United States: Racketeer Influenced And Corrupt Organizations Act (RICO) - The World In U.S. Courts: Spring 2019

Last Updated: June 27 2019
Article by   Orrick

Non-US Plaintiffs Allegedly Defrauded by Fund's Investment in US Life Insurance Proceeds did not Suffer a US Domestic Injury Within the Meaning of RICO

Aviles v. S&P Global, Inc., US District Court for the Southern District of New York, March 28, 2019

More than 500 non-US investors claim to have lost their investments in a Netherlands Antilles fund due to fraud by the fund's organizers and their accomplices. The funds invested in "life settlements" in which US residents were paid to assign to the fund their rights to collect on life insurance policies that the fund kept current. Among other claims, the plaintiffs alleged that the defendants violated the RICO statute.

The Court observed that a private RICO action required a "US domestic injury," and observed that the US Supreme Court had not yet provided guidance as to how to determine where an injury occurred for purposes of RICO. It noted, however, that precedent from the Second Circuit Court of Appeals suggested that physical injuries to "tangible property" occur where the property is located and that injuries to "intangible property" generally occur where the effects are felt by the plaintiff. In the case at bar, non-US plaintiffs alleged a decrease in the value of their investments in non-US funds. No "misappropriation" of a physical asset was alleged, and so injury would be deemed to have occurred outside the US, where the injury was allegedly suffered. The Court rejected the plaintiffs' assertion that a US domestic injury had been suffered because the underlying life insurance policies had been "located" in Minnesota at the time certain injuries acts were performed, as RICO allows recovery to a plaintiff's "business or property" and the policies were neither—they belonged to the funds.

[Editor's note: The Aviles case is also addressed in the Personal Jurisdiction/forum non Conveniens section of this report.]

Conduct in Poland that Injured a Polish Corporation is Subject to Private RICO Claim Because Defendant Invested Allegedly Unlawful Profits in the US to Thwart Plaintiffs' Effort to Discover and Recover Lost Funds

Giorgi Global Holdings, Inc. v. Smulski, US District Court for the Eastern District of Pennsylvania, March 21, 2019

Giorgi Global Holdings, a US company, formed a Polish subsidiary to produce cans for the European and Asian market, hiring Smulski, a Polish citizen and resident, to manage the business. Giorgi alleges in this case that Smulski defrauded the company, using his illegally-earned profits to make investments in Europe and the US. As relevant here, the Court considered Smulski's motion to dismiss the RICO claim brought by Giorgi's Polish subsidiary on grounds that it seeks to apply the RICO statute impermissibly to conduct occurring outside the US.

The Court observed that private RICO actions may only be brought by plaintiffs that have suffered a "US domestic injury," but acknowledged much uncertainty in the case law as to how to determine where an injury occurs for purposes of RICO. The Court declined to address the various tests that have been offered, concluding that a US injury had properly been alleged under any applicable test. It acknowledged that the allegedly unlawful conduct and the Polish plaintiff company had no connection with the US. But it found a "US domestic injury" in the complaint's allegations that the defendants "intentionally laundered" illegal proceeds through purchases of US assets to prevent the Plaintiffs from finding and recovering the illegal proceeds. The Court thus permitted the claim to proceed.

Provisions of RICO Statute Authorizing Broad Assertion of Jurisdiction Do Not Apply to Claims Against Peruvians who Were Alleged Conspirators

Nuevos Destinos, LLC v. Peck, US District Court for the District of Columbia, January 2, 2019

The plaintiffs brought RICO claims, among others, against twenty-two companies and individuals who purportedly used otherwise legitimate business entities to defraud them by making false promises to sell agricultural goods. One issue addressed by the District Court in the District of Columbia was whether the Court could assert personal jurisdiction over a number of Peruvian defendants based on 21 U.S.C. Section 1965(a) and (b)—the provisions that allow for nationwide service of process in RICO cases and for the assertion of jurisdiction over all defendants where jurisdiction existed as to one and "the ends of justice" so require.

In this case, the Court determined that it could not directly assert personal jurisdiction over the Peruvian defendants because they had insufficient contacts with the US. It then concluded that Section 1965(a) was not relevant because it only authorized the service of process in the US, not in Peru. Section 1965(b) was unavailing because it had no jurisdiction over any members of the RICO conspiracy.

[Editor's note: The Nuevos Destinos case is also discussed in the Personal Jurisdiction/Forum non Conveniens section of this report.]

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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