Summit Properties, Inc. v. Hoechst Celanese Corp.

United States District Court for the Southern District of Texas · Corporations

CorporationsCivil RICOProximate CausationSupplemental JurisdictionRICO18 U.S.C. § 1964mail fraudwire fraud

Facts

Plaintiffs owned commercial and residential properties containing polybutylene plumbing systems. They alleged that Shell Chemical Company organized manufacturers and related entities into a "PB Enterprise" to promote polybutylene plumbing systems and create demand for them. According to plaintiffs, defendants made material misrepresentations to building code entities, builders, and plumbers about the systems' attributes. Plaintiffs conceded they did not rely on anything defendants said or published when purchasing their properties and instead relied on building inspectors who said the plumbing systems complied with local building codes.

Issue

Can plaintiffs state a Civil RICO claim predicated on mail and wire fraud when they do not allege that defendants made misrepresentations to them or that they themselves relied on those misrepresentations, but instead allege reliance on third parties influenced by defendants' statements?

Rule

To satisfy the proximate causation requirement of a Civil RICO claim predicated on mail or wire fraud, plaintiffs must allege that defendants made material misrepresentations to them and that plaintiffs relied on those misrepresentations to their detriment. Allegations that defendants' misrepresentations were directed only to third parties are insufficient.

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

In Phoenix, Elena Morris bought a small apartment building after receiving a brochure mailed directly to her by Desert Flow Systems, a pipe supplier. The brochure falsely stated that the building's water lines had been independently proven durable for 40 years, and Elena says she purchased the property because of that representation. The pipes later failed, causing major property damage.

If Elena brings a civil RICO claim predicated on mail fraud, which is the strongest argument that she has adequately pleaded proximate causation?

Explanation. Under the majority opinion, a civil RICO plaintiff relying on mail or wire fraud predicates must allege that the defendant made material misrepresentations to the plaintiff and that the plaintiff relied on those misrepresentations to his or her detriment. Elena alleges both direct communication and reliance, which satisfies the proximate-causation requirement as articulated by the court. (Derived from Summit Properties, Inc. v. Hoechst Celanese Corp. (n.d.).)