National Paralegal College

Congress’ Trojan Horse to the States; How RICO Took a Bite Out of

Federalism Under the Guise of More Effective Law Enforcement

Stephen Haas[1]

Part I- Introduction

The Racketeer Influenced and Corrupt Organizations Act (RICO)[2] was originally passed by Congress in 1970 as a means for fighting organized crime in the United States. [3] The part of the RICO statute that defines criminal activity under RICO is divided into four major parts. The first part makes it a violation to use money gained through “racketeering activity” to acquire an interest in any enterprise involved in interstate commerce.[4] The second clause makes it a violation to acquire or maintain, through such “racketeering activity” an interest in any enterprise involved in interstate commerce. [5] The third section forbids any person that is “employed or associated” with any enterprise to conduct or participate in any pattern of “racketeering activity.” [6] Again, such an enterprise must be engaged in business that affects interstate commerce.[7] The fourth clause makes it a violation to conspire to violate any of the preceding sections.[8]

In defining “racketeering activity” for purposes of RICO, the statute lists, as statutorily defined “predicate acts” necessary for the establishment of a RICO violation, a large number of federal crimes, including bribery, counterfeiting and mail and wire fraud, [9] as well as a number of traditionally state crimes, such as murder, arson and robbery.[10] The statute then goes on to provide severe criminal and civil penalties against RICO violators,[11] Criminal penalties include up to 20 years in prison for each RICO violation plus forfeiture of all property or interest in property acquired because of a RICO violation.[12] Civil remedies in the RICO Act call for treble damages to be awarded to any plaintiff damaged by a RICO violation.[13]

Although RICO was designed to be an aid to federal prosecutors in the fighting against organized crime, the statute itself has had a much broader range of applications.[14] RICO has strengthened the power of federal prosecutors, allowing federal prosecutions in areas that were traditionally reserved for the states in the exercise of their general police power. [15] The Supreme Court, rather than describing RICO as a congressionally created way to combat organized crime, has noted that “RICO was an aggressive initiative to supplement old remedies and develop new methods for fighting crime in general.”[16] The Court has even decided that plaintiffs (or victims) of RICO violations need not suffer an injury that is in any way a “racketeering” injury. [17] The injury need only be a natural cause of the predicate act, and need not have anything to do with the organizational racketeering activities of the defendant. [18]

Although RICO was certainly intended by Congress to be a broad statute with far-reaching consequences, [19] many would argue that the statute has had effects that are far wider than Congress could have possibly envisioned.[20] Prosecutors can use RICO to go after even non-organized criminals who commit the requisite number of predicate offenses, even if those offenses are not federal crimes. [21] Prosecutors over-use RICO as a tool to the extent that one federal grand juror serving on a Southern District of New York grand jury commented that “Prosecutors just seem to tack on a RICO charge to any indictment which alleges two crimes, no matter what those crimes are.”[22] A group of New Jersey plaintiffs even filed a RICO suit against an Atlantic City casino for allegedly shuffling decks of cards too frequently during blackjack games.[23]

In the opinion of this author, the most important effect that the expansive interpretation of RICO has had is its effect on federalism and the role of the individual states in exercising their traditional police power.[24] It is the purpose of this paper to analyze those effects and to assess whether or not the benefits of the increased effectiveness of crime fighting sought by RICO is enough to outweigh the infringement on states’ spheres of influence that is a result of the broad range of effects that RICO has.

Parts II and III of this paper discuss the effects of RICO on choice of law issues. It discusses the circumstances in which RICO causes federal law to be applied to questions that state law would normally govern. Part II looks at this question regarding the choice procedural law in federal courts in general and statutes of limitations specifically, while Part III analyzes RICO’s effect on choice of evidentiary law in federal courts. Part IV discusses the effect of RICO on another very important aspect of federalism, the scope of congressional power through the “commerce clause.” [25] This paper concludes that RICO has the potential to be extremely invasive into areas that should be run by state authority, and that RICO should be limited, by Congress or by the Supreme Court, so that it does less to encroach on states’ authority to exercise their police powers.

Part II- RICO’s Effect on Choice of Procedural Law

The Erie Doctrine and federal common law

In 1789, Congress, undoubtedly with the intention of limiting the federal government’s role in proceedings that are traditionally within the states’ domain, passed section 34 of the Federal Judiciary Act of 1789.[26] That section, known as the “Rules of Decision Act,” provided “that the laws of the several states, except where the constitution, treaties or statutes of the United States shall otherwise require or provide, shall be regarded as rules of decision, in trials at common law, in the courts of the United States, in cases where they apply.”[27] In a landmark decision in 1842, a unanimous Supreme Court held that the “laws of the several states” of the statute only applied to state statutory law, but did not apply to judicially created state common law.[28] The Court reasoned that when judges “create” common law, they are not actually creating laws. The judges’ decisions are “at most, only evidence of what the laws are, and are not, of themselves, laws.”[29] Therefore, the Court held that a federal court, when deciding an issue that is not covered by state statutory law, should fashion its own “federal common law” to resolve the issue, even if there was no previous federal law on the subject.[30]

The holding of Swift v. Tyson led to some strange and anomalous results. [31] It encouraged forum shopping, whereby parties could choose federal or state court based solely upon which court would apply law that was more favorable to their causes. [32] These factors led to Swift being overruled by the landmark case, Erie Railroad Co. v. Tompkins.[33] In Erie, the Supreme Court, in the interest of uniformity of applied law within states, preventing forum shopping and in the interest of preserving federalism, declared that state common law should be applied even to (diversity) cases brought in federal courts. [34] Thus, although federal common law can still be created and applied,[35] and though it still supersedes state common or statutory law where constitutionally valid,[36] state common law, when not preempted by federal law, must be applied even in federal court.

Procedural versus Substantive Law

Because the reasons for applying state law in federal courts are, for the most part, only applicable to the state’s substantive law, Erie was not meant to force federal courts, even those obtaining subject matter jurisdiction based on diversity of citizenship, to adopt state laws of procedure. [37] The test to determine which laws are substantive and which laws are procedural has oscillated through the years since Erie. [38] The most recent word from the Supreme Court on this test came in 1996, in the case, Gasperini v. Center for Humanities.[39] InGasperini, the Court seemed to abandon all hope of reducing the substantive-procedural debate to a clear, concise test. [40] Instead, the Court held that for each individual law, a determination must be made whether or not the law

is outcome affective (borrowing the test from Guaranty Trust) in this sense: Would application of the [standard] ... have so important an effect upon the fortunes of one or both of the litigants that failure to [apply] it would unfairly discriminate against citizens of the forum State, or be likely to cause a plaintiff to choose the federal court’?[41]

Thus, the court explained the test to include a full blown analysis to determine whether the application of state law in any particular case is necessary to protect the “twin aims of Erie.”[42]

The Effect of Civil RICO on the Principles of Erie

For issues of law that have been held to be procedural for Erie purposes, RICO will, of course, have no effect. This includes the entire Federal Rules of Civil Procedure[43] and, to a large extent, the Federal Rules of Evidence.[44] Those issues, when arising in federal court, regardless of the jurisdictional basis, will have federal law applied to them. Thus, the expansive nature of jurisdiction that may arise through RICO will not change the law applied to such issues.

However, there are many procedural laws that are considered “substantive” for Erie purposes. It is with respect to these issues that RICO has an important effect.

Statutes of Limitations

Based on an ordinary dictionary definition of the words “procedural” and “substantive,” there can be little question that statues of limitations are “procedural” rules.[45] However, in an early case in the wake ofErie, the Supreme Court held that statutes of limitations were substantive rules for purposes of the Erie doctrine. [46] Therefore, state statutes of limitations apply in diversity cases in federal courts.[47]

It is true that this case was decided in an era in which the Supreme Court was very hostile toward applying any federal law in diversity cases. In fact, in 1949, shortly after Guaranty Trust, the Court decided a trio of cases that seemed to stretch Erie to its breaking point in order to keep federal law out of diversity cases.[48] Still, it does not appear that the Court’s swing back toward the side of allowing federal procedural laws to govern diversity cases [49] would change the result in Guaranty Trust. Under the current test set forth in Gasperini, a rule is considered substantive for Erie purposes if allowing it to govern diversity cases would encourage forum shopping and/or produce results that are “inequitable” to the citizens of the forum state. Clearly, the forum shopping concern applies to the issue of statutes of limitations. There can scarcely be a clearer case where forum-shopping is more likely than a situation in which a plaintiff has seen his state’s statute of limitations run out for a particular cause of action, but can sue in federal court instead in order to take advantage of a longer statute of limitations that may be set by federal common law. This concern, along with the fact that Guaranty Trust has never been explicitly overruled, makes it a pretty safe bet that the result in Guaranty Trust would apply today as well.

Although we have established that state statute of limitations apply to diversity cases, RICO presents a perfect opportunity to circumvent state statutes of limitation and to thus frustrate the purpose behind Guaranty Trust. Of course, federal statutes of limitation apply to cases in which there is federal question jurisdiction.[50] However, because RICO can be based on predicate acts that are state law violations, a plaintiff can use civil RICO to obtain a remedy for predicate state law violations, even if the statute of limitations for those predicate violations has expired.

