| FindLaw: Laws: Cases and Codes: 9TH CIRCUIT COURT Opinions | |
ALAN M. HOWARD, an individual; R. BORIS GREENBERG, an individual; KATHRYN PARAVENTI, an individual; MEHRDAD ETEMAD, an individual; on behalf of themselves and on behalf of all others similarly situated, No. 98-56138 Plaintiffs-Appellants, D.C. No. v. CV-97-01642-AAH AMERICA ONLINE INC., a Corp.; OPINION JAMES V. KIMSEY, an individual; STEPHEN M. CASE, an individual; LENNERT J. LEADER, an individual; DOE, individuals 1-50; ROE, entities 51-100, inclusive, Defendants-Appellees.
Appeal from the United States District Court
for the Central District of California
A. Andrew Hauk, District Judge, Presiding
Argued and Submitted
February 14, 2000--Pasadena, California
Filed March 29, 2000
Before: James R. Browning, Alfred T. Goodwin and
Robert R. Beezer, Circuit Judges.
Opinion by Judge Beezer
_________________________________________________________________
SUMMARY
The summary, which does not constitute a part of the opinion of the court,
is copyrighted C 2000 by West Group.
_________________________________________________________________
Business Law/Consumers
The court of appeals affirmed a judgment of the district
court. The court held that class-action consumer plaintiffs
may not use claims against an internet service provider (ISP)
that were settled in a prior state-court action as the basis for
an alleged pattern of racketeering activity in a federal action
under the Racketeer Influenced and Corrupt Organizations
Act (RICO).
In March 1997, a California state court approved a settle-
ment between appellee America Online, Inc. (AOL) and a
class (Hagen) of its subscribers. The subscribers had sued
AOL for unfair business practices, fraud, breach of contract,
unjust enrichment, and negligent misrepresentation. The com-
plaint alleged that AOL failed to disclose connection and dis-
connection 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 to refund charges after cancel-
lation; and made unauthorized withdrawals from checking
accounts.
Appellant Alan Howard and other AOL subscribers
brought a federal class action against AOL, alleging conspir-
acy and substantive claims under RICO and the Communica-
tions Act; false advertising; fraud and deceit; negligence;
unfair business practices; and for declaratory/injunctive relief.
The district court dismissed the fraudulent billing claims
based on mail and wire fraud on the ground that they had been
settled in the state-court action and could not serve as predi-
cate acts under RICO, and the plaintiffs were members of the
settlement class. The court also ruled that claim preclusion
also barred use of the alleged billing practices as predicate
acts.
As to claims that the defendants committed securities fraud
as a part of a pattern of racketeering activity, the district court
ruled that they could not be used to establish a RICO violation
because the Private Securities Litigation Reform Act excludes
conduct that would have been actionable as fraud in the pur-
chase of securities to establish a RICO violation. The court
also determined that the securities fraud claims were not
related to the other predicate acts, and therefore could not be
used as the basis for a RICO claim.
The district court concluded that even assuming that the
false advertising allegations were sufficiently pleaded as pred-
icate acts, they were insufficient to establish a RICO pattern
because they did not imply that AOL would continue the false
advertising.
The plaintiffs claimed that part of the RICO pattern was the
inducement of PTP, a packaging supplier, to expand its opera-
tions based on AOL's misrepresentations about its shipping
needs. The district court refused to consider this claim as a
RICO predicate on the ground that the misrepresentations
were not related to the other predicates.
Regarding the RICO conspiracy claim, the district court
concluded that the plaintiffs failed to state that the defendants
were part of a RICO enterprise, agreed to violate the substan-
tive provisions of the statute, or agreed to participate in a con-
spiracy. Specifically, the court ruled that the failure
adequately to plead a substantive RICO violation precluded a
conspiracy claim.
The district court determined that AOL was not a "common
carrier" governed by the Communications Act because it is an
ISP that offers "enhanced" rather than basic communications
services.
Howard and the other class members appealed.
[1] A RICO violation requires proof of conduct of an enter-
prise through a pattern of racketeering activity. [2] A pattern
is defined as at least two acts of racketeering activity within
ten years of each other. Two acts are necessary, but not suffi-
cient for a violation.
[3] Where a judicially approved settlement is under consid-
eration, a federal court may find guidance from general state
law on the preclusive force of settlement judgments. In Cali-
fornia, interpretation of a settlement release is governed by
contract principles.
[4] The Hagen settlement barred claims that arose out of or
were related to the matters referred to in the complaint. The
RICO claims cited the identical billing allegations as Hagen.
The settlement barred the use of those claims by the same par-
ties.
[5] Claim preclusion in federal court can be based on a
state-court settlement. The preclusive effect of a state-court
judgment in federal court is based on state preclusion law.
Under California law, a final judgment on the merits will pre-
clude further litigation on the same cause of action. A judi-
cially approved settlement agreement is considered a final
judgment on the merits.
