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In re MasterCard International Inc., Internet Gambling Litigation and Visa International Service Association, Internet Gambling Litigation

Civ. Act. MDL Nos. 1321 and 1322 (E.D. La., February 23, 2001)

Court dismisses without leave to amend RICO actions brought by putative class plaintiffs seeking to represent a class of individuals who utilized credit obtained from credit cards issued by the defendants to gamble online at Internet casinos. The court, among other things, held that plaintiffs failed to allege that defendants committed the pattern of racketeering activity required to establish a RICO violation, given that they had alleged neither a violation of a state statute punishable by imprisonment of more than one year, or a violation of one of the federal statutes that can serve as the basis of a RICO claim. In reaching this conclusion, the Court held that plaintiffs had not alleged a violation of the Wire Act, 18 U.S.C. Section 1084, because such statute only prohibits wagers on sporting events or contests, and not gambling in an Internet Casino. The court also held that plaintiffs had failed to allege a violation of the Federal Mail or Wire Fraud acts because the debt they sought to collect was not illegal. The court further held that plaintiffs had failed to state a viable RICO claim because they had failed to allege the existence of an appropriate RICO enterprise with the requisite ongoing organization and hierarchical or consensual decision making. Nor did the plaintiffs establish that defendants conducted or participated in the conduct of a RICO enterprise's affairs through a pattern of racketeering activity required to state a claim under 18 U.S.C. section 1962(c), because they had alleged no more than the existence of a business relationship between the defendants and the Internet casinos pursuant to which the defendants supplied services to those entities. Lastly, the court held that plaintiffs' claims failed because they did not have the requisite standing to assert a RICO violation under 18 U.S.C. section 1964(e). Plaintiffs lacked such standing because their injury was not proximately caused by defendants making credit available for use in gambling activities, but rather by plaintiffs' own decision to engage in gambling activities.

By court order, various putative class actions in which Internet gamblers sought to assert RICO claims against various credit card companies and issuing banks as a result of their involvement in online gambling activities were transferred to the United States District Court for the Eastern District of Louisiana. From among these, two test cases were selected, which defendants moved to dismiss.

In both cases, the plaintiffs were individuals who allegedly utilized their credit cards to gamble on-line at Internet casinos. There was no allegation that the plaintiffs placed wagers on sporting events.

Plaintiffs utilized the credit made available to them on their credit cards to purchase gambling credits from the casinos. With these credits, the plaintiffs were then permitted to, and did place wagers online. Each plaintiff alleged that as a result, he lost money. The issuing banks and credit card companies were alleged to have attempted to collect the debt due for the purchase of the gambling credits by billing plaintiffs therefor. They were also alleged to have facilitated the placement of the wagers by permitting the Internet Casinos both to utilize their credit mechanisms to fund and collect their wagers, and to place their logos on Internet sites to inform customers of the availability of this service.

Each plaintiff alleged that these activities constituted a violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Section 1961, et seq. One of the plaintiffs sought to support his RICO claim with allegations that defendants' actions violated various Kansas state statutes. The second plaintiff claimed such actions violated various New Hampshire state statutes. Each plaintiff also claimed that defendants' actions violated various federal statutes, including the Wire Act, 18 U.S.C. section 1084, and constituted Mail and Wire Fraud.

Rejecting plaintiffs' contentions, the Court granted defendants' motion to dismiss the complaint for the reasons set forth below, and denied plaintiffs leave to replead.

18 U.S.C. Section 1962(c) provides, in pertinent part, that "it shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which effect, 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."

"[A] prerequisite to the RICO action is that there is a pattern of racketeering activity." 18 U.S.C. section 1961(5) defines a pattern of racketeering activity as two "predicate acts" of racketeering activity within a 10 year period. The statute goes on to enumerate those criminal activities that can constitute a predicate act (see Section 1961). These include certain generically enumerated state law offenses that are "chargeable under State law and punishable by imprisonment for more than one year." A second group includes enumerated offenses indictable under the federal criminal code.

The court held that plaintiffs' RICO claim failed because they did not allege the occurrence of the requisite predicate acts or pattern of racketeering activity.

One of the plaintiffs sought to support his claim by alleging that defendants' activities ran afoul of various New Hampshire state statutes. However, because those were civil statutes, they did not qualify as predicate acts.

