The Supreme Court’s decision in RJR Nabisco v. European Community requires a civil RICO plaintiff to have a “domestic injury.” It threw out the European Community’s case because it conceded its injury, lost tax revenues, occurred abroad, in Europe. That concession allowed the Court to decide the case without telling us what a “domestic injury” is. If a Delaware corporation with an office in Europe is defrauded by another European company has it suffered a “domestic injury?” Is the place of the injury where the plaintiff is located, where the fraud (RICO violation) occurred or where the defendant can be found? The Court realized “the application of this rule in any given case will not always be self-evident.” That means the lower courts will disagree for years to come. You can click to read more.
The first case to grapple with this since June was brought by a Chilean citizen suing other Chileans for stealing his assets. The large sum of money involved was being held at a New York bank and was physically taken from New York to Panama. That is to say the actual RICO violations occurred in the U.S. But the district judge, applying New York choice of law rules, held the injury was foreign. In the judge’s view the proper question was “who became poorer and where did they become poorer?” Under that analysis, the Chilean plaintiff/victim effectively pled himself out of court. He argued the analysis should be guided by New York jurisdictional law’s “long arm” analysis, which would have allowed a state court to exercise jurisdiction over the case and the Chilean defendants because the tort occurred in the state. It seems counter-intuitive that a state court could hear the case under ordinary tort law but a federal court cannot even though RICO is a statutory tort. But that is the result. Presumably the Chilean plaintiff will now have to decide whether to appeal to the Second Circuit or refile the case in New York state court. Bascunan v. Yarur ELS, 2016 WL 5475998 (S.D.N.Y. 2016).
The reliance on state law to determine the place of the injury is troublesome. There is ample federal precedent dealing with the place of injury in securities law and other statutes (the Supreme Court did not follow the antitrust decision which would have allowed the case to be heard). It seems the court should have at least considered federal law. RICO is, of course, not a state law. Why should the outcome of this decision turn on New York law? I hope the Second circuit will decide this case.
In the meantime, any foreign plaintiff with a RICO case should be prepared to show why federal law provides a better answer.