Friday, May 22, 2009

High Court to Consider RICO’s "Business or Property" Requirement

This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide, and John W. Arden.

The U.S. Supreme Court has agreed to consider whether a city government alleging a non-commercial injury that resulted from the non-payment of taxes by non-litigant third parties has met RICO's standing requirement that a plaintiff be directly injured in its "business or property."

The U.S. Court of Appeals in New York City held that the City of New York had standing to bring civil RICO claims against out-of-state cigarette retailers that failed to submit monthly sales reports to the State of New York (CCH RICO Business Disputes Guide ¶11,547). The retailers' conduct allegedly prevented the City from collecting tens, perhaps hundreds, of millions of dollars a year in excise taxes.

Commercial Transaction Requirement?

The retailers had unsuccessfully argued that the City's "lost taxes" did not constitute an injury to the City's business or property because the loss was not incurred in a commercial transaction. The retailers based this argument on dicta that the court expressly rejected. Because lost taxes could indeed constitute an injury to the City's business or property for purposes of RICO, the City adequately satisfied RICO's injury requirement, in the appellate court's view. (See Trade Regulation Talk, September 20, 2008.)

In their petition for review, two defendant Internet retailers presented the question of “[w]hether city government meets the Racketeer Influenced and Corrupt Organizations Act standing requirement that a plaintiff be directly injured in its 'business or property' by alleging non commercial injury resulting from non payment of taxes by non litigant third parties.”

The two retailers argued that (1) there was a distinct split of opinion among the circuits about whether state and federal governments can use RICO to collect taxes and recover similar non-commercial losses and (2) the ruling of the Second Circuit conflicts with the Supreme Court’s precedent requiring a party to suffer direct injury to have RICO standing.

The petition for review is Hemi Group, LLC v. City of New York, Docket No. 08-969, filed January 27, 2009, granted May 4, 2009. Text of the petition is available here on the SCOTUS blog.

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