The Supreme Court on Monday limited the use of civil anti-racketeering laws by companies seeking damages for allegedly illegal acts by their competitors.
In two separate cases, the high court tackled the growing controversy over the increased use of civil provisions of a federal law that was designed to root out organized crime from legitimate businesses.
By an 8-1 vote, justices reversed an appeals court decision that had allowed Ideal Steel Supply Corp., a New York steel mill product supplier, to sue its chief competitor, National Steel Supply Corp.
The high court also dismissed a case it had heard arguments on in April involving Mohawk Industries, a Georgia floor-covering company sued by a group of its workers for allegedly suppressing wages by hiring illegal workers.
Justice Anthony M. Kennedy, writing for the majority in the steel company case, said the victim of racketeering must suffer “direct” injury from illegal acts.
Ideal Steel Supply alleged that National Steel Supply defrauded New York state tax authorities by offering lower prices — minus taxes — to customers who paid in cash.
But Kennedy said the direct victim of the fraud was not Ideal Steel Supply but New York state.
In the other case, justices backed out of deciding the Mohawk Industries appeal, in which they heard arguments in April.
At that time, several justices voiced skepticism over whether the floor-covering company can be sued under anti-racketeering laws for allegedly using recruiters to find and hire illegal immigrants.
The Bush administration had sided with the workers, urging justices to allow the lawsuit to go forward.
Both cases were sent back to the appeals courts to resolve minor issues.
The high court’s action is significant because it probably will affect both criminal and civil uses of the anti-racketeering law, particularly by the Justice Department. Federal prosecutors have long used the law to seek money damages from crooked unions and pension funds.
In a dissent in the steel company case, Justice Clarence Thomas said the high court’s decision goes too far and is likely to have unintended consequences.
Thomas said he agreed with the majority’s goal of limiting the use of the civil provisions of the Racketeer Influenced and Corrupt Organizations Act of 1970.
But Thomas said the high court’s decision also will block “honest businessmen” from seeking redress in the courts when a competitor plays unfairly.
Often, he said, there are multiple victims in a racketeering scheme and it would be unfair for courts to say that only some of them have a right to file a lawsuit.
As a result, Thomas said, the majority decision is at odds with Congress’ intent in passing the civil anti-racketeering provisions of the law.
The cases are Anza v. Ideal Steel Supply, 04-433, and Mohawk Industries v. Williams, 05-465.