Legal Alert: Supreme Court Directs Eleventh Circuit to Reconsider Racketeering Case Involving Illegal Workers

Date   Jun 6, 2006
In a one-paragraph decision issued June 5, 2006, the U.S. Supreme Court refused to review an Eleventh Circuit decision affirming the trial court's refusal to dismiss a case against Mohawk Industries alleging the company violated RICO by allegedly hiring illegal workers.
In a one-paragraph decision issued June 5, 2006, the U.S. Supreme Court refused to review an Eleventh Circuit decision affirming the trial court's refusal to dismiss a case against Mohawk Industries.  In that case, current and former employees claimed the company violated the Racketeer Influenced and Corrupt Organizations Act (RICO) by entering into contracts with outside recruiting firms to hire illegal workers, which depressed the wages of legal workers by increasing the size of the available labor pool and diluting workers' bargaining power. See Mohawk Industries, Inc. v. Williams. The Supreme Court vacated the decision and sent the case back to the Eleventh Circuit for reconsideration in light of another Supreme Court decision issued on June 5, Anza v. Ideal Steel Supply Corp., in which the Court narrowly interpreted the causation requirement in civil RICO actions and stated that victims of racketeering must suffer "direct" injury from illegal acts.  The Supreme Court also refused to decide whether Mohawk and the recruiting firms could be considered an "enterprise" as required by RICO.

RICO's civil suit provision states that any person injured in his business or property "by reason of" a violation of RICO's substantive provisions can recover three times the damages actually sustained. In Anza, the Court held that to proceed with a civil RICO claim, the aggrieved person must show that the alleged RICO violation "led directly" to the aggrieved person's injury. The Court dismissed the claims in Anza because the direct victim of the alleged RICO violation (a failure to charge state sales tax) was the state of New York. The cause of the aggrieved party's asserted harm was not its competitor's RICO violation, but the lower prices the competitor charged, which were "entirely distinct" from the alleged RICO violation.  The Court held that the central question that must be asked in evaluating a RICO claim for proximate causation is "whether the alleged violation led directly to the plaintiff's injuries."

In Mohawk, the employees claimed that Mohawk's employment of illegal workers substantially and illegally increased the supply of workers from which Mohawk obtained hourly employees.  This illegal increase in the labor pool depressed the wages of all workers. Additionally, the employees claimed that the company's employment and harboring of illegal workers deprived Mohawk's hourly workforce of any independent or collective bargaining power.  The Eleventh Circuit held that these allegations sufficiently alleged proximate cause to permit the employees to proceed with their RICO claims.  However, the Supreme Court's June 5 decision requires the Eleventh Circuit to reconsider this determination and, while it is always difficult to guess at the Supreme Court's reasoning, does suggest that the injury suffered in Mohawk (the reduction of local wages) was too "indirect" to support a RICO lawsuit.
Employers' Bottom Line
Although we cannot predict what the Eleventh Circuit will do in this case, the Supreme Court's decision in Anza may make it more difficult for third parties (those other than the victim of the alleged RICO violation) to show that their injuries were caused by an alleged RICO violation.  In Anza, the Court noted that there was only an "attenuated connection" between the alleged RICO violation and the alleged injuries, thus determining which injuries are actually attributable to the alleged RICO violation would require a complex assessment.  The Court held that "the element of proximate causation . . . is meant to prevent these types of intricate, uncertain inquiries from overrunning RICO litigation."  The Court's requirement of a "direct" connection in civil RICO actions may mean that RICO claims based on an employer's alleged hiring of illegal aliens are less likely to succeed.  We will continue to follow this case and keep you updated with any future developments.
If you have any questions regarding this case or labor or employment related issues in general, please contact the Ford & Harrison attorney with whom you usually work.