Academic journal article
By Mello, R. Davis
Vanderbilt Journal of Transnational Law , Vol. 44, No. 5
For years, the federal courts of appeals have borrowed heavily from securities law jurisprudence in developing a framework for analyzing claims under the Racketeer Influenced and Corrupt Organizations Act (RICO). Last year, in the case of Morrison v. National Australia Bank, the Supreme Court issued a ground-breaking opinion that rejected decades of lower court precedent related to the extraterritorial application of U.S. securities laws and reemphasized the vitality of the presumption against extraterritoriality. Because of the parallel development of securities law and RICO jurisprudence, Morrison will have significant consequences for the application of RICO in cases involving foreign defendants and criminal activity conducted overseas. In the immediate wake of Morrison, two lower courts issued opinions with differing interpretations of how to analyze extraterritoriality in the RICO context. This Note considers the evolution of judicial treatment of extraterritoriality in the securities law context, the fundamental principles of RICO jurisprudence, and the historical RICO jurisprudence regarding extraterritoriality. This Note then discusses the two approaches taken by the lower courts in light of Morrison before ultimately endorsing a third approach, which is both more doctrinally sound and more practically workable.
TABLE OF CONTENTS I. INTRODUCTION II. THE SECURITIES EXCHANGE ACT OF 1934 A. Pre-Morrison: Extraterritoriality and the Exchange Act of 1934 B. The Decision in Morrison III. THE RACKETEERING INFLUENCED AND CORRUPT ORGANIZATIONS ACT A. The RICO Statute B. Extraterritoriality and RICO: Pre-Morrison Jurisprudence C. Extraterritoriality and RICO: Post-Morrison Jurisprudence IV. ANALYZING THE POST-MORRISONRICO JURISPRUDENCE A. The Domestic Enterprises Approach of Cedeno B. The "Contacts" Approach of Norex V. A BETTER ALTERNATIVE A. The Need for a Third Alternative B. A Complete Pattern of Racketeering Activity in the United States VI. CONCLUSION
In light of the United States Supreme Court's recent decision in Morrison v. National Australia Bank, (1) lower courts have begun to reevaluate how they handle issues of extraterritorial application of the Racketeer Influenced and Corrupt Organizations Act (RICO). (2) Morrison arose under federal securities law, (3) but for decades courts have borrowed from securities law jurisprudence to address extraterritoriality issues under RICO. (4) After Morrison dramatically altered the jurisprudential landscape of extraterritoriality and the securities laws, (5) courts must now reconsider the extraterritorial reach of RICO.
In Morrison, the Supreme Court rejected decades of lower court precedent to hold that courts must look to where the relevant transaction occurred to determine whether a securities fraud claim could be brought in the United States under [section] 10(b) of the Securities Exchange Act of 1934 (Exchange Act). (6) Morrison involved a securities fraud claim brought against an Australian bank in connection with its mortgage servicing operations in the United States. (7) The bank's stock was not traded on U.S. exchanges. (8) The Court held that [section] 10(b) did not provide a cause of action "to foreign plaintiffs suing foreign and American defendants for misconduct in connection with securities traded on foreign exchanges." (9) The Court emphasized that absent "the affirmative intention of the Congress clearly expressed" to give a statute extraterritorial effect, courts must presume that legislation "is meant to apply only within the territorial jurisdiction of the United States." (10) The Court was careful to clarify that the claim in Morrison was not jurisdictionally barred but simply failed to state a claim under [section] 10(b) because the statute applies only to transactions in securities listed on domestic exchanges and domestic transactions in other securities. …