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Supreme Court Rejects "Bright Line" Test as a Dim Domestic Answer for Jurisdiction in RICO Claims

June 27, 2023

Vitaly Smagin, a Russian living in Moscow, has been trying for some years to collect a multibillion arbitration award against Ashot Yegiazarayan, a Russian who has been living in California since 2010. His efforts included getting a judgment on the award in California under the New York Convention, which allows awards to be pursued by obtaining judgments in multiple countries, with only double recovery impermissible.

Smagin alleged that Yegiazarayan had conspired with his Monaco Bank to take steps to frustrate enforcement both inside and outside the USA, orchestrated by Yegiazarayan from California, and for which he had been held in contempt of court there.

The Racketeer Influenced and Corrupt Organizations Act (RICO) of 1970 (18 U.S.C. § 1964(c)) created a private right of action for anyone who has “suffered injury in his business or property” proven to have been caused by the notoriously elastic range of “bad acts” that can constitute a “pattern of racketeering activity” under § 1962 of RICO.

To be able to plead a RICO claim, Smagin needed to show that he had suffered a “domestic injury” as required by the Supreme Court in RJR Nabisco, Inc. v. European Community, 579 U.S. 325, 334 (2016), a case where it was common ground that all of the bad acts complained of had happened outside the United States, but which left open (in a footnote) the question of whether § 1964(c) could be invoked by persons based outside the United States.

Yegiazarayan hoped that the Supreme Court would buy the narrow bright line test that "a domestic injury" of financial harm, which RICO targets, is always incurred where the plaintiff is based and that the place where the conduct occurs does not overcome that residency requirement.

The Court spotted that this bright line test could yield the distinctly dim result that a US citizen who had suffered financial harm to her business or property in the United States from acts all committed there, might have no cause of action if she happens to live in the Bahamas.  So, the Court applied a fact-based assessment to the domestic injury test, more closely aligned to the approach in Europe and the UK, which tends to treat both the place where acts causing harm happened and where the damage is suffered as ingredients potentially attracting jurisdiction.

The net result is that courts will apply a case-by-case analysis to the United States contacts of any RICO scheme.  It is likely that we will see far more civil RICO cases pleaded over the next few years with litigants arguing the details of fraudulent schemes.  It is also likely that different judges and circuits may reach different conclusions on similar factual matrices depending on their analyses of the network of contacts.

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The foregoing is for informational purposes only.  It is not intended as legal advice and no attorney-client relationship is formed by the provision of this information.