Wagh v. Metris Direct, Inc.

• Decision Date: 07 November 2003
• Docket Number: No. 02-15580.,02-15580.
• Citation: 363 F.3d 821
• Parties: Shirish WAGH, Plaintiff-Appellant, v. METRIS DIRECT, INC.; Metris Direct Services, Inc.; Metris Companies, Inc.; Directalert, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

363 F.3d 821

Shirish WAGH, Plaintiff-Appellant, v. METRIS DIRECT, INC.; Metris Direct Services, Inc.; Metris Companies, Inc.; Directalert, Defendants-Appellees.

No. 02-15580.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 7, 2003.

Filed November 7, 2003.

As Amended on Denial of Rehearing December 15, 2003.

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Ernest M. Thayer, San Francisco, CA, for the Plaintiff-Appellant.

Tomio B. Narita and David B. Moyer, Wineberg, Simmonds & Narita LLP, San Francisco, CA, for the Defendants-Appellees.

Appeal from the United States District Court for the Northern District of California, Thelton E. Henderson, District Judge, Presiding. D.C. No. CV-01-01711-TEH.

Before B. FLETCHER, TASHIMA, Circuit Judges, and POLLAK, District Judge.^*

OPINION

BETTY B. FLETCHER, Circuit Judge:

Plaintiff-Appellant Shirish Wagh appeals the United States District Court's Fed.R.Civ.P. 12(b)(6) dismissal of his civil RICO action against Metris Direct, Inc.; Metris Direct Services, Inc.; Metris Companies, Inc.; and DirectAlert ("Defendants-Appellees" or "Metris Direct") for failure to state a claim. Wagh argues that the district court erred in dismissing with prejudice his claims brought under 18 U.S.C. § 1962(a)-(d). We affirm.

JURISDICTION AND STANDARD OF REVIEW

This court has jurisdiction under 28 U.S.C. § 1291 over an appeal from a district court's dismissal of an action under Fed.R.Civ.P. 12(b)(6) for failure to state a claim. We review de novo a dismissal for failure to state a claim, see Cervantes v. United States, 330 F.3d 1186, 1187 (9th Cir.2003), but review denials of discovery and leave to amend for abuse of discretion, see Panatronic USA v. AT&T Corp., 287 F.3d 840, 846 (9th Cir.2002); Nat'l Audubon Soc'y, Inc. v. Davis, 307 F.3d 835, 853 (9th Cir.), amended by 312 F.3d 416 (9th Cir.2002).

FACTUAL AND PROCEDURAL BACKGROUND

Wagh filed this action against Metris Direct in California Superior Court, County of San Francisco, alleging that Metris Direct had caused Citibank, his credit card issuer, to bill Wagh $119.95 for membership in DirectAlert, an organization which provides credit protection. Wagh alleged that he had not contracted for membership in DirectAlert. In his initial complaint, Wagh sued Metris for fraud, money had and received, declaratory and injunctive relief, and compensatory and punitive damages. Wagh sued on behalf of himself and all others whom he alleged Metris had improperly caused to be billed for such memberships.

After Metris's successful demurrer to Wagh's fraud claim, Wagh filed a first amended complaint in state court. In addition to the remaining original claims for money had and received, and declaratory relief, Wagh alleged that Metris had violated the Consumers Legal Remedies Act, CAL. CIV. CODE § 1750 et seq.; the Unfair Business Practices Act, CAL. BUS. & PROF. CODE §§ 17200, 17500; and the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq. Specifically, Wagh alleged that Metris Direct had violated 18 U.S.C. § 1962(c), which prohibits participation in activities constituting "a pattern of racketeering activity or collection of unlawful debt."

Metris Direct removed Wagh's action to the United States District Court for the Northern District of California pursuant to 28 U.S.C. § 1441(b), asserting federal question jurisdiction. The district court sua sponte ordered Wagh (a) to show cause why his RICO cause of action should not be dismissed for failure to state a claim; (b) to show why in the absence of the RICO claim, the court should not dismiss the case for lack of subject matter jurisdiction; and (c) in the event that he could state a claim under RICO, to file a RICO case statement pursuant to the court's RICO Standing Order.

Wagh filed an amended RICO case statement and, later, an amended complaint.¹ In his amended case statement, Wagh alleged inter alia that the Appellees had committed mail fraud because they "caused, and are causing, bills for products and/ or services ... to be sent to plaintiff and the members of his class by the United States Mail. Because none of those recipients either has contracted, or is indebted, therefor, each of those millions of bills has been and is being sent in violation of 18 U.S.C. section 1341." Additionally, Wagh now claimed that Metris Direct had violated all the subsections of the RICO statute.

