Civil RICO Class Action Dismissal Affirmed

A civil RICO class action challenging Spirit Airlines’ “Passenger Usage Fee” landed for a second time in the Eleventh Circuit and this time the airline fared better: the court affirmed the dismissal of the amended complaint in a major opinion on RICO pleading standards authored by Judge Stanley Marcus. Ray v. Spirit Airlines, Inc., 2016 WL 4578347 (11th Cir. Sept. 2, 2016).

The named plaintiff’s core grievance was that the airline attempted to pass off the Passenger Usage Fee as a government fee rather than as simply an element of the fare charged by the airline. The complaint theorized that the alleged deception amounted to mail and wire fraud, which are RICO predicate offenses.  The RICO enterprise that was operated through this fraudulent activity, allegedly, was an association-in-fact consisting of the airline itself plus two of its officers and some outside consultants.  In an earlier opinion, the Eleventh Circuit had vacated the district court’s dismissal of the complaint on the grounds that the Airline Deregulation Act preempted its claims.  On remand, the district court granted a renewed motion to dismiss, prompting another appeal.

This time, the Eleventh Circuit affirmed, citing first the complaint’s failure to plead sufficiently an injury as a result of the airline’s alleged mail and wire fraud. The court reasoned that a direct relationship between the violation and the injury must be alleged.  The court deemed “wholly unconvincing” the plaintiff’s theory that merely paying for a ticket demonstrated an injury as a result of the fraudulent activities.  The court acknowledged that RICO does not require a showing that the plaintiff personally relied on fraudulent statements to state a claim.  But the court found the complaint insufficient because it did not allege any link between the presentation of the Passenger Usage Fee and anyone’s decision to purchase tickets.  “In short, it seems utterly implausible to us that Spirit’s customers would have declined to purchase a ticket if, in the ‘taxes and fees’ listing on Spirit’s website, they encountered an item titled ‘Airline-Imposed Passenger Usage Fee.’”  This failed to satisfy RICO’s causation requirement.

The court also determined that the complaint failed to state a claim because it did not adequately allege a RICO enterprise. Specifically, the complaint failed to plausibly allege a common purpose shared by the alleged association-in-fact of the airline, two of its officers and various third-party consultants.  It was not alleged, for example, that the consultants knew how the fee was presented or shared in the profits that allegedly resulted.  The court also pointed out that in an association-in-fact enterprise, the officers of the corporation involved are not considered by the case law to be sufficiently “distinct” from the corporation itself.  The court did not decide whether the complaint’s mail and wire fraud allegations met the requirements of Rule 9(b) but expressed doubts that the complaint’s allegations were sufficient in that respect, either.

Posted by Tom Byrne.

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