Please E-mail suggested additions, comments and/or corrections to Kent@MoreLaw.Com.
Help support the publication of case reports on MoreLaw
Date: 10-03-2018
Case Style:
Peter Humphrey v. Glaxosmithkline, PLC
Case Number: 17-3285
Judge: McKee
Court: United States Court of Appeals for the Third Circuit on appeal from the Eastern District of Pennsylvania (Philadelphia County)
Plaintiff's Attorney: Phil Bowman, Joanie Gallagher, James Hickey, John Zach
Defendant's Attorney: Kurt W. Hansson, Nathan P. Heller, Stephen B. Kinnaird, Jayne A. Risk, James B. Worthington
Description:
Section 1964(c) of the Racketeer Influenced and
Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961–
1968, creates a private right of action for a plaintiff that “is
injured in his [or her] business or property” as a result of
conduct that is proscribed by the statute. In RJR Nabisco, Inc.
v. European Community, the Supreme Court determined that,
although a litigant may file a civil suit against parties for
racketeering activity committed abroad, § 1964(c)’s private
right of action is only available to a litigant that can “allege and
prove a domestic injury to its business or property.”1
In this case of first impression for this court, we must
decide whether Plaintiffs pled sufficient facts to establish that
they suffered a domestic injury under § 1964(c). For the
reasons that follow, we will affirm the District Court’s
judgment that they have not.
I.
A. Factual Background
Plaintiffs Peter Humphrey and Yu Yingzeng are cofounders
of ChinaWhys, an investigations firm that assists
foreign companies doing business in China with American
anti-bribery regulations compliance. Although Plaintiffs
resided in Beijing during the events alleged in their complaint,
much of ChinaWhys’ business was conducted with American
companies.
Plaintiffs allege that Defendants, GlaxoSmithKline plc
(“GSK PLC”) and GlaxoSmithKline LLC (“GSK LLC”),
engaged in widespread bribery in China in order to obtain
improper commercial advantages and that they did so with the
approval of Mark Reilly. Reilly was the Chief Executive
Officer of GlaxoSmithKline Investment Co., Ltd. (“GSK
China”). GlaxoSmithKline is a multinational healthcare
1 136 S. Ct. 2090, 2106 (2016).
4
company that has offices in England and the United States.
Sometime in 2011, a whistleblower who had worked for
Defendants sent Chinese regulators correspondence accusing
GlaxoSmithKline of bribery. Those allegations of corruption
included a claim that GSK China maintained a policy of paying
off doctors to increase sales. Thereafter, Defendants tried to
uncover the whistleblower’s identity.
As part of the ensuing inquiry, Humphrey and Yingzeng
met with Reilly and other members of GSK China’s senior
management in GSK China’s Shanghai office to discuss
GlaxoSmithKline’s internal investigation into the source of the
whistleblower reports. According to Plaintiffs, GSK China
representatives told ChinaWhys that it believed Vivian Shi, a
GSK China employee who had been fired, orchestrated a
“smear campaign” against GlaxoSmithKline by falsely
accusing the pharmaceutical company of engaging in corrupt
practices. ChinaWhys agreed to conduct a background
investigation of Shi in what Plaintiffs describe as an attempt to
limit the “efficacy of her extortion.”2 The details of that
understanding were memorialized in a “Consultancy
Agreement.”3 That agreement provided that, among other
things, the arrangement was to be governed by Chinese law and
that all disputes arising out of, or in connection to, it were
subject to arbitration in China.4
GlaxoSmithKline later learned of additional
whistleblower emails and GSK China asked ChinaWhys to
also identify the source of those communications. In addition,
GSK China personnel asked ChinaWhys to investigate certain
Chinese agencies to find out who was conducting the
investigation into GSK China’s alleged misconduct.
In July 2013, Plaintiffs were arrested when police raided
ChinaWhys’ Shanghai office and Plaintiffs’ Beijing home.
The arrests resulted in Plaintiffs’ conviction and imprisonment.
They were deported from China upon their release from prison.
Reilly was subsequently convicted of bribing
physicians and was also imprisoned and deported from China
upon his release. The Chinese government fined GSK PLC
$492 million for its bribery practices in the region, and GSK
2 Plaintiffs’ Br. 13, 16.
3 Joint App’x A69.
4 Joint App’x A74.
5
PLC entered a settlement agreement with the United States
Securities Exchange Commission.
Plaintiffs brought this suit in the United States District
Court, alleging, inter alia, RICO claims and pendent state law
claims. GSK China was not named as a party.5 Plaintiffs
contend that their business was “destroyed and their
prospective business ventures eviscerated” as a result of
Defendants’ misconduct.6 They also contended that “GSK
officials” knew that the accusations of corruption were true and
that the bribery had been carried out at Reilly’s direction.
Defendants moved to compel arbitration, or, in the
alternative, to dismiss the complaint for lack of subject-matter
jurisdiction. They argued that subject-matter jurisdiction was
lacking because, even though Plaintiffs may have had
numerous clients in the United States, their alleged injuries
were foreign because Plaintiffs’ business was in China, their
only offices were in China, no work was done outside of China,
Plaintiffs resided in China, and because any destruction of
Plaintiffs’ business occurred while Plaintiffs were imprisoned
in China by Chinese authorities. The District Court agreed and
granted Defendants’ motion to dismiss. This timely appeal
followed.
B. Legal Background
RICO “creates a private civil cause of action that allows
‘[a]ny person injured in his business or property by reason of a
violation of section 1962 to sue in federal district court . . . .”7
5 GSK China was not named a defendant even though it is the
arm of GlaxoSmithKline that ChinaWhys entered into the
Consultancy Agreement with. Moreover, as the District
Court observed, “all of Plaintiffs’ contacts were with
employees of either GSK China or GSK Pte Ltd., a
Singaporean entity, and none were with Defendants. From
the complaint, it is apparent that it was GSK China employees
and GSK China’s CEO who requested that Plaintiffs
investigate Shi . . . .” Humphrey v. GlaxoSmithKline, PLC.,
No. CV 16-5924, 2017 WL 4347587, at *7 (E.D. Pa. Sept. 29,
2017). The decision not to name GSK China as a defendant
is likely an attempt to downplay ties to China.