Metris filed a response to the amended RICO case statement, arguing that Wagh had not stated and could not state a claim under any of the four subsections of the RICO statute. The district court ruled that it would construe Metris Direct's response as a motion to dismiss, and ordered Wagh to respond to the motion. Wagh responded, arguing that he had stated a claim under § 1962(b), (c), and (d), and that if the court dismissed his § 1962(a) claim, it should do so without prejudice.

The district court granted Metris Direct's motion to dismiss, finding that Wagh had failed to plead the RICO mail fraud claim with the requisite specificity. The court found that Wagh would not be able to amend his § 1962(a) and (b) claims, and therefore dismissed them with prejudice. Because his § 1962(c) and (d) claims could be amended to correct the pleading defect, however, the court dismissed them with leave to amend.

Wagh filed a motion for relief from the district court's order, claiming that the court was mistaken in its assertion that, at oral argument on the motion to dismiss, he had conceded inability to cure the pleading defects under § 1962(b) without discovery. The court dismissed the motion for relief from the order under its local Civ. L.R. 7-9(a) because Wagh had failed to obtain leave of the court to file such a motion.

Wagh then filed a second amended complaint in district court, in which he restated his § 1962(c) and (d) claims and sought declaratory and injunctive relief. He now alleged, as a predicate for his RICO claims, that the defendants-appellees had violated 18 U.S.C. § 1343, which prohibits wire fraud, because they "caused, and are causing, bills for products and/ or services ... to be sent to Citibank by wire." The court dismissed Wagh's RICO claims with prejudice, declined to exercise supplemental jurisdiction over the state law claims, and remanded the case to San Francisco Superior Court. Wagh v. Metris Direct, Inc., 2002 WL 257846 (N.D.Cal., Feb.20, 2002). Wagh appealed.

DISCUSSION

I. The RICO Standing Order

Wagh argues that the district court's use of the RICO Standing Order applies the heightened pleading standards prohibited by Swierkiewicz v. Sorema N.A., 534 U.S. 506, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002). This is essentially a challenge to the Standing Order as being in conflict with Fed.R.Civ.P. 8(a). As far as can be determined, this court has never before ruled on the compliance of RICO standing orders with the basic pleading requirements of Rule 8(a) or the stricter pleading requirements of Rule 9(b).

Some district judges in at least four districts in the Ninth Circuit use RICO standing orders. Individual judges in the Northern, Central, and Southern Districts of California, and the District of Hawai'i have issued orders that direct plaintiffs claiming RICO violations to state their allegations in detail and with specificity, including a detailed description of the pattern of racketeering activity or collection of unlawful debts alleged for each RICO claim. See Gutierrez v. Givens, 1 F.Supp.2d 1077, 1087 (S.D.Cal.1998) (describing the purpose of such orders as providing "notice to the defendant and the filtering out of meritless complaints"); May v. U.S. Chamber of Commerce, 1996 WL 116829 (N.D.Cal.1996) (ordering the plaintiff to "include a RICO statement consistent with the standing orders of the court"); Lui Ciro, Inc. v. Ciro, Inc., 895 F.Supp. 1365 (D.Hawai'i, 1995) (stating that RICO plaintiffs are required, by a standing order of the court, to file a RICO case statement within 30 days of filing the complaint); In re Bank of Credit and Commerce Int'l Depositors Litig., 1992 WL 696398 (C.D.Cal.1992) (referring to the Order used in that case).

According to a leading treatise on civil RICO actions, "[m]any federal district courts have issued standing orders in civil RICO cases requesting that plaintiff's counsel provide certain details concerning their RICO claim." DAVID B. SMITH & TERRANCE G. REED, CIVIL RICO App. 9A, 9-100.17 (March 2003) (citing 15 different district courts, in the Second, Third, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, and D.C. Circuits, as among those that issue RICO Standing Orders). Most district courts, including the district court in this case, either adopt verbatim or use a version of the standing order issued by Judge Alvin Krenzler in Lyman Steel Co. v. Shearson Lehman Bros., Inc., Civ. No. C-86-355, 1986 U.S. Dist. LEXIS 29346 (N.D.Ohio 1986).

Despite the widespread use of these orders, however, only three circuits have either directly or indirectly addressed the question of their compliance with notice pleading requirements. In Figueroa Ruiz v. Alegria, the First Circuit affirmed in relevant part the district court's dismissal with prejudice of RICO claims for failure to comply with its order "calling for detailed explication of the factual underpinnings of the RICO claims." 896 F.2d 645, 646 (1st Cir.1990). Upholding the lower court's use of the order to compel greater specificity in the plaintiffs' complaint, the court held that the "need for expeditious and orderly progress of ... litigation" is particularly pronounced in a civil RICO suit because of its "quasi-criminal" nature and consequent "stigmatizing effect on those named as defendants." Id. at 650. Courts should therefore "strive to flush out frivolous RICO allegations at an early stage of the litigation." Id. The court found that the order was designed with this goal in mind, and therefore found no abuse of discretion...