Jurisdictional Power of the Racketeer Influenced and Corrupt Organizations Act (RICO)

December 03, 2007 | By: Olivier A. Taillieu, Esq.

With the venue provision of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Section 1965, Congress intended to provide an avenue for trying all alleged participants of a conspiracy in one forum - nationwide service of process.¹ Whether and how the statute accomplishes this goal is, of course, the subject of much litigation and confusion.  The Supreme Court has never definitively interpreted this section of the statute, leaving the lower courts in a state of disarray.

The key question is which clause of Section 1965 allows for nationwide service of process.  Though it might seem academic - what difference does it make which section spells out the rule so long as the statute allows nationwide service of process? - the question is vitally important to determining personal jurisdiction over RICO defendants:  read one way, the grant of nationwide service of process also confers nationwide personal jurisdiction, while the other reading places limits on the court’s exercise of personal jurisdiction over non-resident RICO defendants.  The competing readings also create a split as to whether a defendant served via nationwide process must still have minimum contacts with the forum or if only contacts with the United States as a whole are required.

In an attempt to sort through the issue, this article addresses the following questions: (1) does Section 1965 provide for nationwide service of process, and, if so, which section of the statute authorizes it?  (2) If nationwide service of process is permitted, are there any limits placed on it?  (3) Assuming nationwide service of process is allowed, does the statute automatically confer personal jurisdiction through minimum contacts with the United States, or must defendants still have minimum contacts with the forum?

Which Part of the Statute Governs?

Courts generally agree that the RICO statute authorizes nationwide service of process in some fashion.² Some courts rely on Section 1965 (d) to support that decision, while the others have ruled that subsection (b) authorizes nationwide service.  The statute reads as follows:

(a) Any civil action or proceeding under this chapter against any person may be instituted in the district court of the United States for any district in which such person resides, is found, has an agent, or transacts his affairs.³

(b) In any action under section 1964 of this chapter in any district court of the United States in which it is shown that the ends of justice require that other parties residing in any other district be brought before the court, the court may cause such parties to be summoned, and process for that purpose may be served in any judicial district of the United States by the marshal thereof.

(c) In any civil or criminal action or proceeding instituted by the United States under this chapter in the district court of the United States for any judicial district, subpoenas issued by such court to compel the attendance of witnesses may be served in any other judicial district, except that in any civil action or proceeding no such subpoena shall be issued for service upon any individual who resides in another district at a place more than one hundred miles from the place at which such court is held without approval given by a judge of such court upon a showing of good cause.

(d) All other process in any action or proceeding under this chapter may be served on any person in any judicial district in which such person resides, is found, has an agent, or transacts his affairs.

The majority of courts have ruled that subsection (b) is the basis for nationwide service of process, while subsection (d) is a venue provision.⁴ The Second Circuit, in PT United Can Co.⁵, was the first court to do a close reading of the statute and to interpret each of the four subsections in relation to the others.  When read “sequentially,”⁶ the court held, the statute “gives coherent effect to all sections of Section 1965, and effectively provides for all eventualities without rendering any of the sections duplicative, without impeding RICO actions and without unnecessarily burdening parties.”⁷ The Second Circuit interpreted - and the majority of courts have since agreed - the meaning of the sections as follows:

(a) Section1965(a) sets venue so that “a civil RICO action can only be brought where personal jurisdiction based on minimum contacts is established as to at least one defendant.”⁸

(b) for other parties not residing in the district, Section 1965(b) provides for nationwide service and jurisdiction, subject to a showing that “the ends of justice” so require.⁹

(c) subsection (c) governs service of subpoenas on witnesses.

