European Community v. RJR Nabisco, Inc., No. 11–2475–cv (2d Cir. Apr. 23, 2014) [click for opinion]
The European Community and twenty-six of its member states sued RJR Nabisco ("RJR") under the Racketeer Influenced and Corrupt Organizations statute ("RICO"), alleging that RJR directed, managed, and controlled a sophisticated money-laundering scheme that operated as follows: Colombian and Russian criminal organizations smuggled narcotics into Europe, which they then sold for payment in euros. These organizations then laundered the euros they earned from the drug sales through money brokers who changed the euros into the home currency of the criminal organizations' countries. The brokers then sold the euros to cigarette importers at a reduced rate, which the importers then used to purchase RJR's cigarettes from wholesalers.
The European Community claimed that RJR was in control of this scheme at every level, thereby committing acts that violated the RICO statute "including mail fraud, wire fraud, money laundering, violations of the Travel Act, 18 U.S.C. § 1952, and providing material support to foreign terrorist organizations." The European Community further alleged that RJR committed New York common law torts of fraud, public nuisance, unjust enrichment, negligence, negligent misrepresentation, conversion, and money had and received.
The United States District Court for the Eastern District of New York dismissed the European Community's complaint, asserting that the RICO statute has no extraterritorial application to an enterprise located and directed outside of the United States. The district court also dismissed the European Community's state law claims on the grounds that the European Community did not qualify as a foreign state for purposes of the federal diversity statute, 28 U.S.C. § 1332(a)(4), because it was not an "agency or instrumentality of a foreign state" as defined in 28 U.S.C. § 1603, which "deprived the court of jurisdiction over the state law claims."
The Second Circuit Court of Appeals did not agree. As to the RICO claim, the Second Circuit held that when a RICO claim depends on violations of a predicate statute that itself manifests an unmistakable congressional intent to apply extraterritorially, RICO will apply extraterritorially to that conduct as well. The court found that the money laundering and material support of terrorism statutes both applied extraterritorially in circumstances such as those alleged by the European Community. And, although the wire fraud, money fraud, and Travel Act statutes did not apply extraterritorially, the European Community's RICO claims based on those predicates survived because the elements of those statutes were alleged to have been violated in the United States.
Finding that Plaintiffs' RICO claims had been improperly dismissed, the Second Circuit turned to Plaintiffs' state law claims. The Second Circuit again disagreed with the district court, and held that the European Community qualified as a "foreign state" under 28 U.S.C. § 1332(a)(4). The court held that the European Community was an "organ of a foreign state," and "thus an agency or instrumentality of a foreign state" under the relevant statutory provisions.
The Second Circuit applied five factors to determine whether or not the European Community is considered an "organ of a foreign state" under the Foreign Sovereign Immunities Act: (1) whether the foreign state created the entity for a national purpose; (2) whether the foreign state actively supervises the entity; (3) whether the foreign state requires the hiring of public employees and pays their salaries; (4) whether the entity holds exclusive rights to some right in the [foreign] country; and (5) how the entity is treated under foreign state law. The Second Circuit concluded that the European Community satisfied the four, and possibly all, of these factors and, therefore, the case came within the court's jurisdiction. The case was remanded for further proceedings.