Respondents Brief — Anza v. Ideal Steel Supply Corp.

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No. 04-433

—-

-——

In The

Supreme Court of the Gnited States

JOSEPH ANZA, VINCENT ANZA,

and NATIONAL STEEL SUPPLY, INC.,

Petitioners,

IDEAL STEEL SUPPLY CORPORATION,

Respondent.

On Writ Of Certiorari To The

United States Court Of Appeals

For The Second Circuit

BRIEF FOR RESPONDENT

KEVIN P. RoDDY

Counsel of Record

WILENTZ, GOLDMAN &

SPITZER, P.A.

90 Woodbridge Center Drive

Suite 900

Woodbridge, NJ 07095

Telephone: (732) 855-6402

Facsimile: (732) 726-6686

Counsel for Respondent

COCKLE LAW BRIEF PRINTING CO (800) 225-6964

OR CALL COLLECT (402) 342-2831

RULE 29.6 STATEMENT

Respondent, Ideal Steel Supply Corporation, is a

privately owned entity. It has no parent corporation, and

there is no publicly held company that owns 10% or more

of its stock.

~ TABLE OF CONTENTS

Page

RULE 29.6 STATEMENT voscosocossscocsscssseere saeinoaies i

RSE GO TUNED Ge iicccseeccascscesccnsoscncnsseccsscents 1

Fe, SI ccidinsnichcevstininnastcncisithiadiininniatemenitianinaiani 1

B. Respondent's Factual Allegations................0000+ 3

1. Ideal And National Are Head-To-Head

IID a. tincisiistineniliniiiialasiiaisigabeiddowinin 3

Requirements Of New York State Tax Law ...

The Anzas’ Racketeering Scheme...............

Petitioners’ Illegitimate Competitive Ad-

vantage And Injuries To Ideal’s Business

SI cinciieitsisdiesitectinneindeseinisiaiceitlanipetepiiatiie

Se Se Pe I NIIIIDD iacisscesichesstineniscinistncnteisiceniectindeesieti

D. Subsequent Proceedings In The District Court ...

SUMMARY OF ARGUMENT......00.........cccccccsesseeeceeeeees

EE iestiiahghiesitnniicniaperinisinananitndiinmiibedinnaictontiaee

A. The Second Circuit’s Decision Is Consistent

With RICO’s Statutory Language, Express

Purpose And Legislative History.......................

B. The Second Circuit’s Decision Is Consistent

REISS PR TIED Ne ORD ty PETE. Pre

1. The Decision In Holmes.................00.000..0000

2. Evaluation Of Ideal’s Claims Against Peti-

tioners In Relation To This Court’s Proxi-

I I es

ill

TABLE OF CONTENTS - Continued

Page

a. The Simplicity Of Determining Dam-

ages Attributable To Petitioners’ RICO

IID icesis cnnscncietipniniotonidinatbiensiipenieaueins

b. There Is No Need To Apportion Dam-

ages Among Injured Parties..................

c. The Ability Of Other Parties To Vindi-

cate The Aims Of The Statute...............

The Second Circuit’s Decision Is Consistent

With Post-Holmes Decisions.................0..cc0cc0eees

1. Reliance Is Not An Element Of Mail Or

Wire Fraud, And It Is Not An Element Of

Section 1962 Or Section 1964(c).................

2. Ideal’s Reliance Upon Petitioners’ Predi-

cete Acts Is Not The Only Way To Allege

ID CRI cncninscsecsciossntnsccssscscsies

At Common Law, Ideal Could Maintain A

Fraud And Deceit Claim By Alleging And Prov-

ing Third-Party Justifiable Reliance.................

Under The Restatement, The Intentional

Nature Of Petitioners’ Racketeering Scheme

Must Be Taken Into Account In Determining

Whether Proximate Causation Has Been Al-

TIE senstneciariadinaninclindencdimacediekndagbianimdiantiididatiniioons

Affirming The Second Circuit’s Decision Will

Not Open “Floodgates” Of RICO Litigation ......

I oicrntenrssinnsrténtaniecssonentuipninanennienseotinanieoes

TABLE OF AUTHORITIES

Page

CASES

Advance Relocation & Storage Co. v. Local 814, Int'l

Brotherhood of Teamsters, AFL-CIO, 2005 WL

665119 (E.D.N.Y. Mar. 22, 2005)..............csssssesssssessssnees 42

Agency Holding Corp. v. Malley-Duff & Assocs., 483

Se SITY icisidinteiticsinnsctintibdotaninnetincbdamcsiueimiiiines 11, 17, 49

American Natl Bank & Trust Co. of Chicago v.

Haroco, Inc., 473 U.S. 606 (1985).............ccccsssseeereeeeeeees 11

Associated Gen'l Contractors of Calif., Inc. v. Calif.

State Council of Carpenters, 459 U.S. 519 (1983)......... 28

Baisch v. Gallina, 346 F.3d 366 (2nd Cir. 2003)............... 36

Bank of China v. NBM L.L.C., 359 F.3d 171 (2nd

Cir. 2004), cert. granted, _ U.S. ___, 125 S. Ct.

2956 (2005), cert. dismissed, __ U.S. __, 126

By Gots HON Ee icdececceisilindonnstensciichenednbenisindeglinlaaditiensmnliaaats 33

Beck v. Prupis, 529 U.S. 494 (2000)............::ccccssssseeeeeeseees 11

Bieter Co. v. Blomquist, 987 F.2d 1319 (8th Cir.),

cert. denied, 510 U.S. 823 (1993)..............csseccccessesseeseees 17

Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975)..............32

Blue Cross & Blue Shield of New Jersey, Inc. v.

Philip Morris, Inc., 36 F. Supp. 2d 560 (E.D.N_Y.

SID \otiscicinstsinseiuiiatentinsapintiialdviscisnmaiéndaiiandaidiaaeaae dials 17

Brittingham v. Mobil Corp., 943 F.2d 297 (3rd Cir.

STE wectniocetitsnctasebebitunicehinteenihde dbaddaiiiadbunisibibmionnenledat ticaita 29

Brokerage Concepts, Inc. v. U.S. Healthcare, Inc.,

140 F.3d 404 (Srd Cir. 1906)........ccccccccccossscsossesossoossoseess 41

Buffalo v. Mali, 36 N.Y. 200 (1867) .0..............ccceeceeeeeeeeeeees 44

Burckhardt v. Burckhardt, 42 Ohio St. 474 (1885) ..... a

TABLE OF AUTHORITIES -— Continued

Page

Buxton Mfg. Co. v. Valiant Moving & Storage, Inc.,

657 N.Y.S.2d 450 (App. Div. 1997) ..................00cccceceeeees 44

Carpenter v. United States, 484 U.S. 19 (1987) ............... 32

Cedric Kushner Promotions, Ltd. v. King, 533 U.S.

IIIT host diitiaasnnetisia dnanasheaanpenndictuenndanenanteens 8, 11, 21

City of New York v. Cyes.Net, Inc., 383 F. Supp. 2d

A EE Tee 40

Commercial Cleaning Services, L.L.C. v. Colin

Service Systems, Inc., 271 F.3d 374 (2nd Cir.

SI ahd ihedinidnetinignaettianbsiateaniniibiatenunapbasesenesnsncastoses passim

Cooper v. Weisblatt, 277 N.Y.S. 709 (App. Div. 1935) ....... 44

County of Suffolk v. Long Island Lighting Co., 907

I I sina snnednsqutinnsetonmemnectminees 38, 39

Cox v. Adm’r U.S. Steel & Carnegie, 17 F.3d 1386

EE eS Te 25

Derosier v. New England Tel. & Tel. Co., 130 A. 145

Eee 47

Desser v. Schatz, 581 N.Y.S.2d 796 (App. Div. 1992)........ 44

Diaz v. Gates, 420 F.3d 897 (9th Cir. 2005)...........00.0000..... 35

Discon, Inc. v. Nynex Corp., 93 F.3d 1055 (2nd Cir.

SI icilididailindtelidiaiedineddadibanditaminbasnigmenennaneusicnnentecteteovecnsess 49

Dooley v. Crab Boat Owners Ass'n, 2004 WL 902361

EL 42

Dura Pharmaceuticals, Inc. v. Broudo, __§ U.S. ___,

EE 7

Durland v. United States, 161 U.S. 306 (1896) ................ 31

Eaton Cole & Burnham Co. v. Avery, 83 N.Y. 31

eS NN ane at i ctntinenngtenages 44

TABLE OF AUTHORITIES — Continued

Page

Environmental Tectonics v. W.S. Kirkpatrick, Inc.,

847 F.2d 1052 (3rd Cir. 1988), aff'd on other

grounds, 493 U.S. 400 (1990) ...............ccccscccscceessreseeenes 18

Estate of Rogers v. Comm’r of Internal Revenue, 320

es Sa ee nscterthtatinidetineminaninctstesineapineapeiitincnteaiantaiieiin 30

Field v. Mans, 516 U.S. 59 (1995) ................ccccccceceeeeeeeeeees 46

Fromer v. Yogel, 50 F. Supp. 2d 227 (S.D.N.Y. 1999)........ 45

Galeria Furstenberg v. Coffaro, 697 F. Supp. 1282

ae IIE cinnichabasnirusnsttticiaseintibitinandpiiaipaptvanbineteapeitinitia 42

Gregory v. Brooks, 35 Conn. 437 (1868) ....................c..00. 47

H.J., Inc. v. Northwestern Bell Tele. Co., 492 U.S.

aria Tanai cincnsiadiinicesinitianarsiatetuiineensibieheaiititsttailidinaindiniaain 11, 20

Haroco, Inc. v. American Natl Bank & Trust Co.,

747 F.2d 384 (7th Cir. 1984), aff’d per curiam,

a cheentntnttsennsateinnnsnieaaitcigieitteinicennniionen 16

Holmes v. Securities Investor Protection Corp., 503

a ED ccternrtenennmennenmnmengned passim

In re Amer. Cont. Corp./Lincoln Savs. & Loan Secs.

Litig., 794 F. Supp. 1424 (D. Ariz. 1992)....................... 42

In re American Honda Motor Co. Dealerships Relations

Litig., 941 F. Supp. 528 (D. Md. 1996).............. 18, 19, 29

In re Enron Corp. Secs., Deriv. & ERISA Litig., 284

F. Supp. 2d 511 (S.D. Tex. 2003)................:cccccccceeeeeeesees 50

Israel Travel Advisory Serv., Inc. v. Israel Identity

Tours, Inc., 61 F.3d 1250 (7th Cir. 1995).........000..0000.... 41

Khurana v. Innovative Health Care Sys., Inc., 130

F.3d 143 (5th Cir. 1997), vacated on other grounds

as moot, 525 U.S. 979 (1998)............. worececececeesenenecesnsees 41

vil

TABLE OF AUTHORITIES — Continued

Page

Klehr v. A.O. Smith Corp., 521 U.S. 179 (1997) ............... 11

Knevelbaard Dairies v. Kraft Foods, Inc., 232 F.3d

RE SE OO oe 25

Leatherman v. Tarrant County Narcotics Intelligence

& Coordination Unit, 507 U.S. 163 (1993) ................... —

Lerner v. Fleet Bank, N.A., 318 F.3d 113 (2nd Cir.),

cert. denied, 540 U.S. 1012 (2003).................:cccccceeeeeeees 34

Lewis v. Lhu, 696 F. Supp. 723 (D.D.C. 1988) .................. 42

Living Designs, Inc. v. EI. Dupont de Nemours &

Co., 431 F.3d 353 (9th Cir. 2005).................cceeeceeeeeeeenees 32

Maiz v. Virani, 253 F.3d 641 (11th Cir. 2001)................... 25

Matter of EDC, Inc., 930 F 2d 1275 (7th Cir. 1991).... 34, 35

Mayer v. Town of Hampton, 497 A.2d 1206 (N.H.

IT csinienssesiihictelitiapiainitaaiiensitti tales sin lachaahbatietaiaad 46

Mendoza v. Zirkle Apple Co., 301 F.3d 1163 (9th Cir.

STITT scccseceicnndeiinacneneicstiaheiaaipsdtineelaiaeeialcianiaiasasaditieiainli 19, 25, 29

Mid Atlantic Telecom, Inc. v. Long Distance Servs.,

Inc., 18 F.3d 260 (4th Cir.), cert. denied, 513 U.S.

ee CD ccceseccsccscuaineastnnmnntimagnintnnanimanisunedinnaneniel passim

Mylan Labs., Inc. v. Akso, N.V., 770 F. Supp. 1053

(D. Md. 1991), aff’d sub nom., Mylan Labs., Inc.

v. Matkari, 7 F.3d 1130 ‘4th Cir. 1993) ..............0000.000... 13

N.B. Garments (Pvt.) Ltd. v. Kids Intl Corp.,. 2004

WL 444555 (S.D.N.Y. Mar. 10, 2004) ......................0.2 45

National Organization for Women v. Scheidler, 510

ey SE cscictaccericnindiistesniatadeetnpatiniaiaianianmedl passim

Neder v. United States, 527 U.S. 1 (1999)....000000 eee. 31

TABLE OF AUTHORITIES - Continued

Page

Newton v. Tyson Foods, Inc., 207 F.3d 444 (8th Cir.

I sins inccichtaieeliiinctainin neha an liiet til aacatii la ilaaidaciinaiadaealie 36

Nynex Corp. v. Discon, Inc., 525 U.S. 128 (1998).............. 49

Pacificare Health Sys. v. Book, 538 U.S. 401 (2003)......... ll

Pelletier v. Zweifel, 921 F.2d 1465 (11th Cir. 1991)........... 30

Pharmacare v. Caremark, 965 F.Supp. 1411 (D.

Re SEE eee een 38

Piper v. Hoard, 107 N.Y. 73 (1887)...............cccsccecceeeeeeeeees 45

Poulos v. Caesars World, Inc., 379 F.3d 654 (9th Cir.

Eee ey env en oom noe 32

Procter & Gamble Co. v. Amway Corp., 242 F.3d

EE er 41, 42

Reiter v. Sonotone Corp., 442 U.S. 330 (1979) .................. 17

Reves v. Ernst & Young, 507 U.S. 170 (1993) ......... 8, 11, 49

Rice v. Manley, 66 N.Y. 82 (1876).......................00000000- 43, 44

Rosenbluth v. Sackadorf, 76 N.Y.S.2d 447 (Sup. Ct.

