Opinion analysis: In the end, RJR prevails in European Community’s RICO lawsuit
on Jun 20, 2016 at 3:49 pm
Today the Supreme Court may have written the final chapter in the European Community’s sixteen-year-old battle against tobacco giant RJR Nabisco. The Justices unanimously agreed with the European Community and twenty-six of its member states that the federal Racketeering Influenced and Corrupt Practices Act, a 1970 law originally enacted to target organized crime, can in some circumstances apply to conduct that occurs outside the United States – for example, the European Community’s allegations that RJR was part of an international money-laundering scheme that included foreign drug traffickers and the sale of cigarettes to Iraq. But that victory proved to be illusory for the EC, as the Court also ruled that a private plaintiff (unlike the government bringing a criminal prosecution) must show an injury within the United States, which the EC has not done.
In his decision for the Court, Justice Samuel Alito began with the preliminary good news for the EC’s legal theory. As a general rule, U.S. laws apply outside the United States only when Congress has made its intent clear – a principle known as the “presumption against extraterritoriality.” To be held liable under 18 U.S.C. § 1962, which sets out the conduct that RICO prohibits, RJR must have been involved in an enterprise that operates through a pattern of racketeering activity – at least two related and continuous acts of racketeering activity within a ten-year period. And the law lists a series of federal and state crimes, known as “predicate acts,” that can qualify as racketeering activity. Although nothing in RICO specifically indicates that RICO applies to patterns of racketeering activity in foreign countries, there are predicate acts that do undoubtedly apply to conduct overseas, such as the bar on killing a U.S. citizen outside the country. So as long as the predicate acts on which the European Community is relying apply outside the United States, the Court explained, then RICO would also apply to allegations of foreign racketeering activity by RJR. And, the Court continued, that appears to be the case here, because RJR does not contest that the five predicate offenses either took place in the United States (for example, wire and mail fraud, as well as violations of a federal law that prohibits travel to facilitate the commission of a crime) or happened in another country, in violation of a law that applies outside the United States.
But then came, for the EC, the bad news. Even if RICO itself applies to conduct that occurs outside the United States, the Court ruled, the part of RICO that allows private plaintiffs like the EC to file civil suits in U.S. courts (including for treble damages) does not apply to injuries outside the United States. Instead, to maintain its lawsuit against RJR, the EC would have to show that it was injured in the United States. Imposing this requirement for private lawsuits makes sense, the Court reasoned, even when RICO itself applies to the foreign conduct, because allowing lawsuits in U.S. courts for foreign conduct creates the very real possibility of international conflict. Moreover, nothing in the text of RICO clearly indicates that Congress meant to allow private lawsuits to recover for injuries outside the United States. Because the European Community had agreed earlier in the proceedings to drop its claims to recover for injuries that occurred within the United States, the Court concluded, all of its remaining claims for damages are based on injuries that occurred overseas and therefore cannot go forward.
Justice Ruth Bader Ginsburg, joined by Justices Stephen Breyer and Elena Kagan, parted ways with the Court on the question whether a private lawsuit under RICO requires an injury in the United States. So on that key question the Court divided four to three. (Justice Sonia Sotomayor did not participate in the case, presumably because she was involved in the case when she was a judge on the U.S. Court of Appeals for the Second Circuit; if she had participated, there is a good chance the case would have been a four-four tie.) In the dissent’s view, nothing in the text of RICO suggests that private lawsuits are limited to cases involving domestic injuries. To the contrary, Ginsburg contended, the part of the law allowing a private lawsuit specifically permits such lawsuits when there is a violation of RICO Section 1962 – which, she noted, the Court has just interpreted to apply to foreign conduct. The EC’s case, she pointed out, demonstrates why it “makes little sense” to impose a domestic-injury requirement: “All defendants are U.S. corporations, headquartered in the United States, charged with a pattern of racketeering activity directed and managed from the United States, involving conduct occurring in the United States.” “In short,” she closed, “this case has the United States written all over it.”
Today was certainly a good day for RJR Nabisco. But there was another winner as well: the federal government. Like the EC, the United States had urged the Court to rule that, at least in some circumstances, RICO applies extraterritorially. But it had agreed with RJR that RICO’s private treble-damages remedy is only available for plaintiffs that can show an injury in the United States. So the Court’s ruling today reduces the likelihood that the federal government will have to deal with foreign policy problems created by pesky private lawsuits in U.S. courts, while at the same time preserving the federal government’s own option to bring RICO lawsuits involving foreign conduct.