Opinion ID: 785711
Heading Depth: 2
Heading Rank: 2

Heading: Wagh's RICO claims

Text: 19 18 U.S.C. § 1962(a) provides in relevant part: 20 It shall be unlawful for any person who has received any income derived,... from a pattern of racketeering activity or through collection of an unlawful debt ... to use or invest ... any part of such income ... in acquisition of any interest in, or the establishment or operation of, any enterprise. 21 Section 1964(c) confers standing to bring civil RICO claims only upon those persons injured in [their] business or property by reason of a violation of section 1962. Read together, these two provisions require that a plaintiff seeking civil damages for a violation of § 1962(a) must allege facts tending to show that he or she was injured by the use or investment of racketeering income. Nugget Hydroelectric L.P. v. Pacific Gas & Elec. Co., 981 F.2d 429 (9th Cir.1992) (joining three other circuits in their application of the investment injury requirement). See also SMITH & REED ¶ 6.04[5][a], at 6-101 (listing the cases in which four additional circuits imposed an investment injury requirement for § 1962(a) standing, bringing the total to eight circuits). 22 Wagh argues that the district court misapplied Nugget by requiring him to plead that he was injured by the use or investment of the funds taken from him. Instead, he urges this court to hold that he need only allege that he was injured by the use or investment of funds previously received from others in violation of the mail fraud, wire fraud, and RICO statutes, and that his allegation that the appellees reinvest in themselves the income generated by the enterprise's pattern of racketeering activity, is therefore sufficient to state a claim. 23 We disagree, for several reasons. First, both the Supreme Court and this court have held that under § 1964(c), a RICO plaintiff must allege a direct causal link between his injury and the defendant's violation. See Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 268-69, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992) (rejecting a reading of the statute that would allow recovery simply on showing that the defendant violated § 1962, the plaintiff was injured, and the defendant's violation was a `but-for' cause of plaintiff's injury); Hamid v. Price Waterhouse, 51 F.3d 1411, 1419 (9th Cir.1995) (In order to plead a civil RICO claim, appellants must show that the defendants' violation of section 1962 was the proximate cause of their injury.). 24 Second, in Nugget we specifically refused to follow the approach of the Fourth Circuit, which had held that a plaintiff may satisfy the standing and pleading requirements for RICO violations by alleging an injury from racketeering acts generating income that was subsequently used in violation of § 1962. Nugget, 981 F.2d at 437 (declining to adopt the reasoning in Busby v. Crown Supply, Inc., 896 F.2d 833 (4th Cir.1990)). Nugget's holding is applicable here. Noting that Busby allowed recovery although one element of the violation, the use of the proceeds, may not have contributed to or caused the injury, this court concluded that 25 [S]ection 1964(c) does not support such a reading, for it would allow an individual to recover for injuries caused by an action that does not constitute a violation of section 1962(a) even though section 1964(c) speaks not of an `element of a violation' but rather only of a `violation.' To allow recovery for an injury arising from a mere element of a violation, rather than an actual violation, of section 1962(c), we would have to have before us a statute worded differently from the one Congress passed. 26 Id. 27 Wagh's argument that he should be allowed to recover for an injury arising from the investment of income gained from a previous act of racketeering is similarly unavailing. He has asserted that Metris Direct defrauded him, but has failed to assert that they have injured him by the use or investment of the income derived from the predicate acts of fraud. He has therefore alleged only an element of the RICO violation covered by § 1962(a). 28 Wagh's reinvestment theory fares no better. Several courts, applying an investment injury requirement, have held that the acquisition and reinvestment of the proceeds of racketeering activity in the general affairs of an enterprise does not qualify as investment injury. See SMITH & REED ¶ 6.04[5][a], at 6-104 n. 226 (citing one Eighth Circuit case, and four district court cases from three different circuits, including In re Rexplore, Inc. Sec. Litig., 685 F.Supp. 1132, 1141 (N.D.Cal.1988)). 29 We therefore hold that for Wagh to have standing to sue under §§ 1962(a) and 1964(c), he must have alleged that funds derived from the alleged racketeering activity (mail fraud) were used to injure him. Since Wagh conceded below that he was unable to amend his complaint without discovery, the only remaining question on his § 1962(a) claim is whether he was entitled to discovery. 30 The district court found that Wagh was not entitled to conduct discovery in order to cure the § 1962(a) pleading defect. As the court noted in its order granting the first motion to dismiss, discovery at the pleadings stage is only appropriate where factual issues are raised by a Rule 12(b) motion. (citing Jarvis v. Regan, 833 F.2d 149, 155 (9th Cir.1987)). There are no factual issues in dispute with regard to this claim; even if accepted as true, Wagh's allegations are insufficient to state a claim for relief under § 1962(a). The district court did not abuse its discretion in finding that Wagh was not entitled to discovery.
