Howard v. America Online Inc.

208 F.3d 741, 20 Communications Reg. (P&F) 130, 2000 Daily Journal DAR 3307, 2000 Cal. Daily Op. Serv. 2454, 2000 U.S. App. LEXIS 5222, 2000 WL 320396
Court of Appeals for the Ninth Circuit·Decided March 29, 2000·No. No. 98-56138·Published·Cited by 202 cases

Opinion

BEEZER, Circuit Judge:

Plaintiffs Alan M. Howard, R. Boris Greenberg, Kathryn Paraventi and Me-rhdad Etemad (“Plaintiffs”) sued America Online, Inc., James V. Kimsey, Stephen M. Case, Lennert J. Leader and 100 “Doe” and “Roe” defendants (collectively “AOL”) for: violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1962(c), 1962(d); violations of the Communications Act of 1934, 47 U.S.C. §§ 151-613; false advertising in violation of California Business and Professional Code §§ 17500-17509; fraud and deceit; negligence; unfair business practices in violation of California Business and Profes[746]*746sional Code §§ 17200-17210; and declaratory and injunctive relief. The district court granted AOL’s motion to dismiss. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.

I

Plaintiffs are subscribers of AOL, an “Internet (or information) service provider” (“ISP”) that provides Internet access, electronic mail (“e-mail”), online conferencing and information directories, entertainment, software, electronic publications and original programming. See generally 47 U.S.C. § 230(f)(2) (West Supp.1999) (defining interactive computer service). The individual defendants are officers who, according to Plaintiffs, managed AOL.

On March 13, 1997, Plaintiffs filed their original complaint, which claimed that AOL engaged in fraudulent billing practices, securities fraud, fraud against a packaging supplier, fraudulent promotion of its “flat-fee” program, improper charges to subscribers and violations of its duty to protect subscribers’ privacy rights and copyrights. The district court granted AOL’s motion to dismiss, with leave to amend, on September 22,1997.

Plaintiffs filed their first amended complaint (“complaint”) on October 22, 1997. Although Plaintiffs moved for class certification under Federal Rule of Civil Procedure 23(b), the district court orally refused to grant the motion. AOL moved for dismissal, which the district court granted with prejudice on May 19, 1998. Plaintiffs appeal.

II

“A dismissal for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) is reviewed de novo. Review is limited to the contents of the complaint. All allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party.” Chang v. Chen, 80 F.3d 1293, 1296 (9th Cir.1996) (internal citations omitted).

The district court held that Plaintiffs failed to state a claim for violations of RICO. A violation under section 1962(c) requires proof of: “1) conduct 2) of an enterprise 3) through a pattern 4) of racketeering activity.” Sedima S.P.R.L. v. Imrex Corp., 473 U.S. 479, 496, 105 S.Ct. 3275 (1985) (internal note omitted). At issue is whether Plaintiffs properly alleged a pattern of racketeering activity.

A pattern is defined as “at least two acts of racketeering activity” within ten years of each other. 18 U.S.C. § 1961(5). Two acts are necessary, but not sufficient, for finding a violation. See H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 238, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989). “[T]he term ‘pattern’ itself requires the showing of a relationship between the predicates and of the threat of continuing activity.” Id. at 239, 109 S.Ct. 2893 (internal citation and quotation marks omitted).

A

The district court dismissed Plaintiffs’ fraudulent billing claims, based on mail and wire fraud, because they had been settled in an earlier action and could not constitute predicate acts under RICO. Plaintiffs assert that they are not barred from using these claims as part of a pattern of racketeering activity. We disagree.

On March 18, 1997, the California Superior Court approved a settlement between AOL and a class of its subscribers. See Hagen v. America Online, Inc., No. 971047 (Cal.Super.Ct. Mar. 18, 1997). The subscribers sued AOL for unfair business practices, fraud, breach of contract, unjust enrichment and negligent misrepresentation. The complaint alleged that AOL: failed to disclose connection and disconnection times; rounded up billing times; used misleading advertising regarding its hourly rate; unfairly calculated its service charge; improperly charged for downloading, delays, and time in “free areas”; failed [747]*747to refund charges after cancellation; and made unauthorized withdrawals from checking accounts.

The Hagen class was defined as “all persons in the United States who at any time during the Class Period [July 14, 1991 to March 31, 1996] were subscribers of America Online Services.” The settlement “permanently barred and enjoined” the class members from “asserting ... against [AOL] any claims, rights, ... of any nature, known or unknown, ... which are alleged in the Amended Complaint, or which could or might have been alleged in the Amended Complaint and arise out of or are related to the matters referred to in the Amended Complaint.”

In this case, Plaintiffs claimed violations of RICO, the Communications Act and California law proscribing false advertising, fraud and deceit, negligence and unfair business practices. The complaint stated that AOL: used both mail and wire fraud to improperly bill subscribers from 1992 to 1995; fraudulently manipulated its stock in 1995 and 1996; improperly billed for time in “free areas” from 1994 to 1996; improperly delayed cancellations from 1994 to “at least March 31, 1996”; made unauthorized withdrawals from subscribers’ accounts; improperly used billing information and distributed false advertising related to its free trial program; made misrepresentations to PTP, a packaging company; and falsely promoted its “flat-fee” program. The proposed class included anyone who subscribed to AOL from March 13, 1993 to March 13, 1997; the complaint did not specify when Plaintiffs subscribed to AOL.

The district court found that Plaintiffs “clearly fall within the Settlement Class.... [They] have not presented any argument to the contrary; nor do they claim to have opted out of the Hagen settlement class.... Plaintiffs’ attempt to repackage the claims asserted and settled in Hagen as predicate acts under RICO is therefore barred.”

“Where a judicially approved settlement is under consideration, a federal court may consequently find guidance from general state law on the preclusive force of settlement judgments.” Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367, 375, 116 S.Ct. 873, 134 L.Ed.2d 6 (1996). In California, interpretation of a settlement release is governed by contract principles. See General Motors Corp. v. Superior Court, 12 Cal.App.4th 435, 15 Cal.Rptr.2d 622, 625 (Cal.Ct.App.1993).

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Howard v. America Online Inc., 208 F.3d 741, 20 Communications Reg. (P&F) 130, 2000 Daily Journal DAR 3307, 2000 Cal. Daily Op. Serv. 2454, 2000 U.S. App. LEXIS 5222, 2000 WL 320396 (9th Cir. 2000).

208 F.3d 741 (Howard v. America Online Inc.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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