Court Opinion

ID: 14705
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:37:57+00
Date Added: 2024-06-11T13:25:50.917290
License: Public Domain

REVISED - May 20, 1998

              IN THE UNITED STATES COURT OF APPEALS
                      FOR THE FIFTH CIRCUIT

                     __________________________

                            No. 97-10623
                         (Summary Calendar)
                     __________________________

STEVEN PRICE, BRUCE LAXER,
LANCE KUBA, and JEFFREY FISHMAN,
On Behalf of Themselves and All
Other Similarly Situated Persons,

                                                    Plaintiffs-Appellants,

                                versus

PINNACLE BRANDS, INC.,

                                                    Defendant-Appellee.

        ________________________________________________

          Appeal from the United States District Court
               for the Northern District of Texas
        ________________________________________________

                           April 22, 1998

Before WIENER, BARKSDALE, and EMILIO M. GARZA, Circuit Judges.

PER CURIAM:

     Plaintiffs-Appellants   Steven      Price,   Bruce   Laxer,   Jeffrey

Fishman, and Lance Kuba, on behalf of themselves and all other

similarly situated persons (collectively, plaintiffs), appeal the

district court’s dismissal of their purported class action against

Defendant-Appellee   Pinnacle   Brands,      Inc.   (Pinnacle)     brought

pursuant to the Racketeer Influenced and Corrupt Organizations Act
(RICO).1       Plaintiffs assert that the district court erred in (1)

holding that they had not pled a cognizable injury under RICO, and

therefore did not have standing, and (2) refusing to allow them to

amend their complaint to correct the perceived deficiency.               After

a review of the record and the arguments of counsel, we find no

reversible error and, accordingly, affirm.

                                       I.

                             FACTS AND PROCEEDINGS

     Pinnacle is a leading manufacturer of sports trading cards,

especially football, baseball, hockey and motor sports cards.

These trading cards employ names, likenesses, and other images of

athletes and sports teams whose rights are licensed to Pinnacle for

use in connection with the cards.             Pinnacle sells its cards in

packages of six to twenty cards, one or more of which might be

“chase” cards,2 rare and valuable collectibles which are randomly

inserted in some of the packages.            The odds of a chase card being

included are printed on each package.

     Plaintiffs are individuals who have purchased Pinnacle trading

cards    for    themselves    or   their    children,   and   who   purport   to

represent a class consisting of “[a]ll original end-use purchasers

of sports cards marketed by Pinnacle Brands, Inc. . . . within the

four years prior to the filing of this Complaint.”                  Plaintiffs

assert that they purchase packages of Pinnacle cards in search of

     1
        18 U.S.C. §§ 1961-68 (1991).
           2
        These cards are referred to as “chase cards” because
collectors allegedly “chase” these limited edition cards.

                                       2
chase cards, and allege that Pinnacle’s marketing of its chase

cards       comprises     all    the    elements       of    illegal     gambling:

(1) consideration (“persons must purchase card packages in order to

try to win a valuable chase card”);3 (2) chance (“valuable chase

cards are randomly inserted in the packages”); and (3) a prize

(“chase cards have, and are perceived by class members to have,

value, and obtaining a chase card in a package is winning a

prize”).

     Plaintiffs         filed   suit   in       district   court   in   July   1996,

asserting claims against Pinnacle for violations of §§ 1962(a)-(d)

of RICO.4       They sought to recover treble damages pursuant to

        3
      Plaintiffs also contend in their complaint that there is no
alternative free means of obtaining an opportunity to win a chase
card, e.g., through a postcard mail-in.
     4
        Section 1962 provides, in relevant part:

     (a) It shall be unlawful for any person who has received
     any income derived, directly or indirectly, from a
     pattern of racketeering activity . . . to use or invest,
     directly or indirectly, any part of such income, or the
     proceeds of such income, in acquisition of any interest
     in, or the establishment or operation of, any enterprise
     which is engaged in, or the activities of which affect,
     interstate or foreign commerce.

