UNITED STATES COURT OF APPEALS
FIFTH CIRCUIT
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No. 01-40808
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JOHN NOLEN, Individually and on behalf of all persons similarly
situated,
Plaintiff-Appellant,
versus
NUCENTRIX BROADBAND NETWORKS INC, also known as
Heartland Wireless Communications, Inc; Et Al,
Defendants,
NUCENTRIX BROADBAND NETWORKS INC, also known as
Heartland Wireless Communications, Inc; NUCENTRIX TELECOM;
HEARTLAND CABLE TELEVISION; NUCENTRIX
BROADBAND NETWORKS; NUCENTRIX INTERNET
SERVICES; NUCENTRIX SPECTRUM; NUCENTRIX
TELEPHONY; CYBERWAVE HEARTNET; CLEAR CHOICE TV;
NUCENTRIX INTERNET SERVICES INC; HEARTLAND CABLE
TELEVISION INC; SPECTRUM RESOURCES INC; WIRELESS
ONE INC; CS WIRELESS SYSTEMS INC; CAI WIRELESS
SYSTEMS INC; UNIDENTIFIED PARTIES, 1-34; STEPHEN
FEINBURG; CERBERUS PARTNERS LP; CERBERUS
INTERNATIONAL LTD; CERBERUS INSTITUTIONAL
PARTNERS LP, its joint ventures and alliance members; DIRECTV
INC; HUGHES ELECTRONICS CORPORATION; CROSS
COUNTRY WIRELESS INC; RURAL VISION JOINT VENTURE,
its officers and directors; CARROLL D MCHENRY; MARJEAN
HENDERSON; AMY E IVANOFF; RICHARD B GOLD; TERRY
S PARKER; NEIL S SUBIN; R TED WESCHLER; ROBERT S
CECIL; JACK R CROSLY; J R HOLLAND, JR; JOHN A
SPRAGUE; L ALLEN WHEELER; ISP ALLIANCE INC;
WIRELESS ENTERPRISES LLC; PEOPLES CHOICE TV CORP,
Defendants-Appellees.
Appeal from the United States District Court
For the Southern District of Texas
June 26, 2002
Before DAVIS, EMILIO M. GARZA, and STEWART, Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
Plaintiff-Appellant John Nolen filed this lawsuit on behalf of a class of similarly situated cable
subscribers against Nucentrix Broadband Networks, Inc., various other related corporations,
subsidiaries, and individual directors named in Nolen’s notice of appeal (collectively, “Nucentrix”)
for violations of the Federal Racketeer Influenced and Corrupt Organizations Act (RICO). 18 U.S.C.
§ 1961 et seq. Specifically, Nolen alleged that Nucentrix collected unlawful debts in the form of late
fees from cable subscribers in violation of 18 U.S.C. §§ 1962(a), (c), and (d).
Nucentrix filed a motion to dismiss Nolen’s suit. While that motion was pending, the district
court dismissed a factually identical suit brought by the same attorneys representing Nolen on behalf
of a separate class of plaintiffs. See Rivera v. AT&T Corp., 141 F. Supp. 2d 719 (S.D. Tex. 2001).
Based on its decision in Rivera, the district court then dismissed Nolen’s claims for failure to state
a claim upon which relief could be granted. See FED. R. CIV. P. 12(b)(6). The trial court concluded
that Nolen merely recharacterized the same facts the court had addressed and dismissed in Rivera so
as to match the language of the relevant RICO provisions. Nolen now appeals the district court’s
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decision.
Nucentrix provides cable services to their customers pursuant to an agreement in which the
subscribers agree to pay a monthly fee for the use of cable equipment as well as cable programming
content. Depending on the particular mix of equipment and programing purchased, an average
customer’s bill can range from $16.70 to $141.90. The agreement further provides that customers
must pay an “administrative fee” between $3.00 and $5.00 if they are delinquent in making one of
their monthly payments. Thus, the additional “late fee” could constitute up to thirty percent of the
amount actually due at the end of a month. Nolen claims that these fees are usurious under Texas
law and, therefore, Nucentrix is engaged in the business of collecting unlawful debts in violation of
18 U.S.C. § 1962(c). Nolen further claims that he has been injured by reason of Nucentrix’s use and
investment of income from their collection of these unlawful debts in violation of 18 U.S.C. §
1962(a). In addition, he alleges that Nucentrix conspired to collect an unlawful debt in violation of
18 U.S.C. § 1962(d).1
This appeal arises from the district court’s dismissal of Nolen’s claims pursuant to FED. R.
CIV. P. 12(b)(6). We evaluate the district court’s grant of Nucentrix’s Rule 12(b)(6) motion de novo,
applying the same standard used by the district court. In doing so, we accept the facts alleged in the
complaint as true and construe the allegations in the light most favorable to the plaintiffs. See
1
Nolen also argues that Nucentrix was unjustly enriched through its collection of late fees.
Nolen seeks restitution of the late fees Nucentrix collected on the theory that Nucentrix violated the
Texas usury statute. TEX FIN. CODE § 305.007 provides, however, that “[t]he penalties provided by
the [usury chapter] are the only penalties for violation of this subtitle for contracting for, charging,
or receiving interest in an amount that produces a rate in excess of the maximum rate allowed by law.
