Ideal Steel Supply Corp. v. Anza, et al., No. 09-3212 (2d Cir. 2011)
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Plaintiff sued defendants under RICO, 18 U.S.C. 1961-1968, principally alleging injury to plaintiff's business by reason of defendants' establishment of a competing commercial enterprise through the investment of income derived from a pattern of racketeering activity. At issue was whether the district court properly granted defendants' motions for summary judgment on the pleadings and, in the alternative, for summary judgment on the grounds that plaintiff's complaint and the record were insufficient to show that any injury to plaintiff's business was proximately caused by defendants' alleged violation of section 1962(a). The court held that to the extent that plaintiff claimed injury from defendants' continuation in its Bronx store of the cash-no-tax scheme conducted in the Queens store, that claim appeared to be conceptually indistinguishable from the section 1962(c) claim previously rejected by the Supreme Court. The court held that to the extent, however, that plaintiff claimed that it lost sales to defendants because defendants invested the proceeds of their pattern of racketeering activity to establish and operate defendants' new store in the Bronx, the court rejected defendants' contentions and concluded that the district court erred in granting summary judgment on the pleadings on the basis of Bell Atlantic Corp. v. Twombly and erred in granting summary judgment.
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09-3212-cv Ideal Steel Supply Corp. v. Anza 09-3212-cv Ideal Steel Supply Corp. v. Anza 09-3212-cv Ideal Steel Supply Corp. v. Anza 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 August Term, 2009 4 5 (Argued: June 9, 2010 Decided: June 28, 2011) Docket No. 09-3212-cv 6 7 8 IDEAL STEEL SUPPLY CORPORATION, Plaintiff-Appellant, 9 10 11 12 - v. JOSEPH ANZA , VINCENT ANZA and NATIONAL STEEL SUPPLY, INC . , Defendants-Appellees. 13 14 15 Before; KEARSE, WALKER, and CABRANES, Circuit Judges. Appeal from a judgment of the United States District Court 16 17 for the Southern District of New York, Richard M. Berman, Judge, 18 dismissing, 19 plaintiff lost business as a result of defendants' 20 funds, 21 establishment 22 competition with plaintiff's business, 23 1964 Ie) for lack of proximate cause, a civil RICO claim that derived investment of from a pattern of racketeering activity, and operation of a commercial in the enterprise see 18 U.S.C. 24 Vacated and remanded . 25 Judge Cabranes dissents, in a separate opinion. §§ in 1962(a), SCOTT A . MOSS, Denver, Colorado (Moss Practice , Denver, Colorado, on brief) , for Plaintif f -Appellant. 1 2 3 WILLIAM M. BRODSKY, New York, New York (JooYun Kim, Fox Horan & Camerini , New York, New York, on the brief) , for Defendants-Appellees. 4 5 6 7 8 Law the KEARSE, Circuit Judge: This case returns to us from the United States District 9 10 Court for the Southern District of New York , 11 Judge, 12 third amended complaint 13 Supply Corporation 14 Corrupt Organizations Act 15 principally alleged 16 defendants ' es t ablishment 17 through 18 racketeering 19 violation 20 fraudulent 21 evasion of more than $1 million in income taxes - -in violation of 22 18 U.S.C. 23 motions for judgment on the pleadings, and in the alternative for 24 summary judgment, on the grounds that the Complaint and the record 25 were insufficient to show that any injury to Ideal's business was 26 proximately caused by defendants' alleged violation of 27 For the reasons that follow, we vacate and remand for trial. following the entry tax returns 1962{a). final under ("RICO"), injury U. S . C. a judgment Berman, dismissing the (or "Complaint!!) of plaintiff Ideal Steel to of of acti v ity - -to 18 of ("Ideal") investment of § the Richard M. 18 U.S.C. a 1341 and and related district - 2 - Influenced and 1961 - 1968, which by reasen commercial derived mail §§ business competing income §§ Racketeer Ideal ' s wit, The the of enterprise from a fraud and wire fraud in 1343, in the filing of information court pattern enabling granted of the defendants' § 1962(a) 1 I . Much 2 of the BACKGROUND factual background of this litigation ~s 3 described in prior opinions, familiarity with which 4 See Ideal Steel Supply Corp. v. 5 (S.D.N.Y. 2003) {"Ideal Steel I"l 6 251, 7 part . 8 (20 0 6) 9 granting of judgment on the pleadings and summary judgment against 253 - 56, 265 (2d Cir. 2004 ) Anza, we take F.Supp.2d 464, vacated and remanded, f (ulcleal and vacated and remanded i n part, ("Ideal Steel 11111). 254 is assumed. Steel 1111), 547 U.S. 465-66 373 F.3d reversed 451, 453 - 56, in 462 For purposes of this appeal from the 10 Ideal, the allegations of t h e 11 summarize the record in the light most favorable to Ideal. 12 A. The Parties and the Initial Claims : Ideal 13 operates a retail Complaint as true, and we Ideal I and II business in the New York City 14 boroughs of Queens and the Bronx, selling steel mill products and 15 related hardware and services to professional ironworkers, 16 steel fabricators, and do - it - you rs elf homeowners in the New York, 17 New 18 Supply, 19 (collectively 20 operates two retail outlets, one in Queens and one in the Bro nx, 21 each located a 22 borough. 23 to essentially the same customer base . Jersey, and Inc., is Connecticut owned by area. defendants Defendant Joseph National and Vincent "the Anzas " ) and is Ideal's competitor . few minutes' small Steel Anza National drive from the Ideal store in that Ideal and National sell substantially the same products - 3 - 1 Ideal commenced the present action in 2002, principal l y it asserted 2 asserting 3 against 4 participated S business enterprise through a pattern of racketeering activit y , in 6 violation of 7 least 1998, National at its Queens store , at the direction of the 8 Anzas, 9 not two civil the RICO Anzas, in the alleging conduct 1 8 U . S.C . § had engaged in a charging sales First, that they the affairs of, 1962(c) . had a claim of an interstate - Ideal alleged that, since at pattern of racketeering activity by tax to any customers required for their state 12 taxes , and (b) 13 and income tax reports and returns that concealed Nationalts cash 14 sales and misrepresented its total taxable sales, 15 substantial sums in income tax. 16 the cash-no - tax scheme through a pattern o f mail and wire frauds 17 in violation of 18 luring away customers who chose to buy from Nationa l 19 order to save more than eight percent on their purchases by not 20 paying the required sales tax. Second, merchants scheme), paid 11 that "cash-no - tax " who (a) purchases laws (the or conducted, 10 21 in cash claims. to charge thereby violating and then submitting, by mail and wire, 1962 ec), § collect such fraudulent sales thereby evading Ideal alleged that by engaging in National injured Ideal t s business by simply in Ideal a ll eged that in 1999 and 2000, the Anzas and 22 National, in violation of 23 National's 24 National's 25 caused Ideal to lose a substantial amount of business at its Bronx 26 store. Queens store Ideal in § 1962 (a), store's the invested funds derived from cash-no-tax Bronx . also asserted a The scheme opening of to that establish facility state-law claim for breach of an - 4 - 1 agreement 2 National. that In 3 had Ideal I pursuant I prior litigation 5 Securities Investor Protection Corp. 6 the court noted that, 7 the plaintiff must 8 not 9 proximate cause. F.3d IIbut 165, Fed. R. eiv . claims a between Ideal the district court dismissed Ideal's 4 only to settled P. I federal Holmes v . 503 U.S. 258, 265-68 (1992) f in order to prevail on a civil RICO claim, allege that a for" Citing 12 (b) (6). and defendant cause of plaintiff's I RICO violation was S injury but also Citing, inter alia, Moore v. 10 189 169-70 11 British Vita. 12 Cir. 1999) 57 F.3d 176, 189 (flMoore ll PaineWebber. Inc., the district court stated that P.L.C., (2d its (2d Cir. ) I and 1995) Powers v. (IIPowers"), liJ n complaints predicated on mail or wire fraud, a plaintiff must plead IIloss causation," meaning that the misrepresentation must be both an actual and a proximate source of the loss that the plaintiffs suffered, and "transaction causation," which requires a plaintiff to demonstrate that [plaintiff] relied on [d] efendants ' misrepresentations, 13 14 15 16 17 18 '1 9 20 Ideal I, 21 internal quotation marks omitted), and that a civil RICO plaintiff 22 claiming injury to its business from racketeering activity in the 23 nature of fraud canhot show proximate cause without demonstrating 24 that the plaintiff itself relied on the fraudulent communications, 25 see id. 26 27 28 29 30 31 32 33 254 F.Supp.2d at 468 (emphasis in original) (other The court concluded that [a]lthough Ideal alleges that the New York State Department of Taxation and Finance relied on Defendants' alleged misrepresentations. . , Ideal has not alleged--indeed, can not allege - -that Plaintiff relied on the sales tax returns Defendants mailed or wired to the New York State Department of Taxation and Finance. As a result, Ideal's RICO claims fail. - 5 - 1 Id. The court declined to exercise supplemental jurisdiction over 2 Tdeal's breach-of-contract claim. 