Court Opinion

ID: 9492429
Source: CourtListenerOpinion
Date Created: 2023-08-05 14:41:06.591902+00
Date Added: 2024-06-11T17:55:18.210618
License: Public Domain

CALABRESI, Circuit Judge,
concurring:
The opinion filed is enough to decide this case. There has, however, been considerable uncertainty as to what is and what is not a material misrepresentation in fraud (and hence in RICO-fraud) cases. See Majority Opinion at 8-9 (criticizing the district court’s treatment of the issue). Much confusion exists, moreover, on the significance of various elements of causation in RICO-fraud situations as opposed to negligence cases, and on the relationship between causation in statutory cases and in common law actions. I believe it may be helpful to try to clarify these issues in a separate opinion using a hypothetical about cabbages and justices.
I. Material Misrepresentation
The first question in the case before us is whether PaineWebber’s presentation of the Provider contained material misrepresentations.
Suppose that Marshall, a farmer, seeks to sell cabbages to Taney, a wholesaler for seventy-five cents per bushel. Marshall says, “These Maryland cabbages are selling at market for a dollar a bushel.” Taney buys the cabbages, because they come from Maryland, his home state which he loves dearly. It turns out that Marshall lied to Taney and that the cabbages are in fact from Virginia. Later, before Taney can sell his cabbages, the market retail price of both Maryland and Virginia cab*174bages, which at the time of the deal — as Marshall said — was one dollar per bushel, falls to fifty cents.
Although Marshall misrepresented to Taney that the cabbages were from Maryland, although Marshall’s falsehood induced Taney to buy the cabbages, and although Taney lost twenty-five cents per bushel on the transaction, Marshall is not liable to Taney for his losses. This is because Marshall’s misrepresentation was unrelated to the economics of the transaction in which Taney lost money. It would be very different if, instead, Maryland cabbages generally commanded a higher price than Virginia cabbages. Under those circumstances, the misrepresentation would have been material, though — -on the facts of the hypothetical — issues of loss causation would still remain.
Similarly, if PaineWebber had given a full and accurate presentation of the economics of the Provider (for example, through the insurance chart) then Paine-Webber would have made no material misrepresentations. This would be so even if the plaintiffs loved IRAs (Maryland cabbages) and hated life insurance (Virginia cabbages). In fact, despite the chart, PaineWebber’s representations about the Provider cannot be deemed full and accurate at the 12(b)(6) stage. The plaintiffs may be able to prove that they properly believed that the Provider had the economic attributes of IRAs and not those of life insurance (that the value of Maryland cabbages was generally greater than that of Virginia cabbages). The plaintiffs have therefore made out the material misrepresentation element of their RICO-fraud claim.
II. Causation
The second, and more complex question in this case is that of causation. It is commonplace that in RICO-fraud cases the plaintiff must prove both transaction and loss causation, the requirements of which are cognate to those of causation in torts generally. See Citibank, N.A. v. K-H Corp., 968 F.2d 1489, 1495 (2d Cir.1992); see also Bastion v. Petren Resources Corp., 892 F.2d 680, 683-84 (7th Cir.1990) (Posner, J.) (“Indeed what securities lawyers call ‘loss causation’ is the standard common law fraud rule ..., merely borrowed for use in federal securities fraud cases. It is more fundamental still; it is an instance of the common law’s universal requirement that the tort plaintiff prove causation.”). At common law, causation involves three elements (described in greater detail below): but-for causation, causal link or tendency, and proximate cause.
Since, however, the causation requirements in suits under RICO are an integral part of that statute, their meanings cannot simply be taken from the common law of torts. They must be derived instead from the purposes of the RICO statute, and— since the predicate offenses are incorporated into RICO — they must also flow from the purposes of the statutory provisions that define the predicate offenses. See Abrahams v. Young & Rubicam Inc., 79 F.3d 234, 237-38 n. 3. (2d Cir.1996).
The relationships among these kinds of causation and the statute are subtle and merit some attention. In particular, I wish to examine (1) the different significance that the three elements of causation — but-for, causal link, and proximate cause — have in fraud cases (and hence in RICO fraud cases) as against ordinary common law negligence cases, and (2) the difference between the causation concepts at common law (including common law fraud cases) and in statutory cases (and therefore in RICO fraud cases).
A. The different significance of the causal elements in fraud cases and negligence cases.
