The U.S. Court of Appeals for the Second Circuit established a clarifying test for when a foreign litigant has standing to bring civil Racketeer Influenced and Corrupt Organizations Act claims in U.S. courts.
The panel on Monday vacated the dismissal of a RICO suit brought by a Chilean national against his cousin for defrauding him of millions of dollars through a number of schemes. The panel included Circuit Judges José Cabranes and Debra Ann Livingston, and U.S. District Judge William Pauley III of the Southern District of New York sitting by designation.
The suit, Bascuñán v. Elsaca, 16‐3626‐cv, raised a question of first impression at the appellate level over the U.S. Supreme Court’s opinion in 2016’s RJR Nabisco v. European Community. In an opinion authored by Justice Samuel Alito, the high court ruled a private right to action in RICO cases does not apply extraterritorially. Therefore, any civil RICO suit requires a domestic injury, which is the only thing a plaintiff can recover on.
U.S. District Judge George Daniels of the Southern District of New York issued the lower court’s order.
Daniels relied on RJR Nabisco in the district court to grant defendants’ motion to dismiss, broadly characterizing plaintiff Jorge Yarur Bascuñán’s $64 million injury as occurring in his home country of Chile, making a RICO suit impossible.
The panel disagreed, and in doing so set up its own test to satisfy the Supreme Court’s RJR Nabisco requirements.
Courts need to look at the specific types of injuries being alleged, rather than on where the parties are geographically located, the panel ruled. These injuries also need to be looked at individually, to determine if any of them occurred domestically. If the injury does, in fact, occurring domestically, even if the individual is foreign and all the other claims occur in a foreign location, then the plaintiff may recover.
This is illuminated clearly in the Bascuñán case.
Defendant Daniel Yarur Elsaca had power of attorney privileges of his cousin Bascuñán’s finances. Over the several years, according to Bascuñán, Elsaca and the co-defendants schemed to steal millions from various accounts. Rather than looking at the sum total, the panel analyzed each of the four alleged schemes to see how they matched up.
Two of the schemes failed to measure up to the panel’s standard. The first involved allegations that Elsaca stole nearly $2 million from a bank account in Chile, signing checks from the estate set up for Bascuñán to himself, and then deposited them into his own investment accounts at Morgan Stanley in New York. The second involved a Chile-based investment fund that the plaintiffs say Elsaca and his associates allegedly stole the vast majority of the $60 million of estate monies placed there.
Despite transferring some of the funds through or into the United States, the threshold for both schemes fell short, the panel found.
“Because of the primacy of American banking and financial institutions, particularly those in New York, a transnational RICO case is often likely to involve in some way, however insignificant, financial transactions with American institutions,” the panel wrote. If this was enough to allow for RICO claims it “might well effectively eliminate the effect of the domestic injury requirement in a large number of cases,” according to the panel.
However, two of the schemes analyzed by the panel did past muster. Despite the plaintiff’s location abroad, in each instance the injury to his monetary property occurred in the United States. In one, a trust fund held in a U.S. bank account was allegedly defrauded. In the other, shares taken from a safety box in New York were exchanged abroad.
Both sides claimed a victory in the decision.
“Our clients are extremely happy that the Second Court has reaffirmed that foreign plaintiffs, like U.S. residents, enjoy the protection of U.S. law when they place their faith in the American legal system by maintaining property here,” said Becker, Glynn, Muffly, Chassin & Hosinski partner Robin Alperstein, who represented Bascuñán.
As part of its decision, the panel vacated an order by Daniels denying Bascuñán’s request to file a second amended complaint, which Alperstein said they planned to do “to include allegations that our clients’ injuries all occurred in New York under the test the Second Circuit just announced.”
Even as Bascuñán’s attorneys plan to refile their complaint, Elsaca’s counsel, Quinn Emanuel Urquhart & Sullivan partner Jennifer Selendy, said they are confident the panel’s new test offered opportunities to make their case before Daniels.
“Of course we would love for the whole case to be thrown out, but we are happy that half of it was thrown out,” she said.