Hemi Group, LLC v. City of New York
The Supreme Court ruled that New York City could not sue an online cigarette seller under the federal anti-racketeering law (RICO) for lost tax revenue, because the seller's failure to report customer information to the state was too many steps removed from the City's actual loss.
The decision limits how broadly RICO's private lawsuit provision can be used to fill gaps left by other laws, making clear that a plaintiff must show the wrongdoing directly caused its harm, not just that it was part of a chain of events leading to that harm.
How it got here: A federal trial court dismissed the City's RICO suit; the Second Circuit reversed and reinstated it; the Supreme Court agreed to review the case.
The Case in Depth
What happened
New York City taxes cigarette possession within the city. Hemi Group, a New Mexico-based online cigarette seller, sold cigarettes to city residents but was not required to collect the city's tax; buyers were supposed to pay it themselves. A federal law, the Jenkins Act, required Hemi to report buyers' names and addresses to New York State, which was supposed to forward that information to the City so it could pursue unpaid taxes. Hemi never filed those reports, and the City said this cost it tens of millions of dollars in uncollected taxes.
The question before the Court
Could New York City use a federal racketeering law to recover unpaid cigarette taxes from an out-of-state seller that failed to report customer names to the state?
The Court's answer
No — the City could not use RICO to recover the lost tax revenue, because Hemi's failure to report customer information to the state was not a direct enough cause of the City's loss. RICO requires more than just showing the violation was a "but for" cause of the harm; it requires proximate cause, meaning a close, direct link between the wrongdoing and the injury.
Here, several independent links separated Hemi's reporting failure from the City's loss: Hemi owed its reporting duty to the state, not the City; the state (not Hemi) was supposed to forward the information; and it was the individual customers' own choice not to pay taxes they legally owed that directly caused the City's revenue shortfall. Because a different party's independent decision — not Hemi's fraud — directly caused the harm, the City's theory failed RICO's direct-relationship requirement.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Cities and states seeking to recover unpaid taxes from out-of-state sellers cannot rely on RICO's treble-damages lawsuit to fill gaps in tax-collection laws when the seller's reporting failure only indirectly caused the lost revenue. The ruling narrows a tool governments and private plaintiffs might otherwise use to convert regulatory or reporting violations into lucrative racketeering claims, and it reinforces a stricter standard for who counts as directly harmed.
What changes now
The case is remanded to the lower courts, but with instructions that the City's RICO claim cannot proceed on this theory of causation. The City is left without a RICO remedy for its uncollected cigarette taxes from this seller, though the opinion notes the State itself might have stronger grounds to pursue its own claims. This is a final merits decision, not a temporary order.
What this does not decide
The Court did not decide whether lost tax revenue counts as "business or property" under RICO at all, since it resolved the case on the separate ground that any injury was not directly caused by Hemi's conduct. It also assumed, without deciding, that failing to file Jenkins Act reports can qualify as mail or wire fraud under RICO.
Concurrences and dissents
Concurrence in part — Justice Ginsburg
Justice Ginsburg agreed with the outcome but wrote separately to emphasize a narrower rationale: because the City has no authority to tax Hemi directly, and the Jenkins Act itself provides only limited remedies for reporting violations, RICO should not be read to let the City circumvent those limits. She joined the majority's opinion only to the extent consistent with this view and declined to endorse its broader proximate-cause reasoning.
Dissent — Justice Breyer
“The upshot is that the harm is foreseeable; it is a consequence that Hemi intended, indeed desired; and it falls well within the set of risks that Congress sought to prevent.”The dissent's argument that foreseeability and intent should establish RICO causation here.
Justice Breyer argued that Hemi's failure to report customer information was a foreseeable, indeed intended, cause of the City's tax losses, and that RICO's causation requirement should account for foreseeability and intent, not just directness. He contended the state acted merely as an information conduit to the City, so routing the fraud through the state should not defeat causation, and he would have allowed the City's claim to proceed.
How the Court got there
The legal reasoning, step by step
- The Court applied the proximate-cause standard for civil RICO claims set out in Holmes v. SIPC, which requires more than a 'but for' cause — the wrongdoing must have a direct relationship to the injury, not one that is too remote, purely contingent, or indirect.
- Under that standard, courts generally do not trace harm beyond the first link in a causal chain; a plaintiff whose injury depends on the independent actions of other parties usually cannot satisfy the direct-relationship test.
- The Court found the City's theory required tracing harm through multiple independent steps: Hemi's failure to report to the state, the state's obligation (not Hemi's) to pass information to the City, and then individual customers' own choices not to pay taxes they owed.
- Comparing the case to Anza v. Ideal Steel Supply, where a competitor's harm was too attenuated from a tax fraud committed against a different victim, the Court found the disconnect here even sharper because separate parties, not just separate actions, caused the reporting failure and the ultimate revenue loss.
- The Court also noted that the state, not the City, was the party Hemi owed reporting duties to and was better positioned to sue, reinforcing that the City's harm stemmed from the customers' independent nonpayment rather than directly from Hemi's conduct.
- Because the City's causal theory required moving well beyond the first step in the chain of events, the Court concluded RICO's direct-relationship requirement for proximate cause was not satisfied.
Doctrinal impact
Cases affected by this decision
Reaffirms Anza v. Ideal Steel Supply Corp. (547 U.S. 451)
The Court relied on Anza's requirement of a direct causal connection between the RICO violation and the plaintiff's harm.
Reaffirms Holmes v. Securities Investor Protection Corporation (503 U.S. 258)
The Court applied Holmes's standard that RICO plaintiffs must show proximate, not just but-for, causation.
Distinguishes Bridge v. Phoenix Bond & Indemnity Co. (553 U.S. 639)
The Court said Bridge involved a straightforward, direct injury unlike the multi-step causal chain here.