Civil RICO and Extraterritoriality

From Wiwa v. Royal Dutch Petroleum Co., 2009 U.S. Dist. LEXIS 34843 (S.D.N.Y. Mar. 18, 2009):

The RICO statute is silent as to its extraterritorial application. See North South Fin. Corp. v. Al-Turki, 100 F.3d 1046, 1051 (2d Cir. 1996). The Second Circuit Court of Appeals ("Second Circuit") has not determined what test district courts should apply in order to determine the statute's extraterritorial reach. See id. at 1052. However, the Second Circuit has recognized that, in determining the RICO statute's extraterritorial reach, courts have been guided "by precedents concerning subject matter jurisdiction for international securities transactions and antitrust matters." Id. at 1052.

[Footnote 8] The Court notes that, in light of the Supreme Court's decision in Arbaugh v. Y & H Corp., 546 U.S. 500 (2006) (holding that only those statutory requirements that "the Legislature clearly states [are] . . . a threshold limitation on a statute's scope shall count as jurisdictional"), there is some doubt whether analyzing if a particular claim falls within the RICO statute's extraterritorial reach is, in fact, a jurisdictional inquiry. See Norex Petroleum Ltd. v. Access Indus. Inc., 540 F. Supp. 2d 438, 440-41 (S.D.N.Y. 2007); Republic of Colom. v. Diageo N. Am. Inc., 531 F. Supp. 2d 365, 381-82 (E.D.N.Y. 2007); Ayyash v. Bank Al Madina, No. 04 Civ. 9201, 2006 WL 587342, at *4 (S.D.N.Y. March 9, 2006). Neither party, however, raises this question. Accordingly, the Court does not address it.

These precedents establish two kinds of tests, "conduct" and "effects," which assess the extent to which the otherwise extraterritorial racketeering activity involved conduct in, or had sufficient effects in, the United States. The effects test is further subdivided into a test derived from securities law ("securities-based effects test") and a test derived from antitrust law ("antitrust-based effects test"). See id. In either case, however, these tests apply only insofar as they serve the RICO statute's purpose, which is "to protect . . . domestic markets from corrupt foreign influences." Madenes v. Madenes, 981 F.Supp. 241, 250 n.6 (S.D.N.Y. 1997).

Plaintiffs assert, and Defendants do not dispute, that Plaintiffs may establish the Court's subject matter jurisdiction by meeting either the securities or antitrust version of the effects test…. Accordingly, the Court will apply both variants of the effects test.

[Footnote 9] The Second Circuit has suggested that the antitrust-based effects test may be "more appropriate" for RICO claims than the securities-based effects test because of the significant similarities between the RICO statute and the antitrust laws. Specifically, "the civil action provision of RICO was patterned after the Clayton Act" and both the RICO and antitrust statutes provide for treble damages. North South Fin., 100 F.3d at 1052 (internal quotations omitted).

However, because neither party objects to the applicability of the securities-based effects test, and because the Court finds that Plaintiffs fail to meet either test, the Court need not resolve this issue.

The securities- and antitrust-based effects tests differ: Plaintiffs must show substantial, direct effects on the United States to meet the securities-based effects test and they must show intentional, actual, and substantial effects on United States imports and exports to meet the antitrust-based effects test. However, the two tests are similar in that Plaintiffs must provide specific, rather than general or speculative, evidence that the alleged racketeering activity affected the United States. Plaintiffs have failed to do so here.

a. Securities-Based Effects Test

Statutes prohibiting securities fraud "may be given extraterritorial reach whenever a predominantly foreign transaction has substantial effects within the United States." North South Fin., 100 F.3d at 1052 (quoting Consol. Gold Fields PLC v. Minorco, S.A., 871 F.2d 252, 261-62 (2d Cir. 1989)). Transactions "with only remote and indirect effects in the United States do not qualify as substantial." Id.

