On June 22, 2023, in Ashot Yegiazaryan, aka Ashot Egiazaryan v. Vitaly Ivanovich Smagin, et al., the United States Supreme Court held that the determination of whether a nonresident plaintiff suffered a domestic injury for the purposes of bringing a civil claim under the Racketeering Influenced and Corrupt Organizations Act (“RICO”) turned on the location towards which the injurious actions were directed, even though the actions causing the injury largely took place outside the U.S. and the victim was a Russian national. The case involved Defendant’s attempt to foil enforcement of a foreign arbitral award in California by moving assets to a series of offshore entities. This decision resolves a split between the Third and Ninth Circuits on the one hand and the Seventh Circuit on the other, the latter of which applied a strict domestic residency requirement for RICO injuries to intangible property. In so holding, the Supreme Court found that the question of “domesticity” required a fact-intensive inquiry, focused not just on the question of residency or locus of action but also on the totality of the circumstances involved.

In 2014, Vitaly Smagin (“Smagin”) obtained an $84 million arbitral award against Ashot Yegiazaryan (“Yegiazaryan”).[1] To collect, Smagin filed an enforcement action in the Central District Court of California under the New York Convention on the Recognition and Enforcement of Arbitral Awards. The California court issued a temporary protective order, followed by a preliminary injunction to freeze Yegiazaryan’s assets in California.[2] In May 2015, Yegiazaryan obtained a $198 million settlement. To avoid the District Court’s asset freeze and to obstruct the collection of the award, Yegiazaryan, among other things, secreted money in several offshore shell companies.[3] Smagin then sued in the Central District of California, alleging that Yegiazaryan had engaged in a pattern of criminal activity to prevent collection of Smagin’s judgment, violating §1964(c) of the RICO Act. The District Court dismissed Smagin’s complaint for failure to allege a “domestic injury,” reasoning that the alleged scheme was aimed at evading a foreign arbitral award owed to a foreign creditor.[4]

The Ninth Circuit reversed, finding that the case did indeed involve a domestic injury because Smagin’s efforts to collect on a California judgment against a California resident were foiled by a pattern of racketeering that largely “occurred in, or was targeted at, California” and was designed to subvert collection of a California judgment.[5] Yegiazaryan petitioned the Supreme Court for certiorari.

The question of whether a party has suffered a domestic injury is a fact-intensive inquiry. To resolve this issue, the Supreme Court directed “courts to look to the circumstances surrounding the injury to see if those circumstances sufficiently ground the injury in the United States.”[6] In holding that Yegiazaryan’s injurious conduct was sufficiently ground in the United States, the Court found that Yegiazaryan’s actions were devised and executed towards Los Angeles County, California, in order to frustrate the enforcement of Smagin’s California judgment. Justice Alito, joined by Justice Thomas and Justice Gorsuch, dissented, arguing that the majority ruling provides vague, unworkable and amorphous guidance that would confuse rather than clarify the question of whether an injury was suffered in or outside the United States.[7] This decision should have a significant impact on a number of cases, not just those limited to the RICO context, in matters involving a domestic injury requirement.

[1] Yegiazaryan v. Smagin, 143 U.S. 1900 (2023).

[2] See generally, 9 U.S.C. §§ 201-208.

[3] Yegiazaryan, 143 U.S. at 1907.

[4] Smagin v. Compagnie Monegasque De Banque, 2:20-cv-11236-RGK-PLA, 2021 U.S. Dist. Lexis 101176, *1 (C.D. Cal. May 5, 2021) (citing RJR Nabisco, Inc. v. European Cmty., 579 U.S. 325 (2016)).

[5] Smagin v. Yegiazaryan, 37 F.4th 562, _, 2022 U.S. App. Lexis 16014, *11-13 (10 Jun. 2022).

[6] Yegiazaryan, 143 U.S. at 1910.

[7] Yegiazaryan, 143 U.S. at 1912-15.

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