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Mathews v. Kidder

U.S. Court of Appeals, Third Circuit


November 16, 1998

JOHN W. MATHEWS; CAROLE ANN NUCKTON; PATRICIA LESTER; JORDAN BRODSKY; THOMAS C. CHESTNEY; DEBORAH W. TROEMNER; WILLIAM J. WATERMAN, JR.; VERNON L. SCHATZ; MELVIN H. ROOTS; ROBERT J. HOLTON; JAMES J. BOYLE; DAVID L. ROBINSON; VINCENT J. PANEPINTO; DOMINIC A. MARTELL; FRANCIS B. BORCATO; JOHN J. DOUGHERTY, TRUSTEES OF THE OPERATIVE PLASTERERS & CEMENT MASONS LOCAL UNION OFFICER & EMPLOYEE PENSION FUND; LEE CROSSMAN; SUSANNE DIANE ANDERSON; LARRY C. ANDERSON; GEORGE P. ARNOLD; ANN M. ARNOLD; DONALD J. AIBEL, ON BEHALF OF THEMSELVES A ND ALL OTHERS SIMILARLY SITUATED
v.
KIDDER, PEABODY & CO., INC., A DELAWARE CORPORATION; KP REALTY ADVISERS, A DELAWARE CORPORATION; HSM, INC., A TEXAS CORPORATION; HENRY S. MILLER CO., HENRY S. MILLER MANAGEMENT; HENRY S. MILLER APPRAISAL CORPORATION; HSM REAL ESTATE SECURITIES CORPORATION; MILLER REAL ESTATE SERVICES CORPORATION, A TEXAS CORPORATION, APPELLANTS

Before: Becker, Chief Judge, Aldisert and Weis, Circuit Judges.

The opinion of the court was delivered by: Becker, Chief Judge.

On Appeal From the United States District Court For the Western District of Pennsylvania (D.C. Civ. 95-cv-00085)

Argued: June 11, 1998

OPINION OF THE COURT

The Private Securities Litigation Reform Act of 1995 ("Reform Act" or "PSLRA"), amends 18 U.S.C. § 1964(c) to eliminate, as a predicate act for a private cause of action under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), any conduct actionable as fraud in the purchase or sale of securities. See Pub. L. No. 104-67, § 107, 109 Stat. 737, 758. This civil RICO case was brought by plaintiff John W. Mathews ("Mathews"), a disappointed investor, alleging misconduct--including securities fraud-- by several investment houses in connection with the sale of limited partnerships in real estate. The question presented in this interlocutory appeal by Kidder, Peabody & Co. and the other defendants is whether the relevant portion of the Reform Act (hereinafter the "RICO Amendment") applies retrospectively to eliminate securities fraud-based RICO claims such as the present one, which were pending when Congress enacted the Reform Act. The defendants argue that it does. We hold that it does not.*fn1 I. Facts and Procedural History

This action arises out of Mathews's failed investment in one of three related real estate limited partnerships-- KP/Miller Realty Growth Fund I, L.P. ("Fund I"); KP/Miller Realty Growth Fund II, L.P. ("Fund II"); and KP/Miller Realty Growth Fund III, L.P. ("Fund III")--organized, marketed, and managed by the defendants in the 1980s.*fn2 On June 7, 1984, Mathews purchased 40 units of Fund II from the defendants for $500 per unit, representing a total investment of $20,000. Almost eleven years later, on January 23, 1995, Mathews filed a class action complaint against the defendants to recover his losses and the losses of a putative class of persons who purchased partnership units in all three Funds. The complaint asserted federal RICO claims and state claims for breach of fiduciary duty and negligent misrepresentation.

Mathews alleges that the defendants organized the Funds for the purported purpose of making sound investments in commercial real estate projects in the United States, but that the true purpose of the Funds, and the object of the defendants' fraudulent scheme, was to generate excessive fees and income for the defendants who sponsored the Funds. Mathews further alleges that the defendants engaged in the predicate acts of securities fraud, mail fraud, and wire fraud in the organization, marketing, and management of these Funds and that this constituted a cognizable pattern of racketeering activity.*fn3 The factual predicates for Mathews's theory are as follows.

First, he alleges that Kidder, using interstate wire communications, advised its retail brokers in branch offices around the country that units in the Funds were available for sale, but (mis)represented that they were safe, non-speculative investments, suitable for customers with conservative investment objectives and a low tolerance for risk. Further, in light of Kidder's characterization of the Funds, the brokers between 1982 and 1986 made an "oral uniform sales pitch" to more than 6,000 potential investors in the Funds, who purchased units in the Funds in reliance on these misrepresentations. Mathews alleges that defendants "concealed the true value of the investments" and "deliberately misrepresented the value of these investments on monthly account statements" that were mailed to investors. These misrepresentations allegedly continued until February 1, 1994, when Kidder purportedly sent account statements to investors that, for thefirst time, "alerted investors that the value of the KP-Miller partnerships may have depreciated."