     (b) It shall be unlawful for any person through a pattern
     of racketeering activity . . . to acquire or maintain,
     directly or indirectly, any interest in or control of any
     enterprise which is engaged in, or the activities of
     which affect, interstate or foreign commerce.

     (c) It shall be 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 . . . .

     (d) It shall be unlawful for any person to conspire to

                                            3
§ 1964(c) and to enjoin Pinnacle from continuing to market its

sports cards in ways that violate RICO and state and federal

gambling laws.5   In August 1996, the court ordered plaintiffs to

file a RICO case statement setting forth in more detail and

specificity the facts on which plaintiffs relied in their RICO

complaint.   Plaintiffs timely filed this statement.   In September

1996, Pinnacle filed a motion to dismiss the complaint pursuant to

violate any of the provisions of subsection (a), (b), or (c) of
this section.

“Racketeering activity” is defined as
     any act or threat involving . . . gambling . . . which is
     chargeable under State law and punishable by imprisonment
     for more than one year; . . . [and] any act which is
     indictable under any of the following provisions of title
     18, United States Code: . . . section 1952 (relating to
     racketeering), section 1953 (relating to interstate
     transportation of wagering paraphernalia), . . . section
     1955 (relating to the prohibition of gambling businesses)
     . . . .

18 U.S.C. § 1961(1).
     5
      Although not raised by the district court or either party,
there is some question whether RICO affords private litigants the
option of equitable remedies.     Compare Religious Tech. Ctr. v.
Wollersheim, 796 F.2d 1076, 1080-89 (9th Cir. 1986) (expressly
holding that injunctive relief was not available under RICO), cert.
denied, 479 U.S. 1103, 107 S. Ct. 1336, 94 L. Ed. 2d 187 (1987) and
Dan River, Inc. v. Icahn, 701 F.2d 278, 290 (4th Cir. 1983) (noting
“substantial doubt whether RICO grants private parties . . . a
cause of action for equitable relief”) with Bennett v. Berg, 685
F.2d 1053, 1064 (8th Cir. 1982) (injunctive relief possibly
available), aff’d on reh’g, 710 F.2d 1361 (8th Cir.) (en banc),
cert. denied, 464 U.S. 1008, 104 S. Ct. 527, 78 L. Ed. 2d 710
(1983). This court, while stating that “[w]e find the analysis
contained in the Wollersheim opinion persuasive,” In re Fredeman
Litig., 843 F.2d 821, 830 (5th Cir. 1988), has specifically
reserved ruling on “whether all forms of injunctive relief and
other equitable relief are foreclosed to private plaintiffs under
RICO.” Id. As plaintiffs have not raised any issues on appeal
regarding the availability of injunctive relief, and considering
our affirmance of the district court’s dismissal of their action,
we need not —— and therefore do not —— address this question here.

                                 4
Federal Rules of Civil Procedure (FRCP) 12(b)(1) and 12(b)(6), to

which plaintiffs responded.               In April 1997, the district court

granted Pinnacle’s motion, dismissed the complaint with prejudice,

and entered final judgment in favor of Pinnacle, holding that

plaintiffs had failed to allege that they had been injured in their

“business or property” as required by § 1964(c) of RICO, and that

they therefore lacked standing to sue.                     After their motion to

vacate the judgment or for reconsideration was denied, plaintiffs

timely appealed.

                                              II.

