Opinion ID: 480157
Heading Depth: 1
Heading Rank: 4

Heading: Arbitrability of Claims Under the RICO Statute

Text: 31 Having stated that we can find no Congressional intent to preclude arbitration of claims under Rule 10b-5, we now explain why, as to claims arising under the RICO statute, we reach a contrary result. 32 Our reasons for not allowing arbitration of RICO claims are two. First, unlike 10b-5 actions under the 1934 Act, Congress provided civil RICO plaintiffs an express private right of action. 18 U.S.C. Sec. 1964(c). Second, while many civil RICO claims can perhaps be characterized as glorified common law fraud allegations, we cannot overlook the clear legislative history of that statute to the effect that when Congress enacted the RICO provisions, it did so with a view toward the eradication of organized crime. See United States v. Turkette, 452 U.S. 576, 589, 101 S.Ct. 2524, 2531, 69 L.Ed.2d 246 (1981). A civil RICO judgment against a defendant effectively amounts to an accusation that the defendant participated in a pattern of racketeering activity. See 18 U.S.C. Secs. 1962, 1961(1). A civil RICO suit is in effect quasi-criminal in nature. 12 Thus, in light of the arguable parallels between criminal and civil RICO proceedings, and given the Congressional policy of eradicating organized crime through the express use of a private right of action, we believe the Congressional intent to have been one of precluding arbitration and limiting determinations of liability under this statute to the sole province of Article III courts. 33 We note that two circuit courts have addressed the issue of the arbitrability of civil RICO claims, and, in one case, wish to distinguish their reasoning from our own. The Third Circuit, in Jacobson, et al. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., et al., 797 F.2d 1197 (3d Cir.1986), held that where a civil RICO claim is based on predicate act 10b-5 violations, the RICO claim is arbitrable if the underlying 10b-5 claims are arbitrable. Id. at 1202-1203. Because the Third Circuit found 10b-5 claims not arbitrable, it likewise found RICO not arbitrable. Id. If we were to apply the Third Circuit's reasoning to this case, we would be obliged to find the RICO claim arbitrable along with 10b-5. We have, of course, rejected that view. 34 We decline to adopt the Third Circuit's reasoning on the ground that a civil RICO violation is made up of more than the predicate act. Specifically, plaintiffs must show that the series of predicate acts amounted to a pattern of racketeering activity. 18 U.S.C. Secs. 1962 and 1964(c). The meaning of this additional element of a civil RICO claim has yet to be clearly established in the law. See Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 105 S.Ct. 3275, 3285 n. 14, 87 L.Ed.2d 346 (1985). We note, however, that the obligation of plaintiffs to establish the existence of a pattern of racketeering activity is not meaningless, id., and that it is precisely this element of a RICO claim that carries with it the compelling public policy considerations which were so important to Congress, and which, in our view, preclude arbitrability. Accordingly, while we can find no Congressional intent precluding arbitration of 10b-5 claims (either alone or where these are alleged as the predicate acts for a civil RICO violation), we must conclude that Congress intended the pattern of racketeering activity aspect of RICO to be the sole province of Article III courts. That the result under our rule is bifurcated litigation cannot affect our conclusion. See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 1241-1243, 84 L.Ed.2d 158 (1985) (holding that considerations of efficiency cannot override the command of the Arbitration Act, even where bifurcated proceedings would result). 35 The Second Circuit, in McMahon v. Shearson/American Express, Inc., 788 F.2d 94 (2d Cir.1986), cert. granted, --- U.S. ----, 107 S.Ct. 60, 93 L.Ed.2d 20 (1986), held that civil RICO claims are not arbitrable. The court there stated, inter alia, that a civil RICO plaintiff can be analogized to the private antitrust plaintiff, whose claims are not arbitrable under the doctrine of American Safety Equipment v. J.P. Maguire, 391 F.2d 821 (2d Cir.1968). The American Safety court stated as follows: 36 A claim under the antitrust laws is not merely a private matter. The Sherman Act is designed to promote the national interest in a competitive economy; thus, the plaintiff asserting his rights under the Act has been likened to a private attorney-general who protects the public interest. Id. at 826. 37 We agree with the Second Circuit that this element of the American Safety doctrine remains alive after Mitsubishi, which only criticized the private attorney general concept in the context of an international dispute. 13 105 S.Ct. at 3355, 3358-3360. Thus, we note that, as in Wilko, Alexander, Barrentine and McDonald, the provision by Congress to individuals of an express right of action is not to be taken lightly by the courts, and when combined with compelling public policy considerations requiring Article III determination of rights under a statute, can serve to bar arbitration altogether, see Wilko, supra; American Safety, supra; or render it clearly secondary by allowing plaintiffs to litigate in federal court anew. See Alexander, supra; Barrentine, supra; and McDonald, supra. 38 That we find a compelling Congressional policy to preclude arbitration of civil RICO claims, and not to preclude arbitration of 10b-5 claims, is not in our view contradictory. As noted above, Congress failed to provide individuals an express right of action in the Securities Exchange Act of 1934. This omission, we believe, places a greater burden on those arguing for a compelling area of public concern such that arbitration of federal statutory rights is prohibited. The inquiry, under Mitsubishi, is one of Congressional intent. And while we do not foreclose the possibility of finding a Congressional intent to preclude arbitration of federal statutory rights where no express right of action is provided, we do not believe actions under the 1934 Act present such a compelling case, and therefore, conclude that their arbitrability cannot be barred on mere inferences. The RICO statute, by contrast, contains express rights of action and, in our view, perilously overlaps with its criminal counterpart so as to render determinations of liability a matter of exclusive Article III concern. We therefore affirm the decision of the district court to deny arbitration of plaintiffs' RICO claim, and reverse the district court's denial of arbitration on the 10b-5 count. 39 The case is remanded with instructions that the district court order arbitration of the 10b-5 dispute and stay the RICO claims pending the outcome of the arbitration. No costs.