Antitrust Law Daily Wrap Up, RICO—3rdCir: RICO Claims Against Travel Club Companies Proceed, But Claims Against Credit Card Companies Rejected, (Nov 28, 2012)

By Jody Coultas, J.D.

Travel club purchasers stated Racketeer Influenced and Corrupt Organizations Act (RICO) claims in a class action complaint against travel club companies that allegedly sent mailings containing false representations, the U.S. Court of Appeals for the 3rd Circuit has held (Grant v. Turner, November 27, 2012, Rendell, M.). RICO claims against credit card companies that allegedly conspired with the travel club companies were dismissed.

The purchasers brought suit against various individual and corporate parties, alleging they were involved in creating and perpetuating fraudulent travel clubs that convinced consumers to buy memberships in various travel clubs and then never delivering the benefits promised. As part of the scheme, otherwise legitimate credit card companies provided “point of sale” financing for the sale of memberships in the bogus travel clubs. The parties circulated mailings through the U.S. mail that contained false promises of free rewards and/or benefits, such as free airline tickets, free car rentals, or free gas cards.

A district court dismissed the case after concluding that the claims did not meet the Rule 9(b) pleading standard because all the defendants were lumped together, each party was not properly notified of the exact nature of the claims asserted. The court also dismissed the RICO conspiracy claims.

To state a viable RICO claim under 18 U.S.C. § 1962(c), a plaintiff must allege (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. A pattern of racketeering activity requires a pleading of at least two predicate acts of racketeering. Because the predicate acts were mail and wire fraud, the heightened pleading requirement of Rule 9(b) applied. To state a RICO conspiracy claim under § 1962(d), a plaintiff must allege (1) agreement to commit the predicate acts of fraud, and (2) knowledge that those acts were a part of a pattern of racketeering activity conducted in such a way as to violate section 1962 (a), (b) or (c).

The purchasers failed to meet the heightened pleading standard with regard to the credit card companies as the claims did not specifically allege how the companies played a role in committing the predicate acts of fraud, according to the court.

As to the travel club parties, the district court’s dismissal of the claims was vacated and the case was remanded. Although the complaint failed to allege who, specifically, made misrepresentations to whom in all cases, it included many other details that meet the heightened pleading standard and put the parties on notice of the precise misconduct alleged. In cases dealing with deliberate concealment of the identities of salespeople and agents, there is no way to allege who made the misrepresentation absent discovery, according to the court.

The case is No. 11-2760.

Gary M. Meyers, I, Esq. (Gary Meyers Law) for Brian Grant. Richard D. Gallucci, Jr., Esq. (Lauletta Birnbaum) for Darryl Turner.

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