Odom v. Microsoft Corp.

• Citation: 486 F.3d 541
• Decision Date: 04 May 2007
• Docket Number: No. 04-35468.,04-35468.
• Parties: James ODOM, Plaintiff-Appellant, v. MICROSOFT CORPORATION, a Washington corporation; Best Buy Co., Inc., a Minnesota corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

486 F.3d 541

James ODOM, Plaintiff-Appellant, v. MICROSOFT CORPORATION, a Washington corporation; Best Buy Co., Inc., a Minnesota corporation, Defendants-Appellees.

No. 04-35468.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 13, 2006.

Filed May 4, 2007.

Beth Terrell, Tousley Brain Stephens P.L.L.C., Seattle, Washington; Daniel C. Girard (argued), Girard Gibbs and De Bartolomeo LLP, San Francisco, CA; Anthony K. Lee, San Francisco, CA, for the plaintiff-appellant.

Charles B. Casper & Patrick T. Ryan, Montgomery, McCracken, Walker & Rhoads, Philadelphia, PA; Michael J. Shepard (argued), Heller Ehrman, San Francisco, CA; Jonathan M. Palmer, Kenneth E. Payson & Mathew L. Harrington, Heller Ehrman, Seattle, WA, for defendant-appellee Microsoft Corporation.

Stacy S. Schwartz, Robins Kaplan Miller & Ciresi, Los Angeles, CA; James Richard Murray, Gordon Murray Tilden, Seattle, WA; J. Kevin Snyder, Dykema Gossett, Los Angeles, CA, for defendant-appellee Best Buy Co.

Appeal from the United States District Court for the Western District of Washington; Marsha J. Pechman, District Judge, Presiding. D.C. No. CV-03-02976-MJP.

Before: MARY M. SCHROEDER, Chief Circuit Judge, STEPHEN REINHARDT, DIARMUID F. O'SCANNLAIN, PAMELA ANN RYMER, HAWKINS, SIDNEY R. THOMAS, BARRY G. SILVERMAN, W. FLETCHER, RAYMOND C. FISHER, RICHARD A. PAEZ, MARSHA S. BERZON, RICHARD C. TALLMAN, JOHNNIE B. RAWLINSON, JAY S. BYBEE, and CARLOS T. BEA, Circuit Judges.

Opinion by Judge WILLIAM A. FLETCHER; Concurrence by Judge SILVERMAN; Concurrence by Judge BYBEE.

WILLIAM A. FLETCHER, Circuit Judge:

Putative class action plaintiffs appeal from the dismissal of their suit under Federal Rule of Civil Procedure 12(b)(6) for failure to allege an "associated in fact" "enterprise" under RICO and, in the alternative, under Federal Rule of Civil Procedure 9(b) for failure to plead wire fraud with particularity. The district court dismissed with prejudice and without leave to amend.

We reverse and remand.

I. Background

Named plaintiff James Odom—then the only plaintiff—filed the first complaint in this action in the Northern District of California, alleging that defendants Microsoft and Best Buy had violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1962(c) and (d). Odom alleged that in April 2000 defendants entered into an agreement under which "Microsoft invested $200 million in Best Buy and agreed to promote Best Buy's online store through its MSN service." MSN is a division of Microsoft offering Internet access services. In return, "Best Buy agreed to promote MSN service and other Microsoft products in its stores and advertising." Odom alleged that pursuant to their agreement, Best Buy employees distributed different Microsoft compact discs ("Trial CDs") depending on what the customer purchased. For example, a customer who purchased a computer would receive a Trial CD providing a free six-month subscription to MSN. A customer who purchased a cell phone would receive a Trial CD providing a free thirty-day subscription.

Odom alleged that if the customer was paying by debit or credit card the Best Buy employee would scan the Trial CD. If asked why the Trial CD had been scanned, the Best Buy employee would claim it was for "inventory control or otherwise misrepresent[] the purpose of the scanning." Odom alleged that what this scanning actually did was send the information to Microsoft. Microsoft would then, without the customer's knowledge or permission, activate an MSN account in the customer's name. If the customer did not cancel the account before the expiration of the free trial period, Microsoft would start billing the debit or credit card number. Odom further alleged that when customers called to dispute these charges, Microsoft directed some of them to "seek relief from their debit or credit card issuers."

Odom alleged that the "policies and practices by Best Buy and its employees relating to distribution of the Trial CDs— including but not limited to the deliberate failure to make disclosures and making of misrepresentations—have been formulated and implemented by Best Buy jointly with Microsoft, by agreement with Microsoft, and/or with Microsoft's knowledge and approval for the benefit of both Best Buy and Microsoft." Odom alleged that no affected customer had been fully compensated for his or her losses, defined as (1) a full refund of the unauthorized charges; (2) a full refund of the accrued finance charges; (3) payment of interest on the money during the time it was held by Microsoft; and (4) compensation for the "time, effort, and expense" incurred in cancelling MSN accounts and seeking refunds. Odom alleged that these losses resulted from defendants' actions taken pursuant to their agreement.

