Federal District Court in Michigan Again Strikes Down RICO Claims Related to Workers' Compensation Disputes

Federal District Court in Michigan Again Strikes Down RICO Claims Related to Workers' Compensation Disputes

 For the second time in five and one-half years, the United States District Court for the Southern District of Michigan has dismissed claims filed under the Racketeer Influenced and Corrupt Organizations Act ("RICO") against a self-insured employer, its claims administrator, and a physician who allegedly colluded to deprive plaintiffs of the workers' compensation benefits due them under the Michigan Workers' Disability Compensation Act ("WDCA") [Brown v. Cassens Transp. Co., 2010 U.S. Dist. LEXIS — (S.D. Mich., Sept. 28, 2010].

Noting that fellow District Court Judge Edmunds, on indistinguishable facts, had reached the same conclusion earlier in the year in Jackson v. Sedgwick, 2010 U.S. Dist. LEXIS 22792 (E.D. Mich., Mar. 11, 2010), Judge Paul D. Borman granted defendants' motions to dismiss, finding that the WDCA set forth the exclusive administrative scheme for the resolution of plaintiffs' claims for wrongful denial of their workers' compensation benefits, foreclosing plaintiffs' RICO claims. The court indicated that the "gravamen of Plaintiffs' Complaint [was] that Defendants failed to abide by their statutory duty under the WDCA to provide benefits for claimed work place injuries." According to the court, these were "the very damages for which compensation [was] provided under the WDCA." Judge Borman concluded that regardless of how plaintiffs framed their claim, "a conclusive finding that Plaintiffs were wrongly denied workers' compensation [was] essential to their theory and resolution of such workers' compensation benefits claims [had] been firmly vested in the comprehensive administrative enforcement scheme embodied in the WDCA."

Judge Borman stressed that the WDCA established a comprehensive and exclusive administrative scheme, addressing every aspect of the recovery of workers' compensation benefits, including a detailed set of procedures for determining disputed claims for benefits—even those alleged to have been denied in bad faith. Quoting Larson's Workers' Compensation Law, Ch. 104, § 104.05[3], the court indicated that while the penalties established for an employer's bad faith may in some instances be inadequate, that did not, "within the overall nature of the compensation concept, make them invalid." Again, quoting Larson’s, the court said that "[t]he temptation to shatter the exclusiveness principle by reaching for the tort weapon whenever there is a delay in payments or a termination of treatment is all too obvious, and awareness of this possibility has undoubtedly been one reason for the reluctance of courts to recognize this tort except in cases of egregious cruelty or venality” [Larson's Workers' Compensation Law § § 104.05[3]]. Regardless of how plaintiffs characterized the alleged fraud in the case, the court indicated they could not "disentangle their RICO claim from their underlying claim for benefits, the resolution of which lay within the exclusive jurisdiction of the WDCA”.

Judge Borman also held that the plaintiffs lacked standing to sue under RICO because their claims for medical expenses and related pecuniary loss did not constitute injury to business or property under RICO and were too speculative to confer standing under RICO. Addressing plaintiffs' motion for leave to amend, Judge Borman indicated that this was their third proposed amended complaint. Noting there was nothing new or different in the claims of the proposed new plaintiffs or in the claims of the existing plaintiffs, Judge Borman stated that the court was essentially being asked to decide whether the workers were entitled to workers' compensation benefits. That decision was exclusively for the state administrative agency under the WDCA.

Practitioners may recall that a divided panel of the Sixth Circuit had affirmed the first dismissal of plaintiffs' RICO claims because plaintiffs failed to plead detrimental reliance on alleged misrepresentations of defendants. The United States Supreme Court vacated that judgment, however, and remanded for further consideration in light of Bridge v. Phoenix Bond & Indemnity Co., — U.S.—, 128 S. Ct. 2131, 170 L. Ed. 2d 1012 (2008), which held unanimously that a civil-RICO plaintiff did not need to show that it detrimentally relied on the defendant's alleged misrepresentations. On remand, in Brown v. Cassens Transp. Co., 546 F.3d 347 (6th Cir. 2008), writ denied, — U.S. —, 130 S. Ct. 795, 175 L. Ed. 2d 575, 78 U.S.L.W. 3340 (2009), the Sixth Circuit reversed the District Court's dismissal of plaintiffs' claims and remanded for further proceedings, holding (1) that the WDCA did not preempt plaintiffs' RICO claims and (2) that the plaintiffs had alleged a sufficient pattern of racketeering activity to withstand defendants’ motion to dismiss, given that reliance was not an element of a civil RICO fraud claim. Following the remand by the Sixth Circuit, the federal district court again considered defendants' motions to dismiss and plaintiffs' motions to allow further amendments to their complaints. Judge Borman issued his ruling favoring the defendants on September 28, 2010.