Justices take RICO lawsuit about online tobacco sales (May 4, 2009)

The Supreme Court has agreed to rule on a city’s right to sue under federal anti-racketeering law for a failure to pay city taxes.

In 2003, New York City filed four lawsuits charging that online vendors who sell tax-free cigarettes violated the Jenkins Act, which requires businesses to report out-of-state tobacco sales to state tax authorities by marketing their product as tax-free.

Two years later, Judge Deborah Batts of the U.S. District Court for the Southern District of New York dismissed the racketeering claims and state claims based on common law fraud, New York state’s consumer fraud statute, General Business Law §349 and public nuisance claims against the sellers.

She gave the city leave to refile on the racketeering claims, which city attorneys did, however Batts dismissed the case in 2006.

In September 2008, a divided three-judge panel on the 2nd U.S. Circuit Court of Appeals in New York ruled that New York did have standing to sue under federal racketeering statutes.

Hemi Group LLC, a New Mexico-based business, and Kai Gachupin, an individual named in one of the lawsuits, appealed to the high court.

On May 4, 2009, the Supreme Court agreed to review the case. The justices will hear arguments when during the fall term, which begins Oct. 5.

Question presented: Whether city government meets the Racketeer Influenced and Corrupt Organizations Act standing requirement that a plaintiff be directly injured in its “business or property” by alleging non commercial injury resulting from non payment of taxes by non litigant third parties.