RICO — Extraterritoriality of RICO Aside, No Hobbs Act or Money Laundering Predicates If Misconduct Abroad — Political Question Doctrine Doesn’t Bar Adjudicating Acts of Foreign Sovereign Subject to U.S. Territorial Jurisdiction

Hourani v. Mirtchev, 2015 U.S. App. LEXIS 13342 (D.C. Cir. July 31, 2015):

Two Kazakh businessmen claim that the daughter of the President of Kazakhstan extorted hundreds of millions of dollars' worth of their business assets in Kazakhstan. She did so, they claim, with the help of the defendants in this case, Alexander Mirtchev and his District of Columbia-based business, Krull Corporation. At the heart of the dispute is whether the complaint alleges sufficient domestic misconduct by Mirtchev and Krull Corporation to state a claim under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq., the Hobbs Act, 18 U.S.C. § 1951, or District of Columbia defamation law. The district court dismissed the complaint [*2]  for failure to state a claim. The court also denied a motion for sanctions filed by Mirtchev and Krull Corporation. We affirm.

I

Statutory Framework

RICO

Congress enacted the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq., commonly known as "RICO," to "eradicat[e] * * * organized crime in the United States by strengthening the legal tools in the evidence-gathering process, by establishing new penal prohibitions, and by providing enhanced sanctions and new remedies to deal with the unlawful activities of those engaged in organized crime," United States v. Turkette, 452 U.S. 576, 588 (1981) (quoting Organized Crime Control Act of 1970, Pub. L. No. 91-452, 84 Stat. 922, 923 (Oct. 15, 1970)).

To that end, RICO authorizes both criminal penalties, 18 U.S.C. § 1963, and civil remedies, id. § 1964, against those who engage in a "pattern of racketeering activity" through or involving an "enterprise," id. § 1962. "[R]acketeering activity" means the commission or threatened commission of any of a long list of state and federal crimes, including "murder, kidnapping, * * * robbery, bribery, extortion," and witness tampering. Id. § 1961(1).

RICO, however, only targets a "pattern" of such racketeering activity, which means the commission of at least two acts of racketeering within a certain period of time (generally ten years). 18 U.S.C. § 1961(5). The commission of those [*3]  acts must be through an "enterprise," which is defined to include "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity[.]" Id. § 1961(4).

As relevant here, RICO prohibits "any person employed by or associated with any enterprise" that affects interstate or foreign commerce from "conduct[ing] or participat[ing], directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity," 18 U.S.C. § 1962(c), or conspiring to do so, see id. § 1962(d).

In addition to criminal penalties enforced by the United States, RICO authorizes "[a]ny person injured in his business or property by reason of a violation [of the statute]" to sue in federal district court and "recover threefold the damages he sustains and the cost of the suit[.]" 18 U.S.C. § 1964(c).

Hobbs Act

The Hobbs Act makes it a crime to "in any way or degree obstruct[], delay[], or affect[] commerce or the movement of any article or commodity in commerce, by robbery or extortion," as well as to "conspire[] so to do." 18 U.S.C. § 1951(a). The term "extortion" in the Hobbs Act means "the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, [*4]  violence, or fear, or under color of official right." Id. § 1951(b)(2).

The "commerce" that the Hobbs Act polices is all "commerce within the District of Columbia, or any Territory or Possession of the United States; all commerce between any point in a State, Territory, Possession, or the District of Columbia and any point outside thereof; all commerce between points within the same State through any place outside such State; and all other commerce over which the United States has jurisdiction." Id. § 1951(b)(3).

II

Factual Background

Because the court below dismissed the case for failure to state a claim, we accept the following facts, drawn from the amended complaint, as true. See, e.g., Klayman v. Zuckerberg, 753 F.3d 1354, 1357 (D.C. Cir. 2014).

Devincci Hourani and his brother Issam Hourani are businessmen who previously owned "oil, broadcasting, and publishing companies" in the Republic of Kazakhstan. Amended Complaint ¶ 11. As relevant here, Devincci, Issam, and Issam's wife, Gulshat, owned shares in KTK Television and Alma Media Conglomerate, "the largest media holding company in Kazakhstan." Id. ¶¶ 14, 17. Their holdings in Kazakhstan, including those media properties, were worth "hundreds of millions, perhaps billions, of dollars." Id. ¶ 28.