[Footnote 10] Defendants urge the Court … to follow its sister court and further require that, in order to meet the securities-based effects test, plaintiffs establish that they, themselves, were harmed in the United States by Defendants' alleged racketeering activity. See, Norex, 540 F. Supp. 2d at 446. Plaintiffs urge the Court not to follow this approach because the Second Circuit has not adopted the United States injury requirement….

As explained infra part II.C.1, Plaintiffs have not provided sufficient evidence that Defendants' racketeering activity affected anyone in the United States substantially and directly. Accordingly, the Court need not reach the question of whether Plaintiffs must particularly demonstrate that they, themselves, were harmed in the United States by Defendants' alleged racketeering activity.

Courts applying the securities-based effects test demand that plaintiffs establish actual, as opposed to speculative, substantial effects. See Nat'l Group for Communications and Computers, Ltd. v. Lucent Techs. Inc., 420 F. Supp. 2d 253, 261- 62 (S.D.N.Y. 2006) (holding that securities-based effects test not met where the estimated impact on defendant's profits or stock price was purely speculative); Roquette America, Inc. v. Alymum N.V. , No. 03 Civ. 0434, 2004 WL 1488384, at *8 (S.D.N.Y. July 1, 2004) (finding effects test not met where plaintiffs did not identify any specific instances in which products using their trade secrets were made or sold in the United States); Nuevo Mundo Holdings v. Pricewaterhouse Coopers LLP, No. 03 Civ. 0613, 2004 WL 2848524, at *4 (S.D.N.Y. Dec. 9, 2004) (holding that plaintiffs' allegation that defendant's racketeering activity caused United States investors to lose value on their investments, unaccompanied by information regarding the number of United States investors affected or the amount of their monetary loss, was too vague and conclusory to support a court's jurisdiction). See also Nasser v. Andersen Worldwide Societe Cooperative, No. 02 Civ. 6832, 2003 WL 22179008, at *6 (S.D.N.Y. Sept. 23, 2003).

In addition, where there are multiple intermediary steps between the alleged racketeering activity and the effect on U.S. markets, courts find that plaintiffs fail to meet the securities-based effects test. See Boyd v. AWB Ltd., 544 F. Supp. 2d 236, 252 (S.D.N.Y. 2008) (holding that an extraterritorial monopoly's effect on United States prices was too indirect where it was only "one factor among many" determining those prices); Lucent, 420 F. Supp. 2d at 262 (finding cascading cancellation of contracts with United States businesses, which resulted after the alleged racketeering activities caused the cancellation of a contract with a foreign company, too "remote and indirect") (internal quotations omitted); Alymum, 2004 WL 1488384, at *8 (finding effects too indirect where plaintiffs' trade secrets were transferred to a United States company via an intermediary); Giro v. Banco Espanol de Credito, No. 98 Civ. 6195, 1999 WL 440462, at *3 (S.D.N.Y. June 28, 1999) (deeming "four intermediate effects that led to the loss in the United States" too "remote and indirect").

b. Antitrust-Based Effects Test

Antitrust statutes may reach anticompetitive behavior occurring outside the United States "if the conduct is intended to and actually does have an effect on United States imports or exports which the state reprehends." North South Fin., 100 F.3d at 1052 (citing United States v. Aluminum Co. of Am., 148 F.2d 416, 443-44 (2d Cir. 1945). Under the antitrust statutes, the foreign conduct's effect in the United States must be "substantial." Hartford Fire Ins. Co. v. California, 509 U.S. 764, 796 (1993).

In applying the antitrust-based effects test, courts have required that plaintiffs' evidence be specific. See Norex, 540 F. Supp. 2d 438, 448 (finding general allegations of American shareholder losses and unfair competitive advantages in United States oil markets insufficiently specific to support subject matter jurisdiction over an extraterritorial RICO claim); Nuevo Mundo, 2004 WL 2848524, at *4 (deeming insufficient general allegations of United States investors' losses, unaccompanied by specific information about the number of investors affected or the amount of their losses). See also Nasser, 2003 WL 22179008, at *6.

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