1) Transaction causation. For a fraud-related RICO suit to lie, the plaintiffs must show transaction causation. See First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 769 (2d Cir.1994). To do this, it *175is frequently said, the plaintiff must demonstrate that but for the defendant’s wrongful acts the plaintiff would not have entered into the transaction that resulted in his or her losses. Thus, in the context of this case, it must be shown that, more probably than not, the plaintiffs would not have bought the Provider absent Paine-Webber’s misrepresentations.
For purposes of proving transaction causation, but-for cause is typically treated as both a necessary and a sufficient condition. That is probably an oversimplification, however. Courts have not had occasion to consider whether the traditional common-law exceptions to the but-for requirement apply in a RICO suit; the unusual situations justifying such exceptions have apparently not come up in the RICO context.1 Conversely, there has been little discussion of whether distance in time or space, the presence of intervening causes, and the lack of foreseeability that the analysis of proximate cause seeks to identify might, in appropriate circumstances, preclude a finding of transaction causation even when a plaintiff would not have entered into a transaction but for a defendant’s acts. The cases in which the defendant’s wrongdoings are potentially not proximate to plaintiffs entry into the deal — though certainly possible — seem to be rare in the RICO context. As a result, the courts have not focused on them, concentrating instead on the existence of a but-for relationship.
Nevertheless, the following hypothetical illustrates how such a ease might occur: Taney leaves Marshall’s cabbage patch, phones a friend, and repeats Marshall’s lie that the cabbages are from Maryland and, we will assume, are therefore especially valuable. The telephone line is crossed with another, and an unrelated party hears the conversation. A week later, this unrelated party mentions to a friend — call him Story — that he heard a report of bargains in Maryland cabbages. Story tracks down Marshall’s cabbage patch and buys, thinking that he has stumbled on a hot tip. Marshall’s misrepresentation is a but-for cause of Story’s entering into that transaction, but may well not be a proximate cause.2
In the end, however, the issue remains the same with respect to all elements of causation: to what extent does the RICO statute intend that these common-law exceptions to, and requirements of, causation inform the idea of “cause” when the question is whether a defendant’s acts caused the plaintiffs to enter into the transaction?
2) Loss causation. But showing that the defendant’s wrongful acts led the plaintiffs to enter into the transaction is-not enough. For a RICO suit to lie, the plaintiffs must also demonstrate that the defendant’s wrongful acts were responsible for the loss that occurred. See First Nationwide Bank, 27 F.3d at 769. The plaintiffs must, in other words, demonstrate with respect to that loss, the existence of all three of the traditional common-law elements of causation (but-for, causal link, and proximate cause). This jurisdictional requirement, which is normally termed “loss causation,” is, in fact, not significantly different from the standard tort law requirement that a defendant’s acts cause not only an accident but also the injury to the plaintiff that followed from the accident. See Bastian, 892 F.2d at 683-84. In the typical common-law negligence context, however, the showing of causality with respect to the accident usually suffices to demonstrate causality with respect *176to the injury, and so the causal requirements are not given separate names.3
What is true in negligence cases is also true in fraud cases (and hence in RICO fraud cases) insofar as but-for cause is concerned.4 Thus, in the typical fraud case, but for the plaintiffs entry into the transaction, he or she would not have suffered the loss at all. With respect to this element of causation, therefore, what is needed to show transaction causation normally suffices to prove loss causation as well. And a showing that, absent the defendant’s wrongdoing, the plaintiff would not have been part of the deal that went wrong is enough to show the requisite sine qua non relationship to the loss suffered.
It is quite different with respect to the second element, ie., causal link or tendency. This requirement, which is rarely a problem in the standard negligence case, is not infrequently the essence of the loss-causation question in a fraud situation, and therefore in a RICO fraud case. This fact probably accounts for the presence of the separately denominated requirements of transaction causation and loss causation in such cases, and also leads me to focus on this aspect of causation a bit.
