Opposition Brief — Tafflin v. Levitt

No. 88-1650 en 8 af

N ,

. . IN THE Y 10 ee

Supreme Court of the United tates ” ama

joserr*

OCTOBER TERM, 135 CLERK

a"

FRANCINE TAFFLIN, et al.,

= Pe titione ré.

Vv.

JEFFREY A. LEVITT, et al.,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Fourth Circuit

RESPONDENTS’ BRIEF IN OPPOSITION _

RALPH S. TYLER, III

Assistant Attorney General

OFFICE OF THE A. TORNEY

GENERAL FOR TIE STATE OF

MARYLAND

Seven North Calvert Street

Baltimore, Maryland 21202

(301) 576-6300

Counsel for

State of Maryland Deposit

Insurance Fund Corporation

Davip B. ISBELL ANDREW H. MARKS

WILLIAM H. ALLEN Counsel of Record

CHARLES F.C. RUFF CLIFTON S. ELGARTEN

MARK H. LYNCH LUTHER ZEIGLER

COVINGTON & BURLING CROWELL & MORING

1201 Pennsylvania Ave., N.W. 1001 Pennsylvania Ave., N.W.

Washington, D.C. 90044 Washington, D.C. 20004

(202) 662-6000 (202) 624-2500

Counsel for Counsel for

Venable, Baetjer & Howa rd Former Directors and

Officers of Ma ryland

Savings-Share Insurance

Corporation

( Additional Counsel Listed on Back of Cover)

eS

WILSON - EPES PRINTING Co., Inc. - 789-0096 - WASHINGTON, p.c. 20001

JAMES P. ULWICK

KRAMON & GRAHAM

Sun Life Building

Charles Center

20 South Charles Street

saltimore, Marvland 21201

(301) 752-6030

PAUL D. KRAUSE

CAROL ANN PETREN

JAYSON L. SPIEGEL

JORDON COYNE SaviTs & LOPATA

Suite 500

1030 15th Street, N.W.

Washington, D.C. 20005

(202) 371-1800

AUBREY M. DANIEL, III

WILLIAMS & CONNOLLY

Hill Building

839 17th Street, N.W.

Washington, D.C. 20006

(202) 331-5000

ROBERT W. HESSELBACHER, JR.

LAXALT WASHINGTON PERITO

& DUBUC

10th Floor

1120 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 857-4000

JOUN H. ZINK, III

Cook HOWARD DOWNES & TRACY

210 Allegheny Avenue

Towson, Maryland 21204

(301) 494-9154

NANCY A. MARKOWITZ

ANDERSON BAKER KILL & OLICK

Suite 700

1800 K Street, N.W.

Washington, D.C. 20006

(202) 466-7921

HOWARD B. Possick

ARENT FOX KINTNER PLOTKIN

& KAHN

1950 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 857-6176

JAY I. MORSTEIN

FRANK BERNSTEIN CONAWAY

& GOLDMAN

300 East Lombard Street

Baltimore, Maryland 21202

(301) 625-3500

JAMES A. ROTHSCHILD

ANDERSON, COE & KING

Central Savings Bank Building

Suite 2000

201 North Charles Street

Baltimore, Maryland 21201

(301) 752-1630

DANIEL F. GOLDSTEIN

BROWN & GOLDSTEIN

Maryland Bar Center

Suite 300

520 W. Fayette Street

Baltimore, Maryland 21201

(301) 962-1030

ANDREW RADDING

BLADES & ROSENFELD, P.A.

1200 Sun Life Building

20 South Charles Street

saltimore, Maryland 21201

(301) 539-7558

FRANCIS S. BROCATO

BrocaTo & KEELTY

1402 Fidelity Building

210 North Charles Street

Baltimore, Maryland 21201

(301) 576-7300 ~

STEPHEN C. WINTER

WINTER & ASSOCIATES

606 Bosley Avenue

Towson, Maryland 21204

(201) 321-6222

RONALD W. Fucus

ECCLESTON & SEIDLER

Suite 100

110 East Lexington Street

Baltimore, Maryland 21202

(301) 752-7474

HAROLD H. BURNS

Suite 200

300 Cathedral Street

Baltimore, Maryland 21201

(301) 528-0044

THOMAS G. BODIE

POWER & MOSNER

21 W. Susquehanna Avenue

Towson, Maryland 21204

(301) 823-1250

Additional Counsel for Respondents

TABLE OF CONTENTS

Page

ii TIEN TT... snssscuadusssoasennseneesnepsorepsssossoareeeevecseecssosees® 1

REASONS FOR DENYING THE WRIT ..................--. 5

I WHETHER CERTIFICATES OF DEPOSIT

IN MARYLAND SAVINGS AND LOANS ARE

SECURITIES IS NOT A QUESTION WORTHY

Le 6

Il. WHETHER STATE COURTS ARE DIVESTED

OF JURISDICTION OVER RICO CLAIMS IS

NOT A QUESTION WORTHY OF REVIEW... 9

CONCLUSION ........-2-0:-----ce0-cscseseecesnverencssnnssnnerseneesesesesoors 14

TABLE OF AUTHORITIES

Cases:

Agency Holding Corp. V. Malley-Duff, 483 U.S.