3 In Ideal II, this Court vacated the Ideal I decision, 4 noting that although there was language in Moore and Powers to the 5 effect that a plaintiff itself must have relied on the allegedly 6 fraudulent 7 of plaintiffs who alleged that they were in fact parties to the 8 transactions that they claimed had been fraudulently induced. 9 Ideal 11,373 F.3d at 263. racketeering activity, the Thus, plaintiff See the language as to the need for 10 reliance 11 normative. 12 that the civil - RICO plaintiff who alleges mail fraud or wire fraud 13 must have been the entity that relied on the fraud," id. 14 by those cases dealt with claims See id. itself was descriptive critical 15 saw 16 asserted 17 dismissals of civil 18 proximate cause. 19 that 20 because, 21 " 'reasonably foreseeable 22 RICO violations, 23 Commerce Clearing House, 24 or 25 enterprise 26 racketeer [s] , ' " in were the distinction cases too for in between which we RICO claims that had for claim 1962{c), we § and affirmed the Rule claims 12 {bl (6) insufficient allegation of Those prior cases had involved claims of injury remote from example, III the t II the alleged racketeering plaintiff's the injuries 373 Inc., F.3d at 258 were not the competitor [] 373 {quoting Hecht v. 897 F.2d 21,24 '" neither Ideal II, activity or the ", natural consequence [ 8] of the Ideal II, plaintiff was nor than We observed that "[t] his Court has not held Focusing principally on Ideal's claim under a rather F. 3d - 6 - target of nor the at 258 (2d Cir. the racketeering customer [] {quoting 1990)); of the Sperber v. 1 Boesky, 2 was neither the 3 intended 4 activity, 5 Express 6 1994)) . 7 fraudulent 8 person rather than by the plaintiff, 9 business or property has standing to pursue a civil RICO claim-- 10 (2d Cir. 1988)); or the injury sued for 'preconceived purpose'" nor the '''specifically- consequence' Ideal II, It of 373 the F.3d RICO 39 racketeering (quoting at 259 Shareholder Litigation, Co. defendants' re American 400 (2d Cir. F.3d In 395, We concluded that even if an alleged scheme depended on communications directed to and relied on by a third a plaintiff injured in its complaint contains allegations of facts to show that the defendant engaged in a pattern of fraudulent conduct that is wi thin the RICO definition of racketeeri ng activity and that was intended to a nd did give the defendant a competitive advantage over the plaintiff. Ideal II, 373 F.3d at 263. Noting the allegations that [t] he principal intended victim of the scheme was Ideal, over which defendants sought to secure a competitive advantage by giving certain cash customers an unlawful benefit, and by concealing that unlawful conduct and retaining the resulting profit s by means of racketeering activity, 18 19 20 21 22 23 24 11 65 and adequately pleads proximate c ause --if its 11 12 13 14 15 16 17 849 F.2d 60, id. at 264 (emphasis added), we concluded that Ideal, as a competitor directly targeted by defendants for competitive injury, has standing to assert its RICO claims against defendants for violations of § 1962(c) based on the alleged predicate acts of mail and wire fraud, 25 26 27 28 29 30 id. We concluded that Ideal's complaint adequately stated claims 31 under both § 1962(c) and § 1962(a). - 7 - 1 E. The Decision of the Supreme Court: Ideal III 2 In Ideal III, 547 U.S. 451, the Supreme Court reversed in 3 part, and vacated and remanded in part, our decision in Ideal II. 4 With respect to Ideal's claim under 5 noting 6 § 7 cause of the plaintiff's injury," Ideal III, 547 U.S. at 453, and 8 stating that the critical question for the present case was thus 9 "whether the its 1964 (c) holding only if in Holmes § "that 1962(c), the Court reversed, a plaintiff may sue under the alleged RICO violation was the proximate alleged violation led directly to 10 injuries, 11 plaintiff, 12 for" [a]ny person in j ured in his business or property by reason of 13 a violation of 14 Court had rejected the proposition that the phrase "by reason of" 15 required merely that the claimed violation have been a "but fori' 16 cause 17 phrase ,,' demand [s] 18 asserted and the injurious conduct alleged.'" Ideal 111, 5 47 U.S. 19 at 457 Wi th 20 claimed 21 participating in the conduct of an enterprise's affairs through a 22 pattern of racketeering activity, the Court had 23 24 25 26 27 28 of II not whether the violation the plaintiff's id. at 460-61. the RICO provides a civil right of action section 1962, plaintiff's (quoting /I 18 U.S.C. inj ury, § 1964 (c). concluding The Holmes instead that that . some direct relation between the injury Holmes, violation intentionally targeted the of § 503 U. S. 1962 (c), at 268). which prohibits respect conducting 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." - 8 - to a or 1 Ideal III, 547 U.S. at 457 (quoting Sedima, S.P.R.L. v . Imrex Co., 2 473 U.S. 479, 497 (1985) ("Sedima " )) . The Supreme Court found it clear that there was no direct 3 4 relat ion between the injury 5 asserted by Ideal and the Anzas' alleged mail and wire frauds: 6 7 8 9 10 11 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 t he State that was being defrauded and the State that lost tax revenue as a result. 12 13 14 15 16 17 18 19 20 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) 21 Ideal III, 547 U.S . at 458 The 22 Court noted (emphases added) that one of the reasons for the 23 directness requirement is that'" l tlhe less direct an injury 24 the to 2S plaintiff's damages 26 from other, independent, factors . '" 27 503 at 269). It 28 "illustrative": 29 30 31 32 33 34 35 36 37 more U.S. difficult it becomes attributable to found ascertain the the violation, Id. at 458 Ideal's amount as of a distinct (quoting Holmes, § 1962(c) claim The inj ury Ideal alleges is its own loss of sales resulting from National's decreased prices for cashpaying customers . National, however, could have lowered its prices for any number of reasons unconnected to the asserted pa t tern of fraud. It may have received a cash inflow from some other source or concluded that the additional sales would 'justify a smal ler profit margin. Its lowering of prices in no sense required it to defraud the state - 9 - ~s, tax authority. Likewise, the fact that a company commits tax fraud does not mean the company will lower its prices; the addi tional cash could go 1 2 3 4 5 6 anywhere from asset acquisition to research and development to dividend payouts. Ideal III, 547 U.S. at 458 - 59. 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. 7 8 9 10 11 12 at 459. The Court envisioned proceedings that could only be 13 Id. 14 "speculative, 15 § id., II if Ideal were permitted to pursue its 1962(c) claim: 16 17 18 19 20 21 22 23 24 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 r 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 . 25 Ideal III, 547 26 reversed Ideal II to the extent that Ideal II had overturned the 27 district court ' s dismissal of Ideal's claim under With 28 U.S. respect at 459 - 60. to Accordingly, Ideal's claim under the § § Supreme Court 1962(c). 1962(a), however, 29 the Supreme Court vacated and remanded for fUrther consideration. 30 Because 31 claim , 32 connection with the claim under 33 had devoted nearly all of their attention in the Supreme Cou rt to 34 the 35 viability § Ideal II wi thout 1962 (c) of had focused addressing claim, Ideal's principally the § issue on of Ideal's proximate § 1962(c) cause in 1962(a), and because the parties the Ideal III Court declined to resolve the § 1962 (a) claim. - 10 - The Court remanded for 1 further considerat i on of the proximate-cause issue in light of the 2 differences between the two subsections: 3 4 5 6 7 8 9 10 11 12 13 14 15 [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 in jury. The proximate-cause inquiry, however, requires careful consideration of the II relat ion between the inj ury asserted and the injurious conduct alleged. Holmes, supra, at 268. 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. § tI 16 Ideal III, 547 U.S. at 461 - 62 17 18 C. (emphasis added). The Decision of the District Court on the Subsection (a) Claim on Remand : Ideal IV This Court remanded the matter to the district court for 19 20 consideration, 21 cause wit h respect 22 our remand , Ideal 23 its 24 and additional discovery was conducted. § 1962 (a) The 25 in light of Ideal III, to Ideal I s filed claim and Complaint at claim under § 1962 (a) its present Complaint, its again described Queens facility the reasserting only l.n cash-no-tax conducted 27 early 20009 , 28 defendants the 29 taxes. 30 profits and 31 store 32 Complaint and materials developed in discovery, late scheme 19909 and and the attendant mail and wire frauds t hat allowed to It Following state-law breach - oE - contract claim, 26 in National's of the issue of proximate retain alleged unreported profits and avoid paying proper that tax savings the Bronx to defendants to finance compete - 11 used the concealed unlawful the opening of with Ideal. the National According to the for 1999 and 2000 1 National filed tax 2 Following 3 National 4 f or those years had instead been nearly $1.7 million, and that for 5 the pe r iod 1998-2003 National had underreported its taxable income 6 by a 7 approximately $1.7 million . 8 revealed that the Anzas had created a 9 Development the returns commencement reporting of total the income $145,118. lawsuit, present of however, filed amended tax returns showing that its total income total of $4.3 million, in Corporation allowing it to underpay its taxes by Discovery ( " Easton co enable that the cash National other proceedings corporation called Easton Corporation" ) 11 Bronx, 12 $500, 000, 13 Anza at 34; 14 ("Anza 15 Dep.") at 188.) National began operat ing its Bronx store in 2000. 