[6] There was no support for the plaintiffs' contention that
the Hagen class could not claim RICO violations because the
requisite pattern had not yet been developed. The plaintiffs
were part of the Hagen class and asserted identical billing
claims that occurred during the same period. The Hagen class
could have claimed a RICO violation based on billing fraud.
The plaintiffs were barred from subsequently bringing a claim
that they could have made earlier.
[7] To show a RICO pattern, the plaintiffs had to prove that
there were a sufficient number of predicate acts "indictable"
as mail or wire fraud. Citing acts as part of a RICO pattern,
without proving that they are indictable, was not sufficient.
The plaintiffs failed to allege a pattern of indictable billing
claims.
[8] Establishment of a pattern requires the showing of a
relationship between the predicates and the threat of continu-
ing activity. "Related" conduct embraces criminal acts that
have the same or similar purposes, results, participants, vic-
tims, or methods of commission, or are otherwise interrelated
by distinguishing characteristics, and are not isolated events.
[9] Merely having the same participants is insufficient to
establish relatedness. The purpose, result, victim, and method
of the PTP misrepresentations were different from the wire
and mail fraud, stock manipulation, and advertising claims.
To hold that the plaintiffs established relatedness solely
because they implicated the same participants would have
made that requirement meaningless. [10] The PTP misrepre-
sentations were not related to the other claimed predicate acts.
[11] RICO proscribes using any conduct that would have
been actionable as securities fraud. The plaintiffs did not dis-
pute that their securities fraud claims could have been brought
by a plaintiff with proper standing. [12] The securities fraud
claims had a different purpose, result, victim, and method
than the billing fraud, misrepresentations against PTP, and the
advertising claims. The plaintiffs failed to show that the
securities fraud claims were related to the other predicate acts.
[13] They could not be used to establish a RICO violation.
[14] Demonstrating a pattern requires the showing of a
relationship between the predicates and the threat of continu-
ing activity. [15] To satisfy the continuity requirement, the
plaintiffs had to prove either a series of related predicates
extending over a substantial period, i.e., closed-ended conti-
nuity, or past conduct that projects into the future with a threat
of repetition, i.e., open-ended continuity.
[16] Predicate acts extending over a few weeks or months
and threatening no criminal conduct do not satisfy the closed-
ended continuity requirement. [17] The claim that AOL's
improper activities continued in the form of misleading adver-
tisements was not supported by any facts. Because conclusory
allegations are insufficient to preclude dismissal, the plaintiffs
failed to demonstrate close-ended continuity.
[18] The plaintiffs presented no facts indicating that mis-
leading advertising would continue, particularly given that the
problems stemmed from a one-time change in pricing policy.
The complaint did not sufficiently allege that AOL engaged
in an open-ended pattern of racketeering activity.
[19] A conspirator must intend to further an endeavor
which, if completed, would satisfy all the elements of a sub-
stantive criminal offense, but it suffices that he adopt the goal
of furthering or facilitating the endeavor. A defendant must
also have been aware of the essential nature and scope of the
enterprise, and intended to participate in it. RICO plaintiffs
must allege either an agreement that is a substantive violation,
or that the defendants agreed to commit, or participated in, a
violation of two predicate offenses. [20] If a substantive viola-
tion is properly pleaded, a conspiracy claim may survive a
factfinder's conclusion that there is not sufficient evidence to
prove the violation.
[21] The plaintiffs could not claim that a conspiracy to vio-
late RICO existed if they did not adequately plead a substan-
tive violation. Even if the plaintiffs properly claimed that the
defendants agreed to be a part of an enterprise, the failure to
allege substantive violations precluded their claim that there
was a conspiracy to violate RICO.
[22] The FCC has declared that under the Communications
Act, "carriers" is synonymous with "common carriers," which
does not include ISPs. [23] The FCC's construction was rea-
sonable. [24] AOL is not a common carrier under the Com-
munications Act.
[25] There was nothing in the record that supported the
contention that AOL should be considered a state actor. The
plaintiffs did not sufficiently plead constitutional claims
against AOL; those claims could not support federal jurisdic-
tion over the request for declaratory and injunctive relief.
_________________________________________________________________
COUNSEL
Alec B. Wisner and H. Scott Leviant, Stanbury & Fishelman,
Inc., Los Angeles, California, for the plaintiffs-appellants.
Miles N. Ruthberg, Latham & Watkins, Los Angeles, Califor-
nia, for the defendants-appellees.
_________________________________________________________________
OPINION
BEEZER, Circuit Judge:
Plaintiffs Alan M. Howard, R. Boris Greenberg, Kathryn
Paraventi and Merhdad 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 Cor-
rupt Organizations Act ("RICO"), 18 U.S.C.SS 1962(c),
1962(d); violations of the Communications Act of 1934, 47
U.S.C. SS 151-613; false advertising in violation of California
Business and Professional Code SS 17500-17509; fraud and
deceit; negligence; unfair business practices in violation of
California Business and Professional Code SS 17200-17210;
and declaratory and injunctive relief. The district court
granted AOL's motion to dismiss. We have jurisdiction pur-
suant to 28 U.S.C. S 1291, and we affirm.