TAB (1987) ...2..-.20----ceec-nvencensecenrnneeoreerneseesnsnosnesceseers 11

Brandenburg v. Seidel, 859 F.2d 1179 (4th Cir.

1QBB) ....-...-c-n-n-ecenecesnenenesnreoneenserensnenssnrorensessseeseenesoeees passim

Burford v. Sun Oil Co., 319 U.S. 315 (1943).......... 4

Callejo v. Bancomer, S.A., 764 F.2d 1101 (5th Cir.

GOOG) nace nnnnsnccecencnccsccnvencenensenssccsncerenenseneseesesserconses 7

Charles Dowd Box Co. v. Courtney, 368 U.S. 502

(1961 ) --.-.--.00-0--0-es-n-cseereneeeensenscseneneensneracnnsnccnsoracenaenes 10

Chivas Products Ltd. v. Owen, 864 F.2d 1280 (6th

Cir, 1988) ....-....-.------..-00-00---cc-nceconereessnesncerecorenseneeees 11, 13

Cianci v. Superior Court, 40 Cal. 3d 903, 710 P.2d

375, 221 Cal. Rptr. 575 ETS 11, 13

Colorado River Water Conservation District v.

United States, 424 U.S. 800 (1976)...........-.--------- 4

County of Cook v. MidCon Corp., 773 F.2d 892

(Tth Cir. 1985)......--------------e-cseseeeesnseseenenesnsnsnnsecesers 13

Gary Plastic Packaging Corp. v. Merrill Lynch,

Pierce, Fenner & Smith, Inc., 756 F.2d 230 (2d

Cie, BBBE) .....--.---.--200.200---00-eensesseecneeoeenserocesonrncnesenes 9

Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 4738

(1981) .....-.------20-c2ceeressecerereeesnensneneresencesesnvncnsssnenenens 6, 10, 13

ii

TABLE OF AUTHORITIES—Continued

Page

Lou v. Belzberg, 834 F.2d 730 (9th Cir. 1987),

cert. denied, 108 S. Ct. 1302 (1988).........------- 11, 12, 13

Marine Bank v. Weaver, 455 U.S. 551 (1982)........ passim

Rice v. Janovich, 109 Wash. 2d 48, 742 P.2d 1230

(1.987 ) .....------c--ceeecesee-enseocesennensesenessnsnscssenesscossscnsonorens 13

Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479

(1985) .....-.cc-ceecsecce-ecsorensesencensencscsnssasenssnsnesecssonneosenes 10

Simpson Elec. Corp. v. Leucadia, Inc., 72 N.Y.2d

450, 580 N.E.2d 860, 534 N.Y.S.2d 152 (1988).. 13

West v. Multibanco Comermezx, S.A., 807 F.2d 820

(9th Cir.), cert. denied, 482 U.S. 906 (1987)...... 4,7,8

Wolf v. Banco Nacional de Mexico, S.A., 739 F.2d

1458 (9th Cir. 1984), cert. denied, 496 U.S. 1108

(1985) ........0co--ccenccecsseccenssensecnrennescesnscensssensenenscnsenonens 7

Statutes:

18 U.S.C. § 1961 (1) (A) ..222....--------ceeeeeeeeennnneneneeecennes 12

18 U.S.C. § 1964 (C) .........-----0----sce-eeceesencnenccsenaneneeessnnees 10

Pub. L. No. 91-452, § 904 (a), 84 Stat. 947 (1970)... 10

Miscellaneous:

Report of the Special Counsel on the Savings and

Loan Crisis in the State of Maryland 94-95 (Jan.

8, 1986)

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

No. 88-1650

FRANCINE TAFFLIN, et al.,

. Petitioners,

JEFFREY A. LEVITT, et al.,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Fourth Circuit

RESPONDENTS’ BRIEF IN CPPOSITION

STATEMENT

This case arises out of the 1985 crisis in Maryland’s

savings and loan industry. Petitioners hold certificates

of deposit in one of the failed institutions, Old Court

Savings & Loan, Inc.*

The crisis arose from the rumored instability of Old

Court and another state-chartered savings and loan in-

stitution.! The rumors triggered a general run on insti-

° Pursuant to Supreme Court Rule 28.1, Respondents state that

Old Court Savings & Loan, Inc., which is currently in receivership,

has no publicly traded parent, subsidiary or affiliate corporations.

