Source: https://www.arnoldporter.com/en/perspectives/publications/2016/06/rjr-nabisco-inc-v-the-european-community
Timestamp: 2018-09-22 02:58:23
Document Index: 141730932

Matched Legal Cases: ['§ 1962', '§ 1964', '§ 1962', '§ 1964', '§ 1962', '§ 1964', '§ 1962', '§ 1962', '§ 1962', '§ 1964', '§ 1964', '§1964', '§ 1961', '§ 1963', '§ 12']

RJR Nabisco, Inc. v. The European Community: Supreme Court Limits RICO’s Extraterritorial Reach | Publications and Presentations | Arnold & Porter
By John B. Bellinger, III Craig A. Holman Amy Jeffress Kirk Ogrosky Baruch Weiss Murad Hussain
On June 20, 2016, the U.S. Supreme Court decided RJR Nabisco, Inc. v. The European Community (RJR).1 In an opinion authored by Justice Samuel Alito, the Court held that the Racketeer Influenced and Corrupt Organizations Act (RICO) 2 can apply to alleged misconduct occurring outside the United States, but only in limited circumstances. The Court reached this conclusion because some, but not all, of RICO's provisions overcome the statutory "presumption against extraterritoriality." The Court most recently applied that presumption in Morrison v. National Australia Bank Ltd.3 and Kiobel v. Royal Dutch Petroleum Co.,4 and reiterated it in RJR: "Absent clearly expressed congressional intent to the contrary, federal laws will be construed to have only domestic application."5 The Court's application of the presumption not only restricts RICO lawsuits and regulatory enforcement actions targeting conduct outside U.S. borders, but will also likely restrict similar actions under other federal laws.
Seven Justices heard the RJRcase.6 The Court determined that the question of whether RICO has extraterritorial reach cannot be answered with a simple yes or no, but rather depends on the specific allegations of misconduct and injury. One set of RICO provisions, 18 U.S.C. § 1962, makes it a crime to use a pattern of "racketeering activity" to control or operate a commercial "enterprise." The statute defines "racketeering activity" as acts violating various cross-referenced federal criminal statutes, known as "predicate" offenses.7 The government can pursue RICO violations either by criminal prosecution or civil enforcement proceedings.8 But another RICO provision, 18 U.S.C. § 1964(c), gives "[a]ny person injured in his business or property by reason of" a RICO violation the right to bring a private lawsuit for treble damages.
The Court unanimously held that RICO can potentially reach a foreign"enterprise," on at least one condition: the alleged "racketeering activity" must involve a predicate offense that Congress clearly intended to apply abroad. A four-Justice majority imposed another condition for civil RICO lawsuits: private plaintiffs cannot proceed at all without alleging and proving a domestic injury to their business or property.
RJR thus makes it difficult for foreign plaintiffs to sue under RICO and narrows the types of foreign conduct that RICO can reach, even when a proper plaintiff (or prosecutor) brings the case. The Court's careful analysis also confirms the presumption against extraterritoriality as a canon of statutory interpretation that applies to all statutes, whether criminal or civil, regardless of their subject matter, and regardless of policy considerations that might favor extraterritorial application.
In 2000, the European Community and 26 of its member states (collectively, the EC) (the Respondents) filed a civil RICO complaint in New York federal court against RJR Nabisco and related entities (collectively, RJR) (the Petitioners). The EC alleged that RJR participated in a worldwide scheme with organized crime groups, who supposedly smuggled illegal drugs into Europe and then laundered the proceeds from their drug sales through the importation and sale of RJR tobacco products in Europe and Iraq. The EC alleged that RJR was part of a RICO "enterprise" that supposedly engaged in a pattern of racketeering activity consisting of five predicate offenses: mail fraud, wire fraud, violations of the Travel Act, money laundering, and material support for a foreign terrorist organization. The EC also claimed that its member countries were harmed by lost tax revenues, increased law enforcement costs, and lost profits for their own tobacco businesses.
