The World in U.S. Courts: Fall 2017 - Racketeer Influenced and Corrupt Organizations Act (RICO)
This action is part of a larger purported class action claim brought by purchasers of insurance from underwriters associated with the London-based insurance marketplace, Lloyd’s of London. The underlying antitrust claim is that purchasers of insurance through Lloyd’s were overcharged because of anticompetitive agreements. This decision addresses the sufficiency of the plaintiffs’ RICO claim, which is based on an alleged failure to disclose a conspiracy between the defendants and insurance brokers to conceal the allegedly anticompetitive rates. Among other issues, the District Court in New Jersey considered whether the claim involved an impermissibly extraterritorial application of the RICO statute.
Under the US Supreme Court’s 2016 decision in the RJR Nabisco case, substantive RICO claims have extraterritorial application to the extent the plaintiffs allege a “pattern of racketeering activity” premised on violations of underlying criminal provisions (RICO “predicate statutes”) that themselves have extraterritorial reach. In the case at bar, the defendants allegedly committed wire fraud and mail fraud (both RICO predicate statutes) in representations made to US purchasers of insurance. The defendants, non-US entities who argued that their relevant actions occurred in the UK, sought to dismiss the RICO claim as outside the geographic scope of the wire and mail fraud statutes.
The Court concluded that neither the wire fraud nor the mail fraud statute applies extraterritorially, but also concluded that the complaint alleged US domestic violations of both predicate statutes. The alleged wire fraud violation consisted of electronic communications sent across US state lines and from the UK to the US The Court analyzed the mail fraud statute differently, noting first that the defendants’ alleged “scheme or artifice to defraud” “foreseeably” caused communications to be sent through the U.S Mail and/or a private interstate carrier. Alternatively, the Court found the mail fraud statute was satisfied because the alleged scheme was “directed in large part” at customers in the US, citing the fact that US customers accounted for a large percentage (44% or 70%, depending on the measure) of the gross premiums in the Lloyd’s Market.
[Editors’ note: On October 30, 2017, the first appellate decision addressing the extraterritorial application of the private civil RICO statute was issued, reversing in part the district court’s decision in Bascuñán v. Elsaca , which was covered in the Summer & Fall 2016 edition of The World in US Courts . Our commentary on the Court of Appeals’ decision was published by Law360 on November 3, 2017, and may be found here.]
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