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NUEVO MUNDO HOLDINGS v. PRICEWATERHOUSE COOPERS LLP

December 8, 2004.

NUEVO MUNDO HOLDINGS, et al., Plaintiff,
v.
PRICEWATERHOUSE COOPERS LLP, et al., Defendant.



The opinion of the court was delivered by: GEORGE DANIELS, District Judge

MEMORANDUM OPINION & ORDER

Plaintiffs bring suit alleging several claims under common law, breach of contract and a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1964 et. seq. This Court previously dismissed the suit against defendants Pricewaterhouse Coopers LLP ("PWC") and Arthur Andersen LLP ("Andersen") pursuant to Federal Rule of Civil Procedure 12(b)(6) and 12(b)(7). Nuevo Mundo Holdings v. Pricewaterhouse Coopers LLP, 2004 U.S. Dist. LEXIS 780 (S.D.N.Y. Jan. 22, 2004). The remaining defendant Luis Cortavarria Checkley ("Checkley") now moves to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1), 12(b)(2), 12(b)(6), 12(b)(7), and 19. For the reasons stated below, the action is dismissed for lack of subject matter jurisdiction and lack of personal jurisdiction.

I. FACTS

  Plaintiffs Nuevo Mundo Holdings S.A., et al. are the foreign shareholders and directors of Banco Neuvo Mundo S.A. ("Nuevo Mundo"). Defendant Checkley is the former Superintendent of Banking and Insurance ("SBS") of Peru. The facts of the case are as stated by this Court in Nuevo Mundo Holdings v. Pricewaterhouse Coopers LLP, 2004 U.S. Dist. LEXIS 780, *2-5 (S.D.N.Y. Jan. 22, 2004). Plaintiffs allege that Checkley in his role as the superintendent of SBS conspired with the Peruvian affiliates of defendants PWC and Andersen to seize control of Neuvo Mundo. Based upon these allegations, plaintiffs assert claims against Checkley for violations of RICO, fraud, tortious interference, prima facie tort, and punitive damages.

  Plaintiffs allege that Nuevo Mundo Holdings, S.A. is a corporation organized under the laws of Panama. (Compl. ¶ 1.) The remaining plaintiffs are Peruvian directors and investors of Nuevo Mundo. Id. ¶¶ 2-10. There is no allegation that any of the plaintiffs are United States citizens or reside in the United States. Defendant Checkley was the Peruvian Superintendent of Banking and Insurance from July 28, 2000 to June 23, 2002. Id. ¶ 13. He now resides in Maryland and works in Washington D.C. (Checkley Decl. ¶ 2.)

  II. DISCUSSION

  A. Plaintiffs Have Failed to Establish Subject Matter Jurisdiction

  Defendant Checkley argues that this Court lacks subject matter jurisdiction over this case. There are no longer any U.S. entities in the case. The sole basis for subject matter jurisdiction is founded upon the federal claim of RICO. Checkley argues that because the complaint alleges that a foreign defendant engaged in conduct violating RICO on foreign soil against foreign victims, RICO does not apply. (Mot. to Dismiss at 8-9.) Plaintiffs maintain that the application of the RICO statute is appropriate because the actions of the defendant, as Superintendent of SBS, had effects in New York since "New York investors lost their investment, their notes payable in New York." (Opp'n at 8.) Plaintiffs' sole allegation upon which they base federal jurisdiction is their RICO claim against remaining defendant Checkley. Plaintiffs allege that Checkley, working in concert with dismissed defendants PWC and Andersen participated in a pattern of racketeering activities and corrupt practices. (Mot. to Dismiss at 8-9.) Plaintiffs' claims, however, involve foreign acts by foreign parties in violation of foreign law and to the detriment of foreign victims. Federal jurisdiction on this matter is dependent, therefore, on finding that the United States civil RICO statute should be applied in this case.

  Plaintiffs, as parties "seeking to invoke the subject matter jurisdiction of the district court," bears the burden of demonstrating that there is subject matter jurisdiction in the case. Scelsa v. City Univ. of New York, 76 F.3d 37, 40 (2d Cir. 1996). Federal courts "need not accept as true contested jurisdictional allegations" in considering a motion to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). Jarvis v. Cardillo, 1999 U.S. Dist. LEXIS 4310, at *7 (S.D.N.Y. Apr. 5, 1999). A court may resolve disputed jurisdictional facts by referring to evidence outside the pleadings, including affidavits. See Zappai Middle E. Constr. Co. v. Emerate of Abu Dhabi, 215 F.3d 247, 253 (2d Cir. 2000).

  The RICO statute is silent as to any extraterritorial application. See North South Fin. Corp. v. Al-Turki, 100 F.3d 1046, 1051 (2d Cir. 1996). Although "a corporate defendant that is a foreign entity is not for that reason alone shielded from the reach of RICO," the Second Circuit has acknowledged the ambiguity as to the "character and amount of activity in the United States that will justify RICO subject matter jurisdiction over a foreign entity." Id. at 1052 (citing Alfadda v. Fenn, 935 F.2d 475, 479 (2d Cir. 1991)). While the Second Circuit has not expressed a specific test for determining the extraterritorial applications of RICO, the court in North South Fin. stated that the "ultimate inquiry is . . . whether `Congress would have wished the precious resources of the United States courts and law enforcement agencies to be devoted to [foreign transactions] rather than leave the problem to foreign countries.'" Id. (quoting Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 985 (2d Cir. 1975)). The Second Circuit has further noted that "guidance [regarding the extraterritorial application of RICO] is furnished by precedents concerning subject matter jurisdiction for international securities transactions and antitrust matters." Id.

