Hogan Lovells obtains dismissal from Second Circuit Court of Appeals of a US$1 billion federal RICO suit brought by investor plaintiffs

Today, the Second Circuit affirmed the dismissal by the U.S. District Court for the Southern District of New York (SDNY) (Cote, J.) of an action brought by New York hedge fund Kingstown Capital Management, L.P. and European investors against clients CPI Property Group (CPIPG) and its majority shareholder, Radovan Vitek over OROCO Property Group, S.A., a real estate development company based in Luxembourg.

The plaintiffs had alleged violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) and sought damages in excess of US$1 billion. The case raised novel and important issues concerning the application of U.S. law and the jurisdiction of U.S. courts over conduct occurring entirely outside the U.S. – in this case in Europe.

The RICO lawsuit (filed in the Southern District of New York in 2019) followed an earlier action brought by a similar group of plaintiffs in Luxembourg in 2015, from which CPIPG was dismissed.

In September 2020, District Judge Denise Cote dismissed Kingstown’s suit, ruling that Luxembourg is an adequate forum for resolution of the plaintiffs’ claim. The court noted the substantial similarities to the lawsuit filed in Luxembourg.

In that decision, the Court noted that the New York lawsuit “bears indicia of forum shopping,” adding that “the salient difference between the two suits is the potential for treble damages under the RICO statute” which “is not a legitimate reason for choosing this particular venue.”

Today, the Second Circuit Court of Appeals affirmed the District Court’s decision on forum-non-conveniens grounds after an examination of the factors weighing in favor of bringing the dispute in Luxembourg and not New York.

“Having reviewed the record before us, we find no reason to disturb the district court’s careful balancing of these factors,” the Second Circuit Court of Appeals concluded. 

“Taken together, the Second Circuit Order and District Court’s decision, are a strong indication that U.S. federal courts remain skeptical of efforts to engage in forum shopping solely to derive a perceived tactical advantage in the U.S., where the alleged conduct occurred outside the U.S.,” said Hogan Lovells partner Seth M. Cohen, who argued the appeal.

“We are delighted with today’s decision, which confirmed our view. Justice was served,” said CPI Property Group CEO Martin Nemecek. Martin Matula, CPIPG General Counsel added: “The Hogan Lovells team provided excellent and professional defence during all stages of the litigation.” 

In addition to Cohen, the Hogan Lovells team included partner Michael C. Hefter, and senior associate Andrew Harris (all New York).

The case is Kingstown Capital Management v. Vitek. CPIPG’s press release about the decision is here.

The Second Circuit summary order is here. 

More on the District Court (SDNY) decision is here.