Mr. BLAKEY. Jed, I don't want to interrupt, but I would just like to insert in the record at this point a statement that would respond to the notion of it being an afterthought. It was not an afterthought; it was in the bill from the beginning.

Mr. RAKOFF. I rest on what the Supreme Court said in Sedima on that score. I know you disagree with it, but I think the Supreme Court was well warranted in that belief.

The point is that if RICO is even remotely intended to serve this vast role that Bob would like it to serve, then we ought to take a much closer look at it and try to build into it appropriate balances and restraints and safeguards of the kind that your committee is looking at rather than just take it whole hog in the fashion that it was originally and graft it on.

I also wanted to mention on a smaller point that the two cases that were mentioned earlier this morning regarding RICO actions growing out of State tax evasions or State tax problems are not the only cases. One that I know of, which is mentioned in my prepared statement, is the Porcelli case.

That is an interesting case because it is a criminal case. It shows that even prosecutorial discretion, which I agree is of some value, doesn't always operate in the best way. In that case a fellow evaded a very large amount, some millions of dollars in New York State sales tax, but at the time he did so New York State had determined after full consideration right around the same time that they were not going to make sales tax evasion a crime; they would make it a civil wrong and they would sue for recovery of the sales tax.

Some prosecutor over in the Eastern District of New York looked at the situation and he said, well, I don't like this and I don't care what the legislature of New York thinks about its own sales tax laws. I'm going to bring a RICO based on mail fraud. And that is what he did.

The second circuit said, we're very troubled by this; this is another example of a case at the outer limits, but RICO as it is presently written is so broad that we have to affirm the conviction.

So I don't think even on the prosecutorial side there is a problem. here of a statute that is too broad and needs to be constricted. Mr. HUGHES. Mr. Goldstock.

Mr. GOLDSTOCK. Let me address the issue of whether or not we ought to be clogging Federal courts with RICO cases.

Numerous cases are entertained in the Federal courts. We could discuss the whole diversity jurisdiction issue. There are cases involving usury and extortion in the Federal courts. There are cases involving drugs and antitrust violations-civil and criminal. All of those could be considered to be local in nature, and yet each relates to it is a national problem.

I think the same thing is true about fraud. We could look at fraud as being a garden-variety problem or a national problem. I believe the national implications of fraud are extraordinarily serious and in the future will rival drugs and other matters that we have initially decided were local in nature and belatedly recognized that the Federal Government needed to get involved in.

I understand your concern. If these cases are reasonable cases and they ought to be brought but you believe that they ought not

be in Federal court, then it seems to me that there is an easy answer. The private right of action can be made to be concurrent in Federal and State courts and Federal judges could be given the option of transferring inappropriate cases from Federal court, if they are brought there, to State court. That way appropriate cases can be left in Federal courts, inappropriate cases can be transferred to State courts, worthy plaintiffs will continue to have a right of action, and Federal courts will not be overburdened.

Mr. HUGHES. Why not just encourage the States to pass their own RICO statutes?

Mr. BLAKEY. They have. Twenty-eight now have.

Mr. HUGHES. Why isn't that the proper remedy? We go to such great lengths to try to deal with the problem and yet there is a very simple answer.

Mr. BLAKEY. Mr. Chairman, why is it an either or? Why can't you do a little bit of both?

Mr. HUGHES. In proper cases, where there is a true Federal nexus, that is probably no problem. Unfortunately, many of the RICO cases are being brought because the remedy is only available at the Federal level, those treble damages and attorneys' fees.

Of course the advantage of being able to use the term "racketeering" in your complaint, which scares the daylights out of defendants, is a tremendous inducement. Those are the big inducements as I see it.

Mr. BLAKEY. Let me say as a litigator, and I have done this on both sides, the racketeer label is not an inducement to bringing it. If you put it in, it makes the other side mad and they don't settle cases that they should settle.

I advise clients where there are no kneecaps that are broken to file what is known in the trade as a silent RICO and not to use the word "racketeering.'

