Simpson Elec. Corp. v. Leucadia, Inc.

• Decision Date: 25 October 1988
• Citation: 534 N.Y.S.2d 152,530 N.E.2d 860,72 N.Y.2d 450
• Parties: , 530 N.E.2d 860, 57 USLW 2288, RICO Bus.Disp.Guide 7069, RICO Bus.Disp.Guide 7081 SIMPSON ELECTRIC CORPORATION, Respondent, v. LEUCADIA, INC., Defendant-Appellant and Third-Party Plaintiff, et al., Defendant, et al., Third-Party Defendant.
• Court: New York Court of Appeals Court of Appeals

Page 152

534 N.Y.S.2d 152

72 N.Y.2d 450, 530 N.E.2d 860, 57 USLW 2288,

RICO Bus.Disp.Guide 7069, RICO Bus.Disp.Guide 7081

SIMPSON ELECTRIC CORPORATION, Respondent, v. LEUCADIA, INC., Defendant-Appellant and Third-Party Plaintiff, et al., Defendant, et al., Third-Party Defendant.

Court of Appeals of New York.

Oct. 25, 1988.

Deborah Doty, Raymond Fitzgerald and Andrew W. Sidman, New York City,

for defendant-appellant and third-party plaintiff

Joseph J. Haspel, Harvey S. Barr, Spring Valley, and Craig D. Zlotnick, Nanuet, for respondent.

OPINION OF THE COURT

SIMONS, Judge.

This appeal presents two questions: first, whether State courts enjoy concurrent jurisdiction with Federal courts over civil claims brought under the Racketeer Influenced and Corrupt Organizations Act (RICO) (18 U.S.C. §§ 1961-1968) and, second, whether defendant Leucadia has stated a cause of action for damages under the act in the fifth counterclaim of its amended answer. The Appellate Division answered the first question in the negative and thus did not pass on the second. 128 A.D.2d 339, 515 N.Y.S.2d 794. We affirm but for different reasons. We hold that State courts enjoy concurrent jurisdiction over civil RICO claims, but that Leucadia has not pleaded a cause of action for damages under the RICO Act.

I

This dispute arises out of an alleged agreement between plaintiff Simpson Electric Corporation and defendant Leucadia, Inc. for the provision of electrical contracting work in rehabilitating a building, located at 315 Park Avenue South in Manhattan. The building was owned and operated by the defendant Grand-White Realty Corporation and its president and majority shareholder, third-party defendant Issac Silverman. At the time of the agreement Leucadia was the mortgagee in possession. Simpson commenced the action to recover damages in excess of $13 million representing the balance due on the electrical renovation work. Leucadia denied the essential allegations of the complaint and interposed several counterclaims. One of them, the fifth, purported to allege a statutory RICO violation.

RICO (18 U.S.C. §§ 1961-1968) is part of the Organized Crime Control Act of 1970. The object of that legislation was to prevent and punish "racketeering activity" (see, Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 480-482, 105 S.Ct. 3275, 3277-78, 87 L.Ed.2d 346). Although the act was directed principally against persons affiliated with organized crime, it has evolved into something quite different because of its language. The act makes it unlawful to use income from a "pattern of racketeering activity" (1) to acquire an interest in or to establish or operate an enterprise engaged in or affecting interstate commerce (18 U.S.C. § 1962[a] ), (2) to acquire or maintain an interest in such an enterprise through a pattern of racketeering activity (§ 1962[b] ), (3) to conduct or participate in the conducting of such an enterprise through a pattern of racketeering activity (§ 1962[c] ) and (4) to conspire to do any of the foregoing acts (§ 1962[d] ). In addition to containing a criminal enforcement scheme (18 U.S.C. § 1963), the act establishes a civil enforcement scheme, including a private right of action, by providing that: "Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of suit, including a reasonable attorney's fee" (18 U.S.C. § 1964[c] ).

In its fifth counterclaim Leucadia alleges first, in conclusory fashion, that Simpson, Silverman and Grand-White were an "enterprise" within the meaning of 18 U.S.C. § 1962 and then, specifically, that Simpson submitted its bills and invoices to Silverman, that the amount claimed due on them was grossly inflated and that Silverman, with knowledge of the misrepresentation, submitted the bills and invoices to Leucadia who, relying upon their truthfulness and upon assurances of their accuracy made by Silverman, made additional loans to Silverman's corporation, Grand-White, in the form of payments to Simpson. Leucadia alleges that Silverman, for his part in these matters, received "kickbacks" from Simpson. It alleges that the United States mails were used in furtherance of this scheme and that Simpson committed at least two acts of mail fraud and thereby engaged in a "pattern of racketeering activity" as that phrase is defined in 18 U.S.C. § 1961(5).

Simpson moved to dismiss Leucadia's counterclaim contending that the Federal courts possessed exclusive jurisdiction over RICO civil claims and, alternatively, that a cause of action had not been stated. Supreme Court ruled that State courts have concurrent jurisdiction over RICO claims but that defendant's claim did not come within the statute, principally because, as the United States Court of Appeals for the Second Circuit held in Sedima, S.P.R.L. v. Imrex Co., 741 F.2d 482, a RICO claimant must show that the defendant has been convicted of the underlying "predicate acts" in order to state a civil claim for damages.