1 This account of the background to this case is taken from the

opinion in Brandenburg v. Seidel, 259 F.2d 1179, 1181-82 (4th

Cir. 1988), which the court below incorporated in its opinion.

(Pet. App. A-4.)

2

tutions insured by the Maryland Savings-Share Insur-

ance Corporation (MSSIC), a quasi-public institution.

The panic became so severe that MSSIC itself was en-

dangered and the state’s savings and loan industry was

threatened with collapse. The Governor declared a state

of public crisis, limited withdrawals from MSSIC-insured

‘nstitutions and called the General Assembly into special

session.

The General Assembly enacted legislation to create a

state-operated deposit insurance institution, the Mary-

land Deposit Insurance Fund (MDIF), to replace

MSSIC. The legislation also established a framework for

the administration of eonservatorships and receiverships

for insolvent savings and loans and gave MDIF the right

to be named conservator or receiver of any failed institu-

tion insured by it. Finally, the legislation gave to the

state court administering a MDIF conservatorship or

receivership exclusive jurisdiction of all claims related

to the liability of the insolvent institution or of MDIF.

To implement this legislative scheme, Maryland’s highest

court appointed a single judge to adjudicate all claims

arising out of the conservatorship and receivership pro-

ceedings for the failed savings and loan associations.

Pursuant to the legislation, the state court placed Old

Court in receivership and named MDIF receiver. MDIF,

as receiver, has brought state court actions against each

of the respondents to recover sums that ultimately will be

distributed through MDIF to reimburse Old Court de-

positors, including petitioners. See Brandenburg, 859

F.2d at 1192. The State of Maryland, throuzh MDIF,

has assured all depositors and certificate holders that it

will repay the entire principal amount of their accounts.

MDIF has announced, however, that Old Court depositors

and certificate holders will not be compensated for inter-

est accruing after November 8, 1985, and that interest

for a prior period will be paid only at reduced rates.

(Pet. App. A-5.)

3

Notwithstanding Maryland’s efforts to have all claims

for relief arising out of the savings and loan crisis ad-

judicated systematically in its courts, petitioners filed

these actions in federal court complaining of MDIF’s

announced curtailment of interest on their Old Court

deposits. They invoked two federal statutes, the Securi-

ties Exchange Act of 1934 and the Racketeer Influenced

and Corrupt Organizations Act, and presented a number

of pendent state law ciaims as well. Petitioners prem-

ised their claim under the ’34 Act on the assertion that

their certificates of deposit are “securities” within the

meaning of the Act. Petitioners named as defendants the

former officers and directors of Old Court, the former

officers and directors of MSSIC, the law firm of Venable,

Baetier & Howard (counsel to MSSIC and Old Court),

Old Court’s accounting firm, and MDIF itself. (Pet. App.

A-4.)*

The district court granted responde ats’ motions to

dismiss the complaint. Applying this Court's determina-

tion in Marine Bank v. Weaver, 455 U.S. 551 (1982),

that the Exchange Act does not apply to certificates of

deposit in a federally regulated and insured bank, the

district court held that Maryland’s comprehensive regu-

latory and insurance system governing state-chartered

savings and loans barred plaintiffs from characterizing

their certificates as “securities” subject to that Act. (Pet.

App. A-24.)

2 At an early stage of the action, MDIF was dismissed as a de-

fendant by the district court on Eleventh Amendment grounds,

and petitioners did not appeal this order. (Pet. App. A-4.) None-

theless, because of MDIF’s and the State of Maryland’s substantial

interest in preventing the disruption to the State’s remedial efforts

that this federal action would cause, and because petitioners

have persisted with their claims against MSSIC, MDIF’s prede-

cessor, and Old Court, of which MDIF is receiver, the Attorney

General, as counsel for MDIF, joined in the brief filed in the court

of appeals in support of the district court’s order dismissing the

claims against respondents. The Attorney General has also joined

in this brief in opposition.

