Simpson Electric Corp. v. Leucadia Inc.

Spatt, J. (dissenting).

I respectfully dissent and vote to reverse the order of Special Term (126 Misc 2d 312) insofar as appealed from, and deny the plaintiff’s motion to dismiss the fifth counterclaim of Leucadia, Inc. (hereinafter Leucadia). Leucadia has sufficiently pleaded a civil cause of action under the Racketeer Influenced and Corrupt Organizations Act (hereinafter RICO; 18 USC §§ 1961-1968). Further, in my view, State courts have concurrent jurisdiction with Federal courts with regard to civil RICO claims.

Any discussion of concurrent jurisdiction must start with the seminal case of Gulf Offshore Co. v Mobil Oil Corp. (453 US 473). As clearly set forth in Gulf Offshore, the basic principle of law is that there is a "presumption that state courts enjoy concurrent jurisdiction” (Gulf Offshore Co. v Mobil Oil Corp., supra, at 478). The rule is stated as follows:

"The general principle of state-court jurisdiction over cases arising under federal laws is straightforward: state courts may assume subject-matter jurisdiction over a federal cause of action absent provision by Congress to the contrary or disabling incompatibility between the federal claim and state-court adjudication. Dowd Box Co. v. Courtney, 368 U. S. 502, 507-508 (1962); Claflin v. Houseman, 93 U. S. 130, 136 (1876) * * *
"In considering the propriety of state-court jurisdiction over any particular federal claim, the Court begins with the presumption that state courts enjoy concurrent jurisdiction. See *350California v. Arizona, 440 U. S. 59, 66-67 (1979); Dowd Box Co. v. Courtney, 368 U. S., at 507-508” (Gulf Offshore Co. v Mobil Oil Corp., 453 US 473, 477-478, supra).

A determination that Federal courts exercise exclusive jurisdiction over claims arising under a Federal statute must be based upon a finding that the statute falls under an exception to the general rule that State courts exercise concurrent jurisdiction with Federal courts over such claims (see, Dowd Box Co. v Courtney, 368 US 502, 507-508, supra). Congressional silence supports the presumption of concurrent jurisdiction (see, Claflin v Houseman, 93 US 130). In the absence of an explicit statutory directive, we must look to the legislative history of the statute to determine if Congress was, indeed, silent on the matter (see, Dowd Box Co. v Courtney, supra, at 508).

In Gulf Offshore Co. v Mobil Oil Corp. (supra), the Supreme Court provided definitive guidance to courts in determining the question of concurrent State jurisdiction when it held that the presumption of concurrent jurisdiction can be rebutted by: (1) an explicit statutory directive, (2) an unmistakable implication from legislative history, or (3) a clear incompatability between State court adjudication and Federal interests (see, Gulf Offshore Co. v Mobil Oil Corp., supra, at 478). Unless one of these three exceptions pertains to the civil RICO, the State courts have concurrent jurisdiction. I find no such exception present in civil RICO.

ABSENCE OF EXPLICIT STATUTORY DIRECTIVE

A review of the statute reveals that RICO contains no explicit statutory directive mandating exclusive jurisdiction. The RICO Act does not require that suits must be brought in Federal District Court. It is settled law that a grant of jurisdiction to a Federal court does not oust a State court from concurrent jurisdiction over the cause of action (see, Gulf Offshore Co. v Mobil Oil Corp., supra). The use of the permissive "may” with reference to bringing suit in Federal court has been held to mitigate against exclusive Federal jurisdiction and is consistent with concurrent State court jurisdiction (see, Gulf Offshore Co. v Mobil Oil Corp., supra, at 477; Lane v Central Bank, 756 F2d 814; Kelly v Director, Fed. Emergency Mgt. Agency, 549 F Supp 8; Bains v Hartford Fire Ins. Co., 440 F Supp 15).

