Heller v. Pillsbury Madison & Sutro

United States Court of Appeals for the Ninth Circuit · 1994 · Corporations

31 F.3d 924 (1994)

Updated August 22, 2026

CorporationsRICOproximate causedirect relationshipremotenesssubtenantmaster tenantarbitration

Facts

Pillsbury subleased office space in the Adam Grant Building from Sansome Realty Corporation (SRC), the building's master tenant under a long-term lease whose rent resets could be determined by arbitration. After the building was sold and then resold at a much higher price, the new owner and SRC went to arbitration over rent for the second ten-year renewal term, and the arbitrators set the annual rent at $2.4 million. SRC then notified Pillsbury that, under the sublease, Pillsbury had to pay a large share of the rent increase, but Pillsbury disputed that obligation and entered a standstill agreement with SRC. Pillsbury sued the owners and broker under RICO, alleging sham sales inflated the building's apparent value and thereby inflated the rent set in arbitration.

Issue

Can a subtenant state a civil RICO claim against alleged wrongdoers who manipulated a building's sale price when the subtenant's alleged loss arose only after rent arbitration involving the master tenant and the master tenant's attempted pass-through of the rent increase under the sublease? More specifically, was Pillsbury's alleged injury sufficiently direct to satisfy RICO proximate cause?

Rule

To maintain a civil RICO action, a plaintiff must show not only but-for causation but also proximate cause, meaning a direct relationship between the injury asserted and the injurious conduct alleged. In assessing directness, courts consider the Holmes concerns: difficulty of determining damages attributable to the violation rather than independent factors, risk of multiple recoveries and complicated apportionment, and whether directly injured victims can generally be expected to sue.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Seattle, Rowan Design subleases warehouse space from Harbor Line Properties, the master tenant under a long-term ground lease. Rowan sues the landowner and a broker under civil RICO, alleging they used sham transfers to inflate the property’s apparent value, which led Harbor Line to owe more rent and then demand higher sublease payments from Rowan under a pass-through clause.

Rowan can likely satisfy civil RICO proximate cause only if it shows which of the following?

Explanation. Civil RICO requires not just but-for causation but proximate cause, meaning a direct relationship between the injury asserted and the injurious conduct alleged. Where the plaintiff’s loss arises only because a master tenant first suffers the alleged harm and then seeks to pass it on under a separate contract, the injury is too remote. Foreseeability, precise arithmetic, and the direct victim’s failure to sue do not substitute for directness.