20 September 2004

I Just Don't Trust Them

Tomorrow marks the start of US v. IBM, version 3.0—the RICO bench trial before the Hon. Gladys Kessler (District of the District of Columbia) of the major tobacco-industry players. If you're interested, the NYT has a startlingly (and unusually) superficial "preview" in today's edition.

The superficiality is most apparent in the article's failure to engage the most-critical issue that the government will have to prove. Sorry, tobacco industry, but the fact of past fraud by individual actors is pretty undeniable; the suppression of your own in-house research that was unfavorable to your position meets the preponderance-of-the-evidence standard without more. The problem is in proving actual conspiracy. Where things get more interesting, though, is in one of the technical RICO requirements: demonstration of concerted action.

RICO, 18 U.S.C. § 1961 et seq., is not an all-purpose federalization of fraud claims (among other types of claims; I don't know that there will be any evidence of the tobacco industry's commission of other RICO predicates, such as unlawful gambling, but one never knows with these things!). It instead requires proof that a RICO "person" (the defendant), through a pattern of "racketeering," operated a RICO "enterprise."

"[E]nterprise" includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity[.]


Defining an "enterprise" would be pretty easy in the abstract. The various tobacco companies each participated in operating the tobacco industry, right? The problem is the doctrine of "merger." For both good and bad reasons, the courts have determined that the enterprise must be distinct from the defendant. This is similar to the intracorporate conspiracy doctrine, which avers that a corporation and its wholly owned subsidiary cannot conspire as a matter of law. In this instance, if we define the defendants to be the tobacco companies and the enterprise to be the tobacco industry, we have a "merger" between the defendant and the enterprise—meaning that no RICO claim stands for that particular combination. Instead, we end up with artificial designations of who did what, which should call to mind the antitrust concept of conscious parallelism, and in turn lead to wondering why antitrust violations are not one of the major assertions in this case—but I suppose that is a matter of "legal tactics" to which I am not privy (merely snidely superior).

In any event, this is one of the ironies of RICO: That the more-complete and formal the defendant's control over a distinct market, the more-difficult it is to use RICO to deal with what objectively fits within the definition of racketeering. RICO just doesn't work as well against control-via-ownership claims as it does with "associations in fact," in which the control is more subtle—and therefore less amenable to proof and more amenable to innocent (or at least "not guilty") explanations. What this says about the current entertainment industry is better left as an exercise for the student.