Is there a statute with a better acronym than RICO?

The Racketeer Influenced and Corrupt Organizations Act, apart from its great acronym, has been both a great success and a tool for misuse. We don’t often see RICO claims in the employment context, let alone employment class actions, and we can’t resist commenting on a recent Eleventh Circuit case addressing a claim that an employer violated RICO by depressing wages though the hiring of illegal aliens.

First, a history lesson. RICO was passed to combat organized crime and, more particularly, the intersection of organized criminal activity and legitimate businesses. The key to understanding RICO is that intersection, and the use of what it describes as “a pattern of racketeering activity” to acquire or run a legitimate business or to laundry money.

Still too abstract?  There are four flavors. Think about the stereotypical mob and we’ll use the waste removal business as an example. If they go around and acquire all the local small trash hauling companies through subtle or less subtle threats that bad things might happen if they don’t sell, that might very well fit within RICO’s definition of “acquiring” an enterprise through a pattern of racketeering activity. Once they acquire it, if they go around telling others that unless they use their garbage business, as opposed to someone else’s, something bad might happen, then they fit within RICO’s definition of conducting the affairs of an enterprise through a pattern of racketeering activity. If they launder money through the business, then they are “investing the proceeds of a pattern of racketeering activity.” Lastly, like many statutes, they can also “conspire” to do any of the above.

RICO was an early success when applied to genuine organized crime and has been credited with many successes.  In the 1980s, however, plaintiffs’ attorneys began to try to use RICO in routine business disputes. This effort was aided by RICO’s deliberately broad definition of the so-called “predicate acts,” the criminal actions used to exploit or dominate legitimate business. These included mail fraud (basically a fraud where the U.S. mails are used) or wire fraud (once the telephone and faxes, and now the internet).

Courts quickly became fed up with the misuse of the statute in garden variety business disputes and particularly in the late ‘80s and early ‘90s is was not uncommon to see courts with standing “RICO” orders that required explicit details regarding the “predicate acts”, the “pattern of racketeering activity,” and similar definitional phrases.   These claims also gave new life to Federal Civil Rule 9, relating to the need to plead fraud with specificity, and many RICO/fraud complaints were dismissed on that basis. When it became apparent that adding a RICO claim to a run-of-the-mill dispute, including an employment dispute, accomplished nothing other than irritating the judge and facilitating removal, such claims fell out of vogue.

So it is interesting to see, decades after RICO claims fall out of favor apart from genuine criminal activity, and after the subsequent Iqbal and Twombly opinions, a case from the Eleventh Circuit addressing a RICO claim that the employer acted to depress wages for its employees.  In Simpson v. Sanderson Farms, Inc., Case No. 13-10624 (11^th Cir. Mar. 7, 2014), the plaintiffs worked at a large poultry processing plan in Georgia. They asserted state and federal RICO claims that the employer improperly depressed wages through, they claimed, hiring illegal immigrants at lower rates of pay and falsely representing that they were authorized to work in this country. The primary “fraud” was the alleged knowing use of false immigration documents.

The Eleventh Circuit has recognized, at least in theory, that a claim of depressed wages though a pattern of racketeering activity could be recognized under RICO. See Williams v. Mohawk Industries, Inc., 465 F.3d 1277 (11^th Cir. 2006). The employer moved to dismiss those claims on the grounds that the complaint failed to allege either an injury or proximate cause with the requisite specificity under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009).

The district court dismissed the initial complaint without prejudice and also dismissed an amended complaint that narrowed the issues as much as anything else.

The Eleventh Circuit was even less impressed with the specificity of the allegations than the district court. It noted that the plaintiffs conceded that they had, in fact, received wage increases, but had argued that the increases would have been higher but for the claimed illegal conduct. It found no support in the complaint or amended complaint, however, apart from repetitive, conclusory allegations, to support that allegation.  It also rejected the plaintiffs’ market theory on the numerous grounds resting on the vague market definition and sparse facts. Similarly, it found insufficient allegations to support proximate cause, either by comparison with actual wages or by a market theory analysis. It therefore affirmed the dismissal of the complaint and amended complaint.

The Bottom Line: RICO claims can exist in the employment context, even on a class action basis, but must be pleaded with a high degree of specificity.