Norex Petroleum Ltd. v. Access Industries, Inc.

• Decision Date: 24 September 2007
• Docket Number: No. 02 Civ. 1499(LTS)(KNF).,02 Civ. 1499(LTS)(KNF).
• Citation: 540 F.Supp.2d 438
• Parties: NOREX PETROLEUM LTD., Plaintiff, v. ACCESS INDUSTRIES, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

540 F.Supp.2d 438

NOREX PETROLEUM LTD., Plaintiff, v. ACCESS INDUSTRIES, INC., et al., Defendants.

No. 02 Civ. 1499(LTS)(KNF).

United States District Court, S.D. New York.

September 24, 2007.

OPINION AND ORDER

LAURA TAYLOR SWAIN, District Judge.

This is a case involving alleged violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. section 1961, et seq., and of Russian law. Plaintiff contends that Defendants orchestrated a massive racketeering and money laundering scheme, the principal aspect of which was to take control of a substantial portion of the Russian oil industry, including Plaintiff's business, in violation of RICO. Defendants move to dismiss the First Amended Complaint (the "Am. Compl." or "the Complaint") in two sets of motion practice: a joint motion to dismiss the Complaint for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1), and motions by various subgroups of the Defendants to dismiss that Complaint on other grounds.

This Opinion addresses the joint motion seeking dismissal of the Complaint for lack of subject matter jurisdiction. The Court has considered thoroughly all arguments and submissions in connection with the instant motion. For the following reasons, Defendants' motion to dismiss the Complaint for lack of subject matter jurisdiction is granted in all respects.

BACKGROUND

Although the First Amended Complaint adds some new Defendants to this matter, the central factual allegations are the same as those in the original complaint and familiarity with the background of the facts in this matter, and its procedural posture, is presumed. See Norex Petroleum Ltd. v. Access Industries, Inc., 304 F.Supp.2d 570 (S.D.N.Y.2004), vacated and remanded by Norex Petroleum Ltd. v. Access Industries, Inc., 416 F.3d 146 (2d Cir.2005). The following brief summary will suffice here for context. Plaintiff Norex Petroleum Limited ("Norex") is organized under the laws of Cyprus, maintains a representative office in Calgary, Canada, and is owned by Appalachia Investments, Ltd., which is organized under the laws of California. (Am.Compl. ¶ 14.) Norex's beneficial owner is Alex Rotzang ("Rotzang"), a Canadian citizen. Norex alleges that the Defendants¹ are participants in a widespread racketeering and money laundering scheme (referred to by Norex as the "Illegal Scheme") whose principal purpose is to take over a substantial portion of the Russian oil industry through the use of Russian oil companies including Tyumen Oil Company ("TNK") and Yugraneft. (Id. ¶¶ 1, 4.) The Illegal Scheme also allegedly involved illegal participation by Americans who have been named as Defendants here in the Cuba "REZ" and Cuban "oil-for-sugar" programs and illegal participation by numerous Defendants in the Iraqi "oil-for-food" program. (Id. ¶¶ 212-226.)

Norex alleges that Defendants committed numerous offenses in the United States in furtherance of the Illegal Scheme that are acts of racketeering within the meaning of RICO, including mail and wire fraud, money laundering, Hobbs Act violations, Travel Act violations and bribery. (Id. ¶¶ 261-321.) In essence, Norex claims that, by means of this Illegal Scheme, it was deprived of its majority ownership stake in Yugraneft and of certain quantities of oil owed to it by Yugraneft and other Russian oil entities through a series of unlawful actions that included bribery of Russian governmental officials and corrupt Russian bankruptcy proceedings.

DISCUSSION

I. Motion to Dismiss Standard

Plaintiff, as the party asserting that the Court has subject matter jurisdiction, bears the burden of proving the Court's jurisdiction. FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231, 110 S.Ct. 596, 107 L.Ed.2d 603 (1990). A court determining a motion to dismiss for lack of subject matter jurisdiction must "accept as true all material factual allegations in the complaint," Shipping Fin. Serv. Corp. v. Drakos, 140 F.3d 129, 131 (2d Cir.1998) (internal citation omitted), but refrain from "drawing from the pleadings inferences favorable to the party asserting [jurisdiction]." Id.