I
Plaintiffs are subscribers of AOL, an "Internet (or informa-
tion) service provider" ("ISP") that provides Internet access,
electronic mail ("e-mail"), online conferencing and informa-
tion directories, entertainment, software, electronic publica-
tions and original programming. See generally 47 U.S.C.
S 230(f)(2) (West Supp. 1999) (defining interactive computer
service). The individual defendants are officers who, accord-
ing to Plaintiffs, managed AOL.
On March 13, 1997, Plaintiffs filed their original com-
plaint, 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 cer-
tification 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).
[1] 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
(1985) (internal note omit-
ted). At issue is whether Plaintiffs properly alleged a pattern
of racketeering activity.
[2] A pattern is defined as "at least two acts of racketeering
activity" within ten years of each other. 18 U.S.C. S 1961(5).
Two acts are necessary, but not sufficient, for finding a viola-
tion. See H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S.
229, 238 (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 (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 sub-
scribers. 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 discon-
nection 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 to refund charges after cancel-
lation; 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 Ser-
vices." 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 Com-
plaint."
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; improp-
erly 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 sub-
scribers' 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 argu-
ment to the contrary; nor do they claim to have opted out of
the Hagen settlement class . . . . Plaintiffs' attempt to repack-
age the claims asserted and settled in Hagen as predicate acts
under RICO is therefore barred."
[3] "Where a judicially approved settlement is under con-
sideration, 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 (1996). In California, interpretation of a settlement
release is governed by contract principles. See General
Motors Corp. v. Superior Court, 15 Cal. Rptr. 2d 622, 625
(Cal. Ct. App. 1993).
[4] The Hagen settlement unequivocally bars claims that
"arise out of or are related to the matters referred to" in the
complaint. Plaintiffs' RICO claims cite the identical billing
allegations as Hagen. The settlement bars the use of these
claims by the same parties. See id. at 626; see also Class
Plaintiffs v. City of Seattle, 955 F.2d 1268, 1287 (9th Cir.
1992) ("[A] federal court may release . . . a claim based on
the identical factual predicate as that underlying the claims in
the settled class action even though the claim was not pres-
ented and might not have been presentable in the class
action.") (emphasis in original) (internal quotation marks
omitted).
Plaintiffs counter that the Hagen settlement does not apply
because one of the Plaintiffs, Boris Greenberg, did not sub-
scribe to AOL until 1997. This contention was not raised
before the district court. "As a general rule, we will not con-
sider an issue raised for the first time on appeal . . . ." Bolker
v. Commissioner, 760 F.2d 1039, 1042 (9th Cir. 1985). Even
if we assume that Greenberg was not a subscriber until 1997,
he was not damaged by AOL's actions prior to that time and
cannot cite such allegations as RICO predicates. See Religious
Tech. Ctr. v. Wollersheim, 971 F.2d 364, 366 n.4 (9th Cir.
1992).
The district court also relied on claim preclusion as a bar
to considering Plaintiffs' billing allegations as predicate acts.
Plaintiffs contend that the RICO pattern was not completed at
the time of the Hagen settlement, and that the acts at issue in
Hagen can therefore be considered predicates. This argument
is meritless.
[5] Claim preclusion in federal court can be based on a
state court settlement. See Matsushita,
516 U.S. at 375
. The
preclusive effect of a state court judgment in federal court is
based on state preclusion law. See Eichman v. Fotomat Corp.,
759 F.2d 1434, 1437 (9th Cir. 1985). "Under California law,
a final judgment on the merits will preclude further litigation
on the same cause of action." Pension Trust Fund for Operat-
ing Eng'rs v. Triple A Mach. Shop, Inc., 942 F.2d 1457, 1460
(9th Cir. 1991) (citing Slater v. Blackwood, 126 Cal. Rptr.
225, 226 (Cal. 1975) (in bank)). A judicially approved settle-
ment agreement is considered a final judgment on the merits.
See Citizens for Open Access to Sand and Tide, Inc. v. Sea-
drift Ass'n, 71 Cal. Rptr. 2d 77, 84 (Cal. Ct. App. 1998).
[6] There is no support for Plaintiffs' contention that the
Hagen class could not claim RICO violations because the req-
uisite pattern had not yet developed. Plaintiffs are part of the
Hagen class and asserted identical billing claims that occurred
during the same time period. Cf. Gamble v. General Food
Corp., 280 Cal. Rptr. 457, 460 (Cal. Ct. App. 1991) ("[T]wo
actions constitute a single cause of action if they both affect
the same primary right."). The Hagen class could have
claimed a RICO violation based on the billing fraud. Plaintiffs
were part of that class and are barred from subsequently
bringing a claim that they could have made earlier. See
Pedrina v. Chun, 97 F.3d 1296, 1301 (9th Cir. 1996) (apply-
ing claim preclusion because predicate acts could have been
raised in earlier state court action); Eichman, 759 F.2d at 1439
(holding that settlement agreement "does not preclude the
pendent state claims in [the subsequent action] insofar as the
latter alleges wrongful conduct occurring after the settlement
date of the former"). But see County of Cook v. MidCon
Corp., 773 F.2d 892, 908 (7th Cir. 1985) (stating that
"[w]here . . . only some aspects of an allegedly fraudulent
scheme were at issue in the prior suit, a subsequent RICO
action based on the entire scheme presumably would not be
barred") (emphasis added).