In 2011, after extensive pretrial motions to dismiss, amended pleadings, and appeals, the district court dismissed the RICO claims. Relying on Morrison, the district court concluded that RICO did not rebut the presumption against extraterritoriality. It then held that because the alleged RICO enterprise originated and primarily operated overseas, RICO could not reach such extraterritorial conduct.9
The EC appealed and the Second Circuit reversed. The Second Circuit rejected the district court's decision to focus its extraterritoriality analysis on the location of allegedly corrupted "enterprise." Instead, the Second Circuit held that Congress intended to apply RICO to extraterritorial conduct "if, and only if," the underlying predicate statutes themselves applied to extraterritorial conduct.10
RJR examined three different components of the RICO framework: the "enterprise" and "racketeering activity" elements of 18 U.S.C. § 1962's substantive prohibitions and the injury element of 18 U.S.C. § 1964(c)'s private right of action. As to § 1962, the Court held unanimously that RICO's foreign reach does not depend on the location of the allegedly corrupt "enterprise." Instead, the Court held that RICO's extraterritoriality depends on what kind of "racketeering activity" is alleged, because RICO can reach foreign conduct only if the conduct violates one of RICO's predicate offenses that Congress clearly intended to apply abroad. Finally, with respect to § 1964(c)'s right of action, a four-Justice majority of the Court determined that the private injury element is not extraterritorial, so private plaintiffs cannot bring RICO suits if they themselves do not allege "a domestic injury to [their] business or property"—even if they allege domestic RICO violations.11
Justice Alito's Unanimous Opinion for the Court (Parts I, II, and III)
The Court began its analysis by emphasizing that the statutory presumption against extraterritoriality applies "across the board," regardless of whether a statute "regulates conduct, affords relief, or merely confers jurisdiction."12 The Court clarified that the extraterritoriality analysis involves two separate steps, as shown in Morrison (which rejected a claim of securities fraud involving only foreign stock exchanges) and Kiobel (which rejected Alien Tort Statute jurisdiction over foreign torts committed in violation of international law).
At the first step, courts must determine "whether the presumption against extraterritoriality has been rebutted—that is, whether the statute gives a clear, affirmative indication that it applies extraterritorially." 13 In other words, the statutory "text and context"14 must reflect an "unmistakable congressional intent" that the statute should apply to activity in foreign countries.15 If the presumption is not rebutted, then the statute has no foreign reach, and courts must instead examine the statute's "focus" to identify "whether the case involves a domestic application of the statute."16 Conversely, if the presumption is rebutted, then no analysis of the statutory "focus" is necessary.17
The Court first applied this two-step framework to RICO's substantive prohibitions. The parties primarily disputed the reach of 18 U.S.C. § 1962(b) and (c), which prohibit the use of a "pattern of racketeering activity" to control or operate an "enterprise." The Court found that because RICO defines "racketeering activity" by referencing predicate offenses, and because some of those predicates explicitly apply to foreign conduct (such as the prohibitions on hostage-taking or the assassination of government officials), Congress clearly intended for § 1962(b) and (c) to prohibit foreign activity "to the extent that the predicates alleged in a particular case themselves apply extraterritorially."18
The Court rejected RJR's argument that RICO cannot apply to a foreign "enterprise," explaining that "the location of the affected enterprise does not impose an independent constraint" on RICO's foreign reach.19 RJR had argued that RICO's "focus" is on the corrupted enterprise and that the statute's enterprise element was not extraterritorial. The Court clarified that the "focus" inquiry is the second analytical step, which is implicated only if a statute does not rebut the presumption against extraterritoriality. Because the Court already found that RICO has extraterritorial application in some situations, this mooted the need for the "focus" inquiry.
Finally, the Court "assume[d] without deciding" that the Second Circuit properly determined that the EC's alleged RICO predicates were either extraterritorial (i.e., money laundering and materially supporting terrorist organizations) or non-extraterritorial but supported by sufficient allegations of domestic activity (i.e., mail fraud, wire fraud, and Travel Act violations). The Court thus held that the alleged violations of § 1962(b) and (c) were not "impermissibly extraterritorial application[s] of RICO."20
Justice Alito's Majority Opinion for the Court (Part IV)
Only four of the seven Justices joined Part IV of the Court's opinion, which held that RICO's private right of action provision, 18 U.S.C. § 1964(c), does not overcome the presumption against extraterritoriality. The Court explained that it had to separately analyze § 1964(c)'s foreign reach, regardless of how it interpreted RICO's substantive prohibitions. The Court found that the Second Circuit erred in skipping this separate analysis and in concluding that the presumption against extraterritoriality only applies to statutory prohibitions on conduct.
The Court agreed with the government, appearing as amicus curiae, that this private right of action analysis was important, because "providing a private civil remedy for foreign conduct creates a potential for international friction beyond that presented by merely applying U.S. substantive law to that foreign conduct."21 In particular, the Court cited numerous legal submissions by foreign governments in other cases where those sovereigns advised against broadly applying U.S. remedies to foreign conduct.22
The Court concluded that "[n]othing in §1964(c) provides a clear indication that Congress intended to create a private right of action for injuries suffered outside of the United States."23 For example, the Court explained, although the provision applies to "any" injured person, broad words like "any" do not rebut the presumption against extraterritoriality. The Court also refused to analogize RICO's private right of action to the Clayton Act's private right of action for antitrust suits, which does permit recovery for foreign injuries. The Court observed that although the RICO and Clayton Act provisions are similar, they are not "interchangeable."24 Unlike RICO, the Clayton Act explicitly defines the injured "person" to include corporate entities "existing under or authorized by" foreign laws.25
Finally, the Court held that because the EC had previously waived all damages claims for domestic injuries, its remaining damages claims rested "entirely on injury suffered abroad and must be dismissed."26 Consequently, the Court reversed the Second Circuit and remanded the case for further proceedings.