6 Plaintiffs’ Br. 8.
7 RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2097
(citing 18 U.S.C. § 1964(c)).
6
A successful plaintiff may “recover threefold the damages. . .
.”8
RICO is implicated when defendants have engaged in a
“pattern of racketeering activity.”9 That pattern consists of
certain statutorily defined predicate acts “encompass[ing]
dozens of state and federal offenses” “that together
demonstrate the existence or threat of continued criminal
activity.”10 The statute “sets forth four specific prohibitions
aimed at different ways in which a pattern of racketeering
activity may be used to infiltrate, control, or operate a[n]
enterprise[’s]” criminal misconduct.11 Plaintiffs allege that
Defendants violated two of those prohibitions—§§ 1962(c) and
(d). Section 1962(c) proscribes participating in the conduct of
an interstate enterprise’s affairs through a “pattern of
racketeering activity,”12 which RICO defines as “at least two
acts of racketeering activity.”13 Section 1962(d) makes it
unlawful to conspire to violate subsections (a) through (c).14
8 18 U.S.C. § 1964(c).
9 18 U.S.C. § 1962(c).
10 RJR Nabisco, 136 S. Ct. at 2096–97.
11 Id. at 2097 (brackets in original) (citation and internal
quotation marks omitted).
12 18 U.S.C. § 1962(c).
13 18 U.S.C. § 1961(5).
14 Id. (citing 18 U.S.C. § 1962). 18 U.S.C. § 1962 provides:
(a) It shall be unlawful for any person who
has received any income derived, directly or
indirectly, from a pattern of racketeering
activity or through collection of an unlawful
debt in which such person has participated as
a principal within the meaning of section 2,
title 18, United States Code, to use or invest,
directly or indirectly, any part of such
income, or the proceeds of such income, in
acquisition of any interest in, or the
establishment or operation of, any enterprise
which is engaged in, or the activities of
which affect, interstate or foreign commerce.
A purchase of securities on the open market
for purposes of investment, and without the
intention of controlling or participating in the
7
To prove a violation under §1962(c), Plaintiffs must
show:
(1) that two or more persons agreed to conduct
or to participate, directly or indirectly, in the
conduct of an enterprise’s affairs through a
pattern of racketeering activity; (2) that the
defendant was a party to or member of that
agreement; and (3) that the defendant joined
control of the issuer, or of assisting another
to do so, shall not be unlawful under this
subsection if the securities of the issuer held
by the purchaser, the members of his
immediate family, and his or their
accomplices in any pattern or racketeering
activity or the collection of an unlawful debt
after such purchase do not amount in the
aggregate to one percent of the outstanding
securities of any one class, and do not confer,
either in law or in fact, the power to elect one
or more directors of the issuer.
(b) It shall be unlawful for any person
through a pattern of racketeering activity or
through collection of an unlawful debt to
acquire or maintain, directly or indirectly,
any interest in or control of any enterprise
which is engaged in, or the activities of
which affect, interstate or foreign commerce.
(c) It shall be unlawful for any person
employed by or associated with any
enterprise engaged in, or the activities of
which affect, interstate or foreign commerce,
to conduct or participate, directly or
indirectly, in the conduct of such enterprise's
affairs through a pattern of racketeering
activity or collection of unlawful debt.
(d) It shall be unlawful for any person to
conspire to violate any of the provisions of
subsection (a), (b), or (c) of this section.
8
the agreement or conspiracy knowing of its
objective to conduct or participate, directly or
indirectly, in the conduct of an enterprise’s
affairs through a pattern of racketeering
activity.15
To establish liability pursuant to § 1962(c), a plaintiff
must establish the existence of an enterprise that exists
“separate and apart from the pattern of activity in which [the
enterprise] engages.”16 RICO defines “enterprise” as “any
individual, partnership, corporation, association, or other legal
entity, and any union or group of individuals associated in fact
although not a legal entity.”17 Plaintiffs can show the presence
of an enterprise by pointing to a “group of persons associated
together for a common purpose of engaging in a course of
conduct.”18
The complaint alleges that the enterprise here is an
association of, inter alia, Defendants, “others convicted of
crimes related to GSK activities,” “and other countries who
accepted bribes and kickbacks from GSK.”19 Plaintiffs further
allege that Defendants participated in the following
racketeering activity: mail fraud; wire fraud; obstruction of a
criminal investigation; tampering with witnesses; retaliating
against a witness, victim, or an informant; use of interstate
facilities to conduct unlawful activity; and money laundering.20
Plaintiffs contend they lost their business as a result of these
alleged predicate racketeering acts.21
In RJR Nabisco, the Supreme Court considered
“whether RICO applies extraterritorially—that is, to events
15 United States v. John-Baptiste, 747 F.3d 186, 207 (3d Cir.
2014) (citation omitted); see also Sedima, S.P.R.L. v. Imrex
Co., 473 U.S. 479, 496 (1985) (“A violation of § 1962(c) . . .
requires (1) conduct (2) of an enterprise (3) through a pattern
(4) of racketeering activity.”).
16 United States v. Turkette, 452 U.S. 576, 583 (1981).
17 18 U.S.C. § 1961(4).
18 Turkette, 452 U.S. at 583.
19 Joint App’x A54.
20 Joint App’x A56.
21 Joint App’x A59.
9
occurring and injuries suffered outside the United States.”22
The relevant inquiry involves two separate questions: first,
whether RICO’s substantive provisions apply to extraterritorial
conduct, and second, whether RICO’s private right of action
affords relief for “injuries that are suffered” outside the United
States. 23
The Court explained that “[a]bsent clearly expressed
congressional intent to the contrary, federal laws will be
construed to have only domestic application.”24 This
presumption against extraterritoriality “avoid[s] the
international discord that can result when U.S. law is applied
to conduct in foreign countries[.]”25 It also ensures that
Congress—rather than the judiciary—is responsible for
navigating the “delicate field of international relations.”26
Nevertheless, the Court concluded that RICO can reach
extraterritorial conduct.27 However, the Court held that 18
U.S.C. § 1964(c) does not allow recovery for injuries suffered
in foreign territories.28 The Court explained that “[n]othing in
§ 1964(c) provides a clear indication that Congress intended to
create a private right of action for injuries suffered outside of
the United States.”29 Thus, although RICO creates a cause of
action for misconduct committed abroad, § 1964(c) requires a
“domestic injury.”
