Wednesday, April 2, 2014

Pleading Proximate Cause in RICO Wage Depression Cases

Supply Demand Curve

As promised, I am returning to the RICO wage depression cases to examine proximate cause.  Recall that these cases involve a class of legal, unskilled employees alleging that their wages were depressed due to an employer’s pattern of making false attestations on immigration documents, such as I-9s, as part of a scheme to hire illegal workers and keep labor costs down.  Such false attestations violate 18 U.S.C. § 1546, and violations of that statute were added to the definition of predicate “racketeering activity” by a 1996 amendment to RICO.  The Fourth and Eleventh Circuits, in Walters v. McMahen and Simpson v. Sanderson Farms, respectively, affirmed the dismissal of RICO wage depression claims due to the failure to plausibly plead that the employer’s false attestations proximately caused plaintiffs’ damages.  The Eleventh Circuit also found a failure to plausibly plead injury, as discussed here

The law on proximate cause in the civil RICO setting is rather confused.  Courts struggle with cases where a predicate misrepresentation is made by defendant to some third party other than the plaintiff, and the plaintiff is ultimately damaged as a result.  A good summary of courts’ back and forth on the RICO proximate cause question can found in this article by Randy D. Gordon.  Generally speaking, the Court has demanded that the connection between the predicate act and the plaintiff’s damage be sufficiently direct, and not too remote, derivative, contingent, or attenuated.  But this “directness” requirement does not necessarily preclude a RICO claim simply because the misrepresentation was made to a third party rather than the plaintiff.  In a 2008 case, the Court found a viable RICO claim where defendants, bidders in a county tax-lien auction, made misrepresentations to Cook County, Illinois causing damages that were suffered by plaintiffs, other non-winning bidders whose bids were passed over.  Importantly, the county itself did not suffer any economic harm from the misrepresentation; only the losing bidders suffered economic harm. 

Before Twombly and Iqbal, wage depression claims like those in Walters and Simpson were allowed to proceed beyond a motion to dismiss in the Eleventh Circuit, as well as the Ninth, Sixth, and Second (claim by competitors rather than employees).  But in Walters, the Fourth Circuit appears to have completely precluded, on proximate cause grounds, worker wage depression claims based on false I-9 attestations.  The court reasoned that false attestations are “fundamentally crimes against the government of the United States” rather than the plaintiffs.  Thus, the directness requirement is not met.  To demonstrate the lack of proximate cause, the Fourth Circuit hypothesized that the employer could have caused precisely the same result by breaking the law in some other way.  For example, the defendant could have simply paid undocumented workers in cash without reporting their employment to the government, which would have had the same effect on the labor market and plaintiffs’ wages.  Hence, the Fourth Circuit reasoned, the alleged false I-9 attestations in violation of 18 U.S.C. § 1546 could not have been the proximate cause of plaintiffs’ depressed wages.  In responding to a petition for certiorari, the defendant argued that the Fourth Circuit’s holding simply reflected the effect of Twombly and Iqbal, and that it did not create a circuit split.  The Court denied certiorari.

The Eleventh Circuit in Simpson carefully framed the proximate cause defect as a pleading problem that might have come out differently under the now-retired Conley pleading standard – an important point, given that the Eleventh Circuit had to distinguish its opinion in a similar case decided in 2006, Williams v. Mohawk Industries.  The court, citing Mohawk, acknowledged that “[w]ith enough factual support” the plaintiffs’ “attenuated, multi-step causal theory could still be ‘direct.’”  But, the court found, there were simply not enough facts alleged here to establish a plausible “direct relation” between false attestations and wage depression.

What facts might have been enough to make out a plausible claim of directness?  The court said that “[w]ithout pleading population data, the relevant geographic market, before-and-after wage rates, or wage data from comparable . . . employers, the plaintiffs have failed to define too many crucial, operative variables in their theory of causation.”  So, despite all the talk of proximate cause, perhaps the failure to plead enough market data in a post-Iqbal world was the real problem?

Either there is a circuit split on whether these wage depression claims are viable at all, or Twombly and Iqbal are having a dramatic impact on the amount of market data that must be included in a complaint for wage depression claims to survive a motion to dismiss.


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