The key provision of the Arizona law would allow police to ask anyone who is detained for suspicion of committing any crime to produce their documentation if they appear to be in the country illegally.  “Civil libertarians” hate this because it means race and ethnicity will be taken into account.  The vast majority of illegal immigrants in Arizona are Hispanic and are from Mexico.  Any police officer can reasonably consider these facts when they pull over a speeding motorist.  If there are other factors that also point toward the person being illegally in the country (such as not having a valid drivers’ license, or driving a crowded van full of fellow Hispanics, or driving near the border, or having a Mexican license plate), then the officer can detain the suspect long enough to call DHS and ask for the person’s name and other identification data to be run through computer checks to see if he or she is in the country legally.  If it is determined by DHS that the person is not legal, then DHS could ask the police officer to arrest him or her so that he or she can be turned over to federal authorities to be removed (deported).  If DHS does not want to commence removal proceedings, then Arizona would not be able to detain the person any longer on the immigration charge.

Arizona’s lawyer told the justices the DHS telephone check  can be done in 11 minutes.  The Solicitor General, Donald Verilli, who sounds as if he consumed two glasses of wine before entering the courtroom, said it could take up to an hour if there is a “queue” of such calls on hold.  None of the justices seemed to be too concerned about a  one hour detention.  More importantly, none appeared to buy the Government’s argument that the states are “preempted” from any enforcement of federal laws against illegal immigrants traveling throughout the country.

If this provision of the Arizona law is upheld, as I  think very likely, then the inquiry will turn to the other controversial provisions of the law: can Arizona forbid illegal immigrants from becoming employed and requiring immigrants to carry alien registration cards with them at all times (which is already required under federal law).  There was no real opposition to the second provision voiced at the argument, though it was heavily briefed by the parties.  The Immigration Reform and Control Act (IRCA) preempts states from enacting laws against employers who hire illegal immigrants.  But Arizona’s law prohibits the employees from being employed and does not sanction employers who hire them.  This is a critical distinction.  I think it is likely the Arizona law will be upheld.  I don’t have an opinion about the third provision, making it a crime for immigrants not to have their registration cards on them at all times.  I don’t see how immigration law can be enforced if legal immigrants are not required to carry ID.

This is the most auspicious development for immigration enforcement in a long time, certainly since the Swift Beef raid in 2006.  It’s one thing for states like Arizona to pass laws, it’s another to get them upheld after being struck down.  If the Court upholds the Arizona law, then similar laws now on hold by federal Courts enacted by Georgia, Alabama, South Carolin and Indiana, will take effect.  We have seen a significant exodus of illegal immigrants from Alabama in the last several months after the partial enforcement of its anti-illegal immigration law.  So these laws really work.  Illegal immigrants are either moving to other states, or “self-deporting” out of the country.  A collateral benefit is that unemployment in Alabama has fallen significantly since its law was enacted.  Part of the reduction is certainly the national trend, but part is also the departure of illegals from the labor force.

I look forward to revisiting this when the Supreme Court’s issues its opinion in late June.

The conservative justices did not perform much better.  I was hoping they would ask the Solicitor General, Donald Verilli, to explain why, after he conceded there is a national health care market, there is any need for Congress to act pursuant to its Commerce power.  After all, Justice John Marshall’s early Commerce Clause cases establish that the framers created the Commerce Clause to empower the federal government to create national markets unimpeded by state tariffs.  Thus, the objective was mercantilism, i.e., to enable fledgling American industries to get goods  to the Atlantic and interior waterways for shipping to other states and abroad without the states getting in the way, as had occurred under the period of the Articles of Confederation.  John E. Nowak, Constitutional Law at 262 (3d ed. 1986)(“That is, the rationale of the commerce clause was to create and foster the development of a common market among the states, eradicating internal trade barriers, and prohibiting the economic Balkanization of the Union”).   But no Justice took up this line of questioning.