4

The district court further held that it should abstain

from deciding petitioners’ RICO claims in deference to

the state court proceedings. The district court noted that

state courts presumptively have concurrent jurisdiction

over federal claims (Pet. App. A-25), and that “the

RICO claims in the present suit are essentially state

fraud claims,” which the state courts are fully qualified

to handle (id. at A-28). In holding that abstention was

necessary and appropriate under both Burford v. Sun

Oil Co., 319 U.S. 315 (1943), and Colorado River Water

Conservation District v. United States, 424 U.S. 800

(1976). the district court observed that a substantial

number of the defendants in the federal action were

defendants in MDIF’s pending state court actions, as

receiver of Old Court, against the Old Court directors

and the former MSSIC directors. Thus, the court rea-

soned thai, if petitioners were allowed to proceed in the

federal court, they would have “circumvented the re-

ceivership process.” (Pet. App. A-27.) Further, any

money awarded to petitioners “would potentially reduce

the available funds” for satisfying a judgment in favor

of depositors generally in the receivership actions. (Jd.)

The court of appeals affirmed. The court agreed with

the district court that Marine Bank foreclosed petition-

ers’ Exchange Act claim because “there was a compre-

hensive regulatory and insurance system applicable to

Old Court so that its certificates of deposit did not fall

within the statutory definition.” (Pet. App. A-7.) The

court rejected petitioners’ argument that, because, in

hindsight, Maryland’s regulatory system had failed, cer-

tificates of deposit in Maryland savings and loans should

be treated differently from certificates of deposit in fed-

erally regulated institutions. The court noted that “[t]he

nature of an instrument is to be determined at the time

of issuance, not at some subsequent time.” (Pet. App.

A-8, quoting West v. Multibanco Comermex, S.A., 807

F.2d 820, 826 (9th Cir.), cert. denied, 482 U.S. 906

(1987).) If the rule were otherwise, the court said, it

a

5

could lead to CD’s not being a security when the deposit

was made but turning into a security the next year be-

cause of a change in the state’s regulatory or insurance

program. (Pet. App. A-9.) The court concluded that

“application of Marine Bank depends upon the compre-

hensiveness of the scheme of regulation, and by that test

we think that the Maryland system qualified to render

the certificate: of deposit not ‘securities.’ ” (Id. A-8.)

The court of appeals also agreed with the district

court that petitioners could pursue their RICO claim in

the state court so that, with the Securities Exchange Act

claim out of the case, petitioners should be remitted to

the comprehensive state court proceeding. The court had

just decided Brandenburg v. Seidel, 859 F.2d 1179 (4th

Cir. 1988), which also grew out of the Maryland savings

and loan crisis, and had there decided both that state

courts could entertain RICO claims and that Maryland’s

“comprehensive scheme for the rehabilitation and liquida-

tion of insolvent state-chartered savings and loan asso-

ciations . . . provided a proper basis for the district

court to abstain” in deference to the state court proceed-

ings. (Pet. App. A-19.)

REASONS FOR DENYING THE WRIT

Neither of the questions presented by the petition is

worthy of review by the Court. Both questions were

decided correctly by the court of appeals applying stand-

ards established by decisions of this Court. On the question

whether certificates of deposit are securities within the

meaning of the 1934 Securities Exchange Act, this Court’s

decision in Marine Bank v. Weaver, 455 U.S. 551 (1982),

controls, and there is complete unanimity among the cir-

cuits as to what that decision means. On the question

whether state courts have concurrent jurisdiction over

RICO claims, the decision below is in line with the over-

whelming weight of authority applying to RICO jurisdic-

tion the rigorous test for exclusive federal jurisdiction

6

laid down in Gulf Offshore Co. v. Mobil Oil Corp., 453

U.S. 473 (1981), and the one aberrant decision cited by

petitioners does not present a sufficient conflict to warrant

this Court’s review. Indeed, the obvious need in this case

to resolve all claims, state and federal, in a single forum,

in order better to allocate assets and obtain recompense

for all depositors, reinforces the conclusion that one should

not lightly presume that Congress intended to divest state

courts of authority over federal statutory claims.

I. WHETHER CERTIFICATES OF DEPOSIT IN

MARYLAND SAVINGS AND LOANS ARE SECURI-

TIES IS NOT A QUESTION WORTHY OF REVIEW.

In Marine Bank v. Weaver, this Court held that the

definition of “security” in the Securities Exchange Act of

1934 does not extend to certificates of deposit in federally

chartered banks. 455 U.S. at 558-59. The Court reasoned

that the comprehensive scheme of regulation governing the

issuing institutions ensured that those who make deposits

evidenced by such certificates are not subject to the same

type and level of risk as are purchasers of “securities”

entitled to the protection of the Securities Exchange Act.

At issue in this case likewise are certificates of deposit.

The court of appeals held that the fact that the certificates

of deposit here were in institutions pervasively regulated

by a state, rather than by a federal agency, did not change

their basic character. The existence of “a comprehensive

regulatory and insurance system applicable to Old Court”

was determinative. (Pet. App. A-7.) The court pointed

out that Maryland law vested supervisory authority over

state-chartered savings and loan associations in two agen-

cles and that deposits in the MSSIC member associations

of which Old Court was one, were insured by MSSIC.

