17-0887-cv Empire Merchants, LLC, et al. v. Reliable Churchill, LLLP, et al.

17‐0887‐cv Empire Merchants, LLC, et al. v. Reliable Churchill, LLLP, et al.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

August Term 2017

(Argued: October 10, 2017 Decided: August 28, 2018)

No. 17‐0887‐cv

––––––––––––––––––––––––––––––––––––

EMPIRE MERCHANTS, LLC,

Plaintiff‐Appellant,

EMPIRE MERCHANTS NORTH, LLC,

Plaintiff,

‐v.‐

RELIABLE CHURCHILL LLLP, SAM LIQUORS INC., BIN LUO, AKA CHEN, BAO LIQUORS INC., BAO XIONG ZHENG, AKA BAO XION ZHENG, AKA BAO XING ZHENG, TING WEI, LTT WHISKEY, INC., YI FENG GAO,

Defendants‐Appellees,

NILESHKUMAR JASBHAI PATEL, AKA NICK PATEL, PRATIBHA PATEL, AKA PANNA PATEL, TECH PRIDE OF AMERICA, INC., DBA HAPPY 40 LIQUORS, DBA HAPPY 40 WINES & SPIRITS, DBA HAPPY 40 DISCOUNT LIQUORS, ANIL PATEL, DILIP C. PATEL, PRAKASH PATEL, J&R COMPANY LLC, DBA NORTH EAST LIQUORS, JATIN B. PATEL, AKA JATTINKUMAR B. PATEL, VLAMIS LIQUORS LLC, DBA VLAMIS’ CUT‐RATE LIQUORS, OUR LIQUOR, INC., ALEXANDER J. LEW, JOHN DOE, DEFENDANTS NUMBERS

1

1‐50, TUSHAR C. PATEL, KE YAO, BREAKTHRU BEVERAGE GROUP, LLC, ARLYN B. MILLER, CHARLES MERINOFF, GREGORY L. BAIRD,

Defendants.

––––––––––––––––––––––––––––––––––––

Before: POOLER, LIVINGSTON, Circuit Judges, CRAWFORD, District Judge.1

Empire Merchants, LLC (“Empire”), the New York metropolitan area’s exclusive distributor for many leading brands of liquor, sued defendants under the Racketeer Influenced and Corrupt Organizations Act (“RICO”),

et seq., alleging that they smuggled liquor into New York State, depriving Empire of sales it would have otherwise made. The district court granted defendants’ Fed. R. Civ. P. 12(b)(6) motion to dismiss because, inter alia, the smuggling operation, as alleged, did not directly cause Empire to lose sales, and therefore Empire did not adequately allege proximate cause under RICO. We hold that Empire’s Amended Complaint did not adequately allege proximate cause. Accordingly, the judgment of the district court is AFFIRMED.

FOR PLAINTIFF‐APPELLANT: CAITLIN J. HALLIGAN, Gibson, Dunn & Crutcher, LLP, New York, NY (Randy M. Mastro, Matthew J. Benjamin, Gibson, Dunn & Crutcher LLP, New York, NY, William E. Thomson, Gibson, Dunn & Crutcher LLP, Los Angeles, CA, on the brief)

FOR DEFENDANTS‐APPELLEES: SEAN F. O’SHEA (Helen M. Maher, on the brief), Boies, Schiller Flexner LLP, New York, NY, for Defendant‐Appellee Reliable Churchill LLP

Judge Geoffrey W. Crawford, of the United States District Court for the District 1

of Vermont, sitting by designation.

2

Ronald D. Degen, O’Rourke & Degen, PLLC, New York, NY, for Defendant‐ Appellee LTT Whiskey Inc.

DEBRA ANN LIVINGSTON, Circuit Judge:

This is a case about proximate cause under the Racketeer Influenced and

Corrupt Organizations Act (“RICO”),

et seq. Plaintiff‐Appellant

Empire Merchants, LLC (“Empire”), a distributor of alcoholic beverages, is New

York State’s exclusive distributor for popular brands like Johnnie Walker, Grey

Goose, and Seagram’s Gin. Empire alleges that from at least 2008 to 2014,

Defendant‐Appellee Reliable Churchill LLLP (“Reliable”) and (non‐party)

Republic National Distributing Company (“RNDC”), two of Maryland’s largest

liquor distributors, conspired with retail liquor stores in Cecil County, Maryland

(“Cecil County retailers”) and New York City (“New York retailers”) to smuggle

liquor from Maryland to New York, in violation of New York liquor law. Empire

sued Reliable and several Cecil County and New York retailers under RICO,

alleging that their bootlegging directly harmed Empire “because every case of

alcohol smuggled into New York from Maryland was a lost sale by New York’s

authorized distributors—of which Empire was the largest.” J.A. 172. The

defendants moved to dismiss under Fed. R. Civ. P. 12(b)(6), arguing in part that

3

the smuggling operation did not directly cause Empire to lose sales, and therefore

that Empire had not adequately alleged proximate cause under RICO. The

district court agreed and dismissed the case, and Empire appealed. Because

Empire failed to allege proximate cause adequately, we AFFIRM the judgment of

the district court.

