FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ROBERT W. WALTER, 

Plaintiff-Appellant,

v.

RICHARD C. DRAYSON, Individually; No. 07-16284

ELIZABETH WALTER Individually;

D.C. No. KAREN TEMPLE, ATTORNEY AT LAW 

LLLC, doing business as Bodden CV-06-00568-SOM

& Temple, LLLC; KAREN M. OPINION

TEMPLE, also known as Karen M.

Grant Temple also known as

Karen M. Grant,

Defendants-Appellees. 

Appeal from the United States District Court

for the District of Hawaii

Susan Oki Mollway, District Judge, Presiding

Argued and Submitted June 20, 2008

Submission Vacated June 27, 2008

Resubmitted August 11, 2008

Honolulu, Hawaii

Filed August 18, 2008

Before: Alfred T. Goodwin, Pamela Ann Rymer, and

Sandra S. Ikuta, Circuit Judges.

Opinion by Judge Rymer

10905
COUNSEL

Robert W. Walter, Pro se, Greenwood Village, Colorado,

plaintiff-appellant. 

Mark D. Bernstein, Honolulu, Hawaii, for defendant-appellee

Elizabeth Walter; Shelton G. W. Jim On, Jim On & Beerman,

Honolulu, Hawaii, for defendant-appellee Richard C. Drayson; Keith K. Hiraoka, Roeca Louie & Hiraoka, Honolulu,

Hawaii, for defendants-appellees Karen M. Temple and Karen

Temple, AAL, LLLC. 

10908 WALTER v. DRAYSON
OPINION

RYMER, Circuit Judge: 

Robert W. Walter (Walter), one of four siblings who are

beneficiaries of a trust created by their mother, Patricia Ward

Walter, asserts violations of the Racketeer Influenced and

Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(c) and

(d), as well as various state law claims, against Elizabeth Walter, a trustee; Richard C. Drayson, Patricia Walter’s CPA and

also a trustee; and Karen Temple together with her law firm,

Bodden & Temple, who provided legal services to the trustor

and the trustees. Walter’s RICO theory is that Elizabeth Walter, Drayson, Temple, and her firm, were an associated-in-fact

enterprise whose purpose was to gain and maintain control of

the trust and to facilitate the wrongful taking of trust assets.

The district court dismissed the second amended complaint

in a published opinion. Walter v. Drayson, 496 F.Supp.2d

1162 (D. Haw. 2007). It held that Temple’s role was limited

to providing legal services such that she did not operate or

manage the enterprise and so, could not be liable for conducting its affairs under Reves v. Ernst & Young, 507 U.S. 170,

179 (1993), and Baumer v. Pachl, 8 F.3d 1341, 1344 (9th Cir.

1993). For this reason the court also dismissed the RICO conspiracy allegations. Walter appeals, arguing that the district

court misapprehended the “operation and management” test in

the context of an associated-in-fact enterprise. We conclude

otherwise based on the pleadings, and the Second Amended

RICO Case Statement, before us. 

Lacking the hook of a federal question, Walter’s state law

claims may proceed only if there is an independent basis for

jurisdiction. However, his claims sounding in breach of fiduciary duty necessarily implicate Eugene H. Rock, who

became a successor trustee upon Patricia Walter’s death, and

who, like Walter, is a resident of Colorado. Thus, diversity is

WALTER v. DRAYSON 10909
destroyed and these claims were properly dismissed under

Rule 19 of the Federal Rules of Civil Procedure. 

Accordingly, we affirm. 

I

In 1986, Patricia Ward Walter created a revocable living

trust with herself as sole trustee. Her four children, including

Robert and Elizabeth, were designated as equal beneficiaries.

She died in 2005. 

