Faith Enters. Grp., Inc. v. Avis Budget Grp., Inc.

FAITH ENTERPRISES GROUP, INC. on behalf of Itself and All Others Similarly Situated, Plaintiff, v. AVIS BUDGET GROUP, INC., et al., Defendants.

CIVIL ACTION FILE NO. 1:11-CV-3166-TWT

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION

Dated: April 19, 2012

ORDER

This is a RICO action. It is before the Court on the Defendants' Motion to Dismiss [Doc. 10] and the Defendants' Motion to Dismiss the Amended Complaint [Doc. 24]. For the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART the Defendants' Motion to Dismiss the Amended Complaint [Doc. 24]. The Court DENIES as moot the Defendants' Motion to Dismiss [Doc. 10].

I. Background

Avis Budget Group, Inc. ("Avis Group"), Avis Budget Car Rental, LLC ("Avis Rental"), and Avis Rent A Car System, LLC ("Avis Rent A Car") (collectively, "Avis") operate a vehicle rental service. Avis Rental is a wholly-owned subsidiary of Avis Group. Avis Rent A Car is a wholly-owned subsidiary of Avis Rental. Avis'rental car business includes three types of locations: company-owned-and-operated locations, third-party-operated locations, and franchisee/licensee locations. The third-party-operated locations are managed pursuant to independent operator agreements. Avis, its independent third-party operators, franchisees, and licensees make up the Avis System. (See Compl. ¶ 1.) Avis uses an electronic reservation system, known as the Wizard System, that allows customers to reserve vehicles online. Using the Wizard System, customers can reserve vehicles at any Avis System location.

Faith Enterprises Group, Inc. ("Faith") is one of several hundred third-party operators in the Avis System. On December 16, 2005, Avis Rent A Car and Faith entered into an independent operator agreement (the "Agreement"). (See Compl., Ex. A.) The Agreement provides that Faith will exclusively rent Avis' rental cars. Further, Faith is required to maintain a staff, keep regular business hours, and service, repair, and store Avis rental vehicles. (Id. at 4-5.) In return, the Agreement provides:

[Avis Rent A Car] shall furnish [Faith] with the vehicles to be rented on [Avis Rent A Car's] behalf or on behalf of another Avis System member, which [Avis Rent A Car], in its sole discretion deems to be sufficient in quantity and class, from [Faith's] location.

(Id., at 2.) Faith is entitled to 12% "of the net Total Revenue derived from each rental, computed by deducting any discounts and commissions to the renter and third parties." (Id. at 14.)

On September 19, 2011, Faith filed this lawsuit against Avis Group, Avis Rental, and Avis Rent A Car [Doc. 1]. The Complaint includes claims for violations of the Racketeer Influenced and Corrupt Organizations ("RICO") Act, see 18 U.S.C. § 1962, breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, and unjust enrichment. On October 25, 2011, the Defendants filed a Motion to Dismiss [Doc. 10]. On November 15, 2011, Faith filed an Amended Complaint [Doc. 18]. Specifically, Faith alleges that Avis falsely stated on the Wizard System that Faith was "sold out" of vehicles on the Wizard System. This misrepresentation allegedly cost Faith commissions that it would have otherwise earned. Finally, Faith asserts that Avis was unjustly enriched by customer coupons that Faith accepted. On December 9, 2011, the Defendants filed a Motion to Dismiss the Amended Complaint [Doc. 24]. The Defendants argue that Faith has not sufficiently pled an intent to defraud, proximate causation, or enterprise as required by the federal RICO statute.

II. Motion to Dismiss Standard

A complaint should be dismissed under Rule 12(b)(6) only where it appears that the facts alleged fail to state a "plausible" claim for relief. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009); Fed. R. Civ. P. 12(b)(6). A complaint may survive a motion to dismiss for failure to state a claim, however, even if it is "improbable" that a plaintiff would be able to prove those facts; even if the possibility of recovery isextremely "remote and unlikely." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007) (citations and quotations omitted). In ruling on a motion to dismiss, the court must accept factual allegations as true and construe them in the light most favorable to the plaintiff. See Quality Foods de Centro America, S.A. v. Latin American Agribusiness Dev. Corp., S.A., 711 F.2d 989, 994-95 (11th Cir. 1983). Generally, notice pleading is all that is required for a valid complaint. See Lombard's, Inc. v. Prince Mfg., Inc., 753 F.2d 974, 975 (11th Cir. 1985), cert. denied, 474 U.S. 1082 (1986). Under notice pleading, the plaintiff need only give the defendant fair notice of the plaintiff's claim and the grounds upon which it rests. See Erickson v. Pardus, 551 U.S. 89, 93 (2007) (citing Twombly, 550 U.S. at 555).

