The U.S. Supreme Court took aim today at "the troubling specter of turning RICO into a tax collection statute."  Hemi Group LLC v. City of New York, No. 08-969, slip op. at 13 n.2 (U.S. Jan. 25, 2010).  But the Court coudn't muster a majority on the reason why the specter had to die (give up the ghost?).

The case concerned whether New York City could sue under the Racketeer Influenced and Corrupt Organizations Act for loss of cigarette tax revenue.  The City alleged that out-of-state vendor Hemi Group caused New Yorkers not to pay a $1.50 per pack tax on "possession" of the smokes it sold to them.  How did Hemi do it?  By failing (on purpose) to report its interstate sales to Big Apple addressees – in violation of the Empire State's Jenkins Act.

A four-member group (consisting of Chief Justice Roberts plus Justices Alito, Scalia, and Thomas) felt that RICO's "by reason of" element required a more "direct" link between the fraud — non-reporting of sales under the Jenkins Act — and the harm — purchasers' non-payment of the City possession tax.  The four wanted a "far" closer connection.

Justice Ginsburg concurred in part and in the judgment on the far narrower ground that the City shouldn't use RICO "to end-run its lack of authority to collect tobacco taxes from Hemi Group or to reshame the 'quite limited remedies' Congress has provided for violations of the Jenkins Act . . . ."  Id.

The three dissenters (Justice Sotomayor sat this one out, having sat on the Second Circuit panel below) urged that old style notions of "proximate cause" — the Court's long-standing test for causation under RICO — supported the City's complaint.

Blawgletter wishes to point out that the Court continues to use common law tort ideas to narrow federal statutes — e.g., "antitrust duty" for the Sherman Act and, now, "directness" for proximate cause under RICO.  Which doesn't surprise us.  But we do note that the fixing of where injury-causing conduct becomes actionable involves less the calling of balls and strikes and more the divination of policy.

Feed Icon Blue The common law seems to have started shrinking.