Common law penalties do not apply.” TEX FIN. CODE § 305.007 (emphasis added). Thus, the
district court properly dismissed Nolen’s unjust enrichment claim because restitution for unjust
enrichment is a common law penalty, expressly prohibited by the Texas Finance Code.
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Rubinstein v. Collins, 20 F.3d 160, 166 (5th Cir. 1994). Nevertheless, “conclusory allegations or legal
conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss.”
Fernandez-Montes v. Allied Pilots Ass’n, 987 F.2d 278, 284 (5th Cir. 1993).
Nolen first alleges that Nucentrix collected an “unlawful debt” in violation of 18 U.S.C. §
1962(c).2 18 U.S.C. § 1961(6) defines the term “unlawful debt” as:
[A] debt (A) incurred or contracted in gambling activity which was in violation of the
law of the United States, a State or political subdivision thereof, or which is
unenforceable under State or Federal law in whole or in part as to principal or interest
because of the laws relating to usury, and (B) which was incurred in connection with
the business of gambling in violation of the law of the United States, a State or
political subdivision thereof, or the business of lending money or a thing of value at
a rate usurious under State or Federal law, where the usurious rate is at least twice
the enforceable rate.
18 U.S.C. § 1961(6). Nolen does not allege that Nucentrix was engaged in any gambling activities.
Thus, in order for Nolen to establish that Nucentrix collected an “unlawful debt,” he must
demonstrate that Nucentrix (1) was in the business of lending money or a thing of value; (2) collected
a debt that was unenforceable under Texas usury laws; and (3) that the debt Nucentrix collected was
at least twice the enforceable rate under Texas law. See Durante Bros. & Sons Inc. v. Flushing Nat’l
Bank, 755 F.2d 239, 248 (2d. Cir. 1985) (setting out the elements of a cause of action under §
1962(c)).
In Rivera, the district court concluded that fixed administrative late fees, such as the ones at
2
Section 1962(c) provides:
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 or collection
of unlawful debt.
18 U.S.C. § 1962(c).
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issue here, were not usurious as a matter of law. Rivera, 141 F. Supp. 2d at 723-24. We summarily
affirmed the district court’s decision. Rivera v. AT & T Corp, No. 01-40953 (5th Cir. Mar. 25, 2002)
(unpublished). Our decision in Rivera is controlling here. A fixed administrative or late fee charged
under a rental or service agreement is not regarded as interest under Texas law. Rivera, 141 F. Supp.
2d at 724 (holding that “late fees charged are not construed as ‘interest’ under Texas law”). Thus,
Nolen has failed, as a matter of law, to establish that Nucentrix collected an “unlawful debt.” The
district court correctly relied on its decision in Rivera in dismissing Nolen’s § 1962(c) claim.
Nolen next challenges the district court’s ruling that, as a matter of law, he suffered no
cognizable injury under 18 U.S.C. § 1962(a).3 Here, Nolen is asserting a civil RICO claim. Thus,
§ 1962(a) must be read in conjunction with 18 U.S.C. § 1964(c), which creates a civil cause of action
for damages resulting from violations of § 1962. 18 U.S.C. § 1964(c) states: “Any 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.” We have consistently held that the causal
language of § 1964(c) requires that the compensable injury stem directly from the violation of the
RICO section in question. See, e.g., Parker & Parsley Petroleum Co. v. Dresser Indus., 972 F.2d
580, 584 (5th Cir. 1992) (holding that there must be a nexus between the claimed violation and the
3
18 U.S.C. § 1962(a) provides, in relevant part:
It shall be unlawful for any person who has received any income derived,
directly or indirectly, from a pattern of racketeering activity or through
collection of an unlawful debt in which such person has participated as a
principal within the meaning of section 2, title 18, United States Code, 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.
18 U.S.C. § 1962(a).
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plaintiff’s injury); Crowe v. Henry, 43 F.3d 198, 205 (5th Cir. 1995) (same). For claims arising under
§ 1962(a), alleging an injury solely from the predicate racketeering acts themselves is not sufficient
because § 1962(a) does not prohibit those acts. Parker & Parsley, 972 F.2d at 584. Instead, “any
injury must flow from the use or investment of racketeering income.” St. Paul Mercury Ins. Co. v.
Williamson, 224 F.3d 425, 441 (5th Cir. 2000) (emphasis added). Here, Nolen’s alleged injury stems
solely from Nucentrix’s assessment and collection of late fees, not from Nucentrix’s use or investment
of those fees. As such, Nolen has failed to assert a valid claim under § 1962(a). Parker & Parsley,
972 F.2d at 584.
Nolen also asserts a claim under 18 U.S.C. § 1962(d), which prohibits conspiring to violate
§§ 1962(a) and (c).4 The “failure to plead the requisite elements of either a § 1962(a) or a § 1962(c)
violation implicitly means that [Nolen] cannot plead a conspiracy to violate either section.” Simon
v. Value Behavioral Health, Inc., 208 F.3d 1073, 1084 (9th Cir. 2000). Thus, the district court also
correctly dismissed Nolen’s conspiracy claims.
For the foregoing reasons, we AFFIRM the district court’s dismissal of Nolen’s claims.
4
18 U.S.C. § 1962(d) provides that “[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.” 18 U.S.C. § 1962(d).
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