Although RICO abounds with references to Federal entities such as "United States”, "Attorney General”, and "district *351court” (18 USC § 1961 et seq.), indicating that Congress may have had Federal jurisdiction in mind when it drafted RICO, Congress did not include an explicit statutory directive providing for exclusive Federal jurisdiction in 18 USC § 1964 (c). Congress has provided for exclusive Federal jurisdiction in other Federal statutes. For example, in the Federal Tort Claims Act (28 USC § 1346 [b]), the statute provides that "the district courts * * * shall have exclusive jurisdiction of civil actions” (emphasis supplied). The Securities Exchange Act of 1934 (15 USC § 78aa) states that "[t]he district courts of the United States * * * shall have exclusive jurisdiction of violations of this title” (emphasis supplied; see also, 29 USC § 1001 [Employee Retirement Income Security Act]; 7 USC § 13a-2 [Commodity Exchange Act]; 47 USC § 407 [Communications Act]; 28 USC § 1333 [jurisdiction of Federal District Courts in admiralty cases]).

Since civil RICO does not contain an explicit statutory directive requiring exclusive Federal jurisdiction, this court must then focus its attention upon the statute’s legislative history to determine whether there is evidence of unmistakable legislative intent, either express or implied, to rebut the presumption of concurrent jurisdiction.

ABSENCE OF UNMISTAKABLE LEGISLATIVE INTENT

Discerning the intent of Congress, let alone its unmistakable intent regarding subject matter jurisdiction over civil RICO claims, is difficult due to the convoluted legislative histories available. The history of the RICO Act gives little hint of the intended scope of private civil RICO actions (see, Sedima, S.P.R.L. v Imrex Co., 741 F2d 482, 488, revd on other grounds 473 US 479; see also Blakey and Gettings, Racketeer Influenced and Corrupt Organizations [RICO]: Basic Concepts —Criminal and Civil Remedies, 53 Temple LQ 1009). It appears that Congress may not have considered the jurisdictional issue. As stated by G. Robert Blakey, the chief counsel to the Senate Subcommittee on Criminal Law and Procedure, which proposed RICO: " 'There is nothing on the face of the statute or in the legislative history’ that touches on the question of concurrent jurisdiction * * * 'To my knowledge, no one even thought of the issue’ ”. Professor Blakey also stated that the RICO Act draws deeply on the Federal antitrust law as a model, and " 'the antitrust law is an exclusive-jurisdiction statute’ ”. He also observed that " '[h]ad anyone brought up the question’ ” of State court jurisdiction, " 'we *352would have said no’ ” (Flaherty, Two States Lay Claim to RICO, Natl LJ, May 7, 1984, at 10, col 2 [quoting Professor Blakey]).

Those courts which have held that there is exclusive Federal jurisdiction point to congressional fashioning of RICO after section 4 of the Clayton Antitrust Act (15 USC § 15), which has been construed to confer exclusive jurisdiction upon Federal courts (see, Blumenstock Bros, v Curtis Publ. Co., 252 US 436). On the basis of the analogy between RICO and the antitrust legislation, the Appellate Division, First Department, in Greenview Trading Co. v Hershman & Leicher (108 AD2d 468), a thoughtful decision rendered prior to and without the benefit of the illuminating concepts set forth in Sedima, S.P.R.L. v Imrex Co. (supra), held that RICO was intended by Congress to confer exclusive jurisdiction upon the Federal courts.* Relying in part upon the analysis in County of Cook v Midcon Corp. (574 F Supp 902, affd 773 F2d 892), the court in Greenview stated that the RICO language was drawn almost verbatim from the Clayton Act which has long been recognized as requiring exclusive Federal jurisdiction. The court noted with approval the following portion of the opinion in County of Cook v Midcon Corp. (supra): " 'Moreover, it is well established that the identity in language between 18 U.S.C. § 1964 (c) and 15 U.S.C. § 15 is not a mere happenstance; Congress consciously patterned the RICO section after the antitrust prototype. See, e.g., 115 Cong. Rec. 6992, 6993 (1969) (statement of Sen. Hruska). Legislators must have known that courts have construed virtually identical language as giving federal courts exclusive jurisdiction over antitrust claims. It would be anomalous for this court to hold that the jurisdictional grant in the RICO statute did anything other than create exclusive federal jurisdiction over civil claims by persons injured by violations of 18 U.S.C. § 1962’ ” (Greenview Trading Co. v Hershman & Leicher, supra, at 471, quoting from County of Cook v Midcon Corp., 574 F Supp 902, 912, affd 773 F2d 892, supra). The Greenview court concluded that Congress "did not intend to involve State courts so deeply in the interpretation of a host of Federal statutes” (Greenview Trading Co. v Hershman & Leicher, supra, at 473).

