Plaintiffs Bright Harry and Ronald Stephen Draper, proceeding pro se, appealed a district court judgment that denied their motion to remand the case to state court and dismissed their Racketeer Influenced and Corrupt Organizations Act (RICO) claim. The underlying dispute involved allegations against various securities firms and individuals, including Wedbush Securities Inc. and KCG Americas LLC. The plaintiffs sought to move the case back to state court, but the district court determined it had the authority to keep the case in federal court due to the presence of a federal RICO claim. Additionally, the district court dismissed the RICO claim entirely, finding that the plaintiffs had already litigated or could have litigated these specific allegations in previous federal lawsuits involving the same parties.
The Ninth Circuit reviewed the district court's decision de novo. First, the court addressed the issue of removal and remand. Under Ninth Circuit precedent, a federal district court cannot remand an entire case to state court if it retains subject matter jurisdiction over any part of the action. Because the district court had original jurisdiction over Draper's federal RICO claim, it was proper for the court to refuse remanding the entire case. The court also rejected the plaintiffs' argument that the district court erred by 'accepting' the notice of removal without a specific court order, noting that removal is effected by defendants satisfying procedural requirements. Second, the court addressed the dismissal of the RICO claim. The district court correctly applied the doctrine of claim preclusion, which bars claims that were raised or could have been raised in prior federal actions between the same parties or their privies that resulted in final judgments on the merits. The court clarified that while claim preclusion is a defense, it is not a jurisdictional matter. Therefore, the dismissal was proper based on the substantive law of preclusion rather than a lack of judicial power.
The decision affirms the district court's jurisdiction to retain the case in federal court despite the plaintiffs' attempt to move it to state court. It establishes that the RICO claim is barred by prior litigation, meaning the plaintiffs cannot relitigate these specific allegations in this or future federal actions. The case is remanded to the district court to proceed only on any remaining state law claims that were not dismissed, while the federal RICO claim remains extinguished. The ruling reinforces that claim preclusion is a substantive defense rather than a limit on subject matter jurisdiction.
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