Native American Tribe’s RICO Case is Smoked Out


The Cayuga Nation sells tobacco and cannabis on its reservation. The Tribe can undercut the competition – they don’t have to collect state or local taxes. So they attract a healthy share of business from non-Tribal customers in the surrounding area.

Seizing on the opportunity, unauthorized non-Tribal people opened a retail store in Tribal territory. They counterfeited the Tribal logo and illegally sold untaxed cigarettes and cannabis. The Tribe was rightfully upset. So it sued.

The Tribe’s suit certainly had a great deal of merit. But its claim under RICO, unfortunately, did not.

It takes more than a Predicate Act to state a claim under RICO

The Tribe claimed that the sale of untaxed cigarettes and cannabis was a predicate act upon which a RICO claim could be based. But a successful RICO claim requires more than just a predicate act. The plaintiff must be the “victim” of the wrong perpetrated by the “predicate act”. In this case, the Cayuga Nation was not really the victim. Instead, the State of New York, the loser of the anticipated tax revenue from the illegal sale of cigarettes, was the “direct” victim of the illegal sales. And this is not just “blowing smoke” – this is based on the authority of the Supreme Court in the Anzaand Hemi cases.

The Plaintiff must be a Direct Victim of the Predicate Act to state a claim under RICO

RICO is a powerful litigation tool. But not every case can be brought under RICO. The Supreme Court’s “proximate causation” decisions directly apply. So the Tribe could not use RICO to establish its theory of unfair competition. Even if the Tribe were the direct victim, it would have had a tough time winning under RICO because the Second Circuit has held that businesses lose sales for a host of reasons. Proving the RICO violation is the “proximate cause” of lost business is difficult.

Antitrust Analysis May Save the Day

The Tribe’s roadblocks to a RICO claim may be overcome through an antitrust-type analysis of its lost profits. It would have to plead and prove that  it has enough market power to have attracted those lost customers even if there had been no RICO violation. The Tribe would need a solid economist to back this claim. And of course, Daubert would then come into play.

Lessons Learned

Don’t bring a RICO case unless the plaintiff is the direct victim of the wrongful predicate act. Don’t bring a RICO case unless the RICO violation is the “proximate cause” of the injury. No doubt the Tribe’s attorneys were sophisticated. They clearly understood the law of unfair competition. They probably should have steered clear of RICO, at least in this case.

RICO is a powerful but complex weapon. Plantiffs’ attorneys should keep it in their arsenal.

Foster PC – The RICO AuthorityTM –  is Here for You

When you have an unfair competition case or are even thinking about RICO, call Foster PC., The RICO AuthorityTM. RICO is all we do. We will help you discover whether you have a solid claim under RICO. And if not, we will save you a lot of time, money and credibility you would lose pursuing a fruitless claim.