Scott v. Boos

• Decision Date: 14 March 2000
• Docket Number: No. 98-15877,98-15877
• Citation: 215 F.3d 940
• Parties: (9th Cir. 2000) FRANK E. SCOTT, Plaintiff-Appellant, v. BERNARD BOOS; LOCKE GOLDSMITH; EDWARD WHITE; JOHANN PLAMENIG; ROBERT BALLARD; HAROLD D.J. GALLISON; LA JOLLA CAPITAL CORPORATION, a Nevada corporation; BRIAN GRACEY; AMERICAN WOLLASTONITE MINING CORPORATION, fka White Plains Resources Corporation, a publicly traded British Columbia corporation; DOES, I through XX, inclusive, Defendants-Appellees
• Court: U.S. Court of Appeals — Ninth Circuit

Page 940

215 F.3d 940 (9th Cir. 2000)

FRANK E. SCOTT, Plaintiff-Appellant, v. BERNARD BOOS; LOCKE GOLDSMITH; EDWARD WHITE; JOHANN PLAMENIG; ROBERT BALLARD; HAROLD D.J. GALLISON; LA JOLLA CAPITAL CORPORATION, a Nevada corporation; BRIAN GRACEY; AMERICAN WOLLASTONITE MINING CORPORATION, fka White Plains Resources Corporation, a publicly traded British Columbia corporation; DOES, I through XX, inclusive, Defendants-Appellees.

No. 98-15877

U.S. Court of Appeals for the Ninth Circuit

Submitted on March 14, 2000¹

Filed June 8, 2000

Bryan R. Clark, McDonald, Carano, Wilson, McCune, Bergin, Frankovich & Hicks, LLP, Las Vegas, Nevada for the plaintiff-appellant.

Bernard Boos, Burnaby, BC V5E 4J5, Canada, in proper person, defendant-appellee.

Locke Goldsmith, no appearance, no address.

Edward White, Burnaby, BC V5C 2K7, Canada, in proper person, defendant-appellee.

Johann Plamenig, no appearance, no address.

Robert Ballard, Burlington, Massachusetts, in proper person, defendant-appellee.

James C. Weaver, San Diego, California, for defendants-appellees Harold Gallison and LaJolla Capital Corporation.

Bruce Judd, Wright, Judd & Winkler, Las Vegas, Nevada, for defendant-appellee Brian Gracey and American Wollastonite Mining.

Appeal from the United States District Courtfor the District of Nevada; David Warner Hagen, District Judge, Presiding. D.C. No. CV-97-00195-DWH

Before: Henry A. Politz,² Stephen Reinhardt, and Michael Daly Hawkins, Circuit Judges.

HAWKINS, Circuit Judge:

Section 107 of the Private Securities Litigation Reform Act of 1995 ("PSLRA") amended 18 U.S.C. S 1964(c) to eliminate as a predicate for civil claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO") any conduct actionable as fraud in the purchase or sale of securities. See Pub. L. No. 104-67, S 107, 109 Stat. 737, 758 (1995). Frank Scott brought a civil RICO claim alleging fraud in connection with the sale of securities. We must decide whether section 107 of the PSLRA bars civil RICO claims filed after the PSLRA's effective date based on conduct occurring prior to its effective date. Because we hold that section 107 cannot be applied retroactively, we reverse.

BACKGROUND

Frank Scott ("Scott") was the sole shareholder of Scott Walker Boudwin, Inc. ("Scott Walker"), a Nevada corporation. This corporation owned various leasehold interests within the state. In May 1993, Bernard Boos ("Boos"), acting as an agent for the White Plains Resources Corp. ("White Plains"), approached Scott about acquiring his corporation to develop a plant for processing wollastonite, a substance which has a wide variety of uses.

After a series of negotiations in which Scott alleges that Boos and others fraudulently represented the value of White Plains, Scott agreed to trade his shares of Scott Walker for shares of White Plains, the predecessor of the American Wollastonite Mining Corp.

The sale was approved by the Vancouver Stock Exchange and the board of directors of American Wollastonite in January 1994, and Scott became the Chairman of the Board of American Wollastonite. By March of 1994, Scott concluded that the wollastonite project was not proceeding as planned and engaged the services of an expert mining engineer. That engineer reported that the geologist hired by Boos was not licensed in Nevada, certain documents which should have been filed with the state had not been filed, and accurate maps of the drilling markers were missing. Sometime before December 15, 1995, Scott tried unsuccessfully to convince the board of directors to conduct a due diligence investigation, after which he resigned as Chairman.

On February 13, 1997, Scott filed an action in the United States District Court against Boos and 23 others, ³ alleging violations of (1) the RICO statutes, 18 U.S.C. S 1962(a), (b), and (c); (2) conspiracy to violate 18 U.S.C. S 1962(a), (b), and (c); (3) violation of Nevada's RICO statutes; (4) conspiring to violate Nevada's RICO statutes; and (5) common law fraud, deceit, and misrepresentation. The district court dismissed claims 1-4, finding that the passage of the PSLRA precluded claims 1 and 2, and declining to exercise its supplemental jurisdiction over claims 3 and 4. Claim 5 is still pending. Following district court certification, Scott filed this interlocutory appeal.

