eral racketeering case with treble damages and attorneys' fees appended is the allegation that fraud exists. That is commonly made in the context of contract disputes. And the additional allegation to prove a pattern of racketeering activity, that either the telephones or the mails were used on more than two occasions either in forming or in breaching the contract then constitutes separate acts of mail or wire fraud and constitutes a pattern of racketeering activity. That literally is all that the pleading requirements under civil RICO require in order to elevate that contract dispute into a Federal cause of action. A number of unfortunate consequences have flown from that use of civil RICO. First of all, innocent business people are being branded as racketeers simply because they have become embroiled in a contract dispute. The damage to their reputations that that entails can be devastating, particularly for a small businessman whose reputation may be his principal stock in trade. The stakes in civil litigation are dramatically escalated as mere contract cases take on an aura of treble damage disputes and where three times actual damages are available to the successful plaintiff, attorneys' fees are available in addition to that. Oftentimes very substantial settlements are leveraged on less than substantial allegations, given those very high stakes. Other more appropriate remedies are being undermined. That is particularly true of the Federal securities laws where the overreliance on civil RICO is causing those laws not to be applied to the extent that they should. There is a flood of litigation in the Federal courts and they are now being inundated with cases that ought to be handled in State courts and under State laws. We know that at least 1,000 such cases are being filed every year. I would suggest that in fact the extent of Federal litigation under civil RICO exceeds that number. I will comment during the course of questioning as to why I think the figures being tracked by the Administrative Office of the U.S. Courts are less than entirely reliable. Mr. Chairman, the legislation that we have put forward, H.R. 1046, is, I think, a straightforward attempt to eliminate the use of civil RICO in these mere contract disputes. It is not a perfect remedy. Obviously some alterations would be appropriate. We will be happy to discuss with interested parties their recommended changes. I appreciate again, Mr. Chairman, your scheduling the hearing today and I look forward along with you to receiving the testimony of our witnesses. Mr. HUGHES. I thank the gentleman. The gentleman from Florida. Mr. MCCOLLUM. Thank you, Mr. Chairman. I want to commend you again for holding these hearings. We certainly have a knack in this subcommittee for getting into controversial issues-guns, pornography, and now RICO. I think this is an exceedingly important one. I personally have followed the issue from the standpoint of the debate that has gone on in the media over a number of years now. The Wall Street Journal has publicized this issue extensively; Con gressman Boucher has had a piece of legislation in that I know has had hearings in another subcommittee for a couple of years. As we look at this whole process, Mr. Chairman, I think what we have to strive to find is a balance between the interest of society and individuals in seeing business fraud prosecuted and the business interest concerns over the cost of litigation, and perhaps the unjustness of the penalties that they are now receiving under this particular legislation. I will be looking for answers to some of the following questions: If the availability of the civil remedies of RICO are significantly narrowed, does the law adequately provide for alternative causes of action for making injured parties whole? Do governmental entities adequately enforce laws designed to deter fraudulent conduct? What types of conduct constitute racketeering? Should RICO penalties be limited to offenses committed by those involved in what is commonly thought of as racketeering? What is the relationship between traditional principles of tort law regarding punitive damages and the establishment in statute of automatic treble damages? I think these and perhaps a few other questions, if we can get the answers in these hearings, will give us a basis for making a determination on what to do legislatively, and I look forward to hearing from the witnesses. Thank you, Mr. Chairman. Mr. HUGHES. The gentleman from Ohio, Mr. Feighan. Let me thank you for scheduling the hearing on this important legislation so quickly in the session. I want to commend our colleague from Virginia not only for his sponsorship of the RICO legislation, but for his tenacity over the past several years in trying to move this important reform legislation through the Congress. I think that over the past couple of years in the testimony that we have received in other subcommittees, the need for reform of the RICO statute has been shown to be absolutely indisputable. Private