16 (See Anza Decl. ~ 17 approximately $850,000 to open its Bronx facilit y" 18 report 19 National had spent considerably more. of the its purchase property portion to open to 10 and 1999 and store purchase in the price was {See Deposit i on of Joseph which was paid by National . Declaration of Vincent Anza dated December 12, ~~ Decl."), 10, 4.) 11; Deposition of Vincent Anza 2008 ( "An za Defendants stated that "National expended (id. ~ 5); a prepared by accountants retained by Ideal concluded that 20 I deal asserted that prior to 2000 there were no companies 21 capable -- in e i t her s ize or breadth of offerings --of competing with 22 Idea l 23 annual 24 alleged 25 Bronx injured Ideal in two ways. First, simply by being there and 26 offering comparable in the Bronx, sales that in and that in 1998 -2000 , the range defendants ' products and of $4 million opening services Ideal consistently had of - 12 - the $4.6 million. National to store those in offered It the by 1 Ideal, the new National store took customers from Ideal, 2 Ideal's annual sales in 2001-2002 to drop by about one-third, 3 $2.7 million - 4 Bronx store National engaged in the same cash - no - tax scheme that 5 it conducted in the Queens store, 6 customers with the lower prices financed by the prior tax frauds. 7 $2.9 million. Second, Ideal asserts causing that at to the thus allowing National to lure Defendants moved for judgment on the pleadings pursuant to 8 Fed. Civ. 9 pursuant to Fed. R. 10 ground 11 proximately 12 facility 13 12 (c), P. that Ideal alternatively P. Civ. R. 56 , could caused through or by the judgment dismissing the Complaint on the show mere that its creation lost sales of National ' s of the Bronx racketeering activity. In Ideal Steel Supply Corp. v. Anza, No. 14 02 i'lL 15 ( "I deal IV"), 16 persuasive, 17 alternatively, summary judgment. the and First I 18 2009 1883272 district it court granted the court investment were of 4788, alleged summary proceeds Civ. the not for IS.D.N.Y. found judgment found June 30, defendants' on the 2009) position pleadings and, that Ideal's Complaint failed to 19 meet the standard set by Bell Atlantic Corp. v. Twombly, 20 S-44 21 than 22 elements of a cause of action, 23 (quot_ ing Twombly, 24 that 25 plead 26 caused by the mere creation of National's Bronx facility through (2007) 550 U.S. (IiTwombly " ), which requires a plaintiff to plead labels and conclusions, 550 U. S. "[d] efendants facts showing argue that and a 1" formulaic Ideal IV, persuasively - 13 - 'more recitation of the 2009 WL 1883272, at *3 The district court found at 555). Ideal ' s II lost that Plaintiff sales were fails to proximately 1 the alleged investment of an unspecified amount of RICO proceeds." 2 Ideal IV, 2009 3 omitted). It also found the Complaint 1883272, at *4 (int ernal quotation marks deficient in that it does not alleqe 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. orofi ts, 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, and do not show how Defendants [,] "alleged violation [of RICO] led directly to [Ideal ' s] injuries," [Ideal] III, 547 U.S. at 461. They are insufficient to state a claim under Section 1962(a). 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 WL Ideal IV, 2009 WL 1883272, at *4 (emphases added) . In t he alternative, the district court granted defendants' 21 22 motion 23 Court in Ideal III had found that proximate cause was lacking with 24 respect 25 compl ex assessment to establish what portion of Ideal's lost sales 26 were 27 lose and gain customers 28 1883272 , at *6 29 court stated that 30 the 1962(a) claim . 31 32 33 34 35 36 37 for to summary judgment. Ideal's the product 1962 (c) of The court claim National's noted because [conduct]' for many reasons,' n. it that would because II the Supreme require [b] usinesses Ideal IV, (quoting Ideal III , 547 U.S. at 459). 2009 WL The district "[tl his is no less true here II with respect Ideal IV, 2009 WL 1883272, at *6. 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. II ¢ 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 - 14 a to 1 2 liThe element of proximate causation . is meant to prevent these types of intricate, uncertain inquiries from overrunning RICO litigation. II [Ideal I III , 547 U.S. at 460 . 3 4 5 Ideal IV, 2009 WL 1883272, at * 6. 6 The court found that proximate cause was lacking because 7 "there were 8 alleged lost sales, profits, and diminution in market share. 9 at *5. 10 11 12 13 14 15 16 17 intervening factors that may have caused Ideal's Id. II 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. II 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 . 18 Id. (emphases added). 19 operation 20 II 21 Ideal made various business decisions such as deciding whether or 22 not to lower its prices to match those of National, 23 of which the court held constituted intervening factors preventing 24 Ideal from establishing proximate cause. recei ved had several and accepted ll Accordingly, 25 The court also found that id. at inferior products, the district *5 id. n.2, at court dismissed that * 6, Ideal and that see id., Ideal's all claim 26 under 27 jurisdiction over Ideal's state-law contract claim and dismissed 28 that claim without prejudice. § 1962 (a). competitors, " "Ideal's Bronx The court also declined to exercise supplemental See id. at *7 . - 15 - 1 II. 2 On appeal, failed to Ideal DISCUSSION contends principally J court 4 prohibited by 5 concluding that 6 investment of 7 establish proper 1962(a ) 8 alleged in jury to Ideal's business. 9 that § and Ideal the their the take court of the and the district different thereby 1962 (c) not show that defendants ' from their mail and facility conElated was the in or frauds wire use to proximate cause of the It also contends, inter alia, proximate causation mis characterized 11 Complaint I s allegat ions 12 produced in discovery that supported Ideal 's 13 viewed 14 Defendants contend principally that the district court's view that 15 the proximate cause inquiry with respect 16 subsection (a) was the sa me as that with respect to subsection (c) 17 was 18 investment 19 alleged resulted from the racketeering activity itself, 20 the district court correctly concluded that any injury to Ideal 21 was too remote to have been proximately causeq by the 22 National's Bronx facility. 23 Ideal failed to show that National invested RICO proceeds in its 24 Bronx location and that, 25 against disputed correct evidence because theory the use or in Ideal that a light failed was factual, to distinct disregarded § of the evidence 1962(a) claim, and favoring the defendants. to Ideal ' s claim under plead injury on a from In addition, in any event, certain actual causation, were conclusory with 10 that as acts erred § could proceeds Bronx account that the injury use-orthat it and that open~ng of defendants contend that the § 1962 (a) prohibition investment of racketeering acti vi ty proceeds - 16 - 1 does not apply when those proceeds are used or reinvested in the 2 same entity that engaged in the racketeering activity. 3 We conclude that to the extent that Ideal claims injury 4 f rom National's continuation in its Bronx store of the cash-no-tax 5 s cheme conducted in the Queens store, 6 conceptually indistinguishable from the 7 by the Supreme Court in Ideal III . The lower prices afforded to 8 National's scheme 9 "investment" or "use" of the illegally derived funds. customers To 10 to through the extent, however, 1962 (c) Ideal defendants do claim rejected not involve the claims that it lost sales 12 the ir pattern of racketeering activity to establish and operate 13 National's store 14 content.ions and concl ude, 15 district court erred in granting judgment on the pleadings on the 16 basis of Twombl y, and erred in granting summary judgment. 17 A. new because that § 11 in the invested Bronx, we the proceeds of reject defendants' for the reasons that fo llow, that the The Scope of Section 1962(a) In 18 National this that claim appears to be enacting RICO, Congress was concerned about, inter 19 alia, damage to the nation's free enterprise system by persons or 20 entities 21 businesses by 22 findings and purpose that prefaces the Organized Crime Control Act 23 of 1970 ( "OeCA"), of which RICO was Title IX, states , inter alia, 24 that 25 26 infiltrating means of or operating criminal otherwise activities. legitimate The statement of organized crime activities in the United States weaken the stability of the Nation's economic system, - 17 - harm innocent investors and competing organizations, interfere with free competition, seriously burden 1 2 3 4 5 interstate and foreign commerce, threaten the domestic security, and undermine the general welfare of the Nation and its citizens. 91 ~ 452, 6 Puh.L. 7 provisions such as 8 control of otherwise legitimate business concerns "acquired by the 9 sub rosa 84 Stat. 922-23 1962 (al § (1970) (emphasis RICO added). reflect Congress ' s concern about the investment of profits acquired from illegal ventures, 10 S. Rep. No . 11 organized 12 Il at 77 91-617, crime into see (1969); legitimate (infiltration id. businesses portends II of the e ffective (J eliminat [ion]" of "[c] ompetitors") . 