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Oscar v. University Students Co-Operative Association

filed: June 4, 1992.

RUTH E. OSCAR; CHARLES SPINOSA, PLAINTIFFS-APPELLANTS,
v.
UNIVERSITY STUDENTS CO-OPERATIVE ASSOCIATION; GEORGE PROPER, ET AL., DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of California. D.C. No. CV-89-2117-SAW. Stanley A. Weigel, District Judge, Presiding.

En Banc. Before: Wallace, Chief Judge, and Hug, Schroeder, Alarcon, Poole, D.w. Nelson, Brunetti, Noonan, Thompson, Rymer, and Kleinfeld, Circuit Judges. Opinion by Judge D.w. Nelson; Dissent by Judge Kleinfeld, with whom Judges Hug and Brunetti, join.

Author: Nelson

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 Racketeering-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, No. 90-15750 (9th Cir. Jan. 10, 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, 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 "any 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, 87 L. Ed. 2d 346 , 105 S. Ct. 3275 (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, 107 L. Ed. 2d 1029 , 110 S. Ct. 1122 and 494 U.S. 1027 (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 463 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 interests." 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.*fn1

Second, it is clear that personal injuries are not compensable under RICO. See, e.g., Reiter v. Sonotone Corp., 442 U.S. 330, 339, 60 L. Ed. 2d 931 , 99 S. Ct. 2326 (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, 102 L. Ed. 2d 562 , 109 S. Ct. 531 (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 918 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. 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.*fn2

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.*fn3 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. Second, even if Oscar has the right to do so, she has not alleged that she ever sublet the apartment, that she ever attempted to sublet the apartment, or even that she ever wished or intended to sublet the apartment. Any supposed loss is therefore purely speculative. Finally, the Berkeley rent control law prevents Oscar from charging a sublessor rent in excess of the rent-controlled price of the apartment. To show injury, therefore, Oscar would have to allege that the racketeering activity caused the market value of her apartment to decline below the (artificially low) rent control price, and that she could not simply move out if that happened.

Oscar has had four chances to make such allegations. She has not done so. To remand her complaint for trial on the off chance that she could make such a showing in the future would be to allow her to rely on precisely the sort of speculative future injury which RICO disdains. See Hecht v. Commerce Clearing House, 897 F.2d 21, 24 (2nd Cir. 1990).

Oscar also claims that she has lost the "use and enjoyment" of her leasehold interest; she values her apartment less than she otherwise would because there are drug dealers living next door.*fn4 No doubt this is true. This diminution in enjoyment is not a tangible injury to property, however. Whether or not Oscar herself enjoys her apartment less, the bottom line is that the market value of Oscar's leasehold interest has not declined.

What Oscar is really complaining about is the "personal discomfort and annoyance to which [she] has been subjected by a nuisance on adjoining property." Ingram v. City of Gridley, 100 Cal. App. 2d 815, 224 P.2d 798, 803 (Cal. Ct. App. 1950). We agree with the Dissent - this is a perfectly cognizable claim for nuisance under California law. The injury alleged, however, "is like that claimed by the plaintiff in a personal injury action." Id. As we have seen, personal injuries are not actionable under RICO. Oscar has no doubt lost "peace of mind" as a result of the activities at Barrington. Berg, 915 F.2d at 464. As we held in Berg, however, such a loss - even when it flows from a valuable property interest - is "a personal injury in the form of emotional distress, not a claim for an injury to property as section 1964(c) requires." 915 F.2d at 464.*fn5

We do not intend to denigrate the severity of the problems Oscar has alleged or the harm inflicted on her. It is clear, however, that any injury she has suffered is at core an intangible personal injury, not a financial loss to property. Oscar can recover for such injuries under any one of a myriad of state law causes of action. She cannot do so under RICO, however.

As the Seventh Circuit said recently in rejecting a RICO claim for economic losses which derived from a fundamentally personal injury: "Perhaps the economic aspects of such injuries could, as a theoretical matter, be viewed as injuries to 'business or property,' but engaging in such metaphysical speculation is a task best left to philosophers, not the federal judiciary." Doe v. Roe, No. 91-1289, 958 F.2d 763,, at 19-20 (7th Cir. March 9, 1992). The requirements for pleading an injury cognizable under RICO are quite clear. They are not met here.

AFFIRMED.

KLEINFELD, Circuit Judge, with whom Circuit Judges HUG and BRUNETTI join, Dissenting:

I respectfully Dissent.

Congress and the President have promulgated a statute which enables people of moderate means to retain attorneys with the aid of a fee shifting provision, and recover treble damages, by suing narcotics dealers who reduce the quality of life in their neighborhood. This bounty, taken from the property of narcotics dealers, offers a benefit to induce citizens to act as private attorneys general, and offsets the burdens which might deter them from relying entirely upon the criminal Justice system. Our narrow and novel construction of RICO damages vitiates the statutory scheme in an important application.

The panel's decision, Oscar v. University Students Co-operative Association, 939 F.2d 808 (9th Cir. 1991), is correct, and its correctness is strengthened by the subsequent Supreme Court decision in Holmes v. Securities Investor Protection Corp., 117 L. Ed. 2d 532, 112 S. Ct. 1311 (1992). Elucidation of the traditional concepts of property, injury to property, and damages, and application of those concepts to the kind of harms claimed in this case, requires that the lawsuit be permitted to proceed. Damages of the kind claimed by Oscar and Spinosa traditionally do not require tangible financial loss, though in some other RICO applications financial loss must be proved. The statute, interpreted according to the well established common law meanings of its terms, empowers people to hire attorneys at the expense of neighboring drug dealers whose narcotics dealing ruins the quality of life for nearby apartment dwellers and homeowners, and take away the criminals' money. The rescue of neighborhoods, by allying law abiding citizens' financial self-interest with their altruism, through the mechanism of treble damages lawsuits against racketeers, appears to have been just what Congress intended. Sedima v. Imrex Co., 473 U.S. 479, 495, 87 L. Ed. 2d 346 , 105 S. Ct. 3275 (1985), taught us that "there is no room in the statutory language for an additional, amorphous 'racketeering injury' requirement." Likewise, there is no room for an additional tangible financial loss requirement. Congress has not authorized us to erect this door and shut it on a kind of case most central to achieving the purposes of the statute.

Title 18 U.S.C. § 1964(c) provides that

any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and ...


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