WASHINGTON (CN) — The Supreme Court ruled 6-3 on Thursday that racketeering claims based on overseas conduct can be pursued in the United States.
The case originates from a Russian real estate deal gone wrong. Ashot Yegiazaryan allegedly defrauded Vitaly Smagin from 2003 to 2009, stealing shares of a joint real estate project. Yegiazaryan was criminally indicted in Russia but fled to avoid facing prison time in the country.
Yegiazaryan now resides in Beverly Hills, California, where Smagin alleges his crimes continued. Smagin began arbitration proceedings against Yegiazaryan in London and was awarded $84 million for Yegiazaryan’s actions against Smagin in the real estate deal.
A U.S. district court confirmed the London arbitration award and entered a judgment against Yegiazaryan, allowing Smagin to execute the ruling in California. The court froze Yegiazaryan’s assets.
In 2015, Yegiazaryan settled a separate arbitration dispute with Russia-based billionaire and oligarch Suleyman Kerimov for $198 million. Under the district court’s order, the Kerimov settlement would be frozen to pay the Smagin settlement. However, Smagin alleges Yegiazaryan conducted a scheme to avoid paying the California judgment using shell companies and scam lawsuits against himself.
Smagin claims he has standing to bring a civil Racketeer Influenced and Corrupt Organizations Act claim against Yegizaryan for damages to Smagin’s businesses. However, Yegizaryan is fighting the suit on claims that Smagin did not suffer a domestic injury under RICO’s civil standing procedure.
The district court dismissed Smagin’s claims but the Ninth Circuit revived the case on appeal. The case was then left in the hands of the Supreme Court to decide the test for determining if a RICO claim arising out of foreign conduct is justiciable in the U.S. federal system.
The Ninth Circuit concluded that Smagin had pleaded a domestic injury because he claimed his efforts to execute the California judgment in the state against a California resident were foiled by a pattern of racketeering activity "designed to subvert" enforcement of the judgment in the state.
In the majority opinion delivered by Justice Sonia Sotomayor on Thursday, the Supreme Court agreed with the circuit judges that "determining whether a plaintiff has alleged a domestic injury [for purposes of RICO] is a context-specific inquiry that turns largely on the particular facts alleged in a complaint.”
"Specifically, courts should look to the circumstances surrounding the alleged injury to assess whether it arose in the United States," Sotomayor wrote.
The justices’ decision looked to precedent from the 2016 case RJR Nabisco v. The European Community. In that case, the court concluded that violations of the RICO Act may be based on a pattern of racketeering that includes predicate offenses committed abroad if the foreign enterprise directly affects commerce involving the United States and if the plaintiff alleges there was a domestic injury.
Sotomayor wrote that this precedent allows foreign plaintiffs to sue under the RICO Act, which goes against Yegiazaryan’s argument that the location of the plaintiff’s residence should be determinative.
She said that under Yegiazaryan’s view, a business owner who resides abroad but owns a brick-and-mortar business in the U.S. would not be able to bring a RICO suit even if an American organization burns down their storefront.
“Because of the contextual nature of the inquiry, no set of factors can capture the relevant considerations for all cases. RICO covers a wide range of predicate acts and is notoriously ‘expansive’ in scope,” Sotomayor wrote. “Thus, depending on the allegations, what is relevant in one case to assessing where the injury arose may not be pertinent in another. While a bright-line rule would no doubt be easier to apply, fealty to the statute’s focus requires a more nuanced approach.”
In a dissenting opinion, Justices Samuel Alito, Clarence Thomas and Neil Gorsuch said the majority’s analysis offers little guidance to lower courts and “risks sowing confusion” in “extraterritoriality precedents.”
The decision also sets aside the competing factors that would favor Yeghiazaryan, and fails to fully consider the relevance of the intangible property at issue, Alito wrote.
The George W. Bush appointee added that the majority’s ruling risks “significant harm” to the uniformity of case law, and said he would have denied the request to hear the case.
Attorney Nick Kennedy from the Texas-based firm, Baker & McKenzie, that represented Smagin in the case, said they are pleased with the Supreme Court's decision and look forward to holding Yeghiazaryan accountable for his crimes. Legal counsel representing Yeghiazaryan did not immediately respond to a request for comment on the ruling.
"The Court granted review ostensibly to provide clarity to the lower courts. Today’s decision clarifies very little," said Cory Andrews, Vice President of Litigation at the Washington Legal Foundation. The nonprofit, public-interest law firm and policy center filed an Amicus Curiae in support of the petitioner, Yeghiazaryan.
"The Court’s new multifactor, case-by-case test for domestic injury gives foreign plaintiffs easier access to U.S. courts and remedies that are far more generous than any available in their home countries. And it invites more litigation in U.S. courts, which will deplete precious judicial resources that are already stretched too thin," Andrews added.
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