Odom alleged that he purchased a laptop computer by credit card from a Best Buy store in Contra Costa County, California, in May 2002. He alleged that he told the Best Buy employee that he did not need the Trial CD because he already had another Internet service, and that the Best Buy employee did not tell him that an MSN account with Microsoft was being established in his name or that any financial obligation was being imposed on him. He further alleged that he never used the free six-month service that came with his computer purchase. After the six-month period, Microsoft began charging his account. Odom alleged that when he noticed the charges he called Microsoft and cancelled the service.

Odom alleged that defendants' acts constituted violations of civil RICO, 18 U.S.C. §§ 1962(c) and (d). Odom alleged that Best Buy and Microsoft, acting together pursuant to their agreement, constituted an associated-in-fact enterprise under RICO; that their actions, involving "thousands" of consumers, constituted a "pattern of racketeering activity" under RICO; and that they committed the RICO "racketeering activity" predicate act of wire fraud in violation of 18 U.S.C. § 1343.

Microsoft, joined by Best Buy, moved to dismiss under Rule 12(b)(6) for failure to allege an associated-in-fact enterprise, and under Rule 9(b) for failure to plead wire fraud with particularity. Microsoft also moved to transfer the case from California to the Western District of Washington based on a forum selection clause contained in the MSN subscriber agreement. The California district court transferred the case to Washington without ruling on the motion to dismiss. After transfer, Microsoft withdrew its motion to dismiss based on Odom's indication that he intended to amend the complaint.

An amended complaint was filed on November 19, 2003. Odom continues as a plaintiff. He adds slightly more detail to the allegations made in the first complaint. He now specifies that the Best Buy store was in Pleasant Hill, California, rather than merely in Contra Costa County. He further alleges that Microsoft billed his credit card account for two months after the expiration of the six-month period, that he has paid these credit card charges, and that he has not received any refund or credit for these charges.

Katherine Moureaux-Maloney was added as a second plaintiff. Moureaux-Maloney alleges that in September 2001 she purchased a cell phone and a cell phone service plan at a Best Buy store in Reno, Nevada, using a debit card. She alleges that a Best Buy employee scanned a Trial CD and swiped her debit card, thereby sending the information to Microsoft and establishing a thirty-day trial subscription in her name. The employee did not tell Moureaux-Maloney that this was being done. Moureaux-Maloney did not know she had this service and never used it. After the thirty days elapsed, Microsoft withdrew monthly MSN charges from Moureaux-Maloney's debit card account for seventeen months without her knowledge or authorization. In November 2003, Moureaux-Maloney received a bill from Microsoft for monthly MSN charges for April, May, and June 2003 after "Microsoft was unable to continue withdrawing the charges from her debit card account." Upon receiving this bill, Moureaux-Maloney and her husband immediately contacted Microsoft and discovered that the MSN account had been established in her name through Best Buy. Upon reviewing her bank statements, she discovered the withdrawals Microsoft had made for seventeen months. Finally, Moureaux-Maloney alleges that she "has not received any refund for any of the MSN charges that Microsoft withdrew from her debit card account, and Microsoft continues to seek payment from her of MSN charges for April, May, and June 2003."

Plaintiffs expanded the enterprise-related allegations in the first complaint by further describing the agreement between Microsoft and Best Buy. The amended complaint contains the following addition:

In Defendants' own words (in a joint press release), this agreement is "a comprehensive strategic alliance that encompasses broadband, narrowband, in-store and online efforts"; "provides for significant joint marketing in Best Buy's retail stores, online and through print/broadcast vehicles, profit sharing, the promotion of BestBuy.com to the 40 million users throughout Microsoft's properties, and technology assistance"; and pursuant to which "MSN® Internet access and Microsoft's full range of connectivity solutions will be demonstrated and sold at the more than 350 Best Buy stores in the U.S. and through BestBuy.com," and "Best Buy and BestBuy.com will receive prominent and preferred placement across Microsoft Properties, including MSNBC, and the Expedia.com® travel service, Hotmail® Web-based e-mail service, WebTV Network®, and the newly launched MSN eShop online shopping service."

Microsoft and Best Buy again moved to dismiss the RICO claims under Rule 12(b)(6) and Rule 9(b). The district court dismissed the amended complaint on both grounds without leave to amend. It held that an associated-in-fact enterprise had not been alleged within the meaning of RICO under Rule...