The gist of Walter’s complaint is that once his mother

became incapacitated by a series of strokes, his sister, Elizabeth, improperly removed jewelry belonging to the trust, and

after Patricia Walter’s death, failed to rent real property

owned by the trust and continued paying caregivers. Temple

is a Maui lawyer who represented Patricia Walter in various

trust matters and did legal work for the trustees. Walter

alleges that in doing so, Temple acted in her personal, rather

than professional, capacity; in particular, he avers, Temple

advised Elizabeth Walter not to send monthly reports, refused

to allow Walter to see trust documents not protected by the

attorney client privilege, and sent communications to nonclients. Temple, Elizabeth Walter, and Drayson, it is alleged,

were an associated-in-fact enterprise to achieve the shared

goal of gaining control of the trust, facilitating the wrongful

taking of trust assets by Elizabeth Walter and Drayson, fraudulently obtaining releases of liability, concealing their acts,

and impeding justice. The complaint charges that these acts

amounted to blackmail, extortion, mail fraud, theft, waste of

trust assets, and other predicate offenses. 

In his original complaint, Walter sought relief for violation

of federal and state RICO, an accounting, and an order removing Drayson and Elizabeth Walter as trustees. It was dismissed on motion, and a First Amended Complaint was filed

that eliminated the request for injunctive and declaratory

10910 WALTER v. DRAYSON
relief. It, too, was dismissed with leave to amend. To the district court it did not appear that Temple did anything beyond

acting as legal counsel to the trust, thus the allegations in its

view did not satisfy the “operation or management” test

adopted by Reves. Walter then filed the Second Amended

Complaint, at issue now, together with an amended RICO

Case Statement. The district court again dismissed the action,

this time with prejudice. It held that allegations that Temple

was not acting in her capacity as trustees’ counsel were conclusory, Sprewell v. Golden State Warriors, 266 F.3d 979,

988 (9th Cir. 2001), and the factual allegations that she caused

Walter not to receive monthly reports and failed to send information he requested failed to show that she was directing the

affairs of the enterprise. 

This appeal followed. 

II

Our task is simplified by Walter’s position in the district

court that if Temple is not liable, he cannot prevail on his

§ 1962(c) claims. Likewise, we do not need to consider the

viability of Walter’s conspiracy claim under 18 U.S.C.

§ 1962(d), because he does not appeal the dismissal on this

basis. Consequently, all we must decide is whether Reves

applies and, assuming it does, whether Temple conducted the

affairs of the enterprise under its standard. 

We are guided by the normal rules applicable to review of

dismissals for failure to state a claim pursuant to Fed. R. Civ.

P. 12(b)(6). Thus, our review is de novo. We construe the

complaint (and, in this case, also the RICO statement) in the

light most favorable to the non-moving party, and we take the

allegations and reasonable inferences as true. Odom v. Microsoft Corp., 486 F.3d 541, 545 (9th Cir. 2007) (en banc). In

addition, we are mindful of Odom’s enjoinder not to be stingy

in interpreting and applying RICO. Id. at 547. 

WALTER v. DRAYSON 10911
[1] The statute that Temple allegedly violated, 18 U.S.C.

§ 1962(c), provides:

It shall be unlawful for any person employed by or

associated with any enterprise engaged in, or the

activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs

through a pattern of racketeering activity or collection of unlawful debt. 

“To state a claim under § 1962(c), a plaintiff must allege ‘(1)

conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.’ ” Odom, 486 F.3d at 547 (quoting Sedima,

S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985)). It is the

first, or conduct, element that is at issue here. 

Walter argues that Temple had a major role in the enterprise and his RICO claims were properly pled in that she did

not act in accordance with applicable Hawai’i and professional standards. He relies on Living Designs, Inc. v. E.I.

DuPont de Nemours & Co., 431 F.3d 353 (9th Cir. 2005),

where we acknowledged that DuPont and the law firms hired

to defend it in lawsuits brought by Living Designs could be

an associated-in-fact enterprise. The issue was whether the

enterprise formed by DuPont, the law firms it employed, and

the expert witnesses retained by the law firms, was separate

and distinct from DuPont, the RICO “person” alleged in the

complaint. We held that they were, as the litigation enterprise

was necessarily distinct from the client retaining the services.

Id. at 362. But Living Designs sheds little light on this case,

where there is no question about structure, and we take it as

given that Drayson, Elizabeth Walter, and Temple could be an

associated-in-fact enterprise. Rather, the issue here is whether

the particular allegations about Temple are sufficient to subject her to liability for conducting the affairs of the enterprise.

