A. Jacques LOU, Plaintiff/Appellee,
v.
William BELZBERG; Hyman Belzberg; Samuel Belzberg; First
City Financial Corporation; First City Trust Company;
Roxboro Investments Ltd.; Bel-Fran Investments Ltd.;
Bel-Cal Holdings Ltd.; Bel-Alta Holdings Ltd.; Drexel
Burnham Lambert Inc.; John R. Hall; Robert T. McCowan;
William R. Seaton; Charles J. Luellen; Samuel C. Butler;
Eugene W. Erikson; James B. Farley; Robert D. Gordon;
Walter W. Hillenmeyer; Don T. McKone; Harold S. Mohler;
Grover E. Murray; Jane C. Pfeiffer; Robert S. Reigeluth;
James R. Rinehart; F.H. Ross; Robert Stobaugh; Richard L.
Terrell; James W. Vandereer; Ashland Oil, Inc., Defendants/Appellees,
Pauline Mickler; Erwin A. Sherman; Lynch, Sherman & Cox;
Merrill G. Davidoff; Sherrie R. Savett; Berger &
Montague, P.C., Respondents/Appellants.
A. Jacques LOU, Plaintiff/Appellant,
v.
William BELZBERG; Hyman Belzberg; Samuel Belzberg; First
City Financial Corporation; First City Trust Company;
Roxboro Investments Ltd.; Bel-Fran Investments Ltd.;
Bel-Cal Holdings Ltd.; Bel-Alta Holdings Ltd.; Drexel
Burnham Lambert Inc.; John R. Hall; Robert T. McCowan;
William R. Seaton; Charles J. Luellen; Samuel C. Butler;
Eugene W. Erikson; James B. Farley; Robert D. Gordon;
Walter W. Hillenmeyer; Don T. McKone; Harold S. Mohler;
Grover E. Murray; Jane C. Pfeiffer; Robert S. Reigeluth;
F.H. Ross; Robert B. Stobaugh; Richard L. Terrell; James
W. Vandereer, Defendants/Appellees.
Nos. 86-6144, 86-6057.
United States Court of Appeals,
Ninth Circuit.
Argued and Submitted Oct. 2, 1986.
Submission Withdrawn Feb. 19, 1987.
Resubmitted Aug. 20, 1987.
Decided Nov. 12, 1987.
Robert S. Warren and Claire D. Johnson, Los Angeles, Cal., for appellees.
William S. Leach, San Diego, Cal., for appellants.
Appeal from the United States District Court for the Central District of California.
Before HUG, FLETCHER and BOOCHEVER, Circuit Judges.
BOOCHEVER, Circuit Judge:
OVERVIEW
A. Jacques Lou (Lou) appeals the district court's denial of Lou's motion to remand, the granting of a motion to transfer the action to the Southern District of New York, and the enjoining of a similar state court proceeding. The district court found that Lou improperly pled a section 17(a) violation of the 1933 Securities Act and that the Racketeer Influenced and Corrupt Organizations Act (RICO) claims, 18 U.S.C. Secs. 1961-68, and the section 17(a) claims were "separate and independent," thus affording the court removal jurisdiction pursuant to 28 U.S.C. Sec. 1441(c). We affirm the district court on these issues, but for different reasons. We reverse, however, the district court's preliminary injunction of the state court action. In resolving this appeal we hold that state and federal courts have concurrent jurisdiction over RICO claims, but we do not address the sufficiency of Lou's section 17(a) pleadings, or whether the RICO claims and the section 17(a) claims are separate and independent.
FACTS
Lou filed a shareholders' derivative action on behalf of Ashland Oil Company, Inc. (Ashland), a Kentucky corporation, and a class action on behalf of all persons who owned Ashland common stock on April 1, 1986, except members of the Belzberg family and certain entities controlled or used by them, Drexel Burnham Lambert Inc., an investment banking firm which assisted the Belzbergs, and the Ashland directors. Lou alleges that she and a number of other Ashland shareholders were damaged by the wrongful acts of the Belzbergs.
During the early part of 1986, the Belzbergs accumulated several million shares of Ashland common stock. Ashland publicly reported the acquisition of eight to nine percent of Ashland stock on March 25, 1986. The next day, the Belzbergs disclosed that they owned 9.2% of Ashland stock and offered to buy the remaining outstanding shares. As a consequence of these actions, the price of Ashland stock increased. On April 1, 1986, Ashland announced that it had agreed to repurchase 2.6 million shares of Ashland stock from the Belzbergs. This caused the price of the stock to fall. The Belzberg family realized a substantial profit from the transaction.
