Opinion ID: 3051234
Heading Depth: 4
Heading Rank: 1

Heading: whether there are more direct victims of the

Text: alleged wrongful conduct who can be counted on to vindicate the law as private attorneys general; (2) whether it will be difficult to ascertain the amount of the plaintiff’s damages attributable to defendant’s wrongful conduct; and (3) whether the courts will have to adopt complicated rules apportioning damages to obviate the risk of multiple recoveries. Mendoza v. Zirkle Fruit Co., 301 F.3d 1163, 1168-69 (9th Cir. 2002) (quotations and citation omitted). The district court dismissed Sybersound’s RICO claim, reasoning that it had failed to overcome this proximate causation hurdle. Sybersound argues that as a competitor injured by unlawful predicate acts, it is the quintessential RICO plaintiff that has suffered a direct injury. Furthermore, Sybersound claims that because of the small number of Customers involved, damages would not be difficult to ascertain because it can establish when it lost a contract to a competitor charging lower prices. It also claims that its injuries are separate and distinct from the injuries to the copyright holders, eliminating the risk of multiple recoveries. 1692 SYBERSOUND RECORDS v. UAV CORP. The Supreme Court recently clarified the proximate causation requirement for a suit brought under § 1962(c), thereby foreclosing Sybersound’s argument. Anza v. Ideal Steel Supply Corp., 126 S. Ct. 1991 (2006). In Anza, National Steel Supply (National) failed to charge New York sales tax to its cash-paying customers and submitted fraudulent tax returns, which allegedly allowed it to undercut Ideal Steel Supply Corporation’s (Ideal) prices. Id. at 1994-95. Ideal brought suit under RICO, 18 U.S.C. § 1962(a) and (c). Id. at 1995. The district court granted National’s Rule 12(b)(6) motion to dismiss for failure to state a claim. Id. at 1995. The Second Circuit vacated the district court’s judgment, holding that the plaintiff has standing “even where the scheme depended on fraudulent communications directed to and relied on by a third party rather than the plaintiff.” Id. The Supreme Court reversed, holding that the attenuated harm suffered by Ideal did not meet the directness requirement laid out in Holmes as to the § 1962(c) claim. Id. at 1996. [10] In reaching its conclusion, the Supreme Court considered the principles underlying the directness requirement. Id. at 1997-98. First, “[o]ne motivating principle is the difficulty that can arise when a court attempts to ascertain the damages caused by some remote action.” Id. at 1997. The Supreme Court noted that defrauding the tax authority did not require National to lower prices, since lower prices may have resulted from, for example, a decision that “additional sales would justify a smaller profit margin.” Id. Moreover, “Ideal’s lost sales could have resulted from factors other than petitioner’s alleged acts of fraud. Businesses lose and gain customers for many reasons . . . .” Id. [11] Similarly in this case, the court would have to engage in a speculative and complicated analysis to determine what percentage of Sybersound’s decreased sales, if any, were attributable to the Corporation Defendants’ decision to lower SYBERSOUND RECORDS v. UAV CORP. 1693 their prices or a Customer’s preference for a competitor’s products over Sybersound’s, instead of to acts of copyright infringement or mail and wire fraud. See id. This case would require an even more speculative analysis than Anza because Sybersound has more than one principal competitor. As noted by the Supreme Court, [t]he element of proximate causation recognized in Holmes is meant to prevent these types of intricate, uncertain inquiries from overrunning RICO litigation. It has particular resonance when applied to claims brought by economic competitors, which, if left unchecked, could blur the line between RICO and the antitrust laws. Id. at 1998. “When a court evaluates a RICO claim for proximate causation, the central question it must ask is whether the alleged violation led directly to plaintiff’s injuries.” Id. Second, “[t]he requirement of direct causal connection is especially warranted where the immediate victims of an alleged RICO violation can be expected to vindicate the laws by pursuing their own claims.” Id. at 1998. The Supreme Court noted that the direct victim, the state tax authority, could be expected to pursue National for its tax violations. Id. Here, as well, the more direct victims of the Corporation Defendants’ alleged infringement actions, the copyright holders, can be expected to pursue their own claims. In fact, prior to the severing of their claims, six music publishers pursued their copyright infringement claims as part of this very action. The third factor discussed in Holmes was the risk of multiple recoveries. Holmes, 503 U.S. at 269. Anza makes clear, however, this is not a necessary condition for concluding that proximate cause is lacking. See Anza, 126 S. Ct. at 1997-98 (acknowledging that there was no appreciable risk of duplicative recoveries). 1694 SYBERSOUND RECORDS v. UAV CORP. [12] Following Anza, we hold that Sybersound cannot overcome the proximate causation hurdle to assert a RICO violation under § 1962(c). 2) Investment Injury Sybersound has not alleged an investment injury separate and distinct from the injury flowing from the predicate act, as required for a RICO claim brought under § 1962(a). [13] In Nugget Hydroelectric, L.P. v. Pacific Gas and Electric Co., 981 F.2d 429, 437 (9th Cir. 1992), we held that a “plaintiff seeking civil damages for a violation of section 1962(a) must allege facts tending to show that he or she was injured by the use or investment of racketeering income.” In this case, Sybersound must allege that the investment of racketeering income was the proximate cause of its injury. Reinvestment of proceeds from alleged racketeering activity back into the enterprise to continue its racketeering activity is insufficient to show proximate causation. See Wagh v. Metris Direct, Inc., 363 F.3d 821, 829 (9th Cir. 2003), overruled on other grounds, Odom v. Microsoft Corp., 486 F.3d 541, 551 (9th Cir. 2007) (en banc); Westways World Travel v. AMR Corp., 182 F. Supp. 2d 952, 960-61 (C.D. Cal. 2001) (explaining that when racketeering is committed on behalf of a corporation, almost every racketeering act committed by a corporation would also result in a § 1962(a) violation because corporations generally reinvest their profits, eviscerating the distinction between § 1962(c) and (a)). [14] Sybersound argues that it meets § 1962(a)’s investment injury requirement because it is the direct victim of the use of proceeds generated by the predicate acts. Its competitors used the proceeds from their copyright infringements and mail fraud to undercut Sybersound’s prices. Sybersound, however, has not alleged any injury separate and distinct from the injuries incurred from the predicate act itself. SYBERSOUND RECORDS v. UAV CORP. 1695 [15] Here, Sybersound’s injury stems from the alleged copyright infringement. The purported infringement by the Corporation Defendants, not the income from the sale of pirated records, allegedly allowed the Corporation Defendants to undercut Sybersound’s prices. Sybersound’s reliance on Simon v. Value Behavioral Health, 208 F.3d 1073, 1083 (9th Cir. 2000), overruled on other grounds, Odom, 486 F.3d at 551, is unavailing. In that case, Value Behavioral Health fraudulently denied health benefit claims to patients and reinvested that income to build a group of preferred medical providers who undertook to eliminate outside providers. Id. The court, in dicta, noted that the victims of the investment were competitors who were driven out of business by the preferred providers. Id. There, the competitors in Simon would not have been injured by the predicate act of the fraudulent denial of health care benefits, but would have been directly injured by the reinvestment of the proceeds resulting from such denial. In contrast, Sybersound’s competitive injury stems from the alleged copyright infringement for which it does not have statutory standing to bring a RICO claim. [16] Accordingly, we hold that the district court properly dismissed Sybersound’s § 1962(a) and (c) RICO claims.