Opinion ID: 486371
Heading Depth: 3
Heading Rank: 2

Heading: Arbitrability of RICO Claims

Text: 28 Having determined that Genesco's civil RICO claims fall within the arbitration clauses, we must next decide as a matter of law whether Congress intended RICO claims to be nonarbitrable. This question has generated much controversy in recent years, resulting in both intercircuit, compare, e.g., Mayaja, Inc. v. Bodkin, 803 F.2d 157 (5th Cir.1986) (arbitrable), petition for cert. filed, 55 U.S.L.W. 3523 (Jan. 14, 1987) (No. 86-1160) with, e.g., Page v. Moseley, Hallgarten, Estabrook & Weeden, Inc., 806 F.2d 291 (1st Cir.1986) (nonarbitrable), and intracircuit conflicts. Compare, e.g., Rhoades v. Powell, 644 F.Supp. 645 (E.D.Cal.1986) (nonarbitrable) with Sacks v. Dean Witter Reynolds, Inc., 627 F.Supp. 377 (C.D.Cal.1985) (arbitrable) and compare also Preston v. Kruezer, 641 F.Supp. 1163 (N.D.Ill.1986) (nonarbitrable) with Steinberg v. Illinois Co. Inc., 635 F.Supp. 615 (N.D.Ill.1986) (arbitrable). The debate has come, in large part, in response to the Supreme Court's decision in Mitsubishi, which signaled a new approach to the arbitrability of statutory claims. Thus, Mitsubishi prompted many courts to rethink their stance on the arbitrability of RICO claims. For example, the Fifth Circuit at first held RICO claims to be nonarbitrable, Smoky Greenhaw Cotton Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 785 F.2d 1274 (5th Cir.1986) (Greenhaw I), but then remanded the issue to the district court for full briefing on the ground that Mitsubishi cast doubt on its initial decision. Id. at 1282 (per curiam) (Greenhaw II). On later appeal, the Fifth Circuit affirmed the district court and held RICO claims to be arbitrable. Smoky Greenhaw Cotton Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 805 F.2d 1221 (5th Cir.1986) (Greenhaw III); see also Development Bank of the Philippines v. Chemtex Fibers Inc., 617 F.Supp. 55, 56-57 (S.D.N.Y.1985) (rethinking holding of district court in Samitri that RICO claims are nonarbitrable in light of Mitsubishi). 29 In Mitsubishi, the Supreme Court held that nothing in the nature of the federal antitrust laws prohibits parties from agreeing to arbitrate antitrust claims arising out of international commercial transactions. 105 S.Ct. at 3355-61. In so holding, the Supreme Court stated that there is no per se presumption against arbitration of statutory claims. Id. at 3353. The Court warned against disfavoring agreements to arbitrate statutory claims and ignoring the hospitable inquiry into arbitrability, and explained that the parties, having made the bargain to arbitrate, should be bound by it unless Congress itself has evinced an intention to preclude arbitration of the statutory rights at issue. Id. at 3355. Thus, rather than drawing presumptions regarding the arbitrability of statutory claims as courts have done in the past, see, e.g., American Safety Equip. Corp. v. J.P. Maguire & Co., 391 F.2d 821 (2d Cir.1968), examined in Mitsubishi, 105 S.Ct. at 3355-61, we now must deduce from the text or legislative history of the federal statute in question evidence of an affirmative congressional protection of the right to a judicial forum. Mitsubishi, 105 S.Ct. at 3355. Absent that evidence, nothing prevents a court from concluding that Congress aimed to allow the arbitration of these claims. 30 Genesco argues that we have already held RICO claims to be nonarbitrable in both McMahon v. Shearson/American Express, Inc., 788 F.2d 94 (2d Cir.), cert. granted, --- U.S. ----, 107 S.Ct. 60, 93 L.Ed.2d 20 (1986) and Samitri, 745 F.2d 194. We cannot fully agree. McMahon held that RICO claims asserted in the context of domestic commercial transactions are nonarbitrable as a matter of law. 788 F.2d at 98-99. McMahon did not decide the arbitrability of RICO claims in the international context. In fact, McMahon explicitly distinguished the domestic case before it from the Supreme Court's teachings in the international arena. Thus, the McMahon court implicitly recognized Mitsubishi's applicability to RICO claims arising in an international context. See id. Indeed, the Supreme Court has drawn a similar distinction between international and domestic contexts in the area of securities claims. Compare Scherk, 417 U.S. 506, 94 S.Ct. 2449 (international securities claim arbitrable) with Wilko, 346 U.S. 427, 74 S.Ct. 182 (domestic securities claim nonarbitrable). Thus, while McMahon does in fact govern any domestic RICO claims Genesco may have, it does not apply to international RICO claims. 