Supreme Court Rules on When RICO Standing Exists to Protect Domesticated International Arbitration Awards

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. 

What’s in a Clause: What to Consider when Adopting an Arbitration Clause in Construction Contracts

Many in the construction sector are hesitant to dwell on dispute resolution clauses.  After all, when your goal is to build something together, anticipating conflicts at the outset of the relationship can feel unseemly.  But this hesitance relies on a misconception of what dispute resolution is: it isn’t the anticipation of conflicts, but instead the development of proactive systems to work through those conflicts with minimal disruption much in the same way that change orders or design modifications are managed in the ordinary course.  Proactive management of the dispute resolution process thus is not only consistent with a collegial working relationship but is imperative to achieving the environment of collaboration and partnership that are at the core of so many projects.

There are a myriad of popular form contracts in the construction sphere, including AIA and ConsensusDocs domestically and, internationally, the JCT, NEC, and FIDIC suites.  The benefit of relying on such contracts is obvious: their mechanisms and allocations of risk are widely understood, relieving the parties of the need to debate routine provisions.  But dispute resolution, although often considered such a provision, is anything but routine.  The dispute resolution clause can be one of the most important provisions in a contract, and even minor changes can significantly impact the course of a project and the cost, duration, and inconvenience of any resulting disputes. Jurisdictional and geographic variations can further modify the impact of even standard language.  In fact, dispute resolution clauses are one place where it is most important for a contracting party to be proactive in ensuring that its interests are met. Although the benefits of form agreements are manifest, it would be ill-advised to sign off on a dispute resolution provision without at least considering its material terms.  There is no one-size-fits all solution, but the following are some of the key issues that warrant consideration.

Continue reading “What’s in a Clause: What to Consider when Adopting an Arbitration Clause in Construction Contracts”

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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