The government takes the view that the Commerce power expands beyond the creation of a national market, and its preservation, so as to allow any regulation that concerns it.  The Solicitor General this opened his argument by stating, “this is an issue of market regulation, and that’s how Congress looked at this problem.”  But the Supreme Court has previously refused to allow Congress to do this.  For example in Howard v. Illinois Cent. R. Co., 207 U.S. 463 (1908) it struck down a law providing that railroads would be legally liable for injuries they cause their employees.  The Court conceded that Congress was legislating against the backdrop of interstate commerce; the law only applied to raliroads crossing state lines.  But the fatal flaw was that the object of the law, assigning strict liability for injuries to employees, had nothing to do with the act of moving in interstate commerce.  It was ancillary to it.  And so it is with the Affordable Care Act.  Yes, purchasing health insurance may (though is not always) an interstate transaction.  But the provision at issue, the mandate to buy health insurance, is ancillary to the purchase itself.  Verilli stated, “we think this is a regulation of people’s participation in the health care market.”  He did not say, this is the regulation of an interstate transaction.  He could not say so because the law itself creates the duty to make the transaction, and the transaction may not always be interstate.  (Many people will buy insurance from their own state insurance exchanges,  a type of buying cooperative run by the state to get policies for high risk people.)  This is very far from what is required: not participation in an interstate market, but rather, an actual interstate transaction.   As Marshall reasoned, the power to regulate such ancillary aspects of commerce resides with the police power of the states, not Congress.  Id.

My critique displays a preference for originalism as a tool to decide difficult cases.  A court should start with the original meaning of the provision.  Why is it there?  What problem was the legislature trying to address?  It would have been preferable if the Constitution contained a definition section,as modern statutes do.  But even that does not always answer the question of the meaning of the word of phrase.  For example, RICO defines “pattern of racketeering activity” as at least two acts within a ten year period.  But no court in the country would uphold a RICO case with a mere two acts of racketeering alleged.  It has sensibly been interpreted by the Supreme Court as requiring a long-term period of racketeering or a short-term period which threatens to continue into the future.

Today the Supreme Court issued an opinion in which it interpreted sec. 1983, of the Civil Right Act of 1871, the federal law which allows people to sue state officials for constitutional torts, ie., false arrests, warrantless searches, etc.  The Court held, contrary to the plain language of sec. 1983, that a private citizen cannot sue someone for lying in a grand jury.  The Court has long recognized immunity for such behavior, and it would not create an exception in 1983 cases.  It stated: “We do not simply make our own judgment about the need for immunity.  We have made it clear that it is not our role to make a freewheeeling choice, and that we do not have a license to create immunities based solely on our own view of sound policy.”  Rehberg v. Paulk, 566 U.S. __ (April 2, 20102)(internal quotations omitted).  And so it should be with the Commerce Clause.  We should welcome a return to first principles regardless of what implications it may have for the heath care law.  Politicans are already envisioning a new health care law before they have even read the Supreme Court’s view of the Commerce power to legislate in the area.  This is what I want to know, and the oral arguments shed very little light on the issue.

The situation grew so offensive to Moultrie, Georgia that even the pro-Mexican Bush administration conducted a raid of sorts in 2008 (word leaked out in advance to Sanderson).  Some of the Defendants tipped off known illegal immigrants.  They did not come to work the day of the “raid.”  (It is typical for companies using large numbers of illegal immigrants to have sympathetic HR personnel to facilitate the illegal hiring.  In my case against Zirkle Fruit Co. in Selah, Washington, Perales’ counterpart was herself an illegal immigrant who obtained her first job with the Company using a fake social security number and was promoted to HR executive.  She even married the HR Director.)

After the raid, Sanderson conducted a symbolic purge of some known illegal immigrants and fired Perales.  It wanted to give the illusion to the Department of Homeland Security (DHS), charged with enforcing IRCA, that it has turned over a new leaf. But Perales’ replacement makes sure that Spanish-speaking job applicants are not really questioned about their suspicious identification documents.  Sanderson now uses DHS’ E-Verify program, an on-line confirmation system which advises employers whether document numbers tendered by perspective employees are legitimate.  So if a job applicant is using a social security card with a number issued to someone now dead, a common form of document fraud, E-Verify will give the employer the “authorized for employment” message.  Thus, as I have written before, the system does not guard against document fraud.

Sanderson’s Spanish- speaking applicants are mostly illegal.  This is obvious from their job applications, which are completed before the document review occurs.  Many indicate graduation from Mexican high schools and prior employment in Mexico or Guatemala.  This does not by itself mean the person is not in the U.S. legally; we do admit about 50,000 immigrants from these two countries annually.  But when someone with such a background cannot speak English (a requirement for naturalization) and then checks the U.S. citizen box on the I-9 form (which IRCA requires be completed at the time of employment), any law-abiding employer should be on alert for document fraud.  The applicant is very likely using a social security card issued to someone else and is not authorized for employment under IRCA. It is a felony and a potential RICO violation for both the employee to tender such a document and for the employer  to knowingly accept it and employ that person.

