Opinion ID: 814677
Heading Depth: 4
Heading Rank: 1

Heading: Focus on the Enterprise

Text: Two district courts in the Second Circuit have concluded that the focus of RICO is on the enterprise—specifically, domestic enterprises. In Cedeno, 733 F. Supp. 2d at 472, the district court addressed extraterritorial application of RICO in a civil action seeking damages arising out of a wide-ranging money laundering scheme through which Venezuelan nationals used United States banks as conduits for fraudulently obtained funds. The scheme’s contacts with the United States were limited to the movement of currency into and out of New York bank accounts. Id. After determining that the focus of RICO is on “the enterprise as the recipient of, or cover for, a pattern of racketeering activity,” the court held that “RICO does not apply where . . . the alleged enterprise and the impact of the predicate activity upon it are entirely foreign.” Id. at 474. In European Community, 2011 WL 843957, at , the district court, upon examining the elements of RICO, concluded that “the statute does not punish the predicate acts UNITED STATES V . XU 15 of racketeering activity—indeed, each predicate act is, itself, a separate crime—but only racketeering activity in connection with an enterprise.” Thus, the “object of [RICO’s] solicitude, and the focus of the statute” is the enterprise. Id. (internal quotation marks omitted). The court concluded that a RICO enterprise “must be a domestic enterprise.” Id. Determining the geographic location of an enterprise—whether foreign or domestic—is a difficult inquiry, however. See Chevron, 2012 WL 1711521, at  (“the emphasis on whether the RICO enterprise is domestic or foreign simply begs the question of how to determine the enterprise’s character.”). Two district courts have addressed the issue of determining geographic location by utilizing the “nerve center” test. See European Cmty., 2011 WL 843957, at –6; Mitsui O.S.K. Lines, 2012 WL 1657108, at –5. The nerve center test originated as “the vehicle of choice” in determining the principle place of business for a corporation when analyzing a federal court’s diversity jurisdiction. See European Cmty., 2011 WL 843957, at  (internal quotation marks omitted) (citing Hertz Corp. v. Friend, 130 S. Ct. 1181, 1192 (2010)). The nerve center test focuses on where the enterprise’s decisions are made, as opposed to carried out, and thus centers on the “brains” of an enterprise, not the “brawn”. European Cmty., 2011 WL 843957, at . European Community and Mitsui O.S.K. Lines entailed a fairly straightforward application of the nerve center test that resulted in different conclusions regarding extraterritoriality. The European Community court concluded that a moneylaundering scheme that originated in South America and Europe “issued from those criminal organizations located in South America and Russia—not . . . in the United States,” 16 UNITED STATES V . XU and, consequently, the enterprise was extraterritorial. 2011 WL 843957, at –3, . Mitsui O.S.K. Lines involved a fraudulent shipping scheme conceived by United States corporations but executed primarily overseas. 2012 WL 1657108, at , . In that case, the decision making process of the criminal enterprise “occurred substantially within the territory of the United States,” and, thus, the enterprise was considered domestic. Id. at . Both courts emphasized the administrative ease, familiarity, and consistency of the nerve center test. European Cmty., 2011 WL 84397, at ; Mitsui O.S.K. Lines, 2012 WL 1657108, at . Both courts realized, however, that application of the nerve center test could lead to “artificially simplified results,” Mitsui O.S.K. Lines, 2012 WL 1657108, at , and that “hard cases” will arise that do not “in all instances, automatically generate a result,” European Cmty., 2011 WL 84397, at . Indeed, as the Supreme Court has noted, “it is a rare case of prohibited extraterritorial application that lacks all contact with the territory of the United States.” Morrison, 130 S. Ct. at 2884 (emphasis in original). The case before us presents just such a hard case that illuminates the inadequacy of the nerve center test and the enterprise-based model upon which it relies. As the Chevron court pointed out, the nerve center test could “produce absurd results” when applied to a hypothetical criminal prosecution of two separate corporate entities—one foreign and one domestic—both engaged in the same pattern of criminal activity in the territorial United States. See Chevron, 2012 WL 1711521, at . The court labeled “risible” the notion that the domestic corporation would be culpable whereas the foreign corporation would be immune from prosecution UNITED STATES V . XU 17 simply because its ringleaders had the forethought to incorporate overseas. Id. This is sound reasoning. The geographic location of an enterprise may be relevant under certain factual scenarios, like the criminal schemes at issue in European Community and Mitsui O.S.K. Lines. But in a case like this one, where the “brains” of the operation were located overseas but the enterprise violated United States immigration law in the United States, “there is no necessary or . . . even probable connection between where the RICO enterprise makes its decisions and whether the application of RICO to the racketeering activity at issue . . . was the sort of activity with which Congress would have been concerned.” Chevron, 2012 WL 1711521, at . Moreover, while administrative simplicity may be “a major virtue in a jurisdictional statute.” Hertz , 130 S. Ct. at 1193, a statute’s extraterritorial reach is a merits question, not a question of subject-matter jurisdiction. See Morrison, 130 S. Ct. at 2877 (“to ask what conduct [a statute] reaches is to ask what conduct [a statute] prohibits, which is a merits question.”). Therefore, an inquiry into the application of RICO to Defendants’ conduct is best conducted by focusing on the pattern of Defendants’ racketeering activity as opposed to the geographic location of Defendants’ enterprise.