Filed: Dec. 13, 2002
Latest Update: Feb. 21, 2020
Summary: REVISED DECEMBER 13, 2002 UNITED STATES COURT OF APPEALS For the Fifth Circuit No. 01-30389 In Re: MASTERCARD INTERNATIONAL INC. INTERNET GAMBLING LITIGATION - LARRY THOMPSON, On behalf of himself and all others similarly situated, Plaintiff-Appellant, VERSUS MASTERCARD INTERNATIONAL INC.; FLEET BANK, (RHODE ISLAND) N A; and FLEET CREDIT CARD SERVICES L P, Defendants-Appellees. - In Re: VISA INTERNATIONAL ASSOCIATION INTERNET GAMBLING LITIGATION - LAWRENCE BRADLEY, On behalf of himself and all o
Summary: REVISED DECEMBER 13, 2002 UNITED STATES COURT OF APPEALS For the Fifth Circuit No. 01-30389 In Re: MASTERCARD INTERNATIONAL INC. INTERNET GAMBLING LITIGATION - LARRY THOMPSON, On behalf of himself and all others similarly situated, Plaintiff-Appellant, VERSUS MASTERCARD INTERNATIONAL INC.; FLEET BANK, (RHODE ISLAND) N A; and FLEET CREDIT CARD SERVICES L P, Defendants-Appellees. - In Re: VISA INTERNATIONAL ASSOCIATION INTERNET GAMBLING LITIGATION - LAWRENCE BRADLEY, On behalf of himself and all ot..
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REVISED DECEMBER 13, 2002
UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 01-30389
In Re: MASTERCARD INTERNATIONAL INC. INTERNET GAMBLING LITIGATION
--------------------------
LARRY THOMPSON, On behalf of himself and all others similarly
situated,
Plaintiff-Appellant,
VERSUS
MASTERCARD INTERNATIONAL INC.; FLEET BANK, (RHODE ISLAND) N A;
and FLEET CREDIT CARD SERVICES L P,
Defendants-Appellees.
----------------------------------------------------------------
In Re: VISA INTERNATIONAL ASSOCIATION INTERNET GAMBLING
LITIGATION
--------------------------
LAWRENCE BRADLEY, On behalf of himself and all others similarly
situated,
Plaintiff-Appellant,
VERSUS
VISA INTERNATIONAL SERVICE ASSOCIATION; TRAVELERS BANK USA CORP,
1
Defendants-Appellees.
Appeal from the United States District Court
For the Eastern District of Louisiana
November 20, 2002
Before DeMOSS, STEWART, and DENNIS, Circuit Judges.
DENNIS, Circuit Judge:
In this lawsuit, Larry Thompson and Lawrence Bradley
(“Thompson,” “Bradley,” or collectively “Plaintiffs”) attempt to
use the Racketeer Influenced and Corrupt Organizations Act
(“RICO”), 18 U.S.C. §§ 1961-1968, to avoid debts they incurred when
they used their credit cards to purchase “chips” with which they
gambled at on-line casinos and to recover for injuries they
allegedly sustained by reason of the RICO violations of MasterCard
International, Visa International, and banks that issue MasterCard
and Visa credit cards (collectively “Defendants”).1 The district
court granted the Defendants’ motions to dismiss pursuant to Rule
12(b)(6) of the Federal Rules of Civil Procedure. We AFFIRM.
1
Thirty-three virtually identical cases were transferred to the
Eastern District of Louisiana through multidistrict litigation. Of
these, the two on appeal were selected as test cases and
consolidated for pre-trial purposes. See In re Mastercard Int’l
Inc., Internet Gambling Litigation and Visa Int’l Internet Serv.
Ass’n Internet Gambling Litigation, 132 F. Supp. 2d 468, 471 n.1
(E.D. La. 2001).
2
I.
Thompson and Bradley allege that the Defendants, along with
unnamed Internet casinos, created and operate a “worldwide gambling
enterprise” that facilitates illegal gambling on the Internet
through the use of credit cards. Internet gambling works as
follows. A gambler directs his browser to a casino website. There
he is informed that he will receive a gambling “credit” for each
dollar he deposits and is instructed to enter his billing
information. He can use a credit card to purchase the credits.2
His credit card is subsequently charged for his purchase of the
credits. Once he has purchased the credits, he may place wagers.
Losses are debited from, and winnings credited to, his account.
Any net winnings a gambler might accrue are not credited to his
card but are paid by alternate mechanisms, such as wire transfers.
