No. 07-210

IN THE

preme of

SABRE GROUP, LLC, ET AL.,

PETITIONERS,

v.

PHOENIX BOND & INDEMNITY CO., ET AL.,

RESPONDENTS.

On Petition for a Writ of Certiorari to theUnited States Court of Appeals

for the Seventh Circuit

BRIEF IN OPPOSITION

LOWELL E. SACHNOFF

DAVID C. BOHAN

JOHN W. MOYNIHAN

REED SMITH SACHNOFF 8~

WEAVER

I0 South Wacker Drive

40th FloorChicago, Illinois 60606(312) 207-I000

Counsel for BCS Services, Inc.

DAVID W. DEBRUIN*

JENNER & BLOCK LLP

601 Thirteenth St., NWSuite 1200 SouthWashington, DC 20005(202) 639-6000

Counsel for Respondents

Counsel o£ Record

November 16, 2007

Additional Counsel Listed on Inside Cover

JONATHAN L. MARKSKATTEN MUCHINROSENMAN LLP

525 West Monroe StreetChicago, Illinois 60661(312) 902-5200

Counsel for Phoenix Bond& Indemnity Company

QUESTION PRESENTED

Whether a plaintiff who is the direct andimmediate target of a fraudulent scheme involvingfalse statements to a third party with whom theplaintiff deals may establish the proximate causenecessary to maintain a claim under civil RICO, eventhough the plaintiff itself did not receive the falsestatements.

ii

PARTIES TO THE PROCEEDING ANDCORPORATE DISCLOSURE STATEMENT

Petitioners are Sabre Group, LLC; BarrettRochman; and John Bridge. Petitioners aredefendants in this case.

Respondents are Phoenix Bond & IndemnityCompany and BCS Services, Inc. Respondents areplaintiffs in the action.

Other parties in the Court of Appeals weredefendants Robert Jensen; Joseph Varan; JeffreyBridge; Francis Alexander; Jesse Rochman; DouglasNash; Cronus Projects, LLC; Gregory Ellis; GJVenture, LLC; L.C.C. Venture, LLC; Regal One,LLC; Jason Baumbach; Optimum Financial, Inc.;Carpus Investments, LLC; DRN II, Inc.; Jeshay,LLC; Mud Cats Real Estate, LLC; GeorgetownInvestors, LLC; Corinne Rochman; ChristopherRochman; BRB Investments, LLC; and CCJInvestments, LLC. The Court of Appeals dismissedplaintiff Oak Park Investments, Inc. as a party.

Pursuant to Supreme Court Rule 29.6,respondents state as follows:

Phoenix Bond & Indemnity Company has noparent corporation, and there is no publicly heldcompany that owns 10% or more of its stock. BCSServices, Inc. has no parent corporation, and there isno publicly held company that owns 10% or more ofits stock.

iii

TABLE OF CONTENTS

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

PARTIES TO THE PROCEEDING ANDCORPORATE DISCLOSURE STATEMENT ............ii

TABLE OF AUTHORITIES .......................................iv

STATEMENT OF THE CASE ....................................1

A. Introduction ....................................................1

B. Factual Background .......................................3

C. Proceedings Below ..........................................5

REASONS FOR DENYING THE WRIT ....................8

A. No Ripe Conflict Exists ..................................9

B. The Court Should Deny the Petition ...........22

CONCLUSION ..........................................................30

iv

TABLE OF AUTHORITIES

CASES

Agency Holding Corp. v. Malley-Du££ &Associate, Inc., 483 U.S. 143 (1987) ...............11

Anza v. Ideal Steel Supply Corp., 126 S.Ct. 1991 (2006) ................................ 1, 17, 23, 24

Appletree Square I Ltd. Partnership v.W.R. Grace & Co., 29 F.3d 1283 (8thCir. 1994) ........................................................19

Bank of China v. NBM L.L.C., 546 U.S.1026 (2005) ......................................................27

Bank of China v. NBM LLC, 359 F.3d 171(2d Cir. 2004), cert. granted, 545 U.S.

1138 (2005), cert. dismissed, 546 U.S.1026 (2005) ......................................................27

Beck v. Prupis, 162 F.3d 1090 (11th Cir.1998), a/’/’d, 529 U.S. 494 (2000) ....................19

Brown v. Cassens Transport Co., 492 F.3d640 (6th Cir. 2007) .............................. 19, 20, 22

Chisolm v. TranSouth Financial Corp., 95F.3d 331 (4th Cir. 1996) ...........................15, 29

Holmes v. Securities Investor ProtectionCorp., 503 U.S. 258 (1992)1, 10, 11, 23, 25, 26, 27

Ideal Steel Supply Corp. v. Anza, 373 F.3d251 (2d Cir. 2004), rev’d on othergrounds, 126 S. Ct. 1991 (2006) ..................... 16

V

Living Designs, Inc. v. E.I. DuPont deNemours and Co., 431 F.3d 353 (9thCir. 2005), cert. denied, 126 S. Ct. 2861(2006) .........................................................18, 29

Mid Atlantic Teleeom, Inc. v. LongDistance Services, Inc., 18 F.3d 260Cir. 1994) ..................................................13, 14

Pel]otier v. Zwei£el, 921 F.2d 1465 (11thCir. 1991) ........................................................19

Poulos v. Caesars World, Inc., 379 F.3d 654(9th Cir. 2004) ..................................... 17, 18, 20

Proctor & Gamble Co. v. Amway Corp., 242F.3d 539 (Sth Cir. 2001) ...........................15, 16

Sandwich Chef of Texas, Inc. v. RelianceNational Indemnity Insurance Co., 319F.3d 205 (5th Cir. 2003) .................................16

Sedima, S.P.R.L. v. Imrex Co., 473 U.S.479 (1985) ........................................................25

Sikes y. TeIe.line, Inc., 281 F.3d 1350 (llthCir. 2002) ........................................................19

Summit Properties Inc. v. HoeehstColanese Corp., 214 F.3d 556 (5th Cir.2000) ................................................................15

Systems Management, I~c. v. Loiselle, 303F.3d 100 (1st Cir. 2002) ............................18, 21