Lou filed her complaint in Los Angeles Superior Court alleging violations of state law fiduciary obligations, section 17(a) of the Securities Act of 1933, 15 U.S.C. Sec. 77q(a) (1982), and the RICO statute, 18 U.S.C. Secs. 1961-68 (1982 & Supp. III 1985). Under the authority of Heckmann v. Ahmanson,
On April 17, 1986, defendants removed the action to the United States District Court for the Central District of California, pursuant to 28 U.S.C. Secs. 1441(a) and (c) (1982). Lou sought to remand the action to state court while defendants moved to transfer the matter to the Southern District of New York. The district court denied the motion to remand on two grounds. First, although section 17(a) claims brought in state court are generally not removable, see 15 U.S.C. Sec. 77v(a) (1982), the district court found that Lou's pleadings did not adequately allege a section 17(a) violation. Thus removal was permissible under 28 U.S.C. Sec. 1441(a) based on the federal RICO claim. Second, the district court determined that Lou's RICO claims were "separate and independent" from her other claims, making her action removable under 28 U.S.C. Sec. 1441(c). The district court then ordered transfer of the action to New York in the interests of justice and for the convenience of the parties and witnesses.
On May 27, 1986, Pauline Mickler, an Ashland shareholder represented by the same attorneys as Lou and two additional law firms, instituted a similar action in state court against the Belzbergs and several new defendants. The complaint asserted additional state law claims and omitted the federal claims. Mickler v. Belzberg, No. CA000983, Los Angeles County Super. Ct. (Mickler ). The next day the district court granted the Lou defendants a temporary restraining order, enjoining the prosecution of the Mickler action. The court also sent the Lou record to the District Court for the Southern District of New York on May 28.
On June 3, 1986, the United States District Court for the Central District of California issued a preliminary injunction against prosecution of the Mickler action and simultaneously denied Lou's motion to stay the transfer pending appellate review of the district court's denial of remand, issuance of the injunction, and transfer of the case to New York. Lou filed her notice of appeal on June 12, 1986. On July 7, 1986, the transferred records were docketed in the Office of the Clerk of the Southern District of New York.
DISCUSSION
Appellate Jurisdiction
We have jurisdiction to review this case under 28 U.S.C. Sec. 1292(a)(1) (1982), which allows appeals from the grant or denial of a preliminary injunction. Genosick v. Richmond Unified School Dist.,
The Belzbergs contend, however, that because the case was transferred to the Southern District of New York, this court lacks appellate jurisdiction. We have not yet established a rule determining when a transfer under 28 U.S.C. Sec. 1404(a) becomes effective, thus terminating our jurisdiction. Section 1404(a) provides for the transfer of an action to another district for the convenience of parties and witnesses, in the interest of justice. Other circuits have held that a section 1404 transfer ends the jurisdiction of both the transferor court and the corresponding appellate court when the motion is granted and the papers are entered in the transferee court's records. See In re Sosa,
As Lou filed her appeal on June 12, 1986, before the papers were docketed in New York, this court had already acquired appellate jurisdiction before the transfer was effective. Once jurisdiction is properly obtained by the appellate court it is not terminated by the subsequent completion of a section 1404 transfer. See Magnetic Eng'g & Mfg. Co. v. Dings Mfg. Co.,
Standard of Review
The primary basis for our jurisdiction is review of the preliminary injunction under 28 U.S.C. Sec. 1292(a) (1982). A district court's order regarding preliminary injunctive relief is subject to limited review. The grant or denial of a preliminary injunction will be reversed only where the district court abused its discretion or based its decision on an erroneous legal standard or on clearly erroneous findings of fact. Colorado River Indian Tribes v. Town of Parker,
The district court's decision transferring venue to the Southern District of New York pursuant to 28 U.S.C. Sec. 1404(a) is reviewed for an abuse of discretion. See Cheng v. Boeing Co.,
Motion to Remand
The original issue presented to us was whether Lou adequately pled a nonremovable section 17(a) Securities Act claim and if so, whether the RICO claims were "separate and independent," thereby permitting removal of the action, including the section 17(a) claim, under 28 U.S.C. Sec. 1441(c). Section 17(a) makes it unlawful for any person offering or selling securities through means of interstate commerce to employ any device, scheme, or artifice to defraud. 15 U.S.C. Sec. 77q(a)(1). Section 22(a) of the 1933 Securities Act expressly forbids removal of claims under any of the sections of that Act that are brought in state courts of competent jurisdiction. 15 U.S.C. Sec. 77v(a). The district court denied Lou's motion to remand, specifically holding that Lou failed to allege she was a purchaser or seller of securities during the critical period in question as required by Mosher v. Kane,
After the filing of this appeal, we decided Puchall v. Houghton, Cluck, Coughlin & Riley (In re Washington Pub. Power Supply Sys. Sec. Litig.),
1) Derivative Jurisdiction
The derivative jurisdiction doctrine, which applies to cases filed before June 20, 1986, provides that a federal district court lacks subject matter jurisdiction over claims removed from a state court if the state court lacked subject matter jurisdiction over the claims.1 See Clorox Co. v. United States Dist. Court,
2) RICO Jurisdiction
Whether jurisdiction over RICO claims is exclusively federal or shared concurrently with the states has been much debated in state courts and federal district courts without uniform results.3 Neither this court nor any other federal appellate court has confronted the issue of whether RICO claims may be brought in state courts, and there are persuasive arguments both for and against concurrent jurisdiction. We believe, however, that the stronger arguments favor concurrent jurisdiction.
