A federal appeals court on Tuesday reinstated a putative class action against “travel clubs” that allegedly failed to deliver on promised free or discounted airline tickets, cruises, hotel rooms and rental cars.
Reversing a district judge, the U.S. Court of Appeals for the Third Circuit found the plaintiffs had made out prima facie claims — including a count of violation of the Racketeer Influenced and Corrupt Organizations Act.
A complaint that lists 11 corporate defendants in shotgun fashion, without stating how the claims apply to each of them, can nonetheless be specific enough where the plaintiff includes other details for substantiation, the appeals court said.
The plaintiffs, in Grant v. Turner, 11-2760, claim the corporate defendants formed an association-in-fact with credit card companies, which issued cards to members to finance club fees of $3,000 to $6,000 each.
Although the clubs operated under multiple names, they were all operated by the same five people, named in the suit as individual defendants. Once allegations of fraud against a club surfaced, it would change its name or move away, the plaintiffs claim.
U.S. District Judge Joseph Greenaway Jr. dismissed the suit without prejudice in March 2010, saying it failed to specify such details as when the plaintiffs attended sales presentations and tried to take advantage of membership benefits.
The case was reassigned to Judge Garrett Brown Jr. in April 2010, and a month later, the plaintiffs amended their complaint to provide details.
They alleged they received mailings offering a free gift by attending a sales presentation but instead got vouchers in a process that made the gifts anything but free. They said they were told that a membership would mean discounted travel but they were unable to book it.
At this point, the defendants were 11 travel clubs, seven individuals and FIA Card Services, Bank of America’s credit card-issuing arm.
Brown asked the plaintiffs to provide a RICO case statement, after which the defendants moved to dismiss.
Brown granted the motion, finding that the plaintiffs failed to meet the heightened standard for pleading fraud under Rule 9(b) of the Federal Rules of Civil Procedure. The rule requires circumstances of alleged fraud to be spelled out with particularity so as to place the defendants on notice.
Brown also found the plaintiffs failed to meet the 9(b) requirement that they allege who made a misrepresentation to whom and the misrepresentation’s general content. He also said the plaintiffs did not specify the defendants’ misconduct.
On appeal, U.S. Circuit Judges Marjorie Rendell, Julio Fuentes and Michael Chagares affirmed the dismissal of FIA Card Services and Vacation Travel Club.
But they vacated dismissal and remanded to district court the claims against the other clubs: Dream Vacations International, Bentley Travel, Dreamworks Vacation Club, Five Points Travel, Resort Condominiums International, Dreamworks Vacations, Dreamworks, Destination Vacations, Modern Destinations Unlimited and Vacation Clubs. They did not file papers with the Third Circuit.
Vacation Travel Club said in its appeals brief that the plaintiffs lumped it with the other defendants and claimed it hired other clubs to sell memberships, and thus did not describe its alleged role.
FIA Card Services noted that the plaintiffs failed to show that its employees actively participated in the enterprise and did not establish it committed the predicate acts of RICO.
Rendell, writing for the court, agreed that the plaintiffs failed to meet the heightened standard with regard to Vacation Travel Club and FIA Card Services.
But she said that “it is a closer call” with the remaining club defendants.
Although the plaintiffs did not allege who made misrepresentations in all cases, they included “many other details to inject precision or some measure of substantiation into their allegations,” she said.
As a result, it is clear that the clubs were on notice, she continued.
She added that in a case like this, where the suit alleges the defendants concealed identities of salespeople and agents, the “plaintiffs simply cannot allege who, in particular, made the misrepresentation absent discovery.”
Finding that the plaintiffs adequately pleaded predicate acts of fraud against the travel clubs, the court reversed dismissal of RICO conspiracy claims against them, except for FIA Card Services and Vacation Travel Club.
The plaintiff attorney, Denville solo Gary Meyers, says, “It’s so difficult to satisfy the level of specificity required to assert a RICO claim — it sometimes seems it’s impossible to do. This opinion makes it clear it can be done.”
Richard Galucci, of Lauletta Birnbaum in Turnersville, who represented various clubs, did not return a call.
Harry McEnroe of Tompkins, McGuire, Wachenfeld & Barry in Newark, who represented Vacation Travel Club, says his client committed no wrongdoing.
Kathleen Dooley of McGuire Woods in Charlotte, N.C., representing FIA Card Services, says she is not authorized to comment.