13 14 When organized crime infiltrates a legitimate business, its whole method of operation counters our theories of free competition and acts as an illegal restraint of trade. Whether a business is purchased from funds derived from its many unlawful activities, or whether it is acquired by extortion and violence, its aim is monopoly. The vast economic power concentrated in this giant criminal conglomerate constitutes a dire threat to the proper functioning of our economic system. 15 16 17 18 19 20 21 22 23 116 Congo 24 s. 25 financed 26 fair competition of the American marketplace, cannot be tolerated 27 in 28 omitted)); 29 attack, 30 business") _ 31 Rec. a (1970) 91-617, No. Rep. 602 illegal by system id . of at 78 revenues free at 81 inter alia, (statement of Sen. ("The Hruska). See also syndicate-owned business, and operated outside enterprise." (describing (internal civil the rules of quotation remedies marks intended to "corruption in the acquisition or operation of The prohibitions set out in RICO are not. limited to the 32 activities of organized crime but rather extend to any person or 33 entity engaging in a "pattern of racketeering activity" 18 as that 1 term is defined in 18 U . S.C. 2 Northwestern Bell Telephone Co., 3 "To be sure, 4 debates and reports to illustrate the Act's operation concern, the 5 predations 6 Congress' major target 7 language" Congress 8 racketeering 9 having a nexus with organized crime, and ttthe legislative history Congress of that 492 focused on , mobsters. rd. " activity in is 249 was at 245. such ~n without a the doubt But "the capacious terms to as conduct entities by commodious language capable of extending beyond organized crime. 12 rd. 13 shorthand 14 individual criminal offenses committed in diverse circumstances,' 15 not 16 (statement of Rep. Poff))) a !L:...9....:... method of precise id. at 247 referring concept" to Among its civil remedies, 17 large 116 and Congo simply varying Rec. adopted it {'"organized crime' a (quoting when of 11 see, doing pattern shows it was v. (1989). the examples used limited what 238, Inc. 10 at 246; knew H.J, ~, 229, crime defining not See, U.S. and Organized used Congress 1961 (5). § II 'a group of 35344 (1970) RICO provides a private right of 18 action for treble damages for a " person injured in his business or 19 property by reason of a violation of section 1962. 20 § 21 focus of the present litigation - -provides, 22 23 24 25 26 27 28 29 1964 (e) . Subsection (a) of § 1962--the II remaining 18 U.S.C. federal - law in pertinent part, that [i] t shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity . to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, i n . . the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. - 19 - 1962(a) RICO defines 18 U.S.C . 2 to 3 association, 4 individuals associated in fact although not a legal entity." S § 1961 (4) . For the 6 "enterprise which is 7 affect, 8 "commerce - affecting enterprise. § (empha ses added) "enterprise" 1 any "include[] individual, or other legal interstate sake engaged or and any brevity, in, foreign Subsection (c) of 9 entity, of corporation, partnership, or we the commerce," union wi.!l or group of refer activities id. to of 1962 (a), § Id. an which as a II 1962, whi ch was the principal focus of § 10 Ideal I, II, and III, makes i t unlawful for any person employed by 11 or associated with a commerce-affecting enterprise " to conduct or 12 participate, 13 enterprise's af f airs through a pattern of racketeering activity." 14 18 U.S . C. § 1962(c) 15 violation of 16 predicate acts 17 Ideal III, 18 (emphasis ours) . directly sufficiently U.S. different at 457 (a), from in the conduct of such " the compensable injury flowing from a provision Subsection 19 indirectly, Thus, that 547 or in the 'necessarily related to (quoting the harm caused by constitute Sedima , contrast, conduct is 473 focuses a U.S. the constituting pattern.'" at 497) inquiry the on pattern of 20 conduct 21 racketeering activity. 22 acts to constitute such a pattern, what is forbidden by subsection 23 (a) 24 establish or operate a 25 plaintiff 26 subsection After there have been sufficient predicate is the investment or use of the proceeds of that activity to asserting (a) must a commerce-affecting enterprise. civil show RICO injury claim based caused - 20 - not on a by Thus, the violation of the pa ttern of 1 racketeering activity itself, 2 of 3 MacFarlane, 897 F.2d 75, 82-83 the proceeds of Further, 4 the that but rather by the use or investmen t activity, ~, see, Ouaknine v. (2d eir. 1990). numerous disjuncts § 1962(a) create a 5 broad prohibi tion. 6 and 7 "directly or indirectly It from such activity and the "proceeds of 8 such income" are tainted: no part of the "income, or the proceeds 9 of such income" may lawfully be a Assuming a in commerce-affecting pattern of racketeering activity enterprise, both "use [d] the funds or invest red ] ,II derived whether 10 "directly or indirectly, 11 that enterprise. 12 the 13 other subsection of 14 to 15 implied in 16 any of dozens of combinations or permutations will constitute a 17 violation of that sec.tion. violation Il Thus, although the injury alleged to result from of subsection § 18 1964 (c), (a) --as from the violation of any 1962--must be sufficiently directly related the violation to meet § in "the establishment or operation" of the legal standard of proximate cause the many disjuncts in § 1962 (al mean that And RICO is to be read broadly. This is the lesson not onl y of Congress ' self-consciously expansive language and overall approach, see United States v. Turkette, 452 U.S. 576, 586-587 (198 1 ), but also of its express admonition that RICO is to "be liberally construed to effectuate its remedial purposes," Pub.L. 91-452, § 904 (a), 84 Stat. 947 . The statute's " remedial purposes" are nowhere more evident than in the orovision of a private action for those injured by racketeering activity . 19 20 21 22 23 24 25 26 27 28 Sedima, 473 U.S. at 497 - 98 29 (" [I] f Congress ' 30 anywhere, it is in 31 (emphases added); evident.") liberal-construction § see id. mandate is to at 491 n_l0 be applied 1964, where RICO's remedial purposes are mos t - 21 - 1 Given the breadth with which RICO is to be interpreted, we 2 reject for two 3 prohibition against the use or investment of racketeering activity 4 proceeds S racketeering-activity proceeds to open National's Bronx facility 6 on the theory that that section does not apply when such proceeds 7 are simply used or reinvested in the same entity that engaged in 8 the racketeering activity. 9 flawedi is reasons defendants ' inapplicable to contention their alleged that use First, defendants' of § 1962 (a) ' s pattern-of- factual premise is they did not merely reinvest in the same entity. 10 the Anzas created a new company, 11 the Bronx property for the new National store. 12 Congress did not intend subsection (a) ' s prohibition to reach the 13 use of RICO tainted funds by the RICO violator in its own ongoing 14 operation, 15 that Congress meant to allow such entities, with impunity, 16 those funds to branch out to new locations. 17 Easton Corporation, Rather, to purchase Second, even if the legislative history does not permit the inference to use Finally, in keeping with the proper recognition of RICO's 18 breadth, we note that "income" as used in 19 not 20 exclude 21 activity. In describing the RICO sections of the bill that became 22 the OeCA, the report of the Judiciary Committee of the House of 23 Representatives stated that" (s]ubsection (a) makes it unlawful to 24 invest funds derived from a pattern of racketeering activity, as 25 defined 26 reprinted intended moneys in Congress by unlawfully section in 1970 to Code H.R. Congo - 22 - 1962{a) was doubtless interpreted retained 1961(1)," U.S . be § by Rep. means No. & Admin. restrictively of racketeering 91-1549, News to 4007, at 57, 4036 1 (emphasis added). 2 RICO 3 fraudulently 4 available but for the fraud. 5 or withheld by means of a pattern of mail and wire frauds, as is 6 alleged 7 § 8 narrower interpretation. purposes, between income retained; both the In We can discern no meaningful distinction, present 1962 (a) 's reference 9 In sum, with result as falling "income. respect [tj he proper referent in acquired funds and not income otherwise Thus we view moneys unla wfully saved case, to fraudulently for the meaning of Nor have defendants urged a II to within Ideal ' s claim under 1 962 (c) § 10 I, 11 alleged practice 12 pattern of ll 13 obligations, 14 Given this frame of reference, Ideal's injury, i.e., 15 to because the direct 16 victim New York . But 17 It 18 injury asserted and the injurious conduct alleged,' 19 only 20 indirect. 21 (2011) 22 983,989 23 § 24 defendants ' 25 or indirectly from the alleged pattern of 26 to establish or operate the National facility in the Bronx. mail conducting and wire was that National ' s fraud '!defrauding the National, of of of the proximate-cause analysis I State." "attenuated," activity in was id. the business connection Ideal III, at 459, state of [was the] through with its 547 U.S, a tax at 45 8. loss of sales [p]roximate cause requires only 'some direct relation between the those II! ' link [s] Staub that v. are Proctor (quoti ng Hemi Group, 1962 (a), (2010) ( " Hemin)). too remote, Hospital, LLC v. purely 131 S. contingent, Ct . Cit y of New York, With respect to and excludes the 1186, 1192 130 S. claim or Ct. under the proper referent in the proximate-cause ana"lysis is Ituse or invest [ment] It of the funds , - 23 - derived directly racketeering activity, With 1 these principles Complaint to the matte r that it failed to plead, or that Ideal failed to adduce evidence, 4 that. 5 pattern of mail and wire frauds was a prox i mate cause of Idealts 6 alleged injury at its Bronx store. 