Passenger Usage Fee Snares Spirit Airlines In RICO Web

The Racketeer Influenced and Corrupt Organizations Act (commonly known as RICO), enacted by Congress in 19701, has been used most often to pursue individuals associated with organized crime.  It therefore may come as a surprise that RICO can be applied in civil cases against well respected corporations such as airlines.  Spirit Airlines undoubtedly never thought that the imposition of its Passenger Usage Fee, which is charged to all customers who buy their tickets through a website or call center, would make it the target of a RICO claim.  However, the Eleventh Circuit Court of Appeals recently held in Ray v. Spirit Airlines, Inc.,2 that there is no irreconcilable conflict between RICO and the Airline Deregulation Act (ADA)3 and that nothing in the federal regulatory scheme for the aviation industry precludes a claim founded on the civil provisions of RICO.

The case had its genesis in a class action brought in the Southern District of Florida, alleging that Spirit concealed the existence and purpose of the Passenger Usage Fee and that the airline used the mails and wire to defraud consumers into thinking that they owed less money for their passenger tickets than they actually were required to pay when additional taxes and fees were added to the total price of the airline ticket.

In dismissing the action, the district court agreed with Spirit, finding that to permit plaintiffs to assert a RICO action would thwart the Congressional intent of delegating the regulation of airlines’ rates, routes, and services to the Department of Transportation (DOT) under the ADA.  Spirit also argued that plaintiffs’ RICO claims were precluded by the ADA’s preemption provision but this was not addressed by the lower court.  In reversing the district court, the Eleventh Circuit addressed both of Spirit’s arguments. First, it pointed out that the ADA pre-emption clause preempts only state law claims, not other federal law claims.  Notably, the ADA was enacted eight years after RICO and contains no express language preempting remedies under other federal statutes.  Moreover, the appellate court found that there was no irreconcilable conflict between the two statutes, one of which creates a stiffer sanction when the air carrier is involved in criminal fraud (the RICO statute), and the other of which provides for an administrative penalty when the air carrier engages in an unfair or deceptive act (the ADA).

The court reasoned that the different remedies serve different legislative purposes.  While the DOT’s regulation of unfair and deceptive practices seeks to provide fair competition among carriers, civil RICO targets a broad range of criminally fraudulent acts not restricted to air carriers, their pricing, or their advertising.  Citing the Congressional admonition that the RICO statute is to be “liberally construed to effectuate its remedial purposes”, the appellate court said it could “divine no clear and manifest congressional intent for ADA to have made such an alteration to RICO.”4  Accordingly, without passing judgment on whether plaintiffs’ complaint adequately pled a RICO claim, the appellate court remanded the case to the district court for further proceedings.

Ray is a significant decision since it expands the potential scope of airline liability far beyond the relatively limited civil remedies available when an airline is found to commit an unfair or deceptive trade practice under the ADA.  The Ray decision gives plaintiffs a strong weapon in their arsenal to allege that an airline’s conduct went far beyond a deceptive trade practice and allows a potential treble damages remedy if plaintiffs can meet the higher burden of showing that the airline engaged in fraud in its practices and procedures.

This opinion could well be the lynchpin on which plaintiffs’ attorneys will hinge class actions that challenge practices of airlines they deem to be unfair and deceptive.  Under the ADA, there often is little incentive for counsel to pursue these types of cases since the DOT provides only a civil fine, not an award of damages to the affected plaintiffs and, more importantly, no award of attorneys’ fees.  Allowing a RICO claim where plaintiffs’ counsel alleges fraud on the part the airline changes the calculus since both treble damages to the plaintiffs, as well as attorneys’ fees, are awardable.  It remains to be seen but the Ray decision may well be the forerunner of additional litigation commenced against carriers with respect to their marketing, advertising, and trade practices.

1 18 U.S.C. § 1961 et seq.

2 2014 WL 4699445 (11th Cir. Sept. 23, 2014).

3 Pub. L. No. 95-504, 92 Stat. 1705.

4 2014 WL 4699445, *7.