Unlawful and Non-Competitive Parallel Conduct is Still Insufficient to State a RICO Claim

The Eleventh Circuit relied on Twombly’s heightened pleading standard in affirming a dismissal for failure to state a RICO claim in Almanza v. United Airlines, 2017 WL 957191 (11th Cir. Mar. 13, 2017). The plaintiff Mexican nationals, representing a putative class, were charged a tourism tax by the defendant airlines as part of their airfare, purportedly required under Mexican law, even though the defendants allegedly knew that the plaintiffs were actually exempt from the law. Each of the defendant airlines was a member of the Mexican legal entity CANAERO, which gave them a means of coordinating Mexico-related airlines matters with each other and with Mexican authorities. Specifically, the CANAERO members, including the defendants, entered into an agreement so that they could implement procedures allowing the airlines to collect the tax from passengers who owed it. Although the plaintiffs were exempt from this tax as Mexican nationals, the complaint alleged that the defendants collected the tax from them and failed to refund the tax. To address this injury, the plaintiffs brought RICO claims under 18 U.S.C. § 1962(c), 1962(a), and 1962(d).

For each of these claims, the plaintiffs must allege the existence of an “enterprise.” An “association-in-fact” enterprise is “a group of persons associated together for a common purpose of engaging in a course of conduct,” requiring the plaintiff to show a purpose, relationships among those associated, and longevity sufficient to permit these associates to pursue the enterprise’s purpose. Almanza, 2017 WL 957191, at *4.  The court found that the plaintiff had easily shown purpose and longevity; the issue was whether the plaintiffs had adequately pled “relationships among those associated with the enterprise.” Id.

To show this relationship, the plaintiffs alleged that the defendants entered into an agreement to collect the Mexico Tourism Tax from exempt travelers, an agreement that was itself an association-in-fact. The court responded that these allegations simply recited a legal conclusion—the existence of an enterprise, and that the plaintiffs’ real argument was that the court should infer an agreement from the parallel conduct of the defendants. To respond to this inferred argument, the court turned to Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), noting that it is not enough that the defendants all end up doing the same fraudulent thing or that parallel conduct without “further factual enhancement” is alleged. Almanza, 2017 WL 957191, at *5.

The plaintiffs argued that they did not simply allege conscious parallel conduct without the “further factual enhancement” that was missing in Twombly. For a first factual enhancement, the plaintiffs pointed to the allegation that the defendants’ parallel conduct was unlawful—that is, that before they could commit the predicate acts of tricking customers into paying a tax they didn’t owe, they first had to breach their agreement through CANAERO and then to defraud exempt travelers. The court responded that this was still just an allegation of parallel conduct: the fact that each defendant engaged in the same two-step process in committing fraud does not suggest a meeting of the minds.

In an attempt to show a second factual enhancement, the plaintiffs alleged non-competitive conduct, that by charging the tax, the defendants could not have been pursuing any reasonable economic goal because the economically rational course would have been either to not charge the tax, undercutting the other airlines, or report the other airlines to the authorities. Because the defendant airlines responded that the economically rational course would have been exactly the course taken, the court could not find that the plaintiffs’ economic model was plausible.

For the third factual enhancement, the plaintiffs pointed to the defendants’ membership in CANAERO. After the execution of the agreement not to collect the tax from exempt travelers, CANAERO’s managing director met with the defendants both privately and in groups because he feared that the defendants were collecting the tax in breach of the agreement. Through these meetings, the defendants learned that the others were improperly collecting the tax. The defendants then promised the Mexican tax commissioner to stop collecting the tax. The plaintiffs described these facts as establishing collusive conduct. The court responded that this too was mere parallel conduct. “[I]t makes no difference whether Defendants have engaged in parallel conduct in the same room as each other or in the same economic market as each other, since it was economically rational for each Defendant to remain silent when confronted with its own wrongdoing.” Almanza, 2017 WL 957191, at *9.

In response to the plaintiffs’ argument that an association-in-fact can “arise organically over time” like a conspiracy, the court explained that while this may apply to the element of purpose, it does not apply to the existence of relationships among the defendants. Almanza, 2017 WL 957191, at *9.  Lastly, the plaintiffs argued that the agreement itself provided a further factual enhancement. But the court responded that the agreement in no way evidences a meeting of the minds beyond the meeting of the minds expressed in the agreement. An agreement not to collect the tax from exempt travelers does not show an agreement to collect the tax from exempt travelers. Finding none of the plaintiffs’ proposed “further factual enhancements” to indicate more than parallel conduct, the Eleventh Circuit affirmed the district court’s dismissal of the claims under RICO for failure to state a claim. It also affirmed the district court’s finding that a proposed amendment to the complaint would be futile because they had already been allowed one chance to amend before the district court’s order of dismissal.

Posted by Keith Emanuel.

Back to top