Alfred Powers Herbert Wong Alfred Overley Christine Overley Rita Pedro Jennifer Pedro Betty Ross John Ross Todd Shew Joy Shew Denise J. Tremblay Bradford J. Stassel Michael Magnes Brenda Magnes David Gross Ben Kerr Delores Kerr Veronica Hudson Michael Stultz Carol Stultz Harriet Jane Butts Myron Weiss Barry Spector Karen Spector William E. Wardlaw Daniel Wardlaw Tammy D. Wardlaw Bruna Wardlaw Danielle Elliott Helen Dimitriou Frank Scopelitta Carol Scopelitta Joshua Higbee Sarah Higbee Milan Linjak Milica Linjak Donald Wardlaw Janet Wardlaw Andrea Blum Sigurd D. Medhus Eve L. Bonner Anthony A. Sbarounis Jonathan Palmer Nina Palmer v. Wells Fargo Bank Na Wells Fargo & Company Mary E. Osaki Marty A. Munesato David Dagget Kirk Braun Rossi Russell James Osaki Loren Wong Alvis Veach Matthew L. Fragner
Docket: 04-56084
Court: Court of Appeals for the Ninth Circuit; March 2, 2006; Federal Appellate Court
The case involves the Plaintiffs-Appellants, led by Alfred Powers, suing Defendants-Appellees, including Wells Fargo Bank, under RICO and state law for alleged fraud through a Ponzi scheme. The district court ruled that it lacked jurisdiction over the RICO claim, citing 18 U.S.C. § 1964(c) and the precedent set in Howard v. America Online Inc., which bars claims based on securities fraud from being actionable under RICO. The court also declined to exercise jurisdiction over the related state law claims. On appeal, Powers contended that the Ponzi scheme did not involve securities transactions, a claim countered by a previous ruling in SEC v. J.T. Wallenbrock Assocs., which classified the notes involved as securities. Powers further argued that the ruling in Howard was limited to class actions and did not apply to individual claims. The court rejected this argument, reaffirming that the preclusive effect of § 1964(c) applies to both individual and class action claims. The relevant statute states that no person may use conduct actionable as securities fraud to establish a RICO violation, with exceptions for criminally convicted individuals involved in the fraud. Section 1964(c) does not restrict its prohibition to class actions; instead, it broadly states that "no person may rely upon any conduct." To interpret it as only barring class actions would require prioritizing legislative history over the statute's clear text, which is not permissible. Even if legislative history suggested a limitation to class actions, established case law affirms that such history cannot override statutory language. The court concludes that Section 1964(c) prohibits RICO claims alleging securities fraud irrespective of whether those claims are class actions. A request for judicial notice of the convictions of defendants Marty A. Munesato and Larry Toshio Osaki related to the Ponzi scheme is granted. Section 1964(c) allows RICO claims only against defendants convicted in connection with securities fraud, meaning claims can proceed against Munesato due to his conviction, but not against other defendants who have not been convicted. The court affirms the dismissal of RICO claims against defendants not convicted, as well as the dismissal of state law claims against them. The decision affirms the claims against Wells Fargo and other defendants, while vacating and remanding the claims against Munesato for further consideration in light of his conviction. The panel finds the case suitable for decision without oral argument and reviews dismissals for lack of subject matter jurisdiction de novo.