Thursday, March 20, 2014

Wage Depression RICO Claims Getting Twiqbal'd

Supply Demand CurveSome scholars are skeptical that the new Twombly/Iqbal pleading standard has really changed much of anything in employment discrimination cases.  But the new plausibility standard appears to be having a real, discernable effect in a different type of employment law case – RICO claims for depressed wages.  In these cases, legal workers allege that their employers have engaged in an unlawful criminal enterprise involving the violation of federal immigration law while hiring undocumented workers.  The result, according to plaintiffs, is that wages for legally-employed workers are held lower than they would be if the employer had hired only from the pool of legal workers.

RICO was amended in 1996 to add as predicate racketeering offenses certain violations of federal immigration law, including 18 U.S.C. § 1546, which prohibits employers from using false attestations to satisfy the Immigration and Nationality Act.  These sorts of civil RICO claims for depressed wages have had some success in the past.  But the Fourth and Eleventh Circuit Courts of Appeal recently affirmed dismissals of such claims under the new pleading standards.  These cases involve a fascinating intersection of economic theory, employment law, and civil procedure. 

In the Eleventh Circuit case, Simpson v. Sanderson Farms, Inc., plaintiffs were unskilled laborers at a poultry processing plant operated by defendant.  The plaintiffs alleged that defendant engaged in a pattern of falsely attesting that its employees presented genuine work-authorization and identification documents, in violation of Section 1546.  The district court dismissed plaintiffs’ original complaint without prejudice, then dismissed the first amended complaint with prejudice.  The Eleventh Circuit affirmed.  The basis for affirming was the plaintiffs’ failure to plausibly plead (1) that they suffered economic injury, and (2) that any damages were proximately caused by the defendants’ RICO violation.  On the proximate cause point, the Eleventh Circuit appeared to join the Fourth Circuit’s decision in Walters v. McMahen.  I will have more to say about the proximate cause question in a later post.  For this post, I want to highlight the failure to adequately allege economic injury.    

The court insisted that plaintiffs’ injury theory was based on a “vague market theory” “at only the highest order of abstraction,” relying only on the “basic logic of supply and demand.”  This was not sufficient for the court.  Plaintiffs needed to back up this allegation with “market data” to define the relevant market.  Indeed, by my count the word “data” appears 21 times in the text of the Eleventh Circuit’s opinion.  Certainly, plaintiffs should be expected to adequately allege the contours of the relevant unskilled labor market in which wages were supposedly depressed.  But the court seems to be demanding evidence of the market effect, including precise numbers at the pleading stage.  Some of these numbers would be within the employer’s control – including a number the court specifically sought, the total number of unskilled employees hired by the defendant since 2008.  This demand for data seems odd at the pleading stage.  If abstract market theory is enough to render allegations of unlawful conspiracy implausible, see Twombly, why can’t abstract market theory be used by plaintiffs to plead plausible injury?   

The most troubling part, however, is that this was the affirmance of a dismissal with prejudice.  In dismissing the original complaint, the district court specifically found that economic injury had been adequately pled, but that proximate cause had not.  In dismissing the first amended complaint, the district court for the first time found the economic injury allegations insufficient because of a lack of market data.  If missing market data was the fatal deficiency, shouldn’t the plaintiffs have been given an opportunity to replead?  Perhaps it was all about proximate cause, after all.  I will post more on that issue soon. --JB

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Fascinating -- and I'd missed both these cases. Thanks for Jason for flagging them for us. I also agree that it's odd to view economic theory as not providing sufficient support for plausibility analysis when it can be the basis for summary judgment, a la Matsushita. I also wonder whether Congress's amendment of the statute to add immigration crimes can be viewed as an endorsement of the theory, rendering it more plausible as a matter of law.

In any event, I'll read the cases and look forward to Jason's proximate cause posting -- always a favorite topic for me!

Posted by: Charlie | Mar 21, 2014 4:00:23 AM

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