Can a foreign plaintiff sue under the Racketeer Influenced and Corrupt Organizations Act for injury to intangible property?
This case asks the Supreme Court to determine whether a foreign party can file a claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”) when they suffer injury to their intangible property. Respondent Vitaly Smagin alleges that Petitioner Ashot Yegiazaryan violated RICO by injuring his intangible property: a judgment Smagin previously secured against Yegiazaryan in the United States. Yegiazaryan argues that plaintiffs can only bring a RICO claim if the injury underlying such a claim has a domestic, and not foreign, locus. Accordingly, Yegiazaryan contends that the alleged injury to the judgment occurred outside of the United States and therefore is not cognizable under RICO. In contrast, Smagin argues that the injury occurred in the United States and consequently falls under RICO. The Court’s decision will impact the scope of RICO, as well as relations between the United States and other sovereigns.
Questions as Framed for the Court by the Parties
Whether a foreign plaintiff states a cognizable civil claim under the Racketeer Influenced and Corrupt Organizations Act when it suffers an injury to intangible property, and if so, under what circumstances.
In 2010, Respondent Vitaly Smagin, a Russian citizen residing in Russia, obtained an $84 million judgment against Petitioner Ashot Yegiazaryan in an arbitration proceeding in London. Smagin v. Yegiazaryan at 565. Smagin had alleged that Ashot committed fraud against him in relation to a joint real estate investment in Moscow. Id.
In 2014, the United States District Court for the Central District of California confirmed the arbitration award and entered judgment against Yegiazaryan. Id. Smagin sought to have a court confirm the award in the United States because Yegiazaryan had fled to California. Id. As such, Smagin could then use the authority of the courts in the United States to enforce the judgment against Yegiazaryan. Id.
In December 2014, the district court froze Yegiazaryan’s assets in California, as well as potential assets Yegiazaryan could receive in an arbitration dispute between Yegiazaryan and a man named Suleymon Kerimov. Id. In 2015, Yegiazaryan settled the arbitration with Kerimov and received an award far in excess of the judgment he owed to Smagin—a total of $198 million. Id.
In the present case, Smagin alleges that Yegiazaryan engaged in fraudulent activities both outside and inside the United States to avoid using the Kerimov settlement amount to pay Smagin. Id. For example, Smagin alleges that Yegiazaryan created various trusts and businesses to complicate the location of the funds. Id. While those transactions mainly took place outside of the United States, Smagin also alleges domestic fraudulent actions, such as forgery of a California doctor’s note. Id.
Prior to this action, the district court had already ordered Yegiazaryan to stop some of his schemes and found him in contempt for violating these orders. Id. at 565–66. Nevertheless, the district court dismissed the current complaint because it found that Smagin, who alleged Yegiazaryan’s acts violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”), did not meet the requirements to bring such a claim. Id. at 566.
To bring a RICO claim, plaintiffs must allege a domestic injury to their business or property. Id. The district court and the United States Court of Appeals for the Ninth Circuit (the “Ninth Circuit”) on appeal both agreed that the relevant property was the judgment from the district court that confirmed the London arbitration award. Id. at 567. The main source of disagreement, therefore, was whether that judgment was domestic or foreign. Id. The district court held that the judgment was a foreign injury and dismissed Smagin’s complaint. Id.
On appeal, the Ninth Circuit reversed the district court and held that the judgment was a domestic injury. Id. at 570. The Ninth Circuit looked beyond the nature of the judgment and held that, once a judgment confirms a foreign arbitration award, the judgment is akin to any other domestic judgment. Id. The Ninth Circuit further supported its ruling by noting that many of the fraudulent activities occurred in California. Id. Yegiazaryan subsequently appealed that decision, and the Supreme Court granted certiorari on January 13, 2023. Brief for Petitioners, Ashot Yegiazaryan, aka Ashot Egiazaryan and CMB Monaco, FKA Compagnie Monegasque de Banque at 3.
STATUTORY INTERPRETATION OF RICO § 1964(c)
Yegiazaryan argues that § 1964(c) of RICO, under which individuals can sue for injuries caused by defendants’ alleged racketeering activities, does not permit lawsuits for injuries that occur outside the United States. Brief for Petitioners at 18. Moreover, Yegiazaryan asserts that, as a legal matter, an economic injury under this provision can only occur in the country in which the injured individual resides. Id. at 18–19. Therefore, according to Yegiazaryan, a plaintiff that resides abroad and never enters the United States can never experience an injury that falls under this provision. Id. To support this assertion, Yegiazaryan points out that the phrasing of § 1964(c) carefully describes potential plaintiffs as people who have been harmed through their economic interests, not merely the owners of injured economic entities or property. Id. at 19–21. Yegiazaryan contends that since this delineation is so closely tied to the person who is injured, rather than the economic interest itself, courts should only consider that individual’s country of residence in determining the location of the harm. Id. at 23.
