Narrative Opinion Summary
The United States Court of Appeals for the Second Circuit upheld the certification of a class action lawsuit against U.S. Foodservice, Inc. (USF), involving approximately 75,000 cost-plus customers alleging fraudulent overbilling under the Racketeer Influenced and Corrupt Organizations Act (RICO) and state contract laws. The plaintiffs, including hospitals and healthcare entities, contended that USF inflated billing through shell companies known as Value Added Service Providers (VASPs), orchestrated to disguise true costs and overcharge customers. The district court found that common legal and factual issues predominated over individual ones, justifying class certification under Rule 23(b)(3). USF's challenges regarding predominance and superiority under Rule 23 were dismissed, as the appellate court confirmed that the alleged fraud and breaches could be proven through common evidence, and class action was deemed a superior method for adjudication. The court also addressed USF's contentions about the statute of limitations, noting that fraudulent concealment could toll the limitations period. Ultimately, the court affirmed the district court's decision, emphasizing the uniformity of USF's alleged misconduct and the sufficiency of class-wide evidence in addressing the claims.
Legal Issues Addressed
Breach of Contract under Uniform Commercial Code (UCC)subscribe to see similar legal issues
Application: Plaintiffs alleged breaches of cost-plus contracts due to fraudulent overbilling practices, with the court finding that common issues predominated in the contract claims despite variations in state laws.
Reasoning: Plaintiffs allege breaches of cost-plus contracts due to dishonest and commercially unreasonable practices involving VASPs, which breach USF's implied duty of good faith.
Class Certification under Federal Rule of Civil Procedure 23(b)(3)subscribe to see similar legal issues
Application: The court affirmed the district court's decision to certify a nationwide class of cost-plus customers alleging fraudulent overbilling, finding that common issues predominated over individual issues, making class action the superior method for resolution.
Reasoning: The appellate court found no abuse of discretion in this determination and supported the certification under Federal Rule of Civil Procedure 23(b)(3).
Predominance of Common Issues in Class Certificationsubscribe to see similar legal issues
Application: The court held that common legal or factual questions outweighed individualized ones in the RICO claim, supporting class certification despite USF's contention that individual issues of misrepresentation and reliance would dominate.
Reasoning: Regarding predominance in class certification for the RICO claim, the standard requires that common legal or factual questions outweigh individualized ones.
Racketeer Influenced and Corrupt Organizations Act (RICO) Claimssubscribe to see similar legal issues
Application: Plaintiffs alleged that USF engaged in fraudulent billing practices through a scheme involving shell companies, asserting claims under civil RICO, necessitating proof of a substantive RICO violation and injury caused by it.
Reasoning: Plaintiffs assert claims against USF under civil RICO, necessitating proof of: 1) a substantive RICO violation under 18 U.S.C. 1962, 2) injury to business or property, and 3) that the injury was caused by the RICO violation.
Statute of Limitations and Fraudulent Concealmentsubscribe to see similar legal issues
Application: The court found that the statute of limitations for RICO and contract claims could be tolled based on evidence of USF's concealment of its practices, aligning discovery of breach with the actual discovery date.
Reasoning: The district court found sufficient common evidence that USF intended to conceal the VASPs, making it unreasonable to expect plaintiffs to have discovered the facts earlier.