Chivas Products Ltd. v. Owen

• Decision Date: 28 December 1988
• Docket Number: No. 87-1784,87-1784
• Citation: 864 F.2d 1280
• Parties: , RICO Bus.Disp.Guide 7103 CHIVAS PRODUCTS LIMITED, a Michigan Corporation, Plaintiff-Appellant, v. Jeffrey B. OWEN, Judco Manufacturing, Inc., a foreign corporation; Jeffrey Owen & Associates, Inc., a Michigan Corporation; Robert J. Smith; Judco Automotive, Inc., a Michigan Corporation and Thomas Buttner, Defendants- Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1280

864 F.2d 1280

57 USLW 2411, RICO Bus.Disp.Guide 7103

CHIVAS PRODUCTS LIMITED, a Michigan Corporation, Plaintiff-Appellant, v. Jeffrey B. OWEN, Judco Manufacturing, Inc., a foreign

corporation; Jeffrey Owen & Associates, Inc., a Michigan

Corporation; Robert J. Smith; Judco Automotive, Inc., a

Michigan Corporation and Thomas Buttner, Defendants- Appellees.

No. 87-1784.

United States Court of Appeals, Sixth Circuit.

Argued July 21, 1988.

Decided Dec. 28, 1988.

Paul J. O'Reilly, Bert T. Ross (argued), O'Reilly, Rancilio, Nitz, Andrews & Turnbull, P.C., Sterling Heights, Mich., for plaintiff-appellant.

Richard W. Bullard, III, Lyon, Colbert & Bullard, Rochester, Mich., Rockwood W. Bullard, III, Clarence L. Hudson, Troy, Mich., Kieran F. Cunningham (argued), Southfield, Mich., for defendants-appellees.

Before MERRITT, KRUPANSKY and BOGGS, Circuit Judges.

MERRITT, Circuit Judge.

This is a removal case transferred from the state to the federal court under 28 U.S.C. Sec. 1441. ¹ The dispositive question on appeal from the District Court's dismissal of a Racketeer Influenced and Corrupt Organizations Act (RICO) civil action is one of subject-matter jurisdiction: is civil RICO jurisdiction exclusively federal or concurrent with the states, and if exclusively federal, does the doctrine of "derivative" removal jurisdiction require dismissal in the case? We hold that RICO jurisdiction is exclusively federal and that the state court had no jurisdiction of the RICO claim. Therefore, under the doctrine of "derivative" removal jurisdiction, we have no subject matter jurisdiction and must vacate the judgment below and dismiss the case.

I.

This action originally was brought in the Circuit Court of Michigan in November 1985, seeking damages and equitable relief on a variety of state law theories. On November 18, 1986, plaintiff filed an amended complaint adding a RICO count. Defendants shortly thereafter removed the action to the District Court. The basic allegations were that the combined efforts of defendants, a California automobile components manufacturer and employees of a Michigan distributor, to set up a new entity to distribute the manufacturer's products were designed to take away the plaintiff distributor's business and its trade secrets. The plaintiff claims that this conduct constitutes a "pattern of racketeering activity" in violation of the federal mail fraud statute, 18 U.S.C. Sec. 1341, and thus of civil RICO, 18 U.S.C. Secs. 1964(c), (d).

In a pretrial conference call with all parties on March 3, 1987, the District Court advised plaintiff's counsel that "he did not think much of plaintiff's RICO claim," and invited defense counsel to file a motion to dismiss or for summary judgment. Plaintiff's Brief at 6. No motion was forthcoming. According to the District Judge, his law clerk called plaintiff's counsel subsequently and advised him "of the court's view that [the RICO count] failed to state a cause of action." Order of July 15, 1987 at 2. At oral argument before this Court, plaintiff's counsel acknowledged that this conversation occurred, but represented that it consisted basically only of the following:

Law Clerk: "What are you going to do?"

Counsel: "We're going to engage in discovery."

None of the Court's or the clerk's contacts with counsel were written or otherwise recorded.

On May 27, 1987, the District Court ordered that the RICO count be dismissed because the one discrete course of conduct alleged fails to satisfy the "continuity" aspect of the "pattern" requirement of RICO, 18 U.S.C. Secs. 1961(5), 1962(c); see Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n. 14, 105 S.Ct. 3275, 3285 n. 14, 87 L.Ed.2d 346 (1985), relying on the reasoning used in the Eighth Circuit that a RICO "pattern of racketeering" must occur in more than a single criminal episode or scheme. See Superior Oil Co. v. Fulmer, 785 F.2d 252, 257 (8th Cir.1986); see also Northern Trust Bank/O'Hare N.A. v. Inryco, Inc., 615 F.Supp. 828, 831-34 (N.D.Ill.1985). The Supreme Court has granted certiorari in another Eighth Circuit case premised on the Superior Oil reasoning. See H.J. Inc. v. Northwestern Bell Telephone Co., 829 F.2d 648 (8th Cir.1987), cert. granted, --- U.S. ----, 108 S.Ct. 1219, 99 L.Ed.2d 420 (1988).

In the May 27 order, the District Court also remanded the state claims pursuant to United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966). Plaintiff subsequently moved for reconsideration and for leave to file an amended and supplemental complaint that was proposed to allege multiple schemes satisfying the "pattern" standard used by the District Court. The motion was denied, and this appeal followed, seeking review of the procedural propriety of the District Court's action.