Td.) ‘These agencies administered statutes requiring une

sociations to maintain reserve accounts, to comply with

periodic reporting, inspection and audit requirements, and

to conduct their promotional activities in accordance ‘with

lod

‘

regulations promulgaied by a state agency. (Id.) In hold-

ing that the existence of a comprehensive regulatory

scheme is determinative under Marine Bank, and not

whether that scheme is state, federal or even foreign, the

court below followed consistent precedent in the lower

courts applying Marine Bank. See, e.g. Wolf v. Banco

Nacional de Mewxico, S.A., 739 F.2d 1458, 1462 (9th Cir.

1984), cert. denied, 469 U.S. 1108 (1985); Callejo v.

Bancomer, S.A., 764 F.2d 1101, 1125 n.33 (5th Cir.

1985). See also West v. Multibanco Comermex, S.A., 807

F.2d 820 (9th Cir.), cert. denied, 482 U.S. 906 (1987).

Petitioners argue that the courts below should have en-

gaged in an extended empirical analysis of the efficacy of

the Maryland regulatory and insurance system as that sys-

tem was actually administered. They say that a system

that has ultimately proven unable to provide them with

timely repayment of both principal and interest cannot,

in retrospect, be said to be one that “virtually guarantees”

the safety of their funds. (Pet. 10-13.) The court of

appeals properly refused to engage in such post hoc re-

view of the way Maryland administered its regulatory

system. The court correctly concluded that the rule of

Marine Bank does not depend on the existence of a perfect

regulatory regime or require the federal courts to under-

take an empirical evaluation of the administration of the

regulatory program in order to ascertain whether a cer-

tificate of deposit is a security at any given moment.’

3 In conducting such review, the federal courts would not always

have the benefit of hindsight since, if a certificate of deposit was a

security, it could form the basis of an Exchange Act claim in

contexts wholly apart from the failure of the issuing institution.

Under petitioners’ theory, in order to decide the collateral issue

whether a certificate of deposit was a security, district courts

would routinely take evidence to evaluate the way in which a given

state was administering its regulatory system. This intrusive over-

sight of state regulatory regimes not only offends principles of

federalism but also could have disastrous practical consequences.

8

Here, the fact that the State of Maryland has acted to

help ensure recovery of petitioners’ deposits reinforces the

special character of the certificates at issue. Although

petitioners will not ultimately be able to recover all in-

terest to which they believe themselves due and have been

subject to delays in the return of their deposits, the State

has acted expeditiously to reduce their losses and provided

them with substantial protection that is far superior to

the protection available to purchasers of “securities,” as

that term is used in the Exchange Act. Moreover, there

is no reason to believe that, in enacting the Securities

Exchange Act, Congress meant to give some depositors—

holders of certificates of deposit—an advantage in avail-

able remedies over others—the holders of demand deposit

accounts in the same institutions.

Petitioners make a veiled suggestion that the decision

below creates a conflict in the circuits. There is no sub-

stance to this suggestion. The federal appellate decisions

following Marine Bank have uniformly held that “the

nature of an instrument is to be determined at the time

of issuance, not at some subsequent time.” West v. Multi-

banco Comermex, S.A., 807 F.2d 820, 826 (9th Cir), cert.

denied, 482 U.S. 906 (1987), quoting Great Western Bank

& Trust v. Kotz, 532 F.2d 1252, 1255 (9th Cir. 1976).

Moreover, no court that has applied the Marine Bank

analysis to certificates of deposit has undertaken the sort

of after-the-fact assessment of the adequacy of a regula-

tory scheme that petitioners urge here.’ Petitioners’ re-

A federal court determination that a state regulatory system was

inadequate could create precisely the kind of run on the institutions

that gave rise to this case.

4In West the plaintiffs challenged the effectiveness of Mexico’s

regulatory program. After noting that the nature of an instrument

is to be determined at the time of its issuance, 807 F.2d at 826, the

Ninth Circuit pretermitted detailed consideration of plaintiffs’

contention that post hoc analysis is appropriate by holding that any

inquiry into the effectiveness of a foreign ygovernment’s actions

is barred by the act of state doctrine. 807 F.2d at 828.

3)

liance on Gary Plastic Packaging Corp. v. Merrill Lynch,

Pierce, Fenner & Smith, Inc., 756 F.2d 230 (2d Cir.

1985), is misplaced. That case did not involve certificates

of deposit in a bank but rather so-called certificates of

deposit sold by Merrill Lynch in a secondary market, cre-

ated by Merrill Lynch, that was unregulated and un-

insured by any state or federal banking laws. Under

those circumstances—which are quite distinct from the

instant case—the court held that the Merrill Lynch in-

vestment product was a security. Jd. at-241-42.