Significantly, Greenview (supra) was decided prior to the *353Supreme Court’s decision in Sedima which questioned RICO’s relationship to the antitrust laws and which altered many of the basic assumptions regarding RICO litigation. Discussing the relationship between RICO and the antitrust acts, Justice White, in Sedima, stated: "It is also significant that a previous proposal to add RICO-like provisions to the Sherman Act had come to grief in part precisely because it 'could create inappropriate and unnecessary obstacles in the way of * * * a private litigant [who] would have to contend with a body of precedent—appropriate in a purely antitrust context—setting strict requirements on questions such as "standing to sue” and "proximate cause.” ’ 115 Cong. Rec. 6995 (1969) (ABA comments on S. 2048); see also id., at 6993 (S. 1623 proposed as an amendment to Title 18 to avoid these problems). In borrowing its 'racketeering injury’ requirement from antitrust standing principles, the court below created exactly the problems Congress sought to avoid” (Sedima, S.P.R.L. v Imrex Co., 473 US 479, 498-499, supra). In the aftermath of Sedima, we can no longer, with assurance, analogize RICO with the antitrust legislation.

Although Sedima did not specifically address jurisdictional questions, the Supreme Court held that the private treble damages provision was intended by Congress as " 'a major new tool’ ” in the fight against crime intended to reach both legitimate and illegitimate enterprises (Sedima, S.P.R.L. v Imrex Co., 473 US 479, 498, supra, quoting from 116 Cong Rec 35227). The Supreme Court found RICO to be an act with its own provisions, purpose and history, and viewed it as a separate body of law which is distinct from the antitrust legislation on which RICO’s language is modeled.

In Schacht v Brown (711 F2d 1343), the Seventh Circuit also reviewed the relationship between RICO and the antitrust acts and determined that RICO goes beyond the antitrust statutes. The court stated that "Congress * * * enacted RICO as a separate tool * * * The structural similarity of the RICO civil damages apparatus to that contained in the antitrust laws does not persuade us otherwise”. It further observed that "analogies to that body of law (antitrust) become increasingly irrelevant” (Schacht v Brown, supra, at 1357-1358).

It is noteworthy that another statute containing virtually the identical language as 18 USC § 1964 (c) was described as a " 'valuable supplement’ ” (see, Lane v Central Bank, 756 F2d 814, 817, quoting from 1970 US Code Cong & Admin News 5519, 5559) to the antitrust laws and yet, was found to confer *354concurrent jurisdiction. In Lane v Central Bank (756 F2d 814, supra), it was construed that the antitying provisions of the Bank Holding Company Act (12 USC § 1971) provided for concurrent jurisdiction. Thus, the mere similarity between civil RICO and the antitrust laws is not a reliable indicator of legislative intent concerning exclusivity of Federal jurisdiction.

Interpreting RICO independently from the Sherman and Clayton Antitrust Acts, I find no "unmistakable implication” (Gulf Offshore Co. v Mobil Oil Corp., 453 US 473, 478, supra) from the legislative history of RICO sufficient to overcome the presumption of concurrent jurisdiction. In County of Cook v Midcon Corp. (773 F2d 892), which was decided in the light of Sedima (supra) and Schacht v Brown (supra), the Seventh Circuit stated in a footnote: "We doubt whether the analogy to antitrust law is sufficiently strong to conclude that because jurisdiction over antitrust cases is exclusively federal, RICO jurisdiction necessarily must follow suit * * * Particularly in light of the normal presumption that state courts share concurrent jurisdiction over federal statutes, we would be reluctant to conclude from congressional silence that Congress intended to depart from the usual rule” (County of Cook v Midcon Corp., 773 F2d 892, 905, n 4, supra).

