Antitrust Law Daily Wrap Up, RICO—SDFla: Wine Collector’s RICO Claim Against Wine Merchants Dismissed for Lack of Proximate Causation, (Dec 6, 2012)

By Tobias J. Gillett, J.D., LLM.

A wine collector failed to state a RICO claim against a wine importer and its principals over alleged sales of counterfeit wines because his claim lacked proximate causation, the federal district court in West Palm Beach, Florida has ruled (Koch v. Royal Wine Merchants, Ltd., December 5, 2012, Hurley, D.).

The wine collector, William I. Koch, alleged that the defendant wine importer, Royal Wine Merchants, Ltd., and its principals, Daniel Oliveros and Jeff Sokolin, engaged in a scheme to import and sell counterfeit wine. The importer allegedly worked with a counterfeiter who attached fake labels to old bottles, after which the importer would market the wine throughout the United States. The collector alleged that, while he did not purchase any wine directly from the importer, he did buy wine from third parties who relied on the importer’s representations regarding the provenance of the wine. Moreover, he claimed that he also relied on the counterfeit labels when purchasing the wine.

The collector brought suit, asserting a range of claims against the importer and its principals, including RICO and RICO conspiracy claims. The defendants filed a motion to dismiss.

The court began by noting that under 18 U.S.C. § 1964(c) a plaintiff must show both an injury to “business or property,” and also the “such injury was by reason of the substantive RICO violation.” This second requirement requires a plaintiff to show that the alleged violation was both the “but for” and proximate cause of the injury.

The plaintiff contended that the proximate cause requirement should be interpreted as asking whether the RICO predicate act was a “substantial factor in the sequence of responsible causation” leading to the injury. The court disagreed, citing the Supreme Court’s 2010 decision in Hemi Grp., LLC v. City of New York, N.Y., 130 S.Ct. 983, which had found that, while at common law both direct relationship and foreseeability were among the “many shapes” proximate cause adopted, “in the RICO context, the focus is on the directness of the relationship between the conduct and the harm.” The Supreme Court specifically rejected a foreseeability-based approach to proximate causation.

The court then listed a series of questions the Supreme Court had identified in its 1992 decision in Holmes v. Sec. Investor Protection Corp., 503 U.S. 258, as useful for guiding the proximate causation analysis. These included “whether it is difficult to determine the amount of damages attributable to the defendant’s wrongful conduct as opposed to independent factors,” “whether recognizing the plaintiff’s claims would force [the court] to adopt complicated rules apportioning damages among plaintiffs removed at different levels of injury from the violative acts” to prevent multiple recoveries, and “whether directly injured victims can be counted on to vindicate the law as private attorneys general,” without the problems associated with lawsuits by more remote plaintiffs.

Difficulty of Apportioning Damages

The wine collector had purchased the wine at issue from several sources, including an auction house that had acquired the wine from an individual who had acquired it from the defendants. In other cases, the wine collector was unable to demonstrate how his sources acquired the wine from the defendants. The court answered the Supreme Court’s first question by finding that it would have difficulty apportioning responsibility for the wine collector’s injury between the defendants and independent factors.

The court identified a number of factors that would render apportionment difficult, including the reputation of intervening sellers; the fact that at least one intervening seller may have tested the wine prior to sale; the number of intervening third parties that might bear some responsibility where the wine collector did not identify all steps the wine had taken in reaching him; the fact that the wine collector purchased many bottles at auction, where prices can fluctuate wildly; whether market forces had caused certain vintages to appreciate or depreciate after the defendants sold them; and the promotional activities surrounding the wine sales.

Risk of Multiple Recoveries

The court also found that the RICO claim posed considerable risk both that the defendants “would be subject to multiple claims” and that the wine collector “could recover against multiple parties. The court noted the Supreme Court’s statement that “[t]he general tendency of the law, in regard to damages at least, is not to go beyond the first step.”

The court observed that the initial purchasers of the wine could bring claims against the defendants, and that they could “be subject to recoveries at each step along a sequence of sales and resales.” Moreover, nothing would prevent the wine collector from recovering both against his direct sources and indirectly against the wine importer and its principals.

Whether Directly Injured Victims Will Likely Vindicate the Law

The court concluded that more directly injured victims would likely be motivated to enforce the RICO law, and hence that “RICO’s goal of deterrence does not justify addressing a claim so indirect as the one” the wine collector had asserted. Third parties had purchased far more wine than the collector had, and had purchased it directly from the importer. Moreover, those claims would not present the same difficulties regarding multiple recoveries and attribution of responsibility that the collector’s suit did.

Therefore, after weighing the Supreme Court’s factors, the court concluded that the wine collector’s RICO claim lacked proximate causation, and hence dismissed his RICO and RICO conspiracy claims.

The case is No. 11-81197-CV-Hurley/Hopkins.

Abigail Corbett (Stearns Weaver Miller Weissler Alhadeff & Sitterson) for William I. Koch. Sam P. Israel for Royal Wine Merchants, Ltd.

Cases: RICO FloridaNews