18940 (1970) (statement of Sen. McClellan). Section § 1961(5) does not identify, though, these additional prerequisites for establishing the existence of a RICO pattern.

In addition to § 1961(5), there is the key phrase “pattern of racketeering activity” itself, from § 1962, and we must “start with the assumption that the legislative purpose is expressed by the ordinary meaning of the words used.” Richards v. United States, 369 U.S. 1, 9, 82 S.Ct. 585, 591, 7 L.Ed.2d 492 (1962). In normal usage, the word “pattern” here would be taken to require more than just a multiplicity of racketeering predicates. A “pattern” is an “arrangement or order of things or activity,” 11 Oxford English Dictionary 357 (2d ed. 1989), and the mere fact that there are a number of predicates is no guarantee that they fall into any arrangement or order. It is not the number of predicates but the relationship that they bear to each other or to some external organizing principle that renders them “ordered” or “arranged.” The text of RICO conspicuously fails anywhere to identify, however, forms of relationship or external principles to be used in determining whether racketeering activity falls into a pattern for purposes of the Act.

It is reasonable to infer, from this absence of any textual identification of sorts of pattern that would satisfy § 1962‘s requirement, in combination with the very relaxed limits to the pattern concept fixed in § 1961(5), that Congress intended to take a flexible approach, and envisaged that a pattern might be demonstrated by reference to a range of different ordering principles or relationships between predicates, within the expansive bounds set. For any more specific guidance as *239 to the meaning of “pattern,” we must look past the text to RICO’s legislative history, as we have done in prior cases construing the Act. See Sedima, S.P.R.L. v. Imrex Co., 473 U.S., at 486-490, 105 S.Ct., at 3279-3282 (majority opinion); id., at 510-519, 105 S.Ct., at 3297-3302 (MARSHALL, J., dissenting); id., at 524-527, 105 S.Ct., at 3287-3289 (Powell, J., dissenting); Russello v. United States, supra, at 26-29, 104 S.Ct., at 302-304; United States v. Turkette, 452 U.S. 576, 586-587, 589-593, 101 S.Ct. 2524, 2530-2531, 2531-2534, 69 L.Ed.2d 246 (1981).

The legislative history, which we discussed in Sedima, supra, 473 U.S., at 496, n. 14, 105 S.Ct., at 3285, n. 14, shows that Congress indeed had a fairly flexible concept of a pattern in mind. A pattern is not formed by “sporadic activity,” S.Rep. No. 91-617, supra, p. 158 (1969), and a person cannot “be subjected to the sanctions of title IX simply for committing two widely separated and isolated criminal offenses,” 116 Cong. Rec., at 18940 (1970) (Sen. McClellan). Instead, “[t]he term ‘pattern’ itself requires the showing of a relationship” between the predicates, ibid., and of “ ‘the threat of continuing activity,’ ” ibid., quoting S.Rep. No. 91-617, at 158. “It is this factor of continuity plus relationship which combines to produce a pattern.” Ibid. (emphasis added). RICO’s legislative history reveals Congress’ intent that to prove a pattern of racketeering activity a plaintiff or prosecutor must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity.

**2901 B 

[4] For analytic purposes these two constituents of RICO’s pattern requirement must be stated separately, though in practice their proof will often overlap. The element of relatedness is the easier to define, for we may take guidance from a provision elsewhere in the Organized Crime Control Act of 1970 (OCCA), Pub.L. 91-452, 84 Stat. 922, of which RICO formed Title IX. OCCA included as Title X the Dangerous Special Offender Sentencing Act, 18 U.S.C. § 3575 et seq. (now partially repealed). Title X provided for enhanced sentences*240 where, among other things, the defendant had committed a prior felony as part of a pattern of criminal conduct or in furtherance of a conspiracy to engage in a pattern of criminal conduct. As we noted in Sedima, supra, at 496, n. 14, 105 S.Ct., at 3285, n. 14, Congress defined Title X’s pattern requirement solely in terms of the relationship of the defendant’s criminal acts one to another: “[C]riminal conduct forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.” § 3575(e). We have no reason to suppose that Congress had in mind for RICO’s pattern of racketeering component any more constrained a notion of the relationships between predicates that would suffice.

