Antitrust Law Daily Wrap Up, RICO—D. Md.: Extraterritorial application of RICO was improper against business process outsourcing consultant, (Oct 30, 2013)

By Jody Coultas, J.D.

The federal district court in Greenbelt, Maryland, has ruled held that the Racketeer Influenced and Corrupt Organizations (RICO) Act could not be applied extraterritorially in a case filed by Bhari Information Technology System Private Ltd. (BITECH) against a former consultant (Bhari Information Technology System Private Ltd. v. Sriram, October 28, 2013, Grimm, P.). Even if the court had applied RICO extraterritorially, BITECH failed to meet the applicable pleading standard.

The consultant owned Ram Pension Consultants, Inc. (RPC), a business process outsourcing (BPO) company that administers and manages 401-K and other pension plans. After the consultant sold RPC to BITECH, but continued to act as a consultant to RPC under BITECH. BITECH alleged that the consultant used telephone and email communications to divert contracts and business opportunities to other corporations.

To state a RICO claim under 18 U.S.C. § 1962(c), a plaintiff must allege conduct of an enterprise through a pattern of racketeering activity that affected interstate commerce.

Extraterritorial application. BITECH failed to allege sufficient contacts between the enterprise and the United States to support extraterritorial application of RICO, according to the court. Although the consultant had a connection to foreign non-party, which had a New York subsidiary, BITECH had not alleged any connection to this subsidiary other than that the subsidiary “presumably played a critical role.” BITECH also noted that RPC was an American company with American clients and that the money BITECH paid for RPC was deposited to an account in Maryland. However, the alleged instances of fraud and of diverting business, for purposes of RICO, occurred after the sale and wholly in India. That connection is too slim to support the extraterritorial application of RICO.

Rule 9(b). Because BITECH failed to meet the pleading standard of Federal Rule of Civil Procedure 9(b), the court dismissed the claim. BITECH alleged that the consultant engaged in a scheme to defraud by knowingly representing that he was working on behalf of BITECH by furthering the interests of RPC and falsely represented to BITECH that RPC had multiple long-term renewable contracts. BITECH also alleged two specific instances where the consultant allegedly used e-mail and phone in furtherance of his enterprise. However, BITECH did not allege the words or method of communication used, dates, or to whom the communications were made. To the extent that any communications were alleged, those acts occurred outside the statute of limitations.

The court also noted that it lacked subject matter jurisdiction over the claims. BITECH only invoked the court’s federal question jurisdiction and complete diversity did not exist because both parties were foreign.

The case is No. PWG-13-1480.

Attorneys: Nathan H. Seltzer (Latham and Watkins LLP) for Bhari Information Technology System Private Ltd. Vernon W. Johnson , III (Nixon Peabody LLP) for Komal Sriram.

Companies: Bhari Information Technology System Private Ltd.; Ram Pension Consultants, Inc.

Cases: RICO MarylandNews