U.S. Supreme Court Holds No Private RICO Action Available For Tax Underpayment

The U.S. Supreme Court has limited the reach of the Racketeer Influenced and Corrupt Organizations Act in certain private disputes.

In Anza v. Ideal Steel Supply Corp., 126 S. Ct. 1991 (June 5, 2006), a steel supplier brought RICO claims against a competitor that it alleged had unfairly obtained market share by not charging its customers a state tax that plaintiff did charge, thereby undercutting plaintiff’s prices.

Reversing the Second Circuit, the Supreme Court held that a RICO plaintiff must allege some direct relation between the injury alleged and the injurious conduct at issue, and that here the direct victim of the tax fraud was the State of New York. The court rejected the claim here as too attenuated to satisfy the fundamental proximate cause requirement.