This method of circumventing a state statute of limitations was successfully accomplished by the plaintiff inAgency Holding Corp. v. Malley-Duff & Associates, Inc. [51] That case involved a series of complaints by a Pennsylvania plaintiff that included a RICO allegation that was based on predicate acts that were all violations of state law that were analogous to common law fraud. [52] The district court applied Pennsylvania’s two year statute of limitations for fraud to this case, “concluding that this was the best analogy for [plaintiff’s] claims.” [53] The Third Circuit reversed the lower court’s decision, but it also applied a state statute of limitations (a “catchall” six year statute of limitations under Pennsylvania law). [54] The Supreme Court granted certiorari for the purpose of determining what law should govern civil RICO cases in which the predicate acts are state violations. [55]

Rather than following the lower courts in choosing a Pennsylvania statute of limitations to apply, the Court applied a federal statute of limitations. [56] First, the Court seemed to take it for granted that had RICO contained its own statute of limitations, that would be applied even to cases such as this, where the predicate acts were state law violations. [57] Although RICO does not contain its own statute of limitations, the Court decided that, in the interest of nation-wide uniformity, a federal statute of limitations must be created and applied. [58]

Since RICO does not provide its own statute of limitations, the Court felt that it had to “borrow” one from a federal statute that “offers the closest analogy to civil RICO.”[59] Using this formula, the Court applied the statute of limitations of the Clayton Act.[60] The Clayton Act contains a statute of limitations of four years.[61] Reasoning that the “clearest current in the legislative history [of RICO] is the Clayton Act model,” [62] the Court applied the four year limitation to civil RICO cases. Despite the fact that the state statute of limitations would apply to a suit in federal court based on the very predicate acts that led to the RICO allegation in this case, the Court said that “the multi-state nature of RICO indicates the desirability of a uniform federal statute of limitations,” [63] thus requiring a federal statute of limitations.

So, the Court not only refused to apply the state statute of limitations where a suit based on the predicate acts would have required such, it even went so far as to (essentially) fashion federal common law to avoid applying the state statute. Even Justice Scalia in dissent, although he felt that borrowing the Clayton Act’s statute of limitations was inappropriate,[64] agreed that the state statute should not be applied.[65]

In Hemmings v. Barian,[66] the Seventh Circuit also said, in a decision that came down virtually simultaneous with the Supreme Court’s holding in Agency Holding Corp., that the nature of the predicate acts of a RICO violation is irrelevant in determining what statute of limitations to apply. In Hemmings, the plaintiff had brought a federal RICO action against the defendant, alleging state securities fraud violations as the predicate acts. [67] The three year Wisconsin statute of limitations for securities fraud (the nature of the predicate acts) had already run out by the time the suit was filed. [68] The district court ruled that the state statute of limitations for the predicate acts should apply, and he therefore dismissed the RICO claim. [69]

The Court of Appeals reversed, holding that the state statute of limitations for the predicate acts should not govern RICO complaints. [70] Instead, the court applied the six year statute of limitations of Wisconsin’s newly enacted “baby RICO” statute,[71] reasoning that this was the closest analogy to the federal RICO claim that was available to the court.

The key point that is germane to this discussion is the method that the court used to explain why it would apply the six year statute of limitations in the Wisconsin RICO act. The court in Hemmings had a problem. The six year limitation had not been passed by the Wisconsin legislature until after the last alleged RICO violation had taken place. Another Wisconsin law provided that newly passed statutes of limitation were to only have prospective application.[72] Therefore, if the court were to truly apply state law to this issue, the six year statute of limitations would not apply. It was with this argument that the defendant in Hemmings had persuaded the district court to refuse to apply the six year statute of limitations of Wisconsin’s RICO statute.

The circuit court dismissed this argument by explaining that the application of the six year statute of limitations was not at all an application of state law. The court commented that

When a federal court borrows a state statute of limitations for use in connection with a federal statute that does not have its own statute of limitations, the court is not applying state law; it is applying federal law. It looks to state law for guidance, but it does so simply because the creation of a statute of limitations is not considered a suitable judicial task. The length of a limitations period is arbitrary--you can't reason your way to it--and courts are supposed not to be arbitrary.[73]

Of course, Hemming is of doubtful validity after Agency Holding Corp. (which applied a more specific statute of limitations to federal RICO cases). However, both cases illustrate how courts will ignore the nature of the predicate acts when deciding what statute of limitations to apply in civil RICO action. This, of course, is despite Guaranty Trust, which held that state law should govern suits in federal court where the substantive content of the case is of state law.

This approach taken by the Supreme Court in Agency Holding Corp. and by the Seventh Circuit in Hemmings is, in this author’s opinion, not consistent with the concerns underlying Erie and its progeny. It is often taken for granted that Erie is only applicable to cases in which the federal court attains it subject matter jurisdiction based on diversity. [74] Normally, the reason for that is clear. In order for a case to lack “federal question jurisdiction,”[75] and thus have to turn to diversity of citizenship to create federal jurisdiction, the cause of action must not be created by federal law and its well-pleaded complaint must not depend on a substantial question of federal law.[76] In such cases, there is a strong reason to apply state law because the cause of action is essentially a question of state law. On the other hand, in federal question cases, the cause of action depends on federal law and so there is generally no reason to apply state substantive law.

In RICO cases in which the predicate acts are state law violations, however, the cause of action is more of a hybrid between federal and state law. The federal jurisdiction for RICO actions is given by the RICO statute itself. [77] Even if such jurisdiction would not be granted by the RICO statute itself, there is no question that there would be federal question jurisdiction under § 1331 because federal law creates the cause of action. [78] Still, in this type of RICO case, it is the state law governing the predicate acts that will ultimately govern the disposition of the case. If the plaintiff cannot establish the commission of the predicate acts, the RICO action will fail.

In this situation, the reasoning behind Erie doctrine seems to apply. As stated in Hanna v. Plumer, [79] the “twin aims” of the Erie doctrine are “discouragement of forum-shopping and avoidance of inequitable administration of the laws.” [80] Forum shopping is clearly a concern in this area. First, plaintiffs will certainly choose to bring RICO actions based on state law predicate acts if the statute of limitations has run out for the state law violations, but the federal RICO statute of limitations (which would actually be indefinite according to Justice Scalia’s dissent inAgency Holding Corp. since Congress didn’t set a statute of limitations for RICO[81]) is still running. Second, the holding inAgency Holding Corp. means that the statutes of limitations for the “baby RICO” statutes [82] in many states will be different that the statute of limitations for federal RICO. This will undoubtedly cause the exact type of forum shopping that decisions like Guaranty Trust tried to prevent. From Agency Holding Corp. on, any aggrieved plaintiff who wishes to bring a RICO action based on state predicate acts, but unfortunately happens to reside in state whose RICO’s statute of limitation has run out, can simply bring a federal RICO action based on the same set of state violations. It is the “taxicab case” all over again.[83]

The “inequitable administration of the laws” also should demand a contrary result than the one in Agency Holding Corp. Justice Brandeis, in his Erie opinion, described this concern as follows:

The mischievous results of the doctrine (the Swift v. Tyson holding) had become apparent. Diversity of citizenship jurisdiction was conferred in order to prevent apprehended discrimination in state courts against those not citizens of the state. Swift v. Tyson introduced grave discrimination by noncitizens against citizens. It made rights enjoyed under the unwritten 'general law' vary according to whether enforcement was sought in the state or in the federal court; and the privilege of selecting the court in which the right should be determined was conferred upon the noncitizen. Thus, the doctrine rendered impossible equal protection of the law. In attempting to promote uniformity of law throughout the United States, the doctrine had prevented uniformity in the administration of the law of the state.[84]

Furthermore, the Court explained, in a suit between citizens of the same state, either party could deny the other party the protections of their own state merely by moving to a neighboring state.[85] If a corporation was a party, it need not even move to another state, it could simply re-incorporate in another state. [86] It is difficult to discern why this exact concern would be inapplicable to RICO suits in which the predicate acts are state violations. People should have the rights to enjoy the full protections set forth by his or her state’s laws, including statutes of limitations. RICO, however, could deny a party these protections.

The inclusion of mail and wire fraud as predicate acts under RICO makes it increasing easy to seek remedies for violation that are essentially common law fraud violations by using federal law.[87] The main reason for bringing a RICO action to enforce against such state law violations is, of course, to get the treble damages available under federal RICO. [88] This aspect is of no federalism concern because Congress clearly intended to punish a “pattern” of illegal acts done through a “corrupt enterprise” [89] over and above what remedies would ordinarily be available under state law.

However, there is no evidence to suggest that Congress meant to punish a party accused of RICO violations by lengthening the statute of limitations. Firstly, it would make no sense to “punish” someone who has not been found to be liable. The lengthening of the statute of limitations, by definition, only hurts parties who had not, at the time that the statute of limitations affects the case, been found to be liable. Also, the fact that Congress did not even discuss a statute of limitations in the RICO statute shows that Congress did not specifically intend for RICO to have an effect on state statutes of limitations.

Nevertheless, RICO does have an enormous effect of the statutes of limitations for actions that are brought essentially on the basis of common law state violations. For example, if one party is alleged to have committed a fraud for which the state statute of limitations is two years, that very same violation can nevertheless subject that party to liability in an action commenced three years later, if that fraud is alleged to be one of the predicate acts. Not only that, but the statute’s allowance of up to ten years to elapse in between predicate acts, [90] can actually increase the time period of potential liability to 14 years if this fraud violation in the first of the predicate acts. [91] This is an encroachment on the rights afforded parties by their states that Congress probably did not intend and that, in any case, violates basic federalism principles.

