Proximate causation has been a consistent problem for RICO plaintiffs. The Supreme Court imposed the requirement in the frequently cited Holmes case in 1992. But the court did not define what that means. Rather it equated proximate causation with another vague concept, “direct injury.” And what is a direct injury? Three decades and three more Supreme Court decisions later, all we really can say with certainty is that a direct injury is not “derivative” of an injury felt by someone else. Needless to say, this has made deciding causation a difficult task for the lower courts and created uncertainty for RICO plaintiffs.

Now the Fourth Circuit has confused things even more in Albert v. Global Tel Link. There the plaintiffs, suing as class representatives, claimed the defendants, two rival telecommunications companies, made false representations to government entities in order to obtain contracts to provide phone service to people calling state jails to speak to prisoners. The false statements resulted in decreased commission revenues being realized by the governments and higher prices to the consumers. The defendants obtained dismissal in the district court by arguing the governments were the direct victims of the scheme and the consumers’ injuries were therefore “indirect” and not proximately caused by the RICO violations. Or, as the Supreme Court held in the Holmes, Anza, and Hemi cases, only the first victim can sue.

But the Fourth Circuit reversed the dismissal by relying on the Supreme Court’s reasoning in the one RICO case in which it has found a direct injury was properly alleged, Bridge v. Phoenix Bond (2008). In Bridge the plaintiff was a bidder at auctions held by a county for tax liens. The plaintiff claimed it would have won more of the liens had the defendant not lied to the county about compliance with its single bidder rule which enabled it to have agents bidding at the auctions and thus winning a disproportionate number of the liens. The Supreme Court held the plaintiff alleged a direct injury even though the fraudulent statements were made to the county and it, not the plaintiff, relied on these statements. And the Fourth Circuit did not distinguish Bridge in view of the fact that the governments alleged their own injuries from the fraud, reduced commissions. Rather, it held both the governments and the plaintiffs were both direct victims of the fraud. So, the governments could also bring a RICO case, though they have not. The court also held the plaintiffs’ injuries were not too “distinct” from the RICO violations because both the fraud and the injuries plaintiffs suffered were committed by the defendants. This distinguished the case from Anza where the injuries to the plaintiffs, paying higher prices, were distinct from the RICO violations, submitting false sales tax returns to New York State.

The concept of two direct victims of RICO violations has never been so clearly permitted by any court of appeals before. So this is a big victory for RICO plaintiffs. It will permit more RICO cases to be brought in the Fourth Circuit. It will also result in a cert. petition to the Supreme Court. This case should be followed closely.