Federal Circuits, 9th Cir. (March 16, 2004)
Docket number: 01-17059
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U.S. Code - Title 18: Crimes and Criminal Procedure - 18 USC 1962 - Sec. 1962. Prohibited activities
Ohio Supreme Court - Bourke v. Carnahan (Ohio 2005)
George Donaldson, Law Offices of George Donaldson, San Francisco, CA, argued the cause and, with Daniel B. Harris and Ariana Farzanrad, filed briefs for the plaintiffs-appellees-cross-appellees. Joseph J. Tabacco, Jr., and Christopher T. Heffelfinger, Berman Devalerio Pease Tabacco Burt & Pucillo, P.C., San Francisco, CA; and Dennis Stewart and Susan G. Taylor, Milberg Weiss Bershad Hynes and Lerach L.L.P., San Diego, CA, were on the briefs.
Hal Bogard, General Electric Co., Louisville, KY, argued the cause for the defendant-appellee-cross-appellant and filed briefs. Timothy P. Crudo and James L. Day, Latham & Watkins, San Francisco, California; and Peter L. Winik and Beth A. Wilkinson, Latham & Watkins, Washington, DC, were on the briefs.John A. Yanchunis, James, Hoyer, Newcomer & Smiljanich, P.A., Tampa, FL, argued the cause and, with Mike Peacock, filed briefs for the appellants-cross-appellees.Appeal from the United States District Court for the Northern District of California; Marilyn H. Patel, District Judge, Presiding. D.C. No. CV-99-05073-MHP.Before: SCHROEDER, Chief Judge, O'SCANNLAIN, and TASHIMA, Circuit Judges.OPINIONO'SCANNLAIN, Circuit Judge.We must decide various challenges to a class-action settlement of these suits against the manufacturer of consumer dishwashers.* ABetween 1983 and 1989, General Electric ("GE") manufactured and sold approximately three million GE- and Hotpoint-brand dishwashers equipped with a sliding "energy saver" switch. Although some were sold to individual consumers, the dishwashers were considered "low end" products and were primarily marketed to contractors, builders, and owners of commercial or rental properties. The switch, which allows a user to select either a heated drying cycle or drip drying, deteriorates over time and may melt or ignite.Reports of fires caused by the allegedly defective switch eventually prompted an investigation by the Consumer Product Safety Commission ("CPSC"). Although the investigation found that no consumers had been physically injured, it determined that approximately 50 fires could be attributed to the switch, three of which damaged property other than the dishwasher itself. Under the terms of a formal settlement agreement between GE and the CPSC, GE announced a "recall" of the dishwashers in October 1999. GE advised consumers to stop using the dishwashers immediately, and offered a choice between a $75-125 cash rebate toward the purchase of a GE-brand dishwasher or a $25 cash refund toward the purchase of a non-GE-brand dishwasher, along with a free one-year service agreement with GE. GE also agreed to replace dishwashers still under extended service agreements. The GE-CSPC agreement also permitted GE to reach a separate agreement with owners and operators of commercial and residential properties that could include discounted bulk pricing and instructions to repair the switch by rewiring. Dissatisfied with the rebate program, some consumers turned to the courts.BThe first of the two underlying actions consolidated in this appeal was filed in November 1999. Churchill Village, L.L.C. ("Churchill"), an Oregon corporation and owner of an apartment building in Eugene, Oregon, sued GE both individually and on behalf of the general public in the Northern District of California, asserting claims under California's unfair competition and false advertising laws and seeking injunctive relief and restitution. Churchill asserted federal jurisdiction against GE (a New York corporation headquartered in Connecticut) based on diversity of citizenship, contending that injunctive relief as measured by the cost to the defendant exceeded the $75,000 amount-in-controversy requirement. See 28 U.S.C. 1332. Jurisdiction over the state-law claims was asserted on the principles of supplemental jurisdiction in 28 U.S.C. 1367. The complaint was later amended to add two individual plaintiffs, Al and Barbara Dorsett, citizens of California. Churchill and the Dorsetts then sought a preliminary injunction, which the district court denied on May 10, 2000. Churchill Village, L.L.C. v. Gen. Elec. Co., 169 F.Supp.2d 1119 (N.D.Cal.2000).Also in May 2000, Seymour Lazar, a California citizen, sued GE in the Northern District of California on behalf of himself, the general public, and a putative class of consumer owners. Lazar v. General Electric Co., No. C 00-1621. In addition to violations of California's unfair competition and false advertising laws, the complaint alleged counts of common-law fraud and violations of federal law. Federal jurisdiction was thus asserted on the existence of a federal question under 28 U.S.C. 1331, with supplemental jurisdiction over the state-law claims under 28 U.S.C. 1367.Contemporaneously with the Churchill and Lazar suits in California, Beckwith Place