Mr. Feinberg, welcome. STATEMENT OF KENNETH R. FEINBERG, COURT APPOINTED SPECIAL RICO SETTLEMENT MASTER, EASTERN DISTRICT OF NEW YORK Mr. FEINBERG. Thank you very much, Mr. Chairman. I am not here today representing any client or any direct interest in this civil RICO debate. I am here because of my role recently as a court-appointed special mediator in a case which I know you are aware of, Mr. Chairman, the Shoreham Nuclear Facility, Long Island, NY, case, which was presented before Judge Jack B. Weinstein in the Federal court in New York. That case, better than any other single case that I'm aware of, demonstrates a fact that is often overlooked in this debate over civil RICO, the adverse impact of this statute on historic notions of federalism, and States' rights. That case involved an attempt by Suffolk County to expand the reach of the civil RICO statute in order to review decisions of State ratemaking agencies. There was no allegation in that case-nonethat the State ratemaking agency was corrupt, had done anything illegal. But the civil RICO statute, nevertheless, was used in an effort to force the closing of a nuclear plant on Long Island. How so? In that case, Suffolk v. LILCO, Suffolk County alleged that the public utility had deliberately misled the Public Service Commission of New York in the setting of rates that would govern rate users, public utility users, in Long Island; and had achieved higher utility rates through these fraudulent statements. After a 2-month trial before one of the Nation's most distinguished Federal jurist, Judge Weinstein, the jury actually returned a verdict under civil RICO of guilty and assessed damages of $72 dollars against the public utility. Trebled, under RICO, the utility faced damages of nearly $23 million. If a class were certified, the damages would be in excess of $4 billion, and would shut down the plant and would shut down the utility as well. Notwithstanding this jury verdict, Judge Weinstein reviewed the civil RICO statute and dismissed the case. And in dismissing the case, and I commend the case to anybody interested in this subject of civil RICO, Judge Weinstein held that allowing the use of a civil RICO statute to review State ratemaking procedures would undermine State regulatory and ratemaking authority and would encroach on traditional State enforcement prerogatives, at least in the absence of any allegation that the State ratemaking agency was corrupt or had abused its authority. Judge Weinstein ruled that the Federal jury lacks the expertise to review ratemaking decisions and that Federal courts should show great deference to State courts in such a technical, traditional State area of regulation. Finally, the court pointed out, in reviewing the legislative history of the civil RICO statute, that there was no congressional intent in drafting this statute to allow the use of the civil RICO statute to review State ratemaking decisions. The judge determined that Suffolk County, the plaintiff, had not stated a cause of action under civil RICO, and notwithstanding the jury's verdict, threw the case out. The proposed modification of civil RICO insofar as it would eliminate the treble damage remedy is, I believe, personally as the mediator in that case, an important and valuable way to curtail the use of the Federal civil RICO statute in garden variety commercial disputes or disputes involving traditional State regulation. This subcommittee might also consider a suggestion made by Judge Weinstein in his opinion that civil RICO should not be permitted as a vehicle to review State regulatory or ratemaking decisions, at least in the absence of any allegation that the State agency is performing illegally or venally or in violation of the criminal law. My final point is simply this, that I commend the decision to everybody because I see in that case this point, which again I say is often overlooked in this important discussion, that traditional notions of federalism are subject to abuse. When you have a Federal statute and private parties that can willy-nilly go into Federal court and based on general boilerplate allegations basically preempt