1947), rev'd on other grounds, 79 N.Y.S.2d 524

I SES Se rnincinerchiesicrtnindapticsicaittieninineiniiinatannionniataitiies 43

Rotella v. Wood, 528 U.S. 549 (2000) «000.000.000.000 eee. 11

Ruffing v. Union Carbide Corp., 764 N.Y.S.2d 462

Re Ce Se incttecticensentictienianaicindnntinnmeneniiniii 44

Russello v. United States, 464 U.S. 16 (1983)................... 20

Sandwich Chef of Texas, Inc. v. Reliance Nat'l

Indem. Ins. Co., 319 F.3d 205 (Sth Cir. 2003) ............... 41

Scheidler v. National Organization for Women, Inc.,

gS AEE SEED ee eee eeomeeees 11

TABLE OF AUTHORITIES -— Continued

Page

Schmuck v. United States, 489 U.S. 705 (1989)................ 31

Sedima, S.P.R.L. v. Imrex Co., 741 F.2d 482 (2nd Cir.

ER AS a Re ene aE eee Te nee eee 16

Sedima, S.P-R.L. v. Imrex Co., 473 U.S. 479 ( 1985)...... passim

Shaw v. Rolex Watch U.S.A., Inc., 726 F. Supp. 969

(S.D.N.Y. 1989)............. sntsiihsadtanitaiaataidiipiisinaiiniatiahisenaiambiitaliinaddlds 42

SJ Advanced Tech. & Mfg. Corp. v. Junkunc, 627

OO ee 42

Southern Intermodal Logistics, Inc. v. D.J. Powers

Co., 10 F. Supp. 2d 1337 (S.D. Ga. 1998)...................... 42

Steamfitters Local Union No. 420 Welfare Fund v.

Philip Morris, Inc., 171 F.3d 912 (3rd Cir. 1999),

cert. denied, 528 U.S. 1105 (2000) ............ 0... ccccececceeeeeees 34

Summit Props., Inc. v. Hoechst Celanese Corp., 214

I tlie 41

Systenis Mgmt., Inc. v. Loiselle, 303 F.3d 100 (1st

PER ar ERS ea Pere ee 31, 32

Taffet v. Southern Co., 930 F.2d 847 (11th Cir. 1991)....... 39

Tafflin v. Levitt, 493 U.S. 155 (1990) 00000000. 11

Tevas Air Corp. v. Air Line Pilots Ass'n Int'l, 1989 ~

WL 146414 (S.D. Fla. July 14, 1989) ........0000.00000..... 42

United States v. Maze, 414 U.S. 395 (1974)...........0.......... 31

United States v. Porcelli, 865 F.2d 1352 (2nd Cir),

cert. denied, 493 U.S. 810 (1989)....... 00.00. cccccce eee 8,13

United States v. Slevin, 106 F.3d 1086 (2nd Cir.

RT AT Re SENN Se PPARs Beene 8

United States v. Turkette, 452 U.S. 576 (1981)................. 20

TABLE OF AUTHORITIES — Continued

Page

Verizon Communications, Inc. v. Law Offices of

Curtis V. Trinko, LLP, 540 U.S. 398 (2004) .................. 49

_ Z-Tel Comm., Inc. v. SBC Comm., Inc., 331 F. Supp.

I SO iil it ine lal dalelaci 49

STATUTES

SUTTIIIIIIL: Tt TTT icniisinccitemereneitinantatedtnieteibediianadansemnniatineienntns 35

SE: Ot IT oc-ssninintataniicinatakeanimmmnaiianseenminidl Siennissinedeiptenss 8

| EERE sence 32

ae cceitsidlliadnaiel 32

SSPE Ut TTI cisincrshersstnntotinengsanginnnisinnenesmensanaseseiediiumniuitiete 32

ey Tc ecinetiecieritnititai atinelitaiainianiiiebeaeiilinin 1, 8, 29

KS ES ereceenerneee 1, 8, 49

KEE SS Branson cm sesesenees 32

| SE See sere passim

OE I iii ioc eccesdeceecteiere al

REE Rees eee 2, 25-

Ls SEITE Ut? IIE oct rnteniapgnainnnennnnpanmiininndaneinaiiiedtmniadeietel 5

Be a UE ciotlininsevntiedetiniensecnieniedieigeedvtonsebeceteaiieess 5

le Se Ae Oe GUID nettecucecdenniestensennsnnictececnenibensnetesins 5

N.Y. Tax Law § 1800............ eoseeasonss costessnsensansnssnsensasensnssese ces 5

Bs eee Bi hicnsasencnsvincpetepninmscndianinneniaietanhbememinnee 5

Fs lo Re INE Oe Be i ccccesctasiscsasedcscsecssenensessnssstwcncenssoonsenstntite 5

TABLE OF AUTHORITIES — Continued

Page

OTHER AUTHORITIES

BAG Game, Bas. GOSS (IGG osccecccscetsecccesceccscescocesecsssovssseees 20

2 Arthur F. Mathews et al., CirviL RICO LITIGATION

§ 8.03[A] (2nd ed. 1992)............cccceseeeesseneeeseneneneeneneenens 16

ES SAS aa ae 42

2 Fowler V. Harper & Fleming James, Jr., THE LAw

OF TORTS

I ia 47

I, iar ical amrenaiaceinaainsil 43

BR EE Aer ene Ro 47

2 Wayne R. LaFave & Austin W. Scott, Jr.,

CRIMINAL LAW §§ 8.6-8.7 (2nd ed. 1986)...........0............ 31

101 N.Y. Jur. 2D, Taxation and Assessment

4 fF Se 5

| ESSE EE AE Ene SSSR RED aC eR OTe 5

iis aii sesedinicaiaediaseditlen ecaeheaddidiiinliaeneatihdila ilataiasieniniteateciaedeiiitin 5

0 ERR Ee ee EES Re a ae 5

G. Robert Blakey & Kevin P. Roddy, Reflections on

Reves v. Ernst & Youny: Its Meaning and Impact

on Substantive, Accessory, Aiding & Abetting and

Conspiracy Liability Under RICO, 33 AMER.

Crim. L. REV. 1946 (1006) ...........c0cccccrcreroressevecossoees 12, 49

J.G. Sutherland, A TREATISE ON THE LAW OF

DAMAGES 128 (John R. Berryman, ed., 4th ed.

REE REE Se Sea ea oe Dae a Rae ae AO a am 46-47

J.G. Sutherland, A TREATISE ON THE LAW OF

LL ES er raeEe 46

xii

TABLE OF AUTHORITIES -— Continued

Page

Michael Goldsmith & Evan S. Tilton, Proximate

Cause in Civil Racketeering Cases: The Misplaced

Role of Victim Reliance, 59 WASH. & LEE L. REV.83 —

GEE wteteincstasivinisish icensintiencscicasndstaasientiatinnvetmalingsindesianii 12, 32

Organized Crime Control Act of 1970, Pub. L. 91-

Ss Oe CR, ee Cae ccntnctntcccccnevicccinsinsedoctinntciinnsdesien 19

President's Commission on Law Enforcement and

Administration of Justice, THE CHALLENGE OF

CRIME IN A FREE SOCIETY (1967) ..............ccccccceseceeeceeees 19

Randy D. Gordon, Rethinking Civil RICO: The

Vexing Problem of Causation in Fraud-Based

Claims Under 18 U.S.C. $1962(c), 39 U.S.F. L.

Be SE sicctinsitnccncnncs-ctiticncnuseinksibicucigeediausabiaichieaics 12

RESTATEMENT (SECOND) OF TORTS § 435A ..0..........cc cee 46

RESTATEMENT (SECOND) OF TORTS § 435B .............cccceeeees 46

RESTATEMENT (SECOND) OF TORTS § 870..................0000c000 0s 46

Robert H. Lande, Are Antitrust “Treble” Damages

Really Single Damages?, 54 Ono St. LJ. 115

(ERE een Pee sioar eres Rar Ligh e Cnueatoy oe Se Se ee 20

Ryan C. Morris, Proximate Cause and Civil RICO

Standing, 2004 BYU L. REV. 739 (2004) ............00........ 12

Stephen Scallan, Proximate Cause Under RICO, 20

Bh eis Sa, Sees Se SUI cits estnccicchinoschnretaceicteinenantdahiatiipnniinies 12

W. Page Keeton et a/l., PROSSER AND KEETON ON THE

LAW OF TorTS § 41 (5th ed. 1984)...................... 22, 25, 46

William J. Stuntz, The Pathological Politics of

Criminal Law, 100 Micn. L. REv. 505 (2001).............. 31

STATEMENT OF THE CASE

A. Introduction

Respondent Ideal Steel Supply (“Ideal”) sues Petition-

ers, National Steel Supply (“National”) and its owners,

Joseph Anza and Vincent Anza (“Anzas”), alleging viola-

tions of § 1962(a) and (c) of the Racketeer Influenced and.

Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-

1968, and breach of contract. JA 5-10. Under a “cash, no

tax” scheme, National and the Anzas intentionally failed

to collect and remit New York State sales taxes on cash

sales and filed fraudulent sales tax returns with the intent

and effect of causing Ideal, National’s principal competitor,

to lose business, because National is able to charge less

than Ideal on cash sales. JA 6-7, 8-9, 10, 11-12, 13, 15-16.

This scheme also breaches a settlement agreement the

parties executed to resolve a 1997 litigation, wherein

National and Ideal agreed not to interfere with each

other’s “business activities ‘other than through legitimate

and proper competition.’” JA 7, 18-19; see also JA 25 n.3.

The district court dismissed the Amended Complaint

because Ideal did not allege that it “relied on the |fraudu-

lent] sales tax returns [the Anzas and National] mailed or

wired to the New York State Department of Taxation and

Finance.” JA 28. The court declined supplemental jurisdic-

tion over Ideal’s breach of contract claim and entered

judgment in favor of the Anzas and National. JA 2, 30. The

Second Circuit reversed and vacated the judgment dis-

missing Ideal’s RICO and breach of contract claims. JA 57.

The court below analyzed (a) Ideal’s factual allegations, JA

33-36; (b) RICO’s statutory language, JA 38-40; (c) Holmes

v. Securities Investor Protection Corp., 503 U.S. 258 (1992),

and Second Circuit decisions applying RICO’s proximate

causation requirement, JA 40-46, (d) Sedima, S.P.R-L. v.

—t-e——_—

Imrex Co., 473 U.S. 479 (1985), which recognized Ideal’s

standing to sue; and (e) other cases upholding the right of

competitors to sue, even if defendants’ misrepresentations

were relied on by a third party rather than by the plaintiff.

JA 46-53. The Second Circuit applied applicable pleading,

standing and proximate causation precedents to the

allegations, concluding that “Ideal, as a competitor directly

targeted by [the Anzas and National] for competitive

injury, has standing to assert its RICO claims ... for

violations of § 1962(c) based on the alleged predicate acts

of mail and wire fraud.” JA 54.

The Second Circuit rejected Petitioners’ hypothetical

assertion that supposed “problems of proof inherent in

Ideal’s theory of causation are intractable.” JA 55. “The

evidentiary difficulty hypothesized by [the Anzas and

National] ... is not a proper basis for dismissal

pursuant to Rule 12(b)(6) for failure to state a

claim.” /d. (emphasis added; citations omitted). The

proper focus is the sufficiency of Ideal’s allegations, not

Petitioners’ hypothetical defenses. This point is critical

because Petitioners offer an incomplete statement of the

facts alleged by Ideal, Pet. Br. at 5-6, and ignore the

applicable standard of review. So, too, does their amicus

curiae. Brief of Chamber of Commerce of U.S. at 2-3, 22-23

& n.9. Ideal’s claims “must be sustained if relief could be

granted ‘under any set of facts that could be proved consis-

tent with the allegations.’” National Organization for

Women v. Scheidler, 510 U.S. 249, 256 (1994) (citation

omitted). This Court must take Ideal’s factual allegations

as true and construe them in the light most favorable to

Ideal. Leatherman v. Tarrant County Narcotics Intelligence

& Coordination Unit, 507 U.S. 163, 164 (1993).

B. Respondent’s Factual Allegations

1. Ideal And National Are Head-To-Head Com-

petitors

Ideal and National are the only vendors in the Bronx

and Queens offering a comprehensive mix of steel mill

products and related hardware, supplies and services to

ornamertal ironworkers and small steel fabricators.’

Products and services offered by Ideal and by National are

virtually the same and they offer them in a “lumberyard”

setting, conducting much of their business on a “cash and

carry” basis with no minimum order required, providing

convenient, one-stop shopping for the professional iron-

workers, small steel fabricators and “do-it-yourself”

homeowners. JA 8-9. Ideal and National purchase the steel

and other products they sell from manufacturers outside

New York State and sell those products for use in the New

York, New Jersey and Connecticut area. JA 9.

Ideal and National nave each been vendors of steel

mill products and related supplies and services at their

respective locations in Queens for more than ten years.

National is located less than a four-minute drive from

Ideal’s Queens location. Since November 1996, Ideal has

also maintained a location in the Bronx. In the Summer of

2000, National opened a Bronx location just eight minutes

by automobile from Ideal’s location. There are no other

vendors in Queens or the Bronx that carry the same or

' Petitioners pretend this case 1s nothing more than a family “feud.”

Pet. Br at 1, 7. While Respondent disputes the accuracy or relevance of

that characterization, it is true that Ideal is owned by Giacomo (“Jack”)

Brancato, Petitioner Joseph Anza is Mr. Brancato’s uncle by marriage, and

Petitioner Vincent Anza is Mr. Brancato’s cousin. Jdeal Steel Supply Corp.

v. Anza, Case No. 02 Civ. 788 (RMB), Plaintiff's Response to Defendants’

Rule 56.1 Statement, at 2.0 ).N_Y. Oct. 24, 2005), Docket No. 84.

similar comprehensive array of products and services

serving the same customers. JA 9-10.

Ideal and National compete on the basis of price.

Their products are commodities that are not sold on the

basis of brand or manufacturer. From their customers’

perspective, the only significant difference in goods and

services purchased from Ideal or National is the total

price the customer has to pay. While differences in prices

charged by Ideal and National affect customers’ decisions

to purchase from one or the other, the overall demand for

the products is not significantly affected by changes in

prices. Total demand in the market depends upon eco-

nomic activity in the real estate and construction busi-

nesses and demand for ornamental security or other

ironworks products. Neither Ideal nor National can

substantially increase overall demand for their products

and services by reducing prices or through marketing

efforts. Increases in sales by Ideal or by National that do

not result from changes in overall market demand come at

the expense of the other’s sales. JA 10.