Part III - RICO and Rules of Evidence

The Relationship Between Erie and the Federal Rules of Evidence

For cases in federal courts, where jurisdiction is based on diversity, the determination of whose rules of evidence to apply presents a complicated area of application for the Erie doctrine. On the one hand, most rules of evidence are, by their nature, procedural. [92] When Congress passed the Federal Rules of Evidence (FRE), it meant for those rules to be applied in federal courts, even in diversity cases. [93] The FRE itself says that it is intended to apply to “civil actions and proceedings,”[94] which includes diversity cases. Also, Rule 501 explicitly states that "in civil actions and proceedings, with respect to an element of a claim or defense as to which State law supplies the rule of decision, the privilege of a witness, person, government, State, or political subdivision thereof shall be determined in accordance with state law." [95] The cases in which state law provides the “rule of decision” are diversity cases.[96] Clearly, the FRE was meant to apply to diversity cases.

On the other hand, many “evidentiary” rules have substantive overtones and are meant to protect strong substantive interests. For these types of evidentiary rules, Erie would require that the state rules of evidence govern. [97] The determination of whether one of the Federal Rules of Evidence is more procedural, and thus applicable in diversity cases, or substantive, and thus not applicable, is a complicated question that requires analysis of the function that the particular rule serves. Two

examples in each direction will suffice to illustrate this point.

In Flaminio v. Honda Motor Co.,[98] the plaintiff was injured in a motorcycle accident and was bringing a state products liability action against the manufacturer. [99] In an effort to prove negligent design, the plaintiff sought to introduce evidence that the defendant had taken subsequent remedial measures to correct the problem that had caused the plaintiff’s injury.[100] Under FRE Rule 407, subsequent remedial measures are inadmissible to prove negligence or defective design.[101] That would exclude the evidence in this case. Under Wisconsin (the state of the suit) law, however, the evidence would have been allowed. [102]

The trial court excluded the evidence and the Seventh Circuit affirmed that decision. [103] The court reasoned that although the rule precluding evidence of subsequent remedial measures contains substantive concerns (encouraging companies to take such steps without fearing that those steps will be used against them at a later trial), those concerns are “entwined with procedural considerations. It is only because juries are believed to overreact to evidence of subsequent remedial measures that the admissibility of such evidence could deter defendants from taking such measures.” [104] So, the court apparently felt that as long as there are strong “procedural” considerations behind a rule of evidence, it is procedural for Erie purposes, even if there are also substantive considerations involved.[105]

Another example of a federal rule of evidence that was held to be procedural occurred in McInnins v. A.M.F., Inc. [106] That case also involved a state products liability claim based on a motorcycle accident.[107] During the trial, the defendant sought to introduce evidence of the plaintiff having consumed a few alcoholic beverages prior to driving her motorcycle on the day of the accident. [108] Although this evidence would clearly be allowed under the FRE because of its probative value in establishing contributory negligence, [109] the evidence would not have been allowed under state (Rhode Island) law, based on a Rhode Island Supreme Court decision that, absent evidence of intoxication, evidence as to the consumption of alcoholic beverages before driving to prove negligence may not be admitted.[110]

The district court excluded the evidence of the alcoholic beverage consumption by the plaintiff, and the First Circuit affirmed.[111] Taking a slightly different tact than the Seventh Circuit inFlaminio, the court emphasized that relevancy rules are, by nature, procedural. [112] Also, the difference between the federal and state rules in this case was merely a different path toward the same goal of balancing relevancy against prejudice to determine the desirability of allowing in the evidence.[113] The court also pointed out that this rule of admissibility is not one that would encourage forum shopping, and so does not fall within the definition of a “substantive” law that Erie was designed to affect.[114]

On the other side of the coin, the District of Maine federal court held that a Maine law disallowing evidence that a plaintiff in a lawsuit arising from a car accident was not wearing his seat belt was a “substantive” law for Erie purposes. [115] The court reasoned that “there are a number of state law rules that, because their application results in the exclusion of evidence, sometimes are considered rules of evidence, but in fact serve substantive state policies and are characterized more properly as rules of substantive law within the meaning of the Erie doctrine.” [116] The court found that the state legislature’s intent in fashioning the seatbelt rule was to prevent plaintiffs from being penalized for not fastening their seatbelts. Therefore, the law fit into this category as a rule of evidence with a substantive policy interest behind it. [117]

In another case, In Re Air Crash Disaster Near Chicago, Illinois, [118] a federal district court in Illinois, in a decision that was later affirmed by the same Seventh Circuit that decided Flaminio, also ruled that a matter governed by the rules of evidence could be considered substantive for Erie purposes. That case was a wrongful death action brought against McDonnell Douglas Corp. after an aviation disaster had killed the plaintiff’s wife.[119] In an attempt to mitigate damages that may have been awarded to the plaintiff, the defendant sought to introduce evidence that any award given to the plaintiff would be exempt from income tax and it sought a instruction to the jury that they should ignore any effect of income tax on their verdict, since there would be none. [120] After much analysis, the court concluded that federal law would require the admission of the evidence and the jury instruction, while Illinois law would require exclusion of the evidence and no jury instruction. [121]

The court found that state law should govern this issue. Since the admission or exclusion of the offered evidence depended on the substantive purpose behind the doctrine, the court found the question to depend on an issue in which the state has a strong substantive interest, and therefore declared the issue to be substantive for Erie purposes.[122] The court then ended off with the obligatory citation to Hanna v. Plumer and the accompanying assertion that the holding in this case is necessary to preserve the twin aims of Erie.[123]

The RICO Effect

Are these decisions all consistent with each other? Possibly and possibly not. One thing is clear, however. Federal courts, following the Supreme Court’s lead in Erie and Hanna, try very hard to protect state substantive interests when deciding which law to apply. All of these efforts, however, are irrelevant in cases brought under RICO. Those cases are not in federal court based on diversity, and so the Federal Rules of Evidence would govern, regardless of the nature of the predicate acts.[124] The effects of this dichotomy created by the ability of a plaintiff to “federalize” state violations by bringing a RICO action can cause the precise effects that Erie was designed to eliminate.

To illustrate this point, consider an example where there is an important difference between federal and state law, such as the admissibility of a hearsay statement of the present state of mind of the declarant[125] for the purpose of showing that a third party did an action. In the classic case, Life Insurance Co. v. Hillmon, [126] the Supreme Court held that the declarant’s statement that, in effect, said “I am going to Colorado with Hillmon” was admissible to prove that the declarant had gone to Colorado. [127] However, there is a split among jurisdictions as to whether or not that same statement would be admissible to prove that Hillmon had gone to Colorado. [128] Federal courts have generally adopted the approach that such testimony is inadmissible for that purpose, while some state jurisdictions, including New York, have held that it is admissible. [129]

Now, assume that a New York plaintiff is contemplating bringing a RICO action based on a group of alleged predicate state law violations committed by a New York defendant. Also assume that he has a crucial piece of evidence that would be admissible under the New York rule, but inadmissible under the federal rule. It seems clear that he would choose to bring a federal RICO action instead of a state RICO action. Conversely, if the defendant had such a piece of evidence, the plaintiff would undoubtedly bring a state RICO action and thus keep the case without federal jurisdiction and confine it to state court.

Such a scenario, which does not seem to be unlikely, illustrates how RICO can frustrate the “twin aims of Erie.” It certainly encourages forum shopping as illustrated by this example. It also promotes inequitable administration of the rules of evidence. The New York rules of evidence, like any other set of laws, developed over time to best serve the interests of the people within that jurisdiction. The federal RICO action in the above example prevents the New York defendant, who is being accused of violations of New York law, by a New York plaintiff, from obtaining the protections developed by New York law.

It is true that if this were a diversity case, the Federal Rules of Evidence would probably govern this type of a case, as this would likely be considered a procedural rule under Erie and Hanna. But, at least such a substance-procedure determination would only be made following a careful balancing test to determine whether or not the state interest in applying its rule is outweighed by Erie principles. [130] No such safeguard is available in federal RICO cases. Regardless of any of the other facts involved in the case, the federal rules apply to all federal RICO cases.