[5] RICO’s legislative history tells us, however, that the relatedness of racketeering activities is not alone enough to satisfy § 1962‘s pattern element. To establish a RICO pattern it must also be shown that the predicates themselves amount to, or that they otherwise constitute a threat of, continuing racketeering activity. As to this continuity requirement, § 3575(e) is of no assistance. It is this aspect of RICO’s pattern element that has spawned the “multiple scheme” test adopted by some lower courts, including the Court of Appeals in this case. See 829 F.2d, at 650 (“In order to demonstrate the necessary continuity appellants must allege that Northwestern Bell ‘had engaged in similar endeavors in the past or that [it was] engaged in other criminal activities.’ … A single fraudulent effort or scheme is insufficient”). But although proof that a RICO defendant has been involved in multiple criminal schemes would certainly be highly relevant to the inquiry into the continuity of the defendant’s racketeering activity, it is implausible to suppose that Congress thought continuity might be shown only by proof of multiple schemes. The Eighth Circuit’s test brings a rigidity to the available methods of proving a pattern*241 that simply is not present in the idea of “continuity” itself; and it does so, moreover, by introducing a concept-the “scheme”-that appears nowhere in the language or legislative history of the Act.^FN3 We adopt a less **2902 inflexible approach that seems to us to derive from a commonsense, everyday understanding of RICO’s language and Congress’ gloss on it. What a plaintiff or prosecutor must prove is continuity of racketeering activity, or its threat, simpliciter. This may be done in a variety of ways, thus making it difficult to formulate in the abstract any general test for continuity. We can, however, begin to delineate the requirement.

FN3. Nor does the multiple scheme approach to identifying continuing criminal conduct have the advantage of lessening the uncertainty inherent in RICO’s pattern component, for “ ‘scheme’ is hardly a self-defining term.” Barticheck v. Fidelity Union Bank/First National State, 832 F.2d, at 39. A “scheme” is in the eye of the beholder, since whether a scheme exists depends on the level of generality at which criminal activity is viewed. For example, petitioners’ allegation that Northwestern Bell attempted to subvert public utility commissioners who would be voting on the company’s rates might be described as a single scheme to obtain a favorable rate, or as multiple schemes to obtain favorable votes from individual commissioners on the ratemaking decision. Similarly, though interference with ratemaking spanning several ratemaking decisions might be thought of as a single scheme with advantageous rates as its objective, each ratemaking decision might equally plausibly be regarded as distinct and the object of its own “scheme.” There is no obviously “correct” level of generality for courts to use in describing the criminal activity alleged in RICO litigation. Because of this problem of generalizability, the Eighth Circuit’s “scheme” concept is highly elastic. Though the definitional problems that arise in interpreting RICO’s pattern requirement inevitably lead to uncertainty regarding the statute’s scope-whatever approach is adopted-we prefer to confront these problems directly, not “by introducing a new and perhaps more amorphous concept into the analysis” that has no basis in text or legislative history. Ibid.

[6] “Continuity” is both a closed- and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition. See Barticheck v. Fidelity Union Bank/First National State, 832 F.2d 36, 39 (CA3 1987). It *242 is, in either case, centrally a temporal concept-and particularly so in the RICO context, where what must be continuous, RICO’s predicate acts or offenses, and the relationship these predicates must bear one to another, are distinct requirements. A party alleging a RICO violation may demonstrate continuity over a closed period by proving a series of related predicates extending over a substantial period of time. Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement: Congress was concerned in RICO with long-term criminal conduct. Often a RICO action will be brought before continuity can be established in this way. In such cases, liability depends on whether the threat of continuity is demonstrated. See S.Rep. No. 91-617, at 158.