2. Requirements Of New York State Tax Law

Under New York State Tax Law (the “Tax Law”), sales

to end users by Ideal and National are subject to state and

local sales tax — at the relevant time 8.25% of the selling

price (now 8.375%) — except that sales to purchasers with

valid resale certificates are exempt. All sales are presumed

taxable unless a valid resale or exempt certificate is

furnished by the purchaser within 90 days of purchase. JA

9-11. National and Ideal are obligated to advise each

customer of the amount of tax due on a sale and to charge,

collect and pay to New York State the applicable sales tax

on all taxable sales. Every sales slip, invoice, or receipt

given to a customer must separately state the amount of

sales tax charged on that particular sale, and National

and Ideal must report, on a monthly or quarterly basis,

the amount of sales receipts for taxable sales and the

amount of state and local sales tax due thereon. Ideal and

National are obligated to pay the State the requisite sales

tax collected for the previous reporting period when they

file their returns. JA 11.’

: 3. The Anzas’ Racketeering Scheme

As National’s sole owners, the Anzas direct and

control activities in cornection with its state-mandated

obligations of charging and collecting sales tax, making

sales tax payments to the State and filing sales tax re-

turns. In willful violation of the Tax Law, the Anzas

operated a “cash, no tax” scheme. When National’s cus-

tomers pay in cash, its employees do not charge or collect

the required sales tax. National provides to the customer a

receipt on which only a single price per item is given and

no sales tax is indicated. National does not report or pay to

_—

* See NY Tax Law §§ 1101, 1105 and 1131-1137; 101 N.Y. Jur 2p,

Taxation and Assessment § 1791 (2005) (vendors required to collect

sales tax from customer when collecting price), § 1800 (presumption

that all sales are subject to sales tax unt] contrary is established),

§ 1803 (sales tax must be shown and charged separately on any sales

slip, invoice, receipt, or statement given to customer by person required

to collect tax), § 1804 (“A person required to collect the sales and use tax

is prohibited from advertising or holding out to the purchaser or the

public in any manner, directly or indirectly, that the tax 1s not consid-

ered an clement of the price. .. Nor may he indicate that the customer

is not being charged the tax, or that the tax will be refunded to the

customer or applied as a credit to the customer's bill, account, of future

purchases.”) (citations omitted).

the State sales tax on those taxable sales for which Na-

tional did not charge tax to its customers. JA 11-12.

The Anzas furthered their “cash, no tax” scheme by

filing on behalf of National, on a monthly or quarterly

basis for each reporting period starting in 1998 (if not

earlier), state sales tax returns they knew to be false.

National’s returns misrepresented the total amount of

taxable sales and the amount of sales tax collected for the

quarter (or month). JA 12. Based on fraudulent misrepre-

sentations (and omissions) in the sales tax returns, upon

which the Department of Taxation relied, National

avoided paying sales tax on a significant portion of its

taxable sales. The false returns, and the State’s reliance

thereon, were essential for the Anzas and National to

avoid paying sales tax and continue their racketeering

scheme over an extended period of time. JA 12-13.

4. Petitioners’ Illegitimate Competitive Ad-

vantage And Injuries To Ideal’s Business Or

Property .

The purpose and direct effect of the “cash, no tax”

scheme is to create an illegitimate competitive advantage

for National. By failing to charge and collect sales tax and

failing to remit sales tax to the State, which can only be

accomplished by filing false returns, National is able to

reduce the total amount its cash customers pay by at least

8.25% without reducing its own profit margin. Ideal’s

prices are the same or lower on average than National's

prices; however, because National does not charge sales

tax on taxable sales, the overall cost to customers. is

typically lower than at Ideal for the same goods and

services. But for the “cash, no tax” scheme, National would

not have a competitively significant price advantage over

Ideal. JA 13, 15.

The racketeering scheme has had a significant and

intended deleterious effect on Ideal’s business. For exam-

ple, Ideal experienced a steep drop in taxable cash sales

after National opened its Bronx facility that was dispro-

portionate to the effect that National's new Bronx location

had on Ideal’s overall sales, including non-cash taxable

sales and tax-free sales made to purchasers with a valid

resale or tax-exempt certificate. Legitimate business

competition cannot explain the disproportionate decline in

Ideal’s taxable cash sales in comparison with Ideal’s other

sales for which National cannot offer unlawful savings

under the “cash, no tax” scheme. JA 13-14.

The “cash, no tax” scheme directly injures Ideal

because the unlawful tax saving is intended to and does

attract customers to make purchases from National which

would otherwise have been made from Ideal. The scheme

directly injures Ideal because it is aimed at increasing

National’s market share and overall profits at the expense

of its principal competitor. Petitioners profit from their

racketeering scheme only by gaining business at Ideal’s

expense. JA 16. As a direct result of the racketeering

scheme and Na .onal’s false tax returns, Ideal lost a

substantial voiume of its taxable cash business and lost

profits exceeding $5 million. JA 16-17, 19-20. Ideal alleged

facts sufficient to show that the injury to “business or

property” was proximately caused by Petitioners’ operation

of National’s stores through a “pattern of racketeering

activity.” JA 33-36, 53-54."

* Ideal’s allegations are far more detailed than those found

deficient in Dura Pharmaceuticals, Inc. v. Broudo, _.§ US __, 125

nips we on following page)

C. Ideal’s RICO Claims

Ideal’s First Cause of Action alleges that the Anzas

violated § 1962(c), and the Second Cause of Action alleges

that the Anzas and National violated § 1962(a). JA 14-18.

The Second Circuit held that each element of Ideal’s RICO

claims was properly stated. JA 38-40, 54-55. For purj~s 3

of Ideal’s § 1962(c) claim, the Anzas are the liable “per-

son|s]” and, for the § 1962(a) claim, National is also a

“person.” For purposes of the § 1962(c) claim, National is

the “enterprise” and the Anzas “direct{] and control”

National's affairs, thereby satisfying the “operation or

management” test, Reves v. Ernst & Young, 507 U.S. 170,

185 (1993), and the distinction between liable “person|s!”

and “enterprise.” Cedric Kushner Promotions, Ltd. v. King,

533 U.S. 158, 161 (2001). Ideal’s § 1962(a) claim alleges

that the “enterprise” is National’s Bronx location, which

was opened by the Anzas in Summer 2000 with the rack-

eteering income derived from their “cash, no tax” scheme.

The “pattern of racketeering activity” - mail fraud and

wire fraud — is the filing of National’s false sales tax

returns on a quarterly or monthly basis. JA 15-16, 39-40.*

S Ct. 1627, 1630, 1632, 1634 (2005) Petitioners have never complained

that Ideal did not “provide _.. some indication of the loss and the

causal connection that [Ideal] has in mind ” /d. at 1634.

* “The mailing of false state sales tax returns may constitute mail

fraud in violation of § 1341.” JA 39 ‘citing United States v. Porcell:, 865

F 2d 1352, 1360-61 (2nd Cir), cert. denied, 493 U.S. 810 (1989), and

United States v. Slevin, 106 F 3d 1086, 1088 (2nd Cir. 1996) (“Because

the [mail and wire fraud] statutes use the same relevant language, they

are analyzed in the same way ”)).

D. Subsequent Proceedings In The District Court

Following the Second Circuit’s decision, Petitioners

filed an Answer to Ideal’s Amended Complaint. Fact

discovery included the exchange of documents and the

depositions of Ideal’s management, the Anzas and others.

According to Vincent Anza (National's owner and presi-

dent), National did not charge or collect sales tax from any

of its “cash customers” from its inception until the begin-

ning of 2004. These “cash customers” included both “pick-

up” and “delivery” sales, but if the same purchases were

made from National with a check or on credit, New York

State sales tax was added.* While the Anzas invoked the

Fifth Amendment rather than answer questions about

their income tax returns, they admitted skimming cash

generated by sales that had not been reported on Na-

tional’s tax returns. During discovery, Petitioners

amended their tax returns for 1998-2003 to increase by

millions of dollars the reported income and “correct” other

misstatements in the original returns, thereby confirming

their income tax avoidance scheme."

* Vincent Anza testified that National started charging tax to its

customers in the “beginning” of 2004 Joseph Anza testified that in

Spring 2004, National started to separately report New York State tax

on cash transactions. Depo of V Anza, at 93-94 (Jan. 11, 2005), Depo of

J. Anza, at 170-71 (Feb. 8, 2005).

" Depo. of V Anza, at 467-76, Depo. of J. Ofsink, at 14-16, 40, 42

‘excerpts attached as Exs. 1 and 2 to Plaintiff's Response to Defen-

dants’ Rule 56.1 Statement, Ideal Steel Supply Corp. v. Anza, Case No.

02 Civ. 4788 (RMB) (SDNY. Oct. 24, 2005), Docket No. 84. Ideal’s

forensic accountant demonstrated that Petitioners’ amended tax

returns are still false and misleading and significantly understate

National's actual cash sales by millions of dollars. Report of Weiser

LLP, at 36-41 (Mar. 11, 2005)

On December 30, 2004, Ideal filed its Second Amended

Complaint (“SAC”). The Fourth and Fifth Causes of Action

assert violations of § 1962(a) and (c), alleging that the

Anzas and National engaged in an “income tax free sales”

scheme to gain further competitive advantage over Ideal

“by [knowingly] filing false income tax returns and de-

frauding the [IRS] and the New York State Department of

Taxation of Finance,” with each filing constituting a RICO

predicate act. SAC 94 50-51, 90, 92. Since 1998, National

“significantly understate|d] its income on its federal and

state income tax returns by, inter alia, using the false

sales tax figures taken from National's sales tax returns

and understating its gross profit margins on its underre-

ported sales by improperly manipulating the other compo-

nents of the gross profit calculation.... ” SAC 9497, 48.

The Anzas and National “pass on to National’s customers

the income tax ‘savings’ that [the Anzas and National]

realize as a result of their false returns, thereby increasing

National’s sales and customer base through lower pricing

without decreasing its profit margin,” and causing injury

to Ideal’s business. SAC {49 56-57, 95. The Second

Amended Complaint was deemed filed as of April 20, 2005.

Ideal Steei Supply Corp. v. Anza, 2005 WL 911470, *1

(S.D.N_Y. Apr. 19, 2005). This case is now ready for trial as

to Ideal’s RICO and breach of contract claims.

SUMMARY OF ARGUMENT

For the sixteenth time in a generation, this Court is

called upon to construe RICO’s civil remedy provision.’

~ Reference to this Court's previous civil RICO decisions demonstrates

the statute’s intended breadth and correct methods of interpreting its

(Continued on following page)

Petitioners inappropriately ask this Court to restrict

§ 1964(c), which grants Ideal standing to sue: “Any per-

son injured in his business or property by reason of a

violation of [§] 1962 of this chapter may sue therefore 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)."

By -gnoring the first clause and focusing exclusively

on the second clause, which imposes a “proximate cause”

requirement, th: ‘.nzas and National miss the point of this

case. Pet. Br. at 10-11. Ideal and National are direct

competitors and Ideal was the “target” and “victim” of

the Anzas’ scheme and pattern of racketeering activity. JA

33-34, 46-54. Who else but a head-to-head competitor

that lost sales and profits due to the “cash, no tax” scheme

has been injured in its business and, therefore, has

standing to sue? JA 54 (“[Wle conclude that Ideal, as a

provisions. See, ¢ g., Scheidler v. National Org. for Women, Inc., No 04-

1244 (anti-abortion protests), Pacificare Health Sys. v. Book, 538 U S.

401 (2003) (managed care), Scheidler v. National Org. for Women, Inc.,

537 US 393 (2003), Cedric Kushner Promotions, Ltd. v King, 533 U S.

158 (2001) (boxing); Beck v. Prupis, 529 U.S. 494 (2000) (employment

termination), Rotella v. Wood, 528 U.S. 549 (2000) (wrongful imprison-

ment), A’ear v. AO. Smith Corp., 521 US. 179 (1997) (products

liability); Natsronal Org. for Women v. Scheidler, 510 US. 249 (1994)

(“NOW TI), Reves v. Ernst & Young, 507 U.S. 170 (1993) ‘securities

fraud), Holmes v. Securities Inv. I otection Corp., 503 US 258 (1992)

(securities fraud); Ta/fflin v. Levitt, 493 U.S. 455 (1990) ‘securities

fraud), H J., Inc. v. Northwestern Bell Tele. Co., 492 US 229 (1989)

(bribery); Agency Holding Corp. v. Malley-Duff & Assocs., 483 US 143

(1987) (anti-competitive behavior), American Natl Bank & Trust Co. of

Chicago v Haroco, Inc., 473 U.S. 606 (1985) ‘prime rate fraud), Sedima,

— L t. Imrex Co , 473 US. 479 (1985) (breach of contract).

* Here, as elsewhere in meapenteate Brief, emphasis is added

unless otherwise indicated.

competitor directly targeted by [the Anzas] for competitive

injury, has standing to assert its RICO claims”).

In addition to ignoring the statutory language, Peti-

tioners avoid RICO’s express purpose and legislative

history, which also support Ideal’s standing to sue. On at

least three occasions, see Sedima, 473 U.S. at 497 & n.15;

Holmes, 503 U.S. at 273 n.19; and NOW J, 510 U.S. at 255-

56, this Court has recognized Ideal’s standing. Petitioners

also ignore circuit court decisions recognizing the standing

of competitors to bring RICO claims where “racketeering

activity” consists of mail and wire fraud directed from

defendants to third parties, including customers and

government agencies. Petitioners also ignore commenta-

tors’ analysis of RICO standing (injury plus causation)

that is consistent with the decision of the court below and

arguments advanced h: re by Ideal.”

Ideal was the intended target and victim of Petition-

ers’ racketeering scheme. Injuries to its “business or

property” are not indirect or derivative, and they do not

flow from injuries inflicted upon third parties. While

others (such as the Stave of New York) may have also been

“directly” injured by Petitioners’ false tax filings, there is

* See, eg., Randy D. Gordon, Rethinking Cwil RICO: The Vexing

Problem of Causation tn Fraud-Based Claims Under 18 U.S.C.