Suppose Taney’s cart carrying the cabbages, which he bought from Marshall as a result of Marshall’s misrepresentation, is destroyed by a fire on the way to market. But for Marshall’s wrong, Taney would not have bought the cabbages, would not have been on his way to market, and would not have suffered from the fire. Yet, Marshall would not be responsible for the loss.
This would be so even if Marshall’s misrepresentation was manifestly material, as for example if Marshall had induced Taney to buy the cabbages by asserting, falsely, that these were Maryland cabbages and hence unusually valuable. Even after the fire occurred, we could not say that Marshall’s misrepresentation had anything to do with the fire. Marshall’s wrong would therefore be legally irrelevant to Taney’s loss. And this would be so even though but for the misrepresentation, Taney would not have entered into the deal that, by chance, put him in the position of suffering from the fire.
In the classic case of Berry v. Sugar Notch Borough, 191 Pa. 345, 43 A. 240 (1899), a speeding streetcar was damaged by a falling tree. It was indisputable that, but for the fact that the trolley was traveling faster than the local speed limit, it would not have been damaged, because it would not have arrived at the relevant spot in the road until after the tree had fallen. But although driving too fast does increase a streetcar’s chance of coming to harm, being hit by a falling tree is not the kind of injury the probability of which is thereby raised. This kind of dangerous behavior does not tend to cause that kind of damage. The court therefore reasoned that the driver of the streetcar could not be held to have caused the harm. See id. at 348, 43 A. at 240, The conclusion was correct, even though the driver’s chosen speed was a but-for cause of the damage and proximate to the accident in both space and time. Significantly, the issue in such cases is not foreseeability; it is whether, even after the event, we can say that the risk of such an accident was increased by the defendant’s behavior.
To show the existence of a causal link or tendency, a plaintiff must demonstrate that the defendant’s wrong increased the chances of the harm to plaintiff that in fact occurred, in the sense that, if the wrong *177were repeated, the likelihood of the harm’s recurrence would also increase. In the fiery cabbage hypothetical, Marshall’s misrepresentation, if repeated, certainly would increase the chance that the plaintiffs would buy cabbages, but it would in no way subject the plaintiffs or their cabbages to any greater risk of future fire damage.
In RICO fraud cases or other fraud situations, showing that the loss that occurred was in this fundamental sense related to the wrong is often a key issue. Thus, the purchase of a particular stock as a result of fraud does not suffice to show loss causation when the whole market collapses. Cf. Powers v. British Vita, P.L.C., 57 F.3d 176, 189 (2d Cir.1995) (holding that no loss causation exists when the market value of the stock falls due to nationwide economic recession). This is true despite the fact that but for the fraud the plaintiffs would not yet have been in the market (and therefore would not have suffered the loss). Similarly, the fraudulently induced purchase of a building that is subsequently destroyed by earthquake or fire does not cause the loss to the purchaser unless the fraud involved the fire- or earthquake-resistant qualities of the building. See W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 110, at 767 (5th ed.1984). And again, this is the case even if the plaintiff shows that but for the fraud he or she would have made a different investment — in securities, perhaps — that
Although the two are often conflated, the showing of causal link or tendency is different from the (at least as important) requirement of proximate cause. See Zuchowicz v. United States, 140 F.3d 381, 388-89 & n. 7 (2d Cir.1998) (distinguishing between these two forms of causation); Kinderavich v. Palmer, 127 Conn. 85, 15 A.2d 83 (1940) (same).5 Lack of causal link may exist even when there is little or no distance in time or space and no human causes intervening between the defendant’s acts and the plaintiffs loss. Lightning could strike Taney’s cabbages immediately after Marshall’s lie and Taney’s purchase, and yet loss causation would not be shown. Conversely, the manifest presence of a causal link does not mean that the plaintiff has demonstrated sufficiently that the loss was proximately caused by the defendant’s wrong.
Thus, even when we can say that a defendant’s wrongful act does in fact increase the chances of the type of harm that occurred to the plaintiff, the defendant may, nevertheless, not have proximately caused the loss. This is so where the loss is sufficiently removed in time or space from the misrepresentations, where intervening causes are sufficiently numerous and varied, and, in some instances, where the various requirements of foreseeability associated with proximate cause are not present.6 All these factors are rele*178vant to a showing of proximate cause. They are, moreover, relevant in much the same way whether in fraud cases or in ordinary negligence cases. But because they usually come up in the context of proximity between defendant’s wrongful acts and plaintiffs loss, they are, in fraud cases, generally — if perhaps unnecessarily — analyzed under the particular rubric of loss causation.
