Source: https://www.gibsondunn.com/u-s-supreme-court-clarifies-extraterritorial-reach-of-civil-rico/
Timestamp: 2018-10-21 01:35:05
Document Index: 746618991

Matched Legal Cases: ['§ 1962', '§ 1964', '§ 1962', '§ 1962', '§ 1962', '§ 1964', '§ 1962']

Gibson Dunn | U.S. Supreme Court Clarifies Extraterritorial Reach of Civil RICO
U.S. Supreme Court Clarifies Extraterritorial Reach of Civil RICO
On June 20, 2016, the Supreme Court of the United States issued its highly anticipated decision in RJR Nabisco, Inc. v. European Community, No. 15-138 (2016), holding that RICO’s substantive provisions apply extraterritorially only to the extent that the underlying predicate statutes do, and that RICO’s private cause of action does not encompass foreign injuries. The case involved foreign nation-state plaintiffs, and the Court did not illuminate what would constitute a permissibly domestic injury.
The Supreme Court’s decision is important because it is the first time since Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), that the Court has ruled that a statute has extraterritorial reach. In the process it clarifies the character of RICO’s extraterritorial reach and whether foreign conduct may serve as a predicate act for purposes of a RICO claim. The Court held that some–but not all–foreign conduct can serve as the basis for a RICO claim, depending on whether the underlying predicate statute applies extraterritorially. The decision also potentially limits the use of RICO by some private plaintiffs by requiring a domestic injury.
RJR Nabisco ("RJR") was sued by the European Community and 26 of its member states (collectively, the "European Community") in the United States District Court for the Eastern District of New York in 2000. The European Community alleged that RJR had participated in a global money-laundering scheme involving the smuggling of narcotics into Europe, the sale of those narcotics for euros, and the financing of large shipments of RJR cigarettes into Europe using those euros in a series of complicated black-market transactions. European Community v. RJR Nabisco, Inc., No. 02-cv-5771, 2011 WL 843957, at *1-2 (E.D.N.Y. Mar. 8, 2011). RJR moved to dismiss the complaint on the ground that RICO does not extend to racketeering activity outside the United States. The district court agreed and dismissed the complaint. Id. at *7.
On appeal, the United States Court of Appeals for the Second Circuit reversed. The panel found that Congress had "clearly manifested an intent" that some of the predicate acts alleged in the complaint should apply extraterritorially, and it held that by incorporating those predicate acts into the RICO statute, Congress had demonstrated its intent that RICO should apply extraterritorially "to the extent that extraterritorial violations of [the predicate] statutes serve as the basis for RICO liability." 764 F.3d 129, 137 (2d Cir. 2014). The court further held that the money laundering and material support of terrorism statutes expressly provide for extraterritorial application, id. at 140, and that while the mail fraud, wire fraud, and certain other statutes did not apply extraterritorially, the complaint stated domestic violations of those predicate acts because it "alleged conduct in the United States that satisfies every essential element" of the statutes. Id. at 142.
RJR sought rehearing and argued, among other things, that RICO’s private right of action requires a domestic injury. The panel denied rehearing and issued a supplemental opinion holding that RICO does not require such a domestic injury. 764 F.3d 149, 151-52 (2d Cir. 2014) (per curiam). In so holding, the panel reasoned that if an injury suffered abroad was caused by the violation of a predicate statute that applies extraterritorially, then the plaintiff may seek recovery for that injury under RICO. Id. at 151. RJR thereafter sought rehearing en banc; the Second Circuit denied the request, with five judges dissenting. 783 F.3d 123 (2d Cir. 2015).
The Supreme Court reversed the Second Circuit and remanded the case for additional proceedings. The Court identified two central questions on appeal: (1) whether RICO’s substantive prohibitions in § 1962 apply to predicate acts occurring in foreign countries, and (2) whether RICO’s private right of action in § 1964(c) extends to injuries suffered abroad. Slip op. at 7. The Court first noted that the analysis of whether a statute applies extraterritorially requires a "two-step framework": the court must first ask whether the normal "presumption against extraterritoriality" has been rebutted by a "clear, affirmative indication that [the statute] applies extraterritorially," and only if there is no such indication, then the court must ask whether the case otherwise involves a domestic application of the statute by looking to the statute’s "focus." Id. at 7-9. Regarding the second step, the Court explained that if conduct relevant to the statute’s focus occurred in the United States, then the case may involve a domestic application of the statute "even if other conduct occurred abroad." Id. at 9. However, if the conduct relevant to the statute’s focus occurred abroad, "then the case involves an impermissible extraterritorial application regardless of any other conduct that occurred in U.S. territory." Id.