                                        DISCUSSION

A.   Standard of Review

     We           review    de   novo   the    district    court’s    dismissal    of

plaintiffs’ complaint, accepting as true all well-pleaded facts in

the complaint and viewing them in the light most favorable to

plaintiffs.6           The district court’s refusal to allow plaintiffs

leave        to     amend   their   complaint       is   reviewed    for   abuse   of

discretion.7

B.   RICO Claim

     RICO provides a private civil action to recover treble damages

for injury suffered as a result of a violation of its substantive

         6
      Capital Parks v. Southeastern Adver. & Sales Sys., 30 F.3d
627, 629 (5th Cir. 1994); Rubenstein v. Collins, 20 F.3d 160, 166
(5th Cir. 1994).
     7
     World of Faith World Outreach Ctr. Church, Inc. v. Sawyer, 90
F.3d 118, 124 (5th Cir. 1996), cert. denied, 117 S. Ct. 1248, 137
L. Ed. 2d 329 (1997).

                                               5
provisions.8     To state a civil RICO claim under § 1962, a plaintiff

must allege: (1) the conduct (2) of an enterprise (3) through a

pattern (4) of racketeering activity.9                As a preliminary matter,

however, a plaintiff must establish that he has standing to sue.

“The standing provision of civil RICO provides that ‘[a]ny person

injured in his business or property by reason of a violation of

section 1962 of this chapter may sue therefor . . . and shall

recover threefold the damages he sustains.’”10                         Thus, a RICO

plaintiff must satisfy two elements —— injury and causation.                       In

dismissing      this    action,    the    district      court       concluded   that

plaintiffs     had     not   suffered    any   injury    to    their    business   or

property.

      In their complaint, plaintiffs contend that they spent money

to purchase Pinnacle’s trading cards.               They also allege that “[a]s

a   direct     and   proximate     result      of   Pinnacle’s       violations    of

[18 U.S.C. §§ 1962(a)-(d)], members of the plaintiff class have

been injured in their business or property.” They insist that these

allegations      are     sufficient      to    satisfy        the   RICO   standing

requirement: “‘At the pleading stage, general factual allegations

of injury resulting from the defendant’s conduct may suffice, for

on a motion to dismiss we presume that general allegations embrace

           8
           Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 481
(1985).
     9
     Elliott v. Foufas, 867 F.2d 877, 880 (5th Cir. 1989) (citing
Sedima, 473 U.S. at 496).
      10
      In re Taxable Mun. Bond Sec. Litig., 51 F.3d 518, 521 (5th
Cir. 1995) (quoting 18 U.S.C. § 1964(c)).

                                          6
those specific facts that are necessary to support the claim.’”11

        Moreover, plaintiffs insist that, inasmuch as “RICO requires

that the gambling activity be ‘chargeable under state law,’”12 the

district court should have looked to applicable state law to

measure Pinnacle’s wrongdoing and plaintiffs’ standing to sue.

Specifically, plaintiffs urge that the district court should have

followed the methodology employed by the California district court

in Schwartz v. Upper Deck, a similar class action against a

different card manufacturer, and analyzed the laws of New York and

New Jersey, the states where plaintiffs reside and made their

trading card purchases.13         Such an analysis, they maintain, would

have led the district court in Texas to conclude —— as did the

court in Upper Deck —— that both New York and New Jersey recognize

a person’s property interest in money spent on games of chance and

authorize civil actions to recover such funds.14

        Pinnacle counters —— and we, like the district court, agree ——

that         plaintiffs’   conclusional       allegations,   unaccompanied   by

assertions of even general facts to show injury, fail to satisfy

        11
       National Org. for Women, Inc. v. Scheidler, 510 U.S. 249,
256, 114 S. Ct. 798, 803, 127 L. Ed. 2d 99 (1994) (quoting Lujan v.
Defenders of Wildlife, 504 U.S. 555, 561, 112 S. Ct. 2130, 2137,
119 L. Ed. 2d 351 (1992)) (emphasis added).
        12
       Schwartz v. Upper Deck Co., 956 F. Supp. 1552, 1555 (S.D.
Cal. 1997) (internal citation omitted) (Upper Deck 1).
       13
      See id.; Schwartz v. Upper Deck Co., 967 F. Supp. 405, 411-15
(S.D. Cal. 1997) (Upper Deck II).
        14
      See Upper Deck II, 967 F. Supp. at 414-15 (citing N.Y. Gen.
Oblig. Law § 5-423 (McKinney 1989) and N.J. Stat. Ann. § 2A:40-5
(West 1987)).

