In the first decision by a circuit court applying the Supreme Court’s ruling in Morrison v. National Australia Bank1 beyond the federal securities laws, the US Second Circuit Court of Appeals in Norex Petroleum Ltd. v. Access Indus., Inc., et al., affirmed the dismissal of a case “which primarily involves foreign actors and foreign acts,” for failure to state a claim under the RICO statute.2 Morrison found that the Securities Exchange Act of 1934 should not be applied extraterritorially because statutes that lack an expressed congressional intent to apply extraterritorially are presumed to not so apply. In Norex, the Second Circuit applied this presumption to the RICO statute, holding that the RICO statute is “silent as to any extraterritorial application.”3 The Court then summarily rejected plaintiff’s argument that sufficient domestic conduct had been alleged to sustain the RICO claims. The Court opted not to provide guidance on what types of RICO allegations might sustain a claim premised on domestic conduct as that concept was analyzed in Morrison.
Plaintiff Norex Petroleum Limited (“Norex”), a Cypriot company owned by a Canadian investor, brought a RICO action alleging that TNK-BP and other defendants conspired to take over Norex’s oil assets in Russia through alleged misuse of Russian courts and Russian shareholder meetings, and claimed several billion dollars in damages.4 US District Judge Laura Taylor Swain dismissed the case, finding that the court lacked subject matter jurisdiction because the RICO statute did not reach what was an entirely Russian dispute relating to a non-US company’s dispute with one Russian company over ownership interests in another Russian company.5
Norex appealed to the US Court of Appeals for Second Circuit. Before that court could rule, the US Supreme Court decided Morrison, which involved non-US shareholders of an Australian bank who had purchased shares on a non-US exchange and were attempting to assert claims under the Securities Exchange Act of 1934.6 Morrison held that the issue of extraterritoriality is not a matter of subject matter jurisdiction (under Federal Rule 12(b)(1)), but relates to plaintiff’s ability to state a claim (under Federal Rule 12(b)(6)). Morrison held that unless a statute clearly states that it applies extraterritorially, it does not, and that, in considering whether enough domestic conduct has been pled to sustain a complaint, courts must consider the nature of the conduct Congress sought to regulate under a given statute. In Morrison, the non-US issuer had a sponsored US ADR program (in connection with which it had made allegedly false SEC filings) and the alleged fraud occurred in a US subsidiary. The Supreme Court held, however, that this was insufficient domestic conduct to sustain the complaint because the US securities laws do not punish deceptive conduct itself, but such conduct only in connection with purchases or sales of securities in the United States or on registered US exchanges.
The Second Circuit then asked for supplemental briefing on how Morrison applied to the Norex case, and then affirmed the dismissal of the case, albeit on different grounds. Following prior Second Circuit decisions, the Court first held that RICO is “silent as to any extraterritorial application.”7 Closely tracking Morrison, the Court then held that there also was no basis for inferring extraterritorial application of the RICO statute from the way certain terms were used or defined in the RICO statute. Finally, the Court then held that Norex, whose case “primarily involves foreign actors and foreign acts,” had otherwise failed to plead sufficient domestic conduct to support a RICO claim.
The Norex ruling will make it much harder for non-US companies to be sued under the RICO statute for disputes lacking clear US connections. Given the Court’s reading of the RICO statute, the burden will be on plaintiffs to plead domestic conduct sufficient to sustain a RICO claim. Norex shows that this burden is not met where a non-US plaintiff’s alleged RICO injuries are incurred abroad and are caused by alleged non-US acts (e.g., acts in Russia). In so holding, however, the Second Circuit did not shed light on what types of facts in the context of a RICO claim could satisfy that burden. Thus, future cases will have to assess, as set forth in Morrison, what “the object of the [RICO] statute’s solicitude” is and what “the [RICO] statute seeks to ‘regulate’” in the context of a case with significant non-US characteristics.8
The case is Norex Petroleum Limited v. Access Industries, Inc. et al., 07-4553-cv, Second Circuit Court of Appeals.