September 04, 2008

How Can the Alleged Improper Handling of a Workers’ Compensation Claim be a Violation of the Rico (Racketeer Influenced and Corrupt Organizations) Act?

September 04, 2008

Brown, et al v. Cassens Transport, et al No. 08a0385

The United States Court of Appeals, Sixth District (Michigan), acting on a remand from the United States Supreme Court, has held that employees may have an action based on the civil provisions of the RICO Act.  This may be an important decision which could affect Illinois, as well as Michigan where the case is filed, because it involves a Federal statute where the United States Supreme Court has held that the plaintiffs need not prove reliance that the defendants’ actions resulted in detrimental consequences to the plaintiff.  In the instant case, Brown v. Cassens, decided October 23, 2008, the Supreme Court had merely restated its opinion in Bridge v. Phoenix, decided June 9, 2008, where it originally held that the plaintiff need not prove that it relied on the alleged RICO violation.

The scenario in the case is as follows:

  1. The plaintiffs, Paul Brown, et al – present and former employees of Cassens who have had workers’ compensation claims.
  2. Cassens Transport Co. (Cassens) – the self-insured employer.
  3. Crawford & Company (Crawford) – the workers’ compensation claims adjustor for Cassens
  4. Dr. Saul Margules – the workers’ compensation “cut off” doctor.

On June 22, 2004, plaintiffs filed a complaint alleging that the defendants engaged in a pattern of racketeering activity that denied the plaintiffs’ workers’ compensation claims.  The court stated:

Specifically, the plaintiffs alleged that Cassens and Crawford deliberately selected and paid unqualified doctors, including Margules, to give fraudulent medical opinions that would support the denial of worker’s compensation benefits, and that defendants ignored other medical evidence in denying them benefits.  The plaintiffs claimed that the defendants made fraudulent communications amongst themselves and to the plaintiffs by mail and wire in violation of (RICO), which serve as the predicate acts for their RICO claims.

The court described the RICO civil provisions as follows:

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.

RICO defines “racketeering activity” to include “any act which is indictable under the provisions relating to mail and wire fraud.”

In its opinion, the court stated that the plaintiffs had pleaded at least thirteen predicate acts which are comprised of allegedly fraudulent communications by mail and wire, all relating to the plaintiffs’ injuries and claims for benefits under the Michigan WDCA (Workers’ Disability Compensation Act).  The Court stated:

First, the predicate acts alleged by the plaintiffs are related.  They have the same purpose; to reduce Cassens’s payment obligations towards worker’s compensation benefits by fraudulently denying worker’s compensation benefits to which the employees are lawfully entitled.  They have the same result: to deny worker’s compensation benefits to certain Cassens’s employees who are entitled to such benefits under Michigan law.  They have the same participants: alleged in the complaint are worker’s compensation officials at Cassens and Crawford, including Tina Litwiller, a claims adjuster for Crawford, and Margules, a doctor who the plaintiffs allege, with regard to some of the predicate acts, fraudulently recommended ineligibility of benefits at the request of Cassens and Crawford.  They have the same victims: alleged in the complaint are certain Cassens employees who are eligible for worker’s compensation benefits.  They have similar methods of commission: fraudulent misapplication of the legal standards set forth in the WDCA in denying worker’s compensation benefits to Cassens’s employees by Titwiller, other officials working for defendants, or Margules.

Second, … Specifically, the plaintiffs allege that the legitimate business or part of

the legitimate business of each of the defendants – addressing its employees worker’s compensation claims for Cassens, worker’s compensation claim administration on behalf of Cassens for Crawford, and offering his medical opinion on worker’s compensation claims for Margules – is regularly conducted by fraudulently denying benefits to which the employees are entitled through the use of fraudulent communications by mail and wire.

Each of the plaintiffs has also sufficiently pleaded that they were injured by the defendants’ ‘pattern of racketeering activity’ under RICO because the defendants’ fraud deprived the plaintiffs of worker’s compensation benefits and caused them to incur attorney fees and medical care expenses.

Plaintiff Need Not Prove Reliance on the Civil RICO Violation

As previously stated, the United States Supreme Court recently held that a plaintiff asserting a RICO claim based on mail fraud need not show that it relied on the defendant’s alleged misrepresentation.  The court stated that:

Although first-party reliance might be useful in showing proximate causation, the ‘fact that proof of reliance is often used to prove an element of the plaintiff’s cause of action, such as the element of causation, does not transform reliance itself into an element of the cause of action.’

The plaintiff need only show that the defendants’ fraudulent acts were a “substantial and foreseeable cause” of the injuries alleged by the plaintiffs: the deprivation of their workers’ compensation benefits and expenses for attorney’s fees and medical care.