Mr. HUGHES. Mr. Blakey, you won't be able to persuade me that the term "racketeering" isn't used by plaintiff's attorneys. I have talked to some of the plaintiff's attorneys. It is a tremendous vehicle. Just the suggestion that you are dealing with a racketeer is enough to scare them out of their trousers.

Mr. BLAKEY. Mr. Chairman, in any event that is a false issue. Nobody here argues it ought to be used. Everybody has conceded that the racketeer label ought to be taken out of RICO in fraud litigation.

Mr. HUGHES. I understand that. I am just saying you would have a hard time persuading me that that hasn't been used as a bludgeon to try to exact settlements. I have talked to enough folks who have used it to be convinced that it has been used as a club. Mr. Direnfeld, you are dying to say something.

Mr. DIRENFELD. I am. I just want to get my 2 cents in. I don't know much about 19th century law, I must confess. But I did spend some time trying to make some sense of the congressional intent in the 1970's without having the benefit of being there. I have looked at the record carefully.

What strikes me is that Congress was trying to wrestle with the constitutional problem of a status offense by saying you belong to the mob or organized crime. Yet that is what all the debate was about, going after the criminality of organized crime and the infil

tration of business, the control of these businesses by organized crime; and yet we can't call it the mob. So we defined enterprise broadly to pick them up. And reliance on notion of pattern. Pattern was sold at that time as an idea to set up enough of a hurdle to prevent this from happening.

The fact that the Senate didn't pass a provision with a private right of action and the fact that the House committee reported it to the floor without a floor debate could not have had any anticipation of what we are doing here today where we have labor disputes and contract disputes. No one could have thought that without having a debate. Look at the debate we are having today over the issue.

It strikes me that we have gotten here through the backdoor. Now we are arguing should we be here anymore. As long as we are into the discussion of intent, I thought I would at least try to put my spin on it.

Mr. HUGHES. I have taken more than my time. We will have another round of questions.

The gentleman from Kentucky.

Mr. MAZZOLI. Thank you very much, Mr. Chairman.

Let me once again commend you publicly, as I have many times, for conducting excellent hearings. I really think our subcommittee is proud by the work that you and the staff do in preparing these kinds of panels. Without naming names, there were two different people today who told me that while they had spent a lot of time studying RICO over the years that they have been learning from these hearings. So I want to tell you that this is not just sort of going over plowed ground.

Let me shift gears a little bit. I think we probably can differ philosophically. It has been very interesting to me to hear both

sides of it.

I personally come down on the side that even if the Congress didn't exactly have in mind some altruistic thing of letting the prosecutors have a field in which to play depending on what they were looking at 10 or 15 years down the road, I think that is sort of how law has eventually emerged. Whether or not the specific intent was to give prosecutors additional weaponry for evolving kinds of crimes, I think that is pretty much how we have accepted the law, as with the Constitution, a kind of growing, stretching document.

Having sat through these hearings, I am convinced that there are abuses and we do need to do something; we should not just let this thing sit on the books as it is.

In candor, I don't think the abuses amount to the same high pitch that some of our witnesses have said. I think the lack of documentation is very telling. I keep asking how many cases, which ones, who is involved, and you get fairly vague answers. Maybe they are not quantifiable. Maybe you can't nail all this down. It is like Jell-O.

The cases that are brought strictly as RICO cases are clearly because you check that box off. Those clearly are there. The ones in which RICO is an ancillary means you are already in Federal court on another ground anyway. If there is a clog or a glut of cases, it can't be RICO.

Let me go on to try to find ways that maybe we might want to change the law. I was wondering if I might ask each one of you in some order, perhaps starting with Professor Blakey, what you think about retroactivity.

If I understand Mr. Lacovara, who gave us a very interesting exposition on that, he says you are not doing anything unlike the Illinois Brick case because here you are not taking away a right of action or creating one. What you are doing is just simply changing the measurement.

Mr. BLAKEY. The lawyer speaks with a silver tongue.

It is constitutional. You can change the measure of damages. It is constitutional. I have no doubt about it. The question is whether it is wise. I will have to say to you on principle I object to it.

On the other hand, Barry and I have sat down to make that particularly bitter pill as sweet as possible. In other words, if you are going to do it retroactively-I think you should not, because it sends the wrong message out in antitrust, in securities, in all other claims.

