Antitrust Law Daily Wrap Up, RICO—2d Cir.: Employees’ RICO claim against health system correctly dismissed for failure to state a claim, (Aug 21, 2013)

By Peter Reap, J.D., LL.M.

The federal district court in Rochester, New York, correctly dismissed a RICO claim brought by several employees of a regional health system because the alleged mailing of pay stubs by the health system could not have been in furtherance of the alleged fraudulent scheme to cheat the employees of their alleged compensable overtime, the U.S. Court of Appeals in New York City has decided (Hinterberger v. Catholic Health Systems, Inc., August 21, 2013, Per curiam.). Further, after dismissing the RICO claim, the district court’s decisions to exercise supplemental discretion over the remaining state law claims, and to dismiss them, were not error.

The employees alleged that their employers used a scheme to cheat them out of their lawful earnings, in violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”). The district court dismissed the civil RICO claim with prejudice.

In order to state a claim under civil RICO, a plaintiff must allege the existence of seven constituent elements: (1) that the defendant (2) through the commission of two or more acts (3) constituting a pattern (4) of racketeering activity (5) directly or indirectly invests in, or maintains an interest in, or participates in (6) an enterprise (7) the activities of which affect interstate or foreign commerce, the court noted.

The Second Circuit recently rejected identical RICO claims brought by the same class action law firm against other health systems. As in those cases, “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 Lundy v. Catholic Health Sys. of Long Island 16 Inc., 711 F.3d 106, 119 (2d Cir. 2013); see also Nakahata v.17 N.Y.-Presbyterian Healthcare Sys., Inc., 2013 WL 3743152, at 18 (2d Cir. July 11, 2013). Thus, here the RICO cause of action was properly dismissed for failure to state a claim, the appellate court ruled.

The employees argued that once the district court dismissed their RICO claim, it should have declined to exercise supplemental jurisdiction over their remaining claims. The Second Circuit disagreed. The Supreme Court made it abundantly clear—in a case that also involved a dismissed RICO claim—that “[a] district court’s decision whether to exercise [supplemental jurisdiction over state-law claims] after dismissing every claim over which it had original jurisdiction is purely discretionary.” Carlsbad Tech., 556 15 U.S. at 639 (citing 28 U.S.C. § 1367(c)). Therefore, the district court’s decision to exercise supplemental jurisdiction here was a wise exercise of judicial economy, not an abuse of discretion.

The cases are Nos. 12-0918 and 12-0654.

Attorneys: Guy A. Talia (Thomas & Solomon LLP) for Gail Hinterberger. Mark A. Molloy (Nixon Peabody LLP) for Catholic Health Systems, Inc.

Companies: Catholic Health Systems, Inc.

Cases: RICO ConnecticutNews NewYorkNews VermontNews