III. Discussion

A. RICO

The Defendants have moved to dismiss Faith's RICO claim. Under 18 U.S.C. § 1962(c), it is "unlawful for any person employed by or associated with any enterprise . . . to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity." 18 U.S.C. § 1962(c). Racketeering activity includes acts of wire and mail fraud. 18 U.S.C. § 1961(1).

1. Alternative Explanation

First, the Defendants contend that Faith's RICO claim is not plausible because there is an "obvious alternative explanation" for Avis' conduct. Specifically, the Defendants assert that Avis indicated, through the Wizard System, that Faith was "sold out" of cars to manage the Avis fleet and maximize revenue.

In American Dental Association v. CIGNA Corp., 605 F.3d 1283 (2010), the plaintiffs alleged that the defendant insurers had committed RICO violations by conspiring to bundle and downcode certain insurance claims. The court, however, held that such conduct did not present a plausible RICO claim. The court reasoned that the alleged conduct "may just as easily have developed from independent action in a competitive environment as it would from an illegal conspiracy, because each insurer would have an economic interest in decreasing physicians' costs and increasing profits." Id. at 1295.

Here, the Defendants argue that, as in American Dental, Avis "chose to limit the types of rentals [available on the Wizard System] at various sites in anticipation of particular risks and opportunities." (Defs.' Br. in Supp. of Defs.' Mot. to Dismiss, at 7.) The Complaint, however, alleges that Avis acknowledged by email that they shut down independent operators on the Wizard System for reasons other than the vehicles being "sold out." (Compl. ¶ 30.) Indeed, the Complaint alleges that Avislisted certain locations as "sold out" as an incentive for those locations to increase insurance sales and "upsells." (Id.) Similarly, the Complaint alleges that Avis Rent A Car employees admitted that Faith had appeared as "sold out" on the Wizard System when Faith actually had cars available for rent. (Id. ¶ 31.)

Unlike American Dental, these allegations support a plausible inference that the Defendants' conduct was unlawful. Indeed, the Complaint sets forth facts that directly contradict the Defendants' "obvious alternative explanation." Faith need not show that there are no legitimate explanations for the Defendants' representations. Rather, the Plaintiff need only establish that an improper explanation is plausible. Faith has done so. For this reason, the Defendants' "obvious alternative explanation" does not warrant dismissal of the Plaintiff's RICO claims.

2. Proximate Cause

Next, the Defendants argue that Faith has not pled sufficient facts to establish proximate cause. RICO plaintiffs must prove "some direct relation between the injury asserted and the injurious conduct alleged." Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 464 (2006) (quoting Holmes v. Securities Investor Prot. Corp., 503 U.S. 258, 268 (1992)). "When a court evaluates a RICO claim for proximate causation, the central question it must ask is whether the alleged violation led directly to the plaintiff's injuries." Id. at 461; see also Holmes, 503 U.S. at 269 (noting that "the lessdirect an injury is, the more difficult it becomes to ascertain the amount of a plaintiff's damages attributable to the violation, as distinct from other, independent, factors.").

In Hemi Group, LLC v. City of New York, 130 S. Ct. 983 (2010), New York City brought a RICO action against a New Mexico based cigarette company. The company had failed to collect sales taxes from customers residing in New York City. The plaintiff alleged that the company had violated the Jenkins Act, which requires out of state sellers to provide states with customer sales information. The court, however, found no direct relationship between the alleged violation (the failure to report customer information to New York state) and the plaintiff's harm (uncollected sales tax). The Court reasoned that the city's injury was caused by the defendant's failure to collect taxes from its customers,¹ not the defendant's failure to report customer information to New York state.

By contrast, in Bridge v. Phoenix Bond & Indemnity Co., 553 U.S. 639 (2008), a bidder at a tax lien auction sued a competitor and the competitor's parent company for RICO violations. The plaintiff alleged that the defendants had retained related firms to place simultaneous bids. The defendants then allegedly violated the county's single bidder rule by representing to the county that the cooperating firms were notrelated to the defendants. The plaintiff asserted that it won fewer tax liens as a result of the defendants' misrepresentations. The defendants argued that because the plaintiff did not rely on the alleged misrepresentations, there was no direct causal relationship between the RICO violations and the plaintiff's damages. The Court held that the plaintiff need not prove reliance to establish causation. First, the Court reasoned...