Monday, July 21, 2008

RICO Damage Award Upheld in Dominican Republic Banking Scandal

This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide.

A $177 million treble-damage award against a businessman who had illegally diverted millions of dollars from a bank in the Dominican Republic was affirmed by the U.S. Court of Appeals in Atlanta.

After the 2003 collapse of one of the largest banks in the Dominican Republic, a receivership established by the Dominican government brought suit against a Florida businessman for wrongfully diverting millions of the bank’s funds to finance other business ventures and personal expenses. A jury found for the receivership on three civil RICO claims and one fraudulent transfer claim. After trebling of the racketeering damages, the judgment totaled approximately $177 million.

On appeal, the businessman contended that the RICO claims should have been dismissed for “unripeness” and because the federal statute could not be applied extraterritorially. The businessman argued that the plaintiff's damages had to be "clear and definite" before a RICO claim could accrue and that this heightened standard of certainty in pleading and proving RICO damages foreclosed the viability of the plaintiff's claims. However, the court found the arguments unpersuasive.

Ripeness of Claim

A RICO claim was not “unripe” simply because a plaintiff had not first pursued other potential remedies, the court held. Indeed, there was no per se rule that every other avenue of recovery—such as realization on collateral or claims for fraud or breach of contract—must be pursued before a RICO claim could ripen. Nor was there a per se rule to the contrary.

Whether a plaintiff must first pursue other remedies depended on whether the other contingencies were "sufficiently likely to mitigate the plaintiff's loss that damages in the RICO case could not be ascertained, or may not have occurred at all."

Extraterritorial Jurisdiction

The assertion of extraterritorial RICO jurisdiction was appropriate in this case, the court decided. Although federal courts disagreed about the extraterritorial reach of RICO, the more widely accepted view, and the one adopted by the instant court, was that RICO may apply extraterritorially if "conduct" material to the completion of the racketeering had occurred in the United States, or if significant "effects" of the racketeering had been felt here.

In this instance, the "effects test" was not satisfied because no person or business in the United States had been harmed by the businessman's alleged activities. However, the "conduct test" was satisfied because the conduct that occurred in the United States was not an insubstantial or preparatory part of the defendant's overall "looting" scheme. Indeed, the court found that the defendant's conduct had provided the means to consummate the scheme.

The June 19 decision is Liquidation Commission of Banco InterContinental, S.A. v. Renta, CCH RICO Business Disputes Guide ¶11,518.

No comments: