Diaz v. Gates

• Citation: 420 F.3d 897
• Decision Date: 16 August 2005
• Docket Number: No. 0256818.,0256818.
• Parties: David DIAZ, Plaintiff-Appellant, v. Daryl GATES; Willie L. Williams; Richard Alarcon; Richard Alatorre; Hal Bernson; Marvin Braude; Laura Chick; John Ferraro; Michael Feuer; Ruth Galanter; Nate Holden, et al., Defendants, and Bernard C. Parks, Chief of Los Angeles Police Department, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

420 F.3d 897

David DIAZ, Plaintiff-Appellant, v. Daryl GATES; Willie L. Williams; Richard Alarcon; Richard Alatorre; Hal Bernson; Marvin Braude; Laura Chick; John Ferraro; Michael Feuer; Ruth Galanter; Nate Holden, et al., Defendants, and Bernard C. Parks, Chief of Los Angeles Police Department, Defendant-Appellee.

No. 0256818.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 22, 2005.

Filed August 16, 2005.

Stephen Yagman, Marion R. Yagman, Joseph Reichmann, Yagman & Yagman & Reichmann, Venice Beach, CA, Kathryn S. Bloomfield, Shreveport, LA, for the plaintiff-appellant.

Rockard J. Delgadillo, City Attorney, Janet G. Bogigian, Deputy City Attorney, Los Angeles, CA, for the defendant-appellee.

Appeal from the United States District Court for the Central District of California; Gary A. Feess, District Judge, Presiding. D.C. No. CV-01-06400-GAF.

Before SCHROEDER, Chief Judge, REINHARDT, KOZINSKI, KLEINFELD, THOMAS, WARDLAW, W. FLETCHER, GOULD, BERZON, BYBEE and CALLAHAN, Circuit Judges.

PER CURIAM Opinion; Concurrence by Judge REINHARDT; Concurrence by Judge KLEINFELD; Concurrence by Judge BERZON; Dissent by Judge GOULD.

PER CURIAM.

We examine whether a false imprisonment that caused the victim to lose employment and employment opportunities is an injury to "business or property" within the meaning of RICO.

Facts

Diaz claims to be a victim of the Los Angeles Police Department's infamous Rampart scandal. He sued over two hundred people connected with the Los Angeles Police Department (LAPD) or Los Angeles city government under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968, alleging that LAPD officers had "fabricated evidence" that he had committed assault with a deadly weapon, and that they had "tampered with witnesses and conspired to obtain [a] false conviction" against him, Compl. ¶ 16. As a consequence, Diaz claims, "[a]mong other forms of injury, [he] lost employment, employment opportunities, and the wages and other compensation associated with said business, employment and opportunities, in that [he] was rendered unable to pursue gainful employment while defending himself against unjust charges and while unjustly incarcerated." Compl. ¶ 31.

Defendant Parks moved to dismiss, arguing, among other things, that Diaz lacked standing because he did not allege an injury to "business or property" as required by RICO. See 18 U.S.C. § 1964(c). The district judge agreed and dismissed without prejudice and with leave to amend. Diaz did not amend, and the district judge then dismissed with prejudice. A divided panel of our court affirmed. Diaz v. Gates, 380 F.3d 480 (9th Cir.2004). We took the case en banc. Diaz v. Gates, 389 F.3d 869 (9th Cir.2004).

Analysis

1. The district judge, citing Oscar v. University Students Co-operative Ass'n, 965 F.2d 783 (9th Cir.1992) (en banc), reasonably applied the law of RICO standing as it existed at the time. In Oscar, we held that RICO does not provide a cause of action for all types of injury to property interests, but only for injuries resulting in "concrete financial loss." Id. at 785. Oscar, a tenant in an apartment building, alleged that she and her co-plaintiff had "lost the use and enjoyment of their `property' — that is, their rental interest" — as a result of the racketeering activity in their building, which included drug dealing, violence and "other crimes, misdemeanors, nuisances, and annoyances." Id. at 784-85. Because Oscar did not own her interest, we reasoned, the only way she could suffer a financial loss would be "if she had an interest she could sublet and the racketeering enterprise reduced the rent she could charge to sublet her apartment." Id. at 787. But Oscar never alleged that she had wanted or tried to sublet the apartment — or, for that matter, that she had a right to do so — rendering "[a]ny supposed loss . . . purely speculative." Id. Thus, we concluded that she had not suffered concrete enough financial injuries for purposes of RICO. The only injuries Oscar properly alleged — "personal discomfort and annoyance," id. (quoting Ingram v. City of Gridley, 100 Cal.App.2d 815, 224 P.2d 798, 803 (1950)) (internal quotation marks omitted) — were personal, and so there was no injury to "business or property" within the meaning of the statute.

