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RICO — Foreseeability, Alone, Insufficient to State Causation After Hemi Group

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From Couch v. Cate, 2010 U.S. App. LEXIS 9956 (9th Cir. May 14, 2010)(unpublished):

Officers Couch, Jimenez, and Torres, all corrections officers at the California Department of Corrections and Rehabilitation ("CDCR"), appeal from the district court's Rule 12(b)(6) dismissal of their two causes of action under 42 U.S.C. § 1983 and their private civil cause of action under 18 U.S.C. § 1964(c) of the Racketeer-Influenced Corrupt Organizations Act ("RICO") against twelve defendants, all employees in either the CDCR prison management or the California Office of the Inspector General. ***

All three officers sue all twelve defendants in their personal capacities for injuries to business and property under RICO § 1964(c), which provides a private civil cause of action for "[a]ny person injured in his business or property by reason of a violation of section 1962." 18 U.S.C. § 1964(c). Section 1962, in turn, contains the criminal provisions of the statute, and Couch, Jimenez, and Torres allege violations under §§ 1962(b), (c), and (d). We affirm the district court's dismissal of Torres's RICO claim against all defendants, and affirm the district court's dismissal of Couch's and Jimenez's RICO claims against all defendants except Wan, Boncore, and Diaz. ***

Under RICO, a "plaintiff only has standing if, and can only recover to the extent that, he has been injured in his business or property by the conduct constituting the violation." Sedima, S.P.R.L. v. Imrex Co. , 473 U.S. 479, 496 (1985). In order to survive the motion to dismiss, each of the officers must show that the defendants' conduct was the proximate cause of that injury. Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 268 (1992). The Supreme Court recently clarified that this proximate cause requires "'some direct relation between the injury asserted and the injurious conduct alleged'" and explicitly rejected forseeability as a standard for determining proximate causation. Hemi Group, LLC v. City of New York, U.S. , 130 S. Ct. 983, 989, 991 (2010) (quoting Holmes, 503 U.S. at 268) (emphasis added). The decision in Hemi Group was announced after briefing in this case and less than a week before oral argument. The officers argued in their complaint and briefs that their injuries were a foreseeable result of the defendants' predicate acts, thus establishing standing. In doing so, they relied on Diaz v. Gates, which states that the "proximate cause standard . . . is generous enough to include the unintended, though foreseeable consequences of RICO predicate acts." 420 F.3d 897, 901 (9th Cir. 2005). However, Hemi Group definitively foreclosed RICO liability for consequences that are only foreseeable without some direct relationship. Hemi Group, 130 S. Ct. at 991. Each officer must allege that the RICO predicate acts of obstruction of justice in violation of 18 U.S.C. §§ 1512(b)(3), (c)(1), and (d)(1)-(4) are the proximate, and not just foreseeable, causes of the officers' injuries.

There are no facts that Torres could allege to state a claim that the defendants' commission of RICO predicate acts had a direct relationship to his alleged injuries, including stress, need for psychiatric care, and resulting interference with his ability to pursue contractual relations. The link between the defendants' alleged predicate acts and Torres's resulting injuries is far too attenuated to confer standing, and we therefore affirm the district court's dismissal of Torres's RICO claim against all defendants. Hemi Group, 130 S. Ct. 983, 989 ("Because [the plaintiff's] theory of causation requires us to move well beyond the first step, that theory cannot meet RICO's direct relationship requirement."). In addition, Torres's injuries are more akin to personal injuries that are not cognizable under RICO. Diaz, 420 F.3d at 900.

Our de novo analysis indicates that Couch and Jimenez might be able to allege facts establishing a direct relation between their injuries and some of the defendants' predicate acts. For example, the transfer of Couch to a different facility and the allegation that Wan, Boncore, and Diaz effected this transfer to prevent him from pursuing high profile peacekeepers suggests a direct relationship between Couch's injury and racketeering activity in violation of § 1512(b)(3). Likewise, Jimenez's transfer to a different facility and the allegation that this transfer was in retaliation for his concerns about an investigation of the murder of an inmate also suggests a direct relationship between his injury and racketeering activity in violation of § 1512(b)(3). ***

[Footnote 5] It is possible that Couch and Jimenez may not be able to establish the requisite injury under our en banc decision in Diaz, 420 F.3d at 900. Although we recognized in Diaz that our decision articulates a more expansive theory of RICO liability for employment-related losses, we expressly noted that our holding did not create unlimited standing for loss of wages. Id. at 901. Because we reverse and remand with respect to proximate cause under Hemi Group, we leave for another day whether Couch and Jimenez allege sufficient injury under Diaz.

Dismissal was proper against Cate, Shaw, Woodford, Dovey, Kernan, Hoshino, Allison, Clark, and Hutchins because the officers allege insufficient facts that these defendants themselves committed predicate offenses under § 1962(c). The officers also allege that the defendants "knowingly and willfully conspired . . . to engage in the violation" of § 1962(c) and that each "aided and abetted, and was the co-conspirator of, each of the others and was at all times acting, and did act, in furtherance of, and with full knowledge of, the unlawful purposes of such conspiracy." However, "[t]o establish a violation of section 1962(d), Plaintiffs must allege either an agreement that is a substantive violation of RICO or that the defendants agreed to commit, or participated in, a violation of two predicate offenses." Howard v. Am. Online Inc., 208 F.3d 741, 751 (9th Cir. 2000). The officers' RICO conspiracy claims fail as to most of the defendants, because they allege insufficient facts to demonstrate an agreement to violate RICO or a predicate statute by any of the defendants except Wan, Boncore, and Diaz.

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New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.
New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.

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