Limited Partnership ("Beckwith"), a Michigan property owner, sued GE in Illinois state court in December 1999, seeking to represent a nationwide class of consumer-owners. Other consumers filed class actions in Connecticut state court in March 2000.Still other consumers sued GE in both state and federal court in Florida in December 1999 and February 2000 respectively. The Florida plaintiffs were represented by James, Hoyer, Newcomer & Smiljanich, P.A.; Levin, Tannenbaum, Wolff; and Cauley, Geller, Bowman & Coates, L.L.P. (collectively "Florida Counsel"), who allege entitlement to attorneys' fees in this litigation.Finally, the New York Attorney General brought suit in New York state court in March 2000, challenging GE's initial dishwasher recall as deceptive. The action resulted in an award of restitution for New York consumers who purchased new dishwashers in reliance on GE's statements that repair of the recalled dishwashers was impracticable. New York consumers were therefore excluded from the nationwide class approved by the district court.CFollowing pre-trial motions and discovery, the Churchill plaintiffs reached a settlement agreement with GE. Churchill agreed to file (and did so on August 1, 2001) a consolidated amended complaint seeking certification of a class under Fed. R.Civ.P. 23(b)(3).1 Under the terms of the settlement agreement, GE agreed to provide each class member with either a $20 cash rebate or a one-year service contract.After Churchill moved the district court for preliminary approval of the proposed settlement, Beckwith ? here representing the two sets of plaintiffs pursuing class actions against GE in state court in Illinois and Connecticut ? moved to intervene to object. The Beckwith objectors were permitted to present their objections to the proposed settlement in writing and participated in the preliminary approval and fairness hearings. The district court denied the intervention motion and preliminarily approved the proposed settlement.On January 22, 2002, the district court issued a final order approving the settlement, dismissing with prejudice all claims by members of the settlement class, awarding fees to Churchill's counsel, and denying fees to Florida Counsel. The Beckwith objectors now appeal the district court's approval of the settlement and Florida Counsel appeal the denial of attorneys' fees, claiming that they were responsible for catalyzing Churchill's successful result. Recognizing that Florida Counsel's claim shared a common progenitor with Churchill's settlement, we consolidated these appeals.IIAs a threshold matter, Churchill disputes whether the Beckwith objectors have any right to appeal. Churchill points out that the district court certified the settlement class under Fed.R.Civ.P. 23(b)(3), thereby permitting objecting class members like Beckwith to exclude themselves from the settlement. Because the objectors can opt out, Churchill contends that they suffer no injury and thus lack standing to appeal.But the issue is not precisely one of standing. As the Supreme Court has noted, neither Article III nor prudential standing is implicated by the efforts of non-intervening objectors to appeal class-action settlements. See Devlin v. Scardelletti, 536 U.S. 1, 7, 122 S.Ct. 2005, 153 L.Ed.2d 27 (2002). Instead, the inquiry is best characterized as concerning the definition of a "party" for purposes of appeal. Id. And the Devlin Court made clear that objectors should be considered parties, holding that "non-named class members... who have objected in a timely manner to approval of the settlement at the fairness hearing have the power to bring an appeal without first intervening." Id. at 14, 122 S.Ct. 2005.Churchill urges that we read Devlin narrowly. There, the Court relied on the fact that Devlin was unable to opt out of the Rule 23(b)(1) class. Here, by contrast, the Beckwith objectors may exclude themselves from the settlement and thus preserve their right to seek relief from GE. Yet this ostensible independence is belied by an essential impracticability. Because each objector's claim is too small to justify individual litigation, a class action is the only feasible means of obtaining relief. By terminating all class actions relating to the dishwasher recall, the settlement will effectively bind the objectors. They therefore occupy precisely the status the Devlin Court sought to protect. See id. at 10, 122 S.Ct. 2005 ("What is most important to this case is that nonnamed class members are parties to the proceedings in the sense of being bound by the settlement. It is this feature of class action litigation that requires that class members be allowed to appeal the approval of a settlement when they have objected at the fairness hearing.").We are satisfied that Devlin applies here sufficiently to permit the Beckwith objectors to challenge the settlement approved by the district court. Such a reading of Devlin is consistent, moreover, with our longstanding pre-Devlin practice of permitting objecting class members to appeal settlements. See Marshall