Intervening caselaw, which the district judge obviously did not have access to, has clarified the Oscar standard. A month after the district judge dismissed Diaz's complaint, we decided Mendoza v. Zirkle Fruit Co., 301 F.3d 1163 (9th Cir.2002), where a class of agricultural laborers alleged that their employers had depressed their wages by illegally hiring undocumented workers at below-market wages. The agricultural workers could not "show a `property right' in the lost wages, by showing that they were promised or contracted for higher wages." But they did allege an injury to a property interest, the "legal entitlement to business relations unhampered by schemes prohibited by the RICO predicate statutes." See id. at 1168 n. 4. We held this property interest sufficient to provide standing under RICO. See id. at 1168. Diaz has alleged just such an interference with his business relations.

2. Mendoza did not elaborate on the source of the "legal entitlement to business relations," relegating its discussion of the nature of the injury to a footnote. We believe the best-reasoned approach is that of Doe v. Roe, 958 F.2d 763 (7th Cir.1992), under which we typically look to state law to determine "whether a particular interest amounts to property," id. at 768.

Doe sued her divorce attorney Roe under RICO, alleging that Roe had defrauded her and misused his position to coerce her into having sex with him over a period of several years. Doe, who had little money, had left her original divorce attorney and retained Roe on the understanding that her (soon to be ex-) husband would pay any fees beyond the retainer fee she had already paid. She acceded to his sexual overtures because she was afraid that he would otherwise stop working on her case, leaving her unable to afford a new lawyer. Doe's husband eventually caught Doe and Roe in the act and, understandably, refused to pay any of Roe's fees. Roe nonetheless demanded full payment for his legal services, but forgave Doe's debts to him in exchange for continuing sexual relations. Id. at 765-66.

Doe argued that Roe's wrongful exaction of sexual services was an injury to property and could therefore support her RICO claim. The Seventh Circuit disagreed: "[W]hether a particular interest amounts to property is quintessentially a question of state law." Id. at 768. And "`sexual labor' has no legal value in Illinois, where the courts have long held that contracts for sexual services are unenforceable as a matter of public policy." Id. Thus, the requisite business or property interest was missing. Doe clearly doesn't stand for the proposition that employment cannot be property under RICO, or it would have been superfluous for the Seventh Circuit to hold that employment as a provider of sexual services was not property under state law.

Doe had another theory. After the relationship with Roe turned sour, she alleged, Roe threatened her safety, which made her invest in a home security system and miss several days of work. Id. at 769-70; see also Doe v. Roe, 756 F.Supp. 353, 356, 359 (N.D.Ill.1991). Naturally, she also hired a new lawyer. Doe argued that the loss of wages, the costs of the security system and the new lawyer, and other "miscellaneous expenditures," 958 F.2d at 769, were injuries to property. Here, too, the court disagreed:

Doe blurs the distinction between proprietary and personal injuries. Contrary to what Doe seems to suggest, whether she can show a financial loss does not, by definition, establish that she has suffered a business or property injury within the meaning of § 1964(c). Most personal injuries — loss of earnings, loss of consortium, loss of guidance, mental anguish, and pain and suffering, to name a few — will entail some pecuniary consequences. . . .

Doe's loss of earnings, her purchase of a security system and her employment of a new attorney are plainly derivatives of her emotional distress — and therefore reflect personal injuries which are not compensable under RICO.

Id. at 770. Again, although Doe alleged "loss of earnings," this was deemed insufficient to qualify as a business or property interest under RICO "as construed by Illinois law." Id. Thus, no injury to a business or property interest was actually alleged.¹

We agree with the Seventh Circuit. Without a harm to a specific business or property interest — a categorical inquiry typically determined by reference to state law — there is no injury to business or property within the meaning of RICO.

Contrary to the dissent's suggestion, dissent at 913-915, our approach does not create RICO liability for every loss of wages resulting from a personal injury. Doe, unlike Oscar, suffered some tangible financial losses as a result of her emotional distress, but, like Oscar, failed to allege harm to any property interest valid under state law. Diaz, on the other hand, has alleged both the property interest and the financial loss. The harms he alleges amount to intentional interference with contract and interference with prospective business relations, both of which are established torts under California law. See Della Penna v. Toyota Motor Sales, U.S.A., Inc., 11 Cal.4th 376, 45 Cal.Rptr.2d 436, 902 P.2d 740, 750-51 (1995) (discussing torts of "interference with an existing business contract" and "interference with commercial relations"); see also Restatement (Second) of Torts § 766A & cmt. e (intentional interference with another's performance of his own contract); id. § 766B & cmts. c-d (intentional interference with prospective contractual relations); Reeves v. Hanlon, 33 Cal.4th 1140, 17 Cal.Rptr.3d 289, 95 P.3d 513, 517...