Other Effects of RICO on the Rules of Evidence

As harmful as RICO’s effect on choice of procedural laws may be, there are even more devastating effects that RICO can have on the Federal Rules of Evidence itself.[131] The Federal Rules of Evidence were carefully crafted to eliminate unreasonable delay in trials, to exclude evidence that is inherently untrustworthy and to ensure that no evidence is admitted that is unfairly prejudicial to a party.[132] Many of these carefully crafted rules that would protect a party from admission of evidence in a lawsuit or criminal trial for a particular violation, however, are easily circumvented if that same violation is presented as a predicate act in a RICO action. To illustrate the effect that RICO can have on the admissibility of evidence, two examples suffice:

RICO’s effect on FRE Rules 401 and 403

The Federal Rules of Evidence provide that only relevant evidence is admissible at trials [133] and that even relevant evidence can be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusions of issues, misleading the jury, waste of time or needless presentation of cumulative evidence.[134] The latter provision (Rule 403) is known as the “universal fall-back objection” because of it creates an ability to attempt to exclude virtually any type evidence that is relevant and would be otherwise admissible.[135] Federal courts have used Rule 403 to exclude relevant and otherwise admissible evidence such as evidence of death threats by the associates of the defendant in a drug conspiracy case[136] and evidence of other instances of police brutality by members of defendant police officer’s department (offered to show attitudes of indifference and brutality that were allegedly customary in that force). [137]

An action brought under RICO will completely change the calculus of how prejudicial or confusing a piece of evidence needs to be simply because it inherently makes so much more evidence so much more probative.[138] For example, it is necessary, in any RICO case, to show that the defendant belonged to a criminal “enterprise”[139] and to show a “pattern of racketeering activity.” [140] These requirements will create a new probative value for many facts that, in a trial based solely on the predicate acts, would be excluded because of their prejudicial tendencies. [141] For example, in a criminal trial for a street gang-related murder, it is likely that the gang membership of the defendant would be excluded based on Rule 403 as being too prejudicial. However, if the action is brought based on RICO, and alleges that the gang was a corrupt organization and that the aforementioned murder was a predicate act, the gang membership becomes not only more probative, but a required element of the pleading. [142] As such, there is little doubt that the prejudicial effect cannot possibly substantially outweigh the probative value.[143]

So, in this scenario, you have a RICO criminal proceeding or lawsuit that depends, for its success, on convincing a trier of fact that the defendant committed the murder in question. If that very same question of fact were raised in a case that were not a RICO action, evidence of gang membership might be considered too prejudicial to reach the ears of the trier of fact. But, in a RICO case, those same prejudicial facts will reach the ears of the trier of fact of that very same question. Clearly, in this way, RICO can frustrate the purpose of FRE Rule 403.

RICO’s Effect on FRE Rule 404

The Federal Rule of Evidence excludes evidence of a person’s character for the purpose of proving conformity therewith. [144] The FRE also prohibits evidence of specific prior crimes, wrongs or acts to prove bad character or propensity to carry out such acts. [145] Although character evidence certainly has some probative value in establishing a tendency of the person to commit an alleged act,

the federal rule reflects a policy decision that evidence of character or prior bad acts are inherently too prejudicial to risk introducing into evidence. [146] The risk is simply too great that a trier of fact (usually a jury), upon hearing of a defendant’s prior bad acts, will resolve to punish the defendant for being a bad person, regardless of the sufficiency of the evidence.[147] Other concerns underlying Rule 404 include the tendency of such character evidence to constitute unfair surprise to the party against whom it is introduced and the “aspirational”goal of judging people by their actions only and not by their character.[148]

Once again, these concerns, especially those involved the federal limitation on the introduction of prior bad acts, are thwarted by RICO. All a prosecutor or plaintiff needs to do to eliminate the effect of Rule 404(b) is to allege those prior bad acts as predicate acts involved in the RICO violation. Failing that, the proponent of the evidence can merely claim that those prior acts are necessary to establish the “pattern of racketeering activity” necessary to sustain a RICO charge.[149] Since evidence of such a pattern is, in fact, necessary in a RICO case, the prior acts are no longer being introduced to show actions in conformity with the character displayed by those action. Rather, they attain their own, independent probative value.[150] Once such independent probative value is established, Rule 404(b) is no longer applicable, and nothing, short of a Rule 403 balancing test, can keep the evidence out.[151] The underlying concerns that would require exclusion of the evidence were it not a RICO trial still exist, as evidence of these prior acts may tend to prejudice the jury into believing that the defendant committed the last violation. Yet RICO prevents those concerns from having any effect in such a case.

Part IV- RICO’s Effect on the Scope of Federal Power

The Commerce Clause

Being part of a government of enumerated powers, Congress is limited in what laws it can pass to what it is specifically authorized to do by the Constitution.[152] These powers are enumerated in the first article of the Constitution.[153] Of all of the congressional powers thus spelled out, the most important and far reaching of those powers is the “commerce”[154] clause.[155] In the early landmark case of Gibbons v. Ogden, [156] Chief Justice John Marshall interpreted this clause in a broad manner. He held that this power not only allows Congress to pass legislation that directly affects goods traveling between states, but it also allows Congress to affect intrastate activities, as long as they have enough of an effect on interstate commerce that they are not considered the “completely internal commerce of a state.”[157]

The exact extent to which the commerce clause allows Congress to regulate intrastate activity have been the subject of controversy and debate among Supreme Court justices throughout the last 120 years.[158] The Court took a narrow view of the commerce power during the late nineteenth century in United States v. E.C. Knight Co, [159] when it prevented the federal government from, stopping, through the Sherman Act, the merger of four intrastate sugar refineries. This was even though “the power to control the manufacture of refined sugar is a monopoly over a necessary of life, to the enjoyment of which by a large part of the population of the United States interstate commerce is indispensable.” [160] The Court held that Congress’ power did not extend to that sort of activity because the activity affected interstate commerce only “incidentally and indirectly.” [161]

Through the mid 1930s, despite some occasional tendencies to “swing” toward the side of broad Congressional power, [162] the Supreme Court held firm to its principle of enforcing a narrow interpretation of the Commerce clause.

The climax of this narrow view of the Commerce clause by the Supreme Court was reached in the 1930s during President Roosevelt’s “New Deal” legislative package.[163] In A.L.A. Schechter Poultry Corp. v. United States,[164] the Court struck down a section of the federal National Industrial Recovery Act which allowed the Executive branch to regulate various industries. [165] The President had approved the “Live Poultry Code,” which had set a minimum wage and had established various other requirements for workplace conditions applicable to the maintenance, resale and slaughter of poultry. [166] The Supreme Court struck the regulations down on the grounds that the affected activities were too far removed from interstate commerce to be within Congressional authority. [167] Although the poultry affected by the Code had, for the most part come to the various workplaces regulated by the Code via interstate shipping, the poultry had “come to a permanent rest within the state” by the time the effects of the Code kicked in.[168] Since the poultry “was not held, used, or sold by defendants in relation to any further transactions in interstate commerce and was not destined for transportation to other states,” Congress did not have the Constitutional power to regulate it.[169]

The following year, in Carter v. Carter Coal,[170] the Court again struck down a piece of New Deal legislation based on a holding that it exceeded the scope of Congress’ authority under the commerce clause. [171] In that case, Congress had passed legislation that established a system of local coal boards that would ensure that employees working in the coal industry could attain a satisfactory bargaining position to negotiate terms relating to their employment, such as wages and working hours.[172] The Court, essentially relying on the recently decided Schechter case,[173] held that the relations between employers and employees in the coal industry were intrastate matters, and were not within the province of the federal government. [174] The government’s argument that the coal industry as a whole was important to the national economy[175] did not persuade the Court, as the Court ruled that coal mining itself is a “purely local activity.” [176] The eventual commerce of the coal after it is mined was likewise not a justification for federal intrusion as “Commerce in the coal mined is not brought into being by [the activities regulated by the Act], but by negotiation, agreements and circumstances entirely apart from production.” [177]

The trend of the Supreme Court to view the commerce power narrowly, however, abruptly ended one year later, in N.L.R.B. v. Jones & Laughlin Steel Crop.[178] In that case, the Court upheld the National Labor Relations Act, which set up a comprehensive system for regulating bargaining relations between employees and employers.[179] This was in spite of the fact that most labor-management relationships are clearly intrastate in nature. The Court did distinguish the earlier cases mentioned above. [180] However, the tide had clearly turned in favor of an expansive interpretation of the commerce power.

The break from the earlier trend was further cemented in 1942, in Wickard v. Filburn. [181] That case involved a federal law, the Agricultural Adjustment Act, that set a quota for wheat production that applied to completely intrastate farmers, even if they did no interstate business. [182] In a decision that would have been all but unfathomable six or seven years earlier, the Supreme upheld the federal law. The Court, in effect, said that the cumulative effects of all of the wheat produced by dairy farmers in the United States had a significant effect on interstate commerce. [183] The stark contrast between the decision in that case and the way the Court rejected a much stronger “cumulative effects” argument by the government in the Carter Coal case showed how far the Supreme Court had come in its commerce clause analysis.

From the time of this turnabout by the Court in the 1930s until the mid 1990s, Congressional power based on the commerce clause continued to grow to the extent that the commerce clause’s grant of authority to Congress was seemingly only checked by the clauses in the Constitution (mostly in the Bill or Rights) that limited the government’s power. The affirmative power granted by the commerce clause appeared to be all but limitless. [184] Finally, in 1995, in a 5-4 decision, the Supreme Court set a limit on the affirmative power of the commerce clause.[185] In United States v. Lopez, the Court struck down the Gun-Free Schools Zones Act of 1990 that had made it a federal crime to knowingly “possess a firearm at a place that an individual knows or has reasonable cause to believe, is a school zone.” [186] The Court held that the statute’s asserted link to interstate commerce[187] was simply too tenuous. [188] The Court observed that “under [the Government’s reasoning], Congress could regulate not only violent crime, but all activities that might lead to violent crime, regardless of how tenuously they relate to interstate commerce,”[189] and that “if we were to accept the Government’s arguments, we are hard pressed to posit any activity by an individual that Congress is without power to regulate.” [190]

Since Lopez, the scope of Congressional authority under the commerce clause is unclear. A few years after Lopez, the Court again limited Congressional authority under the commerce clause.[191]

However, the Court has specifically declined to overrule the wide grants of Congressional authority of Wickard and Heart of Atlanta Motels.[192] The future of the commerce clause likely depends on whether or not the Lopez Court can keep its tenuous 5-4 majority. A one vote swing, whether that is brought about by a retirement and reappointment of a replacement justice with a more expansive view of federal power, or simply a change of heart on the part of a justice [193] could reintroduce a commerce clause that would have virtually no limit on its affirmative grant of power to Congress via the commerce clause.

