Carrier's allegations fail to meet RICO standards

According to this court, allegations that an employer falsely claimed that a person was an "employee" in order to obtain workers' compensation benefits are not actionable as mail or wire fraud.

Case name: Virginia Surety Co., Inc. v. Macedo, et al., No. 08-5586 (JAG) (D.N.J. 09/30/09, unpublished).

Ruling: In an unpublished decision, the U.S. District Court, District of New Jersey dismissed the carrier's complaint for failure to state a claim. The carrier failed to adequately plead wire and mail fraud claims under the Racketeer Influenced and Corrupt Organizations Act and state law.

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What it means: According to this court, allegations that an employer falsely claimed that a person was an "employee" in order to obtain workers' compensation benefits are not actionable as mail or wire fraud.

Summary: The carrier issued a workers' compensation policy to a concrete contracting company. A worker, who was not employed by the company, was injured working on the private residence of a relative of the company's owner. The company allegedly induced the worker to falsely claim he was an employee to obtain workers' compensation benefits. Relying on the false representations, the carrier paid in excess of $250,000 in benefits to the worker. The carrier alleged that the company engaged in a pattern of racketeering and alleged multiple counts of insurance fraud, workers' compensation fraud, conspiracy, and unjust enrichment as RICO allegations by mail and wire fraud.

The District Court dismissed the carrier's claims, holding that the allegations of fraud by falsely claiming the worker was an employee were not actionable as mail and wire fraud according to federal law.

The court explained that in New Jersey, the question of whether a worker is an employee is a mixed question of law and fact. Misrepresentations of the law are not actionable as fraud because statements of the law are considered "merely opinions and may not be relied upon absent special circumstances." Therefore, it granted the company's motion to dismiss for failure to state a claim.

The court further stated that when mail and wire fraud is the basis of a RICO violation, the allegations of fraud must be pleaded with appropriate specificity. The carrier failed to plead the allegations specifically enough so that the accused would be "placed on notice of the precise misconduct with which they were charged." The District Court also found that the carrier failed to identify the date, place or time of the fraud with specificity, or allege "who made a misrepresentation to whom and the general content of the misrepresentation" for purposes of RICO violations based on mail and wire fraud.

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November 5, 2009

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