RJR Nabisco, Inc. v. European Cmty, 136 S. Ct. 2090 (2016), is one of the rare cases by the Supreme Court that addresses an important issue of international practice. The case arises from a suit brought by the European Community and 26 of its member states against RJR Nabisco, Inc. alleging violation of the Racketeering Influenced and Corrupt Organizations Act (RICO). The complaint detailed a variety of alleged activities, all of which occurred extraterritorially.

The European Community and its member states brought suit in the United States District Court for the Eastern District of New York, which dismissed the RICO claims as impermissibly extraterritorial.  On appeal, the Second Circuit reinstated the RICO claims, holding that Congress had intended RICO’s substantive prohibitions to apply extraterritorially.

The Supreme Court granted certiorari on whether RICO can be applied extraterritorially. The Second Circuit’s judgment was reversed in a 4-3 judgment. The majority opinion was authored by Justice Alito. Justice Ginsburg and Justice Breyer filed two opinions concurring in part, dissenting in part, and dissenting from the judgment.

The Court divided this question into two issues: whether RICO’s substantive prohibitions apply to conduct that occurs in non-U.S. countries and whether RICO’s private right of action applies to injuries suffered in countries other than the United States. As to the first issue, the Court held in the affirmative. As to the second, however, the Court held in the negative. Both Justice Ginsburg and Justice Breyer concurred in part and dissented in part, with both Justices’ dissents addressing only the second issue.

In answering the first issue, the Court builds on two prior cases: Morrison v. Nat’l Austl. Bank Ltd., 558 U.S. 407 (2009) and Kiobel v. Royal Dutch Petroleum Co., 233 S.Ct. 1659 (2013).  For a more in-depth look at Morrison, please see our discussion of “Subject Matter Jurisdiction in our E-Book, International Practice: Topics and Trends. For a more in-depth analysis of Kiobel and its implications, please see our posting, “Extraterritoriality Becomes Focus of Kiobel Supreme Court; Are We Headed for Morrison II? 

In both Morrison and Kiobel, the Court established a two-step test analysis of the extraterritoriality issue. Step one considers whether the presumption against extraterritoriality has been rebutted by the statute. In RJR Nabisco, the Court found that it was rebutted in RICO, but only with respect to certain applications of the statute. The Court pointed to RICO’s text, holding that the very definition of racketeering activity encompassed in the statute includes a number of predicates that by their nature apply to at least some foreign conduct:

Short of an explicit declaration, it is hard to imagine how Congress could have more clearly indicated that it intended RICO to have (some) extraterritorial effect. This unique structure makes RICO the rare statute that clearly evidences extraterritorial effect despite lacking an express statement of extraterritoriality.

If the statute is not extraterritorial, then under the two-step analysis, the Court moves to the second step which looks at the statute’s “focus” and determines whether the case involves a domestic application of the statute. Because the Court in RJR Nabisco found a clear indication at step one that RICO applies extraterritorially, it did not proceed to the second step of the inquiry.

In addition to answering the issue of whether RICO’s substantive prohibitions apply to conduct occurring outside the U.S., the Court also answers a second issue of whether RICO’s private right of action applies to injuries suffered exclusively in countries outside the United States. For this, the Court turns to Kiobel. The inquiry is not a jurisdictional one—“whether a federal court has jurisdiction to entertain a cause of action provided by foreign or even international law”—rather, it asks the more nuanced question of whether the Court even has the “authority to recognize a cause of action under U.S. law for injury suffered overseas.”

The majority held that RICO as enacted does not apply to injuries occurring exclusively outside the United States. The same logic in Kiobel that “the presumption [against extraterritoriality] constrain[s] courts considering causes of action under the ATS, a strictly jurisdictional statute that does not directly regulate conduct or afford relief,” informs the Court in RJR Nabisco as well:

The same logic requires that we separately apply the presumption against extraterritoriality to RICO’s cause of action despite our conclusion that the presumption has been overcome with respect to RICO’s substantive prohibitions.

In her dissent, Justice Ginsburg notes that RICO’s private right of action was modeled after the Clayton Act (15 U.S.C. §15), which allows recovery for injuries suffered as a result of antitrust violations, even if those violations occurred abroad. The majority holds that while the Clayton Act has guided the Court in construing RICO in the past, the two statutes are not interchangeable; just because the Clayton Act includes foreign injury, the Court holds, does not mean that RICO includes it as well.

Of note, as the case was being briefed before the Supreme Court, respondents filed a stipulation in the District Court waiving their damages claims for domestic injuries. The District Court accepted this waiver and dismissed those claims with prejudice. As a result, because the Respondents’ remaining RICO damages claims rested entirely on injury suffered abroad, the Court held that those claims must be dismissed.

Special thanks to Cristina Stiller* for her assistance in creating this blog post.

*Not admitted to the practice of law.