B. The difference between the causation concepts at common law and in statutory cases.
It should not be forgotten, however, that the pertinent requirements of proximate cause in a RICO case are those intended by the legislature that passed the statute, and not those of the common law. See Abrahams, 79 F.3d at 237-38 n. 3. Whether a statute’s causation requirements are broader, narrower, or the same as those of the common law depends on what harms the statute is intended to address.7 See id. at 238 n. 3.
The inquiry into RICO’s statutory purpose happens to lead back, at least in part, to the common law of proximate cause. Based on an analysis of the statute’s history, the Supreme Court has held that the language of 18 U.S.C. § 1964(c) reflects a congressional intent to require plaintiffs in civil actions under RICO to demonstrate not only but-for causation but also proximate causation as that concept is understood at common law. See Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 267-68, 112 S.Ct. 1811, 117 L.Ed.2d 532 (1992). But a RICO plaintiffs burden to show that his case meets the common-law requirement of proximate causation derives from the legislature’s intent to impose that causation requirement, and not directly from the common law itself.8
The precise question in Holmes was whether “but for” causation was sufficient to establish liability under the RICO statute, as would have been the case if Congress had so intended. The court answered that question in the negative, declaring that the statute also required a showing of proximate causation as understood at common law. See id. But this holding does not mean that RICO is satisfied by a showing of common-law proximate cause. RICO is a statute aimed at remedying a particular class of harms, and suits under RICO are cognizable only if they fit within its remedial scheme. Accordingly, Holmes’s conclusion that a RICO plaintiff must demonstrate proximate cause as that concept is understood at common law states a nee-*179essary but not sufficient condition for meeting the causation requirement under RICO.
In practice, our cases have held RICO plaintiffs tó a more stringent showing of proximate cause than would be required at common law. Thus, at common law, the element of foreseeability is generally satisfied by a showing that the plaintiff was in a foreseeable category of persons who might be harmed. See Palsgraf v. Long Island R.R., 248 N.Y. 339, 345, 162 N.E. 99, 101 (1928). And this is so in some common law cases even when the type of harm may be unforeseeable.9 See In re Polemis and Furness, Withy & Co., 3 K.B. 560 (C.A.1921). But RICO cases, in order to combat the specific mischiefs that the RICO statute was designed to address, seem to require that the kind of harm the victim suffered be foreseeable as well. See Hecht v. Commerce Clearing House, Inc. 897 F.2d 21, 23-24 (2d Cir.1990). Similarly, it is usually easier for intervenors to break the chain of causation in RICO than it is at common law. Compare Brandenburg v. Seidel, 859 F.2d 1179, 1190 (4th Cir.1988) (holding that intervening causes that are not predicate acts under RICO break the chain of causation), with Stagl v. Delta Airlines, 52 F.3d 463 (2d Cir.1995) (holding, in a suit at common law, that an airline that failed to maintain adequate crowd-control measures at an airport baggage carousel proximately caused injuries to an elderly passenger who was badly hurt when another passenger swung a suitcase into a second suitcase which, in turn, fell off the carousel and landed on the plaintiff).
This is in no way surprising, and indeed it is the normal case when suits are based on statutes.10 See Gorris v. Scott, 9 L.R.Ex. 125 (1874). As has often been noted, the requirement of proximate causation is one of policy. See, e.g., Sperber v. Boesky, 849 F.2d 60, 63 (2d Cir.1988). Proximate cause determines when a loss should fall on an innocent plaintiff rather than on a defendant who has, by hypothesis, done something for which he is prima facie accountable. Where the defendant’s behavior is made actionable by a statute, it must of course be the statute that defines the extent of his liability.11 That the statute may do so, and frequently does do so, by borrowing in part from the common law *180should not mislead us: it remains the statute and its purpose that governs.12
In the case before us, as the opinion of the court demonstrates, all the causation elements that the statute imposes — both with respect to transaction and loss causation — are sufficiently alleged in the plaintiffs’ complaint. Accordingly, the district court erred in dismissing their suit on a 12(b)(6) motion.