One Federal District Court found an unmistakable legislative intent of exclusive Federal jurisdiction on grounds other than an analogy to antitrust legislation. In Kinsey v Nestor Exploration—1981A (604 F Supp 1365), the court concluded that every section save for 18 USC § 1964 (c) unmistakably conferred exclusive jurisdiction upon Federal courts. Finding it inappropriate "to dissect a statutory scheme, select one narrow provision thereof, and determine that with respect to that one provision at least, congressional silence is the equivalent of an affirmative grant of jurisdiction to the states”, the court held that private civil RICO actions could only be brought in Federal court (Kinsey v Nestor Exploration— 1981A, supra, at 1370-1371).

However, in Kinsey (supra), the court’s decision was grounded on the theory that the purpose of the statute is to halt organized crime, while in Sedima (supra), the statute was given a far broader scope to include within RICO coverage legitimate businesses and the garden-variety fraud case. Further, it should be noted that 18 USC § 1964 (c) is, arguably, one of the most important sections of the entire RICO legislation. It is not unusual for courts to find portions of an act *355requiring exclusive Federal jurisdiction and other portions permitting concurrent State jurisdiction (see, Hathorn v Lovorn, 457 US 255, 265-268 [Voting Rights Act]; Safe Workers’ Org., Ch. No. 2 v Ballinger, 389 F Supp 903, 910 [Labor-Management Reporting and Disclosure Act of 1959]).

Another argument not founded upon the similarity between RICO and the antitrust laws put forth by my colleagues is that certain venue and procedural mechanisms contained in various provisions of RICO are applicable only in Federal courts. The subject procedural mechanisms are similar to those found in the antitying provisions of the Bank Holding Company Act (12 USC §§ 1971-1978) which also refer almost exclusively to Federal enforcement. As previously noted, the civil provisions of the Bank Holding Company Act have been found to confer concurrent jurisdiction (see, Lane v Central Bank, 756 F2d 814, supra). Also of note in this regard is the Petroleum Marketing Practices Act (15 USC §§ 2801-2841), which has repeated references to Federal procedural devices concerning civil suits but has been held to confer concurrent jurisdiction (see, Ted’s Tire Serv. v Chevron U.S.A., 470 F Supp 163).

We are here concerned only with whether the States share jurisdiction over civil RICO as set forth in 18 USC § 1964 . (c), and, looking at the statute as a whole, I do not find unmistakable legislative intent that Congress intended this provision to be enforceable only in Federal courts.

AS TO INCOME ATABILITY BETWEEN STATE COURT ADJUDICATION AND FEDERAL INTERESTS

The last leg of the Gulf Offshore doctrine requires us to examine the practical implications of civil RICO claims being adjudicated in State courts. This subject is difficult to define and consider since it rests on subjective and sometimes vague policy considerations and is not readily resolved by resort to the case law. The rule is easy to state but difficult to apply. If there is a "clear incompatibility” between State court adjudication and Federal interests (Gulf Offshore Co. v Mobil Oil Corp., 453 US 473, 478, supra), the presumption in favor of concurrent jurisdiction is rebutted.

With regard to the nature of the issues involved in civil RICO litigation, in addition to the interpretation of the statute itself, every RICO violation is based upon "predicate acts” (see, 18 USC § 1961 [1], for a definition of "racketeering activity”). These predicate acts may consist of State law violations as *356well as violations of Federal statutes. As the Supreme Court made clear in Sedima, S.P.R.L. v Imrex Corp. (473 US 469, supra), garden-variety business fraud may be the basis of a civil RICO action, as it is in the action presently before us. In such cases, predicated upon State law violations or common-law fraudulent conduct by mail or wire, save for the RICO Act itself, the law being interpreted is principally State law.

