1 2 3 4 5 6 7 

### 09-3212-cv Ideal Steel Supply 

### Corp. v. Anza
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
August Term, 2009 (Argued: June 9, 2010 Decided: June 28, 2011) Docket No. 09-3212-cv

8 IDEAL STEEL SUPPLY CORPORATION, 9 

### Plaintiff-Appellant, 10

- v. 11 JOSEPH ANZA, VINCENT ANZA and NATIONAL STEEL SUPPLY, 12 INC
., 13 14 

### Defendants-Appellees.
15 Before; KEARSE, WALKER, and CABRANES, Circuit Judges. 16 

### Appeal from a judgment of the United States District Court 17 for the Southern District of New York, Richard M. Berman, Judge, 18 dismissing, for lack of proximate cause, a civil RICO claim that 19 plaintiff lost business as a result of defendants' investment of 20 funds, derived from a pattern of racketeering activity, in the 21 establishment and operation of a commercial enterprise in 22 competition with plaintiff's business, see 18 U.S.C. §§ 

### 1962(a), 23 1964Ie) 

### 24 Vacated and remanded
. 25 

### Judge Cabranes dissents, in a separateopinion.1 SCOTT A
. MOSS, Denver, Colorado (Moss Law 2 Practice, 

### Denver, Colorado, 

### on the 3 brief), 

### for Plaintiff-Appellant. 4 WILLIAM 

### M. BRODSKY, New Y ork, New 

### York 5 (JooYun 

### Kim, Fox Horan & Camerini, New 6 

### York, New York, 

### on the brief), 

### for 7 Defendants-Appellees.



### 8 KEARSE, CircuitJudge: 9 

### This case returns to us from the United States District 10 Court for the Southern District of New York, Richard M. Berman, 11 Judge, following the entry of a final judgment dismissing the 12 third amended complaint (or "Complaint!!) of plaintiff Ideal Steel 13 Supply Corporation ("Ideal") under the Racketeer Influenced and 14 Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961

-1968, which 

### 15 principally alleged injury to Ideal's business by reasen of 16 defendants' establishment of a competing commercial enterprise 17 through the investment of income derived from a pattern of 18 racketeering activity

--to wit, mail fraud and wire fraud in 19 

### violation of 18 U
.S
.C. §§ 

### 1341 and 1343, in the filing of 20 fraudulent tax returns and related information enabling the 21 evasion of more than $1 million in income taxes
--in violation of 22 18 U.S.C. § 1962{a). 

### The district court granted defendants' 23 motions for judgment on the pleadings, and in the alternative for 24 summaryjudgment, on thegrounds that the Complaint and the record 25 were insufficient to show that any injury to Ideal's business was 26 proximately caused by 

### defendants' alleged violationof § 

### 1962(a) 27 For the reasons that follow, we vacate andremand for trial.

- 2

-1

2 3 4 5 6 7 8 9 I . BACKGROUND



### Much of the factual background of this litigation**~s** 

### described in prior opinions, See Ideal Steel Supply Corp. familiarity with which is assumed.
v. Anza, 254 F.Supp.2d 464, 465-66 (S.D.N.Y. 2003) {"Ideal Steel 

### I"l f vacated and remanded, 373 F.3d 251, 253

-56, 265 (2d Cir. 2004) (ulcleal Steel 1111), reversed in part
. and vacated and remanded in part, 547 U.S. 451, 453

-56, 462 (2006) ("Ideal Steel 11111). For purposes of this appeal from the granting of judgment on thepleadings and summary judgment against 10 Ideal, we take the allegations of the Complaint as true, and we 11 summarize the record in the light most favorable to Ideal.



### 12 A. The Parties and the Initial Claims: Ideal I and II 13 

### Ideal operates a retail business in the New York City 14 boroughs of Queens and the Bronx, selling steel mill products and 15 related hardware and services to professional ironworkers, small 16 steel fabricators, and do

-it

-yourself homeow ners in the New York, 17 New Jersey, and Connecticut area. Defendant National Steel 18 Supply, Inc., is owned by 

### defendants Joseph and Vincent A nza 19 

### (collectively "the Anzas") and is Ideal's competitor
. National 20 operates two retail outlets, one in Queens and one in the Bronx, 21 each located a few minutes' drive from the Ideal store in that 22 

### borough. Ideal and National sell substantially the same products 23 toessentiallythe same customerbase
.

- 3

-1 Ideal commenced the present action in 2002, principally 2 asserting two civil RICO claims. First, it asserted a claim 3 against the Anzas, alleging that they had conducted, 

### or 4 participated in the conduct of, the affairs of an interstate

- S business enterprise through a pattern of racketeering activity, in 6 violation of 18 U
.S.C
. § 1962(c)
. Ideal alleged that, since at 7 least 1998, National at its Queens store, at the direction of the 8 Anzas, had engaged in a pattern of racketeering activity by (a) 9 not charging sales tax to any customers who paid for their 10 purchases in cash (the "cash-no

-tax" scheme), thereby violating 11 state laws that required merchants to charge and collect such 12 taxes, and (b) then submitting, bymail and wire, fraudulent sales 13 and income tax reports and returns that concealed Nationalts cash 14 sales and misrepresented its total taxable sales, thereby evading 15 substantial sums in income tax. Ideal alleged that by engaging in 16 the cash-no

-tax scheme through a pattern of mail and wire frauds 17 in violation of § 1962ec), National injured Idealts business by 18 luring away customers who chose to buy from National simply in 19 order to save more than eight percent on their purchases by not 20 paying the required sales tax. 21 Second, Ideal alleged that in 1999 and 2000, theAnzas and 22 National, in violation of § 1962(a), invested funds derived from 23 24 National's Queens National's store in store's cash-no-tax scheme the Bronx
. The opening of to establish that facility 25 caused Ideal to lose a substantial amount of business at its Bronx 26 store. Ideal also asserted a state-law claim for breach of an
- 4

-1 

### agreement that had settled prior litigation between Ideal and 

### 2 National. 3 In Ideal I I the district court dismissed Ideal's federal 4 claims pursuant to Fed. R. eiv
. P. 12(b)(6). Citing Holmes v. 

### 5 Securities Investor Protection Corp. I 

### 503 U.S. 258, 265-68 (1992) f 

### 6 the court noted that, in order to prevail on a civil RICO claim, 7 the plaintiff must allege that a defendant IS RICO violation was 8 

### not only a IIbut for" cause of plaintiff's injury but also its 9 

### proximate cause. 

### Citing, inter alia, Moore v. PaineWebber. Inc., 10 189 F.3d 165, 169-70 (2d Cir. 1999) (flMoore ll ) I and Powers v. 11 British Vita. P.L.C., 57 F.3d 176, 189 (2d Cir. 1995) (IIPowers"), 

### 12 the district court stated that 

### 13 

### liJn 

### complaints predicated on mail or wire fraud, a 14 plaintiff must plead IIloss causation," meaning that 15 the misrepresentation must be both an actual and a 16 proximate source of the loss that the plaintiffs 17 suffered, and "transaction causation," which 18 requires a plaintiff to demonstrate that [plaintiff]

'19 

### reliedon [d]efendants' misrepresentations, 20 

### Ideal I, 254 F.Supp.2d at 468 (emphasis in original) (other 21 internal quotationmarks omitted), and that a civil RICO plaintiff 22 claiming injury to its business from racketeering activity in the 23 nature of fraud canhot show proximate cause without demonstrating 24 that the plaintiff itself reliedon the fraudulent communications, 25 see id. The court concluded that 26 27 28 29 

### 30 31 32 33 

### [a]lthough Ideal alleges that theNew 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 Taxation and Finance. claims fail. New York State Department of As a result, Ideal's RICO

- 5 -

### 1 Id. The court declined toexercise supplemental jurisdictionover 2 Tdeal's breach-of-contract claim. 3 In Ideal II, this Court vacated the Ideal I decision, 4 noting that although therewas language inMoore and Powers to the 5 effect that a plaintiff itself must have relied on the allegedly 6 fraudulent racketeering activity, those cases dealt with claims 7 of plaintiffs w ho alleged that they were in fact parties to the 8 transactions that they claimedhadbeen fraudulently induced. See 9 Ideal 11,373 F.3d at 263. Thus, the language as to the need for 10 reliance by the plaintiff itself was descriptive rather than 11 normative. See id. We observed that "[t]

### his Court has not held 12 that the civil

-RICO plaintiff who allegesmail fraud orwire fraud 13 must havebeen the entity that reliedon the fraud," id. 14 Focusing principally on Ideal's claim under § 

### 1962{c), we 15 saw a critical distinction between that claim and the claims 16 asserted in cases in which we had affirmed Rule 12{bl(6) 17 dismissals of civil RICO claims for insufficient allegation of 18 proximate cause. Those prior cases had involvedclaims of injury 19 that were too remote from the alleged racketeering activity 20 because, for example, the plaintiff's injuries were not 21 "'reasonably foreseeabletII 

### or the ",natural consequence[8] 

### of the 22 RICO violations, III 

### Ideal II, 373 F.3d at 258 {quoting Hecht v. 23 Commerce Clearing House, Inc., 897 F.2d 21,24 (2d Cir. 1990)); 24 or the plaintiff was '" neither the target of the racketeering 25 enterprise nor the competitor[] nor the customer[] of the 26 racketeer[s],'" Ideal II, 373 F.3d at 258 {quoting Sperber v.
- 6 -

### 1 Boesky, 849 F.2d 60, 65 (2d Cir. 1988)); or the injury sued for 2 was neither the 11

### 'preconceived purpose'" nor the '''specifically3 

### intended consequence' It 

### of the RICO defendants' racketeering 4 

### activity, Ideal II, 373 F.3d at 259 (quoting In re American 5 

### Express Co. 

### Shareholder Litigation, 39 F.3d 395, 400 (2d Cir. 6 1994))
. 

### We concluded that even if an alleged scheme depended on 7 

### fraudulent communications directed to and relied on by a third 8 

### person rather than by the plaintiff, a plaintiff injured in its 9 business or property has standing to pursue a civil RICO claim-- 10 andadequatelypleadsproximate cause--if its 11 complaint contains allegations of facts to show that 12 the defendant engaged in a pattern of fraudulent 13 conduct that is within the RICO definition of 14 racketeering activity and that was intended to and 15 did give the defendant a competitive advantage over 16 the plaintiff. 17 

### Ideal II, 

### 373 F.3d at 263. Noting the allegations that 18 19 20 21 22 23 

### [t]he principal intended victim of the scheme was Ideal, over which defendants sought to secure a competitive advantage by giving certain cash customersanunlawful benefit, andbyconcealing that unlawful conduct and retaining the resulting profits bymeans of racketeering activity, 24 id. at 264 (emphasis added), we concluded that 25 26 27 28 29 30 

### id. 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, We 

### concluded that Ideal's complaint adequately stated claims 31 under both § 1962(c) and § 1962(a).

- 7 -

### 1 E. TheDecisionof the SupremeCourt: Ideal III 2 

### In Ideal III, 547 U.S. 451, the Supreme Court reversed in 3 part, and vacated and remanded in part, our decision in Ideal II. 4 With respect to Ideal's claimunder § 

### 1962(c), the Court reversed, 5 noting its holding in Holmes "that a plaintiff may sue under 6 § 

### 1964(c) only if the alleged RICO violation was the proximate 7 cause of the plaintiff's injury," Ideal III, 547 U.S. at 453, and 8 stating that the critical question for the present case was thus 9 "whether the alleged violation led directly to the plaintiff's 10 injuries, II 

### not whether the violation intentionally targeted the 11 

### plaintiff, id. at 460-61. RICO provides a civil right of action 12 for"[a]nyperson injured in his businessor propertyby reason of 13 

### a violation of section 1962, /I 

### 18 U.S.C. § 

### 1964(c). The Holmes 14 Court had rejected the proposition that the phrase "by reason of" 15 required merely that the claimed violation have been a "but fori' 16 cause of the plaintiff's injury, concluding instead that that 17 

### phrase ,,'demand[s]
. some direct relation between the injury 18 asserted andthe injuriousconduct alleged.'" Ideal 111, 547 U.S. 19 

### at 457 (quoting Holmes, 503 U
.S. at 268). With respect to a 20 claimed violation of § 

### 1962(c), which prohibits conducting or 21 participating in the conduct of an enterprise's affairs through a 22 pattern of racketeering activity, the Court had 23 indicated the compensable injury flowing from a 24 violation of that provision "necessarily is the harm 25 caused by predicate acts sufficiently related to 26 constitute a pattern, for the essence of the 27 violation is the commission of those acts in 28 connectionwith theconduct of an enterprise."

- 8

-1 Ideal III, 547 U.S. at 457 (quoting Sedima, S.P.R.L. v. Imrex Co., 2 473 U.S. 479, 497 (1985) ("Sedima"))
. 3 The Supreme Court found it clearthat there was no direct 4 relation between the injury asserted by Ideal and the Anzas' 5 alleged mail and wire frauds: 6 The RICO violation alleged by Ideal is that the Anzas 7 conducted National's affairs through a pattern of 8 mail fraud andwire fraud. The direct victimof this 9 conduct was the State of New York, not Ideal. It 10 was the State that was being defrauded and the State 11 that lost taxrevenue as a result. 12 The proper referent of the proximate-cause 13 analysis is an alleged practice of conducting 14 National's business through a pattern of defrauding 15 the State. Tobe sure, Ideal asserts it suffered its 16 own harms when the Anzas failed to charge customers 17 for the applicable sales tax. The cause of Ideal's 18 asserted harms, however, is a set. of actions 19 (offering lower prices) entirely distinct from the 20 alleged RICO violation (defrauding the State) 21 Ideal III, 547 U.S
. at 458 (emphases added) 22 The Court noted that one of the reasons for the 23 directness requirement is that'" ltlhe less direct an injury**~s,** 24 the more difficult it becomes to ascertain the amount of a 2S plaintiff's damages attributable to the violation, as distinct 26 from other, independent, factors
.'" Id. at 458 (quoting Holmes, 27 503 U.S. at 269). It found Ideal's § 1962(c) claim 28 "illustrative": 2 9 The injury Ideal alleges is its own loss of sales 30 resulting from National's decreased prices for cash31 paying customers
. National, however, could have 32 lowered its prices for any number of reasons 33 unconnected to the asserted pattern of fraud. It 34 may have received a cash inflow from some other 35 source or concluded that the additional sales would 36 ' justify a smaller profit margin. Its lowering of 37 prices in no sense required it to defraud the state

- 9

-1 2 3 4 5 tax authority. Likewise, the fact that a company 

### commits tax fraud does not mean the company will lower its prices; the additional cash could go 

### anywhere from asset acquisition to research and development to dividendpayouts. 

### 6 Ideal III, 547 U.S. at 458

-59. The Court also noted that 7 8 9 10 11 12 13 14 Ideal's lost

- sales could have resulted from factors 

### other than petitioners' alleged acts of fraud. 

### Businesses lose and gain customers for many reasons, and it 

### w ould require a complex assessment to establishwhat portionof Ideal's lost sales were the product of National's decreased prices. Id. 

### at 459. 

### The Court envisioned proceedings that could only be "speculative, II id., 

### if Ideal were permitted to pursue its 15 § 

### 1962(c) claim: 16 A court considering the claimwould need to begin by 17 calculating the portion of National's price drop 18 attributable to the alleged pattern of racketeering 19 activity. It next would have to calculate the 20 portion of Idealr

### s lost sales attributable to the 21 relevant part of the price drop. The element of 22 proximate causation recognized in Holmes is meant to 23 prevent these types of intricate, uncertain 24 inquiries fromoverrunning RICO litigation
. 25 

### Ideal III, 547 U.S. at 459

-60. Accordingly, the Supreme Court 26 reversed Ideal II to the extent that Ideal II had overturned the 27 district court's dismissal of Ideal's claimunder § 

### 1962(c). 28 

### With respect to Ideal's claim under § 

### 1962(a), however, 29 the Supreme Court vacated and remanded for fUrther consideration. 30 Because Ideal II had focused principally on Ideal's § 

### 1962(c) 31 

### claim, without addressing the issue of proximate cause in 32 connection with the claimunder § 

### 1962(a), and because the parties 33 had devoted nearly all of their attention inthe Supreme Court to 34 the § 

### 1962(c) claim, the Ideal III Court declined to resolve the 35 

### viability of Ideal's § 

### 1962(a) claim. The Court remanded for

- 10

-1 further consideration of the proximate-cause issue in light of the 2 differences between the two subsections: 3 [i]t is true that private actions for violations of 4 § 1962(a), like actions for violations of § 1962(c), 5 must be asserted under § 1964(c)
. It likewise is 6 true that a claim is cognizable under § 1964(c) only 7 if the defendant's alleged violation proximately 8 caused the plaintiff's injury. The proximate-cause 9 inquiry, however, requires careful consideration of 10 the IIrelation between the injury asserted and the 11 injurious conduct alleged. tI Holmes, supra, at 268. 12 Because § 1962(c) and § 1962(a) set forth distinct 13 prohibitions, it is at least debatable whether 14 Ideal's two claims should be analyzed in an 15 identical fashion for proximate-cause purposes. 16 Ideal III, 547 U.S. at 461

-62 (emphasis added).

