Second Circuit Affirms Dismissal of Civil RICO Complaint Finding Insufficient Pleading of a “Material Misrepresentation”

Williams v. Affinion Group, LLC, ___ F.3d ___, 2018 WL 2090267 (2d Cir. 2018)

The Complaint alleged that consumers were “duped into believing” that membership programs were being offered by an e-merchant, rather than a company known as Trilegiant, and each time an e-merchant shared a customer’s billing information with Trilegiant, both the e-merchant and Trilegiant “committed an act of wire fraud.” The complaint alleges thousands of acts of mail and wire fraud in furtherance of the RICO enterprise and RICO conspiracy, including Trilegiant’s billing (by transmitting fraudulent charges on credit card bills), use of telephones (in refund mitigation to preserve fraudulent gains), and use of the internet (to initiate the scheme through post-transaction marketing and datapass).

Despite these claims, the Court did not find the allegation of a sufficient scheme to defraud, wherein a plaintiff must provide proof of a material misrepresentation. Neder v. United States, 527 U.S. 1, 25 (1999). The plaintiffs argued that the district court erred by requiring them to allege specific misrepresentations in the use of the mail or wires to satisfy Rule 9(b). While recognizing that mail or wire communications themselves need not contain a false statement. Schmuck v. United States, 489 U.S. 705, 715, 109 S.Ct. 1443, 103 L.Ed.2d 734 (1989), a plaintiff still needs to allege a material misrepresentation as part of the defendants’ scheme to fraud to state a violation of section 1341 or 1343.

The Court agreed with the district court that the complaint here lacked the particularized allegation of an underlying “scheme to defraud” animated by a material misrepresentation, and neither the complaint’s specific discussion of Trilegiant’s allegedly deceptive tactics, nor its conclusory references to Trilegiant’s fraudulent scheme, set forth a material misrepresentation with the requisite particularity. The complaint therefore failed to plead a scheme to defraud. Without an underlying scheme to defraud, the plaintiffs have not alleged a pattern of racketeering.

Ed Note: It is unclear whether the “material misrepresentation” is required to be a mailing or interstate wiring or whether it can be argued that so long as there is particularity of mailings/wirings in furtherance of the scheme, an oral misrepresentation is sufficient. It appears safe to find the material misrepresentation in a predicate act.

Civil RICO Conspiracy

The court also found the conspiracy claim failed as plaintiff failed to allege “the existence of an agreement to violate RICO’s substantive provisions.” Because the alleged conspiracy involved an agreement to commit the same substantive RICO violations the court deemed insufficiently pled, and the plaintiffs have not alleged any further acts that, if carried out, would have satisfied RICO’s requirement of a pattern of racketeering. Citing to Salinas v. United States, 522 U.S. 52, 118 S.Ct. 469, 139 L.Ed.2d 352 (1997).

Ed Note: The court looks at one prong of Salinas, but ignores the preceding sentence that all that is necessary if that the Defendant adopt the scheme. The Court’s view appears to be the prominent view in analyzing civil RICO conspiracy allegations.


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