Ideal Steel Supply Corp.. v. Anza

• Decision Date: 28 June 2011
• Docket Number: No. 09–3212–CV.,09–3212–CV.
• Parties: IDEAL STEEL SUPPLY CORPORATION, Plaintiff–Appellant,v.Joseph ANZA, Vincent Anza and National Steel Supply, Inc., Defendants–Appellees.
• Court: U.S. Court of Appeals — Second Circuit

652 F.3d 310

79 Fed.R.Serv.3d 1268

IDEAL STEEL SUPPLY CORPORATION, Plaintiff–Appellant,

v.Joseph ANZA, Vincent Anza and National Steel Supply, Inc., Defendants–Appellees.

No. 09–3212–CV.

United States Court of Appeals, Second Circuit.

Argued: June 9, 2010.Decided: June 28, 2011.

Scott A. Moss, Denver, CO (Moss Law Practice, Denver, CO, on the brief), for Plaintiff–Appellant.William M. Brodsky, New York, N.Y. (JooYun Kim, Fox Horan & Camerini, New York, NY, on the brief), for Defendants–Appellees.Before: KEARSE, WALKER, and CABRANES, Circuit Judges.Judge CABRANES dissents, in a separate opinion.KEARSE, Circuit Judge:

This case returns to us from the United States District Court for the Southern District of New York, Richard M. Berman, Judge, following the entry of a final judgment dismissing the third amended complaint (or “Complaint”) of plaintiff Ideal Steel Supply Corporation (“Ideal”) under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961–1968, which principally alleged injury to Ideal's business by reason of defendants' establishment of a competing commercial enterprise through the investment of income derived from a pattern of racketeering activity—to wit, mail fraud and wire fraud in violation of 18 U.S.C. §§ 1341 and 1343, in the filing of fraudulent tax returns and related information enabling the evasion of more than $1 million in income taxes—in violation of 18 U.S.C. § 1962(a). The district court granted defendants' motions for judgment on the pleadings, and in the alternative for summary judgment, on the grounds that the Complaint and the record were insufficient to show that any injury to Ideal's business was proximately caused by defendants' alleged violation of § 1962(a). For the reasons that follow, we vacate and remand for trial.

I. BACKGROUND

Much of the factual background of this litigation is described in prior opinions, familiarity with which is assumed. See Ideal Steel Supply Corp. v. Anza, 254 F.Supp.2d 464, 465–66 (S.D.N.Y.2003) (“ Ideal Steel I ”), vacated and remanded, 373 F.3d 251, 253–56, 265 (2d Cir.2004) (“ Ideal Steel II ”), reversed in part, and vacated and remanded in part, 547 U.S. 451, 453–56, 462, 126 S.Ct. 1991, 164 L.Ed.2d 720 (2006) (“ Ideal Steel III ”). For purposes of this appeal from the granting of judgment on the pleadings and summary judgment against Ideal, we take the allegations of the Complaint as true, and we summarize the record in the light most favorable to Ideal.

A. The Parties and the Initial Claims: Ideal I and II

Ideal operates a retail business in the New York City boroughs of Queens and the Bronx, selling steel mill products and related hardware and services to professional ironworkers, small steel fabricators, and do-it-yourself homeowners in the New York, New Jersey, and Connecticut area. Defendant National Steel Supply, Inc., is owned by defendants Joseph and Vincent Anza (collectively “the Anzas”) and is Ideal's competitor. National operates two retail outlets, one in Queens and one in the Bronx, each located a few minutes' drive from the Ideal store in that borough. Ideal and National sell substantially the same products to essentially the same customer base.

Ideal commenced the present action in 2002, principally-asserting two civil RICO claims. First, it asserted a claim against the Anzas, alleging that they had conducted, or participated in the conduct of, the affairs of an interstate-business enterprise through a pattern of racketeering activity, in violation of 18 U.S.C. § 1962(c). Ideal alleged that, since at least 1998, National at its Queens store, at the direction of the Anzas, had engaged in a pattern of racketeering activity by (a) not charging sales tax to any customers who paid for their purchases in cash (the “cash-no-tax” scheme), thereby violating state laws that required merchants to charge and collect such taxes, and (b) then submitting, by mail and wire, fraudulent sales and income tax reports and returns that concealed National's cash sales and misrepresented its total taxable sales, thereby evading substantial sums in income tax. Ideal alleged that by engaging in the cash-no-tax scheme through a pattern of mail and wire frauds in violation of § 1962(c), National injured Ideal's business by luring away customers who chose to buy from National simply in order to save more than eight percent on their purchases by not paying the required sales tax.

Second, Ideal alleged that in 1999 and 2000, the Anzas and National, in violation of § 1962(a), invested funds derived from National's Queens store's cash-no-tax scheme to establish National's store in the Bronx. The opening of that facility caused Ideal to lose a substantial amount of business at its Bronx store. Ideal also asserted a state-law claim for breach of an agreement that had settled prior litigation between Ideal and National.

