Barrus v. Dick's Sporting Goods, Inc. et al

Filing 352

DECISION AND ORDER granting in part and denying in part 293 Motion to Dismiss; granting in part and denying in part 293 Motion to Strike. The Court denies certification of the state common and statutory law claims as a class action, dismisses Pla intiffs common law claims seeking allegedly unpaid overtime as preempted by FLSA by, and dismisses Plaintiffs ERISA and RICO claims. The following causes of action may go forward in this lawsuit: First (FLSA); and Fifth (unpaid wages). As to the Fift h cause of action for unpaid wages under common or statutory law, only those claims involving New York law may go forward. Claims under the remaining jurisdictions outside New York are dismissed without prejudice to bringing actions in an appropriate jurisdiction.Signed by Hon. Charles J. Siragusa on 8/4/10. (KAP)

Barrus v. Dick's Sporting Goods, Inc. et al

D o c . 352

UNITED STATES DISTRICT COURT W E S T E R N DISTRICT OF NEW YORK

T A M A R A BARRUS, on behalf of herself a n d others similarly situated, et al., P l a in t if f s , -vs D I C K 'S SPORTING GOODS, INC. and GALYAN'S TRADING COMPANY, INC., et al., Defendants. D E C IS IO N AND ORDER 0 5 -C V -6 2 5 3 CJS

AP P E AR AN C E S

F o r the Plaintiffs:

P a tric k Solomon, Esq. M ic h a e l Lingle, Esq. T h o m a s & Solomon LLP 6 9 3 East Avenue R o c h e s te r , NY 14607 T e le p h o n e : [phone] D a n ie l J. Moore, Esq. H a rris Beach LLP 9 9 Garnsey Road P itts f o rd , NY 14534 T e le p h o n e : [phone] Matthew W . Lampe, Esq. J o n e s Day 2 2 2 E. 41st Street N e w York, NY 10017-6702 Telephone: [phone]

For the Defendants:

Dockets.Justia.com

IN T R O D U C T IO N Siragusa, J. This Fair Labor Standards Act ("FLSA") matter is before the Court on D e f e n d a n ts ' motions (Docket Nos. 255 and 293): to deny certification of state law classes; to strike state law class allegations: and to dismiss preempted state common law claims, E R IS A claims, and RICO claims. For the reasons set out below, the motions are granted in part and denied in part. F AC T U AL BACKGROUND D e f e n d a n ts Dick's Sporting Goods and Galyan's Trading Company, Inc. (" G a lya n 's ") are national sporting goods retailers who merged in 2004 and currently o p e ra te under the Dicks Sporting Goods ("DSG") name. DSG operates 255 stores in 34 s ta te s with approximately 16,000 employees who are subject to the Fair Labor Standards A c t ("FLSA") wage and hour requirements. (See Falce Aff. (Docket No. 43) at 1­2.) A c c o rd in g to Plaintiffs, DSG and Galyan's implemented formal and informal wage and h o u r policies which were in direct contravention of the protections afforded employees u n d e r the FLSA. Specifically, Plaintiffs have identified three different policies utilized by D e f e n d a n ts which allegedly violate the FLSA. Plaintiffs are suing both stores, now merged, a lo n g with individual defendants, alleging violations of the FLSA, state law and the E m p lo ye e Retirement Income Security Act ("ERISA") and the Racketeer Influenced C o r ru p t Organization Act ("RICO"). In the subject application, as indicated above, Defendants seek dismissal of the s ta te common law overtime claims arguing that they are preempted by FLSA, denial of c la s s certification of all the state law claims, dismissal of the ERISA claims and dismissal o f the RICO claims. Page 2 of 28

S T AN D AR D S OF LAW M o t io n to Dismiss Standard T h e U.S. Supreme Court, in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007), clarified th e standard to be applied to a 12(b)(6) motion:

Federal Rule of Civil Procedure 8(a)(2) requires only a short and plain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the claim is and the grounds upon which it rests. While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a Plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).
Id. at 1964-65 (citations and internal quotations omitted). See also, ATSI Communications, In c . v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) ("To survive dismissal, the plaintiff m u s t provide the grounds upon which his claim rests through factual allegations sufficient `to raise a right to relief above the speculative level.'") (quoting Bell Atl. Corp. v. Twombly) (fo o tno te omitted); Iqbal v. Hasty, 490 F.3d 143 (2d Cir. 2007) (Indicating that Bell Atl. Corp. v . Twombly adopted "a flexible `plausibility standard,' which obliges a pleader to amplify a c laim with some factual allegations in those contexts where such amplification is needed to ren d e r the claim plausible[,]" as opposed to merely conceivable.) W h e n applying this standard, a district court must accept the allegations contained in the complaint as true and draw all reasonable inferences in favor of the nonmoving party. B u rne tte v. Carothers, 192 F.3d 52, 56 (1999), cert. denied, 531 U.S. 1052 (2000). On the o th e r hand, "[c]onclusory allegations of the legal status of the defendants' acts need not be a c c e p ted as true for the purposes of ruling on a motion to dismiss." Hirsch v. Arthur A n d e rs en & Co., 72 F.3d 1085, 1092 (2d Cir. 1995)(citing In re American Express Co. Page 3 of 28

S h a re h old e r Litig., 39 F.3d 395, 400-01 n. 3 (2d Cir.1994)). As the Supreme Court clarified in Ashcroft v. Iqbal, __ U.S. __, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009): T h r e a d b a r e recitals of the elements of a cause of action, supported by mere c o n c lu s o r y statements, do not suffice. Id., at 555, (Although for the purposes o f a motion to dismiss we must take all of the factual allegations in the c o m p l a i n t as true, we "are not bound to accept as true a legal conclusion c o u c h e d as a factual allegation" (internal quotation marks omitted)). Rule 8 m a rk s a notable and generous departure from the hyper-technical, c o d e -p le a d in g regime of a prior era, but it does not unlock the doors of d is c o v e ry for a plaintiff armed with nothing more than conclusions. Second, o n ly a complaint that states a plausible claim for relief survives a motion to d is m is s . Id., at 556. Determining whether a complaint states a plausible c la im for relief will, as the Court of Appeals observed, be a context-specific ta s k that requires the reviewing court to draw on its judicial experience and c o m m o n sense. 490 F.3d at 157-158. But where the well-pleaded facts do n o t permit the court to infer more than the mere possibility of misconduct, th e complaint has alleged--but it has not "show[n]"--"that the pleader is e n t it le d to relief." Fed. Rule Civ. Proc. 8(a)(2). Iq b a l, 129 S. Ct. at 1949­50. C l a s s Action Certification Standard P la in tif f s allege that they have sufficiently plead a class action maintainable under F e d e ra l Rule of Civil Procedure 23(b)(1), (2), and (3). Rule 23(a) and the relevant (b) s u b s e c tio n s state: (a ) Prerequisites to a Class Action. One or more members of a class may s u e or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are q u e s tio n s of law or fact common to the class, (3) the claims or defenses of th e representative parties are typical of the claims or defenses of the class, a n d (4) the representative parties will fairly and adequately protect the in te re s ts of the class. (b ) Class Actions Maintainable. An action may be maintained as a class a c tio n if the prerequisites of subdivision (a) are satisfied, and in addition: (1 ) the prosecution of separate actions by or against individual m e m b e r s of the class would create a risk of (A) inconsistent or varying adjudications with respect to Page 4 of 28

in d iv id u a l members of the class which would establish incompatible s ta n d a rd s of conduct for the party opposing the class, or (B ) adjudications with respect to individual members of the c la s s which would as a practical matter be dispositive of the interests of the o th e r members not parties to the adjudications or substantially impair or im p e d e their ability to protect their interests; or ( 2 ) the party opposing the class has acted or refused to act on g ro u n d s generally applicable to the class, thereby making appropriate final in ju n c tiv e relief or corresponding declaratory relief with respect to the class a s a whole, or (3 ) the court finds that the questions of law or fact common to class m e m b e rs predominate over any questions affecting only individual m e m b e rs , and that a class action is superior to other available methods for f a ir ly and efficiently adjudicating the controversy. The matters pertinent to th e s e findings include: (A ) the class members' interests in individually controlling the p ro s e c u tio n or defense of separate actions; (B ) the extent and nature of any litigation concerning the c o n tro v e rs y already begun by or against class members; ( C ) the desirability or undesirability of concentrating the litig a tio n of the claims in the particular forum; and (D ) the likely difficulties in managing a class action. F e d . R. Civ. P. 23(a), (b)(1)(A), (b)(1)(B), (b)(2) and (b)(3)(A)­(C) (2009). The party s e e k in g class certification has the burden of demonstrating that Rule 23's requirements a r e satisfied. Caridad v. Metro-North Commuter Railroad, 191 F.3d 283, 291 (2d Cir. 1999) ( c i ta t io n omitted), cert. denied, 529 U.S. 1107, 120 S. Ct. 1959, 146 L. Ed. 2d 791 (2000); s e e also, 5 James W m . Moore et al., MOORE'S FEDERAL PRACTICE § 23.60[2] ("[A] class a c t io n must satisfy each of the requirements of Rule 23, and the plaintiff must plead more th a n a simple reiteration of those requirements in conclusory allegations. Instead, the p la in tif f should allege facts demonstrating that all of the requirements for bringing a class

Page 5 of 28

a c t io n are fulfilled.") (citation omitted). It is well settled that before certifying a class, a d is tr ic t court must conduct a "rigorous analysis" to determine whether or not Rule 23's r e q u ir e m e n t s have been met.1 Caridad, 191 F.3d at 291. However, the court should not in q u ir e into the merits of the plaintiffs' underlying claims. Id. (citation omitted). Moreover, c o u r ts are required to construe Rule 23's requirements liberally. Eisen v. Carlisle & J a c q u e lin , 391 F.2d 555, 563 (2d Cir. 1968). Courts should resolve doubts about whether R u le 23 has been satisfied in favor of certification. In re Industrial Diamonds Litigation, 167 F . R . D . 374, 378 (S.D.N.Y. 1996)(citations omitted). AN AL Y S I S In tr o d u c tio n D e f e n d a n ts ' memorandum of law in support of their motion (Docket No. 255) states f o r an introduction, the following: M o r e than four years ago, Barrus filed this case asserting that Defendants v io la te d the FLSA and the New York Labor Law by failing to pay employees
1

Neither Rule 23, nor the vast majority of cases interpreting it identifies a p a r tic u la r burden of proof on the plaintiff. See, e.g., Shepherd v. Babcock & Wilcox of O h io , No. C-3-98-391, 2000 U.S. Dist. LEXIS 6349, 2000 W L 987830 at *1 n. 5 (S.D. O h io , Mar. 3, 2000) ("Although many...reported decisions state that the party seeking c e rtif ic a tio n carries this burden, research has found only one reported case which d e f i n e s that burden, whether as being the preponderance of evidence or otherwise."). A c c o rd in g to a leading treatise on the subject of class actions, that is because "[b ]u rd e n of proof concepts are generally more applicable to proof of facts or evidence a n d do not comfortably fit in determinations respecting whether a particular procedural d e v ic e has been properly invoked or should be permitted to be maintained." 2 Herbert B . Newberg & Alba Conte, Newberg on Class Actions § 7.17 (3d ed. 1992). The N e w b e rg treatise further indicates that the plaintiff's burden under Rule 23 is merely a b u rd e n to plead facts indicating that Rule 23 is satisfied, which then creates a r e b u t ta b le presumption in favor of class certification. Id. at §§ 7.19-7.20. If the d e f e n d a n t rebuts this presumption by producing contrary evidence, the burden of p ro d u c tio n then shifts back to the plaintiff to produce counter-affidavits or other e v id e n c e . Id. § 7.26 The Court must then exercise its discretion to determine whether c la s s certification is appropriate. Id. § 7.27. Page 6 of 28

f o r all hours worked. Barrus ultimately moved for conditional certification of a n FLSA nationwide class. Applying the FLSA's lenient standard for c o n d itio n a l certification, this Court granted her motion and authorized Barrus to mail notice to more than 125,000 current and former DSG and Galyan's e m p lo ye e s . She did so, but a mere 3,573 individuals, or just 2.8%, chose to o p t in to the FLSA collective action. That is, more than 97% of putative class m e m b e rs decided not to join. Undeterred by this lack of response, Barrus a n d her fellow named Plaintiffs still seek to represent the approximately 1 2 1 ,5 0 0 putative class members who chose not to join this case. To do so, B a rru s amended her complaint to add claims under the statutes of thirty-two s ta te s for "unpaid wages" as well as claims under the statutes of twenty-four s t a te s for "unpaid overtime." She also added ten separate common law c la im s for unpaid wages under the laws of thirty-six states. These common la w claims include theories such as breach of contract, quantum meruit, u n ju s t enrichment, fraud, and conversion. By adding these state law claims, w h ic h are subject to the "opt-out" procedure of Rule 23 as opposed to the "o p t-in " procedure of the FLSA, Plaintiffs attempt to pull back into the case th e people who chose not to join. But Plaintiffs cannot possibly show, as th e y must, that this panoply of state law claims is properly maintainable as a class action under Rule 23. The state statutes and common laws under th a t Plaintiffs invoke differ from one another in numerous material respects. A p p lic a t io n of these varying standards in a single case, and the need to re s o lv e disputes as to the correct state law interpretation of many of these s ta n d a rd s , would inject intractable case management problems into the c a s e and guarantee that no common issue would predominate. In addition, P la in tif f s ' proposed class definition is defective because it is not based upon o b je c t iv e criteria and, instead, would require the Court to make a merits d e te rm in a tio n for each potential class member just to determine class m e m b e rs h ip . Because it is clear on the face of the Second Amended C o m p la in t that Plaintiffs will be unable to satisfy FRCP 23, this Court should d e n y certification and strike Plaintiffs' state law class allegations. F u rt h e rm o re , certain of Plaintiffs' substantive claims legally fail and should b e dism is s e d . First, Plaintiffs' common law claims are preempted by the F L S A to the extent they seek to recover overtime pay. Lopez v. Flight Servs. & Sys., Inc., No. 07-CV-6186 CJS, 2008 W L 203028, at *5, 7 (W .D .N .Y . J a n . 23, 2008). S e c o n d , Plaintiffs' ERISA claims, that Defendants breached their fiduciary d u t y and committed recordkeeping violations by failing to credit Plaintiffs' 4 0 1 (k ) plans for all time worked, legally fail. The law is clear that neither D S G nor Galyan's was acting as a fiduciary when making the business d e c is io n to compensate their employees. Plaintiffs' recordkeeping claim also le g a lly fails because it is simply a thinly-disguised claim for ERISA benefits, w h ic h cannot be brought under ERISA's `catch all' equitable relief provision th a t Plaintiffs invoke. Page 7 of 28

F in a lly, Plaintiffs' RICO claim should be dismissed. "Alleged civil violations o f the FLSA do not amount to racketeering." Vandermark v. City of N.Y., 615 F . Supp. 2d 196, 209-210 (S.D.N.Y. 2009). And Plaintiffs have not, and c a n n o t, sufficiently plead the mandatory elements of RICO. (D e f .s ' Mem. of Law (Docket No. 256) at 1­2.) Plaintiffs oppose Defendants' motion s t a tin g : O n a pre-discovery motion to deny certification and/or strike the class a lle g a tio n s , the defendants bear the burden of demonstrating that on the f a c e of the complaint, class certification is impossible. Thus, individual d e f e n d a n ts Edward Stack, Kathryn Sutter, W illia m Colombo, Jay Cross and L yn n Uram (collectively, "defendants") must demonstrate not only that the v a r io u s states' laws differ in material respects, but also that those d i f f e re n c e s , if any, unavoidably prevent class certification. The individual d e f e n d a n ts , as did the corporate defendants Dick's Sporting Goods, Inc. and G a lya n 's Trading Company, Inc., have utterly failed to show that this action c a n never, under any circumstances, be certified as a multistate class action p u rs u a n t to Rule 23 and it is thus premature to deny class certification a n d /o r strike the class allegations. For example, defendants have not even a tte m p te d to demonstrate how the alleged material differences could not be h a n d le d in subclasses or some other procedure available to the Court or th a t the alleged differences cannot be avoided altogether through the a p p lic a tio n of one state's law to this entire action. The remaining relief re q u e s te d by defendants is similarly unfounded and should also be denied. In d e e d , it is well settled that the FLSA does not expressly preempt any d u p lic a tiv e state law remedies and that Congress did not intend the FLSA to be the exclusive remedy for wage and hour violations, i.e., that there is no f ie ld preemption. Therefore, inasmuch as defendants have not even alleged m u c h less demonstrated that the only remaining category of preemption, o b s ta c le preemption, applies, it is clear that plaintiffs' common law claims a re not preempted by the FLSA. In addition, plaintiffs have properly pleaded t h e ir ERISA and RICO causes of action. Defendants have failed to d e m o n s tra te how RICO has been preempted by the FLSA, since no such in te n t has been voiced by Congress. Further, defendant's contentions that E R IS A breach of fiduciary and maintenance of records claims should be d e n ie d as to the individual defendants are similarly unfounded. ( P l. s ' Mem. of Law (Docket No. 333), at 2­3.)

Page 8 of 28

C l a s s Certification of State Law Claims D e f e n d a n t s contend that, "Plaintiffs cannot satisfy Rule 23(a)'s commonality re q u ire m e n t or Rule 23(b)(3)'s predominance or superiority requirements because P la in tif f s ' state law claims would break down into innumerable state-specific issues that c o u ld not be tried commonly across the class and that would create incurable case m a n a g e m e n t problems." (Def.s' Mem. of Law (Docket No. 256) at 4­5.) The Court agrees. F irs t, the second amended complaint alleges that the claims, a ris in g under the ERISA, RICO and statutory and common laws of Alabama, A r iz o n a , Colorado, Connecticut, Delaware, Florida, Georgia, Iowa, Illinois, In d ia n a , Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, M in n e s o ta , Missouri, Nebraska, New Hampshire, New Jersey, New York, N e v a d a , North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South C a ro lin a , Tennessee, Texas, Utah, Vermont, Virginia, W e s t Virginia, and W is c o n s in are properly maintainable as a class action under Federal Rule o f Civil Procedure 23. (2 d Am. Compl. ¶ 5.) The laws of those states are easily found, as demonstrated by the a r g u m e n t s in the memoranda in support of, and in opposition to, the motions. The Court d o e s not believe that discovery would yield any more relevant information on the issue of c la s s certification of the state law claims. Plaintiffs' reliance on Parker v. Time Warner E n tm 't Co., 331 F.3d 13, 21­22 (2d Cir. 2003), for the proposition that a hearing is required in this case prior to any certification determination under Rule 23, is misplaced. Parker s im p ly applied the rule announced in Robinson v. Metro-North Commutor R.R. Co., 267 F . 3 d 147 (2d Cir. 2001), in which the Second Circuit held that, when presented with a motion for (b)(2) class certification of a claim seeking b o t h injunctive relief and non-incidental monetary damages, a district court m u s t "consider[ ] the evidence presented at a class certification hearing and th e arguments of counsel," and then assess whether (b)(2) certification is a p p ro p ria te in light of "the relative importance of the remedies sought, given a ll of the facts and circumstances of the case." Hoffman, 191 F.R.D. at 536. Page 9 of 28

R o b in s o n , 267 F.3d at 164. Here, in contrast, the issue is not so much the remedy sought, b u t whether a class action can be maintained for causes of action that span the 36 state la w s that are invoked by the second amended complaint. In that regard, the Court d e te rm in e s that no certification hearing is necessary to gather additional factual i n f o r m a t io n . Next, the Court determines that Plaintiffs cannot meet Rule 23(a)'s commonality re q u ire m e n t that "there are questions of law or fact common to the class." As Judge T e le s c a pointed out in Luciano v. Eastman Kodak Co., 05-CV-6463T, 2006 W L 1455477, * 1 (W . D . N . Y . May 25, 2006): T h e state wage and contract claims lack commonality because they are b e in g brought under 34 separate wage laws, each with its own peculiar r e q u ir e m e n t s and defenses. Similarly, the breach of contract claims are b e in g brought pursuant to the laws of 48 jurisdictions. Because adjudication o f these claims would require the interpretation and application of several d if f e re n t laws of several different states and territories, I find that plaintiff has f a ile d to establish that the state wage and contract claims of the purported c la s s are common amongst the class. See Kaczmarek v. IBM, 186 F.R.D. 3 0 7 , 312-313 (S.D.N.Y.1999) ("The prospect of determining the law of all f if ty states and then applying the materially different laws that exist...would m a k e this class action too complicated and unmanageable.") L u c ia n o , 2006 W L 1455477, *3. Though the number of jurisdictions here is less, the same is s u e s regarding commonality exist. Though Plaintiffs characterize the common issue as w h e th e r employees worked hours for which they were not paid, their own chart shows that u n d e r state law, working off-the-clock does not always automatically create liability on the p a r t of the employer. Under the FLSA, Plaintiffs would be required to show that Defendants had actual o r constructive notice of the employee's off-the-clock work. Davis v. Food Lion, 792 F.2d

Page 10 of 28

1 2 7 4 , 1277 (4th Cir. 1998) ("The Act requires the plaintiff to prove that he was `employed' b y the defendant, and that means proof that the defendant knew or should have known th a t the plaintiff was working overtime for the employer."). As Defendants argue, in M a ryla n d , the state statute requires proof that, "an [employee] is required by the employer to be on the employer's premises, on duty, or at a prescribed workplace." (Pl.s' Mem. of L a w , Ex. A.) In Colorado, the definition of "hours worked" includes "all the time the e m p lo ye e is suffered or permitted to work whether or not required to do so." (Id.) Colorado d e f in e s an employee as, "any person performing labor or services for the benefit of an e m p lo ye r in which the employer may command when, where, and how m u c h labor or s e r v ic e s shall be performed." 7 Colo. Code Regs. § 1103-1:2 (Jan. 1, 2010). Other state courts have held that wage laws do not provide a right to an individual la w s u it for straight-time claims. In Missouri, for example, "[s]ections 290.500 to 290.530 o n ly require payment of minimum wage and overtime, and therefore Hudson's contention th a t she is entitled to straight time is not meritorious. Her straight time claim must be made o n a breach of contract theory." Hudson v. Butterball, LLC, No. 08-5071-CV-SW -R E D , 2 0 0 9 W L 3486780, *5 (W .D .M o . Oct. 14, 2009). In Kansas, there is no statutory overtime re q u ire m e n t, and, therefore, Plaintiffs would have to prove that the employee and e m p lo ye r had a mutual intent to contract. "The question of whether an implied contract e x is t s under Kansas law is typically a question of fact for the jury." Weatherby v. Burlington N o rth e rn and Santa Fe Ry. Co., 209 F. Supp. 2d 1155, 1164 (D. Kan. 2002). The Court w o u ld face a daunting task if it tried to fashion a jury instruction that took into account the v a r ia n c e s in the state laws under which Plaintiffs make their common law and state s t a t u t o r y claims. Page 11 of 28