BACKGROUND

I. Factual Background2

As relevant here, the American alcohol industry consists of three different

groups of entities: (1) suppliers, who produce the alcohol in breweries, vineyards,

and distilleries; (2) distributors, who purchase liquor from suppliers in bulk and

sell it to retail liquor stores, restaurants, and bars; and (3) retailers, the liquor

stores, restaurants, and bars that ultimately sell liquor to consumers. Many

suppliers and distributors enter into contracts with one another, giving the

distributors “the exclusive right to distribute that supplier’s products in‐state.”

J.A. 200. Both the federal government and New York State license suppliers and

The factual background presented here is derived from allegations in the 2

Amended Complaint, which we accept as true in considering a Rule 12(b)(6) motion to dismiss. See Giunta v. Dingman,

(2d Cir. 2018).

4

distributors, and many states and municipalities tax the sale of liquor. See, e.g.,

(c);

.

Empire is the largest liquor distributor in the New York metropolitan area

and has exclusive distribution contracts for that area with some of the world’s

leading liquor suppliers, giving it exclusive rights to distribute popular brands like

Johnnie Walker and Smirnoff. It alleges that from at least 2008 to 2014, Reliable

and RNDC conspired with the Cecil County and New York retailers to smuggle

liquor from Maryland to New York, thus violating state and federal law,

interfering with Empire’s exclusive New York distribution rights, and depriving

Empire of millions of dollars in lost sales.3

The scheme was simple. The New York retailers would make interstate

phone calls and send interstate faxes and emails to Cecil County retailers

requesting liquor, and the Cecil County retailers passed on the orders to Reliable

and RNDC. Reliable and RNDC sold the requested products to the Cecil County

retailers at discount. The New York retailers paid for the liquor in cash

3 Empire Merchants North, LLC is an affiliated distributor based in upstate New York. This appeal by and large concerns injuries suffered by Empire Merchants, LLC, rather than injuries to Empire Merchants North, LLC, so for purposes of this opinion, “Empire” refers to Empire Merchants, LLC, the Plaintiff‐Appellant.

5

(sometimes up to $20,000 at a time) and smuggled it in vans and trucks from

Maryland to New York. The Cecil County retailers deposited the cash into bank

accounts and wrote checks from those accounts to pay Reliable and RNDC.4

Empire alleges that Reliable knew about the smuggling and that many of its

employees encouraged and even helped coordinate the scheme. Some Reliable

employees helped Cecil County retailers remove Maryland stickers from its liquor

crates to help smugglers evade detection, at least one Reliable salesman lied to a

Cecil County retailer who expressed concern that Reliable was encroaching on

Empire’s exclusive rights, and Reliable may have even been in direct contact with

the smuggling New York retailers. Both Reliable and RNDC also track retailers’

weekly sales and would have noticed the large purchasing discrepancies in rural

Cecil County. And many Cecil County and New York retailers, according to the

Amended Complaint, have admitted to smuggling.5

4 RNDC is not a named defendant in this case because “there is very little overlap in the products that” it and Empire sell, “meaning that RNDC’s bootlegging likely did not harm Empire greatly.” J.A. 221. By contrast, “approximately 64% to 78% of Empire’s total sales come from products also distributed by Reliable Churchill.”

5 Defendant‐Appellee LTT Whiskey (“LTT”), a New York retailer, is not one of them, and the Amended Complaint’s factual allegations regarding LTT’s participation in the scheme are largely circumstantial. Thus, in 2009, it allegedly received “more than twenty cases of liquor from Maryland” and “suspiciously reduced its purchases . . . of alcohol for which Empire was the exclusive distributor.” J.A. 249–50. In 2014 and 2015, it did not buy any 750‐ml or 1‐liter Grey Goose bottles from Empire but was always fully

6

At all relevant times during the alleged smuggling operation, Maryland’s

excise liquor tax was $1.50/gal, and the total excise tax in New York City (state and

local tax included) was $7.44/gal. In both Maryland and New York, distributors

are responsible for paying alcohol excise taxes. The operation “was predicated

on” this $6/gal tax difference.

. Smuggling allowed the New York

retailers to buy liquor at a discount and then sell it at New York prices. For the

Cecil County retailers, Reliable, and RNDC, the bootlegging scheme opened a

much larger market, as Cecil County has a population of 78,000 people, about 0.3%

the population of metropolitan New York. Profits soared. One Cecil County

retailer sold $300,000 of liquor to New York in a nine‐day period. Reliable alone

sold over 272,000 cases (5.8 million bottles) as part of this smuggling operation,

“resulting in gross revenues of more than $40 million.”

.

But the operation cost New York State, New York City, and, according to

the Amended Complaint, Empire. “By willfully avoiding the payment of the

much higher New York State and New York City excise tax on alcohol,” the

Amended Complaint alleges, the defendants deprived the State and City “of

stocked with both. And finally, it never purchased any Johnnie Walker from Empire from 2008 through 2016, and Empire alleges that it is highly unlikely that LTT never sold any Johnnie Walker during that time.

