RICO — Enactment of Restrictive Legislation and Law Enforcement Activity against Other Similarly-Situated Companies Are Intervening Acts Breaking Proximate Causation between Predicate Acts and Diminution of Stock Price

From Wodka v. Causeway Capital Mgmt. LLC, 2011 U.S. App. LEXIS 9959 (9th Cir. May 16, 2011):

To state a civil RICO claim, a plaintiff must show "that a RICO predicate offense 'not only was a "but for" cause of his injury, but was the proximate cause as well.'" Hemi Group, LLC v. City of New York, U.S. , 130 S. Ct. 983, 989 (2010) (quoting Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 268 (1992)). "When a court evaluates a RICO claim for proximate causation, the central question it must ask is whether the alleged violation led directly to the plaintiff's injuries." Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 461 (2006) (emphasis added). There must be "'a direct causal connection' between the predicate wrong and the harm." Hemi Group, 130 S. Ct. at 994 (quoting Anza, 547 U.S. at 460). "A link that is 'too remote,' 'purely contingent,' or 'indirec[t]' is insufficient." Id. at 989 (quoting Holmes, 503 U.S. at 271, 274).

Applying these principles, we hold that the district court correctly dismissed Wodka's claims for lack of proximate causation under RICO. The decline in the value of Wodka's shares of the Causeway International Value Fund was not the direct result of the defendants' alleged ownership and financing of illegal gambling operations. Rather, Wodka's losses were directly caused by a series of intervening actions undertaken by independent, third party actors during the summer and fall of 2006, including the passage of the Unlawful Internet Gambling Enforcement Act of 2006, 31 U.S.C. § 5361 et seq., several law enforcement actions taken against two other Internet-based gambling companies, PartyGaming's withdrawal from the U.S. market, and various decisions made by investors to sell off their shares of PartyGaming and NETeller stock. Given all of these factors, we conclude that the cause of Wodka's asserted harm was "a set of actions . . . entirely distinct from the alleged RICO violation" and thus too attenuated for RICO purposes. See Anza, 547 U.S. at 458; see also Hemi Group, 130 S. Ct. at 990; cf. Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 658-59 (2008).

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