27-v1\ 1 International Litigation Supreme Court Weighs In on International Litigation Lawrence W. Newman and David Zaslowsky, New York Law Journal July 27, 2016 Lawrence W. Newman and David Zaslowsky Over the past few months, the Supreme Court issued two decisions that fall directly in the international litigation bailiwick. We take a look at those decisions in this column. Extraterritorial Scope of RICO In RJR Nabisco v. European Community, 1 respondents—the European Community and 26 of its member states—claimed that RJR Nabisco and several related entities participated in a global money laundering scheme under which drug traffickers smuggled and sold drugs in Europe, then used the proceeds to pay for shipments of RJR cigarettes into Europe. Central to the 27-v1\ 2 Respondents' lawsuit were claims that RJR Nabisco violated RICO by engaging in a pattern of racketeering activity. RJR Nabisco moved to dismiss these claims, arguing that RICO does not apply to racketeering activity outside the United States or to foreign enterprises. The U.S. District Court for the Eastern District of New York granted the motion. On appeal, the U.S. Court of Appeals for the Second Circuit reversed and held that there are a number of RICO predicates (criminal statutes tied to a "pattern of racketeering") which apply extraterritorially. The Supreme Court granted certiorari to determine the extraterritorial application of RICO and, in its decision, distinguished between RICO's criminal provisions (as applying extraterritorially to a limited extent) and the private right of action (as applying only to domestic injuries suffered inside the United States). The court determined that the question of whether RICO has extraterritorial reach cannot be answered with a simple yes or no, but, rather, depends on the specific allegations of misconduct and injury. Justice Samuel Alito, writing for the majority in a 4-3 decision, began by emphasizing that federal laws contain a presumption against extraterritoriality. The court's precedents in Morrison v. National Australia Bank2 and Kiobel v. Royal Dutch Petroleum Co. 3 reflect a two-step framework for analyzing extraterritoriality issues. First, the court asks whether the presumption against extraterritoriality has been rebutted—i.e., whether the statute in question gives a clear, affirmative indication that it applies extraterritorially. If, and only if, the statute is not found to be extraterritorial at step one, the court moves to step two, where it examines the statute's "focus" to determine whether the case involves a domestic application of the statute. Using this framework, the court found that, with respect to criminal RICO claims (18 U.S.C. §1963), ("Whoever violates any provision of section 1962…")., RICO's definition of "racketeering activity" includes several predicates that apply to foreign conduct, thus rebutting the presumption against extraterritoriality. One such predicate is the prohibition against killing a U.S. national while such national is outside the United States. Critically, the court found that Congress intended the extraterritorial application of RICO to be limited to when the predicates themselves—alleged in a particular case—apply extraterritorially and when there is an unmistakable congressional intent for the predicate statute to apply extraterritorially. The court held that, in this case, the alleged criminal RICO violations did not involve an impermissible extraterritorial application of RICO. Next, the court analyzed RICO's private right of action (18 U.S.C. §1964(c)) ("Any person injured by reason of a violation of section 1962…") to determine if it could apply extraterritorially. The court found that it could not. To bring a private action under §1964(c), a private RICO plaintiff must, the court said, allege and prove a domestic injury to its business or property because the statute did not evidence the unmistakable congressional intent necessary for extraterritorial application. The court also voiced its concerns about the international friction that could arise from providing a private civil remedy for foreign conduct because foreign citizens could bypass seeking their own remedies by relying on American remedies. Although respondents argued that these concerns were moot since the respondents were, themselves, foreign countries, the court refused to allow extraterritoriality to hinge on the consent of the affected sovereign in each case. 27-v1\ 3 Multinational corporations seem to be the biggest winners in the RJR Nabisco case. True, the Supreme Court approved some extraterritorial application of RICO's substantive prohibitions. But only the government will be able to enforce RICO violations based on extraterritorial conduct that causes no injury within the United States. The real concern of the multinationals is the threat of civil RICO actions, especially given the breadth of RICO, which can be triggered by dozens of predicate offenses ranging from mail fraud to money laundering. In holding that a civil cause of action applies only to domestic injuries suffered inside the United States, the Supreme Court limited the universe of private civil RICO claims multinational corporations might face, as private plaintiffs can no longer bring RICO claims based solely on injuries suffered outside the United States. More generally, the RJR Nabisco decision continues a recent trend of the Supreme Court's applying very strictly a presumption against extraterritorial application of statutes. The court's analysis suggests that numerous other federal causes of action could likewise be limited to domestic injuries. Iranian Assets The second recent Supreme Court decision in the international litigation area, Bank Markazi v. Peterson, 4 touches on issues that trace back to the bombing of the Marine barracks in Lebanon in 1983. Respondents were victims of Iran-sponsored acts of terrorism (such as the barracks attack), their estate representatives, and surviving family members. Numbering more than 1,000, respondents are part of 16 discrete groups, each of which brought a lawsuit against Iran pursuant to the terrorism exception in the Foreign Sovereign Immunities Act (FSIA). Upon finding a clear evidentiary basis for Iran's liability to each suitor, the district court entered judgments by default. Together, respondents obtained billions of dollars in judgments against Iran. To enforce their judgments, the 16 groups of respondents first registered them in the U.S. District Court for the Southern District of New York under the caption Peterson et al. v. Islamic Republic of