The Republic of the Philippines v. Ferdinand E. Marcos

SCHROEDER, Circuit Judge,

with whom CANBY, Circuit Judge, joins concurring in part and dissenting in part.

I join in the majority’s conclusion that there is a well-pleaded RICO claim providing federal subject matter jurisdiction. I agree further that the act of state doctrine is not a threshold bar to considering the activities of the defendants during the time that Mr. Marcos was the Philippine head of state. Those were the principal issues that a majority of the three-judge panel considered and that we undertook to decide in this en banc proceeding.

The injunction we review, however, was entered only a week after this suit was filed, and the record before us is minimal. It does not provide support for the majority’s resolution of the further issues it must reach, without reasoned analysis, in order *1365 to uphold this injunction. I therefore dissent from the affirmance.

The injunction is based upon the district court’s exercise of pendent jurisdiction, not federal question jurisdiction. It is based on a complaint alleging, in the most sweeping of generalities, pendent claims of fraud and conversion by the Marcoses over the course of twenty years. The pendent claims are alleged to be violations of as yet unspecified laws of as yet unspecified states and countries. The district court’s injunction purports to reach over a billion dollars worth of assets, the bulk of which are located in Switzerland. See Republic of the Philippines v. Marcos, 818 F.2d 1473, 1476 (9th Cir.1987).

To affirm this injunction, the majority must hold that the district court properly exercised pendent jurisdictional authority to reach all of the Marcoses’ property, wherever located. I cannot agree. The basis for federal jurisdiction is contained in RICO allegations of illegal activities concerning assets now located in the United States. There has been no showing that these claims arise in any way from the same allegedly wrongful transactions through which the Marcoses acquired other property located elsewhere. Nor does the record disclose any reason why a court in California, as opposed to courts in the Philippines or Switzerland, should decide claims to property stolen from the Philippines and transported to Switzerland. I therefore part company with the majority when it affirms on this record the district court’s issuance of a preliminary injunction preventing the Marcoses from disposing of any assets anywhere in the world.

In my view the existence of pendent jurisdiction over claims reaching all the Mar-coses’ assets has not yet been established. As explained more fully below this injunction should be vacated and the matter remanded to the district court for consideration of pendent jurisdiction and other issues on the basis of a fuller record.

BACKGROUND

The plaintiff sought an injunction to be entered solely in the exercise of pendent jurisdiction because RICO does not authorize injunctive relief. See Religious Technology Center v. Wollersheim, 796 F.2d 1076, 1088-89 (9th Cir.1986), cert. denied, 479 U.S. 1103 , 107 S.Ct. 1336 , 94 L.Ed.2d 187 (1987). RICO, however, does provide the requisite federal question jurisdiction.

For the RICO predicate acts in violation of the laws of the United States, the complaint alleged violations of 18 U.S.C. §§ 1341 , 1343, 2314, and 2315. The alleged racketeering activities essentially involve mail and wire fraud and the importation of stolen goods into the United States. The showing before the district court of the Marcoses’ actual holdings in the United States included the Marcoses’ interests in California real estate, the existence of a bank account with a California bank, and the transporting to Hawaii of $8.2 million in funds and property.

The district court granted the injunction in eonclusory fashion, finding:

(1) That there is a substantial danger that, if this Order were not issued, the parties against whom this Order is directed would transfer or conceal funds, property, books and records, placing said items beyond the Court’s process and recovery by the Philippines in this action.

(2) That the Philippines therefore would be irreparably injured if this Order were not issued.

(3) That there is a substantial likelihood that the Philippines will prevail in this action, and that the Philippines will be entitled to an accounting for, and to impose a constructive trust upon, the property subject to this Order.