(d) Since (a) and (b) relate to serving a summons on a defendant and (c) concerns subpoena of a witness, the reference in subsection (d) to all “other process” means everything that is neither a summons of a defendant nor a subpoena of a witness.¹⁰

A recent Tenth Circuit decision, Cory v. Aztec Steel Building, Inc.¹¹, noted that not only did this reading make sense, but it also was consistent with congressional intent:

In its report on the Organized Crime Control Act of 1970, which gave birth to RICO, the House Judiciary Committee declared that “[s]ubsection (b) provides nationwide service of process ... in actions under section 1964” ... and that “[s]ubsection (d) provides ... all other process in actions under the [entire RICO] chapter.”¹²

This “sequential” reading shows that subsection (d) means something other than that already stated in the previous sections.

The subsection (d) theory, on the other hand, is the minority position, supported only by the Fourth and Eleventh Circuits¹³.  Neither court offered much analysis to explain this position, but a number of district courts have since clarified:  they reason that subsection (b) “is implicated only when venue is proper as to at least one defendant but challenged as improper by another.”¹⁴ For all others - any defendants who do not challenge venue - subsection (d) would provide the basis for personal jurisdiction through nationwide service of process.¹⁵

One of the few commentators to have addressed the issue, and who supports the (d) reading, explains it like this:

(a) the first subsection does not authorize process, but expands venue from rule 4’s provisions;

(b) subsection (b) grants national service of process if at least one defendant is within the court’s jurisdiction and “ends of justice” allow it;

(c) subsection (c) authorizes subpoenas over witnesses; and

(d) finally, subsection (d) authorizes service of process on defendants generally; “all other process” means service of process on defendants where no other defendant is properly within the court’s jurisdiction, but process can only be served in a judicial district where venue could have been appropriate under subsection (a).¹⁶

Subsection (d) in this reading can only authorize nationwide service of process because proponents believe a RICO action may be brought in a district where no defendant has minimum contacts with the forum.  This leaves virtually no limits on service of process.

Limitations on Nationwide Service of Process Under Section 1965(b)

Where subsection (b) is the statutory basis for the exercise of personal jurisdiction, as opposed to subsection (d), there are limitations on the exercise of personal jurisdiction.  First, personal jurisdiction over at least one RICO defendant must be established via a typical minimum contacts analysis.  Unlike the subsection (d) school, this branch reads subsection (a) and (b) together to limit filing a RICO action to a jurisdiction where at least one defendant is subject to personal jurisdiction.  Even once the court has jurisdiction over that initial defendant, nationwide service of process and personal jurisdiction over the others may only be exercised where the ends of justice require. “[M]erely naming person in a RICO complaint does not, in itself, make them subject to section 1965(b)’s nationwide service provisions.”¹⁷

Congress did not define “ends of justice,” leaving the courts to determine the contours of this limitation on nationwide service of process.  The prevailing test for “ends of justice” has been whether all the defendants are amenable to suit in another forum; if so, the “ends of justice” do not require exercising personal jurisdiction over all the defendants.  There is general agreement that it is the plaintiff’s burden to show the ends of justice require the exercise of personal jurisdiction.¹⁸

At least one court has rejected this test, however, deeming it too restrictive.  The Cory court held that while it might promote judicial economy, “it also might mean that some RICO violations would go unpunished whenever organized criminals operate within the same locale and cause harm in a distant state.” The financial difficulties may be too much for a victim in one forum to have to litigate in another.

Still, neither the Cory court, nor the court in Brown v. Kerkhoff¹⁹, which also rejected the test, offered an alternative.  In Cory, the court simply determined that the facts of that case did not satisfy the “ends of justice” standard.  The court stated that it “need not ... offer a competing definition, as the ‘ends of justice’ is a flexible concept uniquely tailored to the facts of each case²⁰.  The Brown court examined the facts of the case under both tests - the Butcher’s Union standard and the flexible approach advocated by Cory - and determined that neither supported a finding that the ends of justice required it to exercise jurisdiction over non-resident defendants.²¹

Minimum Contacts with the Forum or the United States?

The last issue is whether a defendant must have minimum contacts with the forum or with the United States as a whole.  Where subsection (b) is considered the governing section, the courts have performed a minimum contacts with the forum analysis, to determine if there is jurisdiction over at least one defendant.²² This follows the reading of subsection (a) as requiring at least one defendant to be subject to personal jurisdiction in that forum.

Generally, where courts have used subsection (d) as the basis for finding personal jurisdiction, a “national contacts” test has been considered sufficient.²³ As one court explained it, subsection (d) requires only a “showing that a defendant has contacts with the United States.  Minimum contacts with the forum state, as required under the traditional long-arm jurisdictional analysis, is not necessary.”²⁴ Because process may be served anywhere in the nation, the defendant need only have contacts anywhere in the nation for jurisdiction to be appropriate.

The “national contacts’ tests, however, has been criticized as being violative of the fairness and liberty requirements of the due process clause.  For example, Judge Garza of the Fifth Circuit strongly disagreed with his colleagues, who held that where a federal statute provides for nationwide service of process, the “relevant inquiry is whether the defendant has had minimum contacts with the United States.”²⁵ Judge Garza disagreed, arguing instead that the national contacts test violated the due process clause:

Because the personal jurisdiction requirement is a function of the individual liberty interest, the proper focus for a personal jurisdiction test should be on protecting an individual’s liberty interest in avoiding the burdens of litigating in a distant or inconvenient forum.  Requiring that the individual defendant in a national service of process case only reside somewhere in the United States does not protect this interest.²⁶

Similarly, one commentator has argued that the national contacts test runs counter to the fairness requirement the Supreme Court established in International Shoe.²⁷ He notes that though the Supreme Court has never specifically ruled on how the minimum contacts test should be applied where a federal statute authorizes national service of process, courts have taken guidance from Justice Stewart’s dissent from Stafford v. Briggs, in which he reasoned that though the International Shoe minimum contacts test would apply where a federal statute provides for nationwide service of process, the contacts need only be between the defendant and the “sovereign that has created the court.”²⁸

The fairness component of the due process analysis is satisfied, according to Justice Stewart’s reading, by the fairness “of the exercise of personal jurisdiction by a particular sovereign, rather than the fairness to the defendant of litigating in a distant forum.”²⁹ Whether this actually comports with International Shoe is questionable.  “[T]he more persuasive conclusion is that fairness is a necessary due process consideration even where nationwide service of process is statutorily authorized.”³⁰

Thus, courts are split on precisely which clause gives RICO it’s jurisdictional power over defendants. While the majority of courts have relied on subsection (b) and placed limits on the statute’s power, other courts have elected to use subsection (d), giving courts more breadth is summoning out-of-state defendants. Although such a liberal reading implicates due process concerns, the Supreme Court has yet to weigh in, leaving the controversy thus far unresolved.

¹ Butcher’s Union Local No. 498 v. SDC Inv., Inc., 788 F.2d 535 (9th Cir. 1986); Brown v. Kerkhoff, No. 4:06-cv-00342-JEG, 2007 WL 2481422 (S.D. Iowa Aug. 23, 2007); Katulla v. Jade, No. 5:07-CV-52, 2007 WL 1695669 (W.D. Ky. June 8, 2007).

² E.g., Cory v. Aztec Steel Bldg., Inc., 468 F.3d 1226, 1231 (10th Cir. 2006) ("Where a civil RICO action is brought in a district court where personal jurisdiction can be established over at least one defendant, summonses can be served nationwide on other defendants if required by the ends of justice."); PT United Can Co. LTD. v. Crown Cork & Seal Co., Inc., 138 F.3d 65, 71 (2d Cir. 1998) (nationwide service of process over “other parties” where “ends of justice” require); Butcher’s Union., 788 F.2d at 538-39 (same).

³ 18 U.S.C. Section 1965.

⁴ E.g., Multi-Media Int’l, LLC v. Promag Retail Serv., LLC, 343 F. Supp. 2d 1024, 1030 (D. Kan. 2004) (citing numerous other cases to have followed majority position); Hawkins v. Upjohn Co., 890 F. Supp. 601, 606 & n. 8 (E.D. Tex. 1994) (relying on (b) because other reading is “contrary to the plain meaning of the words used")

⁵ PT United Can Co. v. Crown Cork & Seal Co., Inc., 138 F.3d 65 (2d Cir. 1998).

