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European Community v. RJR Nabisco, Inc.

United States Court of Appeals, Second Circuit

April 23, 2014

EUROPEAN COMMUNITY, acting on its own behalf and on behalf of the Member States it has power to represent, KINGDOM OF BELGIUM, REPUBLIC OF FINLAND, FRENCH REPUBLIC, HELLENIC REPUBLIC, FEDERAL REPUBLIC OF GERMANY, ITALIAN REPUBLIC, GRAND DUCHY OF LUXEMBOURG, KINGDOM OF THE NETHERLANDS, PORTUGUESE REPUBLIC, KINGDOM OF SPAIN, Individually, KINGDOM OF DENMARK, CZECH REPUBLIC, REPUBLIC OF LITHUANIA, REPUBLIC OF SLOVENIA, REPUBLIC OF MALTA, REPUBLIC OF HUNGARY, REPUBLIC OF IRELAND, REPUBLIC OF ESTONIA, REPUBLIC OF BULGARIA, REPUBLIC OF LATVIA, REPUBLIC OF POLAND, REPUBLIC OF AUSTRIA, KINGDOM OF SWEDEN, REPUBLIC OF CYPRUS, SLOVAK REPUBLIC, and ROMANIA, Plaintiff - Appellants,
v.
RJR NABISCO, INC., R.J. REYNOLDS TOBACCO COMPANY, R.J. REYNOLDS TOBACCO INTERNATIONAL, INC., RJR ACQUISITION CORP., f/k/a NABISCO GROUP HOLDINGS CORP., RJR NABISCO HOLDINGS CORP., R.J. REYNOLDS TOBACCO HOLDINGS, INC., NABISCO GROUP HOLDINGS CORP., R.J. REYNOLDS GLOBAL PRODUCTS, INC., REYNOLDS AMERICAN INC., R.J. REYNOLDS TOBACCO COMPANY, a North Carolina Corporation, Defendant - Appellees

Argued: February 24, 2012.

Corrected: April 29, 2014.

Amended: August 20, 2014.

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[Copyrighted Material Omitted]

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Plaintiffs appeal from a judgment of the United States District Court for the Eastern District of New York (Garaufis, J.) dismissing their complaint. The district court dismissed the claims under the federal RICO statute, 18 U.S.C. § 1961 et seq., because it concluded that RICO does not apply to enterprises outside the United States. The state law claims were dismissed on the ground that they were not within the diversity jurisdiction of the federal courts. 28 U.S.C. § 1332. The Court of Appeals (Leval, J.) concludes that the RICO claims are within the scope of the statute and that the state law claims are within federal diversity jurisdiction. Accordingly, the judgment of the district court is VACATED, and the case is REMANDED.

JOHN J. HALLORAN, JR., Speiser, Krause, Nolan & Granito, New York, N.Y. (Kevin A. Malone, Carlos A. Acevedo, Krupnick Campbell Malone Buser Slama Hancock Liberman & McKee, P.A., Fort Lauderdale, Fla., on the brief), for Plaintiff-Appellants.

GREGORY G. KATSAS, Jones Day, Washington, D.C. (David M. Cooper, Mark R. Seiden, Jones Day, New York, N.Y., on the brief), for Defendant-Appellees.

LEWIS S. YELIN, Attorney, Appellate Staff, Civil Division, Department of Justice, Washington, D.C. (Harold Hongju Koh, Legal Advisor, Department of State, Washington, D.C.; Tony West, Assistant Attorney General, Civil Division, Department of Justice, Washington, D.C.; Loretta E. Lynch, United States Attorney for the Eastern District of New York, New York, N.Y., Douglas N. Letter, Attorney, Appellate Staff, Civil Division, Department of Justice, Washington, D.C., on the brief), for Amicus Curiae United States of America in support of neither party.

Before: LEVAL, SACK, HALL, Circuit Judges.

