On May 14, 2012, the Southern District of New York denied a motion to dismiss Racketeer Influenced and Corrupt Organizations Act (“RICO”) claims brought by Chevron Corporation against various domestic defendants in connection with a lawsuit in Ecuador. Chevron Corp. v. Donziger, 2012 WL 1711521 (S.D.N.Y. May 14, 2012) (Kaplan, J.). The court held that the case did not involve an extraterritorial application of RICO in violation of the Supreme Court’s decision in Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010).
Chevron alleged that “Steven Donziger, a New York lawyer, and others based in the United States, here conceived, substantially executed, largely funded, and significantly directed a scheme to extort and defraud Chevron, a U.S. company, by, among other things, (1) bringing a baseless lawsuit in Ecuador; (2) fabricating (principally in the United States) evidence for use in that lawsuit in order to obtain an unwarranted judgment there; [and] (3) exerting pressure on Chevron to coerce it to pay money not only by means of the Ecuadorian litigation and [j]udgment, but also by subjecting Chevron to public attacks in the United States and elsewhere based on false and misleading statements … .” Id. at *1.
Chevron brought substantive and conspiracy claims against the defendants under RICO Sections 1962(c) and (d).8 Steven Donziger and related defendants (collectively, the “Donziger Defendants”) moved to dismiss the substantive RICO claim on the grounds that “it would require an impermissible attempt to apply the statute extraterritorially … .” Id. at *3. This “extraterritoriality argument stem[med] from Morrison … .” Id. at *4.
The Location of the Racketeering Activity Should Determine Whether Claims Involve an Extraterritorial Application of RICO
The court explained that “Morrison … requires consideration of two questions: whether the presumption against extraterritorial application applies to RICO and, if it does, whether applying RICO to all or part of Chevron’s claim in fact would be extraterritorial.” Id. The court found that the first question “requires no extensive analysis” because “[t]he Second Circuit has held that RICO, like the Exchange Act, is silent as to extraterritorial application and, in consequence, that the presumption against extraterritorial application governs in RICO cases.” Id. (citing Norex Petroleum Ltd. v. Access Indus., Inc., 631 F.3d 29, 32–33 (2d Cir. 2010) (per curiam)). “The more difficult question is whether all or part of Chevron’s claims would involve extraterritorial application of the statute.” Id.
“Unlike the Norex complaint, the scheme alleged here was conceived and orchestrated in the United States to injure a U.S. plaintiff, involved a predominately U.S. enterprise, and was carried out in material respects, though by no means entirely, here.” Chevron, 2012 WL 1711521 at *5. Moreover, the Norex court “found it unnecessary to articulate an approach to deciding whether application of RICO in a given situation is extraterritorial, beyond drawing a conclusion with respect to the particular complaint before it[.]” Id. The Chevron court determined that “Norex therefore does not control” and “sheds no light on the pivotal question before this [c]ourt.” Id.
The Chevron Court Rejects the “Foreign Enterprise” Test Set Forth in Cedeño v. Intech Group
In Cedeño v. Intech Group, Inc., 733 F. Supp. 2d 471 (S.D.N.Y. 2010) (Rakoff, J.), aff ’d, 457 Fed. Appx. 35 (2d. Cir. 2012), the Southern District of New York dismissed a RICO claim brought by a Venezuelan plaintiff against various defendants allegedly connected to the Venezuelan government on the grounds that “RICO evidences no concern with foreign enterprises [and] … does not apply where, as here, the alleged enterprise and the impact of the predicate activity upon it are entirely foreign.” Id. at 474.
The Chevron court rejected “Cedeño’s emphasis on the domestic or foreign character of the alleged RICO enterprise” as neither “persuasive [n]or helpful” for two reasons. Chevron, 2012 WL 1711521 at *5. First, the court found it “very unlikely that Congress had ‘no concern’ with the conduct of the affairs of foreign enterprises through patterns of racketeering activity, at least if the prohibited activities injured Americans in this country and occurred here, either entirely or in significant part.” Id. at *6. “[F]oreign enterprises have been at the heart of precisely the sort of activities— committed in the United States—that were exactly what Congress enacted RICO to eradicate.” Id.
