Smagin‘s Surprises
June 27, 2023
I have to admit that I was surprised by last week’s decision in Yegiazayran v. Smagin, which permitted a non-U.S. plaintiff to move forward with a civil RICO claim against a non-U.S. national regarding, at root, the failure to pay a London arbitral award. The Roberts Court has generally been inhospitable to such transnational litigation, characterizing it as too foreign for U.S. courts. The outcome of the case was not the only surprise, however. This post describes several others, from the minor to the potentially major.
Bill Dodge has already summarized the case and the Court’s opinion in a prior post. Briefly, Vitaly Smagin (a Russian oligarch) won an arbitration in London against Ashot Yegiazaryan (another Russian oligarch who resides in California). Smagin then secured a California judgment confirming the arbitral award, which he tried to enforce against Yegiazaryan. When those enforcement efforts were unsuccessful, Smagin sued Yegiazaryan and other defendants (including Yegiazaryan’s lawyers) under RICO, alleging that they had conspired to hide Yegiazaryan’s assets, including a significant award in another unrelated arbitration. Under RJR Nabisco, Inc. v. European Community (2016), civil RICO claims like Smagin’s must be based on “a domestic injury to business or property.” Yegiazaryan argued that RICO doesn’t cover Smagin’s claims because any injury to Smagin’s business or property occurred outside the United States.
The Supreme Court disagreed, concluding that Smagin adequately alleged a domestic injury based on his interest in a California judgment against a California resident based on racketeering activity taken in or directed from California. Importantly, the Court refused to adopt a bright-line rule regarding what constitutes “a domestic injury to business or property” for purposes of civil RICO remedies. Instead, Justice Sotomayor’s majority decision emphasized the need for a “contextual approach” to that question.
The Votes
An initial surprise was the line-up of the Justices. Given that Justice Alito had authored RJR Nabisco, which held that RICO’s civil remedy did not rebut the presumption against extraterritoriality, I had expected him to author Yegiazayran as well. And given that Alito is not the biggest fan of transnational litigation—or litigation more generally—I expected that the Court would conclude that Smagin hadn’t adequately pleaded the requisite domestic injury for a civil RICO claim, thereby ending his RICO suit. Instead, Alito authored the dissenting opinion.
Granted, RJR Nabisco was a 4-3 decision; perhaps it was foreseeable that a full bench of participating Justices might tip the balance. But the shift in votes was more significant: Only two Justices (Thomas and Gorsuch) joined Alito’s dissent in full or in part. Meanwhile, Chief Justice Roberts (who had joined Alito’s opinion in RJR Nabisco) voted with the majority in Yegiazaryan, as did the three newest Justices. Nowhere on my bingo card was a 6-3 decision authored by Sotomayor and permitting the transnational case to move forward.
“Foreignness”
One reason I wasn’t optimistic about Smagin’s civil RICO claims is that the dispute is so easily characterized as “foreign.” As I have explored across a variety of doctrines (including the presumption against extraterritoriality), loose invocations of “foreignness” can obscure the connections that many transnational disputes do have with the United States.
Instead of emphasizing how this dispute was between two Russian oligarchs pertaining to a failed real estate venture in Moscow, Sotomayor opened the Court’s decision by emphasizing that Smagin holds a large California judgment against a California resident. These are indeed two key facts connecting this case to California and justifying U.S. courts’ intervention in a long-running dispute of global proportions. The Court’s avoidance of the too-easily-invoked “foreign-cubed” label was a small but welcome surprise.
Comity
Another small but welcome surprise was Sotomayor’s invocation of positive comity concerns. The Roberts Court has primarily stressed comity as a principle of restraint: U.S. courts should interpret U.S. laws and U.S. jurisdiction narrowly to avoid stepping on the toes of other countries. But many doctrines of comity, as Bill Dodge has explained, entail U.S. courts actively stepping into the shoes of foreign sovereigns, for example to enforce their judgments, apply their laws, or assist in gathering evidence to be used before their courts.
I thus appreciated Sotomayor’s recognition that too much restraint of civil RICO remedies “runs its own risks of generating international discord.” For example, under one of Yegiazaryan’s proposed rules, “if racketeering activity targets the intangible business interests of two U.S. businesses, one owned by a U. S. resident and one owned by someone living abroad, only the former business owner can bring a [civil RICO] suit.” That sort of disparate treatment would not engender international goodwill (and indeed, could run afoul of U.S. commitments under treaties of friendship, commerce, and navigation).
