By Mark Engstrom, J.D.
The European Community and 26 of its member states could not proceed with RICO claims against RJR Nabisco (RJR) and related entities because the character of the asserted RICO injuries was extraterritorial, the U.S. Supreme Court has ruled. According to the Court, RICO §1964(c) required civil RICO plaintiffs to allege and prove a domestic injury to their business or property; it did not allow recovery for foreign injuries. Because the EC had waived its damages claims for domestic injuries, and because the remaining damages claims rested entirely on injuries that were suffered abroad, the RICO claims were properly dismissed by the district court (RJR Nabisco, Inc. v. European Community, June 20, 2016, Alito, S.).
The judgment of the U.S. Court of Appeals for the Second Circuit was therefore reversed and the case was remanded for further proceedings that were consistent with the Court’s opinion. Justice Alito wrote the opinion for a 4-3 majority. (Justice Sotomayor took no part in the consideration or decision of the case.).
Lawsuit and appeal. According to the European Commission (EC), the RJR participated in a global money-laundering scheme in association with various organized crime groups. Under that scheme, Colombian and Russian drug traffickers allegedly smuggled narcotics into Europe and sold them for euros. Through transactions that involved black-market money brokers, cigarette importers, and wholesalers, those euros were used to pay for large shipments of RJR cigarettes into Europe. The EC alleged that RJR violated RICO by engaging in a pattern of racketeering activity that included the predicate acts of money laundering, mail fraud, wire fraud, material support to foreign terrorist organizations, and violations of the Travel Act.
The district court granted RJR’s motion to dismiss on the ground that RICO did not apply to racketeering activity that occurred outside of the U.S. or to foreign enterprises. The Second Circuit reinstated the EC’s claims, concluding that: (1) RICO applied extraterritorially to the same extent as the predicate acts that supported the alleged RICO violation and (2) the statutes governing some of the predicate acts in this case expressly applied extraterritorially. The circuit court further held that a civil RICO action did not require a domestic injury; instead, it allowed recovery for a foreign injury that was caused by the violation of a predicate statute that applied extraterritorially.
Extraterritoriality analysis. The Supreme Court applied the presumption against extraterritoriality. Absent a clearly expressed congressional intent to the contrary, federal laws were construed to be limited to domestic applications. It also applied a two-step framework for analyzing extraterritoriality issues.
Under the two-step framework, a court first asked whether the presumption against extraterritoriality had been rebutted (i.e., whether the statute at issue gave a clear and affirmative indication that it applied extraterritorially). That question was asked whether or not the statute regulated conduct, afforded relief, or merely conferred jurisdiction.
If the statute was not found to be extraterritorial at step one, the court moved to step two, where it examined the statute’s "focus" to determine whether the case involved a domestic application of the statute. If the conduct relevant to the statute’s focus occurred in the U.S., the case involved a permissible domestic application, even if other conduct had occurred abroad. However, if the relevant conduct occurred in a foreign country, then the case involves an impermissible extraterritorial application, whether or not other conduct had occurred in the United States.
In the event the statute was found to have clear extraterritorial effect at step one, then the scope of the statute turned on the limits that Congress had (or had not) imposed on the statute’s foreign application, and not on the statute’s "focus."
Application to current case. In this case, the presumption against extraterritoriality was rebutted with respect to certain applications of RICO’s substantive prohibitions in §1962. The court noted that RICO defined racketeering activity to include several predicate acts that plainly applied to some foreign conduct, such as the prohibition against engaging in monetary transactions in criminally derived property (§1957(d)(2)), the prohibitions against the assassination of Government officials (§§351(i), 1751(k)), and the prohibition against hostage taking (§1203(b)).
Congress therefore provided a clear and affirmative indication that §1962 applied to foreign racketeering activity, but only particular cases applied extraterritorially. That fact was determinative with respect to RICO §§1962(b) and (c), which prohibited the employment of a pattern of racketeering, but §1962(a), which targeted certain uses of income derived from a pattern of racketeering, was arguably limited to domestic uses of that income. Because the parties did not focus on that issue, and because its resolution did not affect this case, the Court assumed that the EC had pleaded a domestic investment of racketeering income in violation of §1962(a). It also assumed that the extraterritoriality of RICO’s conspiracy provision, §1962(d), tracked the RICO provision that supported the alleged conspiracy.
RJR argued that RICO’s "focus" was its enterprise element, which gave no clear indication of extraterritorial effect. But focus was considered only when it was necessary to proceed to the inquiry’s second step. In this case, step one clearly indicated that RICO §§1962(b) and (c) applied to all transnational patterns of racketeering, subject to the stated limitation. A domestic enterprise requirement would lead to difficult line-drawing problems and counter-intuitive results, such as excluding foreign enterprises that operated within the United States. Those troubling consequences reinforced the conclusion that Congress intended the prohibitions of §§1962(b) and (c) to apply extra-territorially, in tandem with the underlying predicates, without regard to the locus of the enterprise.
Applying those principles to this case, the EC’s assertions that RJR violated §§1962(b) and (c) did not involve an impermissibly extraterritorial application of RICO. The court assumed that the alleged pattern of racketeering activity consisted entirely of predicate offenses that were either committed in the U.S. or committed in a foreign country, in violation of a predicate statute that applied extra-territorially. The alleged enterprise also had a sufficient tie to U.S. commerce, as required by RICO, because its members included U.S. companies and its activities depended on sales of RJR’s cigarettes through the U.S. mails and wires.
Irrespective of any extraterritoriality regarding the substantive provision of §1962, a private right of action under §1964(c) did not overcome the presumption against extraterritoriality. Therefore, a private RICO plaintiff had to allege and prove a domestic injury. Ultimately, the Court decided that the presumption against extraterritoriality should be applied to the RICO cause of action itself. The Court would not forgo the presumption to permit extraterritorial suits based on case-by-case inquiries that turned on the affected sovereign’s consent. Nor would the Court adopt a double standard that would treat suits by foreign sovereigns more favorably than other suits.
Section 1964(c) did not provide a clear indication that Congress had intended to provide a private right of action for injuries that were suffered outside of the U.S. According to the Court, that section provided a cause of action to "[a]ny person injured in his business or property" by a violation of §1962, but neither the word "any" nor the reference to an injury to "business or property" indicated an extraterritorial application. The EC’s arguments to the contrary were unpersuasive.
Although the EC was correct that RICO’s private right of action was modeled after §4 of the Clayton Act, which allowed recovery for injuries that were suffered abroad as a result of antitrust violations, the Court had previously declined to transplant features of the Clayton Act’s cause of action into the RICO context when doing so would be inappropriate, and the Court found "good reason not to do so" in this case.
Significantly, RICO lacked the very language that the Court had found critical in a prior decision: the Clayton Act’s definition of a "person" who may sue, which explicitly included corporations and associations that existed under, or were authorized by, the laws of any foreign country. Congress’s more recent decision to exclude from the antitrust laws’ reach most conduct that causes only foreign injury (F. Hoffmann-La Roche Ltd v. Empagran S. A., 542 U. S. 155, 158) also counseled against importing into RICO the Clayton Act principles that were "at odds" with the Court’s current extraterritoriality doctrine.
Conclusion. Ultimately, RICO §1964(c) required civil RICO plaintiffs to allege and prove a domestic injury to business or property; it did not allow recovery for foreign injuries. Because the EC waived its damages claims for a domestic injury, the district court dismissed those claims with prejudice. The remaining RICO damages claims rested entirely on injuries that were suffered abroad and thus were properly dismissed by the district court.
The case is No. 15-138.
Attorneys: David Michael Cooper (Jones Day) for RJR Nabisco, Inc. Kevin A. Malone (Krupnick, Campbell, Malone, Buser, Slama, Hancock, Liberman, P.A.) and John J. Halloran Jr. (John J. Halloran, Jr., PC) for the European Community and the Kingdom of Belgium.
Companies: RJR Nabisco, Inc.
MainStory: TopStory RICO
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