Mathews asserted RICO claims with respect to all three Funds, although he had only invested in Fund II, seeking to represent "a class of persons which includes all persons residing in the United States who purchased partnership units in KP/Miller Realty Growth Funds I, II, and III in the initial offering of such securities." The defendants moved to dismiss the complaint, contending, inter alia, that Mathews had no standing to assert claims as to Funds I and III in which he had never invested, and that his claims were barred by the statutes of limitations applicable to securities claims and RICO claims. On December 19, 1995, the district court held that Mathews could pursue his claims with respect to Fund II, but dismissed his individual claims with respect to Funds I and III, concluding that Mathews lacked standing to bring them. See Dist. Ct. Op. & Order (Dec. 19, 1995) at 13-16. The court reserved judgment on whether Mathews could serve as a class representative for the class of persons who invested in all three of the Funds. See id. at 13-14 n.4.

Three days after this Order, on December 22, 1995, the Reform Act became law when the Senate overrode President Clinton's veto. See 141 Cong. Rec. S19180 (daily ed. Dec. 22, 1995). As noted above, the Act forecloses civil RICO claims that are based upon conduct that would have been actionable as securities fraud. See Pub. L. No. 104-67, § 107, 109 Stat. 737, 758 (1995) (amending 18 U.S.C. § 1964(c) (1994)). After passage of the Act and the district court's dismissal of Mathews's individual Funds I- and III-based causes of action, Mathews sought leave tofile a First Amended Class Action Complaint. He sought to add twelve new plaintiffs who had invested in Funds I or III, or both. The defendants opposed the motion on the ground that the Reform Act should apply retrospectively to Mathews's action.

That same day, Mathews moved for class action determination, requesting certification of a class embracing investors in Funds I, II, and III, and designation of Mathews as class representative. The defendants opposed the Class Certification Motion arguing, inter alia, that Mathews could not satisfy the typicality requirement of Rule 23(a): (1) with respect to a class of investors in Funds I and III since he had no standing to pursue such claims, and (2) because he was subject to particularized defenses on his Fund II claims since he had transferred his Fund II investment out of Kidder in May 1987 and had not received the account statements that he claimed were the basis for the alleged misrepresentations underlying his RICO claim. In addition, defendants contended that Mathews could not satisfy the predominance requirement of Rule 23(b)(3) because his RICO claims were grounded on oral representations by a multitude of brokers that would require highly individualized showings of broker representations and customer reliance.

The district court rejected most of defendants' arguments and granted both of Mathews's motions. First, in an unpublished opinion and order, the court granted the Class Certification Motion, concluding that Mathews had met his burden of establishing the requirements of Rule 23 for class certification. See Mathews v. Kidder, Peabody & Co., No. 95-85, 1996 WL 665729, at *5 (W.D. Pa. Sept. 26, 1996). Simultaneously, the court filed an opinion in which it held that the Reform Act did not retrospectively bar Mathews's previously filed RICO claims that otherwise would be proscribed under the amended RICO Act. See Mathews v. Kidder, Peabody & Co., 947 F. Supp. 180, 185-86 (W.D. Pa. 1996). The court also ruled that Mathews could file the Proposed First Amended Complaint adding the new plaintiffs, because the class-action RICO claims relating to Funds I and III had not previously been dismissed and were likewise not barred by the Reform Act. See id. at 187-89.

Recognizing that the defendants' position on the retrospective application of the Reform Act presented a serious issue, the district court certified an interlocutory appeal from the opinion and order, regarding the application of the Reform Act to this case. See Dist. Ct. Modified Order (Jan. 22, 1997). We granted defendants' petition for permission to appeal. See 28 U.S.C. § 1292(b).

II. Retrospective Application of Statutes Under Landgraf and Lindh

The defendants contend that the district court erred when it refused to apply the Reform Act retrospectively to bar Mathews's pending RICO claims, which were based upon allegations of securities fraud. The relevant section of the Reform Act, section 107, provides that "no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of [RICO]." Defendants base their argument on a reading of Landgraf v. USI Film Products, 511 U.S. 244 (1994), and Lindh v. Murphy, 117 S. Ct. 2059 (1997), the preeminent recent cases addressing the retrospective application of statutes.

A. Landgraf

In Landgraf, the Court set out a two-step analysis for considering the temporal reach of new federal statutes:

"When a case implicates a federal statute enacted after the events in suit, the court's first task is to determine whether Congress has expressly prescribed the statute's proper reach. If Congress has done so, of course, there is no need to resort to judicial default rules. When, however, the statute contains no such express command, the court must determine whether the new statute would have retroactive effect, i.e., whether it would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed. If the statute would operate retroactively, our traditional presumption teaches that it does not govern absent clear congressional intent favoring such a result." Landgraf, 511 U.S. at 280.

