Appendix — Religious Technology Center v. Wollersheim

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1 sserceu F. SPANIOL, JR. t

IN THE SUPREME COURT OF THE UNITED STATES< '

OCTOBER TERM, 1986 '~-—-- see

RELIGIOUS TECHNOLOGY CENTER, a

California corporation, and CHURCH OF

SCIENTOLOGY INTERNATIONAL, INC., a

California corporation,

Petitioners,

vs.

LARRY WOLLERSHEIM, an individual;

DEDE REISDORF, an individual; RICHARD

OFSHE, an individual; MARGARET SINGER, an

individual; HARVEY HABER, an individual;

CHARLES B. O'REILLY, an individual, LETA

SCHLOSSER, an individual; GREENE,

O'REILLY, BROILLET, PAUL, SIMON,

MCMILLAN, WHEELER and ROSENBERG, a

California corporation; and DOES 1

through 100, inclusive,

Defendants,

JON ZEGEL, an individual; DAVID

Mayo, an individual; CHURCH OF THE NEW

CIVILIZATION (dba ADVANCED ABILITY

CENTER), a California corporation,

Respondents.

APPENDICES TO

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

JOSEPH A. YANNY

HERZIG & YANNY

1900 Avenue of the Stars,

Suite 1520

Los Angeles, CA 90067

(213) 272-8671

Counsel of Record for Petitioners

ANTHONY BISCEGLIE EARLE C. COOLEY

O'TOOLE, BISCEGLIE COOLEY, MANION, MOORE

& WALSH & JONES, P.C.

1130 17th St. N.W. 530 Atlantic Avenue

Suite 400 Boston, MA 92210

Washington, D.C. (617) 542-3700

20036

PROFESSOR G. ROBERT BLAKEY

NOTRE DAME LAW SCHOOL

Notre Dame, Indiana

46556

(219) 239-5717

Attorneys for Petitioners

RELIGIOUS TECHNOLOGY CENTER and

CHURCH OF SCIENTOLOGY INTERNATIONAL

APPENDICES

TABLE OF CONTENTS

APPENDIX A

PRELIMINARY INJUNCTION AND

FURTHER FINDINGS OF THE COURT.. 1

RESPONSE AND ORDER DIRECTED

TO DISTRICT COUR ccs wees evscecee 9

APPENDIX B

0 ae ee a ar 14

APPENDIX C

RACKETEER INFLUENCED AND CORRUPT

ORGANIZATIONS ACT Section 1964. 83

CALIFORNIA TRADE SECRETS ACT

Section 3426.1(c) (G) eccccccecces 86

APPENDIX D

UNITED STATES CONSTITUTION

AMENDMENT 1.....2eeeeeeees 87

AMENDMENT 5....eecceceeees 87

AMENDMENT Beiecveceeancauses 88

APPENDIX A

IN THE UNITED STATES DISTRICT COURT

FOR THE CENTRAL DISTRICT OF CALIFORNIA

RELIGIOUS TECHNOLOGY CENTER;) No: 85-7197

a California corporation, MRP (Bx)

et al., Plaintiffs,

PRELIMINARY

Vv. INJUNCTION

AND FURTHER

FINDINGS OF

THE COURT

LARRY WOLLERSHEIM,

an individual; et al.

Defendants.

ee ee ee ee ee ee ee ee ee ee ee ee ee

The Court having considered the

Complaint, supporting declarations,

exhibits, evidence and points and

authorities submitted in support of

Plaintiffs Request for a Preliminary

Injunction and good cause being shown

that this is a proper case for issuance

of a Preliminary Injunction, the Court

finds that Plaintiff is likely to succeed

1

on the merits or at least that

sufficiently serious questions going to

the merits of the case have been

established to make them a fair ground

for litigation and that unless the

Preliminary Injunction issues

immediately, Plaintiffs will suffer

irreparable harm by way of loss of trade

secrets in connection with its

confidential religious documents.

THEREFORE, IT IS HEREBY ORDERED:

1. That Defendants Mayo, Zegel,

Haber, Reisdorf and the Church of the New

Civilization, dba Advance Ability Center,

(AAC) their agents, servants, employees,

attorneys and those persons in active

concert or participation with them or who

are acting at their request or insistence

who receive actual notice by personal

service or otherwise, and each of then,

pending the final hearing and

determination of this action are

enjoined, pursuant to Rule 65 of the

FRCP:

(a) from using, distributing,

exhibiting or in any manner publicly

revealing any and all originals, copies,

retypings, recastings, variations of or

altered versions of all confidential

religious scriptures known as: 1) OT V,

2) OT VI, 3) OT VII, 4) NOTS, 5) SOLO

NOTS 6) AA V, 7) AA VI, 8) AA VII, or the

contents thereof;

[(b) is crossed out by Court]

(c) and further required to deliver

up all conficential religious scriptures

referred to in paragraph l(a) together

with all computerized memorializations of

the same to the Court by Nov 26, 1985, at

12:00 pm.;

(ad) and are further prohibited from

distributing all religious scriptures

ee

referred to in 1 (a), inside or outside

of the United States; and

(e) and are further enjoined from

using all confidential religious

scriptures and variations thereof

referenced in paragraph 1 (a) above.

2. Any documents referred to in

paragraph 1(a) above which may be filed

with the court or served on parties in

this action shall be filed in a sealed

envelope or container, marked on the

outside with the title of the action and

identification of each document within

and a statement ehekibienin in the

following form:

"CONFIDENTIAL - SUBJECT TO COURT

ORDER

This envelope (or container)

containing the above identified

papers filed by (name of party), is

not to be opened nor the contents

thereof displayed or revealed to

4

ove

iti sees rarenne enw

non-parties to this action except by

COURT ORDER or by agreement of the

parties."

3. ORDERED that Plaintiffs shall

post a bond in a form approved by the

court in the sum of (*) $100,000 as

security for the payment of such costs

and damages as may be incurred or

suffered by any party who is subsequently

found to be wrongfully enjoined or

restrained hereby;

(*) Bomd to be posted by 12:00 noon

11/27/85, MRP

4. That service of this Order, may

be made by Plaintiffs' attorneys or their

duly qualified agents or employees on the

AAC Defendants on or before 3:00 clock

p-m. on November 23, 1985 and that such

service be deemed sufficient service.

Mariana R. Pfaelzer

Judge United States District Court

5

Further Findings of the Court (in

addition to those announced in open court

on November 22, 1985):

1. The Court did not find the

testimony of David Mayo credible on the

issue of how he and the Advanced Ability

Center came to have in their possession

the documents in question in this lawsuit

(i.e. those produced by the Advanced

Ability Center ("the AAC") for inspection

by the Court). The Court does not

believe that anyone, even Mr. Mayo,

could have reproduced from memory

materials substantially identical to

those stolen in Denmark from the Church.

The documents are too voluminous, too

detailed and too nearly identical in

substance and wording to have been

created by Mr. Mayo without reference to

the stolen documents.

2. On the issue of irreparable

harm, the Court is not required to

6

| '

finally decide whether the documents in

question here are sacred scriptures which

were stolen and passed on to the

defendants, or trade secrets. However,

it is very clear that Mr. Mayo and the

AAC are advertising to the public that

the AAC has the same services, procedures

and steps available to the public as does

the Church and that the cost of these

services, procedures and steps is

substantially less than that charged by

the Church. After carefully examining

the documents in question here, the Court

finds the contents thereof to be more

akin to methodology than to doctrine but

reserves judgment on that matter until

the time of trial. However, there seems

to be agreement between the parties that

the adherents of Scientology are required

to receive the teachings of Scientology

in a certain set progression and that

a a ee Oe ee

great care must be taken that no errors

7

iil

|

4

;

i

be made in moving the adherent from one

stage to the next. The Church has urged

that irreparable harm will result from

any inadequately supervised disclosure

and use of the materials at issue

here. Further, from the evidence

presented to the Court, it appears that

all adherents of Scientology are in

substantial agreement on this point. As

stated, the Court makes no finding on the

value or the efficacy of the teachings or

methods of Scientology. Rather, since

this is, in the main, a dispute between

the Scientologists themselves, the Court

must accept, at least preliminarily, that

proper supervision must attend the

disclosure and use of the materials at

issue here. The Court views this as a

stolen document case, and the theft

appears to have been as much for economic

as for doctrinal reasons.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

RELIGIOUS TECHNOLOGY CENTER) No. CV 85-711

and CHURCH OF SCIENTOLOGY ) MRP

INTERNATIONAL, INC.,

CV 75-7197 MRP

Plaintiffs-Appellees,

RESPONSE TO

ORDER

DIRECTED TO

DISTRICT

COURT

LARRY WOLLERSHEIM, et al.,

and

CHURCH OF THE NEW CIVILIZA-

TION, HARVEY HABER, DEDE

REISDORF, JON ZEGEL and

DAVID MAYO,

Defendants~-Appellants.

td

This case involves the possession

and use of allegedly stolen documents

a

which were maintained in confidence prior

to their theft. The contents of these

documents are viewed by all the parties

as sacred scriptures. Whether this is a

proper legal characterization of the

contents of the documents or not, the

contents quite clearly also appear to be

akin to trade secrets. There is no doubt

that the contents have very substantial

economic value and were employed to

produce income for the parties. The

evidence presented at the hearing permits

no doubt of this value.

