The federal Racketeer Influenced and Corrupt Organizations Act (“RICO”) and international arbitration are strange bedfellows at first glance. But one of the largest challenges in international disputes can be enforcing judgments, and RICO can be a powerful tool to guard against illegal conduct designed to hinder the enforcement of judgments giving effect to international arbitration awards.
On June 22nd, the Supreme Court issued its Opinion in Yegiazaryan v. Smagin and CMB Monaco v. Smagin, consolidated cases that questioned whether a foreign individual could sue for RICO violations impairing his ability to recover on a domestic judgment enforcing a foreign arbitration award. The issue before the Supreme Court was whether the injury alleged—interference with a federal court judgment—was “domestic in nature” and therefore conferred standing to bring a RICO claim under RJR Nabisco Inc. v. Eur. Cmty., 579 U.S. 325 (2016).
The Court’s decision resolves a circuit split regarding how to determine the location of injury associated with a judgment enforcing an arbitration award for purposes of RICO. In Armada (Singapore) PTE Ltd. v. Amcol Int’l Corp., 885 F.3d 1090 (7th Cir. 2018), the Seventh Circuit adopted what has come to be known as the “residency test,” concluding that an injury to intangible property occurs solely at the plaintiff’s place of residence. Applying that standard, the Court concluded that a Singapore company could not bring a RICO claim based on injuries to its ability to enforce a domestic judgment enforcing an arbitration award, because any harm to the plaintiff’s “intangible bundle of litigation rights” was suffered in Singapore and therefore was not a domestic injury conferring standing to bring a RICO claim.
The Ninth Circuit, in Smagin v. Yeglazaryan, 37 F.4th 562 (9th Cir. 2022), reached a different conclusion, deciding that efforts to impair a judgment to enforce a foreign arbitration award entered by a federal district court constituted an injury in the state where the Court was located. The Ninth Circuit reasoned that the federal judgment to enforce the award only provided rights within California and did not provide any rights in the plaintiff’s place of residence, and further noted that much of the conduct underlying the alleged injury occurred in or was targeted at California.
The Supreme Court’s decision affirms the Ninth Circuit’s reasoning, concluding that “in assessing whether there is a domestic injury, courts should engage in a case-specific analysis that looks to the circumstances surrounding the injury. If those circumstances sufficiently ground the injury in the United States, such that it is clear the injury arose domestically, then the plaintiff has alleged a domestic injury.” In applying that analysis, the Court noted that many of the racketeering acts alleged (including creation of shell companies to hide assets, submission of forged documents to a federal court, and witness intimidation) occurred in the United States and that the injurious effects of the racketeering activity largely manifested in California, where they thwarted rights conferred in California by a District Court judgment.
Although this decision does not establish a bright-line rule, it provides a clear roadmap for determining when conduct intended to prevent the domestic enforcement of an international arbitration award establishes standing to bring a RICO claim. The articulation of this standard and resolution of the circuit split will provide a powerful tool to litigants seeking to enforce international arbitration awards domestically.
