SCOTUS Clarified RICO's Domestic Injury Requirement, Did Not Create New Civil Right Of Action For Enforcing Arbitration Awards

• Published date: 28 July 2023
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Personal Injury
• Law Firm: Mintz
• Author: Mr Daniel Pascucci and Michael J. Godwin

The U.S. Supreme Court's June 22 decision in Yegiazaryan v. Smagin, No. 22-381, resolved a circuit court split over whether the Racketeer Influenced and Corrupt Organizations Act (RICO) is available to foreign plaintiffs, and embraced a nuanced case-by-case analysis that considers the domestic property and activities of a foreign plaintiff in determining whether its alleged injury was suffered in the United States.

In the days since the decision, analysts have heralded it as a sweeping change, opining the justices have opened a new path for enforcement of foreign arbitration awards and suggesting that civil RICO claims are now available to creditors enforcing such awards.

Smagin did not, however, create any new claims or paths to recovery. It provided an important resolution to a dispute among circuits over whether RICO's domestic injury requirement (announced in the court's 2016 decision in RJR Nabisco v. European Community, 579 U.S. 325 (2016)) prohibits foreign plaintiffs from bringing civil RICO claims (it does not), but otherwise left the onerous substantive requirements of a civil RICO claim fully intact.

Post-Smagin, civil RICO remains a narrow and burdensome path for any plaintiff and, while perceptions of the high court's tacit approval may incentivize new test cases, filing longshot racketeering claims will do more harm than good to an asset recovery campaign. Foreign creditors chasing assets hidden behind fraudulent schemes still need to scrutinize carefully whether theirs is the rare case supporting civil RICO liability.

Civil RICO Has Long Been a Powerful Tool for Enforcement of Judgments and Awards in Exceptional Cases

Civil RICO has been available to enforce arbitration awards (foreign or domestic) since long before Smagin. Indeed, in Tatung v. Shu Tze Hsu, 217 F. Supp. 3d 1138 (C.D. Cal. 2016), a Taiwanese company successfully used civil RICO to enforce a California arbitration award against the Taiwanese family of the CEO of an arbitration defendant. Tatung, however, was one of very few civil RICO cases in the country to survive to trial, and the plaintiff had to overcome 35 motions to dismiss and summary judgment motions to get there. As discussed below, most civil RICO cases (98% by one survey's count) fail somewhere along the way, leaving aggressive plaintiffs with nothing to show for their efforts and significant legal expenses. However, for extraordinary cases with the right facts, civil RICO'particularly when coupled with the broad...