II. Motion to Dismiss for Lack of Subject Matter Jurisdiction

A. Plaintiffs Preliminary Arguments Concerning Jurisdiction

In seeking dismissal of the Complaint for lack of subject matter jurisdiction, Defendants argue that RICO does not apply to Plaintiff's claims because the principal actions and events underlying Plaintiffs claim occurred outside of the United States. Plaintiff first counters by arguing that the issue of the extraterritorial application of a federal statute implicates the failure to state a claim, rather than subject matter jurisdiction. Plaintiff cites the recent Supreme Court decision in Arbaugh v. Y & H Corp., 546 U.S. 500, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006). In Arbaugh, the Court noted:

On the subject-matter jurisdiction/ingredient-of-claim-for-relief dichotomy, this Court and others have been less than meticulous. Subject matter jurisdiction in federal-question cases is sometimes erroneously conflated with a plaintiff's need and ability to prove the defendant bound by the federal law asserted as the predicate for relief — a merits — related determination.' ... Judicial opinions, the Second Circuit incisively observed, `often obscure the issue by stating that the court is dismissing `for lack of jurisdiction' when some threshold fact has not been established, without explicitly considering whether the dismissal should be for lack of subject matter jurisdiction or for failure to state a claim.'

. . .

In Arabian American Oil Co. [499 U.S. 244, 111 S.Ct. 1227, 113 L.Ed.2d 274 (1991)], we affirmed the judgment of the courts below that Title VII, as then composed, did not apply to a suit by a United States employee working abroad for a United States employer. That judgment had been placed under a lack of subject-matter jurisdiction label. We agreed with the lower courts' view of the limited geographical reach of the statute.... En passant, we copied the petitioners' characterizations of terms included in Title VII's "Definitions" section, 42 U.S.C. § 2000e, as "jurisdictional." ... But our decision did not turn on that characterization, and the parties did not cross swords over it.... In short, we were not prompted in Arabian American Oil Co. to home in on whether the dismissal had been properly based on the absence of subject-matter jurisdiction rather than on the plaintiffs failure to state a claim.

Id. at 1242-1243 (internal citations omitted).

Defendants, on the other hand, characterize Arbaugh, which held that Title VII's limited definition of covered "employer" implicated a merits, rather than a subject matter jurisdiction, issue, as a decision dealing with statutory construction, and assert that the opinion is thus inapplicable to the present matter.

The Second Circuit has not yet addressed the question of whether Arbaugh compels the treatment of issues relating to the extraterritorial reach of federal statutes as merits questions rather than ones going to subject matter jurisdiction. In a line of cases ending with North South Fin. Corp. v. Al-Turki, 100 F.3d 1046 (2d Cir. 1996), however, the Circuit characterized limits on RICO's extraterritorial application as constraints on district courts' subject-matter jurisdiction. This Court is "bound by the Court of Appeals' decisions until such time as they are directly overruled by that court or the Supreme Court." Ayyash v. Bank Al-Madina, No. 04 Civ. 9201(GEL), 2006 WL 587342, at n. 2 (S.D.N.Y. Mar. 9, 2006). Accordingly, the Court will apply the North South Finance approach in evaluating Defendants' arguments, treating the extraterritoriality issue as one that implicates subject matter jurisdiction.

Plaintiff next argues that, because almost all of the alleged predicate acts that form the pattern of racketeering activity upon which its RICO claim is premised were committed in the United States and the remaining predicate acts allegedly either were committed by Americans or were committed by non-Americans but had effects in the United States, the issue of extraterritoriality is not even presented here and there is no factual basis for questioning the Court's subject matter jurisdiction of its RICO claims.

Plaintiff relies on Alfadda v. Fenn, 935 F.2d 475 (2d Cir.1991), for support of its argument that it need only allege a pattern of racketeering activity in the United States in order to establish subject matter jurisdiction under RICO. This reliance is misplaced. As the Second Circuit remarked in North South Finance, the Alfadda Court was "concerned primarily with subject matter jurisdiction over the plaintiffs' securities fraud claims under the conduct test ... [and] [l]ittle additional analysis or discussion was needed to hold that subject matter jurisdiction existed over the RICO claims as well, since the securities fraud violations [that were central to the claimed injuries in that case] were predicate acts which occurred primarily in the United States." North South Finance, 100 F.3d at 1052, n. 7 (internal citations and quotation marks omitted). Indeed, the Second Circuit distinguished in North South Finance between "conduct that is merely preparatory to the fraud," which would not support RICO subject matter jurisdiction under the conduct test, and "conduct that is both material to the completion of the fraud and the direct cause of the alleged injury," which would. Id. at 1053. Thus, allegations of predicate RICO acts occurring in the United States are not always sufficient to support the exercise of jurisdiction² and the Court will address the question of whether RICO was intended to reach the extraterritorial conduct that is at issue in this case.

B. Extraterritorial Application of RICO

The Second Circuit has held that RICO's extraterritorial application is limited. In. North South Finance, the Second Circuit acknowledged that it has left open the question of...