In short, the court of appeals correctly applied Marine

Bank in deciding that the Old Court certificates of de-

posit were not securities within the scope of the federal

securities laws, and its decision is consistent with those

of its sister circuits.®

Il. WHETHER STATE COURTS ARE DIVESTED OF

JURISDICTION OVER RICO CLAIMS IS NOT A

QUESTION WORTHY OF REVIEW.

The court below held that, in light of Maryland’s com-

prehensive approach to the payment of depositors, this

was an appropriate case for federal court abstention in

deference to the coordinated state court proceedings. Peti-

tioners do not question that obviously sound judgment.

What they say is that such coordinated proceedings are

impermissible here because the state courts are not co:n-

petent to hear RICO claims. However, the court of ap-

5 The precise question posed by the petition is unlikely to recur

since few, if any, states still have in place state or private insur-

ance programs as an alternative to federal deposit insurance. See,

¢.g., Report of the Special Counsel on the Savings and Loan Crisis

in the State of Maryland 94-95 (Jan. 8, 1986) (identifying Massa-

chusetts, North Carolina, Ohio and Pennsylvania as the only other

states that have “passed legislation enabling the formation of state

or private associations which would be an alternative and sometimes

a supplement to FSLIC”). Since 1986, North Carolina and Ohio

have effectively repealed their respective statutes permitting alter-

natives to federal insurance. See N.C. Gen. Stat. §54B-17 (1987) ;

Ohio Rev. Code Ann. § 1151.41 (1988).

10

peals’ conclusion that state courts have jurisdiction to

hear RICO claims is plainly correct and in accord with

the clear weight of emerging federal and state authority.

Recognition of state court competence to hear RICO

claims reflects the long-settled principle that “state courts

may assume subject-matter jurisdiction over a federal

cause of action absent provision by Congress to the con-

trary or disabling incompatibility between the federal

claim and state-court adjudication.” Gulf Offshore Co. v.

Mobil Oil Corp., 453 U.S. 478, 477-78 (1981) (citations

omitted). In Gulf, this Court began with the “presump-

tion that state courts enjoy concurrent jurisdiction.” /d.

at 478 (citations omitted). This presumption can be re-

butted only by (1) “an explicit statutory directive’, (2)

“unmistakable implication from legislative history”, or

(3) “a clear incompatibility between state-court jurisdic-

tion and federal interests.” /d. None of these three fac-

tors is present here.

First, as petitioners concede, there is no “explicit statu-

tory directive” in RICO that jurisdiction is vested ex-

clusively in the federal courts. The statute provides only

that an injured person “may sue” in a district court. 18

U.S.C. § 1964(¢c). This Court has held that a statute that

uses the word “may” in conferring jurisdiction of a fed-

eral claim on a fe leral court “does-not state or even sug-

gest that such jurisdiction shall be exclusive.” Charles

Dowd Box Co. v. Courtney, 368 U.S. 502, 506 (1961).

See Gulf Offshore, 453 U.S. at 479 (“It is black letter

law ... that the mere grant of jurisdiction to a federal

court does not operate to oust a state court from con-

current jurisdiction over the cause of action’). In fact,

inferring exclusive federal jurisdiction over RICO claims

would be inconsistent with Congress’ specific statutory

mandate that the Act is to “be liberally construed to effec-

tuate its remedial purposes.” Pub. L. No. 91-452, § 904

(a), 84 Stat. 947 (1970). See Sedima, S.P.R.L. v. Imrex

Co., Inc., 473 U.S. 479, 498 (1985). These purposes are

11

best served by increasing rather than decreasing the

forums in which RICO claims may be pursued.*

Second, there is literally nothing in the legislative his-

tory, let alone an “unmistakable implication,” to indi-

cate that Congress intended to make jurisdiction over

RICO exclusively federal. All of the courts that have

addressed this issue have noted that the “legislative his-

tory contains no indication that Congress ever expressly

considered the question of concurrent jurisdiction.” Brand-

enburg, 859 F.2d at 1193. As RICO’s principal drafts-

man has remarked, “no one even thought of the issue.”