My go-to citation for such positive comity concerns has been Justice Ginsburg’s dissent in RJR Nabisco, in which she explained that “[m]aking [RICO] litigation available to domestic but not foreign plaintiffs is hardly solicitous of international comity or respectful of foreign interests.” In his Yegiazaryan dissent, Alito flagged this similarity between Ginsburg’s concern for comity and Sotomayor’s, asserting that his opinion for the Court in RJR Nabisco had rejected such positive comity considerations. Though this is a nice rhetorical move, Alito’s majority opinion in RJR Nabisco did not explicitly address Ginsburg’s (also largely rhetorical) comity arguments, much less reject them. Regardless, Alito lost that argument this time around, and I can now update my standard positive comity citation with a majority decision.
Doctrinal History
I also appreciated how Sotomayor’s majority opinion called out loose invocations of doctrinal history. Yegiazaryan appealed to older choice-of-law rules as summarized in the first Restatement of Conflict of Laws, presumably because RICO was enacted the year before the Restatement (Second) of Conflict of Laws was published. As Sotomayor explained (citing the amicus brief of TLB advisor George Bermann), choice-of-law methodology had already undergone a profound change by 1970—as the soon-to-be-published Restatement (Second) documented. And even accepting the relevance of those older choice-of-law rules, their application wasn’t as clear cut or settled as Yegiazaryan suggested (as TLB advisor Aaron Simowitz has explained in an article that Sotomayor also cited).
I love this paragraph of the majority’s opinion because it signals to litigants that the Court’s embrace of textualism and originalism doesn’t make any reference to old cases or doctrines a trump card. That signal is in keeping with the Court’s similar rejection of “middling” or “ambiguous historical evidence” in recent decisions interpreting 42 U.S.C. § 1983 and the Double Jeopardy Clause. Some internally consistent account or theory is necessary to link old sources of authority to today’s problems.
Contextual Balancing
The biggest surprise—and for me, a welcome breath of fresh air—was Sotomayor’s full-throated defense of a “contextual approach” to the case’s primary question (whether a dispute entails a domestic application of the “focus” of a non-extraterritorial statute). The Roberts Court loves bright-line rules and has generally embraced more formalistic tests, especially in procedural matters. In Yegiazaryan, however, the Court rejected bright-line rules for locating harms to intangible property—much to the dissenters’ dismay. Sotomayor instead recognized that effectuating “congressional policy choices” might require “a more nuanced test [that] is true to the statute’s meaning.” Sometimes, that is, Congress asks the courts to do the harder work of applying standards. Nor is such a contextual approach “unworkable” simply because “it does not provide a bright-line rule.” There is a time and a place for standards, and this is one of them.
Looking Forward
The dissent primarily takes the majority to task on this basis: that the lower courts need a more clear rule to help guide their application of civil RICO. In a part joined only by Thomas, however, Alito’s dissent also accuses the majority of destabilizing the Court’s caselaw on the presumption against extraterritoriality.
I agree with Alito that there is a tension in approach between his opinion in RJR Nabisco and Sotomayor’s opinion in Yegiazaryan. Across a range of doctrines (like personal jurisdiction), Sotomayor has often expressed a comfort with flexible standards that enable broader access to U.S. courts–not the approach that the Roberts Court has previously taken with the presumption against extraterritoriality. While Sotomayor’s opinion in Yegiazaryan does not challenge the Court’s prior caselaw on the presumption, it may well signal a shift to a less rigidly formalistic approach. Notably, the other extraterritoriality case currently pending before the Court—Abitron Austria GmbH v. Hetronic International Inc.—is the only case argued during the March sitting that has yet to be decided, and the only Justice who has not yet written an opinion for March is Sotomayor.
A Sotomayor-inflected presumption against extraterritoriality would be a fascinating turn of events. As I wrote after RJR Nabisco, the presumption has become something of a runaway canon, becoming more rigid and harder for Congress to displace with every Supreme Court decision. But (as I have explored in another essay) there’s only so far that formalism can take us in avoiding or resolving conflicts with other countries’ regulatory regimes. At some point, judges need the ability to consider case-specific factors to determine whether a dispute’s nexus to the United States is significant enough to merit application of U.S. law. After thirty years of trying to answer that question at a wholesale statutory level, perhaps the Court will end up back where it started: trusting judges’ ability to calibrate the reach of U.S. law on a case-by-case basis.