Oscar v. University Students Co-op. Ass'n, CO-OPERATIVE

• Citation: 965 F.2d 783
• Decision Date: 04 June 1992
• Docket Number: CO-OPERATIVE,No. 90-15750,90-15750
• Parties: , 75 Ed. Law Rep. 782, RICO Bus.Disp.Guide 8020 Ruth E. OSCAR; Charles Spinosa, Plaintiffs-Appellants, v. UNIVERSITY STUDENTSASSOCIATION; George Proper, et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 783

965 F.2d 783

60 USLW 2789, 75 Ed. Law Rep. 782, RICO

Bus.Disp.Guide 8020

Ruth E. OSCAR; Charles Spinosa, Plaintiffs-Appellants, v. UNIVERSITY STUDENTS CO-OPERATIVE ASSOCIATION; George Proper, et al., Defendants-Appellees.

No. 90-15750.

United States Court of Appeals Ninth Circuit.

Argued and Submitted En Banc Feb. 20, 1992.

Decided June 4, 1992.

Donald P. Driscoll, San Francisco, Cal., for plaintiffs-appellants.

Ephraim Margolin, Margolin, Arguimbau & Battson, San Francisco, Cal., for defendants-appellees.

Appeal from the United States District Court for the Northern District of California.

Before: WALLACE, Chief Judge, and HUG, SCHROEDER, ALARCON, POOLE, D.W. NELSON, BRUNETTI, NOONAN, THOMPSON, RYMER, and KLEINFELD, Circuit Judges.

D.W. NELSON, Circuit Judge:

Plaintiffs Ruth Oscar and Charles Spinosa (collectively Oscar) rented apartments in Berkeley near Barrington Hall, a student co-operative run by defendant University Students Co-Operative Association (USCA). Angered by a wide range of unneighborly behavior on the part of Barrington residents, including drug dealing, Oscar sued USCA and all the residents of Barrington Hall. Oscar claimed that the activities of Barrington residents collectively violated the Racketeer Influenced and Corrupt Organizations Act (RICO), and sought treble damages under 18 U.S.C. § 1964(c). The district court dismissed the complaint for failure to state a claim. A three judge panel of this court reversed, Oscar v. University Students Co-operative Ass'n, 939 F.2d 808 (9th Cir.1991), and we agreed to rehear the case en banc. Oscar v. University Students Co-operative Ass'n, 952 F.2d 1566 (9th Cir.1992). We affirm the district court's dismissal of the complaint.

I.

According to the factual allegations of plaintiffs' complaint, Barrington Hall residents collectively agreed at a house meeting to allow drug dealing at Barrington. At least nineteen different individuals within the co-operative sold drugs there, and drug sales have allegedly been going on at Barrington for over twenty years. In furtherance of this agreement, according to the complaint, defendants posted lookouts on neighboring property, and dumped the bodies of persons suffering from drug overdoses on their neighbors' land. The conspiracy was also responsible, we are told, for "filth, risk of disease, and noise"; for "violence, throwing of garbage on property, urinating on cars [and] vandalism"; and for numerous other crimes, misdemeanors, nuisances, and annoyances.

The plaintiffs rent apartments in large apartment buildings near Barrington. Barrington is located in the city of Berkeley, California, which has one of the strictest rent control ordinances in the nation. The plaintiffs began renting there in the mid-1980's. Since the complaint was first filed, one of the plaintiffs has moved out; the other remains. The plaintiffs allege that they have lost the use and enjoyment of their "property"--that is, their rental interest--as a result of the activities at Barrington.

After allowing Oscar three opportunities to amend her complaint, the district court dismissed it on the grounds that Oscar could not demonstrate a causal connection between a pattern of racketeering activity and injury to Oscar. We affirm the dismissal of Oscar's complaint on the ground that Oscar has not alleged an injury to business or property cognizable under RICO.

II.

Dismissal of a complaint under Fed.R.Civ.P. 12(b)(6) is reviewed de novo. Kruso v. International Tel. & Tel. Corp., 872 F.2d 1416, 1421 (9th Cir.1989), cert. denied, 496 U.S. 937, 110 S.Ct. 3217, 110 L.Ed.2d 664 (1990). In reviewing a 12(b)(6) dismissal, all allegations of material fact in the complaint are taken as true and are construed in the light most favorable to the nonmoving party. Love v. United States, 915 F.2d 1242, 1245 (9th Cir.1989). The decision of the district court may be affirmed on any ground finding support in the record. Myers v. United States Parole Comm'n, 813 F.2d 957, 959 (9th Cir.1987).

III.

