905 F.3d 694
3rd Cir.2018Background
- Plaintiffs Peter Humphrey and Yu Yingzeng co‑founded ChinaWhys, an investigations/consulting firm based and operating in China that sometimes served U.S. companies doing business in China.
- ChinaWhys contracted with GSK China to investigate a whistleblower; the Consultancy Agreement was negotiated and performed in China and governed by Chinese law with China arbitration clauses.
- Plaintiffs were arrested, convicted, imprisoned, and deported by Chinese authorities after GSK’s internal inquiries; GSK PLC later was fined by Chinese authorities and settled with the SEC; Plaintiffs allege their business and goodwill were destroyed by Defendants’ racketeering activity.
- Plaintiffs sued GSK PLC and GSK LLC in U.S. federal court under RICO § 1962(c)/(d) and pendent state claims; GSK moved to compel arbitration or dismiss for lack of subject‑matter jurisdiction/for failure to state a RICO claim based on extraterritoriality.
- The district court dismissed Plaintiffs’ RICO claims as alleging foreign (not domestic) injuries under the Supreme Court’s RJR Nabisco decision; Plaintiffs appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 1964(c) permits recovery for the injuries alleged | Humphrey: losses to business, goodwill, and U.S. contracts/customers constitute domestic injuries allowing RICO relief | GSK: Plaintiffs’ injuries are foreign because Plaintiffs lived, worked, contracted, and were harmed in China | Held: Injuries are foreign; § 1964(c) does not permit recovery here |
| Proper test to locate RICO injury (locus of effects vs. conduct‑focused vs. residence rule) | Humphrey: alleged targeting/effects on U.S. customers supports domestic injury | GSK: Plaintiffs’ residence, location of business, contracts, services, and arrest in China show injury was felt in China | Held: No single bright‑line rule; multi‑factor, effects‑focused inquiry applies; here factors point to China |
| Whether defendant’s conduct targeted or intended effects in the U.S. makes injury domestic | Humphrey: Defendants’ misconduct aimed to avoid U.S. enforcement and affected U.S. customers, so injury is domestic | GSK: Even if some conduct aimed at the U.S., the effects were felt in China and therefore foreign | Held: Targeting alone insufficient; must show injury was suffered in the U.S.; Plaintiffs failed to do so |
| Standard of review / procedural posture (jurisdiction vs. merits) | Humphrey: invoked federal forum and RICO remedy | GSK: challenged jurisdiction and moved to dismiss | Held: Treated as Rule 12(b)(6) failure to state a claim (statutory standing), not Article III jurisdictional defect |
Key Cases Cited
- RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090 (2016) (RICO can reach extraterritorial conduct but § 1964(c) allows suit only for domestic injuries)
- Turkette, 452 U.S. 576 (1981) (definition of a RICO enterprise separate from pattern of activity)
- Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479 (1985) (elements of a § 1962(c) RICO claim)
- Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659 (2013) (presumption against extraterritoriality in federal statutes)
- Bascuñán v. Elsaca, 874 F.3d 806 (2d Cir. 2017) (foreign plaintiff may allege domestic RICO injury; analyze location by type of injury)
- Elsevier Inc. v. Grossman, 199 F. Supp. 3d 768 (S.D.N.Y. 2016) (for business injuries courts should ask where substantial negative business consequences occurred)
- Maio v. Aetna, Inc., 221 F.3d 472 (3d Cir. 2000) (pleading standards and civil RICO standing as failure to state a claim)
- United States v. John‑Baptiste, 747 F.3d 186 (3d Cir. 2014) (discussion of RICO conspiracy and elements)