The Commerce Clause and Federal Criminal Legislation

There is no general federal police power.[194] The states are primarily responsible for promulgating and enforcing measures to fight crime. [195] However, under the commerce power, Congress can act to prohibit crimes that involve interstate commerce just as they can act to otherwise to regulate commerce. Part of the rationale behind the Lopez decision was the refusal of the Court to “convert congressional authority under the commerce clause to a general police power of the sort retained by the states.”[196]

Before Lopez , and during the era of the most expansive view of the commerce clause, the Court did uphold a federal statute prohibiting “extortionate credit transactions,” which was essentially designed to combat the practice of loan-sharking that was enforced by threat of physical violence.[197] Relying on the Wickard type of analysis used to uphold commerce legislation at the time, the Court found that the class of activities proscribed by the statute clearly did have an effect on commerce. Therefore, the fact that the individual criminal defendants did not have an effect on commerce was not fatal to the statute. [198]

Lopez did go out of its way to avoid overruling cases like Perez. The Court in Lopez, rather than denouncing the “cumulative effects” test applied in Wickard and Perez, held that in those cases, the holdings were limited to the idea that “where a general regulatory statute bears a substantial relation to commerce, the de minimis character of individual instances arising under that statute is of no consequence.”[199] Thus, the Court distinguished Lopez from Perez in that gun possession in school zones (of Lopez) was an activity that, even when looked at in terms of the cumulative effect of all such activities, did not have a substantial effect on interstate commerce. The loan sharking of Perez, on the other hand, despite its intrastate nature did, for some reason, have a greater effect on interstate commerce. [200]

Despite this precedent saving intellectual acrobatics performed by the Lopez Court, and especially in light of the Court’s emphasis in protecting the states’ intrastate police power[201] and the Court’s confirmation of its hostility toward Congressional encroachments into the domain of intrastate law enforcement set forth in Morrison, [202] it appears doubtful that Perez would be decided in the same manner today. Certainly, any federal criminal law that purports to prohibit an activity needs to be analyzed in terms of whether or not the proscribed activity is actually interstate in nature. The days in which Congress could probably have made ordinary murder a federal crime by claiming that “murder causes people to die in the United States which lowers the work force, which disrupts the national economy, which affects interstate commerce” or “murderers discourage tourists from coming the visit the United States, thereby hurting out tourism industry and affecting interstate commerce” are over.

The RICO Difference

RICO represents a huge step toward the federalization of criminal law. [203] By including state crimes among the list of predicate offenses, it allows federal prosecutors, within the scope of federal jurisdiction, to prosecute offenses in areas traditionally reserved for the states. [204] It also provides for federal penalties and forfeiture that are far greater than would be available in prosecutions for the predicate offenses involved. [205] This naturally raises the issue of just how far RICO can be applied by the federal government, without extending past the scope of federal authority.

The RICO statute itself has survived commerce clause based challenges on the grounds that RICO unjustifiably intrudes into states’ police power. [206] Certainly the provisions in each of the RICO sections requiring the prohibited activities to affect interstate commerce or the corrupt organizations described by the Act to be engaged in interstate commerce [207] was specifically designed by Congress to bring the RICO statute within its commerce power. Those provisions almost certainly make RICO “Lopez-proof” in that it prevents facial challenges to the statute by inherently limiting RICO action to those that affect interstate commerce. Still, what needs to be analyzed is the effect that RICO can have on the predicate state crimes upon which the RICO charge is based, and whether or not RICO can have effects on such state crimes that the federal government would not ordinarily be able to have under the commerce clause.

RICO’s Ability to Allow Federal Jurisdiction in Situations that Lopez Would Prohibit

United States v. Perez [208] involved a prosecution under RICO and RICO’s sister anti-racketeering statute, the Violent Crimes in Aid of Racketeering Activity (VCAR) statute. [209] VCAR provides that

“Whoever, as consideration for the receipt of... anything of pecuniary value from an enterprise engaged in racketeering activity, or for the purpose of gaining entrance to or maintaining or increasing position in an enterprise engaged in racketeering activity, murder, kidnaps... (spells out several crimes of violence), or threatens to commit a crime of violence against any individual in violation of the laws of any State or the United States, or attempts or conspires to do so shall be punished...”[210]

The statute also contains a provision requiring that such enterprise be engaged in interstate commerce. [211] The defendant in Perez was charged with having participated in the activities of the “Latin Kings,” an alleged racketeering enterprise. [212] A federal indictment charged Perez with a series criminal acts, such as murder, attempted murder and gun possession in connection with that gang. [213] Counts one and two of the indictment alleged RICO violations, while several of the other counts alleged VCAR violations.[214] The defendant did not challenge the RICO counts on commerce clause grounds. [215] However, the defendant did challenge the VCAR counts on commerce clause grounds.[216]

The defendant argued that VCAR was unconstitutional as applied because it criminalized specific acts that are state crimes and that bear no relationship to interstate commerce.[217] The defendant relied on Lopez, which had, of course, invalidated federal legislation regarding crimes that were traditionally governed by state law. [218] The court rejected the argument, saying that VCAR was distinguishable from the Act that was struck down in Lopez. [219] First, the court noted that VCAR, by its terms, did address interstate commerce.[220] Second, the court viewed VCAR as an extension of and a complement to, RICO.[221] Since RICO, by definition, affects only activities affecting interstate commerce, VCAR does as well. [222] Finally, in addressing the argument that the crimes alleged in the present case were clearly state law crimes and should therefore be beyond the scope of Congressional competence, the court trotted out the “cumulative effects” response.[223]

There can be little doubt that, after Lopez, the Supreme Court would not allow Congress to make federal crimes of the actions allegedly committed by Perez in this case. Nevertheless, the racketeering statutes allow federal jurisdiction for these same criminal charges. Because of the VCAR statute, federal prosecutors can bring federal charges for these crimes even when the defendant is not “involved” in corrupt enterprise, and because of VCAR, even when there has not been more than one predicate act established.

The difference between the effects on commerce required by ordinary federal prosecutions, RICO prosecutions was weighed by the federal court for the Eastern District of Michigan in United States v. Garcia. [224] That case involved a capital prosecution for a gang-related murder which resulted in federal RICO and VCAR charges.[225] The court upheld both RICO and VCAR against facial challenges, holding that their jurisdictional element requiring a connection to interstate commerce insulated them from a successful Lopez challenge.[226] When looking at the racketeering statutes as applied, however, the court analyzed RICO and VCAR very differently. [227]

With regard to applying the commerce test to RICO, the court conceded that, under Lopez, an activity needs to have a “substantial” affect on interstate commerce for Congress to regulate it.[228] However, the court held that RICO must be subjected to only a lighter standard of analysis because its jurisdictional element ensures a case-by-case inquiry as to whether or not there is an effect on commerce in every case.[229] In fact, the court concluded that, unlike a normal federal criminal law which must be tested in light of Lopez, “a de minimis showing of impact on interstate commerce is all that is required to establish federal jurisdiction under RICO.” [230]

VCAR, on the other hand, the court continued, “has no jurisdictional element which ties the violent act of the conduct of the defendant to interstate commerce.”[231] Therefore, “Under Lopez, the weakness of this attenuated jurisdictional element demands that something more than a de minimis connection be established under §1959 (VCAR). [232]

These distinctions between RICO, VCAR and ordinary federal criminal laws seem to go against the spirit of Lopez. That case was about preserving state police power against federal intrusion and limiting federal jurisdiction to matters that truly affect interstate commerce. Why should it matter whether or not the statutes themselves have provisions that purportedly limit themselves to matters affecting commerce? At the end of the day, either a matter should be left to the states as part of their general police power, or it should be within the scope of federal power under the commerce clause. It should not be of consequence under what guise or through what statute that matter is trying to be regulated by the federal government.

For example, it is difficult for this author to discern why allowing a federal prosecution of a traditionally state crime of murder or robbery is any less offensive to federalism or our Constitution simply because it was committed with the intent to gain control of or membership in a gang. Under the courts’ interpretation of a racketeering enterprise, virtually any street gang with some sort of a hierarchy could be considered an enterprise. [233] A large percentage of street crime in the United states today is gang-related. The expansive reach of the racketeering statutes (at least according to the Perez court) thus allows the federal government to become increasingly involved in general police power that has traditionally been left to the states. Allowing the “cumulative effects” test to govern so completely with regard to predicate RICO offenses and to thus allow federal jurisdiction to be extended to almost any state crime certainly goes a long way toward defeating the purpose of the Lopez doctrine.

RICO’s Effect on the Elements of a State Law Crime as a Predicate Offense

For the purposes of this section, let us assume that there are no commerce clause problems with the incorporation of state crimes as predicate offenses for racketeering violations. There is nevertheless, another important effect that RICO can have on the state crimes. RICO can actually change the elements of the predicate state crime, thereby making it easier to establish a state crime as a predicate act for a RICO violation in federal court than it would be to establish that same crime in a state criminal proceeding. Being that predicate acts proven in RICO cases are considered state crimes and not federal crimes,[234] this gives RICO the power to manufacture brand new state crimes with more expansive elements than the ones that actually exist.

