Dear Colleagues;
While the issues are raised by the unique provisions of RICO, it seems to me that the question of causation wrestled with by the US Supreme Court in HEMI GROUP, LLC, et al. v. CITY OF NEW YORK, NEW YORK (US Sup Ct, No. 08-969; January 25, 2010) http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=000&invol=08-969 are quite similar to causation issues that have been tackled in Commonwealth jurisdictions.
Briefly, New York City (NYC) were suing Hemi for loss of cigarette taxes. The City imposes a tax on possession of cigarettes which it collects from vendors within the city; many people hence buy cigarettes online, and Hemy (based in New Mexico) is one such online source. A Federal statute, the Jenkins Act, requires out-of-state vendors to notify the State authorities of the names of customers; evidence was that where notification was given, NY State passed on the details to the City, who then tried (with some success) to collect the tax directly from customers. Hemy for the purposes of the litigation conceded that it breached the Jenkins Act by not notifying the State of customer details. The civil action by NYC was based on the provisions of RICO, §1964(c) which gives a civil remedy to someone "injured in his business or property by reason of a violation" of RICO's anti-wire-fraud provisions, which were conceded to have been breached here. NYC failed by effectively a 5-3 margin ( Roberts, C. J., Scalia, Thomas, and Alito, JJ; Ginsburg, J agreeing in the result but not all the reasoning; dissenters were Breyer, J., Stevens and Kennedy, JJ; Sotomayor, J was not involved, perhaps because the case was argued before she joined the Court?)
One question was whether the failure of NYC to collect taxes was an injury to their "business or property". The majority did not rule on this, as they found against the City on the causation point; the dissenters held that at least for the purposes of this sort of wide-reaching scheme, the requirement was satisfied.
The main question was that of causation. Had Hemi's breach of the Act caused the City's loss in the relevant sense? The majority said that it had not- they argued that there needed to be "proximate" causation; here there were too many steps in the chain- customer purchases without paying tax, Hemi fails to report, hence the State fails to notify, hence the City is unable to initiate enforcement action.
I must say I found the dissent more persuasive. There are a lot of similarities to the sort of arguments made in cases like Travel Compensation Fund v Tambree t/as R Tambree and Associates [2005] HCA 69 http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/HCA/2005/69.html as to whether the conscious wrongful act of a third party will break the chain of causation, especially where a system has been set up because such wrongful action is likely! After all, the reason for the Jenkins Act is presumably so that State taxes (including, as Breyer J says, State-authorised taxes charged by the City) can be collected. And what Breyer J says about causation being relatively easy to establish in cases where it is clear that there was an intention to cause the relevant harm rings true (Hemy actually advertised on their website that the cigarettes were "tax-free" and that they did not report transactions to the government).
Those who are familiar with the common law tort action for breach of statutory duty will notice many of the same issues- what was the purpose of the legislation? is the person harmed within the scope of those intended to be protected by the legislation?
I suppose the only thing that would give me pause about agreeing completely with the dissent is the fact that it is a somewhat unusual use of the civil law to enforce a tax obligation. But precedent for that is increasingly to be found in the Commonwealth as well- for example, Total Network SL v Her Majesty’s Revenue and Customs [2008] UKHL 19 http://www.bailii.org/uk/cases/UKHL/2008/19.html.
Regards
Neil F
Neil Foster
Senior Lecturer, LLB Program Convenor
Newcastle Law School
Faculty of Business & Law
MC158, McMullin Building
University of Newcastle
Callaghan NSW 2308
AUSTRALIA
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