Commercial Litigation and Arbitration

Supremacy Clause Bars State Work Comp Statute from Preempting RICO — Fraudulent Deprivation of Work Comp Benefits (i.e., a Statutory Entitlement) = Injury to Property — State vs. Federal Law’s Role in Determining “Property”

Brown v. Cassens Transp. Co., 2012 U.S. App. LEXIS 6929 (6th Cir. April 6, 2012):

We hold that the Supremacy Clause prevents the Michigan legislature from preempting a RICO remedy by declaring its worker's compensation scheme to be exclusive of federal remedies. An expected entitlement to benefits under the WDCA [Michigan's Worker's Disability Compensation Act, Mich. Comp. Laws § 418.301,] qualifies as property, as does the claim for such benefits, and the injury to such property creates, under certain circumstances, a RICO violation. ***


Paul Brown, William Fanaly, Charles Thomas, Robert Orlikowski, and Scott Way were injured allegedly while performing work-related tasks for their employer, Cassens. Cassens is self-insured and contracts with Crawford, a claims adjudicator, to resolve worker's compensation claims brought by Cassens's employees. Dr. Saul Margules evaluated all of the plaintiffs except Thomas. According to the complaint, Cassens and Crawford solicited fraudulent medical reports from Dr. Margules and other physicians. Dr. Margules is "not an expert in orthopedic conditions," which most injuries on the job involve. R. 1 (Compl. ¶ 37). He was also alleged to be "biased due to the amount of money defendants paid him over the years to examine Cassens workers and to testify against them." Id. The plaintiffs assert that Cassens and Crawford ignored other medical evidence that supported the plaintiffs' claims. The plaintiffs allege that the conspiracy was orchestrated by mail or by wire. The claims of each plaintiff except Brown were "resolved by settlement" before the Worker's Compensation Appellate Commission ("WCAC") rendered a final determination. Reply Br. at 23. Cassens denied Brown's claim, a magistrate granted Brown full benefits, and Cassens appealed. Brown's claim was decided on its merits by the WCAC. R. 1 (Compl. ¶ 39). Neither the briefs nor the complaint state how the WCAC resolved his claim.

On June 22, 2004, the plaintiffs sued Cassens, Crawford, and Dr. Margules (except that Thomas did not sue Dr. Margules), alleging violations of RICO and intentional infliction of emotional distress. Each plaintiff seeks monetary "damages measured by the amount of benefits improperly withheld . . . , plus interest as provided by law, all tripled in accordance with RICO, together with attorney fees and costs as provided by law." R. 1 (Compl. ¶¶ 21, 29, 46, 65, 74). The district court dismissed the case under Federal Rule of Civil Procedure 12(b)(6) for failure to allege reliance on the defendants' fraudulent misrepresentations. Brown v. Cassens Transp. Co. (Brown I), 409 F. Supp. 2d 793 (E.D. Mich. 2005). A divided panel of this court affirmed. Brown v. Cassens Transp. Co. (Brown II), 492 F.3d 640 (6th Cir. 2007). The Supreme Court vacated our judgment and remanded the case in light of Bridge v. Phoenix Bond & Indemnity Co., 553 U.S. 639 (2008), which held that civil RICO plaintiffs do not need to demonstrate reliance on defendants' fraudulent representations. Brown v. Cassens Transp. Co., 554 U.S. 901 (2008). On remand, we held that the plaintiffs had pleaded a "pattern" of unlawful activity. We also held that the McCarran-Ferguson Act, 15 U.S.C. § 1012, did not reverse preempt RICO claims because the WDCA was not enacted to regulate the business of insurance and, in any event, RICO would not "invalidate, impair, or supersede" the WDCA. Brown v. Cassens Transp. Co. (Brown III), 546 F.3d 347, 363 (6th Cir. 2008), cert. denied, 130 S. Ct. 795 (2009).