OPINION

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Leval, Circuit Judge :

This is the latest installment in litigation brought by the European Community and twenty-six of its member states[1] (collectively " Plaintiffs" ) against RJR Nabisco, Inc., and related entities (collectively " RJR" ).[2] Plaintiffs appeal from the dismissal of their Second Amended Complaint (the " Complaint" ) by the United States District Court for the Eastern District of New York (Garaufis, J.). The principal issues they raise are (1) whether their

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claims under the Racketeer Influenced and Corrupt Organizations (RICO) statute, 18 U.S.C. § 1961 et seq., are impermissibly extraterritorial, and (2) whether the European Community qualifies as an organ of a foreign state for purposes of diversity jurisdiction under 28 U.S.C. § § 1332, 1603. The Complaint alleges that RJR directed, managed, and controlled a global money-laundering scheme with organized crime groups in violation of the RICO statute, laundered money through New York-based financial institutions and repatriated the profits of the scheme to the United States, and committed various common law torts in violation of New York state law. The district court dismissed the RICO claims because it concluded that RICO has no extraterritorial application. The court dismissed the state law claims because it determined that the European Community did not qualify as an organ of a foreign state under 28 U.S.C. § § 1332, 1603 so that its participation in the suit destroyed complete diversity, and thus deprived the court of jurisdiction over the state law claims.

We conclude that the district court erred in dismissing the federal and state law claims. We disagree with the district court's conclusion that RICO cannot apply to a foreign enterprise or to extraterritorial conduct. Recognizing that there is a presumption against extraterritorial application of a U.S. statute unless Congress has clearly indicated that the statute applies extraterritorially, see Morrison v. Nat'l Austl. Bank Ltd., 561 U.S. 247, 130 S.Ct. 2869, 177 L.Ed.2d 535 (2010), we conclude that, with respect to a number of offenses that constitute predicates for RICO liability and are alleged in this case, Congress has clearly manifested an intent that they apply extraterritorially. As to the other alleged offenses, the Complaint alleges sufficiently important domestic activity to come within RICO's coverage.

We believe that the district court also erred in ruling that the European Community's participation as a plaintiff in this lawsuit destroyed complete diversity. The European Community is an " agency or instrumentality of a foreign state" as that term is defined in 28 U.S.C. § 1603(b). It therefore qualifies as a " foreign state" for purposes of 28 U.S.C. § 1332(a)(4), and its suit against " citizens of a State or of different States" comes within the diversity jurisdiction.

BACKGROUND

According to the Complaint, the scheme alleged to violate RICO involves a multi-step process beginning with the smuggling of illegal narcotics into Europe by Colombian and Russian criminal organizations. The drugs are sold, producing revenue in euros, which the criminal organizations " launder" by using money brokers in Europe to exchange the euros for the domestic currency of the criminal organizations' home countries. The money brokers then sell the euros to cigarette importers at a discounted rate. The cigarette importers use these euros to purchase RJR's cigarettes from wholesalers or " cut-outs." The wholesalers then purchase the cigarettes from RJR and ship the cigarettes to the importers who purchased them. And the money brokers use the funds derived from the cigarette importers to continue the laundering cycle.

The Complaint alleges that RJR directed and controlled this money-laundering scheme, utilizing other companies to handle and sell their products. It alleges that RJR gave special handling instructions " intended to conceal the true purchaser of the cigarettes." Complaint ¶ 58. The Complaint also alleges that RJR's executives and employees would travel from

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the United States to Europe, the Caribbean, and Central America in order to further these money-laundering arrangements; that they shipped cigarettes through Panama in order to use Panama's secrecy laws to shield the transactions from government scrutiny; that RJR's employees would take monthly trips from the United States to Colombia through Venezuela, bribe border guards in order to enter Colombia illegally, receive payments for cigarettes, travel back to Venezuela, and wire the funds to RJR's accounts in the United States; that RJR employees traveled extensively from the United States to Europe and South America to supervise the money-laundering scheme and to entertain the criminal customers; that RJR communicated internally and with its coconspirators by means of U.S. interstate and international mail and wires; that RJR's employees filed large volumes of fraudulent documents with the U.S. Customs Service and the Bureau of Alcohol, Tobacco and Firearms to further their scheme; that RJR received the profits of its money-laundering schemes in the United States; and that RJR acquired Brown & Williamson Tobacco " for the purpose of expanding upon their illegal cigarette sales and money-laundering activities," id. ¶ ¶ 100-103.

The Complaint asserts that in the course of executing this scheme RJR committed various predicate racketeering acts in violation of RICO, including mail fraud, wire fraud, money laundering, violations of the Travel Act, 18 U.S.C. § 1952, and providing material support to foreign terrorist organizations. In addition the Complaint asserts that RJR committed New York common law torts of fraud, public nuisance, unjust enrichment, negligence, negligent misrepresentation, conversion, and money had and received.