II.

Under our federal system of dual sovereignty, the subject matter jurisdiction of state courts is governed in the first instance by state laws; federal rights are ordinarily enforceable both in federal courts and in state courts. See Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473, 478-79, 101 S.Ct. 2870, 2875, 69 L.Ed.2d 784 (1981). Normally when Congress creates new civil causes of action by statute concurrent jurisdiction in the state courts is presumed, although the first Congress in the Judiciary Act of 1789 committed exclusive jurisdiction of federal criminal cases to the federal courts. Judiciary Act of 1789, ch. 20, Sec. 11, 1 Stat. 79, now codified at 18 U.S.C. Sec. 3231. This presumption in civil cases arises both out of federal recognition of the states' independent sovereignty and from the states' duty under the Supremacy Clause to recognize federal law as paramount. Id.; see The Federalist No. 82 (A. Hamilton). For more detailed discussions of the early development of rules of exclusive and concurrent jurisdiction over federal criminal and civil cases in state and federal courts, see H. Friendly, Federal Jurisdiction 8-11 (1973); F. Frankfurter & J. Landis, The Business of the Supreme Court 5-12 (1928); Warren, New Light on the History of the Federal Judiciary Act of 1789, 37 Harv.L.Rev. 49 (1923).

The presumption in civil cases may be rebutted, however. Congress may confine jurisdiction of a federal claim to the federal courts either explicitly or implicitly " by an explicit statutory directive, by unmistakable implication from legislative history, or by a clear incompatibility between state-court jurisdiction and federal interests." Gulf Offshore, 453 U.S. at 479, 101 S.Ct. at 2875.

District courts and state courts have about equally divided on the issue of RICO concurrent jurisdiction, and the federal courts of appeals have only recently considered the problem. Only the Ninth Circuit, which found jurisdiction concurrent in a case from California, has squarely faced the issue. See Lou v. Belzberg, 834 F.2d 730 (9th Cir.1987), cert. denied, --- U.S. ----, 108 S.Ct. 1302, 99 L.Ed.2d 512 (1988). The California Supreme Court earlier had held jurisdiction concurrent, Cianci v. The Superior Court of Contra Costa County, 40 Cal.3d 903, 221 Cal.Rptr. 575, 710 P.2d 375 (1985). In dicta, the Seventh Circuit has leaned toward concurrent jurisdiction in a case from Illinois in County of Cook v. MidCon Corp., 773 F.2d 892, 905 n. 4 (7th Cir.1985), although an Illinois intermediate appellate court has held to the contrary, see Thrall Car Mfg. Co. v. Lindquist, 145 Ill.App.3d 712, 718, 99 Ill.Dec. 397, 401, 495 N.E.2d 1132, 1136 (1986).

Two other federal courts of appeals have decided that state courts within their circuits were either likely or unlikely to assume concurrent jurisdiction as a matter of state law. See Dubroff v. Dubroff, 833 F.2d 557, 562 (5th Cir.1987) (Texas likely); Cullen v. Margiotta, 811 F.2d 698, 732 (2d Cir.) (New York courts unlikely, relying on Greenview Trading Co. v. Hershman, 108 A.D.2d 468, 489 N.Y.S.2d 502 (1985), which held civil RICO jurisdiction not concurrent), cert. denied, --- U.S. ----, 107 S.Ct. 3266 97 L.Ed.2d 764 (1987). Our Circuit has yet to address this issue in a published case. There are no reported Michigan decisions.

The statutory language of civil RICO does not explicitly commit jurisdiction exclusively to the federal courts, and it is "black letter law" that the "mere grant of jurisdiction to a federal court does not oust the state courts from concurrent jurisdiction." Gulf Offshore, 453 U.S. at 480, 101 S.Ct. at 2876.

The civil RICO damage action is authorized by 18 U.S.C. Sec. 1964(c), which provides that any person injured "by reason of violation" of criminal RICO Sec. 1962 "may sue therefor in any appropriate United States district court." It is clear that this language alone does not constitute an "explicit statutory directive" for exclusive jurisdiction of the type described in Gulf Offshore. But we must examine other language in the statute to explore the other two ways that Congress may have designed RICO as an exclusively federal cause of action.

There is no "smoking gun" legislative history in which RICO sponsors indicated an express intention to commit civil RICO to the federal courts. Indeed, Professor G. Robert Blakey, now a Notre Dame law professor who as the chief of the Senate committee staff was the originator of RICO and its principal draftsman, has conceded that " 'no one even thought of the issue' " but that if members of Congress had, " 'they would have made [jurisdiction] exclusive.' " Lou v. Belzberg, 834 F.2d at 736 & n. 4 (quoting Prof. Blakey's remarks reported in Flaherty, Two States Lay Claim to RICO, Nat'l L.J., May 7, 1984, at 3, col. 1-2).

Prof. Blakey's speculation is a slender reed, cf. Blakey & Cessar, Equitable Relief Under Civil RICO: Reflections on Religious Technology Center v. Wollersheim: Will Civil RICO Be Effective Only Against White-Collar Crime?, 62 Notre Dame L.Rev. 526, 526 n. * (1987), but we believe that there is considerable evidence in the legislative history, though short of an...