Commercial Litigation and Arbitration

RICO — Fraud Claim That Is Mere Restatement of Contract Claim Inadequate to State Mail or Wire Fraud Predicate — When Fraud Claim Is Not Mere Restatement of Contract Claim under New York Law

From Sampson v. Medisys Health Network Inc., 2011 U.S. Dist. LEXIS 12697 (E.D.N.Y. Feb. 8, 2011):

To state a RICO claim pursuant to 18 U.S.C. §§ 1962 and 1964(c), a plaintiff must, inter alia, allege a defendant participated or conspired to participate in a "pattern of racketeering activity." 18 U.S.C. § 1962(a), (b), (c) and (d). Plaintiffs purport that this requirement is met by the allegations that defendants committed mail fraud by mailing plaintiffs payroll checks that were "false and deceptive because they misled [plaintiffs] about the amount of wages to which they were entitled, the number of hours which they had worked, and whether defendants had included all compensable work time." *** Plaintiffs allege that the defendants "deliberately concealed from [plaintiffs] that they did not receive compensation for all compensable work that they performed and misled them into believing they were begin payed properly." ***

The elements of a mail fraud violation are "(1) use of the mails to further (2) a scheme to defraud with (3) money or property as the object of the scheme." Porcelli v. United States, 404 F.3d 157, 162 (2d Cir. 2005) (citing United States v. Gole, 158 F.3d 166, 167 (2d Cir. 1998). The elements of a "scheme to defraud" are "(i) the existence of a scheme to defraud, (ii) the requisite scienter (or fraudulent intent) on the part of the defendant, and (iii) the materiality of the misrepresentations" United States v. Autuori, 212 F.3d 105, 115 (2d Cir. 2000) (internal citations omitted). To successfully plead a RICO claim, "the circumstances constituting the alleged fraud must be pled with particularity." Fed. R. Civ. P. 9(b); Fresh Meadow Food Services, LLC v. RB 175 Corp., 282 Fed.Appx. 94, 97 (2d Cir. 2008).

The Second Circuit has been unwilling to find a fraud claim when the claim is merely a restatement of a breach of contract claim. See TVT Records v. Island Def Jam Music Group, 412 F.3d 82 (2d Cir. 2005) (fraudulent concealment); Bridgestone/Firestone v. Recovery Credit Servs., Inc., 98 F.3d 13, 19-20 (2d Cir. 1996) (citing cases) (facts demonstrating "intentionally-false statements by [defendant] indicating his intent to perform under the contract [are] not sufficient to support a claim of fraud under New York law"). Plaintiffs may maintain a claim of fraud in this circumstance where they "(i) demonstrate a legal duty separate from the duty to perform under the contract; or (ii) demonstrate a fraudulent misrepresentation collateral or extraneous to the contract; or (iii) seek special damages that are caused by the misrepresentation and unrecoverable as contract damages." Bridgestone/Firestone, 98 F.3d at 20 (internal citations omitted). Although plaintiffs allege fraud as a cause of action, the allegations of fraud are based upon defendants' failure to pay plaintiffs pursuant to the employment contract. As all of plaintiffs' claims rely upon the existence of a contract requiring defendants to pay plaintiffs for "all hours worked,"*** and plaintiffs have not adequately alleged the Bridgestone/Firestone elements, they cannot make out a claim for fraud or mail fraud.

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