31 Nor did we squarely address the arbitrability of international RICO claims in Samitri. In Samitri, the district court held that RICO Act claims were not arbitrable. 576 F.Supp. 566, 574 (S.D.N.Y.1983), aff'd on other grounds, 745 F.2d 190 (2d Cir.1984). The district court analogized RICO claims to antitrust claims which, before Mitsubishi, courts had long held to be nonarbitrable. See, e.g., Cobb v. Lewis, 488 F.2d 41, 47 (5th Cir.1974); Helfenbein v. International Indus., Inc., 438 F.2d 1068, 1070 (8th Cir.), cert. denied, 404 U.S. 872, 92 S.Ct. 63, 30 L.Ed.2d 115 (1971). Relying on the American Safety doctrine which states that the pervasive public interest in the enforcement of certain federal statutes makes claims arising under those statutes nonarbitrable, see American Safety, 391 F.2d at 827-28, the district court reasoned that, like antitrust laws, RICO Act enforcement not only affects the individuals involved, but also effectuates important societal policies, including the eradication of organized crime. 576 F.Supp. at 574-76. Because of this strong public interest, the district court concluded that RICO claims are nonarbitrable. Id. Because the parties did not challenge this portion of the district court's opinion on appeal, see 745 F.2d at 193, we had no opportunity to review the lower court's holding that international RICO claims are nonarbitrable under the American Safety doctrine. Therefore, though Samitri arose in an international context, we have yet to decide whether international RICO claims are arbitrable. 5 32 To determine whether RICO is arbitrable in the international context we must evaluate RICO under the Mitsubishi analysis. In order for a statutory claim to override the strong federal policy in favor of arbitration, the party opposing arbitration must show that Congress reserved a federal forum to vindicate rights under that statute. Mayaja, 803 F.2d at 161; see Mitsubishi, 105 S.Ct. at 3355. In short, Genesco must demonstrate that Congress planned to make an exception to the Arbitration Act for RICO claims, see Mitsubishi, 105 S.Ct. at 3355, which must be deductible from either RICO's text or legislative history. Id. We examine each in turn. 33 RICO provides a private civil action to recover treble damages for injury caused by a violation of its substantive provisions. Sec. 1964(c). It contains no anti-waiver provision prohibiting parties from voluntarily relinquishing a judicial forum. Mayaja, 803 F.2d at 164; Jacobson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 797 F.2d 1197, 1202 (3d Cir.), petition for cert. filed, 55 U.S.L.W. 3259 (Sept. 25, 1986) (No. 86-487); cf. Wilko, 346 U.S. at 437, 74 S.Ct. at 188 (anti-waiver provision reveals congressional intent to bar arbitrability of securities actions under the Securities Act of 1933). Nothing in the statutory language suggests that RICO claims are to be excluded from the dictates of the Act. We turn then to the legislative history. 34 Added to the House version of the bill after the original bill had been passed by the Senate, the private treble-damages provision of RICO, codified as Sec. 1964(c), received relatively little discussion in either House. Mayaja, 803 F.2d at 164; see Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 3280, 87 L.Ed.2d 346 (1985). Nor did the legislative debate address the arbitrability of claims brought under Sec. 1964(c). Accord Mayaja, 803 F.2d at 164; Jacobson, 797 F.2d at 1202 ([T]here is no legislative history suggesting that Congress ever considered whether RICO civil claims should be arbitrated.). 