Consumer Finance Insights
September 15, 2016

Eleventh Circuit Affirms Dismissal of RICO Claim in Hidden Fee Case

On September 2, 2016, the Eleventh Circuit affirmed dismissal of a civil RICO claim in Ray v. Spirit Airlines, Inc., a case that challenged Spirit Airlines’ reporting of fees to customers.  The Eleventh Circuit’s affirmance focused on the plaintiffs’ failure to allege the hidden fees were the proximate cause of any injury and their failure to allege facts sufficient to establish the enterprise element of their claim.  The ruling is significant for entities facing civil RICO claims, but particularly for financial services companies facing RICO claims predicated on fees allegedly hidden in monthly statements and other communications.

In Ray, plaintiffs—who purchased tickets through Spirit’s website—alleged that Spirit advertised one price only to add a website-usage fee (the Passenger Usage Fee) at check out. Ray, —F.3d— 2016 WL 4578347, at *1 (11th Cir. Sept. 2, 2016).  They claimed they were defrauded because Spirit lumped this fee together in an “undifferentiated amount labeled ‘Taxes & Fees’” that they believed was reserved for “official government tax[es] or sanctioned fee[s].” Id. Plaintiffs brought a RICO claim, asserting that Spirit formed an enterprise with its vendors—tech and public-relations consultants who assisted Spirit in designing and establishing Spirit’s online booking system—with the common purpose of defrauding customers of the Passenger Usage Fee. Id. at *7.

The Eleventh Circuit first took issue with plaintiffs’ failure to allege facts showing that the alleged fraud was the proximate cause of their injuries. Plaintiffs argued the mere fact that they each paid the Passenger Usage Fee was sufficient. Id. at *6.  Describing this argument as “plead[ing] causation only at the highest order of abstraction,” the Eleventh Circuit explained “it strains credulity to insist—as the plaintiffs must—that a customer willing to purchase a ticket for $129 in base fare plus an $8.99 Passenger Usage Fee (among other taxes and fees) announced before the tickets were purchased would balk at purchasing a ticket if he knew that the $8.99 fee came from the airline and not the government.” Id.

It also took issue with two aspects of plaintiffs’ RICO enterprise allegations. By way of abbreviated background, a RICO plaintiff must allege that an enterprise exists, and in Boyle v. United States, the Supreme Court held that the plaintiff must allege “a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise’s purpose” to meet that requirement.  556 U.S. 938, 956 (2009).  In Ray, the Eleventh Circuit concluded that plaintiffs’ attempt to point to business relationships among Spirit and its technology and public relations vendors failed to meet that test, explaining the complaint was devoid of factual allegations regarding what role (if any) the vendors had in the alleged fraud. Ray, 2016 WL 4578347, at *8-9.  The Eleventh Circuit also took issue with plaintiffs’ attempt to construct an enterprise using Spirit as well as its executives and employees acting in their official capacity. Id. at *10-12.

Ray is notable for its clarity in addressing proximate causation and enterprise requirements of RICO claims in light of Boyle.  But it is particularly important for financial services companies who are sometimes faced with RICO claims predicated on fees allegedly concealed in monthly statements. Ray may assist in shedding some light on the viability of those claims.