Hemi Group, LLC v. City of New York, NY
| Decision Date | 03 November 2009 |
| Docket Number | No. 08-969.,08-969. |
| Citation | 175 L. Ed. 2d 943,130 S.Ct. 983 |
| Parties | HEMI GROUP, LLC and Kai Gachupin, Petitioners, v. CITY OF NEW YORK, NEW YORK. |
| Court | U.S. Supreme Court |
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Randolph H. Barnhouse, Los Ranchos de Albuquerque, NM, for petitioners.
Leonard J. Koerner, New York, NY, for respondent.
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.
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 "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.
This case arises from a motion to dismiss, and so we accept as true the factual 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 (1993).
New York State authorizes the City of New York to impose its own taxes on cigarettes. N.Y. Unconsol. Law Ann. § 9436(1) (West Supp.2009). Under that authority, the City has levied a $1.50 per pack tax on each standard pack of cigarettes possessed within the City for sale or use. N.Y.C. Admin. Code § 11-1302(a) (2008); see also Record A1016. When purchasers buy cigarettes from in-state vendors, the seller is responsible for charging, collecting, and remitting the tax. N.Y. Tax Law Ann. § 471(2) (West Supp. 2009). Out-of-state vendors, however, are not. Ibid.; see City of New York v. Smokes-Spirits.com, Inc., 541 F.3d 425, 432-433 (C.A.2 2008). Instead, the City is responsible for recovering, directly from the customers, use taxes on cigarettes sold outside New York. That can be difficult, as those customers are often reluctant to pay and tough to track down. One way the City can gather information that would assist it in collecting the back taxes is through the Jenkins Act, 63 Stat. 884, 69 Stat. 627. That Act requires out-of-state cigarette sellers to register and to file a report with state tobacco tax administrators listing the name, address, and quantity of cigarettes purchased by state residents. 15 U.S.C. §§ 375-378.
New York State and the City have executed an agreement under which both parties undertake to "cooperate fully with each other and keep each other fully and promptly informed with reference to any person or transaction subject to both State and City cigarette taxes including [i]nformation obtained which may result in additional cigarette tax revenue to the State or City provided that the disclosure of that information is permissible under existing laws and agreements." Record A1003. The City asserts that under that agreement, the State forwards Jenkins Act information to the City. Id., at A998; Second Amended Compl. ¶ 54. That information helps the City track down purchasers who do not pay their taxes. Id., ¶¶ 58-59.
Hemi Group is a New Mexico company that sells cigarettes online. Hemi, however, does not file Jenkins Act information with the State. The City alleges that this failure has cost it "tens if not hundreds of millions of dollars a year in cigarette excise tax revenue." Record A996. Based on Hemi's failure to file the information with the State, the City filed this federal RICO claim.
RICO provides a private cause of action for "[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter." 18 U.S.C. § 1964(c). Section 1962, in turn, contains RICO's criminal provisions. Specifically, § 1962(c), which the City invokes here, makes it "unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate ... commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity." "[R]acketeering activity" is defined to include a number of so-called predicate acts, including the two at issue in this case — mail and wire fraud. See § 1961(1).
The City alleges that Hemi's "interstate sale of cigarettes and the failure to file Jenkins Act reports identifying those sales" constitute the RICO predicate offenses of mail and wire fraud in violation of § 1962(c), for which § 1964(c) provides a private cause of action. Record A980. Invoking that private cause of action, the City asserts that it has suffered injury in the form of lost tax revenue — its "business or property" in RICO terms — "by reason of" Hemi's fraud.
Hemi does not contest the City's characterization of the Jenkins Act violations as predicate offenses actionable under § 1964(c). (We therefore assume, without deciding, that failure to file Jenkins Act material can serve as a RICO predicate offense.) Instead, Hemi argues that the City's asserted injury — lost tax revenue — is not "business or property" under RICO, and that the City cannot show that it suffered any injury "by reason of" the failure to file Jenkins Act reports.
The District Court dismissed the City's RICO claims, determining that Hemi owner and officer Kai Gachupin did not have an individual duty to file Jenkins Act reports, and thus could not have committed the alleged predicate acts. City of New York v. Nexicon, Inc., No. 03 CV 383 (DAB), 2006 WL 647716, *7-*8 (S.D.N.Y., Mar. 15, 2006). The District Court therefore held that the City could not establish that Hemi and Gachupin formed an "enterprise" as required to establish RICO liability. Id., at *7-*10. Because it dismissed on that ground, the District Court did not address whether the City's loss of tax revenue constitutes an injury to its "business or property" under § 1964, or whether that injury was caused "by reason of" Hemi's failure to file the Jenkins Act reports.
The Second Circuit vacated the District Court's judgment and remanded for further proceedings. The Court of Appeals held that the City had established that Gachupin and Hemi operated as an "enterprise" and that the enterprise committed the predicate RICO acts of mail and wire fraud, based on the failure to file the Jenkins Act material with the State. 541 F.3d, at 447-448. The court also determined that the City's asserted injury, lost tax revenue, was "business or property" under RICO. Id., at 444-445. And that injury, the court concluded, came about "by reason of" the predicate mail and wire frauds. Id., at 440-444. The City thus had stated a viable RICO claim. Judge Winter dissented on the ground that the alleged RICO violation was not the proximate cause of the City's injury. Id., at 458-461.
Hemi filed a petition for certiorari, asking this Court to determine whether the City had been "directly injured in its `business or property'" by reason of the alleged mail and wire frauds. Pet. for Cert. i. We granted that petition. 556 U.S. ___, 129 S.Ct. 2159, 173 L.Ed.2d 1155 (2009).
Though framed as a single question, Hemi's petition for certiorari raises two distinct issues: First, whether a loss in tax revenue is "business or property" under 18 U.S.C. § 1964(c); and second, whether the City's asserted injury came about "by reason of" the allegedly fraudulent conduct, as required by § 1964(c). We determine that the City cannot satisfy the causation requirement — that any injury the City suffered must be "by reason of" the alleged frauds — and therefore do not decide whether the City's allegations of lost tax revenue constitute an injury to its "business or property."
In Holmes v. Securities Investor Protection Corporation, 503 U.S. 258, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992), we set forth the standard of causation that applies to civil RICO claims. In that case, we addressed a RICO claim brought by Securities Investor Protection Corporation (SIPC) against defendants whom SIPC alleged had manipulated stock prices. Id., at 262-263, 112 S.Ct. 1311. SIPC had a duty to reimburse customers of certain registered broker-dealers in the event the broker-dealers were unable to meet their financial obligations. Id., at 261, 112 S.Ct. 1311. When the conspiracy by the stock manipulators was detected, stock prices collapsed, and two broker-dealers were unable to meet their obligations to their customers. SIPC, as insurer against that loss, ultimately was on the hook for nearly $13 million to cover the customers' claims. The Court held that SIPC could not recover against the conspirators because it could not establish that it was injured "by reason of" the alleged fraud, as that phrase is used in RICO.
We explained that, to state a claim under civil RICO, the plaintiff is required to show that a RICO predicate offense "not only was a `but for' cause of his injury, but was the proximate cause as well." Id., at 268, 112 S.Ct. 1311. Proximate cause for RICO purposes, we...
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