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From Antitrust Law Daily, July 7, 2015

“Nerve center” test for extraterritoriality of RICO held inapplicable

By Greg Hammond, J.D.

A shipping company successfully appealed the dismissal of its Racketeer Influenced and Corrupt Organizations Act (RICO) claim against a competitor. The U.S. Court of Appeals in San Francisco remanded the case to the district court, finding that the “nerve center” test was incorrectly applied and that the test to determine whether a RICO application is extraterritorial is to look at the pattern of defendants’ racketeering activity taken as a whole (Mitsui O.S.K., Ltd. v. SeaMaster Logistics, Inc., July 6, 2015, per curiam).

Shipping companies SeaMaster Logistics, Inc. and Toll Global Forwarding (Americas) Inc. (collectively, Summit US) have appealed a district court’s findings that the companies are liable for fraud and civil conspiracy and award of attorney fees to competitor Mitsui O.S.K., Ltd. Mitsui cross-appealed the lower court’s dismissal of Mitsui’s RICO claim and finding that Summit US is not liable for damages Mitsui sustained prior to Summit US joining the alleged conspiracy.

With regard to the RICO claim, the appellate court found that the lower court incorrectly applied a “nerve center” test when it dismissed Mitsui’s RICO claim, noting that the nerve center test was already explicitly rejected in this circuit. The proper test to determine whether a RICO application is extraterritorial is to look not upon the place where the deception originated, but at the pattern of defendants’ racketeering activity as a whole. Because the lower court made no specific findings concerning Summit US’ pattern of racketeering activity, the appellate court remanded the case to allow the trial court to make those findings.

Mitsui also argued that the lower court applied the wrong legal standard in finding that Summit US is not liable for damages Mitsui sustained before Summit US joined the conspiracy in 2008. The court rejected this argument, finding that the lower court applied the correct legal standard. It found that each shipment completed before Summit US joined the arrangement met all the elements of fraud and therefore constituted a completed, actionable tort. Further, Mitsui conceded this at oral argument. The lower court’s conclusion that Summit US cannot be held liable for fraud committed before Summit US joined the conspiracy was therefore affirmed.

With regard to Summit US’ appeal, the court concluded: (1) the district court properly concluded that Mitsui justifiably relied on the appellants’ misrepresentations because the misrepresentations were not preposterous or patently and obviously false; (2) the district court erred by awarding Mitsui more than it lost because there is no case that justifies conflating compensatory and punitive damages in the manner the lower court did; and (3) the trial court erred when awarding Mitsui attorney fees, because no contractual claim has been brought and recovery of non-contractual claim fees is unavailable. The lower court’s decision was therefore affirmed in part, reversed in part, and remanded.

The case numbers are 13-15848, 13-15941, and 13-16395.

Attorneys: Conte C. Cicala (Flynn, Delich & Wise LLP) for Mitsui O.S.K. Lines, Ltd. Eric Danoff (Emard Danoff Port Tamulski & Paetzold LLP) for SeaMaster Logistics, Inc. and Summit Logistics International, Inc.

Companies: Mitsui O.S.K. Lines, Ltd.; SeaMaster Logistics, Inc.; Summit Logistics International, Inc.; American Global Logistics, LLC

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