In addition to that, I think there's a very strong question of federalism. We have a very, very large problem here where we see, in the LILCO case and others, where you can piggyback your way into Federal court with State causes of action, which by the way, are attached to the Federal case. So now, instead of having just a, "simple" RICO case, if that's possible, you've now got pendent State claims to deal with. It's not an accident that the Chief Justice of the Supreme Court and the Judicial Conference are asking Congress for help.

More confusion results when you get into a numbers game as to whether the cases are understated or overstated by the Administrative Office's tear sheet, which I happen to believe grossly understated; but that misses the point, because a RICO case is not a social securities case; it's not a prisoner's rights case.

You heard that discovery takes 1 year, for example, in one of these cases. If one were to look at the pretrial order in the Northern District of Ohio, you see a 27-point pretrial order for a probable cause hearing just to get their arms around the case. That's not to mention the pendent State claims that would likely be attached to many of these. Thus, you're talking about a tremendous diversion of resources into the Federal courts over an overly-broad, ill-defined statute.

I don't think that's the best way to promote less cynicism of the law. I think, in fact, it creates a very cynical nature. That's why you have the American Civil Liberties Union, and the AFL-CIO, and others, talking about RICO reform, because, in fact, it is cynical to have a statute so broad that someone who's exercising first amendment rights is now labelled a racketeer.

I think it's wrong that the banker that we heard, Jim Harrison, came in here and stated the fact that, yes, he got his case dismissed, and he's got another one going, and maybe, at the end of $800,000 later, he'll also have it dismissed. But he and his bank have been labelled a racketeer, and it's no salvation to him to find out that, well, in fact, the system is working because his case was dismissed.

The problem is that the statute permits someone to bring these cases and allows them to have the negative impact of having normal businessmen and women and public advocates labelled as racketeers. I think it's wrong. I think that the comprehensive reform that Congressman Boucher has introduced will satisfy most of the problem, and I certainly urge the enactment of it.

I'd like to take 1 second and just address one of the issues that Professor Blakey has proposed today, and that is the addition of predicate acts. He's proposed that more predicate acts be added.

In supporting H.R. 1046, I thought initially that it was a good idea to add more predicate acts. During the course of this hearing, Mr. Chairman, you've raised a number of questions about it that have caused me to rethink this. I'm no longer sure that it's a good idea; but I am sure that to the extent we continue to think up other things more and more afield from organized crime, we're leading RICO fever into the quagmire that it finds itself, and I urge the committee to be very, very careful in those considerations. Thank you very much.

[The prepared statement of Mr. Direnfeld follows:]

SUMMARY OF THE WRITTEN STATEMENT OF BARRY B. DIRENFELD, COUNSEL TO THE BUSINESS/LABOR COALITION TO REFORM CIVIL RICO,

ON H.R.1046, THE CIVIL RICO REFORM ACT OF 1989

H.R.1046 represents the proper approach to be taken in reforming the private civil suit provisions of RICO, the Racketeer Influenced and Corrupt Organizations Act. It appropriately modifies the statute's automatic treble damage remedy and the automatic attorneys' fee provision.

Although more effective means are available to restrain the unbridled use of civil RICO in the context of commercial litigation, such as adopting a prior-criminal-conviction requirement as a prerequisite to filing suit, or adopting the twotier approach of providing treble damage recovery for governmental entities and actual damage recovery for all other civil litigants, the three-tier approach of H.R.1046 represents a fair political compromise between the competing interests in the civil RICO reform debate.

Although various other salutary remedial approaches could be taken, such as eliminating labor-management cases from the scope of civil RICO or eliminating First Amendment cases from the scope of civil RICO, or providing for increased sanctions for the filing of improper civil RICO suits, the most efficient method of properly reducing the incentives to private plaintiffs to filing the type of lawsuits that has prompted the call to reform this law is to amend the statutory damage provisions.

Furthermore, such remedial approaches as modifying various statutory definitions such as "pattern of racketeering activity" or "enterprise," while perhaps having some beneficial impact in stemming the tide of abusive civil RICO suits, would not be an effective substitute to the H.R.1046 amendment to the civil remedy provisions of the statute. Moreover, restrictive statutory definitions, while reducing abusive civil RICO litigation, could have the unintended result of inhibiting the ability of federal prosecutors to utilize the RICO law in criminal actions.

