United States District Court, E.D. Virginia, Alexandria Division
ELLIS, III UNITED STATES DISTRICT JUDGE.
10, 2019, United States Magistrate Judge Ivan D. Davis
entered a Report and Recommendation (''Report")
in this case under the Racketeer Influenced and Corrupt
Organizations Act ("RICO"), 18 U.S.C. §§
1961, et seq., filed by a Canadian corporation
conducting mining in Nicaragua and one of its employees. The
Report recommended that the plaintiffs' motion for
default judgment be denied on Count I, violation of 18 U.S.C.
§ 1962(c), a substantive provision of RICO.
Specifically, Judge Davis found that the plaintiffs failed to
state a claim under 18 U.S.C. $ 1962(c) because the
plaintiffs failed to allege facts showing that the plaintiffs
suffered a qualifying domestic injury. The Report also
recommended that default judgment be granted on behalf of the
plaintiffs on Count II, conspiracy to violate a substantive
provision of RICO under 18 U.S.C. § 1962(d), and Count
III, defamation per se under Virginia law, against
three of the six defendants named in the complaint: Philip
Bryson Christopher ("Christopher"). Flor Dc Mayo
S.A., and Edwin Alfredo Kauffman Blandino
("Kauffman'). No. objections to the Report were
Court ADOPTS the Magistrate Judge's
Report and Recommendation (Doc. 29) in part
for the reasons that follow.
the Court ADOPTS the recommendation of the
United States Magistrate Judge as to personal jurisdiction
for the reasons given below. As the Report and Recommendation
reflects, it is appropriate in some circumstances to rely on
a theory of conspiracy to establish personal jurisdiction.
The Fourth Circuit's decision in Unspam Technologies,
Inc. v. Chernuk provides the governing standard for
personal jurisdiction based on a conspiracy theory.
See 716 F.3d 322. 329 (4tk Cir 2013). To succeed on
a conspiracy theory of jurisdiction, the plaintiffs must make
a plausible claim (1) that a conspiracy existed; (2) that the
defendants participated in the conspiracy; and (3) that a
coconspirator's activities in furtherance of the
conspiracy had sufficient contacts with Virginia to subject
that conspirator to jurisdiction in Virginia.
IdBare allegations of conspiracy fail to
satisfy these requirements. Id. In Unspam
Technologies, the Fourth Circuit affirmed the District
Court, holding that the plaintiffs failed to prove the
existence of a conspiracy. Id. at 329-30. In doing
so, the Fourth Circuit neither reached the question of the
defendants' participation in a conspiracy nor disputed
the District Court's requirement that 1a plaintiff must
allege facts indicating that the defendant knew (or should
have known) that a coconspirator was acting in the forum
state and had a reasonable expectation that it could be
brought into that stale" See Project Honey Pot v.
John Does, 2102 WL 1854184, at *6 (E.D. Va. May 12,
2012). aff'd sub nom. Unspam Technologies, Inc. v.
Chernuk, 716 F.3d 322 (4th Cir. 2013).
Report concluded that personal jurisdiction existed over
Defendants Christopher, Kauffman, and Flor De Mayo, S.A., but
did not exist over Defendants AURUM S.A., Eduardo Ruben
Gonzalez Lopez ("Lopez"), and Eduardo Ruben
Gonzalez Guzman ("Guzman") because the plaintiffs
failed to allege facts showing that these defendants knew of
or should have known of Defendant Christopher's acts
within the forum state. Doc. 29 at 7-9. Although the Report
did not cite the Fourth Circuit's decision in Unspam
Technologies, the Report and Recommendation bases its
result on a number of district court cases that require a
defendant to know or have reason to know of a
co-conspirator's actions in furtherance of the conspiracy
in the forum state. This result is consistent with the
Unspam Technologies because the Fourth Circuit
limited its examination to the existence of a conspiracy and
did not reach the question of whether due process requires
that a defendant know or have reason to know of a
co-conspirator's acts in the forum state. Requiring a
defendant to have such knowledge is sensible in light of the
Supreme Court's admonition that the "unilateral
activity of another party or a third person is not an
appropriate consideration when determining whether a
defendant has sufficient contacts with a forum State to
justify an assertion of jurisdiction." Helicopteros
Nacionales De Colom. v. Hall, 466 U.S. 408, 417 (1984).
Accordingly, the Court adopts the recommendation of the
United States Magistrate Judge with respect to personal
jurisdiction, namely that personal jurisdiction exists over
Defendants Christopher, Kauffman, and Flor De Mayo, S.A., and
does not exist over Defendants Guzman, Lopez, and AURUM S.A.
Court ADOPTS the recommendation of the
United States Magistrate Judge as to the denial of default
judgment on Count I for failure to state claim under 18
U.S.C. § 1962(c) on the ground that the plaintiffs'
complaint fails to allege facts that show a qualifying
domestic injury. Harm caused to the plaintiffs' property
in Nicaragua and increased security costs at the
plaintiff's shareholder meeting in Canada are not
domestic injuries. See RJR Nabisco, Inc. v. European
Ctnty., 136 S.Ct. 2090, 2106 (2016). Although the
plaintiffs allege facts showing that they incurred travel
expenses and legal fees to obtain a protective order in
Virginia state court, these costs do not qualify as an injury
proximately caused by a defendant's RICO violation.