  The courts in this circuit have applied two alternative tests derived from transnational and antitrust cases — the "conduct" and "effects" tests — to determine the applicability of RICO in extraterritorial cases. Id. at 1051-52 (affirming the district court's dismissal of RICO action for lack of subject matter jurisdiction for absence of U.S. conduct material to fraud.); see also Nasser v. Andersen Worldwide Societe Coop., 2003 U.S. Dist. LEXIS 16710 (S.D.N.Y. Sept. 23, 2003); See also Wiwa v. Royal Dutch Petroleum Co., 2002 U.S. Dist. LEXIS 3293 (S.D.N.Y. Feb. 28, 2002). Under the conduct test:
We entertain suits by aliens only where conduct material to the completion of the fraud occurred in the United States. Mere preparatory activities, and conduct far removed from the consummation of the fraud, will not suffice to establish jurisdiction. Only where conduct "within the United States directly caused" the loss will a district court have jurisdiction over suits by foreigners who have lost money through sales abroad.
North South Fin., 100 F.3d at 1052 (citing Psimenos v. E.F. Hutton & Co., 722 F.2d 1041, 1046 (2d Cir. 1983) (internal citations omitted)).

  The alternative effects test is applied in two distinct ways. The first, derived from securities cases, finds that jurisdiction over a predominantly foreign entity exists when the entity's activities have "substantial effects within the United States." Id. at 1052. "Transactions with only remote and indirect effects in the United States do not qualify as substantial." Id. The "effect" must be a "direct and foreseeable result" of the conduct alleged. Consol. Gold Fields PLC v. Minorco, S.A., 871 F.2d 252, 261-62 (2d Cir. 1989). The second version of the effects test borrowed from antitrust cases finds that liability attaches when the extraterritorial conduct is "intended to and actually does have an effect on United States imports or exports which the state reprehends." North South Fin., 100 F.3d at 1052 (citing United States v. Aluminum Co. of America, 148 F.2d 416, 443-44 (2d Cir. 1945)).

  In order to apply RICO extraterritorially, plaintiffs must satisfy the conducts test or either of the effects tests.*fn1 Plaintiffs do not allege any fact of U.S. conduct "material to the completion of the fraud." The complaint contains allegations about defendant's actions in Peru as the Superintendent of SBS charging that defendant Checkley ordered unscheduled, irregular, and unprecedented inspections of Nuevo Mundo which were aimed "intentionally to negatively affect Nuevo Mundo's reputation and viability in the banking community in Peru, for the ultimate purpose of taking over the operations of [Nuevo Mundo] and selling its assets while depriving its shareholders of their interest." (Compl. ¶ 34.) Further, plaintiffs allege that this irregular inspection was just one "of many actions taken by SBS and other departments, commissions and officials of the Peruvian Government" in its pursuit of the control of the bank. Id. Additionally, plaintiffs argue that the SBS, under defendant Checkley's direction, placed Nuevo Mundo under its administration prematurely, and not "based upon objective criteria, but . . . as part of a fraudulent and malevolent scheme perpetrated by SBS, and other officials of the Peruvian Government then in power, in concert and conspiracy with and aided and abetted by the defendants." (Compl. ¶ 38.) Plaintiffs allege that the SBS issued rules regarding the selling and liquidation of Nuevo Mundo that were in violation of the rights of shareholders. (Compl. ¶¶ 45-6.) Plaintiffs also allege abuse of power and fraudulent reporting of Nuevo Mundo's financial situation, including directing "Andersen-Peru" to revise audit reports on the bank that led to the "wrongful takeover and sale or liquidation" of Nuevo Mundo. (Compl. ¶¶ 46, 49, 53, 55, 59, 62.)

  The only allegations of any actions in the United States are those alleged against the original defendants PWC and Andersen. Plaintiffs allege that defendants PWC and Andersen, accounting firms that operate in the United States, were "responsible and liable for the wrongful and corrupt practices of their respective Peruvian affiliates . . . in complicity with the wrongful and illegal acts of certain officials and/or administrators of the Peruvian government." (Compl. ¶¶ 11, 12, 14, 130.) Defendants PWC and Andersen have been dismissed from the action. See Nuevo Mundo Holdings v. Pricewaterhouse Coopers LLP, 2004 U.S. Dist. LEXIS 780 (S.D.N.Y. Jan. 22, 2004). Plaintiffs' allegations, even with the inclusion of the charges against the dismissed defendants, are devoid of any specific, supporting facts that can identify what conduct material to the fraud occurred in the United States. In fact, all material conduct is alleged to have occurred in Peru. These allegations are insufficient to justify extraterritorial application of RICO. Plaintiffs also fail to sufficiently allege effects in the United States resulting from defendant's conduct. Plaintiffs allege that U.S. effects arose in only one manner: "the corrupt activities . . . affected foreign and U.S. Commerce because . . . many investors . . . were U.S. citizens and/or residents, and some . . . promissory ...


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