The World in U.S. Courts: Spring 2017 - Racketeer Influenced and Corrupt Organizations Act (RICO)
March.20.2017
The plaintiff Helga Glock was formerly married to the defendant Gaston Glock, Sr., the founder of the Glock handgun business, Glock Ges.m.b.H., an Austrian company. Mrs. Glock originally owned 15% of the company, but transferred shares representing all but 1% of the company to an Austrian foundation. She brought this RICO claim against her former husband and various US and Austrian individuals and entities, claiming that a series of corporate maneuvers and sham transactions injured her by (i) eliminating her (and her children with Gaston) as beneficiaries of the foundation, and (ii) artificially depressing the value of the 1% of the company that she retained. Much of the alleged wrongdoing involved the company’s US subsidiary.
The defendants sought to dismiss the complaint, arguing that Mrs. Glock had not alleged a US “domestic injury” as required for private RICO actions by the US Supreme Court’s decision in the RJR Nabisco case. The Court initially noted that the Supreme Court in RJR Nabisco had not provided guidance as to how to assess the location where an injury occurred for purposes of determining whether a RICO claim could proceed. It observed that lower courts seeking to apply the standard had employed at least two different tests for doing so—one that looked to the location of the plaintiff, and one that sought to determine where the defendants had “targeted” their activities. Although concluding that the RJR Nabisco opinion found that an injury occurred where it was “suffered,” the Court did not choose between the alternative formulations it cited because both pointed to Austria, the place where Mrs. Glock lived and where the Glock company was based. Under this approach, the fact that much of the alleged wrongdoing occurred in the US was thus irrelevant. The Court also rejected the use of the geographical injury test employed in the antitrust laws for RICO claims. Finding no US “domestic injury,” the Court dismissed the RICO claim.
[Editor’s note: The “domestic injury” requirement for a private right of action under RICO was recently the subject of an article by editors of The World in US Courts, which may be found here. The article points out that none of the cases that had then sought to interpret the RJR Nabisco “domestic injury” requirement appeared to follow the methodology required by that case. Glock adds to that record.]