The problem is in subdivision (c). When you talk about operating an enterprise through a pattern of criminal activity and the enterprise prise is defined that broadly and the pattern is defined that broadly, there is really nothing much left than saying that somebody who commits crimes is guilty of violating RICO.

I don't know that there is a way of adequately limiting the statute by means of these particular concepts. What I have tried to do once again, I realize this is a proposal that comes with a certain purist approach, but I think it is worth your consideration as a guide to the way RICO is used-is to isolate why prosecutors think RICO is a good idea.

In many of these cases the reasons why Federal prosecutors are using RICO have nothing to do with the broad terminology that is a problem in the statute. In these local corruption cases the principal problem is that the Federal prosecutors lack a Federal statute that prohibits bribery of State and local officials, so they go looking for various things in the Federal Code that they can use to hang a local corruption case on. The reason they are doing the local corruption cases is that often local authorities are unable or unwilling to do so. But in order to do those cases, Federal prosecutors have to twist or manipulate or bend or extend various other kinds of Federal statutes.

RICO, by incorporating State bribery laws, makes most forms of State bribery violations Federal crimes. That may not be a bad idea. I think it is a good idea, though I am sure that some would have federalism objections if you actually passed a statute that did this on its face as broadly as RICO does it covertly through the back door. The idea should be to identify the legitimate need that RICO serves in these cases and pass particular laws that solve the problem without the potential for abuse inherent in a vague and general law like RICO.

Mr. HUGHES. I thank the gentleman. My time is up.

Because we have so many members in attendance, I am going to ask the members to adhere to the 5-minute rule.

The gentleman from Florida.

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

Professor, I am kind of curious about your view of one aspect of this dealing with the fact that much of the RICO statute is criminally oriented. We hear all the criticism on the civil side. When you gave us the civil RICO part of this in your prepared analysis, it appears that you don't have any problems with the basic thrust of what is being done in here in the sense that the perpetrator should be found civilly liable. I question whether or not we shouldn't be concerned and whether you are concerned about the potential abuse of the due process concept if there has been no criminal conviction and if there is a higher standard for the criminal element which is here and upon which the civil penalty must be based.

Do you not see a due process problem here with proceeding under a lower standard of proof and allowing treble damages for what is an underlying criminal offense without ever proving the criminal offense?

Mr. LYNCH. In strict legal theory the courts would probably say there is no due process problem because the civil RICO case is civil in its nature. The idea is to respond in damages.

I think that when one is talking about extraordinary remedies, not only the availability of punitive damages, but under RICO it is now an automatic treble damage remedy, and where you are talking about the label of racketeer, there are bases for concern that are similar to those that underlie the due process clause; people are being labeled without the kinds of safeguards that normally apply for that kind of penalty and that kind of label. I think it is a problem, yes.

Mr. MCCOLLUM. Whereas courts can technically interpret their way through this maze, and have, there is still an intellectual policy question that you have just raised.

Mr. LYNCH. I think that is right. I think it is also true on the criminal side, by the way, that in many of these cases a prosecutor can hold a press conference saying that somebody is a racketeer and you have the same kinds of problems. Maybe in the end that person will be adjudged to have committed a crime or more than one crime, but perhaps what the bill does by way of stripping out the "racketeer" on the civil side may be worth doing on the criminal side as well if RICO is left otherwise unchanged. Many of these cases even on the criminal side, even the ones that are perfectly appropriate for prosecutors to bring, simply do not fall within any ordinary understanding of the term "racketeer."

Mr. MCCOLLUM. You have rather elaborately explained to us the rationale you see underlying some of these civil lawsuits because of access to Federal courts and because of the treble damages as the incentives to go in and to file these things. I am curious if from your perspective and your study of criminal law there is a deficiency perhaps in our laws in the basic fraud area. Fraud is the premise in many, many cases. That is the thrust of much of this. Do we have a more fundamental problem currently with Federal fraud laws?

Mr. LYNCH. I think we do. If you want to get that basic, we have a very general problem with Federal criminal law. Federal criminal law has grown on a sort of ad hoc basis out of traditional common law through statutes added over the years. There is not much system and there is not much definition and there is not much regularity in the Federal Criminal Code, unlike the criminal codes of most States which define criminal conduct with great particularity.

