Brown v. Cassens: Employees Pursuing RICO Claim

Five former employees of Cassens Transport Company filed for workers’ compensation benefits under the Michigan Workers’ Disability Compensation Act.  Benefits in all five cases were denied. In four of the five cases, Crawford & Co. engaged Dr. Margules to perform an independent medical evaluation. In those four cases, Dr. Margules opined the injuries were not work related.  The employees later settled or adjudicated their workers’ compensation claims. Contemporaneous with their pending workers’ compensation claims, the employees filed a federal RICO complaint against Cassens, Crawford and Dr. Margules alleging racketeering which caused injury to their property.  The “property” being their loss of workers’ compensation benefits, attorneys fees, expenses for medical visits and travel.

The crux of the RICO claim was the employer, along with the third-party administrator and IME doctor conspired to deprive these workers of their workers’ compensation awards by wire or mail fraud.  This conspiracy is the alleged violation of the RICO statute.

The case was previously dismissed by the District Court, affirmed by the Appellate Court and then vacated by the Supreme Court, which held RICO plaintiffs do not need to demonstrate reliance on defendants’ fraudulent misrepresentations.  On remand, the District Court again dismissed the case under Rule 12(b)(6) of the Federal Rules of Civil Procedure; failure to state a claim for which relief can be granted.  This dismissal brought about the current decision from the 6th Circuit Court of Appeals.

In this most recent decision of the Court of Appeals, the Court held 1) Michigan law cannot prevent a party from pursuing a federal action for violation of federal law (here, the RICO violation); and 2) a right to benefits created by statute (here, workers’ compensation) is a “property interest”, as is the claim made by someone for those benefits.

Federal Law Trumps State Law

The Supremacy Clause of the Constitution provides federal law is supreme to state law when there are conflicts between the two.  Here, the Michigan Workers’ Compensation statute (as do most other state workers’ compensation laws) has an exclusive remedy provision that allows employees to only seek benefits through the workers’ compensation system and not State or Federal Court.  The 6th Circuit Court of Appeals held Michigan cannot preclude employees from pursuing a federal case as a remedy. Therefore, the Court of Appeals ruled the employees can maintain a RICO claim.

“Property” Defined

A RICO claim requires the plaintiff to show injury to “business or property”. In dismissing the case previously, the lower court held there was no injury to “property” because all of the monetary value of plaintiff’s claims stemmed from their alleged injuries.  In reversing the District Court, the 6th Circuit Court of Appeals explained when benefits are created by law, the right to benefits, as well as the right to claim benefits creates an interest in property for the purposes of the RICO statute.  The Court compared a work-injury to a personal-injury action not occurring at work.  In a personal injury case, the plaintiff seeks losses resulting from the injury.  Losses can include loss of income, medical bills, etc.  In a workers’ compensation case, the employee is conferred benefits by law; in this case, the Michigan Workers’ Compensation Act.  The Michigan Act says employees injured in the course of their employment shall be paid compensation within 14 days of notifying their employer.  The use of the word shall mean benefits must be paid and the only limit is that the employer must be given notice.

There was a lengthy discussion regarding a situation in which an employee claims benefits but is denied because the injury is not work-related. The Court held that an Employee’s claim to benefits is a “property interest” because federal law recognizes a property interest in benefits that have not been awarded if some policy, law, or mutually explicit understanding confers benefits and limits the ability to rescind benefits.  In the Michigan Act benefits shall be paid for injuries in the course of employment and the employer can avoid automatic penalties for non-payment of benefits if there is an ongoing dispute.  That means, the employer avoids penalties when the case is disputed; however, the employer does not terminate the right to benefits that is created by the statute when the employer disputes the employee is entitled to the benefit.

The Court did cite Pennsylvania law, which requires employees to show their medical treatment is reasonable and necessary prior to being entitled to benefits under that system. Michigan law requires no such burden in determining an employee’s entitlement to benefits

As the Court of Appeals found there is a property interest, the plaintiffs can defeat the motion to dismiss because it complies with the necessary requirements of the RICO statute.  Therefore, the case was remanded back to the trial court for further proceedings.  The defendants are pursuing further appeal of this matter through the Federal Courts.