litigants who have been lured by civil RICO's provision for treble damages, attorneys' fees, and a Federal courtroom have sued under the statute in divorce cases, will contests, and landlordtenant disputes. Obviously all these categories were not contemplated by the original drafters of the legislation. In addition, as the sponsor has said, RICO has been used in mundane or "garden variety" type commercial disputes because of the advantage that the plaintiff achieves when the defendant is threatened with heightened damages and has the label "racketeer." The statute has been used as well as an unfair inducement to settlement and has clogged an already overburdened Federal court docket. Congress has considered amending the statute ever since the Supreme Court virtually invited us to in the 1985 Sedima case. In that case Justice White, writing for the majority, recognized that the statute had certain weaknesses but stated that it was the responsibility of Congress and not the Court to amend it. I believe that the legislation before us removes the weaknesses in the RICO statute that have allowed its abuse while at the same time preserving its consumer protection and crime-fighting functions. The bill has widespread support in the House and the Senate, as well as among the private sector representatives. I hope, Mr. Chairman, that we will see action on the legislation very quickly. Thank you. Mr. HUGHES. I thank the gentleman. When L.walked into the room I noted there was more than a passing interest in RICO reform, but something historic has occasioned. I don't think I have seen in many, many years the full contingent of our subcommittee in attendance at one time. [Laughter.] Mr. HUGHES. I trust as we get into the assault weapons issue we will see the same attendance. The gentleman from Mississippi, who has been pressing me to move the assault weapon issue. Mr. SMITH of Mississippi. Thank you, Mr. Chairman. I, too, would like to commend you for calling this hearing this morning. I look forward to hearing the witnesses. As a cosponsor of H.R. 1046, I hope that we will get some additional light shed on this issue today. Thank you very much. Mr. HUGHES. The gentleman from Florida, Mr. Smith. I appreciate your scheduling this hearing. As someone who has grappled for many years with RICO issues, in the Florida Legislature as well as here, and has been a cosponsor of H.R. 1046 and whatever previous versions it had in previous Congresses, I appreciate the opportunity to have a hearing and to have the people heard on this issue. I think it is important to press this year for effective and fair reform of this statute. That is why I am again a cosponsor. I don't think we can wait any longer for civil RICO reform. The torrent of cases that have been filed in the Federal courts in the past decade because of civil RICO number in the thousands. You heard Mr. Boucher indicate that he believes that is it even more because the counting and methodology may be somewhat inappropriate. Unfortunately, the overwhelming majority of the cases have not been filed against mobs or mobsters and other professional criminals to strip them of their ill-gotten gains. Instead, civil RICO cases have been filed against legitimate businesses, churches, the FBI, Government officials, and the like. All of these individuals and entities have been tarred with the label of racketeer. Fraud has been alleged, which is required under the statute. And, of course, they have been threatened with treble damages. I don't believe any Federal policy is being served by permitting this situation to continue. Numerous Federal policies are being hindered by the lack of this civil RICO reform. The Federal judiciary, for instance, is being overburdened by civil cases brought under the RICO law that as again, you heard, otherwise would be brought in the State courts. Longstanding Federal and State statutes such as securities laws are being bypassed in favor of civil RICO as a catchall. Labor management relations are being turned on their heads by civil RICO. A wide range of groups, from the U.S. Chamber of Commerce to the American Civil Liberties Union, support H.R. 1046, and with good reason. This legislation sensibly and responsibly removes civil RICO's automatic treble damage provision from areas where it has been misused and yet retains a multiple damage remedy in other instances where the danger of abuse is much less. I, along with many others in this Congress, believe that H.R. 1046 provides the right approach to a pressing problem. I hope the subcommittee will move expeditiously and favorably on this bill so that we can get it to the full committee, hopefully get it to the floor, and see what the Senate has in mind. Thank you, Mr. Chairman. Mr. HUGHES. The gentleman from Ohio, Mr. DeWine. Mr. DEWINE. No opening statement. Thank you, Mr. Chairman. Mr. HUGHES. Our first witness this morning is Prof. Gerard E. Lynch of the Columbia University School of Law. Professor Lynch is the author of