Court Opinion

ID: 771062
Source: CourtListenerOpinion
Date Created: 2012-04-18 10:45:00+00
Date Added: 2024-06-11T12:59:50.334835
License: Public Domain

231 F.3d 1308 (11th Cir. 2000)
Barry P. LANGFORD, individually as representatives of a class of similarly situated persons, Lucia Kaye Morgan, individually and as representative of a class of similarly situated persons, et al., Plaintiffs-Appellants,v.RITE AID OF ALABAMA, INC., Rite Aid Corporation, et al., Defendants-Appellees.
No. 00-10167.
United States Court of Appeals, Eleventh Circuit.
November 2, 2000.November 15, 2000

[Copyrighted Material Omitted]
Appeal from the United States District Court for the Northern District of  Alabama. (No. 99-02651-CV-S-NE), C. Lynwood Smith, Jr., Judge.
Before COX, WILSON and GIBSON*, Circuit Judges.
WILSON, Circuit Judge:

1
Plaintiffs appeal from the district court's dismissal of their civil RICO claim  against Rite Aid of Alabama, Inc., in which plaintiffs argued that Rite Aid had  implemented a scheme to defraud its uninsured consumers of prescription  medication by charging them higher prices for medication than it charged its  insured customers, and failing to disclose this fact. Plaintiffs contend that  this differential pricing policy violated federal statutes prohibiting mail and  wire fraud (18 U.S.C.  1341, 1343), and that violations of those statutes  constitute predicate offenses giving rise to civil RICO liability. The district  court dismissed the complaint for failure to state a claim, finding that  appellees had no affirmative duty to disclose their pricing practices, and that  silence in the absence of a duty to speak could not constitute fraud. The  district court relied almost exclusively upon the common law of Alabama to come  to its conclusion. We find that the district court's exclusive focus on state  law in evaluating the scope of the federal mail and wire fraud statutes was  unduly narrow. Nonetheless, the district court's ultimate conclusion in this  case was correct-Rite Aid was not subject to a duty to reveal its differential  pricing policy, and its failure to disclose its retail pricing structure was not  fraudulent. We therefore affirm the decision of the district court.

BACKGROUND

2
Rite-Aid, Inc., a Delaware Corporation, is a large retail pharmacy chain, with  over 80,000 employees in more than 3,000 store locations. The corporation does  business in over 30 states both directly and through its wholly owned  subsidiaries. Rite Aid of Alabama is a wholly owned subsidiary of the parent  corporation, and handles Rite-Aid's retail operations throughout the state.

3
The plaintiffs are residents of Madison County, Alabama, and were regular  customers of a local Rite Aid pharmacy. At some point(s) between July of 1995  and October of 1999, each of the plaintiffs lacked medical insurance that would  reimburse them for the cost of prescription medication. They therefore  personally bore the costs of their prescription drug purchases from Rite Aid  during the periods that they were uninsured.

4
On September 30, 1999, plaintiffs initiated this action in the district court,  alleging that Rite Aid maintained an elaborate scheme to defraud uninsured  customers by increasing the prices of prescription drugs for customers lacking  insurance. Plaintiffs claimed that Rite Aid maintained a policy of charging the  uninsured higher prices for prescription medication, and failed to disclose this  fact to its uninsured consumers. Rite Aid allegedly implemented this policy in  three ways: (a) through an online computer network that would automatically  increase the price of prescription drugs once the operator noted that the  customer was uninsured, (b) through managerial and staff training policies that  ensured that employees would know to increase the retail price for uninsured  consumers, and (c) through Rite Aid's intensive monitoring of the extent to  which its individual pharmacies participated in "up charging" individual  consumers through the online computer system. Plaintiffs charged that this  pricing policy and its implementation were little more than fraudulent attempts  to prey upon the vulnerabilities of uninsured consumers, and because  implementing the pricing policy involved the use of interstate wires and mails,  Rite Aid's actions constituted mail and wire fraud in violation of 18 U.S.C.   1341 and 1343. As such, plaintiffs alleged that mail and wire fraud were the  relevant "predicate offenses" for a civil RICO action, and sought relief  pursuant to 18 U.S.C.  1962(a)-(d)(the civil RICO act). Plaintiffs also sought  relief on several state law claims arising out of the transactions, and asked  the court to certify as a class all uninsured consumers of prescription drugs  that had patronized Rite Aid pharmacies over the past five years. On October 19,  1999, plaintiffs amended their complaint, adding a new named plaintiff and  amplifying their civil RICO charges.