§1962/c), 39 USF. L. Rev. 319 (2005); Michael Goldsmith & Evan S

Tilton, Proximate Cause in Cwil Racketeering Cases: The Misplaced

Role of Victim Reliance, 59 Wasn. & Lee L Rev. 83 (2002); Ryan C

Morris, Proximate Cause and Cwil RICO Standing, 2004 BYU L Rev.

739, 739 n.2 (2004) (citing earlier articles), Stephen Scallan, Proximate

Cause Under RICO, 208. lit. U LJ 455 (1996); and G. Robert Blakey

& Kevin P Roddy, Reflections on Reves v. Ernst & Young. Its Meaning

and Impact on Substantive, Accessory, Aiding & Abetting and Conspir-

acy Liability Under RICO, 33 Amer. Crim L Rev 1345 (1996) (“Blakey

& Roddy, Reflections”).

no suggestion in § 1964(c) or Holmes that there can be only

one “directly” injured party. Unlike Holmes, where the

injury to the target(s) of the racketeering scheme was not

the cause of the injury that SIPC sustained, thereby

making SIPC’s claim indirect or derivative, here the injury

to Ideal (lost profits) was directly caused by the price

advantage that Petitioners’ RICO violations unlawfully

created.” Ideal’s lost sales and profits were not caused by

or derived from New York State’s diminished sales tax

collections. Ideal does not seek to collect taxes owed by

National to the State; indeed, the injury to Ideal’s business

or property is independent of the State’s financial losses.

Ideal’s “reliance” allegations are well within the

requirements of § 1964(c) and the common law. Ideal does

not allege that it relied on Petitioners’ false fax filings;

rather, the State of New York relied and its reliance was

an essential and necessary element for the racketeering

scheme to succeed. In order to offer cash customers (a

majority of National’s business) the overall lower prices

that not charging or collecting sales tax allowed, and

benefit from the increased business taken from the cus-

tomer such illegal pricing generated, Petitioners had to

” The competitive advantage gained by National through the

“cash, no tax” scheme was recognized in Porcelli, 865 F.2d at 1359-62,

which affirmed the RICO and mail fraud conviction of a gas station

operator who filed “some one hundred” fraudulent New York State sales

tax returns with respect to sales at 12 gasoline stations he operated.

Rejecting the argument that the mai! fraud statute does not apply to

tax violations, the Second Circuit found that Porcelli “intended to

deprive New York of its property”; namely, the unpaid sales taxes. /d at

1359-62. “Porcelli, as he knew he was doing, obtained cash, and this is

true whether or not he actually collected the sales tax on his gasoline

sales If he did not collect the tax, then he obtained funds that

an honest retailer, selling for the same price, would have

remitted to the state ”/d at 1360 (emphasis added).

understate their sales and corresponding sales tax obliga-

tions. The State of New York’s reliance on those monthly

or quarterly filings, so as not to question Petitioners or

require them to prove their accuracy, was necessary to

allow the racketeering scheme to proceed, thereby causing

injury to Ideal’s business, unimpeded by regulatory inter-

ference, for years and years.

In their depositions, the Anzas admitted that National

never charged sales tax to cash-paying customers — and

always understated its sales and sales tax obligations in

tax filings until April 2004. In that month (two years after

this case began), the Department of Taxation commenced

a sales tax audit of National’s business. Ideal’s taxable

cash sales, which had plummeted when the Anzas opened

a competitive facility near Ideal’s Bronx location in 2000,

improved dramatically once National ended its “cash, no

tax” practices. Whether those two events were mere

coincidence (as Petitioners claim), or evidence the racket-

eering scheme and the role of the State of New York's

reliance upon the false tax filings made as a necessary

part of that scheme, is for a jury to decide.

Petitioners seek to reduce Ideal’s RICO claims to

nothing more than a “garden variety” business dispute

and common law fraud claim."’ While elements of a RICO

claim may be partly infused with common law learning,

the two claims — RICO and common law fraud — are not .

identical. But even if common law governs this case (and it

does not), Petitioners’ crabbed view of reliance is wrong.

" One fervently hopes, for the sake of our society and the rule of

law, that Petitioners’ multiyear “cash, no tax” scheme, which allegedly

deprived the State of New York of millions of dollars in tax revenue, and

cost Ideal millions of dollars in lost sales and profits, does not represent

“common” and “routine” business behavior. Pet Br. at 2, 12.

Since at least 1876, third-party reliance (such as New York

State’s reliance upon the false tax filings) has been suffi-

cient for common law fraud where the third party’s action

(or inaction) in reliance on the misrepresentations is

essential for the scheme to succeed.

Nothing in RICO militates against allowing third-

party reliance in this case. Schemes to defraud come in all

shapes and sizes, limited only by the imagination of the

malevolent, and the mail and wire fraud statutes are

broad enough to encompass all such schemes. Section

1964(c)’s requirement of alleging injury to Ideal “business”

or property “by reason of” Petitioners’ racketeering

scheme is inclusive. Nothing in the statute, or this Court’s

construction of RICO injury and proximate causation in

Sedima, Holmes, or NOW I, precludes allegations of third-

party reliance if a scheme to defraud directly causing

injury necessarily includes persuading a third party to act

or not to act in a particular way to allow wrongdoers to

achieve their intended and illegal goals.

ARGUMENT

A. The Second Circuit’s Decision Is Consistent With

RICO’s Statutory Language, Express Purpose

And Legislative History

To remain faithful to this Court’s precedents (see note 7,

supra), any reasoned analysis must consider RICO’s lan-

guage, legislative history, and public policy. To establish

standing to sue, § 1964(c) requires Ideal to allege two ele-

ments: That it suffered injury to “business or property” and

that its injury was caused by predicate acts of racketeering

activity that make up the violation of § 1962. Sedima, 473

U.S. at 496-97: Mid Atlantic Telecom, Inc. v. Long Distance

Servs., Inc., 18 F.3d 260, 263 (4th Cir.), cert. denied, 513

U.S. 931 (1994). By providing a cause of action to “any

person injured” by reason of the law’s violation, RICO

avoids undue limitations on the plaintiffs eligible to sue.

Ironically for this case, which involves head-to-head

competitors, one of the earliest injury limitations that

lower courts sought to impose on § 1964(c) was “competi-

tive injury.”” Although the Second Circuit rejected the

“competitive injury” requirement, it adopted an equally

amorphous “racketeering injury” requirement. Sedima,

S.PR.L. v. Imrex Co., 741 F.2d 482, 496 (2nd Cir. 1984). This

Court reversed, stating that “we perceive no distinct ‘racket-

eering injury’ requirement... . If the defendant engages in a

pattern of racketeering activity in a manner forbidden by

these provisions, and the racketeering activities injure the

plaintiff in his business or property, the plaintiff has a claim

under § 1964(c).” Sedima, 473 U.S. at 496. “[T]Jhe statute

requires no mui than this.” /d. at 497 (emphasis added).

Sedima foreclosed attempts to limit RICO’s scope by grant-

ing standing only to plaintiffs alleging a “competitive injury”

or a “racketeering injury” distinct from harm caused by

predicate acts. Id.; see also Haroco, Inc. v. American Natl

Bank & Trust Co., 747 F.2d 384, 387-99 (7th Cir. 1984),

aff’d per curiam, 473 U.S. 606 (1985).

* “Competitive injury” referred to injury derived from the impact

on the marketplace of the RICO violation The case for “competitive

injury” was founded on RICO’s antitrust origins Congress's concern, it

was argued, was that the commercial marketplace “was being harmed

because legitimate businesses were forced to compete with racketeer-

dominated businesses that could operate more efficiently because they

made use of unlawful practices.” This being the case, “it followed that

the scope of RICO’s private action should be limited to those types

of situations” 2 Arthur F. Mathews et al., Civi. RICO LITIGATION

§ § O3{A], at 8-17 (2nd ed. 1992) (“Mathews, Civi_ RICO LITIGATION”),

Affording broad standing to RICO plaintiffs is “consis-

tent with the statute’s purpose. It was passed in order to

address what was found to be a pervasive and serious

problem in our society, namely, the proliferation of racket-

eering within the legitimate business sector.” Blue Cross &

Blue Shield of New Jersey, Inc. v. Philip Morris, Inc., 36

F. Supp. 2d 560, 568 (E.D.N.Y. 1999). Criminal penalties for

violations of RICO are stiff, yet criminal prosecutions alone

are inadequate to deal with racketeering. The Government

is not in a position to identify all significant transgressions.

Treble damages enhance the likelihood that private parties

will be induced to assume the role of “private attorneys

general,” vindicating not only their own interests but those

of society as well. Agency Holding Corp., 483 U.S. at 151.

As this litigation demonstrates, Ideal is best equipped to

serve as “private attorney general” and effectively prose-

cute Petitioners’ “cash, no tax” scheme.

Ideal alleges that “[a]ls a direct result of [Petitioners’}

racketeering scheme and National's false state tax re-

turns,” it has “lost a substantial volume of its taxable cash

business which has cost and continues to cost Ideal a

substantial amount of profits and market share.” JA 16.

“Such economic losses would constitute an injury to both

[Ideal’s] business and property.” Blue Cross, 36 F. Supp. 2d

at 569; see also Reiter v. Sonotone Corp., 442 U.S. 330, 339

(1979) (“When a commercial enterprise suffers a loss of

money it suffers an injury in both its ‘business’ and its

‘property.’”); Mid Atlantic Telecom, 18 F.3d at 261 (RICO

standing based on alleged losses of revenue and custom-

ers). Other RICO decisions reach the same conclusion.”

" See Bieter Co. v. Blomquist, 987 F.2d 1319, 1325-30 (8th Cir.),

cert. denied, 510 U.S. 823 (1993) (developer lost project to competitor

(Continued on following page)

Ideal satisfies the pleading standard for RICO stand-

ing reiterated in NOW IJ, 510 U.S. at 256. The plaintiffs -

DWHO and SWHO - were health care centers that per-

form abortions and they alleged that anti-abortion pro-

testers conspired to use threatened or actual force,

violence, or fear to induce clinic employees, doctors and

patients to give up their jobs, their right to practice

medicine, and their right to obtain medical services at the _

clinics. Jd at 252-53. DWHO and SWHO claimed that the

conspiracy “has injured the[ir] business and/or property

interests.” Jd. at 253-54. Upholding the clinics’ “standing

to bring their claim,” id. at 255, this Court, per Chief

Judge Rehnquist, stated that the complaint “alleges [an]

‘injury’ to DWHO and SWHO ‘fairly traceable to the

{protesters’] allegedly wrongful conduct.’ Nothing more is

needed to confer standing on DWHO and SWHO at

the pleading stage.” 510 U.S. at 256 (citations omitted).

NOW I found that the clinics properly alleged RICO

standing, even though the intimidating acts were largely

directed against third parties (patients, employees and

physicians), thereby allowing the clinics to claim damage

to their “business or property” resulting from acts directed

because of bribes paid to local officials); Environmental Tectonics v. WS.

Kirkpatrick, Inc., 847 F.2d 1052, 1067 (3rd Cir. 1988), affd on other

grounds, 493 ").S. 400 (1990) (competitor bribed Nigerian government

during bid pre.ess); In re American Honda Motor Co. Dealerships Relations

Litig., 941 F. Supp. 528, 540-43 (D. Md. 1996) (automobile dealers depnved

of profits when bribe-paying dealers unjustly received extra allotments of

vehicles); Mylan Labs., Inc. v. Akso, N.V., 770 F Supp. 1053, 1084 (D Md.

1991), aff'd sub nom., Mylan Labs., Inc. v Matkari, 7 F324 1130 (4th Cir.

19933) (alleged losses of revenue and customers). In “two-competitor cases,”

“misappropriation by one party [National] can be reasonably

equated to injury to the other [Ideal]|.” Amencan Honda, 941 F Supp

at 542 (emphasis added). Ideal alleges that the relevant market 1s a zero-

sum game Compare JA 8-14 with Pet Br at 17-18

at others. The decision in NOW I should control here. See

Mendoza v. Zirkle Apple Co., 301_F.3d 1163, 1168 (9th Cir.

2002); American Honda, 941 F. Supp. at 542-43.

Section 1964(c), as construed in Sedima and NOW I,

makes clear Ideal’s standing to sue, and this conclusion is

reinforced when we consider RICO’s legislative history and

public policy. RICO was enacted as Title IX of the Organ-

ized Crime Control Act of 1970 (“OCCA”), Pub. L. 91-452,

84 Stat. 941 (1970), because 18th and 19th Century

jurisprudence was ineffective to combat white-collar

crime.” Its Statement of Findings emphasized that “organ-

ized crime ... is a highly sophisticated, diversified, and

widespread activity that annually drains billions of dollars

from America’s economy by unlawful conduct and the

illegal use of force, fraud, and corruption,” that such

activities “weaken the stability of the Nation’s economic

system, harm innocent investors and competing

organizations, interfere with free competition,

seriously burden interstate and foreign commerce,

threaten the domestic security, and undermine the general

welfare of the Nation and its citizens,” and that organized

crime “continues to grow” because “the sanctions and

remedies available to the Government are necessarily

limited in scope and impact.” It was RICO’s declared

purpose “to seek the eradication of organized crime” by

“providing enhanced sanctions and new remedies to

deal with” its unlawful activities. 84 Stat. at 922-23

—-

“ OCCA was based upon recommendations of the President's

Commission on Law Enforcement and Administration of Justice, THE

CHALLENGE OF CRIME IN A FREE SOCIETY (1967), which observed that

“organized crime is ... extensively and deeply involved in legitimate

business. ... Here it employs illegitimate methods - . . . [including] tax

evasion ... to exact illegal! profits from the public.” /d. at 187.

(emphasis added). Treble damages protect “the honest

businessman who has been damaged by unfair

competition from the racketeer businessman.” 115

Cong. Rec. 6993 (1969) (statement of Sen. Hruska). See

NOW I, 510 U.S. at 260 (protesters’ acts of extortion “may

drain money from the economy by harming businesses

such as the clinics,” which lost patients).

Just as RICO’s legislative history forewarned, Peti-

tioners’ racketeering scheme has “drained [mlillions from

the American economy.” 84 Stat. at 922. Ideal’s Amended

Complaint describes the far-reaching, economic dislocation

that RICO was intended to combat, and Ideal represents

RICO “was intended to provide new weapons of unprecedented

scope for an assault upon organized crime and its economic roots.”

