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RJR Nabisco, Inc. v. European Cmty.

Supreme Court of the United States
136 S. Ct. 2090, 195 L. Ed. 2d 476 (2016)
ELI5:

Rule of Law:

The Racketeer Influenced and Corrupt Organizations Act (RICO) applies extraterritorially to the extent that its underlying predicate statutes apply extraterritorially. However, RICO's private right of action, § 1964(c), requires a plaintiff to allege and prove a domestic injury to its business or property.


Facts:

  • The European Community and 26 of its member states alleged that RJR Nabisco (RJR) participated in a global money-laundering scheme.
  • The scheme allegedly involved Colombian and Russian drug traffickers smuggling narcotics into Europe and selling them for euros.
  • These euros were then used, through a series of transactions, to pay for large shipments of RJR cigarettes into Europe, thereby laundering the drug money.
  • RJR was also alleged to have dealt directly with drug traffickers in South America and to have sold cigarettes to Iraq in violation of international sanctions.
  • RJR allegedly acquired Brown & Williamson Tobacco Corporation to further these illegal activities.
  • The European Community and its member states claimed they were harmed through competitive damage to their state-owned cigarette businesses, lost tax revenue, and increased law enforcement costs.

Procedural Posture:

  • The European Community and 26 of its member states sued RJR Nabisco in the U.S. District Court for the Eastern District of New York.
  • The plaintiffs alleged violations of the Racketeer Influenced and Corrupt Organizations Act (RICO).
  • The District Court granted RJR's motion to dismiss the RICO claims, holding that they were impermissibly extraterritorial.
  • The plaintiffs, as appellants, appealed to the U.S. Court of Appeals for the Second Circuit.
  • The Second Circuit reversed the District Court, reinstating the RICO claims and holding that RICO can apply to extraterritorial conduct.
  • On a petition for rehearing, the Second Circuit also held that RICO's civil remedy does not require a domestic injury.
  • RJR, as petitioner, successfully sought a writ of certiorari from the U.S. Supreme Court.

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Issue:

Does the Racketeer Influenced and Corrupt Organizations Act (RICO) apply extraterritorially, and does its private civil cause of action allow recovery for injuries suffered outside the United States?


Opinions:

Majority - Justice Alito

Yes, in part, and no, in part. RICO's substantive prohibitions in § 1962 apply extraterritorially to the extent that the underlying predicate acts apply extraterritorially, but its private civil remedy in § 1964(c) requires a plaintiff to prove a domestic injury to business or property. Using a two-step framework for extraterritoriality from Morrison, the Court first found that the presumption against extraterritoriality was rebutted for RICO's substantive prohibitions (§ 1962). This is because RICO's definition of 'racketeering activity' incorporates numerous predicate offenses (like money laundering) that Congress expressly made applicable to foreign conduct. However, the Court held that the presumption must be applied separately to RICO's private right of action (§ 1964(c)). The text of § 1964(c) contains no clear indication of extraterritorial application. Furthermore, providing a private civil remedy for foreign conduct, especially one with treble damages, creates a significant risk of international friction that is not present when the U.S. government brings an action. The Court distinguished the Clayton Act, on which § 1964(c) was modeled, by noting that RICO's text lacks the explicit reference to foreign corporations that was critical to finding an extraterritorial private remedy in antitrust law.


Dissenting - Justice Ginsburg

Yes. The private right of action under RICO § 1964(c) should extend to foreign injuries wherever a violation of RICO's substantive provisions (§ 1962) causes such injuries. The dissent argues that the majority incorrectly separates the remedy from the underlying violation. The text of § 1964(c) explicitly allows suit for injury 'by reason of a violation of section 1962.' Since the majority correctly holds that § 1962 can be violated by extraterritorial conduct, the private remedy should naturally follow. The dissent emphasizes that § 1964(c) was modeled on the Clayton Act, which allows recovery for foreign injuries. The majority's concern about international friction is misplaced in this case, where the plaintiffs are foreign sovereigns themselves, and other legal doctrines like forum non conveniens are better suited to address comity concerns. The Court's holding creates an unfair 'double standard' where U.S. victims are protected but foreign victims of the same U.S.-based scheme are not.



Analysis:

This decision significantly clarifies and limits the extraterritorial reach of civil RICO claims. By bifurcating the analysis between the substantive violation and the private remedy, the Court established a major hurdle for foreign plaintiffs seeking to use U.S. courts to address harm occurring abroad. The ruling effectively shields U.S.-based entities from private RICO liability for foreign injuries, even if their scheme was directed from the United States and involved predicate acts with extraterritorial reach. In future transnational litigation, the central battleground will be whether the plaintiff can sufficiently plead and prove a 'domestic injury,' a term the Court left undefined, leading to further litigation on this point.

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