Opinion ID: 2758262
Heading Depth: 3
Heading Rank: 2

Heading: Extraterritoriality of RICO

Text: Entirely separate from the issue of class certification, Meisels raises an additional claim that challenges whether the district court had subject matter jurisdiction over the claims in this case. He contends that the extent to which RICO applies to conduct outside the United States—or “extraterritorially”— influences the power of the federal courts to hear this matter. By framing this issue as one of jurisdiction, Meisels in effect broadens the limited scope of Rule 23(f) review and asks us to consider prematurely the merits of plaintiffs’ RICO claims. But this argument contravenes the Supreme Court’s explicit guidance in Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010). In Morrison, the Court found that the extent to which a statute applies extraterritorially proceeds exclusively as a merits issue, not a question of jurisdiction: “[T]o ask what conduct [a statute] reaches is to ask what conduct [a statute] prohibits, which is a merits question.” Id. at 2877 (emphasis added). And so, while we can dismiss a case for want of subject matter jurisdiction at any time during the pendency of an action, Mires v. United States, 466 F.3d 1208, 1211 (10th Cir. 2006), a Rule 23 interlocutory appeal permits us to consider the merits of the class’s claims only to the extent that they overlap with the Rule 23 factors. Thus, an independent review of the merits, untethered to Rule 23, is outside the scope of that review. Shook I, 386 F.3d at 971. -40- Courts addressing the issue since the Supreme Court’s decision in Morrison have evenly determined that the extraterritoriality of RICO is a question of whether the plaintiffs have stated a claim, not whether the court properly has subject matter jurisdiction. See, e.g., United States v. Chao Fan Xu, 706 F.3d 965, 977 (9th Cir. 2013), as amended on denial of reh’g (Mar. 14, 2013); Norex Petroleum Ltd. v. Access Indus., Inc., 631 F.3d 29, 31 (2d Cir. 2010). That is the identifiable lesson from Morrison, and Meisels offers no compelling reason why a straight-forward application of it does not apply here. Despite Morrison’s clear guidance, the parties treat the issue of RICO’s extraterritoriality as a dispositive jurisdictional issue, even at the class certification stage of the proceedings. This is in error, but we pause briefly to address the parties’ contentions. The district court found, and the parties do not dispute, that RICO does not apply extraterritorially. See CGC Holding Co. v. Hutchens, 824 F. Supp. 2d 1193, 1210 (D. Colo. 2011). But this case poses a slightly different issue; namely, whether the complaint alleges a domestic application of RICO despite its extraterritorial tenor given the Canadian persons and entities. To understand whether an extraterritorial obstacle exists, the Supreme Court tells us to consider Congress’s “focus” in enacting the examined legislation. Morrison, 130 S. Ct. at 2884. In other words, did Congress intend a statute to encompass conduct outside the United States so as to overcome the -41- general “presumption against extraterritoriality,” or was the focus primarily on domestic conduct? Id. Courts have gone in two directions in identifying the “focus” of RICO. On one side, a collection of courts have found that the focus of RICO is its nerve center, the nefarious enterprise. Mitsui O.S.K. Lines, Ltd. v. Seamaster Logistics, Inc., 871 F. Supp. 2d 933, 938–40 (N.D. Cal. 2012); Cedeno v. Intech Group, Inc., 733 F. Supp. 2d 471, 473 (S.D.N.Y. 2010) aff’d sub nom. Cedeno v. Castillo, 457 F. App’x 35 (2d Cir. 2012); Farm Credit Leasing Servs. Corp. v. Krones, Inc. (In re Le-Nature’s, Inc.), No. 9-MC-162, 2011 WL 2112533, at  n.7 (W.D. Pa. May 26, 2011); In re Toyota Motor Corp., 785 F. Supp. 2d 883, 914 (C.D. Cal. 2011); European Cmty. v. RJR Nabisco, Inc., No. 02-CV-5771, 2011 WL 843957, at  (E.D.N.Y. Mar. 8, 2011). The appeal of focusing on the nerve center of the enterprise is its administrative ease and consistency. See Mitsui O.S.K. Lines, 871 F. Supp. 2d at 940–41. Moreover, attention on the nerve center comports with the purpose of RICO, which punishes racketeering activity in connection with an enterprise, not simply the predicate acts, which are separate offenses. European Cmty., 2011 WL 843957, at . On the other side, a collection of courts have found that RICO’s focus is the pattern of racketeering activity. United States v. Chao Fan Xu, 706 F.3d 965, 975–76 (9th Cir. 2013); Chevron Corp. v. Donziger, 871 F. Supp. 2d 229, 243–46 (S.D.N.Y. 2012); United States v. Philip Morris USA, Inc., 783 F. Supp. 2d 23, 29 -42- (D.D.C. 2011). The genesis of this position is pre-Morrison Supreme Court jurisprudence that insisted that “the heart of any RICO complaint is the allegation of a pattern of racketeering.” Agency Holding v. Malley-Duff Assoc., 483 U.S. 143, 154 (1987) (emphasis omitted). In addition, “[t]his approach . . . would afford a remedy to a U.S. plaintiff who claims injury caused by domestic acts of racketeering activity without regard to the nationality or foreign character of the defendants or the enterprise whose affairs the defendants wrongfully conducted.” Donziger, 871 F. Supp. 2d at 244. The landscape surrounding RICO’s enactment also suggests that it was intended to reach at least some enterprises operating out of foreign countries. The district court’s decision lands within this latter group of courts, applying the so-called predicate acts approach. See CGC Holding Co., 824 F. Supp. 2d at 1209. (“[T]he conduct of the enterprise within the United States was the key to its success.” (emphasis added)). Indeed, the opinion below was cited as persuasive authority in several subsequent cases, including United States v. Chao Fan Xu, 706 F.3d 965, 979 (9th Cir. 2013), and Chevron Corp. v. Donziger, 871 F. Supp. 2d 229, 243–45 (S.D.N.Y. 2012). Looking to the plain language of the legislation does not provide a conspicuous answer to which approach Congress favored when it enacted RICO. And neither approach is unimpeachable. For example, courts applying the enterprise approach have recognized its limitations, noting “hard cases” may -43- present particularized facts surrounding the enterprise’s home base that may not be as predictable. European Cmty., 2011 WL 843957, at . And by a similar token, the predicate acts approach is subject to criticism because it does not lend itself to an obvious limiting principle. Under its logic, a RICO claim involving domestic predicate acts—which is to say, every RICO claim—would be potentially viable even when the enterprise, victims, and schemes are almost completely foreign. In the end, notwithstanding the parties’ attention to this issue, we need not resolve finally which approach is preferred in the circuit. On this interlocutory appeal, we do not decide the merits of plaintiffs’ claims, including the extent to which those claims involve an extraterritorial application of RICO. Since the question of the extraterritoriality of a statute is a merits question, resolving it must await a final disposition from the court below.