17 C. The Decision of theDistrict Court on the Subsection (a) Claim 18 on Remand: Ideal IV 19 This Court remanded the matter to the district court for 20 consideration, in light of Ideal III, of the issue of proximate 21 cause with respect to Ideal Is claim under § 1962(a) Following 22 our remand, Ideal filed its present Complaint, reasserting only 23 its § 1962(a) claim and its state-law breach

-oE

-contract claim, 24 and additional discovery was conducted. 25 The Complaint again described the cash-no-tax scheme 26 conducted at National's Queens facility l.n the late 19909 and 27 early 20009, and the attendant mail and wire frauds that allowed 28 defendants to retain unreported profits and avoid paying proper 29 taxes. It alleged that defendants used the concealed unlawful 30 profits and tax savings to finance the opening of the National 31 store in the Bronx to compete with Ideal. According to the 32 Complaint and materials developed in discovery, for 1999 and 2000

- 111 National filed tax returns reporting total income of $145,118. 2 Following the commencement of the present lawsuit, however, 3 National filed amended tax returns showing that its total income 4 for those years had instead been nearly $1.7 million, and that for 5 the period 1998-2003 National had underreported its taxable income 6 by a total of $4.3 million, allowing it to underpay its taxes by 7 approximately $1.7 million
. Discovery and other proceedings 8 revealed that the Anzas had created a corporation called Easton 9 Development Corporation ("Easton Corporation") to purchase 10 property in 1999 co enable National to open its store in the 11 Bronx, and that the cash portion of the purchase price was 12 $500,000, which was paid by National
. {See Deposition of Joseph 13 Anza at 34; Declaration of Vincent Anza dated December 12, 2008 14 ("Anza Decl."),**~~** 10, 11; Deposition of Vincent Anza ("Anza 15 Dep.") at 188.) National began operating its Bronx store in 2000. 16 (See Anza Decl.**~** 4.) Defendants stated that "National expended 17 approximately $850,000 to open its Bronx facility" (id.**~** 5); a 18 report prepared by accountants retained by Ideal concluded that 19 National had spent considerably more. 20 Ideal asserted that prior to 2000 there were no companies 21 capable

--in either size orbreadth of offerings--of competing with 22 Ideal in the Bronx, and that in 1998-2000, Ideal consistently had 23 annual sales in the range of $4 million $4.6 million. It 24 alleged that defendants' opening of the National store in the 25 Bronx injured Ideal in two ways. First, simply bybeing there and 26 offering products and services comparable to those offered by

- 12

-1 Ideal, the new National store took customers from Ideal, causing 2 Ideal's annual sales in 2001-2002 to drop by about one-third, to 3 $2.7 million

- $2.9 million. Second, Ideal asserts that at the 4 Bronx store National engaged in the same cash

-no-tax scheme that 5 it conducted in the Queens store, thus allowing National to lure 6 customers with the lowerprices financed by the prior tax frauds. 

### 7 Defendants moved for judgment on the pleadingspursuant to 8 Fed. R. Civ. P. 12(c), or alternatively for summary judgment 9 pursuant to Fed. R. Civ. P
. 56, dismissing the Complaint on the 10 ground that Ideal could not show that its lost sales were 11 proximately caused by the mere creation of National's Bronx 12 facility through the alleged investment of the proceeds of 13 14 15 16 racketeering activity. In Ideal Steel Supply Corp. 

### v. Anza, No. 02 Civ. 4788, 2009 i'lL 1883272 

### IS.D.N.Y. June 30, 2009) ("Ideal IV"), the district court found defendants' position persuasive, and it granted judgment on the pleadings and, 17 alternatively, summaryjudgment. 18 FirstI the court found that Ideal's Complaint failed to 19 meet the standard set by Bell Atlantic Corp. v. Twombly, 550 U.S. 20 S-44 (2007) (IiTwombly"), which requires a plaintiff to plead II'more 21 than labels and conclusions, and a formulaic recitation of the 22 elements of a cause of action, 1" Ideal IV, 2009 WL 1883272, at *3 23 24 25 (quot

_ ing Twombly, 550 U.S. that "[d]efendants argue plead facts showing that at 555). persuasively

Ideal's lostThe district court found that Plaintiff fails to sales were proximately 26 caused by the mere creation of National's Bronx facility through

- 13

-1 the alleged investment of an unspecified amount of RICO proceeds." 2 Ideal IV, 2009 WL 1883272, at *4 (internal quotation marks 3 omitted). It also found the Complaint 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 deficient in that it does not alleqe facts explaining how Defendants' investment of purported racketeering income to establish and operate its Bronx business location proximately caused Ideal to lose sales. profits, and market share. Plaintiff's allegations that "Defendants substantially decreased Ideal's sales. orofits, and local market share. and eliminated Ideal's dominant market position. by using racketeering proceeds to acquire. establish, and operate their Bronx business operation," are little more than "labels and conclusions," Twombly, 550 U.S. at 555, and do not show how Defendants[,] "alleged violation [of RICO] led directly to [Ideal's] injuries," [Ideal] III, 547 U.S. at 461. They are insufficient to state a claim under Section 1962(a). 20 Ideal IV, 2009 WL 1883272, at *4 (emphases added)
. 21 In the alternative, the district court granted defendants' 22 motion for summary judgment. The court noted that the Supreme 23 Court in Ideal III had found that proximate cause was lacking with 24 respect to Ideal's 1962(c) claim because n.it would require a 25 complex assessment to establish what portion of Ideal's lost sales 26 were the product of National's [conduct]' because [b]usinesses 27 lose and gain customers for many reasons,' II Ideal IV, 2009 WL 28 1883272, at *6 (quoting Ideal III, 547 U.S. at 459). The district 29 court stated that "[tlhis is no less true hereII with respect to 30 the 1962(a) claim
. Ideal IV, 2009 WL 1883272, at *6. 31 32 33 

### 34 35 36 37 Plaintiff's Section 1962(a) RICO claim raises the same concerns in view of Plaintiff's assertions that its injuries include "a permanent loss of sales, profits, and market share. II • That is, it would be purely speculative for this Court to conclude that Ideal's alleged injuries resulted from Defendants' conduct as opposed to other factors

- 141 liThe element of proximate causation
. is 2 meant to prevent these types of intricate, uncertain 

### 3 inquiries from overrunning RICO litigation. II [Ideal

### I 4 III, 547 U.S. at 460
. 5 Ideal IV, 2009 WL 1883272, at *6. 6 The court found that proximate cause was lacking because 7 "there were intervening factors that may have caused Ideal's 8 alleged lost sales, profits, and diminution in market share. II Id. 9 at *5. 10 For one thing, Ideal's principal, Giacomo Brancato, 11 testified that Ideal's Bronx location had "thousands 12 of customers that buy thousands of products for many 13 different uses. II The decisions of individual 14 purchasers, i.e., in this case presumably not to buy 15 steel products from Ideal, have been held to 16 constitute an independent intervening act between the 17 alleged RICO violations and the alleged injuries
. 18 Id. (emphases added). The court also found that "Ideal's Bronx 19 operation had several competitors," id. at *5 n.2, that Ideal 20 IIreceived and acceptedll inferior products, id. at 

### *6, and that 21 Ideal made various business decisions such as deciding whether or 22 not to lower its prices to match those of National, see id., all 23 of which the court held constituted intervening factors preventing 24 Ideal from establishing proximate cause. 25 Accordingly, the district court dismissed Ideal's claim 26 under § 1962(a). The court also declined to exercise supplemental 27 jurisdiction over Ideal's state-law contract claim and dismissed 28 that claim without prejudice. See id. at *7
.

- 15

-1 II. DISCUSSION

2 On appeal, Ideal contends principally that the district J 

### court failed to take proper account of the different acts 4 prohibited by § 

### 1962(a) and § 1962(c) 

### and thereby erred in 5 concluding that Ideal could not show that defendants' use or 6 

### investment of the proceeds from their mail and wire frauds to 

### 7 establish their Bronx facility was the proximate cause of the 8 9 

### 10 

### alleged injury to Ideal's business. It also contends, inter alia, 

### that the court conElated proximate causation with actual causation, 

### mischaracterized as conclusory certain of the 11 Complaint Is allegations that were factual, disregarded evidence 

### 12 produced in discovery that supported Ideal's § 

### 1962(a) claim, and 13 viewed disputed evidence in a light favoring the defendants. 14 Defendants contendprincipally that the district court'sview that 15 the proximate cause inquiry with respect to Ideal's claim under 16 subsection (a) was the same as that with respect to subsection (c) 17 was correct because Ideal failed to plead injury on a use-or18 investment theory that was distinct from the injury that it 19 alleged resulted from the racketeering activity itself, and that 20 

### 21 22 23 24 25 

### the district court correctly concluded that any injury to Ideal
was too remote to have been proximately causeq by the**open~ng** 

### of National's Bronx facility. In addition, defendants contend that Ideal failed to show that National invested RICO proceeds in its Bronx location and that, in any event, the § 

### 1962(a) prohibition against the use or investment of racketeering activity proceeds



### - 16

-

### 1 does not apply when those proceeds are used or reinvested in 

### the 2 same entity that engagedin theracketeering activity. 3 

### We conclude that to the extent that Ideal claims injury 4 

### fromNational's continuation in itsBronx storeof the cash-no-tax 5 

### scheme conducted in the Queens store, that claim appears to be 6 conceptually indistinguishable from the § 

### 1962(c) 

### claim rejected 7 

### by the Supreme Court in Ideal III
. The lower prices afforded to 8 

### National's customers through this scheme do not involve the 9 "investment" or "use" of the illegallyderived funds. 10 

### To the extent, however, that Ideal claims that it lost 11 sales to National because defendants invested the proceeds of 12 their pattern of racketeering activity to establish and operate 13 

### National's new store in the Bronx, we reject defendants' 14 content.ions and conclude, for the reasons that follow, that the 15 district court erred in granting judgment on the pleadings 

### on the 16 basis of Twombly, and erred ingranting summaryjudgment.

17 A. The Scope of Section 1962(a) 18 

### In enacting RICO, Congress was concerned about, inter 19 alia, damage to the nation's free enterprise system by persons or 20 

### entities infiltrating or operating otherwise legitimate 21 

### businesses by means of criminal activities. The statement of 22 findings andpurpose that prefaces the Organized Crime Control Act 23 of 1970 ("OeCA"), of which RICO was Title IX, states, inter alia, 24 that 25 26 

