Commercial Litigation and Arbitration

Scienter Required of Mail Fraud Predicate Precludes Certification of RICO Class Action

From Agostino v. Quest Diagnostics Inc., 2009 U.S. Dist. LEXIS 10451 (D.N.J. Feb. 11, 2009):

To successfully prosecute a RICO claim, it is well settled that a plaintiff must make a showing regarding scienter. See United States v. Boyer, 694 F.2d 58, 60 (3d Cir. 1982) (specific intent to deceive requirement of 18 U.S.C. § 1341 may be inferred from reckless misstatement); United States v. Pearlstein, 576 F.2d 531, 537 (3d Cir. 1978) (in prosecution for mail fraud government must prove willful participation in fraudulent scheme with knowledge of its falsity); United States v. Klein, 515 F.2d 751, 754 (3d Cir. 1975) (mail fraud statute requires proof of specific intent to defraud). A plaintiff must show that the defendant had the specific intent to defraud, which can be shown through actual knowledge or "may be found from a material misstatement of fact made with reckless disregard for the truth." U.S. v. Coyle, 63 F.3d 1239, 1243 (3d Cir. 1995) (quoting U.S. v. Hannigan, 27 F.3d 890, 892 n.1 (3d Cir. 1994)).

***To succeed with their RICO claims, the putative Class members would have to show that [Defendant] Quest and the DCDs [Debt Collection Defendants] knew or should have known that each of the billed amounts at issue was incorrect. The mere allegation that a Plaintiff received a bill for an amount above that which is allowable under the relevant hold harmless provisions is not sufficient to prove scienter. Billing mistakes happen for any number of reasons, some of which are not attributable to malfeasance on the part of the Defendants. Indeed, an analysis by Quest's medical billing expert of 51 of the patient billing disputes at issue concluded that, where inappropriate billing was alleged, errors causing patient bills to issue could have been attributable to Quest, but also to patients, referring physicians, payers or to a combination of errors by any multiple of the parties involved.... As an additional matter, implicit in Plaintiffs' RICO claim is the presumption that the amounts billed were incorrect. Determining whether the Plaintiffs were billed amounts in excess of amounts actually owing is disputed and, as the Court has noted, requires an individualized inquiry into the facts and applicable contracts. Moreover, after nearly three years of discovery, the Plaintiffs have not introduced any evidence to suggest that classwide proof of scienter exists. Rather, any proof of scienter will only surface pursuant to patient-by-patient and transaction-by-transaction analyses rather than from evidence applicable to the entire Class or Subclasses. Therefore, because the Court has previously determined that proof that Quest and the DCDs billed in excess of permissible amounts requires individualized inquiry, it follows that proof that the Defendants knew they were billing in excess of allowable amounts also requires an individualized analysis of each prospective plaintiff's RICO claim.

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