914 F.3d 648
9th Cir.2019Background
- Harmoni International Spice (Harmoni) imports Chinese fresh garlic into the U.S. and uniquely enjoys a zero-duty rate exempting it from anti-dumping duties.
- Rival Chinese exporters allegedly conspired to eliminate Harmoni’s advantage via two schemes: (1) funneling garlic into the U.S. using fraudulent customs documents to evade duties; and (2) recruiting small U.S. growers to file sham administrative-review requests with the Department of Commerce and publicly make false accusations (e.g., prison labor) during the review.
- Harmoni sued nearly two dozen defendants under RICO; several defendants moved to dismiss. The district court dismissed Harmoni’s RICO claims with prejudice as to certain defendants and entered a Rule 54(b) judgment permitting immediate appeal.
- On appeal Harmoni challenged dismissal of RICO claims against Hume, Montoya, Crawford, and Huamei Consulting; the district court dismissed based primarily on proximate-cause deficiencies (and for Huamei, insufficient predicate acts).
- The Ninth Circuit affirmed dismissal as to the funneling scheme but reversed and remanded as to harms flowing from the sham-administrative-review scheme, finding adequate proximate-cause allegations for costs of responding to the review and allowing leave to amend on lost-sales and reputational injury theories and allegations against Huamei.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether RICO proximate cause is pleaded for losses from funneling evaded-duty garlic | Harmoni: defendants’ fraud enabled competitors to undersell Harmoni, causing lost sales | Defendants: causal chain is indirect; intervening market forces and independent actors break proximate cause | Dismissal affirmed for funneling claims—injury too attenuated (Anza reasoning) |
| Whether sham administrative-review filings proximately caused Harmoni’s costs to defend the review | Harmoni: sham filings were intended to and did trigger mandatory administrative review, forcing Harmoni to incur defense costs | Defendants: the Department of Commerce, not Harmoni, was the direct victim of the sham filings | Reversed as to defense costs—Harmoni adequately pleaded direct causation and may recover those costs |
| Whether lost sales from false public accusations during the review satisfy proximate cause | Harmoni: defendants intended customers to see the false filings; lost sales flowed directly from customers’ reliance/belief | Defendants: plaintiffs did not show direct reliance or a direct causal link; injuries are remote | Complaint currently deficient on lost-sales causation but plausible; leave to amend granted to plead factual detail (Bridge and Lexmark guidance) |
| Whether reputational harm is a compensable RICO injury and pleaded sufficiently | Harmoni: reputational injury is an injury to business or property under state law and RICO | Defendants: reputational harm is intangible and not compensable under RICO | Court declines to decide compensability now; current pleading inadequate for proximate cause as alleged, but Harmoni may amend; remand to district court for further consideration |
Key Cases Cited
- Holmes v. Securities Investor Protection Corp., 503 U.S. 258 (recognizing RICO requires proximate cause)
- Anza v. Ideal Steel Supply Corp., 547 U.S. 451 (attenuated competitive injuries do not satisfy RICO proximate cause)
- Bridge v. Phoenix Bond & Indemnity Co., 553 U.S. 639 (plaintiffs can be injured by frauds aimed at third parties when the fraud foreseeably harms the plaintiffs)
- Lexmark International, Inc. v. Static Control Components, Inc., 572 U.S. 118 (harm to reputation can directly cause business injury; proximate-cause considerations)
- Ashcroft v. Iqbal, 556 U.S. 662 (complaints must plead factual content permitting reasonable inference of liability)
- Mendoza v. Zirkle Fruit Co., 301 F.3d 1163 (setting proximate-cause factors for RICO in Ninth Circuit)
- Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048 (leave to amend generally should be granted)
- Diaz v. Gates, 420 F.3d 897 (discussing compensable injuries under RICO)
- Oscar v. University Students Co-operative Ass'n, 965 F.2d 783 (treating reputation as an intangible interest)