No. 08-969

~IN THE

SUPREME COURT OF THE UNITED STATES

HEMI GROUP, LLC, and KAI GACHUPIN,

Petitioners,

CITY OF NEW YORK,

Respondent.

ON PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF IN OPPOSITION TO PETITION

MICHAEL A. CARDOZO,Corporation Counsel of the

City of New York,Attorney for Respondent,100 Church Street,New York, New York 10007.(212) 788-1033 or 1010(telephone)(212) 791-9716 (facsimile)

LEONARD J. KOERNER,*

ELIZABETH SUSAN NATRELLA,

ERIC PROSHANSKY,of Counsel.

*Counsel of Record

April 3~ 2009

QUESTION PRESENTED

Does State government and its subdivisionshave standing under RICO because lost taxrevenue may constitute an injury to "business orproperty" in accord with the statute and relevantauthority?

TABLE OF CONTENTS

P ag_�_

QUESTION PRESENTED ........................................ i

TABLE OF AUTHORITIES .................................... iii

COUNTER-STATEMENT OF THE CASE .............1

Background & Litigation History ............................2

The District Court’s Orders ......." ...............................7

The Order of the CircuitCourt of Appeals ...................................................8

REASONS FOR DENYING THE PETITION .......11

THE SECOND CIRCUIT CORRECTLYDETERMINED THAT THE CITY HASSTANDING TO BRING A RICO CLAIMBASED ON DIRECT INJURY TO"BUSINESS OR PROPERTY" DUE TOFRAUDULENT BUSINESS SCHEMESDESIGNED TO DEPRIVE THE CITY OFTAX REVENUES AND RESULTING INSUCH LOST TAXES.

THE CASES PETITIONERS RELY ONINVOLVE VERY DIFFERENTFACTUAL BASES OF AMORPHOUSINJURIES SUCH AS ADDITIONALPUBLIC EXPENDITURES OR LOSTEMPLOYEE SALARIES.

CONCLUSION .......................................................21

ii

TABLE OF AUTHORITIES

Cases Page

Anza v. Ideal Steel Supply Corp.,547 U.S. 451 (2006) ............................10, 16, 18

Att’y Gen. of Can. v. R.J. Reynolds TobaccoHoldings, Inc.,268 F.3d 103 (2d Cir. 2001),cert. denied, 537 U.S. 1000 (2002) .............9, 12

Bridge v. Phoenix Bond & Indemnity Co.,553 U.S. __, 128 S.Ct. 2131 (2008) ...............20

Brotherhood of Locomotive Firemen & Enginemenv. Bagnor & Aroostock R. Co.,389 U.S. 327 (1967) ........................................ 18

City of New York v. Cyco. net, Inc.,383 F.Supp.2d 526 (S.D.N.Y. 2005),vacated in part by City of New Yorkv. Smokes-Spirits.corn, Inc.,541 F.3d 425 (2d Cir. 2008) .........................7, 8

City of New York v. Nexicon, Inc.,2006 U.S. Dist. LEXIS 10295(S.D.N.Y. 2006) .................................................8

City v. Smokes-Spirits.corn, Inc.,541 F.3d 425 (2d Cir. 2008),reh. & reh. en banc denied,__F.3d (2d Cir. 2008) ....................................8

iii

Fountain v. United States,357 F.3d 250 (2d Cir. 2004),cert. denied, 544 U.S. 1017 (2005) ............10, 15

Hamilton-Brown Shoe Co. v. Wolf Bros. & Co.,240 U.S. 251 (1916) ........................................18

Holmes v. Sec. Investor Prot. Corp.,503 U.S. 258 (1992) ....................................4, 19

Illinois Dep’t of Revenue v. Phillips,771 F.2d 312 (Tth Cir. 1985) ...................10, 14

Michigan Dep’t of Treasury v. Fawaz,653 F.Supp. 141 (E.D. Mich. 1986),all’d, 848 F.2d 194, 1988 U.S. App. LEXIS6206 (6th Cir. 1988) (unpublished) ........... 12, 13

Pasquantino v. United States,544 U.S. 349 (2005) .......................................16

Sedima, S.P.R.L. v. Imrex Co.,473 U.S. 479 (1985) ...................................9, 19

Town of West Hartford v. Operation Rescue,915 F.2d 92 (2d Cir. 1990) ....... 9, 11, 12, 13, 17

