Antitrust Law Daily RICO statute authorizes nationwide service over ‘other parties’
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Wednesday, January 15, 2020

RICO statute authorizes nationwide service over ‘other parties’

By Nicole D. Prysby, J.D.

Where personal jurisdiction based on minimum contacts is established as to at least one defendant, the RICO statute provides for nationwide service and jurisdiction over "other parties" not residing in the district.

In an issue of first impression, the U.S. Court of Appeals in Philadelphia held that when a civil Racketeer Influenced and Corrupt Organizations Act (RICO) action is brought in a district court where personal jurisdiction can be established over at least one defendant, summonses can be served nationwide on other defendants if required by the ends of justice. Therefore, a Pennsylvania federal district court had personal jurisdiction over Delaware parties alleged to have conspired with Pennsylvania parties to put a landscaping and snow removal company out of business. The Pennsylvania defendants met the traditional personal jurisdiction requirements and the "ends of justice" require that the Pennsylvania district court is the one in which this case should be tried. The Third Circuit joined the Second, Seventh, Ninth, Tenth, and D.C. Circuits in taking the position that subsection (b) of 18 U.S.C. section 1965 governs nation-wide service of process and personal jurisdiction over "other parties," as opposed to subsection (d). The Fourth and Eleventh Circuits have looked to 1965(d) to decide the issue (Laurel Gardens, LLC v. McKenna, January 14, 2020, Cowen, R.).

Plaintiff Laurel Gardens LLC, a Pennsylvania company, alleged that 33 defendants were part of a RICO criminal enterprise to inflict economic hardship upon Laurel Gardens by discouraging it from continuing to work in the field of landscaping and snow removal services. At the heart of the alleged conspiracy is a Laurel Gardens employee who conspired to steal assets and customers from Laurel Gardens. The complaint included allegations against Delaware parties (the Isken Defendants), alleged to have accepted snow melt products from Laurel Gardens, with no intention of payment, in exchange for debt relief to the employee.

The Isken Defendants argued the court had no personal jurisdiction over them and the district court agreed, finding that it lacked both specific and general jurisdiction over them, in that the Iskens did not have the requisite minimum contacts with Pennsylvania and did not possess continuous and systematic contacts with the forum. On appeal, the plaintiffs argued that the lower court erred by applying the traditional requirements for personal jurisdiction as opposed to the specific RICO provision authorizing the nation-wide exercise of personal jurisdiction in certain circumstances.

Court has jurisdiction over RICO claims. The Third Circuit held that subsection (b) of the RICO venue and process statute, authorizing nationwide service of process, applied, as opposed to subsection (d), which provides for service in any judicial district in which the defendant is found. There is a circuit split on the issue; the Fourth and Eleventh Circuits have looked to 1965(d), while the Second, Seventh, Ninth, Tenth, and D.C. Circuits have held that subsection (b) governs nation-wide service of process and personal jurisdiction over other parties. The Third Circuit sided with the majority approach, based on the language and structure of the RICO provision. The court found the reasoning of the Second Circuit persuasive; the Second Circuit found that section 1965 should be interpreted to mean that a civil RICO action can only be brought in a district court where personal jurisdiction based on minimum contacts is established as to at least one defendant, but that 1965(b) provides for nationwide service and jurisdiction over "other parties" not residing in the district, who may be additional defendants of any kind, where the "ends of justice" so require. The Third Circuit also noted that the legislative history of the provision includes a House Judiciary Committee statement that "[s]ubsection (b) provides nationwide service of process on parties, if the ends of justice require it," which supports the majority’s position.

Therefore, there are two requirements that must be satisfied under subsection (b) to establish personal jurisdiction over a defendant not meeting the minimum contacts requirements: at least one of the other defendants must meet the traditional personal jurisdiction requirements; and the ‘ends of justice’ must require that the district court in this case is the one in which this case should be tried, because there is no other district in which a court will have traditional personal jurisdiction over all of the alleged co-conspirators. The standard is met here because approximately half of the defendants are Pennsylvania residents or businesses, and the events giving rise to the alleged "hub-and-spoke" conspiracy are centered in Pennsylvania. Considering this Pennsylvania focus, no other district court would have had traditional jurisdiction over all of the numerous defendants in this action. And exercising personal jurisdiction in this case over defendants from a neighboring state does not offend traditional notions of fair play and substantial justice.

The court also held that pendent personal jurisdiction exists over the state law claims brought against the Iskens, as the state law claims are so related to the RICO claims as to be part of the same case or controversy.

The case is No. 18-3758.

Attorneys: Kevin F. Berry (O’Hagan Meyer) for Laurel Gardens, LLC, American Winter Services, LLC and Laurel Gardens Holdings, LLC. Ryan M. Ernst (O’Kelly Ernst & Joyce) for Timothy Mckenna.

Companies: Laurel Gardens, LLC; American Winter Services, LLC; Laurel Gardens Holdings, LLC

MainStory: TopStory RICO DelawareNews NewJerseyNews PennsylvaniaNews

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