Russello v. United States, 464 U.S. 16, 26 (1983). Although its major

purpose was “to address the infiltration of legitimate business by

organized crime,” RICO was not limited to the prohibition of infiltration

of legitimate organizations. United States v. Turkette, 452 US 576, 590,

591 (1981). Nor does it apply only to “organized crime” in the classic

“mobster” sense. Sedima, 473 U.S. at 495. With its purposefully broad

definition of “racketeering activity,” RICO acknowledges the “breakdown

of the traditional conception of organized crime, and responds to a new

situation in which persons engaged in long-term criminal activity often

operate wholly within legitimate enterprises.” H.J., 492 U.S at 248.

The statute is “broad[} enough to encompass a wide range of criminal

activity, taking many different forms and likely to attract a broad array

of perpetrators operating in many different ways ” Jd. at 248-49.

* Referring to the Criminal! Activities Profits Act, which contained

the legislative antecedent to § 1964(c), Senator Hruska stated that the

bill “creates civil remedies for the honest businessman who has

been damaged by unfair competition from the racketeer

businessman.” 115 Cong Rec. 6993 (1969). Economists recognize that

absent a treble damages remedy, fraud victims often cannot recover

their actual losses Robert H. Lande, Are Antitrust “Treble” Damages

Really Single Damages?, 54 Ounlo St. LJ. 115, 158-72 (1993) (after

appropriate adjustment factors such as attorneys fees and lack of

prejudgment interest, treble damages awarded are probably only equal

to actual damages in antitrust cases).

the kind of business Congress intended to protect from

racketeering and “white-collar” crime. RICO’s legislative

history, “not only refers frequently to the importance of

undermining organized crime’s influence upon legitimate

businesses but also refers to the need to protect the public

from those who would run ‘organization(s} in a manner

detrimental to the public interest.’” Cedric Kushner, 533

U.S. at 165 (quoting S. Rep. No. 91-617, at 82).

Any doubts concerning 2pplication of the statute

should be resolved in favor of vigorous enforcement of

RICO’s remedies. Section 904(a) of OCCA provides that

“(t]he provisions of this title shall be liberally construed to

effectuate its remedial purposes.” 84 Stat. at 947. Sedima

rejected attempts to narrow the reach of § 1964(c) because

“RICO is to be read broadly. . . . This is the lesson not only

of Congress’ self-consciously expansive language and

overall approach but also of its express admonition... .”

473 U.S. at 497-98 (citation omitted).

B. The Second Circuit’s Decision Is Consistent

With Holmes

1. The Decision In Holmes

Section 1964(c)’s “by reason of” clause limits standing

to plaintiffs alleging that the violation was the legal

(proximate) cause of their injury, as well as a logical (“but

for”) cause. Holmes, 503 U.S. at 268. The requirement that

defendant’s actions be a proximate cause of plaintiff’s

harm represents a policy choice premised on recognition of

the impracticality of asserting liability based on the

almost infinite expanse of actions that are in some sense

causally related to an injury. In marking that boundary,

this Court states that a plaintiff cannot complain of harm

so remotely caused by a defendant’s actions that imposing

legal liability would transgress our “ideas of what justice

demands, or of what is administratively possible and

convenient.” Holmes, 503 U.S. at 268 (internal quotation

marks omitted) (quoting W. Page Keeton et al., PROSSER

AND KEETON ON THE LAW OF TorTs § 41, at 264 (5th ed.

1984) (“Keeton, LAW oF TorRTS”).

Petitioners contend that the chain of causation be-

tween their refusal to collect and pay New York State sales

taxes and Ideal’s loss of customers, sales and profits is too

long and tenuous to meet RICO’s proximate cause test.

Pet. Br. at 15-18. But Holmes entirely supports Ideal’s

right to sue Petitioners for injuries to its business or

property. The defendants in Holmes were alleged to have

participated in a conspiracy to manipulate the value of the

stock of several companies. 503 U.S. at 262. Two broker-

dealers who dealt in large amounts of the manipulated stock

were put into liquidation when they experienced financial

difficulties after the fraud was disclosed and the value of the

manipu.ated stock precipitously declined. Alleging that

defendants’ securities fraud and mail and wire fraud offenses

amounted to a pattern of racketeering activity, SIPC brought

suit on behalf of certain of the injured broker-dealer firms’

customers who became unsecured creditors when the firms

became insolvent. Jd. at 270.

Justice Souter’s majority opinion applied a proximate

cause test requiring a “direct relation between the injury

asserted and the injurious conduct alleged.” Jd. at 268.

The “direct relation” requirement generally precludes

recovery by a “plaintiff who complain|s] of harm flowing

merely from the misfortunes visited upon a third person

by the defendant's acts.” Jd. This Court found that the link

between the customers’ losses that SIPC sought to recover

and defendants’ stock manipulation was too remote to

satisfy this “direct relation” test. “The broker-dealers simply

cannot pay their bills, and only that intervening insolvency

connects the conspirators’ acts to the losses suffered by the

... customers.” Jd. at 271. This Court noted in contrast that

the liquidating trustees suing directly on behalf of the

defunct broker-dealers would have been the proper plain-

tiffs. Jd. at 273. The same thing is true in this case: Ideal is

the proper plaintiff to sue Petitioners, and Holmes would

only defeat its RICO claims if the plaintiff was one of Ideal’s

creditors (banks, vendors, employees, etc.) that Ideal could

not pay because it had been economically injured by Peti-

tioners’ racketeering scheme.

Holmes stressed the difficulty of achieving precision in

fashioning a test for determining whether a plaintiff’s injury

was sufficiently “direct” to permit standing under RICO. /d.

at 272 n.20 (“(The infinite variety of claims that may arise

make it virtually impossible to announce a black-letter rule

that will dictate the result in every case.”). This Court

warned against applying a mechanical test detached from

policy considerations associated with the proximate cause

analysis. Accordingly, the federal courts, and the Second

Circuit in particular, have turned to those policy considera-

tions to guide application of the “direct relation” test. See,

e.g., Commercial Cleaning Svcs., L.L.C. v. Colin Suc. Sys.,

Inc., 271 F.3d 374, 380-85 (2nd Cir. 2001).

2. Evaluation Of Ideal’s Claims Against Peti-

tioners In Relation To This Court’s Proxi-

mate Causation Test

Ideal alleges a “direct” proximate relationship be-

tween the injury to its “business or property” and Petition-

ers’ pattern of racketeering activity. JA 40-54. Holmes gave

three policy reasons for limiting RICO’s civil damages

action only to those plaintiffs who could allege a “direct”

injury. First, the less “direct” an injury is, the more

difficult it becomes to determine what portion of the

damages are attributable to the RICO violation as distinct

from other, independent factors. Holmes, 503 U.S. at 269,

273. Second, if recovery by indirectly injured plaintiffs

were not barred, the courts would be forced, in order to

prevent multiple recovery, to develop complicated rules

apportioning damages among groups of plaintiffs depend-

ing on how far each group was removed from the defen-

dant’s underlying RICO violation. Jd. Third, there was no

need to permit indirectly injured plaintiffs to sue because

directiy injured victims could be counted on to vindicate

RICO’s aims, and their recovery would fix the injury to

those harmed as the result of the injury they suffered. /d.

at 269-70, 273-74; see also Commercial Cleaning, 271 F.2d

at 381-85.

a. The Simplicity Of Determining Damages

Attributable To Petitioners’ RICO Viola-

tions

Petitioners argue that a factfinder would be required

to determine whether Ideal’s lost business to National was

the result of the “cash, no tax” scheme as opposed to

independent business reasons, such as the comparative

quality of the companies’ services and business reputa-

tions, fluctuations in demand, or other reasons customers

might have for selecting one company over another. Pet.

Br. at 15-17. The difficulty of proof identified in Holmes

503 U.S. at 269, 273, however, was quite different from

this case. Ideal and National are head-to-head competi-

tors. JA 6, 8-9, 33-34. Ideal lost customers, business and

profits exceeding $5 million because National was able to

underbid Ideal due to its “cash, no tax” scheme, which

permitted it to charge lower prices for its products in a

market in which Ideal and National compete against one

another “primarily on the basis of price.” JA 10-14, 34-36.

Ideal was no less directly injured than the insolvent

broker-dealers in Holmes, whose trustees would be proper

plaintiffs. See Holmes, 503 U.S. at 273-274." If Ideal can

prove its claims at trial (and discovery conducted during

2004-2005 and reports submitted by its experts show it _

can), a jury can find that Ideal lost sales and profits

directly because of the price advantage Petitioners real-

ized through their “cash, no tax” scheme.”

" Petitioners speculate that a “potential causal explanation for

Ideal’s lost profits could be ‘poor business practices,’” Pet. Br. at 18

(quoting Holmes, 503 U S. at 273), or other business reasons, id. at 10-

11, 16-18, but there are no such allegations in Ideal's Amended Com-

plaint As was made clear in Zirkle, 301 F3d at 1171, relying on

Knevelbaard Dairies v. Kraft Foods, Inc., 232 F.3d 979 (9th Cir. 2000),

an antitrust price-fixing case brought by milk producers against cheese

producers who allegedly fixed the price of cheese which, 1n turn, set the

price of milk artificially low, when addressing causation issues on a

motion to cismiss, courts must necessarily reject defendants’ specula-

tive claim that the anti-competitive effect of their scheme was due to

“independent factors” because “in deciding a Rule 12(b6) motion we

are dealing only with the complaint’s allegations.” Zirkle, 301 F.3d at

1171 (quoting Knevelbaard, 232 F.3d at 991).

" A “proximate” cause is not the same thing as a “sole” cause, a

factor is a proximate cause if it is “a substantial factor in the sequence

of responsible causation.” Cox v Adm'r U.S. Steel & Carnegie, 17 F.3d

1386, 1399 (11th Cir. 1994) (c:tation omitted) Thus, Ideal “need|{s] not

prove” at trial that Petutioners’ “cash, no tax” scheme and the false and

misleading sales tax returns (mail and wire fraud) were the “sole” cause >

of injuries to its business or property, id., rather, Ideal must only show

that Petitioners’ predicate acts were a “substantial factor” in perpetuat-

ing their racketeering scheme and causing Ideal’s injury. Maiz v. Virani,

253 F 3d 641, 675 (11th Cir 2001); compare Keeton, LAW OF Torts, § 41

at 268 (“I° a defendant's conduct was a substantial factor in causing the

plaintiff's injury, it follows that he will not be absolved from lability

(Continued on following page)

b. There Is No Need To Apportion Damages

Among Injured Parties

Holmes stated that if courts do not limit recovery to

injuries directly related to the RICO violatic.:, they will be

forced to devise complicated rules “apportior.ing” damages

among plaintiffs at different degrees of separation from

the violative acts alleged. 503 U.S. at 269, 273. Petitioners

contend Ideal is not the only aggrieved party that could

recover damages. Pet. Br. at 18-19 & nn.3-4 (identifying

other potential plaintiffs as New York State and “Ideal’s

suppliers”). But this misses the point made in Holmes: If

damages are paid both to first-tier plaintiffs (those

directly injured by defendant’s alleged acts) and to second-

tier plaintiffs (those injured by the injury to the first-tier

plaintiffs), then the payment of damages to first-tier

plaintiffs cures the harm to second-tier plaintiffs, and

payment of damages to the latter involves double compen-

sation. Holmes, 503 U.S. at 269, 273. If defendant’s illegal

acts causes “direct” injury to more than one category of

plaintiffs, defendant may well be obligated to compensate

different plaintiffs for different injuries, and it does not

follow that any plaintiff will have been twice benefited.

Compare Commercial Cleaning, 271 F.3d at 383-84 with

Pet. Br. at 19-20.

Ideal does not seek to recover damages (unpaid sales

taxes) that belong to the State of New York. Assume a

$100 cash sale of 25 %-inch square steel bars (a common

commodity) to a small contractor in the Bronx. The honest

retailer, Ideal, charges the customer $108.25 ($100 + $8.25

sales tax). The dishonest retailer, National, neither

merely because other causes have contributed to the result, since such

causes, innumerable, are always present ”) with Pet. Br at 17-18.

charges nor collects the 8.25% state sales tax and may

even charge the customer up to $107, thereby undercut-

ting Ideal’s price, increasing its profit margin by several

extra dollars, and depriving the State of New York of sales

tax that was owed. New York State’s injury is 8.25% of the

sales price, the tax that National failed to collect and

remit to the State, plus interest and penalties. Ideal,

which lost the $100 sale, suffers a different injury,

namely, its lost sale and the gross profits thereon. Assum-

ing a 20% gross profit margin (as demonstrated in discov-

ery and by Ideal’s experts), the injury to Ideal’s business or

property is $20 from that $100 sale. The important point,

for purposes of Holmes causation analysis, 503 U.S. at

273, is that there is no need to “apportion” damages

between Ideal and New York State. They are not at “dif-

ferent levels of injury” from Petitioners’ racketeering

scheme. The amount of damages that they, as first-tier

plainiiffs, are entitled to collect from Petitioners are

independent, separate and distinct and there is no “risk of

multiple recoveries” of the same damages. /d. at 269; Mid

Atlantic, 18 F.3d at 264 (plaintiff did not seek to vindicate

claims of customers who accepted defendant's fraudulent,

ostensibly lower rates but, rather, alleged “distinct and

independent injuries: lost customers and lost revenues”).

Petitioners hypothesize a plethora of RICO claims,

asserting that “Ideal’s suppliers” (or, presumably, Ideal’s

other creditors and even its employees) could “seek treble

damages and attorneys’ fees from National.” Pet. Br. at

18 n.3. But these “creditors” would still be required to

show that their losses were proximately caused by the

racketeering scheme. The concern of Holmes was that a

violator might be obligated to pay double compensation

if required to compensate those direetly injured (Ideal)

and those injured by the injury to those directly injured

(hypothetically, Ideal’s “creditors”). 503 U.S. at 269, 273. It

was not that a violator might be obligated to compensate

two or more different classes of plaintiffs - Ideal and New

York State - each of which suffered a separate, concrete

financial injury proximately caused by Petitioners’ RICO

violations. See Commercial Cleaning, 271 F.3d at 384.

c. The Ability Of Other Parties To Vindi-

cate The Aims Of The Statute

In relation to the third Holmes policy factor, this

Court observes that “[t]he existence of an identifiable class

of persons whose self-interest would normally motivate

them to vindicate the public interest in [RICO] enforce-

ment diminishes the justification for allowing a more

remote party .. . to perform the office of a private attorney

general.” Associated Gen Contractors of Calif., Inc. v.