5
Rite Aid responded to the charge by filing a motion to dismiss for failure to  state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). The gist of  Rite Aid's motion was that plaintiffs failed to allege a predicate offense as  required by the provisions of the RICO act, because the conduct ascribed to Rite  Aid in the complaint, even if true, could not constitute mail or wire fraud  under the terms of the relevant federal statutes. Rite Aid argued that retailers  have no affirmative duty to disclose their pricing schemes to consumers; as  such, their failure to disclose the pricing scheme could not legally be  fraudulent.

6
The district court granted Rite Aid's Rule 12(b)(6) motion. The court focused  its attention on narrow question of whether the federal mail and wire fraud  statutes imposed a duty of disclosure upon Rite Aid in this case. Relying  heavily upon Alabama common law, the court determined that Rite Aid owed no such  duty of disclosure to plaintiffs. With plaintiff's RICO claim thereby dismissed,  the court had no jurisdictional foundation to review plaintiff's separate state  law claims, and declined to hear them. Plaintiffs filed this appeal in a timely  fashion.

DISCUSSION

7
Plaintiffs essentially make two arguments on appeal. First, they contend that  the district court erred in relying upon state law to ascertain whether Rite Aid  owed plaintiffs a duty to disclose their pricing policies pursuant to 18 U.S.C.   1341 and 1343. Plaintiffs contend that questions involving the interpretation  of the mail and wire fraud statutes are matters of federal law and federal law  alone. Secondly, plaintiffs contend that Rite Aid owed its uninsured consumers a  duty to disclose its pricing structure, and that the failure to do so subjects  Rite Aid to liability under the mail and wire fraud statutes.

8
We apply de novo review to a district court's dismissal of an action for failure  to state a claim. See Harper v. Blockbuster Entertainment Corp., 139 F.3d 1385,  1387 (11th Cir.1998). A court may dismiss a complaint for failure to state a  claim only if it is clear that the plaintiff alleged no facts which could lead  to any judicial relief. See Hishon v. King & Spalding, 467 U.S. 69, 73, 104  S.Ct. 2229, 81 L.Ed.2d 59 (1984); Stephens v. H.H.S., 901 F.2d 1571, 1573 (11th  Cir.1990); Delong Equipment Co. v. Washington Mills Abrasive Co., 840 F.2d 843,  845 (11th Cir.1988).

9
The provisions of 18 U.S.C.  1961 et seq. (the RICO Act) provide civil and  criminal liability for persons engaged in "a pattern of racketeering activity."  See 18 U.S.C.  1962(a-d). Persons injured by reasons of a RICO violation have a  civil cause of action under the terms of the act. See 18 U.S.C.  1964. The four  elements of civil RICO liability are (1)conduct (2) of an enterprise (3) through  a pattern (4) of racketeering activity. See Durham v. Business Management  Assocs., 847 F.2d 1505, 1511 (11th Cir.1988) (internal quotation marks omitted).  Plaintiffs in such an action must identify and prove a pattern of racketeering  activity, defined as two "predicate acts" of racketeering activity within a 10  year period. See 18 U.S.C.  1961(5). The phrase "racketeering activity" is  defined as including any act which is indictable under a lengthy list of  criminal offenses, including the federal statutes prohibiting mail and wire  fraud. Plaintiffs in this action seek to show that Rite Aid violated the federal  mail and wire fraud statutes, and thus committed the requisite predicate acts  for civil RICO liability.

10
A plaintiff must prove the following elements to establish liability under the  federal mail and wire fraud statutes: (1) that defendants knowingly devised or  participated in a scheme to defraud plaintiffs,(2) that they did so willingly  with an intent to defraud, and (3) that the defendants used the U.S. mails or  the interstate wires for the purpose of executing the scheme. See Neder v.  United States, 527 U.S. 1, 24-25, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999); United  States v. O'Malley, 707 F.2d 1240, 1246-47(11th Cir.1983). Intent to defraud  need not be shown through active misrepresentation-material omissions can be  fraudulent if they are intended to create a false impression. See Beck v.  Prupis, 162 F.3d 1090, 1096 (11th Cir.1998); O'Malley, 707 F.2d at 1247.  Plaintiffs in the instant case charge that Rite Aid suppressed the fact that it  was charging uninsured consumers a premium price for prescription medication,  and that this omission was enough to show a fraudulent intent by Rite Aid.