Section 107 of the PSLRA amends 18 U.S.C. S 1964(c) to state that "[a]ny person injured in his business or property by reason of a violation of [RICO] may sue . . . except that no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of [RICO]."⁴ The PSLRA became effective on December 22, 1995.

STANDARD OF REVIEW

We review de novo whether a statute may be applied retroactively. See Means v. Northern Cheyenne Tribal Court, 154 F.3d 941, 943 (9th Cir. 1998); Chenault v. United States Postal Serv., 37 F.3d 535, 537 (9th Cir. 1994). A district court's factual findings on all jurisdictional issues must be accepted unless clearly erroneous. See United States ex rel. Lujan v. Hughes Aircraft Co., 162 F.3d 1027, 1030 (9th Cir. 1998). We will not overturn a district court's factual findings unless there is a definite and firm conviction that a mistake has been made. See id.

THE TEST FOR RETROACTIVITY

The Supreme Court teaches that there is a presumption against retroactive application of legislation. See Landgraf v. USI Film Products, 511 U.S. 244, 265 (1994); Bowen v. Georgetown University Hosp., 488 U.S. 204, 207 (1988). "Elementary considerations of fairness dictate that individuals should have an opportunity to know what the law is and conform their conduct accordingly; settled expectations should not lightly be disrupted." Landgraf, 511 U.S. at 265; see also General Motors Corp. v. Romein, 503 U.S. 181, 191 (1992) ("Retroactive legislation presents problems of unfairness . . . because it can deprive citizens of legitimate expectations . . . .").

In Landgraf, the Supreme Court provided a test for determining whether a federal statute applies retroactively:

When a case implicates a federal statute enacted after the events in suit, the court's first task is to determine whether Congress has expressly pre scribed the statute's proper reach. If Congress has done so, of course, there is no need to resort to judicial default rules. When, however, the statute contains no such express command, the court must determine whether the new statute would have retro active effect, i.e. whether it would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed. If the statute would operate retroactively, our traditional presumption teaches that it does not govern absent clear congressional intent favoring such a result.

511 U.S. at 280; see Lindh v. Murphy, 521 U.S. 320 (1997).

Thus, the first step in the analysis is to ask whether Congress has expressly provided that the statute in question should apply retroactively or prospectively. If Congress has made its intent express, the statute should be applied accordingly. If not, the second step requires an examination of whether the statute has retroactive effect. If it does, the presumption against retroactive application applies. This presumption can only be rebutted by clear congressional intent to the contrary. See also Mathews v. Kidder, Peabody & Co., 161 F.3d 156, 160-61 (3d Cir. 1998), cert. denied, 119 S. Ct. 1460 (1999) (commenting that Lindh modified the Landgraf test but essentially applying this same test).

The Third and Seventh Circuits have held that section 107 of the PSLRA does not prohibit civil RICO claims premised on securities fraud that were pending on the effective date of the PSLRA. The Seventh Circuit did not engage in a detailed analysis of the retroactivity of the PSLRA; rather, it merely cited sections 107 and 108⁵ of the PSLRA and stated that "the amendment is inapplicable to suits, such as this one, that were pending when the new law was passed, provided that the suit arose under the securities laws." Fujisawa Pharmaceutical Co., Ltd. v. Kapoor, 115 F.3d 1332, 1337-38 (7th Cir. 1997). Apparently it concluded that the statutory language on its face clearly implied that the PSLRA did not apply retroactively to suits pending on its effective date.

The Third Circuit conducted a more detailed review tracing through the steps of the Landgraf-Lindh analysis. See Mathews, 161 F.3d at 156. The nature of the Third Circuit's analysis appears to apply equally to cases where the claim was filed after the PSLRA's effective date based on conduct occurring before that date.

A. Statutory Language: Has Congress Expressly Prescribed the Statute's Proper Reach?

The first step in the Landgraf test is whether Congress expressly prescribed the temporal reach of section 107 of the PSLRA (the "RICO amendment"). Section 108 of the PSLRA provides that the amendments made under the PSLRA "shall not affect or apply to any private action arising under title 1 of the Securities and Exchange Act of 1934 or title 1 of the Securities Act of 1933, commenced before or pending on the date of enactment of this act." This section does not, however, discuss actions arising under RICO. Additionally, no other provision of the PSLRA expressly discusses its temporal reach as applied to RICO. Therefore, nothing in the PSLRA can be construed as an express provision for the temporal reach of the RICO amendment. See Mathews, 161 F.3d at 162; Kolfenbach v. Mansour, 36 F. Supp.2d 1351, 1353 n.7 (S.D. Fla. 1999) (listing cases and stating that"[o]ther courts examining this issue have uniformly concluded that there is no language in the statute either permitting or forbidding retroactive application of Section 1964(c) [RICO].").

The defendants seem to argue, however, that because the limitation in section 107 of the PSLRA is not limited in time, it...