P la in tif f s , however, contend that the Court can apply one state standard to all the c o m m o n law claims. (Pl.s' Mem. of Law, at 18.) Plaintiffs cite Denney v. Jenkens & G ilc h ris t, 230 F.R.D. 317, 335 (S.D.N.Y. 2005) in support of their argument, but that case is distinguishable. In Denney, the district court wrote, "[b]ecause this is a settlement-only c la s s , the Court need not be concerned with the feasibility of managing the trial of a class a c t io n involving many different states' laws." Likewise, Plaintiffs' reliance on Endo v. A lb e rtin e , 147 F.R.D. 164, 169 (N.D. Ill. 1993) is misplaced. In that case, the district court w r o te , in dictum, "[u]nder Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 821-23 (1985), Illin o is substantive law may apply to all the state law claims. In any case we will not decide th e choice of law issue now." In Phillips Petroleum Co. v. Schutts, 472 U.S. 797, 821-23 ( 1 9 8 5 ) , the Supreme Court wrote, "[g]iven Kansas' lack of `interest' in claims unrelated to th a t State, and the substantive conflict with jurisdictions such as Texas, we conclude that a p p lic a tio n of Kansas law to every claim in this case is sufficiently arbitrary and unfair as t o exceed constitutional limits." Id. at 822. Further, as Justice Brandeis wrote for the S u p r e m e Court, Except in matters governed by the Federal Constitution or by Acts of C o n g re s s , the law to be applied in any case is the law of the State. And w h e t h e r the law of the State shall be declared by its Legislature in a statute o r by its highest court in a decision is not a matter of federal concern. There is no federal general common law. Congress has no power to declare s u b s ta n tiv e rules of common law applicable in a State whether they be local in their nature or "general," be they commercial law or a part of the law of to rts . And no clause in the Constitution purports to confer such a power u p o n the federal courts. E r ie R.R. v. Tompkins, 304 U.S. 64, 78 (1938). T h e Court is not persuaded by Plaintiffs' argument that one state's law could be a p p lie d to all the common law claims of all the potential class members. In Matter of Page 12 of 28

R h o n e -P o u le n c Rorer, Inc., 51 F.3d 1293, 1300 (7th Cir. 1995), the Seventh Circuit held th a t the district court "exceeded the bounds of permissible judicial discretion" because "the d is tr ic t judge proposes to substitute a single trial before a single jury instructed in a c c o rd a n c e with no actual law of any jurisdiction--a jury that will receive a kind of E s p e ra n to instruction, merging the negligence standards of the 50 states and the District o f Columbia." Here, after observing that the Connecticut standard for hours worked is "`m o re beneficial to the employee than federal law[,]'" Plaintiffs argue that, "[i]ndeed, in the f irs t instance, a jury need only determine the facts sufficient to establish liability under the f e d e ra l standard. If those facts are found, then liability will follow under all the states' laws a s well." (Pl.s' Mem. of Law, at 10 (quoting Sarrazin v. Coastal, Inc., No. CV-084030702s, 2 0 0 9 W L 1663177, at *5 (Conn. Super. Ct. May 22, 2009).) However, the Court finds that P la in tif f s ' proposal to meld the FLSA into a universally-applicable state common law s ta n d a rd would be an abuse of its discretion and a violation of the Erie doctrine. A s to class certification, "[t]he court must also consider `how a trial on the merits w o u ld be conducted' if the class were certified." Cole v. GMC, 484 F.3d 717, 724 (5th Cir. L a . 2007) (quoting Castano v. American Tobacco Co., 84 F.3d 734, 740 (5th Cir. La. 1 9 9 6 )). "The party seeking certification has the burden of proof on Rule 23's prerequisites. M c M a n u s v. Fleetwood Enters., Inc., 320 F.3d 545, 548 (5th Cir. 2003)." Id. The Fifth C irc u it went on in Cole to state: W e have recognized that in a class action governed by the laws of multiple s ta te s , such as this one, "variations in state law may swamp any common is s u e s and defeat predominance." Castano, 84 F.3d at 741; accord G e o rg in e v. Amchem Prods., 83 F.3d 610, 627 (3d Cir. 1996) (holding that p re d o m in a n c e was defeated, in part, by the number of differing state legal s t a n d a r d s applicable to the controversy), aff'd, 521 U.S. 591, 624, 117 S. Ct. 2 2 3 1 , 138 L. Ed. 2d 689 (1997). The party seeking certification of a Page 13 of 28

n a tio n w id e class must therefore "provide an `extensive analysis' of state law v a r ia t io n s to reveal whether these pose `insuperable obstacles.'" Spence, 2 2 7 F.3d at 313 (quoting W a ls h v. Ford Motor Co., 257 U.S. App. D.C. 85, 8 0 7 F.2d 1000, 1017 (D.C. Cir. 1986)). And the district court must then " c o n s id e r how those variations affect predominance." Castano, 84 F.3d at 7 4 0 . Failure to engage in an analysis of state law variations is grounds for d e c e r tif i c a t io n . See Castano, 84 F.3d at 741-44 (concluding that court a b u s e d its discretion in certifying class where plaintiffs had failed to properly a d d re s s variations in state law such that conclusion of predominance was b a s e d on speculation); Spence, 227 F.3d at 316 (concluding that court a b u s e d its discretion in certifying class where plaintiffs had failed to carry t h e ir burden of providing an extensive analysis of applicable law). C o le , 484 F.3d at 724­25. Plaintiffs have, as the Court previously mentioned, provided a s u m m a ry chart as part of their motion papers, comparing some aspects of the various s ta te laws in the jurisdictions that are implicated in this lawsuit. They have not, though, p ro v id e d an extensive analysis, and the Court's brief review, above, of the differences in ju s t a few of the jurisdictions leads it to conclude that certification of the state law causes o f action is not feasible. Plaintiffs also suggest the creation of subclasses. (Pl.'s Mem. of Law (Docket No. 2 7 1 ) , at 7, 17.) See Fed. R. Civ. P. 23(c)(5) ("Subclasses. W h e n appropriate, a class may b e divided into subclasses that are each treated as a class under this rule.") If subclasses a re created, Plaintiffs do not explain how jury instructions and testimony could be c o m p a rtm e n ta liz e d to ensure the jury applies the proper law to the evidence for that s u b c la s s . Plaintiffs cite to Kingsberry v. Chi. Title Ins. Co., 258 F.R.D. 668, 669 (W .D . W a s h . 2009), in support of their argument. That case involved allegations of systematic o v e rc h a rg e s by the defendant of consumers of title insurance in W a s h in g to n , Oregon, T e n n e s s e e and Michigan. The district court determined that: T h e Plaintiff asserts that W a s h in g to n , Oregon, Tennessee and Michigan h a ve similar filed-rate structures governing the application of title insurance Page 14 of 28

