Opinion ID: 219831
Heading Depth: 1
Heading Rank: 2

Heading: The Decision of the District Court on the Subsection (a) Claim on Remand: Ideal IV

Text: This Court remanded the matter to the district court for consideration, in light of Ideal III, of the issue of proximate cause with respect to Ideal's claim under § 1962(a). Following our remand, Ideal filed its present Complaint, reasserting only its § 1962(a) claim and its state-law breach-of-contract claim, and additional discovery was conducted. The Complaint again described the cash-no-tax scheme conducted at National's Queens facility in the late 1990s and early 2000s, and the attendant mail and wire frauds that allowed defendants to retain unreported profits and avoid paying proper taxes. It alleged that defendants used the concealed unlawful profits and tax savings to finance the opening of the National store in the Bronx to compete with Ideal. According to the Complaint and materials developed in discovery, for 1999 and 2000 National filed tax returns reporting total income of $145,118, Following the commencement of the present lawsuit, however, National filed amended tax returns showing that its total income for those years had instead been nearly $1.7 million, and that for the period 1998-2003 National had underreported its taxable income by a total of $4.3 million, allowing it to underpay its taxes by approximately $1.7 million. Discovery and other proceedings revealed that the Anzas had created a corporation called Easton Development Corporation (Easton Corporation) to purchase property in 1999 to enable National to open its store in the Bronx, and that the cash portion of the purchase price was $500,000, which was paid by National. ( See Deposition of Joseph Anza at 34; Declaration of Vincent Anza dated December 12, 2008 (Anza Decl.), ¶¶ 10, 11; Deposition of Vincent Anza (Anza Dep.) at 188.) National began operating its Bronx store in 2000. ( See Anza Decl. ¶ 4.) Defendants stated that National expended approximately $850,000 to open its Bronx facility ( id. ¶ 5); a report prepared by accountants retained by Ideal concluded that National had spent considerably more. Ideal asserted that prior to 2000 there were no companies capable  in either size or breadth of offerings  of competing with Ideal in the Bronx, and that in 1998-2000, Ideal consistently had annual sales in the range of $4 million  $4.6 million. It alleged that defendants' opening of the National store in the Bronx injured Ideal in two ways. First, simply by being there and offering products and services comparable to those offered by Ideal, the new National store took customers from Ideal, causing Ideal's annual sales in 2001-2002 to drop by about one-third, to $2.7 million  $2.9 million. Second, Ideal asserts that at the Bronx store National engaged in the same cash-no-tax scheme that it conducted in the Queens store, thus allowing National to lure customers with the lower prices financed by the prior tax frauds. Defendants moved for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c), or alternatively for summary judgment pursuant to Fed.R.Civ.P. 56, dismissing the Complaint on the ground that Ideal could not show that its lost sales were proximately caused by the mere creation of National's Bronx facility through the alleged investment of the proceeds of racketeering activity. In Ideal Steel Supply Corp. v. Anza, No. 02 Civ. 4788, 2009 WL 1883272 (S.D.N.Y. June 30, 2009) ( Ideal IV ), the district court found defendants' position persuasive, and it granted judgment on the pleadings and, alternatively, summary judgment. First, the court found that Ideal's Complaint failed to meet the standard set by Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ( Twombly ), which requires a plaintiff to plead `more than labels and conclusions, and a formulaic recitation of the elements of a cause of action,' Ideal IV, 2009 WL 1883272, at  (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955), The district court found that [d]efendants argue persuasively that Plaintiff fails to plead facts showing that Ideal's lost sales were proximately caused by the mere creation of National's Bronx facility through the alleged investment of an unspecified amount of RICO proceeds. Ideal IV, 2009 WL 1883272, at  (internal quotation marks omitted). It also found the Complaint deficient ... in that it does not allege 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, profits, 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 [127 S.Ct. 1955], and do not show how Defendants['] alleged violation [of RICO] led directly to [Ideal's] injuries, [ Ideal] III, 547 U.S. at 461 [126 S.Ct. 1991]. They are insufficient to state a claim under Section 1962(a). Ideal IV, 2009 WL 1883272, at  (emphases added). In the alternative, the district court granted defendants' motion for summary judgment. The court noted that the Supreme Court in Ideal III had found that proximate cause was lacking with respect to Ideal's 1962(c) claim because `it would require a complex assessment to establish what portion of Ideal's lost sales were the product of National's [conduct]' because `[b]usinesses lose and gain customers for many reasons,' Ideal IV, 2009 WL 1883272, at  (quoting Ideal III, 547 U.S. at 459, 126 S.Ct. 1991). The district court stated that [t]his is no less true here with respect to the 1962(a) claim. Ideal IV, 2009 WL 1883272, at . 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, ... 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.... The element of proximate causation ... is meant to prevent these types of intricate, uncertain inquiries from overrunning RICO litigation. [ Ideal] III, 547 U.S. at 460 [126 S.Ct. 1991]. Ideal IV, 2009 WL 1883272, at . The court found that proximate cause was lacking because there were intervening factors that may have caused Ideal's alleged lost sales, profits, and diminution in market share. Id. at . For one thing, Ideal's principal, Giacomo Brancato, testified that Ideal's Bronx location had thousands of customers that buy thousands of products for many different uses. ... The decisions of individual purchasers, i.e., in this case presumably not to buy steel products from Ideal, have been held to constitute an independent intervening act between the alleged RICO violations and the alleged injuries. Id. (emphases added). The court also found that Ideal's Bronx operation had several competitors, id. at  n. 2, that Ideal received and accepted inferior products, id. at , and that Ideal made various business decisions such as deciding whether or not to lower its prices to match those of National, see id., all of which the court held constituted intervening factors preventing Ideal from establishing proximate cause. Accordingly, the district court dismissed Ideal's claim under § 1962(a). The court also declined to exercise supplemental jurisdiction over Ideal's state-law contract claim and dismissed that claim without prejudice. See id. at .