Yegiazaryan also highlights the similar wording used in RICO and the antitrust statutes it was modeled after, which define and locate economic injury in a manner akin to the one he proposes for RICO. Id. at 23–24. Yegiazaryan claims that this is evidence that Congress intended to take the same approach in both statutory contexts. Id. Yegiazaryan asserts that the legislative history of RICO supports this interpretation of § 1964(c), noting some senators’ comments in support of RICO’s passage that describe goals similar to those of the antitrust statutes. Id. at 27–28. Finally, Yegiazaryan argues that the Supreme Court should consider § 1964(c) in light of the common law principles that were in effect when Congress enacted RICO. Id. at 29. Yegiazaryan contends that these common law principles called for applying the law of the location in which an injury occurred when deciding subsequent litigation over it. Id. at 31. As an example, Yegiazaryan highlights one federal court decision issued shortly after RICO’s passage, in which the Second Circuit held that the injury in a fraud suit normally occurs where the plaintiff lives. Id. at 35.
Smagin counters that RICO’s text explicitly “permits ‘any person’ to sue’” under § 1964(c). Brief for Respondent, Vitaly Ivanovich Smagin et al. at 11. Smagin maintains that, in crafting the statute’s language so broadly, Congress intended to permit most plaintiffs to bring suit under RICO unless Congress specified otherwise in the statute. Id. at 11–12, 26. Smagin points out that Congress did not exclude foreign plaintiffs. Id. at 12. Given this clarity in the statute’s language, Smagin argues, the Supreme Court should not look to sources other than the statute to determine its meaning. Id. at 11. Smagin further counters that, when courts consider whether a statute applies beyond the United States, they consider whether the conduct at issue occurred in the United States, not whether the person engaged in the conduct lives there. Id. at 13–14. Likewise, Smagin notes that in both prior and currently pending cases, the Supreme Court has focused on the location of conduct, rather than parties, in analyzing statutory provisions’ reach abroad. Id. at 18–20.
Smagin adds that barring foreign plaintiffs from suing under § 1964(c) would contradict the Supreme Court’s statement in RJR Nabisco v. European Community that it did not intend to bar foreign plaintiffs from suing under RICO. Id. at 15. Smagin further argues that the prospective limit on RICO’s application abroad arises from judge-made methods of statutory interpretation, not the text of RICO itself, and that this judge-made limitation is inapplicable where the conduct at issue is not exclusively foreign. Id. at 26. Smagin disputes Yegiazaryan’s distinction between harms to individuals “in” and “to” their property, contending that such a distinction is nonexistent or otherwise irrelevant. Id. at 29. Lastly, Smagin claims that common law principles have limited relevance because the question of what conduct may be resolved by suing under RICO is unrelated to the state-level common law that guides choices of which state’s law applies in a dispute. Id. at 31. Even then, Smagin elaborates, these common law principles only provide that the location of the harmed individual is a factor to be considered alongside the location of the conduct itself. Id. at 31–32.
LOCATING AN INDIVIDUAL’S INJURED INTANGIBLE PROPERTY
Yegiazaryan alternatively argues that, even if the Supreme Court does not consider the injured individual’s residence as the location of an injury for the analysis under RICO, it should do so where the injury is to the individual’s intangible property. Brief for Petitioner at 40. Yegiazaryan notes that intangible property includes financial assets such as judgments, awards, and debts. Id. Yegiazaryan argues that since an injury to such an intangible asset affects the overall wealth of the owner, but not a discrete piece of property located in a physical place, the location of the injury must be the residence of the owner. Id. at 42, 44. Additionally, Yegiazaryan cites Pasquantino v. United States for the proposition that failure to pay a debt, the injury here, is an “economic injury” upon the individual who is owed the money. Id. at 42. Yegiazaryan also emphasizes the applicability of the the common law doctrine “mobilia sequuntur personam” or “movable things follow the person” to the intangible property at issue here. Id. at 44. Hence, Yegiazaryan concludes that Smagin’s alleged injury is to a debt that he has the benefit of collecting to increase his wealth as a Russian resident, so the injury is located with him. Id. at 42, 45.
