Second Circuit Shifts Focus From Enterprise To Predicates In Evaluating RICO Extraterritoriality

In European Community v. RJR Nabisco, Inc.,1 the latest decision to address the extraterritorial application of the federal RICO statute,2 the Second Circuit ruled last week that the question of what is or is not an impermissible application of RICO beyond domestic borders turns not on the location of the "enterprise," but on the scope and reach of the statutes that form the underlying predicate violations. In so doing, the Circuit rejected the principle—previously adopted by certain district courts—that RICO's reach depends on the location of the enterprise, and it paved the way for RICO claims involving a purely foreign enterprise.

LEGAL BACKGROUND

In Morrison v. National Australian Bank Ltd., decided in 2010, the Supreme Court addressed whether plaintiffs impermissibly sought extraterritorial application of Section 10(b) of the Securities Exchange Act of 1934. At the outset, the Court reaffirmed the "longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States." It then explained that, in the absence of such intent, one must look to the "focus" of the statute at issue— i.e., "the activities the statute seeks to regulate [and] parties or prospective parties to those [activities] that the statute seeks to protect"—to determine whether the claim in question is improperly extraterritorial.3 The Morrison Court found that Section 10(b) focused "not upon the place where the deception originated, but upon purchases and sales of securities in the United States." Because the sales of securities at issue occurred outside the U.S., the Court rejected plaintiffs' argument that they sought merely to enforce a domestic claim since the deceptive conduct was alleged to have occurred in Florida.4

Three months later, in Norex Petroleum Ltd. v. Access Industries, Inc.,5 the Second Circuit applied Morrison to a private RICO claim. The Court observed that RICO was "silent" as to extraterritorial application and is thus presumed to apply only within the territorial jurisdiction of the U.S. Among other things, it also rejected plaintiff's argument that the RICO statute applies extraterritorially for all of its predicates merely because certain RICO predicate statutes specifically apply to foreign conduct.6

Norex, however, did not articulate an overall standard for determining when a RICO claim is sufficiently domestic or improperly...