#SCOTUS’s Other Arbitration Case: How RICO Can Enforce an Award
With the conflict resolution world’s U.S. Supreme Court focus last week on Coinbase v. Bielski (see Russ Bleemer & Cenadra Gopala-Foster, “Supreme Court: While a Denial of Arbitrability Is Appealed, a Stay of Litigation Is Mandatory,” CPR Speaks (June 23, 2023) (decision details available here), nearly lost in the shuffle was a RICO case that preceded it.
That earlier case involved an arbitration award--and it could affect the enforcement of awards down the road.
The June 22 decision in Yegiazaryan v. Smagin, No. 22–381 (decision available here), affirmed a U.S. Ninth Circuit Court of Appeal ruling that a foreign citizen can rely on the Racketeer Influenced and Corrupt Organizations (RICO) Act to enforce an international arbitration claim in U.S. courts.
It’s a pro-arbitration case in that it allows foreign citizens to challenge efforts to evade payment of arbitration awards in the United States through criminal activities.
SCOTUS respondent Vitaly Smagin, who lives in Russia, according to the 6-3 decision written by Justice Sonia Sotomayor, won an arbitration award in London against Ashot Yegiazaryan, a California resident, for the misappropriation of investment funds in a joint real estate venture in Moscow. Smagin subsequently filed suit in California’s Central District to enforce the award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, best known as the New York Convention.
Yegiazaryan, however, allegedly concealed his assets to frustrate Smagin’s collection on the California judgment. Smagin responded by filing a separate claim under RICO, which ultimately reached the nation’s top Court.
In order for RICO to apply extraterritorially--that is, to foreign plaintiffs--the claimant “must allege and prove a domestic injury to its business or property.” RJR Nabisco Inc. v. The European Community, 579 U.S. 325, 346 (2016) (available here). The Yegiazaryan opinion rejects the District Court's “rigid, residency-based approach to the domestic-injury inquiry” and instead agrees with the Ninth Circuit, which reversed, applying “a context-specific approach” in enforcing the arbitration award.
Specifically, in last week’s opinion Justice Sotomayor found it significant that Smagin’s alleged injury was “his inability to collect his [arbitration] judgment” and that much of the racketeering activity occurred in the United States, concealing funds to avoid the award. Although some of Yegiazaryan’s racketeering scheme took place abroad, the efforts were all directed toward evading the California judgment. Thus the court found a sufficient statement of domestic injury despite Smagin’s residency in Russia.
The majority opinion potentially makes RICO available for enforcement under the analysis applying domestic injury to the failure to collect an award.
Justice Sotomayor was joined by Chief Justice John G. Roberts Jr., and Justices Elena Kagan, Brett Kavanaugh, Amy Coney Barrett, and Ketanji Brown Jackson.
Justice Samuel A. Alito Jr. dissented, noting that the factors that would analyze a domestic injury for purposes of a civil RICO action were too vague. “This analysis offers virtually no guidance to lower courts, and it risks sowing confusion in our extraterritoriality precedents,” wrote Alito, who was joined in full by Justice Clarence Thomas and partially by Justice Neil M. Gorsuch.
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The author, a student at Harvard Law School in Cambridge, Mass., is a 2023 CPR Summer intern.