In 2016 the Supreme Court held that RICO only applies to extraterritorial (foreign) conduct to the extent the relevant predicate acts specifically state that they have extraterritorial application. This has been fairly easy for courts to apply and for lawyers to understand. But the same decision, RJR Nabisco v. European Community, also held that RICO’s civil damages provision, 18 U.S.C. 1964(c), requires a “domestic injury.” The statute says nothing about a “domestic injury,” and that part of the opinion was vigorously opposed by four justices. The opinion did not even indicate precisely what a “domestic injury” is. It left that to the lower courts to thrash out.
In the ensuing years three Circuits have adopted “context specific” analyses to the question, focusing on the location of the property which has been damaged, the residency of the plaintiff and the place where the predicate acts were committed. One Circuit, the Seventh, adopted what the Supreme Court categorized as a “rigid residency-based test.” That means the domestic injury requirement is determined solely by where the plaintiff lives. Most recently the Ninth Circuit decided Smagin v. Yegiazaryan, in which both parties are Russian citizens, in favor of the plaintiff because his injury was committed in and “targeted” at California. The defendant argued in favor of the Seventh Circuit’s residency-based analysis, and the Supreme Court took the case to resolve the split.
The facts of the case are unusual and worth examining. The plaintiff, Smagin, had an $84 million arbitration award against the defendant and brought an enforcement action in federal court in California. He obtained a judgment and tried to collect but learned that the defendant was hiding his assets in shell companies. Smagin then filed a RICO suit against the defendant and others who were helping him, including a bank, alleging the steps taken to thwart collection were predicate acts, wire fraud and obstruction of justice. The district court dismissed the suit on the ground that Smagin did not have a domestic injury because he is a Russian citizen. The Ninth Circuit, applying a “context specific” analysis, concluded Smagin had a domestic injury because the defendant was residing in California and (though he is a Russian citizen) the predicate acts occurred in California and were designed to subvert enforcement of a California judgment.
The Supreme Court affirmed the Ninth Circuit’s “context specific inquiry” turning on the facts. But it did not specify what facts are to be considered dispositive. So, as the six-justice majority opinion acknowledged, “what is relevant in one case… may not be pertinent in another.” This, like so many prior Supreme Court decisions interpreting RICO, is not satisfying to the lawyer trying to assess a potential case. And the three dissenting justices criticized the majority for “offering virtually no guidance to lower courts, and it risks sowing confusion…”
The decision offers some clarity as to what a “domestic injury” is by eliminating the residency test, but the dissent is correct that it sows a great deal of confusion. Perhaps the Court should acknowledge the domestic injury requirement was poorly constructed from the start.