Holmes and its progeny for guidance here. With Holmes 's analysis in mind, I turn to the adequacy of the causal connection that links defendant's fraud on DOE with plaintiffs' injury. Plaintiffs' claim alleges a straightforward three-party fraud scheme in which the principal players are defendant (the perpetrator), DOE (the deceived conduit for the fraud), and plaintiffs themselves (the injured victims). This scheme posits a chain of causation comprised of the following steps. First, defendant fraudulently certified to DOE the eligibility for the GSL program of the schools defendant operated. Second, DOE provided student loan guarantees through the GSL program based on defendant's fraudulent certification. Third, plaintiffs, who were low-income individuals and could not afford tuition payments without substantial financial assistance like that provided by the GSL program, enrolled in defendant's schools based on the availability of GSL funding. In enrolling in defendant's schools, plaintiffs incurred substantial student loan debts to GSL lenders, remitting the proceeds of those loans to defendant's schools as payment for allegedly worthless training and placement services.
Defendant contends that this chain of causation is insufficient to establish proximate cause under RICO as a matter of law. I disagree. First, plaintiffs' theory satisfies the foreseeability mandate that forms the basis of proximate cause law generally and that Holmes adopted in the RICO context. Second, plaintiffs' theory is fully consistent with the three policy concerns articulated by the Holmes Court in support of that mandate. I develop each of these points separately.
The foreseeability determination, for purposes of RICO's proximate cause inquiry, is guided by the nature of the underlying predicate acts alleged, here mail fraud. Prudential Ins. Co., 828 F. Supp. at 296 (citing Holmes, 112 S. Ct. at 1328 (Scalia, J., concurring)). To hold a defendant liable for mail fraud, a RICO plaintiff "need not be the primary victim, only an intended victim" of the scheme. Prudential Ins. Co., 828 F. Supp. at 296; Matter of EDC, Inc., 930 F.2d 1275, 1279 (7th Cir. 1991). Plaintiffs easily satisfy this "intended victim" standard, as they were both essential to fraud's success and the first parties to be injured by it.
As alleged here, defendant's mail fraud scheme cast plaintiffs not in some tangential or remote role, but rather as the star victims. The principal benefit defendant sought to secure under that scheme was the tuition revenue and resulting profit made possible by the guaranteed student loans plaintiffs assumed. Without plaintiffs' participation as borrowers, all of the acts by which defendant allegedly defrauded DOE and manipulated the GSL program, and even DOE's guarantees themselves, would have been, at least financially, for naught. In short, plaintiffs' injury, i.e., their assumption of tuition debt, was the sine qua non of the scheme's success. Thus, plaintiffs' claim is, in this critical respect, akin to that upheld by the Third Circuit in Shearin v. E.F. Hutton Group, Inc., 885 F.2d 1162, 1169-70 (3d Cir. 1989), a case decided before Holmes but followed by the Seventh Circuit in the post-Holmes decision of Schiffels v. Kemper Fin. Servs., Inc., 978 F.2d 344 (7th Cir. 1992). In Shearin, the Third Circuit addressed the claim of a "whistleblower" fired for threatening to expose her employer's securities fraud conspiracy directed at third-party customers, holding that the plaintiff had alleged a causal connection between the conspiracy and her firing sufficient to establish standing under RICO. Shearin, 885 F.2d at 1168-69. The firing was "by reason of" the conspiracy violation there, the court reasoned, because it was "essential" to the conspiracy's secrecy and thus to the conspiracy's perpetuation. Id.