Under the two-step analysis, a court must first ask a threshold question: has Congress expressly provided that the statute in question should or should not apply retrospectively? If the answer to this question is "yes," then we follow Congress' express prescription and apply the statute accordingly. *fn4 If the answer to this question is "no," then we move on to the second step in the analysis.

The second step requires us to ask whether the statute has a "retroactive effect."*fn5 If the answer to this question is "yes," there is a traditional, strong presumption against retrospective application. Thus, we ask a subsidiary question: Is there a "clear congressional intent" to apply the statute retrospectively? If the answer to this question is "yes," then Congress's clear intent trumps the default presumption, and we apply the statute retrospectively. Otherwise, if this clear intent to apply the statute retrospectively is absent, the default rule applies, and we do not apply the statute retrospectively. If, on the other hand, the answer to the second question--does the statute have "retroactive effect"?--is "no," courts are to use normal rules of statutory construction along with traditional methods of determining a statute's temporal reach to establish whether a statute is to be applied retrospectively.*fn6

B. Lindh

In 1997, the Supreme Court added a new twist to the Landgraf two-part analysis:

"In determining whether a statute's terms would produce a retroactive effect, however, and in determining a statute's temporal reach generally, our normal rules of construction apply. Although Landgraf's default rule would deny application when a retroactive effect would otherwise result, other construction rules may apply to remove even the possibility of retroactivity . . . ." Lindh, 117 S. Ct. at 2063 (emphasis added).

This language reforms the two-part analysis we sketched above, essentially adding a step. Lindh directs us to ask an additional threshold question before we move to the question of whether the statute has a retroactive effect. Under Lindh's modification to the Landgraf two-part inquiry, the analysis is as follows: First, we ask the same threshold question: did Congress expressly prescribe the statute's temporal reach? Of course, if the answer to this question is "yes," then we follow Congress's express prescription and apply the statute accordingly. However, if the answer is "no," then we ask another threshold question before moving to the "retroactive effect" inquiry--do the normal rules of statutory construction apply in such a way as to remove the possibility of retroactivity?

In Lindh, the Court used a negative inference to infer that Congress did not intend to apply retrospectively certain parts of the Antiterrorism and Effective Death Penalty Act of 1996 ("AEDPA"). See Lindh, 117 S. Ct. at 2063-64. Thus, the Supreme Court held that if a congressional intent to not apply a statute retrospectively can be discerned, then the courts are to follow that intent, without regard to whether the statute has "retroactive effect." Underlying this new step in the analysis was the traditional presumption against retroactivity. See Lindh, 117 S. Ct. at 2062; see also Hughes Aircraft Co. v. United States ex rel. Schumer, 117 S. Ct. 1871, 1876 (1997).

C. The Landgraf/Lindh Framework

The resulting Landgraf/Lindh analysis can be summarized as follows:

"1. First, we must look for an "unambiguous directive," Landgraf, 511 U.S. at 263, from Congress as to the temporal reach of a statute. If one is found, we must follow it and our inquiry is done."

"2. In the absence of a clear statement from Congress, we must use normal statutory construction rules to determine if Congress manifested an intent to only apply a statute to future cases. Again, if we find an intent to not apply a statute retrospectively, our inquiry is done."*fn7

"3. If neither an express command in either direction nor an intent to apply a statute prospectively is found, we look at the effect that the statute will have. Does it have "retroactive effect," i.e., does it "impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed"? Landgraf, 511 U.S. at 280. Or, conversely, does the statute affect only prospective relief, or change procedural rules, *fn8 or simply allocate jurisdiction among fora?":

"a. If the statute does not have retroactive effect, we apply the usual statutory construction rules to determine whether it should be applied to pending cases."

"b. However, if the statute does have retroactive effect, we employ the strong presumption against applying a statute with retroactive effect to pending cases: At this point, only Congress's clear intent to apply the statute retrospectively will overcome the presumption."*fn9

More succinctly, then, we (1) look for an express command in either direction; (2) discern whether there is congressional intent to only apply a statute prospectively; (3) analyze the statute for retroactive effect; and (4) look for clear intent to apply the statute retrospectively (if it has a retroactive effect) or simply use normal rules of construction to determine the statute's temporal reach. Now that we have sketched the Landgraf/Lindh framework for retrospective application of statutes, we must apply it to this case.