Iran et al. It was not until 2008 that the respondents discovered a significant body of assets that could be traced to the Iranian government. But the connection was tenuous. The assets consisted of $1.75 billion in cash proceeds held by Citibank on behalf of an Italian bank, which also held funds on behalf of Iran's central bank (Bank Markazi). But enforcing judgments against sovereigns is not simple. Subject to stated exceptions, the FSIA shields foreign-state property from execution. To lessen these enforcement difficulties, Congress enacted the Terrorism Risk Insurance Act of 2002 (TRIA), which authorizes execution of judgments obtained under the FSIA's terrorism exception against "the blocked assets of [a] terrorist party (including the blocked assets of any agency or instrumentality of that terrorist party)." A "blocked asset" is any asset seized by the Executive Branch pursuant to either the Trading with the Enemy Act (TWEA) or the International Emergency Economic Powers Act (IEEPA). Invoking his authority under the IEEPA, President Barack Obama, in February 2012, issued an Executive Order blocking "[a]ll property and interests in property of any Iranian financial 27-v1\ 4 institution, including the Central Bank of Iran…." But there remained disputes over which assets were covered. To resolve the dispute, Congress passed the statute at issue in this case, §502 of the Iran Threat Reduction and Syria Human Rights Act of 2012, 22 U. S. C. §8772. Section 8772(b) defines as available for execution by holders of terrorism judgments against Iran "the financial assets that are identified in and the subject of proceedings in the United States District Court for the Southern District of New York in Peterson et al. v. Islamic Republic of Iran et al., Case No. 10 Civ. 4518 (BSJ) (GWG), that were restrained by restraining notices and levies secured by the plaintiffs in those proceedings." Before allowing execution against an asset described in §8772(b), a court must make a number of determinations, such as whether the asset is held in the U.S. for a foreign intermediary doing business in the U.S. and whether Iran holds equitable title to, or a beneficial interest in, the asset. In 2012, the judgment holders updated their motions to include execution claims under Section 8772. Bank Markazi challenged the execution on a constitutional argument. It maintained that Section 8772 could not withstand inspection under the separation-of-powers doctrine, contending that Congress had usurped the judicial role by directing a particular result in the pending enforcement proceeding. The district court rejected that argument, as did the Second Circuit. The Supreme Court granted certiorari to consider the separation of powers argument. It affirmed. Article III of the Constitution establishes an independent Judiciary, which, in the words of the seminal Marbury v. Madison decision,5 has the "province and duty…to say what the law is." Necessarily, the endowment of that authority in the courts blocks Congress from requiring federal courts to exercise their judicial power in a manner that Article III forbids. The Supreme Court ruled that, although Article III bars Congress from telling a court how to apply pre-existing law to particular circumstances, Congress may amend a law and make the amended prescription retroactively applicable in pending cases. The court recognized that an 1892 decision, United States v. Klein, observed that Congress may not "prescribe rules of decision to the Judicial Department…in [pending] cases."6 But more recent decisions clarified that Klein does not inhibit Congress from amending applicable law. Section 8772 does just that: It requires a court to apply a new legal standard in a pending postjudgment enforcement proceeding. No different result obtains because, as Bank Markazi argued, the outcome of applying Section 8772 to the facts in the proceeding below was a foregone conclusion. A statute does not impinge on judicial power when it directs courts to apply a new legal standard to undisputed facts. The Supreme Court also rejected Bank Markazi's argument that Section 8772 was invalid because it prescribed a rule for a single, pending case identified by actual caption and docket number. The court explained that Section 8772 is not an instruction governing one case only; it facilitates execution of judgments in 16 suits. While consolidated for administrative purposes at the execution stage, the judgment-execution claims were not independent of the original actions for damages and each retained its separate character. In any event, the bank's argument rested on 27-v1\ 5 the flawed assumption that legislation must be generally applicable. But the courts have previously upheld as a valid exercise of Congress' legislative power laws governing one or a very small number of specific subjects. Adding weight to the Supreme Court's decision was the fact that Section 8772 was an exercise of congressional authority regarding foreign affairs, a domain in which the controlling role of the political branches is both necessary and proper. Measures taken by the political branches to control the disposition of foreign-state property, including blocking specific foreign-state assets or making them available for attachment, have never been rejected as invasions of the Article III judicial power. Indeed, before the enactment of the FSIA, the Executive Branch regularly made case-specific determinations whether sovereign immunity should be recognized, and courts accepted those determinations as binding. Here, it was certainly important to the court that both Congress and the Executive spoke with a single voice, in support of Section 8772. In a not-too-common pairing, Chief Justice John Roberts, joined by Justice Sonia Sotomayor, dissented, strongly disagreeing with the majority's portrayal of the implications of its decision and warning that, "hereafter, with this Court's seal of approval, Congress can unabashedly pick the winners and losers in particular pending cases." There is reason to believe the majority might have been more sympathetic to the dissenters' invocation of separation of powers as a safeguard of liberty had the liberty of an individual actually been at risk, as opposed to the case being one dealing in foreign affairs. In any event, for all the above reasons, the Second Circuit's decision was affirmed. Endnotes: 1. No. 15-138, 579 U.S. ___ (June 20, 2016). 2. 561 U. S. 247 (2010). 3. 569 U. S. 12 (2013). 4. 579 U.S. ___, 136 S. Ct. 1310 (April 20, 2016). 5. 1 Cranch 137, 177 (1803). 6. 13 Wall. 128 (1892).