Ray v. Spirit Airlines, Inc.

• Decision Date: 02 September 2016
• Docket Number: No. 15–13792,15–13792
• Parties: Bryan Ray, on behalf of himself and all others similarly situated, Gretel Dorta, Michael Diorio, Ph.D., Deborah Gibson, Jennifer Sily, Donna Tilton, Josh Rubin, Donald M. Badaczewski, Plaintiffs–Appellants, v. Spirit Airlines, Inc., a Delaware corporation, Defendant–Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

836 F.3d 1340

Bryan Ray, on behalf of himself and all others similarly situated, Gretel Dorta, Michael Diorio, Ph.D., Deborah Gibson, Jennifer Sily, Donna Tilton, Josh Rubin, Donald M. Badaczewski, Plaintiffs–Appellants,

v.Spirit Airlines, Inc., a Delaware corporation, Defendant–Appellee.

No. 15–13792

United States Court of Appeals, Eleventh Circuit.

Date Filed: September 2, 2016

Joel D. Eaton, Podhurst Orseck, PA, Miami, FL, for Plaintiffs–Appellants.

Paul D. Clement, Robert M. Bernstein, Jeffrey Matthew Harris, Bancroft, PLLC, Washington, DC, Scott Michael Dimond, Lorenz Michel Pruss, Dimond Kaplan & Rothstein, PA, Miami, FL, Daniel T. Graham, Clark Hill, PLC, Chicago, IL, Leslie A. Gutierrez, Husch Blackwell LLP, Milwaukee, WI, for Defendant–Appellee.

Before MARCUS and FAY, Circuit Judges, and FRIEDMAN,^* District Judge.

MARCUS, Circuit Judge:

In this civil RICO case, plaintiffs seek to represent a class of customers claiming that Spirit Airlines, Inc. (“Spirit”) engaged in an elaborate criminal enterprise involving the use of mail and wire fraud. The complaint specifically alleged that Spirit portrayed its Passenger Usage Fee as a government-imposed or authorized fee when, in fact, it was merely a portion of the base fare price of an airline ticket charged by the airline.

This is the second time this case has come before our court. The first time, we reversed the district court's conclusion that the Airline Deregulation Act, Pub. L. No. 95–504, 92 Stat. 1705, (“ADA”) displaced a civil RICO claim that an airline engaged in deceptive practices. Ray v. Spirit Airlines, Inc., 767 F.3d 1220 (11th Cir. 2014). We remanded the case in order to afford the district court the opportunity to determine in the first instance whether the plaintiffs had adequately pled a RICO claim. Id. at 1229. On remand, the district court dismissed the plaintiffs' second amended complaint for failure to state a claim. As we see it, the district court reached the right answer for two independent reasons: the plaintiffs failed to adequately allege proximate cause; and they also failed to properly plead the existence of a RICO enterprise. Thus, we affirm.

I.

Plaintiffs commenced this civil suit against Spirit under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961 –68, in the United States District Court for the Southern District of Florida, alleging that Spirit conducted an enterprise by means of racketeering activity—here, two or more predicate acts of mail and wire fraud involving the concealment and misrepresentation of airfares and user fees. Plaintiffs seek to represent a class consisting of all Spirit domestic and international customers who, within the applicable statute of limitations, incurred a Passenger Usage Fee “as a result of Spirit's practice of assessing and collecting baseless hidden fees.”

Plaintiffs' second amended complaint alleged these basic facts. Spirit holds itself out as an “Ultra Low Cost Carrier” offering airfares at rates lower than other providers. These cheap fares purportedly disguise the total cost of travel because Spirit forces consumers to pay unbundled charges traditionally included in the price of an airline ticket. Specifically, Spirit charges a Passenger Usage Fee to all consumers who buy tickets through its website or call center. When searching for flights on Spirit's website, a consumer sees only the base fares. Once he has selected a flight, a webpage directs him to “confirm” the flight on a page that displays both the base fare and an undifferentiated amount labeled “Taxes & Fees.” For a breakdown of these charges, the consumer then must click on an additional link for “more information,” which listed a “Passenger Usage Fee” alongside government taxes and fees. Plaintiffs alleged that this placement was a coordinated effort to conceal the true nature of the fee by leading customers to believe that it was an official government tax or sanctioned fee.

The complaint listed seven named plaintiffs with the approximate dates on which they had purchased tickets and (for most of them) the amount they were charged for the Passenger Usage Fee. According to plaintiffs, Spirit committed mail and wire fraud when it used the internet to advertise and engage in sales with the deceptive inclusion and placement of the Passenger Usage Fee. The complaint also generally asserted that the plaintiffs and other members of the proposed class “were harmed in that they relied to their detriment on Spirit's conduct and, as a result, needlessly incurred excessive and unconscionable [Passenger Usage Fees].”