The Court did not find it necessary

to reach any final decision as to the

proper legal characterization of the

documents. Under either legal

characterization, they appear to have

been stolen and improperly used

thereafter. For these reasons, the grant

of injunctive relief was made on both the

plaintiffs' 18 U.S.C. §.1961-1968

10

oie

("Rico") claim and on plaintiffs' state

law trade secrets claim.

DATED: July 16, 1986

Mariana R. Pfaelzer

United States District Judge

11

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

RELIGIOUS TECHNOLOGY CENTER)

and CHURCH OF SCIENTOLOGY

INTERNATIONAL, INC.,

Plaintiffs-Appellees,

vs.

LARRY WOLLERSHEIM, et al.,

and

CHURCH OF THE NEW CIVILI-

ZATION, HARVEY HABER, DEDE

REISDORF, JON ZEGEL and

DAVID MAYO

Defendants-Appellants.

)

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No: 85-6547

D.C. No. CV

85-7197-MRP

ORDER

Before: PREGERSON, POOLE, and THOMPSON,

Circuit Judges.

The basis of the district court's

grant of injunctive relief in this case

is unclear from the record.

We therefore

remand the matter to the district court

for the limited purpose of «“*vising us

12

whether its order of November 23, 1985

was issued pursuant to:

(1) the plaintiff's 18 U.S.C.

§1964(c) ("civil RICO") claim; or

(2) plaintiff's pendent state

trade secrets law claim; or

(3) both (1) and (2).

We would appreciate it if the

district court would respond to this

request before July 21, 1986.

13

Orr

ee

APPENDIX B

*

%

o

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

RELIGIOUS TECHNOLOGY CENTER) No. 85-6547

and CHURCH OF SCIENTOLOGY D.C. No. CV

INTERNATIONAL, INC., 85-7197-MRP

Plaintiffs-Appellees, OPINION

LARRY WOLLERSHEIM, et al.,

Defendants,

and

CHURCH OF THE NEW

CIVILIZATION, HARVEY HABER,

DEDE REISDORF, JON ZEGEL

and DAVID MAYO,

)

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}

Defendants-Appellants. )

)

)

An Appeal from the United States District

Court for the Central District of

California

Hon. Mariana R. Pfaelzer, Judge Presiding

Argued and Submitted: March 5, 1986

Pasadena, California

14

bi es eo

Before: PREGERSON, POOLE, and THOMPSON,

Circuit Judges. PREGERSON, Circuit Judge.

The Church of the New Civilization

("new church") is a splinter from the

Church of Scientology ("Church"). The

Church alleged that certain scriptural

materials offered by the new church were

copies of materials stolen from the

Church. Recognizing federal jurisdiction

under the Racketeer Influenced and

Corrupt Organization Act ("RICO"), the

district court held that the Church's

materials constituted a trade secret and

granted the Church a preliminary

injunction ordering the new church to

desist from using or disseminating the

disputed materials.

We reverse the district court's

order granting a preliminary injunction.

Pursuant to this court's order, the

district court advised that at issued its

15

preliminary injunction "on both the

plaintiffs' 18 U.S.C. §§1861-1968

("RICO") claim and on plaintiffs' state

law trade secrets claim." We resolve the

appeal, therefore, under both these

theories. We hold that injunctive relief

is not available to a private plaintiff

in a civil RICO action. Additionally, we

hold that the California courts would

conclude that sacred scriptures do not

meet the definition of a trade secret

under California law.

FACTS

The Church of Scientology teaches

that a person's behavior and well-being

are improved by removing "engrams" from

the unconscious mind. Engrams are

wk aa Ri ENTE NSIS Hit AP A a MRE Neo e Moe wie " ved

impressions recorded by the unconscious

mind in times of trauma in this life or

in previous lives. Engrams return in

moments of similar stress to the

' detriment of the person's behavior.

16

Fe a

Removing engrams from the unconscious

permits the person's analytical mind to

function unhindered.

Engrams are located and purged

through "auditing." Auditing uses the

"technology" and "advanced technology" of |

the Church. An "auditor" directs a set

of structured questions and drills

("rundowns") at the Church adherent. The

adherent's resr-1ses are measured on a

"Hubbard E-meter" which reflects changes

in "skin voltage." The auditor's aim is

to detect the "buttons" which indicate a

conscious or subconscious response to the

rundown and enable the adherent to

identify his or her engrams. The

aGherent must proceed through a series of

increasingly sophisticated technologies

of closely structured questions and

answers to reach "a higher spiritual

existence."

The Church asserts that the

17

unsupervised, premature exposure of an

adherent to these materials will produce

a spiritually harmful effect. The

Church keeps the higher level materials

in secure places, and makes the materials

available only to adherents who agree in

writing to maintain their

confidentiality. The Church stated to

the district court that it does "not

safeguard these materials from any

commercial consideration."

Defendant David Mayo was apparently

at one time a close associate of Church

founder L. Ron Hubbard, and assisted in

the preparation of the Church's higher

level materials. 2 Following an

acrimonious dispute between Mayo and

1 The new church, which follows

essentially identical religious precepts

and practices to those of the Church,

does not dispute this assertion.

2 The new church asserts that Mayo

authored the disputed higher level

materials. The Church vigorously

[Footnote Cont'd]

18

cama

other senicr Church officers, Mayo left

the Church and, in July 1983, established

the Church of the New Civilization. The

new church embraces beliefs and provides

counseling and training to its adherents

[Footnote 2 Cont'd)

disputes this, maintaining that Hubbard

_ created all Church materials.

Hubbard apparently assigned the

materials, together with other materials

forming the technology and advanced

technology of "Scientology" and

- “"Dianetics," to the Religious Technology

' Center. See Church of Scientology

nternational v. The m ission of

_ the Church of Scientology, No. 85-7693,

slip op. at 14 (2d Cir. June 23, 1986)

(Hubbard validly assigned his rights in

' all Scientology materials to Religious

Technology Center). Hubbard apparently

intended the Center to be the "trustee of

the scriptures" of Scientology. The

Center makes available the higher level

' materials of the advanced technology to

’ Church offices around the world in the

form of "packs." Apparently the advanced

' technology packs at issue here are only

' available at six Church offices in the

world.

Many lower level materials are

copyrighted, and these copyrights

apparently passed to the Religious

Technology Center in Hubbard's will. The

trademarks "Dianetics" and "Scientology"

are now similarly held by the Center.

' The higher level materials at issue in

’ this suit have neither copyright nor

trademark protection.

19

wnich are essentially identical to those

offered by the Church.

er ee

In December 1983, Robin Scott, and

two others (all of whom are unrelated to

| this action) stole certain higher level

materials from Church offices in

Copenhagen, Denmark. Danish authorities

subsequently convicted Scott of burglary.

While the stolen materials were returned,

' the Church maintains that copies were

made and that the new church later

acquired these copies. The district

court found that the higher level

materials offered to its adherents by the

new church are “essentially identical" to

the stolen Church materials.?

3 The new church states that it

began using its higher level materials in

August 1983, before the Scott theft. It

Claims that Mayo, as the principal

original author of the Church's

materials, wrote the new church's

_ materials from memory. It also asserts

that the new church's materials differ

from the Church's materials because they

reflect “improvements" recently added by

[Footnote Cont'd]

20

The present suit was filed on

November 4, 1985. The Church states

that, in late October 1985, it learned

[Footnote 3 Cont'd]

Mayo. The district court rejected Mayo's

testimony as not credible. "The court

does not believe that anyone, even Mr.

Mayo, could have reproduced from memory

materials substantially identical to

_ those stolen in Denmark from the church.

The documents are too voluminous, too

/ detailed and too nearly identical in

substance and wording to have been

created by Mr. Mayo without reference to

the stolen documents."

The new church asserts that there is

no evidence to link the new church to the

Scott theft. The Church offered evidence

to the district court of international

phone calls by new church members around

the time of the theft, and produced a

handwritten memorandum in which defendant

Harvey Haber, then a new church officer,

referred to a conversation with a person

alleged to be Ron Lawley, a colleague of

Scott. The memo then records what

appears to be a continuing series of

| negotiations involving an offer and

counteroffer. The memo does not refer to

any agreement between the negotiating

parties. The Church's complaint alleges

| that the new church obtained the

| materials from Scott's colleagues in

| February 1984. Because we dissolve the

injunction on jurisdictional grounds, we

express no view whether the new church's

materials are copies of the Church

materials stolen by Scott.

Sai Se as th IAA Dis oO a enced

21

| |

that the new church intended to

disseminate the contents of the materials

stolen by Scott "in a non-confidential

+ setting." Counsel for defendant Larry

' Wollersheim, a former Church adherent who

' has a pending California state tort

action against the Church, had obtained

copies of the higher level materials

during the deposition of defendants

Margaret Singer and Richard Ofshe.