[7] Plaintiffs argue that the billing claims, even if inadmiss-
able as predicate acts, can be used as evidence of a racketeer-
ing pattern because the pattern "forms the basis of the [RICO]
violation, not the underlying acts themselves." To show a pat-
tern under RICO, Plaintiffs must prove that there are a suffi-
cient number of predicate acts "indictable" as mail or wire
fraud. See 18 U.S.C. SS 1961(1)(B), 1962(c). Citing acts as a
part of a RICO pattern, without proving that they are indict-
able, is not sufficient. See Sigmond v. Brown, 828 F.2d 8, 9
(9th Cir. 1987) (holding that dismissal of RICO claim was
appropriate where plaintiff did not present evidence that
defendant committed mail fraud). Plaintiffs failed to allege a
pattern of indictable billing claims.
We hold that the district court properly refused to consider
the billing claims as RICO predicates.
B
Plaintiffs claimed that part of the RICO pattern was the
inducement of PTP, a packaging supplier, to expand its opera-
tions based on AOL's misrepresentations about its shipping
needs. The district court refused to consider this claim as a
RICO predicate because the misrepresentations were not
related to the other predicates, and Plaintiffs lacked standing
to bring a claim for injuries to PTP. Because the district court
properly held that this claim was unrelated to the other alleged
predicates, we do not address the standing issue.
[8] Establishment of a pattern "requires the showing of a
relationship between the predicates and of the threat of con-
tinuing activity." H.J.,
492 U.S. at 239
(internal citation and
quotation marks omitted). "Related" conduct "embraces crim-
inal acts that have the same or similar purposes, results, par-
ticipants, victims, or methods of commission, or otherwise are
interrelated by distinguishing characteristics and are not iso-
lated events." Id. at 240 (internal quotation marks omitted).
We have not decided whether acts are "related " when they
share only the same participants. Plaintiffs cite to the Second
Circuit's statement that "the involvement of similar partici-
pants is sufficient to demonstrate a relationship among the
predicate acts." United States v. Simmons, 923 F.2d 934, 951
(2d Cir. 1991). In spite of Simmons, the Second Circuit subse-
quently held in Schlaifer Nance & Co. v. Estate of Warhol,
119 F.3d 91, 97 (2d Cir. 1997), that, based on the facts of that
case, predicate acts committed by the same participant were
not related. The Sixth Circuit has also held that claiming iden-
tical participants alone is insufficient to establish relatedness.
See Vild v. Visconsi, 956 F.2d 560, 566-68 (6th Cir. 1992)
(holding that acts by same defendants against plaintiff are
unrelated to acts against third parties); cf. Hartz v. Friedman,
919 F.2d 469, 474 (7th Cir. 1990) (holding that acts against
the same victims are insufficient to establish relatedness).
[9] The facts here illustrate why merely having the same
participants is insufficient to establish relatedness. The pur-
pose, result, victim and method of the PTP misrepresentations
are strikingly different from the wire and mail fraud, stock
manipulation and flat-fee advertising claims. To hold that
Plaintiffs have established relatedness solely because they
implicate the same participants makes that requirement virtu-
ally meaningless.
[10] We affirm the district court's holding that the PTP
misrepresentations are not related to the other claimed predi-
cate acts and cannot be considered part of Plaintiffs' RICO
claim.
C
Plaintiffs claimed that AOL committed securities fraud as
part of a pattern of racketeering activity. In particular, Plain-
tiffs asserted that AOL misrepresented revenues, profits and
number of subscribers; used improper accounting practices;
and illegally sold stock at a profit. The district court held that
Plaintiffs cannot use these claims to establish a RICO viola-
tion because of a statutory bar and because the claims lack
relation to the other predicates. We agree.
The Private Securities Litigation Reform Act of 1995, Pub.
L. 104-67, S 107, 109 Stat. 737, 758 (Dec. 22, 1995),
amended RICO so that "no person may rely upon any conduct
that would have been actionable as fraud in the purchase or
sale of securities to establish a violation of section 1962." 18
U.S.C. S 1964(c) (Supp. II 1996). Plaintiffs argue that this
amendment does not apply because they lack standing to
bring securities fraud claims against AOL.
[11] Section 1964(c) proscribes using as a predicate "any
conduct that would have been actionable as [securities]
fraud." (Emphasis added). Plaintiffs do not dispute that their
securities fraud claims could be brought by a plaintiff with
proper standing. The claims implicate "conduct that would
have been actionable as [securities] fraud " and section
1964(c) bars their use as RICO predicates.
