2nd Circuit Reinstates Smuggling, Racketeering Claims Against R.J. Reynolds

NEW YORK — (Mealey’s) The European Community (EC) is an agency or instrumentality of its member states for the purpose of diversity jurisdiction in U.S. federal courts, and allegations of cigarette smuggling, racketeering and money laundering brought by the EC against the corporate parent of R.J. Reynolds Tobacco Co. (RJR) and others contained sufficient domestic contacts to invoke the Racketeer Influenced and Corrupt Organizations Act, the Second Circuit U.S. Court of Appeals ruled April 23 (The European Community, et al. v. RJR Nabisco Inc., et al., No. 11-2475, 2nd Cir. [enhanced opinion available to lexis.com subscribers]). 

The panel said the U.S. District Court for the Eastern District of New York erred in holding that Norex Petroleum Ltd. v. Access Industries, Inc. (631 F.3d 29, 5 32 [2d Cir. 2010] [enhanced opinion]) barred any extraterritorial application of RICO.  

“We think it far more reasonable to make the extraterritorial application of RICO coextensive with the extraterritorial application of the relevant predicate statutes,” the panel said.  “This interpretation at once recognizes that ‘RICO is silent as to any extraterritorial application’ and thus has no extraterritorial application independent of its predicate statutes.” 

Full Effect 

“At the same time, it gives full effect to the unmistakable instructions Congress provided in the various statutes incorporated by reference into RICO.  This approach has the benefit of simplifying the question of what conduct is actionable in the United States and permitting courts to consistently analyze that question regardless of whether they are presented with a RICO claim or a claim under the relevant predicate.  It also avoids incongruous results, such as insulating purely domestic conduct from liability simply because the defendant has acted in concert with a foreign enterprise.” 

The panel said the claims met at least four of the circuit’s five factors in Filler v. Hanvitt Bank (378 F.3d 213, 217 [2d Cir. 2004] [enhanced opinion]) for determining whether a party is an “organ” under the Foreign Sovereign Immunities Act. 

The opinion is by Circuit Judge Pierre N. Leval with Circuit Judges Robert D. Sack and Peter W. Hall concurring. 

Allegations

 The EC and 26 member nations alleged that Colombian and Russian criminal organizations imported illegal cigarettes and narcotics into member countries, laundering the proceeds through European money brokers.  In some instances, the plaintiffs say, the defendants initially shipped cigarettes into Panama to “use the secrecy laws of the Republic of Panama” to shield the transactions. 

U.S. Judge Nicholas G. Garaukis of the Eastern District of New York, in dismissing the case, said that during its pendency, the U.S. Supreme Court decided Morrison v. National Australia Bank Ltd. (130 S. Ct. 2869 [2010] [enhanced opinion]), which bars the extraterritorial application of federal statutes that are silent on or unclear concerning extraterritoriality (The European Community, et al. v. RJR Nabisco Inc., et al., No. 1:02-cv-5771, E.D. N.Y.; 2011 U.S. Dist. LEXIS 51651 [enhanced opinion]).  The Second Circuit applied Morrison to civil RICO claims, Judge Garaukis said, and held that the RICO statute is silent on extraterritorial application. 

Counsel 

The EC and constituent states are represented by Charles Arthur Acevedo and Kevin A. Malone of Krupnick, Campbell, Malone, Buser, Slama, Hancock, Liberman & McKee in Fort Lauderdale, Fla., Edward F. Farrell of Madrid, Spain; Frank H. Granito III, John J. Halloran Jr. and Kenneth P. Nolan of Speiser, Krause, Nolan & Granito in New York and Andrew B. Sacks, Stuart Housel Smith and John K. Weston of Sacks & Smith in Philadelphia. 

The United States is represented by Harold Hongju Koh, legal adviser to the Department of State in Washington, D.C., and Assistant Attorney General Tony West, U.S. Attorneys Loretta E. Lynch, Douglas N. Letter and Lewis S. Yelin of the U.S. Department of Justice in Washington.  RJR is represented by Gregory G. Katsas of Jones Day in Washington and Mark R. Seiden of Jones Day in New York.

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