Singer had obtained the materials from

defendant Leta Schlosser. Schlosser

testified that she had received the

} materials from an adherent of the new

church. On November 1, 1985, the Los

Angeles Superior Court hearing

Wollersheim's suit against the Church

refused a Church request to seal its

records including the Church's higher

_ aS. Te eee

level materials. Three days later, the

Church brought this suit in federal court

against the new church, its principal

22

officers, Wollersheim, his counsel, and

those allegedly involved in passing the

materials to Wollersheim's counsel. The

suit based jursidiction on the RICO claim

and stated six pendent California state

law claims including misappropriation of

trade secrets.

The district court first granted a

temporary restraining order preventing

the state court plaintiff and the new

church from disclosing the confidential

materials. The court then conducted an

evidentiary hearing lasting two days,

and, on November 23, 1985, granted the

Church the prelirinary injunction that

prompted this appeal.

The injunction prohibited the new

church, its officers "and those persons

in active concert or participation with

them or who are acting at their request

or insistence .. . from using,

distributing, exhibiting or in any way

23

publicly revealing" any version of

certain enumerated higher level Church

materials. The enjoined parties were

required to return all such material in

their possession to the court under seal.

The court also required the Church to

post a bond of $100,000.

In supplementary findings of fact,

the district court stated that it "views

this as a stolen document case." The

court recognized that both parties

accepted that adherents must be exposed

to the materials in strict progression.

’ On this basis, the court concluded that

Church adherents may suffer irreparable

harm from the unsupervised dissemination

of the materials, thus justifying

preliminary injunctive relief. In

additional comments from the bench, the

ae er

district court held the materials to

constitute a misappropriated trade secret

i nn i ani

but noted that the Church was not arguing

24

commercial disadvantage as an injury.

The court also recognized its

jurisdiction under RICO "based on the

idea that the documents were stolen and

that they found their way into their

present use."

The new church filed a timely

appeal. We denied the new church a stay

pending appeal, but heard the appeal on

an expedited schedule. We have

jurisdiction under 28 U.S.C.

§1292(a) (1).

| STANDARD OF REVIEW

Determining whether a private remedy

should be afforded for violation of

duties mandated by a statute that does

not expressly create a suitable private

remedy causes the concepts of "standing,"

"subject matter jurisdiction," and

“implication of a private cause of

action" to “overlap .. . even more than

they ordinarily would. atio ailroad

25

Passengers, 414 U.S. 453, 455-56 (1974).

The issue is best described as falling

within the generic problem of "federal

jurisdiction" without attempting to

characterize it with greater specificity.

See generally 13 C. Wright, A. Miller,

and E. Cooper, Federal Practice and

Procedure §3531.6 at 494-506 (2d ed.

1984). We are obligated to raise a

jurisdictional issue sua sponte as a

threshold question before considering a

matter on its merits. See Solano v.

Beilby. 761 F.2d 1369, 1370 (9th Cir.

1985); Othman v. Globe Indemnity Co.,

759 F.2d 1458, 1462-63 (9th Cir. 1985).

Interpretation of the statute under which

an injunction has been issued is a

question of law, which we review de novo.

California ex rel. Van de Kamp v. Tahoe

Regional Planning Agency, 766 F.2d 1308,

1312 (9th Cir. 1985). We review matters

of state law de novo. In re McLinn, 739

26

aa

F.2d 1395, 1403 (9th Cir. 1984) (en

banc).

I. s ve Re vai oa

The Church's basis for federal

jurisdiction is 18 U.S.C. §1964 ("civil

RICO") .4 Civil RICO permits both the

government and private plaintiffs to sue

for violations of substantive provisions

of the Racketeer Influenced and Corrupt

Organizations Act, which formed Title Ix

of the Organized Crime Control Act of

1970, Pub. L. 91-452, 84 Stat. 941

4 The Church's complaint alleges

federal jurisdiction under RICO, 18 U.S.C.

§1964. The complaint also alleges

jurisdiction under 28 U.S.C. §§1332 and

1339, covering diversity, patent, trademark,

and copyright matters, and pendent

jurisdiction over several state claims. The

parties are not diverse, both being

California corporations. The complaint makes

no substantive allegations of patent,

copyright, or trademark infringement. Thus,

RICO provides the only basis for federal

court jurisdiction over the Church's

complaint.

(1970), as amended, codified as 18 U.S.C.

§§1961-1968. Neither party questioned

before the district court, nor in briefs

before this court, whether injunctive

relief is available under civil RICO. We

ordered the parties to submit

supplemental briefs on this issue.

Civil RICO is directed at

"racketeering activity," which it defines

as any act "chargeable" under several

generically described state criminal

laws; any act "indictable" under numerous

specific federal criminal provisions,

including mail and wire fraud; and any

"offense" involving narcotics or

bankruptcy or securities fraud

"punishable" under federal law. 18

U.S.C. §1961(1). Civil RICO prohibits

the use of income derived from a "pattern

of racketeering activity" in relation to

an "enterprise" engaged in or affecting

interstate commerce. 18 U.S.C. §1962

28

(a). A "pattern" of racketeering

activity "requires at least two acts of

racketeering activity." 18 U.S.C.

§1961(5). Broad criminal penalties are

provided for RICO violations. See 18

U.S.C. §1963. In addition, Congress

provided for a civil enforcement scheme,

including private trebl« damages actions.

See 18 U.S.C. §1964.

Despite repeated efforts by courts

to limit the reach of civil RICO private

damages actions, it is clear that suits

alleging the requisite predicate acts are

entitled to federal court jurisdiction,

even if the acts are of a common-garden

variety far removed from what is normally

regarded as “organized crime" activity.

See Sedima, S.Ps:R.L. v. Imrex Co., 105

S. Ct. 3275, 3284-85 (1985) (civil RICO

suit may be based on commercial contract

dispute involving two allegations of mail

and wire fraud; civil RICO jurisdiction

29

a ee ir Re le et Ae Ta aS “cs ee

requires no prior criminal convictions

for predicate acts nor any showing of

"racketeering injury.") The Church's

complaint alleges that the higher level

materials are the Church's trade secret

which the new church misappropriated

through several acts of mail or wire

fraud constituting a pattern of

racketeering activity.> The complaint

characterizes the contacts between the

new church and Wollersheim and his

counsel as a conspiracy within RICO's

definition of "enterprise." The Church's

complaint also includes a claim for money

damages under RICO. Thus, the Church

5 The new church characterizes the

predicate acts as the Copenhagen burglary and

the receipt of the stolen materials. It

argues that since the theft was not punishable

in the United States, it cannot be a predicate

act, and thus the Church has not demonstrated

a pattern of racketeering. Even if the Danish

theft falls outside RICO, the Church alleges

sufficient telephone and mail contacts

between the new church and Scott's group to

satisfy the pattern requirement through

several predicate acts of mail and wire

fraud.

30

apparently satisfies the federal

jurisdictional requirements for a civil

RICO damages action. ®

B.

No appellate court has expressly

6 While the complaint states a

claim for money damages, at the hearing

on the motion for the preliminary

injunction, the Church denied that it had

suffered financially from the new

church's behavior. Rather, the Church

characterized its injury as the harm

caused to its adherents from premature,

unsupervised exposure to the higher level

materials. It is not clear whether such

an injury is sufficient to allow the

Church to press even a civil RICO damages

action.

In Sedima, the Supreme Court stated

that "the plaintiff only has standing if,

and can only recover to the extent that,

he has been injured in his business or

property by the conduct constituting the

violation .. . . Where the plaintiff

alleges each element of the violation,

the compensable injury necessarily is the

harm caused by predicate acts

sufficiently related to constitute a

pattern, for the essence of the violation

is the commission of those acts in

connection with the conduct of an

enterprise." 105 S. Ct. at 3285-86.

The district court found such a "nexus"

between the Scott theft and the new

church. The court did not expressly find

a further nexus between the new church's

{Footnote Cont'd)

31

determined whether civil RICO permits a

private party to secure injunctive

relief. The Fourth Circuit has implied

that injunctive relief is not available

to a private civil RICO plaintiff, but

reserved ultimate judgment on the matter.

See Dan River, Inc. v. Icahn, 701 F.2d

[Footnote 6 Cont'd]

actions via the predicate acts and the

injury to the Church adherents. Sedima

apparently requires such a nexus for

civil RICO damages "standing."

Assuming that this nexus can be

established, the injury alleged by the

Church may not be compensable under civil

RICO. In a footnote in Sedima, the Court

explains that civil RICO damages

"include, but are not limited to...

competitive injury." 105 S. Ct. at 3286

n.15. In disagreeing with the dissent's

attempt to limit civil RICO standing,

Sedima apparently embraces the notion

that "harm proximately caused by the

forbidden conduct" is compensable. Id.

The court gives no indication whether

non-financial proximate harm, such as

the emotional-type injury alleged by the

Church, is compensable under civil RICO.