Williams v. Mohawk Industries, Inc., 465F.3d 1277 (llth Cir. 2006), cert. denied,127 S. Ct. 1381 (2007) ....................................19

vi

STATUTES AND RULES

18 U.S.C. § 1964 .....................................................5

18 U.S.C. § 1964(c) .........................................10, 23

Fed. R. Civ. P. 12(b)(1) .......................................5, 6

Fed. R. Civ. P. 12(b)(6) ...........................................5

MISCELLANEOUS

Brief for the United States as Amicu,~Curiae, Bank of China v. NBM L.L.C.,546 U.S. 1026 (2005) (No. 03-1559),available at 2005 WL 2875061 .................26, 27

1

STATEMENT OF THE CASE

A. Introduction

This case presents no issue worthy of thisCourt’s review. Respondents, plaintiffs below, allegethat petitioners lied under oath to officials of CookCounty, Illinois, and thereby stole valuable tax liensthe County otherwise would have awarded torespondents. As the Court of Appeals found, becausepetitioners and respondents offered the County theidentical price for the tax liens, the County did notsuffer injury as a result of the misrepresentations.Indeed, "Cook County did not lose even a penny ....The only-injured parties are the losing bidders, whoacquire fewer tax liens than they would" absentdefendants’ fraudulent scheme. Pet. App. 5a(emphasis in original). Based on these facts, thecourt held that respondents could establish theproximate cause required under RICO consistentwith this Court’s decisions in Holmes v. SecuritiesInvestor Protection Corp., 503 U.S. 258 (1992), andAnza v. Ideal Steel Supply- Corp., 126 S. Ct. 1991(2006). The decision of the Court of Appeals iscorrect, does not conflict with any other easepresenting the same issue, and warrants no action bythis Court.

The question on which petitioners would havethis Court grant review is not the question decidedby the Seventh Circuit. Petitioners contend that thequestion here is whether "a plaintiff asserting a civilRICO claim predicated on acts of mail fraud mustplead and prove reliance on alleged

2

misrepresentations by the defendant," Pet. at (i), aquestion on which, according to petitioners, thecircuits are sharply split. Id. at 6-7. But the Courtof Appeals had no occasion to discuss whetherrespondents "must plead and prove reliance," in partbecause petitioners themselves argued that the issueof reliance was "largely academic" in that the districtcourt "did not discuss reliance as a standingrequirement at all." See Br. of Appellees Bridge, etM. at 14 (7th Cir. filed Oct. 6, 2006), available at2006 WL 2967014.1

Rather, the question addressed by JudgesEasterbrook, Posner, and Evans below is whether itis necessary in a RICO action predicated on fraud "toshow that the false statement was made to thevictim." Pet. App. 7a. On that question, the courtunanimously concluded that "the direct victim mayrecover through RICO whether or not it is the directrecipient of the false statements." Id. (emphasis inoriginal). Thus, the sole issue in this case is whetherreliance by the plaintiff itself is necessary toestablish proximate cause under RICO, or whetherreliance by a third party with whom the plaintiffdeals suffices where the plaintiff is the immediatetarget and victim of the fraudulent scheme.

1 Although the issue of reliance (by someone) was not squarely

presented to the Seventh Circuit, the parties have neverdisputed that the County Treasurer did in fact rely onpetitioners’ false certifications in allowing petitioners’ entry tothe auction. See, e.g., Compl. ¶¶ 47-48, 50-56, 59, 61, 63-65(N.D. Ill. filed Jul. 15, 2005).

3

On that issue, there is no circuit splitrequiring this Court’s attention. Every circuit toconsider the issue in a case presenting it - theSecond, Fourth, Fifth and Seventh - has held thatreliance by a third party with whom the plaintiffdeals can be sufficient under RICO when theplaintiff is the direct and immediate target of thefraud. Only the Sixth Circuit has suggestedotherwise, and the continuing vitality of the SixthCircuit’s position on the issue is open to doubt.Although other circuits have required "reliance,"they have never considered whether reliance by athird party may suffice where the plaintiff is theimmediate target of the fraud and has been directlyinjured thereby.

Because the decision of the Court of Appealsdoes not conflict with other courts and is correct, thepetition should be denied.

B. Factual Background

This case arises on a motion to dismiss, sorespondents’ allegations are presumed to be true.

A property owner’s failure to pay taxes createsa tax lien in favor of the County. Pet. App. la.Instead of pursuing its rights as the holder of suchtax liens, Cook County annually sells the liens atauction. Id. at la, 10a. To purchase the lien, abidder must pay the County the taxes due. Inaddition, the holder of a tax lien has the right toreceive a statutory penalty assessed upon theproperty owner, up to a maximum of 18%. However,bidders at the County’s tax lien auctions compete

4

against each other by identifying the penalty thatwill be imposed upon the property owner to clear thelien, and the bidder willing to accept the lowestpenalty wins the auction. Id. at la-2a. The new lienholder then may assert its rights under the lien. Ifthe property owner redresses the lien by paying theback taxes and statutory penalty (in the amountestablished through the auction), the owner mayretain the property. If the owner does not pay, thelien holder can obtain a tax deed and thus becomethe parcel’s new owner. Id. at la.

Because many of the parcels at issue haveeconomic value beyond the amount of the unpaidtaxes, most parcels at the County’s tax lien auctionsattract multiple bidders willing to accept a 0%penalty. Id. at 2a. Bidders expect to make theirprofits not by collecting penalties from propertyowners, but primarily from reselling the properties ofowners who do not pay. Id. As described by theCourt of Appeals: "Vigorous competition amongbidders has driven the winning penalty down to thefloor, and from the County’s perspective this is all tothe good: it recovers the taxes, and owners need notpay extra." Id.

The County then must address a differentissue: how to choose among multiple, identical bids.Id. The County’s regulations prohibit bids proposinga "negative" penalty, because property owners thenwould have an incentive not to pay their taxes at theoriginally assessed full value. Id. Instead, theCounty assigns parcels among identical bidders on arotational basis. Critically, to prevent a party from

5

increasing its chances in this allocation process, each"tax buying entity" must certify that it has bid in itsown name, and no "related entity" may bid. Id. TheCounty calls this rule the "Single, SimultaneousBidder Rule." Id.

