The World in U.S. Courts: Spring 2017 - Racketeer Influenced and Corrupt Organizations Act (RICO)
The plaintiff is a Turkish company based in Turkey that provided food products to certain of the defendants—US corporations and residents—for resale in the US. It alleges that it was defrauded out of the proceeds of these transaction as a result of conduct, largely in the US, constituting a violation of the RICO statute. The defendants moved to dismiss the RICO claims, arguing that the complaint failed to allege a US “domestic injury” to a plaintiff’s business or property as required by the US Supreme Court’s 2016 decision in the RJR Nabisco case.
The District Court in New Jersey observed that the RJR Nabisco decision has not specified how to determine where an injury had occurred for purposes of a RICO claim, but made clear that courts were to answer the question in light of the “focus” of RICO’s private right of action, what it took to be “where the impact of [the alleged] injury was felt.” The Court reviewed the growing body of district court decisions seeking to apply this rule, finding two principal approaches, many variations, and no consensus. In the case at bar, it addressed separately three different alleged injuries.
First, the plaintiff alleged that, after the initial fraud, its injury had led to a USD 1.12 million judgment against the defendants whose value had been diminished as a result of fraudulent litigation. While acknowledging that a judgment was “property,” the Court concluded that it was a “downstream effect” of the real injury suffered by the plaintiff as a result of the initial fraud, and that only the location of the initial fraud was relevant in determining whether a US “domestic injury” had been alleged. Turning to that initial fraud, the Court focused on the place where the plaintiff “physically parted with the property in reliance” on one of the defendant’s fraudulent statements. It concluded that location was Turkey, where the plaintiff delivered its products to a third-party carrier for shipment to the US. The presence of “FOB Izmir [Turkey]” on the relevant invoices confirmed this conclusion. Finally, the Court rejected the plaintiff’s contention that it lost potential US sales and thus that its business in the US was injured, finding the location of that injury to be Turkey—“the only place [the plaintiff] was ever located.”
In the course of its decision, the Court navigated through and around the conflicting case law, suggesting that additional relevant factors in determining the location of an injury included whether the plaintiff had business operations in the US and whether a US injury might be found where the plaintiffs had communicated with US defendants via the Internet.
[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. The article points out that none of the cases that had then sought to interpret the RJR Nabisco “domestic injury” requirement appeared to follow the methodology required by that case. Cevdet adds to that record.]