Two Birds With One Stone: In Action Involving Civil RICO, Second Circuit Provides Defenses Against Mail Fraud And FLSA Allegations

On March 1, 2013, in Lundy v. Catholic Health System of Long Island, Inc., the United States Court of Appeals for the Second Circuit affirmed the dismissal of civil mail fraud claims asserted under the Racketeer Influenced and Corrupt Organizations ("RICO") statute and alleged violations of the Fair Labor Standards Act ("FLSA").1 In doing so, the court reached at least two notable conclusions: (a) mail fraud claims, including under civil RICO, must fail if the alleged mailings made the alleged fraud easier to detect; and (b) the FLSA does not provide a claim for "gap time."2 The mail fraud conclusion could have a far-reaching impact; the mail fraud statute has broad reach in federal criminal and civil enforcement including in civil RICO actions, and in other federal civil actions such as those involving the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"). The FLSA conclusion is also significant because it will make FLSA claims more difficult to pursue in the Second Circuit as it rejects the more expansive view of that statute adopted by the Fourth Circuit and in Department of Labor guidance.

1. The Second Circuit's Decision in Lundy

   In Lundy, the Plaintiffs, a respiratory therapist and two nurses, alleged that the Catholic Health System of Long Island, Inc., a network of hospitals and other health care providers (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"). In particular, the Plaintiffs claimed that CHS used an automatic timekeeping system that deducted time from paychecks for meals and other breaks, even though employees frequently were required to work through their breaks, and that CHS failed to pay for time spent working before and after scheduled shifts, and attending training programs. The district court dismissed the Plaintiffs RICO and FLSA claims with prejudice.

   1. Affirming Dismissal of RICO Claims for Defective Mail Fraud Allegations

      As the court explained, 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." The pattern of racketeering activity must consist of two or more predicate acts of racketeering.3

      It...