Pending appeal from the order, the United States Supreme Court reversed the Second Circuit in Sedima, 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 supra, and held that a RICO claimant need not establish that the defendants had been convicted of the underlying "predicate acts" supporting the action for money damages. The Appellate Division affirmed dismissal of Leucadia fifth counterclaim. It did not reach the question of whether a cause of action had been stated in light of the Supreme Court's decision in Sedima but it held instead that the Federal courts possessed exclusive jurisdiction over civil RICO actions. Two Justices dissented and voted to reverse and deny the motion to dismiss, concluding that the State courts had concurrent jurisdiction and that a cause of action had been stated. The court granted Leucadia's motion for leave to appeal and certified the following question: "Was the order of this court dated May 18, 1987 properly made?" By the terms of the certified question we are authorized to address whether Leucadia has stated a cause of action if we first conclude that State courts have concurrent jurisdiction over RICO claims (see, CPLR 5602[b][1] ).

II

The jurisdictional issue has been considered by several appellate courts, including two in this State. The Second Department, in this case, and the First Department, in Greenview Trading Co. v. Hershman & Leicher, 108 A.D.2d 468, 489 N.Y.S.2d 502, have both found exclusive jurisdiction in the Federal courts. Nationwide the decisions pro and con are about evenly split as to result (compare, e.g., Lou v. Belzberg, 834 F.2d 730 [9th Cir.], cert denied --- U.S. ----, 108 S.Ct. 1302, 99 L.Ed.2d 512, Karel v. Kroner, 635 F.Supp. 725, 730 [N.D.Ill.]; Cianci v. Superior Ct. [Poppingo], 40 Cal.3d 903, 221 Cal.Rptr. 575, 710 P.2d 375; Rice v. Janovich, 109 Wash.2d 48, 742 P.2d 1230 [concurrent jurisdiction]; with Intel Corp. v. Hartford Acc. & Indem. Co., 662 F.Supp. 1507 [N.D.Cal.]; Spence v. Flynt, 647 F.Supp. 1266 [D.Wyo.]; Maplewood Bank & Trust Co. v. Acorn, Inc., 207 N.J.Super. 590, 504 A.2d 819; Levinson v. American Acc. Reinsurance Group, 503 A.2d 632 [Del.Ch.] [exclusive jurisdiction] ). We find the arguments in favor of concurrent jurisdiction more persuasive.

Analysis starts with the rule that presumptively State courts have concurrent jurisdiction with Federal courts over Federal claims (see, Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473, 478, 101 S.Ct. 2870, 2875, 69 L.Ed.2d 784; Dowd Box Co. v. Courtney, 368 U.S. 502, 507-508, 82 S.Ct. 519, 522-23, 7 L.Ed.2d 483; Brown v. Gerdes, 321 U.S. 178, 188, 64 S.Ct. 487, 492, 88 L.Ed. 659 [Frankfurter, J., concurring]; Claflin v. Houseman, 93 U.S. 130, 136, 23 L.Ed. 833). This presumption of concurrent jurisdiction can be rebutted, however, by (a) an explicit statutory directive (b) unmistakable implication from legislative history or (c) clear incompatibility between State court jurisdiction and Federal interests (Gulf Offshore Co. v. Mobil Oil Corp., supra, 453 U.S. at 478, 101 S.Ct. at 2875; Claflin v. Houseman, supra, 93 U.S. at 137). We proceed to examine those considerations.

A

The statute does not explicitly provide for exclusive Federal jurisdiction. Section 1964(c), which creates the private right of action, does direct that the action may be brought in "any appropriate United States district court" but that language cannot be interpreted as creating exclusive Federal jurisdiction for "[i]t is black letter law * * * that the mere grant of jurisdiction to a federal court does not operate to oust a state court from concurrent jurisdiction over the cause of action" (Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473, 479, 101 S.Ct. 2870, 2875, 69 L.Ed.2d 784, supra, citing United States v. Bank of N.Y., 296 U.S. 463, 479, 56 S.Ct. 343, 348, 80 L.Ed. 331; see also, Dowd Box Co. v. Courtney, 368 U.S. 502, 506, 82 S.Ct. 519, 522, 7 L.Ed.2d 483, supra; and compare, statutes in which "exclusive" jurisdiction has been specified, e.g., Federal Tort Claims Act [28 U.S.C. § 1346(b) ]; Securities and Exchange Act of 1934 [15 U.S.C. § 78aa]; ERISA [29 U.S.C. § 1132 (e) ]; admiralty [28 U.S.C. § 1333]; Patent and Copyright [28 U.S.C. § 1338(a) ].

B

Nor is an "unmistakable" intent to restrict jurisdiction to be found in the legislative history. The committee reports, floor debates and sponsors' memoranda do not even address the question of jurisdiction. Nevertheless, several courts have relied on a statement made by G. Robert Blakey, a principal architect of RICO and former Chief Counsel of the Senate Subcommittee on Criminal Laws and Procedures, as evidence of congressional intent. He has stated: "There is nothing on the face of the statute or in the legislative history" that touches the question of concurrent jurisdiction. "To my knowledge, no one even...