The facts are messy. The certiorari petition in the Yegiazaryan case states:
Petitioner Ashot Yegiazaryan (“Yegiazaryan”) is a former Russian politician and businessperson who, until 2010, lived in Russia. . . . Yegiazaryan fled Russia after the Russian government accused him of fraud. .... He now resides in Los Angeles. . . . Respondent Vitaly Smagin (“Smagin”) is a Russian citizen who has lived, at all relevant times, in Russia. . . .
This case traces back to a dispute between Yegiazaryan and Smagin concerning investments in “Europark,” a multi-functional real-estate complex in Moscow. .... In 2003, Smagin and Yegiazaryan jointly invested in the Europark project, but the joint venture disintegrated a few years. . . . In 2010, Smagin commenced an arbitration against Yegiazaryan in the London Court of International Arbitration seeking to recover his claimed investment in Europark. . . . [I]n 2014, a three-arbitrator panel awarded Smagin $84 million (the “London Award”). . . .
That same year, Smagin sought to enforce the London Award against Yegiazaryan through the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958 (the “New York Convention”) . . . by filing suit in the United States District Court for the Central District of California, where Yegiazaryan resides. . . . That court eventually confirmed the London Award and entered judgment against Yegiazaryan for $92 million (the “California Judgment”).<./p>
About a year later, in May 2015, Yegiazaryan was awarded $198 million in an unrelated arbitration he launched against Suleymon Kerimov, a Russian businessperson (the “Kerimov Award”).
Smagin alleges that, after Yegiazaryan received the Kerimov Award, Yegiazaryan sought to avoid the orders of the Central District of California and to frustrate Smagin’s effort to collect on the California Judgment. . . . Smagin claims, for instance, that Yegiazaryan channeled the Kerimov Award through his London attorneys; set up holding entities in foreign locales like Lichtenstein and Nevis to house his recoveries; and colluded with associates to file fraudulent suits against Yegiazaryan in Europe and elsewhere, in order to compete with Smagin’s efforts to collect on the California Judgment in the United States. These allegations would form the backbone of this case—Smagin’s federal RICO complaint.
Smagin is seeking to employ a civil RICO claim in a novel effort to de facto enforce the LCIA arbitration award, multiplied by treble damages. If he ultimately succeeds in winning his RICO lawsuit, he will then hold rights under the arbitration award, rights under the U.S. federal judgment confirming that award, and rights under another U.S. federal court judgment awarding treble RICO damages for interfering with enforcement of the LCIA award and the U.S. federal court judgment that confirmed it.
Readers should be aware, though, that RICO claims are easy to allege but notoriously difficult to prove. A successful civil RICO claim requires proof by a preponderance of the evidence of one of the following predicate offenses.
- Section 1962(a) prohibits a person from investing in an enterprise any income derived from a pattern of racketeering activity.
- Section 1962(b) prohibits a person from using a pattern of racketeering activity to acquire or maintain control over an enterprise.
- Section 1962(c) prohibits a person from conducting the affairs of an enterprise through a pattern of racketeering.
- Section 1962(d) prohibits a person from conspiring to violate §§ 1962(a), (b), or (c).
Proof of "a pattern of racketeering activity” is an element common to all of RICO’s prohibitions. Congress has defined “racketeering activity” to include a variety of state and federal predicate crimes. Importantly, the RICO Act is not violated by a single, short-term episode of “racketeering.” Rather, there must be a “pattern” of racketeering activity—meaning long-term, organized conduct.
If the Supreme Court holds in the Smagin cases that intangible property can support a civil RICO claim, then such property could include court judgments and arbitration awards like those at issue, and perhaps even contract and intellectual property rights. That would be a very important ruling confirming a broad civil RICO scope. That result also would be significant for the arbitration and litigation communities. At a minimum, the threat of a treble damages judgment might influence settlement discussions.
Under existing U.S. Supreme Court jurisprudence, the claim must be “domestic” in nature to permit a RICO action to proceed. That is the second issue presented in the Smagin cases. Holding that the Smagin dispute is "domestic" might embolden more international award holders to bring enforcement proceedings in U.S. courts, but probably only at the margins. Having assets subject to U.S. jurisdiction would still, of course, be the primary motive for such an enforcement action. If the assets available for enforcement lie outside U.S. jurisdiction, many foreign courts have been reluctant to enforce U.S. judgments that involve treble damages, most famously in the antitrust context.
The "domestic" vs "foreign" test will in any event always depend on the particular factual circumstances. The Supreme Court's explanation of that test in its eventual Smagin ruling, though, should tilt the analysis one way or another in future disputes.
It would not be surprising if the Supreme Court held that civil RICO claims encompass intangible property. Consistent Supreme Court "takings" jurisprudence under the Fifth Amendment has held that the obligation to compensate for a taking of "private property" extends to intangible property such as judgments, contract rights, patent rights and trade secrets too. This rationale might be applied to RICO claims.
However, the Court might also conclude that the facts of the Smagin dispute are impermissibly extraterritorial and thus outside RICO Act jurisdiction.
Given the timing of the grant of the certiorari petition in mid-January, it is not yet clear whether oral argument will occur and whether the case be decided by the end of the current Supreme Court term around June or will be held over for the next term commencing in October.