In Yegiazaryan v. Smagin,599 U.S. ____ (2023), the U.S. Supreme Court held that a plaintiff alleges a “domestic injury” as mandated under RJR Nabisco, Inc. v. European Community for filing a private civil suit under the Racketeer Influenced and Corrupt Organizations Act (RICO) when the circumstances surrounding the injury indicate it arose in the United States.
Facts of the Case
Vitaly Smagin won a multimillion dollar arbitration award in 2014 against Ashot Yegiazaryan stemming from the misappropriation of investment funds in a joint real estate venture in Moscow. Because Yegiazaryan has lived in California since 2010, Smagin, who lives in Russia, filed suit to confirm and enforce the award in the Central District of California pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
The District Court initially froze Yegiazaryan’s California assets before finally entering judgment against him. The District Court also entered several post judgment orders barring Yegiazaryan and those acting at his direction from preventing collection on the judgment. While the action was ongoing, Yegiazaryan himself was awarded a multimillion dollar arbitration award in an unrelated matter and sought to avoid the District Court’s asset freeze by concealing the funds, which were ultimately transferred to a bank account with CMB Monaco.
In 2020, Smagin filed this civil suit under the Racketeer Influenced and Corrupt Organizations Act (RICO), which provides a private right of action to “[a]ny person injured in his business or property by reason of a violation of” RICO’s substantive provisions. In his suit, Smagin alleged Yegiazaryan and others worked together to frustrate Smagin’s collection on the California judgment through a pattern of wire fraud and other RICO predicate racketeering acts, including witness tampering and obstruction of justice.
The District Court dismissed the complaint on the ground that Smagin had failed to plead a “domestic injury” as required by RJR Nabisco, Inc. v. European Community, 579 U.S. 325 (2016), citing Smagin’s Russian residency. The Ninth Circuit Court of Appeals reversed. Rather than apply the lower court’s residency-based approach to the domestic-injury inquiry, the Ninth Circuit instead applied a context-specific approach and concluded that Smagin had pleaded a domestic injury because he had alleged that his efforts to execute on a California judgment in California against a California resident were foiled by a pattern of racketeering activity that largely occurred in California and was designed to subvert enforcement of the judgment there.
Supreme Court’s Decision
The Supreme Court affirmed. It held that a plaintiff alleges a domestic injury for purposes of §1964(c) when the circumstances surrounding the injury indicate it arose in the United States.
“[I]n assessing whether there is a domestic injury, courts should engage in a case-specific analysis that looks to the circumstances surrounding the injury,” Justice Sonia Sotomayor wrote on behalf of the six-member majority. “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 reaching its decision, the Supreme Court rejected a bright line residency rule. Instead, it agreed with Smagin and the Ninth Circuit that the domestic-injury inquiry is context specific and turns largely on the facts alleged in the complaint. According to the Court, RICO requires “a case-specific analysis that looks to the circumstances surrounding the injury” to business or property because its focus is not on the injury “in isolation, but as the product of racketeering activity.” As Justice Sotomayor explained:
Because of the contextual nature of the inquiry, no set of factors can capture the relevant considerations for all cases. RICO covers a wide range of predicate acts and is notoriously “expansive” in scope. Thus, depending on the allegations, what is relevant in one case to assessing where the injury arose may not be pertinent in another. While a bright-line rule would no doubt be easier to apply, fealty to the statute’s focus requires a more nuanced approach. The Supreme Court went on to find that Smagin was injured in the United States “because his ability to enforce a California judgment, confirming an international arbitration award, was impaired by racketeering activity that largely occurred in or was direct from and targeted at California.”