Id. (citations omitted).’ It is, of course, precisely where

a statute and its legislative history are silent that the

historical presumption of state court competence must be

determinative.*

Third, there is no “clear incompatibility” between a

RICO claim and state court jurisdiction. On the con-

6 Indeed, it is curious that petitioners, as parties claiming the

benefits of RICO’s remedial aims, seek to constrict the number of

forums in which RICO claims can be brought. This short-sighted

tactic—which will not serve the interests of RICO plaintiffs gen-

erally—is, of course, necessary for petitioners to overcome their

principal hurdle, which is the court of appeals’ wise decision to

abstain from adjudicating the RICO claims in deference to Mary-

land’s extensive and intricate efforts to resolve the State’s savings

and loan crisis in the State’s own courts. This peculiar circum-

stance under which petitioners object to concurrent jurisdiction

over RICO claims is one more reason why this case is not appro-

priate for this Court’s review.

7 See also Chivas Products Ltd. v. Owen, 864 F.2d 1280, 1283

(6th Cir. 1988); Lou v. Belzberg, 834 F.2d 730, 736 (9th Cir.

1987), cert. denied, 108 S. Ct. 1302 (1988); Cianci v. Superior

Court, 40 Cal. 3d 903, 710 P.2d 375, 379, 221 Cal. Rptr. 575 (1985).

8 For this reason, petitioners’ reliance on Agency Holding Corp.

v. Malley-Duff & Associates, 483 U.S. 143 (1987) is misplaced. In

Malley-Duff, this Court held that the Clayton Act’s statute of

limitations may be “borrowed” for RICO. That issue, involving the

need to supply a limitations period, requires the Court actively to

develop analogies from other statutes. That inquiry has little in

common with the search for a congressional intention to oust state

courts of their presumptive jurisdiction over federal claims.

12

trary, state courts are well-qualified to hear RICO

claims, particularly since RICO includes a host of state

law crimes among its predicate offenses. 18 U.S.C. § 1961

(1) (A). To the extent that RICO claims are based on

violations of federal criminal law, the vast majority of

cases rest on allegations of mail and wire fraud, which

“involve garden variety state law fraud” with which

state courts are fully familiar. Belzberg, 834 F.2d at

738. See also Brandenburg, 859 F.2d at 1195. Where a

cause of action has both state and federal elements, it is

no less appropriate under our federal system for a state

court to determine the issues of federal law than it is

for a federal court to address issues of state law.

Indeed, the special circumstances of this case highlight

the importance of concurrent state court jurisdiction over

federal claims. In Brandenburg, the Fourth Circuit ex-

plained in detail how permitting a few depositors, such

as the petitioners, to maintain a federal action would

interfere with Maryland’s recovery scheme for the benefit

of all depositors. 859 F.2d at 1191-92. First, petitioners

are attempting to recover for themselves assets that the

receiver is attempting to marshal for depositors gen-

erally. /d. Second, in attempting to recover interest that

the receivership court has excused Old Court from pay-

ing, petitioners would have the federal district court

undermine the orders of the state court attempting to

achieve a just result for all depositors. Id.

Precisely because situations arise within our federal

system in which the state courts are better equipped than

the federal courts to address and resolve the entirety of

some controversy, it should not lightly be presumed that

Congress intended to hamstring those courts by stripping

them of the power to hear federal claims—claims that

are easily made (though not so easily proved) and once

made (even if unprovable) would disable the state courts

from resolving the entire controversy. There is no basis

for thinking that Congress meant to give RICO allega-

tions such an effect.

13

At the time the decision below was rendered, the fed-

eral appellate courts and the highest state courts that had

considered the issue were unanimous in the view that

state courts are competent to hear private RICO claims.°

Petitioners nevertheless point to what they believe will

develop into a significant conflict emanating from a sub-

sequent decision of a divided Sixth Circuit panel in

Chivas Products Ltd. v. Owen, 864 F.2d 1280. The Sixth

Circuit reasoned that, because the language of the section

of RICO creating a civil remedy is nearly identical to

the section of the Clayton Act creating the private anti-

trust remedy, and because jurisdiction under the antitrust

laws lies exclusively in the federal courts, RICO jurisdic-

tion is also exclusively federal.

However similar RICO’s language may be to that of

the Clayton Act, such general modeling of one statute

after another does not rise to the level of an “unmis-

takable implication” of an actual congressional intention

to divest state courts of jurisdiction. Congress had no

such actual intention precisely because, as the Sixth Cir-

cuit panel conceded, no one in Congress actually thought

about the issue. Chivas Products, 864 F.2d at 1283. The

kind of fictive intent attributed to Congress by the Sixth

Circuit is just what this Court meant to foreclose by its

emphasis in Gulf Offshore that either explicit statutory

direction or an unmistakable implication from the legis-

lative history is required to rebut the presumption of

concurrent state jurisdiction.