v. Holiday Magic, Inc., 550 F.2d 1173, 1176 (9th Cir.1977) (allowing class members who had not opted out to appeal settlement); Dosier v. Miami Valley Broad. Corp., 656 F.2d 1295, 1299 (9th Cir.1981) (noting that unnamed class member who was represented by counsel at settlement conference "could have challenged it by direct appeal"); In re Cement Antitrust Litig., 688 F.2d 1297, 1309 (9th Cir.1982) ("[A] class member may appeal from an order approving a settlement to which the member objects[.]"); see also 5 Moore's Federal Practice § 23.86[2] (3d ed.1997) (arguing for a broad reading of Devlin).Because we conclude that Beckwith may appeal the approval of the settlement, we now turn to the merits.IIIBeckwith first contends that the district court lacked subject-matter jurisdiction. Churchill counters that either federal question (28 U.S.C. 1331) or diversity (28 U.S.C. 1332) jurisdiction prevailed.* Was there federal question jurisdiction? Both the May 2000 Lazar complaint and the consolidated complaint alleged that GE's operation of the dishwasher recall program violated the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 1961-1968. Both complaints named GE as the RICO "person" under 18 U.S.C. 1961(3) and the recall program as the RICO "enterprise" under § 1961(4). Both alleged that GE committed numerous violations of federal mail and wire fraud statutes as it engaged in a pattern of racketeering activity relating to the recall program. In telephone calls and correspondence, according to the complaints, GE misled the CPSC about the defective nature of the dishwashers. The complaints also alleged that GE deceived affected customers by downplaying the seriousness of the dishwashers' defects; attempting to reduce GE's costs to remedy the defects; and 3295 fraudulently inducing customers to purchase other GE products.More specifically, the complaints alleged that GE violated 18 U.S.C. 1962(a) by using income derived from its pattern of racketeering activity to establish or operate the recall program.2 The complaints further alleged that GE violated § 1962(b) when it used its pattern of racketeering activity to acquire or to maintain an interest in or control of the recall program; and violated § 1962(c) by conducting the recall program through a pattern of racketeering activity.3 The complaints added a conspiracy count under § 1962(d).4 Churchill now contends that these recitals are enough to confer federal question jurisdiction under 28 U.S.C. 1331.5Beckwith's succinct response is that the RICO claims are wholly without merit and incapable of supporting federal jurisdiction. Pointing to our decision in Rae v. Union Bank, 725 F.2d 478 (9th Cir.1984), they argue that it is well-established that § 1962(c) requires that the "person" and "enterprise" be distinct, and that GE and the recall program are here insufficiently distinct to trigger RICO liability. Beckwith contends that the RICO claims are "terminally flawed," and thus the district court should not have entertained the action.BLet us remember that the standard for establishing federal jurisdiction is even less stringent than that required to state a claim under Fed.R.Civ.P. 12(b)(6). As we have explained, "Any non-frivolous assertion of a federal claim suffices to establish federal question jurisdiction, even if that claim is later dismissed on the merits." Bollard v. Calif. Province of the Soc'y of Jesus, 196 F.3d 940, 951 (9th Cir.1999); see also Cement Masons Health and Welfare Trust Fund for N. Calif. v. Stone, 197 F.3d 1003, 1008 (9th Cir.1999).Although the claim under § 1962(c) indeed appears entirely foreclosed by our decision in Rae, we need not evaluate the merits or probability of success of that claim, for Churchill has pleaded sufficiently non-frivolous claims under § 1962(a) and (b). We have not required that the RICO "person" and "enterprise" be distinct in actions under these subsections. See Wilcox v. First Interstate Bank of Ore., N.A., 815 F.2d 522, 529 (9th Cir. 1987); see also Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1398 (9th Cir.1986) ("[W]here a corporation engages in racketeering activities and is the direct or indirect beneficiary of the pattern of racketeering activity, it can be both the `person' and the `enterprise' under section 1962(a)."). Churchill sufficiently alleged that income derived indirectly from acts of mail and wire fraud forming a pattern of racketeering activity was used in the establishment and operation of the injurious recall "enterprise," as required by § 1962(a). See Nugget Hydroelectric, L.P. v. Pac. Gas and Elec. Co., 981 F.2d 429, 437 (9th Cir.1992) (plaintiff under § 1962(a) "must allege facts tending to show that he or she was injured by the use or investment of racketeering income"). And the complaints also alleged that GE maintained control of the recall program through acts of mail and wire fraud comprising a pattern of racketeering, as required by § 1962(b). See Wagh v. Metris Direct, Inc.,Try vLex for FREE for 3 days
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