The World in U.S. Courts: Winter 2018 - Racketeer Influenced and Corrupt Organizations Act (RICO)
World Depot is a Massachusetts-based distributor of cabinetry and flooring products that allegedly had an oral supply agreement with an Italian manufacturer of wood flooring. As a result of corporate transactions and other actions in Italy, the manufacturer came under new ownership which, as relevant here, allegedly interfered with World Depot’s US customer relationships and committed the RICO predicate acts of wire fraud and mail fraud that allegedly caused World Deport to be unable to serve its US customers. Two Italian defendants moved to dismiss the complaint, arguing that the Court lacked personal jurisdiction over them.
As a preliminary matter, the Court addressed a split of authority among the federal judicial circuits regarding the scope of personal jurisdiction under RICO, which contains a provision authorizing the service of complaints anywhere in the country under certain circumstances. Siding with the majority view, the Court concluded that “the plaintiff must establish that the forum state has personal jurisdiction over at least one defendant, and that service of process (and therefore the conferring of personal jurisdiction) over other defendants may occur as ‘the ends of justice require.”
The Court then addressed the question whether jurisdiction could be asserted over either of the Italian defendants. It found that “general” personal jurisdiction did not exist over the defendants, an Italian resident and an Italian business, because neither met the applicable requirement that it be “at home” in Massachusetts. “Specific” personal jurisdiction, by contrast, has three different requirements: (i) “the plaintiff’s claim must be related to the defendant’s contacts with the state,” (ii) “the defendant’s contacts with the state must be purposeful,” and (iii) “the exercise of jurisdiction must be reasonable under the circumstances.”
Addressing the first, “relatedness,” requirement, the Court explained that “the defendant’s in-state conduct must form an ‘important, or at least material, element of proof’ in the plaintiff’s case.” Here, the RICO claim was based on World Depot’s inability to serve its customers, and a Massachusetts State claim for “tortious interference” with World Depot’s business was based on the defendants’ supposed interference with World Depot’s relationship with its customers. The Court noted, however, that the first alleged injury was caused by the defendants’ actions in Italy, not in Massachusetts. That was also the case as to the second alleged injury, except for allegations of interference by the defendants with one Massachusetts customer of World Depot. The Court thus considered the defendants’ contacts with the forum to have only a “slight connection” to the tortious interference claims, because “virtually the entirety of defendants’ conduct occurred in Italy.” That conduct, moreover, was principally directed towards another Italian company. On balance, the Court concluded that World Depot’s claims were only “marginally related” to the defendants’ in-State contacts.
Turning to the second specific personal jurisdiction requirement, the Court noted that “purposeful availment” of the benefits of Massachusetts law could be shown even where a defendant had not physically been present in the State through the solicitation of business from in-State customers. This had been alleged and so the Court deemed this portion of the test at least arguably satisfied.
The third part of the test requires that the exercise of jurisdiction be “reasonable and fundamentally fair” in light of five factors. Those factors, and the Court’s evaluation of their application in this case, are as follows: (i) the defendant’s burden of litigating in the forum (‑‑potentially significant for Italian defendants accused of violating Italian law, where almost all discovery would occur in Italy); (2) the forum State’s interest in adjudicating the dispute (‑‑relatively modest because almost all of the relevant conduct occurred in Italy); (3) World Depot’s interest in obtaining convenient and effective relief (‑‑deemed significant, as a resident plaintiff’s choice of a local forum is entitled to deference); (4) the judicial system’s interest in obtaining the most effective resolution of the controversy (‑‑the US court, unlike an Italian court, would not easily be able to address issues of Italian law and evidence where witness testimony and documents would principally be in Italian); and (5) the common interests of all sovereigns in promoting substantive social policies” (‑‑inconclusive here, as Massachusetts’ interest in protecting its citizens is balanced by Italy’s interest in regulating the conduct of its citizens in Italy). The Court weighed these factors and concluded that the exercise of jurisdiction was not reasonable. On this basis, it dismissed the complaint.
It is worth noting the Court’s observation that RICO’s expansive provisions for personal jurisdiction create an opportunity for abuse, as a plaintiff might try to use an infirm RICO claim to secure jurisdiction over defendants that could not otherwise be sued in the forum. It thus recognized that courts should be “particularly vigilant” in ensuring at an early stage that RICO claims are not “spurious,” and in following this advice the Court concluded, in dictum, that the complaint failed to state a RICO claim.
[Editor’s note: the World Depot case is also discussed in the Personal Jurisdiction/Forum non Conveniens section of this report.]