United States: Second Circuit Reinstates The European Community’s RICO Suit Against RJR Nabisco

On April 23, 2014, the U.S. Court of Appeals for the Second Circuit reinstated the action brought by the European Community and its 26 member states against RJR Nabisco and related entities (collectively, "RJR") for allegedly laundering drug money through the exchange of discounted euros and cigarettes. In the long-running case European Community v. RJR Nabisco, Inc., the Second Circuit applied and clarified the presumption against extraterritoriality of United States laws.

The European Community claims that Columbian and Russian criminal organizations smuggled illegal narcotics into Europe. The drugs were allegedly sold, producing revenue in euros, which the criminal organizations "laundered" by using money brokers in Europe to exchange the euros for the domestic currency of the criminal organizations' home countries.  The money brokers then sold the euros to cigarette importers at a discounted rate, and the cigarette importers then used the euros to purchase RJR's cigarettes from wholesalers or "cut-outs." The wholesalers then purchased the cigarettes from RJR and shipped the cigarettes to the importers who purchased them. Finally, the money brokers used the funds derived from the cigarette importers to continue the laundering cycle.

The European Community alleges that RJR directed, managed, and controlled this global money-laundering scheme with organized crime groups in violation of the Racketeer Influenced and Corrupt Organizations statute ("RICO"), laundered money through New York-based financial institutions and repatriated the profits of the scheme to the United States, and committed various common law torts in violation of New York state law.

In 2011, the district court dismissed the RICO claims because it concluded that RICO has no extraterritorial application. The district court also dismissed the state law claims because it determined that the European Community did not qualify as an organ of foreign state under 28 U.S.C. §§ 1332, 1603 so that its participation in the suit destroyed complete diversity, and thus deprived the court of jurisdiction over the state law claims.

The Second Circuit reversed on both counts. First, the Second Circuit disagreed with the district court's conclusion that RICO cannot apply to a foreign enterprise or to extraterritorial conduct.  Recognizing that there is a presumption against extraterritorial application of a United States statute unless Congress has clearly indicated that the statute applies extraterritorially, see Morrison v. Nat'l Austl. Bank Ltd., 130 S. Ct. 2869 (2010), the court concluded that, with respect to a number of offenses that constitute predicates for RICO liability and are alleged in this case, Congress has clearly manifested an intent that they apply extraterritorially. As to the other alleged offenses, the court found that the European Community's complaint alleges sufficiently important activity in the United States to give rise to a claim under RICO without reference to the extraterritorial conduct.  Second, the Second Circuit also found that the European Community is an "agency or instrumentality of a foreign state" as that term is defined in 28 U.S.C. § 1603(b).  It therefore qualifies as a "foreign state" for the purposes of 28 U.S.C. § 1332(a)(4), and its suit against "citizens of a State or of different States" comes within diversity jurisdiction.  Accordingly, the judgment of the district court was vacated, and the case was remanded.

The ink was barely dry on the Second Circuit's decision when, on May 7, 2014, RJR filed a petition for rehearing or a rehearing en banc.  RJR argued that, regardless of whether the conduct giving rise to this injury may be extraterritorial, the Second Circuit had overlooked RJR's main argument that RICO § 1964(c) requires private plaintiffs to allege a domestic injury, and that this requirement offered an independent basis upon which to dismiss the complaints in this action to the extent that the European Community failed to allege such injuries.

On August 20, 2014, the Second Circuit denied RJR's petition for rehearing and held that there was no domestic injury requirement under RICO.  The Court said:  "If an injury abroad was proximately caused by the violation of a statute which Congress intended should apply to injurious conduct performed abroad, we see no reason to import a domestic injury requirement simply because the victim sought redress through the RICO statute."  European Community v. RJR Nabisco, Inc., 764 F.3d 149, 151 (2d. Cir. 2014).

Simultaneously with the filing of the opinion on the petition for rehearing, the Second Circuit amended the original panel opinion in the case to also reflect the fact that plaintiffs had pled a domestic investment with respect to their claims under RICO § 1962(a).  European Community v RJR Nabisco, Inc., 764 F.3d 129 (2d. Cir. 2014)  The Court of Appeals said that, under the circumstances, there was no reason why plaintiffs should be required to plead that the injury they suffered from the alleged domestic investment occurred in the United States.  As in the original opinion, the Court of Appeals vacated the judgment of the district court and remanded the case.

RJR, however, is not giving up without a fight. On September 3, 2014, RJR filed another petition for rehearing en banc of the petition decision and the amended decision.

Second Circuit Reinstates The European Community's RICO Suit Against RJR Nabisco

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