III. Application of Landgraf/Lindh

A. Express Command

First, we ask whether Congress has expressly prescribed the temporal reach of the statute. Mathews makes a not-very-convincing argument that Congress has spoken expressly on the temporal reach of the RICO Amendment and that it is only to apply prospectively. He bases this contention on the language in section 108 of the Reform Act (the "Applicability Provision"). The Applicability Provision directs that "[t]he amendments made by this title shall not affect or apply to any private action arising under title I of the Securities Exchange Act of 1934 or title I of the Securities Act of 1933, commenced before and pending on the date of enactment of this Act." Pub. L. No. 104-67, § 108, 109 Stat. 737, 758 (1995).*fn10 Mathews submits that his RICO claims "arise under" the securities laws because these laws are an "essential element" of his claims and the outcome depends upon their interpretation and/or application. This argument is a flawed attempt to analogize to one aspect of the well-pleaded complaint rule. See Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 13 (1983) ("Even though state law creates appellant's causes of action, its case might still`arise under' the laws of the United States if a well-pleaded complaint established that its right to relief under state law requires resolution of a substantial question of federal law in dispute between the parties."). Mathews in effect argues that, while RICO creates his cause of action, this is a case "arising under" the securities laws (for purposes of the Applicability Provision) because his right to relief requires resolution of substantial questions of the securities laws.

Contrary to Mathews's submission, we find that his claims arise under RICO, as that is the federal cause of action Mathews alleges. See American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 260 (1916) ("A suit arises under the law that creates the cause of action."). Indeed, in his own complaint, Mathews alleges that his claims arise under RICO, not the securities laws, and he bases federal jurisdiction on the RICO statute. Thus, there is no express prescription in the statute directing application of the RICO Amendment prospectively or retrospectively.*fn11

B. Intent to Apply Prospectively

The second step under the Landgraf/Lindh analysis is to examine a statute under normal rules of statutory construction for evidence of congressional intent to apply the statute prospectively only.*fn12 This is the step that the Court added in Lindh. We only reach this stage if Congress has not provided us with an "express command"; we need not bother with the next stage--analysis of whether the statute has retroactive effect--if an intent to apply the statute prospectively can be found. Therefore, using normal rules of statutory construction, we must look for an intent to apply a statute prospectively only.

Here, we find no such intent. Neither the negative inference at work in Lindh nor legislative history expressing an intent to apply the RICO Amendment only to new cases can be found. Indeed, as we discuss below, there is a dearth of Discussion on the Applicability Provision in the statutory record. The text of the Provision also provides no clues, mentioning only private actions arising under the 1933 and 1934 Securities Acts.*fn13 Therefore, we must turn to the next step in the analysis, examination of the statute for retroactive effect.

C. Retroactive Effect

Defendants argue that the RICO Amendment does not have a retroactive effect, but is simply a jurisdictional statute. They also argue that, even if the Amendment does have a retroactive effect, Congress has clearly expressed its intent to have the Amendment apply to pending cases, thereby eliminating plaintiff's RICO claims. We conclude that the Amendment does have a retroactive effect and we find no clear congressional intent to apply the Amendment retrospectively.

1.

A statute is deemed to have retroactive effect if"it would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed." Landgraf, 511 U.S. at 280. Defendants admit that, in a sense, retrospective application of the statute would impair some rights that Mathews had, for prior to the passage of the Act, he had a RICO cause of action based upon defendants' alleged actions, but afterward he would not. Nevertheless, they argue that the Amendment here simply altered a jurisdictional statute, 18 U.S.C. § 1964(c). Specifically, § 1964(c) permits plaintiffs to "sue . . . in any appropriate United States district court" for injuries caused by violations of RICO. The RICO Amendment qualifies this language in § 1964(c) by excluding RICO claims predicated on "any conduct that would have been actionable as fraud in the purchase or sale of securities."

Defendants point out that courts "have regularly applied intervening statutes conferring or ousting jurisdiction, whether or not jurisdiction lay when the underlying conduct occurred or when the suit was filed." Landgraf, 511 U.S. at 274. For, as the Court in Landgraf explained, "[a]pplication of a new jurisdictional rule usually `takes away no substantive right but simply changes the tribunal that is to hear the case.' Present law normally governs in such situations because jurisdictional statutes`speak to the power of the court rather than to the rights or obligations of the parties.' " Id. (citations omitted). Applying these precepts from Landgraf, defendants argue that the RICO Amendment "ousts jurisdiction" of the district court to hear a securities-based RICO case, and that it therefore does not have a retroactive effect, requiring dismissal of this action.

While § 1964(c) is phrased in federal jurisdictional terms, the Supreme Court has interpreted the RICO statute as providing for concurrent state jurisdiction over RICO actions. See Tafflin v. Levitt, 493 U.S. 455, 458 (1990).*fn14 Therefore, an amendment to § 1964(c), while literally addressed to the jurisdiction of the federal courts, would appear to affect all securities fraud-based RICO claims. Apparently, no tribunal retains the authority to hear a RICO case predicated on securities fraud; rather, the "substantive right" to bring such a case in both state and federal court is affected by the RICO Amendment. The Amendment therefore is not like the portion of the AEDPA addressed in Salazar-Haro v. INS, 95 F.3d 309 (3d Cir. 1996), cert. denied, 117 S. Ct. 1842 (1997), which fell within the traditional category of jurisdictional provisions in explicitly precluding review within particular fora of certain deportation orders. See id. at 310.

