The World in U.S. Courts: Summer and Fall 2016 - Racketeer Influenced and Corrupt Organizations Act (RICO) | June.29.2016
As relevant here, Elsevier, a leading publisher of technical and medical journals, filed a RICO claim against a Brazilian individual and two related companies—one Brazilian and one U.S.—that allegedly bought multiple journal subscriptions at discounted rates and resold them at a profit to institutional recipients in Brazil that were ineligible for discounted pricing. The present opinion followed a trial in which the defendants were found to have violated RICO.
As a preliminary matter, the District Court in New York noted that the RJR Nabisco decision [discussed above] made irrelevant the location of the RICO “enterprise” alleged in the case at bar to have been the engine of illegal activity. It then turned to the substantive RICO claims, and observed that RJR Nabisco held that RICO violations may be based on extraterritorial conduct to the extent the underlying criminal violations claimed to constitute the “pattern of racketeering activity” have extraterritorial reach. In the present case, those violations essentially were of the Mail Fraud Statute, which has no extraterritorial application.
The Court then considered whether the individual defendant’s conduct should be considered “domestic.” Disagreeing with a number of other courts to have addressed the question, the Court found that the “focus” of the Wire Fraud Statute was the frauds themselves, and not use of the mails, and so whether conduct was “domestic” should be judged in light of the conduct effectuating the fraud. Using this analysis, the Court focused on the defendant’s establishment of a New York Corporation to effect fraudulent payments and his acquisition of a New York office for the corporation to which subscription periodicals were occasionally delivered. The Court also considered important that the fraud could not have succeeded absent the defendant’s U.S. activities.
RJR Nabisco also requires that a private plaintiff prove U.S. domestic injuries, and the Court concluded that Elsevier failed to do so. Observing that the Supreme Court had not described a test for determining the location of a RICO “injury,” the Court concluded that it would apply two tests: Where an injury to business was claimed, the location would be “where substantial negative business consequences occurred.” By contrast, if the plaintiff claimed an injury to “property,” the location of the injury would be where the plaintiff parted with the property or where the property was damaged. Using these tests, the Court concluded that Elsevier claimed an injury to its business in Brazil, where the subscriptions were illegally resold. Its alleged injury to property was defined by the Court as where Elsevier physically “parted” with the journals that it sold for too low a price (not where title changed hands), and the Court concluded that no evidence suggested that occurred in the U.S. With no U.S. domestic RICO “injury,” Elsevier could not recover.