                                          7
the RICO standing requirement.15            Pinnacle disputes plaintiffs’

assertion that they were injured in the amount spent for trading

cards, insisting that the pleadings show no “tangible financial

loss” to plaintiffs.16       To this contention of plaintiffs, Pinnacle

responds that plaintiffs received a pack of trading cards for their

money; “[t]hey got exactly what they paid for and they do not and

cannot allege otherwise.”

      Pinnacle maintains that the district court was not required to

apply New York and New Jersey law to determine whether plaintiffs

had standing.       Pinnacle acknowledges that, if we were deciding

whether it had committed a state law predicate act, application of

the state gambling laws would be necessary.            It argues, however,

that this analysis is irrelevant to plaintiffs’ standing under

RICO; the fact that a victim of gambling in New York or New Jersey

has a state law remedy to recover an amount equal to a multiple of

the money spent to gamble does not make plaintiffs’ claim for its

consideration a property loss under RICO.           Pinnacle notes further

that in the event we should conclude that state law is applicable,

we   should     follow   Fishman   v.   Marvel   Entertainment   Group17   and

      15
           See Elliott, 867 F.2d at 881.
     16
      Oscar v. University Students Co-op. Assoc., 965 F.2d 783, 785
(9th Cir.) (en banc), cert. denied, 506 U.S. 1020, 113 S. Ct. 655,
121 L. Ed. 2d 581 (1992); see also In re Taxable Mun. Bond Sec.
Litig., 51 F.3d at 522-23 (“[B]ecause the alleged injury is
speculative and does not show a conclusive financial loss, we hold
that [plaintiff]’s RICO suit fails for lack of standing.”).
      17
           No. 96 Civ. 3757 (E.D.N.Y. Aug. 1997).

                                        8
Sullivan v. The Topps Co.,18 cases identical to this one but against

different card manufacturers, in which a federal district court

sitting in New York —— one of the states whose law is alleged to

control —— determined that the New York and New Jersey statutes did

not confer RICO standing on plaintiffs.19

     Our review of the record and the relevant law convinces us

that Pinnacle has the prevailing argument.                     We agree with the

district court that “[p]laintiffs do not allege that they received

something different than precisely what they bargained for: six to

twenty cards in a pack with a chance that one of those cards may be

of Ken Griffey, Jr.”         Injury to mere expectancy interests or to an

“intangible property interest” is not sufficient to confer RICO

standing.20 Furthermore, as noted by the court, even if a pack does

not contain a chase card, “[p]laintiffs do not allege that the

value     of   the   cards   that   they       did   receive   is   less   than   the

     18
          No. 96 Civ. 3779 (E.D.N.Y. Aug. 1997).
    19
      See Marvel and Topps, unpublished Memorandum and Order at 13
(E.D.N.Y. Aug. 1997) (citing Harris v. Economic Opp. Comm’n, 575
N.Y.S.2d 672, 676 (App. Div. 1991), for the proposition that
allowing recovery of gambling losses in New York is a statutorily
created exception to the common law rule that prohibits the
recovery of gambling losses, and noting that the New York and New
Jersey statutes allow for recovery of gambling losses only in very
limited circumstances).
         20
       See In re Taxable Mun. Bond Sec. Litig., 51 F.3d at 523
(citing Steele v. Hospital Corp. of Am., 36 F.3d 69, 70 (9th Cir.
1994)); Heinhold v. Perlstein, 651 F. Supp. 1410, 1411 (E.D. Pa.
1987).   Likewise, it is undisputed that, to the extent that
plaintiffs claim they were injured through a gambling habit or
addiction, they do not have standing under § 1964(c), as there is
no recovery under RICO for personal injuries. See Oscar, 965 F.2d
at 785-86; Allman v. Philip Morris, Inc., 865 F. Supp. 665 (S.D.
Cal. 1994).