So we have the phenomenon of E-Verify as a fig leaf.  DHS could improve the system by displaying a digital photo image of the perspective employee tendering the document on the employer’s computer screen.  But this has limited utility.  DHS does not have digital images of U.S. citizens.  It only takes photos of legally admitted aliens at their time of entry.  Most document fraud occurs by illegal immigrants stealing the identity of U.S. citizens.  And secondly, anyone like Ms. Perales, hell bent on hiring illegal immigrants, could simply ignore the photo or claim it bore a close enough likeness to the job applicant sitting in front of her to constitute a match.  For this reason,  any law making use of E-verify mandatory, a good idea in theory, must have a strict enforcement regime to back it up.  The Obama administration, pining for amnesty for all illegal immigrants, will not do so, bringing to mind the proverbial fox guarding the chicken coop. (Although here legal U.S. workers trying to get jobs are the chickens.)

If Mitt Romney is elected, a supposed hard- liner on illegal immigration, he may push for such a law.  And then it may be worth supporting.  We need to remember that non- enforcement of tough- sounding laws is disastrous.  In 1986 Congress passed and President Reagan signed  IRCA into law which made it illegal to hire illegal immigrants.  For the first time, American employers had to ask employees for their documents, verify under oath that they examined them and that the documents appeared “genuine” and “related to the person” tendering them (i.e., no fakes).  This sounded great at the time, and for a while the flow of illegal immigration from Mexico slowed to a trickle as the Mexicans waited to see if the U.S. government would really enforce IRCA.  The Reagan administration brought very few prosecutions against HR managers and their companies for violating IRCA  and the trickle of illegals turned  into a torrent throughout the 1990′s.

A serious DHS director (I have someone in mind if Romney wins) would subject poultry processing plants, notoriously rife with illegal immigrants, to special scrutiny.  This could be accomplished by making the plant turn over copies of the verification documents, employment applications and I-9 Forms to DHS agents on a regular basis for review.  It does not take long to identify fraud.  Or the plant could be required to employ independent fraud examiners in the HR department to review all documents at the time of hire.  The government takes such measures in enforcing other criminal laws, for example by enacting special regulations for companies which handle toxic chemicals and subjecting those companies to more rigorous inspection.  DHS knows which industries tend to rely on illegal workers.  It needs to take strong ongoing measures against them.  The occasional “raid” such as occurred at Sanderson, in which the target of the raid is discreetly tipped off in advance, is designed merely to appease a public fed up with the problem.

For now, we have the Obama DHS, which has brought a tiny number of IRCA workplace enforcement actions (and always against the employers, never the illegal workers), and of course RICO.  I will keep readers updated on the progress of this and other other RICO cases against employers of illegal immigrants as events warrant.

Complaints to an employer about possible illegal behavior or threats to report illegal behavior are not enough.  The employee must report it.  And the report must concern the violation of a federal law and be made to a federal official, such as the F.B.I., I.R.S., U.S. Attorney’s office, the Department of Homeland Security (overseeing immigration law), the Department of Labor (overseeing Sarbanes-Oxley Act violations), or some other federal agency.  Reporting a state law crime to a state or local official such as the police do not count.  (Although some state RICO laws have corresponding provisions which cover reports to state and local law enforcement officials.)

Mr. DeGuelle reported his employer’s alleged violations of the Sarbanes-Oxley Act to the Department of Labor.  He was subsequently fired.  He claims the firing was retaliatory.  His employer claims he was fired for violating company rules prohibiting the disclosure of confidential information to third parties. (This raises a catch-22.  How can an employee report a federal crime if his employer prohibits doing so?  And is the employer with such a rule then within its rights to terminate the employee without being subjected to a charge of retaliation?   I will not sort this out here.)  A jury in Wisconsin will ultimately decide who to believe.  Ironically, after receiving DeGuelle’s report, the Department of Labor responded by telling him his employer was not subject to Sarbanes-Oxley Act and took no action.  But this did not undermine his retaliation claim.  1513(e) does not require that the law enforcement officer do anything after receiving the employee’s report. In fact, the employer could be vindicated and the employee would still have a valid retaliation claim if he was punished for making the report.  1513(e) was enacted to encourage whistleblowers to come forward.  It does not require they be right.

Potential RICO plaintiffs must also keep in mind that a single RICO violation is never enough for a civil RICO case.  The statute requires at least two violations, but even two is usually insufficient.  A “pattern of racketeering activity” is needed.  As I stated last month, Mr. DeGuelle cleverly combined his employer’s alleged racketeering activity about which he blew the whistle, tax frauds made to the I.R.S., with his own retaliatory firing, to create a pattern.  The district judge rejected that construction, believing they were unrelated “schemes.”  But the Seventh Circuit agreed with Mr. DeGuelle’s description of all of the acts as a single scheme in which all of the violations, the tax frauds, were related to his firing.  He categorized the firing as a “cover up” of the crimes, thereby tying them together, at least for pleading purposes.