On remand, the district court denied the plaintiffs' motion to amend their complaint and dismissed their claims under Rules 12(b)(6) and 12(c). Brown v. Cassens Transp. Co. (Brown IV), 743 F. Supp. 2d 651 (E.D. Mich. 2010). The district court determined that the WDCA provided an exclusive state remedy via the WCAC that foreclosed federal RICO claims; that monetary losses stemming from lost benefits were personal injuries that were not injury to business or property; and that the damages were too speculative to support standing. The plaintiffs have appealed.***


B. Relationship Between RICO and the WDCA


The parties argue at length about (a) whether the plaintiffs' RICO claims fall within the ambit of the WDCA, triggering its exclusive-remedy clause, and (b) whether RICO would impair the WDCA's regulatory scheme. We find these debates irrelevant. The plaintiffs brought a federal claim, not a WDCA claim. Although we do not hold that RICO preempts the WDCA, we do find 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. Ridgway v. Ridgway, 454 U.S. 46, 54 (1981) (internal quotation marks and alteration marks omitted). Therefore, the district court erred in finding that the WDCA forecloses the plaintiffs' RICO claims.

1. Supremacy Clause

Although RICO's predicate of mail fraud is similar to the underlying fraud that affects a state-recognized interest, mail fraud is a distinct offense. Due to the Supremacy Clause, Michigan does not have the authority to declare a state remedy exclusive of federal remedies. See U.S. Const. art. VI, cl. 2; Roberts v. Roadway Express, Inc., 149 F.3d 1098, 1105 (10th Cir. 1998) ("If Roadway means to argue that Colorado's Workers' Compensation Act provides the exclusive remedy for all work-related injuries including emotional distress caused by violations of the civil rights laws, that argument is readily disposed of by the Supremacy Clause."); Lopez v. S.B. Thomas, Inc., 831 F.2d 1184, 1190 (2d Cir. 1987) ("New York's Workers' Compensation Law might bar plaintiff's state common-law claim . . . [, but] we do not read the workers' compensation law to deny relief under a federal statute. Were state law to erect such a bar, it would clearly run afoul of the Supremacy Clause . . . ."). State law can eliminate federal remedies only when authorized by reverse-preemption clauses, such as the one contained in the McCarran-Ferguson Act, which played a role in this panel's prior decision. Brown III, 546 F.3d at 357. Although the plaintiffs frame their argument in terms of preemption, the Supremacy Clause is relevant in this case only to decide whether Michigan can "foreclose[]" federal RICO claims, as the district court held. Brown IV, 743 F. Supp. 2d at 668. Regardless of whether RICO preempts the WDCA, RICO provides a distinct cause of action.

To contest this result, the defendants rely on Connolly v. Maryland Casualty Co., 849 F.2d 525, 528 (11th Cir. 1988), cert. denied, 489 U.S. 1083 (1989). The Eleventh Circuit held in Connolly that a plaintiff could not bring suit for civil rights violations under 42 U.S.C. § 1985 for injuries that stemmed from delayed payments of worker's compensation. The court reasoned that, because "[t]he civil rights claims and constitutional claims are all based on the right provided by Florida Compensation Law," "[t]he remedy for th[e] wrongful conduct cannot rise above the exclusive remedy provided by the Florida statutes." Id. Similarly, the entitlement to worker's compensation benefits is created by Michigan statutes. By analogy, specifying and limiting the remedy for violations of that entitlement arguably is Michigan's prerogative. More particularly, the defendants cite Connolly and Prine v. Chailland Inc., 402 F. App'x 469, 470-71 (11th Cir. 2010) (unpublished opinion), cert. denied, 131 S. Ct. 2100 (2011), for the proposition that this court lacks subject-matter jurisdiction over RICO claims — that is, the allegations do not state a cognizable RICO claim — if the state court would decline to exercise jurisdiction over the plaintiffs' worker's compensation claims.

