Published in West’s Civil RICO Reporter July 2019
Bascuñán v. Elsaca, __F.3d__, 2019 WL 2455168 (2d Cir., June 13, 2019)
In an important case pertaining to civil RICO extraterritoriality, the Second Circuit in Bascuñán (hereinafter, Bascuñán II) has revisited an earlier circuit opinion pertaining to this case. The Court in Bascuñán II reversed the judgment of the district court which had dismissed a SAC finding that it failed to allege a domestic injury under RICO with regard to some schemes, and remanded for further proceedings.
In sum, the first Bascuñán case, 806 F.3d 806 (2d Cir. 2017) (Bascuñán I) the Court reversed in part, vacated in part, and remanded a FAC for further proceedings. In Bascuñán I, the Court found a few of the alleged schemes were impermissibly extraterritorial as pleaded in the FAC when the schemes concerned property that was located outside the United States when it was allegedly misappropriated. The court recognized defendant’s argument that “the use of bank accounts located within the United States to facilitate or conceal the theft of property located outside of the United States does not, on its own, establish a domestic injury.” *5-*6, citing to Bascunan I, supra, 874 F.3d at 819.
Bascuñán’ II’s Conclusions
1. Bascuñán’s Injuries Occurred When Elsaca Transferred Money Out of New York Accounts
The Court has now modified its decision and credited allegations in Bascunan’s SAC that the schemes involved “domestic injury” focusing its analysis on “when” and “where” the monies were located. Thus, Defendants perpetrated their fraud by repeatedly stealing money out of Bascunan’s Estate’s Morgan Stanley bank accounts in New York. Additionally, the SAC contained new allegations that Fintair (and thus, its New York bank account) was part of the Estate between 2003 and 2009, a fact Bascuñán had not previously known.
The Second Circuit based its decision on RJR Nabisco, Inc. v. European Community, ––– U.S. ––––, 136 S. Ct. 2090, 195 L.Ed.2d 476 (2016), as well as jurisprudence surrounding fraud offenses, and particularly the law of embezzlement, which the Supreme Court has described as the “linguistic neighbor” of fraud. See Bullock v. BankChampaign, N.A., 569 U.S. 267, 274, 133 S.Ct. 1754, 185 L.Ed.2d 922 (2013). *7. The Court stated that until Elsaca transferred funds, Bascuñán could have accessed the Estate accounts in New York at any time had he known about the accounts. Thus, it follows that Bascuñán was not injured until Elsaca interfered with Estate property and converted it to his own use in the United States. Thus, since Bascuñán’s injuries occurred when Elsaca transferred money out of the New York account, these injuries thus satisfy RICO’s domestic-injury requirement. *7
2. Predicate Activity of Mail and Wire Fraud Involved Sufficient Domestic Conduct When Use of Mails/Wires Were Core Component of the Alleged Scheme
The Court discussed whether the civil RICO claims involve domestic applications of the relevant predicate statutes. The Court then discussed that there are three “essential elements” to mail or wire fraud: “(1) a scheme to defraud, (2) money or property as the object of the scheme, and (3) use of the mails or wires to further the scheme.” These elements make it clear that the regulated conduct is not merely a “scheme to defraud,” but more precisely the use of the mail or wires in furtherance of a scheme to defraud.*10.
In analyzing whether the predicate acts were sufficiently alleged, the Court disagreed with the district court, and following sister circuits held that a claim predicated on mail or wire fraud involves sufficient domestic conduct when (1) the defendant used domestic mail or wires in furtherance of a scheme to defraud, and (2) the use of the mail or wires was a core component of the scheme to defraud, i.e., not incidental use.*10. The Court held that the SAC supports a reasonable inference that the repeated use of domestic mail and wires to fraudulently order a domestic bank to transfer millions of dollars out of a domestic account was a core component of the alleged scheme to defraud and thus sufficiently furthered the scheme to defraud.*11.
3. Predicate Activity of Bank Fraud Found Sufficiently Alleged
The conduct that § 1344(2) seeks to regulate, and its focus, is a scheme to obtain property owned or controlled by a bank under false or fraudulent pretenses. This conduct is domestic when a core component of the scheme to defraud was the use of domestic mail or wires to direct the theft or misappropriation of property located within the United States and held by a domestic bank. Because the alleged schemes involve the same domestic conduct—domestic mail or wire transmissions facilitating the theft or misappropriation of property held in New York by a domestic bank, the Court thus found that § 1344(2) focused on domestic conduct as applied to each of the alleged schemes to defraud.*12.
4. Pattern of Racketeering Activity
The district court had found only one scheme to sufficiently constitute domestic conduct. But, given the Court here found all of the SAC’s alleged schemes, except for the Sham Management Fees Scheme (need more information), survived the extraterritoriality framework, and Elsaca made no argument in his brief that the numerous schemes, taken together, fail to satisfy this standard, the Court held that Elsaca waived any argument to the contrary. Thus, the Court held that the surviving schemes as pleaded in the SAC stated a pattern of racketeering activity sufficient to survive a motion to dismiss under Rule 12(b)(6).*13.
5. RICO Conspiracy
The Court stated that because the SAC states a claim under § 1962(c), and the claim involves several individuals conspiring to violate that provision, the § 1962(d) claim is not impermissibly extraterritorial.*13.