On March 24, 2011, the Seventh Circuit provided a thorough discussion of proximate cause in the context of a RICO case in
, ___ F.3d ___ (7th Cir. 2011), Case Nos. 10-3062, 10-3068. Judge Posner's discussion is relevant far beyond the RICO context and will be useful in many types of cases. We will have to explain the facts of this case in some detail, so that you can understand the context.
less..
In this case, the plaintiffs brought a RICO claim against a group of defendants related to the purchase of tax liens at auction in Cook County, Illinois. When an owner of property in Cook County fails to pay his property tax on time, the amount of tax that is due (which is to say past due) becomes a lien on the property. The county sells its tax liens at auctions. The bids at the auctions are stated as percentages of the taxes past due. If the taxpayer fails to redeem by paying what he owes, the purchaser of the lien can obtain a tax deed to the property and thus become the property's owner. For reasons that don't need to be explained in detail here, the best bid is a zero-percent bid.
The auctions are conducted in rapid-fire fashion in a room in which the bidders bid by raising a card with their bidder ID number and shouting out their penalty percentage (usually “zero!”). Almost 85 percent of the winning bids are at the zero-percent penalty level, which implies that most bids are identical bids (identical zero-percent bids). The auctioneer tries to award the lien to the bidder who raised his hand first. But if many bidders raised their hands as soon as the bidding began, the auctioneer would use some other method to allocate awards fairly. The County's rules permit only one agent of a potential buyer, or of a group of cooperating buyers ("related entities"), to bid. Otherwise a potential buyer could increase the likelihood of winning by packing the room. If a buyer did pack the room, then it would have engaged in a pattern of mail fraud in violation of RICO.
The plaintiffs accused the defendants of engaging in a RICO conspiracy to pack the room. The district court dismissed the case on the ground that the plaintiffs lacked standing to sue because they hadn't relied on the fraud. The Seventh Circuit reversed and the Supreme Court affirmed the Seventh Circuit's decision in
Bridge v. Phoenix Bond & Indemnity Co. The case was remanded to the district court, which then dismissed the case on the ground that the plaintiffs can't prove that the fraud was a "proximate cause" of their alleged losses. The plaintiffs again appealed.
On appeal, the Court engaged in an extensive discussion of actual and proximate causation.
You cannot obtain damages for fraud or any other tort, whether you are litigating under common law or the RICO statute, without proving that the fraud caused a loss to you, such as a financial loss, for which damages can be awarded. The problem is that there may be multiple causes of your loss, obscuring the effect of the defendant's wrongful act. Sometimes the causes are joint. For example, a passerby drops a match in a puddle of oil created by a leak from a tanker truck, and the oil explodes. Without both match and leak — hazards created by separate persons — there would be no explosion and so no harm. Who should be liable?
Sometimes causes are alternative: a person is stabbed by two knife-wielding assailants, and either stab wound would have been fatal. Should both be excused from liability because neither was necessary for the injury to occur? And likewise when each of two wrongdoers could have caused the plaintiff's injury and it is unclear which did and each points at the other and says let me off because the other guy may have done it.
Or sometimes — and here is where the doctrine of proximate cause does its work — too many unexpected things had to happen between the defendant's wrongdoing and the plaintiff's injury, in order for the injury to occur — so many unexpected things that the defendant couldn't have foreseen the effect of his wrongdoing and therefore couldn't have been influenced, in deciding how much care to employ in the activity that produced the wrongful act, by the prospect of inflicting such an injury as occurred.
...
The doctrine of proximate cause ... protects the ability of primary victims of wrongful conduct to obtain compensation; simplifies litigation; recognizes the limitations of deterrence (unforeseeable consequences of a person's acts will not influence his decision on how scrupulously to comply with the law); and eliminates some actual or possible but probably minor causes as grounds of legal liability. All this is true in RICO cases just as in other tort cases whether common law or statutory.
In this case, the Court found that the defendants proximately caused the plaintiffs harm because it was foreseeable that packing the room would cause the defendants to win a larger number of awards (the evidence in the case showed that the defendants received a significant percentage of the awards.
The defendants stole a business opportunity from the plaintiffs by flooding the auction room with raised hands that shouldn't have been there. The only intermediate cause and effect pair was the raising of hands (cause) and the auctioneer’s determination of the winning bid (effect), and this pair doesn't weaken the inference that by having more hands in the air the defendants stole tax liens from the other bidders.
The defendants argued that the plaintiffs were required to prove the absence of alternative causes. The Court disagreed.
The plaintiff doesn't have to prove a series of negatives; he doesn't have to "'offer evidence which positively exclude[s] every other possible cause of the accident.'" In technical legal terms the burden of proving an "intervening cause" — something which snaps the "causal chain" (that is, operates as a "superseding cause," wiping out the defendant’s liability) that connects the wrongful act to the defendant's injury — is on the defendant.
...
The defendants [arguments concerning the negatives that the plaintiffs had failed to prove] were throwing sand in the district judge's eyes. The object of their conspiracies was to obtain liens that would otherwise go to one-armed bidders — there could be no other reason for wanting to pack the room in violation of the County's rule. The plaintiffs were major bidders. They bid for many thousands of liens. How likely is it that they lost no bids to bidders who had 13 arms in the room but should have had only three?
Once a plaintiff presents evidence that he suffered the sort of injury that would be the expected consequence of the defendant's wrongful conduct, he has done enough to withstand summary judgment on the ground of absence of causation.
The Court then described that the burden of proof on damages is more relaxed than the burden of proof on causation.
In this case, for example, the plaintiffs do not have good records of which tax liens they bid for unsuccessfully. The only reason they would have needed such records was to prove damages in a lawsuit. Since they didn't know they were victims of fraud,they had no reason to think they needed good records of their unsuccessful bids — for of what use would such records have been had there been no fraud? The judge missed this point because he confused proof of causation with proof of amount of damages and so denied the plaintiffs the benefit of the easier burden of proving damages than of causation.
...
The statistical evidence in this case would be enough, when combined with evidence also presented by the plaintiffs of the average profit they made on the zero-percent liens that they won, to carry their burden of proving an amount of damages with sufficient (which is not to say with great) precision to justify an award of that amount.
Although we've quoted extensively from the case, it is worth reading because it is full of examples that demonstrate the Court's point. However, the decision boils down to the quote referenced in the title to this post: "Once a plaintiff presents evidence that he suffered the sort of injury that would be the expected consequence of the defendant's wrongful conduct, he has done enough to withstand summary judgment on the ground of absence of causation."
