Yegiazaryan v. Smagin : RICO Becomes A Tool For Foreign Plaintiffs To Collect On Arbitration Awards In The U.S.

• Jurisdiction: United States,Federal
• Law Firm: Shearman & Sterling LLP
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Personal Injury
• Author: Mr Christopher Ryan, Jesse Sherrett and Anna Stockamore
• Published date: 07 August 2023

The Supreme Court's recent decision in Yegiazaryan v. Smagin opens the door for foreign plaintiffs to use the Racketeer Influenced and Corrupt Organizations Act ("RICO") as an additional tool for collecting on international arbitration awards in the United States. In Smagin, the Court resolved a Circuit split over what qualifies as a "domestic injury" for purposes of filing a private civil suit under RICO, holding a plaintiff has alleged a "domestic injury" when the circumstances surrounding the injury indicate it arose in the United States. The Court found plaintiff was injured in the United States "because his ability to enforce a California judgment, confirming an international arbitration award, was impaired by racketeering activity that largely occurred in or was direct from and targeted at California."¹

This note examines the Supreme Court's decision and highlights its relevance to foreign individuals and entities looking to collect on arbitration awards in the United States. Shearman & Sterling regularly advises clients on how best to enforce and execute on international arbitration awards in the United States and other jurisdictions.

Yegiazaryan v. Smagin

Factual Background

In 2014, Vitaly Smagin won an arbitration award of approximately $84 million against Ashot Yegiazaryan related to a real estate joint venture. At the time of the award, Smagin lived in Russia and Yegiazaryan resided in California. When Yegiazaryan refused to pay, Smagin petitioned the District Court for the Central District of California to confirm and enforce the arbitral award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention"). The District Court froze Yegiazaryan's California assets and issued a temporary protective order.² Yegiazaryan's other assets in the United States were concealed in various shell companies.³

Several months later, Yegiazaryan received $198 million from an unrelated arbitration. Attempting to avoid the California asset freeze and conceal the funds, Yegiazaryan used a law firm to accept the funds and then moved them to a bank in Monaco. He subsequently instructed several associates to file unfounded claims against him in various jurisdictions. Yegiazaryan did not oppose these spurious claims, hoping that the judgments against him would encumber his assets and bar Smagin's recovery.

Smagin learned of the $198 million in 2016. Soon after, the District Court for the Central District of California confirmed Smagin's award against Yegiazaryan, including interest, at $92 million (the "California Judgment") and issued orders aimed at ensuring Smagin's ability to collect. Yegiazaryan continued his efforts to avoid payment, including through a feigned illness, threats, and intimidation.

In 2020, Smagin brought claims against Yegiazaryan and eleven other defendants under the RICO private right of action.⁴ Smagin alleged a substantive RICO violation⁵ and a RICO conspiracy claim,⁶ arguing defendants committed RICO predicate racketeering acts to...