California State Council of Carpenters, 459 U.S. 519, 542

(cited in Holmes, 503 U.S. at 270). Petitioners argue that

this factor weighs against Ideal’s standing because other

parties, such as New York State, may bring suit or press

criminal charges. Once again, Petitioners miss the point: If

the existence of a public authority that could prosecute a

claim against putative RICO defendants meant that the

plaintiff is too remote under Holmes, then no private cause

of action could ever be maintained because every RICO

predicate offense, as well as the RICO enterprise itself, is

separately prosecutable by the government. In Holmes,

503 U.S. at 269-70, 271 & n.18, those directly injured

could be expected to sue, and their recovery would redound

to the benefit of the plaintiffs suing for indirect injury.”

* Holmes observed that “the broker-dealers have in fact sued in

this case, in the persons of their trustees uppointed on account of

(Continued on following page)

He: 2, in contrast, suits by New York governmental au-

thorities to “recover lost taxes” would do nothing to reme-

diate Ideal’s loss of profits. Compare Commercial

Cleaning, 271 F.3d at 385 with Pet. Br. at 19-20. There are

no potential plaintiffs who have been more directiy injured

by the RICO violations than Ideal, National's only busi-

ness competitor, which has a greater incentive to ensure

that a RICO violation does not go undetected or unreme-

died. See Holmes, 503 U.S. at 273-74, Commercial Clean-

ing, 271 F.3d at 385.”

their insolvency.” 503 US. at 273 (footnote omitted). No other civil

actions (let alone criminal prosecutions) have been brought against

Petitioners arising out of the “cash, no tax” scheme. As in Zirkle, 301

F.3d at 1170, “[nleither the [New York State) government nor |Ideal’s

creditors or suppliers] are an intervening third party” in this RICO

acuon.

* Petitioners also suggest that the Second Circuit should have

dismissed Ideal’s § 1962(a) claim. Compare JA 39, 54-55 with Pet. Br at

20 n.5. This issue is not before this Court, but it is clear that Ideal

properly alleged that Petitioners violated § 1962(a) by using (“invest-

ing”) the proceeds of their unlawful “cash, no tax” scheme from sales at

their Queens location to open National’s Bronx location, thereby

causing Ideal additional (and distinct) injuries to its business or

property. JA 17-18; 54-55; see American Honda, 941 F. Supp. at 549-50

(honest car dealers pled “investment use” injury when they alleged that

corrupt Honda executives used bribes and kickbacks they received to

obtain ownership interests in new or existing dealerships). Section

1962(a) “was primarily directed at ralting the investment of racketcer-

ing proceeds into legitimate businesses, including the practice of

money laundering.” Brittingham v. Mobil Corp., 943 F.2d 297, 303

(3rd Cir. 1991) (emphasis added). Tat is precisely what Ideal alleges.

C. The Second Circuit’s Decision Is Consistent

With Post-Holmes Decisions

1. Reliance Is Not An Element Of Mail Or Wire

Fraud, And It Is Not An Element Of Section

1962 Or Section 1964(c)

The Holmes Court said nothing about “reliance,” even

though Petitioners claim it is an element of mail, wire and

securities fraud, the predicate acts in that case. 503 U.S.

at 263.” By imposing a mechanistic “reliance” requirement

in all RICO cases alleging “fraud-based” predicate acts,

Petitioners raise the wrong question.~ The question is not

whether “reliance” should be required but, rather, reliance

by whom. Even if many courts have imposed (wrongly we

say) a “reliance” requirement in RICO cases where the

predicate acts are mail or wire fraud, they also recognize

that reliance by a third party (customers, regulators et al.)

suffices when plaintiff alleges that it was a “competitor” of

the racketeering enterprise and/or a “target” of the

scheme. Cf. Holmes, 503 U.S. at 272 n.19. In their rejec-

tion of “third-party reliance,” Petitioners ignore these

precedents, even though many of them were relied on by

the Court below. Compare Pet. Br. at 31-34 with JA 47-51.

“In Holmes, 503 U.S at 274 n.20, this Court qualified its use of

the term “direct,” stating that “|wle do not necessarily use it in the

same sense as courts before us have and intimate no opinion on results

they reached.” This Court refused to follow Pelletier v. Zweifel, 921 F.2d

1465 (lith Cir. 1991), which held that a RICO plaintiff alleging mail

fraud “must have been a target of the scheme to defraud and must

have relied to his detriment on misrepresentations made in

furtherance of the scheme.” /d. at 1499-1500.

* As Justice Frankfurter observed, “jiJn law .. the right answer

usually depends on putting the mght question.” Estate of Rogers v.

Comm’'r of Internal Revenue, 320 U.S. 410, 413 (1943).

Neither § 1962 nor § 1964(c) mention “reliance” as a

requirement for RICO liability or proof of damages. A

common law fraud claim often (but not always) required

proof that the defrauded plaintiff relied upon the misrep-

resentation, and some courts have incorrectly imported

this requirement into RICO actions involving mail or wire

fraud. See Systems Mgmt., Inc. v. Loiselle, 303 F.3d 100,

104 & n.3 (1st Cir. 2002) (collecting cases requiring “reli-

ance” but rejecting argument that “reliance” is required

element of RICO claim). RICO bases its own brand of civil

liability on the commission of specified criminal acts (here,

mail and wire fraud) so long as they comprise a “pattern of

racketeering activity.” Criminal fraud under these statutes

does not require “reliance” by anyone: It is enough that

defendant sought to deceive, whether or not he succeeded.

Neder v. United States, 527 U.S. 1, 24 (1999) (“The com-

mon-law requirement|| of ‘justifiable reliance’ has no place

in the federal fraud statutes.”); Schmuck v. United States,

489 U.S. 705, 711-12 (1989) (mail fraud conviction upheld

even though misrepresentations were not made to individ-

ual who suffered loss).

The mail fraud statute was drafted in a “sufficiently

general” fashion to apply to a broad range of schemes.

United States v. Maze, 414 US. 395, 399 n4 (1974).

Whether criminal fraud required “reliance” at common law

varied with the particular form of fraud.” The statute is

* See 2 Wayne R. LaFave & Austin W. Scott, Jr, CRIMINAL Law

$§ 8.6-8.7 (2nd ed. 1986) (discussing requirements for various forms of

common law criminal fraud). The crime of false pretenses may be

considered the “classical” criminal] fraud at common law, see William J.

Stuntz, Tae Pathological Politics of Criminal Law, 100 Micuw L Rev

505, 547 & n.161 (2001), and that crime contains a reliance require-

ment. See Systems Mgmt., 303 F.3d at 104 n4. Durland v. United

States, 161 U.S 306 (1896), held that the phrase “scheme to defraud” in

(Continued on following page)

frequently applied to complex third-party transactions

that potentially inflict injury upon victims who do not

“rely upon” the misrepresentations. See Goldsmith &

Tilton, Civil Racketeering Cases, 59 WASH. & LEE L. REV.

at 86-87 & nn.12-20 (collecting cases). Under a literal

reading of §§ 1961, 1962 and 1964 of RICO, which is the

presumptive choice in .nterpretation, nothing more than

the criminal violation and resulting harm is required. As

the First Circuit made clear in Systems Mgmt., 303 F.3d at

104, “[t}here is no good reason here to depart from RICO’s

literal language by importing a reliance requirement into

RICO.”

2. Ideal’s Reliance Upon Petitioners’ Predi-

cate Acts Is Not The Only Way To Allege

Proximate Causation

Reliance is a specialized condition that happens to

have grown up with common law fraud. While reliance by

the victim is one way in which fraud can cause harm, it is

not the only way to allege and prove causation under

§ 1964(c). Poulos v. Caesars World, Inc., 379 F.3d 654 (9th

Cir. 2004), a civil RICO case, stated that “[i]n some cases,

reliance may be ‘a milepost on the road to causation.’” Jd.

at 664 (quoting Blackie v. Barrack, 524 F.2d 891, 906 n.22

(9th Cir. 1975) (fraud-on-the-market presumption of reli-

ance)). But is not “the only way plaintiffs can establish

causation in a civil RICO claim predicated on mail fraud.”

Id. at 666 (emphasis in original); accord Living Designs,

the mail fraud statute is not limited to facts that would fall with'n the

common law crime of obtaining money by false pretenses or the

common law tort of deceit; indeed, it involves any form of “trick, deceit,

chicane or overreaching.” Carpenter v. United States, 484 US 19, 27

(1987) (citations omitted).

Inc. v. EI. Dupont de.Nemours & Co., 431 F.3d 353, 363

(9th Cir. 2005) (declining to “announce a black-letter rule

that reliance is the only way plaintiffs can establish

causation” in RICO claim).

The Solicitor General recognizes that reliance by a

third party (“someone” other than the plaintiff) will suffice

to allege (and prove) causation. Three months ago, in Bank

of China v. NBM L.L.C., 359 F.3d 171 (2nd Cir. 2004), cert.

granted, __- U.S. __, 125 S.Ct. 2956 (2005), cert.

dismissed, _ U.S. __,, 126 S. Ct. 675 (2005), the Solicitor

General filed an amicus curiae brief (at this Court’s

request) addressing “whether civil RICO plaintiffs alleging

mail and wire fraud as predicate acts must allege ‘reason-

able reliance’ under” § 1964(c). The Solicitor General

asserted that “a RICO plaintiff alleging a RICO violation

based on mail or wire fraud must show reliance on the

defendants’ misrepresentations in order to establish that

the RICO violation proximately caused its injury,” explain-

ing that a misrepresentation cannot cause injury “unless

someone relies on it.” Brief for the United States, at 8

(Oct. 31, 2005) (emphasis in original). But the Solicitor

General made clear that “nothing in the language of RICO

precludes the assertion” of “a theory of third-party reli-

ance,” id. at 9, stating that “the plaintiff must show that

either it or a third party justifiably relied on the

misrepresentations or omissions made to accomplish the

fraud.” Jd. at 11.“ Endorsing the Second Circuit’s decision

* See also id. at 12 n.7 (recognizing that “a plaintiff can estabiish

the requisite causation by proof that a third party relied on the

defendants’ misrepresentations”); id. at 21 (“Civil RICO requires

reliance by someone when the predicate offenses involve fraud in order

to establish the requisite causal link between the injury and the RICO

violation, but not necessarily reliance by the plaintiff”) (‘second

emphasis in original). The Solicitor General also observed: “|A] common

law fraud claim might succeed despite the fact that the fraudulent

(Continued on following page)

in this case, the Solicitor General stated that “(mljany

courts of appeals ... have recognized that third-party

reliance is a viable avenue of causation, at least where the

plaintiff is the ‘direct target’ of the defendant’s scheme.”

Id. at 22 (citations omitted).

Here, the Second Circuit’s analysis is entirely consis-

tent with the position taken by the Solicitor General. The

court below traced its post-Holmes RICO causation juris-

prudence, JA 40-46, before stating that in cases “in which

we approved the summary dismissal! of the complaint, the

plaintiffs were not competitors of the racketeering

enterprise or targets of alleged racketeering activ-

ity.” JA 46 (citing, inter alia, Lerner v. Fleet Bank, N.A.,

318 F.3d 113, 124 (2nd Cir.), cert. denied, 540 U.S. 1012

(2003) (“[W]e have repeatedly emphasized that the rea-

sonably foreseeable victims of a RICO violation are

the targets, competitors and intended victims of the

racketeering enterprise.”) (citations omitted)).”

misrepresentation was made to a third party.” Bref for the United

States, at 21 n.13 (quoting Steamfitters Local Union No 420 Welfare

Fund v. Philtp Morris, Inc., 171 F.3d 912, 935 n.19 (3rd Cir. 1999), cert.

denied, 528 US. 1105 (2000)). Thus, while reliance may have been

required in the “ordinary misrepresentation case,” Pet. Br. at 29 (which

this case 1s not), the common law consistently recognized the doctrine of

third-party reliance.

* Judge Posner explained “intended victim” in Matter of EDC, Inc.,

930 F.2d 1275 (7th Cir. 1991), in which defendants allegedly sold an

unprofitable division as part of a leveraged buyout and schemed to keep

the buyer afloat long enough to satisfy the Pension Benefits Guaranty

Corp. (“PBGC”) that the pension obligations of the seller could be

assumed by the buyer. After that time, the buyer went bankrupt.

Creditors of the buyer had standing to bring a RICO claim because even

though the PBGC was the “primary” target, fooling the creditors was an

intended step in the scheme: “One can be an intended victim

without being the primary victim. That is this case, and it is

different from a case of transferred intent Suppose you blow up a plane

carrying X and Y in order to kill X. If both die in the explosion, you are

(Continued on following page)

The view that a competitor alleging injury to its

business resulting from racketeering activity of a defen-

dant competitor adequately pleads proximate cause is

consistent with the majority and minority opinions in

Sedima, 473 U.S. at 495-96 & 497 n.15; see also id. at 519-

20 (Marshall, J., dissenting). Post-Holmes decisions

recognize that injured competitors that assert claims like

those asserted by Ideal satisfy RICO proximate causation.

’ In Commercial Cleaning, the Second Circuit reversed the

dismissal of a RICO complaint alleging that plaintiff's

competitor had engaged in a pattern of racketeering

activity, namely, knowingly hiring undocumented aliens in

violation of 8 U.S.C. § 1324, which “enabled [the defen-

dant] to lower its variable costs and thereby underbid

competing firms, which consequently lost contracts and

customers to [the defendant].” 271 F.3d at 378. The court

noted that the plaintiff

was not alleging an injury that was derivative of

injury to others. Commercial does not seek to re-

cover based on the misfortunes visited upon a

third person by the defendant’s acts. .. . It claims

to have lost profits directly as the result of [the

defendant's] underbidding, which it achieved

through its violation of § 1324(a).... We have

stated a plaintiff has standing where the

plaintiff is the direct target of the RICO

violation. ... [T]he theory of Commercial’s

just as much Y's murderer as X's, not because of the fiction of trans-

ferred intent but because you knew that Y (or any other person who

might be a passenger on the plane) would die if your plot against X

succeeded. It is not a transferred-intent case because nothing went

wrong wit your plan; it is a case of extreme recklessness, equated to

deliberateness. You killed Y for an ulterior motive, it is true, but most

murders have ulterior motives "/d. at 1279 (citations omitted). See also

Diaz v. Gates, 420 F.3d 897, 901-02 (9th Cir 2005).

claim is that Colin undertook the illegal

immigrant hiring scheme in order to un-

dercut its business rivals, thus qualifying

them as direct targets of the RICO viola-

tion.