Under this arrangement, Thompson and Bradley contend, “[t]he
availability of credit and the ability to gamble are inseparable.”3
The credit card companies facilitate the enterprise, they say, by
authorizing the casinos to accept credit cards, by making credit
available to gamblers, by encouraging the use of that credit
through the placement of their logos on the websites, and by
2
Gamblers can purchase the credits through online transactions
or by authorizing a purchase via a telephone call. Gamblers also
can purchase the credits via personal check or money order using
the mails.
3
The Plaintiffs state that 95% of Internet gambling business
involves the use of credit cards.
3
processing the “gambling debts” resulting from the extension of
credit. The banks that issued the gamblers’ credit cards
participate in the enterprise, they say, by collecting those
“gambling debts.”
Thompson holds a MasterCard credit card issued by Fleet Bank
(Rhode Island) NA. He used his credit card to purchase $1510 in
gambling credits at two Internet gambling sites. Bradley holds a
Visa credit card issued by Travelers Bank USA Corporation. He used
his credit card to purchase $16,445 in gambling credits at seven
Internet gambling sites. Thompson and Bradley each used his
credits to place wagers. Thompson lost everything, and his
subsequent credit card billing statements reflected purchases of
$1510 at the casinos. Bradley’s winning percentage was higher, but
he fared worse in the end. He states his monthly credit card
billing statements included $7048 in purchases at the casinos.
Thompson and Bradley filed class action complaints against the
Defendants on behalf of themselves and others similarly situated.
They state that the Defendants participated in and aided and
abetted conduct that violated various federal and state criminal
laws applicable to Internet gambling. Through their association
with the Internet casinos, the Defendants allegedly “directed,
guided, conducted, or participated, directly or indirectly, in the
conduct of an enterprise through a pattern of racketeering and/or
the unlawful collection of unlawful debt,” in violation of 18
4
U.S.C. § 1962(c).4 They seek damages under RICO’s civil remedies
provision,5 claiming that they were injured by the Defendants’ RICO
violations. They also seek declaratory judgment that their
gambling debts are unenforceable because they are illegal.
Upon motions by the Defendants, the district court dismissed
the Plaintiffs’ complaints. In a thorough and careful opinion, the
court determined that the Plaintiffs not only could not satisfy the
necessary prerequisites to a RICO claim but also could not
establish their standing to bring such a claim. The Plaintiffs now
appeal.
II.
We review a district court’s grant of a Rule 12(b)(6) motion
de novo, applying the same standard used below.6 “In so doing, we
accept the facts alleged in the complaint as true and construe the
allegations in the light most favorable to the plaintiffs.”7 But
4
“It shall be unlawful for any person employed by or associated
with any enterprise engaged in, or the activities of which affect,
interstate or foreign commerce, to conduct or participate, directly
or indirectly, in the conduct of such enterprise’s affairs through
a pattern of racketeering activity or collection of unlawful debt.”
18 U.S.C. § 1962(c).
5
18 U.S.C. § 1964.
6
Nolen v. Nucentrix Broadband Networks, Inc., 293 F.3d 926, 928
(5th Cir. 2002); see also Rubinstein v. Collins,
20 F.3d 160, 166
(5th Cir. 1994) (“Such dismissals may be upheld only if it appears
that no relief could be granted under any set of facts that could
be proven consistent with the allegations." (internal quotation and
citation omitted)).
7
Nolen, 293 F.3d at 928 (citing
Rubinstein, 20 F.3d at 166).
5
“conclusory allegations or legal conclusions masquerading as
factual conclusions will not suffice to prevent a motion to
dismiss.”8
III.
All RICO violations under 18 U.S.C. § 1962 entail “(1) a
person who engages in (2) a pattern of racketeering activity, (3)
connected to the acquisition, establishment, conduct, or control of
an enterprise.”9 As to the second element, a RICO plaintiff may
show that the defendant engaged in the collection of unlawful debt
as an alternative to showing the defendant engaged in a pattern or
racketeering activity.10 A RICO claim alleging a violation of
§ 1962(c), as here, also requires that the defendant
“participate[d] in the operation or management of the enterprise
itself.”11 Of these required elements, the district court concluded
that Thompson and Bradley failed to plead facts showing a pattern
of racketeering activity or the collection of unlawful debt; a RICO
enterprise; or participation in the operation of management of the
enterprise. We agree that the Plaintiffs’ allegations do not show
a pattern of racketeering activity or the collection of unlawful
8
Id. (citing Fernandez-Montes v. Allied Pilots Ass’n,
987 F.2d
278, 284 (5th Cir. 1993)).
