The World in U.S. Courts: Fall 2017 - Racketeer Influenced and Corrupt Organizations Act (RICO)
Yanchukov is a Russian businessman who claimed that Finskiy, a Russian citizen holding permanent resident status in the US, defrauded him into purchasing the shares of a gold mining company whose value subsequently plummeted. None of the financial transactions was conducted by Yanchukov through US companies, nor did the mining company hold any US assets. The plaintiffs brought private RICO claims, among others, against Finskiy. Finskiy counterclaimed, including private RICO claims of his own. Both parties moved to dismiss the other's RICO claims, arguing that they alleged no US “domestic injury” as required by the US Supreme Court’s 2016 decision in the RJR Nabisco case.
Courts seeking to apply RJR Nabisco have regularly sought to address the question how to determine the location of an injury for purposes of private RICO actions. The Court noted that decisions in district courts in New York have “consistently” held that the location of a RICO injury “depends on where the plaintiff suffered the injury—not where the injurious conduct took place.” It also noted, however, that other courts have focused on conduct, out of a concern that non-US corporations would typically be deemed to have “suffered” their injury outside the US, and therefore would be unable in the normal course to bring private RICO claims. The Court made clear that it was not adopting such a black-and-white rule, observing that non-US corporations that “hold any [US] domestic assets or maintain any operations” in the US may have a basis to sue.
In the case at bar, the plaintiffs argued that they suffered a US “domestic injury” in respect of (i) “funds processed through” US banks, (ii) the loss of [US] domestic business and the inability to access American markets, and (iii) the diversion of mining company funds that Finskiy allegedly used to purchase US real estate. The Court disagreed. It rejected claims based on conduct by Finskiy that allegedly occurred in the US, including the conduct of certain business operations and the purchase of property. It also discounted alleged injuries to the mining company’s ability to do business in the US, calling these “reputational” and by definition outside the scope of the RICO statute; a contrary result, the Court stated, would allow virtually any non-US corporation to bring a RICO suit in the US based on a claim of diminished ability to participate in US markets. Because the plaintiffs “became poorer” outside the US, the Court concluded, their injury was not US domestic.
The Court then addressed Finskiy’s RICO claim, which alleged injury to the interests of a business that he “operated” out of the US, where he resides. Finskiy’s claim was also brought by corporations he controlled, and the Court dismissed these claims for the same reason it dismissed the plaintiffs’—irrespective of where they were “managed,” the corporations suffered their alleged losses outside the US, where they were incorporated and had their principal places of business.
Finskiy also alleged personal injuries, and while the Court found this a “somewhat closer call,” it concluded that the injuries were suffered outside the US. Specifically, it concluded that, while Finskiy personally resided in the US, he had not alleged an injury to a US business or “property held” in the US. At least equally important, the Court observed that Finskiy suffered certain of his alleged injury before he applied for permanent resident status in the US. Other alleged injuries were suffered in Russia after he returned there on a visit while awaiting his permanent resident status. “That Finskiy chose to flee to the US after injury in Russia does not support a conclusion that he suffered a domestic injury in the US.”
[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.]