Trouble began for [*5]  the Houranis in June 2007, when armed agents of the KNB (the Kazakh offshoot of the KGB) raided the Hourani family's offices. Amended Complaint ¶¶ 18-20. In the following weeks, "pressure from various authorities mounted" under the direction of Dariga Nazarbayeva, daughter of Kazakhstan's President, Nursultan Nazarbayev. Id. ¶¶ 20-21.1 Devincci met with Nazarbayeva in July 2007, and she then "offered to use her influence with the government to try to 'protect' his family's businesses from further harassment if he would sign over his family's shares in the mass media companies in which they held interests[.]" Id. ¶ 21. Devincci, "believ[ing] that he had no choice but to capitulate to her demand," id. ¶ 22, and acting "under duress," signed the paperwork to turn over his, Issam's, and Gulshat's shares in KTK and Alma Media "to Dariga for her use," id. ¶ 23. Elsewhere, though, the amended complaint alleges that Devincci signed over the shares to the "First Presidential Fund." Id. ¶ 21. The amended complaint does not explain what that Fund is or whether Dariga Nazarbayeva controls it.

1   The amended complaint refers to Nazarbayeva as "Dariga Nazarbayev" or "Dariga." See, e.g., Amended Complaint ¶¶ 12, [*6]  21. Her surname is most commonly written with an "a" on the end. See, e.g., http://www.akorda.kz/en/republic_of_kazakhstan/president (official website of President Nazarbayev) (last visited July 24, 2015). For clarity, and to distinguish her from President Nazarbayev, this opinion refers to her as "Nazarbayeva."

According to the amended complaint, Nazarbayeva, who "had no official title in Kazakhstan," Amended Complaint ¶ 34, was attempting "to amass ownership of the nation's major media outlets" in "contemplat[ion of] a political career as a possible successor to her father," id. ¶ 12. She thus "sought to have the media portray her in the most favorable light," as well as to secure "the vast wealth and ownership such large businesses would confer." Id.

The complaint further alleges that Dariga sought the assistance of the defendants in this case, Alexander Mirtchev and his "global strategic solutions" consulting firm, Krull Corporation. Amended Complaint ¶ 13. Both Mirtchev and Krull Corporation are based in Washington, D.C. Id. Nazarbayeva's plan to amass control of Kazakh media was alleged to be "consistent with" Mirtchev's earlier recommendation to President Nazarbayev, made "in a memorandum informally known as the 'Superkhan' document, [*7]  in which Mirtchev had counseled the President of Kazakhstan on how he could consolidate power for himself and his family at the expense of business leaders." Id. ¶ 15.

According to the complaint, Mirtchev agreed to help Nazarbayeva gain control of the Houranis' assets. His specific role in the scheme is alleged to have taken three forms. Amended Complaint ¶ 16. First, he "agreed to assist [Nazarbayeva] with monetizing her control" of the Houranis' assets. Id. Second, he agreed to "deposit some of the proceeds of the seized businesses in western bank accounts where it would not be taxed or otherwise scrutinized." Id. Third, "Mirtchev agreed to use his influence to falsely brand the Houranis as international criminals and terrorists." Id.

Procedural History

The Hourani brothers filed suit against Mirtchev and Krull Corporation in the United States District Court for the District of Columbia in September 2010. That first complaint gave a somewhat different version of events. In particular, the initial complaint had the Kazakh Government, rather than Dariga Nazarbayeva, expropriating the Houranis' assets. See Original Complaint ¶¶ 106, 126. The expropriation was alleged to be a specific step [*8]  in executing the plan outlined in the "Superkhan memorandum," rather than merely "consistent with" it. Compare Original Complaint ¶ 131, with Amended Complaint ¶ 15.

Other documents that the Houranis filed initially with the district court purportedly tied Mirtchev to the Superkhan memorandum, including a letter from the Deputy Prosecutor General of Kazakhstan, Ashkat Daulbaev, to the Kazakh Ambassador to the United States, that identified Mirtchev as responsible for the campaign of intimidation and expropriation against the Houranis. See Houranis' Opposition to Initial Motion to Dismiss ¶ 19; Declaration of Devincci Hourani ¶¶ 16-20 [JA 289-290]; Declaration of Issam Hourani ¶ 30. [JA 279]

Mirtchev and Krull Corporation challenged the Daulbaev letter and other documents as forgeries and moved to dismiss the complaint. The Houranis then filed an amended complaint, which is the version at issue in this appeal. As amended, the complaint contains no mention of the Daulbaev letter, although it does still reference the Superkhan memorandum. The complaint now alleges that Mirtchev conspired to, and did, violate RICO by engaging in criminal activity through the Krull Corporation, in violation [*9]  of 18 U.S.C. § 1962(c) and (d). Amended Complaint ¶¶ 42-52. The specific predicate racketeering crimes alleged are money laundering, in violation of 18 U.S.C. § 1956, and extortion, in violation of the Hobbs Act, id. § 1951. Amended Complaint ¶ 44.

