RICO Reaches Workers' Compensation

Wednesday, August 7, 2013 | 0

Major League Baseball Commissioner Bud Selig and former Expos owner Jeffrey Loria. The Hells Angels Motorcycle Club. The Gambino crime family. Lance Armstrong and the U.S. Postal Service's Pro Cycling Team. Employers, insurance carriers, third-party administrators and authorized treating physicians.

Which of the above listed groups has not been charged under the Racketeer Influenced and Corrupt Organization Act, otherwise known as RICO? If your answer is Major League Baseball, strike one. If your answer is the Hells Angels Motorcycle Club, your answer isn’t tough enough. If your answer is the Gambino crime family, forget-about-it. If your answer is Lance Armstrong and the USPS Pro Cycling Team, you’re absolutely correct.

Unfortunately, there is only one correct choice, meaning that employers, insurance carriers, TPAs and authorized treating physicians have been and are being sued under RICO.

RICO, passed in 1970, is the federal law that was passed for the purpose of “the elimination of the infiltration of organized crime and racketeering into legitimate organizations operating in interstate commerce.” At the time RICO was enacted, mob “bosses” in the upper echelons of Mafia organizations were escaping prosecution as their underlings, or “soldiers,” were committing the actual crimes.

RICO made it possible to tie these bosses to crimes committed by their underlings by grouping the individuals together and classifying them as one criminal enterprise, or family. It allows prosecutors to piece together different and distinct criminal activities performed by one organization into one case, painting a broader picture for the jury, and allowing for extended criminal penalties.

RICO is not confined to the Mafia. The drafter of the bill, G. Robert Blakey, once commented in an interview that “[w]e don’t want one set of rules for people whose collars are blue or whose names end in vowels, and another set for those whose collars are white and have Ivy League diplomas.” Further commentary specifically notes that the statute is “sufficiently broad to encompass illegal activities relating to any enterprise affecting interstate or foreign commerce.”

Over time, RICO broadened its reach, extending to businesses and other non-stereotypical criminal organizations. RICO allows for a private cause of action in civil cases. The difficulty of proving a civil RICO case is great, but so are the potential damages. Civil RICO cases authorize damages triple the amount of actual/ compensatory damages, reasonable attorney’s fees, and other penalties including, but not limited to, potential dissolution of the enterprise.

Brown v. Cassens Transp. Co., 546 F.3d 347 (6th Cir. 2008)

RICO has found its way into workers’ compensation. Employers, insurance carriers, TPAs and authorized treating physicians can now be sued under RICO for their participation in an alleged conspiracy to defraud employees of workers’ compensation benefits. In Brown v. Cassens Transport Co., the 6th Circuit Court of Appeals revived a group of trucker employees’ RICO claims arising out of a mail and wire fraud scheme between the employer, insurance adjuster and doctors to deny employees workers’ compensation. The employees claimed that their employer and the insurance adjuster “deliberately selected and paid unqualified doctors to give fraudulent medical opinions that would support the denial of workers’ compensation benefits.”

Initially, the claim was dismissed by the district court because the employees “fail[ed] to plead the key requirement of detrimental reliance.” On appeal, the 6th Circuit agreed with the district court, holding that the employees’ lack of detrimental reliance was “fatal to [their] RICO claims.” However, upon remand from the U.S. Supreme Court, the 6th Circuit later reversed the dismissal under the ruling of Bridge v. Phoenix Bond & Indemnity Co., 128 S. Ct. 2131 (2008), a recent U.S. Supreme Court case that removed the detrimental reliance requirement from RICO actions. As a result, employees were no longer required to prove that they relied on their employer’s misrepresentations in order to assert a RICO claim.

Additionally, the presence of a state’s workers’ compensation act did not preclude the employees from bringing a RICO action against their employer. The Brown court held that Michigan’s Workers’ Disability Compensation Act (WDCA) did not reverse preempt RICO under the McCarron-Ferguson Act because the WDCA “govern[s] employers’ obligations to their employees for workplace injuries,” not the “business of insurance.” In other words, the state law does not stop RICO from applying because the state law does not regulate insurance. The same rationale applies for self-insured employers “because there is no relationship between an insurer and an insured.” Thus, an employee’s civil action under RICO will survive despite the exclusive nature of a workers’ compensation remedy.

Lewis v. Drouillard, 788 F. Supp. 2d 567 (E.D. Mich. 2011).

Employers won a short-lived victory following the 2008 Brown decision, arguing the employees lacked standing. In order to have standing under a RICO action, a plaintiff must allege an injury to their “business or property.” Thus, if the plaintiff’s injuries are “personal in nature, or derive from personal injuries [such as] medical costs, lost wages, etc….[p]laintiff cannot prove a RICO claim.”

In Lewis, the court granted the defendants’ Motion to Dismiss because the plaintiff employees’ injuries were “intimately related to their personal injuries.” The court reasoned that workers’ compensation benefits “have never lost their characteristic as personal injuries…being for accidental bodily injury, including medical expenses [and] work-loss benefits.”