ra te s including those for refinance/reissue policies. Plaintiff also alleges that c o m m o n law claims for breach of contract and unjust enrichment are m a te ria lly the same throughout the Class States. The Defendant argues that th e re are substantial differences between the laws of the Class States that m a k e class certification unlikely and should thus preclude pre-certification d i s c o v e r y. Id. at 669 (citations omitted). For obvious reasons, that case is distinguishable, since very f e w jurisdictions were involved and the plaintiff there established to the district court's s a tis f a c tio n that the laws governing the claims were substantially similar. In this case, P la in tif f s have not demonstrated that the governing laws in the 36 state jurisdictions in v o lv e d in this action are substantially similar, or that a common issue predominates. Preemption In its motion, Defendants seek to dismiss Plaintiffs' common law claims to the e x t e n t they seek allegedly unpaid overtime: "common law claims for overtime pay are p r e e m p t e d by the FLSA. See Lopez v. Flight Servs. & Sys., Inc., No. 07-CV-6186 CJS, 2 0 0 8 W L 203028, at *5, 7 (W .D . N . Y . Jan. 23, 2008)." (Def.s' Mem. of Law (Docket No. 2 5 6 ), at 8.) The Second Circuit has held that, "[e]xpress preemption occurs to the extent t h a t a federal statute expressly directs that state law be ousted to some degree from a c e r ta in field." Association of Int'l Auto. Mfrs. v. Abrams, 84 F.3d 602, 607 (2d Cir. N.Y. 1 9 9 6 ). Since the FLSA does not provide a claim for unpaid straight-time, Plaintiffs argue th a t the FLSA does not preempt common law claims for straight-time pay. "[A]n employer m a y contractually agree to compensate employees for time that is not mandatorily c o m p e n s a b le under the FLSA." Avery v. City of Talladega, 24 F.3d 1337, 1348 (11th Cir. A la . 1994) (citing APFU v. Atlanta, 920 F.2d 800, 806 (11th Cir.1991)).

Page 15 of 28

P la in tif f s urge the Court to reconsider its decision in Lopez v. Flight Servs. & Sys., In c ., No. 07-CV-6186 CJS, 2008 U.S. Dist. LEXIS 4744 (W .D . N . Y . Jan. 22, 2008), in which th e Court reviewed, "whether Plaintiffs' state common-law claims for fraud, breach of c o n tra c t, breach of implied covenants of good faith, tortious interference with contract, and u n ju s t enrichment are preempted by the FLSA" and held that, "all of the state-law claims p e r ta in to Defendants' alleged failure to pay Plaintiffs in accordance with the FLSA. C o n s e q u e n t ly, they are preempted by the FLSA and must be dismissed." Id. 2008 U.S. D is t. LEXIS 4744, at *19­20. In Lopez, the Court determined that the Second Circuit had n o t decided the issue of preemption, and looked to the Fourth Circuit decision in Anderson v . Sara Lee Corp., 508 F.3d 181, 194 (4th Cir. 2007) for guidance. Plaintiffs assert that A n d e rs o n relied on Kendall v. City of Chesapeake, Va., 174 F.3d 437, 442 (4th Cir. 1999) a n d that reliance on Kendall in Anderson was improper: "The Kendall court's decision is a very narrow holding--the FLSA precludes a § 1983 claim, not that the FLSA preempts a n y and all state common law claims." (Pl.'s Mem. of Law (Docket No. 271), at 24.) Instead, Plaintiffs urge the Court to follow the Ninth Circuit case of Williamson v. G e n . Gynamics Corp., 208 F.3d 1144 (9th Cir. 2000), arguing it is a better reasoned d e c is io n . Plaintiffs contend that the FLSA itself indicates that it was not Congress's intent to preempt the field of wage law, citing to 29 U.S.C. § 218(a), which states, "[n]o provision o f this chapter or of any order thereunder shall excuse noncompliance with any Federal o r State law or municipal ordinance establishing a minimum wage higher than the m in im u m wage established under this chapter or a maximum workweek lower than the m a x im u m workweek established under this chapter...." Plaintiffs also rely on DeKeyser v . Thyssenkrupp Waupaca, Inc., 589 F. Supp. 2d 1026, 1031 (E.D. W is . 2008), in which Page 16 of 28

th e district court wrote: "Given this express statement [29 U.S.C. § 218(a)] of Congress' in te n t not to displace state laws granting workers higher minimum wages or a shorter m a x im u m workweek, it is clear that the FLSA would preempt only state laws that m a n d a te d lower minimum wages or longer maximum workweeks." Plaintiffs argue p e rs u a s iv e ly that express or field preemption does not apply to the FLSA. T h e Court turns next to implied preemption. On that issue, the Second Circuit has w r it te n that, [e ]v e n where there is no express statutory statement ousting state law from a given area, there may be implied preemption. [A ] federal statute implicitly overrides state law either when the s c o p e of a statute indicates that Congress intended federal la w to occupy a field exclusively,...or when state law is in a c tu a l conflict with federal law. W e have found implied conflict p r e - e m p t io n where it is impossible for a private party to c o m p ly with both state and federal requirements,...or where s ta te law stands as an obstacle to the accomplishment and e x e c u tio n of the full purposes and objectives of Congress. F re ig h tlin e r Corp. v. Myrick, 131 L. Ed. 2d 385, 115 S. Ct. 1483, 1487 (1995) ( in t e r n a l quotation marks omitted).... A s s o c ia tio n of Int'l Auto. Mfrs. v. Abrams, 84 F.3d 602, 607 (2d Cir. N.Y. 1996) (some c it a t io n s omitted). In the Ninth Circuit case, Williamson, the Court of Appeals wrote: I n this case, the district court relied on an even weaker precedent, Lerwill v. I n f lig h t Motion Pictures, 343 F. Supp. 1027 (N.D. Cal. 1972), in order to c o n c lu d e that the appellants' fraud claims are preempted because the "F L S A is the exclusive remedy for claims that duplicate or are equivalent of r ig h t s protected by the FLSA." Lerwill is a dubious authority. It is a 1972 d is t ric t court case that is not even about preemption. Lerwill never mentions t h e word "preemption," and it does not rely on a preemption framework. It w a s about the plaintiff's effort to get a more favorable remedy. The plaintiff s u e d for breach of contract of a collective bargaining agreement because of u n p a id overtime. See id. at 1028. This theory directly implicated the FLSA's s ta tu to ry provisions.

Page 17 of 28

In this case, however, GD's allegedly fraudulent conduct was not covered b y a FLSA provision. Nor are the appellants in this case avoiding the FLSA in order to seek a more favorable remedy. The FLSA's anti-retaliation p ro v is io n actually offers broader remedies than state fraud claims because th e anti-retaliation provision allows the recovery of attorneys' fees. The other re m e d ie s are the same. In 1977, Congress amended section 216(b) to allow p la in tif f s who prove retaliation under section 215(a)(3) to obtain "legal and e q u ita b le relief" under state law. At least one other circuit has interpreted th is relief to include compensatory, punitive, and emotional distress d a m a g e s . See, e.g., Moskowitz v. Trustees of Purdue Univ., 5 F.3d 279, 284 ( 7 t h Cir. 1993); Travis v. Gary Community Mental Health Ctr., Inc., 921 F.2d 1 0 8 , 111 (7th Cir. 1991). The only advantage of a state fraud claim over a F L S A claim is a longer statute of limitations (three years compared to two ye a r s ) . Compare Cal. Civ. Proc. Code § 338(d) with 29 U.S.C. § 255(a). T h e district court's preemption analysis does not hold up under the c a te g o ric a l preemption framework. There is definitely no express or field p re e m p tio n . And there is no conflict preemption because the anti-retaliation p r o v is io n does not apply even under Lambert's broad definition. Under a c a te g o ric a l preemption analysis, the career fraud claims are not preempted. W illia m s o n v. General Dynamics Corp., 208 F.3d 1144, 1153 (9th Cir. Cal. 2000) (footnote o m it te d ) . Defendants' preemption argument is limited to overtime claims. (Def.'s Mem. of Law ( D o c k e t No. 256), at 19 ("Plaintiffs' common law claims should be dismissed pursuant to F R C P 12(b)(6) to the extent they seek allegedly unpaid overtime.").) Given the positions o f the parties in this case, and the decisions discussed above, the Court is persuaded to a p p ly the conclusion reached by the district court in DeKeyser, discussed above, that, "it is clear that the FLSA would preempt only state laws that mandated lower minimum wages o r longer maximum workweeks."