See Sedima. S.P.R.L. v. Imrex Co., 473 U.S.
479? 496-97 (1985); see also Strates Shows v.
Amusment of Am., 379 F.Supp. 2d. 817, 821-23 (E.D. N.C.
2005) (holding that no RICO injury occurred when a plaintiffs
legal expenses were voluntary and not an
"automatic" result of the defendant's RICO
violation). The plaintiffs' conclusory allegations that
the Defendants7 RICO violations were intended to harm the
corporation's share price and targeted American investors
do not show a qualifying domestic injury. See Ashcroft v.
Iqbal, 556 U.S. 662, 678 (citing Bell Atlantic v.
Twomhly, 550 U.S. 544? 570(2007)).
Court does not accept the recommendation of the United States
Magistrate Judge as to the entry of default judgment on Count
II, conspiracy to violate RICO under 18 U.S.C. §
1962(d), and Count III, defamation per se under
Virginia law. Default judgment is denied with respect to
Count II because the plaintiffs' failure to state a claim
for a substantive violation of RICO precludes them from
stating a claim for conspiracy to violate RICO under 18
U.S.C. § 1962(d). Section 1962(d) makes it unlawful for
any person to conspire to violate the substantive RICO
provisions., including § 1962(c). Plaintiffs alleging a
civil RTCO violation must allege an injury to "business
or property by reason of a violation of section 1962" to
have standing to sue. 18 U.S.C. § 1964(c); Potomac
Elec. Power Co. v. Electric Motor & Supply Co., 262
F.3d 260, 264 (4th Cir. 2001). A plaintiff's failure to
state a substantive RICO claim under § 1962(c)
forecloses any claim with respect to a conspiracy to violate
§ 1962(c). GE Inv. Private Placement Partners 11 v.
Parker, c, 551 n. 2 (4th Cir. 2001); see also
Aggarwal v. Sikka, 2012 WL 12870349, at *5 (ED. Va...
Jun 12, 2012). This Court adopts the recommendation of the
Magistrate Judge with respect to Count I due to the
Plaintiffs' failure to state a claim under § 1962(c)
because the plaintiffs did not allege a qualifying domestic
injury. Doc. 29 at 23-25. Therefore, the plaintiffs' RICO
conspiracy claim under 18 U.S.C. § 1964(c) necessarily
fails because the plaintiffs lack standing to bring a civil
suit under the RICO statute.
jurisdiction exists over state law claims that share a common
nucleus of operative fact with a claim that is within a
district court's original jurisdiction. 28 U.S.C. §
1367(a). A district court may to decline to exercise
supplemental jurisdiction over a state law claim following
the dismissal of all claims over which it had original
jurisdiction. 28 U.S.C. § 1367(c). Trial courts
"enjoy wide latitude" in making discretionary
determinations about whether to exercise supplemental
jurisdiction over state-law claims. Shanaghan v.
Cahill, 58 F.3d 106, 110 (4th Cir. 1995). Among the
factors relevant to this discretionary determination are
"convenience and fairness to the parties, the existence
of any underlying issues of federal policy, comity, and
considerations of judicial economy." Id.
(citing Carnegie-Mellon Univ. v. Cohill, 484 U.S.
343, 350 n. 7 (1988)). Here, declining to exercise
supplemental jurisdiction over the plaintiffs state-law
defamation claim is appropriate at this early stage in the
case based on considerations of fairness to the parties and
judicial economy. Because all of the defendants have
defaulted, no discovery has occurred on the state law claim.
See Schreiber v. Dunabin, 938 F.Supp.2d 587, 601
(E.D. Va. 2013) (declining to exercise supplemental
jurisdiction over a state-law claim in part because the
parties had not yet engaged in discovery). The
defendants' default also means that the Court has not
invested significant time and resources into examining the
merits of motions or overseeing discovery. See Salim v.
Dahlherg, 170 F.Supp.3d 897, 908 (E.D. Va.) (explaining
the retention of supplemental jurisdiction in part based on
judicial economy because the district court had already
invested time into scheduling discovery and examining the
merits of a motion to dismiss). Accordingly, the Court
declines to exercise supplemental jurisdiction over
plaintiffs' state law defamation claim.
for the reasons stated above, it is hereby
ORDERED that plaintiffs' motion for
default judgment (Doc. 23) is DENIED.
Clerk is further directed to provide a copy of this Order to
all counsel of record.
 The Second Circuity also employed the
Unspam Technologies test. See Charles Schwab
Corp. v. Bank of America Corp.. 883 F.3d 68, 87 (2d Cir
2018) ("We agree that Unspam sets forth the
appropriate test for alleging a conspiracy theory of
jurisdiction ... To allow jurisdiction absent a showing that
a co-conspirator's minimum contact* were in furtherance
of the conspiracy would be inconsistent with the purposeful
See Verizon Online Servs.. Inc v.
203 F.Supp.2d 601, 622 (E.D. Va. 2002):
Gemini Enters.. Inc. v. WFMY Television Corp., 470
F.Supp. 559, 564 (M.D. N.C. 1979); America Online, Inc.
v. Ambro Enters., 2005 WL ...