“Second,” the Chevron court explained that the question of “whether the RICO enterprise is domestic or foreign simply begs the question of how to determine the enterprise’s character.” Id. “Citizenship or legal status is not a viable approach, as it would produce absurd results.” Id. For example, suppose there was a RICO enterprise involving “officials of two corporations—one incorporated in Delaware and the other in Bermuda[.]” Id. “The idea that the officials of the Delaware corporation could be prosecuted criminally and sued civilly under RICO because their enterprise was a domestic corporation while their counterparts with the Bermudian corporation would be immune solely because the Bermudian corporation was foreign would be risible.” Id. “Moreover, citizenship or legal characteristics would afford no reliable or principled basis for characterizing association-in-fact enterprises consisting of citizens or entities organized under the laws of different countries.” Id.
The Chevron Court Endorses the Location of the Racketeering Activity Approach Set Forth in CGC Holding Co. v. Hutchens
In CGC Holding Co., LLC v. Hutchens, 824 F. Supp. 2d 1193 (D. Colo. 2011) (Jackson, J.) (CGC), the court denied a motion to dismiss a RICO claim where “most of the participants in the activities that [were] the subject of the RICO claim” resided in Canada, but “the racketeering activity of the enterprise … was directed at and largely occurred within the United States.” Id. at *1209. The CGC court found that “[t]hese facts [were] a far cry from those of Norex and [Cedeño], where the actors, victims and conduct were foreign, and the connection to the United States was essentially incidental.” Id. at 1210. “In the present case, the conduct of the enterprise within the United States was a key to its success.” Id.
The Chevron court found “the general approach taken in CGC to be persuasive and an appropriate means for determining when a proposed application [of] Section 1962(c) of RICO is domestic or foreign[.]” Chevron, 2012 WL 1711521 at *8. “This approach … would afford a remedy to a U.S. plaintiff who claims injury caused by domestic acts of racketeering activity without regard to the nationality or foreign character of the defendants or the enterprise whose affairs the defendants wrongfully conducted.” Id. “And it almost certainly would be consistent with Congressional intent, which included protecting American victims at least against injury caused by the conduct of the affairs of enterprises through patterns of racketeering activity that occur in this country.” Id. “Accordingly,” the Chevron court held that “[i]f there is a domestic pattern of racketeering activity aimed at or causing injury to a domestic plaintiff, [then] the application of Section 1962(c) to afford a remedy would not [be] an extraterritorial application of the statute.” Id.
Chevron’s Claims Do Not Involve an Extraterritorial Application of RICO
The Chevron court explained that “the RICO violation alleged in this case consisted of the conduct of the affairs of the enterprise through a pattern of racketeering activity.” Id. “The scheme (1) allegedly was conceived and orchestrated in and from the United States (2) in order wrongfully to obtain money from a company organized under the laws of and headquartered in the United States, and to cover up unlawful and improper activities, and (3) acts in furtherance were committed here by Americans and in Ecuador by both Americans and Ecuadorians.” Id. “Assuming that the amended complaint alleges a domestic pattern of racketeering activity,” the Chevron court held that “applying the statute to that pattern would not be extraterritorial.” Id.
“Moreover, even if the nationality, citizenship, or location of the enterprise were pertinent in such circumstances, the enterprise alleged in this case, an association in fact including both Americans and Ecuadorians, with the Americans predominant in number and charged with conceiving and supervising the scheme, would cut in favor of application of the RICO statute here.” Id.
“Accordingly, insofar as the Donziger Defendants’ motion seeks dismissal of the RICO claims under Morrison,” the court held that “their motion must be denied.” Id. at *9.