United States District Court, S.D. New York
February 1, 2005.
OSRECOVERY, INC., et al., Plaintiffs,
ONE GROUPE INTERNATIONAL, INC., et al., Defendants.
The opinion of the court was delivered by: LEWIS KAPLAN, District Judge
Defendant Parex Bank ("Parex") moves to dismiss the third
amended complaint ("Complaint") for, among other things, lack of
subject matter jurisdiction.*fn1
At the center of this lawsuit is an alleged scheme involving
the sale of a non-existent gold-backed Internet currency
("OSGold") and the operation of a massive Ponzi scheme disguised
as a high-yield investment program ("OSOpps"). According to the
Complaint, Parex, which is organized and has its principal place
of business in Latvia, facilitated the fraud by providing banking
services to certain key defendants. Cpt. ¶¶ 24, 144-65. Parex
allegedly provided these defendants with anonymous debit cards,
which the defendants in turn distributed to OSGold and OSOpps
account holders. Id. ¶¶ 145, 150. The debit cards allegedly
were linked to Parex bank accounts controlled by the defendants,
making it possible for the defendants to steal cardholders' funds
undetected. Id. ¶ 157. Plaintiffs are residents of "numerous
jurisdictions from around the world, including the United
States." Id. ¶ 14.
The Complaint asserts claims against Parex under the Racketeer
Influenced and Corrupt Organizations Act ("RICO"),
18 U.S.C. §§ 1962(a)-(d), as well as various state law claims. The alleged
bases for jurisdiction are the federal question presented by the
RICO claims, see 28 U.S.C. § 1331, as well as supplemental
jurisdiction, see 28 U.S.C. § 1367.
Standards Governing Motion to Dismiss
On a Rule 12(b)(1) motion to dismiss for lack of subject matter
jurisdiction, a court "need not accept as true contested
jurisdictional allegations." Jarvis v. Cardillo, No. 98 Civ.
5793 (RWS), 1999 WL 187205, at *2 (S.D.N.Y. Apr. 5, 1999).
Instead, it "may resolve disputed jurisdictional fact issues by
reference to evidence outside the pleadings, such as affidavits."
Filetech S.A. v. Fr. Telecom S.A., 157 F.3d 922, 932 (2d Cir.
1998) (quoting Antares Aircraft, L.P. v. Fed. Republic of
Nigeria, 948 F.2d 90, 96 (2d Cir. 1991)). The party seeking to
invoke the subject matter jurisdiction of the court bears the
burden of demonstrating that such jurisdiction exists. Scelsa v.
City Univ. of New York, 76 F.3d 37, 40 (2d Cir. 1996).
Extraterritorial Reach of RICO
As RICO is silent about extraterritorial application, courts
determining the statute's extraterritorial reach look for
guidance to tests developed in securities and antitrust cases.
E.g., North South Fin. Corp. v. Al-Turki, 100 F.3d 1046,
1051-52 (2d Cir. 1996). Regardless of the test used, the ultimate
inquiry is whether "Congress would have wished the precious
resources of United States courts and law enforcement agencies to
be devoted to [foreign transactions] rather than leave the
problem to foreign countries." Id. at 1052 (quoting Bersch v.
Drexel Firestone, Inc., 519 F.2d 974, 985 (2d Cir.), cert.
denied, 423 U.S. 1018 (1975)).
In securities cases, two alternative tests are used to
determine the extraterritorial reach of securities laws: the
conduct test and the effects test. E.g., id. (citing Itoba
Ltd. v. LEP Group PLC, 54 F.3d 118, 121-22 (2d Cir. 1995),
cert. denied, 516 U.S. 1044 (1996)). Under the conduct test,
jurisdiction exists only "where conduct material to the
completion of the fraud occurred in the United States" and that
conduct "directly caused" the loss. E.g., id. (quoting
Psimenos v. E.F. Hutton & Co., 722 F.2d 1041, 1046 (2d Cir.
1983)). The effects test, by comparison, confers jurisdiction
"whenever a predominantly foreign transaction has substantial
effects within the United States." E.g., id. (quoting
Consolidated Gold Fields PLC v. Minorco, S.A., 871 F.2d 252,
261-62 (2d Cir. 1989)).
In antitrust cases, before Congress spoke on the issue, courts
adopted a slightly different version of an effects test. Under
that test, the Sherman Act reached conduct abroad only if the
conduct "was meant to produce and did in fact produce some
substantial effect in the United States." Hartford Fire Ins. Co.
v. California, 509 U.S. 764, 796 (1993).*fn2
Allegations Against Parex
The Complaint does not identify any acts by Parex in the United
States that were related to the fraud. The only allegations of
U.S. conduct by Parex in the Complaint are that it held accounts
at New York banks and that it employed a "representative" in New
York. See Cpt. ¶ 24. But there is no indication that Parex used
these bank accounts or this representative in connection with the
fraud rather than for general business purposes. Plaintiffs'
motion papers point to various wire transfers between Parex and
other defendants involving New York bank accounts in support of
their claim of jurisdiction. See Parex Mem. 22-23; Mancini Aff.
Ex. 5. But they do not allege that these wire transfers were
material to the fraud or directly caused plaintiffs' losses.
Thus, the existence of Parex accounts in New York, the presence
of its representative here and the wire transfers, whether
considered individually or collectively, do not satisfy the
Nor do plaintiffs adequately allege that Parex's activities had
effects in the United States. As Parex correctly points out, the
Complaint is devoid of any allegations that domestic plaintiffs
held Parex debit cards or otherwise were injured by Parex.
Plaintiffs respond by arguing that injuries suffered by
"American citizens [who] were solicited by partners and agents of
Parex Bank while in the United States" were effects sufficient to
subject Parex to suit here. See Parex Mem. 22 (citing Cpt. ¶¶
38-40). But the portion of the Complaint upon which they rely do
no more than describe the scheme in conclusory terms. See Cpt.
¶¶ 38-40. They do not suggest that American plaintiffs were
injured here by RICO violations committed by Parex. Indeed,
plaintiffs have submitted no evidence that would support a
finding that domestic plaintiffs held Parex debit cards or
otherwise were injured by Parex.*fn3
Accordingly, plaintiffs have not established a basis for
subject matter jurisdiction over plaintiffs' RICO claim against
Parex under the conduct test or either of the effects
tests.*fn4 As the federal claim against Parex is being
dismissed prior to trial, the Court declines to exercise
supplemental jurisdiction over the state law claims.*fn5
For the foregoing reasons, Parex Bank's motion to dismiss
[docket item 176] for lack of subject matter jurisdiction is
granted without leave to replead.*fn6 Plaintiffs'
application to the Court, by letter dated December 7, 2004, to
convert defendant's motion into a motion for summary judgment is
denied as moot.