Id. at 384. In Baisch v. Gallina, 346 F.3d 366 (2nd Cir.

2003), another third-party scheme to defraud RICO case,

the court rejected the premise that only one category of

victim has standing to sue. The foreseeavility component

of proximate cause is established where the plaintiff was a

“target||” and “intended victim|] of the racketeering

enterprise,” id. at 374, even if it was not the primary

target or victim, and “|[njo precedent suggests that a

rackéteering enterprise may have only one ‘target,’ or that

only a primary target has standing.” Jd. at 375.”

In addition to Second Circuit precedents, the court

below relied on Mid Atlantic, which held that a competitor

had standing to sue under RICO where the racketeering

was mail fraud in communications from defendants to

plaintiff's customers. 18 F.3d at 261-64; see JA 49-50.

Plaintiff Mid Atlantic and defendant LDS were resellers of

long-distance telecommunications services competing for

*-In Basch, 346 F.3d at 372-73, the Second Circuit focused on

proximate cause and elimina‘ed any “zone-of-interest” analysis to

determine standing, which the Eighth Circuit had applied independ-

ently from the proximate cause analysis adopted in Holmes. See Newton

v. Tyson Foods, Inc., 207 F.3d 444, 447 (8th Cir. 2000), cited in Pet. Br.

at 17, 22 & n.6. Baisch stated that provimate cause analysis “ade-

quately incorporates the zone-of-interest test’s concerns,” and that “it is

inappropriate to apply a zone-of-interests test independent of this

circuit's proximate cause analysis.” 346 F 3d at 373. Petitioners ignore

Holmes, 503 U.S. at 280 (O’Connor, White and Stevens, J.J., concur-

ring), which rejected a “zone-of-interest” analysis and made clear that

RICO does not incorporate the standing requirements of the predicate

acts.

the same customers. LDS engaged in a pattern of fraudu-

lent mailings, soliciting customers by offering them

artificially low rates, lower than Mid Atlantic’s basic rates,

forcing Mid Atlantic to meet the apparently lower LDS

rates. However, “|i]n practical effect, .-. the quoted |LDS)

rates were not [as] low {as had been represented], since

additional minutes were randomly and artificially added

[by the defendants] to the lengths of telephone calls” made

by LDS customers. /d. at 261. LDS contended that “Mid

Atlantic did) not allege that it received mail or telephone

solicitations offering artificially low rates, merely that its

customers did”, that, therefore, defendants’ “customers

were the only victims of the alleged fraud”; and, hence,

“the |[defendants’] solicitations could not have been the

proximate cause of Mid Atlantic’s injuries.” Jd. at 263.

The Fourth Circuit rejected these contentions and

vacated dismissal of the complaint because Mid Atlantic

was “not seeking leither| to vindicate the rights of its

former customers who may have been offered fraudulently

low rates” or to recover for injuries “derivative of any

losses suffered by its former customers.” Jd. at 264.

Rather, “Mid Atlantic alleges that LDS engaged in fraudu-

lent use of the mails and telephone wires to entice custom-

ers away from Mid Atlantic and to eliminate Mid Atlantic

as a competitor.” /d. at 263. The court recognized that

there may be more than one category of victims to whom a

defendant's conduct can proximately cause injury, and that

although the customers may have been the most direct

victims of defendants’ alleged frauds, Mid Atlantic

“claim|ed] distinct and independent injuries: lost customers

and lost revenue due to the necessity of offering lower rates

to match [the defendants’} fraudulent ones.” Jd. at 264. “Mid

Atlantic may be able to show that while the scheme was

initially aimed only at defrauding LDS customers, [the

individual defendant] broadened the sweep of the intrigue

to include Mid Atlantic as a direct target (i.e., to obtain an

unfair competitive advantage in recruiting Mid Atlantic

customers).” Jd. at 263.”

These cases are consistent with County of Suffolk v.

Long Island Lighting Co., 907 F.2d 1295 (2nd Cir. 1990)

(“LILCO”), another case cited by the court below. JA 50-51.

In LILCO, Suffolk County asserted a RICO claim alleging

that LILCO and its officers committed mail fraud in the

course of Public Service Commission (“PSC”) proceedings,

inducing the PSC to grant LILCO unwarranted and

excessive rate increases. Noting that the “by reason of”

phrase in § 1964(c) “requires that there be a causal con-

nection between the prohibited conduct and plaintiff's

injury,” 907 F.2d at 1311, the Second Circuit stated that

“lin the context of this case, which involves RICO mail

fraud claims, this means that it was necessary for Suffolk

to demonstrate at trial that LILCO’s misrepresentations to

the PSC were relied upon by the PSC.” Jd. (emphasis

added). The Second Circuit plainly recognized that a

plaintiff who is injured as a proximate result of fraud

should be able to recover regardless of whether he or a

third party is the one deceived. Petitioners ignore

LILCO, even though it was cited with approval in

Holmes.”

* Accord Pharmacare v. Caremark, 965 F. Supp. 1411, 1421 (D.

Haw. 1996) (defendants bribed physicians to induce them to prescribe

defendants’ product rather than plaintiffs’ product, citing Mid Atlantic,

court holds that proximate causation satisfied; “Defendants’ alleged

perpetration of fraud on its patients could foreseeably affect the

Plainuffs who are also trying to entice those same customers”, “In

addition, Plaintiffs have pled that they were the targets of the fraud”).

* Holmes, 503 U.S. at 272 n.19, recognized that customers of the

broker-dealers who had purchased manipulated securities “were

(Continued on following page) —

After citing the relevant precedents, JA 51-53, the

Second Circuit delineated “the principle governing” the

present case:

|W)here a complaint contains allegations of facts

to show that the defendant engaged in a pattern

of fraudutent conduct that is within the RICO

definition of racketeering activity and that was

intended to and did give the defendant a com-

petitive advantage over the plaintiff, the com-

plaint adequately pleads proximate cause, and

the plaintiff has standing to pursue a civil RICO

claim. This is so even where the scheme de-

pended on fraudulent communications di-

rected to and relied on by a third party

rather than the plaintiff.

JA 53 (emphasis added). Contrary to Petitioners’ assertion

(Pet. Br *t 23-24), the court correctly applied the govern-

ing pr’ ~ ple to Ideal’s allegations:

Ideal alleged facts sufficient to show that its

claimed loss of business was proximately caused

by defendants’ operation of National's stores

victrms of” Holmes’ schemes to defraud, including securities “parking”

transactions. In support of the proposition that “the broker-dealers’

customers might be proximately injured by” offenses of mail fraud, wire

fraud and securities fraud, :d., this Court cited LJLCO, 907 F2d at

1311-12, and Taffet v Southerr Co., 930 F.2d 847 (11th Cir. 1991). In

Taffet, utulity customers asserted RICO claims against utilities that had

engaged in fraud that resulted in higher rates, namely, subverting the

ratemaking process by present: ng false and misleading information to

the Alabama and Georgia Public Service Commissions (“PSC”) via mail

and wire fraud. 930 F.3d at 850. Reversing dismissal of RIC® claims on

the ground that customers failed to assert cognizable injury prox)-

mately caused by the utilities’ scheme to defraud, the Eleventh Circuit

stated that “the plaintiffs cannot be said to have no cognizable

right to pay anything but the fraud-induced rate. The cogniza-

ble injury is therefore money lost as a result of fraud upon the

state agency.” /d at 857 (emp asis added).

through a pattern of racketeering activity....

[Djefendants’ “cash, no tax” scheme was imple-

mented for the purpose of diverting customers

from Ideal, which collected the sales taxes re-

quired by law, to National, which did not. Given

that Ideal and National sell substantially the

same products and that their retail stores are

but minutes apart, the lower bottom-line cost

available to cash purchasers from National as a

result of not paying sales tax influenced some

customers to purchase from National rather than

from Ideal.

Defendants’ mailings or electronic transmis-

sions of fraudulent sales tax reports to the State

Tax Department were an essential part of the

“cash, no tax” scheme, for without the fraudulent

reports, and the State’s reliance on them, defen-

dants would have had to pay the uncollected

sales taxes out of their own assets. The princi-

pal 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 result-

ing profits by means of racketeering activity... .

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.

JA 53-54 (emphasis added).”

* Accord City of New York v. Cyco.Net, Inc., 383 F Supp. 2d 526,

556-60 (S.D.N_Y. 2005) (city’s RICO action alleged that out-of-state

vendors conspired to sell cigarettes to city residents via the Internet

without paving state taxes; “the fact that the State |jof New York], a

(Continued on following page)

Other courts recognize that a business entity injured

by a campaign of misinformation, bribes, or other wrongful

activity directed at its customers suffers an injury to its

“business or property” that is proximately caused by the

competitor’s pattern of racketeering activity, especially

where it alleges that it was the direct target of the

scheme.” In Procter & Gamble Co. v. Amway Corp., 242

F.3d 539 (5th Cir. 2001), the Fifth Circuit reversed the

dismissal of RICO claims asserted by household products

manufacturer P&G against its competitor arising out of

Amway distributors’ dissemination to customers, via mail

and wire fraud, of rumors of P&G’s link to Satanism. /d. at

542-44, 564. P&G’s RICO claims were dismissed because it

could not “claim to have relied on any of the misrepresen-

tations that Amway allegedly make via mail and wire.” /d.

at 564. Following Mid Atlantic and its own pronouncement

in Summit Props. that a “target” of a scheme to defraud

that did not itself rely on the fraud may pursue a civil

RICO claims if other elements of proximate causation are

third party, was deceived, has no bearing on the question of proximate

cause”).

* See, ¢.g ,lsrael Travel Adv. Svc., Inc v Israel Identity Tours, Inc ,

61 F.3d 1250, 1257 (7th Cir. 1995) (“we .. accept Mid Atlantic”);

Khurana v. Innovative Health Care Sys., Inc., 130 F.3d 143, 151-52 (5th

Cir. 1997) (same), vacated on other grounds as moot, 525 U.S. 979

(1998), Brokerage Concepts, Inc. v. U.S. Healthcare, Inc , 140 F.3d 494,

521 (3rd Cir. 1998) (commercial bribery and extortion designed tc steal

plaintiff's customer; plaintiff's business relationship with customer

was “direct target of the alleged scheme — indeed, interference with that

relationship may well be deemed the linchpin of the scheme’s success”),

Summut Props, Inc. v. Hoechst Celanese Corp., 214 F.3d 556, 561 (5th

Cir 2000) recognizing that “defendants competitors might recover for

injuries to |their] competitive position”), Sandwich Chef of Texas, Inc. v.

Reliance Natl Indem Ins Co., 319 F.3d 205, 221-24 (5th Cir. 2003)

(same).

present, the Fifth Circuit said that third-party reliance

more than suffices: “P&G has alleged that using the wire

and the mail, Amway attempted to lure P&G's customers

away by fraud. Although P&G did not rely on the fraud,

. if P&G's customers relied on the fraudulent rumor in

making decisions to boycott P&G products, this reliance

suffices to show proximate causation.” 242 F.3d at 565.

These cases recognize that it matters not what form the

defendant's wrongful (or anti-competitive) conduct might

take — whether threats of violence, extortion, bribery, or

misrepresentations — but to the extent that “reliance” is

required, third-party reliance will suffice and the RICO

claim must be upheld.”

" See, eg., Cox, 17 F.3d at 1398-1403 (bribes in form of personal

pension benefits, granted by employer to umion negotiators, caused

RICO injury to union members who returned to work under less

favorable conditions); Advance Relocation & Storage Co. v. Local 814,

Int'l Brotherhood of Teamsters, AFL-CIO, 2005 WL 665119, *4 (E.D.N.Y

Mar. 22, 2005) (extortion and vhreats of violence “aimed at limiting

competition” in commercial moving industry), Dooley v Crab Boat

Owners Ass'n, 2004 WL 902361, *7 (N.D. Cal Apr 26, 2004) (same; crab

harvesting industry); Southern Intermodal Logistics, Inc. v D J. Powers

Co., 10 F. Supp. 2d 1337, 1355-56 (S.D Ga 1998) (misrepresentations

to potential customers); Jn re Amer. Cont. Corp./Lincoln Savs & Loan

Secs Litig., 794 F. Supp. 1424, 1465 (D. Ariz. 1992) (misrepresentations

and undue political influence to deceive or fend off regulators so

fraudulent sales of securities could continue); Texas Air Corp. v. Air

Line Pilots Ass'n Int'l, 1989 WL 146414, *4-5 (S.D Fla. July 14, 1999)

(misrepresentations to government agencies, public and airline

employees); Lewis v. Lhu, 696 F.Supp. 723, 727-28 (DD.C. 1988)

(misrepresentations and threats to customers); Shaw v. Rolex Watch

US.A., Inc., 726 F. Supp. 969, 971-73 (S.D.N Y. 1989) (misrepresenta-

tions to Customs officials), Galeria Furstenberg v. Coffaro, 697 F. Supp.

1282, 1286-87 (S.D N.Y. 1988) (misrepresentations to customers), SJ

Advanced Tech & Mfg. Corp v. Junkunc, 627 F. Supp. 572, 576 (N.D.

Ill. 1986) (misrepresentations to government agencies), 2 Mathews,

Civi_ RICO LitiGation § 8.04/C}|3][bJ[i}-lii] (RICO claims brought by

injured competitors).

