USCA Case #13-7088 Document #1473607 Filed: 01/06/2014 Page 1 of 131 No. 13-7088 (Consolidated w/ 13-7089) ORAL ARGUMENT NOT YET SCHEDULED IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT DEVINCCI SALAH HOURANI AND ISSAM SALAH HOURANI, Plaintiffs-Appellants/Cross-Appellees, v. ALEXANDER V. MIRTCHEV AND KRULL CORPORATION, Defendants-Appellees/Cross-Appellants. BRIEF OF DEFENDANTS– APPELLEES/CROSS-APPELLANTS Richard W. Beckler Warren W. Harris [email protected] [email protected] BRACEWELL & GIULIANI LLP Jeffrey L. Oldham 2000 K Street, N.W., Suite 500 [email protected] Washington, DC 20006 BRACEWELL & GIULIANI LLP Telephone: (202) 828-5800 711 Louisiana Street, Suite 2300 Facsimile: (800) 404-3970 Houston, Texas 77002-2770 Telephone: (713) 223-2300 Stephen Sale Facsimile: (800) 404-3970 [email protected] John D. Quinn [email protected] Counsel for Defendants- SALE & QUINN, P.C. Appellees/Cross-Appellants 1150 17th Street, NW, Suite 305 Alexander V. Mirtchev and Washington, DC 20036 Krull Corporation Telephone: (202) 872-4713 Facsimile: (202) 887-5137 USCA Case #13-7088 Document #1473607 Filed: 01/06/2014 Page 2 of 131 CORPORATE DISCLOSURE STATEMENT Pursuant to Federal Rule of Appellate Procedure 26.1 and Circuit Rule 26.1, Krull Corporation states as follows: Krull Corporation has no parent company, and no publicly-held company has a 10% or greater ownership interest in it. Krull Corporation is a macro- economic consulting company that is incorporated in the state of Delaware. -i- USCA Case #13-7088 Document #1473607 Filed: 01/06/2014 Page 3 of 131 CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES Pursuant to Circuit Rule 28(a)(1), Defendants-Appellees/Cross-Appellants Alexander V. Mirtchev and Krull Corporation certify: A. Parties and Amici: Except for the following, all parties, intervenors, and amici appearing before the District Court and in this Court are listed in the Brief for Plaintiffs-Appellants: GlobalOptions, Inc. and GlobalOptions Management, Inc. were also named defendants and appeared in the District Court. Those entities were dismissed from the case and are not parties to this appeal. B. Rulings Under Review: Except for the following, references to the rulings at issue appear in the Brief for Plaintiffs-Appellants: As to Plaintiffs’ appeal from the District Court’s May 8, 2013 order, in the event this Court finds any error in the District Court’s grounds for dismissing Plaintiffs’ First Amended Complaint, Defendants have multiple alternative grounds—presented to the District Court—for affirming the judgment of dismissal. As to Defendants’ cross-appeal, Defendants are also challenging two other rulings in the District Court’s May 8, 2013 order: the denial as moot of Defendants’ Motion for Sanctions for Filing False Documents (Docs. No. 24/26 -ii- USCA Case #13-7088 Document #1473607 Filed: 01/06/2014 Page 4 of 131 (JA8, 98-101)) and Defendants’ Motion for Leave to File 2012 Expert Report (Doc. No. 64 (JA373-75)). C. Related Cases: The case on review has not previously been before this Court, any other court of appeals, or any other court within the District of Columbia. Counsel is not aware of any related cases pending in this Court, any other court of appeals, or any other court in the District of Columbia. Plaintiffs identified a related case that is no longer pending in a court within the District of Columbia—In re Caratube Int’l Oil Co., No. 1:10-mc-285 (D.D.C.) (Bates, J.)—and noted that there have been a number of related international arbitrations in other countries. The related international arbitrations identified by Plaintiffs were filed against the government of Kazakhstan; Defendants are not parties to any of those arbitrations. -iii- USCA Case #13-7088 Document #1473607 Filed: 01/06/2014 Page 5 of 131 STATEMENT REGARDING ORAL ARGUMENT Defendants believe that oral argument would benefit the Court because the extraterritorial application of RICO is an issue that this Court has not previously addressed. While Defendants have presented a number of straightforward alternative grounds upon which this Court can affirm the District Court’s dismissal of Plaintiffs’ lawsuit, given the complexity of some of the issues, the complicated set of events giving rise to the case, and the seriousness of the sanctions issues presented, Defendants respectfully request oral argument in this matter. -iv- USCA Case #13-7088 Document #1473607 Filed: 01/06/2014 Page 6 of 131 TABLE OF CONTENTS Page CORPORATE DISCLOSURE STATEMENT ........................................................ i CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES ........... ii STATEMENT REGARDING ORAL ARGUMENT ............................................ iv TABLE OF AUTHORITIES .................................................................................. ix GLOSSARY OF ABBREVIATIONS ................................................................. xvii STATUTES AND REGULATIONS .................................................................. xviii STATEMENT OF JURISDICTION.........................................................................1 STATEMENT OF ISSUES ......................................................................................2 INTRODUCTION ....................................................................................................3 STATEMENT OF FACTS .......................................................................................5 A. Plaintiffs filed an original complaint against Defendants ....................5 B. Defendants moved to dismiss the original complaint and moved for sanctions because Plaintiffs relied on forged documents ...............7 C. Plaintiffs filed an amended complaint that contradicts their original complaint .................................................................................8 D. Defendants moved to dismiss the amended complaint and moved for Rule 11 sanctions based on Plaintiffs’ contradictory pleadings .............................................................................................10 E. The District Court dismissed Plaintiffs’ claims with prejudice, but declined to impose sanctions ........................................................10 SUMMARY OF THE ARGUMENT .....................................................................11 STANDARDS OF REVIEW ..................................................................................14 -v- USCA Case #13-7088 Document #1473607 Filed: 01/06/2014 Page 7 of 131 ARGUMENT ..........................................................................................................15 I. Plaintiffs’ RICO Claims Were Correctly Dismissed ....................................15 A. The District Court properly dismissed the claims because RICO does not apply extraterritorially and, by any standard, Plaintiffs’ claims are based on alleged extraterritorial conduct ..........................15 1. The extraterritoriality analysis in a RICO case should focus on the pattern of conduct alleged to cause injury ...........18 2. Because foreign acts are alleged as the pattern of racketeering, Plaintiffs’ RICO claims are extraterritorial........22 3. As the District Court noted, Plaintiffs’ RICO claims fail even if the focus is on the location of the enterprise ...............27 4. Plaintiffs’ choice of law argument is waived and flawed ........28 B. Alternatively, dismissal of Plaintiffs’ RICO claims was proper because their barebones allegations fail to state a claim and government extortion cannot be a RICO predicate ............................30 1. The amended complaint fails to sufficiently plead any predicate act .............................................................................30 a. Plaintiffs did not properly allege extortion, and their contrary arguments conflict with settled law ............................................................31 b. Plaintiffs did not properly allege money laundering ............................................................36 2. The amended complaint fails to sufficiently plead continuity and relatedness ........................................................38 3. The amended complaint fails to sufficiently plead that Mirtchev managed a RICO enterprise through a pattern of racketeering activity ............................................................41 4. The amended complaint fails to sufficiently plead that Plaintiffs’ injuries were caused by domestic predicate acts ............................................................................................43 -vi- USCA Case #13-7088 Document #1473607 Filed: 01/06/2014 Page 8 of 131 5. The amended complaint fails to sufficiently plead the existence of a RICO conspiracy ...............................................43 C. Alternatively, dismissal of Plaintiffs’ RICO claims was proper because they cannot be adjudicated without rendering judgment on the acts of the Kazakhstan government .........................................44 1. Plaintiffs’ RICO claims should be dismissed under the act of state doctrine ..................................................................45 2. Plaintiffs’ claims should be dismissed under the political question doctrine ......................................................................48 D. The amended complaint’s RICO allegations are contradicted by Plaintiffs’ prior pleadings and sworn statements, justifying dismissal of the entire complaint under Rule 11 ................................49 1. The District Court correctly found that