That plaintiffs' injury was sufficiently foreseeable to satisfy the proximate cause test is further supported by the students' place as the first victims in the alleged fraud chain. In assuming liability for tuition debts, plaintiffs experienced an immediate, cognizable injury. See Torres v. CareerCom, 1992 U.S. Dist. LEXIS 14412, No. 91 Civ. 3587, 1992 WL 245923, at *4 (E.D. Pa. Sept. 18, 1992) (allegations that plaintiffs assumed student loans adequately pleaded RICO injury); cf. Rosario v. Livaditis, 963 F.2d 1013, 1021 (7th Cir. 1992) (jury could have found that students suffered RICO injury in incurring tuition debt). DOE, by contrast, could suffer harm in its role as guarantor only later, upon the default of the primary borrowers, plaintiffs. See 20 U.S.C. § 1080 (DOE's guarantee triggered only upon student borrower's default). Accordingly, plaintiffs' theory rests securely on Justice Holmes's bedrock proximate cause dictum, "The general tendency of the law, in regard to damages at least, is not to go beyond the first step." Southern Pac. Co. v. Darnell-Taenzer Lumber Co., 245 U.S. 531, 38 S. Ct. 186, 62 L. Ed. 451 (1918) (quoted in Holmes, 112 S. Ct. at 1319). Compare Holmes, 112 S. Ct. at 1319 (proximate cause not established where plaintiff customers were injured "only insofar as the stock manipulation first injured the broker-dealers and left them without the wherewithal to pay customers' claims") (emphasis added).
Nor is the causal nexus destroyed here merely because DOE occupied a spatially intermediate position between defendant and plaintiffs in the flow of the alleged fraud, as defendant contends. Three-party or "pass-through" mail fraud chains, in which money or property is extracted from a victim by means of a mailing directed at some other person or entity, are not, by definition, too weak or too labyrinthine to withstand proximate cause scrutiny. Thus, cases since Holmes have rejected proximate cause challenges to claims alleging such schemes in a variety of factual contexts. See Prudential Ins. Co., 828 F. Supp. at 297 (asbestos manufacturers' mailings to architects and building contractors understating asbestos risks could have proximately caused injury to purchasers of asbestos-contaminated buildings); Trautz v. Weisman, 819 F. Supp. 282, 287 (S.D.N.Y. 1993) (nursing home operators' mailing of false compliance certifications to licensing agencies in order to secure renewal of operating licenses could have proximately caused injury to nursing home residents); Phoenix Home Life Mut. Ins. Co. v. Brown, 857 F. Supp. 7, 10 (W.D.N.Y. 1994) (insurance agents' mailing of false materials to competing insurer's policyholders to steal business for agents' employer could have proximately caused injury to competing insurer). See also Shaw v. Rolex Watch U.S.A., Inc., 726 F. Supp. 969, 972-73 (S.D.N.Y. 1989) (watch manufacturer's false mailings to U.S. Customs officials to induce seizure of watch importer's inventory could have proximately caused injury to watch importer). Fundamentally, plaintiffs' theory is no different than those sanctioned in these cases. Accordingly, it is sufficient to survive defendant's causation attack.
Indications from the Third Circuit support this conclusion. In Tabas v. Tabas, 47 F.3d 1280, 1995 WL 55662 (3d Cir. 1995) (en banc), its most recent RICO pronouncement, the Third Circuit clarified in a footnote that victims of a RICO mail fraud need not demonstrate reliance on the predicate mailings themselves in order to allege a viable claim. Id., 1995 WL 55662, at * 17 n.18. As is the case here, such reliance on predicate mailings is often absent in schemes that connect perpetrator and victim through an intermediate person or entity. Thus, by freeing RICO plaintiffs from pleading direct reliance on the underlying mailings, Tabas, I believe, implicitly allows for RICO liability in the sort of three-party, "pass-through" fraud structure alleged here.
2. Policy Considerations
The soundness of the result I reach on the doctrinal ground of foreseeability is confirmed when plaintiffs' claim is tested against the three policy concerns articulated in Holmes. 112 S. Ct. at 1318. First, there are no difficulties here in calculating the damages attributable to defendant's alleged mail fraud as distinguished from those attributable to other factors. As alleged here, the entire injury -- that is, the aggregate amount of student loans assumed by plaintiffs -- was made possible only by the loan guarantees secured through defendant's alleged fraud on DOE. Second, because the "damages" here correspond to the outstanding student loan balances plus any credited loan payments, complicated apportionment rules to account for multiple levels of injury are unnecessary. The only parties among whom damages would be apportioned are the plaintiff borrowers and DOE, in its capacity as ultimate guarantor. Plaintiffs' recovery, then, should reflect simply their previous payments and the outstanding loan balances for which they are currently liable. Third, plaintiffs, not DOE, are the parties initially and "directly" injured by their assumption of fraudulently induced debt, and they, not DOE, would be the initial parties to undertake the role of private attorneys general to deter RICO violations such as those alleged here. Plaintiffs are the borrowers under the GSL arrangement and the primary obligors on the notes that represent their debts to participating lenders. DOE, by contrast, acts merely as the ultimate guarantor of the GSL program and is liable to make good on its guarantee here only upon the plaintiffs' default. See 20 U.S.C. § 1080.
