South-Western Legal Studies in Business

RICO Claim Must Show Proximate Cause of Injury
Description

Supreme Court held that even if a company engaged in behavior that could be a RICO violation, the parties who are the direct victims of the illegal activity have a cause of action, not those who cannot show proximate cause of losses alleged to have resulted from the illegal behavior.

Topic Criminal Law
Key Words

RICO, Tax Evasion, Business Loss

C A S E   S U M M A R Y
Facts

National Steel and Ideal Steel were direct competitors. Ideal sued, claiming that National failed to charge New York sales tax to cash-paying customers, allowing it to reduce prices without losing profits. Ideal also claimed that National filed false state tax returns, which involved committing mail and wire fraud, both forms of racketeering activity under the Racketeer Influenced and Corrupt Organizations Act (RICO). Ideal claimed that these actions by National caused Ideal to lose customers to National and to lose profits. The district court dismissed the suit, finding that Ideal was not in reliance of the false information provided by National, so had no basis for the suit. The appeals court reversed, holding that RICO could be the basis of a claim for loss of competitive advantage due to a racketeering scheme. National appealed to the Supreme Court.

Decision

Reversed. Ideal cannot maintain a RICO claim. There must be proximate cause between the injury asserted and the injurious conduct alleged. The victim of the alleged RICO violation is the State of New York, not Ideal. Ideal claims it lost sales because of Nationalís lower prices, but National could have lowered prices for reasons unrelated to the tax fraud. The link between Ideal and National is too weak to support the suit. A RICO plaintiff cannot circumvent the proximate-cause requirement simply by claiming that the defendantís aim was to increase market share at a competitorís expense.

Citation

Anza v. Ideal Steel Supply Corp., 126 S.Ct. 1991 (Sup. Ct., 2006)

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