Co-op investment at fair market value.  Id. at 1167-68.  Such a
valuation would have resulted in the financial statements
properly reflecting the Co-op's insolvency.  Id.
          Given this malfeasance, the Co-op's trustee in
bankruptcy brought state and federal securities fraud claims
along with a RICO claim under  1962(c) on behalf of a certified
class of noteholders.  Id.  The trustee alleged that the auditors
were the "persons" who conducted or participated in a corporate
"enterprise" (the Co-op) through a pattern of racketeering
activity consisting of the Co-op's fraudulent sale of securities
with the aid of knowingly false financial statements.  While the
auditors were found liable to the noteholders for their
securities fraud claims, the Court faced the question whether
they were also liable under  1962(c) (that is, whether the
auditors were persons conducting or participating in the conduct
of the Co-op's affairs, given that the Co-op was the alleged
"enterprise" under  1962(c)).  Id. at 1169.
          The Court held that liability under  1962(c) is
limited to those who "participate in the operation or management
of the enterprise itself."  Id. at 1173.  Since the auditors were
independent and did not operate or manage the Co-op, the Court
ruled that they were not liable under  1962(c).  In so holding,
the Court undermined the use of  1962(c) to hold liable
"`outsiders' who have no official position within the
enterprise."  Id.  Reading RICO's legislative history, the Court
stated that subsections (a) and (b) of  1962 addressed
Congressional concern with the infiltration of legitimate
organization by racketeers, while in contrast " 1962(c) is
limited to persons `employed by or associated with' an
enterprise, suggesting a more limited reach than subsections (a)
and (b)."  Id.  (emphasis added); see also id. ("Of course,
`outsiders' may be liable under  1962(c) if they are `associated
with' an enterprise and participate in the conduct of its affairs
-- that is participate in the operation or management of the
enterprise itself.").
          In the wake of Reves, the Supreme Court reiterated its
interpretation of  1962(c) in National Organization for Women v.
Scheidler, 114 S.Ct. at 798, which concluded that an economic
motive was not required for liability under  1962(c).  In so
holding, the Court stated:  "By contrast [with subsections (a)
and (b)], the `enterprise' in subsection (c) connotes generally
the vehicle through which the unlawful pattern of racketeering
activity is committed, rather than the victim of that activity."
Id. at 804.  In light of Reves and Scheidler, we must, as Jaguar
has requested, re-evaluate the liability under  1962(c) of
officers and employees acting through a corporate enterprise.
                               D.
          Our case law heretofore has focused on the degree of
distinctiveness between the defendant persons and the enterprise.
As we have stated, this court has held that in order for
liability under  1962(c) to attach, the corporate enterprise
must be either (1) a victim, or (2) a passive tool used to
extract money from third parties (as opposed to the enterprise
through which the fraudulent scheme was perpetrated).  But the
first of these two situations -- a corporate "enterprise" as
victim of the racketeering activity of the defendant "persons" --
is in direct conflict with both Reves and Scheidler.
          In these cases the Supreme Court held that the
"enterprise" in subsection (c) is properly viewed as the "vehicle
through which the unlawful pattern of racketeering activity is
committed, rather than the victim of that activity."  Scheidler,
114 S.Ct. at 804; Reves, 113 S.Ct. at 1171 ("Congress
consistently referred to subsection (c) as prohibiting the
operation of an enterprise through a pattern of racketeering
activity and to subsections (a) and (b) as prohibiting the
acquisition of an enterprise.").  Consequently, a victim
corporation "drained of its own money" by pilfering officers and
employees could not reasonably be viewed as the enterprise
through which employee persons carried out their racketeering
activity.  Rather, in such an instance, the proper enterprise
would be the association of employees who are victimizing the
corporation, while the victim corporation would not be the
enterprise, but instead the  1962(c) claimant.
          The second of our case law's two situations -- the use
of a corporate enterprise by infiltrating racketeers as a passive
tool or instrument to extract money from third parties -- remains
a proper, but very limited, application of  1962(c) under Reves.
See Fischel & Sykes, supra, at 191 ("Unless the outsid[er] . . .
is responsible for or in control of management decision making,
enabling it to `direct the enterprise's affairs,' there can be no
RICO liability" (quoting Reves, 113 S.Ct. at 1170)).
          In Reves, the Court acknowledged that in certain rare
instances infiltrating "persons" distinct from the corporate
enterprise could satisfy the "operation or management test," if
they exerted sufficient control over the corporation's
activities.  "`[O]utsiders' may be liable under  1962(c) if they
are `associated with' an enterprise and participate in the
conduct of its affairs -- that is, participate in the operation
or management of the enterprise itself."  Reves, 113 S.Ct. at
1173 ("An enterprise also might be `operated' or `managed' by
others [those not in upper management] `associated with' the
enterprise who exert control over it as, for example, by
bribery.").
          While a  1962(c) claim can exist against persons
distinct from the corporate enterprise, so long as they exert
sufficient control over the enterprise, the Court has made clear
that the provision's reach is not limited to such rare instances.
In Reves the Court examined, and decided, the question whether
the defendant auditors "participated in the management of the Co-
op."  Reves, 113 S.Ct. at 1173.  While the majority in Reves
found that the auditors had not acted in a management capacity in
their preparation of the Co-ops's financial statements, the
dissent argued that the auditors "crossed the line separating
`outside' auditors from `inside' financial managers."  Reves,
113 S.Ct. at 1178 (Souter dissenting).  Implicit in the Court's
analysis then, was the recognition that "inside" managers are the
"persons"  1962(c) was designed to reach.  Thus, Glessner's
limitation to "outside" defendants, who either victimize the
corporate enterprise or operate it as a passive tool, cannot
survive the Court's holding in Reves that "inside" managers are
properly liable under  1962(c).
          Finally, we note that, if we fail to overrule this
court's interpretation of  1962(c), its combination with Reves
would hold liable only those persons who are sufficiently
connected to an enterprise so as to operate or manage it while
still remaining sufficiently distinct from the enterprise so as
to victimize or passively control it.  Congress could not have
intended such a razor thin zone of application.  See Sedima, 473
U.S. at 497-98, 105 S.Ct. at 3285 ("RICO is to be read broadly.
This is the lesson not only of Congress' self-consciously
expansive language and overall approach but also of its express
admonition that RICO is to `be liberally construed to effectuate
its remedial purposes,' Pub. L. 91-452,  904(a), 84 Stat. 947."
(citation omitted)).  As we have stated, our distinctiveness
jurisprudence was born of the now defunct, pre-Sedima,
infiltrating racketeer reading of RICO's legislative history, and
--- FMail/386 1.0g
(1:2629/124)
---------------