Diaz v. Gates
420 F.3d 897, 2005 U.S. App. LEXIS 17228 (2005)
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Rule of Law:
The loss of employment and employment opportunities proximately caused by a RICO predicate act constitutes an 'injury to business or property' sufficient for RICO standing, provided that the interest in employment is a legally protected property interest under state law.
Facts:
- David Diaz alleged that officers of the Los Angeles Police Department (LAPD) engaged in a conspiracy against him.
- As part of this conspiracy, the officers allegedly fabricated evidence that Diaz had committed assault with a deadly weapon.
- The officers also allegedly tampered with witnesses in order to secure a false conviction against Diaz.
- As a direct consequence of the officers' actions, Diaz was incarcerated.
- While defending himself against the charges and during his incarceration, Diaz was rendered unable to pursue gainful employment.
- This inability to work resulted in Diaz's loss of employment, employment opportunities, and associated wages.
Procedural Posture:
- David Diaz filed a civil lawsuit under the Racketeer Influenced and Corrupt Organizations Act (RICO) against LAPD Chief Bernard C. Parks and others in the U.S. District Court for the Central District of California.
- Defendant Parks filed a motion to dismiss, arguing Diaz lacked standing because he failed to allege an 'injury to business or property' as required by RICO.
- The district court granted the motion to dismiss without prejudice and with leave to amend.
- Diaz declined to amend his complaint, and the district court subsequently dismissed the case with prejudice.
- Diaz, as appellant, appealed the dismissal to the U.S. Court of Appeals for the Ninth Circuit.
- A divided three-judge panel of the Ninth Circuit affirmed the district court's dismissal.
- The Ninth Circuit then voted to rehear the case en banc.
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Issue:
Does the loss of employment and employment opportunities resulting from an allegedly false imprisonment constitute an 'injury to business or property' sufficient to confer standing under the Racketeer Influenced and Corrupt Organizations Act (RICO)?
Opinions:
Majority - Per Curiam
Yes. The loss of employment and employment opportunities caused by racketeering activity constitutes an injury to 'business or property' sufficient to confer standing under RICO. The court reasoned that while personal injuries are not compensable under RICO, an injury to a recognized property interest is. Following the Seventh Circuit's approach in Doe v. Roe, the court looks to state law to determine if an interest qualifies as 'property.' Under California law, the interests in contractual and business relations (such as employment) are protected property interests. Therefore, Diaz suffered two distinct injuries: the personal injury of false imprisonment and the compensable property injury of interference with his employment relations. The court rejected the dissent's argument that the property injury must be the 'direct target' of the racketeering activity, citing the Supreme Court's holding in Sedima that rejected an additional 'racketeering injury' requirement beyond the plain text of the statute.
Concurring - Reinhardt, J.
Yes. Judge Reinhardt concurred with the majority and Judge Kleinfeld's concurrence, but wrote separately to express concern that judicial interpretations, starting with the Supreme Court's decision in Sedima, have stretched RICO far beyond Congress's original intent to combat organized crime. Although bound by precedent to agree with the majority's broad reading, he suggested that it is time for Congress to amend the statute to restore its original purpose.
Concurring - Kleinfeld, J.
Yes. Judge Kleinfeld argued that a plain reading of the RICO statute compels this result. The list of predicate acts that constitute 'racketeering activity' in § 1961 explicitly includes personal injury torts like 'murder' and 'kidnapping.' Therefore, the statute contemplates that personal injuries can form the basis of a RICO violation. The limitation 'injured in his business or property' in § 1964(c) restricts the type of damages a plaintiff can recover, not the type of underlying wrongful act. Diaz's allegation that he lost employment opportunities is a sufficient claim of injury to his 'business,' as the ability to earn a living is a business interest.
Dissenting - Gould, J.
No. The loss of employment was not a distinct injury to business or property but was merely a derivative financial consequence of a non-compensable personal injury—the alleged false imprisonment. The dissent argued that the majority's holding creates a circuit split with the Eleventh Circuit's decision in Grogan v. Platt and the Seventh Circuit's in Doe v. Roe, both of which held that pecuniary losses flowing from personal injuries are not recoverable under RICO. The dissent distinguished the controlling precedent of Mendoza, where the racketeering scheme was directly aimed at depressing wages, from this case, where the economic harm was an indirect effect of a personal tort. This expansion of RICO standing, the dissent warned, effectively reads the 'business or property' limitation out of the statute.
Analysis:
This en banc decision significantly clarifies the meaning of 'injury to business or property' under RICO in the Ninth Circuit, broadening its scope. It establishes that economic damages, like lost wages, are recoverable under RICO if they stem from interference with a state-recognized property right, even if the predicate act itself was a personal tort. This ruling creates a circuit split with the more restrictive approaches of the Seventh and Eleventh Circuits, which generally bar recovery for pecuniary losses derived from personal injuries. The decision thus increases the potential for RICO claims in cases involving personal injuries with foreseeable economic consequences and makes the issue ripe for Supreme Court review.