### organized weaken thecrime activities in the United States stabilityof theNation's economic system,

- 17

-1 2 3 4 5 6 harm innocent investors and competing organizations, 

### interfere 

### with free competition, seriously burden 

### interstate and foreign commerce, threaten the domestic security, and undermine the general welfare of the Nation and its citizens. Puh.L.**91 452,**  84 Stat. 922-23 (1970) (emphasis added). RICO 

### 7 provisions such as § 

### 1962(al reflect Congress's concern about the 8 control of otherwise legitimate business concerns "acquired by the 9 sub rosa investment of profits acquired from illegal ventures, II 10 

### S. Rep. No
. 91-617, at 77 (1969); see id. 

### (infiltration of 11 organized crime into legitimate businesses portends the 12 Ileffective(J eliminat[ion]" of "[c]ompetitors")
. 13 When organized crime infiltrates a legitimate 14 business, its whole method of operation counters our 15 theories of free competition and acts as an illegal 16 restraint 

### of trade. Whether 

### a business is purchased 17 from funds derived from itsmany unlawful activities, 

### 18 or whether it is acquired by extortion and violence, 19 its aim is monopoly. The vast economic power 20 concentrated in this giant criminal conglomerate 21 constitutes a dire threat to the proper functioning 22 of oureconomic system. 23 116 Congo Rec. 602 (1970) (statement of Sen. H ruska). See also 24 

## s. Rep. 

### No. 91-617, at 78 ("The syndicate-owned business, 25 financed by illegal revenues and operated outside the rules of 26 fair competition of the American marketplace, cannot be tolerated 27 in a system of free enterprise." (internal quotation marks 28 omitted)); id
. at 

### 81 (describing civil remedies intended to 29 attack, inter alia, "corruption in the acquisition or operation of 30 business")

_ 

### 31 The prohibitions set out in RICO are not
. limited to the 32 activities of organized crime but rather extend to any person or 33 entity engaging in a "pattern of racketeering activity" as that 

### 181 term is defined in 18 U
.S.C. § 1961(5). See,**~,** H.J, Inc. v. 2 Northwestern Bell Telephone Co., 492 U.S. 229, 238, 249 (1989). 3 "To be sure, Congress focused on, and the examples used**~n** the 

### 4 debates and reports to illustrate theAct's operationconcern, the 5 predations of mobsters. Organized crime was without a doubt 6 Congress' major target 

## " rd. at 245. But "the capacious 7 language" Congress used in defining such terms as pattern of 8 racketeering activity is not limited to conduct by entities 9 having a nexus with organized crime, and ttthe legislative history 

### 10 shows that Congress knew what it 

### was doing when it 

### adopted 11 commodious language capable of extending beyond organized crime. II 12 rd. at 246; see, !L:...9....:... id. at 247 {'"organized crime' simply 'a 13 shorthand method of referring to a large and varying group of 14 individual criminal offenses committed in diverse circumstances,' 15 not a precise concept" (quoting 116 Congo Rec. 35344 (1970) 16 (statement of Rep. Poff))) 17 Among its civil remedies, RICOprovides a private right of 18 action for treble damages for a "person injured in his business or 19 property by reason of a violation of section 1962. II 18 U.S.C. 20 § 1964(e)

. Subsection (a) of § 1962--the remaining federal

-law 21 focus of the present litigation

--provides, inpertinentpart, that 22 [i]t shall be unlawful for any person who has 23 received any income derived, directly or indirectly, 24 from a pattern of racketeering activity
. to use 25 or invest, directly or indirectly, any part of such 26 income, or the proceeds of such income, in.
. the 27 establishment or operation of, any enterprise which 28 is engaged in, or the activities of which affect, 29 interstate or foreign commerce.

- 19

-1 2 18 U.S.C
. § 1962(a) (emphases added) to "include[] 

### any individual, RICO defines "enterprise" 

### partnership, corporation, 3 association, or other legal entity, and any union or group of 4 individuals associated in fact although not a legal entity." Id. S § 1961(4)
. For the sake of brevity, we wi.!l refer to an 6 

### "enterprise which is engaged in, or the activities of which 7 

### affect, interstate or foreign commerce," id. § 1962

### (a), as a 8 

### "commerce

-affecting enterprise. II 

### 9 Subsection 

### (c) of § 

### 1962, whichwas theprincipal focus of 10 Ideal I, 

### II, and III, makes it 

### unlawful for anyperson employed by 11 or associated with a commerce-affecting enterprise "to conduct or 

### 12 participate, 

### directly or indirectly, in the conduct of such 13 enterprise's affairs through a pattern of racketeering activity." 14 18 U.S
.C. § 1962(c) Thus, "the compensable injury flowing from a 15 violation of that provision 'necessarily is the harm caused by 16 predicate acts sufficiently related to constitute a pattern.'" 17 Ideal III, 547 U.S. at 457 (quoting Sedima, 473 U.S. at 497) 18 (emphasis ours)
. 19 Subsection (a), in contrast, focuses the inquiry on 20 conduct different from the conduct constituting the pattern of 21 racketeering activity. After there have been sufficientpredicate 22 acts to constitute such a pattern, what is forbidden by subsection 23 (a) is the investment or use of the proceeds of that activity to 24 establish or operate a commerce-affecting enterprise. Thus, the 25 plaintiff asserting a civil RICO claim based on a violation of 26 subsection (a) must show injury caused not by the pattern of

- 20

-1 racketeering activity itself, but rather by the use or investment 

### 2 of the proceeds of that activity, see,**,** Ouaknine v. 3 MacFarlane, 897 F.2d 75, 82-83 (2d eir. 1990). 4 Further, the numerous disjuncts in § 1962(a) create a 5 broad prohibition. Assuming a pattern of racketeering activity 6 and a commerce-affecting enterprise, both the funds derived 7 "directly or indirectlyIt from such activity and the "proceeds of 8 such income" are tainted: no part of the "income, or the proceeds 9 of such income" may lawfully be "use[d] or investred] ,II whether 10 "directly or indirectly, Il in "the establishment or operation" of 11 that enterprise. Thus, although the injury alleged to result from 12 the violation of subsection (a)--as from the violation of any 13 other subsection of § 1962--must be sufficiently directly related 14 to the violation to meet the legal standard of proximate cause 15 implied in § 1964(c), the many disjuncts in § 1962(al mean that 16 any of dozens of combinations or permutations will constitute a 17 violation of that sec.tion. And 

### 18 19 20 21 

### 22 23 24 25 26 27 RICO is to be read broadly. This is the lesson not only of Congress' self-consciously expansive language and overall approach, see United States v. Turkette, 452 U.S. 576, 586-587 (1981), but also of its express admonition that RICO is to "be liberally construed to effectuate its remedial purposes," Pub.L. 91-452, § 904(a), 84 Stat. 947
. The statute's "remedial purposes" are nowhere more evident than in the orovision of a private action for those injured by racketeering activity
. 28 Sedima, 473 U.S. at 497

-98 (emphases added); see id. at 491 n_l0 29 ("[I]f Congress' liberal-construction mandate is to be applied 30 anywhere, it is in § 1964, where RICO's remedial purposes are most 31 evident.")

- 21

-

### 1 Given thebreadthwithwhichRICO is to be interpreted, we 2 reject for two reasons defendants' contention that § 

### 1962(a)'s 3 prohibition against theuse or investment of racketeering activity 4 proceeds is inapplicable to their alleged use of pattern-ofS racketeering-activity proceeds to open National's Bronx facility 6 on the theory that that section does not apply when such proceeds 7 are simply used or reinvested in the same entity that engaged in 8 the racketeering activity. First, defendants' factual premise is 9 flawedi they did not merely reinvest in the same entity. Rather, 10 the Anzas created a new company, Easton Corporation, to purchase 11 the Bronx property for the new National store. Second, even if 12 Congress did not intend subsection (a)'s prohibition to reach the 13 use of RICO tainted funds by the RICO violator in 

### its own ongoing 14 operation, the legislative history does not permit the inference 15 that Congress meant to allow such entities, with impunity, to use 16 those funds tobranchout tonew locations. 17 Finally, in keeping with the proper recognition of RICO's 18 breadth, we note that "income" as used in § 

### 1962{a) was doubtless 19 not intended by 

### Congress to be interpreted restrictively to 20 exclude moneys unlawfully retained by 

### means of racketeering 21 activity. Indescribing the RICO sectionsof thebill that became 22 the OeCA, the report of the Judiciary Committee of the House of 23 Representatives stated that"(s]ubsection (a) makes itunlawful to 24 invest funds derived from a pattern of racketeering activity, as 25 defined in section 1961(1)," H.R. Rep. No. 91-1549, at57, 26 reprinted in 1970 U.S
. Code Congo & 

### Admin. News 4007, 4036

- 22

-1 2 3 (emphasis added). We can discern no meaningful distinction, for RICO 

### purposes, between income fraudulently acquired and income 

### fraudulently retained; both result in funds not otherwise 4 available but for the fraud. Thus we viewmoneys unlawfully saved 5 or withheld by means of a pattern of mail and wire frauds, as is 6 alleged In the present case, as falling within the meaning of 7 § 1962(a)'s reference to "income. II Nor have defendants urged a 8 narrower interpretation. 9 In sum, with respect to Ideal's claim under § 1962(c) I 10 I,[tjhe proper referent of the proximate-cause analysis [was the] 

### 11 alleged practice of conducting National's business through a 12 pattern ofll mail and wire fraud in connection with its tax 13 obligations, '!defrauding the State." Ideal III, 547 U.S, at 458. 14 Given this frame of reference, Ideal's injury, i.e., loss of sales 15 to National, was "attenuated," id. at 459, because the direct 16 victim of that activity was the state of New York
. But 17 It[p]roximate cause requires only 'some direct relation between the 18 injury asserted and the injurious conduct alleged,' and excludes 19 only those 'link[s] that are too remote, purely contingent, or 20 indirect. II! Staub v. Proctor Hospital, 131 S. Ct
. 1186, 1192 21 (2011) (quoting Hemi Group, LLC v. City of New York, 130 S. Ct. 22 983,989 (2010) ("Hemin)). With respect to the claim under 23 § 1962(a), the proper referent in the proximate-cause ana"lysis is 24 defendants' Ituse or invest[ment]It of the funds, derived directly 25 or indirectly from the alleged pattern of racketeering activity, 26 to establish or operate the National facility in the Bronx.

