Proximate Causation Sufficiently Alleged to State Civil RICO Claim

Facts — The 11th Circuit, in a detailed and reasoned opinion, reversed a lower court’s decision dismissal of a civil RICO complaint for failure to state a claim. The plaintiff, Corcel Corporation (Corcel), a supplier of plumbing materials, brought a civil RICO action against two competitors and a prime contractor, who allegedly formed the Ferguson–LT enterprise and undertook a fraudulent scheme wherein defendants Ferguson and LT solicited and prepared false and misleading documents and repeatedly submitted those documents to the county for the express purposes of (1) obtaining defendant LT’s SBE certification and (2) winning supply contracts from the county based on the ten percent SBE advantage.

Similarly, according to plaintiff Corcel’s complaint, defendants AKA, Ferguson, and LT formed the AKA–Ferguson–LT enterprise and executed a fraudulent scheme by listing defendant LT as an SBE subcontractor on defendant AKA’s construction contract bids to the county even though the defendants knew that defendant LT was certified as a SBE only because of defendants LT and Ferguson’s prior fraudulent actions. According to plaintiff Corcel, the three defendants used defendant LT’s ill-gotten SBE status for the express purpose of winning a construction contract award from the county based on the ten percent SBE advantage.

Critically, plaintiff Corcel alleged that—if the county had not relied on the defendants’ false and fraudulent documents and actions—the county would have awarded plaintiff Corcel the supply and construction contract at issue because plaintiff Corcel was the next lowest SBE bidder.

Relevant Law — The court discussed the legal principles surrounding proximate causation, i.e., that for federal RICO purposes the central question it must ask is whether the alleged violation led directly to the plaintiff’s injuries.” Thus, proximate cause requires “some direct relation between the injury asserted and the injurious conduct alleged.” A link that is “too remote,” “purely contingent,” or “indirect” is insufficient.

Although a plaintiff need not show that the injurious conduct was the sole cause of the injury asserted, proximate causation requires that the plaintiff allege “some direct relation” between the injury asserted and the injurious conduct, it is enough for the plaintiff to plead and prove that the defendant’s tortious or injurious conduct was a substantial factor in the sequence of responsible causation.”

For more on RICO, please click this link to see the U.S. Justice Department’s pdf manual.

Analysis — The court concluded that plaintiff Corcel had alleged a direct relation between its claimed injury and defendants’ federal civil RICO violations sufficient to constitute proximate causation at this pleading stage in the proceedings. The defendants’ scheme of knowingly misrepresenting defendant LT’s qualifications for SBE status had the purpose and direct result of channeling contracts to the defendants and away from the entity that would have received those contracts (i.e., plaintiff Corcel) if the defendants had not undertaken their fraudulent conduct. Simply put, the defendants’ alleged fraud directly caused plaintiff Corcel to lose multiple County contracts.

The court noted first, that plaintiff Corcel was next in line to receive the County contracts at issue; second, Corcel’s damages should be ascertainable and not wholly speculative in nature; third, there is no appreciable risk of duplicative recoveries; and fourth, no other immediate victims of the defendants’ alleged RICO violations are more likely to vindicate the laws by pursuing their own claims.

For all of those reasons, the court concluded that plaintiff Corcel’s complaint alleged a sufficiently direct injury, especially given the factual allegations that directly correlate the defendants’ alleged fraud and plaintiff Corcel’s lost opportunity to obtain the county’s business.