Lastly, the amended complaint alleges that Mirtchev conspired to defame the Houranis by "publish[ing] or caus[ing] * * * to be published" defamatory statements, including that the Houranis were members and supporters of the terrorist group Hamas. Amended Complaint ¶ 59. Those statements were allegedly published on the Kazakh embassy website, in "a Forbes.com editorial," in "internal Kazakh Government memoranda," in "the so-called Aliyev Dossier published by [the] Eurasian Transition Group," and in "various other Internet publications." Id.

The district court dismissed the case with prejudice, reasoning that "the predicate acts that proximately caused [p]laintiffs' injury--namely, the extortion in Kazakhstan by a Kazakh actor of Plaintiffs' Kazakhstan-based assets--were squarely extraterritorial and therefore outside of RICO's reach." Hourani v. Mirtchev, 943 F. Supp. 2d 159, 168 (D.D.C. 2013). The court also held that the defamation claims were too vague to allow for responsive pleadings, and thus failed to state a claim. Id. at 169. However, the court denied the defendants' motion [*10]  to impose sanctions on the plaintiffs under Federal Rule of Civil Procedure 11 for filing contradictory versions of the complaint and for relying on allegedly forged documents. The court noted that an objective test applies to finding a Rule 11 violation, but did not determine whether there had been a violation, "choos[ing] not to impute bad faith on the part of the [p]laintiffs" and "finding ample grounds for dismissing the complaint on the substantive grounds" already given in the opinion. Id. at 172.

III

Analysis

Jurisdiction

The district court had federal-question jurisdiction over the Houranis' RICO and Hobbs Act claims and supplemental jurisdiction over the defamation claim under D.C. law, which arose out of the same alleged conspiracy. We have jurisdiction to review the district court's dismissal of the case with prejudice because it is a final judgment for purposes of 28 U.S.C. § 1291.

Mirtchev and Krull Corporation argue, however, that this case presents a non-justiciable political question. If they were correct, both we and the district court would lack jurisdiction to decide this case and we would have to vacate the judgment below. See, e.g., Zivotofsky ex rel. Zivotofsky v. Clinton, 132 S. Ct. 1421, 1427 (2012) (when a case involves a political question, "a court lacks the authority to decide the dispute"); Lin v. United States, 561 F.3d 502, 505 (D.C. Cir. 2009).

But Mirtchev and Krull [*11]  Corporation are not correct. At bottom, their argument is that this case "necessarily ask[s] the courts to find that Kazakhstan was involved in racketeering, extortion, and defamation[,]" and that "[c]ondemning foreign government action is a policy determination within the exclusive realm of the executive and legislative branches, which are constitutionally responsible for the nation's foreign relations." Mirtchev Br. 48.

That misunderstands the contours of the political question doctrine. That doctrine bars our jurisdiction only when the Constitution textually commits "the issue" to be adjudicated in the case "to a coordinate political department," or when there is "a lack of judicially discoverable and manageable standards for resolving it." Nixon v. United States, 506 U.S. 224, 228 (1993) (quoting Baker v. Carr, 396 U.S. 186, 217 (1962)). As the complaint frames them, the racketeering and extortion issues center on what Mirtchev and Krull Corporation did. Mirtchev and Krull Corporation are both private parties and domestic residents, not foreign governmental entities. Nothing in the Constitution reserves to the Political Branches the determination of Mirtchev's or Krull Corporation's private civil liability for racketeering or extortion.

In addition, the standards needed to resolve the [*12]  Houranis' racketeering, extortion, and defamation claims are the workaday tools for decision-making that courts routinely employ. To be sure, a judgment in the case might implicate the actions of a foreign government and the Act of State doctrine, see infra 16-24. But that has never been enough, by itself, to trigger the political question doctrine's jurisdictional bar. As the Supreme Court has reminded, even though civil litigation can sometimes affect the Nation's foreign relations, "courts cannot avoid their responsibility merely 'because the issues have political implications.'" Zivotofsky, 132 S. Ct. at 1428 (quoting INS v. Chadha, 462 U.S. 919, 943 (1983)).