We begin with the presumption that state courts have subject matter jurisdiction over cases arising under federal laws. Gulf Offshore Co. v. Mobil Oil Corp.,
a) Explicit Statutory Directive
Section 1964(c) of RICO creates the private cause of action:
Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee.
18 U.S.C. Sec. 1964(c) (1982). We cannot read the word "exclusive" into section 1964's grant of federal jurisdiction over private RICO suits. Rather, "[i]t is black letter law ... that the mere grant of jurisdiction to a federal court does not operate to oust a state court from concurrent jurisdiction over the cause of action." Gulf Offshore Co.,
b) Unmistakable Implication from the Legislative History
The legislative history provides "no evidence that Congress ever expressly considered the question of jurisdiction; indeed, the evidence establishes that its attention was focused solely on whether to provide a private right of action." Cianci v. Superior Court,
While conceding that RICO's explicit legislative history offers nothing to negate the presumption of concurrent jurisdiction, proponents of exclusive jurisdiction argue that such jurisdiction should be implied because section 1964(c) was consciously modeled after section 4 of the Clayton Act, 15 U.S.C. Sec. 15,5 which has been judicially construed to require exclusive federal jurisdiction. See County of Cook v. MidCon Corp.,
In reviewing the County of Cook decision, the Seventh Circuit found the district court's analysis unconvincing. Although finding it unnecessary to reach the issue of RICO jurisdiction, the court stated:
We doubt whether the analogy to antitrust law is sufficiently strong to conclude that because jurisdiction over antitrust cases is exclusively federal, RICO jurisdiction necessarily must follow suit. Particularly in light of the normal presumption that state courts share concurrent jurisdiction over federal statutes, we would be reluctant to conclude from congressional silence that Congress intended to depart from the usual rule.
We agree with the Seventh Circuit that the patterning of RICO's section 1964(c) on section 4 of the Clayton Act does not create an "unmistakable implication" of congressional intent to confer exclusive jurisdiction. First, in Sedima, S.P.R.L. v. Imrex Co.,
Second, Congress has mandated that "[t]he provisions of [RICO] shall be liberally construed to effectuate its remedial purposes." Pub.L. No. 91-452, Sec. 904(a), 84 Stat. 941, 947 (1970). The Supreme Court has found that "if Congress' liberal-construction mandate is to be applied anywhere, it is in Sec. 1964, where RICO's remedial purposes are most evident." Sedima,
We conclude that RICO's legislative history does not provide the requisite "unmistakable implication" that exclusive jurisdiction was intended. See Gulf Offshore Co.,
c) Clear Incompatibility Between State Court Jurisdiction and Federal Interests.
In Kinsey v. Nestor Exploration Ltd.-1981A,
Third, while much of the RICO statute concerns criminal and civil enforcement by federal officials, we disagree with the Kinsey court that private enforcement actions, under section 1964(c), must therefore be heard only in federal courts. As discussed above, see supra at 736, the Supreme Court in Sedima declined to read federal antitrust requirements into RICO; however, the Court thought Congress' reliance on the Clayton Act, "under which private and governmental actions are entirely distinct," was relevant in interpreting section 1964(c).