. Examples of such situations include those described in Corey v. Havener, 182 Mass. 250, 251-52, 65 N.E. 69, 69 (1902), Summers v. Tice, 33 Cal.2d 80, 82-83, 87-88, 199 P.2d 1, 1-5 (1948); Hymowitz v. Eli Lilly, 73 N.Y.2d 487, 502-04, 507-08, 541 N.Y.S.2d 941, 944-45, 947-48, 539 N.E.2d 1069, 1072-73, 1075 (1989), and Zuchowicz v. United States, 140 F.3d 381, 383-91 (2d Cir.1998).

. Similarly, it is more than likely that transaction causation requires a showing of causal link or tendency (defined and discussed infra).

. Although proof that a defendant caused an accident is generally sufficient in negligence cases to show that the defendant also caused the injuries that flowed from the accident, proving cause with respect to the accident does not in any way demonstrate that there were any injuries — any damages — at all. Cf. Majority Opinion at 172 n.6 (making an analogous point as to the difference between a showing of loss causation and a showing of damages).

. Again, I do not consider the possible relevance of the traditional common-law exceptions to liability based on but-for causation.

. Some commentators describe the lack of causal link cases as involving "coincidence” rather than "cause.” See Richard A. Epstein, Torts 260-61 (1999). The concept is the same, however.

. While it is sometimes said that foreseeability is relevant to wrongdoing, but aftseeability is what is relevant to cause, see Dellwo v. Pearson, 259 Minn. 452, 455, 107 N.W.2d 859, 861 (1961), that statement is not fully accurate. Thus, at least since Palsgraf v. Long Island R.R., 248 N.Y. 339, 162 N.E. 99 (1928), foreseeability of category of plaintiff is generally required for common-law proximate cause. And if foreseeability of extent of damages is not generally needed, compare Overseas Tankship (UK) Ltd. v. Morts Dock & Eng’g would have been unaffected by fire or earthquake. Co. (The Wagon Mound # 1) [1961] App.Cas. 388 (P.C.) (appeal taken from Austl.) (requiring foreseeability of the extent of damages), with In re Kinsman Transit Co., 338 F.2d 708, 723-25 (2d Cir.1964) (Friendly, J.) (noting that the reasoning of Wagon Mound # 1 is not the rule in American law), analogous results are sometimes achieved in extreme cases through the use of other doctrines like assumption of risk, see. Fleming James, Jr., Assumption of Risk: Unhappy Reincarnation, 78 Yale L.J. 185, 187-88 (1968) (describing assumption of risk as "simply a confusing way of stating certain no-duty rules”). More important, juries are not infrequently permitted to find, and courts will occasionally rule, that proximate cause does not exist where a causal link exists between the defendant’s act and *178the injury, but where it was a weak one and only became known after the defendant acted. Thus, if we one day learn that driving cars at excessive speeds increases the chances that nearby rotten trees will fall across the highway, harm like that in the Berry case would, in fact, be causally linked to a defendant's speeding. But this does not mean that the foreseeability element of proximate cause would have been present when defendants sped. But cf. In re Polemis and Furness, Withy & Co., 3 K.B. 560 (C.A.1921) (finding proximate cause in an analogous situation).

