RICO Case From Sixth Circuit Federal Court of Appeals

Published on June 2016 | Categories: Types, Business/Law, Court Filings | Downloads: 24 | Comments: 0 | Views: 138
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The federal sixth circuit Court of Appeals has issued a highly controversial 2-1 decision likely to be very problematic for employers and their third party administrators in the workers’ compensation area. Gerald (Jerry) Marcinkoskiwww.michselfinsurers.org

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LACEY & JONES
MEMORANDUM
TO: FROM: DATE: RE: All Jerry Marcinkoski April 13, 2012 RICO Case From Sixth Circuit Federal Court of Appeals

_____________________________________________________________________________ The federal sixth circuit Court of Appeals has issued a highly controversial 2-1 decision likely to be very problematic for employers and their third party administrators in the workers’ compensation area. The case is Brown, et al. v Cassens Transport Co, et al., Case No. 10-2334, decided April 6, 2012. The issue in the case is whether the plaintiffs, who were employees of Cassens Transport Company, can pursue Racketeer Influenced and Corrupt Organizations Act [RICO] lawsuits by alleging a criminal conspiracy between Cassens, Cassens’ third party administrator (Crawford & Company), and the doctor (Dr. Margules) who evaluated the claimants for Cassens and Crawford. Reversing the federal trial court, the Court of Appeals majority holds that the plaintiffs can pursue their RICO suit. FACTUAL BACKGROUND Cassens is an employer self-insured for workers’ compensation purposes in Michigan. Cassens contracted with Crawford & Company to administer its workers’ compensation claims. Cassens and Crawford referred the plaintiffs for medical evaluations with Dr. Margules in relationship to their workers’ compensation claims. The plaintiffs charge this referral process was a “‘conspiracy … orchestrated by mail or by wire’” because the doctor was “‘biased due to the amount of money defendants paid him over the years to examine Cassens workers and to testify against them.’” Plaintiffs’ claim is that an illegal enterprise was formed designed to fraudulently deny plaintiffs’ claims for benefits, even though Notices of Dispute were filed and opinion letters obtained from the doctor opining that the alleged injuries were not job related or sufficiently disabling. The claims of each of the plaintiffs, except one, had been redeemed while their workers’ compensation claims had been pending in Michigan’s workers’ compensation system. [The one claim that was not was adjudicated and benefits to the plaintiff were awarded by the trial Magistrate.] Despite the settlements, the plaintiffs alleged violations of RICO seeking the lucrative damages provided under RICO law, namely: triple damages, attorney fees, and costs. Following an initial round of litigation that went all the way to the United States Supreme Court on a different issue, the federal trial court more recently granted the defendants’ motion to dismiss the plaintiffs’ claims. The trial court’s reasoning was that Michigan’s Worker’s Disability Compensation Act “provided an exclusive state remedy … that foreclosed federal 1

RICO claims; that monetary losses stemming from lost benefits were personal injuries” and not injuries to property, as is required for a valid RICO claim; and that, in any event, the damages sought by the plaintiffs “were too speculative.” The plaintiffs appealed to the Court of Appeals and succeeded in persuading the Court to reverse the trial court and return the case to the trial court. Majority Opinion’s Analysis In reaching their conclusion that the plaintiffs’ state viable RICO actions, the Court of Appeals first holds that RICO provides a distinct cause of action, apart from remedies under a state’s workers’ compensation statute. The Court said “Michigan cannot preempt a federal RICO claim, and the resemblance of the federal RICO claim to the claim for a state entitlement does not undermine the RICO claim.” Next, the Court of Appeals noted that there must be a “property interest” at stake in order to state a viable RICO claim. The Court found there was a “property interest” at stake, in fact two different property interests. The Court reads Michigan’s workers’ compensation statute as describing a “nondiscretionary worker’s compensation scheme creat[ing] a property interest in the expectancy of statutory benefits following notice to the employer of injury.” The property interest is identified as “a property interest in the expectancy of statutory benefits following notice to the employer of injury.” The Court says the employees obtain “a property interest in those benefits at the time that their employer becomes aware of the injury.” The Court held that “when employers learn of their employees’ physical injuries” or “become[] aware of the injury” benefits become payable “according to a rigid schedule,” all justifying the conclusion that the “expectancy” of such benefits is a property interest. The Court then said that “even if” it is wrong on this “expectancy property interest” issue, there is another property interest so as to satisfy RICO requirements. The second property interest identified by the Court is the employees’ “claim to benefits under the worker’s compensation scheme.” (Emphasis in original). The Court said in this regard: “We hold that Michigan would recognize a claim for worker’s compensation benefits as a species of property independently of whether the employee had obtained an interest yet in the underlying benefits themselves.” Finally, the Court said that the settlements entered into by the employees did not matter because “the value of their claims was allegedly diminished because of the fraud” that allegedly occurred in contravention of RICO. The Court said that the plaintiffs must be allowed to demonstrate that “they would have received a better result in the underlying state agency proceedings had the defendants not submitted fraudulent medical reports.” The Court of Appeals remanded the case to the trial court with the additional instruction that plaintiffs should be permitted to amend their complaints if necessary.