⁶ Id. at 72.

⁷ PT United, 138 F.3d at 72.

⁸ Id. at 71.

⁹ Id.

¹⁰ Id.

¹¹ 468 F.3d 1226 (10th Cir. 2006).

¹² Id. at 1231 (quoting H.R. Rep.. No. 91-1549, reprinted in 1970 U.S.C.C.A.N. 4007, 4034).

¹³ Republic of Panama v. BCCI Holdings (Luxembourg) S.A., 119 F.3d 935, 942 (11th Cir. 1997); ESAB Group, Inc. v. Centricut, Inc., 126 F.3d 617, 627 (4th Cir. 1997).

¹⁴ Brown v. Kerkhoff, No. 4:06-cv-00342-JEG, 2007 WL 2481422, *16 (S.D. Iowa Aug. 23, 2007) (reviewing other cases and choosing (b) as support for limited nationwide service of process)

¹⁵ Id. (discussing BankAtlantic v. Coast to Coast Contractors, Inc., 947 F. Supp. 480, 485 (S.D. Fla. 1996)).

¹⁶ Benjamin Rolf, The “Ends of Justice” Revised: How to Interpret RICO’s Procedural Provision, 18 U.S.C. Section 1965, 80 Notre Dame L. Rev. 1225, 1231-32 (2005).

¹⁷ Butcher’s Union, 788 F.2d at 539.

¹⁸ E.g., Kattula v. Jade, No. 5:07-CV-52, 2007 WL 1695669 at *3 (W.D. Ky. June 8, 2007) ("Plaintiffs bear the burden of showing that the ends of justice require the exercise of nationwide service of process for personal jurisdiction purposes.")

¹⁹ Brown, 2007 WL 2481422 at *20-21.

²⁰ Cory, 468 F.3d at 1232.

²¹ Brown, 2007 WL 2481422 at *21 (relying instead on plaintiff’s failure to show any way ends of justice would be served).

²² E.g., Hawkins, 890 F. Supp. at 606-07 (must determine whether Texas long-arm statute reaches one of the RICO defendants).

²³ E.g., Gatz v. Ponsoldt, 271 F. Supp. 2d 1143, 1153 (D. Neb. 2003) ("It is clear that each of these defendants has sufficient contacts with the United States to support this court’s exercise of personal jurisdiction over them."); Herbstein v. Bruetman, 768 F. Supp. 79, 81 (S.D.N.Y. 1991) ("[T]he jurisdictional inquiry focuses on the defendant’s contacts with the United States, not just the forum state.")

²⁴ Dooley v. United Tech. Corp., 786 F. Supp. 65, 70-71 (D.D.C. 1992).

²⁵ Busch v. Buchman, Buchman & O’Brien, Law Firm, 11 F.3d 1255, 1258 (5th Cir. 1994) (addressing Securities Exchange Act of 1934, not RICO)

²⁶ Id at 1259-60 (Garza, J., dissenting) (internal footnotes omitted).

²⁷ Jon Heller, Pendent Personal Jurisdiction and Nationwide Service of Process, 64 N.Y.U. L. Rev. 113, 126-28 (1989).

²⁸ 444 U.S. 527, 553 (1980) (Stewart, J., dissenting).

²⁹ Heller, Pendent Personal Jurisdiction, 64 N.Y.U. L. Rev. at 127.

³⁰ Id. at 128.

* The author, Olivier A. Taillieu, Esq., is a partner in the litigation department of Zuber & Taillieu LLP.

** This article is for informational purposes only.  This article does not constitute legal advice and, in the absence of a fully executed retainer agreement, no attorney-client relationship exists between its reader and Zuber & Taillieu LLP or any of its attorneys.  For more information, please read our disclaimer.

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