Racketeer influenced and corrupt organizations.

• Author: Phillips, Eleanor T.
• Position: III. Defenses D. "Horizontal Preemption" or "Primary Jurisdiction" through VI. Non-Traditional Uses of the RICO Statute, with footnotes, p. 1536-1566 - Thirtieth Annual Survey of White Collar Crime

4. "Horizontal Preemption " or "Primary Jurisdiction "

   RICO actions often involve conduct that is subject to pervasive administrative regulation; therefore, some RICO defendants have asserted a "horizontal preemption" or "primary jurisdiction" (219) defense. This defense contends that RICO claims are barred or outside the court's jurisdiction because an administrative body must regulate the challenged conduct. (220) The doctrine of primary jurisdiction applies to "claims properly cognizable in court that contain some issue within the special competence of an administrative agency. It requires the court to enable a 'referral' to the [appropriate] agency, staying further proceedings so as to give the parties reasonable opportunity to seek an administrative ruling." (221)

   Defendants typically invoke the "primary jurisdiction" defense in labor law cases. (222) Specifically, they argue that the alleged racketeering activity is conduct at is, in essence, an "unfair labor practice," (223) regulated by the National Labor Relations Board ("NLRB") under the National Labor Relations Act ("NLRA"). (224) If a court finds that "the existence of the predicate acts depends wholly upon a determination that a violation of federal labor law occurred, jurisdiction is preempted." (225)

   However, there are several exceptions to the "primary jurisdiction" defense in labor law cases. RICO charges are not preempted by federal labor law when the underlying offenses fall within the labor related activities expressly included in [section] 1961(1)(c) of the RICO statute. (226) In addition, courts may be unwilling to apply the primary jurisdiction doctrine in cases where labor disputes are only collaterally related to the RICO charge. (227) Finally, if the predicate acts are illegal, independent of labor law, RICO charges are not preempted. (228)

   A "primary jurisdiction" defense has failed when a district court was forced to exercise control over complex litigation for administrative convenience. (229) The Second Circuit held that a district court could, under a consent decree arising from RICO litigation, issue orders normally within the NLRB's exclusive province. (230)

   RICO defendants in non-labor law cases have also had little success in invoking the primary jurisdiction defense. (231) Although the primary jurisdiction defense has been successful in actions against public utilities where the "filed rate" doctrine bars courts from setting rates different from those filed with the agency, (232) it typically fails in other non-labor contexts. (233) Federal courts are prohibited from deferring to administrative agencies when a claim is "within the conventional competence of the courts and [where] the judgment of ... the agency with concurrent jurisdiction [is] not likely to be helpful." (234) In practice, federal courts rarely apply the primary jurisdiction doctrine in deference to a state administrative agency. (235)

5. "Reverse Vertical Preemption"

   The Supreme Court has established several abstention doctrines allowing a federal court with proper subject matter jurisdiction to "stay its hand" when promoting an overriding policy, such as the maintenance of a specific relationships between the national government and the states. (236) Two such doctrines are the "Pullman abstention" doctrine (237) and the "Burford abstention" doctrine. (238) The Pullman abstention doctrine requires that federal courts refrain from deciding cases that raise potentially dispositive questions of serious, unsettled state law upon which state decisions may render a decision on the merits of the federal dispute unnecessary. (239) The Burford abstention doctrine allows federal courts to refrain from deciding cases when the subject matter of the dispute is the subject of extensive state administrative regulation and a federal decision would risk serious disruption of a state administrative scheme. (240)

   In DeMauro v. DeMauro, (241) the First Circuit confronted a RICO action that was intermingled with a divorce proceeding. (242) The Court implemented a limited form of the Burford abstention doctrine because staying the federal proceedings would reduce the "risk of interfering with interim state allocations and permit the federal court to tailor any final federal judgment to avoid undermining the divorce court's allocation of property." (243) The Second Circuit, however, refused to implement abstention under Burford in a RICO case where the predicate acts were solely federal law violations and a treble damage award would not interfere with state administrative processes. (244)

6. Constitutional Challenges

   RICO has faced several constitutional challenges under the First Amendment, Eighth Amendment, Tenth Amendment, Equal Protection Clause, Double Jeopardy Clause, Due Process Clause, and the vagueness doctrine.