7 B. or use dismissed of funds on the of 3 investment properly turn whether defendants' was we 2 derived ground from the The Dismissal Pu r suant to Rule 12(c} As 8 9 Ideal 1 s in mind, indicated in Part I.C. above, the district court dismissed the Complaint pursuant to Rule 12(c) on the grounds that not specify 10 it 11 National's Bronx facility , 12 lid [id] 13 purported racketeering income to establish and operate its Bronx 14 business location proximately caused Ideal to lose sales, profits, 15 and 16 Defendants 17 local 18 position, 19 and operate 20 more than 21 U , S. at 555 22 formulaic recitation of the elements of a cause of action, ' 23 at 24 district court's characterizations and its application of Twombly. did amount of RICO proceeds Ideal IV, used 2009 WL 1883272, not allege facts exp l aining how Defendants market *3 the share, id. 11 substantially market by share, using their 'labels (other and i that decreased and Ideal's Ideal's eliminated racketeering sales, to create at * 4, and investment of "allegations Ideal's proceeds I to that profits, dominant acquire, and market establish, Bronx business operation, [we] re little and Twomb l y, conclus i ons,' internal (quoting Twombly, II quotation 550 U.S. id. marks at 555). - 24 - (quoting omitted)), 550 or It "'a id. We disagree with the First, 1 the Twombly Court noted that Fed. R. Civ . P. 2 8 (a) (2) "requires only 'a short and plain statement of the claim 3 showing that the pleader is entitled to relief. 4 the 5 grounds 6 internal quotation marks omitted) 7 N.A., 8 plaintiff who alleges facts that provide fair notice of his claim 9 need not also allege defendant fair upon 534 notice it which U.S. 506, of rests, 508, what claim 550 U. S. is and at 555 the (other i see also Swierkiewicz v. Sorema (2002) 512 (to satisfy Rule 8(a)(2), uspecific The Twombly Court, the Twombly, II in order to give facts establishing a prima a facie 10 case") . 11 conclusions" 12 cause of action will not do, 13 a 14 allegations, 15 to raise a right to relief above the speculative level," 550 U.S. 16 at 555, 17 see Ashcroft v. 18 facial plausibility when the plaintiff pleads factual content that 19 allows 20 defendant 21 Court stated that 22 impose a probability requirement at the pleading stage; 23 calls 24 discovery will reveal evidence of illegal[ityJ.n for 25 26 pleading enough at to make Iqbal, the II draw allegations elements the 1937, fact to district of a of level (2009) II are] id. enough at 570 i ("A claim has inference that the alleged. U) The Twombly for plausible grounds does not raise court a 1949 reasonable for the misconduct [a] sking ( that the claim Tl plausible, 129 S. Ct. to liable enough The of stated that "a complaint attacked by II only" [f]actual court is recitation [8] motion to dismiss does not need detailed factual but II i. e., the uformulaic or Rule 1 2 (b) (6) while stating that mere 1I1abels and in a Ideal IV specificity - reasonable 25 - that it simply expectation that 550 U . S . at 556. demanded of Ideal a was justified by not 1 Twombly. The Complaint's 2 substantially decreased Ideal ' s 3 share, 4 racketee r ing 5 Bronx 6 (internal 7 characterized as "labels," id. , nor could the allegations--as they 8 were set forth 9 repetition of the statutory language or considered so conclusory and eliminated Ideal ' s proceeds business to to quotation lack in sales, profits, establish, Ideal IV, n and local market marks and 2009 WL omitted), plausibility. Th e by using operate 1883272, were not the Compla i nt- -be considered a facial Defendants dominant market position, acquire, operation, that lIallegations at *4 properly mere Complaint their formulaic 10 as alleged, inter 11 alia, 12 under the 13 its sole 14 1996 to 15 fraudulent 16 income and enabling them to save and amass substantial funds 17 fL:...9....:.., 18 lawsuit in 2002, defendants admitted the falsity of those income 19 tax filing 20 falsely 21 several years (~ 22 from spring 23 federal laws 24 pattern of 25 1t 26 defendants reported taxable income of less than $100,000 that the income of National, as a Subchapter S corporation Interna l Revenue Code, (~ shareholders the id. spring tax returns ~~ 28 , returns of by underreported 1996 34-35 , to 61) i that and from at the understating the amount of that after amended ~ 29) ; mail income that for showing to tax f i led by mail and wire fraud, I - 26 - of the AnZdS filed their taxable that (see, of this they had authorities for false tax returns and and in violation of each least commencement that defendants were 2004 the returns racketeering activity 45, ~ 26); National National's id. against Complaint 2004, 61); 30, passed through to the An z as as years fax, violated constituted (see - - - id. RICO 1999 a and 2000, (see -- - id. 1 ~ 2 Bronx facility were capital expenses that could not be funded with 3 pre-tax dollars 4 renovating, 5 facility was estimated by Ideal to be in excess of $1 million (see 6 id. 7 underreported their income by more than $1 million (see id. 8 The 9 facility, 38); that the purchase and renovation expenses for National's (~ id. equipping, 1 37) 1 and i Complaint that had a in opening 1999-2000 I that before dominant fraudulently opened its position there, Bronx with no ~ 13 2000 a mere eight minutes' drive from Ideal 1 s facility, 14 offer an array of goods and services similar to those offered by 15 Ideal 16 facility caused a substantial decrease in Ideal ' s sales, profits, 17 and local market share (see id. 18 in the allegations that a plaintiff business entity that had once 19 enjoyed a dominant market position, with no serious competition 20 from other, lost business when a 21 competitor 22 opened nearby. National's Bronx facility, ~~ (see id. more are 25 12 (b) (6), gg, 26 1998), Ideal as (see id . opened in the summer of began to limited, in ~ 43) . entities, size and We see nothing implausible offerings to the large plaintiff although the standards for dismissal pursuant to Second, Rule offered 9-15); a nd that the opening of National's Bronx comparable 24 vendors 40). 12 and Bronx ~ comprehensi ve an array of goods and services as 12 (c) other Bronx 11 23 no defendants National market National's serious that as and 10 11); competitors, that the expense of purchasing, i stocking, all e ged Ideal 1 39) 1 the ~, the same as for a dismissal pursuant to Rule Rivera v. Heyman, 157 F.3d 101, 103 (2d Cir. standard set by Twombl y - 27 - for evaluation of the 1 viability of the pleading is the same under each Rule, see, 2 Hayden v. 3 the 4 Complaint, given the posture of this case, as a misapplication of 5 Twombly. 6 avoid the expense of discovery and other pretrial motion practice 7 when the complaint states no plausible claim on which relief can 8 be granted: paterson, 594 F.3d 150, 160-61 district 9 10 11 12 13 courtls focus solely on ~, (2d eir. 2010), we view the allegations of the Twombly is meant to allow the parties and the court to [W]hen the allegations in a complaint, however true, could not raise a claim of entitlement to relief, this basic deficiency should. . be exposed at the point of minimum expenditure of time and money by the parties and the court. 14 Twombly, 550 15 (emphasis 16 expense had long since been passed. 17 at each of the three levels of the federal judicial system; and, 18 by the 19 sure, 20 be granted is a question of law, and that question may be raised 21 even as late as at the trial of the action, 22 12 (hi (2 I But pleadings often may be amended. 23 after time to a,mend as 24 should freely give leave [to amend1 when 25 Fed . R. ~, Rachman Bag Co . v. 26 Mutual Insurance Co., 46 F.3d 230, 234-35 (2d eir. 1995); see also 27 Fed. 28 freely permit an amendment tl to conform the pleadings to the proof, U . S. ours) . time of at 558 In the Ideal IV, (internal present quotation case, the marks point omitted) of minimum The case had been addressed discovery had been completed. To be whether the complaint states a claim upon which relief can the R. eiv . P. Civ. P. 15(a) (2) ; 15{b) (1) of right ~, (even at - 28 - has trial, .§.§.§. Fed. R. eiv . P. Prior to trial, passed, ,,[t] he court justice so requires, "{t]he court II Liberty should 1 unless 2 availability of 3 for Co ngress's expectation that 4 RICO violations would be an effec tive tool . 5 at 82. 6 the objecting party can show prejudice). "amendment of pleadings II Indeed, was one of the the reasons the private right of action for Rep. S. No. 91-617, In light of the fact that disc overy in this case had been 7 completed prior to the decision in Ideal IV , 8 Twombly as requiring that defendants' Rule 12(c) motion be granted 9 if evidence that had already been produced during discovery would the perceived gaps in the Complaint. we do not 10 fill 11 the district court found persuasive the defendants ' argument that 12 the Comp laint did not specify how much RICO income was invested to 13 create the National facility in the Bronx, materials in the record 14 showed that the purchase price of the property was $2.5 million; 15 that of that sum, 16 that that $500,000 was provided by National 17 at 186-87, 18 store cost at least $850,000 19 Ideal's expert accountant estimated that the total cost exceeded 20 $1 million. 