Commercial Litigation and Arbitration

Extraterritorial Reach of RICO — Is Test Location of Enterprise or of Pattern? — No Proximate Cause between Money Laundering Predicate and Pretextual Firing

Cedeño v. Castillo, 2012 U.S. App. LEXIS 1469 (2d Cir. Jan. 25, 2012) (affirming the decision excerpted in our post of October 10, 2010):

On appeal, Cedeño ... [f]irst ... contends that his claim fits within the scope of RICO's domestic application because it alleges conduct in the United States that is within RICO's "focus." See Morrison v. Nat'l Austl. Bank Ltd., 130 S. Ct. 2869, 2884 (2010) ("Morrison") (holding that to determine whether a complaint alleges a claim within a statute's domestic ambit, courts should consider if the alleged conduct in or contact with the United States is within the statute's "focus," meaning "the object[]" of the statute's "solicitude" or what the "statute seeks to regulate") (internal quotation marks omitted). This argument lacks merit. Regardless of whether RICO is found to focus on domestic enterprises, as the district court held, or on patterns of racketeering, as Cedeño contends it should be, the complaint here alleges inadequate conduct in the United States to state a domestic RICO claim. See Norex Petroleum Ltd. v. Access Indus., Inc., 631 F.3d 29, 33 (2d Cir. 2010) (per curiam) (finding that the "slim contacts" with the United States alleged by plaintiff were "insufficient to support extraterritorial application of the RICO statute"). Accordingly, it is unnecessary for us to decide what constitutes the "object[]" of RICO's "solicitude." Morrison, 130 S. Ct. at 2884.

If an enterprise must be located in the United States for a private plaintiff to bring a domestic RICO claim, then Cedeño's complaint was rightfully dismissed as the enterprise he alleges is almost exclusively Venezuelan. The parties dispute what standard this Court should use when determining the locus of an enterprise, but under any of the proposed standards the association-in-fact enterprise alleged here — comprised of various components of the Venezuelan government — is patently foreign.

Alternatively, even if this Court adopted the "pattern of racketeering" focus advocated by Cedeño and the government, it would still affirm the district court's decision. The only connection between (1) the pattern of racketeering that Cedeño alleges occurred in the United States (money laundering) and (2) the injuries he sustained (imprisonment and interference with his assets) is that members of the Venezuelan Government used the Microstar Transaction as a pretext for his subsequent arrest. Thus, Cedeño fails to allege that the domestic predicate acts proximately caused his injuries. See Hemi Grp. LLC v. N.Y.C., 130 S. Ct. 983, 991 (2010) ("[T]he compensable injury flowing from a [RICO] violation . . . necessarily is the harm caused by [the] predicate acts.") (internal quotation marks omitted) (alterations in original) (emphasis added); Holmes v. Secs. Investor Prot. Corp., 503 U.S. 258, 268 (1992) (explaining that proximate cause, for the purposes of RICO, requires "some direct relation between the injury asserted and the injurious conduct alleged").

Second, Cedeño asserts that even if his complaint does not allege a domestic RICO violation, his claims should not have been dismissed because the predicate offenses on which they are based — 18 U.S.C. §§ 1951 and 1956(f) — apply extraterritorially, and RICO incorporates these statutes. This argument is foreclosed by Norex, 631 F.3d 29, where this Court declined to link the extraterritorial application of RICO to the scope of its predicate offenses. Id. at 33 (holding that RICO is inapplicable extraterritorially even though statutes defining some of its predicate offenses explicitly apply abroad).

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