Respondents are two regular participants inCook County’s tax lien sales. Id. at 3a. Respondentscontend that petitioners Sabre Group, LLC and itsprincipal Barrett Rochman regularly arrange forrelated firms to participate in the tax lien auctions inviolation of the Single Simultaneous Bidder Rule andthat they disguise this fact by submitting falseaffidavits to the County, a potentially criminaloffense. Id. Respondents contend that the CountyTreasurer relies on those false affidavits to awardmore parcels to petitioners than they otherwisewould win, at respondents’ expense. See n. 1, supra.Because petitioners’ fraudulent scheme involves theuse of the mail, and involves a regular pattern ofmail fraud, respondents sought damages frompetitioners under the Racketeer Influenced andCorrupt Organizations Act (RICO), 18 U.S.C. § 1964.

C. Proceedings Below

Petitioners moved to dismiss under Rules12(b)(1) and 12(b)(6). They argued the case shouldbe dismissed under Fed. R. Civ. P. 12(b)(1) becauserespondents lacked "standing" and, therefore, theDistrict Court lacked subject matter jurisdiction.Petitioners also argued the complaint should bedismissed under Fed. R. Civ. P. 12(b)(6) because

6

respondents failed adequately to allege a RICOenterprise and to plead fraud with particularity.

The District Court granted petitioners’ motionunder Rule 12(b)(1). At bottom, the court held thatrespondents lacked standing to sue under RICObecause they "were not recipients of the allegedmisrepresentations." Pet. App. 18a.

Respondents appealed, contending in part thatthe District Court improperly incorporated into civilRICO a requirement of reliance by the plaintiff ondefendants’ false statements. On that point,petitioners responded that the issue of reliance was"largely academic" because "the district court did notdiscuss reliance as a standing requirement at all."See Br. of Appellees Bridge, et al. at 14 (7th Cir. filedOct. 6, 2006), available at 2006 WL 2967014.Petitioners argued, however, that respondents couldnot establish proximate cause. Id. at 25. Neither intheir brief nor at oral argument did petitioners askthe Court of Appeals to affirm on the ground thatrespondents had not pled, and could not prove,reliance.

The Court of Appeals reversed in a unanimousopinion written by Chief Judge Easterbrook. Thecourt first concluded that "standing" was not aproblem in the suit: "Plaintiffs suffer injury in fact,and that injury can be redressed by damages. Extrabids reduce plaintiffs’ chance of winning any givenauction, and loss of a (valuable) chance is realinjury." Pet. App. 3a. Because plaintiffs suffer anactual (and substantial) reduction in the number of

liens they take away, "[n]o more need be said aboutstanding." Id. at 4a.

The court then addressed the issue ofproximate cause. Applying the causation analysisthis Court outlined in Holmes and developed furtherin A~za, the Court of Appeals assessed whetherrespondents were the direct victims of petitioners’alleged fraud:

Defendants maintain that Cook Countyis the victim of their fraud (supposing,as they must at the pleading stage, thatthey have committed fraud). Yet CookCounty did not lose even a penny: eachwinning bidder always pays all backtaxes and interest. The bidding at theseauctions concerns how much the ownersmust pay in penalties, not how muchthe County receives. And as long ascompetition drives the bidding down to0% penalty, property owners areindifferent to who acquires the tax lien.The onI.y injured parties are the losingbidders, who acquire fewer tax liensthan they would if the Single,Simultaneous Bidder Rule werefollowed.

Id. at 5a (emphasis in original). These facts, thecourt emphasized, were sufficient to establishproximate cause. The court noted that the Countydoubtless could enforce its own rule, but it had nofinancial incentive to do so. Moreover, "[i]f a

8

government’s ability to penalize fraud knocked outprivate litigation, then § 1964 would no longer applywhen the predicate act is fraud, for governmentsalways have some ability to detect and penalizefrauds." Id. at 6a-7a.

The Court of Appeals also declined to acceptpetitioners’ argument that respondents could not suebecause "no false statements were made toplaintiffs." Id. at 7a. Relying on its own precedentas well as decisions in several other circuits, thecourt held that "the direct victim may recoverthrough RICO whether or not it is the directrecipient of the false statements." Id. (emphasis inoriginal). Thus, "[a] scheme that injures D bymaking false statements through the mail to E ismail fraud, and actionable by D through RICO if theinjury is not derivative of someone else’s?’ Id. Thecourt thus emphasized that "injury must be directrather than derivative," but found that requirementto be satisfied here. Id. at 8a.

REASONS FOR DENYING THE WRIT

To bolster their petition, petitionersmischaracterize the positions of the circuits on theissue presented in this case, making claims at oddseven with the position they took in the Court ofAppeals. As set forth below, the result in this casewould be the same in every other circuit to haveconsidered the issue presented here except perhapsthe Sixth - and every member of the Sixth Circuit’smost recent panel decision addressing the issuesuggested that the position of the Sixth Circuit was

9

wrong. This case simply does not present the issuewhether "reliance" generally is required in RICOactions based on fraud. Rather, the issue here iswhether it always must be the p]ainti££ that hasreceived and relied upon the false statements atissue. And every circuit to have considered thatissue in a case that presented it has concluded thatsuch reliance by the plainti£f is not always required.

The petition should be denied. There is apending petition for rehearing en bane from the mostrecent panel decision in the Sixth Circuit, and theSixth Circuit may reconsider its outlier position inthat ease (or in another ease that squarely presentsthe issue whether reliance by the plsinti££always isrequired in RICO eases involving fraud). In anyevent, because the decision of the Seventh Circuithere is correct and in line with all other circuits thathave considered the issue in a ease that presented it,this Court should wait to consider the issue until it issquarely presented in a conflicting decision from theSixth. In addition, further factual development inthe instant ease may show that reliance even by theplaJnti££is present here. Thus, this ease is not yet ina posture where an appropriate assessment of theissues of reliance and proximate cause may be made.

A. No Ripe Conflict Exists.

Cases brought under RICO have beenassessed under a variety of analytical frameworks todetermine whether the plaintiff is an appropriateperson to bring a RICO claim. The issue has beenconsidered at times as one of "standing," as one

10

involving the "zone of interests" defined by thestatute, as one involving the "directness" or"proximate causality" between the plaintiffs injuryand the challenged conduct, and as one of "reliance."In Holmes v. Securities Investor Protection Corp.,503 U.S. 258 (1992), this Court granted certiorari toresolve a conflict among the circuits whether a civilRICO plaintiff that had not purchased or sold asecurity had "standing" to sue based upon apredicate act of alleged securities fraud. Instead ofdeciding that issue, however, the Court ruled thatthe plaintiff could not establish proximate cause, andit observed that "[a] review of the conflicting easesshows that all could have been resolved onproximate-causation grounds." Id. at 276.

The Court’s decision in Holmes is instructivebecause it establishes the context for the circuit splitalleged to exist here. The Court held that thestatutory language in RICO creating a civil claim for"[a]ny person injured in his business or property byreason o£a violation of section 1962 of this chapter,"18 U.S.C. § 1964(c) (emphasis added), requires aplaintiff to prove that its injury was proximatelycaused by the violation of the Act. 503 U.S. at 268.The Court explained that it used the term"proximate cause" in the broad common law sense,which included "a demand for ~ome direct relationbetween the injury asserted and the injuriousconduct alleged. Thus, a plaintiff who complained ofharm flowing merely from the misfortunes visitedupon a third party by the defendant’s acts wasgenerally said to stand at too remote a distance to

11

recover." Id. at 268"69 (emphasis added). The Courtemphasized that among the reasons for this rulewere: the difficulty of ascertaining the plaintiffsdamages as its injury became less direct; thedifficulty of apportioning damages among plaintiffsremoved at different levels of injury; and the lack ofany need for such claims in deterring injuriousconduct "since directly injured victims can generallybe counted on to vindicate the law as privateattorneys general." Id. at 269-70.2 In finding noproximate cause in the case, the Court emphasizedthat the plaintiff’s injury was indirect and flowedfrom factors unrelated to the defendant’s allegedwrongdoing, and that other directly injured privateparties "could be counted on to bring suit for thelaw’s vindication" (and had, in fact, already sued).Id. at 273.

The decision of the Seventh Circuit in theinstant case is squarely in line with Holmes, andvirtually all other circuits, in recognizing thatproximate cause is the statutory touchstone in civilRICO cases. Moreover, every circuit to consider theissue but possibly the Sixth has ruled, like theSeventh here, that a showing of proximate causemay be made where a RICO plaintiff is a directvictim or target, but not necessarily the recipient, of

2 The Court has recognized that by including a private right of

action in RICO, Congress intended to bring "the pressure of’private attorneys general’ on a serious national problem forwhich public prosecutorial resources [were] deemedinadequate." Agency Holding Corp. v. Malley-Duff & Assoc.,Inc., 483 U.S. 143, 151 (1987).

12

acts of mail or wire fraud by defendants. Tt~at wasthe issue in this case - not whether "reliance bysomeone" is required to establish the requisite causallink between the plaintiffs injury and thedefendant’s alleged RICO violations.

Judge Easterbrook’s conclusion that proximatecause could be established on the facts of this case isfully consistent with Ho]mes. The fraudulentscheme at issue here led directly to plaintiffs’injuries: defendants did not seek to harm theCounty or property owners, but rather sought toinflate their own share of valuable tax liens at thedirect expense of plaintiffs and other bidders whootherwise would have been awarded those liens atthe auction. Moreover, because liens were allocatedon a rotational basis to bidders making the identicalbid (a 0% penalty to property owners), plaintiffs’injuries could not have resulted from factors otherthan defendants’ alleged acts of fraud. Finally, thisis not a case where any other entity has an economicincentive, and necessarily could be expected, to sue(or already had sued).

Petitioners allege that the decision belowconflicts with decisions of the Fourth, Fifth, Sixth,Eighth, and Eleventh Circuits. Pet. at 6-7. That isincorrect. In ruling that plaintiffs need not havebeen the recipient of the false statements at issue toestablish proximate cause, the Seventh Circuit

13

agreed with virtually every other circuit that hasconsidered that issue.3

An early decision after Holmes was MidAtlantic Teleeom, Inc. v. Long Distance Services.,Inc., 18 F.3d 260 (4th Cir. 1994). In that case, aRICO plaintiff contended that defendant, acompetitor, had engaged in a fraudulent schemeinvolving mail and wire fraud directed at plaintiff’scustomers, thereby injuring plaintiff. The districtcourt granted summary judgment for defendant. Onappeal, the Fourth Circuit reversed even though itrecognized that plaintiff did not allege it hadreceived the mailings or telephone calls at issue. Id.at 263. The court emphasized it had not intended inits previous decisions "to establish a rule that onlyinjuries suffered by the immediate victim of apredicate act satisfied the ’by reason of’ requirementof § 1964(c)." Id. Here, "[g]iven the opportunity toengage in discovery," plaintiff Mid Atlantic "may beable to show that while the scheme was initiallyaimed only at defrauding LDS customers, Rice

3 It is significant that in their petition for rehearing en bancbelow, petitioners acknowledged that the Fourth and FifthCircuits "recognize a very narrow exception where a third party(not the plaintiff) relies on a fraudulent misrepresentation butthe plaintiff was, in fact, the intended target of the scheme."See Pet. for Reh’g En Bane of Appellees Bridge, et al., at 9 (7thCir. filed Mar. 5, 2007) (citing Sandwich Chef of Texas and MidAtlantic, discussed infra). Petitioners also acknowledged thatthe Seventh Circuit may have viewed the instant case as fallingwithin "the narrow confines of the ’target’ exception to thereliance requirement." Id. In their petition for certiorari,however, petitioners make no reference to that issue, which isin fact the very issue in this case.

14

broadened the sweep of the intrigue to include MidAtlantic as a direct target (i.e., to obtain an unfaircompetitive advantage in recruiting Mid Atlanticcustomers)." Id. The court concluded that "[a]finding of proximate cause in such a situation wouldnot be at odds with the Supreme Court’s holding inHolmes, since Mid Atlantic is not seeking tovindicate the rights of its former customers..." Id.at 264.