Township of Marlboro v. Scannapieco,545 F.Supp.2d 452 (D.N.J. 2008) .............16, 17

United States v. Brewer,528 F.2d 492 (4th Cir. 1975) ..........................16

United States v. Bucey,876 F.2d 1297 (7th Cir.),cert. denied, 493 U.S. 1004 (1989) ...................16

iv

United States v. Dale,991 F.2d 819 (D.C. Cir.), cert. denied,510 U.S. 906 and 510 U.S. 1030 (1993) .........15

United States v. DeFiore,720 F.2d 757 (2d Cir. 1983),cert. denied, 466 U.S. 1241 (1984) ..........10, 16

United States v. Dray,901 F.2d 1132 (lst Cir.),cert. denied, 498 U.S. 895 (1990) ..................15

United States v. Helmsley,941 F.2d 71 (2d Cir. 1991),cert. denied, 502 U.S. 1091 (1992) ..............15

United States v. Porcell~,865 F.2d 1352 (2d Cir.),cert. denied, 493 U.S. 810 (1989) ............10, 15

West Virginia v. Moore,895 F.Supp. 864 (S.D.W.Va. 1995) ........16, 17

Statutes and Rules

The Jenkins Act,15 U.S.C. § 375 .................................................2

18 U.S.C. §§ 1341, 1343 ...........................................2

The Racketeer Influenced and CorruptOrganizations Act ("RICO"),18 U.S.C. § 1961 et seq ....................................1

18 U.S.C. §1962(c) .............................................4, 19

18 U.S.C. §1964 (c) .........................................4, 9, 13

V

Fed.R.Civ.P. 12(b)(6) ..........................................7, 18

Fed.R.App.P. 32.1 (b) ................................................14

Sixth Circuit Rule 28(g) ..........................................14

N.Y. General Business Law (G.B.L.) § 349 ............11

N.Y. Tax Law §§ 471, 471-a .....................................2

N.Y. Unconsol. Law § 9436(1) .................................2

N.Y.C. Admin. Code § 11-1302 .................................2

Other Authorities

S. Rep. No. 84-1147 (1955),reprinted in 1955 U.S.C.C.A.N. 2883 ..................3

vi

No. 08-969

IN THESUPREME COURT OF THE UNITED STATES

HEMI GROUP, LLC, and KAI GACHUPIN,

Petitioners,

CITY OF NEW YORK,

Respondent.

ON PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF IN OPPOSITION TO PETITION

COUNTER-STATEMENT OF THE CASE

Respondent, the City of New York ("theCity"), brought four civil actions under theRacketeer Influenced and Corrupt OrganizationsAct, 18 U.S.C. § 1961 et seq. ("RICO"), againstvarious defendant out-of-state cigarette retailers,including the instant petitioners, the Hemi Groupand Kai Gachupin ("petitioners"). The City allegesthat petitioners actively schemed to defraud theCity of tax revenues through the sale of cigarettesto City residents over the Internet. By refusing to

report purchases by City residents as requiredunder the Jenkins Act, see 15 U.S.C. § 375 et seq.,and advertising that concealment and representingthe cigarettes as "tax-free," petitioners commit mailand wire fraud, see 18 U.S.C. §§ 1341, 1343. As aresult, the City is unable to collect use taxes owedon the sales and petitioners have thus injured theCity of New York through lost tax revenues.

Background & Litigation History.

Taking advantage of New York Ci~ty’slegislative decisions to. maintain high cigaretteprices through imposed cigarette taxes, petitioners,situated in jurisdictions where negligible taxationyields low cigarette prices, use the Internet to selltheir low-priced wares to consumers in "high-tax"jurisdictions, including New York City. In essence,the economic foundation of petitioners’ businessoperations rests on tax evasion.