In December 1985, the Supreme Court of California reviewed both sides of the incompatibility issue in Cianci v Superior Ct. (Poppingo) (40 Cal 3d 903, 221 Cal Rptr 575, 710 P2d 375). Writing for the majority, Justice Mosk noted that exclusive Federal jurisdiction may frustrate the purposes of RICO, in that Congress unmistakably intended that 18 USC § 1964 (c) be broadly construed to effectuate its remedial purposes. "Exclusivity would obviously create an obstacle in the way of a private litigant, who would be compelled to bring his RICO claim in federal court even if he preferred a state forum” (Cianci v Superior Ct. [Poppingo], 40 Cal 3d 903, 912, 221 Cal Rptr 575, 579, 710 P2d 375, 379, supra). Thus, the availability of State courts would facilitate the initiation of civil RICO actions and thereby promote more effective enforcement of the statute. In addition, the flexibility insured by concurrent jurisdiction would enable State court defendants to interpose RICO counterclaims, as in the instant case.

In my view, the State courts can effectively adjudicate all types of civil RICO actions. The New York Supreme Court, as a court of unlimited jurisdiction, has dealt with all strains of fraud cases since the inception of our court system.

In Gulf Offshore Co. v Mobil Oil Corp. (453 US 473, 478, supra), three factors were set forth which aid in the analysis of whether there would be "clear incompatibility between state-court jurisdiction and federal interests”, namely: (1) the desirability of uniform interpretation, (2) the expertise of Federal Judges in Federal law, and (3) the assumed greater hospitality of Federal courts to peculiarly Federal claims (see, Gulf Offshore Co. v Mobil Oil Corp., supra, at 483-484; see also, Redish and Muench, Adjudication of Federal Causes of Action in State Courts, 75 Mich L Rev 311).

RICO violations may be based on a plethora of Federal and State violations which makes the need for a uniform interpretation of RICO less significant than if all RICO actions depended upon the interpretation of the RICO Act or Federal law only. The Cianci court concluded that "RICO does not *357require uniformity in interpretation and application” (Cianei v Superior Ct. [Poppingo], 40 Cal 3d 903, 914, 221 Cal Rptr 575, 580, 710 P2d 375, 380, supra).

The expertise of Federal Judges in Federal law is another factor to be considered in determining whether exclusive Federal jurisdiction is required. In Greenview Trading Co. v Hershman & Leicher (108 AD2d 468, supra), the court found it significant that State court adjudication of RICO claims would require State court Judges to interpret not only RICO but also other Federal substantive laws which may form the basis of the predicate acts in any given RICO action. While this is an important consideration, I do not find it dispositive. As stated in Cianei:

"The offenses underlying the RICO cause of action, as noted, include state as well as federal criminal violations. While federal judges must be presumed to have greater expertise over the latter, state judges must be presumed to have greater expertise over the state law violations.

"Third, state judges cannot be deemed unsympathetic to RICO claims. The states plainly share with the federal government the desire to avoid the costs of crime in the marketplace: 23 states have already enacted little RICO’ statutes, and 6 have such statutes pending * * * Moreover, RICO’s predicate offenses include violations of state criminal law; state judges cannot be presumed hostile to claims that may be federal in label only, any more than federal judges would be hostile to claims based on violation of state laws” (Cianei v Superior Ct. [Poppingo] 40 Cal 3d 903, 915-916, 221 Cal Rptr 575, 581, 710 P2d 375, 381, supra).