7

millions of dollars in tax revenue.”

at 183–84. It also “caused Empire at least

tens of millions of dollars in lost sales damages” because “every case of alcohol

smuggled into New York from Maryland was a lost sale by New York’s authorized

distributors — of which Empire is the largest.”

.

Empire first learned of the smuggling operation in May 2016 when the

United States Attorney’s Office for the District of Maryland indicted RNDC and

several co‐conspirators for wire fraud and money laundering. Reliable is also

alleged to have “been under investigation for the same smuggling activity and

negotiating to resolve potential charges against the company” since at least 2013.

.

II. Procedural History

Empire sued Reliable and the other defendants in the United States District

Court for the Eastern District of New York (Ross, J.) on September 20, 2016, and

filed an Amended Complaint on December 9, 2016. As relevant here, the

Amended Complaint alleged:

 substantive violations of RICO,

(c), based on a pattern of mail and wire fraud, money laundering, and violations of the Travel Act,

;

 conspiracy under RICO,

§ 1962(d); and

 several claims under state law.

8

Empire sought compensatory damages “for every . . . sale it lost as a result of the

bootlegging scheme,” treble damages and attorney’s fees under RICO, punitive

damages, and declaratory and injunctive relief. J.A. 189. But on March 16, 2017,

the district court granted the Defendants’ Rule 12(b)(6) motion to dismiss. See

Empire Merchants, LLC v. Reliable Churchill LLLP, No. 16CV5226ARRLB,

(E.D.N.Y. Mar. 16, 2017).

The bulk of the district court’s analysis concerned Empire’s allegations of

wire fraud as a RICO predicate offense. Wire fraud,

, has three

elements: (1) a scheme to defraud, (2) money or property that is the object of the

scheme, and (3) use of the wires to further the scheme. Fountain v. United States,

(2d Cir. 2004). Focusing principally on the first element, the

court held that Empire largely failed to allege a scheme to defraud, and to the

extent that it had adequately pled such a scheme, it had not alleged that the wire

fraud proximately caused its injuries. Empire argued that the smuggling

operation itself constituted the requisite “scheme to defraud.” The district court

rejected this characterization, however, insisting that the smuggling operation was

not a single scheme to defraud, but three schemes: (1) smuggling to avoid paying

liquor taxes; (2) smuggling to violate New York’s liquor licensing laws; and (3)

9

smuggling to interfere with Empire’s exclusive distribution contracts. It then

concluded that Empire failed to allege proximate cause for the first and second

schemes to defraud, and that the third was not a cognizable scheme at all.

First, although “a smuggling scheme to defraud the government of excise

taxes constitutes a ‘scheme to defraud’ under the wire fraud statute,” the court

reasoned, Empire had “disclaim[ed] any reliance on defendants’ tax evasion in its

RICO allegations.” Id. at *8 (emphasis removed). Empire had also not pled that

the alleged tax evasion directly caused Empire’s injuries, which meant that Empire

had failed to plead proximate cause under Anza v. Ideal Steel Supply Corp.,

(2006). Second, to the extent that Empire alleged that the smuggling

operation violated New York State’s liquor licensing laws, those state law

violations did not proximately cause Empire’s injuries either because “Empire

would have suffered the identical injury at the hands of a licensed wholesaler.”

Id. at *12. Finally, a smuggling scheme that interfered with Empire’s exclusive

distribution contracts, the district court concluded, was not a scheme to defraud

because, though potentially actionable under New York tort law, “the act of

selling” liquor in violation of another’s contractual rights is “not itself deceitful.”

Id. at *10.

10

The court then dismissed Empire’s RICO claims predicated on mail fraud,

, money laundering,

§ 1956, and violations of the Travel Act, id.

§ 1952. Empire did not adequately allege mail fraud because the complaint did

not mention any specific use of the mails to further the smuggling operation. The

defendants’ alleged money laundering — the Cecil County retailers’ deposits and

withdrawals of the New York retailers’ cash payments — may have helped conceal

the smuggling from government regulators but did not, on its own, proximately

cause Empire’s injuries. The Travel Act violations were “wholly derivative of

the[] money laundering allegations” and therefore failed for the same reason. Id.

at *16. Finally, the court dismissed the RICO conspiracy claim for lack of

proximate cause and denied Empire leave to amend on futility grounds.

Accordingly, it dismissed Empire’s RICO claims with prejudice and declined to

exercise supplemental jurisdiction over its state law claims.

The court entered final judgment on March 23, 2017, and Empire filed a

timely notice of appeal six days later.

DISCUSSION

Empire argues on appeal that the district court erred in dismissing its RICO

claim predicated on wire fraud. It also contends that the court erred in

11

dismissing its money laundering and Travel Act–based RICO predicates and in

denying it leave to amend. The bulk of this case turns on the first issue because

each of Empire’s RICO predicates relies on the same proximate cause theory.

Though the district court erred in how it characterized Empire’s wire fraud–based

RICO claim, we agree with the district court that Empire did not adequately allege

proximate cause. We therefore AFFIRM the decision below.6

I

We review de novo a district court’s dismissal pursuant to Fed. R. Civ. P.