Specifically, New York State imposes a taxon all cigarettes used or sold in the State. See ]N.Y.Tax Law §§ 471, 471-a. New York State law alsoauthorizes the City of New York to impose its owntax on cigarettes. See N.Y. Unconsol. Law §9436(1). Pursuant to this authority, the Cityimposes a tax on all cigarettes possessed in the Cityfor sale or use. See N.Y.C. Admin. Code § 11-1302.In-state, these taxes are collected through the saleof tax stamps to in-state vendors. See N.Y. Tax Law§ 471. Out-of-state cigarette sellers, however, arenot responsible for collecting or paying New YorkState and City sales taxes on cigarettes.

to

Because such use taxes typically go unpaid,offset the loss of state taxes caused by the

2

interstate taxing discrepancies, in 1949, Congressenacted the Jenkins Act, 15 U.S.C. §§ 375-78, torequire out-of-state cigarette sellers to file a reportwith the tobacco tax administrator of each stateinto which the seller ships cigarettes to non-distributors. The report identifies the name,address, and quantity of cigarettes purchased bythe non-distributor state residents. 15 U.S.C. §376; see also S. Rep. No. 84-1147 (1955), reprintedin 1955 U.S.C.C.A.N. 2883, 2883-84 (explainingthat the Jenkins Act "was enacted for three majorreasons: (1) the large and increasing loss of revenueto the States caused by the evasion of sales and usetaxes on cigarettes shipped in interstate commerceto consumers; (2) the discrimination caused by thisevasion against sellers of cigarettes in Stateshaving a higher tax than the tax of the sellerStates; and (3) the fact that this evasion wasaccomplished through the use of the United Statesmail." (quoting from the report of the Committee onWays and Means)). The information provided byout-of-state cigarette sellers to state taxingauthorities under the Jenkins Act provides statesthe information necessary to collect the payment ofcigarette taxes directly from the purchasers.

In this case, petitioners advertised tocigarette purchasers that they "do not share yourpersonal information with any third-party,including State taxing authorities" and refused tofile Jenkins Act reports (9a). Petitioners do sobecause collection of the use tax by New York Cityfrom petitioners’ customers would have wiped outvirtually all of their customers’ "savings," and, so,any incentive to continue patronizing petitioners’businesses. Petitioners have never disputed that

they concealed sales or failed to file Jenkins ,~ctreports.

Under RICO’s civil enforcement mechanism,"[a]ny person injured in his business or property byreason of a violation of [18 U.S.C. § 1962] may suetherefore in any appropriate United States districtcourt and shall recover threefold the damages hesustains and the cost of the suit, including areasonable attorney’s fee .... " 18 U.S.C. § 1964(c).To have standing under § 1964(c), a civil RICOplaintiff must show: (1) that his alleged harmqualifies as injury to his business or property; and(2) that his harm was "by reason of’ the RICOviolation, which requires the plaintiff to establishproximate causation. See, e.g., Holmes v. ,~ec.Investor Prot. Corp., 503 U.S. 258, 268 (1992).

Relying on ample case law holding that theintentional failure to file Jenkins Act reportsamounts to a violation of the mail and wire fraudstatues by depriving the affected states of theability to collect cigarette excise taxes, the Citycommenced this RICO action against petitionersand other Internet cigarette sellers, which actionwas later consolidated with three others on appeal.1

1 The specific descriptions of the defendants and

the makeup of the enterprises are detailed in theCircuit’s opinion (12a-15a). As to petitioners, theCity alleges that the Hemi Group, LLC ("HemiGroup"), incorporated in New Mexico, is anenterprise and that the person associated with it isKai Gachupin, the owner or officer of Hemi Group(14a-15a). The City also alleges an alternative

4

The City alleges that petitioners: (1)advertise their cigarettes over the Internet to Cityresidents, (2) ship the orders by common carrier orthe United States Postal Service into New YorkCity, and (3) refuse to comply with the Jenkins Actregistration or reporting requirements (10a). TheCity further alleges that petitioners’ failure tocomply with the Jenkins Act is an essential part oftheir business model because the savings thatcustomers obtain from buying the cigarettes onlineare almost entirely attributable to the fact that theNew York State and City taxes are not included inthe cigarettes’ sales price (10a).

As alleged, petitioners not only fail to informcustomers of the use tax obligations, but also makefalse representations to customers concerning thetax. Among other things, the City contends thatpetitioners affirmatively advertise their cigarettesas "tax-free" and assure customers that sales wouldnot be reported to the New York State taxauthorities (1 la).

association-in-fact enterprise consisting of theHemi Group and A1 Enterprises, Inc. ("A1Enterprises"), a New Mexico corporation, whichsells cigarettes over the Internet (14a-15a).According to the allegations, "A1 Enterprises workswith the Hemi Group to conceal from New YorkCity cigarette sales made by Hemi Group to NewYork City residents." The persons alleged to beassociated with the Hemi Group association-in-factenterprise are Gachupin and the Hemi Group (15a).

