In Bridge v. Phoenix Bond & Indemnity Co., the US Supreme Court recently held that a plaintiff bringing a civil claim under the Racketeerin g Influenced and Corrupt Organizations Act (RICO)1 premised on mail fraud need not allege its own reliance on any mailing, either as an element of its claim or as a prerequisite for proximate cause.2 While this ruling appears to ease plaintiffs' burden in pleading civil RICO claims, the scope of Bridge should be limited by the Supreme Court's prior rulings in Anza v. Ideal Steel Supply Corp.3 and Holmes v. Securities Investor Protection Corp.,4 which held that RICO plaintiffs must plead facts showing that the alleged RICO violations led directly to their claimed injuries.

The Lower Court Rulings

RICO is a federal criminal statute that also provides a civil remedy for alleged injuries to "business or property by reason of a violation" of certain specified "predicate acts" that must be part of a "pattern of racketeering activity." The "predicate acts" are to be drawn from a list of federal criminal laws including the federal mail fraud statute. Mail fraud is committed when an individual "having devised or intending to devise any scheme or artifice to defraud" uses the mail "for the purpose of executing such scheme or artifice or attempting so to do."5

In Bridge, certain liens on delinquent taxpayers' property in Illinois were sold by public mail-in auction. The idea of the auctions was to award the liens among a group of qualifying bidders on a rotating basis. To ensure that no one bidder could purchase all of the liens, the county running the auctions adopted a rule under which each bidder had to bid in its own name and could not use agents or proxies. To circumvent this rule, defendant Sabre Group ("Sabre") allegedly conspired to use fraudulent mailings to the county to conceal its use of proxies. Sabre was thereby able to purchase more liens than it was entitled to. Plaintiffs, other bidders in the auctions, alleged that the scheme deprived them of a fair chance to bid on the liens. Sabre argued that because plaintiffs never received (indeed, never saw) the mailings, they could not have relied upon them and so could not use the mail fraud statute to plead the required predicate acts.6

The district court held that plaintiffs lacked RICO standing because they had not received or seen the mailings. The US Court of Appeals for the Seventh Circuit reversed, holding that plaintiffs could sue notwithstanding their lack of reliance on the fraudulent mailings.

The Supreme Court Decision

The Supreme Court unanimously affirmed, holding that a plaintiff asserting a RICO claim based on mail fraud need not plead its reliance on the alleged misrepresentations. Hence, a plaintiff does not lack standing to make a RICO claim even when the allegedly false statements were made to a third party.7

The Court explained that although reliance is an element of common law fraud, the RICO statute does not track the common law. Rather, what is required under RICO is that a person be injured "by reason of" the alleged predicate acts.8 With respect to mail fraud, this does not require the person defrauded to have received or relied on the allegedly fraudulent mailings.9 Indeed, the Court noted that no reliance was required under the mail fraud statute.10 Rather, RICO's "by reason of" language incorporates a proximate cause standard.11 Thus, if a plaintiff suffers an injury proximately caused by a misrepresentation, it need not allege reliance to plead a RICO claim.12 The Court did observe, however, that "[i]n most cases, the plaintiff will not be able to establish even but-for causation if no one relied on the misrepresentation."13 The Court found that the fraud alleged in Bridge did proximately cause plaintiffs' injuries because, absent the county's reliance on Sabre's false mailings, plaintiffs would not have lost auctions to Sabre's illegal proxies.14

Anza and Holmes

Bridge highlights the importance of the Supreme Court's earlier rulings in Anza and Holmes regarding proximate cause pleading requirement for civil RICO claims. These two cases held that, "[w]hen a court evaluates a RICO claim for proximate causation, the central question it must ask is whether the alleged violation led directly to the plaintiff's injuries."15 Anza noted that this requirement is particularly important where, as in Bridge, there is a victim of the alleged violation (i.e., the county holding the auctions) who could pursue its own claim.16 Thus, a purpose of the proximate cause requirement is to limit the number of potential plaintiffs and not create a windfall for plaintiffs who were only indirectly harmed.17

Implications

Bridge may make it easier for plaintiffs to plead a mail fraud-based RICO claim and, as such, may encourage more plaintiffs to assert these claims. Plaintiffs, however, still will have to allege (and ultimately prove) reliance by some third party and that their RICO injury is directly related to that reliance. Thus, the importance of proximate cause in RICO cases may exert some limits on the effects of Bridge and the ability of RICO plaintiffs to plead mail fraud-based claims.