35 Because Congress failed to comment on arbitrability, we examine the purposes underlying Sec. 1964(c) to determine whether--due to an inherent conflict between those purposes and the arbitration of such claims--Congress implicitly intended RICO claims to be nonarbitrable. See Mitsubishi, 105 S.Ct. at 3355, 3358-60 (examining, in the absence of an explicit statement of congressional intent as to arbitrability, congressional policies behind Sec. 4 of the Clayton Act); cf. McDonald v. City of West Branch, 466 U.S. 284, 290, 104 S.Ct. 1799, 1803, 80 L.Ed.2d 302 (1984) (holding that Sec. 1983 claims are nonarbitrable because arbitration cannot provide an adequate substitute for a judicial proceeding in achieving Sec. 1983's objectives); Barrentine v. Arkansas-Best Freight Sys., 450 U.S. 728, 742-45, 101 S.Ct. 1437, 1445-47, 67 L.Ed.2d 641 (1981) (finding congressional intent that Fair Labor Standards Act of 1938 claims be nonarbitrable because of conflict between arbitration and FLSA's purposes); Alexander v. Gardner-Denver Co., 415 U.S. 36, 56, 94 S.Ct. 1011, 1023, 39 L.Ed.2d 147 (1974) (The purpose and procedures of Title VII indicate that Congress intended federal courts to exercise final responsibility for enforcement of Title VII; deferral to arbitral decisions would be inconsistent with that goal.). 36 The legislative history of Sec. 1964(c) reveals three recurrent congressional purposes: First, Congress' primary purpose in enacting Sec. 1964(c) was to compensate the victims of organized crime. Representative Steiger, who proposed the addition of a private treble-damages action, emphasized that those who have been wronged by organized crime should at least be given access to a legal remedy. Sedima, 105 S.Ct. at 3280 (quoting Hearings on S. 30, and Related Proposals, before Subcommittee No. 5 of the House Committee on the Judiciary, 91st Cong., 2d Sess., 520 (1970) (hereinafter cited as House Hearings)). During the congressional debates on Sec. 1964(c), Congressman Steiger made his point even more forcefully: [i]t is the intent of this body, I am certain, to see that innocent parties who are the victims of organized crime have a right to obtain proper redress.... It represents the one opportunity for those of us who have been seriously affected by organized crime activity to recover. Mayaja, 803 F.2d at 165 (quoting 116 Cong.Rec. 35,346-47 (1970)); see also Sedima, 105 S.Ct. at 3286 (Congress expressly admonished that RICO is to be liberally construed to effectuate its remedial purposes which are nowhere more evident than in Sec. 1964(c) (quoting RICO, Pub.L. 91-452, Sec. 904(a), 84 Stat. 947) (emphasis added)). The provision's secondary purpose was to deter organized crime: [i]n addition, the availability of such a remedy would enhance the effectiveness of title IX's [i.e., RICO's] prohibitions. Mayaja, 803 F.2d at 164 (quoting House Hearings, supra, at 520). Thus, Sec. 1964(c) is primarily a compensatory and secondarily a deterrent measure. The House passed the bill as proposed, 116 Cong.Rec. at 35,363-64; Sedima, 105 S.Ct. at 3281, and the Senate adopted the bill as amended in the House. 116 Cong.Rec. at 36,296; Sedima, 105 S.Ct. at 3281. 37 The third important congressional theme was to model Sec. 1964(c) after Sec. 4 of the Clayton Act. In fact, the RICO treble-damages language of Sec. 1964(c) tracks virtually word for word the similar provision of Sec. 4 of the Clayton Act, 15 U.S.C. Sec. 15. As the Supreme Court observed: [t]he clearest current in [RICO's] history is the reliance on the Clayton Act model, under which private and governmental actions are entirely distinct. Sedima, 105 S.Ct. at 3282; Mayaja, 803 F.2d at 165 ([S]ection 4 of the Clayton Act ... [was] recurrently invoked during the congressional discussion of RICO's private treble damages provision.). 38 Given Mitsubishi's analysis, Congress' reliance on Sec. 4 of the Clayton Act is particularly relevant to the arbitrability question before us. In Mitsubishi, the Supreme Court examined the legislative purposes behind Sec. 4 in order to determine the arbitrability of antitrust claims brought under that section. 105 S.Ct. at 3358-60. Undertaking the same analysis we undertake today, the Court found that [n]otwithstanding its important incidental policing function, the treble-damages cause of action ... seeks primarily to enable an injured competitor to gain compensation for that injury. Id. at 3359. Emphasizing the priority of compensatory function of Sec. 4 over its deterrent function, the Court found no congressional intent to preclude arbitration of antitrust claims. Id. (citing Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977)). 