If customers in good standing complain about the annual fee, and/or threaten to cancel their cards unless the fee is waived, the company will waive the annual fee, and has authorized its sales agents who deal with the public on the telephone and by correspondence to waive such fees. The company, however, does not tell the public that those who so complain may have their fees waived, and indeed has denied that it has such a policy, such denials having been transmitted inter alia by interstate wire. The failure to disclose this policy in communications with Cardmembers is a material omission, and the denial that the policy exists is a material false statement. Collection of membership fees through the use of such material omissions and false statements constitutes a scheme or artifice to defraud. The mail and wire fraud statutes, 18 U.S.C. §§ 1341 and 1343, forbid the use of the mails and interstate wires in aid of a scheme or artifice to defraud. The violation of those statutes is included among the acts constituting racketeering activity. 18 U.S.C. § 1961(1). Defendants are an enterprise within the meaning of the statute. 18 U.S.C. § 1961(4). Two or more such acts within ten years, committed by a person while conducting the affairs of an enterprise, with the threat that such acts may be ongoing, constitutes a pattern of racketeering activity in violation of the statute. 18 U.S.C. §§ 1961, 1962(c). It follows that American Express conducts its business through a pattern of racketeering activity in violation of the statute. Q.E.D.
Defendants have attacked that chain of logic at a variety of points. For example, they have argued that they cannot simultaneously be the enterprise and the person conducting the enterprise in violation of the statute, Cullen v. Margiotta, 811 F.2d 698, 729 (2d Cir.), cert. denied sub nom., Nassau County Republican Committee v. Cullen, 483 U.S. 1021, 97 L. Ed. 2d 764, 107 S. Ct. 3266 (1987), that no particular predicate acts of mail or wire fraud have been pleaded, and that plaintiff has not properly pleaded a RICO pattern.
However, the most basic defect in plaintiff's pleading, and one that cannot be cured by repleading, is that what plaintiff relies on to establish a RICO claim is violation of the mail and wire fraud statutes, but the course of conduct plaintiff describes in his complaint is not a fraud. Although the mail and wire fraud statutes are to be read expansively to cover more than is embraced by the elements of common law fraud, McEvoy Travel Bureau, Inc. v. Heritage Travel, Inc., 904 F.2d 786, 791 (1st Cir.), cert. denied, 498 U.S. 1065 (1990), an unlawful scheme to defraud must include at a minimum the potential for actual harm or injury. United States v. Wallach, 935 F.2d 445, 461 (2d Cir. 1991). There is no such potential or actuality here. Consumers are told that if they want defendants' service, they must pay a fee. If they pay that fee, they get the service. That they might get the service also without paying the fee, or by paying a lesser fee, does not mean that they have suffered cognizable damage. If it did, the resulting rule of law would bring the marketplace to a virtual standstill. Merchants who advertised a price and then lowered it in response to consumer haggling ("I can get it cheaper elsewhere," or even "Can you do any better?"), including automobile dealers and electronics merchants, would be guilty of fraud. When a litigant would give a statute a meaning that yields absurd results, that is a fair indication that the statute doesn't mean what that litigant has suggested. See Green v. Bock Laundry Mach. Co., 490 U.S. 504, 509-11, 104 L. Ed. 2d 557, 109 S. Ct. 1981 (1989). The mail and wire fraud statutes were not meant to protect consumers against the irritation of learning that others have gotten a better deal.
Nor is defendants' allegedly false denial of a fee waiver policy itself actionable. Plaintiff has not alleged, nor is it possible to envision, reasonable reliance on such a statement. The scenario plaintiff would have to prove in order to recover for this denial would depict a consumer considering a toll-free telephone call
to challenge the membership fee, who is then deterred to his financial detriment from making that call by defendants' denial. Whether the mail and wire fraud statutes were enacted to protect only persons of ordinary prudence and comprehension, United States v. Baren, 305 F.2d 527, 533 (2d Cir. 1962), or even the most gullible, United States v. Brien, 617 F.2d 299, 311 (1st Cir.), cert. denied, 446 U.S. 919 (1980), meekness that is of another world should not be the governing standard.
* * *
For the above reasons, plaintiff's federal claims must be dismissed. Leave to replead would be futile and is denied. Because the federal claims have been dismissed at a preliminary stage, there is no reason to exercise pendent jurisdiction over the state law claims. United Mine Workers v. Gibbs, 383 U.S. 715, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966). Plaintiff's complaint is dismissed.
Dated: New York, New York
December 9, 1993
Michael B. Mukasey,
U.S. District Judge