Nor do we find that federal interests will be jeopardized by state-court adjudication of private RICO claims. The only strong argument supporting an incompatibility between state and federal jurisdiction is that federal courts have exclusive jurisdiction over several RICO predicate acts. See HMK Corp.,
First, in adjudicating a RICO case, state courts only need determine whether the alleged predicate acts did or did not occur. This type of factual finding is unlikely to involve any complex interpretation of the underlying federal statutes, which would require exclusive jurisdiction. Second, as a practical matter, state courts are unlikely to find themselves in the position of interpreting and applying the underlying federal statutes. The vast majority of RICO cases involve garden variety state law fraud, where the plaintiff has simply seized upon RICO to obtain federal jurisdiction, treble damages, and attorney fees. If anything, RICO involves federal courts in the adjudication of state law claims, rather than the other way around.
Id.; see also Cianci,
In sum, we find none of the factors necessary to rebut the presumption of concurrent jurisdiction of section 1964(c) claims. Our conclusion is strengthened by the requirement that we afford a liberal construction to RICO generally, Pub.L. No. 91-452, Sec. 904(a),
Our holding of concurrent jurisdiction over RICO claims disposes of any barrier erected by the derivative jurisdiction doctrine. The district court denied Lou's motion to remand for reasons that have become irrelevant in light of Puchall. We may, however, affirm the district court's decision on any ground finding support in the record. See Smith v. Block,
Appeal of the Motion to Transfer
Lou argues that the district court abused its discretion by transferring this action without due regard to Lou's choice of forum. The district court transferred Lou's action to the United States District Court for the Southern District of New York pursuant to 28 U.S.C. Sec. 1404(a), which provides that "[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought."
Although great weight is generally accorded plaintiff's choice of forum, Texas Eastern Transmission Corp. v. Marine Office-Appleton & Cox Corp.,
After an exhaustive review of the record the district court concluded that: (1) the stock purchase agreement was negotiated and executed in New York, (2) the majority of the witnesses live and work in the New York area where they are subject to subpoena, (3) all the defendants are subject to personal jurisdiction in New York, and (4) the costs of litigation would be drastically reduced if the case were heard in New York. Based on these factors, we find that the district court did not abuse its discretion in deciding to transfer this action pursuant to 28 U.S.C. Sec. 1404(a).
Preliminary Injunction
As a final matter, we must determine whether the district court properly enjoined the Mickler state court proceedings. The Anti-Injunction Act, 28 U.S.C. Sec. 2283 (1982), provides:
A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.
The Belzbergs argue that the district court appropriately granted injunctive relief under the "necessary in aid of its jurisdiction" exception and the "expressly authorized" exception. 28 U.S.C. Sec. 2283. We disagree. We note that the exceptions to the Anti-Injunction Act must be construed narrowly and doubts as to the propriety of a federal injunction against a state court proceeding should be resolved in favor of permitting the state action to proceed. Vendo Co. v. Lektro-Vend Corp.,
1) "Necessary in Aid of Its Jurisdiction" Exception
The general rule under the "necessary in aid of its jurisdiction" exception is that where state and federal courts have concurrent jurisdiction over a case, neither court may prevent the parties from simultaneously pursuing claims in both courts. Atlantic Coast Line R.R. v. Brotherhood of Locomotive Eng'rs,
2) "Expressly Authorized" Exception
Title 28 U.S.C. Sec. 1446(e) (1982) provides that upon removal to federal court, "the State court shall proceed no further unless and until the case is remanded." This prohibition has been construed as an express congressional authorization to enjoin or stay the state court proceedings. In fact, this injunctive power was established long before the "expressly authorized" exception to the Anti-Injunction Act was added in 1948.
Justice Stewart discussed the anti-injunction statute in Mitchum v. Foster,
in addition to the bankruptcy law exception that Congress explicitly recognized in 1874, the Court through the years found that federal courts were empowered to enjoin state court proceedings, despite the anti-injunction statute, in carrying out the will of Congress under at least six other federal laws. These covered a broad spectrum of congressional action: (1) legislation providing for removal of litigation from state to federal courts,12....
Notes
12. See French v. Hay, 22 Wall. (89 U.S.) 250,
More recently, in Vendo Co., Justice Rehnquist, writing for the plurality, cited 28 U.S.C. Sec. 1446(e) as an example of a statute that, while not directly referring to 28 U.S.C. Sec. 2283, nonetheless explicitly authorized injunctive relief against state court proceedings.