However, since the plaintiffs in RJR Nabisco had
waived their claims for domestic injuries,30 the Court did not
need to explain how courts should determine whether an
alleged injury has been suffered domestically or abroad.31
Moreover, as the District Court observed here, there is a dearth
22 RJR Nabisco, Inc., 136 S. Ct. at 2096.
23 Id. at 2099 (emphasis added).
24 Id. (citation omitted).
25 Id. (citations omitted).
26 Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659,
1664 (2013).
27 RJR Nabisco, Inc., 136 S. Ct. at 2103.
28 See id. at 2106.
29 Id. at 2108.
30 Id. at 2111.
31 Bascuñán v. Elsaca, 874 F.3d 806, 809 (2d Cir. 2017)
(“The Supreme Court did not explain, however, how to
determine whether an alleged injury is domestic or foreign.”).
10
of case law grappling with the RJR Nabisco decision.32 In
addition, those courts that have considered whether an alleged
injury was suffered in the United States have applied varying
standards.33 Thus, there is no consensus on what specific
factors must be considered when deciding whether an injury is
domestic or foreign.
RJR Nabisco did advise courts to proceed cautiously
when deciding if RICO plaintiffs have alleged a sufficient
domestic injury to recover under § 1964(c). “[P]roviding a
private civil remedy for foreign conduct creates a potential for
international friction beyond that presented by merely applying
U.S. substantive law to that foreign conduct.”34 The Court
observed that the domestic injury requirement promotes
comity and avoids international friction because it, inter alia,
creates less of an opportunity for litigants in foreign countries
to bypass those territories’ “less generous remedial
schemes.”35 The Supreme Court also warned that allowing
litigants who are abroad to sidestep foreign remedies only to
seek those available under domestic law would upset the
balance of competing considerations embodied in the laws of
foreign countries.36 The Court cautioned that “the need to
enforce the presumption [against extraterritoriality] is at its
32 Humphrey, 2017 WL 4347587 at *5 (“Neither the Third
Circuit Court of Appeals, other Appellate Circuits, nor the
District Court for the Eastern District of Pennsylvania have
addressed what constitutes a domestic or foreign injury for
civil RICO purposes subsequent to the RJR Nabisco decision
. . . .”).
33 Compare Dandong Old N.-E. Agric. & Animal Husbandry
Co. v. Hu., No. 15 CIV. 10015 (KPF), 2017 WL 3328239, at
*6 (S.D.N.Y. Aug. 3, 2017) (considering the totality of the
circumstances without relying on any single circumstance),
with Union Commercial Servs., 2016 WL 6650399, at *4
(E.D. Mich. Nov. 10, 2016) (considering whether the
defendant’s conduct was intended to have effects in the
United States).
34 Id. at 2106.
35 Id. at 2106–07 & n. 9.
36 Id.
11
apex” when extraterritorial application of U.S. law raises the
“risk” of international friction.37
II.
Because this case does not involve Article III standing,
but rather presents an issue of statutory standing, subject matter
jurisdiction is not implicated, and the parties incorrectly relied
on Rule 12(b)(1). Our precedent makes clear that “[c]ivil
RICO standing is usually viewed as a 12(b)(6) question of
stating an actionable claim, rather than as a 12(b)(1) question
of subject matter jurisdiction.”38 Moreover, given that Rule
12(b)(6) provides a plaintiff with “significantly more
protections,”39 and because we may affirm on any ground
supported by the record and “there is no prejudice to appellants
in our reviewing the district court’s dismissal as if it were
grounded on Rule 12(b)(6),”40 we will review this matter under
Rule 12(b)(6). Accordingly, we “consider only the allegations
contained in the complaint, exhibits attached to the complaint
and matters of public record.”41 In evaluating whether the
complaint adequately pleads the elements of standing, we
accept as true all material allegations set forth in the complaint
and construe those facts in favor of Plaintiffs, the nonmoving
party.42
III.
Plaintiffs allege that, as a result of Defendants’
racketeering activity, Plaintiffs lost “numerous ongoing
contracts and engagements with U.S. law firms and
companies”—purportedly destroying “Plaintiffs’ business . . .
and their prospective business ventures.”43 Plaintiffs thus seek
redress under § 1964(c). However, as we stated above, §
37 Id. at 2107.
38 Anderson v. Ayling, 396 F.3d 265 (2005) (citing Maio v.
Aetna, Inc., 221 F.3d 472, 482 n.7 (3d Cir. 2000)).
39 Hartig Drug Co. Inc. v. Senju Pharmaceutical Co. Ltd.,
836 F.3d 261, 270 (3d Cir. 2016).
40 Maio, 221 F.3d at 481 n.7.
41 Pension Benefit Guar. Corp. v. White Consol. Indus., Inc.,
998 F.2d 1192, 1196 (3d Cir. 1993). No documents were
attached for the District Court’s consideration.
42 Maio, 221 F.3d at 481–82 (citations and internal quotation
marks omitted).
43 Joint App’x A59.
12
1964(c) creates no private cause of action for injuries “suffered
outside the United States.”44 Accordingly, Plaintiffs’ civil
RICO suit can survive a motion to dismiss only if they
sufficiently allege domestic injuries.45 As we will explain,
there is no bright-line rule that we can apply in assessing
whether the alleged injuries are domestic or foreign. Rather,
we must engage in a fact-intensive inquiry that will ordinarily
include consideration of multiple factors that vary from case to
case.
A. The Domestic Injury Requirement
The District Court recognized that two “schools of
thought” have emerged regarding proof of domestic injury for
civil RICO claims. The “locus of effects” test looks only to
where the plaintiff felt the effects of the alleged injury and not
where the injurious acts were allegedly committed.46 Courts
applying this approach have largely focused upon the
plaintiffs’ place of residency or principal place of business.47
Other courts are guided by where the alleged misconduct was
“targeted” or “directed” and focus largely, though not
exclusively, on that location.48 Although the District Court
44 RJR Nabisco, 136 S. Ct. at 2108 (“Nothing in § 1964(c)
provides a clear indication that Congress intended to create a
private right of action for injuries suffered outside of the
United States.”).