9
Crowe v. Henry, 43 F.3d 198, 204 (5th Cir. 1995) (citing Delta
Truck & Tractor, Inc. v. J. I. Case Co.,
855 F.2d 241, 242 (5th
Cir. 1988)).
10
18 U.S.C. § 1962(a)-(c); see also Nolen, 293 F.3d at 928-29.
11
Reves v. Ernst & Young, 507 U.S. 170, 185 (1993).
6
debt. Because this conclusion, alone, is dispositive, we need not
consider whether the Plaintiffs sufficiently alleged the other
elements.
“A pattern of racketeering activity requires two or more
predicate acts and a demonstration that the racketeering predicates
are related and amount to or pose a threat of continued criminal
12
activity.” The predicate acts can be either state or federal
crimes.13 Thompson and Bradley allege both types of predicate acts.
On appeal, Thompson alleges that the Defendants’ conduct
violated a Kansas statute that criminalizes five types of
commercial gambling activity.14 Only two sections of the
statute—sections (c) and (e)—are even remotely relevant here.
Neither implicates the Defendants’ conduct. Because the Defendants
completed their transaction with the Plaintiffs before any gambling
occurred, that transaction cannot have involved taking custody of
something bet or collecting the proceeds of a gambling device. Both
12
St. Paul Mercury Ins. Co. v. Williamson, 224 F.3d 425, 441
(5th Cir. 2000) (citing Word of Faith World Outreach Ctr. Church,
Inc. v. Sawyer,
90 F.3d 118, 122 (5th Cir. 1996)).
13
18 U.S.C. § 1961(1).
14
Kan. Stat. Ann. § 21-4304. This statute, which states that
commercial gambling is a “level 8, nonperson felony,” defines
commercial gambling as: “(a) Operating or receiving all or part of
the earnings of a gambling place; (b) Receiving, recording, or
forwarding bets or offers to bet or, with intent to receive,
record, or forward bets or offers to bet, possessing facilities to
do so; (c) For gain, becoming a custodian of anything of value bet
or offered to be bet; (d) Conducting a lottery, or with intent to
conduct a lottery possessing facilities to do so; or (e) Setting up
for use or collecting the proceeds of any gambling device.”
7
of those activities, which constitute commercial gambling under
Kansas law, necessarily “can only take place after some form of
gambling [has been] completed.”15 Accordingly, we find that
Thompson fails to identify a RICO predicate act under Kansas law.16
Bradley alleges on appeal that the Defendants’ conduct
violated a New Hampshire gambling statute aimed at persons who
operate or control places where gambling occurs.17 Bradley did not,
however, allege a violation of the statute in his complaint. In
any event, this statute is patently inapplicable to the Defendants
under the facts alleged. Indeed, Bradley makes no effort in his
briefs to explain its applicability. Accordingly, we find that
Bradley, too, fails to identify a RICO predicate act under a state
criminal law.18
Thompson and Bradley both identify three substantive federal
crimes as predicates—violation of the Wire Act, mail fraud, and
15
See In re Mastercard, 132 F. Supp. 2d at 479.
16
Thompson has abandoned his reliance on three other violations
of Kansas law he alleged below. Violations of those statutes
cannot serve as predicates because they identify only misdemeanor
offenses. See 18 U.S.C. § 1961(1)(A).
17
N.H. Rev. Stat. Ann. § 647:2(I-a)(b). This statute provides
that “[a] person is guilty of a class B felony if such person
conducts, finances, manages, supervises, directs, or owns all or
part of a business and such person knowingly and unlawfully
conducts, finances, manages, supervises, or directs any gambling
activity on the business premises . . . .”
18
Bradley has abandoned his previous reliance on various New
Hampshire civil statutes, each of which was obviously inadequate to
identify a predicate crime under 18 U.S.C. § 1961(1)(A).
8
wire fraud.19 The district court concluded that the Wire Act
concerns gambling on sporting events or contests and that the
Plaintiffs had failed to allege that they had engaged in internet
sports gambling.20 We agree with the district court’s statutory
interpretation, its reading of the relevant case law, its summary
of the relevant legislative history, and its conclusion. The
Plaintiffs may not rely on the Wire Act as a predicate offense
here.21
The district court next articulated several reasons why the
Plaintiffs may not rely on federal mail or wire fraud as
predicates.22 Of these reasons, two are particularly compelling.
First, Thompson and Bradley cannot show that the Defendants made a
false or fraudulent misrepresentation.23 Because the Wire Act does
not prohibit non-sports internet gambling, any debts incurred in
connection with such gambling are not illegal. Hence, the
19
18 U.S.C. §§ 1084, 1341, 1343.
20
In re Mastercard, 132 F. Supp. 2d at 480 (“[A] plain reading
of the statutory language [of the Wire Act] clearly requires that
the object of the gambling be a sporting event or contest.”).
