Third Circuit Addresses Extraterritorial Application of RICO Statute

Humphrey v. GlaxoSmithKline PLC, 2018 WL 4609108, ___ F.3d ___ (3d Cir., Sept. 28, 2018)

The Third Circuit affirmed the lower court ruling that Plaintiffs did NOT pled sufficient facts to establish that they suffered a domestic injury to its business or property under § 1964(c).

Plaintiffs contended they lost their business as a result of alleged predicate racketeering acts. In RJR Nabisco, the Supreme Court considered “whether RICO applies extraterritorially—that is, to events occurring and injuries suffered outside the United States.” The relevant inquiry involves two separate questions: first, whether RICO’s substantive provisions apply to extraterritorial conduct, and second, whether RICO’s private right of action affords relief for “injuries that are suffered” outside the United States.

The Supreme Court in RJR Nabisco explained that “[a]bsent clearly expressed congressional intent to the contrary, federal laws will be construed to have only domestic application.” This presumption against extraterritoriality “avoid[s] the international discord that can result when U.S. law is applied to conduct in foreign countries[.]”It also ensures that Congress—rather than the judiciary—is responsible for navigating the “delicate field of international relations.”

Nevertheless, the Court concluded that RICO can reach extraterritorial conduct, but held that 18 U.S.C. § 1964(c) does not allow recovery for injuries suffered in foreign territories stating that “[n]othing in § 1964(c) provides a clear indication that Congress intended to create a private right of action for injuries suffered outside of the United States.” Thus, the Supreme Court concluded although RICO creates a cause of action for misconduct committed abroad, § 1964(c) requires a “domestic injury.”

The Court discussed that those courts that have considered whether an alleged injury was suffered in the United States have applied varying standards, and thus there is no consensus on what specific factors must be considered when deciding whether an injury is domestic or foreign. RJR Nabisco did advise courts to proceed cautiously when deciding if RICO plaintiffs have alleged a sufficient domestic injury to recover under § 1964(c). The Court engaged in a fact-intensive inquiry to determine where the plaintiff “suffered the injury”—not where the injurious conduct took place, stating that a domestic injury under § 1964(c) is found where the relevant factors, appropriately weighed, establish that the alleged harm was suffered in the United States.

The Court found it was clear that the alleged injuries were suffered in China, and Plaintiffs have not alleged that they possess offices, assets, or any other property in the United States. Thus, Plaintiffs have not alleged a domestic injury pursuant to 18 U.S.C. § 1964(c), even though they do allege loss of goodwill and some unidentified number of actual and prospective U.S. customers. To the extent that these intangible assets were injured, it is not enough to overcome the Supreme Court’s caution against extraterritorial application of domestic law in RJR Nabisco. The court concluded that consequently, the District Court correctly dismissed Plaintiffs’ RICO claims.
The court also rejected the argument that, notwithstanding factors supporting a finding that the alleged injury was foreign, Plaintiffs have nonetheless alleged a domestic injury because “the alleged underlying RICO conduct plainly was both targeted at, and was intended to have substantial effects in, the United States,” distinguishing cases in which it is plausibly argued that Plaintiffs United States-based business was harmed by the defendants’ RICO conduct and that it suffered a domestic injury because it felt the impact of that injury within the United States.

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