Court Finds Insufficient Standing for a Prospective Lessee (Sterling) to Allege Civil RICO Violations When Lessee Was Not Person Most Directly and Proximately Injured By Alleged Racketeering Activity

Sterling Suffolk Racecourse LLC v. Wynn Resorts, Ltd., 990 F.3d 31 (1st Cir. 2021)

Court Finds Insufficient Standing for a Prospective Lessee (Sterling) to Allege Civil RICO Violations When Lessee Was Not Person Most Directly and Proximately Injured By Alleged Racketeering Activity

The court of appeals affirmed the lower court’s decision dismissing the civil RICO claim but for different reasons, instead finding that the plaintiff-prospective lessee (Sterling Suffolk Racecourse, LLC- “Sterling”) did not and could not meet the causation of injury requirements set forth at 18 U.S.C. § 1964(c).

Property owner (Sterling) brought a civil RICO action alleging that casino operator Wynn Resorts, its subsidiary, its executives, and owner of site for casino conspired to deprive Sterling as a potential lessee of exclusive gaming license.  Sterling alleged these parties conspired to violate civil RICO in order to deprive Mohegan of a gaming license, costing Sterling the opportunity to lease its East Boston property to Mohegan for a casino site.

Three Supreme Court cases interpret “by reason of” to require that a plaintiff in a civil RICO action show that the defendant’s actions were “not only … a ‘but for’ cause of [plaintiff’s] injury, but … the proximate cause as well.” Id. at 35, citing cases.  The “central question” in evaluating proximate causation in the RICO context “is whether the alleged violation led directly to the plaintiff’s injuries.” Id.  See Hemi Group, LLC v. City of N.Y., 559 U.S. 1, 9, 130 S.Ct. 983, 175 L.Ed.2d 943 (2010) citing to Holmes

This court has identified in these Supreme Court cases “three functional factors with which to assess whether proximate cause exists under RICO.” In re Neurontin Mktg. & Sales Pracs. Litig., 712 F.3d 21, 35-36 (1st Cir. 2013) (citing Holmes, 503 U.S. at 269-70, 112 S.Ct. 1311). These are (1) “concerns about proof” because “the less direct an injury is, the more difficult it becomes to ascertain the amount of a plaintiff’s damages attributable to the violation, as distinct from other, independent, factors,” id. at 36 (quoting Holmes, 503 U.S. at 269, 112 S.Ct. 1311); (2) “concerns about administrability and the avoidance of multiple recoveries,” id.; and (3) “the societal interest in deterring illegal conduct and whether that interest would be served in a particular case,” id. As to this third factor, “directly injured victims can generally be counted on to vindicate the law … without any of the problems attendant upon suits by plaintiffs injured more remotely.” Id. (quoting Holmes, 503 U.S. at 269-70, 112 S.Ct. 1311).

In applying the Hemi analysis, the court ruled that it is clear that Sterling did not sufficiently allege a direct, non-contingent injury.  At minimum, Mohegan, which is not involved in this suit, is a “better situated plaintiff[ ]” with “an incentive to sue.” Id. at 11-12, 130 S.Ct. 983 (citing Holmes, 503 U.S. at 269-70, 112 S.Ct. 1311). Mohegan was Wynn’s direct competitor for the gaming license. Sterling’s theory is that Wynn’s wrongful conduct cost Mohegan the gaming license, which in turn cost Sterling the benefit of a potential lease with Mohegan. Any injury Mohegan suffered is necessarily several steps closer to Wynn’s allegedly wrongful conduct. By attempting to recover directly from Wynn, Sterling’s theory of causation both “go[es] beyond the first step” of the injuries from the alleged RICO scheme and is “purely contingent.” Id. at 9, 10, 130 S.Ct. 983.

The court ruled that Sterling is in the same position as any third-party business which hoped for a major contract from the Mohegan casino project, and lost that potential for business revenues when Mohegan lost the application bid.  Moreover, any causal link between Wynn’s conduct and Sterling’s lost rental income is “purely contingent.” Id. at 36 citing to Holmes, 503 U.S. at 271, 112 S.Ct. 1311. Sterling’s agreement with Mohegan imposed conditions that may have excused performance regardless of whether Mohegan obtained a license from the Commission. Mohegan was released from any obligation to perform in the event of a “Material Adverse Change” affecting the lease, including if construction took longer than two years for any reason outside of its control, or if local authorities other than the Commission refused to approve the project.

The court concluded that these problems with Sterling’s theory of causation caused it to fail under each of the three functional factors laid out in In re Neurontin. 712 F.3d at 36. In these circumstances, Sterling cannot show a “direct injury” from Wynn’s actions, and so its RICO claims failed as a matter of law.

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