District Court finds “Domestic Injury” where Eastern European Plaintiffs had been Defrauded into Making Purchases of Automobiles on US-Based Websites

The World in U.S. Courts: Winter 2016 - Racketeer Influenced and Corrupt Organizations Act (RICO)

Akishev v. Kapustin, US District Court for the District of New Jersey, December 8, 2016

This “labyrinthine” case involved Eastern European plaintiffs who were defrauded by US-based defendants into purchasing over the Internet misrepresented or nonexistent cars for delivery to Eastern Europe.  The plaintiffs, who “never set foot in the United States,” wired money to the US defendants from foreign bank accounts.  Civil RICO claims against the defendants were based on violations of the criminal mail fraud and wire fraud statutes, and the Court ultimately found them meritorious and entered an order freezing the defendants’ assets.  A third-party who had also obtained a judgment against the defendants in a different case sought to have the freeze lifted so it could collect its damages, arguing that the Court had improperly given RICO extraterritorial effect.

After reviewing the Supreme Court’s RJR Nabisco decision (but no later authority), the Court concluded that a “domestic injury” had occurred and therefore the RICO claim was not impermissibly extraterritorial:  “The key to this case is that plaintiffs suffered their injuries the moment they clicked the computer mouse – on a United States-based website representing United States-based car dealerships – and ordered and paid for a car whose condition was materially misrepresented or did not even exist at all.”   The Court found compelling policy arguments to support its view that the question whether a US domestic injury occurred could depend on the conduct of the defendants:  “To rule this case outside [RICO’s private right of action] would allow the United States to become a haven for internet fraud despite Congress’ dual intent both to create a private cause of action under RICO and incorporate predicate acts of mail and wire fraud which extend expressly to transactions affecting foreign commerce.  * * * Plaintiffs should be afforded the same remedies available to a United States citizen who purchased a car from defendants in the exact same manner and were defrauded in the same exact scheme.”   The Court noted that a different result would attach had the plaintiffs purchased their cars from the Russian branch of an American car dealer, and “[i]mportantly” that the plaintiffs had not engaged in forum-shopping to avoid more appropriate but less favorable local remedies.

[Editor’s note:  The “domestic injury” requirement for a private right of action under RICO was recently the subject of an article by editors of The World in US Courts, which may be found here.]

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