[7] [8] [9] [10] Whether the predicates proved establish a threat of continued racketeering activity depends on the specific facts of each case. Without making any claim to cover the field of possibilities-preferring to deal with this issue in the context of concrete factual situations presented for decision-we offer some examples of how this element might be satisfied. A RICO pattern may surely be established if the related predicates themselves involve a distinct threat of long-term racketeering activity, either implicit or explicit. Suppose a hoodlum were to sell “insurance” to a neighborhood’s storekeepers to cover them against breakage of their windows, telling his victims he would be reappearing each month to collect the “premium” that would continue their “coverage.” Though the number of related predicates involved may be small and they may occur close together in time, the racketeering acts themselves include a specific threat of repetition extending indefinitely into the future, and thus supply the requisite threat of continuity. In other cases, the threat of continuity may be established by showing that the predicate acts or offenses are part of an ongoing entity’s regular way of doing business. Thus, the threat of continuity is sufficiently establishedwhere *243 the predicates can be attributed to a defendant operating as part of a long-term association that exists for criminal purposes. Such associations include, but extend well beyond, those traditionally grouped under the phrase “organized crime.” The continuity requirement is likewise satisfied where it is shown that the predicates are a regular way of conducting defendant’s ongoing legitimate business (in the sense that it is not a business that exists for criminal purposes), or of conducting or participating in an ongoing and legitimate RICO “enterprise.” ^FN4

FN4. Insofar as the concurrence seems to suggest, post, at 2907-2908, that very short periods of criminal activity that do not in any way carry a threat of continued criminal activity constitute “obvious racketeer[ing]” to which Congress intended RICO, with its enhanced penalties, to apply, we have concluded that it is mistaken, and that when Congress said predicates must demonstrate “continuity” before they may form a RICO pattern, it expressed an intent that RICO reach activities that amount to or threaten long-term criminal activity.

III 

[11] Various amici urge that RICO’s pattern element should be interpreted more narrowly than as requiring relationship and continuity in the senses outlined above, so that a defendant’s racketeering activities form a pattern only if they are characteristic either of organized crime in the traditional sense, or of an organized-crime-type perpetrator, that is, of an association dedicated to the repeated commission of criminal offenses.065 *244 #^FN5 Like the Court of Appeals’ multiple scheme rule, however, the argument for reading an organized crime limitation into RICO’s pattern concept, whatever the merits and demerits of such a limitation as an initial legislative matter, finds no support in the Act’s text, and is at odds with the tenor of its legislative history.

One evident textual problem with the suggestion that predicates form a RICO pattern only if they are indicative of an organized crime perpetrator-in either a traditional or functional sense-is that it would seem to require proof that the racketeering acts were the work of an association or group, rather than of an individual acting alone. RICO’s language supplies no grounds to believe that Congress meant to impose such a limit on the Act’s scope. A second indication from the text that Congress intended no organized crime limitation is that no such restriction is explicitly stated. In those titles of OCCA where Congress did intend to limit the new law’s application to the context of organized crime, it said so. Thus Title V, authorizing the witness protection program, stated that the Attorney General may provide for the security of witnesses “in legal proceedings against any person alleged to have participated in an organized criminal activity.” 84 Stat. 933, note preceding 18 U.S.C. § 3481 *245 since repealed). And Title VI permitted the deposition of a witness to preserve testimony for a legal proceeding, upon motion by the Attorney General certifying that “the legal proceeding is against a person who is believed to have participated in an organized criminal activity.” 18 U.S.C. § 3503(a). Moreover, Congress’ approach in RICO can be contrasted with its decision to enact explicit limitations to organized crime in other statutes. E.g., Omnibus Crime Control and Safe Streets Act of 1968, § 601(b), Pub.L. 90-351, 82 Stat. 209 (defining “organized crime” as “the unlawful activities of the members of a highly organized, disciplined association engaged in supplying illegal goods and services, including but not limited to gambling, prostitution, loan sharking, narcotics, labor racketeering, and other unlawful activities of members of such organizations”). Congress’ decision not explicitly to limit RICO’s broad terms strongly implies that Congress had in mind no such narrow and fixed idea of what constitutes a pattern as that suggested by amici here.

It is argued, nonetheless, that Congress’ purpose in enacting RICO, as revealed in the Act’s title, in OCCA’s preamble, 84 Stat. 923 (Congress seeking “the eradication of organized crime in the United States”), and in the legislative history, was **2904 to combat organized crime; and that RICO’s broad language should be read narrowly so that the Act’s scope is coextensive with this purpose. We cannot accept this argument for a narrowing construction of the Act’s expansive terms.

