Antitrust Law Daily Wrap Up, RICO—4th Cir.: RICO claims against prisoner call service providers revived on appeal, (May 30, 2023)

By Martin A. Steinberg, J.D.

A plaintiff may only pursue a RICO claim if she sufficiently alleges a direct relation between her injury and the defendant's RICO violation. Both the plaintiff and the government can be direct victims of the violations when their injuries are distinct.

A federal appellate court held that the district court erred by dismissing Plaintiffs' RICO claims under 18 U.S.C. § 1964(c), because they pleaded sufficient facts to allege that defendant technology companies, Global Tel*Link Corp. (GTL); Securus Technologies, LLC (Securus); 3Cinteractive Corp. (3Ci), proximately caused Plaintiffs' injuries by creating a scheme in which defendants directly injured both consumers and governments in tandem. The district court order was reversed and the case remanded back to the lower court. The suit was filed by Ashley Albert, Ashley Baxter, Karina Jakeway, and Melinda Jabbie, on behalf of themselves and all others similarly situated (Albert v. Global Tel*Link Corp., May 25, 2023, Diaz, A.).

Background. Two competitors, GTL and Securus, are the largest providers of inmate calling services. 3Ci works with both companies providing marketing services, processing charges to consumers, and managing GTL's and Securus's websites. Plaintiffs are consumers who used Securus's or GTL's single-call products. They sued under the Sherman Antitrust Act and RICO, alleging that the defendants illegally conspired to inflate the price of single calls, and in the process, materially misrepresented the amount of their transaction costs to justify the high consumer prices and low site commissions.

Friends and family members can receive calls from inmates by setting up an account with the correctional facility's calling-services provider. An account allows call recipients to be charged at a per-minute rate set by a contract between the provider and the state or local government that operates the facility. In 2017, the average price of a charged-per- minute call from an inmate in a state prison lasting 15 minutes was about $1.87, or less than $0.13 per minute. Along with setting per-minute rates, contracts between providers and governments also establish a "site commission" that the provider pays to the government for each call. Traditionally, the site commission for a per-minute call is about 50% of the total price of the call.

In 2010, Securus launched a "single call" program to supplement its per-minute offering. With Securus's single-call program, a consumer could pay a single flat fee per call rather than being charged by the minute. The single-call option let consumers skip the step of setting up an account. But Securus's single calls were more expensive than per-minute calls: Each single call cost $14.99 (up to 15 minutes) or $9.99 (up to 10 minutes). Unlike per-minute calls, where site commissions averaged around 50% of the price of the call, site commissions for single calls are a flat $1.60 for each $14.99 call and $0.30 for each $9.99 call. After Securus launched its single-call offering, GTL developed its own. GTL at first offered single calls at a lower price: a flat $3 fee on top of the per-minute rate.

According to the complaint, when government agencies were reviewing bids during this time, most would choose GTL over Securus because GTL's single calls were cheaper. But rather than lowering its own prices to stay competitive, Securus colluded with GTL through 3Ci to fix single calls at Securus's higher price. In 2013, GTL scrapped its lower-priced single-call offerings and replaced them with $14.99 and $9.99 single-call offerings that are functionally identical to Securus's. GTL's site commissions were also the same as Securus, resulting in Securus's and GTL's bids to governments being effectively indistinguishable. While Securus and GTL entered contracts with governments on a jurisdiction-by-jurisdiction or facility-by-facility basis, the prices and site commissions were non-negotiable. Thus, Securus's and GTL's contracts all provided for the same single-call prices and site commissions, nationwide.

The district court refused to dismiss the Sherman Act claims, however it dismissed Plaintiffs' RICO claims, holding that their theory of liability was "too remote to establish proximate cause" because their injuries "are contingent on, or derivative of, harm suffered by a third party—namely, the contracting governments." The trial court then granted a motion to certify the dismissal of the RICO claims as a final judgment and this appeal followed.

Direct relation test. The appellate court found that Plaintiffs sufficiently alleged that their injuries were proximately caused by the RICO violations. RICO establishes a private right of action for anyone "injured in his business or property by reason of a violation of" RICO's criminal provisions.

The phrase "by reason of" requires a "direct relation" between the plaintiff's injury and the defendant's RICO violation. Holmes v. Sec. Inv. Prot. Corp., 503 U.S. 258, 268, 112 S. Ct. 1311, 117 L. Ed. 2d 532 (1992). The US Supreme Court set forth three principles supporting a direct-relationship requirement: First, "the less direct an injury is, the more difficult it becomes to ascertain the amount of a plaintiff's damages attributable to the violation, as distinct from other, independent, factors." Second, allowing claims by "plaintiffs removed at different levels of injury from the violative acts" would increase the "risk of multiple recoveries." Third, there's no need to get into such complicated inquiries when "directly injured victims can generally be counted on to vindicate the law as private attorneys general."

The court found that Plaintiffs and the governments are both direct victims. While the governments' injuries could be cured if Defendants paid higher site commissions, this would have still resulted in Plaintiffs paying the same inflated price. Accordingly, Plaintiffs' injuries were not derivative of those suffered by the governments. The mail and wire fraud were part of the same scheme that triggered the inflated prices that Plaintiffs paid.

Ascertainable damages. Though the court noted that Plaintiffs may eventually face the difficult task of ascertaining the amount of their damages attributable to the violation versus from other independent factors, these are questions of fact that should not be resolved at the pleading stage. Plaintiffs' compensatory damages is separate from the sum Defendants should have paid to the governments in site commissions. Thus, if the government entities later sued Defendants, their slice of the pie would differ from that owed to Plaintiffs. While the government entities may have their own parallel RICO claims they could assert against Defendants, they are no better situated than Plaintiffs.

Next, the court rejected the district court's holding that Plaintiffs' theory relied on speculation about what the contracting governments would have done but for the alleged misrepresentations. At this stage, however, Plaintiffs need only allege facts plausibly supporting a reasonable inference of causation, which the complaint plausibly supported an inference that governments would have demanded lower prices for consumers but for Defendants' misrepresentations. Moreover, the court noted that Plaintiffs didn’t make mere assumptions since they included the expected testimony of former executives of Defendants.

3Ci. Finally, the court refused to affirm the dismissal of 3Ci on the ground that the complaint fails to allege that it violated RICO since the complaint alleged wrongdoing by 3Ci that is part of Defendants' overall RICO-violating scheme. While 3Ci may be able to show at summary judgment that it wasn't involved in the alleged scheme, the complaint plausibly alleged otherwise for now.

The case is No. 22-1472.

Attorneys: Robert Abraham Braun (Cohen Milstein Sellers & Toll, PLLC) for Ashley Albert. Jonathan Ian Gleklen (Arnold & Porter Kaye Scholer LLP) for Global Tel*Link Corp.

Companies: Global Tel*Link Corp.

Cases: RICO MarylandNews