To the contrary, Smagin argues that § 1964(c) should encompass the injury at issue here because of the injury’s several exclusive connections to California. Brief for Respondent at 21. Specifically, Smagin argues that his property is located in California because it is a judgment awarded by a California court only enforceable in California. Id. Smagin also argues that the racketeering conduct at issue, which Smagin maintains is the focus of RICO as opposed to the individual that perpetrated it, occurred in, and was directed from, California. Id. at 22. Smagin clarifies that the California judgment is distinct from the arbitration award and prior foreign judgment against Yegiazaryan and, thus, can only be enforced in California. Id. at 33–34. Smagin finally contends that any assignment of intangible property to a particular location is functionally a legal construct; thus, the analysis that determines where it should be assigned should vary based on the particular context of a statute rather than according to a bright-line rule like the one Yegiazaryan proposes. Id. at 35. Here, Smagin asserts that, because the California judgment has legal effect in California and not in Russia, the judgment should be treated as located in California despite Smagin’s residence in Russia. Id. at 35–36.
SERVING THE INTERESTS OF FOREIGN SOVEREIGNS
Washington Legal Foundation (“WLF”), in support of Yegiazaryan, contends that allowing plaintiffs to bring RICO claims based on injuries that ultimately relate to foreign conduct will harm international relations. Brief of Amicus Curiae Washington Legal Foundation ("WLF"), in Support of Petitioner at 5–6. According to WLF, the interests of foreign sovereigns in such cases exceed those of the United States and, therefore, it is more logical to hear such cases abroad. Id. A group of private international law scholars (the “Scholars”), in support of Yegiazaryan, emphasize that this case stems from Russian commercial transactions and an arbitration award from the United Kingdom. Brief of Amici Curiae Private International Law Scholars (the" Scholars"), in Support of Petitioner at 4–5. According to the Scholars, the United States should respect the differing remedial schemes and objectives of those nations. Id. at 7–8. For example, the Scholars state that the ability for RICO plaintiffs to obtain treble damages does not comport with the remedial schemes of other nations, incentivizing foreign plaintiffs to seek enforcement of a judgment in the United States. Id.
Professor George A. Bermann, in support of Smagin, counters that prohibiting people like Smagin from pursuing a RICO claim would harm the interests of foreign sovereigns. Brief of Amicus Curiae Professor George A. Bermann, in Support of Respondent, at 25–26. Professor Bermann asserts that allowing the RICO claim would serve to ensure that international arbitration awards are respected. Id. Indeed, according to Professor Bermann, the issue in the case at bar only arose because Yegiazaryan refused to comply with the award of another sovereign. Id. As such, Professor Bermann argues that the United States would in effect be protecting the arbitration award of the United Kingdom. Id.
IMPACTS OF EXPANDING OR LIMITING THE SCOPE OF RICO
WLF, in support of Yegiazaryan, fears that extending RICO to cover cases involving foreign conduct would further push RICO away from its original purpose—combatting organized crime. Brief of Washington Legal Foundation at 11–12. WLF highlights how civil plaintiffs already abuse RICO and its treble damages provision to bring claims for conduct completely unrelated to organized crime. Id. at 12–13. WLF emphasizes that since RICO is a federal statute, it allows plaintiffs access to federal courts for claims that ordinarily would be in the domain of state courts. Id. at 13–14. WLF further contends that ruling for Smagin would allow a greater number of parties to seek relief under RICO, increasing the total number of RICO cases within the federal court system. Id.
Professor Bermann, in support of Smagin, argues that RICO has never been limited to cases involving organized crime, and that RICO is meant to cover a wide variety of contexts. Brief of Professor George A. Bermann at 21–22. Professor Bermann’s concern is that a reversal by the Supreme Court would effectively bar foreign parties living abroad from bringing RICO claims. Id. at 19–20. In other words, he emphasizes that two people alleging the same conduct would be treated differently merely because one lives outside of the United States and the other inside the United States. Id. Professor Bermann adds that Smagin’s situation demonstrates why RICO should be available to similarly situated plaintiffs. Id. at 25. Professor Bermann highlights that Smagin has already unsuccessfully tried other avenues to obtain relief. Id. According to Professor Bermann, asserting a RICO claim provides Smagin with a perfect manner to obtain the relief he is entitled to. Id. Professor Bermann contends that Smagin is not receiving the same recovery from multiple jurisdictions but is simply attempting to get a single jurisdiction to enforce the recovery of his damages award. Id.
- Max B. Chester and Gerald S. Kerska, Availability of RICO Claims to Foreign Holders of Arbitral Awards, Foley & Lardner (Feb. 10, 2023).
- Mark Kantor, Supreme Court Grants Cert in Case Involving International Arbitration and RICO, American Bar Association (Feb. 21, 2023).
- Charles Kotuby, Yegiazaryan v. Smagin, Civil RICO, and the Enforcement of Foreign Awards in the United States, Conflict of Laws (Jan. 18, 2023).