12(b)(6), “accepting all factual allegations as true and drawing all reasonable

inferences in favor of the plaintiff.” Trs. of Upstate N.Y. Eng’rs Pension Fund v. Ivy

Asset Mgmt.,

(2d Cir. 2016). “To survive a motion to dismiss, a

complaint must contain sufficient factual matter, accepted as true, to ‘state a claim

to relief that is plausible on its face.’” Ashcroft v. Iqbal,

(2009)

(quoting Bell Atl. Corp. v. Twombly,

(2007)). “Threadbare recitals

of the elements of a cause of action, supported by mere conclusory statements, do

not suffice.”

“We review a district court’s denial of leave to amend for abuse

6 See Thyroff v. Nationwide Mut. Ins. Co.,

(2d Cir. 2006) (“[W]e are free to affirm a decision on any grounds supported in the record, even if it is not one on which the trial court relied.”).

12

of discretion, unless the denial was based on an interpretation of law, such as

futility, in which case we review the legal conclusion de novo.” Pyskaty v. Wide

World of Cars, LLC,

(2d Cir. 2017) (quoting Panther Partners Inc. v.

Ikanos Commc’ns, Inc.,

(2d Cir. 2012)). “Futility is a

determination, as a matter of law, that proposed amendments would fail to cure

prior deficiencies or to state a claim under Rule 12(b)(6) of the Federal Rules of

Civil Procedure.”

at 224–25 (quoting Panther Partners,

).

II

RICO creates a private cause of action for “[a]ny person injured in his

business or property by reason of a violation of section 1962” of RICO.

(c). Among other things, § 1962 makes it “unlawful for any person

employed by or associated with any enterprise engaged in, or the activities of

which affect, interstate or foreign commerce, to conduct or participate, directly or

indirectly, in the conduct of such enterprise’s affairs through a pattern of

racketeering activity.” Id. § 1962(c). “[R]acketeering activity,” as defined in

RICO, comprises a wide variety of criminal offenses, including, as relevant here,

wire fraud, mail fraud, money laundering, and violations of the Travel Act. Id.

13

§ 1961(1). The RICO offense alleged here is that the defendants were an

“enterprise” engaged in “a pattern” of, principally, wire fraud. See id. § 1962(c).

As noted above, wire fraud has three elements: (1) a scheme to defraud, (2)

money or property that is the object of the scheme, and (3) use of the wires to

further the scheme. Fountain,

. The first element, the scheme to

defraud, “is measured by a nontechnical standard. It is a reflection of moral

uprightness, of fundamental honesty, fair play and right dealing in the general and

business life of members of society.” United States v. Trapilo,

, 550 n.3

(2d Cir. 1997) (internal quotation marks and brackets omitted) (quoting United

States v. Von Barta,

, 1005 n. 12 (2d Cir. 1980)). To meet the second

element, the plaintiff must show that the object of the scheme — “the thing

obtained,” or to be obtained — is “property in the hands of the victim,” Cleveland

v. United States,

(2000), which can include a right to uncollected

excise taxes, see Pasquantino v. United States,

, 355–56 (2005). And any

wire that “is part of the execution of the scheme [to defraud] as conceived by the

perpetrator at the time” satisfies the third element. Schmuck v. United States,

(1989).

14

To sue under RICO, a plaintiff must also establish that the underlying § 1962

RICO violation was “the proximate cause of his injury.” UFCW Local 1776 v. Eli

Lilly & Co.,

(2d Cir. 2010). This means that there must be some

“direct relation between the injury asserted and the injurious conduct alleged.”

Holmes v. Sec. Inv’r Prot. Corp.,

(1992).

Empire contends that the district court erred in two principal respects.

First, the court should have considered the smuggling operation to be a single

scheme to defraud, rather than disaggregate it into three separate ones. Second,

Empire argues that the district court erred in holding that the wire fraud–RICO

predicate acts did not proximately cause its injuries. For the reasons that follow,

we agree with Empire on the first issue but disagree on the second.

A

At the start, the parties disagree about how we should characterize the

alleged scheme to defraud. Again, the district court disaggregated the

smuggling operation into three different schemes: one to deprive New York State

of tax revenue, another to violate New York liquor licensing laws, and the third to

interfere with Empire’s sales. For the following reasons, we disagree as to this

characterization of the allegations in Empire’s Amended Complaint.

15

As Empire observes, it alleged one smuggling operation, not three. Just

because this scheme had three effects — tax evasion, violation of New York’s liquor

licensing laws, and interference with contract — does not mean that there were

three different schemes. Smuggling constitutes a “scheme to defraud” because

“its sole purpose is to conceal what the smuggler is carrying.” A. Terzi Prods., Inc.

v. Theatrical Protective Union,

(S.D.N.Y. 1998) (Sotomayor, J.);

see also Pasquantino,

. It does not matter which laws the smugglers

break, nor does it matter who is harmed. See Trapilo,

n.3; A. Terzi

Prods.,

.

We conclude that Empire adequately alleged a smuggling scheme, thus

satisfying the first element of wire fraud. We also agree with the district court

that Empire satisfied the third element of wire fraud because the Amended

Complaint lists “dozens of specific wire communications allegedly made by

defendants.” Empire,

, at *7. And at least as to New York

State’s tax revenue, Empire sufficiently alleged that money or property was the

object of this scheme. See Pasquantino,

(noting that smuggling

scheme to conceal imported liquor from Canadian officials constituted a scheme

or artifice to defraud Canada of “taxes due on the smuggled goods” under the wire

16

fraud statute). The district court held that Empire had not adequately alleged

smuggling to deprive New York State of tax revenue on the theory that Empire

“disclaim[ed] any reliance on defendants’ tax evasion in its RICO allegations.”

Empire,

, at *8 (emphasis removed). But this was error. Under

RICO, “a person can be injured ‘by reason of’ a pattern of mail [or wire] fraud even

if he has not himself relied on any misrepresentations.” Bridge v. Phoenix Bond &

Indem. Co.,

, 654–55 (2008); see also Hemi Grp., LLC v. City of New York,

N.Y.,

(2010) (plurality opinion).7

B

That brings us to the issue of proximate cause. The Supreme Court held in

Holmes that a plaintiff suing under RICO must establish that the RICO offense was

the “proximate cause” of the plaintiff’s injuries.

. “Proximate

cause . . . requires ‘some direct relation between the injury asserted and the

injurious conduct alleged,’” and “[a] link that is ‘too remote,’ ‘purely contingent,’

7 To be clear, Empire’s Amended Complaint also alleges that its own lost sales were an “object of the scheme.” We are skeptical that “lost sales” in this context can constitute an object of the scheme, however, because the “object of the fraud” must be “‘property’ in the victim’s hands,” and “[i]t does not suffice . . . that the object of the fraud may become property in the recipient’s hands.” Cleveland,

(emphasis added). But our analysis of proximate cause and thus the merits of the case do not turn on this issue, so we decline to resolve it.

17

or ‘indirec[t]’ is insufficient.” Hemi,

(plurality opinion) (quoting

Holmes,

). We thus rarely “go beyond the first step” when

assessing causation under civil RICO.

at 10 (quoting Holmes,

).

And “[w]hat falls within that ‘first step’ depends in part on . . . an assessment ‘of

what is administratively possible and convenient.’” Bank of Am. Corp. v. City of

Miami, Fla.,

(2017) (quoting Holmes,

). Relevant

administrative difficulties in the civil RICO context include, among other factors:

 whether it would difficult to determine how much the tortious conduct injured the defendant, as compared to other factors; and

 whether more directly injured victims would be better suited as plaintiffs.

See Hemi, 559 U.S. at 11–12, 14–15 (plurality opinion); Bridge, 553 U.S. at 654–55;

Anza, 547 U.S. at 458–60; Holmes,

, 269–70.

The Supreme Court’s civil RICO jurisprudence helps elucidate these

principles. In Holmes, insurers alleged that stock manipulators’ tortious conduct

proximately caused their injuries because the insurers had to pay for their

customers’ losses. The Supreme Court held that this causal chain was too indirect

because the fraud harmed the insurers “only insofar as the stock manipulation first

injured the broker‐dealers.” Holmes,

. In Anza, the Court held

that a business could not sue a tax‐evading competitor, even though this tax‐

18

dodging made it possible for the competitor to undercut the plaintiff on prices.

The Court reasoned that it would be difficult to determine how much of the price

drop was attributable to the tax‐dodging and how many customers were lost

because of the price drop, and further that the state government deprived of tax

revenue was a more “immediate victim[].” Anza, 547 U.S. at 458–60. And in

Hemi, a plurality of the Court held that New York City could not sue a cigarette

company for failing to provide details of its sales to New York State, even though

this failure made it harder for the City to pursue tax evaders. This causal

connection was too indirect because it was tax evasion, not the failure to keep the

State apprised of sales data, that harmed the City, and because the State was

“better situated than the City” to sue. Hemi, 559 U.S. at 11–12 (plurality opinion).

Empire relies heavily on Bridge, the sole case in which the Supreme Court

has discussed proximate causation in the civil RICO context and found it to be

adequately alleged. That case involved competitors who bid on auctioned tax

liens. When two bids were equal, the county would mechanically allocate liens

“on a rotational basis” between the tying bidders. Bridge,

. The

plaintiffs alleged that the defendants had manipulated this “rotational” system by

submitting multiple bids, guaranteeing them more successful bids than they were

19

allowed. The Court held that the plaintiffs’ “loss of valuable liens” was “the

direct result” of the fraud because there were “no independent factors that

account[ed] for [the plaintiffs’] injury,” nor was there a “more immediate victim []

better situated to sue,” as the county was not financially injured by the fraud.

.

Empire asserts that its proximate cause theory is straightforward and like

that in Bridge: it alleges that every crate of every Empire‐exclusive brand smuggled

into New York cost it a sale. We disagree. As in Anza and Hemi, and unlike

Bridge, Empire has not and cannot allege that the asserted racketeering activity

directly caused its injury. This is so for three principal reasons: (1) Empire was

harmed by the New York retailers’ decisions to purchase less alcohol from Empire,

which is not itself racketeering activity; (2) the asserted causal relationship

between the alleged racketeering and retailers’ decisions to purchase less alcohol

from Empire is intricate and uncertain, as in Anza and Hemi, and not Bridge; and

(3) New York State is a better situated plaintiff that was more directly harmed by

the defendants’ alleged racketeering.

First, just like in Anza, “[t]he cause of [Empire’s] asserted harms . . . is a set

of actions [(not buying Empire liquor)] entirely distinct from the alleged RICO

20

violation [(smuggling liquor into New York)].”

; see also Amsterdam

Tobacco Inc. v. Philip Morris Inc.,

(S.D.N.Y. 2000) (holding

that “the ‘but for’ cause” of a tobacco manufacturer’s lost sales, in a case similar to

this one, “was, among other things, the smuggling activity and the decision by New

York consumers not to purchase cigarettes from Plaintiffs” (emphasis added)).

Perhaps the smuggling operation led New York retailers to purchase less liquor

from Empire, but the decisions of these various retailers not to purchase Empire’s

liquor were not themselves acts of racketeering. See Hemi,

(plurality

opinion) (explaining that “the compensable injury flowing from a RICO violation

. . . necessarily is the harm caused by the predicate acts” (quoting Anza,

) (emphasis added) (brackets and internal quotation marks omitted)).

Empire’s theory of causation thus requires us to “go beyond the first step” in the

causal chain. Id. at 10.8

8 In D’Addario v. D’Addario, we held that a plaintiff may recover damages equal to the direct harm suffered plus any “related [] expenses” that the plaintiff incurred “to halt [the defendant’s] wrongdoing.” No. 17‐1162‐CV,

, at *11 (2d Cir. Aug. 14, 2018). But this part of D’Addario concerned only the damages that an otherwise directly injured plaintiff may recover. See

(holding that the plaintiff established proximate cause because the defendant’s RICO violations directly “destroyed the value” of the plaintiff’s estate). D’Addario did not, by contrast, purport to alter the Supreme Court’s proximate cause jurisprudence for civil RICO. See

(citing, in support of its reasoning, Bankers Tr. Co. v. Rhoades,

(2d Cir. 1988), and Stochastic Decisions, Inc. v. DiDomenico,

(2d Cir. 1993), which both concerned the

21

Second, “the predicate act of [smuggling] and the separate act of [not buying

Empire’s liquor] do not necessarily follow from one another,” Reply Br. 10 n.4

(emphasis added), as was true in Bridge. Empire’s “lost sales could [thus] have

resulted from factors other than petitioners’ alleged acts of fraud.” Anza,

. For example, Reliable suggests that Empire might “have lost sales due to

bootlegging from states with even lower alcohol excise taxes.”9 Reliable Br. 20.

Or various retailers might have purchased wine, beer, or a brand of liquor not

subject to Empire’s exclusive distribution contracts to offer something new to

consumers or to respond to changes in consumer tastes.

scope of RICO damages, not proximate cause); see also Hemi,

(plurality opinion) (holding that courts should not “go beyond the first step” in causal analysis) (quoting

U.S. at 271–72). 9 Thus, suppose that in 2009, a New York retailer calculated per‐bottle profits from Empire Johnnie Walker, smuggled Johnnie Walker from Reliable, and smuggled Johnnie Walker from New Hampshire distributors at $1/bottle, $3/bottle, and $2/bottle, respectively:

Empire Reliable New Hampshire Johnnie Walker Johnnie Walker Johnnie Walker $1 profit/bottle $3 profit/bottle $2 profit/bottle

A rational retailer would buy Reliable Johnnie Walker over the other two options. But if the defendants had not smuggled Maryland liquor to New York, the retailer would have purchased smuggled Johnnie Walker from New Hampshire, not Empire’s legal Johnnie Walker. In this scenario, Empire would have lost Johnnie Walker sales no matter what the defendants did, which means that the smuggling did not necessarily cause its injuries.

22

The causal connection in this case is thus far less certain than that in Bridge

where, thanks to the “zero‐sum nature of the auction,” the fraud “necessarily”

deprived the plaintiffs of sales. See Hemi,

(plurality opinion)

(emphasis added). Here, though Empire was New York State’s exclusive lawful

distributor for many brands, the market was far from “zero‐sum.” Sorting out

Empire’s counterfactual sales in this scenario would thus prove “speculative in the

extreme.” Canyon Cty. v. Syngenta Seeds, Inc.,

(9th Cir. 2008).

As the Court recognized in Anza, “[b]usinesses lose and gain customers for many

reasons . . . .”

.

To be sure, Empire’s Amended Complaint alleges a straightforward causal

connection (albeit conclusorily) and in the pleadings phase, we ordinarily accept

well‐pled allegations as true, notwithstanding possible alternative causal

explanations. But in the RICO context, “[t]he element of proximate causation . . .

is meant to prevent these types of intricate, uncertain inquiries from overrunning

RICO litigation.” Anza,

. That is why the Supreme Court

engaged in this exact same kind of counterfactual reasoning at the pleadings stage

in Anza, even though the dissent criticized the majority for doing so. See

at

458–60;

(Thomas, J., concurring in part and dissenting in part) (“[U]nder

23

the facts as alleged . . . [the defendant] did not generally lower its prices, so the

Court need not inquire into ‘any number of reasons’ that it might have done so.”

(internal citation omitted)); see also Canyon Cty.,

n.12 (“[C]ourts

need not allow RICO plaintiffs leeway to continue on with their case in an attempt

to prove an entirely remote causal link.”). And the Supreme Court has suggested

that there is an even greater need to apply this kind of skepticism “to claims

brought by economic competitors” because such claims, “if left unchecked, could

blur the line between RICO and the antitrust laws.” Anza,

.

Finally, New York State was a more direct victim of the smuggling

operation. See, e.g., J.A. 174 (alleging that the Defendants’ scheme “deprived

New York State . . . of tens of millions of dollars in tax revenue”). The Supreme

Court has repeatedly affirmed that the availability of “a more immediate victim

[that] is better situated to sue” cuts against finding proximate cause. Bridge,

; see also Hemi, 559 U.S. at 11–12 (plurality opinion); Anza, 547 U.S. at

458–60;

U.S. at 269–70. Not only does New York State have every

“incentive to sue,” Hemi,

(plurality opinion), it is also a more immediate

victim. New York State lost tax revenue by virtue of the untaxed liquor crossing

the border because the tax avoidance deprived it of its right “to collect money from

24

petitioners,” which is itself a form of property. Pasquantino,

.

And it was this tax avoidance that gave New York retailers the incentive to buy

and ship the bootlegged liquor in the first place. Had they paid New York’s

excise taxes, the smuggling operation would not have been profitable and thus

never would have happened. See J.A. 204 (alleging that the smuggling scheme

“was predicated” on tax avoidance). This case is thus just like Anza: the

defendants did not pay taxes, and they “us[ed] the proceeds from [this] fraud” to

undercut the plaintiff’s sales. 547 U.S. at 457–58.

Adjudicating New York’s claims would also be more “straightforward”

than adjudicating Empire’s.

. “[W]hile it may be difficult to determine

facts such as the number of sales [Empire] lost due” to the smuggling operation,

as explained above, “it is considerably easier to make the initial calculation of how

much tax revenue the [defendants] withheld from the State.” Id.; see also Bridge,

(holding that the defrauded bidder, not the county, was the most

directly injured because the county’s injuries were at best “speculative and

remote”). New York State can “be counted on to vindicate the law . . . without

any of the problems attendant upon suits by plaintiffs injured more remotely,”

Holmes, 503 U.S. at 269–70, and so there is “no need to broaden the universe of

25

actionable harms to permit [a] RICO suit[]” in this case, Anza,

; see

also Sybersound Records, Inc. v. UAV Corp.,

, 1148–49 (9th Cir. 2008)

(concluding that a plaintiff had not established proximate cause based on (1) the

difficulty in ascertaining causation and (2) the existence of a more immediate

victim of the racketeering); James Cape & Sons Co. v. PCC Const. Co.,

,

403–04 (7th Cir. 2006) (same).10

C

Empire makes four counterarguments in response, none of which we find

persuasive. First, Empire maintains that it was the “foreseeable[] and intended

target” of the defendants’ racketeering, “as opposed to an accidental or incidental

one.” Pl.‐Appellant Br. 43. Yet foreseeability and intention have little to no

import for RICO’s proximate cause test. As the Hemi plurality explained, “the

dissent [in Anza] criticized the [Anza] majority’s view for ‘permitting a defendant

to evade liability for harms that [were] not only foreseeable, but the intended

consequences of the defendant’s unlawful behavior.’ But the dissent there did

not carry the day . . . .” Hemi,

(plurality opinion) (internal citations,

New York City is presumably as well situated as New York State, but none of 10

the parties discuss its status as a potential plaintiff.

26

brackets, and emphasis omitted) (quoting Anza,

(Thomas, J.,

concurring in part and dissenting in part)); see also Anza,

(“A RICO

plaintiff cannot circumvent the proximate‐cause requirement simply by claiming

that the defendant’s aim was to increase market share at a competitor’s expense.”).

To be sure, this Circuit used to place great weight on foreseeability and

intent in our RICO proximate cause jurisprudence, and we relied heavily on both

in Ideal Steel Supply Corp. v. Anza,

(2d Cir. 2004). The Supreme Court

then reversed us, see Anza,

, and declined to mention either factor.

See Hemi,

(plurality opinion) (“[I]n the RICO context, the focus is on

the directness of the relationship between the conduct and the harm. Indeed,

Anza and Holmes never even mention the concept of foreseeability.”) 11 ; see also

11 Though Chief Justice Roberts wrote only for four Justices in Hemi, only three Justices dissented. Justice Sotomayor took no part in the consideration or decision of the case, and Justice Ginsburg concurred in the result while declining to “subscrib[e] to the broader range of the Court’s proximate cause analysis.”

(Ginsburg, J., concurring in part and concurring in the judgment). It is thus not clear whether Justice Ginsburg disagreed with the plurality’s analysis or merely declined to express a view. But regardless of whether there was a 4–3 majority or a 4–4 split on the relevance of intent and foreseeability in RICO’s proximate cause jurisprudence, we find the plurality’s interpretation of Anza and Holmes compelling. See also

(Breyer, J., dissenting) (“[S]ome of our opinions may be read to suggest that [proximate cause] in RICO do[es] not perfectly track common‐law notions of proximate cause.”).

27

Gregory P. Joseph, Civil Rico: A Definitive Guide 56 (3d ed. 2010) (“The requirements

of RICO causation are stricter than those for common‐law torts.”).12

Second, Empire argues that it was more directly injured than New York

State because “the government lost tax revenue only because Empire lost sales that

would have generated that revenue.” Reply Br. 7. This is incorrect. As

explained above, New York State’s “entitlement to tax revenue” is a property

interest, and so it was deprived of that interest when Reliable directed its sales to

New York without paying the New York excise taxes. See Pasquantino,

. Empire, by contrast, alleged that it was injured because it would have sold

more liquor but for the smuggling operation. These hypothetical lost sales are

thus far less direct than defendants’ abrogation of New York State’s property

interest.13

Third, Empire claims that it “seeks recovery for its own unique injury (stolen

sales), not for unpaid taxes,” and it is clearly therefore the most “directly injured

victim[].” Reply Br. 17. But this just shows that Empire’s injury is distinct from

Our recent opinion in D’Addario, which refers — in passing — to RICO’s 12

“familiar ‘proximate cause’ standard,” is not to the contrary.

, at *11. 13 Empire at one point suggests in its opening brief that the smuggling “devalued its exclusive distribution contracts,” Pl.‐Appellant Br. 41, but again, its sole allegation of injury was that the smuggling operation caused it to lose sales.

28

New York’s, not that its injury was directly caused by the defendants’ racketeering.

Indeed, the plaintiffs in Anza also allegedly lost sales, but the Supreme Court still

determined that New York was the most “immediate victim[]” of the defendants’

racketeering scheme. See Anza,

.

Fourth, Empire appears to contend that we should disregard, or at least pay

little attention to New York’s injury when assessing whether Empire was directly

injured. Otherwise, Empire suggests, we would “leave[] no space for private

RICO claims arising out of conduct that injures the government as well as a private

party.” Reply Br. 19. This would cripple civil RICO, Empire adds, because

“over a dozen RICO predicates necessarily harm the government.” Id. at 9. But

as in Bridge, private plaintiffs may still sue if their injuries are sufficiently direct.

That is just not the case here.

Indeed, to the extent that Empire’s argument sounds familiar, it is because

we took a very similar position in City of New York v. Smokes‐Spirits.com, Inc.,

(2d Cir. 2008). See

(“Although the State may also seek to sue to

vindicate the law, the City should not have to rely on the State to enforce the RICO

laws, where the City’s injury in the form of lost taxes is no less direct than any

comparable injury of the State.”). But the Supreme Court then reversed us in

29

Hemi, holding that, no matter how the plaintiff characterized the injury, the State

was still “better situated” to sue. See

(plurality opinion).

Likewise, the dissent in Anza argued that New York State’s direct injury should

not preclude a competitor from also bringing suit, but the majority rejected this

view. Compare Anza,

(Thomas, J., concurring in part and

dissenting in part) (criticizing the majority for holding that New York’s status as

“a direct victim” precluded the plaintiff corporation from asserting that it was as

well), with

(majority opinion) (“If the [plaintiff’s] allegations are true,

[New York] can be expected to pursue appropriate remedies. . . . There is

[therefore] no need to broaden the universe of actionable harms to permit RICO

suits by [private] parties who have been injured only indirectly.”). Accordingly,

Empire did not adequately allege proximate cause for its RICO claim predicated

on wire fraud.

D

Empire argues in the alternative that the district court should have granted

it to leave to amend so that it could “supplement[] its complaint with additional

factual allegations . . . highlighting the direct link . . . between the [smuggling] and

Empire’s injuries” and “rebutting the district court’s unfavorable inferences.” Pl.‐

30

Appellant Br. 57. But it “already had one opportunity to amend [its] complaint,”

and its opening brief “identified no additional facts or legal theories . . . [it] might

assert if given leave to amend” that would alter our proximate cause analysis.

City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG,

(2d Cir.

2014). Indeed, none of its proposed additions speak to the directness of its theory

of harm. In short, the district court did not err in denying leave to amend. See

In re Aluminum Warehousing Antitrust Litig.,

(2d Cir. 2016)

(affirming the district court’s denial of leave to amend because the “alleged

injuries [were] too remote”).

III

Empire also appeals from the district court’s dismissal of its RICO

conspiracy claim and its RICO claim, as predicated on mail fraud, money

laundering, and violations of the Travel Act. But Empire’s theory of causation

for each of these predicates is the same as that for its wire fraud–based RICO claim:

the mail fraud, money laundering, and Travel Act violations helped the

defendants smuggle liquor to New York, which in turn caused Empire to lose

sales. We therefore conclude that Empire failed adequately to allege that these

31

predicate acts of racketeering proximately caused its injuries for the same reasons

explained above.14

CONCLUSION

For the foregoing reasons, we AFFIRM.

14 As we affirm the district court’s dismissal on proximate cause grounds, we do not reach Reliable’s or LTT’s alternative arguments in support of affirmance.

32