5

Furthermore, New York State and New YorkCity have entered into various agreements for theadministration and collection of cigarette taxes (9a-10a).2 In light of the agreements, the City allegesthat "with respect to the collection of cigarettetaxes, New York City will be ’fully and promptly’informed by the New York State Department ofTaxation and Finance of any information relevantto the collection of cigarette taxes, includingJenkins Act reports" (10a).

The City’s pleadings thus alleged thatpetitioners’ predicate acts of mail and wire fraud --the non-filing of Jenkins Act reports -- injured theCity in its business and property: by withholding

2 The latest such agreement, dated June 28, 2002,

provides (10a n.6):

"It is agreed that Taxation [the New York StateDepartment of Taxation and Finance] and Finance[the New York City Department of Finance] shallcooperate fully with each other and keep each otherfully and promptly informed with reference to anyperson or transaction subject to both State and Citycigarette taxes as follows:

(1) Information obtained which may result inadditional cigarette tax revenue to the State or Cityprovided that the disclosure of that information ispermissible under existing laws and agreements;..

(3) All violations of Article 20 of the Tax Law orChapter 13 of Title 11 of the [Administrative Codeof the City of New York] and all facts orinformation tending to indicate any such violatic, n."

the required Jenkins Act reports, petitionersconceal taxable sales to City residents, making itimpossible for the City to collect its cigarette excisetaxes and resulting in lost tax revenue.

Finally, the City alleges that it has lost"tens[,] if not hundreds[,] of millions of dollars ayear in cigarette excise tax revenue" due to thecombination of the withholding of salesinformation, failure to register as cigarette sellers,and the individual taxpayers’ failure to voluntarilypay use taxes to the City (11a). As relief, the Cityseeks to: (1) recover three times the amount of thetax revenue lost as a result of petitioners’violations; (2) require prospective compliance withthe Jenkins Act; (3) require informing customersthat taxes are owed on purchases from theirwebsites and that petitioners file Jenkins Actreports; and (4) recover attorneys’ fees (lla-12a).

The District Court’s Orders.

In its 2005 opinion, the U.S. District Courtfor the Southern District of New York (Batts, D.J.)rejected most of petitioners’ numerous challenges tothe complaints, including arguments concerningthe alleged lack of an injury to business or propertyand causation (144a-148a). The District Courtnonetheless dismissed pursuant to Fed.R.Civ.P.12(b)(6), finding that the City failed to sufficientlyplead individual "persons" distinct from therespective "enterprises," but afforded the City theopportunity to file an amended complaint (Appen.C, 93a-170a; City of New York v. Cyco.net, Inc., 383F.Supp.2d 526 (S.D.N.Y. 2005)).

In its subsequent 2006 opinion, the Courtdismissed the second amended complaints forfailure to state a claim, finding that the ’~woalternative forms of RICO enterprises wereinsufficiently pled, including because the allegedRICO persons (employees and]or officers of thebusinesses) did not have individual duties to fileJenkins Act reports (Appen. B, 70a-92a; City ofNew York v. Nexicon, Inc., 2006 U.S. Dist. LEXIS10295 (S.D.N.Y. 2006)).3

The Order of the Circuit Court of Appeals.

By opinion issued September 2, 2008, theSecond Circuit vacated in large part the DistrictCourt’s judgment and reinstated the majority of thefederal RICO claims, severing them from the stateclaims and remanding for immediate fur~herproceedings (Appen. A, la-69a; City v. Smokes-Spirits.corn, Inc., 541 F.3d 425 (2d Cir. 2008), reh.& reh. en banc denied, __F.3d___ (2d Cir. 2008)).

In relevant part, with respect to the issue ofinjury to "business or property," the Circuit held(33a-34a):

3 In addition, the Court dismissed all the State lawclaims without leave to file an amended comp]taint(158a-168a, City of New York v. Cyco.net, Inc., 383F.Supp.2d 526, 561-66 (S.D.N.Y. 2005), vacated inpart by City of New York v. Smokes-Spirits.corn,Inc., 541 F.3d 425 (2d Cir. 2008); NCCigarettes, No.03 Civ. 7715, 2005 U.S. Dist. LEXIS 2794, *’9-10(S.D.N.Y. Feb. 9, 2005)).