The flaw with the defendants' argument is that the predicate offense for the RICO action is mail fraud, not the denial of worker's compensation. " The gravamen of [a] RICO cause of action is not the violation of state law, but rather certain conduct, illegal under state law, which, when combined with an impact on commerce, constitutes a violation of federal law. Therefore, it is not alleged that [the defendants are] subject to 'liability under' the [state law]; their liability . . . stems from RICO." Williams v. Stone, 109 F.3d 890, 895 (3d Cir.), cert. denied, 522 U.S. 956 (1997). The district court here erred when it stated that this case does not "involve[] a separate and independent tort (theft or conversion or some similar claim)" because the plaintiffs "cannot disentangle their RICO claim from their underlying claim for benefits." 743 F. Supp. 2d at 666, 668. Admittedly, the plaintiffs are entitled to damages for the alleged fraud only if they were actually entitled to worker's compensation and were not properly compensated, which is a question of state law. But this fact shows an overlap in sanctioned conduct, not a dependency relationship between state and federal law. It is well established that "[t]he fact that a scheme may violate state laws does not exclude it from the proscriptions of the federal mail fraud statute." Parr v. United States, 363 U.S. 370, 389 (1960). It follows that mail fraud is still criminal even when the existence of fraud varies according to whether a state prohibits conduct or whether it affords entitlements. United States v. Blandford, 33 F.3d 685, 702 (6th Cir. 1994) (affirming a mail-fraud conviction by distinguishing a case with identical conduct because one state proscribed the defendant's action while the other state did not), cert. denied, 514 U.S. 1095 (1995). Thus, mail fraud is a sanctionable offense even when it resembles a state tort. For these same reasons, this court has jurisdiction over the federal civil RICO claim even if the Michigan courts would not hear a claim for worker's compensation. A federal civil RICO claim and a state claim for worker's compensation are legally distinct, even though they share factual underpinnings.

2. Federal Administrative Schemes and the Filed-Rate Doctrine

Courts have held RICO inapplicable to claims that should have been raised before federal agencies that had exclusive-remedy clauses in their enabling statutes. E.g., McCulloch v. PNC Bank Inc., 298 F.3d 1217, 1226-27 (11th Cir. 2002) (Higher Education Act); Ayres v. Gen. Motors Corp., 234 F.3d 514, 521-22 (11th Cir. 2000) (National Traffic and Motor Vehicle Safety Act); Bodimetric Health Servs., Inc. v. Aetna Life & Cas., 903 F.2d 480, 486-87 (7th Cir. 1990) (Social Security Act). The district court extended this logic to state agencies. However, enabling statutes for federal agencies shed light on Congress's intent with regard to RICO because Congress passed both sets of statutes. In contrast, enabling statutes for state agencies, passed by state legislatures, say nothing about Congress's intent with regard to RICO. Michigan cannot limit the scope of a federal RICO cause of action.

Anticipating this critique, the defendants collect cases in which courts prevented plaintiffs from bringing RICO claims that would have interfered with state administrative agencies. The defendants fail to mention that most of these cases apply the filed-rate doctrine. The filed-rate doctrine insulates from judicial attack utility rates that have been filed with a state or federal regulatory agency, even when the plaintiffs allege that the rates are unreasonable due to "fraud upon the regulatory agency." Wegoland Ltd. v. NYNEX Corp., 27 F.3d 17, 20 (2d Cir. 1994); see also Keogh v. Chi. & Nw. Ry. Co., 260 U.S. 156 (1922); Wah Chang v. Duke Energy Trading & Mktg. LLC, 507 F.3d 1222, 1225-26 n.4 (9th Cir. 2007); Tex. Commercial Energy v. TXU Energy, Inc., 413 F.3d 503 (5th Cir. 2005), cert. denied, 546 U.S. 1091 (2006); Sun City Taxpayers' Ass'n v. Citizens Utils. Co., 45 F.3d 58 (2d Cir.), cert. denied, 514 U.S. 1064 (1995); H.J. Inc. v. Nw. Bell Tel. Co., 954 F.2d 485 (8th Cir.), cert. denied, 504 U.S. 957 (1992); Taffet v. So. Co., 967 F.2d 1483 (11th Cir.) (en banc), cert. denied, 506 U.S. 1021 (1992). Asking this court to apply the doctrine to the context of worker's compensation, the defendants identify a common policy concern: "only by determining what would be a reasonable rate absent the fraud could a court determine the extent of the damages." Wegoland Ltd., 27 F.3d at 21. Similarly, only by knowing whether the plaintiffs were entitled to worker's compensation could a court determine the extent of the damage produced by the defendants' fraud. Additionally, without the filed-rate doctrine, "victorious plaintiffs [in utility rate suits] would wind up paying less than non-suing ratepayers," id., just as victorious plaintiffs in this case would wind up recovering more than injured workers who do not bring a RICO suit.