Given the fact that civil RICO actions often involve common-law fraud and breach of contract actions, and that in an increasing number of State court cases a RICO claim or counterclaim should properly be interposed, certain civil RICO actions may be more appropriately placed in State court. State courts frequently collaterally decide issues that would otherwise be reserved for the Federal courts, even where there is exclusive Federal jurisdiction (see, Hathorn v Lovorn, 457 US 255, supra; Gulf Offshore Co. v Mobil Oil Corp., 453 US 473, 483, n 12, supra; Andrea Theatres v Theatres Confections, 787 F2d 59).

The concept advanced in favor of exclusive jurisdiction is the greater hospitality of Federal courts to peculiarly Federal claims. This factor does not apply to many civil RICO actions *358whose genesis is in fraud and breach of contract, which matters have been traditionally tried in the State courts. In this regard, it is noted that while fraud actions may technically involve interstate commerce by virtue of an interstate letter or telephone call, many of the cases are the same kind of civil litigation efficiently handled on a daily basis in the State courts.

My colleagues in the majority place great weight upon the recent enactment in New York of a State Organized Crime Control Act (hereinafter OCCA) in support of their position that State courts do not have concurrent jurisdiction in civil RICO cases. The majority contends that if RICO conferred concurrent jurisdiction, the New York State legislative efforts "would be merely duplicative and unnecessary” (majority opn, at 346).

In this regard, we note that the New York OCCA does not contain a provision permitting a private civil cause of action. Unlike RICO, OCCA is essentially a criminal statute with civil sanctions that can only be enforced by the District Attorney. Further, OCCA added Penal Law § 460.30 (7), which provides as follows: "[T]he imposition of a criminal penalty, forfeiture or fine under this section shall not preclude the application of any other criminal penalty or civil remedy under this article or under any other provision of law.” Penal Law § 460.30 (8) also provides: "Any payment made as restitution to victims pursuant to this section shall not limit, preclude or impair any liability for damages in any civil action or proceeding for an amount in excess of such payment.”

Thus, in our view, OCCA is in no way duplicative or in conflict with civil RICO. OCCA gives the District Attorneys a criminal RICO-like tool that they previously did not have. State courts do not have concurrent jurisdiction with the Federal courts as to the criminal provisions of RICO (see, e.g., Martin v Hunter’s Lessee, 1 Wheat [14 US] 304, 337), and, accordingly, OCCA was created to fill that void. A holding of concurrent State jurisdiction would, therefore, supplement, not duplicate, the remedies available to combat racketeering, organized crime and business frauds now held to be subject to civil RICO. I therefore conclude that the passage of the New York OCCA does not affect the resolution of this issue.

In sum, I find that State courts are equally competent to adjudicate civil RICO claims. Under the circumstances of this case, and considering all of the relevant factors, adjudicating *359civil RICO claims in the courts of this State would not be sufficiently incompatible with Federal interests to warrant a departure from the general rule, mandated by the United States Supreme Court in Gulf Offshore Co. v Mobil Oil Corp. (453 US 473, supra), that, with respect to a statute such as RICO, State courts share subject matter jurisdiction with the Federal courts.

CONCLUSION

The presumption of concurrent jurisdiction has not been rebutted by explicit statutory directive, unmistakable legislative history or clear incompatibility between State court adjudication and Federal interests. Mindful of our obligation under Gulf Offshore (supra), State courts should share subject matter jurisdiction with Federal courts in civil RICO actions.

I therefore would reverse and deny the plaintiffs motion to dismiss the defendant Leucadia’s fifth counterclaim based on alleged civil RICO violations.

Rubin and Kunzeman, JJ., concur with Thompson, J. P.; Spatt, J., dissents and votes to reverse the order insofar as appealed from, on the law, and deny the branch of the plaintiffs motion which was to dismiss the fifth counterclaim of the appellant, alleging a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO; 18 USC § 1961 et seq.), with an opinion in which Fiber, J., concurs.

Ordered that the order is affirmed insofar as appealed from, with costs.

See also, Belfont Sales Corp. v Gruen Indus. (112 AD2d 96), which followed Greenview Trading Co. v Hershman & Leicher (108 AD2d 468) in deciding that there was exclusive Federal jurisdiction.