June 2006

The Supreme Court had granted certiorari on two issues impacting civil RICO cases. First, was the long simmering question as to whether a RICO plaintiff asserting mail or wire fraud as predicate acts must prove reliance on the fraud, or whether proximate cause of any kind is adequate proof. The other, out-of-the-blue issue, was whether a corporation or “legal person,” rather than a natural person, could be a constituent member of an association-in-fact enterprise.

The first issue was to be addressed in Anza v. Ideal Steel Supply Corporation. However, the Court never reached the issue because it found the claims at issue too remote and too difficult of calculation to meet its longstanding proximate cause test, set forth in Holmes v. SIPC. As framed by the Court, a steel supplier, Anza, brought suit against a competitor, Ideal. The competitor was purportedly defrauding the State of New York by not requiring customers to pay sales tax, and so was able to charge lower prices for its steel. This in turn caused Anza, who complied with the sales tax law, to lose sales.

The Court rejected plaintiffs claims for a number of reasons: the RICO fraud/conspiracy was solely pleaded to be the tax fraud which was directed to the State, not the competitor, making Anza only an indirect victim at best; Ideal’s lower prices may have had other causes unconnected to the tax scheme; and Anza’s lost business may have arisen from a variety other causes as well. Thus, on the last two points, it becomes almost impossible to determine the cause of the alleged damages, a key factor weighing against plaintiffs under the Court’s proximate cause test.

The Court granted certiorari on the association-in-fact issue in Mohawk Industries, Inc. v. Williams. On the same day it decided Anza, however, the Court ruled that it had improvidently granted certiorari on that issue, simultaneously granted certiorari generally, and then vacated the lower court’s judgment; remanding the case with instructions that it be decided on the basis of the just rendered decision in Anza.

The Anza case is at http://www.supremecourtus.gov/opinions/05pdf/04-433.pdf. The Mohawk Industries case is at http://www.supremecourtus.gov/opinions/05pdf/05-465.pdf.

For further information please contact Lee Applebaum at (215) 893-8702 or lapplebaum@finemanlawfirm.com.