The filed-rate doctrine, however, has not been extended to any other context. To the contrary, some cases have criticized its continuing validity even within the field of utility rates. Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 760 F.2d 1347, 1352-55 (2d Cir. 1985) (Friendly, J.), aff'd, 476 U.S. 409 (1986). Crucially, a key justification for the filed-rate doctrine is the need for knowledgeable regulatory agencies to police "generally monopolistic and oligopolistic industries" to ensure reasonable rates, rather than leaving a rate-reasonableness calculation in the hands of the less knowledgeable courts. Wegoland, 27 F.3d at 21. This concern is less present in the field of worker's compensation where courts are regularly tasked with calculating the value of such injuries. In addition, the filed-rate doctrine protects a legislative-type determination by a regulatory agency, whereas the Michigan exclusivity provision insulates an adjudicatory determination. Agency expertise, while often justifying some measure of deference, never justifies a prohibition on our review — direct, much less indirect — of agency adjudications. For these reasons, we decline to extend the filed-rate doctrine.

3. Burford Abstention

Had the complaint survived the motions to dismiss, the district court stated that it "would [have] stay[ed] Plaintiffs' RICO claims . . . based upon the Burford abstention doctrine. Brown IV, 743 F. Supp. 2d at 676 n.17. Burford abstention is a method by which federal courts may defer to the pending decision of a state agency when "the State's interests are paramount and . . . [the] dispute would best be adjudicated in a state forum." Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 728 (1996). When a complaint seeks only monetary damages, Burford abstention may justify a stay, though not a dismissal of the claims. Id. at 730. The decision whether to invoke Burford abstention is committed to the discretion of the court. Id. at 724-25. Here, none of the parties' current briefs even mention Burford abstention. We therefore decline to exercise our discretion to stay the case.***

C. Injury to Property

The district court also rejected the plaintiffs' claims because it held that they failed to allege an injury to property, as required by RICO. The district court viewed the plaintiffs' alleged injuries as "wholly derivative of their personal injuries," and as such they could not be injury to property. Brown IV, 743 F. Supp. 2d at 674. We fail to see support for the district court's position in the text of RICO, and we hold that the plaintiffs have alleged an injury to property because they allege the devaluation of either their expectancy of or claim for worker's compensation benefits.


3. State or Federal Law

Whether a person has a "property" interest is traditionally a question of state law. Logan v. Zimmerman Brush Co., 455 U.S. 422, 430 (1982) ("The hallmark of property . . . is an individual entitlement grounded in state law."). For that reason, "'[i]njury to property' for RICO purposes is generally determined by state law." Isaak v. Trumbull Sav. & Loan Co., 169 F.3d 390, 397 (6th Cir. 1999) (citing DeMauro v. DeMauro, 115 F.3d 94, 96 (1st Cir. 1997)). The Sixth Circuit has never fleshed out the circumstances in which state law is not determinative of whether someone has a property interest at stake, but DeMauro suggests that federal law can constrict state definitions of property, and we agree with that approach. "[O]ne might expect federal law to decide whether a given interest, recognized by state law, rises to the level of 'business or property,'" a question that "depends on federal statutory purpose." DeMauro, 115 F.3d at 96; see also Evans v. City of Chicago, 434 F.3d 916, 930 n.25 (7th Cir. 2006) ("[W]e need not adopt a state law definition of 'business or property' which is so broad that it contravenes Congress' intent in enacting the RICO law."); Price v. Pinnacle Brands, Inc., 138 F.3d 602, 607 (5th Cir. 1998) ("[E]ven though courts may look to state law to determine, for RICO purposes, whether a property interest exists, it does not follow that any injury for which a plaintiff might assert a state law claim is necessarily sufficient to establish a claim under RICO."); cf. Town of Castle Rock v. Gonzales, 545 U.S. 748, 757 (2005) (invoking the same rule when deciding whether property is protected under the Due Process Clause). We therefore must ask both whether Michigan defines the interest at stake as property and whether such a definition is consistent with the concept of "property" that Congress protected in enacting RICO.

