The 2nd Circuit can’t agree on reach of civil RICO. Next stop SCOTUS?

April 15, 2015

(Reuters) – If there was any doubt about the complexity of applying the U.S. Supreme Court’s 2010 ruling in Morrison v. National Australia Bank to the Racketeer Influenced and Corrupt Organizations Act, it was resolved Monday by the 2nd U.S. Circuit Court of Appeals in a case called European Community v. RJR Nabisco. To be clear: the 2nd Circuit didn’t resolve the issue of RICO’s extraterritorial reach, although a majority of court declined to hear the RJR case en banc. But the appeals court decision – which included four dissenting opinions from five 2nd Circuit judges – confirms the difficulty of deciding when plaintiffs can bring civil RICO suits based on alleged crimes that took place abroad.

Eight of the 13 judges who reviewed the en banc petition by RJR’s lawyers at Jones Day opted to let stand a three-judge panel opinion from last April that permitted the EC to move forward with a RICO case accusing RJR of participating in a global money-laundering scheme. The majority agreed with last April’s panel that the key question is whether the alleged underlying crimes – “predicate acts,” in RICO parlance – are addressed in U.S. laws that reach overseas.

“The RICO statute explicitly states that acts ‘indictable under’ the specified statutes constitute ‘racketeering activity,’ to which RICO liability attaches, and many of these predicate statutes expressly provide that foreign conduct is indictable,” wrote Judge Peter Hall for the majority. (Hall was also on the three-judge panel that decided the RJR case last April, along with two senior judges, Robert Sack and Pierre Leval, who did not participate in the en banc deliberations.)

By focusing on the statutory language of the underlying laws, that 2nd Circuit reading neatly sidesteps the debate among trial judges considering the impact of the Morrison decision on RICO suits. In Morrison, as you surely recall, the Supreme Court held that U.S. laws should be presumed not to reach overseas unless Congress has specifically said they do in statutory language.

The RICO statute doesn’t specifically address its application beyond U.S. borders, and trial courts since Morrison have struggled to decide whether their Morrison analysis should center on the location of the supposedly criminal enterprise or the location of the allegedly criminal conduct. RJR argued in particular that civil RICO claims should be dismissed unless plaintiffs can show they were injured within U.S. borders.

The 2nd Circuit’s alternative test, according to Judge Hall’s opinion Monday, acknowledges that Congress incorporated crimes that explicitly reach overseas as predicate RICO acts. “Some colleagues are troubled by the prospect of applying RICO to extraterritorial conduct, which they deem unwise,” Hall wrote. “Whether this is wise or unwise is not the court’s business when Congress has legislated clearly on the issue. Congress provided in the RICO statute that acts ‘indictable under’ a list of predicate acts are racketeering acts. That ends our inquiry.”

Five of Hall’s colleagues disagreed that the inquiry is quite so straightforward – especially because the 2nd Circuit itself has held otherwise, in its 2010 decision in Norex Petroleum v. Access Industries. Like the RJR case, the Norex suit involved allegations of international money laundering. But in Norex, the court said flatly that RICO doesn’t extend beyond U.S. borders.

Two of the Norex panel judges, Robert Katzmann and Rosemary Pooler, sided with the majority in denying en banc review to RJR. (The third Norex panel member was U.S. District Judge Loretta Preska, sitting by designation.) But the 2nd Circuit judges who said the court should have reheard the RJR case made much of the intracircuit split between the Norex and RJR rulings. Judge Dennis Jacobs said the two decisions were “in taut tension” and one of them would have to be jettisoned. Judge Reena Raggi, who wrote the most comprehensive dissent, argued that Norex “reiterated this court’s earlier categorical conclusion” that RICO is silent about overseas violations and that the Norex panel reached the correct result in light of the Supreme Court’s Morrison decision.

Judge Jose Cabranes, in a separate dissent, said the RJR majority’s focus on the underlying alleged crimes was “artful and novel” – but ultimately not just at odds with Norex but with the Supreme Court’s decisions in Morrison and in Kiobel v. Royal Dutch Petroleum in 2013. Here’s Cabranes’ pithy summary, which I expect RJR to quote in its eventual petition for certiorari at the Supreme Court: “After more than four decades of experience with this complicated statute, a panel of our court has discovered and announced a new, and potentially far-reaching, judicial interpretation of that statute – one that finds little support in the history of the statute, its implementation, or the precedents of the Supreme Court; that will encourage a new litigation industry exposing business activities abroad to civil claims of ‘racketeering'; and that will invite our courts to adjudicate civil RICO claims grounded on extraterritorial activities anywhere in the world.”

So, what are the odds of the Supreme Court taking up the issue of RICO and extraterritoriality? As RJR noted in its petition for en banc review, the only other federal appeals court to have considered the question – the 9th Circuit in a 2013 criminal case called U.S. v. Chao Fan Xu – held that RICO prosecution requires a domestic pattern of criminal activity. That arguably represents a split between the 2nd and 9th Circuits. The same question of RICO and extraterritoriality is also now before the D.C. Circuit, in a very messy case called Hourani v. Mirtchev. Oral arguments took place last October in the case. It’s worth pointing out that the defendant, political strategist Alexander Mirtchev, is represented by Robert Blakey, the Notre Dame professor who is considered the architect of the RICO statute.

Ordinarily, the Supreme Court doesn’t get involved in intra-circuit disagreements like the split between the Norex and RJR holdings. But the 2nd Circuit, as Cabranes pointed out, has an abiding interest in civil RICO, and based on the opinions in the RJR case, the court’s differences on RICO and extraterritoriality are irreconcilable. Look for RJR to argue in a cert petition that the 2nd Circuit majority hasn’t just parted ways with the judges in the minority but with the Supreme Court as well.

(This article has been corrected. An earlier version incorrectly reported that oral arguments had not yet taken place in the Hourani case.)

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