Page 18 of 28

E R IS A D e f e n d a n ts also move to dismiss Plaintiffs' ERISA claims for failure to state a c a u s e of action, arguing that both Plaintiffs' ERISA claims are defective. Those claims are: (1 ) that Defendants breached their fiduciary duty; and (2) that Defendants committed re c o rd k e e p in g violations by failing to credit Plaintiffs' 401(k) plans for all time worked. (2d A m . Compl. ¶¶ 307­10 (Second Cause of Action--Failure to Keep Accurate Records) and 3 1 1 ­ 1 2 (Third Cause of Action--Breach of Fiduciary Duty.) In opposing Defendants' a p p lic a tio n , Plaintiffs rely on Stickle v. SCI W. Mkt. Support Ctr., L. P., No. CV 0 8 -0 8 3 -P H X - M H M , 2008 W L 4446539, *19, 2008 U.S. Dist. LEXIS 83315, *53 (D. Ariz. S e p t. 30, 2008) ("Under ERISA, crediting hours is a fiduciary function, independent of the p a ym e n t of wages, necessary to determine participants' participation, vesting and accrual o f rights.") The Court is not persuaded by the reasoning in Stickle. In that decision, the d is tric t court determined that the plaintiff alleged that the corporate defendants had failed to properly account and credit the plaintiffs for hours worked. The decision did not address t h e basis of Defendants' motion here that they were not acting in a fiduciary capacity. ERISA defines a fiduciary as follows: (2 1 ) (A) Except as otherwise provided in subparagraph (B), a person is a f id u c ia ry with respect to a plan to the extent (i) he exercises any d is c re tio n a ry authority or discretionary control respecting management of s u c h plan or exercises any authority or control respecting management or d is p o s itio n of its assets, (ii) he renders investment advice for a fee or other c o m p e n s a tio n , direct or indirect, with respect to any moneys or other p ro p e rt y of such plan, or has any authority or responsibility to do so, or (iii) h e has any discretionary authority or discretionary responsibility in the a d m in is tra tio n of such plan. Such term includes any person designated u n d e r section 405(c)(1)(B) [29 USCS § 1105(c)(1)(B)]. (B ) If any money or other property of an employee benefit plan is invested in securities issued by an investment company registered under the Page 19 of 28

In v e s tm e n t Company Act of 1940, such investment shall not by itself cause s u c h investment company or such investment company's investment adviser o r principal underwriter to be deemed to be a fiduciary or a party in interest a s those terms are defined in this title, except insofar as such investment c o m p a n y or its investment adviser or principal underwriter acts in connection w ith an employee benefit plan covering employees of the investment c o m p a n y, the investment adviser, or its principal underwriter. Nothing c o n ta in e d in this subparagraph shall limit the duties imposed on such in v e s tm e n t company, investment adviser, or principal underwriter by any o th e r law. 2 9 U.S.C. § 1002(21) (2008). Defendants rely in part on a Second Circuit case in which th e Court of Appeals, reviewing a question of first impression (whether an allocation of p e n s io n plan assets and liabilities resulting from the spin-off of a division triggers fiduciary d u tie s under ERISA), wrote that: "[f]iduciary duty and prohibited transaction rules apply o n ly to decisions by an employer acting in its fiduciary capacity. See 29 U.S.C. §§ 1104 ( a ) , 1106(a)(b)." Flanigan v. GE, 242 F.3d 78, 87 (2d Cir. 2001). In Flanigan, the Court h e ld that the issue there concerned a corporate business decision, it was not acting as a f id u c ia ry under ERISA. In this case, however, the issue is less clear. The decision to credit w a g e s is made as an employer, but has implications for the retirement plan. Nevertheless, in Lepage v. Blue Cross & Blue Shield Lepage v. Blue Cross & Blue Shield of Minnesota, N o . 08-584 (RHK/JSM), 2008 U.S. Dist. LEXIS 49298, 15­16 (D. Minn. June 25, 2008), th e district court wrote: "S e tt in g compensation levels is a business decision or judgment made in c o n n e c t io n with the on-going operation of a business." See Eckelkamp v. B e s t e , 201 F. Supp. 2d 1012, 1023 (E.D. Mo. 2002), aff'd, 315 F.3d 863 (8th C i r . 2002). Consequently, ERISA does not govern Blue Cross's business d e c is io n about how to classify an employee for payroll and FLSA purposes. N o r do Plaintiffs dispute this. (Pls.' Opp'n Mem. at 27-28.) Instead, they m a k e the very fine distinction that Blue Cross, as plan administrator, has a f id u c ia ry duty to double-check this business decision and evaluate whether e m p lo ye e s had some legal claim to additional compensation. (Id. at 22, 2 7 -3 0 .) But no such duty exists: An employer's discretion in determining Page 20 of 28

s a la rie s is a business judgment which does not involve the administration o f an ERISA plan or the investment of an ERISA plan's assets. Such a d e c is io n may ultimately affect a plan indirectly but it does not implicate f id u c ia ry concerns regarding plan administration or assets. Business d e c is io n s can still be made for business reasons, notwithstanding their c o lla t e r a l effect on prospective, contingent employee benefits. Eckelkamp, 2 0 1 F. Supp. 2d at 1023.... L e p a g e , 2008 U.S. Dist. LEXIS 49298, 15-16. The same argument seems to be advanced h e r e in the second amended complaint: 2 8 9 . Defendants failed to credit or even investigate crediting overtime pay a s compensation used to determine benefits to the extent overtime may be in c l u d e d as compensation under the Plan. Defendants, while acting as f id u c ia rie s exercising discretion over the administration of the Plan, b re a c h e d their duties to act prudently and solely in the interests of Plan's p a rtic ip a n ts by failing to credit them with all of the hours of service for which th e y were entitled to be paid, including overtime to the extent overtime may b e included as compensation under than Plan, or to investigate whether s u c h hours should be credited. Under ERISA, crediting hours is a fiduciary f u n c tio n , independent of the payment of wages, necessary to determine p a rtic ip a n ts ' participation vesting and accrual of rights. ( 2 d Am. Compl. ¶ 289.) The Court determines that Plaintiffs' allegations fail to support a p la u s ib le claim that Defendants were acting as fiduciaries when they allegedly failed to re p o rt all hours of service. In determining the wage policy, Defendants were not acting as p la n fiduciaries, and the Court finds unpersuasive the allegation that Defendants had a le g a l duty as ERISA fiduciaries to investigate crediting overtime pay. T u r n in g to the recordkeeping cause of action, Defendants argue that although P la in tif f s seek relief pursuant to 29 U.S.C. § 1132(a)(3), a "catch all" equitable relief p r o v is io n , Premick v. Dick's Sporting Goods, Inc., No. 02:06cv0530, 2007 U.S. Dist. LEXIS 3 7 0 2 , *15­16, 2007 W L 141913, *6 (W .D . Pa. Jan. 18, 2007), they are actuality ""asserting a claim for benefits [they] claim[ ] to be owed because [their] 401(k) account was allegedly s h o rte d as a result of Dick's failure to pay...certain amounts of overtime.... In that vein, Page 21 of 28