- 23

-1 With these principles in mind, we turn to the matter of 2 whether Ideal 1s Complaint was properly dismissed on the ground 3 that it failed to plead, or that Ideal failed to adduce evidence, 4 that. defendants' investment or use of funds derived from the 5 

### pattern of mail and wire frauds was a proximate cause of Idealts 

### 6 alleged injuryat itsBronx store.

7 B
. The Dismissal Pursuant to Rule 12(c} 8 

### As indicated in Part I.C. above, the district court 9 dismissed the Complaint pursuant to Rule 12(c) on the grounds that 10 it did 

### not specify the amount of RICO proceeds used to create 11 National's Bronx facility, Ideal IV, 2009 WL 1883272, at *4, and 12 lid[id] not allege facts explaining how DefendantsI investment of 13 purported racketeering income to establish and operate its Bronx 14 business locationproximately caused Ideal to lose sales, profits, 15 and market share, 11 id.i and that Ideal's "allegations that 16 Defendants substantially decreased Ideal's sales, profits, and 17 local market share, and eliminated Ideal's 

### dominant market 18 position, by using racketeering proceeds to acquire, establish, 19 and operate their Bronx business operation, [we]re little 20 more than 'labels and conclusions,' II id. (quoting Twombly, 550 21 U,S. at 555 (other internal quotation marks omitted)), or "'a 22 formulaic recitation of the elements of a cause of action, ' It id. 23 at *3 (quoting Twombly, 550 U.S. at 555). We disagree with the 24 district court's characterizations and its application of Tw ombly.

- 24

-1 

### First, the Twombly Court noted that Fed. R. Civ
. P. 2 8

### (a)(2) 

### "requires only 'a short and plain statement of the claim 

### 3 showing that the pleader is entitled to relief. in order to give 4 the defendant fair notice of what the claim is and the 5 grounds upon which it rests, II Twombly, 550 U
.S. at 555 (other 

### 6 internal quotation marks omitted)i 

### see also Swierkiewiczv. Sorema 7 N.A., 534 U.S. 506, 508, 512 (2002) (to satisfy Rule 8(a)(2), a 

### 8 plaintiff who alleges facts that provide fair notice of his claim 9 need not also allege uspecific facts establishing a prima facie 10 case")

. The Twombly Court, while stating that mere 1I1abels and 11 conclusions" or 

### uformulaic recitation[8] of the elements of a 12 cause of action will not do, II stated that "a complaint attacked by 13 a Rule 12(b)(6) motion to dismiss does not need detailed factual 14 allegations, II but only"[f]actual allegations (that are] enough 15 to raise a right to relief above the speculative level," 550 U.S. 16 at 555, i.e., enough to make the claim Tlplausible, II id. at 570i 17 see Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) ("A claim has 18 facial plausibility when the plaintiff pleads factual content that 19 allows the court to draw the reasonable inference that the 20 21 defendant is liable for the misconduct alleged.U) Court stated that II[a]sking for plausible grounds The Twombly does not 22 impose a probability requirement at the pleading stage; it simply 23 calls for enough fact to raise a reasonable expectation that 24 discovery will reveal evidence of illegal[ityJ.n 550 U
.S
. at 556. 25 The district court in Ideal IV demanded of Ideal a 26 pleading at a level of specificity that was not justified by

- 25 -1 

### Twombly. The Complaint's lIallegations 

### that Defendants 2 substantially decreased Ideal's sales, profits, and local market 3 share, and eliminated Ideal's dominant market position, by using 4 racketeering proceeds to acquire, establish, and operate their 5 Bronx business operation, n Ideal IV, 2009 WL 1883272, at *4 6 

### (internal quotation marks omitted), were not properly 7 characterizedas "labels," id., nor could the allegations--as they 8 were set forth in the Complaint--be considered a mere formulaic 

### 9 repetition of the statutory language or considered so conclusory 10 as to lack facial plausibility. The Complaint alleged, inter 

### 11 alia, that the income of National, as a Subchapter S corporation 12 under the Internal Revenue Code, passed through to the Anzas as 13 its sole shareholders**~** Complaint**~** 26); that from at least 14 1996 to the spring of 2004, National and the AnZdS filed 15 fraudulent tax returns understating the amount of their taxable 16 income and enabling them to save and amass substantial funds (see, 17 fL:...9....:.., id.**~~** 28, 30, 61); that after the commencement of this 18 lawsuit in 2002, defendants admitted the falsity of those income 19 tax returns by filing amended returns showing that they had 20 falsely underreported National's income to tax authorities for 21 several years**(~** id.**~** 29); that defendants I false tax returns 22 from 1996 to spring 2004 were filed by mail and fax, violated 23 federal laws against mail and wire fraud, and constituted 

### a 24 pattern of racketeering activity in violation of RICO (see id.



### -- -- 25 

## 1t 34-35, 45, 61) i that for each of the years 1999 and 2000, 26 defendants reported taxable income of less than $100,000 (see id.



### -- --

- 26

-

### 1**~** 

### 38); that the purchase and renovation expenses for National's 2 Bronx facilitywere capital expenses that could not be fundedwith 3 pre-tax dollars**(~** 

### id. 1 1

### 39)i 

### that the expense of purchasing, 4 renovating, equipping, stocking, and opening National's Bronx 5 facility was estimatedby Ideal tobe inexcessof $1 million (see 6 id. 1 1

### 37) i 

### and that in 1999-2000I 

### defendants fraudulently 7 underreported their income by more than $1 million (see id.**~** 

### 40). 8 The Complaint alleged that before National opened its Bronx 9 facility, Ideal had a dominant market position there, with no 10 serious competitors, as no other Bronx vendors offered as 11 comprehensive an array of goods and services as Ideal (see id
. 12**~** 

### 11); that National's Bronx facility, opened in the summer of 13 2000 a mere eight minutes' drive from Ideal 1

### s facility, began to 14 offer an array of goods and services similar to those offered by 15 Ideal (see id.**~~** 

### 9-15); and that the opening of National's Bronx 16 facility caused a substantial decrease in Ideal's sales, profits, 17 and local market share (see id.**~** 

### 43)
. We see nothing 

### implausible 18 in the allegations that a plaintiff business entity that had once 19 20 21 

### enjoyed a dominant market position, from other, more limited, entities, competitor comparable in size and with no serious competition lost business when a large offerings to the plaintiff 22 opened nearby. 23 24 

### Rule Second, 12(c) are although the standards for dismissal pursuant to the same as for a dismissal pursuant to Rule 25 12(b)(6), gg,**,** 

### Rivera v. Heyman, 157 F.3d 101, 103 (2d Cir. 26 1998), and the standard set by Tw ombly for evaluation of the

- 27

-

### 1 viability of the pleading is the same under each Rule, see,**~,** 

### 2 Hayden v. paterson, 594 F.3d 150, 160-61 (2d eir. 2010), we view 3 the district courtls focus solely on the allegations of the 4 Complaint, given the posture of this case, as a misapplication of 5 

### Twombly. Twombly is meant to allow the parties and the court to 6 avoid the expense of discovery and other pretrial motion practice 7 when the complaint states no plausible claim on which relief can 8 be

### granted: 9 [W]hen the allegations in a complaint, however true, 10 could not raise a claim of entitlement to relief, 11 this basic deficiency should.
. be exposed at the 12 pointof minimumexpenditureof time and money by

### the 13 parties and the court. 14 

### Twombly, 550 U
.S. 

### at 558 (internal quotation marks omitted) 15 

### (emphasis ours)
. In the present case, the point of minimum 16 

### expense had long since been passed. The case had been addressed 17 at each of the three levels of the federal judicial system; and, 18 

### by the time of Ideal IV, discovery had been completed. To be 19 sure, whether the complaint states a claim upon which relief can 20 be granted is a question of law, and that question may be raised 21 even as late as at the trial of the action, .§.§.§. 