Although petitioners now count the FourthCircuit as one of the circuits requiring "reliance," ~eePet. at 6 (but ~ee n. 3, supra), it is apparent theFourth Circuit does not always require that thep]ainti££ have received and relied upon thefraudulent statements at issue. Just as the SeventhCircuit recognized here that plaintiffs were the on]yparties injured by the fraudulent scheme at issue,Pet. App. at 5a, the Fourth Circuit allowed a RICOclaim to proceed where the plaintiff was the "directtarget" of the fraudulent predicate acts.4

4 In the concluding portion of its opinion, the Fourth Circuitcommented that if Mid Atlantic "was aware" of defendant’s useof the fraudulent billing program, then Mid Atlantic could nothave "relied" on defendant’s proffered lower rates in setting itsown rates. 18 F.3d at 264. This is a different issue thanwhether the plaintiff must have received and relied upon thefalse statements at issue. A party’s knowledge of thedefendant’s fraud before it was injured may, depending on thefacts, foreclose recovery. However, to the extent respondentshere must prove they acted reasonably in reliance onpetitioners’ compliance with the Single, Simultaneous BidderRule, their reasonable reliance has not been challenged andremains an issue for trial. See supra n. 1; in/~,a at 28-29. It

15

The Fifth Circuit - another one of the circuitsnow claimed by petitioners, see Pet. at 6 (but seen. 3, supra) - later decided a case on all fours withMid Atlantic. In Proctor & Gamble Co. v. AmwayCorp., 242 F.3d 539 (Sth Cir. 2001), plaintiff P&Gbrought RICO and other claims, contendingdefendants had sent false and disparagingstatements about P&G to consumers.The districtcourt dismissed the RICO claim because P&G hadnot alleged it relied on the false statements. TheFifth Circuit reversed. It explained that generally in"civil RICO claims in which fraud is alleged as apredicate act, reliance on the fraud must be shown,"id. at 564, but that there also was "a narrowexception to this rule." Id. Relying on its earlierdecision in Summit Properties Inc. v. HoeehstCelanese Corp., 214 F.3d 556, 561 (Sth Cir. 2000),which in turn had relied on Mid Atlantic, the FifthCircuit ruled that "a target of a fraud that did notitself rely on the fraud may pursue a RICO claim ifthe other elements of proximate causation arepresent." Proctor & Gamble, 242 F.3d at 564-65.

That is precisely what the Seventh Circuitruled here. Moreover, just like respondents’ claimhere, P&G’s claim fell squarely within this narrow

also was in this same sense that the court in Chi~olm v.TranSouth Financial Corp., 95 F.3d 331 (4th Cir. 1996) - a caserelied on by petitioners - required "reliance" by the plaintiff.See id. at 339 (remanding to allow RICO claim to go forward solong as plaintiffs amended their complaint to plead what theyhad argued in the case, which was simply that they had actedin "reliance on the apparent legitimacy and legality of theoperation") (emphasis in original) (internal citations omitted).

16

exception: "if P&G’s customers relied on thefraudulent rumor in making decisions to boycottP&G products, this reliance suffices to showproximate causation." Id. at 565; see also SandwichChef o£ Texas, Inc. v. Reliance Nat’l Indem. Ins. Co.,319 F.3d 205, 223 (Sth Cir. 2003) (noting narrowexception to the requirement that a RICO plaintiffprove direct reliance on the fraudulent predicate act,which "only comes into play when the plaintiff candemonstrate injury as a direct and contemporaneousresult of fraud committed against a third party").

In Ideal Steel Supply Corp. v. Anza, 373 F.3d251 (2d Cir. 2004), rev’don other grounds, 126 S. Ct.1991 (2006), the Second Circuit agreed that a civilRICO plaintiff need not always prove his ownreliance on predicate acts of mail or wire fraud toestablish the necessary element of proximate cause.Rather, as in Mid Atlantic and Proctor & Gamble,the court held that "where a complaint containsallegations of facts to show that the defendantengaged in a pattern of fraudulent conduct that iswithin the RICO definition of racketeering activityand that was intended to and did give the defendanta competitive advantage over the plaintiff," thecomplaint adequately pleads proximate cause, "evenwhere the scheme depended on fraudulentcommunications directed to and relied on by a thirdparty rather than the plaintiff." Id. at 263.

This Court reversed, although not because ofplaintiffs undisputed inability to prove his ownreliance on the defendant’s misrepresentations.Rather, the Court held that plaintiff could not

17

establish proximate cause because the allegedviolation did not lead directly to plaintiffs injuries.126 S. Ct. at 1997-98. Rather, plaintiffs lost salesreadily could have resulted from factors other thandefendants’ alleged acts of fraud, and direct victimshad been defrauded and could be expected to sue fordamages. Id. In a separate opinion, Justice Thomasdisagreed with the Court’s proximate cause analysisand thus reached, but rejected, the contention that"reliance" was an independent element requiredunder RICO. Justice Thomas emphasized that "thefact that proof of reliance is often used to prove anelement of the plaintiffs cause of action, such as theelement of causation, does not transform relianceitself into an element of the cause of action." Id. at2008 (Thomas, J., concurring in part and dissentingin part).5

Finally, although the Ninth Circuit has notdecided whether reliance by the plaintiff is alwaysrequired in civil RICO actions, it too has been carefulto frame the controlling issue as one of causation, notreliance. In Poulo~ v. Caesar~ World, Inc., 379 F.3d654 (9th Cir. 2004), the court emphasized that"[e]ausation lies at the heart of a civil RICO claim"and that, "[i]n some eases, reliance may be a’milepost on the road to causation."’ Id. at 664

5 Justice Breyer also dissented in part in A~za and explainedthat claims based on "illegitimate competitive means" could beactionable; thus, "[c]laims involving RICO violations thatobjectively target a particular competitor, e.g., bribing anofficial to harass a competitor, could also be actionable." 126 S.Ct. at 2011 (Breyer, J., concurring in part and dissenting inpart) (emphasis added).