45 Id.
46 Humphrey, 2017 WL 4347587 at *6.
47 See, e.g., Bascuñan v. Daniel Yarur ELS Amended
ComplaintA, No. 15-CV-2009 (GBD), 2016 WL 5475998, at
*6 (S.D.N.Y. Sept. 28, 2016) (“All of the funds at issue, even
those distributed among the Corporate Plaintiffs, were
purportedly owned by Bascuñan, and thus, he is the person
that ultimately suffered the loss. And as a Chilean citizen and
resident, he suffered the losses in Chile.” (citations omitted)),
rev'd in part, vacated in part sub nom. Bascuñan v. Elsaca,
874 F.3d 806 (2d Cir. 2017).
48 See, e.g., Akishev v. Kapustin, No. CV 13-7152, 2016 WL
7165714, at *1–2, 7– 8 (D.N.J. Dec. 8, 2016); Union
Commercial Servs. Ltd. v. FCA Int’l Operations LLC, No. 16-
CV-10925, 2016 WL 6650399, at *4 (E.D. Mich. Nov. 10,
2016); Tatung Co., Ltd. v. Shu Tze Hsu, 217 F. Supp. 3d
1138, 1156 (C.D. Cal. 2016).
13
found the former school of thought more persuasive, it
ultimately did not have to adopt either approach because
Plaintiffs were unable to prevail under either test.49
This case presents an excellent example of why the
inquiry required under § 1964(c) must be undertaken in the
context of the specific injuries alleged in a given case rather
than relying on a one-size-fits-all approach or bright-line rule.
Plaintiffs allege injuries to intangible business interests,
including reputation and goodwill. Accordingly, relying on
such tangible factors as the location of lost funds, damaged
property or plaintiff’s residence is not only of little use, but it
could also be very misleading. Instead, we must consider
multiple factors in determining whether the injuries in question
were suffered in the United States or abroad.
Nevertheless, there is a general consensus among the
courts that have had to apply RJR Nabisco that the location of
a RICO injury depends on where the plaintiff “suffered the
injury”—not where the injurious conduct took place.50 That
may result from the Court’s framing of the issue in RJR
Nabisco. The Court specifically framed the question before it
as whether: “RICO’s private right of action, contained in §
1964(c), applies to injuries that are suffered in foreign
countries?”51
The Court of Appeals for the Second Circuit is one of
only two federal appellate courts that have grappled with RJR
Nabisco’s domestic injury instruction. In Bascuñán v. Elsaca,
the court considered whether a Chilean resident suffered a
domestic injury although he was not located in the United
States during the events in question.52 The plaintiff there
alleged that the defendant had fraudulently caused banks to
wire the plaintiff’s funds from the plaintiff’s U.S. bank
49 Humphrey, 2017 WL 4347587 at *6. (“[T]his Court need
not decide whether the focus is entirely on where the injury
occurred or if the location of the conduct is relevant, because
under any of the injury-focused tests employed by other
district courts, and under a conduct-focused test, it is clear to
this Court that the alleged injuries suffered by Plaintiffs are
foreign, and not domestic.”).
50 See id. (collecting cases).
51 RJR Nabisco, 136 S. Ct. at 2099.
52 874 F.3d 809 (2d Cir. 2017).
14
accounts to the defendant’s accounts.53 The plaintiff also
alleged that the defendant or his agent physically removed
bank shares from the plaintiff’s New York safety deposit box.54
The district court held that the plaintiff could not allege a
domestic injury because he was a resident of Chile, and the
injuries alleged were necessarily suffered at the plaintiff’s
place of residence.55 Two questions guided the court’s inquiry:
who became poorer as a result of the alleged conduct and
where did that individual become poorer?56 “Its holding set
forth, in sum and substance, the following rule: a foreign
plaintiff who suffered an ‘economic loss’ due to a RICO
violation cannot, absent extraordinary circumstances, allege a
domestic injury.”57
On appeal, the Court of Appeals for the Second Circuit
rejected the district court’s “residency-based” approach and
held that “a plaintiff who is a foreign resident may [in fact]
allege a civil RICO injury that is domestic.”58 It noted that the
district court’s focus on the plaintiff’s place of residence
improperly disregards RJR Nabisco’s attempt “to make plain
that its opinion should not be taken to ‘mean that foreign
plaintiffs may not sue under RICO.’”59 The Second Circuit
opined that the focus of the domestic injury analysis should be
the location of the alleged injuries as opposed to the location
of the plaintiff’s residence or of the defendant’s alleged
misconduct. The court explained: “[i]n order to determine
where the [injuries] alleged by a civil RICO plaintiff are
located geographically, courts must examine more closely the
specific type of injuries alleged.”60 It then categorized the
alleged injury as an injury to tangible property, which “can be
fairly said to exist in a precise location.”61 Taking that
approach, the court easily concluded that “[w]here the injury is
53 Id. at 811.
54 Id. at 810.
55 Id. at 809.
56 Id. at 813–14.
57 Id. 809–10.
58 Id. at 814.
59 Id. at 821 (emphasis omitted) (citing RJR Nabisco, 136 S.
Ct. at 2110 n. 12).
60 Id. at 817.
61 Id. at 820.
15
to tangible property . . . absent some extraordinary
circumstance, the injury is domestic if the plaintiff’s property
was located in the United States when it was stolen or harmed,
even if the plaintiff himself resides abroad.”62
Thus, the court held that when a defendant’s conduct is
alleged to effect tangible property, the location of that property
usually constitutes the place of the injury. Since the plaintiff’s
money and bank shares were in the United States when stolen,
the court reasoned that the injury occurred in New York and
the plaintiff therefore properly alleged a domestic RICO
injury.63 Several considerations counseled that conclusion.