extensive Law Journal articles on RICO as well as articles on constitutional theory and legal ethics. He also has experience as a Federal criminal law practitioner and as an assistant U.S. attorney general for the Southern District of New York where he served as the office's deputy chief appellate attorney and chief appellate attorney. Professor Lynch graduated first in his class from Columbia College and Columbia Law School. He is a former law clerk to Justice William Brennan of the U.S. Supreme Court and Judge Wilfred Feinberg of the U.S. Court of Appeals for the Second Circuit. Professor Lynch, on behalf of the members of the Subcommittee on Crime, we welcome you this morning. We have received your prepared statement which, without objection, will be made part of the record in its entirety and you may proceed as you see fit. You have had a most distinguished record, as our colleague from Virginia has indicated, and we welcome your testimony. As our first witness, I hope you can provide for us the broad parameters for our subsequent discussion. It is my intent to move these hearings expeditiously so that we do not end up at the end of a session trying to effect the kind of consensus that we have had in several Congresses before. Welcome, Professor Lynch. STATEMENT OF GERARD E. LYNCH, PROFESSOR OF LAW, Mr. LYNCH. Thank you very much, Mr. Chairman. I have been asked by your counsel to give a broad overview of the statute and I have also been asked to be brief and to confine myself to about 15 minutes. I don't think I could read the statute to you in 15 minutes. I will do my best to be brief. Mr. HUGHES. Why don't you just discuss the statute. Each of us has read the statute and we are somewhat familiar with it. Just give us a broad overview. Mr. LYNCH. Thank you. I was very pleased to hear, Mr. Chairman, your statement that a consensus hasn't been fully achieved and that the fix is not necessarily in for this particular legislation. Not because I have objections to the legislation. The message I really have to deliver is to urge you to take a broader look at the RICO statute than simply the problems of civil RICO and the particular problems addressed by this bill. This bill aims at civil RICO and does so because there has been substantial criticism of civil RICO largely from those who have been the defendants in civil RICO cases, and also from the Federal judiciary which is overwhelmed with RICO cases. I agree with Congressman Boucher that the numbers are probably not accurate. Every judge I have ever spoken to has expressed the view that there are far more RICO cases than appear to be represented in those statistics. Most lawyers that I have spoken to think it is virtually malpractice not to add a RICO claim to certain types of lawsuits. When your client has some kind of a case and it is plausible to add a claim that would bring in treble damages and attorneys' fees, it is obviously the responsibility of the lawyer to investigate that possibility. I won't linger much on the criticisms of civil RICO because they have been so eloquently outlined already here this morning. I would like to mention something briefly about the reply that defenders of civil RICO make, not only because there is a point in it, but also because it reflects some of the broader problems in the statute. Defenders of civil RICO point out that a RICO claim is only valid when there is an allegation by the plaintiff not only of criminal activity, but of multiple criminal activity by the defendant. They point out that while we hear much about the various abusive cases that are brought under RICO, most of those cases are eventually thrown out. They argue that one shouldn't blame the law because plaintiffs file frivolous lawsuits, since any law can be abused. I think there is a point there. The most important point, though, is not perhaps the one that defenders of RICO intend. The important point is that the breadth of the RICO law on both the criminal and the civil side is so extraordinary that virtually any kind of case can be prosecuted criminally under RICO, virtually any kind of civil claim can be escalated by rhetoric of pleading into a RICO case. What I would like to ask the subcommittee to do is to take a broader look at the law, at the basic questions of RICO, which are, on the criminal side. Do the terms of RICO successfully single out the kinds of crimes that are more serious than ordinary criminal activity that should be subjected to extraordinary penalties beyond those applicable to ordinary crime; and on the civil side, does the statute successfully single out those sorts of disputes that should be in Federal court with extraordinary remedies? The critical point is that civil RICO is dependent on a criminal violation of the RICO statute. Something that is often overlooked in these debates is that every civil RICO complaint that a court sustains as a valid civil RICO complaint could be a criminal indictment for racketeering. There is no difference in coverage between |