Opinion ID: 219831
Heading Depth: 2
Heading Rank: 2

Heading: The Decision of the Supreme Court: Ideal III

Text: 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 claim under § 1962(c), the Court reversed, noting its holding in Holmes that a plaintiff may sue under § 1964(c) only if the alleged RICO violation was the proximate cause of the plaintiff's injury, Ideal III, 547 U.S. at 453, 126 S.Ct. 1991, and stating that the critical question for the present case was thus whether the alleged violation led directly to the plaintiff's injuries, not whether the violation intentionally targeted the plaintiff, id. at 460-61, 126 S.Ct. 1991. RICO provides a civil right of action for [a]ny person injured in his business or property by reason of a violation of section 1962, 18 U.S.C. § 1964(c). The Holmes Court had rejected the proposition that the phrase by reason of required merely that the claimed violation have been a but for cause of the plaintiff's injury, concluding instead that that phrase `demand[s]... some direct relation between the injury asserted and the injurious conduct alleged.' Ideal III, 547 U.S. at 457, 126 S.Ct. 1991 (quoting Holmes, 503 U.S. at 268, 112 S.Ct. 1311). With respect to a claimed violation of § 1962(c), which prohibits conducting or participating in the conduct of an enterprise's affairs through a pattern of racketeering activity, the Court had indicated the compensable injury flowing from a violation of that provision necessarily is the harm caused by predicate acts sufficiently related to constitute a pattern, for the essence of the violation is the commission of those acts in connection with the conduct of an enterprise. Ideal III, 547 U.S. at 457, 126 S.Ct. 1991 (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985) ( Sedima )). The Supreme Court found it clear that there was no direct relation between the injury asserted by Ideal and the Anzas' alleged mail and wire frauds: The RICO violation alleged by Ideal is that the Anzas conducted National's affairs through a pattern of mail fraud and wire fraud. The direct victim of this conduct was the State of New York, not Ideal. It was the State that was being defrauded and the State that lost tax revenue as a result. The proper referent of the proximate-cause analysis is an alleged practice of conducting National's business through a pattern of defrauding the State. To be sure, Ideal asserts it suffered its own harms when the Anzas failed to charge customers for the applicable sales tax. The cause of Ideal's asserted harms, however, is a set of actions (offering lower prices) entirely distinct from the alleged RICO violation (defrauding the State). Ideal III, 547 U.S. at 456, 126 S.Ct. 1991 (emphases added). The Court noted that one of the reasons for the directness requirement is that `[t]he less direct an injury is, the more difficult it becomes to ascertain the amount of a plaintiff's damages attributable to the violation, as distinct from other, independent, factors.' Id. at 458, 126 S.Ct. 1991 (quoting Holmes, 503 U.S. at 269, 112 S.Ct. 1311). It found Ideal's § 1962(c) claim illustrative: The injury Ideal alleges is its own loss of sales resulting from National's decreased prices for cash-paying customers. National, however, could have lowered its prices for any number of reasons unconnected to the asserted pattern of fraud. It may have received a cash inflow from some other source or concluded that the additional sales would justify a smaller profit margin. Its lowering of prices in no sense required it to defraud the state 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 dividend payouts. Ideal III, 547 U.S. at 458-59, 126 S.Ct. 1991. The Court also noted that 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 would require a complex assessment to establish what portion of Ideal's lost sales were the product of National's decreased prices. Id. at 459, 126 S.Ct. 1991. The Court envisioned proceedings that could only be speculative, id., if Ideal were permitted to pursue its § 1962(c) claim: A court considering the claim would need to begin by calculating the portion of National's price drop attributable to the alleged pattern of racketeering activity. It next would have to calculate the portion of Ideal's lost sales attributable to the relevant part of the price drop. The element of proximate causation recognized in Holmes is meant to prevent these types of intricate, uncertain inquiries from overrunning RICO litigation. Ideal III, 547 U.S. at 459-60, 126 S.Ct. 1991. Accordingly, the Supreme Court reversed Ideal II to the extent that Ideal II had overturned the district court's dismissal of Ideal's claim under § 1962(c). With respect to Ideal's claim under § 1962(a), however, the Supreme Court vacated and remanded for further consideration. Because Ideal II had focused principally on Ideal's § 1962(c) claim, without addressing the issue of proximate cause in connection with the claim under § 1962(a), and because the parties had devoted nearly all of their attention in the Supreme Court to the § 1962(c) claim, the Ideal III Court declined to resolve the viability of Ideal's § 1962(a) claim. The Court remanded for further consideration of the proximate-cause issue in light of the differences between the two subsections: [i]t is true that private actions for violations of § 1962(a), like actions for violations of § 1962(c), must be asserted under § 1964(c). It likewise is true that a claim is cognizable under § 1964(c) only if the defendant's alleged violation proximately caused the plaintiff's injury. The proximate-cause inquiry, however, requires careful consideration of the relation between the injury asserted and the injurious conduct alleged. Holmes, supra, at 268 [112 S.Ct. 1311]. Because § 1962(c) and § 1962(a) set forth distinct prohibitions, it is at least debatable whether Ideal's two claims should be analyzed in an identical fashion for proximate-cause purposes. Ideal III, 547 U.S. at 461-62, 126 S.Ct. 1991 (emphasis added).