39 Genesco raises two objections to arbitrability, contending that RICO's complexity warrants its nonarbitrability and that public interest in the enforcement of RICO precludes its arbitration. Neither argument has merit. Complexity, of course, is not a reason to deny arbitrability. See Mitsubishi, 105 S.Ct. at 3355, 3357-58. In addition, after Mitsubishi, determining statutory claims to be nonarbitrable on the basis of some judicially recognized public policy rather than as a matter of statutory interpretation is no longer permissible. Jacobson, 797 F.2d at 1202. 40 Moreover, private civil RICO actions have come to implicate primarily private interests, thus obviating public policy concerns supporting an exclusively judicial forum. As the Supreme Court recognized in Sedima, RICO in its private civil version has evolved into a federal business tort statute. 105 S.Ct. at 3287. In fact, civil RICO claims are almost always asserted against respected and legitimate enterprises, rather than against the archetypal, intimidating mobster. Id.; see also Report of the Ad Hoc Civil RICO Task Force, 1985 A.B.A. Sec. of Corp., Banking & Bus.Law 55 (1985) (77% of all civil RICO cases involve securities, wire, or mail fraud in a commercial or business setting); Abrams, The Civil RICO Controversy Reaches the Supreme Court, 13 Hofstra L.Rev. 147, 153 n. 31 (1985) (same). 41 Paralleling Mitsubishi's analysis, we find no congressional barriers to the arbitration of international RICO claims. Since plaintiffs, like Genesco, may effectively vindicate their RICO causes of action in the arbitral forum, the statute will continue to serve both its primary remedial and secondary deterrent functions. See Mitsubishi, 105 S.Ct. at 3359-60. Thus, the arbitration of these claims is not inconsistent with the congressional purposes underlying RICO's enactment. In sum, nothing in RICO's text or legislative history evidences a congressional exception to the federal Arbitration Act for RICO violations. Accordingly, we hold as a matter of law that RICO claims arising in an international context are arbitrable. See Suthirachartkul v. Shearson Lehman Brothers Inc., 806 F.2d 37 (2d Cir.1986) (per curiam) (remanding to the district court to consider the applicability of Scherk to an allegedly international RICO claim); Jacobson, 797 F.2d at 1202-03 (holding RICO claims based on mail and wire fraud to be arbitrable in the absence of a contrary congressional intent); Chemtex Fibers, 617 F.Supp. at 57 (holding international RICO claims arbitrable). Having so held, we must now apply this rule to Genesco's RICO claims against Kakiuchis Japan and America. 42 a) Kakiuchi-Japan 43 The arbitration agreement between Genesco and Kakiuchi-Japan clearly arises in the international context and therefore the mandate of Mitsubishi applies with full force. First, the agreements involve truly international business transactions. See Samitri, 745 F.2d at 195. Kakiuchi-Japan, a Japanese corporation, and Genesco, an American corporation, entered into agreements to purchase piece goods from Japan and other foreign sources. These agreements call for arbitration of disputes in Japan. Here, as in Samitri, the corporations are of diverse nationality, and the products that are the subject matter of the agreements are produced in one country and sold in another. Id., see also Mitsubishi, 105 S.Ct. at 3349 (where international context permitting arbitration of a statutory claim consisted of parties of diverse nationality, performance of contractual obligations outside the U.S., and a contract providing for arbitration in Japan); Scherk, 417 U.S. at 508, 94 S.Ct. at 2451 (where international context requiring arbitration of a statutory claim included parties of diverse nationality, sale of a foreign business, and a contract providing for arbitration in France). Under these circumstances, the concerns voiced by the Supreme Court in Mitsubishi--international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes--are equally compelling with respect to Genesco's transactions with Kakiuchi-Japan and accordingly require us to enforce the parties' agreement to arbitrate this claim. See 105 S.Ct. at 3355; see also id. at 3356-57 (discussing the international concerns voiced in Scherk and The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972)). In fact, courts holding RICO claims to be nonarbitrable since Mitsubishi, have done so exclusively in the domestic context. See, e.g., Page v. Moseley, Hallgarten, Estabrook & Weeden, Inc., 806 F.2d 291, 298-300 (1st Cir.1986); Tashea v. Bache, Halsey, Stuart, Shields, Inc., 802 F.2d 1337 (11th Cir.1986); McMahon, 788 F.2d at 98-99. 