A federal court in the District of Connecticut expressly adopted the position that, in prosecuting racketeering violations, the government need not necessarily prove the elements of the predicate acts that would have been required in a state prosecution. [235] United States v. Morales was a VCAR prosecution that alleged the predicate offense of conspiracy to commit murder, in violation of Connecticut law. [236] The only overt acts that the government alleged were statements about the murder that the defendant made after the murder that was the object of the conspiracy had already been committed. [237] Under Connecticut law, a conspiracy ends when the objects of the conspiracy is accomplished.[238] Therefore, the defendant argued, a charge for that crime was not sustainable under state law and so could not be prosecuted as a VCAR violation. The court, however, held that the state law was not controlling.[239]

First, the court held first that VCAR violations must be treated the same as predicate acts in a RICO charge. [240] The court further reasoned that since RICO “does not incorporate substantive state law into the RICO statute, but instead defines the wrongful conduct that constitutes a predicate offense,” [241] VCAR likewise does not require the incorporation of state law into the charges.[242] The court then went on to cite several cases that hold that state procedural and substantive law do not apply to RICO prosecutions. [243]

It should be noted that Morales represents an entirely different issue that the choice of law discussion presented earlier in this paper. [244] That discussion dealt with an Erie-type analysis as to whether the laws of federal courts or the laws of state courts should apply in civil RICO lawsuits. Even though many of the issues discussed in those sections are substantive for Erie purposes, they are all essentially procedural in that they deal with the laws of the functioning of the courts. Morales, however, adds a new dimension to the discussion. Here, the elements of the substantive state crime are actually being altered simply because they are being presented as part of a federal racketeering prosecution. The predicate crimes therefore, can only be looked at as brand new, federal crimes that are created by RICO or VCAR and need only resemble state crimes in order to be predicate acts under RICO or crimes under VCAR. They certainly are no longer state crimes. If they were state crimes, it would certainly violate several Constitutional provisions to change the elements of the state crime based on which court the case happens to be in.

For each of these “new” crimes, there should be a full blown Lopez analysis to determine whether or not Congress has the Constitutional authority to proscribe the acts in question. The racketeering prosecution in Morales should have been looked at as being based on the federal crime of conspiracy to commit murder without the requirement of an overt act prior to the carrying out of the conspiracy. Does Congress have the authority to criminalize such an act, even when done to gain entrance into a racketeering enterprise? Under Lopez, I would think that the answer is far from clear.

One more recent example from the Second Circuit should suffice to illustrate the power of RICO to affect the elements of the predicate crime. United States v. Carillo,[245] like Morales, involved a charge of the state crime of attempted murder as a predicate act for a federal racketeering charge. [246] The alleged predicate acts also included the federal crime of conspiracy to distribute narcotics.[247] There was, however, a major difference between the burdens of proof on the government for these two charges. Under state (New York) law, the conspiracy to commit murder charge required the proof of an overt act in furtherance of that conspiracy. [248] On the other hand, the federal conspiracy to distribute narcotics charge required no such allegation of an overt act.[249]

The district court denied the defendant’s request for a jury instruction requiring the allegation of an overt act, even for the conspiracy to commit murder charge.[250] The court reasoned that “because an indictment need not list the state law elements of racketeering acts that in combination constitute a RICO offense, [251] the charge to the jury need not list the state law elements of the constituent racketeering acts.”[252]

The Second Circuit, in its discussion, reaffirmed the idea that “under RICO... state offenses are included by generic designation, and that references to state law serve merely a definitional purpose, to identify generally the kind of activity made illegal by the federal statute.” [253] Eventually, the court equivocated and apparently felt some major qualms about applying this doctrine to the same extent that the Morales court did. [254] The court also noted that many district court judges have these same concerns and that they therefore “conventionally instruct juries on the elements of the state law offenses charged as predicate acts,” and observed that “this is the best practice.”[255] Still, the court declined to answer the question of whether or not the district court was correct in its holding, as it found that question to be irrelevant under the harmless error rule.[256]

Although the danger to federalism mentioned above based on the Morales holding and based on the district court’s holding in Carillo was mitigated somewhat by the Second Circuit’s admonishment to district courts to avoid taking advantage of this RICO effect, the danger is not completely moot. Federal district courts can still, under current law in the Second Circuit, allow RICO or VCAR convictions, even when they are based on state crimes all the elements of which have not been proven. As mentioned earlier, this raises substantial questions as to whether RICO’s scope is so broad that it creates substantive federal crimes that are beyond the scope of federal power under Lopez.


RICO is a statute that is a very helpful and effective in the fighting of organized crime. Unfortunately, it is almost equally adept at allowing federal power to encroach into spheres that the general police power of the states should govern. In civil RICO cases, federal law governs questions that, under the Erie doctrine, should be governed by state law. RICO and VCAR also allow federal power in creating and enforcing criminal laws to probably exceed what the principles of Lopez dictate.

Congress and/or the Supreme Court can curb these excesses of RICO, while maintaining its significant effectiveness an a law enforcement tool. The Erie doctrine should be applied in civil RICO cases to issues involving predicate acts that are state law violations to the same extent that it would be applied to those same state law issues had the court been sitting in diversity jurisdiction.

The rules of evidence applied in RICO cases should, regarding predicate state law violations, mirror the rules that would have applied were the same state law questions to be decided in a state proceeding, if the reason behind those rules reflects a substantive state law interest. In RICO cases where evidence relating to a predicate state violation that would be excluded because it is too prejudicial, is offered to show the existence of an enterprise for RICO purposes, there should be separate proceedings held. The first proceeding should be to determine whether or not the defendant committed the predicate acts. In that proceeding, the prejudicial evidence should be excluded. If the trier of fact answers that predicate acts were committed, another proceeding should be held to determine whether or not the other RICO elements have also been proven. In that second proceeding, the prejudicial evidence can be admitted because its probative value would now outweigh its prejudicial effect.

The Lopez standard should be applied to criminal RICO cases the same way it would be applied to any other federal criminal statute. If the commerce clause, under Lopez, would grant federal authority over a predicate act (taking into account its affect on interstate commerce via its connection to the corrupt organization), then criminal RICO should apply to the case. If not, the prosecution should be left to the state authorities. (The state “baby RICO” statutes can handle those cases.)

The elements of a predicate state crime in a RICO prosecution should be left intact. The federal government should, in order to be able use a state crime as a predicate act, be required to prove all of the elements that would have been necessary to obtain a conviction for that same act in a state prosecution. Only then can the predicate act truly be said to be “chargeable under state law.”

With these steps taken, federal RICO would remain an effective tool of law enforcement. However, the important federalism principles set forth by Erie and Lopez would not be threatened.

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[1] Education Director, National Paralegal College

[2] 18 U.S.C. § 1961-1968 (2000).

[3] See Organized Crime Control Act of 1970 (OCCA), Pub. L. No. 91-452, § 1, 84 Stat. 922, 922 (1970) (Congressional Statement of Findings and Purpose) (codified at 18 U.S.C. § 1961 note (1982)). In passing the Racketeer Influenced and Corrupt Organizations Act (RICO), Congress noted that organized crime 'annually drains billions of dollars from America's economy [and that] this money and power are increasingly used to infiltrate and corrupt legitimate business and labor unions.' Id.

[4] See 18 U.S.C. § 1962(a).

[5] See 18 U.S.C. § 1962(b).

[6] See 18 U.S.C. § 1962(c).

[7] See 18 U.S.C. § 1962(c).

[8] See 18 U.S.C. § 1962(d).

[9] See 18 U.S.C. § 1961.

[10] See id.

[11] See 18 U.S.C. § 1963-1964.

[12] See 18 U.S.C. § 1963.

[13] See 18 U.S.C. § 1964(d).

[14] See Jacqueline S. Sawyers, Civil RICO and its Application to ‘Garden Variety’ Fraud Within the Sixth Circuit, 13 N. Ky. L. Rev. 463 (1987) (chronicling how RICO has been used to bring federal prosecutions against the perpetrators of traditionally state, common law crimes).

[15] See John Delaney, Criminal Law; A Problem Solving Approach 339 (1986).

[16] Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 498 (1985). (emphasis added)

[17] See id.

[18] See id at 480.

[19] See G. Robert Blakey, A Note on RICO, 1216 PLI/Corp 387. (“Congress deliberately chose in RICO ‘a generality and adaptability comparable to that found to be desirable in constitutional provisions.’” Id at 392.)

[20] See Linda Koenig and Doris Godinez-Taylor, The Need for Greater Double Jeopardy and Due Process Safeguards in Criminal and Civil Actions, 70 Calif. L. Rev. 724, 729 (1982) (arguing that RICO’s wide ranging effects are beyond what Congress had intended in passing the statute).

[21] See United States v. Acosta, 124 F. Supp. 2d 631 (E.D. Wis. 2000) (predicate violations relating to a RICO prosecution are not necessarily considered federal offenses).

[22] Source withheld upon request.

[23] Reshuffling blackjack decks not racketeering (November 9, 2000) <>

[24] See Delaney, supra note 14, at 358.

[25] U.S. Const. art. I § 8, cl. 3.

[26] 28 U.S.C. § 725

[27] Swift v. Tyson, 42 U.S. 1, 18 (1842).

[28] See id .

[29] Id. at 18.

[30] See id. at 19-22.

[31] See Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co., 276 U.S. 518 (1928) (where, during a dispute between two Kentucky companies, one of them incorporated in neighboring Tennessee, for the sole purpose of establishing diversity jurisdiction and thus allowing federal law to govern the dispute See id. at 523-524).