It is unseemly for you people to do this up here, and it will lead to a further decline of confidence in the Congress if you change rules retroactively.

We are now talking about approximately 500 cases. The process that produced the 500 cases dismissed about 50 percent of them. The ones remaining are the meritorious cases.

Mr. MAZZOLI. If I understand correctly, professor, whether or not there is some basis for what Mr. Lacovara is saying, you suggest that maybe from the public policy point of view we should not make it retroactive.

Mr. BLAKEY. Bad idea.

Mr. MAZZOLI. Mr. Goldstock.

Mr. GOLDSTOCK. I would not make it retroactive either.

Mr. MAZZOLI. Thank you very much.

Mr. Rakoff.

Mr. RAKOFF. I would make it retroactive, but I think it presents very different questions from what you are mostly concerned with, which is writing for the future.

In my mind the key question about retroactivity is whether you think there has been a high level of abusive cases that are still there. I gather you think there are not that many. If you didn't think there were that many, then obviously there would be less need for retroactivity.

Mr. MAZZOLI. Your position would be, then, if there is a high level of abuses that that would warrant changing even existing cases because people should not be exposed to this kind of abuse regardless of when this thing began.

Mr. RAKOFF. Correct.

Mr. MAZZOLI. The problem is trying to nail down what constitutes abuse and if it is occurring.

Mr. Direnfeld.

Mr. DIRENFELD. I would like to take a slightly different tack. I think, first of all, that it is clear that it is constitutional as a matter of law. The Supreme Court in a set of cases, starting with Bradley v. School Board of the City of Richmond, set out a standard of what happens if Congress is silent on an effective date. You

pass a law and there are cases pending; what do we do about it? And if there is a change of remedy in the new law, how do we apply that to pending cases?

The Supreme Court has said a change of remedy on pending cases is constitutional as a matter of law. Not only is a change of remedy constitutional, but any other change in the statute, whether it is on appeal, whether there is a trial decision or any other thing, as long as that thing is not finally adjudicated, that is the law.

What we have is a situation where you could, in fact, make it completely retroactive to all pending cases and be well within constitutional authority, notwithstanding Professor Blakey's rhetoric of un-American. In fact, retroactivity comports with Supreme Court decisions.

The question is one of policy. You really have three choices. One, do you rely on silence and essentially affect retroactively all the cases? I don't think that is wise.

The second choice is, do you make it prospective? You have won the race to the courthouse. You're in. We recognize that there are lots of RICO cases that have been filed that were never intended, and we don't think they are the right way to go; but by virtue of having filed a case we are going to grandfather your treble-damages lawsuit and let it go forward.

The third choice is what Congressman Boucher has incorporated in H.R. 1046, which is a very balanced and, I think, probably very narrow solution. It says that in those classes of cases where we have changed the remedy-not in State cases, not in Federal cases, not with governments-but in the places where we have decided to change the remedy, we are going to set up a mechanism where every plaintiff who has a pending case will be made whole if he prevails. He will get his actual damages, all of his attorneys' fees, and all of his reasonable litigation costs.

Last year Professor Blakey pointed out-and he was right-that some plaintiffs spend a lot on these litigations because they are complicated. Their spending on experts would not be recovered under normal definitions of court costs. He said that you really ought to remedy this.

We thought about it, and, in fact, as Rick Boucher said, that is a fair request. We don't want anyone to be out a penny for having relied on the statute. On the other hand, we don't want to grandfather all pending cases.

Certainly I can't judge which one the judge should say is meritorious and which one isn't. I don't see how the Congress can do it either. Therefore, what the bill incorporates is a standard for the judge to decide whether to maintain the treble-damage remedy. That is all the retroactivity provision does. It says that in the cases where we change remedies the court will have discretion to maintain treble-damages, but in no event will a plaintiff get less than actual damages, less than his attorneys' fees, and less than all of his costs.

Mr. MAZZOLI. It is interesting. I had sort of thought about Rick's approach too. I have very grave problems with the retroactivity, but I appreciate what you all are saying about that.