8

As noted above, one of therequirements for a civil RICO claim isthat plaintiff be injured in its"business or property." 18 U.S.C. §1964(c). Defendants argue that theCity’s allegations of lost taxes do notallege an injury to the City’s "businessor property" because that injury wasnot one the City incurred as a party toa commercial transaction. Thisargument finds support in Town ofWest Hartford v. Operation Rescue,915 F.2d 92, 103-04 (2d Cir. 1990),where we suggested that amunicipality must have sustained itsinjury as a party to a commercialtransaction to have standing underRICO. However, we have sinceexplained that our statements to thateffect in Town of West Hartford weremerely dicta. See Att’y Gen. of Can. v.R.J. Reynolds Tobacco Holdings, Inc.,268 F.3d 103, 132 n.40 (2d Cir. 2001),cert. denied, 537 U.S. 1000, 123 S. Ct.513, 154 L. Ed. 2d 394 (2002).

We see no reason to import anadditional standing requirement onmunicipalities for RICO claims, andthus expressly reject our dicta to thecontrary in Town of West Hartford.See Sedima [S.P.R.L. v. Imrex Co.],473 U.S. [479], 495, 497-500 [1985](noting that "RICO is to be readbroadly," and overruling our Court’sengrafting of a "racketeering injury"

9

requirement which found no supportin the statute or legislative history).We have consistently held that taxlosses from unpaid taxes are"property" for purposes of the mail andwire fraud statutes. See, e.g.,Fountain v. United States, 357 F.3d250, 255-60 (2d Cir. 2004), cert.denied, 544 U.S. 1017 (2005); UnitedStates v. Porcelli, 865 F.2d 1352, 1355(2d Cir.) (affirming mail fraud andRICO convictions for fraudulentunder-reporting of taxes to State), cert.denied, 493 U.S. 810 (1989); [UnitedStates v.] DeFiore, 720 F.2d 757, 761(2d Cir. 1983), cert. denied, 467 U.S.1241 (1984)]. Moreover, in Anza, theSupreme Court suggested that a Statewould have a recoverable injury wherethe allegations are that thedefendants defrauded the State out oftax revenues. See 547 U.S. at 460.Thus, we hold that lost taxes canconstitute injury to "business orproperty" for purposes of RICO, andconclude that the City has adequatelymet this requirement notwithstandingthat its injury did not arise from itsparticipation in a commercialtransaction. See Illinois Dep’t ofRevenue v. Phillips, 771 F.2d 312, 314-16 (7th Cir. 1985) (rejecting the notionthat a State government unit suingunder RICO is limited to competitiveor commercial injuries); but seeCanyon County v. Syngenta Seeds,

10

Inc., 519 F.3d 969, 977-80 (9th Cir.2008) (endorsing the dicta in Town ofWest Hartford).

The Second Circuit denied petitioners’petition for rehearing or, alternatively, forrehearing en banc by order entered October 30,2008 (App. D, 171a-172a).4

REASONS FOR DENYING THE PETITION

THE SECOND CIRCUIT CORRECTLYDETERMINED THAT THE .CITY HASSTANDING TO BRING A RICO CLAIMBASED ON DIRECT INJURYTO "BUSINESSOR PROPERTY" DUE TOFRAUDULENTBUSINESS SCHEMES DESIGNED TODEPRIVE THE CITY OFTAX REVENUESAND RESULTING IN SUCHLOST TAXES.

THE CASES PETITIONERS RELY ONINVOLVE DIFFERENT FACTUAL BASESOFAMORPHOUS INJURIES SUCH ASADDITIONAL PUBLIC EXPENDITURESORLOST EMPLOYEE SALARIES.

4 The Circuit affirmed the dismissal of the statecommon law fraud claim, but certified twoquestions to the New York Court of Appeals as tothe N.Y. York General Business Law § 349 andpublic nuisance claims (55a-62a). The argument isscheduled on May 5, 2009.

11

A. This Case is Not Certworthy.

Petitioners’ primary argument is that theCircuit Courts are split as to whether state andlocal governments have RICO standing to recoverloss of tax revenue as an "injury to business orproperty" (Pet., Pt. I). However, the SecondCircuit’s ruling in this case was correct and aproper application of the statute. Furthermore, thepurported split of authority petitioners rely onessentially rests upon case law endorsing previousSecond Circuit dicta, which has been repeatedlydisavowed by the Court, and upon cases involvinginapposite factual situations. In addition, the orderappealed is interlocutory. For all these reasons,the issue is not certworthy.