[32] See Henry J. Friendly, In Praise of Erie- and of the New Federal Common Law, 39 N.Y.U. L. Rev. 383, 405-07 (for a general criticism of the functioning of the federal and state court systems when applying the rule of Swift v. Tyson).

[33] 304 U.S. 64 (1938).

[34] See id , at 76-80.

[35] See Clearfield Trust Co. v. United States, 318 U.S. 363 (1943) (creating federal common law where there is a strong interest in uniformity throughout the country in a particular field).

[36] See U.S. Const. art. VI cl. 2. (“This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land.”)

[37] See Charles Alan Wright, Law of Federal Courts 399 (5th ed. 1994). (“Congress is powerless to declare ‘substantive rules of common law applicable in a state.’” (quoting Erie, 304 U.S. at 78)

[38] See Guarantee Trust Co. v. York, 326 U.S. 99 (1945) (applying an “outcome determinative test); Byrd v. Blue Ridge Rural Electric Cooperative, Inc., 356 U.S. 525 (1958) (applying a balancing test between the state’s interest in having its laws applied against a federal interest in nation-wide uniformity).

[39] 518 U.S. 415 (1996).

[40] See id.

[41] Id. at 428.

[42] See id. at 416. (The twin aims of Eire are “discouragement of forum- shopping and avoidance of inequitable administration of the laws.” Id.)

[43] See Hanna v. Plumer, 380 U.S. 460 (1965). Technically, the FRCP rules are only applicable if they do not infringe of state substantive rights. If they did, they would be unconstitutional. See id.. However, since it is the Supreme Court that promulgates the FRCP, it is unlikely that the Supreme Court would condemn its own rule as having violated a state substantive right, and therefore being unconstitutional. Therefore, for all intents and purposes, the FRCP are inherently procedural for Erie purposes. See Wright, Law of Federal Courts, supra note 36, at 404.

[44] See Charles Alan Wright Et Al., Federal Practice and Procedure § 4512. ("If a Federal Rule of Evidence covers a disputed point of evidence, the Rule is to be followed, even in diversity cases, and state law is pertinent only if and to the extent the applicable Evidence Rule makes it so.")

[45] See <> (“Law that prescribes the procedures and methods for enforcing rights and duties and for obtaining redress (e.g., in a suit). It is distinguished from substantive law (i.e., law that creates, defines, or regulates rights and duties). Procedural law is a set of established forms for conducting a trial and regulating the events that precede and follow it. It prescribes rules relative to jurisdiction, pleading and practice, jury selection, evidence, appeal, execution of judgments, representation of counsel, costs, registration (e.g., of a stock offer), prosecution of crime, and conveyancing (transference of deeds, leases, etc.), among other matters.”).

[46] See Guaranty Trust Co. v. York, 326 U.S. 99 (1945).

[47] See id.

[48] See Ragan v. Merchants Transfer & Warehousing Co., 337 U.S. 530 (1949) (holding that FRCP Rule 3's provision that a case is commenced when a case is filed did not apply to toll the statute of limitations in a diversity case); Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541 (1949) (notwithstanding FRCP Rule 23.1's failure to require shareholders in a derivative action to post bond, the plaintiff shareholders did need to post bond because state law required them to); Woods v. Interstate Realty Co., 337 U.S. 535 (1949) (state law disallowing a company to do business in a state governed the location of of that company for diversity of citizenship purposes).

[49] See Hanna v. Plumer, 380 U.S. 460 (1965).

[50] 28 U.S.C. § 1331

[51] 483 U.S. 143 (1987)

[52] See id. at 145-146.

[53] Id. at 146.

[54] See id .

[55] See id .

[56] See Agency Holding Corp. , 283 U.S. at 149.

[57] See id. at 146.

[58] See id. at 149.

[59] Id. at 150.

[60] 15 U.S.C.A. § 12 (West, WESTLAW, through all 2000 legislation).

[61] 15 U.S.C.A. § 15b (West, WESTLAW, through all 2000 legislation).

[62] Agency Holding Corp. , 283 U.S. at 151.

[63] Id. at 154.

[64] See id. at 157-158 (Scalia, J. dissenting).

[65] See id.

[66] 822 F.2d 688 (7th Cir. 1987).

[67] See id at 689.

[68] See id.

[69] See id.

[70] See id . Note that even though Agency Holding Corp. had not been decided by the Supreme Court had not been decided yet (it was to be decided 10 days after the circuit court’s holding), the ruling of the district court was also inconsistent with prior case law within the circuit. The previous year, in Tellis v. United States Fidelity & Guarantee Co., 805 F.2d 741 (7th Cir. 1986), the Seventh Circuit had held that federal courts, when deciding what statute of limitations to apply to RICO (which had no discernible statute of limitations before Agency Holding Corp.), must look to state counterparts of the RICO statute as a whole, and not to the statutes of limitation applying to the predicate acts. See id. The Tellis holding was later vacated by the Supreme Court in light of Agency Holding Corp., which did define a statute of limitations for federal RICO violations. See Tellis v. United States Fidelity and Guaranty Company, 483 U.S. 1015 (1987).

[71] See Wis. Stat. § 946.88 (West, WESTLAW, through Feb. 1, 2001 legislation).

[72] See Wis. Stat. § 991.07 (West, WESTLAW, through Feb. 1, 2001 legislation).

[73] Hemmings , 688 F.2d at 689 (emphasis added).

[74] Note that at the outset of Guaranty Trust, Byrd and Hanna, the Supreme Court confined its analysis of the Erie doctrine to diversity cases.

[75] See 28 U.S.C.A. § 1331 (West, WESTLAW, current through Sep. 22, 2000).

[76] See Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804, 807 (1986).

[77] See 18 U.S.C.A. 1964 (West, WESTLAW, current through Sep. 22, 2000).

[78] See American Well Works v. Layne & Bowler Co., 241 U.S. 257. (“A suit arises under the law that creates the cause of action.” Id. at 260).

[79] 380 U.S. 460 (1965).

[80] Id. at 468.

[81] See Agency Holding Corp., 283 U.S. at 157-158 (Scalia, J. dissenting).

[82] See Jason D. Reichelt, Stalking the Enterprise Criminal: State RICO and the Liberal Interpretaion of the Enterprise Element, 81 Cornell L. Rev. 224, 230-35 (1995) (for a description of many of the state RICO statutes).

[83] See Erie , 304 U.S. at 73-74.

[84] Id. at 74-75.

[85] See id.

[86] See id.

[87] See Sawyers, supra note 18, at 487.

[88] See id.

[89] See United States v. Turkette, 452 U.S. 576 (1980) (for definition of “enterprise” under RICO).

[90] See 18 U.S.C. § 1961(5) (1982).

[91] (10 years between predicate acts plus the 4 year limitation imposed by Agency Holding Corp.)

[92] See McInnis v. A.M.F., Inc., 765 F.2d 240, 244 (1st Cir. 1985) (The Federal Rules of Evidence are properly characterized as "housekeeping rules for federal courts.”)

[93] See id . at 245.

[94] Fed R. Evid. 1001(b).

[95] Fed R. Evid. 501.

[96] See McInnis , 765 F.2d at 245.

[97] See Morton v. Brockman, 184 F.R.D. 211, 215 (D. Maine 1999) (where evidentiary rules are “so enmeshed with substantive state policy,” federal courts will follow those state rules).

[98] 733 F.2d 463 (7th Cir. 1984).

[99] See id , at 465-66.

[100] See id , at 468.

[101] Fed. R. Evid. Rule 501.

[102] See Flaminio , 733 F.2d at 470.

[103] See id . at 472.

[104] Id . at 471.

[105] I would guess that this broad interpretation of what is considered procedural is based on the fact that Congress intended the FRE to govern in diversity cases, and so in order to hold that state law trumps the FRE in a particular matter, it would be necessary to hold that the rule, as applied, is unconstitutional.

[106] 765 F.2d 240 (1st Cir. 1985).

[107] See id. at 242.

[108] See id . at 273.

[109] See id . at 274.

[110] See Handy v. Geary, 252 A.2d 435, 441-42 (R.I. 1969).

[111] See McInnis , 765 F.2d at 244-46.

[112] See id . at 245.

[113] See id . at 245-246.

[114] See id . at 246.

[115] See Morton v. Brockman, 184 F.R.D. 211 (D. Me. 1999).

[116] See id . at 214.

[117] See id. See also Strout v. Paisley, 2000 WL 1900313 (D. Me. 2000). (Same court affirming the Morton decision and reasoning that the seatbelt rule was designed to channel behavior outside of the courtroom and it thus a substantive rule. See id. at 4.)

[118] 526 F. Supp. 226 (N.D. Ill. 1981).

[119] See id . at 226.

[120] See id .

[121] See id . at 228-31.

[122] See id . at 228-33.

[123] See In Re Air Crash Disaster Near Chicago , 526 F. Supp. at 232.

[124] See U.S. v. Private Sanitation Industry Ass'n of Nassau/Suffolk, Inc., 899 F. Supp. 974, 985 (E.D.N.Y. 1994) (applying the Federal Rules of Evidence to a civil RICO claim for which the predicate acts were state offenses). See also Bingham v. Zolt, 823 F. Supp. 1126, 1136 (S.D.N.Y. 1993) (applying FRE Rule 403 balancing test for the admissibility of evidence in a civil RICO action where the predicate acts were state law violations).

[125] See Fed. R. Evid. 803(3).

[126] 145 U.S. 285 (1892).

[127] See id . at 295-300.

