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In Re: Le-Natures, Inc. Wdpa v. Krones

May 26, 2011


The opinion of the court was delivered by: Donetta W. Ambrose Senior Judge, U.S. District Court



This action is part of a consolidated multi-district proceeding, docketed at No. 9-MC-162, with which the parties are familiar. In this particular case, Plaintiff Farm Credit Leasing ("FCL") avers that Defendants wrongfully involved FCL in an overvalued industrial equipment lease with Le-Nature‟s. Defendants Krones AG, a German corporation, and Volker Kronseder, a German citizen and resident, and Chairman and CEO of Krones AG at the pertinent times, have moved to dismiss the Complaint against them on grounds of RICO‟s limited domestic reach.*fn1 For the following reasons, their Motion will be denied.


In deciding a motion to dismiss, all factual allegations, and all reasonable inferences therefrom, must be accepted as true and viewed in a light most favorable to the plaintiff. Colburn v. Upper Darby Twp., 838 F.2d 663, 666 (3d Cir. 1988). A claim is plausible on its face, and not subject to dismissal, "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, U.S. , 129 S.Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007)). While "[t]he plausibility standard is not akin to a 'probability requirement' . it asks for more than a sheer possibility.." Id. at 949. A motion to dismiss will be granted if the plaintiff has not articulated facts sufficient to "raise a right to relief above the speculative level." Bangura v. City of Philadelphia, 338 Fed. Appx. 261 (3d Cir. 2009) (citing Twombly, 127 S. Ct. at 1965). Thus, a "formulaic recitation of the elements of a cause of action will not do." Twombly, 127 S. Ct. at 1964-65.


A. Morrison v. National Australia Bank Ltd.

Defendants‟ Motion is based, principally, on the relatively recent decision of Morrison v. Nat'l Austl. Bank Ltd., 130 S. Ct. 2869, __ U.S. __, 177 L. Ed. 2d 535 (2010). In Morrison, the Court considered the reach of the Securities Exchange Act, 17 CFR § 240.10b-5, which relates to deceptive conduct "in connection with" the purchase or sale of any security.*fn2 The case involved foreign plaintiffs suing foreign and United States defendants, for misconduct related to a stock traded only on foreign exchanges, and not in the United States. Id. at 2875. The defendants, however, allegedly engaged in deceptive conduct in the United States. Id. at 2875-76. The parties brought before the Court the issue of whether the Securities Exchange Act "provides a cause of action to foreign plaintiffs suing foreign and American defendants for misconduct in connection with securities traded on foreign exchanges." Id. at 2875.

After emphasizing that the question was one of merits rather than subject matter jurisdiction, the Court moved on to the issue of the statute‟s territorial reach. Id. at 2877-78. In so doing, the Court confirmed and applied the presumption that absent an expression of Congressional intent that a statute apply extraterritorially, the statute does not so apply. Id. at 2883. In employing the presumption, the Court rejected the more fluid, ad-hoc "effects" and "conduct" approaches to determining the statute‟s reach, which had developed in the lower courts. The "effects" test focused on "whether the wrongful conduct had a substantial effect in the United States or upon United States citizens"; the "conduct" test focused on "whether the wrongful conduct occurred in the United States." Id. at 2879.

In addition, the Court acknowledged that determining a statute‟s territorial scope did not necessarily end the inquiry.*fn3 Id. at 2884. In Morrison, the plaintiffs claimed that they did not, in fact, seek extraterritorial application, because the alleged deceptive conduct occurred domestically. Id. Thus, it remained to determine whether domestic deceptive conduct related to the securities transaction was sufficient to bring the claim within the statute‟s ambit. As the Supreme Court has noted, "it is a rare case of prohibited extraterritorial application that lacks all contact with the territory of the United States." Id. at 2884.

In making its inquiry, the Court looked to the plaintiffs‟ claim in light of the "‟focus‟ of Congressional concern" embodied in the statute. Id. at 2879. In assessing that "focus," the Court noted that the Securities Exchange Act did not punish deceptive conduct alone, but "deceptive conduct "in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered.‟" Id. at 2884. Thus, it found that the transactions, and not the prohibited acts, were "the objects of the statute‟s solicitude." Id. Accordingly, the Court found that the Securities Exchange Act focused on securities transactions in the United States, rather than extraterritorially -- thus, it follows that the statute only applies in the case of domestic securities transactions. Id. at 2884. It distinguished the Exchange Act in this respect from the wire-fraud statute, which prohibits "‟any scheme or artifice to defraud,‟ -- fraud simpliciter, without any requirements that it be "in connection with‟ any particular transaction or event.‟" Id. at 2887.*fn4 The Court also noted the probability of incompatibility with the laws of other countries, which regulate their own securities exchanges and transactions. Id. at 2885.

B. RICO and Plaintiff's Complaint

Because the RICO statute does not contain evidence that Congress intended extraterritorial application, Morrison has been held to preclude such application. United States v. Philip Morris USA, Inc., No. 99-2496, 2011 U.S. Dist. LEXIS 32053, at *24 (D. D. C. Mar. 28, 2011); Norex Petroleum Ltd. v. Access Indus., Inc., 631 F.3d 29, 32-33 (2d Cir. 2010); Cedeno v. Intech Group, Inc., 733 F. Supp. 2d 471, 473-74 (S.D.N.Y. 2010). At first glance, and as the present parties caution, this case might appear to impose a choice between the two evils of either adopting Morrison wholesale and thus per se immunizing foreign defendants from RICO liability, or endorsing a case-by-case analysis that effectively revives the "conduct" or "effect"-type test rejected by the United States Supreme Court.*fn5 The present Plaintiff does not contest RICO‟s territorial scope; instead, it argues, inter alia, that Defendants participated in a domestic enterprise, and thus fall within that scope. In turn, Defendants contend that the alleged predicate acts were foreign, ...

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