Recursive call – Action lambda

Just define the delegate Action and assign null to it before calling it recursively.

Action<IItem, Int32> recurse = null;

Then

recurse = new Action<IItem, Int32>((item, depth ) =>
{
    if (item.Items.Count() > 0) recurse(item, depth + 1); // red squiggly here
    // ...
});

Good luck!