21 conclusory the Complaint I s 22 income 23 income, 24 in the record- -both those that were originally filed by National 25 showing less than $73,000 in taxable income for each of the years 26 1999 and 2000, and the amended returns showing taxable income for tax 435); To For example, regard although $500,000 in cash was paid at the closing, that the returns defendants (~, extent that admit ~, that the (~, that ~, opening Anza Decl. , district 5) court and Anza Dep. the i Bronx and that viewed as allegations that defendants had f iled substantially understated their taxable the court should have take n into account the tax returns - 29 - 1 those two years totaling nearly $1.7 million, as well as the 2 deposition testimony of an accountant for National that those and 3 other amended returns filed for National showed that for 1998 - 2003 4 National had unreported income totaling approximately $4.3 million 5 (~ 6 the 7 operation lost sales after the advent of National as conclusory, 8 it 9 deposition Deposition of Jay L. Of sink at 40). court viewed should the have Complaint's taken testimony who into of stated that And to the extent that allegation that consideration, Ideal'S sole in each of Ideal's inter alia, shareholder, Giacomo Brancato, 11 2000, 12 {Deposition 13 that 14 2000, 15 to $2.7 million - $2,9 million 16 the inference that the sales lost by Ideal were made by National. 17 National! s tax 18 sales those 19 facility's 20 $2.3 million more than its gross sales during the last year before 21 the 22 provide 23 separately, 24 portion of its 24-47% increase in sales was attributable to the 25 Bronx facility, after of Giacomo National 1998, the 10 Ideal had sales in the the years Bronx ~ range of $4 million Brancato opened its {"Brancato and $4.6 million Dep. "} Bronx facility 1999, at 282}; and in the summer of Ideal! s sales in 2001 and 2002 dropped by about one-third, for Bronx returns years, operation, facility figures it for were, was for is the {~id,}, 2001 and first The record also permits 2002 two full respectively, opened. Queens surely inferable 30 - that years some Although National's - showed that the and at of its gross its Bronx $1.2 million and returns do not Bronx facilities least a substantial In 1 these circumstances, assuming the truth of the 2 Complaint's allegations and of evidence in the record supporting 3 those 4 their 5 sufficiently 6 proximate cause, we find it difficult to envision anyone who could 7 show injury proximately caused by that investment--or to fathom to 8 whom 9 subsection allegations, alleged if defendants' pattern directly Congress meant (a) _ mail harmed to We of investment of grant conclude and wire to meet Ideal a private that the proceeds of the frauds the right action court 10 C. of under erred in dismissing Ideal's Complaint pursuant to Rule 12{c). 11 not standard of district has Summary Judgment 12 The 13 established. 14 grant 15 there is no genuine issue of material fact to be tried, 16 facts warrant 17 judgment 18 Electric Boat Corp., 609 F.3d 537, 545 19 Civ. P . 56 (a) . 20 movant is entitled to judgment as a matter of law, the court "may 21 not evidence" 22 "must 23 party." Reeves v. 24 133, (2000) (emphasis added). 25 court of as make Such summary for a governing motion judgment to which summary properly "may may judgment be properly be there is no such the moving party as issue a all are well granted- - and the affirmed--only where matter of and the the entry of law. Kay tor v . II (2d Cir. 2010); ~ Fed. R. In reviewing the evidence to determine whether the credibility determinations or weigh draw 150 principles reasonable inferences Sanderson Plumbing in considering the motion - in the favor of Products, the Inc., and nonmoving 530 U.S . The function of the district for 31 - summary judgment is not to 1 resolve disputed questions of fact but only to determine whether, 2 as to any material issue, a genuine factual dispute exists. 3 ~, 4 (1986) Anderson Applying 5 v. Liberty these Lobby, principles, Inc., we 477 first U.S . 242, reject See, 249-50 defendants' 6 contention--which the district court did not adopt--that they are 7 entitled to summary judgment on the ground that Ideal failed to 8 prove that they invested funds derived from the alleged pattern of 9 racketeering activity in the establishment of National's Bronx 10 facility. The matter of whether or not defendants "directly or 11 indirectly" 12 indirectly" 13 question of fact that could not properly be resolved by the court 14 on summary judgment. invested or used proceeds from such activity, derived 18 U.S.C. "directly or 1962(a), is clearly a § 15 The district court, as set forth in Part I.C. above, ruled 16 that defendants were entitled to summary jUdgment because it found L7 the evidence 18 sales was proximately caused by defendants' 19 that 20 Ideal's 21 Ideal IV, 22 possible factors, including the decisions of individual customers, 23 the quality of 24 steel companies in the area, 25 as to whether to match National's prices, it insufficient would alleged 2009 be "purely injuries WL to show that resulted to at steel *6, from conclude Defendants' the court products, In ruling conduct. speculative 1883272, Ideal's Ideal's alleged loss of conduct," pointed actions that to other taken by other and decisions by Ideal ' s management - 32 - ~ id. We conclude 1 that none 2 Ideal as a matter of law. As 3 of a t hese factors general justified granting matter, the district judgment. court against. viewed the 4 proximat.e cause inquiry as the same for a claim under subsection 5 (al 6 have 7 different prohibitions. 8 proximate cause 9 because" the cause of Ideal's harm was as for one under subsect.ion given effect to was the (c), and it does different In lacking referent s Ideal III, for entirely distinct the Ideal ' s I not appear required Court subsection by to the found that (cl claim a set of actions (offeri ng 10 lower prices) 11 (defrauding the State) .'" 12 quoting 13 Supreme Court 1 s RICO proximate cause precedents make "clear 14 that ' the compensable injury flowing from a 15 "nece ssarily is the harm caused by 16 S. Ct. at 991 (quo ting Ideal III, 547 U.S. at 457 (quoting Sedima, 17 473 U.S. at 497» 18 however, 19 causes the harm: 20 the pattern of mail and wire frauds to establish and operate the 21 Bronx store is both the violation and t.he cause of Ideal's lost 22 sales. 23 individual 24 independent 25 and the alleged injuries, 26 not appear to have focused on the fact that the alleged subsection Ideal III, Hemi, 547 U.S. at from the alleged RICO violati on 130 S. Ct. at 990 (describing and 458) Hemi [ the] emphasized that the [RICO] violation predicate acts, II'" With respect to Ideal's subsection (al 130 c laim , the act constituting the violation is the very act that the use or investment of the funds derived from The district court, have purchasers intervening in stating that act II been held "[t] he decisions of to constitute an between the alleged RICO violations Ideal IV, 2009 WL 1883272, at * 5 , does - 33 - 1 (a) violation itself, the investment or use of all or part of the 2 income 3 activity in the establishment or operation of a store that simply 4 by its existence attracts customers away from a competitor, may be 5 the direct cause of 6 property. derived directly or indirectly from the racketeering injury to the plaintiff in its business or 7 We note also that the only cases cited by the district 8 court as holding that decisions of individual purchasers are an 9 intervening cause that defeats proximate cause were district court In Bridge v. Phoenix Bond & Indemnity Co., 10 cases. 11 651 (2008), the Supreme Court, in rejecting the proposition that a 12 civil RICO plaintiff complaining of a pattern of mail fraud must 13 prove its own reliance, proffered the following hypothetical: 14 15 16 17 18 19 20 21 22 suppose an enterprise that wants to get rid of rival businesses mails misrepresentations about them to their customers and suppliers, but not to the rivals themsel ves. I f the rival businesses lose money as a result of the misrepresentations, it would certainly seem that they were injured in their business "by reason of" a pattern of mail fraud, even though they never received, and therefore never relied on, the fraudulent mailings. at 649-50. Plainly, in this hypothetical, 23 Id. 24 plaintiff ' s 25 553 U.S. 639, the fact that the decisions does not defeat proximate cause. l oss of business would have resulted from customer 26 The district court also found an intervening cause in the 27 fact that "Brancato testified that at various times between 1996 28 and 29 products that were bent and rusty . II 30 at *6 (internal quotation marks omitted). 2003 Ideal received and - accepted 34 - from its Ideal IV, vendors steel 2009 W 1883272, L The court' s reliance on 1 the possibility that 2 inferior 3 raises 4 causation; but-for causation is 5 see,~, Jett v. 6 701, 737 7 of causation, a matter to be decided by the court on a motion for 8 summary judgment. 