559 U.S. 1 (2010), 08-969, Hemi Group, LLC v. City of New York

Docket Nº:08-969.
Citation:559 U.S. 1, 130 S.Ct. 983, 175 L.Ed.2d 943, 78 U.S.L.W. 4130
Opinion Judge:ROBERTS Chief Justice
Party Name:HEMI GROUP, LLC and Kai Gachupin, Petitioners, v. CITY OF NEW YORK, NEW YORK.
Attorney:Randolph H. Barnhouse, Los Ranchos de Albuquerque, NM, for petitioners. Leonard J. Koerner, New York, NY, for respondent. Justice Sotomayor recused. Randolph H. Barnhouse, Counsel of Record, Luebben Johnson & Barnhouse LLP, Los Ranchos de Albuquerque, NM, for petitioners. Leonard J. Koerner, Coun...
Judge Panel:ROBERTS, C.J., delivered the opinion of the Court in part, in which SCALIA, THOMAS, and ALITO, JJ., joined, and in which GINSBURG, J., joined in part. GINSBURG, J., filed an opinion concurring in part and concurring in the judgment. BREYER, J., filed a dissenting opinion, in which STEVENS and KEN...
Case Date:January 25, 2010
Court:United States Supreme Court
 
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559 U.S. 1 (2010)

130 S.Ct. 983, 175 L.Ed.2d 943, 78 U.S.L.W. 4130

HEMI GROUP, LLC and Kai Gachupin, Petitioners,

v.

CITY OF NEW YORK, NEW YORK.

No. 08-969.

United States Supreme Court

January 25, 2010

Argued Nov. 3, 2009.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

[943 L.Ed.2d 946] [130 S.Ct. 984] Syllabus [*]

Respondent New York City taxes the possession of cigarettes. Peti­tioner Hemi Group, based in New Mexico, sells cigarettes online to residents of the City. Neither state nor city law requires out-of-state sellers such as Hemi to charge, collect, or remit the City's tax; in­stead, the City must recover its tax on out-of-state sales directly from the purchasers. But the Jenkins Act, 15 U.S.C. §§375–378, requires out-of-state sellers to submit customer information to the States into which they ship cigarettes, and New York State has agreed to for­ward that information to the City. That information helps the City track down cigarette purchasers who do not pay their taxes. Against that backdrop, the City filed this lawsuit under the Racketeer Influ­enced and Corrupt Organizations Act (RICO), alleging that Hemi's failure to file the Jenkins Act reports with the State constituted mail and wire fraud, which are defined as "racketeering activities]," 18 U.S.C. §1961(1), subject to enforcement under civil RICO, §1964(c). The District Court dismissed the claims, but the Second Circuit va­cated the judgment and remanded. Among other things, the Court of Appeals held that the City's asserted injury—lost tax revenue—came about "by reason of" the predicate mail and wire frauds. It accord­ingly determined that the City had stated a valid RICO claim.

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Held:

The judgment is reversed, and the case is remanded.

541 F.3d 425, reversed and remanded.

Chief Justice Roberts delivered the opinion of the Court in part, concluding that because the City cannot show that it lost tax revenue "by reason of" the alleged RICO violation, it cannot state a RICO claim. Pp. 988-994, 175 L.Ed.2d, at 950-956. (a) To establish that an injury came about "by reason of" a RICO violation, a plaintiff must show that a predicate offense "not only was a 'but for' cause of his injury, but was the proximate cause as well." Holmes v. Securities Investor Protection Corporation, 503 U.S. 258, 268, 112 S.Ct. 1311, 117 L.Ed.2d 532. Proximate cause for RICO purposes should be evaluated [130 S.Ct. 985] in light of its common-law foundations; it thus requires "some direct relation between the injury asserted and the injurious conduct alleged." Ibid. A link that is "too remote," "purely contingent," or "indirec[t]" is in­sufficient. Id., at 271, 274, 112 S.Ct. 1311, 117 L.Ed.2d 532.

The City's causal theory cannot satisfy RICO's direct relationship requirement. Indeed, the causal link here is far more attenuated than the one the Court rejected as "purely contingent" and "too re­mote" in Holmes. Id., at 271, 112 S.Ct. 1311, 117 L.Ed.2d 532. According to the City, Hemi committed fraud by selling cigarettes to city residents and failing to submit the required customer information to the State. Without the reports from Hemi, the State could not pass on the information to the City, even if it had been so inclined. Some of the customers legally obli­gated to pay the cigarette tax to the City failed to do so. Because the City did not receive the customer information, it could not determine which customers had failed to pay the tax. The City thus could not pursue those customers for payment. The City thereby was injured in the amount of the portion of back taxes that were never collected. As the Court reiterated in Holmes, "[t]he general tendency of the law, in regard [943 L.Ed.2d 947] to damages at least, is not to go beyond the first step," id., at 271–272, 112 S.Ct. 1311, 117 L.Ed.2d 532, and that "general tendency" applies with full force to proximate cause inquiries under RICO, e.g., ibid. Because the City's causation theory requires the Court to move well beyond the first step, that theory cannot satisfy RICO's direct relationship requirement.