The Lewis court also shot down the plaintiffs’ argument that they sustained a property injury. The plaintiffs alleged that their employment contracts “contain[ed] an implied property right given them by statute," i.e., workers’ compensation benefits, and because of that, they had suffered a loss of “property.”

The court held that “[p]laintiffs do not have a property interest in workers’ compensation benefits until there has been a final administrative determination that such benefits are due.” Thus, until a final determination of plaintiffs’ rights under the compensation act has occurred, any injuries sustained are to a “mere expectancy interest...[and such injuries are] not cognizable under RICO.” Brown v. Cassens Transp. Co., 675 F.3d 946 (6th Cir. 2012)

The 6th Circuit recently reversed the district court’s third dismissal of the plaintiffs’ complaint under RICO, striking another blow to employers. The district court held that the exclusive remedy of the administrative scheme set forth in Michigan’s WDCA foreclosed employees’ RICO claims, and that damages claimed by employees did not constitute injury to business or property under RICO and were too speculative to confer standing under RICO. On appeal, the 6th Circuit revived the plaintiffs’ claims by holding that the Supremacy Clause of the U.S. Constitution prevents a state Legislature from preempting a federal RICO claim, and that alleged devaluation of an employee’s workers’ compensation claim constitutes “injury to property” sufficient to state a claim under RICO.

First, in holding that a workers’ compensation remedy is not exclusive to RICO claims, the court noted that the defendants’ liability “stems from RICO” and is not a matter of state law. The court went on to say that “[t]he gravamen of a RICO cause of action is not [workers’ compensation] violation, but rather certain conduct…[which] constitutes a violation of federal law,” which in this case was mail and wire fraud. Overall, the court took the viewpoint that “the relative importance to the State of its own law is not material when a valid federal law provides a cause of action based on overlapping facts.” As a result, Michigan’s WDCA did not prevent the employees from bringing a RICO action against their employers.

Second, the court overruled Lewis, without addressing it, by holding that the devaluation of an employee’s workers’ compensation claim is “property” under RICO. The court recognized that property interests are typically a matter of state law, but reinforced that federal courts do not have to necessarily use those definitions. In fact, the court held that “even if Michigan courts would not recognize an expectancy of benefits under the WDCA as property, the plaintiffs in this case may proceed by alleging injury to property in that their claim to benefits under the workers' compensation scheme was damaged by the defendants’ actions.”

To come to this conclusion, the court focused on the general issue of whether any legal entitlement had been harmed, rather than the personal nature of the employees’ injuries. Instead of addressing precedent, the court looked to the plain meaning of the RICO statute and the U.S. Supreme Court’s instruction to read the statute broadly, coupled with the potential for “inconsistent results” if Lewis was followed in finding for the plaintiffs.

The dissent pointed out the majority’s choice “to ignore most of the case law supporting the result reached by the district court.” The majority cited Williams v. Hofley Manufacturing Co. in support of its decision, which involved “an already-decided, legitimate claim of entitlement,” whereas almost all of the plaintiffs in Brown had entered into settlements disposing their compensation claims. Such “resolved claims can hardly represent legitimate claims of future entitlement,” the dissent argued.

Conclusion

The 6th Circuit’s recent holding in Brown seriously impairs an employer’s options to defend a RICO action. While employees have not won the war in these RICO actions, they have certainly won many significant battles. The argument that a workers’ compensation statute, and its exclusive nature, should prohibit RICO actions will not stand as the court expressly held that the U.S. Constitution’s Supremacy Clause prohibits such. The same argument would theoretically apply to the Alabama Workers’ Compensation Act.

The holding also severely limits an employer’s standing argument from Lewis. After the 2012 Brown decision, plaintiff employees will likely allege property injury to their claim for workers’ compensation even if the state law does not recognize as property such expectancies.

The effects of this ruling could be significant for employers, insurance adjusters and doctors everywhere who might appear to systemically deny workers' compensation claims. Employers in Alabama are expressly given the right to select the injured employee’s authorized treating physician, and in doing so typically select the most qualified and efficient doctor in the appropriate field of medicine. Determining at what point these individuals’ cooperation could constitute a “pattern of racketeering activity,” however, may be difficult. If these cooperative actions are “related, and amount to or pose a threat of continued criminal activity,” RICO liability may arise. As a result, employers may want to examine their own role in the claims process, as well as their adjuster’s. At the very least, employers after Brown should be careful and limit their role in the workers’ compensation process to one of monitoring the claim after the initial authorized treating physician has been selected, and thereafter asserting their voice in the process when justifiable.

W. Walker Moss is a shareholder with Carr Allison in Birmingham, Ala. This column was reprinted with his permission from the Alabama Self-Insurers' Association's Summer 2013 newsletter.