Since we are reviewing only the

injunctive relief granted to the Church,

we need not decide this issue. However,

if the action proceeds to trial on the

Church's damages claim, the district

court will then be obliged to confront

the problen.

32

|

“Hy

278, 290 (4th Cir. 1983) (“While we do

not undertake to resolve the question. .

{ijn light of the most recent

indications from the Supreme Court, Dan

River's action for equitable relief under

RICO might well fail to state a claim.").

In dictum in a moot appeal in Trane Co.

v. O'Connor Securities, 718 F.2d 26, 28

(2d Cir. 1983) the Second Circuit

stated: "We have the same [serious]

doubts [as courts such as the Fourth

Circuit in Dan River] as to the propriety

of private party injunctive relief

- « « «" More recently, in Sedima,

S.P.R.L. v. Imrex Co., 741 F.2d 482,

489 n.20 (2d Cir. 1984), rev'd, 105 S.

Ct. 3275 (1985), the Second Circuit

observed that "[iJjt thus seems altogether

likely that §1964(c) as it now stands

was not intended to provide private

parties injunctive relief." However, the

precedential value of this conclusion,

33

itself somewhat equivocal, is thrown into

considerable doubt by the Supreme Court's

total rejection of the conclusions drawn

by the Second Circuit from its historical

analysis of the RICO statute. See 105

S. Ct. 3275.

In contrast, the Eighth Circuit,

expressly without resolving the issue,

has hinted that injunctive relief may be

available either under civil RICO or

under a court's general equitable powers.

See Bennett v. Berg, 685 F.2d 1053,

1064 (8th Cir. 1982) (citing a law

review article which supports the

availability of injunctive relief), aff'd

on rehearing, 710 F.2d 1361 (8th Cir.)

(en banc), cert. denied, 464 U.S. 1008

(1983).’ See also USACO Coal Co. v.

7 The Eighth Circuit panel cited

Blakey and Gettings, Racketeer Influenced

n Orga tions CO): Basic

Concepts - Criminal and Civil Remedies,

53 Temple L.Q. 1014, 1038 nn. 132-33

(1980) (statutory language provides for

equitable relief). 685 F.2d at 1064.

34

Carbomin Energy, Inc., 689 F.2d 94,

97-98 (6th Cir. 1982) (affirming grant

of injunctive relief to private plaintiff

on pendent state claims where RICO

provided federal jurisdiction base).

A similar disunity of views exists

among those district courts that have

confronted the issue. The only three

published decisions explicitly to hold

that injunctive relief is not available

to a civil RICO plaintiff are all from

the Northern District of Illinois. See

Miller v. Affiliated Financial Corp.,

600 F. Supp. 987, 994 (N.D. Ill.

1984); DeMent v. Abbott Capital Corp.,

589 F. Supp. 1378, 1382-83 (N.D. Ill.

1984); and Kaushal v. State Bank of

India, 556 F. Supp. 576, 581-84 (N.D.

Ill. 1983). See also Ashland Oil, Inc.

v. Gleave, 540 F. Supp. 81, 85-86

(W.D.N.Y. 1982) (statutory attachment

not available to private civil RICO

35

plaintiff).

Two district courts have held that

injunctive relief is available to a

private civil RICO plaintiff. See Aetna

Casualty and Surety Co. v. Liebowitz,

570 F. Supp. 908, 910-11 (E.D.N.Y.

1983), aff'd on other grounds. 730 F.2d

905 (2d Cir. 1984); and Chambers

Development Co. v. Browning-Ferris

Industries, 590 F. Supp. 1528, 1540-41

(W.D. Pa. 1984). Additionally, several

district courts have simply assumed the

availability of injunctive relief to

civil RICO plaintiffs. ee USACO Coal

Co. v. Carbomin Energy, Inc., 539 F.

Supp. 807, 814-16 (W.D. Ky.), aff'd on

other grounds. 689 F.2d 94 (6th Cir.

1982); Marshall Field & Co. v. Icahn,

537 F. Supp. 413, 420 (S.D.N.Y. 1982);

Vietnamese Fishermen's Association v.

Knights of the Ku Klux Klan, 518 F.

Supp. 993, 1014 (S.D. Tex. 1981).

36

Still other district courts have

raised, but managed to avoid deciding the

issue. See McLendon v. Continental

Group. Inc., 602 F. Supp. 1492,

1518-19 (D.N.J. 1985) ("The law [in this

area] is in great flux."); Kaufman v.

Chase Manhattan Bank, N.A., 581 F. Supp.

350, 359 (S.D.N.Y. 1984).

Thus, we must decide essentially as

a matter of first impression for an

appellate court whether injunctive relief

may be granted to a private plaintiff

under civil RICO. When interpreting a

statute, the plain meaning of the words

used is controlling absent "a clearly

expressed legislative intent to the

contrary." United States v. Turkette,

452 U.S. 576, 580 (1981) (quoting)

Consumer duct Safet ommission v.

GTE Sylvania, Inc., 447 U.S. 102, 108

(1980))? Powell v. Tucson Air Museum

Foundation of Pima County, 771 F.2d

37

1309, 1311 (9th Cir. 1985). When the

language of a statute is ambiguous, we

construe the statute in the light of

Congress's purpose in enacting it as

expressed in the legislative history.

See Train v. Colorado Public Interest

Research Group, Inc., 426 U.S. 1, 9-10

(1976).

Cc.

Section 1964 has four parts. §& Part

8 18 U.S.C. §1964 states:

(a) The district courts of the

United States shall have jurisdiction to

prevent and restrain violations of

section 1962 of this chapter by issuing

appropriate orders, including, but not

limited to: ordering any person to divest

himself of any interest, direct or

indirect, in any enterprise; imposing

reasonable restrictions on the future

activities or investments of any person,

including, but not limited to,

prohibiting any person from engaging in

the same type of endeavor as the

enterprise engaged in, the activities of

which affect interstate or foreign

commerce; or ordering dissolution or

reorganization of any enterprise, making

due provision for the rights of innocent

persons.

(b) The Attorney General may

institute proceedings under this section.

In any action brought by the United

States under this section, the court

38

(c) was added late in RICO's legislative

passed by the Senate included only the

present parts (a), (b), and (da). See

infra pages 19-20; Sedima, 105 S. Ct.

at 3280-81.

Part (a) is a broad grant of

equitable jurisdiction to the federal

courts. Part (b) permits the government

to bring actions for equitable relief.

[Footnote 8 Cont'd]

shall proceed as soon as practicable to

the hearing and determination thereof.

Pending final determination thereof, the

court may at any time enter such

restraining orders or prohibitions, or

take such other actions, including the

acceptance of satisfactory performance

bonds, as it shall deem proper.

(c) 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 the cost of the suit, including a

reasonable attorney's fee.

(a) A final judgment or decree

rendered in favor of the United States in

any criminal proceeding brought by the

United States under this chapter shall

estop the defendant from denying the

essential allegations of the criminal

offense in any subsequent civil

proceeding brought by the United States.

39

Part (d) grants collateral estoppel

effect to a criminal conviction in a

subsequent civil action by the

government. Part (c), the private civil

RICO provision, states that a private

plaintiff may recover treble damages,

costs and attorney's fees. In contrast

to part (b), there is no express

authority to private plaintiffs to seek

the equitable relief available under part

(a).

Admittedly, part (c) also does not

expressly limit private plaintiffs "only"

to the enumerated remedies, nor does part

(a) expressly limit the availability of

the illustrative equitable remedies to

the government. See Strafer, Massumi,

and Skolnick, Civ co _ in the blic

nterest: " 's ," 19 Am.

Crim. L. Rev. 655, 710 (1982).

However, the inclusion of a single

statutory reference to private

40

ee

plaintiffs, and the identification of a

damages and fees remedy for such

plaintiffs in part (c), logically carries

the negative implication that no other

remedy was intended to be conferred on

private plaintiffs.

As the Supreme Court has emphasized,

Congress expressly admonished that RICO

"be liberally construed to effectuate its

remedial purposes," and that " [t)he

statute's ‘remedial purposes' are nowhere

more evident than in the provision of a

private action for those injured by

racketeering activity." Sedima, 105 S.

Ct. at 3286; see also, Turkette, 452

U.S. at 587. In this spirit, those

sympathetic to a private equitable remedy

under civil RICO have suggested two other

readings of the statute. The Church

urges us to adopt either or both of these

constructions of section 1964.

First, the Church suggests that it

41

is significant that the treble damage

Clause of section 1964(c) is preceded by

"and" rather than "to." Thus, it is

suggested, all appropriate relief,

including the equitable remedies of part

(a), are available to private plaintiffs

because there is no clear statutory

limitation. Moreover, the Church argues,

there is no good reason for Congress

denying victims equitable relief while

permitting them damages relief. See

Blakey, The RICO Civil Fraud Action in

Context: Reflections on Bennett v. Berg,

58 Notre Dame L. Rev. 237, 332 (1982);

Blakey and Gettings, Racketeer Influenced

and Corrupt Organizations (RICO): Basic

Concepts - Criminal and Civil Remedies,

53 Temple L.Q. 1014, 1038 n.133 (1980).

No court has accepted this reading.