* * * * *
In sum, plaintiffs' theory falls well within the bounds of the proximate cause standard evolving under RICO. This result is supported by both the doctrine and policy of proximate cause law. My conclusion, moreover, is faithful to the Third Circuit's admonition that "RICO is to be read broadly" to effectuate that Act's remedial purposes. Tabas, 47 F.3d 1280, 1995 WL 55662, at * 16 (further observing that "the Supreme Court has consistently struck down efforts by the courts of appeals to narrow RICO's scope") (internal quotations and citations omitted). Constrained "by the language of the statute and the Supreme Court's interpretation of it," id., I cannot conclude that plaintiffs' injury was not "by reason of" defendant's fraud under Holmes and its progeny. Accordingly, I reject defendant's proximate cause basis for summary judgment.
B. Remaining Bases for Summary Judgment
Defendant also asserts a variety of additional bases for summary judgment here, none of which warrants discussion. I list them for completeness' sake only. First, defendant advances several other reasons why causation cannot be established here, contending that: (i) defendant made no misrepresentations to DOE; (ii) DOE did not rely on the alleged misrepresentations; (iii) the schools' eligibility for funding was not a substantial factor in plaintiffs' enrollment; and (iv) with respect to those plaintiffs who enrolled in the Watterson School of Business and Technology and could not complete the course there due to that school's closure, there is no allegation or proof that defendant's alleged fraud was in any way responsible for the Watterson School's demise. Second, defendant asserts that plaintiffs cannot prove the requisite "person""enterprise" distinctiveness required under RICO because plaintiffs' alignment of RICO "person" and "enterprise" here is undermined by the fundamentally incompatible alignment plaintiffs alleged in a related case before Judge Waldman, Torres v. CareerCom, No. 91 Civ. 3487. Third, defendant argues that plaintiffs' RICO claim is in fact an impermissible private action under the Higher Education Act, 20 U.S.C. §§ 1070-1099. Fourth, defendant claims that plaintiffs' suit is precluded by a settlement agreement approved in this litigation dismissing plaintiffs' claims against DOE. Finally, defendant contends that plaintiffs' assumption of student loan debt does not constitute an actionable injury under RICO.
I have considered each of these arguments carefully. Finding that the record discloses fact issues with respect to defendant's causation arguments and that the remaining arguments are without legal merit, I reject these contentions summarily.
I cannot conclude that plaintiffs' RICO theory fails to establish proximate cause as a matter of law simply because it posits a chain of causation beginning with defendant's fraud on DOE and ending with plaintiffs' assumption of student loans to pay for worthless education. A trier of fact could find that the causal nexus between defendant's mail fraud and plaintiffs' enrollment and indebtedness is "proximate," and it should be allowed to consider that question. I thus reject defendant's proximate cause challenge. Defendant's remaining arguments for summary judgment here are also unavailing, as they either implicate disputed factual issues or are without legal merit. Accordingly, I will deny defendant's motion for summary judgment. An appropriate order follows.
ANITA B. BRODY, J.
AND NOW, this 13th day of March, 1995, IT IS HEREBY ORDERED that, for the reasons stated in the accompanying Memorandum, defendant's "Motion to Dismiss and for Summary Judgment" and defendant's "Motion to Dismiss Claims Based on School Closing or for Partial Summary Judgment" are DENIED.
ANITA B. BRODY, J.