[12] The district court held also that the securities fraud
claims were not related to the other predicate acts. As noted,
acts that share only the same participants are insufficient to
establish relatedness. The securities fraud claims have a dif-
ferent purpose, result, victim and method than the billing
fraud, misrepresentations against PTP and the flat-fee adver-
tising claims. Plaintiffs failed to show that the securities fraud
claims are related to the other predicate acts.
[13] We hold that Plaintiffs' securities fraud claims cannot
be used to establish a RICO violation.
D
In October 1996, AOL started advertising its flat-fee pro-
gram, which charged subscribers a monthly fee for unlimited
Internet access, rather than the previous time charge. This
change resulted in an overload of AOL's network, and pre-
vented or delayed many subscribers' ability to access the
Internet. Plaintiffs claimed that AOL, although aware that it
could not process the volume, distributed a "flurry" of false
and misleading advertising to promote its new flat-free pro-
gram. We affirm the district court's holding that, assuming
that the predicate acts were sufficiently pleaded, this claim
failed to establish a RICO pattern.
[14] Demonstrating a pattern "requires the showing of a
relationship between the predicates and of the threat of con-
tinuing activity." H.J.,
492 U.S. at 239
(internal citation and
quotation marks omitted). The district court properly con-
cluded that there was no threat of continuing activity.
[15] To satisfy the continuity requirement, Plaintiffs must
prove either "a series of related predicates extending over a
substantial period of time[, i.e., closed-ended continuity],"
H.J.,
492 U.S. at 242
, or "past conduct that by its nature proj-
ects into the future with a threat of repetition[, i.e., open-
ended continuity]," id. at 241. Plaintiffs argue that they met
this test by alleging that AOL began its false advertising in
October 1996 and continues to do so as part of its regular way
of conducting business.
[16] "Predicate acts extending over a few weeks or months
and threatening no future criminal conduct do not satisfy [the
closed-ended continuity] requirement." Id. at 242. Activity
that lasts only a few months is not sufficiently continuous. See
Allwaste, Inc. v. Hecht, 65 F.3d 1523, 1528 (9th Cir. 1995)
(holding also that there is no strict one-year rule); Woller-
sheim, 971 F.2d at 366-67.
[17] The complaint stated that AOL's "improper activities
continue even at the present, in the form of misleading adver-
tisements for `unlimited' access." This claim was not sup-
ported by any facts. Plaintiffs provided some specifics for
advertisements made before February 1997, but gave no fac-
tual support for acts after that date. Because conclusory alle-
gations are insufficient to preclude dismissal, see Associated
Gen. Contractors of Am. v. Metropolitan Water Dist. , 159
F.3d 1178, 1181 (9th Cir. 1998), we hold that Plaintiffs failed
to demonstrate closed-ended continuity.
"Open-ended continuity is shown by `past conduct that by
its nature projects into the future with a threat of repetition
[,' i.e., p]redicate acts that specifically threaten repetition or
that become a `regular way of doing business.' " Allwaste, 65
F.3d at 1528 (quoting H.J.,
492 U.S. at 241
, 242). The district
court held that Plaintiffs failed to state facts that reasonably
imply that AOL would continue its false advertising past Feb-
ruary 1997.
[18] Plaintiffs tell us that AOL's regular way of doing busi-
ness was to mislead the public. The complaint stated that
AOL "engaged in repeated fraudulent schemes as an ongoing
course of business." This general statement refers to all alle-
gations of improper activity in the complaint, not just the false
advertising. There is evidence that AOL's ability to process
the volume was improving and, pursuant to a consent decree
with the Federal Communications Commission ("FCC"), that
AOL would better explain its program. Plaintiffs present no
facts indicating that misleading advertising would continue
into the future, particularly given that the problems stemmed
from a one-time change in pricing policy. See, e.g., Durning
v. Citibank, Int'l, 990 F.2d 1133, 1139 (9th Cir. 1993) (hold-
ing that predicate acts arising from a single event--the dis-
semination of a misleading document--did not satisfy the
open-ended continuity requirement). The complaint does not
sufficiently allege that AOL engaged in an open-ended pattern
of racketeering activity.
We affirm the district court's holding that Plaintiffs' false
advertising claims failed to establish a RICO pattern.
E
Plaintiffs challenge the district court's holding that the
complaint did not satisfy Federal Rule of Civil Procedure 9(b)
because the claims did not show each defendants' connection
to the fraudulent flat-fee advertisements. See 18 U.S.C.
SS 1341 (wire fraud), 1343 (mail fraud). Because the district
court properly held that these claims did not establish a RICO
pattern, we decline to address this issue.
F
Plaintiffs contend that the district court erroneously dis-
missed their claim that AOL engaged in a conspiracy in viola-
tion of section 1962(d). See 18 U.S.C. S 1962(d) ("[I]t shall
be unlawful for any person to conspire to violate any of the
provisions of subsection (a), (b), or (c) of this section."). The
district court concluded that Plaintiffs failed to state that the
defendants were part of a RICO enterprise, agreed to violate
the substantive provisions of RICO or agreed to participate in
a RICO conspiracy. In particular, the district court held that
the failure to adequately plead a substantive violation of
RICO precludes a claim for conspiracy. We agree.