The City's claim suffers from the same defect as the RICO claim re­jected in Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 458–461, 126 S.Ct. 1991, 164 L.Ed.2d 720, where the conduct directly causing the harm was distinct from the conduct giving rise to the fraud, see id., at 458, 126 S.Ct. 1991, 164 L.Ed.2d 720. Indeed, the discon­nect between the asserted injury and the alleged fraud in this case is even sharper. In Anza, the same party had both engaged in the harmful conduct and committed the fraudulent act. Here, the City's theory of liability rests not just on separate actions, but separate ac­tions carried out by separate

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parties. The City's theory thus requires that the Court extend RICO liability to situations where the defen­dant's fraud on the third party (the State) has made it easier for a fourth party (the taxpayer) to cause harm to the plaintiff (the City). Indeed, the fourth-party taxpayers here only caused harm to the City in the first place if they decided not to pay taxes they were legally ob­ligated to pay. Put simply, Hemi's obligation was to file Jenkins Act reports with the State, not the City, and the City's harm was directly caused by the customers, not Hemi. The Court has never before stretched the causal chain of a RICO violation so far, and declines to do so today. See, e.g., id., at 460-461, 126 S.Ct. 1991. Pp. 988-991. 164 L.Ed.2d 720, 175 L.Ed.2d, at 950-953.

(b) The City attempts to avoid this conclusion by characterizing the violation not merely as Hemi's failure to file Jenkins Act reports with the State, but as a more general systematic scheme to defraud the City of tax revenue. But if the City could escape the proximate-cause requirement merely by alleging that the fraudulent scheme embraced all those indirectly harmed by the alleged conduct, the Court's RICO proximate cause precedent would become a mere pleading rule. That precedent makes clear that "the compensable injury flowing from a [RICO] violation . . . 'necessarily is the harm caused by [the] predi­cate acts.' " Anza, supra, at 457, 126 S.Ct. 1991, 164 L.Ed.2d 720. Because the only fraudulent con­duct alleged here is a violation of the Jenkins Act, the City must, but cannot, [130 S.Ct. 986] show that Hemi's failure to file the Jenkins Act reports led directly to its injuries.

The City also errs in relying on Bridge v. Phoenix Bond & Indem­nity Co., 553 U.S. 639, 128 S.Ct. 2131, 170 L.Ed.2d 1012. There, the plaintiffs' causation theory was "straightforward": The causal link in Bridge involved a direct and easily identifiable connection between the fraud at issue and the plaintiffs' injury, id., at 647, 658, 128 S.Ct. 2131, 170 L.Ed.2d 1012; the plaintiffs there "were the only parties injured by petitioners' misrepresentations," id., at 658, 128 S.Ct. 2131, 2144, 170 L.Ed.2d 1012, 1027; and there were "no independent factors that accounted] for [the] injury," id., at___, 128 S.Ct., at 2144. The City's theory in this case is anything but straightfor­ward: Multiple steps separate the alleged fraud [943 L.Ed.2d 948] from the asserted in­jury. And in contrast to Bridge, where there were "no independent factors that accounted] for [the plaintiffs'] injury," id., at ___, 128 S.Ct., at 2144, here there certainly were: The City's theory of liability rests on the inde­pendent actions of third and even fourth parties. Pp. 991 - 993, 175 L.Ed.2d, at 953-956.

ROBERTS, C.J., delivered the opinion of the Court in part, in which SCALIA, THOMAS, and ALITO, JJ., joined, and in which GINSBURG, J., joined in part. GINSBURG, J., filed an opinion concurring in part and concurring in the judgment. BREYER, J., filed a dissenting opinion, in which STEVENS and KENNEDY, JJ., joined. SOTOMAYOR, J., took no part in the consideration or decision of the case.

Randolph H. Barnhouse, Los Ranchos de Albuquerque, NM, for petitioners.

Leonard J. Koerner, New York, NY, for respondent.

Justice Sotomayor recused.

Randolph H. Barnhouse, Counsel of Record, Luebben Johnson & Barnhouse LLP, Los Ranchos de Albuquerque, NM, for petitioners.

Leonard J. Koerner, Counsel of Record, Elizabeth Susan Natrella, Eric Proshansky, Gail P. Rubin, Michael A. Cardozo, Corporation Counsel of the City of New York, New York, New York, for respondent.

OPINION

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ROBERTS Chief Justice

The City of New York taxes the possession of cigarettes. Hemi Group, based in New Mexico, sells cigarettes online to residents of the City. Neither state nor city law re­quires Hemi to charge, collect, or remit the tax, and the purchasers seldom pay it on their own. Federal law, however, requires out-of-state vendors such as Hemi to submit customer information to the States into which they ship the cigarettes.

Against that backdrop, the City filed this lawsuit under the Racketeer Influenced and Corrupt Organizations Act (RICO), alleging that Hemi failed to file the required customer information with the State. That failure, the City argues, constitutes mail and wire fraud, which caused it to lose tens of millions of dollars in unrecovered ciga­rette taxes. Because the City cannot show that it lost the tax revenue

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"by reason of" the alleged RICO violation, 18 U.S.C. §1964(c), we hold that the City cannot state a claim under RICO. We therefore reverse the Court of Appeals' decision to the contrary.

I

A

This case arises from a motion to dismiss, and so we accept as true the factual [130 S.Ct. 987] allegations in the City's second amended complaint. See Leatherman v. Tarrant County Narcotics Intelligence and Coordination Unit, 507 U.S. 163, 164, 113 S.Ct. 1160,122 L.Ed.2d 517 (...

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