District Court Finds "Pattern of Racketeering Activity" "Conceived and Orchestrated" From U.S. but Substantially Implemented Elsewhere Supports RICO Claim

The World in U.S. Courts: Spring 2014 - Racketeer Influenced and Corrupt Organizations Act (RICO)/Hobbs Act | March.04.2014

Chevron Corp. v. Donziger, U.S. District Court for the Southern District of New York, March 4, 2014

In an opinion running more than 750 pages, the U.S. District Court in New York resolves claims by Chevron, the multi-national oil company, that lawyers for a plaintiff class in Ecuador had procured a multi-billion dollar environmental judgment against Chevron by fraud, and in the process violated the U.S. RICO statute. The U.S. suit sought, among other things, equitable relief against the defendants precluding enforcement of the Ecuadorean judgment against Chevron in the U.S., and precluding the lawyer from receiving any financial benefit from the judgment.

As relevant here, the court considered the applicability of RICO to fraudulent conduct that occurred largely in Ecuador. The court first concluded that it was bound by Circuit precedent to the ruling that RICO does not apply extraterritorially, even as the court questions whether the precedent was decided correctly. Second, the court considered whether the RICO claim would, in fact, involve an extraterritorial application of the law. The court observed that the case law is split as to whether this second inquiry should focus on the geographic nexus of (i) the alleged "pattern of racketeering" giving rise to the claim or (ii) the alleged "enterprise" that must exist independent of the conduct alleged in order for there to be a RICO violation. Following a prior ruling, the court adheres to the view that it must analyze the geographic scope of the alleged "pattern of racketeering activity" to determine whether the conduct is within the scope of the statute.

In performing that analysis, the court concluded that it may look only at the relative significance of alleged acts that are illegal under U.S. law—which are the only acts that the RICO statute permits to be part of the requisite "pattern of racketeering activity"—and not the many acts alleged to have violated Ecuadorean law. In its discussion, the court criticized the recent decision of the Ninth Circuit Court of Appeals in United States v. Chao Fan Xu, which the court believed had improperly appeared to have considered the relative importance of all of the alleged misconduct by the defendant, whether U.S. or non-U.S. [Editor’s note: The Chao Fan Xu case is discussed in the Spring 2013 edition of The World in U.S. Courts.] Ultimately the court concluded that the RICO statute applied because defendants "conceived and orchestrated" an illegal scheme to injure the U.S. plaintiff. The observation that "absent the U.S. activity, there would have been no scheme" may be the closest to a specific test that appears in the opinion.

The court also concluded that Chevron’s claim under the Hobbs Act—which generally precludes bribery and extortion that injures commerce within the U.S. or between the U.S. and another country—was not impermissibly extraterritorial in nature. The court acknowledged that the statute would not apply to conduct outside the U.S., but concluded that the Hobbs Act standard required that the focus be on the defendants’ desire to enrich themselves, and this pointed to conduct in the U.S., where "the plan was hatched and run." It was not relevant to the court that the means of carrying the plan out occurred outside the U.S.

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