21
Bradley criticizes the district court for ignoring his
identification of an Internet site named “Sportsbook” in his
complaint. The name of the site is irrelevant, for Bradley nowhere
alleges that he gambled on sporting events or contests at that or
any other site.
22
Id. at 481-83.
23
See In re Burzynski, 989 F.2d 733, 742 (5th Cir. 1993)
(stating that an element of a RICO mail fraud claim is “a scheme to
defraud by means of false or fraudulent representation”).
9
Defendants could not have fraudulently represented the Plaintiffs’
related debt as legal because it was, in fact, legal. We agree
that “the allegations that the issuing banks represented the credit
charges as legal debts is not a scheme to defraud.”24 Second,
Thompson and Bradley fail to allege that they relied upon the
Defendants’ representations in deciding to gamble.25 The district
court correctly stated that although reliance is not an element of
statutory mail or wire fraud, we have required its showing when
mail or wire fraud is alleged as a RICO predicate.26 Accordingly,
we conclude that Thompson and Bradley cannot rely on the federal
mail or wire fraud statutes to show RICO predicate acts.27
In the alternative, Thompson and Bradley allege that the
24
In re Mastercard, 132 F. Supp. 2d at 482.
25
Based in part on this same failure, the district court
correctly determined that the Plaintiffs could not establish
standing to sue under 18 U.S.C. § 1964(c). See id. at 495-96
(explaining that standing requires a showing of both factual and
proximate causation).
26
Summit Props., Inc. v. Hoechst Celanese Corp., 214 F.3d 556,
562 (5th Cir. 2000) (stating that the element of reliance is
required to recover damages in a RICO fraud claim); see also In re
Mastercard, 132 F. Supp. 2d at 482, 496 (explaining that the
element of reliance is also key to the issue of standing).
27
Because we find neither the Wire Act nor the mail and wire
fraud statutes may serve as predicates here, we need not consider
the other federal statutes identified by the Plaintiffs: § 1952
(Travel Act); § 1955 (illegal gambling businesses); and § 1957
(money laundering). As the district court correctly explained,
these sections may not serve as predicates here because the
Defendants did not violate any applicable federal or state law.
See In re Mastercard, 132 F. Supp. 2d at 482-83 & n.6. The
Plaintiffs’ reliance on § 1960 fails because it is not an
authorized RICO predicate under § 1961(1)(B).
10
Defendants engaged in the collection of unlawful debt. Under
§ 1961, a RICO plaintiff may attempt to show that the debt is
unlawful because it was incurred or contracted in an illegal
gambling activity or in connection with the illegal business of
gambling or because it is unenforceable under usury laws or was
incurred in connection with the business of lending at usurious
rates.28 Neither Thompson nor Bradley raises the specter of usury.
And, as we have already found, the Defendants’ conduct did not
involve any violation of a state or federal gambling law. Thus, we
agree with the district court’s conclusion that the Plaintiffs have
not sufficiently alleged “the collection of unlawful debt.”29
Because Thompson and Bradley cannot prove a necessary element
of a civil RICO claim, namely that the Defendants engaged in a
pattern of racketeering activity or the collection of unlawful
debt, we hold that dismissal is proper under Rule 12(b)(6).30
Finally, we reiterate the district court’s statement that
“RICO, no matter how liberally construed, is not intended to
28
18 U.S.C. § 1961(6).
29
In re Mastercard, 132 F. Supp. 2d at 483.
30
We need not analyze the validity or merit of Plaintiffs’ claim
based on aiding and abetting liability because (assuming it is
valid) it necessarily falls along with the underlying RICO claim.
Likewise, we need not consider the merits of the Defendants’
motions to join the Internet casinos pursuant to Rule 19 of the
Federal Rules of Civil Procedure. We agree with the district court
that those motions are moot.
11
provide a remedy to this class of plaintiff.”31 Thompson and
Bradley simply are not victims under the facts of these cases.
Rather, as the district court wrote, “they are independent actors
who made a knowing and voluntary choice to engage in a course of
conduct.”32 In engaging in this conduct, they got exactly what they
bargained for—gambling “chips” with which they could place wagers.
They cannot use RICO to avoid meeting obligations they voluntarily
took on.
IV.
For the foregoing reasons, we AFFIRM the judgment of the
district court.
31
Id. at 497.
32
Id.
12