When this court first considered this appeal, a fractured three-judge panel held that the complaint should have been dismissed in its entirety. A majority of the panel held that the act of state doctrine prevented the court from inquiring into the Marcoses’ activities during the period in question. Marcos, 818 F.2d at 1489-90 . Because a majority of the panel concluded that the act of state doctrine prevented the court from adjudicating any of the claims, the majority did not need to consider, and *1366 did not address, the issues of pendent jurisdiction.

Judge Hall, in a separate concurring opinion, concluded that there was additionally a lack of subject matter jurisdiction because no RICO claim had been well pleaded. Id. at 1490-91 .

Judge Nelson dissented, disagreeing with the other judges as to the applicability of the act of state doctrine. The dissent argued persuasively that the majority’s holding with respect to the act of state doctrine was inconsistent with existing Supreme Court and Ninth Circuit authority. Id. at 1492-95 . We granted en banc review because of that inconsistency, which was the principal focus of the petition for rehearing and rehearing en banc filed by the Government of the Philippines.

RICO CLAIMS AND FEDERAL QUESTION JURISDICTION

In defense of the panel’s decision that the complaint be dismissed in its entirety, the Marcoses have focused upon Judge Hall’s separate opinion that there was no well-pleaded RICO claim and hence no federal jurisdiction. See id. at 1490-91 . The Marcoses have urged that in order to make out a claim under RICO, the complaint would have to allege that there was an adverse economic impact upon the United States by virtue of the defendants’ conduct.

RICO, however, was aimed at the destructive effect of organized criminal activity on our society. Its provisions do not focus on any adverse effect of specific activity on the nation’s GNP. Its history emphasizes the adverse consequences of organized crime on our democratic processes, our domestic security and our general welfare, including but not limited to the economic system. See RICO Statement of Findings and Purpose, Pub.L. No. 91-452, 84 Stat. 922 (1970), 91st Cong., 2d Sess., reprinted in 1970 U.S.Code Cong. & Admin.News 1073. The Supreme Court has stated:

RICO is to be read broadly. This is the lesson not only of Congress’ self-consciously expansive language and overall approach, ... but also of its express admonition that RICO is to “be liberally construed to effectuate its remedial purposes.” ... RICO was an aggressive initiative to supplement old remedies and develop new methods for fighting crime.

Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 497-98 , 105 S.Ct. 3275, 3286 , 87 L.Ed.2d 346 (1985); see also Russello v. United States, 464 U.S. 16, 26 , 104 S.Ct. 296, 302 , 78 L.Ed.2d 17 (1983) (“[t]he legislative history clearly demonstrates that the RICO statute was intended to provide new weapons of unprecedented scope for an assault upon organized crime and its economic roots”).

What RICO does require is “a pattern of racketeering activity.” 18 U.S.C. § 1962 . By definition, “racketeering activity” necessitates a violation of one of our state or federal laws. 18 U.S.C. § 1961 . Federal RICO jurisdiction thus attaches only to those activities that allegedly violate our domestic laws.

In this case, in Count One of the Complaint, the plaintiff alleges that the Marcos-es engaged in mail and wire fraud, and importation of stolen property into the United States in violation of 18 U.S.C. §§ 1341 , 1343, 2314, 2315. In engaging in these activities, the plaintiff alleges that the Marcoses were conducting a RICO enterprise as part of an association in fact with the other defendants. These allegations, on their face at least, would survive a motion to dismiss for lack of subject matter jurisdiction. I therefore agree that there is a RICO basis for federal subject matter jurisdiction.

Finding a basis for federal question jurisdiction is but a first step, however, in reviewing the propriety of this injunction. The claims on which this injunction rests are pleaded as claims pendent to the RICO claims. The next step is thus to consider whether the relationship between the pendent claims and the federal claims are sufficiently close to permit the district court to assume jurisdiction over pendent claims reaching the Marcoses’ worldwide holdings. See United Mine Workers v. Gibbs, 383 U.S. 715, 725 , 86 S.Ct. 1130, 1138 , 16 L.Ed.2d 218 (1966).