                                           9
consideration paid.”21 And even though courts may look to state law

to determine, for RICO purposes, whether a property interest

exists,22 it does not follow that any injury for which a plaintiff

might assert      a     state   law   claim   is    necessarily   sufficient      to

establish a claim under RICO.23

     Finally, plaintiffs failed adequately to allege the causation

element     of   RICO    standing.      Section      1964(c)    requires   that   a

compensable injury be “by reason of” the defendant’s substantive

violations       ——     here,   Pinnacle’s      alleged     illegal     gambling.

Plaintiffs assert that they paid money for trading cards, but fail

to allege in their complaint that this money was paid for a chance

at a chase card.         Absent such an allegation, they have shown no

financial loss “by reason of” the gambling scheme.24

     Plaintiffs argue in the alternative that the district court

abused     its   discretion     in    denying   them    leave    to   amend   their

complaint to correct any deficiency.               Whereas FRCP 15(a) “‘evinces

a bias in favor of granting leave to amend,’ [such leave] is not

      21
       See In re Taxable Mun. Bond Sec. Litig., 51 F.3d at 521;
Heinhold, 651 F. Supp. at 1411-12 (holding that plaintiff failed to
allege RICO injury by asserting that defendant misrepresented the
value of a diamond, but failing to allege that the diamond was
worth less that what plaintiff paid for it).
     22
          See Doe v. Roe, 958 F.2d 763, 768 (7th Cir. 1992).
    23
      See Heinhold, 651 F. Supp at 1412 (“[T]hat plaintiff cannot
proceed under RICO does not mean that he has no remedy for the harm
defendant allegedly caused him. It means only that plaintiff must
proceed pursuant to a statute or common law cause of action under
which he has standing to sue.”).
     24
          See Upper Deck I, 956 F. Supp. at 1558-59.

                                         10
automatic.”25   In deciding whether to allow amendment, a district

court “may consider such factors as undue delay, bad faith or

dilatory motive on the part of the movant, repeated failure to cure

deficiencies by amendments previously allowed, undue prejudice to

the opposing party, and futility of amendment.”26     The district

court in this case, weighing these factors, concluded that

     Plaintiffs are represented by able counsel and have had
     three opportunities to articulate their damage theory ——
     in the complaint, the RICO case statement, and brief in
     response of the motion to dismiss. Pinnacle should not
     be subjected to any further costs of litigation in this
     lawsuit.

We perceive no abuse of discretion in this reasoning, and therefore

affirm the district court’s denial of plaintiffs’ motion to amend.

                               III.

                            CONCLUSION

     Although we ultimately decline to reverse the district court,

we wish to express here our appreciation of the well-delineated

arguments set forth in the excellent appellate briefs of counsel

for both parties.     As for our affirmance, in addition to the

reasons set forth by the district court, we find comfort in the

fact that, of the many suits of this nature that have been filed

around the country against trading card manufacturers and their

licensors, all but two have been dismissed with prejudice. We also

          25
        In re Southmark Corp., 88 F.3d 311, 314 (5th Cir. 1996)
(quoting Dusouy v. Gulf Coast Inv. Corp., 660 F.2d 594, 598 (5th
Cir. 1981)), cert. denied, 117 S. Ct. 686, 136 L. Ed. 2d 611
(1997).
     26
      Id. at 314-15 (citing Foman v. Davis, 371 U.S. 178, 182, 83
S. Ct. 227, 9 L. Ed. 2d 222 (1962)).

                                11
note that many of those suits were decided by courts in New York

and New Jersey, the siti of the laws on which plaintiffs base the

predicate   acts   for   their   RICO   claims.   Accordingly,   for   the

foregoing reasons, the judgment of the district court dismissing

plaintiffs’ RICO claims with prejudice is, in all respects,

AFFIRMED.

                                    12