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RICO — Mailings That Increase the Probability That the Mailer Would Be Detected and Apprehended Do No Constitute Mail Fraud — Courts Are Wary of Converting Civil FLSA Claims into RICO Claims

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Lundy v. Catholic Health System of Long Island Inc., 2013 U.S. App. LEXIS 4316 (2d Cir. Mar. 1, 2013):

Plaintiffs, a respiratory therapist and two nurses, allege that the Catholic Health System of Long Island Inc., a collection of hospitals, healthcare providers, and related entities (collectively, "CHS"), failed to compensate them adequately for time worked during meal breaks, before and after scheduled shifts, and during required training sessions. They sued on behalf of a purported class of similarly situated employees (collectively, "the Plaintiffs") and take this appeal from orders of the United States District Court for the Eastern District of New York (Seybert, J.), dismissing the claims asserted under the Fair Labor Standards Act ("FLSA"), the Racketeer Influenced and Corrupt Organizations Act ("RICO"), and the New York Labor Law ("NYLL").

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Finally, Plaintiffs challenge the dismissal of their RICO claims, which alleged that CHS used the mails to defraud Plaintiffs by sending them their payroll checks. The district court dismissed the RICO claims, holding that Plaintiffs had not alleged any pattern of racketeering activity.

To establish a civil RICO claim, a plaintiff must allege "(1) conduct, (2) of an enterprise, (3) through a pattern (4) of racketeering activity," as well as "injury to business or property as a result of the RICO violation." Anatian v. Coutts Bank (Switz.) Ltd., 193 F.3d 85, 88 (2d Cir. 1999) (internal quotation marks omitted). The pattern of racketeering activity must consist of two or more predicate acts of racketeering. 18 U.S.C. § 1961(5).

The Third Amended Complaint cites the mailing of "misleading payroll checks" to show mail fraud as a RICO predicate act, J.A. 1779, on the theory that the mailings "deliberately concealed from its employees that they did not receive compensation for all compensable work that they performed and misled them into believing that they were being paid properly." Id. at 1764-65; see also id. at 1765-67 (describing the mailing of checks).

Footnote 12. Federal courts are properly wary of transforming any civil FLSA violation into a RICO case. See, e.g., Vandermark v. City of New York, 615 F. Supp. 2d 196, 209-10 (S.D.N.Y. 2009) (Scheindlin, J.) ("Racketeering is far more than simple illegality. Alleged civil violations of the FLSA do not amount to racketeering.").

"To prove a violation of the mail fraud statute, plaintiffs must establish the existence of a fraudulent scheme and a mailing in furtherance of the scheme." McLaughlin v. Anderson, 962 F.2d 187, 190-91 (2d Cir. 1992). On a motion to dismiss a RICO claim, Plaintiffs' allegations must also satisfy the requirement that, "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b); see McLaughlin, 962 F.2d at 191. So Plaintiffs must plead the alleged mail fraud with particularity, and establish that the mailings were in furtherance of a fraudulent scheme. Id. Plaintiffs' allegations fail on both accounts.

As to particularity, the "complaint must adequately specify the statements it claims were false or misleading, give particulars as to the respect in which plaintiff contends the statements were fraudulent, state when and where the statements were made, and identify those responsible for the statements." Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989). Plaintiffs here have not alleged what any particular Defendant did to advance the RICO scheme. Nor have they otherwise pled particular details regarding the alleged fraudulent mailings. Bare-bones allegations do not satisfy Rule 9(b).

Almost more fundamentally, Plaintiffs have not established that the mailings were "in furtherance" of any fraudulent scheme. As the district court observed, the mailing of pay stubs cannot further the fraudulent scheme because the pay stubs would have revealed (not concealed) that Plaintiffs were not being paid for all of their alleged compensable overtime. See Special App. 16-17. Mailings that thus "increase[] the probability that [the mailer] would be detected and apprehended" do not constitute mail fraud. United States v. Maze, 414 U.S. 395, 403 (1974); see also Cavallaro v. UMass Mem'l Health Care Inc., No. 09-40152, 2010 WL 3609535, at *3 (D. Mass. July 2, 2010) (examining very similar claim of mail fraud based on paychecks and ruling that the mailings "made the scheme's discovery more likely"). We therefore affirm the dismissal of Plaintiffs' RICO claims.

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New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.
New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.

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