*1367 THE INJUNCTION AND PENDENT JURISDICTION

In holding that the district court had pendent jurisdiction over claims to the Mar-coses’ assets wherever located in the world, the majority fails to appreciate that pendent jurisdiction can derive only when there is a sufficient factual connection between the activities giving rise to the pendent claims and the activities giving rise to the federal claims. In this case, such pendent jurisdiction should properly derive only from activities directly related to the alleged RICO violations of United States law. These comprise the alleged fraudulent dealings in this country and illegal importation of assets into the United States. It is not enough for the majority to characterize all the claims as involving criminal misconduct. See majority op. at 1359-1360.

Plaintiff claims the assets now in the United States are traceable to thefts of assets rightfully belonging to the people of the Philippines. There may well be a sufficient factual nexus to sustain pendent jurisdiction for claims arising from the original wrongful appropriations of the property now found in this country. This is because the property is the same. No such factual link as yet exists for the pendent claims to property transferred from the Philippines to other countries.

It is an elementary legal principle that federal courts are courts of limited jurisdiction. There are constitutional restraints on their exercise of jurisdiction. The Constitution restricts federal courts’ jurisdiction to claims “arising under [the] Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority.” U.S. Const., art. Ill, § 2. When a plaintiff pleads a federal claim within a district court’s federal subject matter jurisdiction, a plaintiff may not automatically bring any other claim against the same defendant. Subject matter jurisdiction of non-federal claims, under the judicially-created doctrine of pendent jurisdiction, depends upon the relationship between those claims and the federal claims.

The Supreme Court initially set out the concept underlying pendent jurisdiction in 1824 in Osborn v. Bank of the United States, 22 U.S. (9 Wheat.) 738 , 6 L.Ed. 204 (1824). There, the Court stated that

when a question to which the judicial power of the Union is extended by the constitution, forms an ingredient of the original cause, it is in the power of congress to give the Circuit Courts jurisdiction of that cause, although other questions of fact or of law may be involved in it.

Id. at 823 . The Court subsequently expanded the Osborn doctrine in Siler v. Louisville & Nashville R.R. Co., 213 U.S. 175 , 29 S.Ct. 451 , 53 L.Ed. 753 (1909), then narrowed pendent jurisdiction’s scope in Hurn v. Oursler, 289 U.S. 238 , 53 S.Ct. 586 , 77 L.Ed. 1148 (1933). Finally, more than two decades ago, the Court clarified the scope of pendent jurisdiction in United Mine Workers v. Gibbs, 383 U.S. 715 , 86 S.Ct. 1130 , 16 L.Ed.2d 218 (1966).

In Gibbs , a unanimous Court rejected Hum as “unnecessarily grudging,” id. at 725 , 86 S.Ct. at 1138 , and adopted a two-part test resting on considerations of power and discretion. In evaluating a federal court’s power to hear a pendent claim, the Court stated that:

[pjendent jurisdiction, in the sense of judicial power, exists whenever there is a claim “arising under [the] Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority ...,” U.S. Const., Art. Ill, § 2, and the relationship between that claim and the state claim permits the conclusion that the entire action before the court comprises but one constitutional “case.” The federal claim must have substance sufficient to confer subject matter jurisdiction on the court.... The state and federal claims must derive from a common nucleus of operative fact. But if, considered without regard to their federal or state character, a plaintiff’s claims are such that he would ordinarily be expected to try them all in one judicial proceeding, then, assuming substantiality of the federal issues, there is power in federal courts to hear the whole.

Id.

*1368 Thus, federal claims and pendent claims must all derive from a “common nucleus of operative fact.” They must also be the sort that would ordinarily be tried in “one judicial proceeding.” Id. The majority opinion does not analyze the pendent claims. Instead, it merely announces that the pendent claims arose from a nucleus of operative fact common to the RICO claims. Majority op. at 1359.

