Antitrust Law Daily Wrap Up, RICO—11th Cir.: Concealment of usage fees didn’t cause direct injury to customers of Spirit Airlines, (Sep 6, 2016)

By Mark Engstrom, J.D.

A federal district court did not err in dismissing a putative class action that individual consumers had brought against Spirit Airlines, which allegedly violated RICO by fraudulently concealing and misrepresenting "Passenger Usage Fees," the U.S. Court of Appeals in Atlanta has ruled. Because the plaintiffs failed to plead proximate cause, failed to identify a racketeering enterprise that was distinct from the culpable RICO person, and failed to adequately allege a common purpose among the individuals and entities that composed the enterprise, the judgment of the district court was affirmed (Ray v. Spirit Airlines, Inc., September 2, 2016, Marcus, S.).

The plaintiffs alleged that Spirit Airlines had perpetrated an elaborate racketeering enterprise that they furthered through mail and wire fraud. According to the plaintiffs, Spirit was disguising its Passenger Usage Fee as a government-imposed or authorized fee, even though it was part of the price that the airline charged for a base fare.

Specifically, when consumers searched for flights on Spirit’s website, they saw only base fares. If a specific flight was selected, the webpage would confirm their selection by displaying the base fare and an undifferentiated amount labeled "Taxes & Fees." For a breakdown of those charges, consumers had to click on an additional link for more information. Consumers were then informed that the added charges included government taxes and fees and a "Passenger Usage Fee."

According to the plaintiffs, Spirit made a coordinated effort to conceal the true nature of the Passenger Usage Fee by leading customers to believe that the fee was an official government tax or sanctioned fee. In their view, Spirit committed mail and wire fraud when it used the Internet to advertise and sell air fares by deceptively concealing and misrepresenting those "excessive and unconscionable" Passenger Usage Fees.

Proximate cause. According the court, the plaintiffs alleged that they and other class members had been harmed because they had detrimentally relied on Spirit’s fraudulent conduct. As a result, they needlessly incurred excessive and unconscionable Passenger Usage Fees. Because the plaintiffs’ allegation amounted to little more than a conclusory statement in support of a threadbare recital of proximate cause, which was plainly insufficient to support a cause of action, the RICO claim was inadequately pleaded.

The plaintiffs argued that "merely purchasing a ticket and paying the unlawful passenger usage fee in the process" was, by itself, proof of reliance on the fraudulent conduct of Spirit. The court was unpersuaded. Although payment of the Passenger Usage Fee might establish an injury in fact, it did not establish proximate cause (i.e., it did not establish that the plaintiffs had sustained an injury as the direct result of Spirit’s fraudulent misrepresentations), according to the court. The mere fact that the plaintiffs had been misled did not lead inescapably to a cognizable RICO claim unless the act of misleading caused an injury to the plaintiffs’ business or property.

Ultimately, the plaintiffs did not allege a direct link—or any link at all—between Spirit’s presentation of its Passenger Usage Fee and the plaintiffs’ decision to purchase tickets on Spirit’s website. Instead, they pleaded causation at the "highest order of abstraction" and supported those pleadings with conclusory assertions. Notably absent, in the court’s view, was an allegation of a specific fact that would make those conclusions plausible. In short, the court found it "utterly implausible" that Spirit’s customers would decline to purchase an airline ticket if they found, in the "taxes and fees" disclosure on Spirit’s website, an item titled "Airline-Imposed Passenger Usage Fee."

Because the plaintiffs failed to allege that they or anyone else had relied on Spirit’s alleged misrepresentations—and thus failed to show that they were injured "by reason of" a RICO violation—they failed to state a valid claim for relief. The dismissal of the plaintiffs’ RICO claims was therefore warranted.

Enterprise. The alleged racketeering enterprise included Spirit, two Spirit officers, three software vendors, and a public relations consultant, but the plaintiffs failed to plausibly allege that the vendors and the consultant shared a common purpose with Spirit.

According to the plaintiffs, the enterprise members shared the common purpose of increasing the revenues of Spirit Airlines by increasing the Passenger Usage Fee and other carrier-imposed fees. That purpose was allegedly achieved through a fraudulent scheme that: (1) failed to disclose that the fees were a "bottom-line assessment" for Spirit and (2) omitted or falsely represented that the fees were unrelated to government taxes and "permitted fees" for services.

However, the court found that the plaintiffs did not allege any facts that would allow a plausible inference that the technology vendors and consultants were involved in the decisions concerning the portrayal of the Passenger Usage Fee, that the vendors and consultants knew about the "true nature" of that fee, or that the vendors and consultants worked intentionally to misrepresent the fee. Ultimately, the plaintiffs failed to plausibly allege that the vendors knowingly cooperated with Spirit in a scheme that involved the misrepresentation of the Passenger Usage Fee.

Distinctness. Even if the court assumed that the two Spirit officers shared the common purpose of misrepresenting the source of the Passenger Usage Fee—making it look like the fee was a government tax rather than an airline fee—the plaintiffs’ enterprise would still fail, the court noted, because a defendant corporation could not, under RICO, be distinct from its own officers, agents, and employees when those individuals were operating in their official capacities for the corporation.

To state a valid claim for relief, a RICO plaintiff had to establish a distinction between the defendant "person" and the racketeering "enterprise." In this case, however, the Spirit Airlines was both the enterprise (which including the corporation’s officers, agents, and employees) and the culpable RICO person. According to the court, every circuit that had squarely decided the issue of distinctness in similar situations had found that a distinct enterprise was not alleged.

The Eleventh Circuit likewise held that plaintiffs could not create an association-in-fact enterprise that included a corporate defendant and its agents or employees (who were acting within the scope of their corporate roles) because the corporation necessarily acted through its agents and employees. For that reason, the court concluded that a consequential distinction between the corporate person and the alleged enterprise was not present in this case.

The court clarified that, if an individual defendant acted through a corporation, that defendant could form an associated-in-fact enterprise with the corporation, which was distinct from the individual. However, a corporation acted solely through its officers, agents, and employees; therefore, a corporate defendant that acted through those proxies was simply a corporation. Calling it an associated-in-fact enterprise would simply refer to the corporate "person" by a different name.

The case is No. BPG-15-871.

Attorneys: Joel D. Eaton (Podhurst Orseck, PA) for Bryan Ray. Paul D. Clement (Bancroft, PLLC) and Scott Michael Dimond (Dimond, Kaplan & Rothstein, PA) for Spirit Airlines, Inc.

Companies: Spirit Airlines, Inc.

Cases: RICO AlabamaNews FloridaNews GeorgiaNews