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June 20 — The U.S. Supreme Court handed RJR Nabisco a big—but narrow—win June 20 in its bid to avoid treble damages for alleged money laundering that supported terrorism ( RJR Nabisco, Inc. v. European Cmty., 2016 BL 196077, U.S., No. 15-138, 6/20/16 ).
Although the Racketeer Influenced and Corrupt Organizations Act does, in certain circumstances, apply to extraterritorial conduct, a private RICO plaintiff “must allege and prove a domestic injury to its business or property,” Justice Samuel A. Alito Jr. wrote for a splintered court.
But just what “domestic injury” means wasn't defined, and will be left for lower courts to sort out, Jeffrey E. Grell, a RICO scholar and partner at Grell Feist Prince PLC, Minneapolis, told Bloomberg BNA in a June 20 phone call.
“It is not clear that this decision will do much, if anything, to stem” the expansion in the kind of defendants and conduct that RICO reaches, Jeremy Sternberg, a partner at Holland & Knight LLP, Boston, and former federal prosecutor, told Bloomberg BNA in a June 20 e-mail.
“The use of the private right of action in the RICO statute by foreign litigants is somewhat limited,” he added.
But Roy Goldberg, a partner at Steptoe & Johnson LLP, Washington, hailed the decision as “important for U.S. companies that are being targeted by overly aggressive plaintiffs' lawyers looking far and wide to find new cases to file against large U.S. entities to leverage out a sizable money settlement.”
William Jay, co-chair of the appellate practice at Goodwin Procter LLP, Washington, expressed “some unease at the precedential status” of the opinion here.
The essential question was decided on a 4–3 vote—Justice Sonia Sotomayor recused herself, and the late Justice Antonin Scalia's seat remains empty—meaning the opinion didn't command the vote of a majority of a full-strength court.
Nevertheless the decision's “impact on RICO is important,” and the analysis “could be relevant to other statutes,” Jay told Bloomberg BNA in a June 20 call.
The European Union sued RJR under civil RICO in U.S. federal court, claiming that the company directed a money laundering scheme involving the proceeds from illegal narcotics smuggled into Europe.
It claimed that RJR's activities supported terrorism, and sued to recover for, among other things, lost tax revenues and increased law enforcement budgets.
The district court dismissed the EU's claims, saying that the alleged conduct was located and directed outside the U.S., and therefore beyond the reach of RICO.
The U.S. Court of Appeals for the Second Circuit reversed, holding that RICO has extraterritorial reach if “liability or guilt could attach to extraterritorial conduct” under a relevant predicate statute incorporated by reference in RICO.
The Supreme Court held, effectively, that this was half right.
RICO creates a private right of action to sue for damages caused by certain racketeering activities, defined by reference to certain predicate statutes.
The court was unanimous in deciding that at least some of the predicate statutes reached conduct that was extraterritorial.
The “most obvious textual clue” of this was that several of the predicate statutes “plainly apply to at least some foreign conduct,” including prohibitions on hostage taking, engaging in monetary transactions with criminally derived property, or killing a U.S. national—all outside the U.S.
But the court splintered over whether the private right of action reached harms that were extraterritorial.
“Irrespective of any extraterritorial application” of the predicate statutes, the private right of action “does not overcome the presumption against extraterritoriality,” the court said.
The court expressed concern at the “potential for international friction” that would arise from permitting a private right of action for foreign harms, citing Kiobel v. Royal Dutch Petroelum Co., 81 U.S.L.W. 4241, 2013 BL 103044 (U.S. April 17, 2013).
Goldberg agreed that there was “insufficient evidence to conclude that Congress—in enacting RICO—intended for private plaintiffs” to be able to use RICO to redress foreign injury.
“ Kiobel is recent and well-reasoned,” and the court “should strive to appear (and be) consistent,” he said.
Grell suggested that the decision was part of a long trend in the federal courts of allowing for broad criminal RICO liability, while narrowing the scope of civil RICO.
Dissenting, Justice Ruth Bader Ginsburg—joined by Justices Stephen G. Breyer and Elena Kagan—disagreed that RICO was so limited.
“One cannot extract” an extraterritorial limitation from the text of the statute, “which affords a right of action to ‘[a]ny person injured in his business or property by reason of a violation'” of the statute.
The incorporation of the predicate statutes in the section creating the private right of action incorporated their extraterritorial application, she argued.
And here, it made little sense to limit the private right of action to domestic harms, where RJR was accused of engaging in racketeering conduct in the U.S. “This case has the United States written all over it,” she said.
“In some ways, traditional roles were reversed” in this decision, Sternberg said. “Alito grounds his decision largely in policy reasons,” while “Ginsburg made a more strict textual argument.”
Grell said Ginsburg's reasoning was “perfectly sound,” but suggested that it was appropriate here for the court to consider policy implications in reaching its decision.
It is the role of the Supreme Court to fill in policy gaps, Grell said. He suggested that the majority decided to limit RICO because “otherwise U.S. courts would be trying cases with little to nothing to do with the U.S. economy,” which RICO was meant to protect.
But the decision may raise more questions than it answers, Grell suggested.
For one, lower courts will have a number of sources to draw from in determining what injuries are “domestic.” He suggested that they may draw from jurisprudence surrounding venue and personal jurisdiction.
“Domestic injury” may still turn out to have a broad meaning, and there's bound to be “some variance” in how lower courts interpret it, he said.
And then there's the issue of the 4–3 vote.
The vote breakdown matters “even if only because it opens the door to a Hail Mary pass attempt in the future to get” the decision “overturned,” Goldberg said.
Plaintiffs may wait to see who replaces Scalia and, in a case where Sotomayor isn't recused, attempt to get this decision reversed 5-4, he said.
It's “a long shot but hardly out of the question,” he said.
Jay suggested that if this is the only decision left in the term that's decided 4–3, the vote count probably isn't a big deal.
On the other hand if Fisher v. University of Texas at Austin, U.S., No. 14-981, argued 12/9/15 —the affirmative action case—comes down 4–3, “many will say that this decision isn't worth the paper it's written on,” Jay said.
Efforts to delegitimize a close decision in Fisher may give the fact that it's not a five-vote majority here some weight too, he said.
But Grell was unconvinced. “The opinion of the court matters,” he said. “Everything else is window dressing.”
For now, the case returns to the Second Circuit, although it's unclear to what end.
While the case was pending, the EU waived its damages claims for domestic injuries—perhaps, as the EU's counsel hinted at oral argument, as a litigation tactic designed to show the Supreme Court that it wasn't merely seeking a windfall (84 U.S.L.W. 1394, 3/24/16).
Thus any remaining damages claims “must be dismissed,” the court said.
Certain equitable claims remain, but there are “significant questions” whether RICO even allows equitable relief, Jay said.
“It doesn't look like anything's left” of the European Union's case, Grell said.
Gregory G. Katsas of Jones Day, Washington, argued for RJR.
David C. Frederick of Kellogg Huber Hansen Todd Evans & Figel PLLC, Washington, argued for the EU.
To contact the reporter on this story: Nicholas Datlowe in Washington at firstname.lastname@example.org
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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