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Dissent The dissenting judge would affirm the trial court’s dismissal of the RICO claims. The dissent said the plaintiffs did not demonstrate an injury to property, as RICO requires, citing “precedents from our sister circuits” and also from other “federal district courts” including those in the state of Michigan. The dissent said these cases, like the trial court, correctly refused to characterize these types of claims as injuries to “property,” as opposed to “personal injuries and pecuniary losses flowing from those personal injuries [which] are insufficient to confer under” RICO law. (Bracketed word added). The dissent further observed that Congress enacted RICO primarily “to prevent organized crime from obtaining a foothold in legitimate business,’” and it “does not make sense … to believe that Congress intended to thwart such criminal activity by recognizing a civil action to recover medical expenses and related losses due to a denial of worker’s compensation benefits.” The dissent would conclude, therefore, that the plaintiffs did not plead an injury to property as required by RICO. The dissent added that the majority’s view of Michigan workers’ compensation statute as contemplating “nondiscretionary” payments was also erroneous because “payment is not inevitable under the” Worker’s Disability Compensation Act in Michigan, given that employers can dispute allegations of injury. CRITIQUE The majority opinion reflects serious misunderstanding of Michigan workers’ compensation law, especially in its description of the plaintiffs’ “expectancy” property right. In finding an “expectancy property interest,” the majority erroneously assumes Michigan employers are obliged to pay workers’ compensation benefits as “a matter course” once the employer “becomes aware of the injury,” regardless of whether the employer believes the injury is work-related and/or to some degree disabling. That is, the Court erroneously assumes that benefits begin automatically, even if the employer disputes the claim. The majority also believes that weekly benefits become automatically payable “according to a rigid schedule,” where that is obviously untrue because different weekly rates might apply depending on the circumstances.1 Perhaps the weakness of its “expectancy property interest” analysis led the Court to offer its alternative property interest, i.e., the right to expect a fair adjudication of a claim for compensation, regardless “of whether the employee had obtained an interest yet in the underlying benefits themselves,” so as to justify application of RICO. Parts of the majority opinion make glancing recognition that “[a]dmittedly, the plaintiffs are entitled to damages for the alleged [RICO] fraud only if they were actually entitled to worker’s compensation benefits and were not properly compensated.” (Bracketed word and emphasis added). The Court also recognizes that plaintiffs on remand “must show that their claims to benefits had value, i.e., the claims had some likelihood of success had they been able to present them in a fair proceeding” and thus, the claimants must still “put on evidence that they would
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It might be noted that the majority is attempting to describe Michigan law prior to the recent amendments to Michigan’s workers’ compensation statute on December 19, 2011. Put differently, the Court was not attempting to describe Michigan’s current statute, as opposed to the previous statute. Nevertheless, it is an erroneous description of the previous statute.

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have received a better result in the underlying state agency proceedings had the defendants not submitted fraudulent medical reports.” This latter ruling thus invites litigation of the merits of a workers’ compensation claim before a federal judge, rather than in the state system where it belongs. Are federal judges really prepared to determine whether injuries satisfy Rakestraw and, if so, engage in a step-by-step Stokes analysis with vocational evidence, for example? Ideally, the Court of Appeals will rehear this matter or the case might be pursued to the United States Supreme Court. You will be kept abreast.

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