11
The district court found that no liability could attach under the mail and wire  fraud statutes unless Rite Aid was found to have violated a duty to disclose the  pricing information to the plaintiffs. There has been some dispute at the  circuit level concerning when a "duty to disclose" can arise for the purposes of  the federal mail and wire fraud statutes. Plaintiffs contend that a duty need  not be formally imposed by statute or regulation; rather, they argue that a duty  to disclose can be found through an examination of the relationship between the  parties. At least one case from another circuit has rejected this contention,  and held that only the abrogation of a formal statutory, contractual, or  regulatory duty can give rise to liability under sections 1341 and 1343. See  Reynolds v. East Dyer Dev. Co., 882 F.2d 1249, 1252 (7th Cir.1989) ("mere  failure to disclose, absent something more" cannot constitute mail or wire  fraud). Other circuits have found that a duty to disclose can be inferred by the  relationship between the parties, and need not be formalized through a statute  or regulation. See United States v. Cochran, 109 F.3d 660, 665 (10th  Cir.1997)("while a fiduciary relationship is not an essential element of a wire  fraud prosecution ... it can trigger a duty of disclosure as can some other  relationship of trust and confidence between the parties.").

12
Our own precedent tends to support the latter of the two positions. See United  States v. Brown, 79 F.3d 1550, 1557 ("[C]ertain people must always disclose  facts where non-disclosure could result in harm. This circumstance exists when  there is a special relationship of trust, such as a fiduciary relationship  between people"); United States v. Ballard, 663 F.2d 534 (5th Cir. Unit B  Dec.1981), modified in part on other grounds, 680 F.2d 352 (1982) (duty to  disclose may be imposed by federal or state statute or may arise from the  relationship itself). The texts of the mail and wire fraud statutes are also  informative, in that they do not include any language indicating that an  independent duty to disclose is necessary for liability under their terms. See  18 U.S.C.  1341, 1343.

13
We therefore feel that it would be an error to find that a duty to disclose  information for purposes of the federal mail and wire fraud statutes can only be  found where a statute, regulation, or formalized legal relationship between the  parties expressly delineates such a duty. Plaintiffs are correct in their  assertion that concealment of critical data, even without a formalized duty to  disclose that data, can constitute mail and/or wire fraud in certain situations.  Schemes to defraud can take many forms-criminal ingenuity is an amazing, if  disturbing, thing to behold. It would be unduly constrictive to hold that a duty  to disclose can only exist where it is statutorily or contractually implied; the  complexity of transactional relationships is such that duties to disclose may  exist in other situations if the transaction is to be legitimate. We can  envision many situations in which a failure to disclose information could  constitute fraud pursuant to 18 U.S.C.  1341 and 1343, even when no duty to  disclose exists independently. Determinations as to whether a duty to disclose  information exists must be made on a case by case basis, with appropriate  attention given to the nature of the transaction and the relationship between  the parties.

14
Applying these principles to the instant case, we first must determine whether  the positive law contains any statute or regulation that would impose a duty  upon Rite Aid to disclose its prescription drug pricing structure to its  uninsured retail customers. Despite its efforts to locate such a duty in federal  and state law, plaintiffs have not cited a statute or regulation that can be  fairly applied to this situation. Nothing in the American Pharmaceutical  Association's standards imposes a duty to disclose this sort of pricing  information to plaintiffs. If a duty to disclose does in fact exist in this  case, it will have to be inferred by the nature of the relationships and  transactions involved, not by reference to an independent duty to disclose found  in the law.

15
In its exploration of the nature of the relationship and duties owed between  Rite Aid and the plaintiffs, the district court relied exclusively upon the  common law of Alabama, and whether that body of law could be construed to impose  duties on retailers in similar situations. Its discussion of the Alabama  precedent was comprehensive and helpful, and we adopt its finding that no duty  to disclose can be located in Alabama law in this circumstance. This inquiry,  however, must be considered incomplete. In exploring the question of whether a  duty to disclose exists in a particular situation, federal courts must go beyond  state common law, and conduct an inquiry into relevant federal sources of  authority. See United States v. deVegter, 198 F.3d 1324, 1329 (11th Cir.1999)  ("The nature and interpretation of the duty owed is a question of federal  law."); Ballard, 663 F.2d at 541("[t]he duty to disclose ... may be imposed by  state or federal statute or may arise from the employment relationship  itself."); McNally v. United States, 483 U.S. 350, 377 n. 10, 107 S.Ct. 2875, 97  L.Ed.2d 292 (1987) (Stevens, J. dissenting)(fraudulent scheme need not violate  state law to support federal mail fraud conviction). State law is simply not  exhaustive on this point-the fact that no duty to disclose retail pricing  schemes can be located in analogous Alabama cases does not mean that no such  duty can be located in federal law. The district court's analysis on the issue  of whether a duty to disclose can be inferred is thus incomplete.