31 18 U.S.C. § 1962(b) provides in relevant part: 32 It shall be unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise. 33 In order to state a claim under § 1962(b), a plaintiff must allege that 1) the defendant's activity led to its control or acquisition over a RICO enterprise, and 2) an injury to plaintiff resulting from defendant's control or acquisition of a RICO enterprise. Sebastian Int'l, Inc. v. Russolillo, 186 F.Supp.2d 1055, 1068 (C.D.Cal. 2000) (internal citations omitted). This pleading requirement means that in addition to alleging facts sufficient to assert standing, Wagh must allege a specific nexus between the control of the enterprise and the racketeering activity. Sea-Land Serv., Inc. v. Atlantic Pacific Int'l, 57 F.Supp.2d 1048, 1055 (D.Hawai'i 1999). 34 Wagh argues that the district court's dismissal without leave to amend was in error, because although he believes that he has already stated a claim for relief under § 1962(b), he would also be able to amend his pleading to satisfy any stricter requirements imposed by the district court, without needing discovery. 35 Leave to amend is generally within the discretion of the district court. See, e.g., Nat'l Audubon Soc'y, 307 F.3d at 853. The district court's discretion to deny leave to amend is particularly broad where the plaintiff has previously filed an amended complaint. See, e.g., Chodos v. West Publ'g Co., 292 F.3d 992, 1003 (9th Cir.2002). 36 Nearly four months passed between April 4, 2001, when Wagh first asserted a RICO claim (under § 1962(c), not § 1962(b)), and July 25, when he responded to the district court's order to show cause. Wagh first claimed a violation under § 1962(b) on July 25 in his amended RICO case statement, but did not include more than the vaguest allusions to the acquisition or maintenance of any interest in or control of the alleged enterprise. Moreover, although Wagh maintains that he is able to amend his pleadings to state a claim under § 1962(b), he has given no indication — either in argument before the district court, or in his briefs to this court — what additional details he could provide without discovery. Given the length of time that Wagh has alleged a violation of the RICO statute (albeit a different section), and the paucity of facts that would establish the bare bones of his claim, we conclude that the district court did not abuse its discretion in dismissing Wagh's § 1962(b) claim without granting leave to amend.
37 18 U.S.C. § 1962(c) provides in relevant part: 38 It shall be unlawful for any person employed by or associated with any enterprise... to conduct or participate ... in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt. 39 For the purposes of section 1962(c), RICO plaintiffs must allege a defendant — the `person' or `persons' — who is distinct from the enterprise whose business the defendant is conducting. Sever v. Alaska Pulp Corp., 978 F.2d 1529 (9th Cir.1992). The term enterprise is defined in the statute as (1) any individual, partnership, corporation, association, or other legal entity and (2) any union or group of individuals associated in fact although not a legal entity. 18 U.S.C. § 1961(4) (West 2003). Wagh's only theory of enterprise on appeal is that the defendants-appellees, two of their employees, and Citibank together constitute the enterprise. He therefore alleges that these corporations and individuals have formed an association in fact. 40 Under this Circuit's interpretation of the enterprise element, the predicate acts of racketeering activity, by themselves, do not satisfy the RICO enterprise element. Chang v. Chen, 80 F.3d 1293, 1299 (9th Cir.1996) (discussing the minimum requirements for an associated-in-fact enterprise). A RICO plaintiff must allege a structure for the making of decisions separate and apart from the alleged racketeering activities, because the existence of an enterprise at all times remains a separate element which must be proved. Id. (citing U.S. v. Turkette, 452 U.S. 576, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981)). 41 In this case, Wagh has not alleged a decision-making structure for the enterprise beyond that which was inherent in the alleged acts of racketeering activity. Id. at 1300. See also Simon v. Value Behavioral Health, Inc., 208 F.3d 1073, 1083 (9th Cir.2000) ([A] group does not constitute an enterprise unless it exists independently from the racketeering activity in which it engages.). As the district court noted in its second order granting Metris Direct's motion to dismiss, 42 The basis of [Wagh's] allegation is apparently that a normal credit card transaction between Defendants, Citibank, and [Wagh] is an action sufficient to satisfy the criminal enterprise requirement. Again, however, Plaintiff has failed to meet the enterprise requirements established by the Ninth Circuit in presenting this theory of enterprise. Plaintiff has not alleged that Defendants and Citibank have established a system of making decisions in furtherance of their alleged criminal activities, independent from their respective regular business practices. Nor has Plaintiff alleged that an independent system of distributing the proceeds of money obtained from persons like Wagh exists between the Defendants and Citibank. 43 Wagh v. Metris Direct, Inc., 2002 WL 257846, at . 44 Wagh has therefore failed to allege the elements of a violation of § 1962(c), and the dismissal of this claim was correct.
45 18 U.S.C. § 1962(d) provides that [i]t shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section. Since Wagh has not satisfied the pleading requirements for any of those subsections, he has also not alleged sufficient facts to state a claim under this section of the RICO statute. Moreover, since all his other RICO claims were dismissed without leave to amend, dismissal without leave to amend this claim was also appropriate. See Religious Tech. Ctr. v. Wollersheim, 971 F.2d 364, 367 n. 8 (9th Cir.1992). 46