The other plaintiff sought to support his claim by alleging violations of various Kansas statutes. Most were not punishable by imprisonment of more than one year, and accordingly could not serve as a predicate act. Nor, held the court, did defendants' conduct constitute a violation of Kan. Stat. Ann. 21-4304. This statute, among other things, prohibits the "setting up for use or collecting the proceeds of any gambling device." Because the transaction between plaintiffs and the defendants was completed before plaintiff placed his wagers, the court held that defendants did not violate this statute. Said the court:

What plaintiff does state is that he purchased credits using his credit card before he gambled. It is a temporal impossibility for the defendants to have completed their transaction with the plaintiff before he gambled and to then be prosecuted for collecting the proceeds of a gambling device, which can only take place after some form of gambling is completed.

The court also held that plaintiffs had failed to allege a violation of the enumerated federal criminal statutes. Of note is the court's determination that plaintiffs did not allege a violation of the Wire Act, 18 U.S.C. section 1084. This statute provides, in part that:

Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned …

The court held that to state a violation of this statute, the plaintiffs must allege that they made, and defendants facilitated, bets on sporting events or contests. As plaintiffs had failed to make such allegations, they could not state a violation of the Wire Act. Said the court:

[P]laintiffs strenuously argue that the Wire Act does not require sporting events or contests to be the object of the gambling. However, a plain reading of the statutory language clearly requires that the object of the gambling be a sporting event or contest. … Since plaintiffs have failed to allege that they engaged in sports gambling, and internet gambling in connection with activities other than sports betting is not illegal under federal law, plaintiffs have no cause of action against the credit card companies or the banks under the Wire Act.

The court also held that plaintiffs had failed to allege a violation of either the Mail or Wire Fraud acts. Each such claim by plaintiffs was predicated on their contentions that the debts defendants sought to collect were illegal. However, according to the court, they were not, and therefor plaintiffs could not state a claim for such violation. Said the court:

Since the court finds that the Wire Act does not prohibit internet casino gambling or defendants' association therewith, there can be no mail or wire fraud. Plaintiffs' fraud claims depend upon a finding that the gambling activities and debts were in violation of U.S. and state law and that the defendants therefore misrepresented the debts as legal … However, plaintiffs' attempt to advance this theory fails because the debts themselves are not illegal.

Moreover, even if they were, "it is the general rule that fraud cannot be predicated upon misrepresentations of law." For the same reason, plaintiffs' collection of an unlawful debt claim under Section 1962(c) also failed.

Plaintiffs also failed to state a RICO claim because they did not allege the existence of the requisite criminal enterprise. An association in fact enterprise, of the type plaintiffs alleged, "must have an existence separate and apart from the pattern of racketeering, must be an ongoing organization and its members must function as a continuing unit as shown by a hierarchical or consensual decision making structure." The court held that plaintiffs had failed to allege that the association in fact had the requisite hierarchical or consensual decision making.

The court also held that plaintiffs' RICO claims failed because plaintiffs had failed to allege that defendants "conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity." "The court has narrowly interpreted the term 'conduct' to hold liable only those individuals who 'participate in the operation or management of the enterprise itself.'" Following Juberlirer v. MasterCard International, Inc., 68 F. Supp. 2d 1049 (W.D.Wis. 1999) the court held that plaintiffs had alleged nothing more than a business relationship between defendants and the online casinos which was insufficient to satisfy the "operation or management test." Quoting with approval Juberlirer, the court stated:

the law is clear that merely having a business relationship with and performing services for such an enterprise … does not support RICO liability because performance of such services is not the equivalent of participation in the operation and management of the enterprise. This is true even though the service provider knows of the enterprise's illicit nature or performs improper acts itself.

Lastly, the court held that plaintiffs lacked standing under 18 U.S.C. Section 1964(e) to pursue their claim. To pursue a violation of RICO, a plaintiff must allege that the injuries for which he seeks recompense were caused by reason of a RICO violation. This in turns requires that "defendant's violation of Section 1962 be the proximate cause of plaintiff's injury." This plaintiffs could not establish, held the court, because their injuries were caused by their own decision to engage in gambling on the Internet. Said the court:

Although plaintiffs cry out as victims in this case, they are in a precarious position because of their own voluntary acts of internet gambling. Plaintiffs' own acts of accessing the internet, locating the casinos, entering their information, and playing electronic casino games, are all intervening causes that break the chain of causation with respect to the defendants' alleged activities, even if they were illegal. … Simply put, the Court finds that RICO, no matter how liberally construed, is not intended to provide a remedy to this class of plaintiff. … Plaintiffs in these cases are not victims, they are independent actors who made a knowing and voluntary choice to engage in a course of conduct. Litigation over their own actions arose only when the result of those actions became a debt that they did not wish to pay. At this point in time, Internet casino gambling is not a violation of federal law. To the extent plaintiffs' unsuccessful venture in a legal activity turned out to be less than profitable, they have no remedy at law.

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