Court of Appeals Affirms Dismissal of RICO Complaint on Res Judicata Grounds, Despite Issue Having Been Resolved "Without Prejudice" in Arbitration

The World in U.S. Courts: Spring 2015 - Racketeer Influenced and Corrupt Organizations Act (RICO)

V Cars, LLC v. Chery Automobile Co., Ltd., U.S. Court of Appeals for the Sixth Circuit, March 2, 2015

V cars, a U.S. automobile manufacturer, sued a Chinese counterparty and individuals for RICO violations arising out of alleged bribery and corporate espionage designed to steal V Cars' trade secrets. In prior proceedings, V Cars' case was dismissed upon a finding that agreements between the parties required that the dispute be submitted to arbitration in Hong Kong. That arbitral proceeding ultimately resulted in a ruling against V Cars on its RICO claim, on grounds that the alleged violation reflected an impermissibly extraterritorial application of the statute. V Cars then filed a new action in the U.S., based on the tribunal's statement that its ruling was "without prejudice" to any statutory rights that V Cars might possess under RICO.

The Court of Appeals affirmed the trial court's decision that the arbitration reflected a binding prior litigation that, consistent with principles of res judicata, could not be reviewed in a new case. The Court of Appeals first concluded that the arbitral tribunal's determination that the V Cars' claim sought an impermissibly extraterritorial application of RICO was a determination on the merits—not one merely relating to the tribunal's jurisdiction. The Court of Appeals then ruled that the designation of the tribunal's ruling as being "without prejudice" could not override the fact that a substantive determination had been made, and that res judicata thus applied. Dismissal of V Cars' new action was affirmed.

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