Defending a Civil RICO’s Complaint Using the “Domestic Injury” Requirement 

Defending a Civil RICO’s Complaint Using the “Domestic Injury” Requirement 

It is becoming increasingly common for plaintiffs’ attorneys to plead ordinary business disputes as “civil RICO” cases; particularly in cases involving allegations of fraud. Why? To gain access to the mere threat of treble (i.e. triple) damages and attorney’s fees, which can change the balance of bargaining power in settlement negotiations.

Because two of the common “predicate acts” available under the RICO Act are “mail fraud” and “wire fraud,” it can be easy for a plaintiff’s attorney to frame an ordinary fraud case as a civil RICO case. The defense bar thus needs as many tools as possible to combat this overreach. One of them is a lesser -known limitation on RICO discussed in this article: the “domestic injury” requirement. 

The Domestic Injury Requirement 

U.S. Courts, including the Supreme Court, have held that a civil RICO plaintiff must demonstrate that their injury is domestic, not foreign. The harm or damages must have a direct connection to the United States.

There are a couple reasons for this rule. First, restricting RICO claims to domestic injuries prevents federal courts from being overwhelmed with lawsuits on foreign matters. Second, this limitation reflects the original purpose of the RICO Act—to address organized crime in the U.S. 

But the challenge, in practice, is how to determine whether an injury is domestic or foreign. Most modern business transactions “occur,” arguably, in multiple places. The parties are often spread across the globe, and performance of an agreement often is intended to occur in multiple countries. In such cases, what qualifies as a “domestic injury”? Is it determined by where the defendant resides; where the money is transferred to (usually the defendant’s domicile); where the money is transferred from (usually the plaintiff’s domicile); or where the predicate acts were committed—if a single location can be determined (another complicated question)?

The short answer is: we have no bright-line rule. There have been only few cases to address this issue, and most courts avoid broad generalizations on this issue, limiting their analyses to the facts of each case. 

The most-cited case has been the 2016 U.S. Supreme Court case in RJR Nabisco, Inc. v. European Community, 579 U.S. 325 (2016). In that case, The European Community and its 26 member-states filed a civil RICO lawsuit against RJR Nabisco alleging RJR Nabisco participated in a global money-laundering and racketeering scheme and that they suffered financial harm due to the defendants’ activities. However, the Supreme Court ruled that the injury suffered by the European Community was not sufficiently domestic. Although RJR Nabisco is located in the United States, the injured Plaintiffs (and their bank accounts, which allegedly should have been more enriched) were in Europe. This was not enough. 

The other oft-cited case is Bascunan v. Elsaca, 874 F.3d 806 (2017). In that case, both the plaintiff and the defendant were citizens of Chile, but the plaintiff alleged the defendant misappropriated funds from the plaintiff’s New York-based bank account. The Second Circuit held that because the misappropriation occurred in the U.S., the injury was domestic despite the foreign domiciles of the parties. 

With a few minor exceptions, the courts haven’t given RICO practitioners much guidance beyond RJR Nabisco and Bascunan. Many questions remain unresolved about which types of injuries would or wouldn’t qualify as domestic. For example, how would a court rule on the reverse scenario from RJR Nabisco: where the plaintiff was domestic and the defendant foreign? 

Domestic Injury in International RICO Cases

Most civil RICO cases involving at least one foreign party, or involving a transaction occurring, at least partially, outside of the U.S., are “blank slates.” Likely, there would be room for both sides to argue for and against the injury being domestic injury. The defense bar should continue to challenge RICO cases where the injury might not be considered “domestic,” unless clearly ruled out by the limited cases that have already addressed this issue. 

If you have questions, contact a reliable firm like Lanza & Smith today.

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