Applying this framework, the Court agreed with the Second Circuit and held that the presumption against extraterritoriality had been rebutted for certain applications of RICO. Slip op. at 10. Noting that the "context" of the statute was "dispositive," the Court held that RICO’s incorporation of predicate acts which themselves expressly apply extraterritorially manifested a "clear, affirmative indication that § 1962 applies to foreign racketeering activity." Id. at 11-12. The Court emphasized, however, that the extraterritorial application of § 1962’s substantive provisions applies "only to the extent that the predicates alleged in a particular case themselves apply extraterritorially," noting that "[t]he inclusion of some extraterritorial predicates does not mean that all RICO predicates extend to foreign conduct." Id. at 11. The Court also explained that the extraterritorial application of § 1962 does not depend on the location of the enterprise itself, which "does not impose an independent constraint" on RICO claims. Id. at 14-15.
Notably, the Court analyzed RICO’s substantive provisions separately. Because the application of subsections (b) and (c) turns on whether the defendant engaged in a "pattern of racketeering activity," some of which, as the Court explained, may be actionable if it occurred abroad and the statute itself applies extraterritorially, the Court found that its holding applies to those subsections. Slip op. at 13. Subsection (a), which targets the use of income derived from racketeering activity, presented a "thornier issue," and the Court declined to decide whether the use of that income must be domestic because the parties did not brief it and it did not affect the outcome of the case. Id. The Court similarly did not decide whether subsection (d), RICO’s conspiracy provision, should be treated differently. Id. at 14.
Next, the Court held that it did not need to determine the "focus" of the statute–i.e., whether, as RJR claimed, RICO is focused on preventing the corruption of enterprises–because it had already found that there was "a clear indication at step one that RICO applies extraterritorially." Slip op. at 14. The Court cautioned, however, that while RICO contains no domestic enterprise requirement, an enterprise still "must engage in, or affect in some significant way, commerce directly involving the United States." Id. at 17.
Turning to the second question, the Court held that courts must "separately apply the presumption against extraterritoriality to RICO’s cause of action," explaining that the creation of a private cause of action is a separate and distinct issue from the question of whether underlying conduct should be permitted. Slip op. at 19. Noting that "[a]llowing recovery for foreign injuries in a civil RICO action, including treble damages, presents the . . . danger of international friction," the Court held that there is nothing in § 1964(c) that provides a clear indication of Congress’s intent to create a private cause of action for injuries suffered outside of the United States. Id. at 21-22. The Court rejected the argument that RICO’s private right of action should apply to injuries suffered abroad because the Clayton Act, which served in some respects as a model for portions of RICO, has been interpreted to permit such claims. Id. at 24-25. The Court explained that it has "not treated the two statutes as interchangeable," and it distinguished cases in which the Clayton Act was found to apply to foreign injuries. Id. at 24-25 & n.11. Additionally, while noting that the Court "has never decided whether equitable relief is available to private RICO plaintiffs," the Court explained that its holding–that RICO’s private right of action requires a domestic injury–also would apply to "any claim for equitable relief under RICO based on foreign injuries," because any claim "requires a domestic injury to business or property." Id. at 27 n.13. The Court noted that it had no occasion to consider, and did not pass on, the nature of any requisite domestic injury.
Applying its holding to the case at hand (and reversing the Second Circuit), the Court held that the European Community’s claims "must be dismissed" because they "rest entirely on injury suffered abroad." Slip op. at 27. The Court’s decision turned on a stipulation that the European Community filed in the district court, waiving its damages claims for all domestic injuries; the district court accepted this waiver and dismissed those claims with prejudice. Id. Left with no domestic injuries on which to base the claims, the Court mandated their dismissal.
Three Justices–Justices Ginsburg, Breyer, and Kagan–dissented only as to the Court’s holding that RICO’s private right of action requires a domestic injury. The dissenting Justices wrote that they "would not distinguish . . . between the extraterritorial compass of a private right of action and that of the underlying conduct," but instead would "link[], not separate[e], prohibited activities and authorized remedies." Dissent at 4. The dissenting Justices argued that "RICO’s private right of action . . . expressly incorporates § 1962," and should therefore incorporate the extraterritorial application of that section. In support of their argument, the dissenting Justices cited not only the Clayton Act, which courts have held does not have a domestic injury requirement, but also RICO’s expansive definition of "person" and the statute’s legislative history. Id. at 6 & n.3.
The following Gibson Dunn lawyers assisted in preparing this client alert: William Thomson, Shannon Mader, Dylan Mefford and Richard Dudley.
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