D. At Common Law, Ideal Could Maintain A

Fraud And Deceit Claim By Alleging And Prov-

ing Third-Party Justifiable Reliance

Third-party reliance has deep roots in common law

fraud actions, manifested in an unbroken line of cases

stretching back more than 130 years and not cabined to

“limited exceptions.” Pet. Br. at 33-34. In Rice v. Manley,

66 N.Y. 82, 87 (1876), a seller agreed by unenforceable

contract to sell certain cheese to the plaintiffs. The defen-

dant falsely represented to the seller that the plaintiffs no

longer wanted the cheese and the seller, induced thereby,

sold the cheese to the defendant instead. The Court of

Appeals held that a fraud action was maintainable: “(Ijt

matters not whether the false representations be made to

the party injured or to a third party, whose conduct is thus

influenced to produce the injury, or whether it be direct or

indirect in its consequences.” This was the rule followed at

common law because “[w]here defendant's fraud adversely

affects plaintiff through inducing action by a third person,

denying recovery on the ground that there has been no

actual reliance by the plaintiff is hard{] to justify.” 2

Fowler V. Harper & Fleming James, Jr., THE LAW OF

Torts § 7.13, at 470 (2nd ed. 1986) (“Harper & James, LAW

OF Torts”).

” The treatise cites Rosenbluth v Sackadorf, 76 N.Y S.2d 447 (Sup.

Ct. 1947), rev'd on other grounds, 79 N Y.S 2d 524 (App Div. 1948), in

which landlords made fraudulent misstatements to the Office of Price

Administration (“OPA”) and to the court in order to evict a tenant who

was protected in occupancy by federal statutes except where the

premises were wanted for certain limited purposes (e.g, self-

occupancy’. The landlords (like Petitioners here) asserted that if any

fraud were committed by them, it was against the OPA and the court

and not against the plaintiff. 76 N.Y.S.2d at 449. Because the “defen-

dants’ ultimate motive was to defraud the plaintiff,” the court stated

(Continued on following page)

Three years ago, the Supreme Court of New York cited

Rice (among other early New York cases) for the proposi-

tion that it is “relatively well settled” that “fraud may

exist where a false representation is made to a third party,

resulting in injury to the plaintiff.” Ruffing v. Union

Carbide Corp., 764 N.Y.S. 2d 462, 465 (App. Div. 2003).

Ruffing held that a surviving child who was injured in

utero as the result of a fraudulent statement relied upon

by his mother had a valid fraud action. Jd. at 466-67.

Other recent New York cases agree. See Desser v. Schatz,

581 N.Y.S. 2d 796, 797 (App. Div. 1992) (“[D]efendants ...

falsely stated to Chemical that a mortgage was fully paid

up when it was not.... Reliance by Chemical, to the clear

detriment of plaintiff, is manifest, and it is of no moment,

in this context, that the false representation was not made

directly to plaintiff.”); Buxton Mfg. Co. v. Valiant Moving &

Storage, Inc., 657 N.Y.S. 2d 450, 451 (App. Div. 1997) (“It

is generally the case that a cause of action to recover

damages for fraud requires, inter alia, a showing that a

false representation was made to the injured party, for the

purpose of inducing reliance thereon, and reasonable

reliance by the injured party.... Fraud, however, may

also exist where a false representation is made to a

third party, resulting in injury to the plaintiff.”)

(citations omitted).”

that “[tjheir liability to the plaintiff .. is the same as if the false

representations had been made directly to him.” /d. (citing, inter alia,

Eaton Cole & Burnham Co. v. Avery, 83 N Y. 31, 33-34 (1880) (third-

party reliance is sufficient to sustain common law fraud claim) (cited in

Pet. Br at 33 n.9)); see also Bruff v. Malt, 36 N.Y. 200, 205-06 (1867)

(same).

® See also Cooper v Wetsblatt, 277 N.Y.S. 709, 714 (App. Div. 1935)

(fraud was sufficiently alleged where the plaintiff agreed to have claims

against him resolved by “Din Torah” before a tribunal of three rabbis

(Continued on following page)

In contending that such third-party reliance is “un-

precedented” under the common law, Petitioners ignore

over 130 years of New York case law. Compare Pet. Br. at

31-34 with N.B. Garments (Pvt.) Ltd. v. Kids Int'l Corp.,

2004 WL 444555, *3 n.5(S.D.N.Y. Mar. 10, 2004) (“New

York law has, since the 1800’s, allowed for fraud

claims based on third-party reliance.”) (citations

omitted). The rule followed by the Second Circuit in this

case (JA 53-54) is consistent with the common law of fraud

applied since the 19th Century.”

E. Under The Restatement, The Intentional Nature

Of Petitioners’ Racketeering Scheme Must Be

Taken Into Account In Determining Whether

Proximate Causation Has Been Alleged

Common law proximate causation drew sharping

distinctions between acts that are deliberate and inten-

tional and those involving mere negligence. Contrary to

Petitioners’ assertion, see Pet. Br. at 11, 31-32, that their

motive and intent is irrelevant, the law has a strong

and defendants fraudulently induced two of the rabbis’ signatures on

fictitious decision providing that mortgage held by plaintiff should be

discharged), Piper v Hoard, 107 N.Y. 73, 79 (1887) (where marriage

was fraudulently induced by defendant’s misrepresentation that any

child of marriage would inherit certain property, such child later born

may sue as “the very person injured by the fraud”).

* Supposedly contrary cases cited by Petitioners actually “address

situations presenting a risk of far-flung liability for inchoate or

unintended injuries.” Fromer v. Yogel, 50 F. Supp 2d 227, 243 (S D.N-Y.

1999) (citations omitted). “|I|ndirect reliance is insufficient when a

plaintiff's injury is an unintended or remote consequence of a defen-

dant’s misrepresentations.” Jd. at 244. Because Ideal’s injuries are an

intended consequence of the racketeering scheme, even Petitioners’

cases permit recovery.

interest in deterring intentional efforts to harm others.

The RESTATEMENT (SECOND) OF TORTS widens the scope of

liability for intentional acts, particularly where there is a

high degree of moral culpability. Under Sections 435A and

435B,” liability for unintended resulting harm is based

upon proof of the tortfeasor’s wrongful intent, considera-

tion of the degree of moral wrong, and the seriousness of

the harm which he intended. Mayer v. Town of Hampton,

497 A.2d 1206, 1210 (N.H. 1985) (citations omitted).

Although Petitioners assert that the RESTATEMENT is “the

most widely accepted distillation of the common law of

torts,” Pet. Br. at 27 n.7 (quoting Field v. Mans, 516 US.

59, 70 (1995)), they ignore Sections 435A and 435B.”

“ With most cases of intentional torts, “|t}he defendant's liability

for the resulting harm extends . . . to consequences which the defendant

did not intend, and could not reasonably have foreseen, upon the

obvious basis that it is better for unexpected losses to fall upon the

intentional wrongdoer than upon the innocent victim.” Keeton, THE

LAW OF TORTS, §9 at 40 (footnote omitted). Sections 435A and 435B

relate to causation and liability: “A person who commits a tort against

another for the purpose of causing a particular harm to the other is

liable for such harm if it results, whether or not it is expectable, except

where the harm results from an outside force the risk of which is not

increased by the defendant's act.” RESTATEMENT § 435A. This section

recognizes “a cause of action in favor of a person where the defendant

acted for the purpose of harming him,” such as “where a person

defrauds another for the purpose of causing pecuniary harm to

a third person.” /d., cmt. A (citing RESTATEMENT § 870). “Where a

person has intentionally invaded the legally protected interests of

another, his intention to commit an invasion, the degree of his moral

wrong in acting, and the seriousness of the harm which he intended are

important factors in determining whether he is hable for resulting

unintended harm.” /d., § 435B.

* The traditional rule stated. “Where the plaintiff sustains injury

from the defendant's conduct to a third person it is too remote,

unless the wrongful act is willful for that purpose.” J G Suther-

land, A TREATISE ON THE LAW OF DAMAGES 68 (2nd ed 1893) Suther-

land's 1916 treatise elaborated on “willful for that purpose.” J G.

(Continued on following page)

Petitioners’ “cash, no tax” scheme can only be charac-

terized as a criminal fraud. The degree of Petitioners’

moral wrong, and the seriousness of the financial injury

they inflicted upon Ideal, are factors that weigh heavily in

favor of finding proximate causation in this case.

F. Affirming The Second Circuit’s Decision Will

Not Open “Floodgates” Of RICO Litigation

In a last-ditch effort to convince this Court to rewrite

the statute, abandon its precedents overturn the decision

of the court below, Petitioners summon the oft-cited

parade of horribles that will befall the federal courts when

they are accordingly beset by RICO claims. Petitioners cite

a speech delivered by former Chief Justice Rehnquist in

1989, Pet. Br. at 35-36, ignoring the majority opinion he

authored in NOW I five years later: “‘[T]he fact that RICO

has been applied in situations not expressly anticipated by

Sutherland, A TREATISE ON THE LAW OF DAMAGES 128 (John R

Berryman, ed., 4th ed. 1916). That edition used an illustration in which

defendant :nduced a ship captain to move his ship. The captain,

believing defendant to be the harbor master, followed the instruction.

The plaintiff — the wharf owner who suffered a loss of rent — was

allowed to recover “if the defendant acted with a malicious and fraudu-

lent design to injure the plaintiff.” Jd. (citing Gregory v Brooks, 35

Conn 437, 446 (1868)), see also Derosier v. New England Tel. & Tel Co.,

130 A 145, 152 (N.H. 1925) (“For an intended injury, the law is astute

to discover even very remote causation.”); Burckhardt v. Burckhardt, 42

Ohio St 474, 487 (1885) (“In cases of willful or malicious injury, and

injury from reckless or illegal acts, or from positive fraud, the damages

are not so strictly confined to proximate consequences as when these

elements do not exist... .”); 2 Harper and James., LAW OF Torts, § 6.1

at 270 (“If the harm was intentionally caused by the defendant, there is

no difficulty about the problem of legal causation, since al] intended

consequences are legal or prosaraate.”) (footnote omitted), :d, vol 4,

§ 205 at 133 n.1 (“Foresceabil'ty is not a limitation on hability for

intended consequences, which are always proximate ”) (citation omitted).

Congress does not demonstrate ambiguity. It demonstrates

breadth.’” 510 U.S. at 262 (quoting Sedima, 473 US. at

499). Concurring in the majority opinion in Holmes,

Justices O’Connor, White and Stevens stated that “if

Congress hals] legislated the elements of a private cause

of action for damages, the duty of the Judicial Branch [is]

to administer the law which Congress enacted; the Judici-

ary may not circumscribe a right which Congress has

conferred because of any disagreement it might have with

Congress about the wisdom of creating so expansive a

liability.” 503 U.S. at 285 (citation omitted). Petitioners’

complaints about RICO’s deliberately broad reach (Pet. Br.

at 35-36, 41-43) should be directed to Congress, not this

Court.

Nor can Petitioners complain about the supposed

volume of RICO litigation supposedly clogging the federal

courts, Pet. Br. at 41-43, because RICO cases make up an

almost infinitesimal portion of federal court civil dockets: _

U.S. District Courts - Civil Cases Commenced

on Basis of Jurisdiction and Nature of Suit,

During 12-Month Periods Ending

March 31, 2001-March 31, 2005

of Case | 2001 | 2002 | 2003 | 2004 | 2005 | Avg. |

Cases [254,523 265,091 |256,858 255,851 |278,712|262,207

Contract | 48,927| 38,535! 33,288] 30,512] 28,652! 35,983

Tort 34,424| 52,3661 46,629] 45,891! 52,489] 46,360

ERISA | 9,623] 10,787) 11,229] 11,499] 11,391] 10,908

Securities} 2,831] 3,595] 3,468] 3,100] 2,707] 3,140

Antitrust} 810] 709] 863] 715] 792] 778

RICO 791| 707| 845; 695| 840| 776

U.S. Admin. Office of Courts, FEDERAL JUDICIAL CASELOAD

Statistics, Table C-2 (Mar. 31, 2001-Mar. 31, 2005). RICO

cases represent less than 0.03% of federal case filings, and

their incidence has dropped by about one-third since 1996.

Blakey & Roddy, Reflections, 33 AMER. CRIM. L. REV. at

1616.

There is nothing inconsistent between the Second

Circuit’s analysis of Petitioners’ anti-competitive behavior,

JA 53-54, and Verizon Communications, Inc. v. Law Offices

of Curtis V. Trinko, LLP, 540 U.S. 398 (2004), and Nynex

Corp. v. Discon, Inc., 525 U.S. 128 (1998). Although anti-

trust, RICO and state law unfair competition or tort

claims can arise from the same anti-competitive conduct,

see Agency Holding Corp., 483 U.S. at 145-46, 149, 151-53,

such clairas involve entirely different elements. Antitrust

and RICO claims require separate analysis, as set forth in

Nynex, where the Second Circuit found that plaintiff had

sufficiently alleged antitrust claims but had not alleged

RICO claims. Discon, Inc. v. Nynex Corp., 93 F.3d 1055,

1058-62 (2nd Cir. 1996) (antitrust claims); id. at 1062-64

(RICO claims), vacated sub nom., 525 U.S. 128 (1998); see

also Z-Tei Comm., Inc. v. SBC Comm., Inc., 331 F. Supp.

513, 521-48, 557-63 (E.D. Tex. 2004) (offering separate

analysis of antitrust and RICO claims).

Recognizing Ideal’s standing to sue Petitioners will

not open the floodgates of “accounting fraud” RICO litiga-

tion any wider than that permitted by Reves, 507 U:S. at

183, because professionals cannot be held liable under

§ 1962(c) unless they “participate|] in the operation or

management of the enterprise itself.” Congress removed

the predicate act of “fraud in the sale of securities” more

than a decade ago, when it enacted the Private Securities

Litigation Reform Act of 1995. Compare 18 U.S.C.

§ 1964(c) and Jn re Enron Corp. Secs., Deriv. & ERISA

Litig., 284 F. Supp. 2d 511, 618-24 (S.D. Tex. 2003) with

Pet. Br. at 40-41. The fact that Petitioners cannot cite a

single civil RICO case brought by a competitor alleging a

corporate defendant’s “accounting fraud” scheme (Pet. Br.

at 42-43 & n.12) shows how fanciful this hypothetical is.

CONCLUSION

For the. reasons stated herein, the judgment of the

Second Circuit should be affirmed, and this case should be

remanded to the district court for trial.

DATED: February 16, 2006

Respectfully submitted,

KEVIN P. RoDpy

Counsel of Record

WILENTZ, GOLDMAN &

SPITZER, P.A.

90 Woodbridge Center Drive

Suite 900

Woodbridge, NJ 07095

Telephone: (732) 855-6402

Facsimile: (732) 726-6686

Counsel for Respondent

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