4. Devaluation of a Statutory Expectancy as Injury to Property

The complaint identifies the plaintiffs' injuries as including the deprivation and devaluation of worker's compensation benefits. R. 1***. Because statutory entitlements are property, the injury to which causes harm, we see no reason under RICO to distinguish between property entitlements that accrue as a result of a personal injury from those that do not. Although none of the remaining plaintiffs in this case had started receiving their statutory benefits at the time of the fraud, Michigan's nondiscretionary worker's compensation scheme creates a property interest in the expectancy of statutory benefits following notice to the employer of injury. Finally, even if Michigan law does not create a property interest in such an expectancy, we hold that the plaintiffs' claim for benefits is an independent property interest, the devaluation of which also creates an injury to property within the meaning of RICO.

a. Property Interest in Worker's Compensation Benefits

As an initial matter, both Michigan law and federal law recognize that the recipient of a statutory entitlement "has a statutorily created property interest in the continued receipt of those benefits." Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40, 60 (1999) (citing Goldberg v. Kelly, 397 U.S. 254, 262 & n.8 (1970)); Perry v. Sindermann, 408 U.S. 593, 601 (1972); Logan, 455 U.S. at 428; Mathews v. Eldridge, 424 U.S. 319, 332 (1976); see also Williams v. Hofley Mfg. Co., 424 N.W.2d 278, 282, 283 n.16 (Mich. 1988) (relying on federal due process law articulated in Logan, 455 U.S. at 428). A recipient of Michigan worker's compensation benefits undoubtedly has a property interest under state law in the continued receipt of those benefits. We hold today that injury to such statutory entitlements is an injury to property within the meaning of RICO.

Congress provided in 18 U.S.C. § 1964(c) that "[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court." The statute offers no further guidance on the meaning of "business or property." When faced with interpreting similar language in the context of the Clayton Act, the Supreme Court acknowledged that the inclusion of the word "business" works to narrow the definition of "property" from its otherwise naturally broad meaning. Reiter v. Sonotone Corp., 442 U.S. 330, 338 (1979). "Congress must have intended to exclude some class of injuries by the phrase 'business or property.'" Id. at 339. This construction is equally applicable to the language in RICO. For example, money is a species of property under state law, but to hold that all monetary losses are covered by RICO would render the word "business" superfluous. Therefore, whereas damage to a building is an obvious property injury, purely pecuniary losses are sometimes indicative of property injury and sometimes not, depending on whether the pecuniary loss is to a legal entitlement--i.e., property. See id. at 340 ("[T]he fact that petitioner [] was deprived of only money, albeit a modest amount, is no reason to conclude that she did not sustain a 'property' injury.").

Against this backdrop, the Sixth Circuit has held that "[r]ecovery for physical injury or mental suffering is not allowed under civil RICO because it is not an injury to business or property." Fleischhauer v. Feltner, 879 F.2d 1290, 1300 (6th Cir. 1989), cert. denied, 493 U.S. 1074 (1990); see also Drake v. B.F. Goodrich Co., 782 F.2d 638, 644 (6th Cir. 1986); Evans v. City of Chicago, 434 F.3d 916, 930-31 (7th Cir. 2006); Grogan v. Platt, 835 F.2d 844, 847 (11th Cir.), cert. denied, 488 U.S. 981 (1988). The Supreme Court similarly excluded recovery for purely personal injuries under the Clayton Act, as such injuries are not inherently injury to any entitlement we would deem property. Reiter, 442 U.S. at 339. Any pecuniary losses proximately resulting from a personal injury caused by a RICO violation, e.g. attorney fees, lost wages, and medical expenses, are also not recoverable because they, too, do not implicate harm to any legal entitlement.

