Thursday, April 21, 2011

Tax Lien Bidders May Proceed with RICO Claims Against Competitors

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

A civil RICO claim alleging that tax lien bidders had conspired to violate a county’s “single simultaneous bidder rule” (SSBR), in an effort to win a greater share of the tax liens that the county sold at its annual tax auction, should not have been summarily dismissed on the ground that competing bidders could not prove proximate cause, the U.S. Court of Appeals in Chicago has ruled.

The district court’s grant of summary judgment to competing bidders (CCH RICO Business Disputes Guide ¶11,932) was therefore reversed.

The plaintiffs alleged that they suffered RICO damages from the defendants’ scheme to violate the SSBR, which was created to insure fair tax-lien auctions in Cook County, Illinois. The rule prohibited tax lien buyers from having more than one bidding agent at the auctions.

Because property tax liens were awarded to the lowest bidder (i.e., the person who agreed to impose the lowest penalty on a property owner who redeemed the encumbered property by paying the overdue taxes in full), as many as 85 percent of the auctions ended with multiple identical winning bids of “zero percent” of the unpaid taxes.

Without the SSBR, tax lien buyers could unfairly increase their likelihood of winning an inordinate amount of the tax liens by packing the auction room with multiple agents.


Although the defendants in this case had allegedly conspired, over a six-year period, to send multiple bidding agents to the county's tax auctions, the district court found that the plaintiffs (two bidders who did not have multiple agents at the auctions) failed to produce any evidence to show that the defendants' scheme had proximately caused the plaintiffs’ loss of any tax lien sale.

This finding was in error, the court of appeals explained, because the district court had improperly required the plaintiffs to prove that “potential” superseding causes did not actually exist. Because the burden of proof regarding superseding causes was properly placed on the defendant, the district court should have required the defendants to submit evidence in support of their conjectures concerning potential superseding causes.

A plaintiff has done enough to withstand summary judgment for lack of causation when the plaintiff has proffered evidence in support of an injury that would be expected to result from the defendant's wrongful conduct.

Moreover, the causal relationship between a defendant's alleged act and a plaintiff's alleged injury need only be probable, the appellate court noted. If a trier of fact found proximate cause under a standard that placed the burden of establishing the existence of a superseding cause on the defendant, and did so while requiring only a probability of harm attributable to the defendant's wrongful acts, the only remaining issue would be the amount of damages to award the plaintiff.


The defendants argued—and the district court appears to have been persuaded—that a trier of fact could not confidently conclude that the plaintiffs would have obtained a proportionately equal share of the auctioned tax liens (absent a system of awarding liens on a strict rotational basis when identical bids were submitted) had the defendants not packed the auction room. This reasoning, however, reflected a misunderstanding of statistical theory, in the appellate court’s view.

In a large sample, selections based on random choice would produce, with a high degree of confidence (high enough, certainly, for a damages award in a fraud case), the same results, proportionally, as selections based on a strict rotation.

The March 24 decision in BCS Services, Inc. v. Heartwood 88, LLC, appears at CCH RICO Business Disputes Guide ¶12,024.

Further information about CCH RICO Business Disputes Guideis available here.

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