Anza v. Ideal Steel Supply Corporation

PETITIONER: Joseph Anza, et al.
RESPONDENT: Ideal Steel Supply Corp.
LOCATION: United States Court of Appeals for the Ninth Circuit

DOCKET NO.: 04-433
DECIDED BY: Roberts Court (2006-2009)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 547 US 451 (2006)
GRANTED: Nov 28, 2005
ARGUED: Mar 27, 2006
DECIDED: Jun 05, 2006

ADVOCATES:
David C. Frederick - argued the cause for Petitioners
Kevin P. Roddy - argued the cause for Respondent

Facts of the case

Ideal Steel Supply Corporation filed a civil suit against its competitor, National Steel Supply, Inc. in federal court. Ideal alleged that National had failed to charge sales tax for cash purchases, giving it a competitive (but fraudulent) advantage. Under the Racketeer Influenced and Corrupt Organizations Act, "[a]ny person injured in his business or property" by racketeering activity may bring a civil suit. Ideal argued that it had been injured through lost sales because of National's illegal lower prices, and therefore had standing to sue.

The federal district court disagreed, dismissing the suit because Ideal had not had any direct encounters with National or relied on their fraudulent tax records. A Second Circuit Court of Appeals panel reversed the decision, however, finding that a company can sue under RICO when its competitor uses racketeering to gain an advantage.

Question

Can a competitor be "injured in his business or property by reason of a violation" of the Racketeer Influenced and Corrupt Organizations Act (RICO) when the competitor is not the party defrauded and did not rely on the fraudulent behavior, but claims to have lost a competitive advantage because of the fraud?

Media for Anza v. Ideal Steel Supply Corporation

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

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

Anthony M. Kennedy:

Justice Kennedy has the opinion in 04-433, Anza versus Ideal Steel Supply Corporation.

In this case, two steel supply companies, Ideal Steel Supply and National Steel Supply, compete with each other in the New York City area.

They each operate one store in Queens and they each operate one store in the Bronx, and the competing stores are nearby each other.

Ideal sued National and National’s owners.

Ideal claimed that National and its owners, Joseph and Vincent Anza, failed to charge cash-paying customers for New York sales tax and that they then failed to report the cash sales to the state tax authorities.

Ideal says that these actions gave National a competitive advantage in attracting customers.

Ideal sued, alleging a violation of the Racketeer Influenced and Corrupt Organizations Act, commonly known as RICO.

It claimed that the Anzas violated Section 1962(c) of the Act by conducting National’s affairs through a pattern of defrauding the State of New York.

It also claimed the Anzas and National violated 1962(a) of the Act by investing the proceeds of their scheme in the establishment of National’s Bronx store.

National and the Anzas moved to dismiss Ideal’s complaint, and the United States District Court for the Southern District of New York granted the motion.

The Court of Appeals for the 2nd Circuit reversed, concluding that Ideal could maintain these claims.

We now reverse the Court of Appeals’ judgments with respect to Ideal’s claim based on Section 1962(c).

In Holmes versus Securities Investors Protection Corporation, this Court held that a plaintiff may sue for a RICO violation only if the violation was the proximate cause of the plaintiff’s injury.

Now, critical to the proximate-cause analysis is the directness of the relationship between the asserted violation and the claimed harm.

In this case, Ideal’s theory is that Joseph and Vinson Anza harmed it by defrauding the New York Tax Authority and then used the proceeds of their fraudulent activities to offer lower prices and thereby attract some of Ideal’s customers.

The direct victim of this conduct, though, was the State of New York, not Ideal.

Ideal asserts it suffered its own harms when the Anzas failed to charge customers for the applicable sales tax.

But the cause of these harms is a set of actions, offering lower prices entirely distinct from the alleged RICO violations, which involved defrauding the state.

Ideal’s claim thus could not satisfy the requirement of proximate causation.

This result is confirmed by considering how the directness requirement works.

One aspect of it is designed to recognize the difficulty that can arise when a court attempts to ascertain damages caused by some remote action.

Here, National could have lowered its prices for any number of reasons unconnected to the asserted tax frauds.

Likewise, the fact that a company commits tax fraud does not mean that company will lower its prices.

The additional cash could go anywhere, from asset acquisition to research and development to dividend payouts.

There is, in addition, a second discontinuity between the RICO violation and the asserted injury.

Ideal’s lost sales could have resulted from factors other than the petitioners’ alleged tax frauds.

Businesses lose and gain customers for many reasons; it would require a complex assessment to determine what portion of Ideal’s lost sales were the product of National’s decreased prices.

Undertaking such inquiries is inconsistent with our opinion in Holmes.

The requirement of a direct causal connection is especially warranted where the immediate victims of an alleged RICO violation can be expected to vindicate the laws by pursuing their own claims, and here Ideal accuses the Anzas of defrauding the State of New York out of a substantial sum of money.

If those allegations are true, the State of New York can be expected to pursue appropriate remedies.