Petitioners primarily rely on Canyon Co~ntyv. Syngenta Seeds, Inc., 519 F.3d 969 (9th Cir.2008), cert. denied, 129 S.Ct. 458 (2008), whichrelied on dicta in the expressly-disavowed decisionin Town of West Hartford v. Operation Rescue, 915F.2d 92 (2d Cir. 1990), as well as an unpublishedopinion in Michigan Dep’t of Treasury v. Fawaz,653 F.Supp. 141 (E.D. Mich. 1986), all’d, 848 F.2d194 (6th Cir. 1988) (unpublished).

Canyon County was not only decided beforethe decision herein, but also it pointed to dicl~a inTown of West Hartford v. Operation Rescue, 915F.2d 92 (2d Cir. 1990), which was expresslydisavowed in the instant case as well as previously(33a-34a, citing Att’y Gen. of Can. v. R.J. ReynoldsTobacco Holdings, Inc., supra), for a commercialinjury requirement for governments (Pet., 1:’. 9).More crucially, in Town of West Hartford, the

12

Second Circuit simply never had occasion toaddress lost taxes, because lost taxes were never atissue in the case (id., 915 F.2d at 98):

The primary injuries caused to theplaintiff by the enterprise is thehinderance [sic] of normal routinepolice activities within the Town ofWest Hartford as well as the cost ofincreased manpower and equipmentneeded to respond to the illegalactivities conducted by the enterprisewithin the Town of West Hartford.

Similarly, Canyon County involved verydifferent factual circumstances, with the NinthCircuit ruling that a governmental entity’sexpenditure of money to enforce laws or promotethe public well-being does not constitute a"property" interest within the ambit of section1964(c), particularly where the provision ofadditional public services is based on legislativemandates and intended to protect the publicinterest. Canyon County, 519 F.3d at 976.Accordingly, the Ninth Circuit rejected a county’sclaim against defendant companies who allegedlyhired illegal aliens, thereby increasing the county’sexpenditures for law enforcement and publiclyfunded health care, holding that a government"does not possess a property interest in the lawenforcement or heath care services that it providesto the public." Id. at 977.

Hemi also cites an unpublished Sixth Circuitopinion, Michigan Dep’t of Treasury v. Fawaz, 653F.Supp. 141 (E.D. Mich. 1986), all’d, 848 F.2d 194,

13

1988 U.S. App. LEXIS 6206 (6th Cir. 1988)(unpublished).~ In that case, the RICO complaintalleged that the defendant, an operator of a numberof gasoline stations, mailed monthly sales taxreturns, which underreported his gross income by$6 million, resulting in a tax underpayment of salestax liability by $240,000. Prior to the RICO action,he was criminally prosecuted and convicted in statecourt and had already complied with court-orderedpayment of restitution, plus interest. Id. at **2-3.

The Court held that the State was a personwith .RICO standing, but then found that applyingthe RICO statute to an individual sales tax cheaterwould not fit the purposes and intent behind theRICO statute to address the threat posed to thecountry’s economy by organized crime, and alsostressed that the State had already proceededagainst the defendant taxpayer in the statecriminal proceeding, whic.h was unlike the situationin Illinois Dep’t of Revenue v. Phillips, 771 F.2d 312(7th Cir. 1985). Id., 1988 U.S. App. LEXIS 62()6 at**3-6. In contrast, in this case, the allegationsrelate to an organized business scheme expresslyintended to defraud the State and City from itsability to collect taxes on a mass basis, and which

~ At the time it was issued in 1988, the SixthCircuit’s practice was to discourage citation ofunpublished opinions which were not recomme~adedfor publication. In 2007, following the enactment ofFed.R.App.P. 32.1(b), the Sixth Circuit rule wasamended to permit citation of such opinions. SixthCircuit Rule 28(g).

14

succeeds in so doing by impeding the ability tocollect such taxes.

In this regard, petitioners’ attempt tocharacterize this case as presenting a split ofauthority as to whether state and localgovernments can use RICO to "collect taxes" (Pet.,p. 4) is unavailing.’ Rather, the instant RICOcomplaint is based on the well-recognized bases ofmail and wire fraud. Petitioners did not owe theCity taxes, rather, they defrauded the City out ofan opportunity to collect taxes from those who didowe them.