18

(internal citation omitted). In the case before it, thecourt held that "reliance provides a key causal link"between the defendants’ alleged misrepresentationsand the plaintiffs’ injury. Id. at 665. But itemphasized that it had not decided "whether relianceis the only way plaintiffs can establish causation in acivil RICO claim predicated on mail fraud" and that"we have been careful to frame the controlling issuein terms of causation, not reliance." Id. at 666(emphasis in original). Similarly, in Living Designs,Inc. v. E.I. DuPont de Nemours and Co., 431 F.3d353 (9th Cir. 2005), cert. denied, 126 S. Ct. 2861(2006), the court did not address the issue, because itfound that plaintiffs had adequately pleaded thatthey "reasonably relied on [DuPont] to obey statutes,court orders, court rules, rules of evidence, writtenagreements, representations to the court by officersof the court, and representations made under oath tothe court by [DuPont]’s officers and agents." Id. at363 (quoting complaint; alteration in original).6

Indeed, only one circuit - the Sixth - appearsto hold that a civil RICO claim may be establishedonly upon a showing in every ease that plaintiff itself

~ The First Circuit has broadly refused to "depart from RICO’sliteral language by importing a reliance requirement intoRICO," Systems Management, Inc. v. Loi~elle, 303 F.3d 100,104 (lst Cir. 2002), and thus has viewed the issue just asJustice Thomas did in his later opinion in Anza. Even so, theFirst Circuit has agreed that "[r]elianee is doubtless the mostobvious way in which fraud can cause harm, but it is not theonly way." Id.

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relied on defendant’s false statements.7 In its mostrecent decision on the issue, however, all threejudges of the panel questioned this position. Brownv. Ca~sens Transp. Co., 492 F.3d 640 (6th Cir. 2007).Judge Gibbons, writing for the court, noted that "wemay quarrel with the soundness of [the] conclusion"that reliance is required under civil RICO when it isnot required as an element of criminal mail and wire

7 In its decision below, the Seventh Circuit also identified theEleventh as requiring reliance by the plaintiff in RICO casesinvolving fraud, citing Sikes v. Teleline, Inc., 281 F.3d 1350(llth Cir. 2002). It does not appear, however, the EleventhCircuit has ever considered a RICO ease in which the plaintiffwas the direct target of a fraudulent scheme involvingstatements made to and relied on by others. Certainly, Sikeswas not such a ease. Sikes was a consumer class action inwhich all members of the purported plaintiff elass had, in fact,personally received the false statements at issue. Id. at 1355,1362. Nor was a question of third party reliance presented inPelletier v. Zweifel, 921 F.2d 1465 (11th Cir. 1991), relied on bypetitioners. Moreover, in Beck v. Prupis, 162 F.3d 1090 (llthCir. 1998), aft’d, 529 U.S. 494 (2000), the Eleventh Circuitstated that a RICO claim could be established "if the plaintiffhas alleged an injury proximately caused by the defendants’acts of racketeering that target the plaintifF.’ Id. at 1096 n.10(emphasis added). And in its most recent RICO jurisprudence,the Eleventh Circuit has moved away from any relianceanalysis and, in keeping with this Court’s decision in Anza, hasinstead focused on proximate cause. See Williams v. MohawkIndus., Inc., 465 F.3d 1277 (llth Cir. 2006), cert. denied, 127S. Ct. 1381 (2007). Similarly, although the Eighth Circuitgenerally requires "detrimental reliance" in RICO actions, seeAppletree Square I Ltd. Partnership v. W.R. Grace & Co., 29F.3d 1283, 1286 (8th Cir. 1994), it is not clear whether it wouldrecognize the narrow "target" exception found by other circuitsin a case that presented the issue.

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fraud. Id. at 644. Judge Gibbons also described as"legitimate" the conclusion of the First Circuit thatRICO’s terms do not require reliance. Id. at 646 n.3.Nevertheless, she explained that "[e]ven if we acceptplaintiffs’ view that our RICO jurisprudence hasgone astray in imposing a reliance requirement onplaintiffs pursuing private actions under § 1964(c),our mere belief that a prior case was wrongly decidedis insufficient to permit reversal of the decision of aprevious panel." Id. at 646. Judge Ackermanconcurred but emphasized that "RICO, properlyconstrued, does not require that a plaintiff plead ordemonstrate reliance in a civil RICO case based uponthe predicate acts of mail or wire fraud." Id. at 651(emphasis added) (Ackerman, J., concurring). JudgeMoore dissented in part and urged that "we shouldconvene the en banc court to reexamine ... whethera civil-RICO claim incorporates the element ofreliance." Id. at 651 (Moore, J., concurring in partand dissenting in part). Such a petition for en banereview is, in fact, still pending in the case.s

Thus, petitioners simply are wrong incontending in this Court there is a 5-3 split, in favorof petitioners, on the issue decided by the SeventhCircuit. Pet. at 6-7. To be sure, all the circuitsappear to agree that reliance generally is a "mileposton the road to causation," Poulos, 379 F.3d at 664(internal quotation marks omitted), and also thatreliance is "doubtless the most obvious way in which

s See Brown v. Csssens Transport Co., No. 05-2089 (6th Cir.)(petition for en bane rehearing filed July 24, 2007; responsedirected by court Aug. 24, 2007; response filed Sept. 7, 2007).

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fraud can cause harm," Loisello, 303 F.3d at 104.But of all the circuits that have considered the issuepresented here, only the Sixth Circuit has potentiallyrejected (as foreclosed by earlier decisions) theproposition that, in narrow circumstances such asthose presented in this case, in Mid At]antie, and inProctor & Gamble, proximate cause can beestablished by the direct target or victim of afraudulent scheme, even where the false statementsat issue were sent to and relied on by a third party.9

In sum, the circuit eases taken together areconsistent on several key points. Where the plaintiffis the recipient of the alleged false statements (asindeed most often is the case), the plaintiff generallymust have relied on those statements to be able toestablish proximate cause. This simply is an adjunctof the logical proposition, discussed further below,that if the recipient did not rely on the falsestatements at issue, it is difficult to prove that thosestatements caused any injury. See infra at 27. Inaddition, a plaintiffs knowledge of the fraud mayforeclose recovery, either because as the recipientplaintiff cannot reasonably rely on statements itknew to be false, or possibly because with knowledgeof the fraud plaintiff may have been able to avoid itsinjury. Stated more generally, in an appropriatecase the plaintiff may be required to show that itacted reasonably in reliance upon a perceived

9 As explained infra at 22, although the Sixth Circuit rejectedthe proposition as foreclosed by its earlier decisions, it alsonoted that the issue was not actually presented in the casebefore it.