Indeed, both before and since the enactment of the Foreign Sovereign Immunities Act ("FSIA") in 1976, 28 U.S.C. § § 1602 et seq., courts have often heard cases directly involving the conduct of foreign governments and foreign officials. See, e.g., BG Group PLC v. Republic of Argentina, 134 S. Ct. 1198 (2014); Republic of Mexico v. Hoffman, 324 U.S. 30, 36 (1945); de Csepel v. Republic of Hungary, 714 F.3d 591, 594 (D.C. Cir. 2013). And even questions of foreign sovereign immunity are "a matter of grace and comity rather than a constitutional requirement." Republic of Austria v. Altman, 541 U.S. 677, 689 (2004). Adjudicating the lawfulness of those acts of a foreign sovereign that are subject to the United States' territorial jurisdiction, in other words, is not an issue that the Constitution entirely forbids the judiciary to entertain, or commits exclusively [*13]  to the Political Branches.

Secure in our jurisdiction, we turn to the merits.

Standard of Review

We review de novo the district court's dismissal of the complaint for failure to state a claim, see, e.g., Autor v. Pritzker, 740 F.3d 176, 179 (D.C. Cir. 2014), asking whether the complaint states "plausible grounds for relief," Winder v. Erste, 566 F.3d 209, 213 (D.C. Cir. 2013).

On the cross-appeal, we review the denial of sanctions under Rule 11 for abuse of discretion. See Cooter & Gell v. Hartmax Corp., 496 U.S. 384, 405 (1990).

The RICO and Hobbs Act Claims

Foreign elements pervade this case. The main actors were Kazakhs, the extorted property was in Kazakhstan, and the key events were committed by Kazakhs to other Kazakhs in Kazakhstan. Fortunately, we need not wade into the thorny question of whether or when RICO applies to such foreign conduct.2 The Houranis have litigated this case and framed their arguments on the assumption that neither RICO nor the Hobbs Act applies extraterritorially, contending that the domestic conduct of Mirtchev and Krull Corporation alone violated RICO and the Hobbs Act. See Houranis Br. 11 ("[T]he parties do not dispute that RICO does not apply extraterritorially[.]"); Houranis Reply Br. 19 ("Plaintiffs do not argue that the Hobbs Act has extraterritorial application."). According to the complaint, that domestic conduct consisted [*14]  of Mirtchev:

  • Agreeing, from his Washington, D.C. office, to a scheme in which Kazakh actors expropriated the Houranis' Kazakh assets in Kazakhstan. Amended Complaint ¶ 33.
  • Receiving payments from Nazarbayeva in Washington, D.C. bank accounts in the Krull Corporation's name "[a]s compensation for his role in the extortion[.]" Id. ¶ 29.
  • Laundering money from the expropriation of the Houranis' Kazakh assets through "bank accounts he controls." Id. ¶ 40.3

2   The courts of appeals have split on the issue. Compare, e.g., European Community v. RJR Nabisco, Inc., 764 F.3d 129, 136 (2d Cir. 2014) (RICO can apply to extraterritorial conduct "if, and only if, liability or guilt could attach to extraterritorial conduct under the relevant RICO predicate."), with United States v. Chao Fan Xu, 706 F.3d 965, 974-975, 977 (9th Cir. 2013) ("[W]e begin the present analysis with a presumption that RICO does not apply extraterritorially in a civil or criminal context[,]" and "RICO's focus is on the pattern of racketeering activity for purposes of analyzing extraterritorial application of the statute."), and Liquidation Comm'n of Banco Intercontinental, S.A. v. Renta, 530 F.3d 1339, 1351-1352 (11th Cir. 2008) ("RICO may apply extraterritorially if conduct material to the completion of the racketeering occurs in the United States, or if significant effects of the racketeering are felt here.").