The court reasoned that plaintiffs who are injured as a result of
harm done to their domestically located tangible property are
entitled to the remedial benefits conferred by a RICO private
right of action because such litigants “expect that our laws will
protect them in the event of damage to that property.”64 That
“expectation [was] entirely justified, especially when we
consider that a foreign resident’s property located in the United
States is otherwise subject to all of the regulations imposed on
private property by American state and federal law.”65 The
rule thus “ensures that both foreign and domestic plaintiffs can
obtain civil RICO’s remedy for damage to their property[.]”66
Although this approach, which focuses on the location
of the property giving rise to the harm, is useful where the
alleged injury is to tangible property, it is not helpful where, as
here, harm to intangible business interests is alleged. The
location of such injuries simply cannot be identified with the
same geographic certainty that is endemic in the very concept
of tangible property. Thus, courts grappling with alleged
injuries to intangible property have largely tried to trace the
location of the effects of the alleged injurious conduct to
determine the place of injury. In other words, these courts have
aligned themselves with the locus of effects approach and
focus on where the plaintiff felt the effects of the injuryinducing
predicate acts, no matter where they occurred.
62 Id. at 820–21.
63 Id.
64 Id. at 821.
65 Id. at 821.
66 Id.
16
For example, in Cevdet Aksut Ogullari Koll. Sti. v.
Cavusoglu, the district court found that a plaintiff’s principal
place of business and the location of its operations were merely
helpful considerations in determining whether the effects of an
alleged injury were domestic or foreign.67 There, a Turkish
corporation “assert[ed] that its domestic business was injured
because it had . . . annual sales to customers in the United States
prior to transacting with the RICO enterprise.”68 The court
held that, even if it were to assume that the plaintiff lost
earnings from customers located in the United States, it
nonetheless could ascertain no “domestic injury to [the
plaintiff’s] business because its business [was] entirely located
in and operated out of Turkey.”69 The “plaintiff’s injury was
felt in the only place it had ever been located, in Turkey.”70
Although the Cevdet court found the physical location of the
plaintiff’s corporation to be relevant, it did not announce the
same kind of residency-based rule that was rejected by the
Court of Appeals in Bascuñán. Instead, it declared that a
foreign corporation with “substantial business operations
within the United States” could, hypothetically, assert a RICO
domestic injury because the injury could be felt in the United
States.71
Picking up where Cevdet left off, the district court in
Elsevier, Inc. v. Grossman (Elsevier II) held that, in assessing
whether a plaintiff has alleged a domestic RICO injury to its
intangible business operations, courts should determine where
the “substantial negative business consequences occurred.”72
The court suggested that a plaintiff might be able to show a
domestic injury by alleging “some effect on Plaintiffs’
67 245 F. Supp. 3d 650 (D.N.J. 2017).
68 Id. at 653.
69 Id. at 659.
70 Id. at 660.
71 Id. at 659.
72 199 F. Supp. 3d 768, 786 (S.D.N.Y. 2016) (“If the plaintiff
has suffered an injury to his or her business, the court should
ask where substantial negative business consequences
occurred. By contrast, if the plaintiff has suffered an injury to
his or her property, the court should ask where the plaintiff
parted with the property or where the property was
damaged.”).
17
relationships with actual or prospective U.S. customers.”73
The court, however, found that the plaintiff had made no such
allegation. Elsevier, the plaintiff, had sued to recover after it
sold academic journals to the defendants at discounted rates
because of the defendants’ alleged misrepresentations that they
were buying the journals for “valid personal use.”74 The
plaintiff argued that he suffered a domestic injury simply
because the defendants ordered the subscriptions from the
United States and paid for them with checks drawn on a U.S.
bank account. First, the court held that this was insufficient to
show that the plaintiff’s injuries occurred in the United States.
The trial court noted “that it is possible for fraudulent conduct
to take place in one location, but cause injury in another
location.”75 While resolving post-trial motions, though, the
district court found that, as alleged, “48 of the 51 fraudulent
subscriptions were either physically shipped from the United
States or were authorized for shipment by an Elsevier
employee located in the United States.”76 Accordingly, the
district court reversed course and found that the plaintiff
“relinquished control of the journals in the United States under
false pretenses and thereby suffered the effects of [the
defendant’s fraudulent] conduct in the States.”77 The court
therefore found that the plaintiff’s harm constituted a domestic
injury “even if [the plaintiff] were a foreign entity.”78
Despite Elsevier II’s earlier indication that, in
determining whether an injury is domestic, “court[s] should
ask where substantial negative business consequences
occurred,”79 its post-trial opinion was based on its finding that
the alleged misappropriation of the plaintiff’s property
occurred in the United States. That is consistent with the
approach taken by the Court of Appeals in Bascuñán.
73 Id. at 788.
74 Elsevier Inc. v. Pierre Grossmann, IBIS Corp. (Elsevier
III), 2017 WL 5135992, at *1 (S.D.N.Y. Nov. 2, 2017).
75 Elsevier II, 199 F. Supp. 3d at 788.
76 Elsevier III, 2017 WL 5135992, at *4.
77 Id.
78 Id.
79 Elsevier II, 199 F. Supp. 3d at 786.
18
Nevertheless, since Elsevier involved an alleged injury to
tangible property, it is not helpful to our inquiry here.80
The court’s analysis in Dandong Old N.-E. Agric. &
Animal Husbandry Co. v. Hu is more analogous to our
inquiry.81 The plaintiff there was a Chinese company that was
one of the largest purchasers of soybeans produced in the
United States.82 It alleged, inter alia, that the defendant’s
RICO misconduct caused the plaintiff to lose contracts with
soybean suppliers in the United States.83 The plaintiff claimed
the loss of much of its market share and that its business
operations slowed as a result of its inability to receive soybeans
from U.S. suppliers at the same volume as before the
defendant’s alleged misconduct.84 The plaintiff also alleged
that it was forced to terminate 90 of its China-based
employees.85 The court disregarded the location of the
predicate acts that were alleged and instead focused only on
where the plaintiff felt the effects of the alleged injury.86 That
analysis caused the court to conclude that the plaintiff failed to
establish a domestic injury. The trial court found that “[a]ny
deprivation of [the] [p]laintiff’s money was felt in China. And,
in sharp contrast to Elsevier, [the] Plaintiff was not deprived of
its property in the United States[] [because,] indeed, [the]
Plaintiff received all of the soybeans for which it contracted
with U.S. suppliers.”87
80 Dandong Old N.-E. Agric. & Animal Husbandry Co., 2017
WL 3328239 at *6 (clarifying that Elsevier “focused on
where the plaintiff had been deprived of money or property
[and] . . . found that the plaintiff had sufficiently alleged a
domestic injury by asserting that nearly all of the
subscriptions at issue had been shipped from within the
United States—and thus, that the plaintiff had been deprived
of its property (i.e., the scientific journals) in the United
States” (citing Elsevier III, 2017 WL 1843298, at *6)).