### Fed. R. eiv
. P. 22 12(hi(2I 

### But pleadings often may be amended. Prior to trial, 23 after the time to a,mend as of right has passed, ,,[t]he court 24 should freely give leave [to amend1 when justice so requires, II 

### 25 Fed
. R. eiv
. P. 15(a)(2);**~, ~,**  

### Rachman Bag Co
. v. Liberty 26 Mutual InsuranceCo., 46 F.3d 230, 234-35 (2d eir. 1995); see also 27 Fed. R. Civ. P. 15{b)(1) (even at trial, "{t]he court should 28 freely permit an amendment tl 

### toconformthepleadings to theproof,

- 28

-1 unless the objecting party can show prejudice). Indeed, the 2 availability of "amendment of pleadingsII was one of the reasons 3 for Congress's expectation that the private right of action for 4 RICO violations would be an effective tool
. S. Rep. No. 91-617, 5 at 82. 6 In light of the fact that discovery in this case had been 7 completed prior to the decision in Ideal IV, we do not regard 8 Tw ombly as requiring that defendants' Rule 12(c) motion be granted 9 if evidence that had already been produced during discovery would 10 fill the perceived gaps 

### in the Complaint. For example, although 11 the district court found persuasive the defendants' argument that 12 the Complaint did not specify howmuch RICO incomewas invested to 13 create the National facility in the Bronx, materials in the record 14 showed that the purchase price of the property was $2.5 million; 15 that of that sum, $500,000 in cash was paid at the closing, and 16 that that $500,000 was provided by National**(~, ~,**  Anza Dep. 17 at 186-87, 435); that defendants admit that opening the Bronx 18 store cost at least $850,000**(~, ~,**  Anza Decl. , 5) i and that 19 Ideal's expert accountant estimated that the total cost exceeded 20 $1 million. To the extent that the district court viewed as 21 conclusory the Complaint Is allegations that defendants had filed 22 income tax returns that substantially understated their taxable 23 income, the court should have taken into account the tax returns 24 in the record--both those that were originally filed by National 25 showing less than $73,000 in taxable income for each of the years 26 1999 and 2000, and the amended returns showing taxable income for

- 29

-1 those two years totaling nearly $1.7 million, as well as the 2 deposition testimony of an accountant for National that those and 3 other amended returns filed for National showed that for 1998

-2003 4 National had unreported income totaling approximately $4.3 million 5**(~** Deposition of Jay L. Ofsink at 40). And to the extent that 6 the court viewed the Complaint's allegation that Ideal's Bronx 7 operation lost sales after the advent of National as conclusory, 8 it should have taken into consideration, inter alia, the 9 deposition testimony of Ideal'S sole shareholder, Giacomo 10 Brancato, who stated that in each of the years 1998, 1999, and 11 2000, Ideal had sales in the range of $4 million**~** $4.6 million 12 {Deposition of Giacomo Brancato {"Brancato Dep."} at 282}; and 13 that after National opened its Bronx facility 

### in the summer of 14 2000, Ideal!s sales in 2001 and 2002 dropped by about one-third, 15 to $2.7 million

- $2,9 million**{~id,},** The record also permits 16 the inference that the sales lost by Ideal were made by National. 17 National!s tax returns for 2001 and 2002 showed that its gross 18 sales for those years, the first two full years of its Bronx 19 facility's operation, were, respectively, some $1.2 million and 20 $2.3 millionmore than its gross sales during the last year before 21 the Bronx facility was opened. Although the returns do not 22 provide figures for National's Queens and Bronx facilities 23 separately, it is surely inferable that at least a substantial 24 portion of its 24-47% increase in sales was attributable to the 25 Bronx facility,

- 30 -1 

### In these circumstances, assuming the truth of the 2 Complaint's allegations and of evidence in the record supporting 3 those allegations, if defendants' investment of the proceeds of 

### 4 their alleged pattern of mail and wire frauds has not 5 sufficiently directly harmed Ideal to meet the standard of 6 proximate cause, we find it difficult to envision anyone who could 

### 7 show injuryproximatelycausedby that investment--or to fathom to 8 whom Congress meant to grant a private right of action under 9 subsection (a)

_ We conclude that the district court erred in 

### 10 dismissing Ideal's Complaintpursuant to Rule 12{c).

11 12 13 

### C. SummaryJudgment 

### The principles governing established. Such a motion "may summary judgment are well properly be granted-

-and the 14 grant of summary judgment may properly be affirmed--only where 15 there is no genuine issue of material fact to be tried, and the 16 facts as to which there is no such issue warrant the entry of 17 judgment for the moving party as a matter of law. II Kaytor v. 18 Electric Boat Corp., 609 F.3d 537, 545 (2d Cir. 2010);**~** Fed. R. 19 Civ. P
. 56(a)
. In reviewing the evidence to determine whether the 20 movant is entitled to judgment as a matter of law, the court "may 21 not make credibility determinations or weigh the evidence" and 22 "must draw all reasonable inferences in favor of the nonmoving 23 party." Reeves v. Sanderson Plumbing Products, Inc., 530 U.S
. 24 133, 150 (2000) (emphasis added). The function of the district 25 court in considering the motion for summary judgment is not to

- 31

-

### 1 resolve disputed questions of fact but only to determine whether, 2 as to any material issue, a genuine factual dispute exists. See, 3**~,** 

### Anderson v. Liberty Lobby, Inc., 477 U.S
. 242, 249-50 4 (1986) 5 

### Applying these principles, we first reject defendants' 6 contention--which the district court did not adopt--that they are 7 entitled to summary judgment on the ground that Ideal failed to 8 prove that they invested funds derived from the allegedpatternof 9 racketeering activity in the establishment of National's Bronx 10 facility. The matter of whether or not defendants "directly or 11 indirectly" invested or used proceeds derived "directly or 12 indirectly" from such activity, 18 U.S.C. § 

### 1962(a), is clearly a 13 question of fact that couldnot properly be resolved by the court 14 on summaryjudgment. 15 The district court, as set forth in Part I.C. above, ruled 16 thatdefendants were entitled to summaryjUdgment because it found L7 the evidence insufficient to show that Ideal's alleged loss of 18 19 20 21 22 23 24 25 

### sales was proximately caused by defendants' that it would be "purely speculative conduct. In ruling to conclude that Ideal's alleged injuries resulted from Defendants' conduct," Ideal IV, 

### 2009 WL 1883272, at *6, the court pointed to other possible factors, including thedecisionsof individual customers, the quality of Ideal's steel products, actions taken by other steel companies in the area, and decisions by Ideal's management
as to whether to match National's prices,**~** 

### id. We conclude

- 32

-1 that none of these factors justified granting judgment. against. 2 Ideal as a matterof law. 3 As a general matter, the district court viewed the 4 proximat.e cause 

### inquiry as the same for a claim under subsection 5 (al as for one under subsect.ion (c), and it does not appear to 6 have given effect to the different referents required by the 7 different prohibitions. In Ideal III, the Court found that 8 proximate cause was lacking for Ideal's subsection (cl claim 9 because"the cause of Ideal's harmwas Ia set of actions (offering 10 lower prices) entirely distinct from the alleged RICO violation 11 (defrauding the State).'" Hemi, 130 S. Ct. at 990 (describing and 12 quoting Ideal III, 547 U.S. at 458) Hemi emphasized that the 13 Supreme Court 1s RICO proximate cause precedents make "clear 14 that 'the compensable injury flowing from a [RICO] violation 15 "necessarily is the harm caused by [the] predicate acts,II'" 130 16 S. Ct. at 991 (quoting Ideal III, 547 U.S. at 457 (quoting Sedima, 17 473 U.S. at 497» With respect to Ideal's subsection (al claim, 18 however, the act constituting the violation is the very act that 19 causes the harm: the use or investment of the funds derived from 20 the pattern of mail and wire frauds to establish and operate the 21 Bronx store is both the violation and t.he cause of Ideal's lost 22 23 sales. The district court, individual purchasers in stating that "[t]he decisions of have been held to constitute an 24 independent intervening act between the alleged RICO violations 25 and the alleged injuries, II Ideal IV, 2009 WL 1883272, at *5, does 26 not appear tohave focused on the fact that the alleged subsection

- 33

-

### 1 (a) violation itself, the investment or use of all or part of the 2 income derived directly or indirectly from the racketeering 3 activity in the establishment oroperation of a store that simply 4 byits existence attracts customers away from a competitor, may be 5 the direct cause of injury to the plaintiff in its business or 6 property. 7 We note also that the only cases cited by the district 8 court as holding that decisions of individual purchasers are an 9 intervening cause that defeatsproximate causeweredistrict court 10 

### cases. In Bridge v. Phoenix Bond 

### &Indemnity Co., 553 U.S. 639, 11 651 (2008), the Supreme Court, in rejecting theproposition that a 12 civil RICO plaintiff complaining of a pattern of mail fraud must 13 prove its own reliance, proffered the following hypothetical: 14 suppose an enterprise that wants to get rid of rival 15 businesses mails misrepresentations about them to 16 their customers and suppliers, but not to the rivals 17 themselves. If the rival businesses lose money as a 18 result of the misrepresentations, it would certainly 19 seem that they were injured in their business "by 20 reason of" a pattern of mail fraud, even though they 21 never received, and therefore never relied on, the 22 fraudulent mailings. 23 Id. at 649-50. 

