United States: US District Court for the District of Columbia Rules that the Presumption Against Extraterritoriality Applies to Government RICO Claims

Originally published April 19, 2011

Keywords: extraterritorial claim, RICO claim, DOJ, BATCO

In November of 2010, we reported that the US Supreme Court's reasoning in Morrison v. National Australia Bank Ltd. regarding extraterritorial jurisdiction has been used in two cases to limit private RICO claims. In Cedeno v. Intech Group, Inc., the court (SDNY) dismissed a RICO claim brought by a foreign plaintiff against a foreign defendant because RICO, like Section 10(b), is silent as to its extraterritorial application. Similarly, in Norex Petroleum Ltd. v. Access Indus. Inc., the Second Circuit expressly found that, because RICO is silent as to its extraterritorial application, the presumption against extraterritoriality articulated in Morrison applies to RICO claims. In response to a request by the Department of Justice (DOJ), the Second Circuit later amended the Norex decision, adding: "Because Norex brought a private lawsuit...we have no occasion to address—and express no opinion on—the extraterritorial application of RICO when enforced by the government." Whether the presumption against extraterritoriality applied to government RICO actions has remained an open question in the Second Circuit.

On March 28, 2011, the US District Court for the District of Columbia addressed this issue and expressly held that Morrison's presumption against extraterritoriality applies to RICO claims even when brought by the government. US v. Philip Morris USA, Inc., No. 99-2496, 2011 WL 1113270 (D.D.C.).

In Philip Morris, the DOJ brought a civil RICO action against various defendants, including British American Tobacco (Investments) Limited (BATCO), which is organized under the laws of England and Wales. In August 2006, the district court found that defendants violated RICO. Specifically, the court found that "BATCO's activities and statements further the Enterprise's overall scheme to defraud, which had a tremendous impact on the United States." In May 2009, the Court of Appeals for the District of Columbia Circuit affirmed the ruling. However, in January 2011, BATCO moved in the district court for reconsideration of the court's Final Order, arguing that Morrison's rejection of the "effects" test for extraterritoriality invalidated the basis for BATCO's liability under RICO. 

The district court considered whether RICO continues to have extraterritorial reach after Morrison. Rejecting the government's argument that Morrison applies only to Section 10(b) claims under the Exchange Act as ignoring the plain language of the decision, the court found that the Supreme Court intended that the presumption against extraterritoriality apply to all statutes, not simply the Exchange Act. 

The court also disagreed with the government's assertion that Congress must have assumed that RICO would have extraterritorial reach because some of the predicate acts which may give rise to a "racketeering activity" prohibited by RICO are extraterritorial in nature. Relying on both Cedeno and Norex, the court determined that RICO lacks any indication that Congress intended the statute to have extraterritorial effect.

The court then shifted its focus from the text of the statute to the actions on which the defendant's liability was predicated. The government argued that even if RICO does not have extraterritorial reach, BATCO's liability could be premised on its domestic conduct. For instance, BATCO frequently communicated with US companies and organizations, and its officials and scientists made several visits to the United States. The court determined, however, that BATCO's domestic "conduct" was not the basis for its RICO liability. Rather, it was the "direct effects of BATCO's activities on the United States" that caused the court to find that BATCO violated RICO. Because Morrison flatly rejected the "effects" test for extraterritorial application, the district court held that the Supreme Court had essentially invalidated the sole basis for BATCO's RICO liability, and vacated its prior judgment.

This is the first case of which we are aware that has applied Morrison's reasoning to bar application of RICO in an action brought by the government. 

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