Footnote 5. The Circuits are less consistent when the injury claimed as a result of the RICO violation includes lost wages, but this is in part because some states do recognize a legal entitlement to employment opportunities. Compare Diaz v. Gates, 420 F.3d 897, 900 (9th Cir. 2005) (en banc) (lost wages from wrongful death caused by RICO violation may be properly pleaded as a property interest given California law) with Evans v. City of Chicago, 434 F.3d 916, 930-31 (7th Cir. 2006) (lost wages from wrongful incarceration caused by RICO violation not property interest given Illinois law).

The defendants, the district court, and the dissent all focus on language in these cases rejecting pecuniary losses "flowing from" personal injuries to argue that any pecuniary losses downstream from a personal injury are categorically personal in nature and unrecoverable under RICO. See, e.g., Evans, 434 F.3d at 926. In doing so, they skip over the first and most fundamental question at issue—has any legal entitlement been harmed. They are correct that "but for" the personal injury, the plaintiffs here would have had no interest in any benefits. But there is nothing in the text of RICO or the cases they point to that provides for ignoring damage to an intervening legal entitlement because it arose following a personal injury. The defendants ask us to be the first circuit to read RICO as preventing recovery for injuries to property "by reason of" a RICO violation solely because the property interest itself would not have existed but for an unrelated personal injury. We decline to take this approach for three reasons.

First, a plain reading of the text of RICO provides no support for excluding certain categories of property interests based on how the interest itself originated. Recognizing statutory entitlements as property under RICO does not render any term of the act superfluous. See Reiter, 442 U.S. at 338-39. Nor does the text reject recovery for certain legal entitlements because they accrued following a personal injury wholly unrelated to the RICO offense at issue. Congress's only other express limitation is that the injury to property must be "by reason" of a § 1962 violation; the text narrows recovery based on the origin of the injury, not the origin of the property. Based on the plain language of § 1964, we see no reason to exclude statutory entitlements to worker's compensation benefits--which are recognized as property under state law--from the category protected by RICO.

Second, focusing on the predicate injury that gave rise to the property interest ignores the Supreme Court's instruction to interpret RICO broadly. Section 1964 places "no restrictions . . . on the words 'injured in his property.' The statute does not limit standing to those 'directly injured in his property,' or 'injured only in his property.'" Comment, Patrick Wackerly, Personal Versus Property Harm and Civil RICO Standing, 73 U. Chi. L. Rev. 1513, 1520-21 (2006). "To the contrary, the language reads that 'any' injured party has standing to sue." Id. The Supreme Court has repeatedly refused to graft additional requirements onto the plain language of both this statute and the identical language in the Clayton Act when doing so would defeat Congress's intent that the statute have broad and inclusive application. See Reiter, 442 U.S. at 339 (rejecting argument that Clayton Act requires injury to commercial property interests); Sedima, S.P.R.L., 473 U.S. at 497 (rejecting argument that RICO applies only to organized crime). The dissent urges a narrow reading of the word "property," but points to nothing in the text of RICO or statements of Congress to justify that approach. Because Congress intended us to interpret RICO broadly, Sedima, S.P.R.L., 473 U.S. at 497, we see no reason to preclude RICO suits that are based on injury to property, not the predicate physical injury that gave rise to the property interest in the first place.

Third, such an approach would yield inconsistent results. The defendants do not argue statutory entitlements or claims to benefits generally are not property under RICO, but they argue such interests "may be RICO 'property' only when the wrong to be vindicated by the cause of action is an injury to business or property." Appellee Cassens Br. at 26 (capitalization omitted). Such an approach would have us hold that a plaintiff could recover under RICO for the fraudulent devaluation of welfare benefits, which do not arise following a personal injury, but not for the fraudulent devaluation of worker's compensation benefits, solely because the latter do. A plaintiff could recover for the loss of a cause of action for wrongful termination, but not for the loss of a cause of action for wrongful death. Nothing in the text of RICO evinces an intent by Congress to draw such arbitrary distinctions among property interests, nor do we find any support for the exclusion of these claims from the protections of RICO. Such an approach is incompatible with RICO because it qualifies the term "property" without a basis to do so in the RICO statute. See Reiter, 442 U.S. at 338-39 (rejecting interpretation of "business or property" as "business or business property"). Classifying property interests according to their origins creates untenable distinctions.