In this respect, the injury to the City is nodifferent than mail and wire fraud prosecutions bythe United States of those who defraudgovernments of tax revenue, where losses of taxesare "property" for purposes of the mail and wirefraud statutes. See, e.g., Fountain v. United States,357 F.3d 250, 255-60 (2d Cir. 2004) (taxes owed togovernments, the object of defendant’s scheme todefraud, are "property" within the meaning of themail and wire fraud statutes); United States v.Dale, 991 F.2d 819, 849 (D.C. Cir.) (federal taxrevenues), cert. denied, 510 U.S. 906 and 510 U.S.1030 (1993); United States v. Helmsley, 941 F.2d71, 93-95 (2d Cir. 1991) (state income taxes), cert.denied, 502 U.S. 1091 (1992); United States v. Dray,901 F.2d 1132, 1142 (lst Cir.), cert. denied, 498U.S. 895 (1990) ("We think it obvious that agovernmental agency is deprived of ’money orproperty’ when persons attempt to evade, or divert,the payment of legally required fees and taxes.");United States v. Porcelli, 865 F.2d 1352, 1361 (2dCir.), cert. denied, 493 U.S. 810 (1989); United

15

States v. Bucey, 876 F.2d 1297, 1309-1310 (7th Cir.)(federal income taxes), cert. denied, 493 U.S. 1{)04(1989); DeFiore, 720 F.2d at 761-62 (explaining that"four circuits before us have squarely applied thefederal fraud statutes to state tax law violatiolas")(citing, inter alia, United States v. Brewer, 528 F.2d492, 496 (4th Cir. 1975) (scheme to sell cigarettesinto another state without filing Jenkins Actreports is mail fraud)).

Petitioners suggest no basis why taxes owedto governments, which are the government’s"property" for purpose of the mail and wire fraudstatutes, should not constitute "property" forpurposes of a RICO action alleging mail and wirefraud violations, just as the Circuit held. Moreover,in Anza v. Ideal Steel Supply Corp., 547 U.S. 451(2006), this Court suggested that a State wouldhave a recoverable injury where the allegations arethat the defendants defrauded the State out of taxrevenues. See 547 U.S. at 460. Cf. Pasquanti~;o v.United States, 544 U.S. 349, 355 (2005) (holdingthat a scheme to defraud a foreign government oftax revenue violates the wire fraud statute becauseCanada’s right to uncollected excise taxe~,~ is"property" in its hands, but not expressing a viewon the related question of whether a foreigngovernment, based on wire or mail fraud predicateoffenses, may bring a civil action under RICO tbr ascheme to defraud it of taxes).

Furthermore, petitioners’ reliance on twodistrict court decisions, see Township of Marlboro v.Scannapieco, 545 F.Supp.2d 452 (D.N.J. 2008) andWest Virginia v. Moore, 895 F.Supp. 864 (S.D.W.Va. 1995) (Pet., p. 8) also demonstrates that the

16

proposed issue is not certworthy. In fact, similar toCanyon County, those cases involve not a tax owedto a governmental subdivision but rathersubstantially more amorphous claims. In Marlboro,the claimed injuries and losses included the totalsum of all bribes, gratuities and profits illegallyobtained and received by former Marlboro officialsfrom various developers. Marlboro, 545 F.Supp.2dat 454-56. Citing, inter alia, the Second Circuitdicta in Town of West Hartford, the district courtheld that a governmental agency’s allegations thatit suffered amorphous injuries to a right to itsemployees honest services are not "concretefinancial loss[es]" recoverable under RICO. Id. at458-59.

In West Virginia v. Moore, 895 F.Supp. 864(S.D.W.Va. 1995), the complaint against theState’s former Governor Arch Moore rested onallegations that Moore accepted cash contributionsin violation of state election laws and that he didnot report the windfall on several tax returns. Id.at 867. The District Court accepted Moore’sargument that the State suffered no injury to itsbusiness or property as a result of his allegedracketeering activity because his retention of abribe payment, following a $2 million refund ofBlack Lung premiums which was legislativelypassed, did not divert money from the State. TheDistrict Court also chose not to recognize thebroader view that RICO encompasses salarylJayments to a corrupt employee. Id. at 868.

In sum, the decisions relied upon bypetitioners do not undermine the persuasiverationale of the Second Circuit in this case, and

17

should not be considered a sufficient basis forfinding that there is a conflict among the Circl~itsthat must be resolved by this Court.