The mail and wire fraud statutes use a very general term "fraud." Like RICO itself, that is good from the standpoint of prosecutors because it enables prosecutors, as the Supreme Court said once, to keep one step ahead of the people who commit fraud. The human mind is very ingenious about coming up with new kinds of fraud, and if you have to outlaw them one at a time after they have been invented, the law will never catch up.

On the other hand, it is such a broad and undefined term that there have been numerous cases in which the law has been applied to conduct that people could hardly have known was fraudulent or criminal, and the courts have had to define what fraud means. Just last term, Congress came back and revisited the Supreme Court's McNally case and overruled it by restoring the broader definition of fraud that the lower courts had adopted.

Mr. MCCOLLUM. You are giving us both sides of the argument. Do you personally think that Congress needs to address this issue, or is it something that because of the policy you just described we could well leave alone right now?

Mr. LYNCH. I think unless one wanted to undertake the broad task of reforming title 18, which I commend to you——

Mr. MCCOLLUM. We have done that. We've tried that a few times.

Mr. LYNCH. I understand that. It is too bad that the effort wasn't successful.

Short of that, I wouldn't start tinkering with the mail fraud statute at this point. RICO is bad enough. But I would try to take a very broad look at the way RICO is structured.

Mr. MCCOLLUM. Thank you.

Thank you, Mr. Chairman.

Mr. HUGHES. The gentleman from Virginia is recognized for 5 minutes.

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

Mr. Lynch, I want to compliment you on your testimony here today, both your written testimony and your oral presentation.

I was struck in your written testimony with the description that you provide of the ease with which a mere contract case, a garden variety commercial dispute, can be elevated into a civil racketeering claim with treble damages and attorneys' fees attached. That is so because of the ease of demonstrating that an enterprise exists and the ease also of pleading that a pattern of racketeering is present, given the need only to have two incidents of a predicate act having been violated, and that could be a couple of phone calls or a couple of letters in connection with either the formation or breach of the contract.

I notice that you say on page 40 that if over 70 percent of the civil RICO cases are essentially ordinary business disputes in most of which no prosecutor would dream of charging criminal violations, there is little justification for continuing as broad a civil remedy, as is contained in present law. That is a statement with which I agree and I think other members of this panel agree.

Let me get you to describe the way in which the presence of treble damages, the presence of attorneys' fees in these mere garden variety contract disputes plus the potential to brand your opponent as a racketeer by simply filing the case can leverage very substantial settlements. You address that to some extent in your written testimony. I would appreciate it if you could elaborate on that orally.

Mr. LYNCH. I think basically what you are talking about is putting a substantial thumb on the scales for the plaintiff in these cases. Any lawyer defending any kind of civil case has to be concerned about the possibility, however remote it may seem, however unjustified it may seem, that the plaintiff could win.

Šo virtually any lawsuit, given the cost of litigation and given the possibility that, if only through some fluke, the plaintiff could prevail, even the most frivolous lawsuit has a certain settlement value. That settlement value is calculated by comparing how much it is going to cost to defend the lawsuit and what the chances of success are going to be against the scope of the possible verdict

multiplied by whatever percent of chance that verdict is going to have. If you say that in any given case the stakes are tripled, that automatically increases the settlement value of the lawsuit.

One of the things that you have to do in looking at civil statutes is not only to analyze what the formal outcomes are supposed to be if everything gets properly proved, but what the impact is on the litigation and settlement process. Here, I think, the impact is to substantially strengthen the plaintiff's hand.

There are probably any number of cases where the plaintiff's hand should be strengthened. But once again, the issue is, can we single out what the situations are in which existing remedies are inadequate for plaintiffs? Also, can we define those and do something about them rather than pass something that is so broad that it applies virtually everywhere and leave it to the courts to try to invent ad hoc interpretations of the plain meaning of this statute to try to get around it?

Mr. BOUCHER. Thank you for that.