Potential whistle-blowers should document their acts carefully.  If they complain to a federal law enforcement officer, they need to know who they spoke to, and which agency that person works for.  Then if they are subsequently retaliated against, they must have some basis for alleging the retaliation was indeed retaliation for the whistle-blowing and not for a legitimate cause.  Sometimes employers will tell an employee why they are being terminated.  Sometimes they will not.  Generally, under the employment at will doctrine, an employer can fire an employee for any reason or no reason.  But an employee whose employment contract requires cause for termination or demotion should demand to know why they are being let go.  In such cases, there is often a pretextual reason given.  A whistleblower with good RICO lawyer should be able to do what Mr. DeGuelle did, craft a complaint which highlights the real (in his view) reason for his termination.

Recently, the Seventh Circuit Court of Appeals in Chicago issued its decision in DeGuelle v. Camilli,  _F.3d_, 2011 WL 6287913 (7th Cir. December 15, 2011), which reversed the dismissal of an employee’s retaliatory firing case against his former human resources (“HR”) director and executives of S.C. Johnson & Son, Inc. (“SC”), a large manufacturer of consumer goods with 12,000 employees.  Mr. DeGuille was employed in SC’s tax department and was allegedly told to fabricate tax information and file false returns to the I.R.S.  When he complained to the company’s HR Director, he was given a negative performance review.  Again, according to his complaint, DeGuelle’s superiors told him the negative review was retaliation for his repeated complaints about the tax fraud scheme.  DeGuelle then threatened to file a federal retaliation complaint against the company under the Sarbanes-Oxley Act’s whistle-blower protection provisions.  DeGuelle’s superiors then offered to  rescind the negative review and give him a raise if he would sign a confidentiality agreement, essentially hush money not to go to the feds.  He refused and filed the complaint as well as documents which supposedly exposed the tax fraud SC had been perpetrating for years.  SC fired DeGuelle for disclosing confidential company documents and sued him for damages.  DeGuelle counter-sued with a RICO suit predicated upon SC’s pattern of mail fraud (perpetrated against the IRS), tampering with a witness (18 U.S.C. 1512(c)(1), namely him by offering him a raise in exchange for confidentiality), destruction of tax records, and his termination as retaliation for blowing the whistle, a violation of 18 U.S.C. 1513(e)(the paragraph added in 2002).

So, DeGuelle’s RICO complaint  alleged one long scheme of racketeering activity commencing in 2000 with the underlying tax fraud and culminating in his retaliatory firing.  The district court interpreted this as two separate schemes:  the tax fraud and the retaliation.  Not only were the schemes separate, but the predicate acts comprising them were not related because they were committed by different SC officers (the tax department and the HR department).  So the upshot was that the complaint did not allege a pattern of related predicate acts, which is necessary.  The district court dismissed the case.

The Seventh Circuit agreed with DeGuelle’s interpretation of the RICO violations: one long pattern of tax fraud followed by efforts to cover it up by tampering with him and the retaliatory firing.  Reading it this way, the complaint stated a RICO pattern.  The opinion also held that the complaint adequately alleged a conspiracy among the tax department and HR employees to damage DeGuelle.  So his RICO conspiracy claim against all of them was allowed to proceed even though he alleged no direct evidence that they all formed an agreement to fire him.  The agreement to do so was adequately described by the circumstantial evidence of what each conspirator did.

Overall, the Seventh Circuit was generous in interpreting DeGuelle’s complaint so as to allow his RICO claim to proceed.  It has not usually been so.  Most RICO cases are disposed of in the district courts, and the Seventh Circuit typically affirms the dismissals.  But 2011 saw the Court revive two civil RICO cases.  The earlier one, BSC Services, Inc. v. Heartwood 88, LLC, 637 F.3d 750 (7th Cir. 2011) significantly lightened the plaintiff’s burden in establishing causation.  So 2011 was the best year for RICO cases from this Court since the heyday of the early 1980′s.

This case could lead to many more RICO actions predicated upon retaliation against whistle-blowers.  And keep in mind the retaliation need not be a firing or even employment related..  The statute, which I’ve quoted above, prohibits actions “harmful to a person, including interference with the lawful employment.”  So a threat which causes some sort of damage to one’s “business or property” could suffice.  (RICO does not allow recovery for personal injuries because they are not to “business or property.”)  On the other hand, the retaliation must be in response to the whistle-blower’s actions to expose wrongdoing in a federal proceeding, i.e., a federal agency or court.   But I expect to see quite a few more RICO whistle-blower cases.  The Plaintiff’s bar is creative, and ultimately, needs to be reined in when it goes too far.