Indeed, two courts have been vehement in

their rejection of this analysis. See

Sedima, 741 F.2d at 489 n.20 ("rather

42

remarkable argument"); Kaushal, 556 F.

Supp. at 582 ("bizarre and wholly

unconvincing as a matter of plain English

and the normal use of language."). See

also infra note ll.

Second, the Church asserts that the

variation in language used in parts (a)

and (b) of section 1964 indicate that

Congress did not intend to limit the

inherent powers of federal courts to

grant equitable relief in suitable cases.

The argument is made that because part

(b) grants the Attorney General the

express power to seek temporary

equitable relief, other parties are

permitted to seek permanent equitable

relief. Moreover, the Church contends,

if the availability of equitable relief

under section 1964 were determined solely

by part (b), part (a) would become

superfluous. See J. Fricano, Civil

o-- s -

43

Considerations, in 1 Current Problems in

Federal Civil Practice 827-28 (PLI,

1983); Chambers, 590 F. Supp. at 1540.

The Church develops this textual

argument with particular vigor. It

argues that part (a), alone of the

subparts of section 1964, is general in

theme and apparently unrestricted in

application. Its plain words place no

limit on the class or category of

litigants who might avail themselves of

the remedies it makes available under

RICO. While the other subparts of

section 1964 provide for specific relief

to specific parties, the Church observes

that they give no indication that part

(a) is anything other than a simple and

broad grant of jurisdiction. See

Belgard, Private Civil RICO Plaintiffs

Are Entitled to Equitable Relief under

§1964(a), 2 RICO Law Rep. 537, 537-38

(1985). The Church reads section 1964(b)

a4

as permission for the government to

secure injunctive relief without

satisfying the traditional equity tests

of irreparable harm and inadequacy of

alternative remedy at law. See United

States v. Cappetto, 502 F.2d 1351,

1358-59 (7th Cir. 1974), cert. denied,

420 U.S. 925 (1975). Thus, the Church

asserts, part (b) does not restrict RICO

injunctive relief to the government, but

merely sets aside for civil RICO cases

the traditional rule that only a victim

may enjoin a crime. See In re Debs, 158

U.S. 564, 582-84 (1895). Thus, the

Church would have us read part (a) as

sufficient for a federal court to grant

an injunction to a private RICO plaintiff

even if part (c) had never been added to

section 1964.

This latter construction of section

1964 is certainly a plausible reading of

the statutory language. However, our

45

review of Congress' intent in enacting

civil RICO convinces us that the Church

is incorrect. The legislative history

mandates us to hold that injunctive

relief is not available to a private

party in a civil RICO action. The

Supreme Court's apparent endorsement of

the conclusion that we reach here

reinforces this reading of the statute.

See Sedima, 105 S. Ct. at 3280 ("The

civil remedies in the bill passed by the

Senate, S. 30, were limited to

injunctive actions by the United States

and became §§ 1964(a), (b), and (d).").

D

RICO has a long legislative lineage.

The Organized Crime Control Act of 1970

was derived from S. 30, 9lst Cong., lst

Sess., 115 Cong. Rec. 769 (1969).

Title IX of the Act, RICO, was added to

S. 30 by the Senate. The substance of

Title IX was contained in an earlier

46

Senate bill, S. 1861, 91st Cong., lst

Sess., 115 Cong. Rec. 9, 568-71 (1969).

See also 116 Cong. Rec. 591 (remarks of

Sen. McClellan). Neither S. 1861 nor

S. 30 contained a private civil cause of

action. An earlier predecessor of RICO,

S. 1623, 91st Cong. lst Sess., 115

Cong. Rec. 6, 995-96 (1969), did contain

a private civil cause of action based

Closely on the Clayton Act, providing

explicitly for injunctive relief as well

as for treble damages. S. 1623 §§ 3(c),

4(a). That bill was itself patterned on

two earlier Senate bills, S. 2048 and S.

2049, 90th Cong. lst Sess. (1967), both

of which provided for private civil

action similar to that in S. 1623. See

generally, Belgard, 2 RICO Law Rep. at

538 (quoting relevant provisions of these

bills).

The Senate Subcommittee on Criminal

Laws and Procedures of the Senate

47

Committee on the Judiciary replaced Ss.

1623 with S. 1861 apparently in part

because S. 1861 provided broader

governmental civil relief, such as the

investigative demand, and was in other

ways a more comprehensive bill. See

Hearings on Measures Relating to

Organized Crime Before the Subcommittee

on Criminal Laws and Procedures of the

Senate Committee on the Judiciary, 91st

Cong., lst Sess. 387-88, 407-08 (1969).

There were also a number of House

predecessors to RICO which paralleled S.

30. See H.R. 19215, 91st Cong. 2d

Sess. 116 Cong. Rec. 31, 914 (1970).

H.R. 19215 included a more complete

private cause of action section than that

eventually inserted by the House, and

explicitly allowed for private party

injunctive relief.

While the Act for the most part

originated in the Senate, the civil RICO

48

provision permitting suit by private

persons, 18 U.S.C. § 1964(c), originated

in the House. See Sedima, 105 S. Ct.

at 3280. During hearings on S. 30

before the House Judiciary Committee,

Representative Steiger proposed the

addition of a Private treble damages action

"similar to the private damage remedy found

in the antitrust laws ... . [T]hose who

have been wronged by organized crime should

‘at least be given access to a legal remedy.

In addition, the availability of such a

remedy would enhance the effectiveness of

title IxX's prohibitions." Organized Crime

Control: Hearings on S. 30, and related

oposals ubc t oOo. 5 of the

House Committee on the Judiciary, 91st Cong.,

2d Sess. 520 (1970) ("House Hearings"). The

American Bar Association also proposed an

amendment "based upon the concept of Section

4 of the Clayton Act." Id. at 543-44, 548,

559; see 116 Cong. Rec. 25,190-91 (1970);

49

Sedima, 105 S. Ct. at 3280-81.

Significantly, Representative

Steiger's proposal, like those in the

rejected Senate bills, provided

explicitly for a private injunctive

remedy under section 1964(a). use

Hearings at 521 (subsection (c) of

proposal of Rep. Steiger). The

legislative history is silent as to why

the subcommittee rejected this language

and explicitly created only the private

action for treble damages which was

eventually enacted as section 1964(c).

See 116 Cong. Rec. 25,190 (remarks of

Sen. McClellan welcoming House addition

of private treble damages remedy). The

adopted statutory language was drawn from

H.R. 19586, 91st Cong., 2d Sess. 56

(1970), one of the two House bills that

paralleled S. 30. In choosing H.R.

19586 over H.R. 19215, the House

apparently explicitly rejected a private

50

injunctive relief provision.

E.

The Church's argument rests on the

assertion that the private treble damages

remedy provided by section 1964(c) is

additional to the equitable RICO remedies

made available to private plaintiffs by

section 1964(a). The legislative history

offers some support for this thesis.

Introducing the bill during House debate,

the House sponsor, Representative Poff,

stated:

Courts are given broad powers

under the title to proceed civilly,

using essentially their equitable

Powers, to reform corrupted

organizations, for example, by

prohibiting the racketeers to

participate any longer in the

enterprise, by ordering

divestitures, and even by ordering

dissolution or reorganization of the

enterprise. In addition, at the

suggestion of the gentleman from

Arizona (Mr. Steiger) and also the

American Bar Association and others,

the committee has provided that

private persons injured by reason of

a violation of the title may recover

treble damages in Federal

courts--another example of the

51

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antitrust remedy being adapted for

use against organized criminality.

116 Cong. Rec. 35,295 (1970) (emphasis

added). Earlier, during Senate floor

debate on the bill before the addition of

the present section 1964(c), Senator

McClellan, the bill's principal Senate

sponsor, described the value of civil

RICO thus:

Since enactment of the Sherman

Antitrust Act in 1890, the courts

have used several equitable remedies

- « « to implement the language of

15 U.S.C. sections 1 and 2. I

believe, and numerous others have

expressed a similar belief, that

these equitable devices can prove

effective in cleaning up

organizations corrupted by the

forces of organized crime.

id. at 592.

However, two separate episodes from

the history of civil RICO's legislative

passage convince us that the conclusions

the Church would have us draw from these

congressional statements do not reflect

Congress' intent in section 1964. First,

52

the House rejected an amendment,

described as "an additional civil

remedy," which would expressly permit

private parties to sue for injunctive

relief under section 1964(a). Second, in

the very next year after RICO's

enactment, Congress refused to enact a

bill to amend section 1964 and give

private plaintiffs injunctive relief.

During debate on the House floor,

Representative Steiger offered an

amendment that would have allowed private

injunctive actions, fixed a statute of

limitations, and clarified venue and

process requirements. 116 Cong. Rec.

at 35,346; see also id. at

35,227-28.9 The proposal was greeted

9 Representative Steiger's

amendment was very specific. The present

section 1964(c), the private treble

damages remedy, which the House had

already agreed to add to the bill, and

the present part (d), concerning

collateral estoppel, would become parts

(e) and (g) respectively of section 1964.