81 Id. *13
82 Id. at *1.
83 Id. at *3.
84 Id.
85 Id.
86 Id. at *11.
87 Id. at *13.
19
The plaintiff’s principal place of business was in China,
all the terminated employees were fired in China, any expenses
resulting from the alleged misconduct were paid from China,
and the plaintiff’s business operated only out of China.88 The
court found that the foreign plaintiff’s allegation that it lost
prospective business opportunities from U.S. suppliers
insufficient to establish that the plaintiff experienced a
domestic injury because such a claim, without more, “is far too
attenuated to suffice as a domestic injury under RICO.”89 For
these reasons, the Dandong court ultimately held that
“[r]egardless of where the conspirators’ conduct took place,
[the p]laintiff’s injury was felt in China, the only place its
business had ever been located.”90 Although other courts have
reached similar results,91 Dandong’s approach to determining
the location of the alleged injury is particularly helpful because
it is nuanced and the court considered the totality of the
circumstances without relying on any single circumstance.
As we will explain, a focus upon where the alleged
injuries were felt best guides our inquiry. However, unlike
courts that have taken this “locus of effects” approach, we do
not view a plaintiff’s residence or principal place of business
as detemintive. Although it will almost always be an important
88 Id. at *14.
89 Id. at *13.
90 Id. at *14.
91 In City of Almaty, Kazakhstan v. Ablyazov for example, the
plaintiff alleged that the defendant (who was the former
mayor) stole city funds and invested those funds in New York
City real estate projects. 226 F. Supp. 3d 272, 275 (S.D.N.Y
2016). The court held that even though the mayor and his coconspirators
used the funds in the United States, the plaintiff
did not suffer a domestic injury. Id. at 284. In other words,
because the plaintiff suffered economic harm to its business,
the place of injury was “the state of plaintiff’s residence, and
foreign corporations are recognized to reside either in their
principal place of business or their place of incorporation.”
Id. at 282 (citation and internal quotations omitted). Unlike
Plaintiffs here, the plaintiff in City of Almaty alleged no
additional contacts with the United States. The case therefore
offers limited guidance here.
20
factor, allegations in a given case will ususally necessitate
consideration of additional factors as well.
B. Merits
With this background as our guide, we must determine
if Plaintiffs here have alleged a plausible domestic injury under
§ 1964(c). We begin with RJR Nabisco’s clear command: the
analysis of whether a plaintiff has alleged a domestic injury
must focus principally on where the plaintiff has suffered the
alleged injury.92 “Nothing in § 1964(c) provides a clear
indication that Congress intended to create a private right of
action for injuries suffered outside of the United States.”93
As noted above, the Court in RJR Nabisco cautioned
against applying U.S. law in the absence of a domestic injury
for the substantial practical and policy reasons the Court
explained. Thus, we must decide if Plaintiffs’ alleged domestic
injuries justify allowing a civil remedy under RICO. There
may well be cases where plaintiffs do, in fact, suffer some
injury in the United States and courts must determine whether
those domestic injuries are sufficient to justify application of
domestic law despite the concerns the Supreme Court has
explained. As with any standard that is not susceptible to
mechanical application, “few answers will be written in black
and white.”94 We therefore appreciate that some cases will be
so close that courts may have to split jurisdictional hairs to
determine if a domestic injury has been alleged. As we
explain, the Plaintiffs here have not really alleged any domestic
injury, so we have no trouble concluding that they have not
alleged a sufficient injury to defeat that presumption and justify
the extraterritorial application of domestic law.
Given the intangible nature of the alleged injuries here,
our inquiry must focus primarily upon where the effects of the
predicate acts were experienced. This will better allow for
appropriate consideration of the nuanced nature of intangible
interests.
Whether an alleged injury to an intangible interest was
suffered domestically is a particularly fact-sensitive question
requiring consideration of multiple factors. These include, but
are not limited to, where the injury itself arose; the location of
92RJR Nabisco, 136 S. Ct. at 2108.
93 Id.
94 Kulko v. Superior Court of California, 436 U.S. 84, 92
(1978) (internal quotation marks omitted).
21
the plaintiff’s residence or principal place of business; where
any alleged services were provided; where the plaintiff
received or expected to receive the benefits associated with
providing such services; where any relevant business
agreements were entered into and the laws binding such
agreements; and the location of the activities giving rise to the
underlying dispute.
As we have already explained, the applicable factors
depend on the plaintiff’s allegations; no one factor is
presumptively dispositive.95 A domestic injury under §
1964(c) is found where the relevant factors, appropriately
weighed, establish that the alleged harm was suffered in the
United States.96 Although they have rarely done so explicitly,
the courts that have applied RJR Nabisco—including the
District Court here—have largely engaged in this kind of
multi-factor inquiry.97
Applying these principles to the allegations here, we
have no difficulty concluding that Plaintiffs have not alleged a
domestic injury. Rather, it is clear that the alleged injuries
were suffered in China. As the District Court noted, at all
relevant times, Plaintiffs lived in China; had their principal
place of business in China; provided services in China (albeit
to some American companies – but even they were operating
in China); entered the Consultancy Agreement in China and
agreed to have Chinese law govern it;98 met with Defendants’
95 See, e.g., Bascuñán, 874 F.3d at 824 (noting that “[a]
plaintiff’s residence may often be relevant—perhaps even
dispositive—in determining whether certain types of business
or property injuries constitute a domestic injury”); Dandong,
2017 WL 3328239, at *13–14 (considering a plethora of
factors to determine whether the alleged intangible injuries
constitute a domestic injury).
96 RJR Nabisco, 136 S. Ct. at 2108 (“Nothing in § 1964(c)
provides a clear indication that Congress intended to create a
private right of action for injuries suffered outside of the
United States.”).
97 See, e.g., Dandong, 2017 WL 3328239 at *13–14; Tatung
Co., Ltd., 217 F. Supp. 3d at 1155–56.