16
[6] However, the fact that the district court used unduly constrictive methods  in evaluating this question does not mean that it reached an improper result.  A close examination of the relationship between Rite Aid and the plaintiffs in  the context of the relevant federal law indicates that Rite Aid was under no  duty to disclose its pricing structure to plaintiffs.

17
As a general matter of federal law, retailers are under no obligation to  disclose their pricing structure to consumers. See Bonilla v. Volvo Car Corp.,  150 F.3d 62, 71(1st Cir.1998); Katzman v. Victoria's Secret Catalogue, 167  F.R.D. 649, 656 (S.D.N.Y.1996). Plaintiffs have failed to identify any federal  case where such duty was imposed on retailers; in fact, variable pricing is the  norm in many industries. Airlines frequently charge different groups of  consumers different rates for the same seat, hotels often charge different rates  to different consumers for the same room, and car dealerships sell identical  vehicles for a variety of prices, depending upon the identity (and savvy) of the  consumer. There are a number of legitimate business reasons for doing this,  obnoxious as it may seem for the individual consumer forced to purchase an item  at a different price from his friends. Differential pricing alone is not a  fraudulent practice; plaintiffs must assert some particular reason why the  relationship in this case was such that non-disclosure of the differential  pricing structure constitutes a violation of the mail and wire fraud statutes.

18
Two facts about the relationship between Rite Aid and plaintiffs make Rite Aid's  nondisclosure of its differential pricing policy troubling: the fact that  plaintiffs were uninsured consumers, and the fact that Rite Aid was not an  ordinary retailer, but a pharmacy employing licensed pharmacists to perform  professional services. Taking the initial concern first, we should note that  prescription medication is an expensive commodity in a relatively inflexible  market. Many patients pick up their prescriptions on the way home from the  hospital, and may have little inclination or ability to comparison shop at that  point. Uninsured consumers, who bear the full cost of their prescription needs,  are especially sensitive to high drug prices. They also arguably have less  bargaining power than insured consumers, who have large insurance entities  working on their behalf to keep prices as low as possible. It can be argued that  Rite Aid's policy is little more than a deceptive effort to soak its most  vulnerable consumers.

19
Nonetheless, uninsured status is not an impediment per se to information  gathering on the open market. In an open market economy, consumers have the  appropriate incentives to obtain information about acceptable cost of consumer  goods, and to make purchases from the retailer who most closely matches that  price. We do not expect retailers to disclose information about their pricing  schemes-consumers are the actors who are best able to gather pricing information  and put it to its highest and best use. If uninsured consumers were somehow less  able to shop around and identify attractive drug prices than were other  consumers, the situation may have demanded that Rite Aid make certain  disclosures to them. However, uninsured consumers are just as capable of seeking  and using information as are others. In fact, because the uninsured are  shouldering the entire cost of their prescription drug needs, they have even  more powerful incentives than insured consumers do to actively obtain  information about retail drug prices. Rite Aid's failure to disclose its pricing  practices seems less an element of a fraudulent scheme than a powerful argument  for uninsured consumers to seek another pharmacy that makes some effort to  retain their business.

20
It is true that pharmacists and their patients share an intimate bond, and that  relationship gives rise to certain duties on the part of the pharmacist.  However, plaintiffs have been unable to identify a case or persuasive authority  holding that pharmacists have a duty to disclose their parent company's pricing  structure with regard to prescription drugs. Pharmacists owe duties to their  patients ranging from diligence in recommending medication to confidentiality in  maintaining patient's records; however, nothing in their professional code of  conduct suggests, even obliquely, that pharmacists violate that duty by not  disclosing the pricing policies of their pharmacy. Nothing in the record  suggests that Rite Aid's pharmacists breached their code of conduct in any way,  and we decline to infer the duty to disclose plaintiffs seek in this case.

21
In conclusion, plaintiffs have not alleged any facts that would suggest that  Rite Aid was subject to a duty to disclose the fact that it charged plaintiffs  more for their prescription medication than it charged other consumers. Nothing  in the positive law imposes any such duty on Rite Aid, and the relationship  between Rite Aid and plaintiffs was not such that a duty can be inferred by  reference to federal law. As such, plaintiffs have failed to allege a predicate  act giving rise to RICO liability, and the district court did not err when it granted Rite Aid's motion to dismiss pursuant to Federal Rule of Civil Procedure  12(b)(6).

22
AFFIRMED.

NOTES:

*
 Honorable John R. Gibson, U.S. Court of Appeals for the Eighth Circuit, sitting  by designation.