RICO Held Not To Apply Extraterritorially, Following Morrison

In the first decision that we have seen (see our post of 7/16/10) since the U.S. Supreme Court’s decision in Morrison v. National Australia Bank (No. 08-1191) held that Section 10(b) of the Securities Exchange Act of 1934 did not provide a private cause of action in “foreign-cubed” cases—cases where foreign plaintiffs sue foreign defendants for misconduct in connection with securities traded on foreign exchanges (hence “foreign cubed”), the influential District Court in the Southern District of New York, in Cedeno, et al. v. Intech Group, Inc., 09 Civ. 9716 (JSR) (S.D.N.Y. 8/25/10), held that the federal Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968, does not apply extraterritorially, at least not to the claims asserted in the complaint in that case.  Depending on how broadly this ruling is applied, it could have significant effects on international litigation.

Plaintiff, a citizen of Venezuela, alleged that he was unjustifiably imprisoned for almost three years in Venezuela and that his business, a co-plaintiff, was allegedly damaged in its business as a result.  The defendants, it was claimed, acted through a RICO enterprise, which was comprised of the “[t]he foreign exchange regime of the government of Venezuela”, including Venezuela’s central bank.  The District Court held that Morrison required it to look at the “focus” of congressional concern, which the Court found was how a pattern of racketeering affects an enterprise, and that it was not enough to allege that predicate acts of money laundering involved transfers into and out of the District by U.S. banks.  The court held that RICO did not “evidence any concern with foreign enterprises”, even though the predicate acts of money laundering were allegedly extraterritorial in nature.

The decision also took up briefly, and rejected, application of the act of state doctrine to bar the suit.  That doctrine “prevents courts from judging the acts of a foreign state within its own territory”.  The court stated that that doctrine was a “nonjurisdictional, prudential doctrine” (citing Kadic v. Karadzic, 70 F.3d 232, 249 (2d Cir. 1995)), and held that such a doctrine would not inhibit the court from entering a default judgment.

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