Defendants moved to dismiss both the RICO and state law claims. In its first decision, the district court dismissed the RICO claims on the ground that RICO has no application to activity outside the territory of the United States and cannot apply to a foreign enterprise. European Cmty. v. RJR Nabisco, Inc. (European Cmty. I), No. 02-CV-5771, 2011 WL 843957, at *4-5, *7 (E.D.N.Y. Mar. 8, 2011). The court concluded, citing Morrison, that the " focus" of the RICO statute is the enterprise, see 18 U.S.C. § § 1961(4), 1962(a)-(c), and that the enterprise alleged in the Complaint, which consisted largely of a loose association of Colombian and Russian drug-dealing organizations and European money brokers whose activity was directed outside the United States, could not be considered domestic. Because the enterprise was foreign, the district court concluded, under Morrison 's presumption that United States statutes do not apply extraterritorially absent a clear indication of congressional intent, that the Complaint failed to state an actionable violation of RICO. The court thus dismissed the RICO claims under Federal Rule of Civil Procedure 12(b)(6).

As for the state law claims alleged to come within the federal courts' diversity jurisdiction, the district court observed that the necessary complete diversity might be destroyed if the European Community remained a plaintiff. European Cmty. I, 2011 WL 843957, at *8. The court allowed Plaintiffs' counsel time to determine whether the European Community intended to remain a party to the suit. Id.

Once advised that the European Community would remain a party, the court ruled that the state law claims did not come within the diversity jurisdiction of the federal courts. It held that the European Community was not a " foreign state," as used in 28 U.S.C. § 1332, with

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the consequence that the European Community's continued participation in the suit together with various foreign nation plaintiffs destroyed complete diversity and deprived the court of jurisdiction. European Cmty. v. RJR Nabisco, Inc. (European Cmty. II), 814 F.Supp.2d 189, 208 (E.D.N.Y. 2011). The court declined to exercise supplemental jurisdiction over the state law claims pursuant to 28 U.S.C. § 1367(c) because it had dismissed all the federal law claims. Id.

DISCUSSION

Plaintiffs contend on appeal that the district court erred in concluding that the Complaint failed to allege federal law claims, and that the district court erred in finding absence of diversity jurisdiction for the state law claims. We agree with both contentions.

I. RICO Claims

We turn first to the dismissal of the RICO claims. We review a district court's dismissal under Rule 12(b)(6) de novo. Connecticut v. Duncan, 612 F.3d 107, 112 (2d Cir. 2010).

A. The Extraterritoriality of RICO

The district court concluded that the Complaint failed to state actionable RICO claims because the alleged enterprise was located and directed outside the United States. The court's analysis was based on the Supreme Court's ruling in Morrison that the presumption against extraterritorial application of U.S. statutes bars such application absent a clear manifestation of congressional intent. European Cmty. I, 2011 WL 843957, at *4. The district court concluded that RICO is silent as to whether Congress intended it to apply to conduct outside the United States, and that " this silence prohibits any extraterritorial application of RICO." Id. The district court believed this conclusion was compelled by our holding in Norex Petroleum Ltd. v. Access Industries, Inc., 631 F.3d 29, 32 (2d Cir. 2010). We disagree in several respects with the district court's analysis, including its understanding of the Norex precedent.

The RICO statute incorporates by reference numerous specifically identified federal criminal statutes, as well as a number of generically described state criminal offenses (known in RICO jurisprudence as " predicates" ). 18 U.S.C. § 1961(1). It adds new criminal and civil consequences to the predicate offenses in certain circumstances -- generally speaking, when those offenses are committed in a pattern (consisting of two or more instances) in the context of " any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce." 18 U.S.C. § 1962; see also id. § 1964.

Litigants, including Plaintiffs in this case, have argued that this just-quoted provision of the statute, which makes RICO applicable to enterprises whose activities affect foreign commerce, sufficiently indicates congressional intent that RICO should apply extraterritorially. In Norex we rejected that argument, noting the Supreme Court's admonishment in Morrison that the mere fact of a statute's generic reference to " interstate or foreign commerce," identifying the source of Congress's authority to regulate, would not qualify as a manifestation of congressional intent that the statute apply extraterritorially. Norex, 631 F.3d at 33 (internal quotation mark omitted). The argument we rejected in Norex was to the effect that all claims under RICO may apply to ...


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