98 We recognize that our review of a motion to dismiss is
generally limited to the face of the complaint and documents
attached to it. However, we may consider the Consultancy
22
representatives only in China; and themselves indicated on the
civil cover sheet that the underlying incident arose in China.99
“[C]ompanies came to [ChinaWhys] when they sought to do
business in China.”100 Plaintiffs have not alleged that they
possess offices, assets, or any other property in the United
States. Thus, Plaintiffs have not alleged a domestic injury
pursuant to 18 U.S.C. § 1964(c), even though they do allege
loss of goodwill and some unidentified number of actual and
prospective U.S. customers.101 To the extent that these
intangible assets were injured, it is not enough to overcome the
Supreme Court’s caution against extraterritorial application of
domestic law in RJR Nabisco. Consequently, the District
Court correctly dismissed Plaintiffs’ RICO claims.
Dismissal of those claims is consistent with RJR
Nabisco’s policy considerations. As noted earlier, the
Supreme Court cautioned against the risks of “international
friction” associated with allowing foreign entities to “bypass”
potentially “less generous remedial schemes” available in their
home jurisdictions and pursue treble damages for injuries
suffered abroad through civil RICO actions in the United
States.102 Plaintiffs seek redress here for Defendants’ alleged
racketeering activity although Plaintiffs were prosecuted and
imprisoned in China. “Allowing [Plaintiff’s] RICO claims to
Agreement because Defendants attached the undisputed
document as an exhibit to its motion to dismiss and Plaintiffs
claims are based on the document. See Pension Ben. Guar.
Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d
Cir. 1993); see also Schuchardt, 839 F.3d 336, 343 (3d Cir.
2016) (“If . . . the defendant contests the pleaded
jurisdictional facts, “the court must permit the plaintiff to
respond with evidence supporting jurisdiction.” (citation and
internal quotation marks omitted).
99 Humphrey, 2017 WL 4347587, at *6 n.14.
100 Id. at *6.
101 It is unclear whether an allegation of harm to goodwill
constitutes a showing of “a concrete financial loss and not
mere injury to a valuable intangible property interest.” Maio,
221 F.3d at 483 (citation and internal quotation marks
omitted).
102 RJR Nabisco, 136 S. Ct. at 2106–07 (citation and internal
quotation marks omitted).
23
proceed under these circumstances would be at odds with the
Supreme Court’s directive that the need to enforce the
presumption against extraterritoriality is ‘at its apex’ when
remedies available in United States courts may conflict with
those available abroad.”103 Indeed, it would be odd to permit
Plaintiffs to seek civil redress for alleged harm arising from the
very crimes they were convicted of in China and that arose
from China’s application of its own criminal laws, absent
allegations that would give rise to a domestic injury in the
United States.
We realize that the Court of Appeals for the Seventh
Circuit rejected the analytical approach that we today adopt, in
Armada (Singapore) PTE Ltd. v. Amcol Int’l Corp.104 But we
do not find that analysis particularly helpful or persuasive here.
There, that court held that “a party experiences or sustains
injuries to its intangible property at its residence.”105 The
Armada plaintiff was a Singapore shipping company that
alleged that the Illinois-based defendant violated RICO by
thwarting the plaintiff’s attempt to recover on its breach of
contract claim. The court held, without much discussion, that
the plaintiff’s “principal place of business [was] in Singapore,
so any harm to [the plaintiff’s] intangible bundle of litigation
rights was suffered in Singapore.”106 It therefore concluded
that the “injury [was] not domestic, and [that the plaintiff had]
failed to plead a plausible claim under civil RICO.”107
Although the ease with which such a bright-line rule can
be applied gives it some surface appeal, we resist the
temptation to adopt it as the law of this circuit. While courts
have generally noted that a company suffers economic injuries
103 City of Almaty, 226 F. Supp. 3d at 287 (citing RJR
Nabisco, 136 S. Ct. at 2107).
104 885 F.3d 1090 (7th Cir. 2018).
105 Armada, 885 F.3d at 1094–95 (citing Kamel v. Hill-Rom
Co., Inc., 108 F.3d 799, 805 (7th Cir. 1997). Although we
reject the analytical framework used in Armada, we note that
it would not necessarily lead to a different result here because
Plaintiffs resided in China when Defendants are alleged to
have engaged in the conduct Plaintiffs rely upon for RICO
liability.
106 Id. at 1095.
107 Id.
24
at its principal place of business, few have done so in the
context of a RICO claim that would extend beyond the borders
of the United States. 108 Even fewer have done so where the
alleged conduct had an effect on intangible property. Although
a litigant’s residence or principal place of business is obviously
a relevant consideration, and perhaps a useful place to begin a
§ 1964(c) inquiry, it does not necessarily determine the
ultimate question of whether there has been a domestic injury.
It is merely one factor that informs our inquiry.
The Supreme Court anticipated that the RICO domestic
injury inquiry would not always be susceptible to easy
resolution. The Court explained that “[t]he application of [the
domestic injury rule] in any given case will not always be selfevident,
as disputes may arise as to whether a particular alleged
injury is ‘foreign’ or ‘domestic.’” 109 Moreover, we think the
Armada rule is too inflexible to be useful in resolving cases
where the nature of the injured property interest is not “selfevident.”
110
Armada’s residency-based rule also effectively
precludes all foreign plaintiffs alleging intangible injuries from
recovering under § 1964(c) regardless of their alleged
connection with the United States. “It cannot be the case that
the mere fact that a loss is economic means that foreign
corporations are unable to avail themselves of the protections
of civil RICO, even in cases where all of the actions causing
the injury took place in the United States.”111 There is no
evidence that Congress meant to so preclude foreign
corporations from the protection offered by § 1964(c) and
doing so conflicts with the Supreme Court’s recognition that
“Congress did not limit RICO to domestic enterprises.”112
We next address Plaintiffs’ contention that,
notwithstanding factors supporting a finding that the alleged
108 See, e.g., id. (collecting cases); see also Global Fin. Corp.
v. Triarc Corp., 715 N.E.2d 482, 485 (N.Y. 1999) (“When an
alleged injury is purely economic, the place of injury usually
is where the plaintiff resides and sustains the economic
impact of the loss.”).