RICO Does Not Involve a Policy of Insurance

The defendants argued that the use of RICO violated the McCarran-Ferguson Act which would make RICO inapplicable as the alleged violation “specifically related to the business of insurance.”  In response, the court said that under the facts alleged:

the employer is not akin to an insurer because it had a preexisting duty under common law to compensate for workplace injuries, and worker’s compensation merely creates a legislative remedy regarding the tort-liability relationship between employees and their employers, not an insurance contract.  There is therefore no insurer and no insured.

Therefore, the practices at issue in this case do not relate to those provisions of the WDCA that address the ‘business of insurance.’  Moreover, self-insurance does not relate to the ‘business of insurance’ under the McCarran-Ferguson Act because there is no relationship between an insurer and an insured.

Here, because Cassens self-insures, there is no risk of any impairment of the state policy relating to the regulation of insurance.  Therefore, a RICO suit in this case would not impair the WDCA’s regulation of ‘the business of insurance.’

Intentional Infliction of Emotional Distress (IIED)

In addition to the RICO claim, the plaintiffs filed an action for the intentional infliction of emotional distress.  This claim was denied by the court because the plaintiffs had not alleged “(1) extreme and outrageous conduct, (2) intent or recklessness, (3) causation, and (4) severe emotional distress.”  The court stated:

Even the wrongful denial of worker’s compensation benefits ‘to further some ulterior motive of the defendants,’ as the plaintiffs here allege, is insufficiently outrageous to support an IIED claim under Michigan law.

However, in dismissing the IIED claim, the court maintained that the RICO claim could continue.  The Supreme Court’s two sentence opinion is described as follows:


We REVERSE the dismissal of plaintiffs’ RICO claims because their RICO claims are not preempted by state law and because plaintiffs have adequately pleaded a pattern of racketeering activity despite the lack of reliance on the defendants’ fraudulent acts and REMAND to the district court for further proceedings consistent with this opinion.  We AFFIRM the dismissal of the IIED claims because the defendants’ alleged conduct cannot meet Michigan’s standard for outrageous conduct.

Editor’s Note:

As stated above, the plaintiff’s allegations are contained in the pleadings and under the rules of court when considering the validity of the claim, the court assumes that all of the matters in the plaintiff’s complaint are true.  The plaintiff continues to face the hurdle of actually producing evidence that the facts pleaded are indeed true but, the court is stating that the alleged cause of action could proceed to trial.

Is it now likely that employers may contend that claimant’s frequent contradictory communications by wire or mail could amount to RICO violations?  Could they not argue that they have the right to have an evaluation examination by their own physician to determine whether the employee is physically able to return to work?  Does that make that physician a so called “cut-off” doctor?

The Brown v. Cassens Transport case is important because it provides a vehicle for plaintiffs to sue the employer, the insurance company or TPA and finally the doctor pertaining to the defendants’ handling of workers’ compensation claims. Physicians might be inclined to avoid the evaluation examination of compensation claimants.  Is there insurance coverage under the Physician’s professional liability coverage?  Civil RICO provides for treble damages and attorney’s fees in the RICO suit.  The plaintiff’s damages claimed in the RICO complaint would include the loss of workers’ compensation benefits, the medical care expenses, plus the attorney’s fees in collecting the benefits under the Workers’ Compensation Act.

In the Bridge v. Phoenix case, decided by the United States Supreme Court just four months before Cassens, the court first addressed the issue as to whether the plaintiffs must prove that they relied on the fraudulent act.  The case involved a tax sale bidder who alleged that a competitor had bid fraudulently in an effort to reduce other competitor’s chance of success.  The defendants claimed the civil RICO action should be dismissed because plaintiffs did not rely on the fraud because they were never aware of the violation which was only given to the county.  If the court had required reliance of the fraud, the plaintiffs would have failed.

The court in Cassens merely followed the Bridge opinion even though the factual patterns were quite different.  One wonders if the result in Cassens would have been different if it had been the first case of the reliance issue.  Bridge decided an obvious fraudulent situation where in Cassens the parties were involved in a dispute which your editor believes should have stayed at the Industrial Commission.  Are we now to expect RICO allegations arising out of civil litigation as well?

We will follow the progress of this civil RICO claim and advise you when further information is available.

Brown, et al v. Cassens Transport, et al No. 08a0385, decided October 23, 2008

Frank J. Wiedner, Editor Wiedner & McAuliffe, Ltd One North Franklin, #1900 Chicago, IL 60606 (312) 855-1105