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absence of fraud. But the cases that have consideredthe issue also have consistently held that thep]ainti££ itse]£ need not always be the party thatreceived and relied on the false statements at issue,so long as its injury is direct and not derivative. As aresult, there is no ripe conflict among the circuits,and the Court need not intervene.

B. The Court Should Deny the Petition.

There are at least three reasons why thepetition in this case should be denied.

1. First, even accepting that one circuithas indicated its position is in conflict with thedecisions in Mid Atlantic, Proctor & Gamble, andother eases, this acknowledged "conflict" may wellresolve itself. As noted above, a petition for en baneconsideration is presently pending in the SixthCircuit, with judges openly calling for the ease to bereheard.

Further, even if the Sixth Circuit were to denythe pending petition for en bane review, the conflictmight still resolve itself. The Sixth Circuit couldwell decide that the issue is not properly presentedin that pending ease. See Brown, 492 F.3d at 645 n.2(noting that the "reliance by a third party" allowed inMid Atlantic and Proctor & Gamble would notchange the result in the ease before it, becauseplaintiffs conceded that "their original complaintcontained no allegations of reliance by a third party,"plaintiffs had been denied leave to amend, andplaintiffs had not appealed that decision). Given theexpress call in Brown that the circuit address the

23

issue en bane, the Sixth Circuit might accept en banereview in another case when the issue is squarelypresented.

2. Second, the decision below is correct,consistent with the language of the RICO statute,and supported by substantial other authority. TheCourt should wait to consider the issue until it issquarely presented in a conflicting decision from theSixth Circuit - the only circuit with a potentiallyinconsistent position on this issue.

As the Court recognized in Holmes and Anzs,the touchstone of the inquiry of who may bringclaims under RICO is proximate cause. Thatrequirement of proximate cause, which imposes "ademand for some direct relation between the injuryasserted and the injurious conduct alleged," Holmes,503 U.S. at 268, flows directly from the statutorylanguage that a RICO plaintiff must be injured ’%yreason of’ an unlawful predicate act. 18 U.S.C.§ 1964(c). As Justice Thomas - the only Justice toreach and consider the issue - explained in hisseparate opinion in Anza, however, "[b]ecause anindividual can commit an indictable act of mail orwire fraud even if no one relies on his fraud, he canengage in a pattern of racketeering activity, inviolation of § 1962, without proof of reliance." Anza,126 S. Ct. at 2007 (Thomas, J., concurring in partand dissenting in part). Justice Thomas recognizedthat "reliance" is a "specialized condition" requiredfor common law fraud, but one that finds no place inthe language of RICO:

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[T]here is no language in § 1964(c) thatcould fairly be read to add a reliancerequirement in fraud cases only. Nor isthere any reason to believe thatCongress would have defined’racketeering activity’ to include actsindictable under the mail and wirefraud statutes, if it intended fraud-related acts to be predicate acts underRICO only when those acts would havebeen actionable under the common law.

Id. at 2008. Thus, although Justice Thomasrecognized that proof of reliance often could be usedto prove the element of e~u~ation, that fact "does nottransform reliance itself into an element of the causeof action." Id.

Although Justice Thomas is the only Justice tohave considered the issue directly, his conclusion isconsistent with the Court’s RICO jurisprudence andthe views of other Justices. The Court repeatedlyhas focused on proximate cause as the touchstonedetermining who may bring claims under RICO,even when it was apparent in Anza that the plaintiffhad not "relied" on the fraudulent statements atissue. Moreover, as noted above, in his separateopinion in Anza, Justice Breyer would have foundproximate cause present for "[c]laims involving RICOviolations that objectively target a particularcompetitor" through "illegitimate" means. 126 S. Ct.at 2011 (Breyer, J., concurring in part and dissentingin part).

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Justice O’Connor’s concurrence in Holmes,joined by Justices White and Stevens, also issignificant. Justice O’Connor would have reachedthe question presented in the case and would haveruled that although plaintiff had not establishedproximate cause, it did have "standing" to bring aRICO claim, despite the fact it had not purchased orsold a security in reliance upon the defendants’fraudulent conduct. Justice O’Connor emphasizedthat the RICO statute "sweeps broadly, authorizing’~ny person’ who is injured by reason of a RICOviolation to sue," 503 U.S. at 278-79 (O’Connor, J.,concurring in part and concurring in the judgment)(emphasis in original), and she would have madeclear that "the words ’any person’ cannot reasonablybe read to mean only purchasers and sellers ofsecurities." Id. at 279.

So long as the plaintiff could establishproximate cause, Justice O’Connor would haverejected the effort to narrow the scope of civil RICO,just as the Court had refused to narrow it in Sedima,S.P.R.L. v. Imrex Co., 473 U.S. 479 (1985),explaining: "If the defendant engages in a pattern ofracketeering activity in a manner forbidden by[§ 1962’s] provisions, and the racketeering activitiesinjure the plaintiff in his business or property, theplaintiff has a claim under § 1964(c). There is noroom in the statutory language for an additional...requirement." Id. at 495. Justice Scalia alsoconcurred in Holmes, and he too would have heldthat a RICO plaintiff alleging a predicate act ofsecurities fraud need not prove it was a purchaser or

26

seller of the securities in question - but mustnevertheless establish proximate cause. Ho]~nes, 503U.S. at 286-87 (Scalia, J., concurring in thejudgment).

The consistent theme of the Court and theJustices writing separately in these cases isthat although the RICO statute requires a directrelation between the plaintiffs injury and thedefendant’s racketeering activity, there is no place inthe statute for additional elements that would bar aperson directly injured by unlawful racketeeringactivity from pursuing a RICO claim. The same istrue for a "reliance" requirement that is divorcedfrom, or in addition to, the statutory requirement ofproximate cause.

