637 F.3d 750 (7th Cir. 2011), 10-3062, BCS Services, Inc. v. Heartwood 88, LLC
|Docket Nº:||10-3062, 10-3068.|
|Citation:||637 F.3d 750|
|Opinion Judge:||POSNER, Circuit Judge.|
|Party Name:||BCS SERVICES, INC., et al., Plaintiffs-Appellants, v. HEARTWOOD 88, LLC, et al., Defendants-Appellees.|
|Attorney:||David W. DeBruin (argued), Attorney, Jenner & Block LLP, Washington, DC, Jonathan S. Quinn, Attorney, Reed Smith LLP, Chicago, IL, for Plaintiffs-Appellants. Robert N. Hochman (argued), Attorney, Sidley Austin LLP, Theodore M. Becker, Attorney, Morgan, Lewis & Bockius, Martin F. Hauselman, Attorn...|
|Judge Panel:||Before BAUER, POSNER, and MANION, Circuit Judges.|
|Case Date:||March 24, 2011|
|Court:||United States Courts of Appeals, Court of Appeals for the Seventh Circuit|
Argued Feb. 24, 2011.
Rehearing and Rehearing En Banc Denied April 26, 2011.
These consolidated appeals are from judgments in two suits seeking damages under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961 et seq., for mail fraud. (The suits are materially identical so we'll pretend that they're one case and that the two appeals are also one.) The district court dismissed the case more than five years ago on the ground that the plaintiffs lacked standing to sue because they hadn't relied on the fraud and therefore " at best
were indirect victims of the alleged fraud." Phoenix Bond & Indemnity Co. v. Bridge, 2005 WL 3527232, at *5 (N.D.Ill.Dec. 21, 2005). We reversed, 477 F.3d 928 (7th Cir.2007), and the Supreme Court affirmed our decision. 553 U.S. 639, 128 S.Ct. 2131, 170 L.Ed.2d 1012 (2008). The case returned to the district court, which has again dismissed, this time by granting summary judgment for the defendants on the ground that the plaintiffs can't prove that the fraud was a " proximate cause" of their alleged losses. Although that sounds like a different ground from the first dismissal, it's actually pretty close. The district judge's second opinion states that " any number of reasons wholly unrelated to Defendants' alleged violations of the SSBR [the rule that the defendants are alleged to have violated to effectuate the fraud] could impact the value of Plaintiffs' lien portfolios: [among others,] the Treasurer's determination of whether to bar Defendants from the sales, and if so for how long; the actions of third-party bidders, including how quickly they bid; the auctioneers' subjective awarding of liens; and the property owners' decision to redeem the property." 2010 WL 3526469, at *14 (N.D.Ill. Sept. 1, 2010). The only significant difference between the two opinions is that in round one the judge dismissed the suit because the plaintiffs were (he ruled) only indirect victims of the fraud and in round two he granted summary judgment for the defendants because he thought that although we and the Supreme Court had held that the plaintiffs were direct victims, they had not been injured directly; the causal link between the fraud and the injury was " tenuous." Id. at *13. The case is again before us on appeal by the plaintiffs.
When an owner of property in Cook County, Illinois, fails to pay his property tax on time, the amount of tax that is due (which is to say past due) becomes a lien on the property. The county sells its tax liens at auctions. The bids at the auctions are stated as percentages of the taxes past due. The percentage, multiplied by the amount of past-due taxes (plus any interest due on them, which we'll ignore), is the " penalty" that the bidder demands from the owner to clear the lien. The winning bidder is the bidder who bids (that is, is willing to accept) the lowest penalty— often zero percent of the tax due, meaning that the bidder is just offering to pay the County the past-due taxes and receive in exchange the lien. The taxpayer has two to three years in which to erase the lien by paying the winner of the auction (and hence new owner of the lien) the past-due taxes that the winner had paid the County, plus the penalty (if any). If the taxpayer fails to redeem by paying what he owes, the purchaser of the lien can obtain a tax deed to the property and thus become the property's owner. In deciding which tax liens being auctioned to bid for, and how much to bid (whether a zero-percent penalty, or a 5 percent penalty, or any other percent), the would-be tax lienor is looking for properties, (1) whose owners are unlikely to redeem them by paying the past-due taxes during the redemption period and (2) are worth more than the past-due taxes on them.
