Failure of Chinese Company Does Not Constitute US "Domestic Injury" Even Though Precipitated by Loss of Potential US Customers

Humphrey v. Glaxosmithkline PLC, US Court of Appeals for the Third Circuit, September 26, 2018

The plaintiffs founded an investigations firm that counseled "foreign" firms doing business in China regarding American anti-bribery regulations compliance. They were hired by GSK in connection with a Chinese investigation into allegations of widespread bribery that ultimately resulted in GSK paying a fine of USD492 million. During the course of their work for GSK, the plaintiffs were themselves arrested by Chinese authorities and were expelled from the country, allegedly destroying their business. As relevant here, they sued GSK for RICO violations, claiming they lost their business as a result of various frauds committed against them by GSK.

The Court of Appeals focused on the question whether the plaintiffs had alleged a US "domestic injury" necessary to support a private RICO action, and described the test as asking where the injury was allegedly "suffered." The plaintiffs relied primarily on their allegation that GSK had caused them to lose business in China from US companies. Distinguishing cases that involved injuries to tangible property, the Court of Appeals undertook a fact-intensive analysis taking into account multiple factors, including "where the injury itself arose; the location of the plaintiff's residence or principal place of business; where any alleged services were provided; where the plaintiff received or expected to receive the benefits associated with providing such services; where any relevant business agreements were entered into and the laws binding such agreements; and the location of the activities giving rise to the underlying dispute."

The Court found the injury was suffered in China: "[A]t all relevant times, Plaintiffs lived in China; had their principal place of business in China; provided services in China (albeit to some American companies – but even they were operating in China); entered the Consultancy Agreement with GSK in China and agreed to have Chinese law govern it; met with Defendants' representatives only in China; and themselves indicated on the civil cover sheet that the underlying incident arose in China. . . . Plaintiffs have not alleged that they possess offices, assets, or any other property in the US." The Court also cited policy considerations counseling caution in extending a RICO private right of action to non-US conduct that, as here, was intertwined with actions taken by other governments. Notably, the Court of Appeals appeared to suggest that the loss of goodwill associated with the loss of US customers might be a US injury, but dismissed it as inadequate to outweigh the considerations pointing to an injury in China.

[Editor's note: The Court of Appeals acknowledged that its analysis differed from that adopted by another court of appeals, making more likely that the US Supreme Court would ultimately resolve the issue.]

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