Justice Ginsburg, in an opinion joined by Justices Breyer and Kagan, joined the Court's opinion as to the limited extraterritorial application of RICO's substantive prohibitions. But her opinion also dissented from the Court's holding that a private plaintiff cannot sue under RICO without a domestic injury. This partial dissent criticized the government's successful attempt to draw distinctions "between the extraterritorial compass of a private right of action and that of the underlying proscribed conduct."27
Justice Breyer also wrote a separate partial dissent, rejecting the suggestion that allowing private civil RICO actions for foreign injuries risks creating "international friction."28
More broadly, RJR confirms that the presumption against extraterritoriality is a canon of statutory interpretation that applies generally to a wide variety of laws, whether prohibiting conduct, creating a right to relief, or, as in Kiobel, conferring jurisdiction. Notably, the Court assessed the extraterritoriality of RICO's substantive criminal prohibitions using the same analysis as when it separately assessed RICO's private civil cause of action. This suggests that the presumption against extraterritoriality also applies equally to civil and criminal prohibitions on conduct, so courts should ask the same question regardless of the government's role in statutory enforcement: does a statute's "text and context"29 reflect an "unmistakable congressional intent" to cover foreign conduct?30
Similarly, when limiting RICO's private right of action, the Court emphasized that its concern for "international friction" does not depend on the facts of a particular case. The presumption against extraterritoriality is a general rule that applies "in all cases,"31 and does not permit "a case-by-case inquiry that turns on or looks to the consent of the affected sovereign."32
RJR also suggests that the statutory text and context must be exceptionally clear to show that Congress intended to give a law extraterritorial effect. Although "an express statement of extraterritoriality is not essential," the Court stated that RICO is "the rare statute that clearly evidences extraterritorial effect despite lacking an express statement."33 And even then, the Court looked to RICO's statutory context—which was simply the text of its cross-referenced predicate statutes, many of which "do expressly apply extraterritorially."34 The Court's comment about the rarity of RICO's structure implies that in most cases, a statute should not be given foreign effect unless its text expressly supports foreign application.
Finally, by recognizing that the potential "for international controversy . . . militates against recognizing foreign injury claims without clear direction from Congress,"35 the Court opened the door to limiting private enforcement actions under other statutes that might also burden other nations' legal interests. The Court singled out other nations' complaints that the uniquely American system of permitting private "bounty hunter[s]" to sue and seek treble damages "could skew enforcement and increase international business risks."36 To avoid such destabilizing effects on international comity, the Court concluded that where American law clearly risks conflicting with foreign law, "the need to enforce the presumption [against extraterritoriality] is at its apex."37
By reinforcing the lessons of Morrison and Kiobel, the Court's decision in RJR has narrowed RICO's scope and cemented the presumption against extraterritoriality as a core principle of statutory interpretation. This trio of decisions has significantly reshaped the field for parties litigating claims of misconduct outside U.S. borders.
*Snayha Nath contributed to this article. She is a Stanford Law School graduate employed at Arnold & Porter LLP. Ms. Nath is not admitted to the bar.
Slip Op., No. 15-138 (June 20, 2016).
Slip Op. at 7 (citing Morrison, 561 U.S. at 255).
The late Justice Scalia's seat remains unfilled, and Justice Sotomayor did not participate in the proceedings, presumably because she heard earlier proceedings in this case while a judge on the U.S. Court of Appeals for the Second Circuit.
See 18 U.S.C. § 1961(1).
See 18 U.S.C. §§ 1963, 1964(b).
European Community v. RJR Nabisco, Inc., 2011 WL 843957 (E.D.N.Y Mar. 8, 2011).
European Community v. RJR Nabisco, Inc., 764 F.3d 129, 136 (2d Cir. 2014).
Slip Op. at 18 (emphasis in original).
Slip Op. at 16; see also id. at 12.
Slip Op. at 9-10, 14.
Slip Op. at 20-21 & n.9.
Slip. Op. at 24-25.
Slip Op. at 25 (quotation marks omitted) (citing 15 U.S.C. § 12).
Slip Op. at 4 (Ginsburg, J., concurring in part and dissenting in part).
Slip Op. at 2 (Breyer, J., concurring in part and dissenting in part).
Slip Op. at 16 (majority op.); see also id. at 12.
Slip Op. at 22 (quoting Morrison, 561 U.S. at 261).
Slip Op. at 20 n.9 (quoting amicus brief of United Kingdom et al. in prior case).