January 25, 2010

Supreme Court Decides Hemi Group, LLC v. City of New York

On January 25, the Supreme Court decided Hemi Group, LLC v. City of New York, No. 08-969, holding that the City of New York could not state a claim under RICO against an out-of-state cigarette seller based on its failure to comply with the Jenkins Act's reporting requirements. No opinion commanded a majority of the Court. Chief Justice Roberts authored a plurality opinion joined by three other Justices. Justice Ginsburg concurred in part to provide a majority for the judgment.

The City of New York charges a $1.50 per pack tax on cigarettes possessed within the City. Hemi Group is an out-of-state online cigarette seller, whose customers include residents of the City. Neither State nor City law requires Hemi to charge, collect, or remit the City tax. A federal statute known as the Jenkins Act, however, requires Hemi to submit customer information to the states into which they ship cigarettes.

Hemi did not file the required customer information with the State of New York. The City filed a RICO action against Hemi, alleging that Hemi's failure to comply with the Jenkins Act constituted mail and wire fraud and caused the City to lose tens of millions of dollars in unrecovered cigarette taxes. Hemi filed a motion to dismiss, which the district court granted. The United States Court of Appeals for the Second Circuit found that the City had stated a viable RICO claim, vacated the district court's judgment, and remanded for further proceedings. Judge Winter of the Second Circuit dissented on the ground that the alleged RICO violation was not the proximate cause of the City's alleged injury.

The Supreme Court reversed, holding that the City did not state a claim under RICO against Hemi.

Justice Ginsburg's two-page concurring opinion provided the narrowest ground for deciding the case and hence is the controlling opinion. She concluded simply: "I resist reading RICO to allow the City to end-run its lack of authority to collect tobacco taxes from the Hemi Group or to reshape the ‘quite limited remedies' Congress has provided for violations of the Jenkins Act."

Chief Justice Roberts's plurality opinion engaged in a broader analysis of RICO's causation requirements and concluded that the City could not satisfy them. "[T]o state a claim under civil RICO," the Chief Justice wrote, "the plaintiff is required to show that a RICO predicate offense ‘not only was a "but for" cause of his injury, but was the proximate cause as well.'" Proximate cause for a RICO claim requires a direct relation between the injury asserted and the conduct alleged. A link cannot be too remote, purely contingent, or indirect. Here, the conduct directly responsible for the City's loss of tax dollars was its residents' failure to pay their taxes. The conduct constituting the alleged fraud was Hemi's failure to file Jenkins Act reports. The plurality concluded that the City's causal theory linking the two was too attenuated to establish proximate cause.

Chief Justice Roberts delivered the opinion of the Court in part, in which Justices Scalia, Thomas, and Alito joined, and in which Justice Ginsburg joined in part. Justice Ginsburg filed an opinion concurring in part and concurring in the judgment. Justice Breyer filed a dissenting opinion, in which Justices Stevens and Kennedy joined. Justice Sotomayor took no part in the consideration or decision of the case.

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