109 RJR Nabisco, 136 S. Ct. at 2111.
110 Id.
111 Tatung Co., Ltd., 217 F. Supp. 3d at 1155.
112 RJR Nabisco, 136 S. Ct. at 2104.
25
injury was foreign, they have nonetheless alleged a domestic
injury because “the alleged underlying RICO conduct plainly
was both targeted at, and was intended to have substantial
effects in, the United States.”113 We disagree.
As we mentioned at the outset, a minority of courts have
suggested that a plaintiff can show that it has suffered a
domestic injury by merely pointing to misconduct that
occurred in, or was directed to, the United States. However,
those cases are also not helpful here and do not establish the
domestic injury that Plaintiffs claim. Plaintiffs contend
Akishev v. Kapustin114 relied on this so-called “location of the
injury-inducing conduct” test.115 The plaintiffs there were
citizens of multiple foreign countries who were fraudulently
induced to make online purchases of used cars from the
defendant’s U.S. dealership.116 The plaintiffs alleged no other
connection to the United States. The court found that the
location of the fraudulent conduct was an important factor in
determining whether there was a “domestic injury,” because
the case arose in the context of an online sale. The court
reasoned that “[i]f [the] plaintiffs [had] traveled to the United
States, went to the physical location of [the defendant’s]
purported car dealerships . . . chose a car, paid for it on the spot,
and arranged for the car to be shipped to Eastern Europe, [the]
plaintiffs would have suffered from a clear domestic injury
when [the defendant] failed to deliver the car and failed to
return plaintiffs their money.”117 The case may well be helpful
when allegations involve the tenaciously difficult question of
where misconduct in cyberspace occurs. However, it is of
limited assistance here.
We do note, however, that “the court [ultimately]
appeared to focus on where plaintiffs’ injuries were felt—i.e.,
on defendant’s United States-based website and, therefore, in
the United States.”118 To this extent, Akishev’s actual holding
relies on the “locus of effects” approach discussed above and
113 Plaintiffs’ Br. 35.
114 2016 WL 7165714 at *1 (D.N.J. Dec. 8, 2016).
115 Plaintiffs’ Br. 32–33.
116 Akishev, 2016 WL 7165714 at *7.
117 Id.
118 Cevdet Aksut Ogullari Koll. Sti, 245 F. 3d Supp. at 657
(citing Akishev, 2016 WL 7165714 at 8*).
26
does not itself compel the adoption of an approach that places
undue emphasis on the location of the alleged injury-inducing
misconduct.
Plaintiffs also rely on Tatung Co., Ltd. v. Shu Tze Hsu119
and claim that it emphasizes that the location of a defendant’s
conduct is important in determining whether a domestic injury
has been alleged. Even so viewed, Tatung does not support
Plaintiffs’ contention. The foreign plaintiff maintained a “hub”
of business in the United States and extended credit and
delivered goods to one of the defendants within the United
States.120 When the defendant defaulted on its credit
obligation, the plaintiff was awarded a judgment through
arbitration in California.121 The plaintiff subsequently alleged
a RICO conspiracy to siphon funds from the defendant’s
corporation and render it an empty shell in order to avoid the
judgment.122 The court found that RICO civil liability was
appropriate because “the defendants specifically targeted their
conduct at California with the aim of thwarting [the plaintiff’s]
rights in California.”123 The court found a domestic injury
because the plaintiff had a domestic judgment entitled to the
protection of United States law.124 The Tatung plaintiff also
maintained substantial business operations within the United
States and contractually availed itself of dispute resolution via
arbitration within the United States.125 Consequently, the
plaintiff in that case could plausibly argue that its United
States-based business was harmed by the defendants’ RICO
conduct and that it suffered a domestic injury because it felt the
impact of that injury within the United States.
Finally, Plaintiffs rely upon Union Commercial
Services. Ltd. v. FCA International Operations LLC’s
suggestion that a plaintiff could allege a domestic injury under
RICO by simply pointing to injurious conduct intended to
119 217 F. Supp. 3d 1138, 1155 (C.D. Cal. 2016).
120 Id. at 1155.
121 Id. at 1156.
122 Id. at 1158.
123 Id. at 1157.
124 Id. at 1156.
125 Id. at 1155–56.
27
produce effects in the United States.126 They contend that “the
alleged underlying RICO conduct [here] plainly was both
targeted at, and was intended to have substantial effects in, the
United States” because “[a] central goal of the alleged
racketeering conduct was to avoid detection and further
sanctions from U.S. regulators and criminal authorities . . . .”127
In Union Commercial, the court relied upon cases decided in
the context of antitrust law and concluded that courts must ask
“whether a defendant’s conduct is intended to or has produced
‘substantial effects’ in the United States.”128, 129 The court
found that the plaintiff suffered no “domestic injury” because
the “defendants’ alleged conduct was directed at, and any
effects were felt by, plaintiff’s business or property interests
outside of the United States.”130 Here again, even though the
court emphasized the nature of the defendant’s conduct, it
focused on the fact that the effects of the alleged harm were
felt outside the United States.
Given the numerous factors we have discussed that
converge to paint a picture of an injury in China and not in the
United States, the individual circumstances that Plaintiffs rely
on cannot establish a domestic injury.
IV.
For the foregoing reasons, we will affirm the judgment
of the District Court.
126 No. 16-CV-10925, 2016 WL 6650399, at *4 (E.D. Mich.
Nov. 10, 2016).
127 Plaintiffs’ Br. 35.
128 Union Commercial Servs. Ltd., 2016 WL 6650399 at *4.
129 RJR Nabisco observed that “[t]here is good reason not to
interpret § 1964(c) to cover foreign injuries just because the
Clayton Act[, a federal antitrust statute,] does so.” RJR
Nabisco, 136 S.Ct. at 2109. First, the Clayton Act explicitly
authorizes foreign entities to bring suit under the statute. Id.
Further, and as the Court described in F. Hoffmann-La Roche
Ltd. v. Empagran S.A., 542 U.S. 155 (2004), the Foreign
Trade Antitrust Improvements Act of 1982 excludes from the
reach of antitrust laws “most conduct that ‘causes only
foreign injury.’” RJR Nabisco, 136 S.Ct. at 2109 (citing
Empagran, 542 U.S. at 158).
130 Union Commercial Servs., 2016 WL 6650399, at *5.
Outcome: Affirmed
Plaintiff's Experts:
Defendant's Experts:
Comments: