Justices rule on RICO lawsuit about online tobacco sales (Jan. 25, 2010)
The Supreme Court held today that a city does not have the 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 Jan. 25, 2010, the Supreme Court reversed and remanded the lower court order in an opinion by Chief Justice John Roberts.
The city's lost taxes "were not caused directly by the alleged fraud," Roberts wrote in a majority opinion joined by Justices Antonin Scalia, Clarence Thomas and Samuel Alito and joined in part by Justice Ruth Bader Ginsburg.
In a dissenting opinion, Justice Stephen Breyer wrote that the city's revenue loss "falls squarely within the bounds of the kinds of harm that the Jenkins Act seeks to prevent."
"The statute is entitled 'An Act To assist States in collecting sales and use taxes on cigarettes,'" the justice noted.
Justice Sonia Sotomayor did not take part in the case because she had participated previously as an appellate judge on the 2nd Circuit.
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.