[19] "A conspirator must intend to further an endeavor
which, if completed, would satisfy all of the elements of a
substantive criminal offense, but it suffices that he adopt the
goal of furthering or facilitating the criminal endeavor." Sali-
nas v. United States,
522 U.S. 52, 65
(1997). A defendant
must also have been "aware of the essential nature and scope
of the enterprise and intended to participate in it. " Baumer v.
Pachl, 8 F.3d 1341, 1346 (9th Cir. 1993) (internal quotation
marks omitted). To establish a violation of section 1962(d),
Plaintiffs must allege either an agreement that is a substantive
violation of RICO or that the defendants agreed to commit, or
participated in, a violation of two predicate offenses. See id.
[20] Plaintiffs argue that the district court erroneously
relied on our holding in Wollersheim. See 971 F.2d at 367 n.8
("Because we find that [the plaintiff] has failed to allege the
requisite substantive elements of RICO, the conspiracy cause
of action cannot stand."). If a substantive violation is properly
pleaded, a conspiracy claim may survive a factfinder's con-
clusion that there is not sufficient evidence to prove the viola-
tion. See Neibel v. Trans World Assurance Co., 108 F.3d
1123, 1127 (9th Cir. 1997) (analyzing Wollersheim). "[I]f the
section 1962(c) claim does not state an action upon which
relief could ever be granted, regardless of the evidence, then
the section 1962(d) claim cannot be entertained." Id. (empha-
sis in original) (citing Wollersheim, 971 F.2d at 367 n.8).
[21] The district court granted AOL's Rule 12(b)(6) motion
and held that Plaintiffs failed to state a claim upon which
relief can be granted. Plaintiffs cannot claim that a conspiracy
to violate RICO existed if they do not adequately plead a sub-
stantive violation of RICO. See id. Even if Plaintiffs properly
claimed that the defendants agreed to be a part of an enter-
prise, the failure to allege substantive violations precludes
their claim that there was a conspiracy to violate RICO.
We affirm the district court's dismissal of Plaintiffs' con-
spiracy claim.
III
Plaintiffs claimed that AOL violated the Communications
Act, 47 U.S.C. SS 201, 202(b), 551, by making unreasonable
charges, practices, classifications or regulations; by unreason-
ably prejudicing some subscribers by favoring others; and by
failing to protect subscriber privacy. The district court prop-
erly held that AOL is not a common carrier and, therefore, did
not violate the Communications Act. See, e.g., 47 U.S.C.
SS 201, 202(b) (regulating only common carriers).
"The term `common carrier' . . . means any person engaged
as a common carrier for hire, in interstate or foreign commu-
nication by wire or radio or in interstate or foreign transmis-
sion of energy . . . ." 47 U.S.C. S 153(10) (Supp. III 1997).
"Due to the circularity of the definition, resort must be had to
court and agency pronouncements to ascertain the term's
meaning." FCC v. Midwest Video Corp.,
440 U.S. 689
, 701
n.10 (1979).
The Supreme Court has defined a common carrier as one
that "makes a public offering to provide [communications
facilities] whereby all members of the public who choose to
employ such facilities may communicate or transmit intelli-
gence of their own design and choosing." Id. at 701 (alteration
in original) (quoting In re Industrial Radiolocation Serv., 5
F.C.C.2d 197, 202 (1966) (report and order)). "A common
carrier does not `make individualized decisions, in particular
cases, whether and on what terms to deal.' " Id. (quoting
National Ass'n of Regulatory Utility Comm'rs v. FCC, 525
F.2d 630, 641 (D.C. Cir. 1976) ("NARUC I") (describing the
"quasi-public" nature of common carriers)).
Congress created the FCC to enforce the Communications
Act. See 47 U.S.C. S 151 (Supp. III 1997). The Supreme
Court's "opinions have repeatedly emphasized that the
[FCC's] judgment regarding how the public interest is best
served is entitled to substantial judicial deference." FCC v.
WNCN Listeners Guild,
450 U.S. 582, 596
(1981).
[22] Federal regulations describe a common carrier as "any
person engaged in rendering communication service for hire
to the public." 47 C.F.R. S 21.2. The FCC has declared that,
under the Communications Act, " `carriers' is synonymous
with the term `common carriers,' which does not include
ISPs." In re Non-Accounting Safeguards, 11 F.C.C.R. 21905,
22034 (1996) (proposed rule) (citing 47 U.S.C. S 153(10)).
This opinion stems from the FCC's distinction between
"basic" and "enhanced" services.
The FCC has concluded that common carriers offer "basic"
information transport rather than "enhanced" services, which
implicate the transfer and storage of information that sub-
scribers can access. See In re Second Computer Inquiry, 77
F.C.C.2d 384, 417-23 (1980) (final decision); 47 C.F.R.
