Anza v. Ideal Steel Supply Corporation - Oral Argument - March 27, 2006

Anza v. Ideal Steel Supply Corporation

Media for Anza v. Ideal Steel Supply Corporation

Audio Transcription for Opinion Announcement - June 05, 2006 in Anza v. Ideal Steel Supply Corporation

Audio Transcription for Oral Argument - March 27, 2006 in Anza v. Ideal Steel Supply Corporation

John G. Roberts, Jr.:

We'll hear argument first this morning in 04-433, Anza v. Ideal Steel Supply Corporation.

Mr. Frederick.

David C. Frederick:

Thank you, Mr. Chief Justice, and may it please the Court:

This case concerns use of alleged fraud in the underpayment of taxes as the predicate for a treble damages civil RICO action.

Respondent Ideal Steel concedes that it was not defrauded, but it, nonetheless, claims lost profits when National failed to pay State sales taxes and thereby offered a lower overall price to consumers.

Our position is that Ideal's injury is too indirect as a matter of law under RICO.

In reinstating Ideal's RICO claims against National, however, the Second Circuit committed two errors.

First, it substituted a direct targeting test that credited the plaintiff's allegations of intent instead of applying this Court's test for proximate causation in the Holmes case.

And second, the Second Circuit permitted Ideal to satisfy the reliance requirement by invoking the State of New York's reliance on the truth of National's allegedly false tax returns.

Both errors transformed civil RICO into a litigation weapon of great destructive force for defendants who will be forced to defend, beyond the pleading stages, damages claims of the most attenuated and indirect character.

With respect to our first argument, proximate cause, the court below erred by not applying this Court's test in Holmes and also by failing to take into account the fact that fraud is a statutory violation that... for which the plaintiff needs to be within the zone of interest.

Quite simply, because Ideal was not the defrauded party, it is not within the zone of interest protected by the fraud statute.

With respect to the Holmes factors, for three reasons the... Ideal Steel is unable to plead proximate cause.

First, in Holmes, this Court made clear that where there's an indirect plaintiff, the claims are difficult to prove in terms of ascertaining what the level of damages is.

That is particularly true in this case because of the highly attenuated chain of causation that allege... that Ideal alleges as a factual matter.

David H. Souter:

Well, isn't there something different here?

Because in... in Holmes, the... the party that was claiming the... sort of the ultimate damage was damaged because other people up the line were damaged, the... the shareholders and then the broker dealers and so on.

There was a kind of a direct line of... of causation.

But the people who were claiming were at the tail end of it.

Here, the causation between the... or the... or the cause of the harm to... to the clients on... on the other side was... was direct.

It was direct competition harm.

So we are in a different situation from Holmes.

In other words, they... they weren't... the... the plaintiffs in this case were not injured simply because New York lost some money.

They were injured in... in their own right by... by the competition between them and your client.

David C. Frederick:

I don't agree, Justice Souter, and here's why.

In Holmes, the customers were the ones who were denied proximate cause in this decision... in... in the Court's decision.

They stood in a direct line from the harm that was caused when the companies were defrauded and the stock value caused the brokerage to go down.

It was completely foreseeable that customers that owned the shares in those firms would also suffer direct harm.

David H. Souter:

Sure, but they suffered the harm because the firm suffered the harm.

There was... there was... there's a word there.