To be sure, Congress focused on, and the examples used in the debates and reports to illustrate the Act’s operation concern, the predations of mobsters. Organized crime was without a doubt Congress’ major target, as we have recognized elsewhere. See Russello, 464 U.S., at 26, 104 S.Ct., at 302; Turkette, 452 U.S., at 591, 101 S.Ct., at 2532. But the definition of a “pattern of criminal conduct” in Title X of OCCA in terms only of the relationship between criminal acts, see supra, at 2901, shows that Congress*246 was quite capable of conceiving of “pattern” as a flexible concept not dependent on tying predicates to the major objective of the law, which for Title X as for Title IX was the eradication of organized crime. See 84 Stat. 923. Title X’s definition of “pattern” should thus create a good deal of skepticism about any claim that, despite the capacious language it used, Congress must have intended the RICO pattern element to pick out only racketeering activities with an organized crime nexus. And, indeed, the legislative history shows that Congress knew what it was doing when it adopted commodious language capable of extending beyond organized crime.

“The danger posed by organized crime-type offenses to our society has, of course, provided the occasion for our examination of the working of our system of criminal justice. But should it follow … that any proposals for action stemming from that examination be limited to organized crime?

“[T]his line of analysis … is seriously defective in several regards. Initially, it confuses the occasion for reexamining an aspect of our system of criminal justice with the proper scope of any new principle or lesson derived from that reexamination.

“The objection, moreover, has practical as well as theoretical defects. Even as to the titles of [the OCCA bill] needed primarily in organized crime cases, there are very real limits on the degree to which such provisions can be strictly confined to organized crime cases…. On the other hand, each title … which is justified primarily in organized crime prosecutions has been confined to such cases to the maximum degree possible, while preserving the ability to administer the act and its effectiveness as a law enforcement tool.” 116 Cong. Rec. 18913-18914 (1970).

Representative Poff, another sponsor of the legislation, also answered critics who complained that a definition of “organized crime” was needed:

As this Court stressed in Sedima, in rejecting a pinched construction of RICO’s provision for a private civil action, adopted by a lower court because it perceived that RICO’s use against non-organized-crime defendants was an “abuse” of the Act, “Congress wanted to reach both ‘legitimate’ and ‘illegitimate’ enterprises.” 473 U.S., at 499, 105 S.Ct., at 3286. Legitimate businesses “enjoy neither an inherent incapacity for criminal activity nor immunity from its consequences”; and, as a result, § 1964(c)‘s use “against respected businesses allegedly engaged in a pattern of specifically identified criminal conduct is hardly a sufficient reason for assuming that the provision is being misconstrued.” Ibid. If plaintiffs’ ability to use RICO against businesses engaged in a pattern of criminal acts is a defect, we said, it is one “inherent in the statute as written,” and hence beyond our power to correct. Ibid. RICO may be a poorly drafted statute; but rewriting it is a job for Congress, if it is so inclined, and not for this Court. There is no more room in RICO’s “self-consciously expansive language and overall approach” for the imposition of an organized crime limitation than for the “amorphous ‘racketeering injury’ requirement” we rejected in Sedima, see **2906 id., at 495, 498, 105 S.Ct., at 3284, 3286. We thus decline the invitation to invent a rule that RICO’s pattern of racketeering concept requires an allegation and proof of an organized crime nexus.

IV

[12] We turn now to the application of our analysis of RICO’s pattern requirement. Because respondents prevailed on a motion under Federal Rule of Civil Procedure 12(b)(6), we read the facts alleged in the complaint in the light most favorable to petitioners. And we may only affirm the dismissal of the complaint if “it is clear that no relief could be granted *250 under any set of facts that could be proved consistent with the allegations.” Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984).

Under the analysis we have set forth above, and consistent with the allegations in their complaint, petitioners may be able to prove that the multiple predicates alleged constitute “a pattern of racketeering activity,” in that they satisfy the requirements of relationship and continuity. The acts of bribery alleged are said to be related by a common purpose, to influence commissioners in carrying out their duties in order to win approval of unfairly and unreasonably high rates for Northwestern Bell. Furthermore, petitioners claim that the racketeering predicates occurred with some frequency over at least a 6-year period, which may be sufficient to satisfy the continuity requirement. Alternatively, a threat of continuity of racketeering activity might be established at trial by showing that the alleged bribes were a regular way of conducting Northwestern Bell’s ongoing business, or a regular way of conducting or participating in the conduct of the alleged and ongoing RICO enterprise, the MPUC.

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