Religious Technology Center v. Wollersheim
796 F.2d 1076 (9th Cir. 1986)
Before Pregerson, Poole, and Thompson, Circuit Judges. [*1077]
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
it issued its preliminary injunction "on both the plaintiffs' . . .("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.
The Church of Scientology teaches that a person's behavior and well-being
are improved by removing "engrams" from the unconscious mind. Engrams
are 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. Removing engrams
from the unconscious permits the person's analytical mind to function
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 responses 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 adherent 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 unsupervised, premature exposure of an adherent
to these materials will produce a spiritually harmful effect.(1)
The Church keeps the [*1078] 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 other senior 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 which are essentially identical to those offered by the Church.
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 present suit was filed on November 4, 1985. The Church states
that, in late October 1985, it learned 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 [*1079]
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 level materials. Three
days later, the Church brought this suit in federal court against the
new church, its principal officers, Wollersheim, his counsel, and those
allegedly involved in passing the materials to Wollersheim's counsel.
The suit based jurisdiction 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 preliminary
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 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 district court held the materials to constitute
a misappropriated trade secret but noted that the Church was not arguing
commercial disadvantage as an injury. * * *
* * * [*1089]
[The court decided that civil RICO claims provide no basis for injunctive
relief and therefore vacated the injunction, insofar as basede upon RICO,
on jurisdictional grounds.]
II. Can Religious Materials Constitute a Protectible
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.
"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, 40 L. Ed. 2d 315, 94 S.
Ct. 1879 (1974); Chicago Lock Co. v. Fanberg, 676 F.2d 400, 404-05
(9th Cir. 1982). States may regulate trade secrets only to the extent
that state law does not conflict with federal copyright and patent laws.
Kewanee, 416 U.S. at 479. * * *
Before 1985, California trade secrets law was based on Restatement of Torts
§ 757, comment (b) (1939). The leading California case prior to the
present legislation adopted verbatim the Restatement's definition of trade
"It is now settled that a trade secret may consist of any formula, pattern,
device or [*1090] 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) . .
The Restatement (Second) of Torts 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 Secrets App. AA (1985).(4)
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
"(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. 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
information that has commercial value from a negative viewpoint.
. . . (A) trade secret need not be exclusive to confer a competitive advantage.
. . .") (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."
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:
[*1091] "‘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 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 maintaining 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 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.(5)
The Church was not entitled to an injunction either under civil RICO or
under California trade secrets law. We therefore dissolve the injunction
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1. [court's footnote 1] The new church, which
follows essentially identical religious precepts and practices to those
of the Church, does not dispute this assertion.
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2. [court's footnote 2] The new church asserts
that Mayo authored the disputed higher level materials. The Church
vigorously disputes this, maintaining that Hubbard created all Church
Hubbard apparently assigned the materials, together with other materials
forming the technology and advanced technology of "Scientology" and "Dianetics,"
to the 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.
Back to Text
3. [court's footnote 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 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.
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4. [ [court's footnote 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. See Cal. Civ. Code § 3426.10.
Back to Text
5. [court's footnote 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.
Back to Text
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. San Francisco Junior Chamber of Commerce,
354 F. Supp. 61, 71 (N.D. Cal. 1972) (citing numerous cases), aff'd
513 F.2d 1226 (9th Cir. 1975) (per curiam).