a claim for benefits from a functioning plan can only be brought under 29 U.S.C. § 1132(a)(1)(B) and is not a claim for equitable relief, but rather one for damages." P r e m ic k , 2007 U.S. Dist. LEXIS 3702, *16. As such, Plaintiffs must plead exhaustion of a d m in is tr a tiv e remedies provided under the plan, and the Court finds no facts plead in this re g a rd . Accordingly, the Court finds that Plaintiffs have not plead a plausible ERISA r e c o r d k e e p in g claim. RICO F irs t, the Court notes that Plaintiffs have failed to comply with the local rule, which s ta te s in part as follows: (h ) Any party asserting a claim, cross-claim or counterclaim under the R a c k e te e r Influenced & Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., shall file and serve a "RICO Case Statement" under s e p a ra te cover as described below. This statement shall be filed c o n te m p o ra n e o u s ly with those papers first asserting the party's RICO claim, c ro s s - c la im or counterclaim, unless, for exigent circumstances, the Court g ra n ts an extension of time for filing the RICO Case Statement. A party's f a ilu re to file a statement may result in dismissal of the party's RICO claim, c ro s s -c la im or counterclaim. The RICO Case Statement must include those f a c ts upon which the party is relying and which were obtained as a result of t h e reasonable inquiry required by Federal Rule of Civil Procedure 11.... W .D . N . Y . Loc. R. Civ. P. 5.1(h) (2003). Plaintiffs acknowledge this failure, but contend that th e y were not flouting the local rule, and, therefore, dismissal of the RICO claim for their f a ilu r e is not appropriate. (Pl.'s Mem. of Law (Docket No. 271), at 30, n. 8.) Plaintiffs cite to Muscletech Research & Dev., Inc. v. E. Coast Ingredients, LLC, No. 00-CV-0753A(F), 2 0 0 4 U.S. Dist. LEXIS 29344, *49 n. 16, 2004 W L 941815, at *14, n. 16 (W . D . N . Y . Mar. 2 5 , 2004). In Muscletech, however, the plaintiff did file a RICO statement, albeit late. Id. F lo u tin g of the local rule was relevant in the case cited in Muscletech, Gold v. Fields, No. 9 2 CIV. 6680 (KMW ), 1993 U.S. Dist. LEXIS 8094, Fed. Sec. L. Rep. (CCH) P97,666 Page 22 of 28

(S .D .N .Y . Jun. 11, 1993), where the court was considering sanctions under Rule 11. In this m a tt e r, the failure to file a RICO statement in compliance with Local Rule 5.1(h) results in a lack of information to the Court and Defendants, with regard to the RICO allegations and th e twenty factors the local rule requires a plaintiff to answer. Plaintiffs further request p e rm is s io n to file a late RICO statement, but provide no basis upon which the Court can d e te rm in e whether the failure was due to excusable neglect in compliance with Federal R u le of Civil Procedure 6(b)(1)(B). Consequently, for this reason alone, the RICO claim c a n be dismissed. E v e n if the Court were to consider the substance of the RICO claim, Defendants a s s e r t that, "[a]lleged civil violations of the FLSA do not amount to racketeering," V a n d e r m a r k v. City of New York, 615 F. Supp. 2d 196, 209-210 (S.D.N.Y. 2009), and m o v e for dismissal of the RICO claims in the second amended complaint. (Def.s' Mem. o f Law (Docket No. 256), at 21.) The relevant statute provides as follows: (a ) It shall be unlawful for any person who has received any income derived, d ire c tly or indirectly, from a pattern of racketeering activity or through c o lle c tio n of an unlawful debt in which such person has participated as a p rin c ip a l within the meaning of section 2, title 18, United States Code [18 U . S . C . § 2], to use or invest, directly or indirectly, any part of such income, o r the proceeds of such income, in acquisition of any interest in, or the e s ta b lis h m e n t or operation of, any enterprise which is engaged in, or the a c tiv itie s of which affect, interstate or foreign commerce. A purchase of s e c u ritie s on the open market for purposes of investment, and without the in te n tio n of controlling or participating in the control of the issuer, or of a s s is tin g another to do so, shall not be unlawful under this subsection if the s e c u r it ie s of the issuer held by the purchaser, the members of his immediate f a m ily, and his or their accomplices in any pattern or racketeering activity or th e collection of an unlawful debt after such purchase do not amount in the a g g re g a te to one percent of the outstanding securities of any one class, and d o not confer, either in law or in fact, the power to elect one or more d ir e c t o r s of the issuer.

Page 23 of 28

(b ) It shall be unlawful for any person through a pattern of racketeering a c tiv ity or through collection of an unlawful debt to acquire or maintain, d i r e c t ly or indirectly, any interest in or control of any enterprise which is e n g a g e d in, or the activities of which affect, interstate or foreign commerce. (c ) It shall be unlawful for any person employed by or associated with any e n te rp ris e engaged in, or the activities of which affect, interstate or foreign c o m m e rc e , to conduct or participate, directly or indirectly, in the conduct of s u c h enterprise's affairs through a pattern of racketeering activity or c o lle c t io n of unlawful debt. 1 8 U.S.C. § 1962(a), (b) & (c) (2005). To state a civil claim under RICO, a plaintiff must f irs t allege that the defendant has violated the substantive RICO statute, 18 U.S.C. § 1962. In so doing, a plaintiff must allege the existence of seven constituent elements: (1) that the d e f e n d a n t (2) through the commission of two or more ["predicate"] acts (3) constituting a "p a tte rn " (4) of "racketeering activity" (5) directly or indirectly invests in, or maintains an in t e r e s t in, or participates in (6) an "enterprise" (7) the activities of which affect interstate o r foreign commerce. Moss v. Morgan Stanley Inc., 719 F.2d 5, 17 (2d Cir. 1983).2 R a c k e te e rin g activity is defined in the statute as any act, including bribery and extortion, c h a rg e a b le under State law and punishable by imprisonment for more than one year; any a c t indictable under numerous specific federal criminal provisions, including mail and wire f ra u d ; and any offense involving bankruptcy, securities fraud or drug-related activities that is punishable under federal law. See 18 U.S.C. § 1961. Plaintiffs allege in the second a m e n d e d complaint that by mailing out paychecks reflecting allegedly insufficient wages

As pointed out by Persaud v. Bode, No. 04 CV 4475 (ARR), 2006 U.S. Dist. L E X IS 97452, *11 n.2 (E.D.N.Y. Feb. 6, 2006), the Second Circuit expanded on what it c o n s id e re d to be a pattern of racketeering activity in United States v. Indelicato, 865 F .2 d 1370, 1375­76 (2d Cir. 1989), reflecting that the Supreme Court, in Sedima, S . P . R . L . v. Imrex Co., 473 U.S. 479, 497­98 (1985), "concluded that recovery in a civil R I C O action did not require proof of either a prior conviction or a special type of injury." I n d e lic a t o , 865 F.2d at 1376. Page 24 of 28