The dissent makes the same mistake that the district court did by misconstruing the meaning of language from our sister circuits that "pecuniary losses flowing from [personal] injuries" are insufficient to establish injury to property. Evans, 434 F.3d at 930 (emphasis added); see also Grogan v. Platt, 835 F.2d 844, 847 (11th Cir.), cert. denied, 488 U.S. 981 (1988). Neither of these cases involved an injury to an intervening legal entitlement. Both addressed whether various damages that were the proximate result of a personal injury caused by a RICO violation, albeit some more indirectly than others, could be deemed property interests on their own. Evans, 434 F.3d at 930 (lost wages from wrongful incarceration caused by alleged RICO violation not property); Grogan, 835 F.2d at 846-47 (economic losses from wrongful death caused by alleged RICO violation not property). We take no issue with their holdings that they could not. Evans even left open the possibility that a plaintiff might be able to "recover under RICO for loss of an employment opportunity" if "an employee is able to establish that he has been unlawfully deprived of a property right in promised or contracted[-]for wages." 434 F.3d at 928. The Evans court did not say it would permit recovery for such a property deprivation "only if the promise of wages did not arise following a physical injury at work."7 Such a scenario involving harm to an intervening legal entitlement, separating the physical injury from the downstream pecuniary losses, would be more factually analogous to this case than the actual facts of Evans are. Focusing on whether pecuniary losses "flowed" in some way from a personal injury does not make sense in cases involving the devaluation of an actual legal entitlement as the result of an independent RICO fraud.***

d. Effect of Settlement and Unfavorable Adjudication

Attacking the plaintiffs from another angle, the defendants claim that the plaintiffs "were not deprived of their causes of action" because the plaintiffs pursued the claims to resolution, be it by settlement or by final adjudication. Appellee Cassens Br. at 28. This argument mischaracterizes the plaintiffs' property interest. The plaintiffs did not lose the ability to litigate their claims entirely, but the value of their claims was allegedly diminished because of the fraud.

Of course, the plaintiffs' RICO action can succeed only by proving that the plaintiffs suffered an ascertainable injury from the defendants' fraud. To do that, they 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. This is similar to legal malpractice cases, where the plaintiffs also allege injury to an underlying claim, and Michigan requires plaintiffs to prove a "suit within a suit"—in other words, that they could have prevailed or obtained a better outcome in the original lawsuit. Coleman v. Gurwin, 503 N.W.2d 435, 437 (Mich. 1993) (internal quotation marks omitted). This requirement "insure[s] that the damages claimed to result from the attorney's negligence are more than mere speculation." Id. Losing or settling the original lawsuit does not, on its own, render the injury speculative. To the contrary, damages are generally quantified counterfactually. See, e.g., Chronister Oil Co. v. Unocal Ref. & Mktg. (Union Oil Co. of Cal.), 34 F.3d 462, 464 (7th Cir. 1994) (Posner, J.) ("The point of an award of damages, whether it is for a breach of contract or for a tort, is, so far as possible, to put the victim where he would have been had the breach or tort not taken place." (emphasis added)).

The same logic is true here; losing or settling a case due to fraudulent medical reports does not extinguish the plaintiffs' property interest in bringing a claim free of fraud. It would be nonsensical to allow a plaintiff to sue her attorney for malpractice only if she had won the suit in which the malpractice occurred, even though she must still put on evidence that she would have won absent her attorney's malpractice. Likewise, here, plaintiffs should be allowed to proceed on their RICO claim and put on evidence that they would have received a better result in the underlying state agency proceedings had the defendants not submitted fraudulent medical reports. The fact that the plaintiffs lost or settled in tainted proceedings is not evidence that the plaintiffs would have lost or settled if the proceedings had been fair.

Share this article:


Recent Posts