what is traditionally and historically a function of State law and State courts. I think this decision by a courageous Federal judge is a perfect example of how that abuse can take place and how it can be avoided by the Federal judiciary acting appropriately. Thank you, Mr. Chairman. Mr. HUGHES. Thank you, Mr. Feinberg. [The prepared statement and supporting documents of Mr. Feinberg follow:] SUMMARY OF TESTIMONY OF KENNETH R. FEINBERG Testifying in support of proposed amendments to RICO statute, particularly those provisions that limit use of civil RICO. Recently mediated case involving attempt to expand reach of civil RICO into review of decisions of state ratemaking agencies. Case in question, County of Suffolk v. Long Island Lighting Co. (LILCO), involved claims that defendant's employees had deliberately misled the ratemaking agency and had achieved higher utility rates based on these fraudulent statements. Jury returned a verdict of $7.5 million for Suffolk County, which was trebled under the RICO statute for a total recovery of nearly $23 million. After the jury verdict, U.S. District Judge Jack B. Weinstein dismissed the case in an opinion severely curtailing the application of the civil RICO statute. Judge Weinstein determined that allowing use of civil RICO in this context would undermine state regulatory and ratemaking authority and encroach on traditional state enforcement prerogatives. Federal juries do not have the expertise to review ratemaking decisions, and therefore the federal courts have historically shown great deference to state agencies. Allowing use of civil RICO to have federal courts review state ratemaking decisions would be contrary to wellestablished principles of comity. In the absence of clear Congressional intent to allow use of civil RICO to review state ratemaking decisions, Judge Weinstein determined that plaintiffs had not stated a cause of action under RICO and dismissed the case. The proposed modifications in the availability of trebled damages will curtail the use of civil RICO in garden variety commercial disputes, and that is an appropriate limitation. The Committee might also consider language that would impose a limit such as that suggested by Judge Weinstein's opinion that civil RICO should not be used as a vehicle to review state regulatory and ratemaking decisions. This would provide protection for the historical notion of federalism. TESTIMONY OF KENNETH R. FEINBERG BEFORE THE UNITED STATES HOUSE OF REPRESENTATIVES COMMITTEE ON THE JUDICIARY JUNE 15, 1989 MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE, THANK YOU FOR THE INVITATION TO APPEAR TODAY TO DISCUSS PROPOSED AMENDMENTS TO THE RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS ACT (RICO). I WELCOME THE OPPORTUNITY TO TESTIFY, AND I AM ESPECIALLY PLEASED TO ADDRESS THE PROPOSED MODIFICATIONS OF THE RICO STATUTE. I WOULD LIKE TO USE THIS OPPORTUNITY TO DISCUSS WITH THE COMMITTEE MY OWN RECENT EXPERIENCE AS A COURTAPPOINTED MEDIATOR IN A CIVIL RICO CASE, COUNTY OF SUFFOLK, ET AL. V. LONG ISLAND LIGHTING CO., ET AL. ("SUFFOLK V. LILCO") 87 CV 646 (JBW) (E.D.N.Y.). THIS CASE DEMONSTRATED SOME OF THE EXCESSES FOUND IN THE CURRENT APPLICATION AND INTERPRETATION OF THE RICO STATUTE. IT CONSTITUTES A PERFECT EXAMPLE OF WHY REFORM OF CIVIL RICO SHOULD BE A TOP PRIORITY OF THE CONGRESS. F. SUPP. IN SUFFOLK V. LILCO, INVOLVING THE HIGHLY EMOTIONAL ISSUE OF NUCLEAR POWER, THE PLAINTIFFS SOUGHT TO USE THE CIVIL RICO STATUTE TO REVIEW AND REVERSE A SERIES OF REGULATORY DECISIONS MADE BY NEW YORK STATE'S - 2 PUBLIC SERVICE COMMISSION. FORTUNATELY, THE PRESIDING JUDGE IN THE CASE WAS ONE OF THE NATION'S MOST RESPECTED MR. CHAIRMAN, PERMIT ME TO DESCRIBE THE RICO LITIGATION THAT WAS PENDING BEFORE JUDGE WEINSTEIN, MY ROLE IN THE CASE, AND THE COURT'S ULTIMATE RESOLUTION OF THE MATTER. THE CASE AROSE OUT OF THE PUBLIC CONTROVERSY SURROUNDING THE FUTURE OF THE SHOREHAM NUCLEAR POWER PLANT, WHICH IS LOCATED ON LONG ISLAND. IN THE 1970's, THE CONSTRUCTION OF THE SHOREHAM PLANT ENJOYED WIDE PUBLIC SUPPORT; IT WAS SEEN AS AN ANSWER TO HIGH ENERGY COSTS, GROWING ENERGY NEEDS AND RISKY DEPENDENCE ON |