As predicted in past entries, the Supreme Court has decided European Community v. RJR Nabisco Co. in a way that allows some RICO cases involving foreign criminal conduct to proceed in US courts. To reiterate the basic facts of this complex case, the European Community (now the E.U.) is suing cigarette manufacturer RJR Nabisco Co. for smuggling cigarettes into its member states and selling them on the black market without paying import and value added taxes. (There are other crimes involved in the scheme including money laundering, but I will ignore them.) Some of these RICO violations involve federal criminal statutes Congress added to RICO which expressly apply abroad. Others such as the wire fraud and travel act statutes have no express extraterritorial application. The Second Circuit held the case was not extraterritorial, thus not violating the Supreme Court’s long-established rule against allowing U.S. statutes to apply abroad unless Congress expressly says so. RICO has no such express extraterritorial application.
The Supreme Court held that in determining whether RICO applies to extraterritorial conduct, courts must apply a two-step analysis. First, the court must decide if the law overcomes the presumption against extraterritorial application. And then, only if the answer is no, should the court proceed to decide the second step, determining if the case involves a “domestic application of the statute?”
The Court decided to the extent the European Community’s RICO claim was premised on RICO predicate acts that expressly apply to foreign conduct, the claim overcomes the presumption of extraterritoriality at step one. The fact that the RICO enterprise was foreign is irrelevant. Additionally, and I think this is a very important holding, the Court held that the case could proceed based on the alleged violations of the wire fraud and travel act statutes if those violations occurred in the U.S., which is alleged.
So up to that point, the Court unanimously allowed the European Community’s RICO case to proceed. But then the Court divided on the question as to whether there needs to be a “domestic injury” under 18 U.S.C. 1964(c), RICO’s private right of action. Four justices led by Samuel Alito held there is such a requirement, thus dooming the European Community’s case. Its injuries occurred abroad. Justices Ginsburg, Kagan and Breyer, reading 1964(c) according to its text, rejected the idea Congress intended that the private right of action be limited to domestic plaintiffs. Ironically, the four justices who imposed the domestic injury requirement constitute the “conservatives” usually wedded to textualist interpretation. (Though Justice Scalia died before the case was argued so obviously did not vote.) They clearly are uncomfortable with foreign plaintiffs suing in U.S. courts for injuries which occurred abroad even if the actual crimes (RICO predicate acts) occurred in the U.S. by an American company or person.
I agree with the three dissenters on the domestic injury question. Congress indicated no such limitation in the law itself, and previously the Court relied upon the Clayton Antitrust Act, upon which 1964(c) was predicated, in interpreting 1964(c). It allows foreign injuries. If foreign injuries are allowed in antitrust, why not RICO? The conservative bloc did not give a persuasive answer. And since the European Community has waived any domestic injury, its case cannot proceed under 1964(c) for money damages. The Court noted it is also seeking an injunction, but did not decide whether injunctive relief is available in civil RICO cases, an open question on which there is a circuit split.
To conclude, this decision gives long-needed guidance to the lower courts on the crucial question of extraterritoriality in RICO. Many such cases can now proceed. The most controversial question in RICO has largely been clarified.