The complaint further alleged that Spirit engaged in this fraudulent activity while associated with, operating, or controlling a RICO enterprise. The enterprise allegedly consisted of Spirit itself, along with two of its corporate officers and a variety of outside consultants (both individual and corporate) who provided various services for Spirit. Specifically, the enterprise was said to consist of: (1) Spirit; (2) Spirit officers and executives, particularly Chief Executive Officer Ben Baldanza and Chief Marketing Officer/Senior Vice President Barry Biffle, who orchestrated the allegedly fraudulent scheme; (3) Navitaire, a wholly owned subsidiary of Accenture, LLC, which provided a platform for ticket sales that had been customized to conceal the Passenger Usage Fee; (4) Colt Cooper, an airline reservation software consultant who helped Spirit implement its website and reservation system; (5) Objectart Solutions, LLC, and its owner Kenneth Ramirez, another software consultant who was involved in the development, management, and support of the ticketing website; and (6) MSP Communications, Inc., and its president, Misty Pinson, who were responsible for public relations surrounding the Passenger Usage Fee. The complaint further recited that the members of the enterprise shared the common purpose to “increase and maximize the revenue of Spirit Airlines by increasing the [Passenger Usage Fee] and other carrier-imposed fees through a scheme that, in part, omitted and misrepresented that the fees were not related to government taxes and other permitted fees for services but were a bottom-line assessment for Spirit.” The allegations included that the members of the enterprise “shared the bounty of their enterprise” by sharing in the “benefit” derived from concealing the Passenger Usage Fee. But nothing in the complaint alleged that the consultants' fees were tied to the deceptive collection of the Passenger Usage Fee as opposed to simply being compensation for general business services rendered.

The district court granted Spirit's first motion to dismiss the second amended complaint, concluding that because the Airline Deregulation Act preempted all state and federal common law claims, it also prohibited a RICO action. The district court found that Congress intended the Department of Transportation to be the sole legal control on deceptive airfare, fees, and fare advertising. On appeal, we reversed, holding that, although the ADA preempted state law, it said nothing about preempting federal causes of action such as RICO. Ray, 767 F.3d at 1221. We concluded that the ADA did not repeal the application of the civil provisions of RICO, either expressly or by implication. Id. at 1229. We reasoned that RICO and the ADA are capable of coexistence because they feature different requirements and offer different protections. Id. at 1226. Thus, for example, we observed that it is far more difficult to establish a RICO predicate act like mail or wire fraud than to prove a violation of the Department of Transportation's regulations concerning unfair or deceptive practices. Id. at 1226–27. Mail and wire fraud are specific intent crimes, whereas the DOT need not find a specific intent to deceive or commit fraud or injury “before levying penalties or ordering a carrier to alter an unfair or deceptive practice.” Id. at 1226. Moreover, we noted that civil RICO also provides for treble damages. Id. at 1227. In short, we concluded that the Airline Deregulation Act is wholly different from RICO and that civil RICO claims are not barred by the ADA.

Our ruling, however, passed no judgment on the adequacy of the plaintiffs' RICO pleading, remanding the matter to the district court to make that determination. Id. at 1222, 1229.

Back in district court for round two, the defendants successfully moved to dismiss the complaint for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). First, the district court found that the plaintiffs had failed to sufficiently plead the existence of a RICO enterprise. The plaintiffs had failed to adequately allege that the various parties were engaged in an ongoing relationship with the common purpose of defrauding Spirit customers. Because the complaint made no showing that the various members of the alleged enterprise actually intended to participate in Spirit's scheme to conceal the Passenger Usage Fee or, indeed, even knew about the scheme, the district court concluded that there was no basis to infer that the members acted as part of a single enterprise designed to defraud customers. Moreover, the district court determined that the complaint failed to meet Fed. R. Civ. P. 9(b)'s specificity requirements.¹ The district court highlighted that the complaint failed to plead, among other salient details, the precise statements in Spirit's advertisements that were allegedly deceptive, where the plaintiffs saw the advertisements, the costs of the tickets the plaintiffs purchased, and the steps the plaintiffs took on the website when they purchased tickets. Having concluded that the complaint failed to adequately state a claim for civil RICO, the district court granted the plaintiffs leave to file a third amended complaint by June 18, 2015 if there was a good faith basis for doing so. That deadline was later extended until June 29, 2015.

The plaintiffs did not file a third amended complaint...