### Plainly, in this hypothetical, the fact that the 24 plaintiff's loss of business would have resulted from customer 25 decisions does not defeat proximate cause. 26 The district court also found an intervening cause in the 27 fact that "Brancato testified that at various times between 1996 28 and 2003 Ideal received and accepted from its vendors steel 29 

### products that w ere bent and rusty
. II 

### Ideal IV, 2009 W L 1883272, 30 at *6 (internal quotationmarks omitted). The court's relianceon

- 34 -1 the possibility that Ideal may have lost business because of 2 inferior products suffers two flaws. First, that possibility 3 raises a question of but-for causation, rather than proximate 4 causation; but-for causation 

### is an issue of fact for the jury, 5**see,~,** Jett v. Dallas Independent School District, 491 U.S. 6 701, 737 (1989), not, where there is evidence to support a finding 7 of causation, a matter to be decided by the court on a motion for 8 summary judgment. Second, the record did not compel the court's 9 inference as a matter of fact. The deposition testimony to which 10 the court referred explained that some products that are 11 unsuitable for one category of customers may well be welcomed by 12 another category; the testimony did not state that any customers 13 who purchased from Ideal were dissatisfied.**(See,~,** Brancato 14 Oep. at 318-35,) The court's suggestion that Ideal lost customers 15 because of inferior products plainly did not view the record in 16 the light most favorable to Ideal. 17 The court's additional suggestion that Ideal may have lost 18 sales because of "actions taken by other steel companies in the 19 area," Ideal IV, 2009 WL 1883272, at *6, does not appear to have 20 any anchor in the record. Nothing has been called to our 21 attention to suggest that the 1998-2000 conduct--or sales volume-- 22 of any such companies, which provided no real competition for 23 Ideal (see Brancato Dep. at 283), changed in 2001-2002, when 24 Ideal's sales dropped by one-third (and the sales of National, 25 with its new facility, increasedby 24

-47%)
.

- 35

-1 Finally, the court's suggestion that Ideal may have lost 2 sales because of its "business**decisions--~,** to lower its 3 prices to compete with National," Ideal IV, 2009 WL 1883272, at 4 *6, seems to have lost sight of the alleged RICO violation, i
.e., 5 the investment of racketeering activity funds to establish the 6 National facility in the Bronx. Had the investment not been 7 made, there wouldhave been no National prices for Ideal to match.

8 CONCLUSION

9 We have considered all of defendants' arguments in support 1.0 of the judgment and have found them to be without merit. The 11 judgment of the district court is vacated, and the matter is 12 remanded for trial.

- 36

-1See, e.g., William H. Rehnquist,Remarks of the Chief Justice, 21 St. Mary's L.J. 5, 9-21 (1989); William H. Rehnquist,Get Rico Cases Out of My Courtroom,Wall St. J., May 19, 1989, atA14; David B. Sentelle,Civil RICO: The Judges’ Perspective, and Some Notes on Practice for North Carolina Lawyers,12 Campbell L. Rev. 145 (1990)
. To be sure, RICO—and its application incivil suits—is not without its defenders.See, e.g., G. Robert Blakey & Thomas A. Perry,An Analysis of the Myths that Bolster Efforts To Rewrite RICO and the Various Proposals for Reform: “Mother of God—Is this the End of RICO?” , 43 Vand. L. Rev. 851 (1990) (defending the“legitimacy” of RICO); G. Robert Blakey, Civil RICO: A Rebuttal to Some MythsSpurring Reform Effort in Congress , Nat'l L.J., Aug. 3, 1987,at 26 (a defense of civil RICO). It should be noted, however, that its defender-in-chief, Professor Blakel y, was the Chief Counsel of the Senate Subcommittee in Criminal Laws and Procedure when the RICO statute was passed,seeGary S. Abrams,The Civil RICO Controversy Reaches the Supreme Court , 13 Hofstra L. Rev. 147, 149 n.9 (1984), and istouted as one of its chief architects,see, e.g.,G. Robert Blakey,The RICO Civil Fraud Action in Contaxt: Reflections onBennett v. Berg, 58 Notre Dame L. Rev. 237, 237 n.3 (1982).


### 1 JOSÉ

### A.CABRANES

### ,Circuit Judge, dissenting: 1 2 We encounter here another chapter in the long saga of civil RICO and its discontents. Since 3 its enactment in 1970, the civil RICO statute, Racketeer Influenced and Corrupt Organizations Act, 4 18 U.S.C. §§ 1961-1968, has exasperated generations of federal judges and practitioners and 5 generated a vast, and often skeptical, literature.1 

### 6 The dispute presently before us involves competing small businesses in the steel mill 7 products trade. It has already consumed nine years of litigation in the federal courts, including one 8 trip to the Supreme Court,see Anza v. Ideal Steel Supply Corp., 547 U.S. 451 (2006) (to employ the 9 citation adopted by today’s majority opinion, “Ideal Steel III ”). One eventful trip to 1 First Street 10 surely deserves another. 11 * * * 12 From its beginnings before Judge RichardBerman, a seasoned federal trial judge, 13 the case has presented the question whether plaintiff Ideal Steel Corporation (“Ideal”) can deploy 14 the heavy legal armaments of RICO in a civil actionagainst its chief rival, National Steel Supply, Inc. 15 (“National”), based on National’s alleged illegal business practices. 16 In its complaint, Ideal raised two distinct civil RICO claims, one under 18 U.S.C. § 172In relevant part, § 1962(a) provides: It shall be unlawful for any person who has received anyincome derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unla wful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, orthe activities of which affect, interstate or foreign commerce. 18 U.S.C. § 1962(a).
3Section 1962(c) states, in full, that “[ i]t shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairsthrough a pattern of racketeering activityor collection of unlawful debt.” 18 U.S.C. § 1962(c) (emphasis added).

4In relevant part, § 1964(c) providesthat “[a]ny person injured in hisbusiness or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and thecost of the suit, including a reasonable attorney's fee[.]” 18 U.S.C. § 1964(c).



### 2 1962(a)2

### and the other under 18 U.S.C. § 1962(c).3

### Claims under each of these provisions “must be 1 asserted under [18 U.S.C.] § 1964(c),”id.at 461-62, which provides a cause of action to persons 2 injured “by reason of” a defendant’s alleged RICO violation, 18 U.S.C. § 1964(c).4 

### 3 Ideal’s § 1962(c) claim alleged that National’s owners, Joseph and Vincent Anza, conducted 4 the affairs of an interstate business enterprise (National) “through a pattern of racketeering 5 activity”—specifically, by refraining from charging their cash-paying customers requisite New York 6 sales tax and by subsequently filing false tax returns with the State of New York.See Ideal Steel III , 7 547 U.S. at 454. The Supreme Court rejected this claim,id.at 461, and directed us to consider on 8 remand the § 1962(a) claim, which accuses the Anzas and National (jointly, “defendants”) of 9 investing fundsderived from the alleged tax fraud schemein order to open and operate a new store in the 10 Bronx.Idat 462. We are thus required to ascertain whether Ideal adequately pleaded its § 1962(a) 11 civil RICO suit against defendants—in particular,we are asked to determine “whether [defendants’] 12 alleged violation of § 1962(a) proximately caused the injuries Ideal asserts.”Id . at 462. Unlike my 13

### 3 colleagues, I think that the “‘relation between the injury asserted and the injurious conduct alleged’” 1 in Ideal’s § 1962(a) claim is, like its § 1962(c) claim, too remote and speculative to satisfy the 2 necessary proximate-cause analysis.Id.(quotingHolmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 268 3 (1992)). Accordingly, I respectfully dissent. 4 5 6 I. 7 8 InIdeal Steel III , the Supreme Court held that Ideal could not maintain its RICO claim under 9 § 1962(c),seenote 2,ante, because it failed to satisfy the requirement of proximate causation set forth 10 inHolmes,503 U.S. 258.See Ideal Steel III , 547 U.S. at 461. The Court concluded that the relation 11 between the injurious conduct alleged (defrauding a third party, the State of New York, of tax 12 revenues) and the injury asserted by Ideal (lost sales due to the competitive advantage thus gained by 13 National) was too attenuated to establish proximate cause.Id . at 458. The Court found support for 14 this conclusion by considering the “underlying premises” of the “directness requirement[ ]” that 15 must be satisfied in order to prove that a defendant’s actions have proximately caused injury to a 16 plaintiff.Id . The Court held that Ideal’s theory of recovery under § 1962(c) was simply too remote 17 and too dependent on contingent propositions to meet this requirement.See id . at 458-60. 18 We must now evaluate whether Ideal’s claim under § 1962(a) can withstand the proximate 19 causation analysis set forth inIdeal Steel IIIandHolmes
.See id . at 462 (“The proximate-cause inquiry . 20 . . requires careful consideration of the ‘relation between the injury asserted and the injurious 21 conduct alleged.’ Because § 1962(c) and § 1962(a) set forth distinct prohibitions, it is at least 22 debatable whether Ideal’s two claims should be analyzed in an identical fashion for proximate-cause 23 purposes.” (quotingHolmes, 503 U.S. at 268)). 24 The essence of Ideal’s claim under § 1962(a) is that defendants used funds earned directly or 25 indirectly from the alleged “pattern of racketeering activity” in order to help establish or operate a 26