It is clear from the legislative history that the intention behind the RICO Amendment was "to address a significant number of frivolous actions based on alleged securities law violations." 141 Cong. Rec. H2771 (daily ed. Mar. 7, 1995) (statement of Rep. Cox); see also H.R. Conf. Rep. No. 104-369, at 47 (1995), reprinted in 1995 U.S.C.C.A.N. 730, 746 ("The [Conference] Committee intends this amendment to eliminate securities fraud as a predicate offense in a civil RICO action."). There is no Discussion in the minimal attention given to the RICO Amendment of either "jurisdictional" matters or even the "power" of the federal courts to hear a particular type of claim. Rather, focus was clearly on the substance of claims such as the present one and on completely eliminating the so-called "treble damage blunderbuss of RICO," 141 Cong. Rec. H2771 (daily ed. Mar. 7, 1995) (statement of Rep. Cox), in securities fraud cases.

Other courts have held that retrospective application of the RICO Amendment does not "impair rights a party possessed when he acted," because "a plaintiff's right to recover for securities fraud under RICO was an unintended situation." Krear v. Malek, 961 F. Supp. 1065, 1073 (E.D. Mich. 1997).*fn15 We find this argument unpersuasive. First, whether or not a particular cause of action was created intentionally, its subsequent elimination still impairs rights that existed after the cause of action was recognized. Further, racketeering activity in the RICO statute is defined to include "fraud in the sale of securities," 18 U.S.C. § 1961(1)(D) (1994), calling into question the notion that securities-based RICO claims were unintended.*fn16

We find further support for our Conclusion that the RICO Amendment has retroactive effect in a different formulation of this issue in Landgraf. The Court said that a statute has retroactive effect if it "attaches new legal consequences to events completed before its enactment." Landgraf, 511 U.S. at 270. In this case, the events in question are the alleged fraudulent acts by the defendants. If the RICO Amendment is applied to this case, it would attach new legal consequences to these events. Before the Amendment, the legal consequences included liability under the federal securities laws and RICO; after the Amendment, the legal consequences included liability only under the securities laws. Cf. Armbruster v. Unisys Corp., 32 F.3d 768, 771 n.3 (3d Cir. 1994) (noting that clear congressional intent is required to apply a statute retrospectively if doing so "altered the extent of a party's liability").

The Court's ultimate decision in Landgraf is also instructive. The Court found that applying the particular amendment to Title VII that was at issue there would have retroactive effect. That amendment, creating a right to compensatory and punitive damages (where only back pay had been previously available), "can be seen as creating a new cause of action, and its impact on parties' rights is especially pronounced." Landgraf, 511 U.S. at 283. If a change in the law from back pay to compensatory and punitive damages is seen as creating a new cause of action and impairing a party's rights, certainly a change from treble damages (under RICO) to compensatory damages alone (under the securities laws) may be seen as destroying a cause of action and impairing a party's rights. The Court also noted that it had "not classified a statute introducing damages liability as the sort of `remedial' change that should presumptively apply in pending cases." Id. at 285 n.37. We find it unlikely, then, that the Court would classify a statute eliminating damages liability as one that should presumptively apply to pending cases.

2.

The Supreme Court's unanimous decision in a case in which it focused on an ostensibly jurisdictional statute such as the one here further supports our Conclusion. In Hughes Aircraft Co. v. United States ex rel. Schumer, 117 S. Ct. 1871 (1997), the Court refused to apply retrospectively a statute that expanded the universe of plaintiffs who could bring certain qui tam claims under the False Claims Act ("FCA"). While acknowledging that the FCA amendment was phrased in "jurisdictional terms," the Court held that the amendment "essentially creates a new cause of action, not just an increased likelihood that an existing cause of action will be pursued." Id. at 1878. The Court rejected an argument that the amendment was merely "jurisdictional" and therefore had no retroactive effect (an argument identical to defendants' here). This is an additional reason for distinguishing our earlier pre-Hughes decision in Salazar-Haro. That case relied heavily on the substantive/jurisdictional dichotomy, see 95 F.3d at 311, yet the fact that a statute is phrased in jurisdictional terms is not reason enough to ignore the strong presumption against retroactivity, see Hughes, 117 S. Ct. at 1878.

The Hughes Court's reasoning, directly applicable to the present case, is worth rescribing at length:

"The fact that courts often apply newly enacted jurisdiction-allocating statutes to pending cases merely evidences certain limited circumstances failing to meet the conditions for our generally applicable presumption against retroactivity, not an exception to the rule itself . . . . As we stated in Landgraf:"

""Application of a new jurisdictional rule usually `takes away no substantive right but simply changes the tribunal that is to hear the case.' Present law normally governs in such situations because jurisdictional statutes `speak to the power of the court rather than to the rights or obligations of the parties.' " [Landgraf, 511 U.S. at 274 (emphasis added in Hughes).]"