IRCA made the use of a document pertaining to someone else or a forged document on an I-9 form a felony.  18 U.S.C. sec. 1546.  So someone who has entered the U.S. illegally cannot be authorized for employment.  Perhaps if such a person were independently wealthy and had never been employed, it might be in our national interest to give that person amnesty and allow him or her to remain here for life.  But how many illegal immigrants are independently wealthy and have never held a job?  After all, IRCA makes it clear that  employment opportunities are the magnet that draws the illegal immigrants here in the first place.  So a long-term illegal immigrant is likely to be a serial felon, a person who has used false social security cards to get employment many times and coupled the document fraud with perjury by signing the form, i.e., swearing to the authenticity of the documents, under oath.  In a jurisdiction that really enforced IRCA, such people would be in federal prison. As one federal court aptly put it, “Illegal aliens are not ‘law-abiding citizens’ or members of the political community, and aliens who remain  in this country illegally and without authorization are not Americans as that words is commonly understood.”  United States v. Portillo-Munoz,  _ F.3d _ (5th Cir. 2011).

Even apart from employment, it is very difficult to ”play by the rules” in this country without a social security number.    They are required on all tax returns.  (Legally admitted aliens are given social security numbers.)  So it is also quite likely that our long-term illegal immigrants are not filing tax returns, which is another felony.  In short, it is not possible for illegal immigrants to live in this country without systematic, serial law breaking of a serious nature.  For a former Speaker of the U.S. House of Representatives not to know this (or President Obama, for that matter, who makes the same absurd comments about illegal immigrants “playing by the rules”), is unforgivable.  More likely he knows these people are serial felons and is simply pandering for the approval of the editorial pages of the New York Times and other mainstream media.   

At the very least, we should demand that any illegal immigrant seeking amnesty make a full confession of all their crimes, as with any plea bargain.  They should be required to list every employer who hired them so that those employers can be investigated for IRCA violations, identify every person who provided them with false social security cards so those felons can be apprehended, and pay their back taxes with the same penalties and interest that would apply to an American citizen who failed to file returns for years.  And I predict that if this deal were offered to the long-term illegals, they would rather self-deport than “play by the rules.”

There are two major problems.  First, DHS is headed by Janet Napolitano, who would be in charge of enforcement of the new law.  She and her boss, President Obama, do not support it.  And enacting any law without the full commitment of the executive branch is likely to be a huge waste of time.  We already have the Immigration Reform and Control Act on the books, which requires employers to examine the social security cards and other employment verification documents presented by employees.  It is not well enforced.  The Obama Administration has announced its IRCA enforcement will be limited to selective audits of egregious violators.  Those have been rare, and the illegal workers are merely fired, not fined or deported.  As for the employers, I have seen no high profile indictments for hiring illegal workers.  Violations of IRCA are legion, and many small employers do not comply at all.  The administration could care less as it tries to appease the Hispanic lobby in advance of the 2012 election.

Enacting a new law with a mandate to crack down on illegal immigration will go unenforced.  The second problem is the law will also pre-empt states from enacting their own E-Verify laws, similar to Arizona’s, which was upheld by the Supreme Court.  At least some states, particularly Arizona, Alabama, Georgia and South Carolina, are stepping into the void.  We should encourage more of them to enact mandatory E-Verify laws which they can  and will enforce.  (Recently a federal judge in Alabama upheld this part of that state’s new immigration law.  The Obama Justice Department is appealing the decision to the Eleventh Circuit, which will almost certainly affirm that part of the decision and likely all of the others.)  Preemption is the bane of state-level imigration enforcement.  IRCA provides that states cannot pass their own laws prohibiting the employment of illegal aliens.  So the state laws do not do so.  Rather, they can do other things which are not pre-empted, such as requiring employers to use E-Verify, arresting illegal immigrants for driving violations, prohibiting the enforcement of contracts made by illegal immigrants in court, etc.