### 4 new facility in the Bronx, and that the operations of this new store had the effect of substantially 1 decreasing Ideal’s sales, profits, and local market share.See Ideal Steel Supply Corp. v. Anza, No. 02 2 Civ. 4788, 2009 WL 1883272, at *4 (S.D.N.Y. June30, 2009). The “proper referent” for proximate 3 causation analysis of the § 1962(c) claim inIdeal Steel III was defendants’ “alleged practice of 4 conducting National’s business through a pattern of defrauding the State [of New York]” of tax 5 revenues,Ideal Steel III , 547 U.S. at 458, while the proper referent of our proximate causation 6 analysis under § 1962(a) is the defendants’ investment of income acquired through the alleged 7 pattern of racketeering activity into the creationof a new store that competed with Ideal. 8 The majority opinion concludes that this theory of causation for the § 1962(a) claim is more 9 direct and certain than Ideal’s failed § 1962(c) claim.SeeMajority Op. at 20-21. The principal failure 10 of the § 1962(c) claim, as the Supreme Court pointedout, was that plaintiffs could not demonstrate 11 that the money defendants saved by allegedly committing tax fraud was used in such a way as to 12 ultimately result in increased competition for Ideal’s business.SeeIdeal Steel III , 547 U.S. at 459. The 13 § 1962(a) claim is said to be different, however, in the following way: although the alleged offense 14 under § 1962(c) is the “racketeering activity” itself (here, tax fraud), the alleged offense under § 15 1962(a) is thereinvestment of the funds derived from the racketeering activity. Although the only 16 legally cognizable victim of the tax fraud was the State,see Ideal Steel IIIat 458, the Court suggested 17 that there is arguably a larger set of potentially cognizable victims affected by the reinvestment of the 18 ill-gotten funds. Thus, under § 1962(a), Ideal’s “injury” may be more closely connected to 19 defendants’ alleged conduct. 20 Nevertheless, the link between (i) the use of racketeering (or, “ill-gotten”) funds to help 21 establish National’s new store in the Bronx, and (ii) the ultimate impact on Ideal’s bottom line, is not 22 nearly as direct as Ideal—and the majority—seems tobelieve. Critically, the alleged illegal activityis 23
notNational’s creation of a new store in the Bronx—on its own, a perfectly legitimate, competitive 24

### 5 pursuit—but rather, defendants’ investment of ill-gotten proceeds. 1 This distinction is important. It may be that the Bronx facility would not exist but for the 2 alleged ill-gotten investment; on the other hand, it may also be that the economic projections 3 concerning the development of a National facility in the Bronx were so promising, and access to 4 abundant capital so cheap, that the decision toopen the Bronx store was unaffected (either in terms 5 of its opening date or the scope of its operations) by whatever ill-gotten proceeds were available. 6 Although the truth likely lies somewhere in between, it is doubtful that any court could come up 7 with a reasonably certain answer in light of the overwhelming number of variables inherent in this 8 inquiry. 9 Nor would the causation analysis be resolved, even if we assumed, for the argument, that the 10 impact of the ill-gotten investment on the operation of National’s Bronx facility could be readily 11 ascertained. Rather, we would next be obliged to determine precisely how this impact “injured” 12 Ideal (apart from the myriad other factors thatmay have adversely affected Ideal’s business). “The 13 element of proximate causation recognized inHolmes is meant to prevent these types of intricate, 14 uncertain inquiries from overrunning RICO litigation. It has particular resonance when applied to 15 claims brought by economic competitors, which, if left unchecked, could blur the line between 16 RICO and the antitrust laws.”Ideal Steel III , 547 U.S. at 460. 17 II. 18 The danger of blurring the line between RICO and the antitrust laws is a real one. Justice 19 Breyer’s separate opinion inIdeal Steel IIIis particularly instructive in explaining why this is so. If, as 20 today’s panel opinion suggests, companies can pursue civil RICO claims against their competitors on 21 the basis of allegations that ill-gotten proceeds have funded perfectly legitimate and competitive 22 pursuits, RICO can be misused as a weapon against competition in the marketplace. As Justice 23 Breyer observed, “[f]irms losing the competitive battle might find bases for a RICO attack on their 24

### 6 more successful competitors in claimed misrepresentations or even comparatively minor misdeeds 1 by that competitor.”Ideal Steel III , 547 U.S. at 485 (Breyer, J., concurring in part and dissenting in 2 part). Indeed, businesses that are suffering economically as a result of increased competition would 3 surely be tempted to accuse its competitors of financial, or other, malpractices on the part of 4 competitors, in order to seek treble-damages under RICO, as Ideal has here. 5 In light of (i) the broad scope of RICO (and what might constitute proceeds from a RICO 6 “predicate act”), and (ii) the specter of paying treble damages, the mere threat of such a suit would 7 chill competition. When one considers the number of different entities that could plausibly allege to 8 have been “injured” by the market activity in question—various competitors, suppliers to the 9 various competitors,etc.—the potential threat is compounded. As this very case establishes, it does 10 not take an elaborate or unusual set of facts for a business to be subjected to a seriously threatening 11 RICO suit by a competitor; after all, the essence of the present suit is that defendants allegedly filed 12 false tax returns and then used the corresponding savings to open a new store that enabled them to 13 compete more effectively (and unfairly), reducingthe profits and value of Ideal’s business. “Firms 14 that fear such treble-damages suits might hesitate to compete vigorously, particularly in concentrated 15 industries where harm to a competitor is more easily traced but where the consumer’s need for 16 vigorous competition is particularly strong. The ultimate victim of any such tendency to pull 17 ordinary competitive punches of course would benot the competing business, but the consumer.” 18 Ideal Steel III , 547 U.S. at 485-86 (Breyer, J., concurring in part and dissenting in part). 19 If today’s majority were right on the law, the adverse consequences of its 20 holding—stemming from a broad interpretation of the RICO statute—would ordinarily be a 21 concern reserved for the attention of Congress. But, as Justice Breyer recognized, Congress has 22 already spoken to this question through the antitrust laws. “The basic objective of antitrust law is to 23 encourage the competitive process. In particular,[antitrust law] encourages businesses to compete 24

### 7 by offering lower prices, better products, better methods of production, and better systems of 1 distribution.”Id . at 482 (citing Phillip E. Areeda and Herbert Hovenkamp, Antitrust Law: An 2 Analysis of Antitrust Principles and Their Application ¶100a, pp. 3-4 (2d ed. 2000)). While it is true 3 that antitrust law is far from the exclusive means by which Congress seeks to regulate conduct 4 between competitive businesses, “there is no sound reason to interpret RICO’s treble-damages 5 provision as if Congress intended to set it and its antitrust counterpart at cross-purposes.”Id . at 6 486. 7 As Justice Breyer noted, it is difficult enough to establish causation in antitrust cases where 8 plaintiffs seek to link certain economic injuries to specifiedanti-competitiveconduct.Id . at 484. But at 9 least in those cases, all concerned, including the parties and the court, have a reasonable prospect of 10 identifying what might have happened had the relevant industry not been exposed to improperanti11 competitiveactivity where the injurious conduct can be distinguished from otherwise competitive 12 market conditions. The task becomes significantly more difficult when courts have to consider what 13 might have happened absent some specifiedpro-competitiveactivity—activity that will likely be all but 14 impossible to isolate in the context of an efficient market. 15 Justice Breyer’s solution to the problems identified above was to assert that § 1964(c)’s 16 proximate causation requirement (as applied to both § 1962(a)and § 1962(c)) “places outside the 17 provision[s] harms that are traceable to anunlawful act only through a form of legitimate 18 competitive activity.”Id . at 486. In other words, “ordinary competitive actions undertaken by the 19 defendant competitor cut thedirect causal link between the plaintiff competitor’s injuries and the 20 forbidden acts.”Id . at 482. Justice Breyer’s proposed “test” is consistent with the proximate 21 causation analysis for § 1962(c) articulated in the majority opinion inIdeal Steel III . UnderIdeal Steel 22 III ’s own terms, a civil RICO plaintiff will almost invariably be prevented from recovering under § 23 1964(c) for harms that are traceable to an unlawful act but that reveal themselves only through a 24

### 8 form of legitimate competitive activity. Any such suit would necessarily require an analysis of (a) the 1 impact of the alleged unlawful act on the legitimate competitive activity in question, and (b) the 2 economic harm to plaintiffs directly attributableto the change in legitimate competitive activity 3 caused by the ill-gotten investment. This is exactly the intricate, speculative, and highly contingent 4 analysis thatIdeal Steel IIIspurned.See id . at 460 (majority op.). 5 In sum, with Justice Breyer, “I believe that the financing of a new store—even with funds 6 generated by unlawful activities—is not sufficient tocreate a private cause of action as long as the 7 activity funded amounts to legitimate competitive activity.”Id . at 487 (Breyer, J., concurring in part 8 and dissenting in part). By holding otherwise, the majority has warped civil RICO into a tool that 9 aggrieved business interests will use to harass and undermine competitors engaged in legitimate, 10 competitive business activities. This in turn will put the courts in the nearly impossible position of 11 having to ascertain which otherwise legal marketplace activity can be directly linked to ill-gotten 12 investments and which cannot. Accordingly, I would affirm the judgment of the District Court that 13 Ideal failed to state a claim upon which relief can be granted. 14