44 The Supreme Court has stated that if international arbitral institutions are to take a central place in the international legal order as Congress envisioned, it will be necessary for national courts to subordinate domestic notions of arbitrability to the international policy favoring commercial arbitration. Mitsubishi, 105 S.Ct. at 3360. We take that step today and hold that Genesco's RICO claim against Kakiuchi-Japan must be resolved through arbitration. 45 b) Kakiuchi-America 46 The district court held that Genesco's RICO claim against Kakiuchi-America is arbitrable. Adopting the magistrate's report, it found that the transactions between Genesco and Kakiuchi-America were international in character: 47 [A]lthough Kakiuchi-America is a United States-based corporation, the transactions at issue are plainly international in character. Apparently all of the purchases identified by Kakiuchi[-America] were of piece goods shipped from overseas and unloaded, pursuant to the terms of the sales notes, at the Port of New York. Since the transactions themselves were directly in the stream of international commerce, the policy considerations suggested in Mitsubishi as compelling arbitration appear generally applicable here as well even though the arbitration itself is to be conducted in New York. 48 We cannot agree. Although the subject goods were in fact produced in one country and sold in another, this alone is insufficient to trigger the international concerns voiced in Mitsubishi, which stated that an international context raises the added concerns of international comity, respect for foreign tribunals, and international commercial predicability that would require the arbitration of a case which may not be arbitrable in a domestic context. Id. at 3355. Genesco's transactions with Kakiuchi-America do not implicate these concerns. Because arbitration is called for in New York, our refusal to compel arbitration in this instance would not demonstrate disrespect for foreign arbitral institutions, nor adversely affect international comity. Moreover, because Genesco and Kakiuchi-America are both American corporations, litigation of their RICO dispute would not disrupt international commercial predictability. In short, Genesco's agreement with Kakiuchi-America does not arise in a truly international commercial context. Cf. Mitsubishi, 105 S.Ct. at 3349 (international factors include parties of diverse nationality and arbitration in Japan); Scherk, 417 U.S. at 508, 94 S.Ct. at 2451 (international factors include parties of diverse nationality and arbitration in France); Samitri, 745 F.2d at 195 (international factors include parties of diverse nationality, arbitration in France, and the application of foreign law). 49 Consequently, under McMahon, Genesco's domestic RICO claim against Kakiuchi-America would not be subject to arbitration. 788 F.2d at 98. Since such precedent, of course, governs this panel, we would ordinarily simply hold that this domestic RICO claim is not arbitrable and remand the claim for trial. But, because the Supreme Court granted certiorari in McMahon, see Shearson/American Express, Inc. v. McMahon, --- U.S. ----, 107 S.Ct. 60, 93 L.Ed.2d 20 (1986), granting cert. to 788 F.2d 94 (2d Cir.), and heard oral argument in that case on March 3, 1987, a decision should soon be forthcoming. In light of that prospect, to require a trial to go forward appears, under these particular circumstances, a waste of judicial and legal resources. Consequently, we remand the claim to the district court with the suggestion that it not go forward with trial until the Supreme Court renders its decision in McMahon. Cf. Sutchirachartkul v. Shearson/Lehman Bros., Inc., 806 F.2d 37, 39 (2d Cir.1986).