In Ray v. Spirit Airlines, Inc., No. 15-13792, 2016 WL 4578347 (11th Cir. Sept. 2, 2016), the United States Court of Appeals for the Eleventh Circuit held that a defendant corporation is not distinct from its own officers and employees for purposes of forming an “enterprise” under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961, et seq. (“RICO”).  The Eleventh Circuit thus joins the Second, Seventh and Tenth Circuits in holding that a corporation cannot form an enterprise with its own agents, as the only way the corporation can act is through those agents.

Plaintiffs were consumers who sued Spirit Airlines, Inc.’s (“Spirit”) on behalf of a class alleging that the low-cost airline conspired with its own corporate officers and several outside vendors to misrepresent the nature of its $8.99 Passenger Usage Fee.  Plaintiffs alleged that placement of the Passenger Usage Fee alongside government taxes and fees on the confirmation page of its ticket-purchasing web platform “was a coordinated effort to conceal the true nature of the fee by leading customers to believe that it was an official government tax or sanctioned fee.”

Plaintiffs alleged a RICO claim.  RICO makes it “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).  The complaint contained the general assertion that plaintiffs “were harmed in that they relied to their detriment on Spirit’s conduct and, as a result, needlessly incurred excessive and unconscionable [Passenger Usage Fees].”  According to the complaint, Spirit’s use of the internet to advertise and engage in sales with the deceptive inclusion and placement of the Passenger Usage Fee constituted mail and wire fraud.  Spirit allegedly engaged in this fraudulent activity while associated with, operating, or controlling a RICO enterprise consisting of Spirit itself, two of its officers and several third-party vendors and consultants to Spirit.

The United States District Court for the Southern District of Florida dismissed the complaint.  The district court held that, among other things, a defendant corporation cannot act in concert with its own officials, agents or employees for purposes of establishing a RICO enterprise “when those individuals are operating in their official capacities for the corporation.”  Plaintiffs appealed.

The Eleventh Circuit affirmed.  The Court agreed with the district court that there must be a distinction between the defendant and the enterprise itself, otherwise the statutory language making it “unlawful for any person employed by or associated with any enterprise” (18 U.S.C. § 1962(c)) to engage in racketeering activities through that enterprise would be meaningless.  Spirit, the only defendant, is a corporation, and as such it can only act through its agents, employees, or officers.  As the Eleventh Circuit observed, allowing a defendant corporation to conspire with its employees, agents or officers, does not make sense, because it would be the equivalent of a person employing or associating with himself.

Notably, the Court observed that the inverse situation would not necessarily result in dismissal.  Had the plaintiffs named the corporate individuals as defendants, rather than the corporation itself, the result may have been different, assuming the complaint was otherwise free of defects.  While a corporation is not distinct from its agents, those same agents are distinct from the corporation.  RICO was, in part, enacted to prevent individuals from using seemingly legitimate corporate forms to conduct illegal activities.  The Court drew upon an earlier decision from the United States Supreme Court, Cedric Kushner Productions, Ltd. v. King, 533 U.S. 158 (2001), which dealt with an individual defendant and allegations regarding his use of his closely held corporation, to make its point.  In that case, plaintiffs alleged that the individual defendant misused his closely held corporation to conduct illegal activities, thereby forming an enterprise with a separate entity distinct from himself.  Conversely, as the Eleventh Circuit recognized, a corporation acting through its agents “is simply a corporation.  Labeling it as an enterprise as well would only amount to referring to the corporate ‘person’ by a different name.”

At first blush, the principle set forth in Spirit Airlines may seem somewhat counterintuitive.  The same underlying facts and allegations can form the basis of both a sufficient and insufficient complaint.  The result will vary depending entirely on whether a corporation or an individual actor is named as the defendant.  The individual is distinct from, and can thereby conspire and form an enterprise with, the corporation.  But this is not a two-way street — at least for purposes of forming a RICO enterprise.  “Because every corporation acts through its own employees as a matter of course,” the Eleventh Circuit cautioned, allowing pleadings such as plaintiffs’ to go forward “would turn every claim of corporate fraud into a RICO violation.”  In announcing its adherence to the precedent set forth by the Supreme Court and its sister circuits, the Eleventh Circuit has joined the ranks of jurisdictions narrowing the avenues of relief for potential civil RICO plaintiffs.