As the Solicitor General argued recently in abrief for the United States in Bank of China v. NBML.L.C., No. 03-1559: "Civil RICO requires relianceby someone when the predicate offenses involvefraud in order to establish the requisite causal linkbetween the injury and the RICO violation, but notnecessarily reliance by the plaintif£ An examinationof the language of the statute bears this out." Brieffor the United States as Amicus Curiae at 21, Bankof China y. NBM L.L.C., 546 U.S. 1026 (2005) (No.03-1559) (emphasis in original), available at 2005WL 2875061.l° Noting that § 1964(c) provides a

10 This Court granted a petition for certiorari in Bank of Chinato consider a related question of reliance under RICO underdifferent facts. The case involved allegedly false statementsmade to the plaintiff, the Bank of China, and the Second Circuitheld that the plaintiff recipient must have reasonably relied on

27

cause of action for "any person" injured by reason ofa violation of § 1962, the Solicitor General arguedthat "to the extent that a plaintiff can show a ’directrelation’ between its injury and misrepresentationsdirected to a third party, see Holmes, 503 U.S. at[269], a rule barring recovery on a third-partyreliance theory would be inconsistent with Section1964(c)’s evidence breadth." Id. at 22 (citing Sedima,the decision of the Second Circuit in Anza, andMid Atlantie).

To be sure, to establish proximate cause in aRICO ease involving mail or wire fraud, someonetypically must have relied upon the false statementsat issue. If the false statements were not relied uponby the recipient, it would be difficult to prove thatthe plaintiff’s injuries were proximately caused (orindeed caused at all) by those false statements. Butthere is no reason under RICO why the falsestatements need to be received and relied on by theplaintiff in every ease.

That is precisely the point of the Mid Atlanticand Proctor & Gamble eases, and it was precisely thepoint of Judge Easterbrook in his opinion for the

the statements. Bank o£China v. NBMLLC, 359 F.3d 171, 178(2d Cir. 2004) ("Bank of China was required to prove that itreasonably relied on defendants’ purported misrepresentations- i.e., the representations that the defendants made to theBank in order to obtain the loans.") (emphasis added), cert.granted, 545 U.S. 1138 (2005). Although the issue whethersuch reliance was required was fully briefed in this Court, thepetition for certiorari was dismissed when the case settled.Bank o£Cl~ina v. NBML.L.C., 546 U.S. 1026 (2005).

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Seventh Circuit below. The allegations in this case,properly presumed to be true, are that defendantsused the mail and wires to engage in a fraudulentscheme to take business away from the plaintiffs.The County was not harmed, because both plaintiffsand defendants offered the County the same price.Property owners were not harmed, because bothplaintiffs and defendants agreed not to impose onthem any penalty, i.e., the same 0% rate. OnI.yplaintiffs were harmed financially, and onlyplaintiffs had an economic incentive to sue, by reasonof conduct that was the direct and immediate causeof plaintiffs’ loss of valuable tax lien properties. Tothe extent that plaintiffs’ financial harm was directlycaused by a fraudulent scheme involving use of themail or wires as part of a pattern of racketeeringactivity by the defendants, plaintiffs have stated aclaim for relief under RICO.

Thus, there is no reason for the Court toconsider this case, which is consistent with theCourt’s proximate cause jurisprudence under RICOand with the decisions of all other circuits to considerthe issue, except possibly the Sixth. If the Courtever needs to address the issue of "plaintiff reliance"under RICO, it should do so only if and when aconflicting decision presenting that issue arises fromthe Sixth Circuit.

3. Third, this case is not an appropriatevehicle to resolve the issue in any event. TheSeventh Circuit has ruled only that respondentshave stated a claim. Proceedings on remand maydevelop further the manner in which respondents

29

themselves relied on petitioners’ alleged falsestatements: for instance, respondents may developproof that their very decision to participate in theauction, and to incur specific costs in connection withthat participation, was made in reliance on theintegrity of the allocation process used by the Countyto award parcels to identically situated bidders. See,e.g., Living Designs, 431 F.3d at 363 (reliance byplaintiff adequately based on claims plaintiff"reasonably relied on [DuPont] to obey statutes,court orders, court rules, rules of evidence, writtenagreements, representations to the court by officersof the court, and representations made under oath tothe court by [DuPont]’s officers and agents");Chisolm, 95 F.3d at 339 (allegation that plaintiffrelied "on the apparent legitimacy and legality of theoperation" sufficient under RICO) (internal citationomitted).

In addition, the overarching issue of proximatecause, and the factors identified by this Court inHolmes and Anza, also will be further developed.The complaint alleges a fraudulent scheme in whichdefendants manipulated and inflated the number oftax liens they were able to secure at the directexpense of other, identically situated bidders. Beforethis Court considers the issues of proximatecausation and reliance in this case, further factualdevelopment concerning those allegations would bevaluable.11

11 It also is significant that the issue of "reliance" was not thespecific focus of the proceedings below, and thus inevitably will

3O

CONCLUSION

The petition for a writ of certiorari should bedenied.

Respectfully submitted,

LOWELL E. SACHNOFF

DAVID C. BOHAN

JOHN W. MOYNIHAN

REED SMITH SACHNOFF ~

WEAVER

10 South Wacker Drive40th FloorChicago, Illinois 60606(312) 207-1000

DAVID W. DEBRUIN*

JENNER & BLOCK LLP

601 Thirteenth St., NWSuite 1200 SouthWashington, DC 20005(202) 639-6000

Counsel for Re~pondent~

Counsel for BCS Service~, Inc. * Counsel o£Reeord

be developed further on remand. As noted above, supra at 6,the district court ruled that respondents lacked "standing" tosue under RICO. On appeal, petitioners argued that the issueof reliance was "largely academic." Supra at 6. Because of theway the issue was presented below, the Court of Appealsprincipally analyzed this case in terms of standing andproximate cause, rather than "reliance." See Pet. at 3a-8a.Thus, although the litigation below clearly focused on the factthat respondents had not been recipients of themisrepresentations at issue, there has been minimalconsideration of whether respondents nevertheless could provereliance "qua reliance," to the extent that "reliance" is anindependent requirement under RICO.

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JONATHAN L. MARKS

KATTEN MUCHIN

ROSENMAN LLP

525 West Monroe StreetChicago, Illinois 60661(312) 902-5200

Counsel for Phoenix Bond& Indomnity Company

November 16, 2007