Let me also broach with you the problem that I see existing with the way in which the Administrative Office of the U.S. Courts is tracking the number of RICO cases. The civil intake form is very straightforward. It has to be appended to every civil case. It says at the bottom "check one box only." There are a number of boxes: Securities law, labor law, diversity of citizenship, truth in lending. Another of those boxes is RICO. So if the underlying case is a securities case or a truth in lending case or a labor law case, even though a RICO count has been appended, there is no assurance that the plaintiff's attorney will check the RICO box. He could just as easily check the other boxes, and in fact that happens on many occasions.

Is that your understanding?

Mr. LYNCH. I think that is exactly right. That is true of these forms. It's true of a lot of the statistics we rely on in the judicial system. There are overlapping ways in which cases can be classified, particularly if the person doing the classification is a lawyer who only gets the form handed to him and it is of no great importance to that lawyer. But even if the person filling out the form is a clerk who is supposed to make some objective decision about what box should be checked; there are too many different systems of classification, too many borderline cases. It is not always that easy to track.

As I said before, every judge I have ever spoken to has said these numbers are out of whack.

Mr. BOUCHER. Thank you for that.

Mr. Chairman, I will ask one followup question because I know others have questions.

If you take the raw figures that the Administrative Office produces from these intake forms, it shows about 1,000 RICO cases being filed annually, which is something less than 1 percent of the total civil caseload across the country. Yet, as you have indicated, Federal judges have a far different story to tell. The anecdotal evidence that I have from talking with a handful of Federal judges is that as many as a sixth of all of the civil cases on their dockets are civil RICO claims. So the numbers from the Administrative Office may be off by orders of magnitude.

Do you agree with that?

Mr. LYNCH. I agree with that generally. Whether the number is a sixth or something else, I don't know.

Mr. BOUCHER. Thank you, sir.

Mr. HUGHES. I would suggest part of the problem is probably they plead RICO as one of the counts in the complaint and it may not be classified as a RICO case but perhaps a contract case.

The gentleman from Pennsylvania.

Mr. GEKAS. I thank the Chair.

I was wondering whether or not our original concept in trying to reform RICO isn't still applicable and we may be too late for it. It seemed to me that that was one of the best solutions, and that is to require a prior conviction as the foundation for a civil RICO case. Have we totally left that concept and made it impossible to adopt?

Mr. LYNCH. There are certain problems with doing that, I suppose. The advantage of doing that is it would virtually wipe out civil RICO. There is a case to be made for doing that. There is a case to be made that we should scrap it and start over and this would in effect accomplish that.

The reason it would accomplish that is that there are far fewer criminal cases brought than civil cases. Many of those criminal cases, even ones that are brought under RICO, are brought against people who either don't have assets or whose assets are well hidden because they are criminally obtained. These are not people who most of their victims are going to be in a position to sue. It is one reason why this concept of cutting back civil RICO to those cases that involve organized crime is nice in theory but it is a little bit silly in practice. You don't see too many people suing the leadership of organized crime because they were injured by activities that organized crime engaged in.

Mr. GEKAS. It's impractical too, don't you think?

Mr. LYNCH. I think it's impractical to say that one is accomplishing anything or is leaving very much of civil RICO if one institutes that requirement. Maybe one could reasonably conclude that that is fine because there isn't much value to civil RICO. Certainly, taking the standpoint of law enforcement, it seems to me there isn't much value in civil RICO. Whether there is a value to individual plaintiffs is, of course, another question.

The original concept, I suppose, in having a civil provision was at least in part to supplement the efforts of Federal prosecutors by enlisting private attorneys general, by giving them some stake in pursuing various kinds of criminal activity. I would just submit that for those cases of the most serious kinds of criminal activity that is a pipedream and for other kinds of cases one runs the risk of overstimulating a civil suit.

Mr. GEKAS. So we are beyond that. We can't undergo an examination of that anymore and really make any political and practical sense out of it.

Mr. LYNCH. As far as political and practical sense, that depends on what the consensus is out there of all of the people who are privately interested in this. I think it is an idea that is preserved in part in the present bill, although the present bill does open up