[2] Reves is the controlling authority on the point of what

constitutes “conduct.” In Reves, a RICO claim was asserted

10912 WALTER v. DRAYSON
against Arthur Young, an accounting firm, that had reviewed

a series of transactions and incorrectly certified records of the

Farmer’s Cooperative of Arkansas and Oklahoma, Inc., which

was the enterprise. The Court held that failure to advise correctly did not give rise to liability under § 1962(c). In so

doing, it rejected Reves’s position that “conduct” should be

read as “carry on” so that almost any involvement would do.

Instead, it concluded that the word “conduct,” used twice in

§ 1962(c), “requires an element of direction.” 507 U.S. at

177-78. At the same time, the Court explained that “participate” connotes “to take part in.” Thus, “to ‘participate,

directly or indirectly, in the conduct of such enterprise’s

affairs,’ one must have some part in directing those affairs.”

Id. at 179. While it is not necessary to be upper management

to be liable, and the Court did not have to decide the extent

to which low-level employees could “participate” in the conduct of an enterprise’s affairs given how clear it was that

Arthur Young was not acting under the direction of the Coop’s officers or board, it did observe that an enterprise “also

might be ‘operated’ or ‘managed’ by others ‘associated with’

the enterprise who exert control over it as, for example, by

bribery.” Id. at 184.

[3] We applied Reves’s “operation or management” test to

the provision of legal services in Baumer. Emery Erdy and

Estate Planning Associates, Inc. (not defendants in the RICO

case) sold limited partnership interests until they got crossthreaded with the California Department of Corporations.

They then retained Pachl, an attorney and RICO defendant,

who wrote two letters to the Department, filed a partnership

agreement, and helped Erdy in bankruptcy proceedings. We

found this level of involvement insufficient to impute liability

to Pachl under Reves. Pachl held no formal position in the

limited partnership; he played no part in directing the affairs

of the enterprise; and his role was limited to providing legal

services. Further, we held: “Whether Pachl rendered his services well or poorly, properly or improperly, is irrelevant to

the Reves test.” 8 F.3d at 1344. It follows that Temple’s

WALTER v. DRAYSON 10913
alleged involvement is also insufficient. Like the accounting

firm in Reves, she and her firm were not acting under direction from the trust or the trustees, at least, not so far as we can

tell from the pleadings. Like the lawyer in Baumer, she allegedly wrote emails, gave advice, and took positions on behalf

of her clients. We assume (because we must) that her performance was deficient in the respects claimed by Walter. But

we know from Baumer and Reves that the quality of the services rendered doesn’t matter. And there is no indication that

Temple, anymore than Pachl or Arthur Young, was thereby

directing the enterprise. It is not enough that Temple failed to

stop illegal activity, for Reves requires “some degree of direction.” 507 U.S. at 179. Finally, the factual allegations raise no

inference that Temple tried to control the enterprise by anything akin, for example, to bribery. See id. at 184. 

Walter maintains that reliance on Baumer and Reves is misplaced as the enterprises alleged in those cases were not

associated-in-fact enterprises.1 He submits that this distinction

is material, pointing out that the Seventh Circuit in MCM

Partners, Inc. v. Andrews-Bartlett & Associates, Inc., noted

the difference between one who is an “outsider” to the enterprise (as Arthur Young was in Reves) and one who is part of

the enterprise itself. 62 F.3d 967, 979 (7th Cir. 1995). In that

case, MCM, which was a supplier of forklifts and moving

equipment, alleged that two exhibition contractors, A-B and

FDC, refused to rent forklift equipment from MCM because

they had been coerced by a competing rental equipment company, O.G. Service Corporation, into refusing to deal. The

RICO enterprise was alleged to be associated-in-fact and

comprised of O.G., A-B, FDC, the Teamsters, and others, to

make O.G. the exclusive provider of forklift equipment. The

activities of A-B and FDC allegedly were undertaken at the

1He also suggests that time has overtaken Baumer, given that Odom

overruled Chang v. Chen, 80 F.3d 1293 (9th Cir. 1996), which was of the

same vintage. However, as a panel, we lack the option of considering this

possibility. 

