Reynolds Wins at U.S. High Court in EU Drug-Money Lawsuit

  • Ruling in case against tobacco company limits racketeering law
  • EU alleged crime networks used drug proceeds to buy cigarettes

A divided U.S. Supreme Court threw out European Union claims that Reynolds American Inc. orchestrated a global scheme to launder drug money, in a ruling that limits the reach of a federal racketeering law that can impose heavy damage awards.

Writing for an unusual 4-3 majority, Justice Samuel Alito said people suing under the law must show an injury to their U.S. property. The decision overturns a lower court ruling that Reynolds contended would have invited a torrent of racketeering lawsuits against American companies over their activities abroad.

"There is a potential for international controversy that militates against recognizing foreign injury claims without clear direction from Congress," Alito wrote.

The EU has pursued Reynolds and other tobacco companies in court for more than a decade. The lawsuit before the Supreme Court centered on an alleged network involving Russian and Colombian criminal organizations that smuggled illegal narcotics into Europe. As part of the complex scheme, the money from the drug sales allegedly was used to buy Reynolds cigarettes.

The EU and more than two dozen of its member states argued that Reynolds directed the scheme from the U.S., putting its conduct under the ambit of the federal Racketeer Influenced and Corrupt Organizations Act, known as RICO.

The court was operating with an unusual seven-member bench. Justice Antonin Scalia died in February and Justice Sonia Sotomayor didn’t take part in the case. Although Sotomayor didn’t disclose her reason, she was involved as an appeals court judge in an earlier round in the litigation.

‘Written All Over It’

Justices Ruth Bader Ginsburg, Stephen Breyer and Elena Kagan dissented on the central issue in the case, saying the majority’s conclusion couldn’t be squared with RICO’s broad language. Ginsburg wrote that the case involved American corporations alleged to have managed a racketeering scheme from inside the U.S.

"In short, this case has the United States written all over it," Ginsburg wrote.

The dispute was a follow-up to a 2010 Supreme Court ruling that curbed the reach of the main federal securities-fraud law, barring suits by foreign investors who buy stocks of non-American companies on overseas exchanges. That ruling said the courts will presume that statutes don’t apply outside the U.S. unless Congress clearly indicates a desire to do so.

The EU is also pressing claims against Reynolds under New York state law.

The case is RJR Nabisco v. European Community, 15-138.

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