In RJR case, Supreme Court to decide if RICO reaches abroad

October 1, 2015

(Reuters) – On Thursday, the U.S. Supreme Court agreed to hear RJR Nabisco v. European Community, which presents the question of whether U.S. courts can hear racketeering cases involving alleged overseas crimes or foreign enterprises. The Supreme Court’s answer to that question could have important consequences not just for global businesses like RJR but also for human rights plaintiffs shut out of court by the justices’ 2013 decision in Kiobel v. Royal Dutch Petroleum, which said victims of atrocities committed overseas generally cannot use the Alien Tort Statute to bring claims in U.S. courts.

Members of the European Community accused RJR of participating in an international money-laundering scheme to sell U.S.-made cigarettes through crime syndicates and terrorist groups. RJR’s lawyers at Jones Day argued that the racketeering suit should be dismissed under the Supreme Court’s 2010 ruling in Morrison v. National Australia Bank – which held that U.S. laws should not be presumed to apply overseas unless they explicitly say so – and the 2nd U.S. Circuit Court of Appeals’ initial application of Morrison to a RICO suit in Norex v. Access Industries, a 2010 decision.

Instead, last April a deeply divided 2nd Circuit ended up establishing a new standard for evaluating the intersection of RICO and Morrison. The appeals court said the inquiry should focus on the scope of the underlying alleged crimes, and because U.S. money-laundering laws apply to overseas conduct, RICO claims based on money-laundering crimes can proceed.

One of the five dissenting 2nd Circuit judges, Jose Cabranes, warned: “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.”

RJR’s cert petition, filed in July, claimed the 2nd Circuit’s new standard for RICO and extraterritoriality was a split with the 9th Circuit’s 2013 interpretation in U.S. v. Chao Fan Xu. In the Xu case, which involved criminal allegations, the 9th Circuit said the key question was where the alleged racketeering conduct took place. The EC’s brief in opposition said there isn’t actually an appellate split because both the 2nd and 9th Circuit said domestic racketeering activity gives rise to a U.S. cause of action. (The EC’s complaint against RJR alleged U.S.-based mail and wire fraud in addition to international money-laundering activities.)

The only amicus brief addressing RJR’s cert petition, by the Washington Legal Foundation, picked up on Judge Cabranes’ warning about dire consequences. According to WLF, the 2nd Circuit’s decision clears the way for exactly the sort of international human rights cases the Supreme Court discouraged in Kiobel. Just as human rights lawyers previously capitalized on a novel interpretation of the Alien Tort Statute from the 2nd Circuit, WLF’s brief said, they will seize the new opportunity to bring civil RICO suits unless the Supreme Court steps in.

You never know exactly what prompts the Supreme Court to agree to hear a case. But now that the justices have put RJR’s question on their docket, I hope the litigation gets more attention. It’s a good bet that the U.S. solicitor general, which backed the EC in the lower courts, will file an amicus brief advocating a broad interpretation of RICO’s extraterritorial reach since the statute is an important tool for Justice Department prosecutors. Plenty of other groups, though, have an interest in how this case comes out.

I left a phone message for EC appellate lawyer John Halloran but didn’t hear back. The plaintiffs are also represented by Krupnick Campbell Malone Buser Slama Hancock Liberman.

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