3   The complaint also alleges defamation and conspiracy to defame under [*15]  D.C. law, but those are not predicate acts of racketeering under RICO. See 18 U.S.C. § 1961(1)(A). The complaint further asserts that Mirtchev conspired to violate D.C.'s anti-extortion law, D.C. Code § 22-3251, see Amended Complaint ¶ 50, violation of which would count as a predicate act of racketeering under RICO, see 18 U.S.C. § 1961(1)(A). Unlike the Hobbs Act, the Houranis have not expressly stipulated that the D.C. extortion law does not apply extraterritorially. But the Houranis make only glancing references in two footnotes to, and no substantive arguments about, D.C. extortion law. See Houranis Br. 4 n.2, 16 n.5. Any reliance on D.C. extortion law in lieu of the Hobbs Act is thus forfeited. See, e.g., National Oilseed Processors Ass'n v. OSHA, 769 F.3d 1173, 1184 (D.C. Cir. 2014) ("[T]he court generally declines to consider an argument if a party buries it in a footnote and raises it in only a conclusory fashion[.]").

Those allegations fall short of stating a RICO claim. Starting from the top: The Houranis do not contend that their complaint states a claim of domestic Hobbs Act extortion by Mirtchev or anyone else. Nor do they assert that the actual extortion of their assets in Kazakhstan was itself in any way a violation of the Hobbs Act. They argue only that Mirtchev's agreement in D.C. to Dariga Nazarbayeva's extraterritorial, [*16]  non-Hobbs-Act extortion scheme in Kazakhstan constituted a conspiracy in the United States to violate the Hobbs Act.

The plain text of the Hobbs Act shutters that argument. That statute, recall, applies to anyone who "in any way or degree obstructs, delays, or affects commerce or the movement of any article or commodity in commerce, by robbery or extortion" or who "conspires so to do." 18 U.S.C. § 1951(a) (emphasis added). The problem for the Houranis is that, having agreed that the underlying extortion of assets in Kazakhstan did not violate the Hobbs Act, neither could Mirtchev's conspiracy "so to do." Id. § 1951(a). That is, the only conspiracies that the Hobbs Act captures are conspiracies to violate the Hobbs Act itself. The conspiracy provision would apply to extortion on foreign soil only if the substantive provisions of the Hobbs Act were to apply to that extortion, which is an argument that the Houranis have declined to press.

Next up, the Houranis allege Mirtchev's and Krull Corporation's involvement in money payments and money laundering. Those allegations fare no better than the conspiracy claim, for two reasons.

First, the Houranis have failed to state a claim for money laundering. The federal money [*17]  laundering statute, 18 U.S.C. § 1956, contains several different prohibitions, but common to all of them is a requirement that the money being laundered must in some way be associated with "unlawful activity." See, e.g., id. § 1956(a)(1) (requiring that a covered transaction "involves the proceeds of specified unlawful activity"); id. § 1956(a)(2)(A) (prohibiting transferring funds in or through the United States "with the intent to promote the carrying on of specified unlawful activity").

Unfortunately for the Houranis, the statute defines "unlawful activity," and the alleged extortion in Kazakhstan falls outside that definition. In particular, the money laundering statute defines most of the "offense[s] listed in section 1961(1) of this title," 18 U.S.C. § 1961(1), as "unlawful activity." Id. § 1956(c)(7)(A). That includes Hobbs Act violations. But the Houranis have said that the extortion itself did not violate the Hobbs Act, and they have not alleged any other prerequisite "unlawful activity" for purposes of the statute.

Second, the Houranis' complaint nowhere alleges that they were injured in any way by the alleged acts of money laundering. See Houranis Br. 30-31. That is fatal. A civil RICO plaintiff "only has [statutory] standing if, and can only recover to the extent that, he [*18]  has been injured in his business or property by the conduct constituting the violation," and the "compensable injury necessarily is the harm caused by predicate acts sufficiently related to constitute a pattern." Sedima, S.P.R.L. v. Imrex Co, Inc., 473 U.S. 479, 496, 497 (1985).4

4   The alleged money-laundering activities likely also fail because they do not plausibly allege anything more than "the transparent division or deposit" of "unlawfully obtained funds" from a one-time criminal incident. See United States v. Adefehinti, 510 F.3d 319, 322 (D.C. Cir. 2008). We need not definitively resolve that issue, however, given the alternative grounds for affirmance.

With no injury from the money laundering, and no cognizable Hobbs Act claim to supply the missing injury either, the Houranis have no injurious predicate acts at all, let alone a pattern of them. The wheels have completely come off of the Houranis' civil RICO claim.5

5   The parties devote a great deal of energy to arguing whether a court should look to the location of the enterprise or the location of the pattern of racketeering to decide whether the complaint states a claim for a domestic RICO violation. That dispute is irrelevant in light of the complaint's failure to properly plead a pattern of racketeering that injured the Houranis under either test.

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