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The following is the November 2002 ruling by United States Fifth Circuit Court
of Appeals where they uphold District Court Judge Stanwood Duval's opinion that
the Wire Act "does not prohibit Internet gambling 'on a game of chance'."
Text of
Judge Duval's ruling. (More
Internet Gambling law articles.)
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UNITED STATES COURT OF APPEALS - For the Fifth Circuit No. 01-30389
In Re: MASTERCARD INTERNATIONAL INC. INTERNET GAMBLING LITIGATION
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LARRY THOMPSON, On behalf of himself and all others similarly situated, Plaintiff-Appellant,
VERSUS
MASTERCARD INTERNATIONAL; FLEET BANK, (RHODE ISLAND); and FLEET CREDIT CARD SERVICES LP, Defendants-Appellees.
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In Re: VISA INTERNATIONAL ASSOCIATION INTERNET GAMBLING LITIGATION
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LAWRENCE BRADLEY, On behalf of himself and all others similarly situated, Plaintiff-Appellant,
VERSUS
VISA INTERNATIONAL SERVICE ASSOCIATION; TRAVELERS BANK USA CORP, 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.
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 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 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 “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 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 activity.”[12] 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 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 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 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 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 raise 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 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.
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[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] 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.
[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).
[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).
[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.”
[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).
[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”).
[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).
[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.
[31] Id. at 497.
[32] Id. |