10914 WALTER v. DRAYSON
direction of other members of the enterprise. The court saw

the issue as whether A-B and FDC were “outsiders,” like the

accounting firm in Reves, or were lower-rung participants

who acted under the direction of the enterprise’s upper management. On the facts alleged, it came down on the side of

lower-rung participants because A-B and FDC were alleged

to be members of an association-in-fact constituting the enterprise, they were part of the enterprise itself, they knowingly

undertook the predicate acts “at the direction” of the enterprise’s management, and they were “vital to the achievement

of the enterprise’s primary goal, as only they had the ability

to exclude MCM from the market by dealing exclusively with

[O.G.]” Id. 

[4] While true that neither Reves nor Baumer concerned an

associated-in-fact enterprise, whereas this is the type of enterprise at issue here, still there must be an element of direction.

Section 1962(c)’s “conduct” requirement applies without

regard to the nature of the enterprise. Otherwise, as Reves

explains, simply being involved would suffice. 507 U.S. at

177-78. No doubt Temple was involved as an alleged part of

the enterprise, but the conduct attributed to her would not support recovery for giving, or taking, direction. Temple does not

occupy a position in the “chain of command,” as the First Circuit put it, through which the affairs of the enterprise are conducted. United States v. Oreto, 37 F.3d 739, 750 (1st Cir.

1994) (quoted with approval in MCM, 62 F.3d at 978). Unlike

the contractors in MCM, she did not become a participant in

directing the enterprise’s affairs by knowingly implementing

decisions of upper management. And she was not indispensable to achievement of the enterprise’s goal. In this, too, Temple is different from the contractors in MCM whose

participation was “vital” to the mission’s success because they

were the only act in town. 

[5] In sum, the pleadings show that Temple and her firm

were part of the enterprise but fail to show that she or her firm

had “some part in directing its affairs.” Reves, 507 U.S. at

WALTER v. DRAYSON 10915
179. One can be “part” of an enterprise without having a role

in its management and operation. Simply performing services

for the enterprise does not rise to the level of direction,

whether one is “inside” or “outside.” Accordingly, neither

reasonable inferences, nor triable issues, exist sufficient to

subject Temple or her firm to liability under § 1962(c). 

III

Walter argues that, in any event, the third trustee is not a

required party2 on the state law claims for the primary reason

that he brings this action on his own behalf — not derivatively for the trust or the beneficiaries — and that he seeks to

recover tort damages, not to recover trust assets. Further, Walter posits that an accounting is not necessary because he was

entitled to immediate possession of his 25% portion of trust

assets in July 2006 when the trustees determined to proceed

with a preliminary distribution. Moreover, Walter claims, the

trust has in effect terminated and is being kept alive only to

make it appear that this action sounds in equity. 

[6] This said, Walter does not dispute that an action for

breach of a trustee’s fiduciary duty must proceed in equity

unless the beneficiary is due an immediate, unconditional

payment, or that a trustee is under no obligation to distribute

immediately if an accounting would be necessary to ascertain

the correct amount. Among other things, Walter claims that

the trustees failed to collect rental income from Patricia Walter’s condominium from October 29, 2005 through June 30,

2006. However, the amount is uncertain. Even if it could reasonably be estimated by comparables, there’s no telling

whether taxes and fees would cut into the rent. Thus, the trust2Fed. R. Civ. P. 19 (2007) has replaced “necessary party,” the phrasing

at the time of the district court’s decision, with “required party.” However,

the change is stylistic, not substantive, so has no effect on the analysis. See

Republic of the Philippines v. Pimentel, ___ U.S. ___, 128 S.Ct. 2180,

2184-85 (2008). 

10916 WALTER v. DRAYSON
ees’ exposure is indefinite and an accounting is required to

settle it. 

[7] This being so, the trust and the trustees are required parties. See Lucas v. Lucas, 20 Haw. 433, 441-42 (1911); Fed.

R. Civ. P. 19. Rock, however, cannot be joined as he and

Walter are both citizens of Colorado. Therefore, dismissal of

the state law claims, without prejudice, was appropriate. 

AFFIRMED. 

WALTER v. DRAYSON 10917