Court Opinion

ID: 9476209
Source: CourtListenerOpinion
Date Created: 2023-08-05 05:50:07.915916+00
Date Added: 2024-06-11T17:45:10.898736
License: Public Domain

CYNTHIA HOLCOMB HALL, Circuit Judge,
concurring in part and dissenting in part:
I concur in the result reached in Judge Kozinski’s opinion. Indeed, if the district court had had jurisdiction to enter the preliminary injunction, I could agree with it entirely. I respectfully dissent, however, from the jurisdictional holding of Part I of the opinion and join in the remainder.
The majority, in finding that the district court had jurisdiction, relies on the case of Keniston v. Roberts, 717 F.2d 1295 (9th Cir.1983), for the proposition that at this stage of the proceedings the complaint must meet only two criteria. First, it must claim a right to recover under the Constitution and laws of the United States. Id., at 1298. Second, the claim set forth in the complaint must not be wholly insubstantial and frivolous. Id. The test set forth in Keniston, however, is used only “ ‘for the purposes of determining whether [the plaintiff] stated a cause of action on which relief could be granted.’ ” Id. (quoting Jackson Transit Authority v. Local Division 1285, 457 U.S. 15, 21 n. 6, 102 S.Ct. 2202, 2206 n. 6, 72 L.Ed.2d 639 (1982)). The test of whether to grant a motion to dismiss under Fed.R.Civ.P. 12(b)(6) is inapplicable to the question of whether a plaintiff has made a sufficient showing of subject matter jurisdiction to obtain a preliminary injunction. At the preliminary injunction stage, a more stringent test applies.
In SEC v. United Financial Group, Inc., 474 F.2d 354 (9th Cir.1973), a case both procedurally and factually similar to this one, we addressed the question of whether the district court had subject matter jurisdiction to enter a preliminary injunction. The SEC claimed that the defendants were violating United States secu*1491rities laws. The district court entered a preliminary injunction in favor of the SEC. On appeal, the defendants argued that all offers and sales of shares were confined to foreigners and, therefore, that the district court did not have subject matter jurisdiction to grant the preliminary injunction. Id., at 356. In reviewing the defendants’ claim, this court did not apply the frivolity standard set forth in Keniston. Instead, we engaged in a thorough evaluation of the effect that the defendants’ activities had had upon investors in the United States holding that “focus should be upon appellants’ activities within the United States and the impact of those activities upon American investors.” Id., at 356-57. See also Des Brisay v. Goldfield Corp., 549 F.2d 133, 134 (9th Cir.1977) (focus in determining whether United States securities laws apply to foreign transactions should be on adverse impact of the transactions on American securities markets); Eurim-Pharm GmbH v. Pfizer Inc., 593 F.Supp. 1102, 1105 n. 3 (S.D.N.Y.1984) (focus in determining whether United States antitrust laws apply to international business transactions is on the situs of the effect).
The “effects” test applied in securities and antitrust cases should also be applied in RICO cases. When it passed RICO, Congress was concerned with the harmful effect of organized crime on the economy of the United States:
The Congress finds that (1) organized crime in the United States is a highly sophisticated, diversified, and widespread activity that annually drains billions of dollars from America’s economy ... (3) this money and power are increasingly used to infiltrate and corrupt legitimate business and labor unions and to subvert and corrupt our democratic processes; (4) organized crime activities in the United States weaken the stability of the Nation’s economic system, harm innocent investors and competing organizations, interfere with free competition, seriously burden interstate and foreign commerce, threaten the domestic security, and undermine the general welfare of the Nation and its citizens ...
RICO Statement of Findings and Purpose, Pub.L. No. 91-452, 84 Stat. 922 (1970), 91st Cong., 2d Sess., reprinted in 1970 U.S. Code Cong. & Admin.News 1073, 1073 (emphasis added). See also United States v. Bagnariol, 665 F.2d 877, 892 (9th Cir.1981) (effect on commerce is an essential element of a RICO violation), cert. denied, 456 U.S. 962, 102 S.Ct. 2040, 72 L.Ed.2d 487 (1982). Thus, in order to maintain a lawsuit under RICO, a plaintiff must demonstrate that the transactions in question adversely affected the economy of the United States.
The complaint before us in this case fails to make the requisite allegations of harm to the economy of the United States;1 the majority does not hold otherwise. Rather than arguing that the “effects” test is met on the facts of this case, the majority erroneously applies a “conduct” test utilized in the securities law setting. See Grunenthal GmbH v. Hotz, 712 F.2d 421, 424-25 (9th Cir.1983) (where conduct in the United States was significant with respect to the alleged violation, there is federal jurisdiction under United States securities laws). The “conduct” test used in the securities context is not applicable in RICO cases. Cf. United States v. Bagnariol, 665 F.2d 877, 892 (9th Cir.1981) (effect on commerce is an essential element of a RICO violation), cert. denied, 456 U.S. 962, 102 S.Ct. 2040, 72 L.Ed.2d 487 (1982). In passing RICO, Congress was concerned with the effect of organized crime on the economy of the United States. Therefore, the “effects” test is the only applicable one. Even if the majority were correct in its assumption that the “conduct” test applies in the RICO context, the test would not be met on the facts of this case. The defendants’ conduct in the United States was not a significant element of the harm alleged by the plaintiff. See, e.g., Grunenthal, 712 F.2d at 425. As the plaintiff conceded at oral argument, the investment of funds in the United States was no more injurious to the Philippines than if the funds had been kept in a mattress in the Philippines.
I would vacate the injunction on the ground that the district court lacked subject matter jurisdiction to enter it.

. At oral argument, we were advised that the plaintiff had amended its complaint subsequent to the issuance of the preliminary injunction. The propriety of a preliminary injunction under the amended complaint is not before us.