The Supreme Court in Hemi Group, LLC v. City Of New York limited the use of the Racketeer Influenced and Corrupt Organizations Act (RICO) in cases where the alleged violation of the law is too attenuated from the loss of money.

“RICO provides a private cause of action for ‘any person injured in his business or property’” as a result of 18 USC 1962, the criminal provisions of RICO. “Specifically, §1962(c), makes it ‘unlawful for any person employed by. . . any enterprise engaged in, or the activities of which affect, interstate . . . commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity.”

The City of New York sued Hemi an internet seller of cigarettes for the violating the Jenkins Act which required cigarette sellers who sell cigarettes in interstate commerce to report to each state the names of those who live in the state who buy cigarettes in interstate commerce. Hemi’s failure to comply made it difficult for the State of New York and New York City to collect taxes which they levy for the possession of cigarettes.

But the Supreme Court found the loss by the City of New York to be too attenuated. to accept the city’s theory. It requires, first, for Hemi to report the names of its purchasers to the State of New York. Then the State of New York must report the names to the City of New York. Then purchaser must refuse to pay the tax. And finally the City of New York must go after the buyers who fail to pay the tax.

To make a claim under RICO the legal violation must be both a “but for” cause of the injury and a proximate cause of the injury. Proximate cause requires “some direct relation between the injury asserted and the injurious conduct alleged.” But considering the numerous steps between Hemi’s failure to report to the State of New York the names and the city’s failure to enforce the tax law a direct relationship does not exist. Regardless of whether Hemi reported the names the city would not have lost any money if the cigarette purchasers paid their taxes. Also, even if Hemi provided the names the Che supreme court finity would not have collected the unpaid taxes if the State did not provide the names to the City. Thus the city cannot collect from Hemi for its failure to report the names.