In short, whatever potential for conflict Chivas may

have created is likely to prove short-lived. That decision

stands alone against the weight of authority, and it is

at war with the logic and good sense of concurrent state

court jurisdiction. There is good reason to expect that

® See Brandenburg v. Seidel, 859 F.2d 1179; Lou v. Belzberg,

834 F.2d 730; Cianci v. Superior Court, 710 P.2d 375; Simpson

Elec. Corp. v. Leucadia, Inc., 72 N.Y.2d 450, 530 N.E.2d 860, 534

N.Y.S.2d 152 (1988); Rice v. Janovich, 109 Wash. 2d 48, 742 P.2d

1230 (1987). See also County of Cook v. MidCon Corp., 773 F.2d

892, 905 n.4 (7th Cir. 1985).

the Sixth Circuit will bow to the force of the mainstream

view as the weight of authority to the contrary builds

against it. A grant of certiorari at this time, in this

case, would bring the issue to the Court prematurely.

LL.

CONCLUSION

The petition for certiorari should be denied.

Respectfully submitted,

RALPH S. TYLER, III

Assistant Attorney General

OFFICE OF THE ATTORNEY

GENERAL FOR THE STATE OF

MARYLAND

Seven North Calvert Street

Baltimore, Maryland 21202

(301) 576-6300

Counsel for

State of Maryland Deposit

Insurance Fund Corporation

DAVID B. ISBELL

WILLIAM H. ALLEN

CHARLES F.C. RUFF

MaRK H. LYNCH

COVINGTON & BURLING

1201 Pennsylvania Ave., N.W.

Washington, D.C. 20044

(202) 662-6000

Counsel for

Venable, Baetjer & Howard

ANDREW H. MARKS

Counsel of Record

CLIFTON S. ELGARTEN

LUTHER ZEIGLER

CROWELL & MORING

1001 Pennsylvania Ave., N.W.

Washington, D.C. 20004

(202) 624-2500

Counsel for

Former Directors and

Officers of Maryland

Savings-Share Insurance

Corporation

Additional Counsel for Respondents

JAMES P. ULWICK

KRAMON & GRAHAM

Sun Life Building

Charles Center

20 South Charles Street

Baltimore. Marvland 21201

(301) 752-6030

JAMES A. ROTHSCHILD

ANDERSON, COE & KING

Central Savings Bank Building

Suite 2000

201 North Charles Street

Baltimore, Maryland 21201

(301) 752-1630

PAUL D. KRAUSE

CAROL ANN PETREN

JAYSON L. SPIEGEL

JORDON COYNE SAVITS & LOPATA

Suite 500

1030 15th Street, N.W.

Washington, D.C. 20005

(202) 371-1800

AUBREY M. DANIEL, III

WILLIAMS & CONNOLLY

Hill Building

839 17th Street, N.W.

Washington, D.C. 20006

(202) 331-5000

ROBERT W. HESSELBACHER, JR.

LAXALT WASHINGTON PERITO

& DUBUC

10th Floor

1120 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 857-4000

JOUN H. ZINK, III

CooK HOWARD DOWNES & TRACY

210 Allegheny Avenue

Towson, Maryland 21204

(301) 494-9154

NANCY A. MARKOWITZ

ANDERSON BAKER KILL & OLICK

Suite 700

1800 K Street, N.W.

Washington, D.C. 20006

(202) 466-7921

HOWARD B. POSSICK

ARENT FOX KINTNER PLOTKIN

& KAIIN

1050 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 857-6176

JAY I. MORSTEIN

FRANK BERNSTEIN CONAWAY

& GOLDMAN

300 East Lombard Strect

Baltimore, Maryland 21202

(301) 625-3500

DANIEL F. GOLDSTEIN

BROWN & GOLDSTEIN

Maryland Bar Center

Suite 300

520 W. Fayette Street

Baltimore, Maryland 21201

(301) 962-1030

ANDREW RADDING

BLADES & ROSENFELD, P.A.

1200 Sun Life Building

20 South Charles Street

Baltimore, Maryland 21201

(301) 539-7558

FRANCIS S. BROCATO

BrocaTo & KEELTY

1402 Fidelity Building

210 North Charles Street

Baltimore, Maryland 21261

(301) 576-7300

STEPHEN C. WINTER

WINTER & ASSOCIATES

606 Bosley Avenue

Towson, Maryland 21204

(301) 321-6222

RONALD W. FUCHS

ECCLESTON & SEIDLER

Suite 100

110 East Lexington Street

Baltimore, Maryland 21202

(301) 752-7474

HAROLD H. BURNS

Suite 200

300 Cathedral Street

Baltimore, Maryland 21201

(301) 528-0044

THOMAS G. BODIE

POWER & MOSNER

21 W. Susquehanna Avenue

Towson, Maryland 21204

301) 823-1250