18 U.S.C. § 1964(c) provides that "[a]ny person injured in his business or property by reason of a violation of" RICO may recover treble damages and attorney's fees. While RICO is to be "liberally construed," Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497-98, 105 S.Ct. 3275, 3285-86, 87 L.Ed.2d 346 (1985), it is well-established that not all injuries are compensable under this section. Two limitations are significant in this case. First, a showing of "injury" requires proof of concrete financial loss, and not mere "injury to a valuable intangible property interest." Berg v. First State Ins. Co., 915 F.2d 460, 464 (9th Cir.1990) (citing First Pacific Bancorp v. Bro, 847 F.2d 542, 547 & n. 12 (9th Cir.1988)); see also Fleischhauer v. Feltner, 879 F.2d 1290, 1299-1301 (6th Cir.1989) (plaintiffs under section 1964(c) entitled to recover only for money they paid out as a result of racketeering activity), cert. denied, 493 U.S. 1074, 110 S.Ct. 1122, 107 L.Ed.2d 1029 and 494 U.S. 1027, 110 S.Ct. 1473, 108 L.Ed.2d 611 (1990).

In Berg, we held that directors of the Getty Oil Company could not maintain an action under RICO against the insurers who had cancelled their liability policies because the directors had incurred no actual expenses as a result of the cancellation. 915 F.2d at 463-64. This was true even though the directors alleged that they had lost "both the protection ... afforded against potential financial loss in the future and the present peace of mind that flows from such protection," interests which we characterized as "valuable intangible property interest[s]." Id. at 464. The lesson of Berg is that injuries to property are not actionable under RICO unless they result in tangible financial loss to the plaintiff. ¹

Second, it is clear that personal injuries are not compensable under RICO. See, e.g., Reiter v. Sonotone Corp., 442 U.S. 330, 339, 99 S.Ct. 2326, 2331, 60 L.Ed.2d 931 (1979) (dictum); Genty v. Resolution Trust Corp., 937 F.2d 899, 918 (3rd Cir.1991) (plaintiffs could not recover medical expenses and emotional distress resulting from their exposure to toxic waste); Berg, 915 F.2d at 464 (loss of security and peace of mind due to cancellation of insurance policy were not actionable under RICO); Rylewicz v. Beaton Services, 888 F.2d 1175, 1180 (7th Cir.1989) (harassment and intimidation of litigants in an attempt to get them to settle lawsuit could not support RICO claim); Grogan v. Platt, 835 F.2d 844, 846-47 (11th Cir.) (family of murder victim could not recover under RICO for economic consequences of murder), cert. denied, 488 U.S. 981, 109 S.Ct. 531, 102 L.Ed.2d 562 (1988); Drake v. B.F. Goodrich Co., 782 F.2d 638, 644 (6th Cir.1986) (damages for physical injury and wrongful death resulting from exposure to toxic waste were not recoverable under RICO).

These limitations are consistent with the intent of Congress in enacting RICO. As the Genty court explained:

Congress' apparent unwillingness to allow recovery for personal injuries under RICO appears to be consistent with enacting RICO and its specific intention to thwart the organized criminal invasion and acquisition of legitimate business enterprises and property. Ample law already existed to provide recovery for wrongfully inflicted personal injuries. The unavailability of a civil RICO treble damages action for personal injuries in no way restricts the plaintiff's right to bring a pendent state wrongful death or personal injury action along with a RICO action for damages to business and property. We discern no injustice in limiting a RICO plaintiff's recovery for his personal injuries to ordinary non-RICO legal measures.

We thus refuse to enlarge Congress' specific limitation of RICO recovery to business and property. The significance of section 1964(c)'s plain language is clear: RICO plaintiffs may recover damages for harm to business and property only, not physical and emotional injuries due to harmful exposure to toxic waste.

937 F.2d at 918-19. We agree. RICO was intended to combat organized crime, not to provide a federal cause of action and treble damages to every tort plaintiff. Requiring that a plaintiff demonstrate a financial loss to her business or property is consistent with that purpose. It is also consistent with what the Supreme Court has termed the "restrictive significance" of the phrase "injured in his business or property." Reiter, 442 U.S. at 339, 99 S.Ct. at 2331. With these limitations on compensable injury in mind, we turn to the allegations of Oscar's complaint.

IV.

Oscar has not alleged any financial loss which would be compensable under RICO. She has not alleged any out-of-pocket expenditures as a direct or indirect result of the racketeering activity at Barrington, for example costs incurred to repair damage to her personal property or even to purchase a security system. The only injury she has alleged is a "decrease in the value of her property" due to the racketeering activity next door. We do not believe that such a decrease entails financial loss to Oscar. ²

Oscar rents an apartment in the city of Berkeley. She does not own the property on which she lives; her property interest in the land is a leasehold interest. ³ Although one might measure an owner's loss by the diminution in fair market value, the same cannot be said for a renter. If the resale value of the property goes down, Oscar has lost nothing. Indeed, if the value of the property drops far enough, Oscar's rent should go down. She would incur a financial gain, not a loss.

As a renter, Oscar could suffer financial loss in this situation only if she had an interest she could sublet and the racketeering enterprise reduced the rent she could charge to sublet her apartment. Before this court, Oscar claims to have suffered just such an injury. We reject this argument for several reasons. First, Oscar's complaint does not even allege that she has a right to sublet her apartment....