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  • Supreme Court Limits Extraterritorial Application of Civil RICO
     
    06/27/2016
    On June 20, 2016, the Supreme Court held that, to maintain a civil claim under the Racketeer Influenced and Corrupt Organizations (“RICO”) Act, a private plaintiff “must allege and prove a domestic injury to its business or property.”  RJR Nabisco, Inc. v. European Cmty., No. 15-138, 2016 WL 3369423 (June 20, 2016).  And while the Court also separately held that a plaintiff may base a civil RICO claim on predicate acts that were committed abroad, those acts must violate underlying statutes that Congress unmistakably intended to apply extraterritorially.
     
    This case arose from a lawsuit filed in the Eastern District of New York.  The European Community and twenty-six of its member states sued RJR Nabisco and certain affiliates (collectively, “RJR”), alleging that RJR violated civil RICO by participating in a global money-laundering scheme that involved various organized crime groups.  The district court granted RJR’s motion to dismiss on the grounds that civil RICO did not apply to the alleged overseas predicate acts. 

    The Second Circuit reversed, and held that civil RICO claims could apply to extraterritorial conduct “if, and only if, liability could attach to extraterritorial conduct under the relevant RICO predicate” statute.  European Cmty. v. RJR Nabisco, Inc., 764 F.3d 129, 136 (2d Cir.), reh’g denied, 764 F.3d 149 (2d Cir. 2014), and cert. granted, 136 S. Ct. 28, 192 L. Ed. 2d 998 (2015), and rev’d and remanded, No. 15-138, 2016 WL 3369423 (U.S. June 20, 2016).  In a supplemental opinion, the Second Circuit held that plaintiffs are not required to allege a domestic injury for civil RICO claims, regardless of whether the predicate acts occurred overseas.  The Supreme Court granted certiorari.  Subsequently, the plaintiffs dismissed with prejudice their RICO claims that alleged domestic injuries.

    The Supreme Court agreed that RICO liability may attach to extraterritorial conduct, to the extent that a RICO predicate statute expressly applies to that conduct, but reversed the Second Circuit’s holding regarding domestic injury.  The Court held that a plaintiff “must allege and prove a domestic injury to its business or property” to maintain a civil RICO claim because “[n]othing in RICO’s grant of a private right of action clearly indicated that Congress intended to create a private right for injuries suffered outside the United States.”  Since the plaintiffs previously stipulated that their claims for domestic injuries should be dismissed, the plaintiffs’ remaining claims rested on injuries suffered abroad.  The Court therefore ruled that plaintiffs’ claims must be dismissed.

    While the Court did not outline what constitutes a “domestic injury,” its decision limits plaintiffs’ ability to bring civil RICO suits relating to extraterritorial conduct.  The decision should be of particular interest to global financial institutions, which have recently been subject to an increasing number of private lawsuits alleging civil RICO claims.  
    CATEGORY: Financial Fraud