In Ideal I, the district court dismissed Ideal's federal claims pursuant to Fed.R.Civ.P. 12(b)(6). Citing Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 265–68, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992), the court noted that, in order to prevail on a civil RICO claim, the plaintiff must allege that a defendant's RICO violation was not only a “but for” cause of plaintiff's injury but also its proximate cause. Citing, inter alia, Moore v. PaineWebber, Inc., 189 F.3d 165, 169–70 (2d Cir.1999) (“ Moore”), and Powers v. British Vita, P.L.C., 57 F.3d 176, 189 (2d Cir.1995) ( “ Powers ”), the district court stated that

[i]n complaints predicated on mail or wire fraud, a plaintiff must plead “loss causation,” meaning that the misrepresentation must be both an actual and a proximate source of the loss that the plaintiffs suffered, ... and “transaction causation,” which requires a plaintiff to demonstrate that [plaintiff] relied on [d]efendants' misrepresentations,

Ideal I, 254 F.Supp.2d at 468 (emphasis in original) (other internal quotation marks omitted), and that a civil RICO plaintiff claiming injury to its business from racketeering activity in the nature of fraud cannot show proximate cause without demonstrating that the plaintiff itself relied on the fraudulent communications, see id. The court concluded that

[a]lthough Ideal alleges that the New York State Department of Taxation and Finance relied on Defendants' alleged misrepresentations ..., Ideal has not alleged—indeed, can not allege—that Plaintiff relied on the sales tax returns Defendants mailed or wired to the New York State Department of Taxation and Finance. As a result, Ideal's RICO claims fail.

Id. The court declined to exercise supplemental jurisdiction over Ideal's breach-of-contract claim.

In Ideal II, this Court vacated the Ideal I decision, noting that although there was language in Moore and Powers to the effect that a plaintiff itself must have relied on the allegedly fraudulent racketeering activity, those cases dealt with claims of plaintiffs who alleged that they were in fact parties to the transactions that they claimed had been fraudulently induced. See Ideal II, 373 F.3d at 263. Thus, the language as to the need for reliance by the plaintiff itself was descriptive rather than normative. See id. We observed that “[t]his Court has not held that the civil-RICO plaintiff who alleges mail fraud or wire fraud must have been the entity that relied on the fraud,” id.

Focusing principally on Ideal's claim under § 1962(c), we saw a critical distinction between that claim and the claims asserted in cases in which we had affirmed Rule 12(b)(6) dismissals of civil RICO claims for insufficient allegation of proximate cause. Those prior cases had involved claims of injury that were too remote from the alleged racketeering activity because, for example, the plaintiff's injuries were not “ ‘reasonably foreseeable’ ” or the “ ‘natural consequence[s] of the RICO violations,’ ” Ideal II, 373 F.3d at 258 (quoting Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 24 (2d Cir.1990)); or the plaintiff was “ ‘neither the target of the racketeering enterprise nor the competitor[ ] nor the customer [ ] of the racketeer[s],’ ” Ideal II, 373 F.3d at 258 (quoting Sperber v. Boesky, 849 F.2d 60, 65 (2d Cir.1988)); or the injury sued for was neither the “ ‘preconceived purpose’ ” nor the “ ‘specifically-intended consequence’ ” of the RICO defendants' racketeering activity, Ideal II, 373 F.3d at 259 (quoting In re American Express Co. Shareholder Litigation, 39 F.3d 395, 400 (2d Cir.1994)). We concluded that even if an alleged scheme depended on fraudulent communications directed to and relied on by a third person rather than by the plaintiff, a plaintiff injured in its business or property has standing to pursue a civil RICO claim—and adequately pleads proximate cause—if its

complaint contains allegations of facts to show that the defendant engaged in a pattern of fraudulent conduct that is within the RICO definition of racketeering activity and that was intended to and did give the defendant a competitive advantage over the plaintiff.

Ideal II, 373 F.3d at 263. Noting the allegations that

[t]he principal intended victim of the scheme was Ideal, over which defendants sought to secure a competitive advantage by giving certain cash customers an unlawful benefit, and by concealing that unlawful conduct and retaining the resulting profits by means of racketeering activity,

id. at 264 (emphasis added), we concluded that

Ideal, as a competitor directly targeted by defendants for competitive injury, has standing to assert its RICO claims against defendants for violations of § 1962(c) based on the alleged predicate acts of mail and wire fraud,

id. We concluded that Ideal's complaint adequately stated claims under both § 1962(c) and § 1962(a).B. The Decision of the Supreme Court: Ideal III

In Ideal III, 547 U.S. 451, 126 S.Ct. 1991, the Supreme Court reversed in part, and vacated and remanded in part, our decision in Ideal II. With respect to Ideal's...