9 inference as a matter of fact. products a Ideal suffers question of may two have lost flaws. but-for First, causation, an business that rather issue of because possibility than fact of for proximate the Dallas Independent School District, jury, 491 U.S. (1989), not, where there is evidence to support a finding court Second, The deposition testimony to which 10 the 11 unsuitable for one category of customers may well be welcomed by 12 another category; 13 who purchased from Ideal were dissatisfied. 14 Oep. at 318-35,) 15 because of 16 the light most favorable to Ideal. 17 referred the record did not compel the court's explained that some products that are the testimony did not state that any customers (See,~, Brancato The court's suggestion that Ideal lost customers inferior products plainly did not view the record in The court's additional suggestion that Ideal may have lost 18 sales because of 19 area," 20 any 21 attention to suggest that the 1998-2000 conduct--or sales volume-- 22 of 23 Ideal 24 Ideal's 25 with its new facility, Ideal IV, anchor any in "actions taken by other steel companies in the 2009 WL 1883272, the (see Brancato sales Nothing record. such companies, dropped which Dep. at *6, does not appear to have has provided at 283), by one-third no real changed (and the increased by 24 - 47%) . - 35 - been in called to competition 2001-2002, sales of our for when National, 1 Finally, because the court ' s of its suggestion that Ideal may have lost decisions--~, 2 sales " business 3 prices 4 *6, seems to have lost sight of the alleged RICO violation, 5 the investment 6 National 7 made, to compete with National, " of racketeering facility in the Ideal IV, activity Bronx. Had lower its 2009 WL 1883272, funds the to to i . e., establish investment not at the been there would have been no National prices for Ideal to match. 8 CONCLUSION 9 We have considered all of defendants' arguments in support 1.0 of the judgment 11 judgment 12 remanded for trial. of the and have found district court them to be without is - 36 - vacated, and merit. the matter The is 1 2 3 JOSà A. CABRANES, Circuit Judge, dissenting: 4 its enactment in 1970, the civil RICO statute, Racketeer Influenced and Corrupt Organizations Act, 5 18 U.S.C. §§ 1961-1968, has exasperated generations of federal judges and practitioners and 6 generated a vast, and often skeptical, literature.1 7 We encounter here another chapter in the long saga of civil RICO and its discontents. Since The dispute presently before us involves competing small businesses in the steel mill 8 products trade. It has already consumed nine years of litigation in the federal courts, including one 9 trip to the Supreme Court, see Anza v. Ideal Steel Supply Corp., 547 U.S. 451 (2006) (to employ the 10 citation adopted by today s majority opinion, Ideal Steel III ). One eventful trip to 1 First Street 11 surely deserves another. * 12 * * 13 From its beginnings before Judge Richard Berman, a seasoned federal trial judge, 14 the case has presented the question whether plaintiff Ideal Steel Corporation ( Ideal ) can deploy 15 the heavy legal armaments of RICO in a civil action against its chief rival, National Steel Supply, Inc. 16 ( National ), based on National s alleged illegal business practices. 17 In its complaint, Ideal raised two distinct civil RICO claims, one under 18 U.S.C. 1 § See, e.g., William H. Rehnquist, Remarks of the Chief Justice, 21 St. Mary's L.J. 5, 9-21 (1989); William H. Rehnquist, Get Rico Cases Out of My Courtroom, Wall St. J., May 19, 1989, at A14; David B. Sentelle, Civil RICO: The Judges Perspective, and Some Notes on Practice for North Carolina Lawyers, 12 Campbell L. Rev. 145 (1990). To be sure, RICO and its application in civil suits is not without its defenders. See, e.g., G. Robert Blakey & Thomas A. Perry, An Analysis of the Myths that Bolster Efforts To Rewrite RICO and the Various Proposals for Reform: Mother of God Is this the End of RICO? , 43 Vand. L. Rev. 851 (1990) (defending the legitimacy of RICO); G. Robert Blakey, Civil RICO: A Rebuttal to Some Myths Spurring Reform Effort in Congress, Nat'l L.J., Aug. 3, 1987, at 26 (a defense of civil RICO). It should be noted, however, that its defender-in-chief, Professor Blakely, was the Chief Counsel of the Senate Subcommittee in Criminal Laws and Procedure when the RICO statute was passed, see Gary S. Abrams, The Civil RICO Controversy Reaches the Supreme Court, 13 Hofstra L. Rev. 147, 149 n.9 (1984), and is touted as one of its chief architects, see, e.g., G. Robert Blakey, The RICO Civil Fraud Action in Contaxt: Reflections on Bennett v. Berg, 58 Notre Dame L. Rev. 237, 237 n.3 (1982). 1 1 1962(a)2 and the other under 18 U.S.C. § 1962(c).3 Claims under each of these provisions must be 2 asserted under [18 U.S.C.] § 1964(c), id. at 461-62, which provides a cause of action to persons 3 injured by reason of a defendant s alleged RICO violation, 18 U.S.C. § 1964(c).4 4 Ideal s § 1962(c) claim alleged that National s owners, Joseph and Vincent Anza, conducted 5 the affairs of an interstate business enterprise (National) through a pattern of racketeering 6 activity specifically, by refraining from charging their cash-paying customers requisite New York 7 sales tax and by subsequently filing false tax returns with the State of New York. See Ideal Steel III, 8 547 U.S. at 454. The Supreme Court rejected this claim, id. at 461, and directed us to consider on 9 remand the § 1962(a) claim, which accuses the Anzas and National (jointly, defendants ) of 10 investing funds derived from the alleged tax fraud scheme in order to open and operate a new store in the 11 Bronx. Id at 462. We are thus required to ascertain whether Ideal adequately pleaded its § 1962(a) 12 civil RICO suit against defendants in particular, we are asked to determine whether [defendants ] 13 alleged violation of § 1962(a) proximately caused the injuries Ideal asserts. Id. at 462. Unlike my 2 In relevant part, § 1962(a) provides: It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. 18 U.S.C. § 1962(a). 3 Section 1962(c) states, in full, that [i]t shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt. 18 U.S.C. § 1962(c) (emphasis added). 4 In relevant part, § 1964(c) provides that [a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee[.] 18 U.S.C. § 1964(c). 2 1 colleagues, I think that the relation between the injury asserted and the injurious conduct alleged 2 in Ideal s 3 necessary proximate-cause analysis. Id. (quoting Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 268 4 5 6 7 8 9 (1992)). Accordingly, I respectfully dissent. § 1962(a) claim is, like its § 1962(c) claim, too remote and speculative to satisfy the I. In Ideal Steel III, the Supreme Court held that Ideal could not maintain its RICO claim under 10 § 1962(c), see note 2, ante, because it failed to satisfy the requirement of proximate causation set forth 11 in Holmes, 503 U.S. 258. See Ideal Steel III, 547 U.S. at 461. The Court concluded that the relation 12 between the injurious conduct alleged (defrauding a third party, the State of New York, of tax 13 revenues) and the injury asserted by Ideal (lost sales due to the competitive advantage thus gained by 14 National) was too attenuated to establish proximate cause. Id. at 458. The Court found support for 15 this conclusion by considering the underlying premises of the directness requirement[ ] that 16 must be satisfied in order to prove that a defendant s actions have proximately caused injury to a 17 plaintiff. Id. The Court held that Ideal s theory of recovery under § 1962(c) was simply too remote 18 and too dependent on contingent propositions to meet this requirement. See id. at 458-60. 19 We must now evaluate whether Ideal s claim under § 1962(a) can withstand the proximate 20 causation analysis set forth in Ideal Steel III and Holmes. See id. at 462 ( The proximate-cause inquiry . 21 . . requires careful consideration of the relation between the injury asserted and the injurious 22 conduct alleged. Because § 1962(c) and § 1962(a) set forth distinct prohibitions, it is at least 23 debatable whether Ideal s two claims should be analyzed in an identical fashion for proximate-cause 24 purposes. (quoting Holmes, 503 U.S. at 268)). 25 26 The essence of Ideal s claim under § 1962(a) is that defendants used funds earned directly or indirectly from the alleged pattern of racketeering activity in order to help establish or operate a 3 1 new facility in the Bronx, and that the operations of this new store had the effect of substantially 2 decreasing Ideal s sales, profits, and local market share. See Ideal Steel Supply Corp. v. Anza, No. 02 3 Civ. 4788, 2009 WL 1883272, at *4 (S.D.N.Y. June 30, 2009). The proper referent for proximate 4 causation analysis of the § 1962(c) claim in Ideal Steel III was defendants alleged practice of 5 conducting National s business through a pattern of defrauding the State [of New York] of tax 6 revenues, Ideal Steel III, 547 U.S. at 458, while the proper referent of our proximate causation 7 analysis under § 1962(a) is the defendants investment of income acquired through the alleged 8 pattern of racketeering activity into the creation of a new store that competed with Ideal. 