SCOTUS Resolves Circuit Split On How To Assess Domestic Injury Under RICO

• Published date: 13 July 2023
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Court Procedure, Personal Injury
• Law Firm: Foley Hoag LLP
• Author: Mr Anthony Mirenda, Mark Finsterwald and Nicholas Alejandro Bergara

Key Takeaways:

• The Supreme Court, building on its holding in RJR Nabisco Inc. v. European Community, held in Yegiazaryan v Smagin that courts must apply a context-specific test when analyzing whether a RICO plaintiff has sufficiently pled a domestic injury.
• Applying this new test, the Court found a foreign plaintiff may bring a RICO claim against a defendant who is seeking to avoid the enforcement of an arbitral award through an alleged pattern of racketeering activity.
• This ruling shows RICO is a powerful U.S. tool to combat fraudulent evasion of judgments enforcing arbitral awards that when combined with other aspects of U.S. litigation (e.g discovery), could make the U.S. an attractive forum for plaintiffs to seek enforcement.

In Yegiazaryan v. Smagin, the Supreme Court of the United States built upon its decision in RJR Nabisco, Inc. v. European Community, which concerned whether the Racketeer Influenced and Corrupt Organizations Act ("RICO") applies extraterritorially. 579 U. S. 325 (2006). Circuit courts of appeal had split on how to interpret RJR Nabisco. The Court resolved that split in Yegiazaryan v. Smagin by holding that courts must apply a context-specific test when analyzing whether a plaintiff has sufficiently pled a "domestic injury" as required to state a RICO claim. Applying this test in Yegiazaryan, the Court, in a 6-3 decision, determined that a plaintiff living abroad may bring a private claim in the United States, under RICO, against a domestic defendant that is attempting to avoid payment of a U.S. judgment.

Facts & Procedural History

Respondent, Vitaly Smagin, alleged that petitioner, Ashot Yegiazaryan, defrauded Smagin by stealing his shares in a real estate joint venture in Moscow between 2003 and 2009. Yegiazaryan v. Smagin, No. 22-381, slip op. at 2 (June 22, 2023). According to Smagin, Yegiazaryan moved to Beverly Hills, CA in 2010 to avoid criminal prosecution in Russia. Id. A few years later, Smagin, a resident of Russia, obtained an arbitration award, in London, against Yegiazaryan for more than $84 million for misappropriating Smagin's real estate investment ("First Award"). But Yegiazaryan refused to pay Smagin. Id.

To collect, Smagin filed an action to confirm and enforce the First Award in the Central District of California. The District Court issued a preliminary injunction and froze Yegiazaryan's California assets. Id. Around mid-2015, Yegiazaryan allegedly obtained a $198 million award of his own, pursuant to a separate arbitration proceeding involving another Russian businessman ("Second Award"). Id. To circumvent the asset freeze and prevent Smagin from satisfying his judgment enforcing the First Award by reaching funds obtained in the...