Foreign Plaintiffs and the Presumption against Extraterritoriality

The Supreme Court's decision today in RJR Nabisco, Inc. v. The European Community isn't surprising--observers had noted that "given the Court’s recent antipathy to applying U.S. law overseas," the Court seemed likely to rule in favor of the European Community. And today's ruling continued its trend of restricting transnational litigation in U.S. courts.

In the underlying case, the European Community and 26 of its its member states alleged that RJR Nabisco (and associated entities) "participated in a global money-laundering scheme in association with various organized crime groups." They sued in New York, seeking treble damages under RICO. The district court dismissed the case, holding that RICO could not be applied to conduct occurring outside the United States. The Second Circuit reversed.

The Supreme Court...

unanimously agreed with the Second Circuit that Congress had satisfied the presumption against extraterritoriality with regard to the public enforcement of RICO claims. It noted that some of the predicate acts made actionable under RICO expressly include conduct outside the United States, and at least one, the “kill[ing of] a national of the United States, while such national is outside the United States” can apply only outside the U.S. Even though those particular predicate acts were not at issue in the underlying case, they suggest that Congress did not intend to limit RICO's application to domestic acts. 

The Court split 4-3 (with Justice Sotomayor not participating, likely due to her prior work on the Second Circuit) on the question of whether the private right of action under RICO could also survive the presumption against extraterritoriality. Justice Ginsburg's dissent, joined by Justices Breyer and Kagan, agreed with and quoted the Second Circuit's opinion, which held that “[i]f an injury abroad was proximately caused by the violation of a statute which Congress intended should apply to injurious conduct performed abroad, [there is] no reason to import a domestic injury requirement simply because the victim sought redress through the RICO statute.” 

But the majority, in an opinion by Justice Alito, disagreed--with somewhat interesting logic. The Court pointed out that "providing a private civil remedy for foreign conduct creates a potential for international friction beyond that presented by merely applying U. S. substantive law to that foreign conduct." To support its claim, the Court explained that extraterritorial application of U.S. antitrust law (under the Clayton Act) had caused a fair amount of consternation. Interestingly, though, as Justice Ginsburg noted in her dissent, RICO's remedial provisions are based on the Clayton Act. So the logic of the Court's position is tenuously balanced: the Court has held the Clayton Act's remedial provisions do apply extraterritorially. Now the Court uses the foreign reaction to this application as a reason to deny extraterritoral application of RICO's very similar provisions (but doesn't suggest re-thinking its earlier decision on Clayton Act extraterritoriality). It's kind of like a parent who gives their younger child an earlier curfew after the older one misbehaves ("Sorry, little Rico--Clayton showed us what happens when we let you wander around around outside! It's too late for him, but we are keeping you in.").

 And, as Justice Ginsburg points out, it is highly unlikely that extraterritorial application of RICO's private right of action would in fact give rise to the same frictions that extraterritorial application of the Clayton Act did--and, for those cases that are more appropriately tried abroad, the U.S. courts have broad powers under the forum non conveniens doctrine to dismiss in favor of a foreign tribunal. Obviously in this case, the plaintiffs are foreign states who are not going to view the extraterritorial application of the statute as a threat to their sovereignty. But even in other cases, the typical use of the statute would be by foreign plaintiffs against U.S. defendants. In these cases, I have argued, greater international friction is caused by denying the foreign plaintiff a remedy--and while encouraging suits to go forward abroad may be in the short-term interest of U.S. defendants, it is probably not in their long-term interest.