[Footnote Cont'd]

53

with some hostility because it had not

been reviewed in committee, and

Representative Steiger withdrew it

without a vote being taken. Id. at

35,346-47. Representative Steiger's

[Footnote 9 Cont'd]

116 Cong. Rec. at 35,346. The new part

(c) proposed by Representative Steiger

read:

(c) Any person may institute

proceedings under subsection (a) of

this section. In any proceeding

brought by any person under

subsection (a) of this section,

relief shall be granted in

conformity with the principles which

govern the granting of injunctive

relief from threatened loss or

damages in other cases. Upon the

execution of proper bond against

damages from an injunction

improvidently granted and a showing

of immediate dancer of irreparable

loss or damage, a preliminary

injunction may be issued in any

action before a determination

thereof upon its merits.

Id. A new part (d) would permit

the government to sue for damages;

proposed part (f) would allow government

intervention in Private suits of "general

public importance"; and proposed part (h)

provided for a five year statute of

limitations tollable during the pendency

of a government or private suit on a

similar matter. Id

54

withdrawal was in response to remarks by

the bill's House sponsor. Representative

Poff stated:

Mr. Chairman, I want to pay

special tribute to the gentleman in

the well for having raised the issue

which his amendment defines. It

so a a Vv

remedy which I think properly might

be suited to the special mechanism

fashioned in title IX. Indeed, I am

an author of an almost identical

amendment. It has its counterpart

almost in haec verba in the

antitrust statutes, and yet I

suggest to the gentleman that

prudence would dictate that the

Judiciary Committee very carefully

explore the potential consequences

that this new remedy might have in

all the ramifications which this

legislation contains and for that

reason, I would hope that the

gentleman might agree to ask

unanimous consent to withdraw his

amendment from consideration with

the understanding that it might

properly be considered by the

Judiciary Committee when the

Congress reconvenes following the

elections or some other appropriate

time.

Id. at 35,346 (emphasis added). The

House then passed the bill, with the

treble damages provision in the form

recommended by the Committee. Id. at

55

35,363-64. The Senate did not seek a

conference and adopted the bill as

amended in the House. Id. at 36,296.

In the next term of the Senate, the

same amendment as that offered by

Representative Steiger on the House floor

during debate on the RICO bill, see supra

note 9, was proposed as a bill to amend

the now enacted legislation. S. 16,

92nd Cong., lst Sess. (1971). See

Victims of Crime, Hearing before the

Subcommittee on Criminal Laws and

Procedures of the Senate Committee of the

Judiciary, 92nd Cong., lst Sess. 3

(1972). The new bill “would expand the

available civil remedies" since " [nlow

on e United States can institute

injunctive proceedings." Id. at 158.

(Statement of Richard Velde, Associate

Administrator, Law Enforcement Assistance

Administration) (emphasis added) .2°

10 While post- [Footnote Cont'd]

56

The Senate Judiciary Committee

reported favorably on S. 16, 92d Cong.,

2d Sess., 118 Cong. Rec. 29,368-69

(1972). The committee report noted that

RICO as enacted, provided for private

treble damages actions, and that the new

bill would supplement this and

"authorize private injunctive relief

from racketeering activity." S. Rep.

No. 1070, 92d Cong., 2d Sess. 10 (1972)

(emphasis added). During Senate floor

debates on S. 16, Senator McClellan

observed that the bill would add to

existing private RICO remedies by

"authoriz[ing]) ivate injunctive relief

from racketeering activity." 118 Cong.

Rec. 29,370 (1972). See also id.

(remarks of Senator Hruska). Although

the Senate passed S. 16, the bill never

[Footnote 10 Cont'd]

enactment legislative history is not by

any means conclusive, it cannot merely be

ignored, North Haven Board of Education

v. Bell, 456 U.S. 512, 530-35 (1982).

57

passed the House, and its substance never

became law.

The clear message from the

legislative history is that, in

considering civil RICO, Congress was

repeatedly presented with the opportunity

expressly to include a provision

permitting private plaintiffs to secure

injunctive relief. On each occasion,

Congress rejected the addition of any

such provision.

This clear message is reinforced by

recalling that civil RICO was intended to

provide a private cause of action modeled

on the analogous provision of the

antitrust laws. See 116 Cong. Rec. 592

(remarks of Sen. McClellan); id. at 602

(remarks of Sen. Hruska) (RICO's civil

provisions employ "time-tested antitrust

58

remedies") S. Rep. No. 617, 80-82,

125, 160 (1969); 116 Cong. Rec. 35,295

(Private treble damages provision is

"another example of the antitrust remedy

being adapted for use against organized

criminality.") (remarks of Rep. Poff);

House Hearings at 543-44 (testimony of

ABA President Wright); Sedima, 105 S.

Ct. at 3282 ("The clearest current in

[the legislative] history is the reliance

on the Clayton Act model... .").

The language of the treble damages

antitrust remedy, section four of the

Clayton Act, 15 U.S.C. §15(a), is

similar to that of civil RIco.11 The

11 15 U.S.C. §15(a) provides in

pertinent part:

[A]ny person who shall be injured in his

business or Property by reason of

anything forbidden in the antitrust laws

may sue therefor in any district court of

the United States in the district in

which the defendant resides or is found

or has an agent, without respect to the

[Footnote Cont'd]

59

Supreme Court has explicitly held that

the language of section 4 precludes

private injunctive relief. See Paine

Lumber Co. v. Neal, 244 U.S. 459, 471

(1917). Cf. Minnesota v. Northern

Securities Co., 194 U.S. 48, 70-71

(1904) (no private right to injunctive

relief under section 4 of Sherman Act).

Private antitrust plaintiffs can,

however, secure injunctive relief only by

virtue of a separate section of the

[Footnote 11 Cont'd]

amount in controversy, and shall recover

threefold the damages by him sustained,

and the cost of suit, including a

reasonable attorney's fee." (Emphasis

added. )

It should be noted that this

provision includes the word "and" before

stating the remedy. It was the inclusion

of this word in civil RICO that prompted

the Church and some commentators to

conclude that civil RICO permitted

private injunctive relief. See supra

page 18. The fact that the Clayton Act

treble damages provision does not extend

to private injunctive relief, even with

the "and" included, surely undermines the

argument that its inclusion in section

1964(c) indicates that injunctive relief

is not precluded by *hat section.

60

Clayton Act which expressly provides for

private equitable actions. See

Section 16 codified at 15 U.S.C.

§26.42 RICO contains no parallel

provision to section 16's grant of a

private right to injunctive relief.

Presumably, had it desired to do so,

Congress could have completed the analogy

between civil RICO and the antitrust laws

by including in civil RICO a private

equitable relief remedy like section

sixteen of the Clayton Act. That it did

not do so, despite the repeated efforts

of several members of Congress, strongly

suggests that Congress did not intend to

give private civil RICO plaintiffs access

12 15 U.S.C. §26 provides in

pertinent part: Any person, firn,

corporation, or association shall be

entitled to sue for and have injunctive

relief, in any court of the United States

having jurisdiction over the parties,

against threatened loss or damage by a

violation of the antitrust laws, including

sections 13, 14, 18, and 19 of this title,

[Footnote Cont'd]

61

to equitable remedies.1?

G.

Further support for the conclusion

that injunctive relief is not available

under civil RICO is found in the Supreme

Court doctrine that sharply limits the

implication of causes of action or

remedies not expressly provided by

statute.

[Footnote 12 Cont'd]

when and under the same conditions and

principles as injunctive relief against

threatened conduct that will cause loss

or damage is granted by courts of equity,

under the rules governing such

proceedings, and upon the execution of

proper bond against damages for an

injunction improvidently granted and a

showing that the danger of irreparable

loss or damage is immdiate, a preliminary

injunction may issue. A proviso to this

section prevents an equitable suit

against common carrier.

13 The Church argues that comparisons

with section 16 of the Clayton Act are

inappropriate because the Clayton Act

also includes a provision, section 15, 15

U.S.C. §25, expressly limiting

injunctive relief to the government and

thus the statutes--RICO and the Clayton

Act--are not similar. See Belgard, 2

RICO Law Rep. at 541, n.13. See also

{Footnote Cont'd]

that injunctive relief is not available

under civil RICO is found in the Supreme

Court doctrine that sharply limits the

implication of causes of action or

remedies not expressly provided by

statute.

[I]t is an elemental canon of

[Footnote 13 Cont'd]

Fricano, Civil RICO at 828-29. This

argument is to no avail. The legislative

history shows that Congress recognized

and accepted the validity of the

comparison during the passage of RICO.

In his remarks on the House floor

which prompted Representative Steiger to

withdraw his late amendment specifically

providing injunctive relief to a private

RICO plaintiff, Representative Poff

stated that Representative Steiger's

amendment “has its counterpart almost in

haec verba in the antitrust statutes."

