On April 25, the U.S. Supreme Court heard oral arguments in a case that could determine whether Russian businessman Vitaly Ivanovich Smagin can use U.S. racketeering laws to enforce a $92 million arbitral award against his former business partner, Ashot Yegiazaryan. Smagin alleges that a Monaco bank helped to hide Yegiazaryan’s fortune, making it impossible for him to enforce the award.
The case centers on whether Smagin suffered a “domestic” injury due to his inability to collect on a California judgment enforcing the award, a requirement for his claim to proceed under the Racketeer Influenced and Corrupt Organizations Act (RICO). During the oral arguments, Yegiazaryan’s attorney argued that a civil RICO plaintiff is injured in the place where they live, meaning that the “injury” in this case occurred in Russia. However, Chief Justice John Roberts seemed skeptical and suggested that Smagin’s inability to collect on a California judgment constitutes a domestic injury.
The justices also addressed other issues, such as where an injury relating to real property is suffered and the use of a foreign arbitral proceeding as the basis for a domestic injury under RICO. Smagin’s attorney faced tough questions from the justices as well, including how Smagin’s parallel efforts to enforce the award in Lichtenstein affected his argument that the California judgment constitutes a property interest that is separate from the debt.
The Supreme Court is being asked to resolve a circuit split on whether a foreign party that has won an international arbitral award can use U.S. racketeering statutes to enforce that award. Smagin, who lives in Russia, is trying to enforce a London Court of International Arbitration award he won against Yegiazaryan, who fled to California after the Russian government accused him of fraud. Smagin won a ruling in 2016 enforcing the award, but after hitting roadblocks in his collection efforts, sued Yegiazaryan and a Monaco-based bank in federal court in Los Angeles four years later, alleging that the bank had helped to hide Yegiazaryan’s fortune. The district court granted Yegiazaryan’s motion to dismiss, but the Ninth Circuit reversed last June, allowing Smagin to pursue racketeering claims against the bank and other defendants.
The case is important because it may resolve a circuit split on this issue, and its ruling could have significant implications for the enforceability of arbitral awards granted in other countries under US law. It could also clarify the requirements for a plaintiff to establish standing under RICO, which could have broader implications beyond the specific context of this case.