64.702(a) ("[E]nhanced service shall refer to services . . .
which employ computer processing applications that act on
the format, content, code, protocol or similar aspects of the
subscriber's transmitted information; provide the subscriber
additional, different, or restructured information; or involve
subscriber interaction with stored information. Enhanced ser-
vices are not regulated under Title II of the Act."). Enhanced
services "include[ ] access to the Internet and other interactive
computer networks." In re Access Charge Reform, 12
F.C.C.R. 15982, 16131 n.498 (1997) (proposed rule). The
FCC has consistently stated that ISPs are not common carri-
ers. See In re Federal-State Joint Board on Universal Service,
12 F.C.C.R. 87, 479 (1996) (recommended decision)
("[Enhanced Service Providers ("ESPs") ] note that the Com-
mission has traditionally defined on-line and Internet services
as enhanced services and has not regulated [ESPs ] as common
carriers . . . .").
[23] The FCC's construction of "common carrier" is a rea-
sonable interpretation of an ambiguous statute. See Chevron
U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467
U.S. 837, 843-44 (1984). The Telecommunications Act of
1996, which amended the Communications Act, further sup-
ports the FCC. Congress provided, in a section prohibiting
obscene or harassing communications, that "[n]othing in this
section shall be construed to treat interactive computer ser-
vices as common carriers." 47 U.S.C. S 223(e)(6) (Supp. III
1997). "The normal rule of statutory construction assumes
that identical words used in different parts of the same act are
intended to have the same meaning." Sorenson v. Secretary of
Treasury,
475 U.S. 851, 860
(1986) (internal quotation marks
omitted). Congress also stated that its aim is "to preserve the
vibrant and competitive free market that presently exists for
the Internet and other interactive computer services, unfet-
tered by Federal or State regulation." 47 U.S.C.S 230(b)(2)
(West Supp. 1999). The FCC's interpretation meets this pol-
icy goal.
Plaintiffs argue that AOL should be regulated in part as a
common carrier. The D.C. Circuit stated that "[s]ince it is
clearly possible for a given entity to carry on many types of
activities, it is at least logical to conclude that one can be a
common carrier with regard to some activities but not others."
National Ass'n of Regulatory Utility Comm'rs v. FCC, 533
F.2d 601, 608 (D.C. Cir. 1976) ("NARUC II"); see also
McDonnell Douglas Corp. v. General Tel. Co., 594 F.2d 720,
725 n.3 (9th Cir. 1979) (citing NARUC II). The facts here are
distinguishable.
NARUC II involved the objection of cable operators, which
previously had not been classified as common carriers, to the
FCC's assertion of preemption over leased access two-way
channels. See 533 F.2d at 605. These channels used a differ-
ent bandwidth than the normal one-way channels and consti-
tuted a distinct mode of cable service. See id. at 605-06.
Conversely, e-mail and "chat rooms," which Plaintiffs cite as
common carrier activity, are integral to AOL's services.
"The service that the Internet access providers offer to
members of the public is Internet access . . . . " In re Federal-
State Joint Board on Universal Service, 13 F.C.C.R. 11501,
11539 (1998) (report to Congress) (contrasting services of
application providers such as Juno, which offered only e-
mail). The FCC has stated that hybrid services like those
offered by AOL "are information[, i.e., enhanced] services,
and are not telecommunication services." Id. at 11529. This
conclusion is reasonable because e-mail fits the definition of
an enhanced service--the message is stored by AOL and is
accessed by subscribers; AOL does not act as a mere conduit
for information. See id. at 11539. Even chat rooms, where
subscribers can exchange messages in "real-time, " are under
AOL's control and may be reformatted or edited. See id. at
11537-38. Plaintiffs have failed to show that AOL offers dis-
crete basic services that should be regulated differently than
its enhanced services. Accord America Online, Inc. v. Great-
Deals.Net, 49 F. Supp. 2d 851, 855-57 (E.D. Va. 1999) (hold-
ing that AOL is not a common carrier); CompuServe, Inc. v.
Cyber Promotions, Inc., 962 F. Supp. 1015, 1025 (S.D. Ohio
1997) ("[ISPs] have been held not to be common carriers.")
(citing Religious Tech. Ctr. v. Netcom On-Line Communica-
tion Servs., Inc., 907 F. Supp. 1361, 1369 n.12 (N.D. Cal.
1995) (holding, in copyright suit, that ISP was not a common
carrier)).
[24] We hold that AOL is not a common carrier under the
Communications Act.
IV
Plaintiffs sought a declaration that AOL violated Plaintiffs'
constitutional rights and improperly asserted ownership of
Plaintiffs' copyrights. The district court dismissed these
counts in part because Plaintiffs failed to state claims for
relief under federal law, thereby depriving the court of juris-
diction. We agree.
A request for declaratory judgment does not provide an
independent basis for federal jurisdiction. See Skelly Oil Co.
v. Phillips Petroleum Co.,
339 U.S. 667, 672
(1950). The dis-
trict court concluded that Plaintiffs' constitutional claims
lacked the necessary state action and that their copyright alle-
gations failed to state a claim under federal copyright law.
