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UNITED STATES v. YONAN

November 15, 1985

UNITED STATES OF AMERICA, PLAINTIFF,
v.
CYRUS YONAN, DEFENDANT.



The opinion of the court was delivered by: Shadur, District Judge.

MEMORANDUM OPINION AND ORDER

Cyrus Yonan ("Yonan") is charged in a ten-count second superseding indictment*fn1 with:

    1. violation of 18 U.S.C. § 1962(c),*fn2 one of
  the provisions of the Racketeer Influenced and
  Corrupt Organizations Act ("RICO"), Sections
  1961-1968 (Count One);
    2. violation of Section 1962(a), another RICO
  provision (Count Two); and
    3. eight violations of Section 1341, the mail
  fraud statute (Counts Three through Ten).

Yonan has moved for dismissal of each count, asserting different theories as to the different substantive charges. For the reasons stated in this memorandum opinion and order, Yonan's motion is granted in part and denied in part.

Count One: Section 1962(c)

Lawyer Yonan is that rarest of rarae aves: a sole practitioner. To bring him within the reach of Section 1962(c), the government has embraced the strained reading that first saw the light of day in our Court of Appeals' civil RICO decision in McCullough v. Suter, 757 F.2d 142 (7th Cir. 1985) — the notion that a sole practitioner can, in some metaphysical sense, be "employed by" or "associated with" himself or herself.*fn3 After all, the only conduct Section 1962(c) makes unlawful is defined this way:

  It shall be unlawful for any person employed by
  or associated with any enterprise engaged in, or
  the activities of which affect, interstate or
  foreign commerce, to conduct or participate,
  directly or indirectly, in the conduct of such
  enterprise's affairs through a pattern of
  racketeering activity or collection of unlawful
  debt.

McCullough certainly does violence to the normal use of that language. Though Judge Posner's opinion does not (of course) acknowledge just how much it bends RICO out of shape, the opinion reaches its result in these terms (757 F.2d at 144):

  There would be a problem if the sole
  proprietorship were strictly a one-man show. If
  Suter had no employees or other associates and
  simply did business under the name of the
  National Investment Publishing Company, it could
  hardly be said that he was associating with an
  enterprise called the National Investment
  Publishing Company; you cannot associate with
  yourself, any more than you can conspire with
  yourself, just by giving yourself a nom de guerre.
  We therefore held in Haroco, Inc. v. American
  National Bank & Trust Co., 747 F.2d 384, 399-402
  (7th Cir. 1984), cert. granted, ___ U.S. ___, 105
  S.Ct. 902, 83 L.Ed.2d 917 (1985), that an
  enterprise (a national banking association in that
  case) could not associate with itself for purposes
  of section 1962(c). But Suter had several people
  working for him; this made his company an
  enterprise, and not just a one-man band; and all
  section 1962(c) requires, as we said in Haroco, is
  "some separate and distinct existence for the
  person [Suter] and the enterprise [National
  Investment Publishing Company]," 747 F.2d at 402.

Even on the government's own terms, McCullough does not necessarily keep Count One in court. Two months ago our Court of Appeals looked at McCullough in a criminal (rather than civil) RICO context in United States v. DiCaro, 772 F.2d 1314 (7th Cir. 1985). DiCaro's counsel did not argue, and therefore the Court of Appeals had no occasion to consider whether, the McCullough doctrine could be applied retrospectively without violating due process*fn4 — a subject hereafter dealt with in this opinion. What the Court of Appeals did do was to reverse DiCaro's RICO conviction because Haroco rather than McCullough governed his situation (id. at 1319-20):

  Based on our analysis of both the statutory
  language and the underlying policies of section
  1962(c), we held in Haroco that an individual
  corporation could not be held liable as a "person"
  that conducted its own affairs through a pattern of
  racketeering activity under that section. Id. We
  began by noting that the terms "person" and
  "enterprise" are both defined in section 1961 of
  RICO to include "any corporation," id., just as
  both are defined to include "any individual."
  Nevertheless, section 1962(c) provides that the
  person who is charged with conducting the
  enterprise's affairs through a pattern of
  racketeering activity must also be "employed by or
  associated with" the enterprise. Id. Thus, if we
  construed section 1962(c) to permit the same entity
  to be both the person and the enterprise,

  we would reach the anomalous result that the
  entity was employed by or associated with itself.
  After considering the language of section
  1962(c), we therefore concluded that Congress did
  not intend to allow the same entity to be both
  the person and the enterprise under section
  1962(c). Id.
  We recently reaffirmed this interpretation of
  section 1962(c) in McCullough v. Suter,
  757 F.2d 142 (7th Cir. 1985). In McCullough, we held that
  the defendant-proprietor of a sole proprietorship
  could be held liable under section 1962(c) on the
  theory that he conducted the affairs of the
  proprietorship through a pattern of racketeering
  activity. Id. at 143. We emphasized, however, that
  the sole proprietorship at issue in McCullough was
  a business with an identity distinct and separate
  from that of the defendant himself. Id. at 144. The
  defendant "had several people working for him; this
  made his company an enterprise, and not just a
  one-man band." Id. "[I]f the sole proprietorship
  were strictly a one-man show," on the other hand,
  we noted that Haroco would preclude liability for
  the defendant under section 1962(c). Id.

Our holding in Haroco governs the present case.

There is a serious question whether even the McCullough view of Section 1962(c) would sustain Count One. Yonan is a sole practitioner with only a secretary to assist him. What the government argues is that a lawyer who is undisputedly a "one-man show" or "one-man band," practicing in his own name (not as a professional corporation) and using no assumed name (the latter factor was present in McCullough), is magically transformed, by the act of hiring a secretary, into an "enterprise" by which he in turn becomes "employed" or with which he in turn becomes "associated." Any such notion would seem to stretch McCullough's already attenuated extension of Section 1962(c) beyond the breaking point. There is a meaningful difference — one of kind rather than degree — between a law practice, in which only the sole practitioner lawyer may render services directly to clients (so the secretary's clerical services do not create "a business with an identity distinct and separate from that of the defendant himself," McCullough, 757 F.2d at 144), and a business in which others too may and do carry on the business activity, though the entrepreneur has chosen a sole proprietorship form of organization (the situation McCullough, id. found sufficient for Section 1962(c) liability). Though it is always risky to predict what a Court of Appeals is likely to do, the most rational answer would seem that Yonan (like DiCaro) would be controlled by Haroco and not by McCullough.

But even were that not the case, Count One must fall. Were the 1985 McCullough reading of the statute extended to sweep up Yonan's 1980 conduct, what would be most significant for current purposes is not whether the surprising McCullough holding is right or wrong, but rather the very fact that it is so surprising.

American jurisprudence has long distinguished between criminal and civil liability in the extent to which the law insists on predictability as a condition of such liability. That distinction may perhaps not commend itself to those to whom no logical distinction exists between property interests (the money at stake in a civil action) and liberty interests (the potential of imprisonment in a criminal prosecution), but it exists nonetheless. It is one thing for a court to announce a defendant may be muleted in damages by a novel and surprising reading of RICO, but it is quite another to render the same defendant vulnerable to a prison term.

As a Due Process Clause restriction on Congress, United States v. Harriss, 347 U.S. 612, 617, 74 S.Ct. 808, 812, 98 L.Ed. 989 (1954) put the proposition this way:

  The constitutional requirement of definiteness is
  violated by a criminal statute that fails to give
  a person of ordinary intelligence fair notice
  that his contemplated conduct is forbidden by the
  statute.

  The underlying principle is that no man shall be
  held criminally responsible for conduct which he
  could not reasonably understand to be proscribed.

And as a like restraint on judicial inventiveness, Bouie v. City of Columbia, 378 U.S. 347, 352-54, 84 S.Ct. 1697, 1701-03, 12 L.Ed.2d 894 (1964) announced:

  There can be no doubt that a deprivation of the
  right of fair warning can result not only from
  vague statutory language but also from an
  unforeseeable and retroactive judicial expansion
  of narrow and precise statutory language. As the
  Court recognized in Pierce v. United States,
  314 U.S. 306, 311, [62 S.Ct. 237, 240, 86 L.Ed. 226],
  "judicial enlargement of a criminal Act by
  interpretation is at war with a fundamental concept
  of the common law that crimes must be defined with
  appropriate definiteness." Even where vague
  statutes are concerned, it has been pointed out
  that the vice in such an enactment cannot "be cured
  in a given case by a construction in that very case
  placing valid limits on the statute," for
    "the objection of vagueness is twofold:
    inadequate guidance to the individual whose
    conduct is regulated, and inadequate guidance
    to the triers of fact. The former objection
    could not be cured retrospectively by a ruling
    either of the trial court or the appellate
    court, though it might be cured for the future
    by an authoritative judicial gloss. . . ."
    Freund, The Supreme Court and Civil Liberties,
    4 Vand.L. Rev. 533, 541 (1951).
  See Amsterdam, Note, 109 U.Pa.L.Rev. 67, 73-74,
  n. 34. If this view is valid in the case of a
  judicial construction which adds a "clarifying
  gloss" to a vague statute, id., at 73, making it
  narrower or more definite than its language
  indicates, it must be a fortiori so where the
  construction unexpectedly broadens a statute which
  on its face had been definite and precise. Indeed,
  an unforeseeable judicial enlargement of a criminal
  statute, applied retroactively, operates precisely
  like an ex post facto law, such as Art. I, § 10, of
  the Constitution forbids. An ex post facto law has
  been defined by this Court as one "that makes an
  action done before the passing of the law, and
  which was innocent when done, criminal; and
  punishes such action," or "that aggravates a crime,
  or makes it greater than it was, when committed."
  Calder v. Bull, 3 Dall. (3 U.S.) 386, 390, 1 L.Ed.
  648. If a state legislature is barred by the Ex
  Post Facto Clause from passing such a law, it must
  follow that a State Supreme Court is barred by the
  Due Process Clause from achieving precisely the
  same result by judicial construction. Cf. Smith v.
  Cahoon, 283 U.S. 553, 565, 51 S.Ct. 582, 586, 75
  L.Ed. 1264. The fundamental principle that "the
  required criminal law must have existed when the
  conduct in issue occurred," Hall, General
  Principles of Criminal Law (2d ed. 1960), at 58-59,
  must apply to bar retroactive criminal prohibitions
  emanating from courts as well as from legislatures.
  If a judicial construction of a criminal statute is
  "unexpected and indefensible by reference to the
  law which had been expressed prior to the conduct
  in issue," it must not be given retroactive effect.
  Id., at 61.

No reasoned distinction may be made between a state supreme court that so enlarges a state criminal statute and a federal Court of Appeals (or even the United States Supreme Court) that does the same to a federal criminal statute. Marks v. United States, 430 U.S. 188, 191-92, 97 S.Ct. 990, 992-93, 51 L.Ed.2d 260 (1977) (citing to the state-statute-invalidating decisions in Bouie and in Rabe v. Washington, 405 U.S. 313, 92 S.Ct. 993, 31 L.Ed.2d 258 (1972) (per curiam)) confirmed that obvious proposition:

  The Ex Post Facto Clause is a limitation upon the
  powers of the Legislature, see Calder v. Bull, 3
  Dall. [(3 U.S.)] 386 [1 L.Ed. 648] (1798), and does
  not of its own force apply to the Judicial Branch
  of government. Frank v. Mangum, 237 U.S. 309, 344
  [35 S.Ct. 582, 594, 59 L.Ed. 969] (1915). But the
  principle on which the Clause is based — the
  notion that persons

  have a right to fair warning of that conduct
  which will give rise to criminal penalties
  — is fundamental to our concept of constitutional
  liberty. See United States v. Harriss,
  347 U.S. 612, 617 [74 S.Ct. 808, 811-12, 98 L.Ed. 989]
  (1954); Lanzetta v. New Jersey, 306 U.S. 451, 453
  [59 S.Ct. 618, 619, 83 L.Ed 888] (1939). As such,
  that right is protected against judicial action by
  the Due Process Clause of the Fifth Amendment.

Much the same point was made by this Court in United States ex rel. Reed v. Lane, 571 F. Supp. 530, 532 (N.D.Ill. 1983) (emphasis in original, quotation from Harriss omitted) in the context of a statute rather than of an unexpected judicial gloss:

  Essentially Reed relies on the principle that due
  process requires a person to be fairly apprised
  of criminal consequences at the time he acts. . . .
  If such notice is not fairly given by a statute,
  that statute is deemed unconstitutionally vague
  under the standard of United States v. Harriss,
  347 U.S. 612, 617, 74 S.Ct. 808, 812, 98 L.Ed. 989
  (1954). . . .
  Of course every such argument relies on a
  fiction: the notion that a person bent on
  criminal activity is indeed aware of what the law
  provides, as though the potential murderer
  carries a copy of the Illinois Criminal Code with
  him (or has it committed to memory). But it is a
  necessary fiction if the concept of mens rea is not
  to be subverted. This Court then must look at what
  Reed was fairly apprised of at the time he was
  confronted with the decision of how to act in the
  face of Hall's menace to his own life.

That decision was affirmed by our Court of Appeals on precisely that ground, 759 F.2d 618, 621-22 (7th Cir. 1985).

There is no gainsaying McCullough was unforeseeable in any rational sense.*fn5 It cited no authority at all for its freewheeling analysis.*fn6 Before McCullough the established (and sensible) judicial construction of RICO was that the "person" and the "enterprise" in Section 1962(c) could not be the same. Haroco, 747 F.2d at 399-402 (approving this Court's reading of the statute in Parnes v. Heinold Commodities, Inc., 548 F. Supp. 20, 23-24 (N.D.Ill. 1982)), aff'd per curiam, ___ U.S. ___, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985). There is no reasonable way in which Yonan, acting in 1980, could have anticipated the conduct charged in Count One would be criminal under Section 1962(c) — no reasonable way in which he could have had the mens rea proscribed by the statute's literal meaning or by its reasonable meaning without the McCullough gloss.*fn7

In sum, Count One cannot be sustained either (1) because it does not charge an offense under Section 1962(c) even with the McCullough gloss or (2) if it does, because it is fatally deficient in due process terms. Yonan's motion for its dismissal is granted.

Count Two: Section 1962(a)

Count Two poses a different problem and (perhaps not surprisingly) comes to a different end. It charges Yonan with having received income derived from a "pattern of racketeering activity" (the triggering device for all RICO responsibility) and having "used and invested"*fn8 that income and its proceeds "in the establishment and operation" of Yonan's same sole proprietorship — again charged to be an "enterprise." That is said to bring into play Section 1962(a):

  It shall be unlawful for any person who has
  received any income derived, directly or
  indirectly, from a pattern of racketeering
  activity . . . to use or invest, directly or
  indirectly, any part of such income, or the
  proceeds of such income, in acquisition of any
  interest in, or the establishment or operation
  of, any enterprise ...

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