RICO Causation

The plaintiff in Globe Wholesale Tobacco v. WWT, 2007 U.S. Dist. LEXIS 72656 (S.D.N.Y. Sept. 28, 2007), was a wholesale tobacco dealer whose RICO claim against a competitor was premised on the fact that the competitor was selling contraband cigarettes with phony tax stamps while the plaintiff was obeying the law and selling only more expensive, fully-taxed, legal cigarettes. The plaintiff argued that this gave the defendant a clear and unfair price advantage, causing the plaintiff competitive injury sufficient to sustain a RICO claim under 18 U.S.C. §1962(c). United States District Judge Lewis Kaplan agreed that the plaintiff had stated two statutory violations that were predicate acts. Unfortunately for the plaintiff, the factual scenario was too close to that before the Supreme Court in Anza . In dismissing the RICO claim, Judge Kaplan concluded that the plaintiff could not state causation because he was not directly harmed by the predicate act violations:

‛[P]laintiff has alleged adequately only two predicate acts — transporting counterfeit tax stamps and selling contraband cigarettes.*** Plaintiff's alleged harm was caused by a set of actions (offering lower prices) distinct from the alleged RICO violation (transporting counterfeit tax stamps and distributing contraband cigarettes).“

This is a correct, predictable and harsh result. The Supreme Court has made it challenging to allege causal damages purely as a matter of RICO jurisprudence, and Twombly compounds the problem. Given that damages are essential to standing under 18 U.S.C. § 1964(c), Anza and Twombly are serious practical impediments to stating a RICO claim.

Judge Kaplan also held (in accordance with the rule everywhere outside the Fourth Circuit) that, to state a claim under §1962(a), the plaintiff must allege an injury not only from the predicate acts but also from the defendant’s ‛investment“ or ‛use“ of the racketeering proceeds.

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