"Statutes merely addressing which court shall have jurisdiction to entertain a particular cause of action can fairly be said merely to regulate the secondary conduct of litigation and not the underlying primary conduct of the parties. Such statutes affect only where a suit may be brought, not whether it may be brought at all. The 1986 amendment [to the FCA], however, does not merely allocate jurisdiction among fora. Rather, it creates jurisdiction where none previously existed; it thus speaks not just to the power of a particular court but to the substantive rights of the parties as well. Such a statute, even though phrased in "jurisdictional" terms, is as much subject to our presumption against retroactivity as any other." Id. (citations omitted).

In Hughes, the Court concluded that retrospective application of the FCA Amendment would have the legal effect of depriving the defendant of a particular defense, and that this constituted a retroactive effect. See id. at 1878-79. In the case at bar, retrospective application of the RICO Amendment would have the legal effect of depriving plaintiffs of a claim, which also constitutes a retroactive effect. The RICO Amendment, like the amendment at issue in Hughes, does not simply allocate jurisdiction among fora, determining where a claim might be brought; rather, it "[destroys] jurisdiction where [it] previously existed; it thus speaks not just to the power of a particular court but to the substantive rights of the parties as well." Id. at 1878.*fn17 Therefore, as in Hughes, we find that the allegedly jurisdictional amendment at issue here has retroactive effect. We then must look for clear intent from Congress to apply the new provision retrospectively.

D. Clear Intent to Apply Retrospectively

Defendants argue that the text of the RICO Amendment and its legislative history imply that Congress intended it to have retrospective application. We note at the outset that, given our finding that the Amendment has retroactive effect, a weak inference of Congress's intent is insufficient for retrospective application.*fn18 Rather, only Congress's expression of a clear intent that the statute be applied retrospectively will suffice. See Landgraf, 511 U.S. at 270.*fn19 Defendants, in arguing that Congress intended the Amendment to have retrospective application, rely on the statute's text, its purpose, and its legislative history. We consider each in turn.

1. Text of the Act

First, according to defendants, because Title I of the Reform Act amended three different things--private actions under the 1933 and 1934 Securities Acts; the SEC's authority to bring aiding-and-abetting claims under the securities laws; and civil securities fraud-based RICO claims--but the Applicability Provision only expressly provides for prospective application of the first of these, by negative implication, Congress must have intended retrospective application of the second and third category of amendments. According to defendants:

"By carefully distinguishing between amendments that relate to private actions under the Securities Laws on the one hand, and amendments that relate to the SEC's enforcement powers and to civil RICO actions on the other, Congress demonstrated that it knew how to restrict the application of specific provisions of the Reform Act to future filed cases. By expressly stating that the amendments affecting private actions under the Securities Laws shall only apply prospectively, Congress demonstrated its intent that the RICO Amendment and the SEC Provision should not be so restricted . . . ." Appellants' Br. at 21 (citing Lindh).

Contrary to defendants' implication, however, the Court in Lindh did not use a negative inference such as this to find the "clear intent" required to overcome a statute's retroactive effect, or even the intent we might look for to determine the temporal reach of a statute without retroactive effect. Rather, it used the negative inference to find that Congress intended a statute not to have retrospective application, rendering the entire retroactive-effect analysis unnecessary. See Lindh, 117 S. Ct. at 2063. We decline to turn the Lindh analysis on its head and to use nothing more than a negative inference to discern a clear intent to apply a statute with retroactive effect to pending cases, thereby forcing them out of court. *fn20 Even were we inclined to rely on a negative inference in a case such as the present one, we note that the reference to only the 1933 and 1934 Acts in the Applicability Provision lends itself to interpretations other than defendants' negative inference. It is possible that Congress mentioned only the amendments to the securities laws (and provided for their non-retroactivity) because of concern that many of these provisions, being procedural in nature, might be applied retrospectively in the absence of express statutory language to the contrary. See Landgraf, 511 U.S. at 275 ("Changes in procedural rules may often be applied in suits arising before their enactment without raising concerns about retroactivity."). By contrast, since the RICO Amendment was not procedural, no express provision was necessary to ensure that it would not be applied retrospectively. Rather, Congress quite likely intended the RICO Amendment to be governed by the usual rules of statutory interpretation,*fn21 including the analysis outlined in Landgraf, which was decided more than a year before the RICO Amendment was passed. We find this "inference" to be at least as strong as the one defendants attempt to draw from the lack of statutory language directly addressing the temporal reach of the RICO Amendment.