The auctions are conducted in rapid-fire fashion in a room in which the bidders bid by raising a card with their bidder ID number and shouting out their penalty percentage (usually " zero!" ). Almost 85 percent of the winning bids are at the zero-percent penalty level, which implies that most bids are identical bids (identical zero-percent bids). How is the auctioneer to pick the winner in such a case? It's difficult! Suppose fifteen bidders bid zero percent on a particular lien being auctioned. The bids being identical, the auctioneer will try to award the lien to the bidder who raised his hand first. But if many bidders raised their hands as soon as
the bidding began, the auctioneer may find it impossible to determine who raised his hand first, in which event he'll probably pick one of the zero bidders at random.
Bidders use a variety of tactics to attract the auctioneer's attention, such as by lobbying to be given a seat closer to the auctioneer so that the bidder's raised hand is more likely to be noticed first. A few of the auctioneers claim improbably that they can always tell who raised his or her hand first, no matter how many hands shoot up all over the room, while others say that when there are multiple identical bidders they try to allocate the awards " fairly," whatever that means— probably it just means not awarding too many liens to the same bidder at the same auction. So on the one hand liens are not awarded on a strict rotational basis but on the other hand a jury could find that most zero-percent awards are the random product of guesswork.
The County's rules permit only one agent of a potential buyer, or of a group of cooperating buyers (" related entities" ), to bid. Otherwise a potential buyer could increase the likelihood of winning by packing the room. Suppose that a potential buyer, call him " BidCo," was represented by 10 persons— but the auctioneer thought they were 10 different bidders— and all the other potential buyers were represented by one person each, as they're supposed to be. BidCo would have a big advantage. If for example there were 21 potential buyers and all bid zero percent for a particular tax lien, 30 hands would be shooting up but 10 of them would belong to one buyer. Whether the auctioneer was able to pick the bidder who raised his hand first, or as is more likely there was simply a distribution of hand-raising speeds and well-sited seats, the buyer who had 10 hands in the room would have an advantage over each of the other 20 potential buyers. He would be likelier to have some fast hands and some ringside seats, as well as having an advantage just by virtue of the number of hands, when the auctioneer threw up his hands and awarded liens randomly among the zero-percent bidders, or tried to rotate them among the bidders in the interest of " fairness." If BidCo's violation of the prohibition against related entities' multiple bidding were concealed, so that his scheme operated as a fraud on the one-armed bidders, BidCo would have engaged in a pattern of mail fraud in violation of RICO because, as we explained in our first opinion, " the tax-sale process employs the mail— perhaps to send affidavits, and certainly to send notices to owners that the liens have been sold and the taxes must be paid or the property forfeited," and " any fraud that affects which bidders obtain how many liens is ‘ mail fraud.’ " 477 F.3d at 930.
The case is a little more complicated than we've let on so far because three separate groups (whose members are the defendants) of allegedly related entities are accused of the fraud. As a result, instead of having just three arms the defendants had between 11 and 39, with up to 13 being used in a given auction session during the six years in which the conspiracies are alleged to have been operating. In each of the three conspiracies a kingpin financed the bidding activity of the group's members and when the kingpin agent's bidder would win a lien the kingpin would buy it from him.
For purposes of this appeal (only), the defendants concede that they committed a fraud actionable under RICO if the plaintiffs can prove both proximate cause and damages. The district judge granted summary judgment for the defendants because he thought that the plaintiffs— two of the one-armed bidders at the auctions— had failed to produce evidence that the
fraud was a proximate cause of their losing any of the bidding rounds.
The injection of the term " proximate cause" into this litigation has muddied the waters. It was injected for no better reason— and it is not a good reason— than that it has figured in several RICO cases decided recently by the Supreme Court, none comparable to this case.
You cannot obtain damages for fraud or any other tort, whether you are litigating under common law or the RICO statute, without proving that the fraud caused a loss to you, such as a financial loss, for which damages can be awarded. The problem is that...
To continue readingFREE SIGN UP