Hemi Grp., LLC v. City of N.Y. - 559 U.S. 1, 130 S. Ct. 983 (2010)

Rule:

To state a claim under the civil Racketeer Influenced and Corrupt Organizations Act (RICO), a 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. Proximate cause for RICO purposes is evaluated in light of its common-law foundations; proximate cause thus requires some direct relation between the injury asserted and the injurious conduct alleged. A link that is too remote, purely contingent, or indirect is insufficient.

Facts:

Respondent New York City was taxing the possession of cigarettes. Petitioner Hemi Group, based in New Mexico, sold cigarettes online to the residents of the City. Neither state nor city law required 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, required 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 was helping the City track down cigarette purchasers who did not pay their taxes. Against that backdrop, the City filed the present 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 were 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. A writ of certiorari was granted. 

Issue:

Under the circumstances, did the City state a valid RICO claim? 

Answer:

No.

Conclusion:

The U.S. Supreme Court noted that in order 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." According to the Court, proximate cause for RICO purposes should be evaluated in light of its common-law foundations; it thus required "some direct relation between the injury asserted and the injurious conduct alleged." In this case, the Court held that the City's causal theory could not satisfy the RICO requirement of a direct relationship between the City's lost tax revenue and the petitioner’s failure to report cigarette sales to the state. The Court held that the failure of the residents to pay the cigarette tax was the direct harm to the City, and the petitioner's unlawful conduct in failing to provide sales reports caused direct harm to the state, not the City. Thus, the conduct directly causing the harm was distinct from the conduct giving rise to the fraud, and the City's theory of liability rested not only on separate actions, but separate actions carried out by separate parties.