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Southern District of Florida Holds Morrison v. Nat'l Australia Bank Not Limited to Exchange Act, Also Bars RICO Claims

In the recently-issued decision of Sorota v. Sosa, No. 11-80897-Civ, ---- F. Supp. 2d ----, 2012 WL 313530 (S.D. Fla. Jan. 31, 2012), the United States District Court for the Southern District of Florida held that Morrison v. Nat’l Australia Bank, Ltd., 130 S.Ct. 2869 (2010), extends beyond just Exchange Act cases, noting that in Morrison the Supreme Court reaffirmed the long-standing principle that “[w]hen a statute gives no clear indication of an extraterritorial application, it has none.” 2012 WL 313530 at *2 (quoting Morrison, 130 S. Ct. at 2878). The court also concluded that Morrison had “undermined” the Eleventh Circuit’s pre-Morrison holding in Liquidation Comm’n of Banco Intercontinental, S.A. v. Renta, 530 F.3d 1339 (11th Cir. 2008), which had held that the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”) statute may apply to regulate foreign conduct “to the point of abrogation.” After finding that the Sorota plaintiff’s RICO claim was an impermissible attempt to apply RICO extraterritorially, the court dismissed the RICO claim with prejudice. This decision serves to demonstrate that Morrison extends beyond the Exchange Act context and can apply to other statutory actions as well.

In Sorota, the plaintiff alleged that the defendant violated RICO by inducing the plaintiff to wire money on at least 18 occasions from Florida to Peru for the ostensible purpose of operating a Peruvian telephone start-up company. The plaintiff claimed that rather than using the money for operating the Peruvian company, the defendant instead misappropriated the majority of the money for his own personal use in Florida and Peru. The plaintiff also alleged that the defendant had created several other Peruvian companies the purpose of which was to take over the Peruvian start-up company’s property and money for the defendant’s sole benefit. Based upon these allegations, the plaintiff brought a civil RICO claim, asserting that, by repeatedly inducing the plaintiff to wire money to Peru with fraudulent intent, the defendant engaged in a pattern of racketeering activity punishable under RICO.

The defendant, Steven Sosa, represented by Patricia A. Leonard and Gerardo J. Rodriguez-Albizu of Greenberg Traurig in West Palm Beach, Florida, moved to dismiss the plaintiff’s RICO claim with prejudice, based on the Morrison decision, as an impermissible attempt to apply a domestic statute extraterritorially. The court noted that, although the claim in Morrison involved an alleged violation of § 10(b) of the Securities and Exchange Act of 1934, the same reasoning applied in the RICO context. Specifically, the Morrison court reaffirmed the long-standing principle that unless Congress clearly expresses otherwise, a statute applies only to the regulation of domestic, as opposed to foreign, conduct.

Sosa argued that since RICO is silent as to any extraterritorial application (like the Exchange Act), RICO has no such application. Judge Williams agreed, and noted that every court to have considered this same argument after Morrison in circuits outside of the Eleventh Circuit had embraced it. Although the Eleventh Circuit’s Renta opinion had held, pre-Morrison, that RICO may apply extraterritorially, Judge Williams agreed with Sosa’s arguments that the Renta decision, with respect to the extraterritorial application of RICO, was “undermined to the point of abrogation” following Morrison.

Judge Williams then examined the plaintiff’s RICO allegations to determine whether the plaintiff’s RICO claim sought to impermissibly apply RICO extraterritorially. Based upon Morrison’s dictate that a court must look to the statute’s “focus” and compare that with the allegations contained in the plaintiff’s complaint, the defendant argued that RICO’s “focus” is on how a pattern of racketeering activity impacts an enterprise. The court agreed that the focus of RICO was on the enterprise itself.

Judge Williams rejected the plaintiff’s argument that his RICO claim was not an attempt to impermissibly apply RICO extraterritorially because the underlying predicate acts of wire fraud involved wire transactions which originated in U.S. banks. Instead, the court reiterated that RICO’s “focus” is not on the predicate acts themselves — indeed, each predicate act itself is individually criminalized — but rather RICO’s “focus” is on the enterprise as the recipient of, and cover for, a pattern of racketeering activity.

Because the enterprise alleged by the plaintiff was comprised of an association-in-fact of four actors, all of whom were based in Peru, Judge Williams concluded that the plaintiff’s RICO claim was an impermissible attempt to apply RICO extraterritorially. Accordingly, the court dismissed the plaintiff’s RICO claim with prejudice.

The Sorota decision effectively changes the law in the Eleventh Circuit with respect to the application of the RICO statute in attempts to regulate foreign conduct. No longer should the courts look to whether conduct material to the RICO claim occurred in the United States or whether significant effects of the RICO activities were felt in the United States, as the Eleventh Circuit previously held in Renta. Rather, Sorota creates a bright-line rule: RICO applies to regulate the conduct of only domestically-based RICO enterprises. The decision also reaffirms that Morrison’s teachings extend beyond the § 10(b) Exchange Act context and applies in all cases and as to all U.S. statutes.

©2021 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume II, Number 41
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