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Reves v. Ernst & Young - 507 U.S. 170, 113 S. Ct. 1163 (1993)

Rule:

In order to participate, directly or indirectly, in the conduct of an enterprise's affairs, one must have some part in directing those affairs. The word "participate" in 18 U.S.C.S. § 1962(c) makes clear that RICO liability is not limited to those with primary responsibility for the enterprise's affairs, just as the phrase "directly or indirectly" makes clear that RICO liability is not limited to those with a formal position in the enterprise, but some part in directing the enterprise's affairs is required. The "operation or management" test expresses this requirement in a formulation that is easy to apply. 

Facts:

A provision of the Racketeer Influenced and Corrupt Organizations Act (RICO) made it unlawful for any person employed by or associated with an interstate enterprise to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity. After respondent's predecessor, the accounting firm of Arthur Young and Company, engaged in certain activities relating to valuation of a gasohol plant on the yearly audits and financial statements of a farming cooperative, the cooperative filed for bankruptcy. The bankruptcy trustee brought suit, alleging that the activities in question rendered Arthur Young civilly liable under  18 U.S.C.S. § 1962(c) to holders of certain of the cooperative's notes. Among other things, the District Court applied Circuit precedent requiring "some participation in the operation or management of the enterprise itself" in order for such liability to attach, ruled that Arthur Young's activities failed to satisfy this test and granted summary judgment in its favor on the RICO claim. Agreeing with the lower court's analysis, the Court of Appeals affirmed in this regard.

Issue:

Did the firm violate the RICO act?

Answer:

No

Conclusion:

The Supreme Court of the United States affirmed the holding that the firm was not liable under 18 U.S.C.S. § 1962(c) unless it participated in the operation or management of the enterprise itself. The firm's failure to tell the co-op's board that a plant owned by the company should have been given its fair market value was not sufficient participation in the operation or management of the co-op itself to give rise to liability under § 1962(c).

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