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settlementplaintiffappealmotion
settlementplaintiffjurisdictionappealcopyrightclass action

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Howard v. America Online Inc., 208 F.3d 741, RICO Bus.Disp.Guide 9872, 00 Cal. Daily Op. Serv. 2454, 2000 Daily Journal D.A.R. 3307, 20 Communications Reg. (P&F) 130

Facts

Plaintiffs, subscribers of AOL, filed a complaint alleging fraudulent billing practices and other violations by AOL and its officers. The original complaint was filed in March 1997, and after a series of amendments and motions, the district court dismissed the case with prejudice in May 1998. The plaintiffs were part of a class that had previously settled claims against AOL regarding similar billing practices.

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.

Issue

Whether the plaintiffs' claims were barred by a prior settlement and whether they adequately alleged a pattern of racketeering activity under RICO.

The Court of Appeals, Beezer, Circuit Judge, held that: (1) settlement in state-court class action barred subscribers' use of underlying billing practices as predicate acts supporting RICO claims; (2) allegations that provider induced packaging supplier to expand its operations through misrepresentations could not be considered as predicate act supporting RICO claims; (3) RICO provision barring use as predicate act any conduct that would have been actionable as securities fraud precluded subscribers from relying on allegations that provider misrepresented revenues, profits, and numbers of subscribers, used improper accounting practices, and illegally sold stock at profit; (4) allegations that provider distributed misleading advertising to promote new flat-fee program did not show continuity required for pattern of racketeering activity; (5) provider was not common carrier; and (6) federal jurisdiction did not exist over subscribers' requests for declaratory and injunctive relief on constitutional and copyright claims.

Rule

A judicially approved settlement can bar subsequent claims based on the same factual predicate, and to establish a RICO violation, a plaintiff must show a pattern of racketeering activity involving at least two acts within ten years.

A violation under section 1962(c) requires proof of: “1) conduct 2) of an enterprise 3) through a pattern 4) of racketeering activity.”

Analysis

The court found that the plaintiffs' claims were barred by the prior settlement in the Hagen case, which included similar allegations against AOL. The court also determined that the plaintiffs failed to demonstrate a sufficient pattern of racketeering activity, as the claims did not show continuity or relatedness among the alleged predicate acts.

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.”

Conclusion

The Court of Appeals affirmed the district court's dismissal of the plaintiffs' claims, concluding that the claims were precluded by the prior settlement and did not meet the requirements for a RICO violation.

We hold that the district court properly refused to consider the billing claims as RICO predicates.

Who won?

America Online, Inc. prevailed in the case because the court found that the plaintiffs' claims were barred by a prior settlement and did not establish a pattern of racketeering activity.

The Court of Appeals affirmed the dismissal, ruling that the claims were barred by a prior settlement and did not establish a pattern of racketeering activity.

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