Congressman Lamar Smith has been a great supporter of immigration enforcement.  He probably has good intentions, and perhaps anticipates a new president will be enforcing the laws in 2013.  But the downside of preemption is too great, and the risk that the new law will go unenforced, even by a new administration is significant enough that the matter should be left to the states.  Rep. Smith’s bill also would enact a new guest worker program for agriculture.  He realizes the vast majority of farm workers cannot pass E-Verify and needs to appease that industry.  We should not do so.  We already have the H-2A guest worker program which allows growers to use foreign workers when they are unable to find local workers.  Growers are never able to find legal local Americans to take their hard jobs at the minimum wage.  The solution is to let the market work.  We have 9% unemployment.  Many Americans need jobs and will take them for market wages.  Yes, this means the growers will have to pay more, but no more than other industries pay for American labor.   Some of them will choose to automate, like farmers in the Midwest, which rely on combines to pick their corn and soybeans rather than people.  This should have occurred decades ago in the West.  It hasn’t because the federal government has propped up the inefficient cheap-labor model by not enforcing the immigration laws.  Forcing growers to pay market wages may cause some of them to close down if their average cost of production exceeds the competition.  Let them go out of business.  Their business model is both criminal and inefficient.  Our economy is better off without them.

“Proximate causation” has been required under RICO since 1992.  That means a plaintiff must be able to prove that the alleged RICO violation was close enough to his (or its) injury to be deemed the “legal cause” of that injury.  There is no simple definition of “proximate causation.”  This is one area of the law where judges have tremendous discretion to apply their own opinions as to what is just.  The Supreme Court’s decision did not do so convincingly, in my opinion.  We should judge Ideal’s theory of causation from the standpoint of economics.  In a competitive market a firm cannot choose its prices.  Prices are set by the forces of supply and demand.  A firm that lowers its prices because it cheats on its taxes, or any other reason, will lose money because its price is below its marginal cost of production.  It will quickly go bankrupt.  The Supreme Court’s opinion did not mention this quite fundamental rule of economics.  Rather, it held that the “direct” victim of National’s alleged tax cheating was New York State, which lost sales tax revenue.  Thus, if anyone had the right to sue for being injured by this scheme to violate RICO, it was the State.  Ideal was two steps removed, and therefore only “indirectly” injured by the RICO violations.

This raises the question as to whether courts should decide RICO cases based  upon principles of economics or ill-defined rules (really no more than presumptions), like “direct injury.”  A court applying law and economics principles would have dismissed Ideal Steel’s complaint and required it to replead its theory of damages with more specificity.  Does it believe National Steel had sufficient market power to lower its prices below marginal cost?  And if not, then how could National Steel stay in business while charging less than its marginal cost for its products?    But that did not happen, and we ended up with what seemed to be an unjust and unsatisfying  result to the case.  Why couldn’t there be two different victims to the same “scheme?”  If Ideal Steel was damaged by National’s tax cheating scheme, why shouldn’t it be allowed to prove this damage theory in court? 

Now, more than five years later, the Second Circuit, which had ruled in favor of Ideal Steel only to be reversed by the Supreme Court, has revived Ideal Steel’s RICO case after prolonged litigation on the remainder of the case in the district court in New York City.  (Remember that the Supreme Court’s opinion only dismissed Ideal Steel’s claim brough pursuant to section 1962(c) of RICO.  It remanded (sent back to the lower court) the Company’s claim brought pursuant to section 1962(a).  That section forbids the investment of money derived from racketeering activity into an enterprise.)  Ideal Steel argues that National Steel violated section 1962(a) by investing the money it saved in its tax cheating scheme into building a new retail store in the Bronx which competes with Ideal Steel’s Bronx store and caused Ideal to lose a third of its sales.  The Second Circuit was persuaded by the fact that Ideal Steel learned through pretrial discovery that National Steel filed amended tax returns after the case began showing significantly higher income than it had reported earlier, confirming Ideal’s theory of the case.  This impressed the Second Circuit.  The Court stated, “if [National Steel's] investment of the proceeds of [its] alleged pattern of mail and wire frauds has not sufficiently harmed Ideal to meet the standard of proximate cause, we find it difficult to envision annyone who could show injury proximately caused by that investment or to fathom to whom Congress meant to grant a private right of action under subsection (a).”

Dissenting Judge Cabranes predicted the Supreme Court would now have to take the case a second time to resolve the question of whether Ideal Steel’s “investment injury” theory states a valid RICO claim.  Does Ideal’s theory of unfair competition satisfy the “proximate cause” standard?  As I stated above, this is not an easy question to answer because we have never been told what “proximate causation” is.  The concept is vague, and the fact that Ideal Steel confirmed through pretrial discovery that National Steel understated its taxable income, apparently corroborating its sales tax evasion allegations, does not mean these that the section 1962(a) claim has more teeth than the prior one.  The court assumed the truth of the tax avoidance allegations the first time around, as it was required to do on a motion to dismiss under Federal Rule of Civil Procedure 12.  Its analysis that New York State was the only party  having standing to sue under RICO should not be affected by the apparent truth of the tax scheme. 