The Court in Lindh reached a similar Conclusion regarding an applicability provision in the statute at issue there, which also applied only to certain portions of the entire statutory enactment. The Court posited that Congress might have been concerned about the judicial interpretation of a provision affecting both procedure and substantive rights, as it was unclear after Landgraf whether the presumption against applying substantive statutes retrospectively or the qualified support for applying procedural statutes retrospectively would take precedence. Lindh, 117 S. Ct. at 2063-64. Therefore, Congress may have read Landgraf "as counseling the wisdom of being explicit if it wanted such a provision to be applied to cases already pending." Id. at 2064.

The Court went on to note that the same uncertainty (regarding judicial interpretation of the temporal reach of a "mixed" statute) was true of the provision at issue in that case, to which Congress had attached no applicability provision. See id. Congress's intent for the provision at issue in Lindh, the Court then concluded, must have been to leave the determination of retroactivity to the usual judicial interpretative tools, including the canons of statutory interpretation and the presumption against retrospective application of new statutes. The Dissent in Lindh made a similar point: "Congress, while intending the AEDPA definitively to apply to pending capital cases, could have been uncertain or in disagreement as to which of the many portions of [the non-capital provisions] should or should not apply to pending cases. Congress could simply have assumed that the courts would sort out such questions, using our ordinary retroactivity presumptions." Id. at 2069 (Rehnquist, C.J., Dissenting). Where the majority and Dissent differed was on the Conclusions reached after applying "ordinary retroactivity presumptions."

Earlier, in Landgraf, the Court made an analogous point, noting that it was "entirely possible--indeed, highly probable--that, because it was unable to resolve the retroactivity issue with the clarity of [prior] legislation, Congress viewed the matter as an open issue to be resolved by the courts." 511 U.S. at 261. Rejecting a negative-inference argument by the party arguing for retrospective application in that case, the Court held that "[w]e do not read either provision as doing anything more than definitively rejecting retroactivity with respect to the specific matters covered by its plain language." Id. at 261 n.12.

We find that the text of the Reform Act on which defendants here rely is open to a similar interpretation. Perhaps concerned that a "mixed" substantive and procedural provision might be given retrospective application, Congress explicitly provided for the temporal reach of the amendments affecting private causes of action under the securities laws. Less concerned about the more narrowly focused RICO and SEC Amendments, Congress failed to provide for their temporal reach, leaving resolution of this issue to the courts. The point is not that our inference is the correct one, nor even necessarily the most plausible one (though we believe it to be eminently plausible).*fn22 Rather, the point is that the text (and lack thereof) on which defendants rely is equally probative of a Conclusion that the substantive provision at issue here should be applied only prospectively as it is of a Conclusion that it should be applied to pending cases.*fn23 In sum, we are unwilling to adopt defendants' negative inference from the text of the Applicability Provision. The text is addressed only to one of the three categories of amendments in Title I of the Reform Act. We refuse to read a clear intent from the absence of language in the Applicability Provision, or elsewhere in the Reform Act, addressing the temporal reach of the RICO Amendment. Particularly given the strong presumption against retroactivity, it would be strange indeed if Congress had used a silent negative inference to indicate that the RICO Amendment should be applied retrospectively.

2. Policy of the Act

Defendants argue that the policy undergirding the Reform Act makes clear that the RICO Amendment should be applied retrospectively. The purpose of the Act, according to defendants, was to foreclose the use of RICO in securities cases, as such use was unintended *fn24 and plaintiffs are afforded an adequate remedy under the securities laws. Defendants submit that Congress believed that civil RICO, with its treble damages remedy and attorneys' fees provision, had been used for its in terrorem effect in garden variety securities disputes. Therefore, with the encouragement of the SEC, Congress moved to get rid of the availability of RICO for securities cases. Under this view, Congress's purpose would be thwarted if the RICO Amendment was not applied retrospectively because Congress was merely correcting an unintended mistake.

While there is some support for this alleged intent of Congress in the legislative history,*fn25 we emphasize again that if Congress felt it necessary to apply the RICO Amendment retrospectively in order to fulfill this policy, it would have been a simple matter to say so. Particularly in light of the Supreme Court's pre-PSLRA decision in Landgraf, we find untenable the argument that Congress would rely on an unstated, underlying policy to send the message to the courts that a statutory enactment should be applied to pending cases. When the Supreme Court requires Congress to speak in "express commands," "unambiguous directives," or "clear statements," Lindh, 117 S. Ct. at 2062, an appeal to inchoate policies will not suffice. See Landgraf, 511 U.S. at 285-86 (noting that even when "retroactive application of a new statute would vindicate its purpose more fully . . . [this] is not sufficient to rebut the presumption against retroactivity"); see also Hook v. Ernst & Young, 28 F.3d 366, 372 (3d Cir. 1994) (noting that even when "restorative intent is apparent, such intent does not reveal whether Congress intended[an] amendment to apply retroactively").

