Conduct of Venezuelan Officials Not Subject to Civil RICO Claims

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

A Venezuelan businessman and his investment company could not pursue civil RICO claims against Venezuelan government officials and their associates because the action exceeded the territorial reach of federal RICO law, the federal district court in New York City has ruled.

The businessman alleged that the defendants had him unjustly imprisoned, for political reasons, and damaged his business through fraud, extortion, and the private abuse of public authority.

According to the businessman, the defendants engaged in a wide-ranging money-laundering scheme that used U.S. banks to hold, move, and conceal the fruits of their unlawful activity.

Extraterritorial Reach

The Second Circuit held, in Alfadda v. Fenn (CCH RICO Business Disputes Guide ¶7774), that foreign entities were not immunized from RICO’s reach. That holding, however, was essentially overruled by the U.S. Supreme Court’s June 24, 2010 decision in Morrison v. National Australia Bank Ltd. (130 S.Ct. 2869), the district court reasoned.

Addressing the extraterritorial reach of the federal securities laws, the Supreme Court in Morrison concluded that a presumption against extraterritoriality applied whenever a statute offered “no clear indication of an extraterritorial application.” The Supreme Court also repudiated the Second Circuit’s use of an “effects test” and a “conduct test” to evaluate the reach of statutes that were silent on the issue extraterritoriality.

Applicability of Morrison

Because the reasoning of Morrison was applicable to RICO, which did not manifest any concern with foreign enterprises, the presumption against extraterritoriality was applicable in this case, the court held.

The businessman argued that the presumption was successfully rebutted because his RICO claims were predicated on violations of the federal money-laundering statutes, which were extraterritorial in nature. RICO, however, did not apply in contexts where, as here, the enterprise and the impact of any predicate activity upon it were entirely foreign.

The Morrison decision itself was effectively nullified by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law on July 21, 2010, a month after the Morrison decision was issued.

Dodd-Frank effectively expanded the territorial reach of the antifraud provisions of the federal securities laws, but it did not address the territorial reach of RICO.

The August 24, 2010, decision is Cedeno v. Intech Group, Inc., CCH RICO Business Disputes Guide ¶11,914.

California Consumer Protection Laws Govern Nationwide Class in Ticketing Fee Case

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

A California trial court was directed to grant a motion certifying a nationwide class action against Ticketmaster under the California Unfair Competition Law (UCL) and False Advertising Law (FAL), in a decision by a California appellate court.

Ticketmaster allegedly misled consumers into believing that the “Order Processing Charge” and the “UPS Delivery” fee charged on its website were pass-through costs when in fact both fees were sources of profit for Ticketmaster. The trial court had found that the consumers failed to establish the court's jurisdiction over the claims of out-of-state plaintiffs.

Ticketmaster's requirement that each purchaser agree that any dispute be resolved by courts located in California and be governed by California law established sufficient contact to permit jurisdiction in California consistent with due process, according to the court. Ticketmaster had its headquarters and principal place of business in California.

Extraterritorial Application of Laws

No express geographic restriction was contained in the UCL. The UCL broadly prohibited “any unlawful, unfair or fraudulent business act or practice.” There appeared no reason why the UCL should not be applied to an out-of-state plaintiff’s claim through a contractual choice of law and forum selection provision imposed by Ticketmaster on its customers.

Although the FAL expressly limited its coverage to misleading statements made or disseminated from California, it nevertheless recognized the illegality of making false statements to “the public in any state.” This reflected the legislature's intent that the FAL should provide extraterritorial protection from false claims made in California, the court noted.

The opinion in Schlesinger v. Superior Court of Los Angeles County appears at CCH Advertising Law Guide ¶63,987.

Further details regarding the CCH Advertising Law Guide appear here.

Tobacco Firm Asks High Court to Reconsider Review of Extraterritorial Reach of RICO

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

British American Tobacco (Investments) Limited (BATCo) has petitioned the U.S. Supreme Court for rehearing of its June 28 denial of certiorari in British American Tobacco (Investments) Limited v. U.S. (Docket No. 09-980). BATCo asked the Court to consider the extraterritorial reach of RICO in light of its June 24 decision in Morrison v. National Australia Bank Ltd. (Docket No. 08-1191).

In Morrison, the Court held that the “conduct” and “effects” tests for determining the extraterritorial reach of a statute could not be used to provide a cause of action for foreign plaintiffs suing under sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 (and under SEC Rule 10b-5) for alleged misconduct in connection with securities traded on foreign exchanges.

Presumption Against Extraterritoriality

In U.S. v. Philip Morris USA Inc., CCH RICO Business Disputes Guide ¶11,688, the D.C. Circuit affirmed a finding that six tobacco companies were liable for conducting the affairs of a RICO enterprise, through a pattern of mail and wire fraud, in a scheme to deceive consumers about the adverse health effects of cigarette smoking.

According to BATCo, the D.C. Circuit created a “flawed exception” to the traditional presumption against extraterritoriality when it held that BATCO’s foreign activities were subject to RICO claims because the alleged misconduct had “substantial, direct, and foreseeable effects in the United States.”

BATCo asked the Supreme Court to decide whether the federal appellate court had: correctly held that the traditional presumption against extraterritoriality was irrelevant to the question of whether a statute was intended to reach a foreign corporation’s “wholly foreign conduct” when that conduct has allegedly had a direct and substantial domestic effect.

It also asked the Court to determine whether the appellate court had improperly:

(1) Ignored the presumption against extraterritoriality and affirmative evidence that Congress never intended RICO to apply extraterritorially;

(2) Borrowed the “ill-suited” effects test from federal securities and antitrust cases to determine the territorial reach of RICO;

(3) Approved a “watered-down” version of the effects test; and

(4) Relied on the domestic effects of the U.S. conduct of other co-defendants and of the overall alleged RICO scheme.

Text of the petition for rehearing in British American Tobacco (Investments) Limited v. United States (Docket No. 09-980) appears here.

Further information regarding BATCo’s original petition for Supreme Court review appears in a March 1, 2010 posting on Trade Regulation Talk.