In reviewing the entry of the preliminary injunction, we should consider the nature of the asserted pendent jurisdiction and address the two jurisdictional issues that Gibbs requires courts to address when dealing with pendent claims.

The first question, therefore, is whether the RICO claims and all of the pendent claims arise from a “common nucleus of operative fact.” They do not. The RICO claims of necessity have to do with the defendants’ activities that violated the criminal laws of the United States. The pendent claims are not limited to those activities and reach property that has not been shown to have any connection with the United States itself or violations of our law.

Upholding pendent jurisdiction in such circumstances is thus contrary to the teaching of decisions following Gibbs that have focused on the nexus between events underlying the federal cause of action and those underlying pendent state causes of action. See, e.g., Finn v. Gunter, 722 F.2d 711, 713 (11th Cir.1984) (finding pendent jurisdiction); PAAC v. Rizzo, 502 F.2d 306, 312-13 (3d Cir.1974), cert. denied, 419 U.S. 1108 , 95 S.Ct. 780 , 42 L.Ed.2d 804 (1975) (no pendent jurisdiction); see also C. Wright, A. Miller & E. Cooper, 13B Federal Practice and Procedure § 3567.1 (1984). Our circuit also evaluates pendent claims under the nexus test. See, e.g., Klaus v. Hi-Shear Corp., 528 F.2d 225, 231 (9th Cir.1975). The plaintiffs have provided us with no explanation of how the pendent claims are related to the RICO claims. The only factual connection between all the claims of wrongdoing in this case appears to be a common plaintiff and common defendants. Under Gibbs and the constitutional restraints on the exercise of power by the federal judiciary in Article III, that is not sufficient.

Moreover, even assuming there is a common nexus of fact reaching all the Marcos-es’ assets, pendent jurisdiction would exist only as to the claims that would ordinarily be tried in one judicial proceeding. Gibbs, 383 U.S. at 725 , 86 S.Ct. at 1138 . These are not such claims. The RICO claims allege violations of the United States’ criminal laws through activities in this country. The pendent claims, on the other hand, encompass allegations of fraud and conversion stemming from the Marcoses’ actions in the Philippines spanning a twenty-year period. Further, the bulk of the property claimed, according to the complaint, is located in Switzerland. The claims against the Marcoses are in fact already the subject of multiple judicial proceedings. See, e.g., Republic of the Philippines v. Marcos, litigation in the Southern District of New York, 86 Civ. 2294 (PNL), and Republic of the Philippines v. Marcos, litigation in the District of Hawaii, No. CV-86-0155 HMF. The plaintiff cites no case remotely similar in scope to this case. The claims here are not those ordinarily tried in one judicial proceeding.

ACT OF STATE DOCTRINE

The majority of our three-judge panel concluded that the act of state doctrine bars consideration of the plaintiffs’ claims. I agree with the majority of this en banc court that such a holding is not appropriate on this record. I do not agree with the majority, however, that this injunction can be affirmed without any regard to the act of state doctrine.

The panel majority's use of the act of state doctrine as a threshold bar in the circumstances of this case is not consistent with the development of that doctrine under Supreme Court authority. See, e.g., Alfred Dunhill of London, Inc. v. Cuba, 425 U.S. 682 , 96 S.Ct. 1854 , 48 L.Ed.2d 301 (1976); Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 , 84 S.Ct. 923 , 11 L.Ed.2d 804 (1964). We have expressly stated that the act of state doctrine is not jurisdictional. See International Association of Ma *1369 chinists and Aerospace Workers v. OPEC, 649 F.2d 1354, 1359 (9th Cir.1981), ce rt. denied, 454 U.S. 1163 , 102 S.Ct. 1036 , 71 L.Ed.2d 319 (1982); Timberlane Lumber Co. v. Bank of America, 549 F.2d 597, 602 (9th Cir.1976), cert. denied, 472 U.S. 1032 , 105 S.Ct. 3514 , 87 L.Ed.2d 643 (1985). Rather, the doctrine involves the judiciary’s prudential decision to refrain from adjudicating the legality of a foreign sovereign’s public acts that were committed within its own territory. See OPEC, 649 F.2d at 1359 ; see also Sabbatino, 376 U.S. at 401 , 84 S.Ct. at 926 . The Supreme Court, in addressing the act of state doctrine, has stated:

Every sovereign state is bound to respect the independence of every other sovereign state, and the courts of one country will not sit in judgment on the acts of the government of another, done within its own territory. Redress of grievances by reason of such acts must be obtained through the means open to be availed of by sovereign powers as between themselves.

Sabbatino, 376 U.S. at 416 , 84 S.Ct. at 934 (quoting Underhill v. Hernandez, 168 U.S. 250, 252 , 18 S.Ct. 83, 84 , 42 L.Ed. 456 (1897)).

The act of state doctrine “expresses the strong sense of the Judicial Branch that its engagement in the task of passing on the validity of foreign acts of state may hinder rather than further this country’s pursuit of goals both for itself and for the community of nations as a whole in the international sphere.” Sabbatino, 376 U.S. at 423 , 84 S.Ct. at 938 . The Court further elaborated that the doctrine involves separation of powers:

[The doctrine’s] continuing vitality depends on its capacity to reflect the proper distribution of functions between the judicial and political branches of the Government on matters bearing upon foreign affairs.... [S]ome aspects of international law touch much more sharply on national nerves than do others; the less important the implications of an issue are for our foreign relations, the weaker the justification for exclusivity in the political branches.... [W]e decide only that the Judicial Branch will not examine the validity of a taking of property within its own territory by a foreign sovereign government, extant and recognized by this country at the time of suit.

Id. at 427-28 , 84 S.Ct. at 940 .

However, these considerations are less compelling in the situation before us, where the foreign government has itself invoked our jurisdiction, and the challenged actions involve a government no longer in power. In Sabbatino , the Supreme Court observed that, “[t]he balance of relevant considerations may also be shifted if the government which perpetrated the challenged act of state is no longer in existence ... for the political interest of this country may, as a result, be measurably altered.” 376 U.S. at 428 , 84 S.Ct. at 940 . “Moreover, the act of state doctrine reflects respect for foreign states, so that when a state comes into our courts and asks that our courts scrutinize its actions, the justification for application of the doctrine may well be significantly weaker.” Republic of the Philippines v. Marcos, 806 F.2d 344, 359 (2d Cir.1986).

Further, the Supreme Court has noted that for doctrine to apply the acts in question must have involved public acts of the sovereign. The Court stated that in each of its act of state decisions, the facts were sufficient to demonstrate that

the conduct in question was the public act of those with authority to exercise sovereign powers and was entitled to respect in our courts. [H]ere, no statute, decree, order, or resolution of the Cuban Government itself was offered in evidence indicating that Cuba had repudiated its obligations in general or any class thereof or that it had as a sovereign matter determined to confiscate the amounts due three foreign importers.

Alfred Dunhill, 425 U.S. at 694-95 , 96 S.Ct. at 1861 .

Accordingly, the courts have insisted that the act of state doctrine precludes review of public acts of the sovereign. See, e.g., Marcos, 806 F.2d at 358 (“[t]hat the acts must be public acts of the sover *1370 eign has been repeatedly affirmed”) (emphasis in original); Filartiga v. Pena-Irala, 630 F.2d 876, 889 (2d Cir.1980) (“we doubt whether action by a state official in violation of the Constitution and laws of the Republic of Paraguay, and wholly unra-tified by that nation’s government, could properly be characterized as an act of state”); Arango v. Guzman Travel Advisors Corp., 621 F.2d 1371, 1380 (5th Cir.1980) (“[t]he act of state doctrine only precludes judicial inquiry into the legality, validity, and propriety of the acts and motivations of foreign sovereigns acting in their governmental roles within their own boundaries”); Jimenez v. Aristeguieta, 311 F.2d 547, 557 (5th Cir.1962) (“judicial authorities cannot review the acts done by a sovereign in his own territory to determine illegality”); Sharon v. Time, Inc., 599 F.Supp. 538, 544 (S.D.N.Y.1984) (“[t]he doctrine is limited to laws, decrees, decisions, seizures, and other officially authorized ‘public acts’ ”); see also Restatement (Second) of Foreign Relations Law § 41 (1965) (doctrine involves refraining “from examining the validity of an act of a foreign state by which that state has exercised its jurisdiction to give effect to its public interest”).

