Racketeer Influenced and Corrupt Organizations Act (RICO) - The World in US Courts: Spring 2018


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RICO Claim Against US Entities Rejected Because Injury to Potential Legal Claims Was “Suffered” Only in Non-US Location Where Plaintiff Was Based

Armada (Singapore) Pte Limited v. Amcol International Corporation, US Court of Appeals for the Second Circuit, March 26, 2018

Armada, a Singaporean shipper, entered into contracts with an Indian mining company, Ashapura, which Ashapura later breached. Armada alleged that US companies then violated the RICO statute by removing assets from Ashapura to thwart Armada’s attempts to collect damages. Armada claimed injury to its intangible property, in the form of its judgment and other claims against Ashapura. The district court dismissed Armada’s suit against the US companies, concluding that the plaintiff had not alleged the US “domestic” injury required for private suits to proceed under the US Supreme Court’s 2016 decision in the RJR Nabisco case. In this decision, the Court of Appeals affirms that dismissal.

The Court of Appeals noted that RJR Nabisco described the location of an injury for purposes of RICO as the place where it was “suffered,” but that the Supreme Court offered little guidance as to how that determination should be made. In the Bascunan case (discussed here), a different panel of judges in the Second Circuit Court of Appeals held that, absent “extraordinary circumstance,” an injury to tangible property should be deemed to occur where the property is located, even if the plaintiff resides outside the US. In this case, the Court of Appeals dealt with “intangible” property, and reached a different result: “It is well understood that a party experiences or sustains injuries to its intangible property at its residence, which for a corporation is its principal place of business.” Because Armada’s principal place of business is in Singapore, the Court of Appeals concluded that no US “injury” had occurred, and that no private RICO claim could proceed.

Payments to US Healthcare Provider by Government of Bermuda from Bermuda-Based Accounts Do Not Constitute US Domestic Injury

Government of Bermuda v. Lahey Clinic, Inc., US District Court for the District of Massachusetts, March 8, 2018

The Government of Bermuda alleged that it was defrauded by its former premier, also an operator of clinics providing government-funded healthcare, who supposedly accepted bribes in exchange for engaging in three separate schemes designed to cause unnecessary and over-priced medical services to be performed by the defendant Lahey’s medical staff. Bermuda brought RICO and related claims against Lahey in Massachusetts, where Lahey maintained operations and performed certain of the services remotely.

Lahey moved to dismiss the claim on grounds that Bermuda had not pleaded the US “domestic injury” required for a private civil RICO action to proceed. The Court first rejected Bermuda’s argument that it need only plead US conduct in connection with the scheme for a claim to lie, and turned to the question whether each of the alleged schemes caused injury in the US:

  • The “scanning scheme” allegedly involved Lahey’s reading of unnecessary MRI and CRT scans in the US Bermuda alleged the scheme caused it to expend funds unnecessarily and resulted in higher premiums for medical insurance it offered to island residents. Noting that Bermuda alleged no injury to US bank accounts or property it owned, and only financial consequences in Bermuda, the Court found this scheme alleged no US “domestic injury.”
  • The “bidding scheme” allegedly resulted in a corrupt governmental procurement process unfairly benefiting Lahey in two projects. Neither project was paid for by Bermuda, let alone from Bermuda’s US-based funds, and the Court found no US injury. It noted that, in contrast, US competitors of Lahey injured by the alleged scheme could have suffered a US injury within the meaning of RICO.
  • The “preferred provider” scheme allegedly funneled Bermudan patients to Lahey who traveled to Massachusetts to be treated or who received such services remotely. As regards this scheme only, Bermuda alleged that it paid Lahey “from and/or through Bermuda’s bank accounts, or those of its agents,” in the US, and the Court found that sufficient to allege a US “domestic” injury.

However, the Court dismissed claims based on the “preferred provider” scheme because the payments by Bermuda on which the claim was based were not alleged to have been excessive or unnecessary, or for services performed poorly. In other words, while Lahey may have been an unworthy recipient of the business, Bermuda itself was not injured economically so as to support a RICO claim.

Specific Personal Jurisdiction Based on Allegation of Scheme to Target US for Sale of Diesel Automobiles That Did Not Satisfy Environmental Requirements

In re Chrysler–Dodge–Jeep Ecodiesel Marketing, Sales Practices, and Products Liability Litigation, US District Court for the Northern District of California, March 15, 2018

The plaintiffs in this consolidated multi-district litigation sued US, German and Italian manufacturers of diesel automobiles and components alleging RICO, fraud and warranty claims in connection with an alleged scheme to bypass environmental controls. Among many issues raised, the non-US plaintiffs argued that the Court in Northern California could not assert personal jurisdiction over them.  

The Court first observed that the limits on personal jurisdiction are set by the Due Process Clause of the US Constitution, and that in cases alleging intentional torts like fraud plaintiffs must satisfy three requirements: that the defendant “purposefully directed” its conduct towards the forum, that the claim arose from or was related to those contacts, and that the exercise of jurisdiction comports with “fair play and substantial justice.” The focus of the court’s discussion was the first part of the test. The defendants argued that “purposeful direction” must be found with respect to each of the jurisdictions where consolidated cases originated. While the Court did not dispute this statement as a general matter, it also found applicable Federal Rule of Civil Procedure 4(k)(2), which provides for jurisdiction where a federal claim (like RICO) has been alleged, jurisdiction over the defendant cannot be asserted in any one State (which the defendants admitted), and the defendant have had “minimum contacts” with the US as a whole. (The Court observed that the special RICO jurisdictional provision was limited to defendants found in the US itself.)  

The Court concluded that the defendants were alleged to have had the necessary contacts with the US as a whole to support jurisdiction. “These allegations of engaging in a jointly conceived and implemented plan to manufacture and sell defective vehicles, while purposefully concealing such defects, into the United States in violation of federal and state law constitutes conduct sufficient to be deemed purposefully directed at the United States so as to constitute minimum contacts.” The defendants’ motions to dismiss on jurisdictional grounds were thus denied.

[Editor’s note: In re Chrysler–Dodge–Jeep Ecodiesel is also discussed in the Personal Jurisdiction/Forum non Conveniens section of this report.]

No US Domestic Injury Found Where Extensive US Conduct Led to Payment Made by One Korean Company to Another Korean Company, in Korea

Korea Trade Insurance Corporation v. Activeon, Inc., US District Court for the Southern District of California, March 9, 2018

The plaintiff “K-sure” is a Korean corporation whose Los Angeles office, through financial measures including export insurance policies, supports Korean companies that wish to sell their products to US customers. It alleges that it was defrauded by US agents of the Korean defendants into issuing such policies, that the policies ultimately resulted in payments totaling US$134 million, and that the defendants then defaulted on repayment obligations.

The Court considered the question whether K-sure had alleged a US “domestic” injury necessary to support a private RICO claim. Concluding that the Complaint was fairly read to allege that the payment was made from one Korean company to another, in Korea, the Court found no US injury. In so doing, it rejected K-sure’s argument that it was defrauded at its Los Angeles branch office by US-based clients acting almost exclusively in the US, for the benefit of US importers.

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