A final reason for denial is that the order isinterlocutory, directing a remand for reinstatementof a complaint following a 12(b)(6) motion todismiss and thus the case may be resolved on othergrounds. See, e.g., Hamilton-Brown Shoe Co. v.Wolf Bros. & Co., 240 U.S. 251, 258 (1916);Brotherhood of Locomotive Firemen & Enginemenv. Bagnor & Aroostock R. Co., 389 U.S. 327, 328(1967).

B. There is No Conflict with this Court’sPrecedent.

Petitioners’ secondary argument is that theCircuit’s decision conflicts with this Court’sprecedent, specifically Anza, supra, claiming thatthere is no proximate causation because the Cityallegedly is not a directly injured party (Pet. Pt. II,pp. 10-14). This issue is not framed in thepetition’s question presented, but, regardless,petitioners’ argument lacks merit.

The Circuit’s opinion recognizes that thepredicate racketeering acts in this case are notJenkins Act violations, but rather are the wire andmail fraud violations and that the City’s injury isdirect in the form of lost taxes (App. A. at 31a-32a).Although petitioners quote from the Circuit’sdetailed opinion on this issue (id., pp. 11-12 ), theythen rely on Judge Winter’s dissent whichcharacterizes the City as, "at best[,] an expectantgratuitous donee of information from the State"(App. A, 66a-67a).

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However, the majority opinion correctly heldto the contrary, aptly holding (26a):

The principles outlined in [theSupreme Court] decisions, as appliedto the City’s allegations, support afinding that the City has standing.Comporting with Sedima, the Cityalleges that it has been injured (theloss of tax revenues) by defendants’RICO violations (the predicate acts ofmail and wire fraud in furtherance ofa scheme to defraud the City of taxes).See Sedima [S.P.R.L. v. Imrex Co.],473 U.S. [479], 496 (1985). Anyrecoverable damages occurring byreason of a violation of § 1962(c) (aspecific dollar amount for each pack ofcigarettes sold without complying withthe Jenkins Act) flow from the schemeto defraud the City of use taxes at theheart of the alleged predicate acts ofmail and wire fraud. See id. at 497.

The City’s claims are easilydistinguishable from the ones found tobe insufficient in Holmes, 503 U.S. at271. Specifically, unlike in Holmeswhere the plaintiffs injury wasderivative, the City’s alleged injury oflost tax revenue is directly caused bydefendants’ alleged schemes. ThatNew York State may also have beeninjured by defendants’ allegedschemes does not make the City’sinjury any less direct; the City is owed

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a certain amount of taxes independentof any amount owed to or collected bythe State.

See also Bridge v. Phoenix Bond & Indemnity Co.,553 U.S. ~, 128 S.Ct. 2131 (2008).

Finally, petitioners’ argument is also beliedby the record. First, as the Circuit noted, the Sl~ateand City have entered into ongoing agreements forthe administration and collection of cigarette taxesthrough the sharing of joint information (9a-10a &n.6). Petitioners’ claim that such agreementsrepresent the "State government deciding to exceedits constitutional authority and disseminateproprietary Jenkins Act information in ways thatwere never permitted by Congress" (Pet., p. 13) is anew and totally unsupported assertion.

Furthermore, while petitioners speculatethat the collection of the taxes from the customersis an "intermediate contingenc[y]" (Pet., p. 13), l~hatalso is not borne out by the record. Although theDistrict Court did not allow the City any discoveryduring the pendency of these actions, enough factswere established on this record during thependency of the actions that dispelled any questionof causation. In particular, the City showed thatwhen it obtained Jenkins Act reports from Internetcigarette sellers, it was able to collect millions ofdollars in cigarette taxes from City residents whohad made Internet purchases (see, e.g., CircuitJoint Appendix at All3, A594).

For all the above reasons, the petition shouldbe denied.

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CONCLUSION

THE PETITION FOR A WRIT OFCERTIORARI SHOULD BEDENIED.

Dated: New York, New YorkApril 3, 2009

Respectfully submitted,

MICHAEL A. CARDOZO,Corporation Counsel of the

City of New York,Attorney for Respondent,100 Church Street,New York, New York 10007.(212) 788-1033 or 1010

LEONARD J. KOERNER,*

ELIZABETH SUSAN NATRELLA,

ERIC PROSHANSKY,of Counsel.

*Counsel of Record

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