116 Cong. Rec. 35,346. See supra

page 25. Representative Poff must have

been comparing Representative Steiger's

abortive private injunctive relief

provision to section 16 of the Clayton

Act, the private antitrust injunctive

relief provision. Thus, Congress was

well aware that civil RICO was not

symmetrical with the antitrust laws with

respect to private injunctive relief.

Congress' rejection cf Representative

Steiger's amendment is additional proof

that Congress deliberately and knowingly

excluded private injunctive relief from

the arsenal of remedies created by RICO.

63

statutory construction that where a

statute expressly provides a

particular remedy or remedies, a

court must be chary of reading

others into it.

Transamerica Mortgage Advisors, Inc. v.

Lewis, 444 U.S. 11, 19 (1979); see also

Touche Ross & Co. v. Redington, 442 U.S.

560, 568 (1979).

Where a statute provides an

elaborate enforcement scheme that confers

authority to sue on both government

officials and private citizens, "it

cannot be assumed that Congress intended

to authorize by implication additional

judicial remedies for private citizens."

Middlesex County Sewerage Authority v.

National Sea Clammers Association, 453

U.S. 1, 14 (19861). "In the absence of

strong indicia of a contrary

congressional intent, we are compelled to

conclude that Congress provided precisely

the remedies it considered appropriate."

Id. at 15. Compare Sea Clammers

64

(no private right of action implied in

federal environmental statutes) with

Herman & MacLean v. Huddleston 459

U.S. 375, 380-87 (1983) (implied remedy

under securities law available because of

congressional intent even where

cumulative to express remedies).

For civil RICO, there are strong

indicia of congressional intent against

any implied injunctive relief remedy.

Similarly, there is no indication in the

language of section 1964 that civil RICO

was not intended, as its plain wording

states, to limit private plaintiffs only

to damages, costs, and fees. Taken

together, the legislative history and

statutory language suggest overwhelmingly

that no private equitable action should

be implied under civil rRIco.14

14 The Church argues that a more

appropriate test whether civil RICO

implies a private right is that

[Footnote Cont'd]

65

H.

Thus we conclude that Congress did

not intend to give private RICO

plaintiffs any right to injunctive

[Footnote 14 Cont'd]

articulated in Cort v. Ash, 422 U.S.

66, 78 (1975). See Belgard, 2 RICO Law

Rep. at 539. Cort posed four "relevant"

questions to assist in determining

"whether a private remedy is implicit in

a statute not expressly providing one."

Cort. 422 U.S. at 78. We see no

conflict hretween Cort and the more recent

line of S.preme Court cases upon which we

rely. Applying the Cort factors still

produces a ruling adverse to the Church.

First, the Church is not one of the class

for whose especial benefit the statute

was enacted." Id. (emphasis in

original). RICO was aimed principally at

protecting the public from organized

crime front enterprises, not at enabling

a religious organization to prevent the

dissemination of doctrinal materials by a

rival religious organization. Second, as

we have discussed, supra, there is

substantial "indication of legislative

intent, explicit and implicit" against an

implied private remedy. Id. Third,

while implying an injunctive remedy may

be consistent generally with RICO's

purpose, in this particular case, we

doubt whether this is so. Id. Fourth,

to the extent that the dispute here

concerns trade secrets misappropriation,

"it would be inappropriate to infer a

cause of action based solely on federal

law." Id.

66

relief. In reaching this conclusion, we

recognize that strong policy arguments

can be made to support a right to

injunctive relief for private RICO

plaintiffs.

It may be that in drawing the line

between private equitable relief and

private damages, Congress wished to

preclude federal courts from interfering

with the day-to-day running of businesses

at the behest of what might be only a

disgruntled competitor. However, this

same concern about anticompetitive

litigation has been frequently leveled at

RICO's treble damages provision. The

Supreme Court, despite expressing

sympathy for this concern, has rejected

it as not consistent with the statute's

wording and history. See Sedima 105

S. Ct. at 3277-78.

In contrast, we recognize the force

of the Church's argument that a private

67

injunctive remedy would permit an injured

party to put an immediate stop to

racketeering behavior that threatens his

or her business with economic destruction

before the business has been brought to

its knees. While the treble damages

remedy is a potent weapon, it necessarily

assumes that economic injury has

occurred. The preventive effect of

injunctive relief is often a more just

remedy. Although civil RICO empowers the

government to bring an injunctive suit to

protect a threatened enterprise, we

recognize that the resources of the

United States Attorney's office are

limited. Civil RICO deliberately created

dual avenues of enforcement--private and

public. We recognize that precluding

enforcing parties from employing the

weapon of equitable relief partially

hamstrings the statute's effect.

"Private attorney general provisions such

68

as §1964(c) are in part designed to fill

prosecutorial gaps," Sedima, 105 S. Ct.

at 3284, and use of equitable remedies by

private parties would frequently result

in substantial benefits to society

generally. These broad social benefits,

such as the dismantling of an

illegitimate enterprise, would generally

exceed the gain to the private plaintiff

from this action, especially where the

individual's injury has been ameliorated

by treble damages.

Even so, while, on balance, it may

well have been desirable for Congress to

have extended to private parties the

right to injunctive relief under civil

RICO, we are convinced that Congress

chose not to do so, and we must respect

and follow that judgment. 15

15 Since the remedy granted to the

Church by the district court was beyond

the jurisdiction of the court, it is not

necessary for our resolution of this

[Footnote Cont'd]

69

II. Can Religious Materials constitute

[Footnote 15 Cont'd]

appeal to reach the additional jurisdic-

tional questions whether the Church had

standing to assert its adherents'

"religious injury" caused by the new

church's alleged conduct and whether the

dispute was ripe for resolution by the

court. See Liberty National Insurance

Holding Co. v. Charter Co., 734 F.2d

545, 553 n.19 (lith Cir. 1984); Raypath,

Inc. v. City of Anchorage, 544 F.2d

1019, 1021 (9th Cir. 1976) (per curiam)

(if no cause of action can exist, the

case should be dismissed before reaching

the issue of standing).

By resolving this appeal on

jurisdictional grounds we avoid deciding

the significant first amendment issues

raised by the district court's

injunction. For example, the effect of

the injunction's prohibition on the use

of any of the higher level materials is

to curtail the religious practice of the

new church's adherents. See Sherbert

v. Verner, 374 U.S. 398 (1963).

Similarly, the court's review of the

Church's stolen materials and the new

church's documents to determine whether

essential elements have been appropriated

raises the potential for impermissible

entaglement in matters of religious

doctrine. See Serbian Eastern

Orthodo ocese v. Milivojevich, 426

U.S. 696 (1976). Further, the court's

recognition of "religious injury" from

premature unsupervised exposure to Church

materials as irreparable arm justifying

an injunction prompts worrisome

establishment concerns. See Lemon v.

Kurtzman, 403 U.S. 602 (1971).

70

a Protectible Trade Secret?

The Church's complaint included

several pendent California state law

Claims, including misappropriation of

trade secrets. Even though the Church is

not entitled to injunctive relief under

RICO, we must also decide whether it is

entitled to the same relief under state

law. See USACO, 689 F.2d at 97-98

(affirming on state law grounds an

injunction which district court had

issued where RICO provided the

jurisdictional base).

"The maintenance of standards of

commercial ethics and the encouragement

of invention are the broadly stated

policies behind trade secret law."

Kewanee Oil Co. v. Bicron Corp., 416

U.S. 470, 481 (1974); Chicago Lock Co.

v. Fanberg, 676 F.2d 400, 404-05 (9th

Cir. 1982). States may reguiate trade

secrets only to the extent that state law

71

does not conflict with federal copyright

and patent laws. Kewanee, 416 U.S. at

479. We review matters of state law de

novo. McLinn, 739 F.2d at 1403.

Before 1985, California trade

secrets law was based on Restatement of

Torts 3757, comment (b) (1939). The

leading California case prior to the

present legislation adopted verbatim the

Restatement's definition of trade

secret:

It is now settled that a trade

secret may consist of any formula,

pattern, devise or compilation of

information which is used in one's

business, and which gives him an

opportunity to obtain an advantage

over competitors who do not know or

use it.

Sinclair v. Aquarius Electronics, Inc.,

42 Cal. App. 3d 216, 221, 116 Cal.

Rptr. 654, 658 (1974) (emphasis

omitted); see also Chicago Lock, 676

F.2d at 404; 7 B. Witkin, Summary of

California Law, Equity §82 (8th ed. 1974

72

and Supp. 1984). The Restatement

eco ° orts omitted section 757 and

any reference to trade secrets. In

response, a Uniform Trade Secrets Act was

drafted. California adopted this uniform

Act, with minor changes, in 1985. See 14

U.L.A. 537, 538-40 (1980 and 1985

Supp.); M. Jager, Trade Secrets Law,

§3.04 (1985); 3 R. Milgrim, Milgrim on

Trade Secret App. AA (1985) .26

California law now defines a trade

secret as:

information, including a formula,

pattern, compilation, program,

devise, method, technique, or

process, that:

(1) Derives independent economic

value, actual or potential, from not

being generally known to the public

or to other persons who can obtain

economic value from its disclosure

or use; and

16 Because the new church's alleged

trade secrets' misappropriation spanned

the effective date of the California

statute, both old and new law must be

applicable to sustain the injunction.