As the dissenting opinion of Judge Nelson quite rightly pointed out, the act of state doctrine cannot bar the plaintiffs’ action at this stage in the proceedings due to the distinction between the official acts and the private conduct of a former head of state. As Judge Nelson stated:

Marcos and his agents no doubt exercised broad power, especially after the imposition of martial law in 1972. But the appropriate inquiry is not to invoke the talismanic label “dictator.” The district court should determine which of the challenged acts were official and which were not. Only by doing so can the court determine the extent to which the act of state doctrine may apply.

818 F.2d at 1494-95 .

At this point, no determinations have been made regarding the capacity in which the Marcoses were acting when the alleged unlawful conduct occurred. Accordingly, the original panel majority erred in finding that, at this stage of the litigation, the act of state doctrine bars adjudication of the bulk of the Philippine government’s pendent claims.

The majority decision here, however, goes much further. It declares that the injunction can be affirmed without regard to the act of state doctrine. In my view, we should instead instruct the district court to consider to what extent, if any, the doctrine applies in the circumstances of this case, and on the basis of the record which has developed more fully during the pend-ency of this interlocutory appeal. Until such consideration can be given, an injunction of this breadth is not appropriate.

This en banc court requested the amicus views of the Department of State on the act of state issues. Its brief concludes that the application of the act of state doctrine at this stage is speculative and the injunction premature. The majority’s reliance upon the position of the United States as support for its holding is wholly misplaced. The government urges that an injunction should not have been entered on the basis of this record. The government amicus curiae brief states in appropriate context as follows:

[T]he record before the district court, which did not include any detailed specification of the factual basis for the bulk of the nonfederal claims, did not make it possible even to analyze the extent to which those claims are properly before the court....

Even assuming jurisdiction, it is not clear at this stage that the district court should, as a prudential matter, undertake to adjudicate the bulk of the nonfederal claims. The court’s capacity to do so fairly and expeditiously and without offending the sensibility of other nations cannot be resolved on this record. Adjudication in this district court may turn out to be barred by considerations of international comity and forum non con-veniens.

The act of state doctrine seems to us to have little or no bearing on this case at *1371 this stage of its development. The doctrine provides, in general, that the validity of specific acts of a foreign sovereign is not subject to challenge in our courts; the circumstances of a particular case may, however, make that general principle inapplicable. On the present record, it is not clear that any act of state — an act of a sovereign within its territorial jurisdiction on matters pertaining to its governmental sovereignty — is involved in this case. Nor is it clear that the case would require an adjudication of the validity of such an act, without which the case could not fairly proceed. Under these circumstances, the bearing, if any, of the act of state doctrine on this case should be determined only after further development of the case on the merits.

Amicus brief at 11-12.

The United States’ views are wholly in accord with those expressed in this dissent and are in conflict with the majority.

CONCLUSION

This injunction is unprecedented in its breadth. To decide the merits of the pendent claims, the district court would have to unravel all of the Marcoses’ financial transactions over a long period of time and over much of the globe. It would take a corps of historians years to accomplish the task. We are not yet told why a single district judge in California should undertake it.

I would vacate the injunction and remand the matter to the district court for further consideration of the appropriate scope of a preliminary injunction.