[128] See Roger C. Park et al., Evidence Law: A Student’s Guide to the Law of Evidence as Applied in American Trials 273 (1998).

[129] See id . at 273-274.

[130] See Byrd v. Blue Ridge Rural Electric Cooperative, Inc., 356 U.S. 525 (1958).

[131] See generally James. M. Evans, “Don’t Throw Me Into The Briar Patch”: RICO and the Rules of Evidence, 93 Notre Dame L. Rev. 433 (1998).

[132] See Park, supra note 127, at 8-11.

[133] See Fed R. Evid. 401.

[134] See Fed R. Evid. 403.

[135] See Park, supra note 127, at 128-29.

[136] See United States v. Thomas, 86 F.3d 647, 652-54 (7th Cir. 1996).

[137] See Strauss v. Springer, 817 F. Supp. 1211, 1222-23 (E.D. Pa. 1991).

[138] Remember that Rule 403 allows evidence of any probative value as long as such value is not substantially outweighed by the negative factors listed above. So, any increase in the amount of probative value of a piece of evidence makes it exponentially harder to get the evidence excluded under Rule 403.

[139] See United States v. Turkette, 452 U.S. 576 (1980).

[140] See United States v. Bledsoe, 674 F.2d 647, 655 (8th Cir. 1982).

[141] See Evans, supra note 130, at 440-43.

[142] See id . at 442.

[143] See id . at 442-43.

[144] See Fed. R. Evid. 404(a).

[145] See Fed. R. Evid. 404(b).

[146] See Park, supra note 127, at 135-36.

[147] See id . at 136.

[148] See id . at 137-38.

[149] See Evans, supra note 130, at 456-59.

[150] See id .

[151] See id .

[152] See Geoffrey R. Stone Et Al., Constitutional Law 147-48 (3rd ed. 1996).

[153] See U.S. Const. art. I § 8.

[154] See U.S. Const. art. I § 8, cl.3. (Congress shall have the power to “regulate commerce with foreign nations, and among the several states and with the Indian tribes.”)

[155] See Stone, supra note 152, at 189-90.

[156] 22 U.S. 1 (1824).

[157] See Stone, supra note 152, at 191.

[158] See generally id. at 189-233.

[159] 156 U.S. 1 (1895).

[160] See id. at 12.

[161] Id.

[162] See Houston, East & West Texas Railway v. United States, 234 U.S. 342 (1914) (allowing the Interstate Commerce Commission to regulate certain intrastate railroad fares). See also Stafford v. Wallace, 258 U.S. 495 (1922) (allowing the Secretary of Commerce to regulate stockyards where animals were kept for interstate shipment, even though the stockyards themselves were a completely intrastate activity).

[163] See Stone, supra note 152, at 205-06.

[164] 295 U.S. 495 (1935)

[165] See id.

[166] See id ., at 523-34.

[167] See id. at 542-50.

[168] Id . at 543.

[169] Schechter Poultry Corp. , 295 U.S. at 543.

[170] 298 U.S. 238 (1936).

[171] See id.

[172] See id.

[173] See id.

[174] See id.

[175] See Stone, supra note 152, at 209.

[176] See id.

[177] See Carter Coal , 298 U.S. at ???.

[178] 301 U.S. 1 (1937).

[179] See id . at 24.

[180] See id. at 34-41.

[181] 317 U.S. 111 (1942).

[182] See id .

[183] See id. (:The effect of consumption of home-grown wheat on interstate commerce is due to the fact that it constitutes the most variable factor in the disappearance of the wheat crop... That appellee’s own contribution to the demand for wheat may be trivial by itself is not enough to remove him from the scope of federal regulation where, as here, his contribution, taken together with that of many others similarly situated, is far from trivial.)

[184] See Maryland v. Wirtz, 392 U.S. 183 (1968) (allowing federal regulation to cover the employment conditions of every employee of an enterprise engaged in commerce); Heart of Atlanta Motel v. United States, 379 U.S. 241 (1964) (allowing civil rights legislation to apply to public accommodations that did not directly deal in interstate commerce); Katzenbach v. McClung, 379 U.S. 294 (1964) (allowing civil rights legislation to apply to restaurants essentially because some of their food must have traveled interstate).

[185] See United States v. Lopez, 514 U.S. 549 (1995).

[186] 18 U.S.C. § 922(q)(1)(A).

[187] See Lopez (“The Government argues that possession of a firearm in a school zone may result in violent crime and violent crime can be expected to affect the functioning of the national economy in two ways. First, the costs of violent crime are substantial, and, through the mechanisms of insurance, are spread throughout the population. Second, violent crime reduces the willingness of individuals to travel to areas within the country that are perceived to be unsafe.”)

[188] See id.

[189] See id.

[190] See id .

[191] See Morrison v. U.S., 529 U.S. 598 (2000) (holding that commerce clause did not provide Congress with authority to enact civil remedy provision of the Violence Against Women Act because that provision was not a regulation of activity that substantially affected interstate commerce).

[192] See Lopez

[193] It wouldn’t be the first time a change of heart has radically altered commerce clause jurisprudence. See Stone, supra note 152, at 215.

[194] See Lopez

[195] See id. at 561 n. 3.(“States possess primary authority for defining and enforcing criminal law.” Id., quoting Brecht v. Abrahamson, 507 U.S. 619 (1993).)

[196] Id . at 567.

[197] See Stone, supra note 152, at 227.

[198] See id .

[199] Lopez , quoting Maryland v. Wirtz, 392 U.S. 183 (1968).

[200] See id.

[201] See id . at 558-59.

[202] See Morrison , 529 U.S. at 615. (“Given [the Government’s] arguments, the concern that we expressed in Lopez that Congress might use the Commerce Clause to completely obliterate the Constitution’s distinction between national and local authority seems well founded.”)

[203] See Delaney, supra note 14, at 355.

[204] See id. at 339.

[205] See id .

[206] See United States v. Cappetto, 502 F.2d 1351 (7th Cir. 1974), cert. denied 420 U.S. 95 (1975).

[207] See 18 U.S.C. § 1962(a)-(d).

[208] 940 F. Supp. 540 (S.D.N.Y. 1996).

[209] 18 U.S.C. § 1959.

[210] 18 U.S.C. § 1959(a). (emphasis added)

[211] See 18 U.S.C. § 1959(b)(2).

[212] See Perez , 940 F. Supp. at 542.

[213] See id .

[214] See id .

[215] This was because the same elements that, if proven, would make the charge beyond Congressional authority, namely, that defendant’s actions were not related to interstate commerce, would also remove RICO’s effect on the case because of RICO’s interstate commerce element. This is an example of how RICO was built to be “Lopez”-proof.

[216] See Perez , 940 F. Supp. at 542.

[217] See id (Unlike RICO, which only criminalizes the relationship to or participation in the enterprise which affects interstate commerce).

[218] See id . at 543.

[219] See id . at 544.

[220] See id .

[221] See Perez , 940 F. Supp. at 544.

[222] See id .

[223] See id . at 525 (“Congress rationally found that, in the aggregate, racketeering enterprises and their attendant [crimes], repeated nationwide, substantially affect interstate commerce”).

[224] 68 F. Supp. 2d 802 (E.D. Mich. 1999).

[225] See id. at 804.

[226] See id. at 808-09.

[227] See id . at 809-12.

[228] See id . at 810.

[229] See Garcia , 68 F. Supp. 2d at 810.

[230] Id . at 811.

[231] Id . (“[T]he only jurisdictional element in VCAR relates to the activities of the enterprise.” Id.)

[232] Id .

[233] See United States v. Turkette, 452 U.S. 576 (1980) (an “illegitimate” association can also be an enterprise for RICO purposes); see also United States v. McLaurin, 557 F.2d 1064 (5th Cir. 1977) (a prostitution ring can be an enterprise for RICO purposes).

[234] See United States v. Acosta, 124 F. Supp. 631, 632 (E.D. Wisc. 2000). (“The [state crime] nay constitute a predicate act, but that means only that it is an element of a federal crime, not a federal crime itself.”)

[235] See United States v. Morales, 881 F. Supp. 769 (D. Conn. 1995).

[236] See id . at 770.

[237] See id .

[238] See id .

[239] See id at 770-72.

[240] See Morales , 881 F. Supp. at 771.

[241] Id . at 771.

[242] See id .

[243] See id. at 742. See also United States v. Wei, 862 F. Supp. 1129 (S.D.N.Y. 1994); United States v. Cutolo, 861 F. Supp. 1142 (E.D.N.Y. 1994) (both holding that substantive state law is not applicable to federal racketeering prosecutions).

[244] See Parts II and III, supra.

[245] 229 F.3d 177 (2d Cir. 2000).

[246] See id . at 178.

[247] See id .

[248] See id . at 181.

[249] See id . at 181.

[250] See Carrillo , 229 F.3d at 181.

[251] Citing United States v. Orena, 32 F.3d 704, 714 (2nd Cir. 1994).

[252] See Carrillo , 229 F.3d at 181.

[253] Id . at 182, quoting United States v. Bagaric, 706 F.2d 42, 62 (2d Cir. 1983) (emphasis in original).

[254] See id . at 183-84. (“It is difficult to see how the defendant could be properly convicted if the conduct found by the jury did not include all of the elements of the state offense since RICO requires that the defendant have committed predicate acts ‘chargeable understate law.’”)

[255] See id . at 184-85.

[256] See id . at 186.