2

a n d containing alleged misleading information about the amount of overtime worked, D e f e n d a n ts committed the offense of mail fraud. The allegations are: 2 9 3 . In executing or attempting to execute the Scheme and to receive the f in a n c ia l benefits of the Scheme, defendants repeatedly mailed payroll c h e c k s , either directly to Plaintiffs and Class Members or between d e f e n d a n ts ' business locations. These mailings occurred on a regular basis a n d more than 100 such mailings occurred in the last 10 years. 294. The payroll checks were false and deceptive because they misled P la in t if f s and Class Members about the amount of wages to which they were e n title d , as well as their status and rights under the FLSA. Plaintiffs and C la s s Members relied to their detriment on the misleading payroll checks t h a t defendants mailed and those misleading documents were a proximate c a u s e of Plaintiffs' and Class Members' injuries. 2 9 5 . Defendants' predicate acts of mailing the misleading payroll checks in f u rth e ra n c e of their Scheme constitute a pattern of conduct unlawful p u rs u a n t to 18 U.S.C. § 1961(5) based upon both the relationship between th e acts and continuity over the period of time of the acts. The relationship w a s reflected because the acts were connected to each other in furtherance o f the Scheme. Continuity was reflected by both the repeated nature of the m a ilin g s during and in furtherance of the Scheme and the threat of similar a c ts occurring in the future. The threat was reflected by the continuing and o n g o in g nature of the acts. (2d Am. Compl. ¶¶ 293­95.) In this regard, the Second Circuit has written on the re q u ire m e n ts for successfully pleading mail fraud: T o prove a violation of the mail fraud statute, plaintiffs must establish the e x is te n c e of a fraudulent scheme and a mailing in furtherance of the s c h e m e .... W h ile there is no requirement that the defendant personally mail a letter, the plaintiff must show "1) that the defendant `caused' the m a ilin g ... a n d 2) that the mailing was for the purpose of executing the s c h e m e or...`incidental to an essential part of the scheme.'" United States v . Bortnovsky, 879 F.2d 30, 36 (2d Cir. 1989) quoting Pereira v. United S t a te s , 347 U.S. 1, 8-9, 98 L. Ed. 435, 74 S. Ct. 358 (1954)). A lle g a t io n s of mail fraud must be made with the particularity required by F e d e r a l Rule of Civil Procedure 9(b).... Pursuant to this higher pleading s ta n d a rd , the "complaint must adequately specify the statements it claims w e re false or misleading, give particulars as to the respect in which plaintiffs c o n te n d the statements were fraudulent, state when and where the s t a t e m e n t s were made, and identify those responsible for the statements." Page 25 of 28

C o s m a s v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989). Plaintiffs asserting mail f ra u d must also identify the purpose of the mailing within the defendant's f r a u d u le n t scheme. See Sun Sav. & Loan Assoc. v. Dierdorff, 825 F.2d 187, 1 9 6 (9th Cir. 1987) (mail fraud adequately pled where complaint described le t te r s ' date, content, origin, destination, and role in fraudulent scheme); S e a rs v. Likens, 912 F.2d 889, 893 (7th Cir. 1990) (dismissing complaint t h a t failed to allege how misrepresentations furthered fraudulent scheme).... M c L a u g h lin v. Anderson, 962 F.2d 187, 190­91 (2d Cir. 1992). In their argument for d is m is s a l of the RICO claims, Defendants state: P la in tif f s allege that "defendants repeatedly mailed payroll checks" and m a d e "decisions that concerned...the manner and method in which e m p lo ye e s received payroll information including their payroll checks," (2d A m . Compl. ¶¶ 36, 57, 80, 102, 124, 293), but do not provide facts s u g g e s t in g that any of the individual defendants were aware of, or p a r tic ip a t e d in, any allegedly fraudulent activity. See DiVittorio v. Equidyne E x t ra c tiv e Indus., Inc., 822 F.2d 1242, 1247 (2d Cir. 1987) ("W h e re multiple d e f e n d a n ts are asked to respond to allegations of fraud, the complaint s h o u ld inform each defendant of the nature of his alleged participation in the f r a u d . ") . (D e f .s ' Mem. of Law (Docket No. 256), at 22­23.) The Court agrees that the mail fraud a lle g a tio n s do not comply with Federal Rule of Civil Procedure 9. Accordingly, on this g ro u n d , the RICO claim can be dismissed. F u rth e r, the Court finds that Plaintiffs' allegations in the second amended complaint f a il to allege a plausible claim under any of the three RICO subsections: 18 U.S.C. § 1 9 6 2 (a ), (b), or (c).3 Plaintiffs have not alleged that Defendants "used or invested ra c k e te e rin g income to acquire or maintain an interest in the alleged enterprise, and that [ th e y] suffered an injury as a result of that use or investment." Mehrkar v. Schulmann, No. 9 9 Civ. 10974(DC), 2001 W L 79901, *5 (S.D.N.Y. Jan. 30, 2001). As in Mehrkar, here P la in tif f s "merely allege[] that defendants received income from a pattern of racketeering
3

Had Plaintiffs complied with Local Rule 5.1(h), the Court would be informed as t o which subdivision(s) of § 1962 Plaintiffs relied on in their pleadings. Page 26 of 28

a c tiv ity and `used the proceeds...to acquire an interest in and establish the operation of e n te rp ris e s engaged in interstate commerce.' (Am.Compl.¶ 56(a)). There is no allegation t h a t this use distinctly injured plaintiff." Id. Plaintiffs allege only that, "Each defendant r e c e iv e d income from a pattern of conduct unlawful under RICO, in which defendants p a r tic ip a t e d through continuous instances of providing Plaintiffs and Class Members with m is le a d in g documents which defendants mailed and upon which Plaintiffs and Class M e m b e rs relied to their detriment." (2d Am. Compl. ¶ 301.) "Under the plain language of t h i s section, a violation of § 1962(a) consists of investing income derived from a pattern o f racketeering activity to acquire an interest in, establish, or operate an enterprise; the v io la t io n is not established by mere participation in predicate acts of racketeering." O u a k n in e v. MacFarlane, 897 F.2d 75, 82 (2d Cir. 1990). Thus, Plaintiffs have not plead a claim under § 1962(a). W ith regard to 18 U.S.C. § 1962(b), the Second Circuit has adopted the D.C. C irc u it's holding that, "in order to state a cause of action under subsection 1962(b), `p la in tif f s m u s t allege an `acquisition' injury, analogous to the `use or investment injury' r e q u ir e d under § 1962(a) to show injury by reason of a § 1962(b) violation.'" Discon, Inc. v . NYNEX Corp., 93 F.3d 1055, 1063 (2d Cir. 1996) (quoting Danielsen v. Burnside-Ott A v ia tio n Training Center, Inc., 941 F.2d 1220, 1231 (D.C.Cir.1991). Plaintiffs here have a lle g e d only harm as a result of the predicate acts, not the reinvestment of the money a lle g e d ly obtained from the illegal predicate acts. Thus, no claim has been plausibly plead u n d e r § 1962(b). F in a lly, under § 1962(c), "the RICO `person' must conduct the affairs of the RICO `e n te rp ris e ' through a pattern of racketeering activity. W e have determined that the person Page 27 of 28

a n d the enterprise referred to must be distinct." Riverwoods Chappaqua Corp. v. Marine M id la n d Bank, N.A., 30 F.3d 339, 344 (2d Cir. 1994). Accordingly, Plaintiffs' RICO claim is foreclosed under § 1962(c) since the Second Circuit has, "made clear that, by virtue of th e distinctness requirement, a corporate entity may not be both the RICO person and the R I C O enterprise under section 1962(c)." Id. Finally, Plaintiffs have not alleged that the harm they suffered was as a c o n s e q u e n c e of the predicate acts listed in the RICO statute. Rather, the harm they assert is as a result of alleged violations of FLSA. Consequently, for all the reasons above, P la in tif f s ' RICO claim must be dismissed. C O N C L U S IO N F o r the reasons stated above, the Court denies certification of the state common a n d statutory law claims as a class action, dismisses Plaintiffs' common law claims s e e k in g allegedly unpaid overtime as preempted by FLSA by, and dismisses Plaintiffs' E R I S A and RICO claims. The following causes of action may go forward in this lawsuit: F irs t (FLSA); and Fifth (unpaid wages). As to the Fifth cause of action for unpaid wages u n d e r common or statutory law, only those claims involving New York law may go forward. C la im s under the remaining jurisdictions outside New York are dismissed without prejudice to bringing actions in an appropriate jurisdiction. D a t e d : R o c h e s t e r , New York A u g u s t 4, 2010 ENTER. /s / Charles J. Siragusa CHARLES J. SIRAGUSA U n ite d States District Judge

Page 28 of 28