It is thus clear that a federal court may enjoin the continued prosecution of the same case in state court after its removal. A more difficult problem is presented when a new action is filed in state court. In a case decided prior to the 1948 amendment to the Anti-Injunction Act, Honolulu Oil Corp. v. Patrick,
The Belzbergs cite Fifth Circuit authority to support their contention that an injunction is expressly authorized by 28 U.S.C. Sec. 1446(e). Frith v. Blazon-Flexible Flyer, Inc.,
The district court in the case before us made no finding that the second state court action was fraudulent or an attempt to subvert the purposes of the removal statute. We believe that such a finding would be clearly erroneous. The Mickler case involves different plaintiffs, additional counsel, additional defendants, and only state claims. We conclude that under these circumstances the preliminary injunction was not authorized by section 1446(e).
Because the preliminary injunction does not fall under any exception to 28 U.S.C. Sec. 2283, the "anti-injunction law absolutely prohibits ... all federal equitable intervention in a pending state court proceeding...." Mitchum,
CONCLUSION
We hold that state courts have concurrent jurisdiction over RICO causes of action under 18 U.S.C. Sec. 1964(c). As such, the derivative jurisdiction doctrine does not prevent the removal of Lou's action to federal court. We affirm the district court's denial of Lou's motion to remand. Further, we affirm the district court's section 1404 transfer of the case to New York. We reverse, however, the district court's granting of a preliminary injunction against Mickler's state court action as it does not fall under any exception to the Anti-Injuntion Act.
Each party shall bear its own costs.
AFFIRMED in part, REVERSED in part, and REMANDED.
We note that the doctrine of derivative jurisdiction was modified by amendment to 28 U.S.C. Sec. 1441 effective June 19, 1986. A new subsection was added:
(e) The court to which such civil action is removed is not precluded from hearing and determining any claim in such civil action because the State court from which such civil action is removed did not have jurisdiction over that claim.
Pub.L. No. 99-336, Sec. 3(a), 100 Stat. 637 (1986). The amendment, however, applies only to claims in civil actions commenced in state courts on or after June 19, 1986. Id. Sec. 3(b). The state court actions involved in this case were commenced prior to that date, so the derivative jurisdiction doctrine applies here.
This court has described the derivative jurisdiction doctrine as:
the kind of legal tour de force that most laymen cannot understand, particularly in a case where the federal court not only has subject matter jurisdiction, but has exclusive subject matter jurisdiction. One would have thought that the purpose of removal in such a case is to get the case out of the court that lacks jurisdiction to hear it and into the court that has jurisdiction....
Washington v. American League of Professional Baseball Clubs,
For decisions finding concurrent jurisdiction, see Brandenberg v. First Md. Sav. & Loan,
For cases finding exclusive federal jurisdiction, see Intel Corp. v. Hartford Accident & Indem. Co.,
The draftsman, Professor G. Robert Blakey, argues that had Congress considered the matter, " 'they would have made [jurisdiction] exclusive.' " Flaherty, Two States Lay Claim to RICO, Nat'l Law J., May 7, 1984, at 3, col. 2 (quoting Professor Blakey). In support of his assertion, Blakey points to the exclusive-jurisdiction antitrust statute on which section 1964(c) was modeled and to the fact that many RICO predicate offenses are derived from federal statutes over which the federal courts have exclusive jurisdiction. Id. The important fact, however, is that Congress did not consider the question of RICO jurisdiction, and we are not at liberty to amend a statute so as to provide for circumstances that Congress has overlooked. Furthermore, we are not persuaded that an inference of exclusive jurisdiction may be drawn based on the factors suggested by Professor Blakey. See discussion infra at 12-17
At the time of RICO's enactment, section 4, provided that "[a]ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States ... and shall recover threefold the damages by him sustained...." 15 U.S.C. Sec. 15 (1964 & Supp. V 1965-1969)
In Sedima, the Second Circuit:
[a]nalogizing to the Clayton Act, which had been the model for Sec. 1964(c), ... concluded that just as an antitrust plaintiff must allege an "antitrust injury," so a RICO plaintiff must allege a "racketeering injury"--an injury "different in kind from that occurring as a result of the predicate acts themselves...."
It, of course, makes perfect sense that a federal statute should provide for governmental enforcement only by federal officials and describe such enforcement in terms of federal courts. This fact tells us nothing, however, about the scope of private enforcement