   First Amendment challenges to the application of RICO generally fail. Individuals charged under RICO cannot claim that the First Amendment protects their right of association when that association is part of a plan to commit a crime. (245) The Supreme Court has also rejected challenges to RICO under the free speech clause of the First Amendment, holding that no unconstitutional "chilling" effect results from the forfeiture of assets as punishment for past actions. (246) Finally, RICO forfeiture provisions have survived challenges claiming that those provisions are overbroad and therefore violate the First Amendment. (247)

   Traditionally, courts have also found that RICO does not violate the Fifth Amendment's protections against double jeopardy, (248) in prosecutions of separate actions (249) or at sentencing when consecutive sentences are imposed for separate RICO and predicate offense convictions. (250) Challenges to the imposition of consecutive sentences under the Double Jeopardy Clause have failed because RICO actions contain elements beyond the scope of the predicate acts and convictions based on the predicate offenses require proof of elements not contained in RICO. (251)

   Eighth Amendment (252) challenges to fines, forfeitures, or imprisonment imposed for RICO violations are also generally unsuccessful. The forfeiture provisions of RICO are analyzed under the Excessive Fines Clause in the Eight Amendment. (255) RICO forfeitures, like fines imposed under other statutes, can be limited when the amount of forfeiture is grossly disproportionate to the underlying offense. (254) Courts have also held that sentences under RICO do not violate the Eighth Amendment's prohibition against cruel and unusual punishment. (255)

   Courts have also rejected arguments that RICO intrudes upon state sovereignty in violation of the Tenth Amendment. (256) The Commerce Clause (257) gives Congress the authority to regulate racketeering activity affecting interstate commerce. (258) RICO jurisdiction is established when a defendant associates with an enterprise that affects interstate commerce. (259) The government is not required to prove that the predicate acts affected interstate commerce, as long as the racketeering activity itself affects interstate commerce. (260)

   Courts have also rejected claims based on the Equal Protection Clause. The Seventh Circuit has held that in a RICO action, prosecutorial discretion in determining which types of RICO offenses of predicate acts are charged to a particular defendant does not constitute a violation of the Equal Protection Clause unless abused for reasons of race, religion, or other improper classifications. (261) Moreover, it is not unconstitutionally discriminatory to apply RICO to defendants who are not engaged in organized crime if the defendants "strive [d] to emulate the achievements of their brothers in organized crime." (262) The First Circuit rejected the argument that RICO violates principles of equal protection by allowing two predicate acts to be convicted under RICO, but only one predicate act to be convicted under "loan sharking." (263)

   Courts have also considered the constitutionality of RICO under the Due Process Clause. (264) Courts have examined whether a defendant's due process rights are violated when the trial court orders a pre-trial restraint of assets without exempting assets necessary for retention of defense counsel. At least one federal circuit has held that due process requires the trial court to conduct "a prompt hearing at which the property owner can contest the restraining order." (265) Courts have also considered allegations that RICO is unconstitutionally vague. Despite the different interpretations of RICO, the statute has survived facial and as applied challenges of constitutional vagueness to the "pattern" and "enterprise" requirements. (266) 266 Courts have also rejected challenges alleging that RICO enumeration of underlying predicate offenses is unconstitutionally vague. (267) Cases involving organized crime tend to be least likely to raise successful vagueness challenges. (268)

   4. Criminal Penalties

1. Overview

   Under [section] 1963(a), Individuals convicted under RICO can be imprisoned for up to twenty years, fined, or both, in addition to being subject to mandatory asset forfeiture. (269) The statute also authorizes life imprisonment if the RICO violation is based on a racketeering activity that carries a life sentence. (270)

   RICO's asset forfeiture provisions permit the government to seek pre-indictment restraining orders (271) and forfeitures of property transferred to third parties. (272) However, the forfeiture provisions specifically exempt property transferred to bona fide purchasers who at the time of the purchase reasonably had cause to believe that the property was not subject to forfeiture. (273)

2. Sentencing

   Although the U.S. Sentencing Guidelines ("Guidelines") are no longer mandatory, (274) courts should nonetheless impose reasonable sentences pursuant to the Guidelines. (275) Section 2E1.1 of the Guidelines applies to defendants convicted under RICO. (276) The base offense...