Fourth Circuit Applies Recent Supreme Court Decision on RICO Injuries

Ghana by Steve Conover (CC BY-SA 2.0 DEED)

In Percival Partners Ltd. v. Nduom, the Fourth Circuit (Judge Harris, joined by Judge Thacker and Judge Richardson) applied last Term’s decision in Yegiazaryan v. Smagin (2023) to conclude that the plaintiffs’ alleged RICO injury was impermissibly extraterritorial. In an analysis that embraced Yegiazaryan’s contextual approach to siting RICO injuries, the Fourth Circuit held that the U.S. location of some of the RICO conduct did not overcome the non-U.S. location of the plaintiffs and the initial misappropriation of their funds.

Background

According to the plaintiffs’ complaint, the defendants are members of a “Ghanaian family domiciled in the United States,” the Nduoms, and their Virginia company, International Business Solutions (“IBS”). The Nduoms also owned a Ghanaian wealth management fund, Gold Coast, which solicited millions of dollars from Ghanaian investors in Ghana on the understanding that the funds would be distributed as microfinance loans across the African continent. Instead, Gold Coast funneled the money to IBS, which then distributed the funds across shell companies owned by various members of the Nduom family. Gold Coast was left insolvent and unable to pay back its investors.

Some of those investors brought suit in the Eastern District of Virginia, seeking treble damages under RICO’s civil remedy and asserting other claims under Virginia law. The district court concluded that the complaint did not allege a domestic RICO injury and thus dismissed the RICO claim; it then declined to exercise supplemental jurisdiction over the remaining state law claims. On appeal, the Fourth Circuit affirmed.

The Legal Framework

In RJR Nabisco v. European Community (2016), the Supreme Court explained that RICO liability can apply extraterritorially to the extent that the predicate acts comprising the pattern of racketeering activity themselves rebut the presumption against extraterritoriality. But it held that RICO’s private right of action under 18 U.S.C. § 1964(c) did not itself apply extraterritorially. Thus, to bring a civil RICO claim, a plaintiff must allege a domestic injury to its business or property. In RJR Nabisco, however, the Court did not need to determine what constitutes a domestic injury because the plaintiffs in that case had conceded that their injury was not domestic.

Last Term, in Yegiazaryan, the Supreme Court tackled that question. It held that identifying the location of a RICO injury depends on a “context-specific inquiry” rather than a bright-line rule. It thus rejected a test that would tie the location of a RICO injury to the residence of the plaintiff. In Yegiazaryan, both the plaintiff and the defendant were Russian citizens, and the dispute turned at root on a foreign arbitral award regarding real estate deals outside of the United States. But the plaintiff had obtained a California state court judgment domesticating the arbitral award and sought to enforce it against the defendant, who resided in California. The alleged criminal activity (evading enforcement of that California state court judgment) also largely occurred in California. On those facts, the Supreme Court held that the plaintiff had alleged a domestic injury under § 1964(c). (For more on Yegizarayan, see here and here.)

The Fourth Circuit’s Application

The plaintiffs in Percival Partners argued that they suffered a domestic injury under § 1964(c) because the defendants’ racketeering activity took place primarily within the United States. As the Fourth Circuit explained, that argument ran afoul of both RJR Nabisco and Yegiazaryan. Adopting the plaintiffs’ argument would tie the location of a RICO injury to the location of the RICO conduct, which would collapse the very distinction RJR Nabisco labored to draw between the potentially extraterritorial reach of RICO’s conduct prohibitions and the more territorially constrained reach of RICO’s private right of action. The plaintiffs’ argument was also in tension with the spirit of Yegiazaryan, which eschewed bright-line rules for locating RICO injuries.

Instead, the Fourth Circuit emphasized that the plaintiffs’ injury was felt in Ghana, where investors transferred their money to a Ghanaian company with the intention that the funds be invested in Africa. They did not know or expect that their funds would subsequently be sent to the United States instead. The Fourth Circuit thus concluded the plaintiffs had not alleged a domestic injury and affirmed the dismissal of their civil RICO claim.

This all seems correct, both in the application of Yegiazaryan’s contextual approach and in the ultimate conclusion (at least accepting RJR Nabisco’s holding that RICO’s private right of action is limited to domestic injuries). I offer just a couple minor observations.

First, the court downplayed what connections this dispute did have to the United States. It borrowed Supreme Court rhetoric in Morrison v. National Australian Bank Ltd. (2010) to declare that “[t]his case has Ghana written all over it,” and it noted there was just “one domestic element” in the case: the transfer of the funds to IBS in Virginia, meaning that the property was in Virginia at the time of the racketeering activity. There are other significant connections to the United States, however. The individual defendants, though presumably Ghanaian citizens, are domiciled in the Virginia, and the corporate defendant (IBS) is “at home” in Virginia. Further, one of the plaintiffs is the assignee of an unnamed Ghanaian-American’s claim. In other words, there are U.S. citizens and residents on both sides of this dispute. And, of course, much of the allegedly illegal conduct took place in Virginia. I worry that such rhetorical overemphasis on the foreignness of transnational cases can elide or distort procedural distinctions; it also adds to a narrative that transnational cases never belong in U.S. courts.

Second, acknowledging those U.S. connections would not have altered the outcome of this case, which was perhaps even easier than the Fourth Circuit’s analysis suggests. Yegiazaryan explained how to “locate” an injury to intangible property—in that case, a court judgment. Here the injury was to tangible property—the plaintiffs’ money. It is much easier to “territorialize” an injury to tangible property: in this case, the plaintiffs’ property was physically located in Ghana at the time the plaintiffs were fraudulently induced to turn it over to the defendants’ company in Ghana. Under the Supreme Court’s interpretation of § 1964(c) in RJR Nabisco, RICO’s civil remedy does not reach that far.