Plaintiffs argue that their claims under the First, Fourth,
Fifth, Ninth, and Fourteenth Amendments do not require state
action. Griswold v. Connecticut,
381 U.S. 479
(1965), which
Plaintiffs cite in support of their argument, expressly noted
that the Fourth and Fifth Amendments protect "against all
governmental invasions." Id. at 484 (emphasis added). The
"general right to privacy, . . . Fourteenth Amendment liber-
ty[,] and the other elements of those more general rights are
obviously not protected against private infringement." Bray v.
Alexandria Women's Health Clinic,
506 U.S. 263, 278
(1993)
(emphasis in original) (internal citations omitted) (holding
that only rights under the Thirteenth Amendment protect
against private action); see also United States v. Young, 153
F.3d 1079, 1080 (9th Cir. 1998) ("The Fourth Amendment
limits searches conducted by the government, not by a private
party, unless the private party acts as an `instrument or agent'
of the government."); Rank v. Nimmo, 677 F.2d 692, 701 (9th
Cir. 1982) ("The Due Process Clause of the Fifth Amendment
applies to actions of the federal government and not to indi-
vidual activities of private actors[, unless] . . . the action of the
latter may be fairly treated as that of the [government] itself.")
(internal quotation marks omitted).
[25] Plaintiffs counter that AOL is a "quasi-public utility"
that "involv[es] a public trust." This claim is insufficient to
hold that AOL is an "instrument or agent" of the government.
There is nothing in the record that supports the contention that
AOL should be considered a state actor. Accord Thomas v.
Network Solutions, Inc., 176 F.3d 500, 511 (D.C. Cir. 1999)
(holding that company in charge of Internet domain names is
a private actor); Cyber Promotions, Inc. v. America Online,
Inc., 948 F. Supp. 436, 443-44 (E.D. Pa. 1996) (holding that
AOL is not a state actor). We conclude that Plaintiffs did not
sufficiently plead constitutional claims against AOL; thus,
these claims cannot support federal jurisdiction over the
request for declaratory and injunctive relief.
Plaintiffs asserted that federal jurisdiction was based also
on violations of federal copyright law. Federal jurisdiction
under the Copyright Act, 17 U.S.C. SS 101-810, exists:
if and only if the complaint is for a remedy expressly
granted by the Act, e.g., a suit for infringement or for
the statutory royalties for record reproduction . . . or
asserts a claim requiring construction of the Act, .. .
or, at the very least and perhaps more doubtfully,
presents a case where a distinctive policy of the Act
requires that federal principles control the disposi-
tion of the claim.
Topolos v. Caldewey, 698 F.2d 991, 993 (9th Cir. 1983)
(alterations in original) (quoting T.B. Harms Co. v. Eliscu,
339 F.2d 823, 828 (2d Cir. 1964)).
The district court held that Plaintiffs alleged that AOL
improperly transferred copyright ownership, which was insuf-
ficient to support federal jurisdiction. This conclusion gives
the complaint too much credit. Although Plaintiffs stated that
AOL transferred ownership in violation of 17 U.S.C.S 204,
and continued to "improperly take[ ] " copyrighted material,
the complaint makes clear that ownership is not at issue.
Rather, Plaintiffs claimed that AOL asserted a license "with-
out proper notice, adequate compensation and bilateral negoti-
ation." Indeed, Plaintiffs quote the AOL agreement, which
expressly refers to a "license to use" the material.
Plaintiffs argue that ITSI T.V. Prods., Inc. v. California
Auth. of Racing Fairs, 785 F. Supp. 854, 862 (E.D. Cal.
1992), rev'd in part sub nom. ITSI T.V. Prods., Inc. v. Agri-
cultural Ass'ns, 3 F.3d 1289 (9th Cir. 1993), supports the
proposition that there is federal jurisdiction over AOL's vicar-
ious liability for the infringement of copyrights. ITSI is inap-
posite; Plaintiffs did not cite any acts of infringement, either
with or without AOL's involvement.
Plaintiffs claimed merely that AOL enacted an improper
license agreement. The ownership of copyrights is not at
issue, and Plaintiffs have not claimed any infringement, or
requested relief, under the Copyright Act. The copyright
claims do not support federal jurisdiction. See Topolos, 698
F.2d at 993-94; Dolch v. United Cal. Bank, 702 F.2d 178,
180-81 (9th Cir. 1983).
We hold that Plaintiffs' constitutional and copyright claims
are insufficient bases for federal jurisdiction.
V
Plaintiffs do not challenge the district court's holding that,
given the lack of jurisdiction over the federal claims, dis-
missal of the state law claims was proper. "When federal
claims are dismissed before trial . . . pendant state claims also
should be dismissed." Wollersheim, 971 F.2d at 367-68 (alter-
ation in original) (quoting Jones v. Community Redevelop-
ment Agency, 733 F.2d 646, 651 (9th Cir. 1984)).
We affirm the dismissal of the state law claims.
AFFIRMED.
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