herein is whether a former employee, compensated in part on a
percentage basis of the company's sales and pre-tax profits,
has standing to assert a private RICO action against defendants
who, by allegedly forming a RICO enterprise, operated three
schemes in violation of 18 U.S.C. § 1962 which purportedly
reduced a company's commissions and pre-tax profits as well as
the plaintiff's professional status by forcing him to step down
as the president of that company.
In order to maintain a private RICO action "a plaintiff must
show (1) a violation of section 1962; (2) injury to business or
property; and (3) causation of the injury by the violation."
Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 23 (2nd
Cir. 1990) (citing O'Malley v. O'Neill, 887 F.2d 1557, 1561
(11th Cir. 1989). cert. denied,___ U.S. ___, 110 S.Ct. 2620,
110 L.Ed.2d 641 (1990)). The motions in this case are directed
to the lack of causation. See Sedima, S.P.R.L. v. Imrex Co.,
473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985)
(the plaintiff must show injury "by the conduct constituting
the violation"). It is imperative that the plaintiff show that
he was injured by the conduct constituting the violation
because "[a] defendant who violates section 1962 is not liable
for treble damages to everyone he might have injured by other
conduct.'" Sedima, supra, 473 U.S. at 496, 105 S.Ct. at 3285
(quoting Haroco, Inc. v. American National Bank & Trust Co. of
Chicago, 747 F.2d 384, 398 (7th Cir. 1984), aff'd,
473 U.S. 606, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985)). In this way, the
standing section of the statute, section 1964(c), which allows
private civil RICO suits to be brought only by "[a]ny person
injured in his business or property by reason of a violation of
section 1962," is directly intertwined with the causation
The injury must be caused by a pattern of racketeering activity
violating section 1962 or by individual RICO predicate acts.
See Hecht, 897 F.2d at 23; Bankers Trust Co. v. Rhoades,
859 F.2d 1096, 1100 (2d Cir. 1988), cert. denied, ___ U.S.
___, 109 S.Ct. 1642, 104 L.Ed.2d 158 (1989). However, "factual
causation (e.g., `cause-in-fact' or `but for' causation) is not
sufficient" by itself Hecht, supra, 897 F.2d at 23, see
Department of Economic Development v. Arthur Anderson & Co., et
al., No. 85 Civ. 1292 (CES), 1990 U.S. Dist. LEXIS 67
(S.D.N.Y. Jan. 8, 1990) ("The Second Circuit has asserted that
legal liability under RICO does not extend as far as factual
causation, only proximate causation."). The RICO pattern or
acts must proximately cause plaintiff's injury. Hecht, supra,
897 F.2d at 23 (citing Sperber v. Boesky, 849 F.2d 60, 64 (2d
Cir. 1988)). For the RICO pattern or acts to proximately cause
a plaintiff's injury, they must be "a substantial factor in the
sequence of responsible causation, and . . . the injury [must
be] reasonably foreseeable or anticipated as a natural
consequence." Hecht, 897 F.2d at 23-24 (citing Bonsignore v.
City of New York, 683 F.2d 635, 637 (2d Cir. 1982);
Restatement (Second) of Torts §§ 431, 435 comment b (1965)).
Defendants argue that Miller does not have standing to assert a
RICO action "because the predicate acts of fraud and extortion
that he has attempted to plead were not `directed at him.'"
Memorandum of the Helmsley Defendants in Support of Their
Motion to Dismiss the Complaint ("Dfts. Memo."), at 8 (quoting
Burdick v. American Express Co., 865 F.2d 527, 529 (2d Cir.
1989)). The predicate acts alleged by Miller are: (1)
extortion, in violation of New York law and the Hobbs Act.
18 U.S.C. § 1951; (2) mail fraud, in violation of 18 U.S.C. § 1341;
and, (3) wire fraud, in violation of 18 U.S.C. § 1343.
Complaint ¶ 27. The defendants argue that even if the
plaintiff's "far-fetched allegations" are true, Miller lacks
standing because the conduct complained of allegedly was
intended to harm and had the consequence of injuring BHS and/or
Mr. Helmsley and/or the IRS, not Miller. Defendants claim that
Miller's injury is at best derivative of the injury to BHS, to
whom the fraud was directed, and thus too remote to confer
standing. Thus, the defendants assert that while Miller may be
able to demonstrate factual causation, he has not established
and cannot establish the requisite proximate cause, and
therefore the RICO claims should be dismissed. We will proceed
to examine the relevant case authority before we consider
Miller's specific claims.
Since the parties submitted their memoranda of law, the Second
Circuit decided Hecht v. Commerce Clearing House, Inc.,
897 F.2d 21, 23 (2nd Cir. 1990), which we believe is completely on
point. In Hecht, the court of appeals affirmed the trial
court's holding that the plaintiff lacked standing to assert a
civil RICO action despite his allegations that: (1) defendants'
racketeering conduct proximately caused him to lose not only
his job but also business commissions; and (2) that an overt
act in furtherance of defendants' RICO conspiracy was his
discharge from employment. Id. at 23. We believe that Hecht
provides direct support for the defendants' argument and, in
combination with the other cases cited by the defendants and
upon which the Hecht court relied, is dispositive of the
standing issue in this case.
In Hecht, the plaintiff argued that because he would not go
along with the fraudulent practices of his employer directed at
customers of the company, he lost commissions as well as his
job. 897 F.2d at 22-23. With regard to Hecht's first claim,
that the defendants' racketeering conduct caused him to lose
commissions, the Second Circuit stated:
[t]his injury is too speculative to confer standing, because
Hecht only alleges that he would have lost commissions in the
future, and not that he had lost any yet. Even assuming that
Hecht actually lost commissions. we hold that his injury was
not proximately caused by violations of section 1962(c).
Id. at 24 (emphasis added). This holding was founded upon the
Because Hecht was "neither the target of the racketeering
enterprise nor the competitor nor the customer of the
racketeer[s]," the injury to Hecht from customers' deciding to
cancel subscriptions or to withdraw business upon discovering
the frauds was not reasonably foreseeable as a natural
consequence of the RICO violations.
897 F.2d at 24 (quoting Sperber v. Boesky,