But analyzing the Complaint from the economic standpoint, it does make a difference.  If National Steel was able to undercut Ideal Steel in prices by cheating on its taxes, or for any other reason, then it suggests the two firms are not operating in a competitive market.  This may be because they are in two separate geographic markets (Queens, where the two firms competed, and  the Bronx, where National opened a new retail store in 2002, after allegedly cheating on its sales taxes for years, enabling it to expand), or that National has sufficient market power in the Bronx (likely more than 70% of the sale of steel products) to raise prices or lower them contrary to the usual forces of supply and demand.  But Ideal pleaded that it, not National, had a “dominant” position in the Bronx market before National moved in.  Ideal Steel Supply Corp. v. Anza, _F.3d _, 2011 WL 2557618  at *12.  (2d Cir. 2011).  If  National moved in to the market and was able to take away a third of Ideal’s sales, then it may mean that Ideal was reaping monopoly profits by keeping its prices artifically high.  If so, then Ideal’s lost sales were not caused byNational.  Rather, Ideal was earning profits that were too high in the first place by  limiting production in order to drive its prices up to supra-competetive levels.

Unfortunately, after years of litigation, we till don’t know how National was able to sell steel products profitably but at lower prices than Ideal.  If it lowered its prices because of its non-payment of sales taxes, then it should be able to proceed with its RICO case.  If it lowered them because it has a more efficient business model, and this has nothing to do with the payment of state sales taxes, then it should lose its RICO case.  And given the new opinion, the chances of this type of analysis ever being undertaken are slim.

But for the moment the Second Circuit has revived the use of civil RICO as a remedy against unfair competition.  This is all to the good, as that was one of the express purposes of enacting the law 40 years ago.  The proponents of RICO knew that organized crime was able to invest the proceeds of its activities into legitimate appearing businesses (think of Tony Soprano’s waste management business) and with this added boost, compete unfairly against law-abiding firms.  Essentially this is what Ideal Steel has accused National Steel of doing.  But proving competition is unfair requires, or should require, the services of an economist, and so far the courts have not said so in this incredibly long case.

The federal ban created a loophole for states wanting to spend their resources on aid to immigrants.  They can do so if they pass a law after the enactment of the ban which “expressly” so states.  This was done to give the citizens of any state fair warning that it was passing such a law.  Illinois cheated by simply reenacting certain welfare programs without any express language in the bill that it would provide benefits to immigrants, much less illegal immigrants.  At least two such programs have been spending Illinois’ taxpayer funds on any “resident” of the state regardless of citizenship for years.  One program, “moms and babies” provides prenatal and post-natal care to pregnant women.  So this means immigrants can come to the Illinois and give birth to to baby who, under the current interpretation of of the 14th Amendment to the Constitution prevalent in our courts (though I disagree as detailed in my August 2010 post) is considered a U.S. “citizen.”  And once such a baby is born, the chances of its mother being deported are virtually nil under the Obama administration’s deportation policies (unless the mother is a violent felon).   Hence, the derogatory term “anchor baby” seems apt.  

So any state or local government entity providing taxpayer benefits to pregnant women is effectively inviting them and their children to reside in the jurisdiction permanently.  There is no reason to leave, and doing so will in all likelihood, result in a loss of benefits.  I think if the citizens of Illinois knew the legislature had surreptitiously defied the federal ban and was disbursing their money to pregnant immigrants and anchor babies citizens, they would demand it be stopped,  particularly in tough economic times.  And to add insult to injury these immigrants need employment and compete for low-paying jobs with American citizens, thereby increasing unemployment and depressing wages. 

We sued the State of Illinois to enjoin the further expenditure of taxpayer money by way of these two programs.  But Judge Leroy Martin of the Circuit Court of Cook County accepted Attorney General Lisa Madigan’s argument that Illinois complied with the federal ban in its re-enactment of the programs, and summarily dismissed our challenge.  We are appealing (see the home page, detailing Kaider v. Hamos).

Illinois is also violating another part of the federal ban which prohibits states  from providing “any post secondary education benefit” to illegal immigrants based on their “residence within a state” unless the same discounted rate is offered to nonresidents of the state.  8 U.S.C. 1623.  This means Illinois cannot provide illegal immigrants (even if they were brought into the country by their parents ) with discounted in-state tuition rates at its public universities unless those same rates are offered to everyone in the country, which defeats the entire concept of “in-state” discounted rates.   Illinois has circumvented this law by offering in-state tuition rates to graduates of  an Illinois high school without regard to their residency.  