While defendants rely on the underlying policy of the RICO Amendment, we note that there is a competing policy at work here, namely the policy against retrospective application of new statutes:

"[R]etroactive statutes raise particular concerns. The Legislature's unmatched powers allow it to sweep away settled expectations suddenly and without individualized consideration. Its responsivity to political pressures poses a risk that it may be tempted to use retroactive legislation as a means of retribution against unpopular groups or individuals." Landgraf, 511 U.S. at 266.

These concerns, while perhaps not as serious as in a case involving more traditionally "unpopular groups or individuals," are certainly applicable here. As defendants acknowledge, in enacting the PSLRA, Congress was concerned with the alleged "abusive practices"*fn26 of "shrewd plaintiffs' attorneys."*fn27 In reacting to the perceived abuses by so-called professional plaintiffs and their attorneys, and the frustration within the business community at having to defend allegedly burdensome and frivolous RICO suits, Congress could have gone so far as to destroy vested rights and obligations. But, as the Supreme Court has emphasized, if Congress seeks to respond to these political pressures in this manner, by reaching back in time to upset settled expectations, it must do so unequivocally and in a way that assures us that it has seriously considered the consequences of such action. We find no such unequivocal expression of intent here.

3. Legislative History

Finally, defendants rely on the legislative history of the RICO Amendment and the Applicability Provision to argue that the Amendment should be applied retrospectively. Defendants note that the bill that originally passed in the House of Representatives had a provision explicitly precluding retrospective application of all provisions in the Act. See H.R. 1058, 104th Cong. § 9 (1995) ("This Act and the amendments made by this Act are effective on the date of enactment of this Act and shall apply to cases commenced after such date of enactment."). The original Senate bill had no applicability provision. See 141 Cong. Rec. S1076-S1084 (daily ed. Jan. 18, 1995) (introducing S. 240, 104th Cong. (1995)). When the Senate revised its bill, it added, inter alia, an applicability provision that tracks the one finally passed as part of the Reform Act. See id. at S8890 (daily ed. June 22, 1995) (considering amended S. 240, 104th Cong. § 110 (1995)). According to defendants, the Senate explicitly rejected the House applicability provision, which provided for prospective application of all amendments in the Reform Act, choosing instead a more limited applicability provision that did not provide for prospective application of the RICO Amendment. This choice was later codified into law when the Conference Committee chose--and both houses of Congress enacted-- the Senate's more limited applicability language. Thus, defendants aver, Congress "deliberately" chose the more limited applicability provision because it sought to apply the RICO Amendment to pending cases.

Once again, however, we find defendants' reliance on unstated intentions, absent language, and explicit congressional directives in non-RICO areas of the Reform Act to be far from the clear evidence we seek when discerning congressional intent. We note that defendants offer no passages within the legislative history in which the issue of retroactivity is even discussed, let alone explicitly endorsed--no floor statements, no debate on the issue, nothing in congressional reports on the Reform Act, including the final Conference Committee Report. See H.R. Conf. Rep. No. 104-369 (1995); see also 1995 U.S.C.C.A.N. 679-748; cf. United States v. Olin Corp., 107 F.3d 1506, 1514 (11th Cir. 1997) (applying provision of CERCLA retrospectively, given text and purpose of statute, and extensive comments by legislators indicating their assumption that provision would be applied retrospectively). We are extremely reluctant tofind the "clear statement" of congressional intent required by the Landgraf/Lindh analysis in the unexplained and unremarkable alteration of language in what was clearly a minor aspect (i.e., the Applicability Provision) of a complex legislative scheme.

IV. Conclusion

Defendants urge us to apply the RICO Amendment retrospectively to eliminate plaintiff 's (and other similarly situated plaintiffs') securities-based RICO claims. We find no express command from Congress that we do so. We also fail to see--in the underlying policy of the RICO Amendment (or of the Reform Act as a whole), in the simple text of the Applicability Provision, or in the sparse legislative history on this issue--the clear statement required to overcome the retroactive effect that would result from applying the Amendment to pending cases. As the Supreme Court has recently reiterated in Landgraf, Hughes, and Lindh, our courts have long looked with disfavor on the retrospective application of new statutes. Settled expectations and vested rights and obligations are highly prized in our legal system. Absent clear evidence"that Congress itself has affirmatively considered the potential unfairness of retroactive application and determined that it is an acceptable price to pay for the countervailing benefits," Landgraf, 511 U.S. at 272-73, we are extremely reluctant to create causes of action that did not previously exist, or--as in this case--to destroy causes of action and remedies that clearly did exist before Congress acted.

We hold that the RICO Amendment of the Private Securities Litigation Reform Act does not apply to cases pending at the time the Act was enacted. We therefore affirm the order of the district court that Mathews may proceed with his RICO claims against Kidder, Peabody and the other defendants.


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