Help Center

Limiting the Extraterritorial Reach to a Civil RICO Claim May Encourage Using Bankruptcy as a Sword Rather than a Shield

By: Amanda M. Schaefer

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

In RJR Nabisco, Inc. v. European Community (“RJR Nabisco”), the United States Supreme Court held that the RICO private right of action under 18 U.S.C. § 1964(c) does not apply extraterritorially.[1] Applying this precedent in Armada (Singapore) Pte Ltd. v. Amcol Int’l Corp., the Eastern District of the Northern Division of Illinois examined whether the civil RICO statute applied extraterritorially in the context of a chapter 15 case.[2] The court held that because the RICO statute does not have extraterritorial reach, creditor-plaintiff Armada (Singapore) Pte Ltd. (“Armada”) had to prove it suffered an injury within the United States.[3] Consequently, because Armada suffered its economic injury in Singapore (its principal place of business), civil RICO was not available. [4] Accordingly, Armada could not maintain an action against defendant Amcol for the illegal transfer of the debtor Ashapura’s assets and would not be able to collect its seventy-million-dollar judgment.

The criminal portion of the RICO statute states it is “unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain any interest” affecting interstate or foreign commerce.[5] The civil portion of the RICO statute permits a cause of action for any individual “injured in his business or property by reason of a violation of the statute’s criminal provisions.”[6] After Ashapura filed for bankruptcy in the Southern District of New York in October 2011, Armada, a creditor, received two default judgments from an arbitration decision in the United Kingdom in the amount of seventy million dollars against Ashapura, and filed an adversary proceeding against Amcol and its affiliates.[7] Armada claimed the defendants violated the criminal portion of the RICO statute by engaging in racketeering through numerous acts of mail and wire fraud[8] in an attempt to transfer debtor Ashapura’s assets abroad.[9] According to Armada, the defendants misled the bankruptcy court in failing to disclose and illegally transferring sixty million dollars of Ashapura’s assets to a foreign affiliate.[10]

Relying on the binding Supreme Court decision in RJR Nabisco, the court reasoned that Armada was required to allege and prove it suffered a domestic injury to its business or property because the civil portion of the RICO statute does not have extraterritorial reach.[11] When determining where economic injury occurs, “[a] corporate entity generally suffers economic harm in its principal place of business.”[12] Therefore, the court held Armada failed to allege a domestic injury to its business or property because Armada suffered an economic injury and its principal place of business was in Singapore.[13] Additionally, it was insufficient to show that Armada’s injuries were caused by the defendant’s actions conducted within the United States.[14]

This presumption against extraterritoriality may preclude a foreign creditor or plaintiff from recovering on a civil RICO claim. The reach of the civil RICO statute limits the remedies available to a foreign plaintiff-creditor, “even when facing the same injury as their domestic counterparts.”[15] Much of American business is conducted with foreign entities and states in our interconnected political economy. There is a danger that foreign entities would be less likely to conduct business with American corporations if its civil claim will be dismissed when injured economically by an American business. In this instance, for example, Armada was denied the recognition of its seventy-million-dollar UK judgment against the debtor in the United States.[16]



[1] RJR Nabisco, Inc. v. European Community, 136 S. Ct. 2090, 2106 (2016).

[2] Armada (Sing.) Pte Ltd. V. Amcol Int’l Corp., 244 F. Supp. 3d 750 (N.D. Ill. March 21, 2017).

[3] Id. at 755.

[4] Id.

[5] 18 U.S.C. § 1962(b) (2012).

[6] Id. at 754 (quoting 18 U.S.C. § 1964(c) (2012).

[7]  Id. at 752-54.

[8]  Id. at 753-54.

[9] Id.

[10] Id.

[11] Id. at 755.

[12] Id.

[13] Id.; E.g., Kamel v. Hill–Rom Co., 108 F.3d 799, 805 (7th Cir. 1997) (holding the plaintiff suffered economic injury in Saudi Arabia and not in the United States because its principal place of business was in Saudi Arabia).

[14] Armada, 244 F. Supp. 3d at 755.

[15] Paul Chan and Gopi Panchapakesan, The Far-Reaching New “Domestic Injury: Rule Under Civil RICO, (June 29, 2017), https://www.law360.com/articles/939134/the-far-reaching-new-domestic-inj....  

[16] Franklin A. Gevurtz, Building a Wall Against Private Actions for Overseas Injuries: The Impact RJR Nabisco v. European Community, 23 U.C. Davis J. Int’l L. & Pol’y 1 (Fall 2016) (concluding the Court’s decision was “doctrinally questionable”).