And last week Illinois enacted yet another law to give benefits to immigrants, including those here illegally.  The legislature enacted, and Governor Quinn signed the “Illinois Dream Act” (modeled on the federal “Dream Act,” which was defeated last year and would have given legal status to college age illegal immigrants).  This law provides privately-funded scholarships to illegal immigrants who have graduated from an Illinois high school.   Although the State is not using taxpayer funds for the scholarships themselves, it created a nine-member commission to manage the program (receiving applications and disbursing the money to successful applicants).  Why did the state enact a scholarship program to  which only immigrants can benefit?  Quinn cited no empirical data which indicates llinois has too few residents and needs to entice immigrants to fill jobs here.  Our unemployment rate is over the national average, which refutes any such view.  Moreover, the Governor offered no solace to the unemployed of the state, those in fear of losing their jobs, or those that believe we are already overtaxed.  I get the distinct impression this law has one goal: to bolster the Governor’s standing with Hispanics. 

The Illinois Dream Act violates the equal protection clause of the 14th amendment, which prohibits classifications based upon alienage unless such a law is necessary for a compelling governmental interest.  What interest does Illinois have in creating a program to give scholarships to illegal immigrants?   Or to put it another way, why is the state discriminating against U.S. citizens?  We will soon find out.  We intend to challenge this unconstitutional program in court.  Maybe then Governor Quinn and Attorney General Madigan will come up with a coherent explanation for this offensive program.

I am reading a lot these days about the “shortage” of agriculture workers in Georgia, which recently passed a law requiring all employers to use the E-Verify online system to check the legal status of job applicants.  (Last month I wrote about the recent Supreme Court decision upholding a similar law in Arizona.  So I expect to be hearing about a shortage of workers in that state too.)  There is no doubt that picking fruit and vegetables in very hot weather is unappealing work.  But it is a myth propagated by the cheap labor lobby and organizations  like National Council of La Raza, an Hispanic pressure group seeking unlimited immigration,, that Americans will not do unappealing work.  The sewer example proves they will. 

The question we should ask farmers who complain about labor shortages is why they pay extremely low wages (usually pegged to the minimum wage and typically not including health insurance)?  The answer is simple.  Because illegal immigrants will take those jobs at those wages.  As one farmer in Collinsville, Illinois told me, “the Mexicans like to sweat out there in the fields and don’t complain.  They laugh and have fun.  You can’t get a white person to do that.”  And the farmer feels no pressure to pay higher wages as long as his Mexican workers keep showing up each spring for the season.  I asked him what he would do without the Mexican immigrants (whom he insists are in the country legally, which I doubt).  He said he’d go out of business. 

Would the entire American agriculture industry go bankrupt if it could not hire illegal immigrants at the minimum wage?  Basic economics teaches that  farmers will try to automate labor.  This has long been done in the Midwest, where corn and soybeans, the largest crops, are harvested by machines called combines.  The farmer I mentioned above in southern Illinois maintains a smaller, family-owned farm and apparently can’t afford a combine for his corn or chooses not to use one.  If his average total cost of production exceeds his competitors, then he should be unable to compete.  He should not be propped up by illegal labor.  It’s both inefficient and criminal.  Yet he sees himself as a sort of heroic Jeffersonian yeoman farmer stoutly resisiting automation, as if corn picked by a sweaty Mexican is more authentic than corn harvested by a combine. 

In Europe and Australia many vintners have been using grape picking machines since the 1960′s. A single harvester running 24 hours can pick 80-200 tons of grapes.  A person can only pick 1-2 tons in the same period.   Large American fruit growers on the West Coast have not mechanized their harvesting.  The reason is our government is subsiding their inefficiency by the non-enforcement of the immigration laws.  There may not currently be a harvesting machine capable of picking apples and oranges, but necessity is the mother of invention.  Grape harvesters work by shaking the vines until the grapes fall off.  I’m no engineer, but I don’t see why a comparable device can’t be developed to shake the branches of fruit trees. 

But if no such device can be invented by American engineers, then our farmers should have to pay market wages so legal American workers will do the harvesting.  If that means something approaching what sewer workrs earn in these rural areas, then so be it.  And if that means the farmers’ average total cost of production rises to beyond what Japanese and Chinese farmers pay to harvest apples, then we should consume Japanese and Chinese apples.  The loss of these jobs will not hurt our economy or raise the unemployment rate because the fired workers are not Americans.  It may send a lot of illegal Mexicans back home.  But we have enough unemployment to worry about here.