. A classic case in this context is Gorris v. Scott, 9 L.R.Ex. 125 (1874). Gorris held that a statute requiring sheep on ships to be kept in pens could not be the basis for recovering damages suffered when sheep not kept in pens were swept overboard in a storm, even though the sheep would not have been lost had they been kept in pens. Recovery was barred because tire clear purpose of the statute was only to prevent disease, and not to keep sheep from being lost at sea.

. We have said elsewhere that proximate cause is "a common law concept [that] exists independently of the [RICO] statute.” First Nationwide Bank, 27 F.3d at 769. But that statement should not be read to mean that proximate cause is a brooding omnipresence the application of which cannot be altered by a legislature. As the Supreme Court explained in Holmes, Congress chose to make common-law proximate causation, which has an existence outside of RICO, into a requirement of a civil RICO suit. See Holmes, 503 U.S. at 267-68, 112 S.Ct. 1311. The shape of proximate causation in RICO cases is independent of the statute, then, only to the extent that the enacting legislature chose to treat it as exogenous.

. Of course, there are also common law cases that support the proposition that foreseeability of the type of harm is, at times, necessary to establish liability. See, e.g., Kinderavich, 127 Conn. 85, 15 A.2d 83.

. See, e.g., Townes v. City of New York, 176 F.3d 138, 146 (2d Cir.1999) (holding, in a suit brought pursuant to 42 U.S.C. § 1983, that an illegal search yielding evidence used to convict a criminal defendant was not the proximate cause of the defendant’s subsequent conviction and incarceration, because the trial court’s refusal to suppress the evidence was an intervening and superseding cause of those events).

. The same is true for the requirement of but-for cause and for its exceptions. Thus, a statute on which a liability suit is based might — if the legislature so intended — permit statistical cause to replace traditional but-for cause even in situations in which the common law adheres to the traditional rule. Conversely, the legislature might mandate that, for statutory liability to lie, traditional but-for cause must be shown even in circumstances where many common-law courts permit statistical cause to meet the requirement. See Hymowitz, 73 N.Y.2d at 507-08, 541 N.Y.S.2d at 947-48, 539 N.E.2d at 1075 (collecting authorities).
The seemingly invariant requirement of causal link may itself be abrogated if the legislature so intends. This is a possible reading of Kernan v. American Dredging Co., 355 U.S. 426, 78 S.Ct. 394, 2 L.Ed.2d 382 (1958), which held a shipowner liable, under the Federal Employers’ Liability Act, for an explosion created when a kerosene lamp on the ship ignited petroleum fumes from the water. See id. at 427-28, 78 S.Ct. 394. The lamp had been only three feet above the water, and this violated a Coast Guard regulation stating that such lamps had to be at least eight feet high so that they would be visible to other ships. See id. The Court held that the shipowner was liable for the explosion even though the rule it had violated had nothing to do with preventing explosions, but rather was concerned with navigation safety. See id. at 437-39, 78 S.Ct. 394.

. As a result, we should be especially wary of applying statutory precedents involving proximate cause to common-law cases and vice-versa. Consider, for example, the mischief that would result if a court were to apply the result in Gorris in a case alleging a common law tort by shipowners who had not taken adequate precautions for the safety of their passengers or their cabbages, or alternatively applying Polemis in a RICO situation.