A Sixth Circuit Court recently came to a decision that will have a considerable impact across the country for workers’ compensation carriers.
A Sixth Circuit Court recently came to a decision that will have a considerable impact across the country for workers’ compensation carriers. The Court in Brown, et. al. v. Cassens Transport Co., et. al., 2008 WL 4658643 (6th Cir.) ruled that a group of employees’ Racketeer Influenced and Corrupt Organizations Act (“RICO”) claim could proceed against an employer, claims adjuster, and doctor (“Defendants”) who allegedly engaged in mail and wire fraud in a scheme to deny them workers’ compensation benefits under the Michigan Workers’ Disability Compensation Act (“WDCA”). The Court ruled that “…the WDCA does not reverse preempt RICO because the WDCA was not “enacted…for the purpose of regulating the business of insurance” and because RICO would not “invalidate, impair, or supersede” the WDCA.” Id. at *12.
Considering a RICO claim could now be brought against an employer or an insurer, it is important to know what a RICO claim entails and how it might relate to a workers’ compensation claim. RICO makes it a crime “for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct, or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.” Id. at *2; citing 18 U.S.C. § 1341. It has been determined that, “As long as the defendant engaged in a pattern of racketeering activity, and the plaintiff was injured by the pattern of activity, this suffices to state a claim under 18 U.S.C. § 1964(c).” Id. at *3; citing H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 250 (1989). The Court in Brown also noted that a ‘pattern of racketeering activity’ requires at least two acts of racketeering activity under RICO, later described as ‘predicate acts.’ Id. at *2.
While the Brown Court stated it is important that two ‘acts’ of racketeering activity are needed, two elements must be shown to bring a RICO claim: “that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity.” Id. at *3; citing H.J. Inc. at 239 (Emphasis added). It has been determined that a relationship among predicate acts is established when they “have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.” Id. at *4; citing H.J. Inc. at 240. The “continuity” element can established in a variety of ways. The Brown Court adopted the H.J. Inc. theory of continuity in determining, “‘continuity’ is both a closed- and open-ended concept, referring to either a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition.” Id. One example cited by the Brown Court was “…showing that the predicate acts or offenses are part of an ongoing entity’s regular way of doing business.” Id.; citing H.J. Inc. at 242. Moreover, the Court added, “[t]he continuity requirement is likewise satisfied where it is shown that the predicates are a regular way of conducting defendant’s ongoing legitimate business…or of conducting or participating in an ongoing and legitimate RICO ‘enterprise.’” Id.; citing H.J. Inc. at 243.
In Brown, the 6th Circuit found the plaintiffs pleaded with sufficient particularity at least thirteen predicate acts, which included allegedly fraudulent communications by mail and wire that involved communications between the defendants about the plaintiffs’ injuries and claims for workers’ compensation benefits. Id. Thus, the plaintiffs met the minimum two-predicate acts requirement. Id. Once the Court determined that threshold had been met, it looked to see if the plaintiffs satisfied the H.J. Inc. relationship-plus-continuity standard.
The 6th Circuit first determined the predicate acts were related, because they had the same purpose and same participants. Id. The same purpose amongst the defendants was to reduce the obligation of the Employer’s payment obligations towards workers’ compensation benefits by fraudently denying workers’ compensation benefits to which the group of employees were lawfully entitled. Id. The same participants included the workers’ compensation officials for the Employer, the claims adjuster, and a doctor who the plaintiffs allege fraudently recommended ineligibility of benefits, with regard to some of the predicate acts, at the request of the Employer and claims adjuster. Id.
The 6th Circuit then determined the predicate acts satisfied the continuity requirement under either a closed- or open-ended theory. Id. at *5. The 6th Circuit earlier held that closed continuity can be proven “…by showing a series of past related predicates occurring over an extended period of time,” that included generally more than “[a] few months.” Id.; citing Vild v. Visconsi, 956 F.2d 560, 569 (6th Cir. 1992). The plaintiffs in the Brown case alleged a series of predicate acts that spanned over three years. Id.
The plaintiffs in Brown satisfied the open-ended concept of continuity as well by alleging a legitimate business or part of the legitimate business of each of the defendants was regularly conducted by fraudulently denying workers’ compensation benefits to which the employees were entitled through the use of fraudulent communications by mail and wire. Id. Specifically, the legitimate business that was regularly conducted by the defendants in Brown was the addressing of the employees’ workers’ compensation claims for the Employer, the administration of the workers’ compensation claims by the claims adjuster, and the offering of the medical opinion on the workers’ compensation claims by the doctor. Id.
In addition, the plaintiffs sufficiently pleaded they were injured by the defendants’ “pattern of racketeering activity” because the defendants’ fraud deprived them of workers’ compensation benefits and caused them to incur attorney fees and medical care expenses. Id.
The Brown v. Cassens Transport Co. case has the potential to bring about a new wave of litigation by employees who allege they are improperly being denied their workers’ compensation benefits. While the 11th Circuit is not bound by the 6th Circuit, it is likely the 6th Circuit’s decision will hold a great deal of persuasive value if a similar fact scenario arose in the 11th Circuit. Moreover, the RICO statute may be applicable to all states since it is federal law.
In order to minimize risk of a possible RICO claim, it is important that employers and insurers use due diligence in investigating workers’ compensation claims, and in selecting qualified physicians to be on the Posted Panel of Physicians. Moreover, it is imperative that employers and insurers allow physicians, including IME doctors, to examine employees, and make a medical diagnosis without any undue influence. Failure to take these precautions could result in criminal penalties, including up to a 20 year prison sentence under 18 U.S.C. § 1963.