9 The majority opinion concludes that this theory of causation for the § 1962(a) claim is more 10 direct and certain than Ideal s failed § 1962(c) claim. See Majority Op. at 20-21. The principal failure 11 of the § 1962(c) claim, as the Supreme Court pointed out, was that plaintiffs could not demonstrate 12 that the money defendants saved by allegedly committing tax fraud was used in such a way as to 13 ultimately result in increased competition for Ideal s business. See Ideal Steel III, 547 U.S. at 459. The 14 § 1962(a) claim is said to be different, however, in the following way: although the alleged offense 15 under § 1962(c) is the racketeering activity itself (here, tax fraud), the alleged offense under § 16 1962(a) is the reinvestment of the funds derived from the racketeering activity. Although the only 17 legally cognizable victim of the tax fraud was the State, see Ideal Steel III at 458, the Court suggested 18 that there is arguably a larger set of potentially cognizable victims affected by the reinvestment of the 19 ill-gotten funds. Thus, under § 1962(a), Ideal s injury may be more closely connected to 20 defendants alleged conduct. 21 Nevertheless, the link between (i) the use of racketeering (or, ill-gotten ) funds to help 22 establish National s new store in the Bronx, and (ii) the ultimate impact on Ideal s bottom line, is not 23 nearly as direct as Ideal and the majority seems to believe. Critically, the alleged illegal activity is 24 not National s creation of a new store in the Bronx on its own, a perfectly legitimate, competitive 4 1 pursuit but rather, defendants investment of ill-gotten proceeds. This distinction is important. It may be that the Bronx facility would not exist but for the 2 3 alleged ill-gotten investment; on the other hand, it may also be that the economic projections 4 concerning the development of a National facility in the Bronx were so promising, and access to 5 abundant capital so cheap, that the decision to open the Bronx store was unaffected (either in terms 6 of its opening date or the scope of its operations) by whatever ill-gotten proceeds were available. 7 Although the truth likely lies somewhere in between, it is doubtful that any court could come up 8 with a reasonably certain answer in light of the overwhelming number of variables inherent in this 9 inquiry. 10 Nor would the causation analysis be resolved, even if we assumed, for the argument, that the 11 impact of the ill-gotten investment on the operation of National s Bronx facility could be readily 12 ascertained. Rather, we would next be obliged to determine precisely how this impact injured 13 Ideal (apart from the myriad other factors that may have adversely affected Ideal s business). The 14 element of proximate causation recognized in Holmes is meant to prevent these types of intricate, 15 uncertain inquiries from overrunning RICO litigation. It has particular resonance when applied to 16 claims brought by economic competitors, which, if left unchecked, could blur the line between 17 RICO and the antitrust laws. Ideal Steel III, 547 U.S. at 460. 18 19 II. The danger of blurring the line between RICO and the antitrust laws is a real one. Justice 20 Breyer s separate opinion in Ideal Steel III is particularly instructive in explaining why this is so. If, as 21 today s panel opinion suggests, companies can pursue civil RICO claims against their competitors on 22 the basis of allegations that ill-gotten proceeds have funded perfectly legitimate and competitive 23 pursuits, RICO can be misused as a weapon against competition in the marketplace. As Justice 24 Breyer observed, [f]irms losing the competitive battle might find bases for a RICO attack on their 5 1 more successful competitors in claimed misrepresentations or even comparatively minor misdeeds 2 by that competitor. Ideal Steel III, 547 U.S. at 485 (Breyer, J., concurring in part and dissenting in 3 part). Indeed, businesses that are suffering economically as a result of increased competition would 4 surely be tempted to accuse its competitors of financial, or other, malpractices on the part of 5 competitors, in order to seek treble-damages under RICO, as Ideal has here. 6 In light of (i) the broad scope of RICO (and what might constitute proceeds from a RICO 7 predicate act ), and (ii) the specter of paying treble damages, the mere threat of such a suit would 8 chill competition. When one considers the number of different entities that could plausibly allege to 9 have been injured by the market activity in question various competitors, suppliers to the 10 various competitors, etc. the potential threat is compounded. As this very case establishes, it does 11 not take an elaborate or unusual set of facts for a business to be subjected to a seriously threatening 12 RICO suit by a competitor; after all, the essence of the present suit is that defendants allegedly filed 13 false tax returns and then used the corresponding savings to open a new store that enabled them to 14 compete more effectively (and unfairly), reducing the profits and value of Ideal s business. Firms 15 that fear such treble-damages suits might hesitate to compete vigorously, particularly in concentrated 16 industries where harm to a competitor is more easily traced but where the consumer s need for 17 vigorous competition is particularly strong. The ultimate victim of any such tendency to pull 18 ordinary competitive punches of course would be not the competing business, but the consumer. 19 Ideal Steel III, 547 U.S. at 485-86 (Breyer, J., concurring in part and dissenting in part). 20 If today s majority were right on the law, the adverse consequences of its 21 holding stemming from a broad interpretation of the RICO statute would ordinarily be a 22 concern reserved for the attention of Congress. But, as Justice Breyer recognized, Congress has 23 already spoken to this question through the antitrust laws. The basic objective of antitrust law is to 24 encourage the competitive process. In particular, [antitrust law] encourages businesses to compete 6 1 by offering lower prices, better products, better methods of production, and better systems of 2 distribution. Id. at 482 (citing Phillip E. Areeda and Herbert Hovenkamp, Antitrust Law: An 3 Analysis of Antitrust Principles and Their Application ¶100a, pp. 3-4 (2d ed. 2000)). While it is true 4 that antitrust law is far from the exclusive means by which Congress seeks to regulate conduct 5 between competitive businesses, there is no sound reason to interpret RICO s treble-damages 6 provision as if Congress intended to set it and its antitrust counterpart at cross-purposes. Id. at 7 486. 8 As Justice Breyer noted, it is difficult enough to establish causation in antitrust cases where 9 plaintiffs seek to link certain economic injuries to specified anti-competitive conduct. Id. at 484. But at 10 least in those cases, all concerned, including the parties and the court, have a reasonable prospect of 11 identifying what might have happened had the relevant industry not been exposed to improper anti- 12 competitive activity where the injurious conduct can be distinguished from otherwise competitive 13 market conditions. The task becomes significantly more difficult when courts have to consider what 14 might have happened absent some specified pro-competitive activity activity that will likely be all but 15 impossible to isolate in the context of an efficient market. 16 Justice Breyer s solution to the problems identified above was to assert that § 1964(c) s 17 proximate causation requirement (as applied to both § 1962(a) and § 1962(c)) places outside the 18 provision[s] harms that are traceable to an unlawful act only through a form of legitimate 19 competitive activity. Id. at 486. In other words, ordinary competitive actions undertaken by the 20 defendant competitor cut the direct causal link between the plaintiff competitor s injuries and the 21 forbidden acts. Id. at 482. Justice Breyer s proposed test is consistent with the proximate 22 causation analysis for § 1962(c) articulated in the majority opinion in Ideal Steel III. Under Ideal Steel 23 III s own terms, a civil RICO plaintiff will almost invariably be prevented from recovering under § 24 1964(c) for harms that are traceable to an unlawful act but that reveal themselves only through a 7 1 form of legitimate competitive activity. Any such suit would necessarily require an analysis of (a) the 2 impact of the alleged unlawful act on the legitimate competitive activity in question, and (b) the 3 economic harm to plaintiffs directly attributable to the change in legitimate competitive activity 4 caused by the ill-gotten investment. This is exactly the intricate, speculative, and highly contingent 5 analysis that Ideal Steel III spurned. See id. at 460 (majority op.). 6 In sum, with Justice Breyer, I believe that the financing of a new store even with funds 7 generated by unlawful activities is not sufficient to create a private cause of action as long as the 8 activity funded amounts to legitimate competitive activity. Id. at 487 (Breyer, J., concurring in part 9 and dissenting in part). By holding otherwise, the majority has warped civil RICO into a tool that 10 aggrieved business interests will use to harass and undermine competitors engaged in legitimate, 11 competitive business activities. This in turn will put the courts in the nearly impossible position of 12 having to ascertain which otherwise legal marketplace activity can be directly linked to ill-gotten 13 investments and which cannot. Accordingly, I would affirm the judgment of the District Court that 14 Ideal failed to state a claim upon which relief can be granted. 8
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