Finally, H.R. 1046 equitably balances plaintiffs and defendants in pending cases.

the interests of

In summary, H. R. 1046 is the product of long and arduous negotiation between the competing interests involved in the RICO reform debate. It presents a principled and effective solution to the well-recognized and significant problems that have been created by civil RICO. Accordingly, I fully support H.R.1046 and urge the Subcommittee on Crime to rapidly endorse it and send it to the full Judiciary Committee.

Mr.

Chairman, I very much appreciate the opportunity to testify before this subcommittee. I am presently a Senior Partner in the law firm of Rivkin, Radler, Dunne & Bayh and have for the past four years served as legislative counsel to the Business/Labor Coalition for Civil RICO Reform. During this period of time, I have had an opportunity to carefully analyze the civil RICO statute and have been an active participant in numerous negotiations designed to fashion a legislative solution to the well-documented abuses associated with this statute.

for

You and your subcommittee are to be congratulated conducting this comprehensive and balanced review of the civil RICO statute. In addition, I want to express my utmost respect for the extraordinary efforts Congressman Boucher has devoted to the development of a principled and effective legislative solution. H.R.1046 represents a careful analysis of the benefits and problems associated with civil RICO, and deserves not only the full support of this Subcommittee, but the entire House Judiciary Committee and the Congress as well.

Mr. Chairman, as you know, the Subcommittee requested a formal written response to a group of thirteen questions submitted several days ago to today's panel members. Accordingly, I have addressed in detail in this written statement the specific questions posed by the Committee. In addition, I would like to formally associate myself with the testimony presented to this Subcommittee last month by Mr. Philip A. Lacovara, Chairman of the Business/Labor Coalition To Reform Civil RICO.

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QUESTION #1. Section 8 of H.R.1046 ("Judicial Standard To Determine Remedy") outlines procedures in which monetary judgments may be limited retroactively. Since this is essentially a change in remedy as distinguished from a substantive right it probably would meet the constitutional criteria outlined in Bradley v. School Board of the City of Richmond, 416 U.S. 696, 710 (1974). Should Congress follow this course of action as a matter of sound public policy? What are the precedents for and against such retroactive legislation?

RESPONSE:

The

The Committee is entirely correct in its assessment that legislatively modifying the treble damage remedy now available under civil RICO, and permitting federal courts to apply that modification retroactively would be constitutional. distinction between a change in a procedural right and a change in a substantive right is an extremely important one, since a statutory change in an existing substantive right, applied retroactively, could operate to extinguish a cause of action. Accordingly, H.R.1046 carefully restricts its scope to civil RICO's damage remedy.

The Effective Date Provision of H.R.1046 Is Sound Public Policy

Contrary to criticisms advanced by opponents to the effective date provision of H.R.1046, it does not in any fashion impair the substantive rights of civil litigants. A careful analysis of this section reveals that rather than being an "un-American" assault on plaintiffs' rights, it is, in fact, more generous to plaintiffs in pending suits than the standard applied by the U.S. Supreme Court.

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H.R.1046 would not extinguish a single cause of action. Nor

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would it threaten to take away any cause of action from any civil RICO plaintiff past, current, or future; it would not affect the damage claim in a pending suit by a governmental entity federal, state, or local; it would not affect the damage claim in a pending civil RICO "consumer" suit; it would not affect the damage claim in a pending insider trading civil RICO suit; it would not cause the reopening of any pleading; it would not create a single new discovery issue; it would not complicate the applicable legal issues at the trial; it would not change a plaintiff's burden of proof; it would not affect a case that had been settled; it would not affect a case in which there had been a final judgment on the merits; it would not affect a case on appeal; it would not leave a single plaintiff without a remedy; it would not eliminate the award of automatic recovery of attorneys' fees to a prevailing plaintiff; and, it would not prohibit a prevailing plaintiff from recovering all reasonable litigation costs, including those "invested" in anticipation of recovering a multiple damage award.

If H.R.1046 is enacted, all pending cases will proceed exactly as they would have without passage of the legislation; the trial court judge in a pending case will simply determine whether it would be "clearly unjust in light of all the circumstances" to modify the damage claim from treble damages to actual damages.