Lou v. Belzberg

Decision Date12 November 1987
Docket Number86-6057,Nos. 86-6144,s. 86-6144
Citation834 F.2d 730
Parties, RICO Bus.Disp.Guide 6797 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.
CourtU.S. Court of Appeals — Ninth Circuit

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, 168 Cal.App.3d 119, 214 Cal.Rptr. 177 (1985), Lou sought a temporary restraining order, expedited discovery, and a constructive trust on the Belzbergs' "greenmail" profit from the Ashland stock sale.

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., 479 F.2d 482, 482-83 (9th Cir.1973). In an appeal from a preliminary injunction, we will also review a denial of a motion to remand, Takeda v. Northwestern Nat'l Life Ins. Co., 765 F.2d 815, 818 (9th Cir.1985) (citing Albi v. Street & Smith Publications, Inc., 140 F.2d 310, 311 (9th Cir.1944)), and a transfer order made under 28 U.S.C. Sec. 1404(a) (1982), United States Aluminum Corp. v. Kawneer Co., 694 F.2d 193, 195 (9th Cir.1982).

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, 712 F.2d 1479, 1480 (D.C.Cir.1983); In re Nine Mile Ltd., 673 F.2d 242, 243 (8th Cir.1982); Starnes v. McGuire, 512 F.2d 918, 924, 935 (D.C.Cir.1974) (en banc); In re Southwestern Mobile Homes, Inc., 317 F.2d 65, 66 (5th Cir.1963); Drabik v. Murphy, 246 F.2d 408, 409 (2d Cir.1957). We adopt the docketing date as the time of effective transfer.

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., 178 F.2d 866, 869 (2d Cir.1950).

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, 776 F.2d 846, 849 (9th Cir.1985); Bank of America Nat'l Trust & Sav. Ass'n v. Summerland County Water Dist., 767 F.2d 544, 547-48 (9th Cir.1985). If the case was not properly removed to the federal court it would be an abuse of discretion to enjoin prosecution of a similar state case. Removal of a case from state to federal court is a question of federal subject matter jurisdiction, which is reviewed de novo. Williams v. Caterpillar Tractor Co., 786 F.2d 928, 930 (9th Cir.1986) (citing Bright v. Bechtel Petroleum, Inc., 780 F.2d...

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