SeeCal. Civ. Code §3426.10.

73

(2) Is the subject of efforts

that are reasonable under the

circumstances to maintain its

secrecy.

Cal. Civ. Code §3426.1(d) (West Supp.

1986).

The district court held that the

Church's higher level materials were a

trade secret. The court relied heavily

on the Church's concededly elaborate

efforts to maintain the secrecy of its

materials. However, the Church's

contention that the disputed materials

are “religious scripture" was not

reconciled with the California statute's

reference to “economic value" as an

element of a protectible trade secret.

To be protectible as a trade secret

under either Restatement section 757 or

the new California statute, the

confidential material must convey an

actual or potential commercial advantage,

presumably measurable in dollar terms.

74

We do not accept that a trade secret can

be based on the spiritual advantage the

Church believes its adherents acquire

over non-adherents by using the materials

in the prescribed manner. Former

Restatement §757 defines trade secrets

as information which is “used in one's

business, and which gives him an

opportunity to obtain an advantage over

competitors who do not know or use it."

(Emphasis added). See also 1 Milgrim

§2.02 ("An element common to the

definitions [of trade secret] is actual

use of the secret in a trade or

business.") (emphasis added); Klitzke,

Trade Secrets: Important Quasi-Property

Rights, 41 Bus. Lawyer 555, 559 (1986)

("Information that can have no commercial

value cannot be the subject of trade

secret protection."); Commissioners'

Comment to §1 of Uniform Act, 14 U.L.A.

at 543 ("The definition includes

75

information that has commercial value

from a negative viewpoint .. . [A] trade

secret need not be exclusive to confer a

fe) ve Vv - « « e") (emphasis

added).

No published California decision has

yet construed Civ. Code §3426.1(d)'s

definition of trade secret. In the only

significant effort by any state court to

construe the Uniform Act's definitional

reference to “independent economic

value," the Minnesota Supreme Court

stated: "This statutory element carries

forward the common law requirement of

competitive advantage. .. . This does

not mean. . . that the owner of the

trade secret must be the only one in the

market. .. . If an outsider would

obtain a valuable share of the market by

gaining certain information, then that

information may be a trade secret if it

is not known or readily ascertainable."

76

Electro-Craft Corp. v. Controlled

Motion, Inc., 332 N.W.2d 890, 900 (Minn.

1983) (emphasis added). We think it

probable that the California courts will

follow the Minnesota Supreme Court's view

because of the wording of the California

criminal law equivalent of Civ. Code

§3426.1(d). Cal. Penal Code

§499c(a) (9) (West Supp. 1986) states:

"'Trade secret' means .. . information.

- which is secret and which is not

generally available to the public, and

which gives one who uses it an advantage

over competitors who do not know of or

use the trade secret." (Emphasis added)

See People v. Serrata, 62 Cal. App. 3d

9, 22, 133 Cal. Rptr. 144, 152 (1976)

("The phrase ‘advantage over competitors’

[in Cal. Pen. Code §499c] refers to

any form of commercial advantage."

(emphasis added)).

In its supplementary findings of

77

fact, the district court noted that the

new church offers its services to its

adherents at a price "substantially less

than that charged by the Church."

However, the Church alleged no

competitive market advantage from

maintainino the secrecy of its higher

level materials. Indeed, to do so would

raise grave doubts about its claim as a

religion and a not-for-profit

corporation. Rather, the Church alleges

that its precepts require adherents to be

audited in a structured manner with

exposure to higher level materials only

when the auditor considers the adherent

ready. The injury inflicted on the

Church by the new church's

misappropriation of its "secret" is the

“religious harm" that would be suffered

by Church adherents from premature

unsupervised exposure to the materials.

The value of the confidential materials

78

is thus spiritual not commercial, and the

materials cannot be said to have the

"independent economic value" necessary to

qualify as a protectible trade

secret.17

17 The Church relies heavily on

language in Purcell v. Summers, 145 F.2d

979, 985 (4th Cir. 1944) which states

that unfair competition law applies fully

to religious and not-for-profit

organizations. That case involved an

injunction under South Carolina law for

the improper use of a church's name by a

splinter church. The Methodist Episcopal

Church South had merged with two other

churches to form the United Methodist

Church. Dissident members who opposed

the merger formed their own church using

the former name. The Fourth Circuit held

that the property and charitable gifts of

the merged church would be threatened by

the use of its former name by a different

church.

Purcell does not involve trade

secrets. Rather, it is an example of

"the common law of trademark infringement

and unfair competition (which) is replete

with cases holding that benevolent

religious, charitable or fraternal

organizations are entitled to injunctive

relief protecting against the continued

use of their name by local chapters which

disaffiliate." United States Jaycees v.

a ce,

354 F. Supp. 61, 71 (N.D. Cal. 1972)

(citing numerous cases), aff'd 513 F.2d

1226 (9th Cir. 1975) (per curiam).

79

III. Conclusion

The Church was not entitled to an

injunction either under civil RICO or

under California trade secrets law. We

therefore dissolve the injunction

forthwith.

REVERSED.

80

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

RELIGIOUS TECHNOLOGY CENTER

and CHURCH OF SCIENTOLOGY

INTERNATIONAL, INC.,

NO. 85-6547

D.C. No. CV

85-7197-MRP

Plaintiffs-Appellees, ORDER

vs.

LARRY WOLLERSHEIM, et al.,

and

CHURCH OF THE NEW

CIVILIZATION, HARVEY HABER,

DEDE REISDORF, JON ZEGEL and

DAVID MAYO,

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

‘

Defendants-Appellants. )

)

Before: PREGERSON, POOLE, and THOMPSON,

Circuit Judges.

The panel as constituted above voted

to deny the petition for rehearing and to

reject the suggestion for rehearing en

banc.

The full court has been advised of

the suggestion for rehearing en banc and

81

no judge of the court has requested a

vote on the suggestion for rehearing en

banc. Fed. R. App. P.35 (b).

The petition for rehearing is

denied, and the suggestion for hearing

enbanc is rejected.

82

APPENDIX C

1964. Civil Remedies

(a) The district courts of the

United States shall have jurisdiction to

prevent and restrain violations of

section 1962 of this chapter by issuing

appropriate orders, including, but not

limited to: ordering any person to divest

himself of any interest, direct or

indirect, in any enterprise; imposing

reasonable restrictions on the future

activities or investments of any person,

including, but not limited to,

prohibiting any person from engaging in

the same type of endeavor as the

enterprise engaged in, the activities of

which affect interstate or foreign

commerce; or ordering dissolution or

reorganization of any enterprise, making

due provision for the rights of innocent

persons.

(b) The Attorney General may

institute proceedings under this section.

83

In any action brought by the United

States under this section, the court

shall proceed as soon as practicable to

the hearing and determination thereof.

Pending final determination thereof, the

court may at any time enter such

restraining orders or prohibitions, or

take such other actions, including the

acceptance of satisfactory performance

bonds, as it shall deem proper.

(c) 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 the cost of the suit, including a

reasonable attorney's fee.

(d) A final judgement or decree

rendered in favor of the United States in

any criminal proceeding brought by the

United States under this chapter shall

84

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proceeding brought by the United States.

85

$3426.1

(c) "Person" means a natural person,

corporation, business trust, estate,

trust, partnership, association, joint

venture, government, governmental

subdivision or agency, or any other legal

or commercial entity.

(d) "Trade secret" means

information, including a formula, pattern,

compilation, program, device, method,

echidna: or process, that:

(1) Derives independent economic

value, actual or potential, from not

being generally known to the public or to

other persons who can obtain economic

value from its disclosure or use; and

(2) Is the subject of efforts that

are reasonable under the circumstances to

maintain its secrecy.

86

APPENDIX D

United States Constitution:

Amendment 1.

Congress shall make no law

respecting an establishment of religion,

or prohibiting the free exercise thereof;

or abridging the freedom of speech, or of

the press; or the right of the people

peaceably to assemble, and to petition

the Government for a redress of

grievances.

Amendment 5.

No person shail be held to answer

for a capital, or otherwise infamous

crime, unless on a presentment or

indictment of a Grand Jury, except in

cases arising in the land or naval

forces, or in the Militia, when in actual

service in time of War or public danger;

nor shall any person be subject for the

same offense to be twice put in jeopardy

of life or limb; nor shall be compelled

in any criminal case to be a witness

87

against himself, nor be deprived of life,

liberty, or property, without due process

of law; nor shall private property be

taken for public use, without just

compensation.

Amendment 14.

Section 1. All persons born or naturalized in

the United States, and subject to the

jurisdiction thereof, are citizens of the

United States and of the State wherein

they reside. No State shall make or

enforce any law which shall abridge the

privileges or immunities of citizens of

the United States; nor shall any State

deprive any person of life, liberty, or

property, without due process of law; nor

deny to any person within its

jurisdiction the equal protection of the

laws.

88